Wix.Com Ltd (WIX) 2014 Q2 法說會逐字稿

Good morning. I'd like to welcome everyone to today's call to discuss Wix's second quarter 2014 financial results. Joining us from management are Avishai Abrahami, Cofounder and CEO; Nir Zohar, President and COO; and Lior Shemesh, CFO.

After the management's prepared remarks, we will open the call up to questions.

Before we begin, I'd like 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 20F 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. Reconciliation to the most comparable GAAP financial measures are provided in the table 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 sections 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 second quarter results.

So with these formalities out of the way, I'd now like to turn the call over to our cofounder and CEO, Avishai Abrahami.

Thanks Joe and thanks for everybody for joining us. We have a lot to talk about today as we delivered strong results for the period that exceeded our prior outlook. We also announced several new products and partnerships and crossed some significant milestones as a company, which is particularly exciting.

I'm joined by Nir and Lior to provide more details as well, so let's get started.

The momentum in our business continue as we grow all of our key metrics. Collection in Q2 grew 79% year-over-year to $39.9 million. Revenue continues to grow 82% year-over-year to $33.9 million.

I'm also excited to say that during the second quarter we crossed 50 million registered users and 1 million premium subscriptions, ending the quarter with 1.02 million premium subscriptions.

Achieving these milestones is extremely gratifying for all of us at Wix. It reflects the intense focus we have on product development and our mission to bring simple and affordable web development to tens of millions of people worldwide. We celebrate these milestones and the hard work behind their achievements, and we are laser focused on bringing our platform to the next 50 million users and beyond.

Moving into some product highlights -- Wix Mobile has now been used to build over 3.5 million mobile sites to date and this product continues to grow in popularity with our users. We continue to see great utilization of WixHive by our users. We have saved in total over 20 million contacts and activities. We also have several apps being developed today that are being connected to the WixHive API. Our AppMarket continues to experience tremendous growth with nearly 210 apps and over 35,000 installations per day.

One of our newest apps allows users to integrate Etsy Store into their Wix website without any coding or configuration. We developed this app using the Etsy API because many of our users were managing separate stores. They managed their Wix e-commerce store, which had their own branding and vision, and they sold goods through the Etsy marketplace. With this app, they can now sell items through both their Wix site. Additionally, the app allows our users to brand both stores consistently, and it keeps our users' customers on their site rather than directing those customers to Etsy to make the purchase.

We also formed a partnership with Wave to offer it's app in our market. Wave apps helps businesses manage all aspects of financial and accounting, invoicing, payments, receipts, expense management, and more. Users can now connect with their Wix website and manage all of their finance and business in the Wix Cloud. These apps are great examples of how we continue to develop the Wix platform beyond website creation and into the OS where users can manage and grow their business online.

So turning now to some new product launches. Last month we introduce WixShoutOut, a powerful tool that allows businesses to easily create, distribute great-looking newsletters, updates, or promotions. WixShoutOut is accessible to all of our users globally through their Wix Dashboard and can be put to use with literally just a few clicks and requires no coding at all. The ShoutOut looks and works fantastically well on desktop and mobile and can be sent via e-mail and social networks, including Facebook and Twitter.

This is the first product we have launched that utilizes the WixHive API. Through WixHive, contacts collected and managed on a Wix website are now accessible by products like WixShoutOut. This product enables small business owners to manage their website and customer communications from a single environment, something that has been out of reach or too expensive for them until now.

We have seen a lot of use cases for WixShoutOut including sales, invitations, open houses, album releases, and promotions of a new Wix website. Since the launch of WixShoutOut less than 30 days ago, over 60,000 ShoutOuts have been sent to millions of recipients around the globe. We are offering ShoutOut for free today as we complete our beta testing, after which we intend to add it to our stable of freemium products. On our IR website, we have included a link to introduce WixShoutOut and a video that explains more about how WixShoutOut works.

As we have said our vision is extend Wix platform into solutions that allows our users not just to create their online presence but also to manage and grow their business or organization through Wix Cloud. We are really excited about WixShoutOut and it's evolution into a powerful product for any type of small business.

One of the biggest advantages of Wix is that we have more than 50 million users across a very diversed vertical markets but we also work with large groups of businesses in the same industry, which then allows a lot of new opportunities for innovating technologies. For that reason, our strategy includes the development of new technologies and solutions that address specific vertical needs for building, managing and growing a business online.

And today we are announcing our first vertical solution WixHotels. WixHotels is tailored, is a total solution that brings simplicity to every aspect of operating online for a hotel owner. We make it super easy for hotel owners to build a fully integrated reservation and booking engine into their website including the room availability, details and pricing, inventory management and taking payments.

All this done code free and in the Wix's Cloud, making simple to use, fully adapted for mobile and affordable. WixHotels is also connected to WixHive API so hotel owners can now manage their customers risks on our platform and leverage data for marketing campaigns, updates, and promotions. Currently in a soft launch, WixHotels is available for the Wix App Market with several users already taking advantage of this great offering.

Wix's vision is to make the web a place where everybody can create and contribute, we now have the capabilities in place to develop more tailored products from small businesses across many vertical markets to simplify creating and managing and growing a business online.

I now hand it over to Nir who will provide some additional details on our performance this quarter. Nir?

Thank you Avishai. And thank you everyone for joining the call. Let me walk you through our user subscription growth this quarter as well as the recent announcements and updates on partnerships and payments.

Beginning with our user subscription growth, we added over 110,000 net premium subscriptions in the quarter, which is a tremendous accomplishment that exceeded our expectations. On slide 11 in the presentation we posted on our IR site, we showed the live active subscriptions at the end of each quarter from our last five Q1 user cohorts. We continue to see very consistent performance of our user cohorts that we have observed historically. In particular, you can see that the conversion of users to premium subscriptions in the Q1 2014 cohort continues to be strong through this most recent quarter.

Additionally, our Q1 2013 cohort has performed better through five quarters than our previous Q1 cohorts. We attribute this improved retention to several product enhancements and launches over the last year, including adding more apps to our App Market, launching our Mobile 2.0 product and adding dozens of new design features and functionalities to our Editor. These product enhancements increase the functionality of our user's sites and improve the user experience, both of which drive conversion and retention.

We recently announced that Wix has partnered with Google on the open beta launch of its new domain registration service, Google Domains. Through this new partnership, Wix will complement the Google Domains service with our web development platform. Our integration makes connecting a domain to a new Wix website seamless. Upon purchasing a domain from Google and choosing Wix to build their site, users will be re-directed to and registered with Wix.com where they can begin using our editor and easily connect their newly purchased domain.

This partnership builds on our ongoing relationship with Google in providing small business owners with a way to create and manage their online presence through a user-friendly and affordable solution. We believe Google Domains could be a meaningful and attractive acquisition channel for us and are excited about continuing our strong relationship with Google.

To further drive conversion and retention, we continue to improve our payment capabilities for our users outside of the US. Our proprietary billing system enables users in foreign countries to purchase Wix subscription packages using local payment methods they recognize, trust, and can easily access. As there is not a single solution that provides full coverage for businesses that accept recurring payments in most markets, our system allows us to integrate with any local payment gateway and acquirer in the world, greatly increasing our ability to accept payments.

Since we launched our solution in Brazil, we have seen a 70% increase in the processing success for subscription package purchases. Also in Brazil, in order for Google to sell their apps in local currency and with local credit cards, when users make a purchase, they are re-directed to Wix as a reseller. As a Google apps reseller we provide Google users with the smooth payment process through our platform supporting local currency and local credit card. This partnership gives us more exposure to potential users in Brazil who are looking to create and manage their digital presence.

Before I hand it over to Lior, I want to share with you a great story about a use case of Wix that illustrates the power of our platform. Through an online education blog, we recently learned that Wix is being used by several teachers across the U.S. as an educational tool.

Teachers use Wix to not only expose their students to an easy way to build web content but also to assign projects. We actually learned of a 3rd grade teacher who took her students on a field trip to local historical sites and then asked [test] the students using Wix to create virtual storybooks showing what they learned. We were really happy to learn about this, and it reinforces our belief that the web can and should be accessible to anyone and that the use cases are endless.

And with that, I'd like to turn the call over to Lior to review the financials in more detail. Lior?

Thanks Nir and thanks everyone for joining today. Q2 was another outstanding quarter for us. We continue to experience significant growth, and we will once again be increasing guidance on collections and revenues as well as on new adjusted EBITDA.

Let me walk you through our key metrics from the quarter, review our second quarter financial results, and wrap up with our outlook. First our KPIs. Registered users as of the end of the second quarter totaled 50.3 million, a sequential increase of over 4 million for the second consecutive quarter.

We ended the second quarter with approximately 1,019,000 premium subscriptions,

adding over 110,000 on a net basis during the period. This is a sequential increase of 12% and was driven by continued strong conversion we are seeing not only in users that joined during Q2 but also from prior user cohorts.

Q2 collections were $39.9 million, a 79% increase over the prior year period. Growth here was driven by an increase in premium subscriptions during the quarter. We also continue to see users choose annual packages at a higher rate than monthly packages.

Having reviewed our KPIs, I'll now turn to our second quarter financial results. Please note that all of these figures are non-GAAP and exclude stock-based compensation expense and one-time items, unless I note otherwise. Revenue in the second quarter was $33.9 million, an increase of 82% over the prior period. The growth in revenue was driven by the increase in premium subscriptions and collections as well as an increase in ARPO by slightly more than $1.

Gross margin in the second quarter was 82%, which is consistent with recent quarters. R&D expenses in the second quarter were $12.2 million, or 36% of revenue, versus $5.7 million or 31% of revenue in the previous period. The increase here was driven by our continued headcount increase, in particular the hiring of developers and engineers to support product development. We added 48 R&D employees in Q2 bringing our total headcount in this group to 375, still more than 50% of our employee total.

Marketing expenses were $23.1 million in the second quarter compared to $12 million in the prior year period. As a percent of collections, marketing remained at 58%, consistent with Q1 and our target for the year. The increase in marketing was driven mainly by our TV and radio advertising as well as branding campaigns. G&A expenses in the second quarter were $2.7 million, or 8% of revenue, compared to $1.4 million, or 7% of revenue, in the prior period.

Before discussing profitability for the quarter, I'd like to walk you through a change in our calculation of adjusted EBITDA that we are implementing. Over the last two quarters, deferred revenue has grown significantly, primarily driven by an increased percent of annual subscription packages purchased compared to monthly packages. As a result, beginning this quarter, we will include the change in deferred revenue and prepaid domain registration costs in our calculation of adjusted EBITDA.

This change provides two benefits. First the calculation more accurately reflects the cash flow and financial performance of our business as we align our cash collections with operating expenses each quarter. And the difference between collections and revenues increases, the prior calculation of EBITDA does not reflect the cash profitability of our business as it is based on revenue we are only able to recognize for accounting purposes.

Second, this calculation will provide our investors with a metric that our management team uses to evaluate and model our business. So we would like to provide a metric that is indicative of the performance of our business as we see it.

For all historical periods and for the remainder of 2014, we will continue to disclose adjusted EBITDA calculated under the prior definition, which for ease of reference we will refer to as prior adjusted EBITDA. We will refer to the new calculation method as new adjusted EBITDA. Beginning in the first quarter of 2015, we will only disclose new adjusted EBITDA. You can see both calculations of EBITDA on the supplemental data sheet that is available on our IR site.

With that said, our second quarter prior adjusted EBITDA was negative $9.5 million. We exceeded our guidance on prior adjusted EBITDA due to our top line performance and slightly lower operating expenses than planned in the quarter. New adjusted EBITDA, which adds back the deferred revenues and the prepaid domain registration costs in the period, was negative $4.1 million in the second quarter. This compares favorably to our outlook for the second quarter, which was $5 million to $6 million had we provided guidance using the new adjusted EBITDA calculation.

Second quarter net loss was $10.4 million, translating to a non-GAAP loss per share of $0.27 based on a share count of 37.7 million. Please note that we are not changing the calculation of non-GAAP net income and EPS.

CapEx in the quarter was $1.5 million and free cash flow was roughly negative $3.2 million. We continue to maintain plenty of liquidity, ending the quarter with just over $97 million in cash on our balance sheet and no debt. Our employee count at the end of the quarter was 736.

Turning to our outlook for the third quarter of 2014 and an update to our full year guidance, for the third quarter, we expect collections to be in the range of $42 million to $43 million and revenue in the range of $35 million to $36 million. Prior adjusted EBITDA for the third quarter is expected to be negative $11 million to $12 million. New adjusted EBITDA is expected to be negative $4 million to $5 million.

We are also increasing our outlook for the full year. We now expect collections for 2014 of $163 million to $166 million and revenue in the range of $136 million to $138 million. We are maintaining our prior adjusted EBITDA guidance of negative s 38 million to $42 million.

We expect new adjusted EBITDA to be negative $14 million to $16 million. This is an improvement to the range of new adjusted EBITDA guidance of negative $15 million to $17 million that would have been issued last quarter had we calculated adjusted EBITDA this way. I also note that this is a significant improvement from our initial full year guidance of negative $22 million to $24 million that we would have issued at the beginning of the year had we calculated adjusted EBITDA this way.

And with that, we will now take your questions.

Thank you. (Operator Instructions). Our first question comes from Nat Schindler from Bank of America Merrill Lynch. Your line is open.

Yes. Hi, thank you, guys. One thing I wanted to ask is if you look at slide 11 on your presentation, you've used this slide before. It shows a cohort analysis. How fast you guys change users into subscribers. And you've titled this consistent behavior but it seems pretty clear that they're actually getting much, much deeper and people are going from users to paying subscribers much faster, particularly in Q1 2014 cohort. Is this, what is driving the change and why are people more likely to pay you now than they were in the past?

The number one reason for this increase in conversion and conversion over time is our product improvements. That by providing more value to users we can good results and that they actually manage to complete their website they dream of and find better ways to manage their business. And as such they convert faster or actually convert bigger, not necessarily faster.

[Great analysis] - oh sorry.

Sorry Nat, it's Nir. I just wanted to add to that. I think that over time obviously its the things that Avishai mentioned. It's also the fact that we are adding [both] translation improving languages. So our approach to new geographies are getting better. So the same traffic from those geographies which in the past was converting in a lower ratio is actually the higher ratio now, which also goes to improvement in pay options in those different geographies.

OK. And here is the follow up on that and then I have one other question. But to follow up on that, are you seeing, if I look at that conversion ratio changing, would it be much more dramatic outside of the U.S. and some of your larger, more developed markets? Or are you also seeing that conversion metric improve in the U.S. as well?

So I think we see decent ratios in different places. And definitely in places such as Brazil and Russia where we're making a lot of progress in terms of the [localization] efforts you see a steeper [climb] but you also see improvement also in the U.S. and Canada and kind of more veteran markets.

OK. Then a separate question, I just wanted to know about how you're doing pricing for WixHotels?

WixHotels, well we're not, well we're still testing that. So we're not yet a very complete plan that we will share at this time. So we still have a couple of reviews (inaudible) customers.

OK. Great. Thank you.

Thank you. Our next question comes from the Sterling Auty of JP Morgan.

Yes. Thanks. Hi, guys.

Hey Sterling.

So you brought up the partnership with Google. I'd like to kind of whirl that into and just ask one, have you seen or can you give us any comments on what type of traffic, referral traffic, you've already gotten and I understand it's a limited beta. But then broader that discussion out to your partnership with Yandex and how many other partnerships in this kind of you know registrar type of opportunity do you actually see going forward.

So it's Nir. As for the Google beta, it's still on the minimum levels of traffic. So there is nothing significant coming out of it at this stage. Obviously there is you know the levels of traffic [as it says there are] will be dependent on Google's ability to bring in much traffic and generate server domains. We're big believers in Google and we have a stronger belief and hope that it is going to be an interesting go-to-market channel for us.

In terms of the comparison with other registrars, that's definitely something that we think is very interesting potential. The other deal we similarly is not with Yandex, it's with REG.RU. It's kind of the same family so obviously not exactly, they are not exactly the same. We're starting to see some traction there but we still have product improvement to be done in order to really assess whether this could be a significant channel or not.

OK. Then can you give us a sense of, I don't think in your prepared remarks there was you know any real kind of commentary around the App Store other than you know the new Etsy and some of the new items but you know can you give us some additional color on where you're seeing the biggest traction in the App Store.

Absolutely. So first of all in terms of, we're starting to see more and more utilization of products that are into (inaudible) marketer business and then to manage your business. So we're seeing more of those being in terms of the percentage. We're still seeing a lot of the (inaudible) installation continue to grow publication within your website. We (inaudible) 51,000 visitors daily to the up market and about 3 million application installed last quarter.

So you know we're seeing some traction growth. We're seeing that everything in that is improving. Of course things like ShoutOut, the (inaudible) in the first day so we're seeing this. It continues to improve and of course also things like Google, the Google accounts, the g-mail and Google apps are growing but more in the same kind of percentages they use to be before that.

The last thing I want to mention is that we do serve six applications now live with WixHive API and we're going to have probably at end of the quarter about 20 to 25 applications when using Hive.

OK. And last question, Lior, under the new definition of adjusted EBITDA, you know to give us a better sense of kind of how it's tracking relative to cash flow, et cetera, you know is there a sense, could that metric turn actually positive. So get above break even in 2015?

So Sterling, we will get to that when we announce the Q4 results in February 2015. So we definitely touch this point and elaborate about it.

OK. Thank you.

Thank you. Our next question comes from Mark Mahaney of RBC Capital Markets. Your line is open.

Two questions, I wanted to follow up on Nat's question earlier about what's been driving conversion rates. I know you talked about product improvements. Could you talk about qualitatively where you think you are in terms of your ability to continue to improve the products and I know that's kind of an open ended question. But do you think, have you been making major changes in the last you know year or so that have caused those improvements in conversion rates. And is the product pipeline, call it improvement pipeline, look pretty robust to you such that you know you can continue to see that level of improvement in the product and the improvement in the conversion rates.

Then secondly, does the kind of reclassification of the REIT definition of EBITDA does that change at all your long term margin goals. Thank you.

Maybe I will take the first one and Lior will take the second one. This is Avishai. In the, so I think that the, we did a lot of things during the last year in order to improve the product conversion. Most of them were small changes. A lot of them were just gradual, for example adding a lot more templates, adding a lot more languages, adding a lot more applications. We've created fantastic mobile product, which was one of the bigger changes that we did.

We did the Market App Store. So we did a lot of different things that continue to improve that. In the next six months, before the end of the next quarter, you will see some really incredible new products, well new improvements to the current products that we expect to drive conversions dramatically up. And so we are super excited about it. I don't want to comment because currently the deadline is on December and its software, so it might be in the quarter after that or, but we have some new innovation that really changing a lot of the barriers we have today and making, we expect them to make dramatic effect on conversion.

So this is Lior. With regard to the new way that we calculated the adjusted EBITDA, I think that it is important to point out you know First of all, that this new way of calculating adjusted EBITDA which by the way is not such a new way, I think there are many other companies using that. But I think that it's -- illustrates the best way of how we look at the business. And (it feels) straight that we are significantly improvements in terms of profitability.

I think we actually started the year and provided the first guidance for 2014. And to your question about the target, at the end of day adjusted EBITDA under both definitions should lead to (summary vote). I think that the main change is about the timing. The new definition of adjusted EBITDA basically takes into account the collection which is the best measurement of how to look into our business. While the old one, look at revenue which is just for accounting purposes.

Certainly there will be a difference in terms of the timing to reach to the targets more looking at both definitions.

Mark Mahaney, RBC Capital Markets - Analyst: Thank you Lior. Thank you Avishai.

Thank you. (Operator Instructions). Our next question comes from Jason Helfstein of Oppenheimer. Your line is open.

Thanks, two questions. Can you go into just a bit more detail about the partnership with Google? Kind of you know what you might expect to see with over time. It just seems like you've got more and more business focused on the local SMB space and you're sitting in a very good spot.

Then secondly, can you give us a bit more color just international growth versus U.S. growth from a quarter. And then one last one, we obviously saw nice improvement in operating leverage on the sales and marketing side. Can you talk about kind of what's driving that implied efficiency on the CPA. Thanks.

So this is Avishai and I'm going to try and answer your first question. So the thing about our expectations with the partnership with Google is that just as we own it, you know Google never did anything in this area before. This is -- they have a really great product that we like and we're strong believers in the power of Google and that they will be able to execute and enter into this new realm.

And by doing that, they bring a lot of traffic to their site to allow them to, people to buy (demand) then we will get a large piece of that traffic back into Wix and convert that into premium users. Mostly because the guy that are part of that, that went for Google and for the domain which is an integral part of why people go to premium on Wix because they want to connect to domain. That just pushes us in Google.

So we're strong believers and we believe Google has a very good chance to do fantastically well there. But it's still not really, we haven't seen them launch that and we haven't seen any drive traffic there so we're still interested in improving and take the product and see how well it performs in the market. Beyond that, I think Nir, you want to answer the question about the international...

Absolutely. So listen in terms of, so in terms of international growth we see the ongoing trend in which the U.S. is decreasing percentage of total revenue in collection. It's actually for the first time ever I think slightly less than 60%. While it still grows at the same rates that are recorded in the past, clearly that's a great indication of the fact we keep on growing internationally in geographies such as Brazil and the rest of Latin America and Russia, in Europe. And we have many plans to keep on that global expansion for the second half of 2014 and going into 2015.

So, I will take the third question. This is Lior. So first there are no significant change in terms of market in efficiency from the second quarter to third quarter but I think that you know it makes sense first to notice that since we started with the public media, mainly TV we've learned a lot.

We've learned how to do it more efficient and how to do it better. This is what we've done. We started and we launched TV in France. We did a lot of testing in Russia and Brazil and obviously we've learned in the last few quarters and obviously improved everything. We think that as time passes we think that the marketing and the way that we do marketing will be more efficient in the future. You know this is part of our model.

Our next question comes from Kerry Rice of Needham. Your line is open.

Thank you. Two questions, one, you know you launch WixHotels as a vertical. I was curious you know maybe why choosing that vertical first and other verticals that you're contemplating of launching over the near term. Then if you could give us an update on the Appixia integration and potential relaunching of that product.

Just to give him an answer, what is it we could tell him, why we developed that first, right.

Yes. So, well the (inaudible) with WixHotel is that while we feel that a lot of, we have a lot of small hotels, bed and breakfasts, and other guests services of that nature as customers of Wix. We think that this is a big segment and it's a segment that struggles a lot because currently they either have a very expensive solution that fit to manage medium or large hotels and that are very complex to work in, they've got a lot of money [in terms and so]. or that they have to do most of the work [minorally].

We couldn't find -- there is nothing that we could partner with that we found that would provide the same functionality that they need and besides we recognize it as a lot of [pain] and we have a lot of potential customers who decided to develop their product. And we believe that, it is part of our ongoing strategy of allowing our customers to manage their business in the best way possible online. And by adding a product like that we're actually taking them and we're going to continue to improve them and even the same functionality that large chain has even while there is no business.

I just want to emphasize that one of the good things about this product is that it allows them to maintain their independence. And we're not priced on the booking (inaudible) and one of those companies that try to make sure we control the marketing and management or anything. We're just adding a big part of functionality to what they can do and then we're going to allow them to choose any marketing agents in our market that exists.

So we're an enabler for better management to allow them to connect through fantastic marketing services, again like when booking the (inaudible). And, so this is the strategy behind it. And this is a force of many that we intend to do. And that providing great solutions for our customers to better manage their business. And so -- regarding the [fixed-year], we said before we're working on the product. We still do not have a date for product launch. We released a bunch of, and better version to our customers to know exactly the needs that they have so we can then think about them towards [providing] the technology and (inaudible) until we get their feedback we will actually have product release.

I have to say this. We're very optimistic. We actually saw that the product itself is a combination of a great worksite and great mobile native application is a, the dramatic effects for the, for our customers' business. And besides we're looking at this important milestone for one to achieve. But it's still in the lab. It's not something that we have a final (release) point.

Thank you. Our final question comes from Sterling Auty of JP Morgan. Your line is open.

Hey guys. Maybe just a couple of follow ups. You gave us the cohort information but can you give us a sense that you can in the filings you talk about the percentage of premium subscribers that actually came from users that signed up during the quarter. Can you give us a sense of what that looked like during this quarter?

Yes. This is Lior. Basically it's about 40% came from the current quarter and 60% came from previous ones.

OK. And there was a discussion earlier about the continued shift to annual subscription programs away from monthly. Can you give us a sense at this point where we are in terms of the mix of annual versus monthly?

Sure. So right now in terms of the accumulated number of yearly we are 67%. And obviously this is something that keeps increasing. second quarter we were roughly at 55% in terms of yearly subscription. And it's starting, it's important to note that we think that in the rest of the year, we think that this number might be increasing.

This is one of the reasons why we are decided to go and change the way that we are calculating the adjusted EBITDA because the collection is keep increasing more than the revenue and this is one of the reasons for that.

So you are saying that 67%, so cumulative out of all of the premium subscriptions, 67% are yearly but specifically to the quarter, only 55%?

Correct.

OK. And how did that look last quarter? So in other words, you know just, you were talking about increasing through the year, just maybe talk us through the seasonality. Is there seasonality in terms of when people are more likely choose yearly. So in other words is Q4 a really big percentage in terms of those that choose yearly?

Well I don't think that there is much of seasonality. Usually during the fourth quarter when we are, do some campaigns because of the holidays, the yearly increases. Usually in the last few quarters, it was slightly above 50% for the yearly. And as I mentioned before, we see these numbers on a yearly and not necessarily quarter-over-quarter but we see this number increasing and we think that it will continue to increase in the short term, meaning that we will see more and more managed packaged, yearly packages and we see that more and more people subscription choosing yearly rather than monthly.

And overall obviously for us it's very good because its means that we've managed to collect every fee, you know the maximum amount of money they want and obviously invest some of it back. But you know at the end of the day this is a the purpose. We just increase visibility and not predictability of our model.

As also maybe the other way, you know as we think about it. So 57% is the cumulative. I would imagine your monthly package users are more likely to turn off, you know look like wedding designers, et cetera, leaving you more likely have a skew in the existing base to be more yearly.

Exactly. This is why on a cumulative basis you see a higher percentage.

So some of the monthlies after a while mature into yearly because you know the same confident with the product, you want to get the discount for it and move to an annual subscription.

Got it. All right. Thanks guys.

Thank you.