Wix.Com Ltd (WIX) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Wix.com 2014 first-quarter financial results conference call. (Operator Instructions) As a reminder, this conference call is being recorded.

I will now introduce your host for today's conference, Joe Pollaro, you may begin.

Good morning. I would like to welcome everyone to today's call to discuss Wix's first-quarter 2014 financial results. Joining us from management are Avishai Abrahami, co-founder and CEO; Nir Zohar, President and COO; and Lior Shemesh, CFO. After management's prepared remarks we will open the call up to questions.

Before we begin I would like to remind everyone that during the course of this conference call management may make forward-looking statements which are subject to various risks and uncertainties that could cause actual results to differ materially from our current expectations. A detailed discussion of such risks and uncertainties is contained in our annual report on Form 20-F for the year ended December 31, 2013, filed with the Securities and Exchange Commission on March 20, 2014.

Forward-looking statements made during this conference call speak only as of today's date and the Company undertakes no obligation to update them to reflect subsequent events or circumstances.

I would like to remind you that during the course of this conference call we will discuss some non-GAAP measures in talking about the Company's performance. Reconciliations to the most comparable GAAP financial measures are provided in the tables in our press release. Unless noted otherwise, all comparisons are versus the prior-year period.

This conference call is also being broadcast on the Internet and is available through the Investor Relations section of Wix's website. Additionally, we have posted to our Investor Relations site a supplemental data sheet containing additional financial information for comparison purposes to prior periods, along with a slide presentation reviewing first-quarter results as well as the Company's financial outlook.

So with these formalities out of the way, I would now like to turn the call over to our co-founder, CEO, and Chairman, Avishai Abrahami.

Thank you and thanks to everyone for joining us today to discuss our 2014 first-quarter results. We had a strong quarter and I am happy to be joined by Nir and Lior here with you.

I will give a brief review of some highlights from this quarter and then turn it over to Nir to provide more details. Lior will wrap it up with financials before we take your questions. So let's begin.

Starting off with the financial highlights from the quarter, we built upon the momentum from the fourth quarter as we grew collections, revenue, and subscription net of previous guidance. Collections in the first quarter grew 91% year-over-year to $37.5 million. Revenue in the first quarter grew 86% from the same period last year to $28.8 million.

We added a record number of new premium subscriptions during the quarter, over 118,000, bringing our total subscriptions to 908,000 at the end of the period, an increase of 65% over the prior year. This increase is nearly 50% over our net subscription adds in the first quarter of 2013, which is outstanding.

Our average revenue per subscription also rose by approximately $1 during the first quarter to go along with our subscription growth. Overall registered users increased to 46.2 million as we added over 4 million users in the quarter, our best quarterly performance to date.

We accomplished this growth while increasing our overall marketing expense and with high efficiency. Our marketing focus continues to be on user acquisition, but we have increased our branding activities in key markets as well. We continue to invest in R&D capabilities to improve our current product and accelerate the development of new products that will keep Wix at the forefront of code-free web development.

I am extremely pleased with the results for the quarter, which demonstrates the strength of our technology and product and the value we provide to our users worldwide. We have founded ways to simplify the web creation process for everyone, from complete beginners to web professionals. They can take their vision online and create and maintain a high-quality and professional digital presence at an affordable price.

Our core technology is a drag-and-drop software for editing HTML5 and creating a cross-platform online presence in a professional and fully customizable way. We take all of the complexity out of the equation so our users can focus on taking their unique vision and build it into the Internet. We remove all of the back-end challenges that goes into developing an online presence.

As a software technology company, engineers and developers represent approximately 50% of our total headcount, which allow us to continually innovate, develop better products, and deploy them faster than anyone in the market.

Let me now walk you through some operational highlights, as well as some new products we are launching. Each of which contributes to extending our technological leadership and global presence and advancing our vision of an Internet where everyone can create and contribute.

During the quarter we celebrated the two-year anniversary of HTML5 editor. This technology is the core strength and key differentiator, giving our users the freedom to develop a customized, professional-looking website in a code-free environment.

To continue our global expansion we launched three partnerships that will drive user subscription growth. Payments partnerships with Yandex.Money in Russia and MercadoPago in Latin America, which will eliminate friction for users who want to purchase subscription packages. We have also signed a distribution partnership with REG.RU, the largest domain name registrar in Russia, which will help grow user base.

Nir will provide more details on these shortly.

Finally, this quarter we completed our first acquisition as a public company, Appixia. Appixia is an Israeli company that developed a technology that enables users to build native mobile apps for Android and iOS without the need to code. This technology will allow us to take the next natural step, going beyond mobile website building and expanding into the creation of mobile apps.

Our users will enjoy both a professional website as well as an amazing, customized mobile app, all fully integrated within the Wix platform. Wix Mobile site development continued to be one of our most utilized products.

Over 2.8 million mobile starts have been built this week to date, with nearly 1.3 million during the last quarter alone. As far as we know, Wix is by far the fastest growing platform for mobile website building, adding nearly 400,000 new sites per month.

What is unique about Wix Mobile is that this is users only need to build their site once and our platform automatically optimizes for mobile. Once built, Wix users are free to modify the mobile site at any time without altering the desktop version.

Another exciting mobile development is our Sonic Mobile technology business that actually allows Wix's mobile site to load super-fast. When compared to websites of top brands, Wix mobile sites with Sonic Mobile technology opened 25% faster. That means a local bicycle rental business can have a mobile site that loads much faster than a large company's mobile site. We believe that is pretty fantastic.

I am also proud to announce new product release that is a key part of our vision -- Wix Hive. Today Wix is primarily a platform for businesses, professionals, and organizations to create their online presence. Now we are beginning to extend our platform further to allow them to manage and grow their businesses ultimately from the Wix Cloud.

This new technology will allow apps from our app market to integrate data with one another and enable users to synchronize actions across applications. I'm very excited about this new product that is totally unique to Wix. Let me explain it in more detail, what this solution do and what it means for our users.

Today our users are able to choose from 200 apps in an app market to integrate into their site with just a few clicks. This app, which are developed by Wix and by third-party developers, include tools that enable email marketing, SEO, couponing, e-commerce, social integration, invoicing, payment processing, and many more functions passes that are critical to running a business.

Once the applications are installed they look like they are part of the website, but the data is trapped within each application and can't be shared. Each application basically works in its own universe. This is true for all web plug-in architectures that we know of. Today Wix is changing that by allowing independent web apps to be connected and share data.

For apps built with our Wix Hive API we collect lots of data such as contact information, clicks, messages, purchases, bookings, and more that can be leveraged by the user -- and used by users and accessed by other apps. To illustrate this technology, consider a user who has created an e-commerce site on the Wix platform. Using Wix Hive an e-commerce app will share all the transactions from this site, including the visitor's contact information, search, purchase history, and payment information, into a shared database.

So if the site owner wants to use a separate email marketing app from our app market to send a promotion to everybody who has made a purchase in the last six months, he does not need to export the data into a separate file and import it into another. He can simply click on the email marketing app and use the stored content data from the e-commerce app. This is a very simple example, but illustrates how Wix users will be able to automate complete business processes using independent apps and data collected from their sites.

We expect this innovative new product to have a dramatic effect on making the Wix platform a complete solution for managing a business online. Further, this technology has a huge benefit for the app developer. By using our API and sharing activities, the applications themselves become far more powerful than they could ever be on their own.

Several apps in our market have already being built with Wix Hive and are collecting data, and we are working with developer partners on integrating even more. To date, just a few months after we started to test this new technology, Wix users are already managing over 8 million contacts in our database.

We are very excited on this technology as it is a key element to our vision of creating a true operating system for the web. I would now like to turn it over to Nir to provide a more detailed review of how we are executing on our strategic priorities. Nir?

Thank you, Avishai. And let me also welcome everyone to the call. I would like you spend a few minutes discussing the progress we made during the quarter in growing our user base, our premium subscriptions, and expanding our partner ecosystem.

First, our users and subscriptions. Our products are offered through a freemium model. Users can build websites for free and, as their needs grow, they may decide to subscribe the one of our services on a monthly or annual term. This model provides us with a large base of users, many of which will become paid subscribers, sometimes several months or even years after our first interaction with them.

Our users also serve as one of our best marketing channels and the share their successes on Wix with others. We model our business based on the cohorts of registered users that have joined the platform in any given quarter.

On slide 10 of the presentation posted on our IR website, we show cohort behavior for the first quarter of 2010 to 2014. On the left side of the graph you can see how many registered users are in each cohort. The line on the graph shows how many active subscriptions we had at the end of each following quarter, originating from the same registered users.

You can see, for example, for Q1 2010, which is the cohort for which we have the longest history, that the amount of live, revenue-generating subscriptions today is still higher than it was in the first period of the cohort creation. The sustainable and stable behavior of our cohort provides us with great visibility into our mobile and a high level of prediction.

We have noticed over time that cohorts generally behave in a very similar manner. We also know that by initiating products and marketing optimizations we drive a better conversion trend from registered users to paid subscriptions. This is especially noticeable in our Q1 2014 cohort, where you can see a favorable trend to that effect.

This improved behavior in Q1 of 2014 can be attributed to two things. The first is enhancements of our products and user experience. Each product improvement we make, no matter how small, contributes to the overall user experience, driving conversions from registered to paid and increasing the retention of our paid users. This user experience is a key differentiator for us and why we continue to invest in our technology platform.

The second is efficient marketing and improved channel mix, meaning we spend our marketing dollars in channels where users are more likely to buy paid subscriptions. We increased our branding activities during the quarter, expanding our TV and radio campaigns in the US, Canada, the UK, Australia, France, and Russia. We also generated nearly 60% of our new premium subscriptions from registered users that come to us through free traffic sources.

You will notice on slide 11 of the presentation that we have already returned half of our marketing dollars we spent in Q1 of this year.

As Avishai mentioned, our HTML5 Editor is our core technology and a key differentiator for us. It enables our users to incorporate very complex features into their sites easily and exactly how they want them.

Our development velocity keeps on accelerating. In the first 100 days of 2014, we released 100 features to our online Editor, an amazing accomplishment by our development teams. These features include animations to text and images, social media tools, 3D galleries, e-commerce tools, apps in the app market, and many more. Most of these features are completely unique to us and are not offered by anyone else.

Next, as Avishai mentioned, we launched three partnerships that will accelerate our growth geographically and we reduce complexities for our users. Our partnership with Yandex.Money, the largest online payment service in Russia, will provide an online payment solution to Wix users there. Previously our growth in Russia was limited as users could only pay Wix with an international credit card, which are not widely held in Russia.

The ability to pay through an e-wallet and without a credit card eliminates a significant amount of friction in users in Russia and opens access to our premium packages to millions of users. There are more than 16 million accounts in Yandex.Money today with over 10,000 new registrations daily. This makes this partnership even more exciting as it will play a key role in accelerating our growth there.

We are also addressing payment challenges in Latin America, where there are multiple common payment methods, by partnering with MercadoPago, a subsidiary of MercadoLibre, that has over 90 million registered users throughout Latin America. Here, MercadoPago will help us process local credit cards and debit cards through their system.

We are scheduled to launch in Mexico by the end of the month and plan to roll it out to the rest of Latin America in the coming months.

We also entered into our first partnership with a domain registrar, REG.RU, the largest registrar and hosting company in Russia, managing over 2 million domains. Partnering with domain registrars is a new go-to-market strategy for us and one we plan to grow globally. These partnerships will provide us with a user acquisition channel at a common starting point for building an online presence.

It also provides the registrar with a best-in-class product for users to build their site. Through such partnerships, users who purchase a domain with a register will be able to connect it to a Wix site with one click. Growing our user base and subscriptions globally is a key priority for us, and we will continue to search for additional markets to replicate these types of partnerships in the future.

With that, I would like to turn the call over to Lior to review the financials in more detail. Lior?

Thank you, Nir, and thanks, everyone, for joining us. This was an outstanding quarter as we reported very strong results for collections revenues and EBITDA. Today I will walk through our key metrics from the quarter, review our first-quarter financial results, and wrap up with our outlook for the second quarter and our improved outlook for 2014. So let's begin.

Registered users as of the end of the first quarter totaled 46.2 million, an increase of over 4 million, our largest quarterly increase to date. This represented 10% sequential growth over the fourth quarter.

We ended the quarter with just over 908,000 subscriptions, adding over 118,000 on a net basis during the period. This is a record number of net adds for us, representing a sequential increase of 15% over the fourth quarter and is nearly 50% more than the number of net adds in the first quarter of 2013. As Nir mentioned, we experienced an improvement in our overall conversion rate of free to premium subscriptions during the quarter, which helped drive this subscription growth.

Collections in the first quarter were $37.5 million, a 91% increase over the prior-year period. Collections amount is how we measure the growth of the business since we collect the full amount upfront for both annual and monthly subscriptions. Collections is different from revenues since we recognize revenue from our annual package over 12 months.

Three items drove our collection growth this quarter, but I would like to point out first, the business driver was the increase in subscriptions in the quarter. The first quarter is typically our strongest quarter during the year in terms of net subscription additions as many use the beginning of the year to start new businesses or build new online presence.

Second, we experienced an increase in average revenue per subscription by approximately $1 over the fourth quarter as users chose higher priced packages, most notably our e-commerce package. Growth in our app market also contributed to this increase.

Finally, our collection growth was positively impacted by a one-time change to our billing system that we implemented during the quarter. In place of the third party we had been using to process about half of our collections, we brought our entire billing processes in-house during the quarter. In addition to cost savings and eliminating our dependency on the third party, we now collect cash faster than we have in the past.

This change resulted in a one-time increase of about $1.5 million in cash collections during the quarter. Having reviewed our KPIs, I will now turn to our first-quarter financial results. Please note that all of these figures are non-GAAP and exclude stock-based compensation expenses and one-time items unless I note otherwise.

The growth in subscriptions and collections led to a record revenue for us in the quarter. Revenue in the first quarter was $28.8 million, an increase of 86% over the prior period. Because we recognize revenue ratably over the life of subscription, revenue was not impacted by our billing system change.

Gross margin in the first quarter was 82%, a slight increase over the prior-year period gross margin of 81%, driven mainly by our increase in revenues. R&D expenses in the first quarter were $10.7 million, or 37% of revenues, net of $5.3 million, or 34% of revenue, in the previous period. As Nir mentioned, we continued to hire engineering talent to support product development and plan to do so throughout the year.

Selling and marketing expenses were $21.6 million in the first quarter compared to $10.5 million in the prior-year period. We look at this expenses as a percent of our total collection and in the first quarter selling and marketing expense was approximately 58% of collections. This was better performance than we expected and it is an indication of the efficiency of our marketing expense.

The increase in selling and marketing has been driven by increased spending across all of our channels and particularly in TV and radio, where we are focusing on both user acquisition and branding.

G&A expenses in the first quarter were $2.5 million, or 9% of revenue, compared to $1.3 million, or 8%, of revenue in the prior period. The primary driver of increased G&A expense is costs associated with being a public company. Please note that we are excluding roughly $400,000 from our non-GAAP G&A expenses, which are mainly costs related to the follow-on offering we filed but later withdrew in March.

Adjusted EBITDA for the first quarter was negative $10.6 million versus negative $4.2 million for the prior-year period. We experience our expectations on EBITDA due to the top-line performance and slightly less operating expenses during the quarter.

Net loss in the first quarter was $11.3 million, translating to a non-GAAP loss per share of $0.30 based on a share count of $37.5 million. CapEx for the first quarter was $1.4 million. Free cash flow during the quarter was roughly negative $400,000.

Our liquidity remains strong as we ended the quarter with just over $100 million in cash and deposits and no debt. We ended the quarter with 648 employees.

Now, I would like to turn to our outlook for the second quarter of 2014 and also provide an update on our improved full-year guidance.

For the second quarter, we expect collections to be in the range of $38 million to $39 million and revenue in the range of $31 million to $32 million. Adjusted EBITDA for the second quarter is expected to be negative $11 million to negative $12 million. We are also updating our full-year 2014 guidance and increasing our outlook for collections and revenue on the strength of Q1 results and continued momentum in the business.

We now expect collections for 2014 of $155 million to $160 million and revenue in the range of $130 million to $133 million. We expect adjusted EBITDA to be negative $38 million to negative $42 million, which remains the same as the guidance we provided on our fourth-quarter earnings call.

And with that, I'll turn it back over to Avishai to close. Avishai?

Thank you, Lior. To sum up, momentum continues as we saw significant growth among our key metrics. We will continue to invest in the business through the year as we build our platforms to enable the freedom not only to create, but also to manage and grow businesses and organization online across the globe.

We will now take your questions. Thank you.

(Operator Instructions) Nat Schindler, Bank of America.

Thank you very much and it looks like another great quarter, but wanted to just, though, ask you a couple questions.

First, on marketing efficiency. I know it's difficult to tell because we don't see the gross subscriber numbers in your numbers, but as I look at it, it looks like you increased -- the amount per net subscriber increased over last year by about 40%. Now it's churning off a much larger base and so that's expected, but how do you think of your marketing efficiency and how has it changed over the last year or so?

And then I have a follow-up question.

Nat, this is Lior. So with regard to the marketing efficiency, as we mentioned in the past, it appears to be about 5.5 months in terms of time return investment. We said that during the fourth quarter that we will increase it.

We are mainly investing in brandings in North America and other places, and also penetrating to other regions of the world. As a result of that, we actually [picked up] during the first quarter and the time return on investments increased to 7 months. The 1.5 months increase in marketing exactly represent the branding strength and what we did during the first quarter.

It's also important to mention that it was more efficient than what we predicted actually in the beginning of the quarter, but I think that it represents what we have set as something that is very strategic for us to continue investing in marketing.

Lior, as you have switched more -- added more branding spend, has that kind of created a long tail in marketing efficiency? What I mean by that is TV -- Google ads represent a very close one-to-one relationship between when you spend the money and when you get the revenue in. But as you spend money on TV is it a larger delay, and is it possible that the spend here will actually over time get more efficient as you use it?

So it's very hard to tell right now, but clearly you are right about the differences between Google and TV companies. This is why we actually increased the [TROI] from 5.5 to 7 months. We don't know exactly when the return is going to be. It can take like 2 or 3 or 4 or even up to 12 months, but certainly on the medium and long term we will see the fruits of it as we continue to strengthen our branding.

Okay, and then one more question on a different topic. As you saw a nice rise in ARPU and you attributed it partially to your app marketplace and mentioned that you've had more than 10 million apps downloaded to date, is there any way -- could you give us kind of both what is the most common app downloaded and what percentage that represents, or if it is a big amount? And also what is the largest revenue contributing app? Because I assume that could be very different.

Nat, this is Avishai. The most used app as of today is the Google suite for email and office management, and the next one would be a (inaudible) builder. So that was your first question, right? And the second question was --?

Just to add to that, Nat, also the increase in ARPU is not just due to the app market. It's also due to the fact that people are choosing more expensive packages and we have seen that mainly with e-commerce, which actually is in line with what is going on right now in the market that people are buying more online. So actually we have seen that s happening in the last few quarters and months and this is something that we really like.

Okay. I was actually asking also on top of it; Google is the largest, most downloaded app, but what is the biggest revenue-generating app? And is the different?

I think that would be also Google. And then (inaudible) Google.

Great, thank you very much.

Sterling Auty, JPMorgan.

Thanks. Hi, guys. I apologize if Nat asked this, but I got cut off. Must be cell reception. But when I look at the premium subscribers in the quarter being better than expected, can you give us a sense, especially looking at slide 10 with the 92,567 that came from what looks like first time registered, can you give us the mix of the 108,000 new premium how much came from new versus converting the existing free base? Because I know you have to factor in churn, etc. So what did that mix look like in the quarter?

Sterling, this is Nir. We saw -- we actually saw an increase there in terms of how many converted from the new (inaudible) the Q1 cohort. [Again up to] 45% if you think is mainly not because there's any diminishing effect on the other cohorts. It is not going to get a much higher efficiency on this same cohort in Q1 of 2014.

We [chose] that through two main causes. One will be the fact that we are introducing many, many improvements to the product all the time, which all of them are driving satisfaction from the platform up and obviously also drive conversion up. We also achieved that through a better mix and optimizing the market mix of what kind of traffic we are bringing and making sure that it's bringing the best conversion traffic possible.

Then I guess the corollary to that would be what did you see in terms of converting the existing free base? Is there other things that you can do to tweak and improve the conversion of those existing 46 million pre-registered users?

I would say that in general the trend is positive; we can and we are. The things we are doing now are naturally the things that Avishai mentioned in terms of new product releases. I mentioned some of the more -- I would say more of the ongoing improvements to the editor.

Avishai spoke about the mobile (inaudible) Wix Hive. All of these compiled together will improve the product over time and will improve conversion, both with existing and new users.

We also are improving that build [with the] MercadoPago partnership and with the Yandex.Money partnership. We are improving our ability to build in new geographies which also [works] to drive the conversion in those geographies upwards as well.

Last question, maybe for Lior. Looking at the upside in the other revenue, you mentioned the apps, but can you give us a sense of how much of that upside came from -- even if you, say, qualitatively, how much of the upside came from the apps versus since you had such a nice upside in premium subscribers, I would imagine you had an upside in kind of the domain revenue as well.

Yes, of course. So we -- I think that the domain revenue is -- in terms of the growth is really the same as the collection from our premium packages, so it's quite aligned with that.

With regard to the app, I guess that you meant to the increase in ARPU. So about 30% of the increase in ARPU was attributed to the app market and the rest of it is just because of the fact that people are choosing more expensive packages. As I mentioned before, mainly due to the e-commerce.

Right. Thank you, guys.

Mark Mahaney, RBC.

Thanks. Could you talk about the geographic spread of the registered users that you added in in the premium sub? Anything interesting there in terms of the new markets or is it just more obtained of the existing markets that you're in?

All in all, I think that if you look at the last reported year it's similar. We see the same trends that we talked about before in terms of North America becoming a smaller percent of those still growing over [70%] year-over-year. We see another very nice growth in Latin America, growing about 85% year-over-year. This is in terms of our revenue.

And we see similar trends in terms of how the register business grows from those regions. We still see that North America was only about 25% -- [31%] of our registered users, [executing] much more weight into its part as far as revenue growth. Naturally, as you keep on expanding into new regions and these regions keep on going even faster than the US and North America, we will see that share going down.

Then Sonic Mobile, the technology launch, has that changed? Are you just adding that feature and functionality to the existing products? Is there a possibility for any premium pricing around that or is that not the strategy?

Well, I think this (inaudible) technology for free to all of our mobile users and we think that it's part of the commitment that we have to give you the best possible web start. And so that's something that we give everybody. It will be slowly deployed over the next months in the United States and the rest of the world, and it's really an amazing technology [it really makes] websites faster than almost any other site out there on the mobile.

Then two more questions, please. In terms of the guidance going forward and maintaining EBITDA where it is, you have had a boost in both engineering spend and in marketing spend. Is the point that through the balance of the year we should see kind of an equal increase in sales and marketing and in R&D spend?

We haven't changed the plan in terms of the R&D, so let me start with that. Meaning that we are not going to spend more money in R&D due to the fact that we are collecting more money or having a better top line.

With regard to the marketing, I think that it's important to note, if we look at the full-year guidance and the differences between collection to revenue, we actually see that it's growing. In 2013 the difference between collection to revenue was about $18 million. Based on our guidance it is going to increase from $25 million to $27 million. What that means is that we are actually growing and we are growing very fast.

We mentioned last quarter that the marketing spend are going to be as a percentage of collection, and specifically we mentioned that it's going to be 58%. We've said -- we've also said that most of the increase is going to be during the first half of the year. I mentioned before that we are a better, even more efficient than what we predicted because we actually predicted that it's going to be more than 60% during the first quarter and we ended up with exactly 58% of the marketing out of collections.

So to answer your question, even when the top line is increasing, we are going to increase the spend in marketing because collection is increasing even much faster than revenue.

Then last question on the Wix App Market and the path to that reaching 10% of revenue at some point, can you help us think through when we could see that? It sounds like that's becoming big enough to maybe already impact some level of the ARPU. I understand that there are other packages, broader packages that were purchased.

If we think about the Wix App Market as the standalone business, how far away are we from that being 10% of total revenue?

So, unfortunately, it's hard to tell right now at this point of time. I guess that within the next few quarters we will know better when we are going to reach to this very important milestone, but I guess that towards the end of the year we can provide more information about it. Right now it's still not significant, but we do state as something which is very strategic and its aligned with all the products and everything that we introduced to the market this quarter.

I just want to add to what Lior said. Currently our priority is to actually provide as many applications as we can for free. Similarly what we assumed is that and what we can actually see and prove from data is that when we provide better applications we actually get more subscribers to enter premium subscriptions. And so we are actually utilizing the App Market to encourage and enhance our conversion and converting users to premium subscribers.

That is currently the preferred strategy we are taking. So it's kind of hard to differentiate between what percentage came from -- in the app in order to create -- to conversion, but I think that (inaudible) already a large contribution to the overall performance of Wix from the App Market.

Thank you, Lior. Thank you, Avishai.

(Operator Instructions) Kerry Rice, Needham.

Thanks a lot. Great quarter, guys. Maybe a high-level question is that some of your competitors have been out raising a lot of capital these days and I was curious whether you've seen any impact there, whether they have become more aggressive or any change in the competitive environment there.

The second question is a little more housekeeping. A lot of talk about mobile apps, but could you talk a little bit maybe about the attach rate? How many websites are now -- have downloaded apps and maybe how that compares year-over-year?

Then the final question about Appixia, I missed what you said. Has that been entirely integrated? Is that available and rolled out by you now since the acquisition?

So maybe I will start from your last question, which I think is the easiest. So Appixia; no, Appixia is not yet fully integrated. We are now piloting the product, the integrated product with just a few customers. This is a (inaudible) that and so it's in the field but with a very limited test.

Because of Appixia [I think that their Wix] provides website and mobile websites. Appixia provides network applications and so we are going to fully integrate that, and once it's ready we are going to launch it. And so that's the first -- that's answering your last question.

Answering your first question; well, historically if you look almost every time we raise money then our competitors raise money a couple of months after and so we kind of already are used to this phenomena. I think that on the Internet what defines the ability to spend marketing is the quality of the product and the conversion to get to premium, which directly reflects the time it takes to return the investment (inaudible) and re-deploy that money again.

And with a superior product I think that we always have been able to do that much better than anybody else. I don't think that any of our competitors year-to-date has dramatically improved their product to a place that they can actually compete on marketing costs with us.

So I don't see that this is something that changes the market in any way or should increase in a dramatic way the competition. I think also that it (inaudible) is that we maintain a similar level of competition like the one we had before because proportionally I think it gives the (inaudible) in these markets that just has to continue in the same way that we have been doing before.

And your second question which was --.

Attach rate.

Yes, so it's actually the mobile website's attach rate, and just as a reminder, we released that product in Q -- we started self-launching and rolling it out in Q4 of last year. To date, we have about 2.8 million mobile websites that have been published. Only 1.3 million out of them only -- were just published in Q1, which means that this is basically seeing a definite acceleration in terms of the attach rate and the usage and what people are doing with it.

We are also talking to our users about that product and we see a very high level of satisfaction. People are loving it. It is giving a better, a much better presentation of their website and their business on the mobile front.

Lior, maybe if I can follow up with that, though. I was really talking about the App Market and the apps being downloaded from the App Market, if you have any attach rate data from that.

So if you are looking for the number of applications that are being installed, until today over 10 million applications have been installed and in Q1 2014 2.6 million applications have been installed, which kind of goes to [availability]. In Q1, it was in 29,000 applications being installed on websites again.

Thank you.

Jason Helfstein, Oppenheimer.

Thanks, just two questions. One more to go back to the marketing efficiency and then the second on free cash flow. Just can you talk about was the marketing efficiency in the quarter driven more by premium adds or premium net adds converting from free or from you guys driving more registered users or a function of both, I guess if we think of other different metrics?

Secondly, when would you expect to report consistent free cash flow growth on a year-over-year basis? For example, in the first quarter free cash flow was down year-over-year because of the investment, but as you just think about over the next few quarters do we get to a period of time where you are on a trajectory were just each quarter you will show an improvement in year-over-year and free cash flow growth? Thanks.

Jason, this is Nir. I will take the first question, then hand it over to Lior for the second one. I will say that it's a combination of both.

In terms of the registered users, they definitely play a part, but you have to remember (inaudible) volume is not necessarily a KPI of registered users. The way that we drive that is actually by the quality and changing the mix and not necessarily only by bringing more. So if you look, we did grow in terms of registered users from Q4 to Q1, but really much faster in terms of premium subscriptions.

And that is actually the second driver, which is the conversion to previous subscriptions. As I said before, we did a lot of product enhancements in order to drive that conversion upwards.

So this is Lior. With regard to the free cash flow, just to give a few of about 2013 and then we can move on to 2015 and go forward, if you guys remember in 2013 actually we didn't burn any cash. Actually up to date, including Q1 and Q2 2014, we also were breakeven. Even if you look at cash flow from operation it was positive.

We mentioned in the past that it was not something strategic for us in 2014 to be cash flow positive. Obviously, this is something very important for us and we aim to do it during late 2015. We intend to increase investments in R&D and marketing, as we mentioned before, but due to the fact -- if we look at the first quarter of 2014 the collection is growing very fast, even faster than revenue. It means that actually we are generating cash flow from operations.

This is what happened in the first quarter of 2014. It means that if collection will continue to grow faster than revenue, it might happen in the next quarter. But again generating free cash flow to be positive, it's not something strategic for us this quarter or this year; certainly for next year.

Thank you.

Thank you. I'm not showing any further questions in queue.

At this time, ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.

Thank you, everyone.