Wix.Com Ltd (WIX) 2015 Q2 法說會逐字稿

Good morning. My name is Sean. I will be your conference operator today. At this time, I would like to welcome everyone to the Wix.com 2015 second-quarter financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Joe Pollaro, you may begin your conference.

Good morning. Welcome to Wix's second-quarter 2015 earnings call. I'm here with Avishai Abrahami, our Co-Founder and CEO, Nir Zohar, our President and COO, and Lior Shemesh, our CFO.

Let me read a brief disclaimer before we begin. During this call, we may make forward-looking statements about the future performance of the Company, and these statements are based on current expectations and assumptions. Please consider the risk factors included in our most recent Form 20-F that could cause our actual results to differ materially from those in these forward-looking statements. We do not undertake any obligation to update these forward-looking statements.

In addition, we will comment on non-GAAP financial results and you can find all reconciliations between GAAP and these non-GAAP results in our press release and presentation slides on the Investor Relations page of our website.

As noted in our press release, this morning, we're going to use a different format for today's call. Earlier this morning, we provided on our IR site a detailed written summary of the quarter along with the material that we normally provide. The detailed summary is intended to serve in place of extended formal comments, and we will not repeat them here on this call. So the management team is just going to run through some very brief comments on the quarter and then we will just move straight into Q&A. So with that I'm going to now turn it over to our cofounder and CEO, Avishai Abrahami.

Thank you and thanks, everybody, for joining our call today. As Joe said, we are doing something different this quarter with our call. Nir, Lior and I will provide a few comments upfront and then we will move to Q&A. This way, you do not need to listen to such a long script that repeats what you can read in our PR and we can have more time for questions if needed.

So, to begin, we had another great quarter. We've added nearly 5 million users this quarter, our most ever, and we added 132,000 net subscriptions, which brings our total to 1.5 million or 48% higher over Q2 last year. This performance supports our belief that more people choose Wix to build their online presence than any other platform on the planet.

Our collection growth was nearly 45% this quarter, and it was 55% if you exclude foreign exchange. I'm also really happy to say that we generated positive adjusted EBITDA and cash flow for the first time in our history. This is a significant achievement for us. It proves that our freemium business model works, and it makes Wix a rare combination of high-growth and profitability. Very few companies that are growing the top line at the rate of over 40% annually are cash flow positive. But we are one, which I think is outstanding.

Our vision is to make building and managing an online presence for small businesses easy and affordable. A key differentiator is that our success is built with a focus on technology, product development and user experience. This is why millions of users continue to come to Wix, use our platform and tell their friends about us. It is also why we believe we are extending our leadership in this sector over our competitors.

The global market to deliver technology and software to small businesses is very large and growing. In addition to providing the easiest way to create a website exactly how you want it, we have developed several software products that deliver enterprise-level functionality to small businesses, allowing owners to move all business functions online.

Over the last quarter, we have made a lot of enhancements to improve products such as WixHotels, WixStores and WixShoutOut, and we will continue to increase their value. Mobile remains a focus of ours, and we have over 9.3 million mobile sites on Wix today. And we have also begun testing a new redesign of our HTML5 Editor, which we believe will set a new standard for web development technology.

I will just wrap up by saying that I am very happy with our most recent quarter and believe we are well positioned for success for the remainder of the year. Our business is performing well and we believe that the new products we are planning will continue our momentum.

I will now hand it over to Nir to talk about our cohort performance.

Thank you Avishai. Our strong user and subscription growth continues. We are particularly happy with our results this quarter as Q2 is typically our lowest quarter. Our net additions of 132,000 subscriptions in Q2 were only slightly lower than Q1, which is seasonally our strongest quarter of the year, and much better than the decline we saw in last year's Q2.

We posted on our IR website the cohort slide that we normally provide, and you can see that our cohorts continue to perform very well. Our most recent cohort in Q1 2015 is following an improved upward trajectory compared to our past cohorts. And our older cohorts are following similar patterns to each other.

Of our new subscriptions this quarter, 38% were from users registered with us in this quarter while 62% came from prior-quarter cohorts. Conversion of our users to subscriptions is as high as it has ever been and our cohorts continue to produce significant value even years after they were created. New products and improvement to our existing products continue to drive this strong performance.

We also continue to see the shift of our subscription base into annual packages. This quarter, 76% of new subscriptions were annual, and our overall subscription base is now comprised of 79% annual packages.

The rate at which we are adding annuals has exceeded our expectation. This is a positive development for us as we can collect cash faster and it strengthens our long-term value of our cohorts.

On marketing, we continue to target an investment return of seven to nine months, which we are on track with our Q2 spend. Our registered user growth spiked in Q2, partially due to some testing of new acquisition channels. These tests were primarily in geographies outside of the US and resulted in traffic with varying degrees of conversion rates. We continue to optimize these new channels and are optimistic about their potential. We are always testing new acquisition channels and adjusting our investment according to our targeted TROI.

This quarter illustrates what is unique about our freemium business model. Cohorts that we acquired several periods ago continue to generate collections today without additional marketing investment. This behavior, which is driven by our focus on great products and a great user experience, enables us to maintain strong topline growth and generate positive cash flow.

I will now hand it over to Lior to provide some financial highlights on the quarter.

Thanks, Nir, and good morning everyone. Before I begin, if you think back to when we went public about six earnings reports ago, our target was to be profitable in 2016. We have now achieved that target for the first half of 2015. This proves that our model is working better than we had anticipated and is a great achievement.

So on to the results for the quarter. Our strong growth in subscriptions once again led to a solid financial performance. Collections were up 44% year-over-year to $57.4 million, and 55% year-over-year to $61.7 million if you exclude the impact of the currency. Revenue increased 43% year-over-year.

This was our first-quarter ever of positive EBITDA and positive cash flow. We generated $3.5 million in EBITDA and $3.4 million of free cash flow. We believe that producing positive EBITDA is sustainable as we continue to realize the operating leverage in our model.

We have continued to see a slight decline in our average revenue per subscription. Currency and the shift to annual plans continues to be headwinds on ARPU, and we expect that to continue throughout the remainder of the year. However, on a constant dollar basis and excluding the impact of the shift to annual plans, ARPU has actually increased year-over-year.

To highlight a few items on our P&L, our non-GAAP gross margin remains strong at 83%. We realized significant operating leverage in our marketing expenses this quarter. Non-GAAP marketing expense fell from 56% of collections last quarter to 48% this quarter. Marketing actually decreased 12% quarter-over-quarter. This was partly due to a higher level of expenses in Q1 from the Super Bowl campaign, but it can be also attributed to the leverage benefit of our cohorts. We increased non-GAAP R&D expense slightly during the quarter due to headcount additions, but maintained a 28% of collections. Non-GAAP G&A expenses also slightly increased, but remained at 6% of collections.

I will now move on to our outlook for Q3. We are expecting collections of $61 million to $62 million in Q3. If we assume constant exchange rates from Q3 2014, our collection outlook would be about $3 million higher. We expect revenue in the range of $52 million to $53 million and we expect to continue generating positive adjusted EBITDA in the range of $3 million to $4 million in Q3.

For the full year of 2015, we are maintaining the midpoint of our previously guided range of our collection and revenue, and we are increasing our adjusted EBITDA guidance as we continue to generate leverage throughout the year. We now expect full-year collections of $241 million to $245 million. Assuming constant exchange rates to 2014, our collections guidance would be $12 million higher, or $253 million to $257 million. We expect revenue of $201 million to $203 million, again keeping the midpoint the same as our previous outlook. And now we expect adjusted EBITDA of $10 million to $12 million, increasing our prior range of $7 million to $9 million.

We are very happy with our quarter's performance and especially with our first profitable quarter. We believe we are positioned well for continued topline growth and profitability for a strong second half of the year.

So now let's move on to your questions.

(Operator Instructions). Sterling Auty, JPMorgan.

Yes, thanks. Hi guys. I wanted to start with the conversions, the 38% of freemium subscribers coming from current quarter registered users. How would you characterize the result in terms of absolute numbers? Was it that the previous cohorts just had an exceptionally strong quarter, and that's why they made up 62%, or was there anything that you saw in terms of the current quarter conversions that maybe were not as strong as what you typically see?

It's Nir. So, generally, if you remember, we spoke about this in the past. Q2 is customarily, in terms of the seasonality, a slower or even the slowest quarter of the year, which kind of makes sense as to why you will see better performance in terms of the contribution of the older cohorts into this specific quarter. But I think that overall if you think about the past cohort performance and quarter after quarter, it kind of fluctuates around that 60% to 40% split.

What was that mix last June? So the second quarter of last year, how did that mix look?

I think it was similar, but we will dive into the numbers here for a second and I'll answer that in a minute, okay?

Okay. Great. Then onto the new channels that you talked about, primarily outside the US, can you give a little bit more detail either what was the geographies and what was the method of the channel? Are we talking about still just online advertising, or how much of it was TV or other broadcast, or versus other channels?

First off, to your previous question, last Q2, it was exactly 60%/40% split, Q2 of 2014. In terms of the channel that we discussed, we'd rather not give specifics on channels simply because it's very highly competitive data. But it's definitely in all geographies that are outside of North America, a combo of traffic in Europe, in Australia, in Brazil, in Russia, and kind of a pretty widespread mix.

All right, great. And then last question, you gave us the FX impact on collections. Any sense as of what the FX impact was on revenue in the quarter?

Yes, Sterling, this is Lior. So if we check the revenue, I think that it is more interesting, year-over-year, the effect on revenue was approximately $2 million.

Great. Thank you guys.

Nat Schindler, Bank of America.

Hi guys. Less on a detail and more on kind of a longer-range question and strategy thing. As you look at why businesses churn off your system, outside of business churn, i.e. businesses going out of business, switching off or changing what they do, why do people leave Wix, and what are you doing to address that?

I think that, outside of closing their business or switching to somebody else, which is more of a rare occurrence. The other reason is not having enough functionality. So given that the business becomes successful to a level that we can't provide enough functionality will churn. A good example would have been the hotels. For example, if you needed a booking system on your Hotel and you didn't have it on Wix, you would have to churn. And this is -- a lot of what we're doing now is addressing this higher requirements by customers that have successful businesses. Their business grows, allowing them to scale with us.

Okay. And going on that idea of scaling with the businesses, as you are looking at building in your own capabilities in your site, particularly in eCommerce, versus partnering with -- as, you've been the partner for a long time, with players like Shopify -- where do you see the line where you can no longer provide enough for the business and that you should recommend them going to another player, or is it -- do you see the capability of you continuing to improve on what you do and just kind of shrinking what others can provide as additional, or the value of moving upmarket?

That's actually a very good example because I think that the eCommerce channel provides detailed example. I'll try to explain. So we have the WixStores, and then we have three other partners. We have SimpleCommerce, we have Ecwid, and then we have Shopify. Each one of them is addressing a different kind of need. SimpleCommerce sells one product. You don't need a shopping cart for that. It's very, very basic. And the way we think about it is that it's not something that we need to address ourselves.

And then if you look at Shopify for example, it addresses the highest part of the market. A lot of their customers are medium-size or even large companies, and there is a very deep functionality, and they are also very focused on North America, kind of on the United States mostly. So if you look at the small businesses, a lot of times their needs are different, and a lot of them are outside of the United States.

So, as a company, we believe that we should provide solutions that are not competing with our partners, but allow our customers to have at least one good choice in the market that they are at. For example, in eCommerce, I don't think we would go and do another Shopify. I might be wrong about Shopify, but from what I understand, they are going to be in the logistics distribution and they are going to do a shipping system.

The problem that's been involved was that's probably a lot more for medium and large sized companies. So we are going to stay on doing a great online experience integrating with their different systems. And I think that the line is becoming more and more clear is just both companies will develop their roadmap. We love the partnership and we love the partnership with Shopify, with Ecwid, SimpleCommerce, and this is, for us, another way of providing a platform and not just a solution.

By the way, this is Nir, I just want to add that I think that a great testament to the fact that we are solving more of the problems -- the issues that the small businesses have with eCommerce is if you look at kind of the growth of the WixStores, which is our new eComm solution, from the end of last year to today, the percentage of people who actually choosing to buy that out of our billings moved from approximately 10% back then to nearly 14% now. So, clearly, we are adding more value there.

Let me just say one more thing about the hotels. For example, in hotels, we tried to look at the system out there and we couldn't find anybody that is worth partnering. And so we didn't have a choice except to develop it ourselves. So everything is different, but I think that the decline is very, very clear of what we should be doing in order to enable our customers to take their business and grow it.

Great. And one final question guys, this one more for Lior. As I look at your guidance, particularly for profitability, you beat the quarter by $2.5 million off the midpoint, but you raised your year by only $3 million. So, if I just look at this quarter versus what you would have to include into the next two quarters is you would have to delever pretty substantially from Q2 to only generate $500,000 more in the back half than you've already added to your year. Do you have any substantial investment that you are planned given your upside in this quarter that you're going to do in the back half or are you just giving yourself a little room there?

So, first of all, you know that I'm never taking room, but basically the way to look at this quarter, which I think that was really the best ever quarter for us, and because of the profitability and just because of the fact that our model does work. And if you guys remember back in the past when we just went out to IPO, we said that we're going to be profitable in 2016, and then later on in the second half of 2015 and now we're profitable quite nicely on the first half of 2015. And the reason of what we see this quarter actually comes from -- there are two affects to that. The first one is the fact that we increased the outlook for the topline back last quarter. Obviously, that resulted with a better profitability, and we actually increased the outlook also for profitability last quarter.

The second thing, which happened this quarter, is really great leverage that we've seen specifically now in marketing investments, meaning that we optimized the way that we do investment, and sometimes when we see that something doesn't work in terms of the TROI, especially when we're talking about off-line and brand investments, so obviously we are trying to optimize it all the time.

And secondly, we saw really good leverage of our model this quarter coming from the previous cohorts. So if you ask me, this is something that will continue. Well, obviously, we provide an outlook of what we see right now, which is reasonable. It might happen that we feel better leverage also in the future, but you know, I prefer to provide outlook of what I see and what I feel very comfortable about.

Great. Thank you guys.

Mark Mahaney, RBC Capital Markets.

Two questions please. One, could you give us a little bit more color on the WixShoutOut Facebook relationship, or that product or that solution and what kind of customer interest you're getting in that? And then a little bit more color on some of the verticals, particularly the WixHotels and what kind of traction you are seeing for that in the marketplace. Thank you.

Of course. So the WixShoutOut Facebook integration, so first of all, it's a new thing, so we are still learning on how it behaves. The reason that we went to do that is because for a small business to really be affected in advertising on Facebook, it's pretty hard. It's pretty hard to give the graphic that you need and the content that you need. And ShoutOut allow you to do it in a very easy and simplified way. We worked with Facebook on doing that, and we think that it provides tremendous value for customers that used to use it. And if you are a small business and sophisticated enough to be able to build a Facebook campaign, then this product is really going to help you do that in a more efficient way. And I think that we can see that more and more small businesses understand that Facebook is a good place for advertising. Currently, it's a new product, and we see traction coming to it, and we are going to continue to see how it evolves. It's giving us potential in one way. Does this answer your question about ShoutOut?

Yes it does. Thank you. And on WixHotel?

WixHotel. So we've recently continued to evolve the product. It now supports I believe 12 languages. You can actually order a room in 12 languages here. We added support for online travel agencies, so OTAs are now automatically integrated into the product so you can really manage your inventory from one place. In fact, I think this is the first time that an independent hotel can actually do that, which for them means a huge benefit on their ability to be aggressive on sales. And so we have gained some traction. In fact, If I remember correctly it's almost doubled since the beginning of the year. And conversion by the way on hotels compared to the average on Wix and the non-segmented value is almost twice as good. It still not a huge portion of revenues or something that we feel that we need to disclose, but we are really happy about the results.

Just think about it. Twice the conversion of an average segment from Wix just because the offering is so much better.

Kerry Rice, Needham.

Thanks. Two questions, maybe first around collections. Is there any more details that you can give us on what's driving the strong collection growth, obviously ex the FX headwinds? Is it -- are you seeing higher price packages still? Are you seeing more -- I'm sure you are seeing more app downloads but I don't know if you can give us any more insight on what the app revenue is as a percentage of total. Anything else on collections?

This is Lior. So, first of all, I think that, you know, it's important to mention that although we don't feel that right now based on the ARPU because we saw that the ARPU has actually decreased. But that was mainly due to the fact that we still see the impact of currencies.

The second thing obviously is about the shifting from monthly to yearly. That said, if we exclude both effects, we actually see a really nice increase in terms of the ARPU year-over-year by more than 5%.

So to answer your question, we still see increasing ARPU coming from added-on services. From the fact that -- and I think it's Avishai or Nir mentioned that actually, that we increased with a portion of our eCommerce solution out of the overall packages, which obviously is more favorable in terms of the prices. So all those things actually impact the ARPU and therefore are on a constant dollar basis the ARPU has been increased.

Secondly, obviously the other source of collection comes from new premiums. And we saw that this quarter was quite amazing in terms of number of premiums, net premiums. It has been increased by 132,000 net premiums. Obviously, it contributed positively to the collection.

Could you say what the first impact to ARPU was? I know the shift to monthly to yearly. What was the first one again?

So there are three impacts on ARPU. The first one is -- the first two are negative impacts, meaning that the currency and the shift between monthly to yearly. The third thing is about the fact that people are buying more expensive packages. And Nir mention the fact that we see a higher portion of our eCommerce solutions that is being sold. And the other thing, we see continued increase coming from added-on services, as you mentioned, coming from the App Market, from the WixShoutOut, from the different verticals and so on.

Okay. And then on maybe mobile, did you guys -- can you break out maybe how many mobile sites you had this quarter and any other details about the revenue related to the app market? And then finally, where is the rollout, or what stage is the rollout of the native app creator?

So, maybe I'll start with the mobile. And so okay we have 9.3 million mobile sites published, which I believe that is by far the biggest mobile publishing platform in the world, probably, again, by a huge differentiation. I would even say that just the 1.5 million added from the last quarter is probably bigger than anybody else. So it is doing well, the mobile, we are really happy about it. We are seeing fantastic utilization.

On the other hand, if you look at the native product, so we've dramatically increase the size of the test now and clearly seeing very good results.

The current issue that we are trying to face is to make it very easy for us -- for small businesses to register on Apple, on the Apple Store. It's a bit tricky because it's a complex thing that Apple is doing, so we are trying to help our customers figure it out and see how it works. But it's moving to the final stages of pre-release for this product.

With regard to the App Market revenue, and we said back in the past that we actually see two effects of the App Market. The first one is that indirect effect, which obviously contributed to the conversion, to the fact that it increased the stickiness of our customers. And this is really positive to the overall collection.

The other thing is about the direct effect, which we see continued increase in the ARPU coming from the App Market. It's still not a significant portion of our revenue, and this is why we do not disclose it yet. But again, it's continued to increase quite positively.

Jason Helfstein, Oppenheimer.

Thanks. A few questions. Can you go into a bit more detail on the Facebook marketing product? Are there any, I don't know, early success stories you can share, the types of ROI customers are seeing, conversion rates? We know that Facebook wants to control their relationship with the largest advertisers, but really is looking for companies like you to help them with the small businesses. So just any additional color I think would be helpful.

The second, one of the trends we are seeing in the market is companies for example like Yelp who are really struggling to scale local advertising, which would suggest that if you bring them potential customers, traffic, etc., through your App Store, you are increasingly providing more value. Can you get better terms perhaps out of some of the partners on the App Store?

And then lastly, can you talk about if the guidance assumes improved marketing leverage through the rest of the year, as that's the trend in the second quarter? Thanks.

So, let's start with the Facebook one. Just so you know, we just pretty much released this product. To say now and to talk about the results now and success stories, that's a bit too early.

I can say that the level of proficiencies that we see on users are so different that it's going to take a while to understand how we can adopt a Facebook -- the Facebook platform. But overall, I love it.

Regarding the second question that you have about Yelp, I think that of course Wix is a place that consolidates into an amount of small businesses and smaller and smaller businesses. And of course taking all of that together and working with partners who provided some leverage in order to get in better deals, we did Google and now we are doing some, as you can see, on the ShoutOut. And I think of course there are many more places we can go to and fix that. Probably this is not a good time to discuss the relationship with partners.

And the last part, I just want to say one more thing that's always a priority. It's not to help Yelp or to help Facebook or to help Google. Our priority is always helping our customers have a better online presence and making us more and more successful. And advertising of course is part of it.

With regard to the third question about the leverage in terms of marketing, we did tell you in the past that we think that the marketing for the full year is going to be 48% to 50%. We are still guiding towards this direction. And obviously part of the leverage will also imply that it will be more towards the lower range of that. So we feel very comfortable about it. We are very happy about it. And as I mentioned before, we keep optimizing our marketing efforts. And I think that this quarter was a perfect example to that.

Tim Klassel, Northland Securities.

A question on annual subscription. What is the difference between the ARPU on an annual versus a monthly, ignoring currency?

So, there is a difference in terms of the pricing of 20% to 30% between monthly to yearly. So obviously that implies also the amount of -- the differences in terms of the prices. So this is both on a constant dollar or actual dollar or whatever.

Okay. And then I know it's probably competitively a touchy subject, but can you tell us maybe where, just qualitatively, where your conversion rates are the highest in the new channels that you've been exploring?

I think that is something that is just far too competitive for us to discuss. It costs a lot of money for us to find each one of those really highly converted channels and just remember our competitors will be able to replicate that.

If you ask us about the worst --

Mitch Bartlett, Craig-Hallum.

Thank you. So I think we've all been very intrigued by the vertical strategy, the hotels, restaurant, music and that whole thing. I think you talked -- you answered Mark Mahaney's question that the conversion rate you are seeing off of hotels has doubled. Two questions there. What is the ARPU lift that you get? And I don't know how you measure that, from a person that just came in normally with a hotel to buying into a bundle. What is that ARPU lift?

And more globally, you are saying it's too early at this point to really say that it has a meaningful impact, that these are small numbers at this point. When does it become meaningful when you look at the vertical strategy to -- that it starts to affect the numbers?

So there are two ways to answer the first part of your question. First, is what the ARPU is that you have on one single customer, and then what is the ARPU at least that you get overall? And it's different because currently the average price for a hotel package is around $20, if I remember correctly, instead of around $12. So overall it's about you can say $5 or $6 above the price of a regular customer.

But then we also doubled the amount of customers. So you can either take $5, $6 and you can say that it's doubled, plus -- it doubled $5. Right? It's kind of a different rate. I look at it in the second way. Why? Because we paid for the same amount of traffic, and I would get twice the value out of it. Plus they accepted the application. And that's why I think that it is really that positive. I think we all mentioned here today that we also see about -- that we see that eCommerce moved from 10% to 14%. That's a 40% increase and that's within a couple of months after releasing the new product.

I think that, overall, you're going to see that we start to disclose this number when improvement on the ARPU itself starts to make a difference. Currently, we report the overall conversion of Wix and the product influence -- has been influenced by improvement on -- by the different verticals that are already part of it. We don't differentiate and share which part of it, but I think it is such a big portion of our conversion improvement to those moves that we did over the last year. So that should give you a pretty good estimate.

The other thing is that as there are more verticals, which we intend to do, you're going to see, again, a wider improvement and then of course it becomes substantial enough to disclose.

The one thing that we always are afraid of in here is that we spend a huge amount of effort analyzing and understanding which vertical we should go after next. And again, that's very sensitive information to understand what we tested, what we decided not to and what is the impact. So that's why we are a bit reluctant to give you the full details and we're going to try and hold it as much as we can until of course Lior will one day tell me I can't anymore.

Okay. Just to clarify, the 10% to 14% eCommerce lift, lift in eCommerce, that was a conversion rate lift? Or what was that statistic that you gave?

It is pretty much you can look at it as a conversion model. It's actually from the total users coming to us, but it's equivalent, almost, to the conversion uplift on the eCommerce.

Got it.

So it's a relative number. It doesn't necessarily say the 10% conversion overall is from everybody who tried to build e-commerce, but it says that on the X plus 40% approximately.

Got it. The second question would just be on a little bit more on the geographies and where you are seeing real success. I see on your slide deck that North America represented about 50% of sales in Q2, which is fairly consistent. I was wondering, given all the efforts around the Super Bowl and whatnot, is if -- are you peddling harder in the US on your advertising than you are rest of world, or where is there really is a business for you right now?

It's Nir. You have to remember that this is -- these numbers at the end of the day are based on the current dollars. Naturally, if you would exclude the foreign exchange impact, you will see that it's actually decreasing even faster in other parts of the world. That being said, countries that are very strong for us, countries like Brazil, like England, like Europe in general, and Russia. And obviously if you look at what the Russian ruble or the euro or the Brazilian real has done, then naturally it kind of decreases the effect when you look at it at the actual dollar. We actually see a lot of really positive signs of growth.

Aaron Kessler, Raymond James.

Yes, thank you. A couple questions. First, any more color you could provide on -- I know it's small -- but just the revenue guidance being narrowed?

Second, I didn't see in the release maybe the headcount and kind of maybe your growth expectations for headcount through the end of the year.

And just finally, competitive dynamics. Anything you're seeing change competition-wise, either US or globally? Thank you.

I'll start with the revenue outlook. So as I mentioned before, we actually, very beginning of the year, we actually increased the outlook for revenue. So this quarter, we maintained the midpoint of the revenue, just narrowed the range because obviously we have better visibility in terms of the rest of the year. We still feel very comfortable about it. We are very excited about it because in constant dollar actually the growth is about 50% year-over-year. So I think it's pretty much impressive. Again, this is where we see right now realistically how we are going to end up the year, taking into consideration all the FX impact on our topline. In terms of -- Yes?

Headcount growth and just competitive dynamics?

Yes. In terms of headcount we are slightly above 1,000 employees with R&D still being a priority obviously. I think what is also interesting that we are continuing to increase the headcount in R&D and other divisions obviously to support all the efforts that we do in terms of our products and so on. That said, we are continuing to see the leverage and the fact that the topline is actually increasing higher than our expenses.

And in terms of the third question about the competitive dynamics, we don't see any things you can change in the last quarter.

Great. Thank you.

Samad Samana, FBR Capital.

Good morning. Thanks for taking my questions. The first one I wanted to ask was, was there any change in the discounting or incentive offerings on annual packages beyond the standard discount from month-to-month to annual during the quarter?

Sure. Actually, I want to talk about it a bit because I think this is something which is very exciting for us and we feel very good about it. And I will try to explain. We started this quarter, we started to test some new sign-up promotion program. And obviously, we are still optimizing it. In the short-term, we see a slight decrease in terms of the ARPU coming from collection, but we did not see any impact or negative impacts in terms of incremental collection coming from this program in this quarter.

The fact that we are very -- the reason why we are very excited about it is we believe that this new program is actually going to improve the LTV of our cohorts and going to have really a positive impact next year on our results. So, this is part of the effort that we continue to do all the time to try to optimize our marketing investments, both in terms of TROI and also trying to improve not just the short-term, but obviously the long-term, meaning the LTV and the future results of our cohorts.

Thanks. That's helpful. And then in terms of the sales and marketing expense decline, I understand the Super Bowl made 1Q a very large number. But as you think about the rest of the decline, if you had held your spending on paid customer acquisitions, would premium subscriptions have been even higher or did you choose at some point in the quarter to not spend any more on paid acquisition?

So, actually, and I think that this is something that we need to evaluate based on two different factors, because the marketing is actually separated into two. There is the traditional marketing, either online and off-line, but the other thing is about the investments in branding, which without an investing in branding, this is something that we keep on optimizing, and looking at the ROI coming from investment in branding. If we see that something doesn't make sense, we will shift it or we do not invest, meaning that we are trying smartly to evaluate whether we need to invest in branding or not. With regard to the traditional marketing, the direct acquisition, that was in line with other quarters. There was no change.

Deepak Mathivanan, Deutsche Bank.

Thanks. Two questions guys. First, the mix of new subscribers from annuals continues to increase steadily. Can you comment about the renewal rate you are seeing from the annuals that came in since the ramp started in 2Q last year? Are there any meaningful differences in year one renewals there? And then what do you expect the mix to be in the long-term for new sales from annual packages? And then I have a follow-up.

This is Nir. So, naturally, we are very, very happy with this shift. It has -- it gives us a lot of value in terms of cash collection as well as long-term retention and the value of the cohort.

In terms of the retention and renewals, ever since that ramp up has started, we have seen similar, I would say very similar behavior in terms of renewals. So there's no significant change because of the ramp up.

In terms of going forward, we estimate that it's probably somewhere, in terms of new subscribers, it's probably somewhere between -- on the range of 70% to 75%.

Okay. That's helpful. And in your prepared remarks, you had that you're testing a new version of the HTML5 Editor. Can you elaborate a little bit more than that? What are some of the new enhancements we can expect in the product? And then any thoughts on the timeline for broader rollout in different markets for this?

Yes. I can elaborate a little bit. I will say that we are very excited. It's a big change in what we do. And I think you're going to have to see the details when we release the product. And so I believe that announcing new -- releasing the new product to the market should probably done. But it's not going to be on this conference call with analysts or the market. So give it a couple -- a little bit longer and we will see.

There are no further questions at this time. This concludes today's conference call. You may now disconnect.