Wix.Com Ltd (WIX) 2018 Q1 法說會逐字稿

Good morning.

My name is Kelly, and I will be your conference operator today.

At this time, I'd like to welcome everyone to the Wix.com 2018 First Quarter Financial Results Conference Call.

(Operator Instructions)

I would now like to turn the call over to Maggie O'Donnell, Director of Investor Relations.

Good morning.

Welcome to Wix' First Quarter 2018 Earnings Call.

Joining me today to discuss our results are Avishai Abrahami, CEO and Co-Founder; Nir Zohar, President and COO; and Lior Shemesh, CFO.

During this call, we may make forward-looking statements, and these statements are based on current expectations and assumptions.

Please consider the risk factors included in our press release and the most recent Form 20-F that could cause our results to differ materially from 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.

You can find all reconciliations between our GAAP and non-GAAP results in our press release, presentation slides, shareholder update and our interactive analyst center on the web -- Investor Relations section of our website, investors.wix.com.

I also want to highlight that we will hold our Analyst and Investor Day on June 5, in New York.

The event will be webcast, and we'll post the webcast information on our IR site.

While space is limited, if you're interested in attending in person, please e-mail ir@wix.com.

Now I will hand it over to Avishai, who is going to say a couple of words about the quarter.

Avishai?

Thank you, Maggie, and good morning, everyone.

Thank you for joining us today.

We had an amazing first quarter at Wix, which is a very strong start to the year.

We again beat our expectation for both collection and revenues, and we are increasing our full year outlook.

We reported free cash flow for more than $21 million.

This was our highest ever and shows the increasing leverage of our business model.

These strong financial results are driven by our continuous focus on innovation, product development and outstanding market execution.

We've also seen impressive conversion and retention in our cohorts.

We've added 231,000 subscriptions this quarter, our most ever.

When you look at the Q1 2018 user's cohort, it is the largest number of subscriptions ever in the first quarter.

We monetized this cohort over a very long period of time without the need for additional marketing.

And this cohort continue to grow in size.

For every 100,000 new subscriptions we had, we estimate future collection of more than $186 million.

So we believe that this new cohort will generate over $370 million in collection over the next 8 years at a 80% gross margins with very little additional marketing.

This is one of the most impressive part of our business.

It is the result of the value that our users get from our product and the benefits of our business model.

This was a very strong quarter for product development.

As we have expanded our new product offering, we continue to improve existing products.

We rolled out Wix Answers, which is a product that we developed in-house to support the users.

Other companies were asking as if they could use our support infrastructure, so we offered it to them, and the initial feedback was amazing.

So we have now decided to make it available to everyone.

This product is another example of how we have taken something that is very hard for businesses to do online, and have created a product that is super easy and effective.

It shows our strength in R&D as we created something for our own use, and now we can offer it to others.

We also continue to see great success with Wix Code with increasing numbers across the board.

Everyday developers and designers are using the many features of Wix Code in different ways to create advanced websites and applications.

And it is exciting to see these professionals come to Wix and use Wix Code to create a wide variety of website and applications.

We have built a strong community of users and are constantly incorporating their feedback as we release new features and functionality.

We are very happy with the strong start of the year, and are -- continue to be very excited about the remainder of 2018.

With that, I'm going to hand it back to Maggie.

Thanks, Avishai.

(Operator Instructions) Can we have the first question, please?

Your first question comes from Jason Helfstein from Oppenheimer.

Let's take the question from Alyssa, KeyBanc.

I was hoping you would talk a little bit about Wix Code.

In the presentation, you talk a little bit about marketing and branding into channels relevant to the -- to that audience.

I was hoping you could talk a little bit about what these efforts look like so far.

How early you are kind of into that process?

And what specific type of user you're looking at targeting now?

And how that changes kind of over time?

So -- and this is Avishai.

I think that if you look at the numbers that we have today in Wix Code, I think we are very excited about, first of all, the size of them, right.

We have a pretty much 8x the user we expected to have at this state, right, which goes to show that a lot of our effort that we're doing today to bring users that are relevant, are working very well.

Of course, it's a bit of a different crowd.

But I think that one of the things that are very great about this product is that, because they're more proficient in computer usage and they are more -- they are in the higher utilization of professional elements of the Internet, it's easier to look at them and to market to them.

So I think that marketing -- we feel very confident about what we did there until now.

Your next question comes from Jason Helfstein from Oppenheimer.

Sorry about that.

Multitasking.

So you mentioned ADI has expanded to non-English countries.

Can you help us understand what the coverage might be of registered users outside of the U.S. or outside of English countries?

And at this point, when do you expect to fully finish that rollout?

And then maybe a second question.

How should we think about the free cash flow impact of the Google accounting change?

Is this purely a noncash change?

Or is there anything in the terms of the agreement that have changed that would impact free cash flow?

Jason, it's me, and I'll take the first question.

And I think naturally Lior will do -- will take the second part.

So in terms of ADI, we do not disclose the numbers and the exact rollout plan for competitive reasons.

But I can say that we've definitely started to rollout it in the non-English markets.

And we've seen results that we are very, very happy with.

Right now, it kind of makes sense actually because we've seen great performance by ADI in the English markets, so it makes perfect sense for them to -- for ADI to also have a similar or even better impact in other markets.

Our plan is to continue this process throughout the second half of the year, at least to the major markets that we support.

Jason, this is Lior.

With regard to the Google partnership, so we mentioned back in February, when we reported that, that besides of the accounting change there were some benefits as a result of the fact that we got better terms.

So obviously -- but it was already reflected in the guidance that we provided back in February.

So this quarter, you don't see more benefit as a result of that.

It's simply the execution of the agreement.

And then, if I could just sneak in one more.

Could you highlight any product launches year-to-date or conceptually where you're focusing on products for the rest of the year?

Well, we discussed, and Avishai just mentioned this, and I think we discussed this in the slide show about Answers, which I think it's a great example of how we turn our proficiency in product and technology to our advantage.

And obviously, we're going to continue on evolving and maturing Code, which is a big focus in the company as well as that rollout of ADI that I just mentioned before.

In terms of new products, yes, we do definitely have plans, but we will not disclose them and share them before we're ready to actually do the actual launch.

Your next question comes from Ronald Josey from JMP Securities.

Great.

So I wanted to ask on the new monetization models.

I think you mentioned in the letter, Answers being an example here.

And basically, I think this is the reason why you're no longer reporting the average collections per new subscribers in the U.S. So any insight into these newer models?

How you plan to market them?

Like, Answers going to non-Wix users, and what more we can expect would be helpful?

So with regard to the second question about the ARPU, the way we that calculated in the past, the reason why we provided those -- these kinds of table in the past is in order to show you guys and investors, the way that we actually look at our business in terms of newcomers, especially in light of introducing new verticals.

So it was important to see the effect of it on newcomers.

I think that you know by now, revenue already started to catch up with that.

So it would not be like the best indication of newcomers, but I think that it can give us a good -- kind of a good understanding of the trend.

Secondly, we see and we introduce more and more services.

We talk about the Answers, which is -- it's going to be a freemium model, but we are going to introduce and we already started to do that more and more added-on services.

And I think it would be much easier to do it this way, in a simple way, where we calculate the ARPU based on total revenue divided by the number of premium subscriptions.

And I think that it's also going to make it much more easy for you guys to track it.

Lior, just as a quick follow-up.

Can you give examples of what these services might look like?

So I know, you talked about newer vertical apps, maybe including G Suite as example, Answers going to nonsubscribers, things along those lines.

That'd be great.

So first of all, the Answers not necessarily go to nonsubscribers, but Google is a good example to that.

There will be, obviously, more services which we cannot disclose right now.

But I think that more added-on services, and I think that it's -- makes a lot more sense to do it this way.

Your next question comes from the line of Nat Schindler from Bank of America.

You continue to grow your fastest rate in North America, obvious answer is to say that's from the ADI being in the English language.

Are you seeing growth in, for example, the U.K. that is higher than your European averages because of the ADI?

And do you expect, as you now expand the ADI outside of the English language, that you'll see acceleration to similar growth?

And then I have a follow-up question.

I think that saying that growth in the United States is accelerating just because of ADIs is always simplifying that.

And I think that -- in reality, I think there is a lot of things that contribute to that, improving our core products, improving the vertical, for instance, adding a lot of functionality; and ADI, okay, which is a product that we love.

And of course, it has a big impact.

We do, however, see that in England and other speaking countries.

Of course, ADI contributes to conversion because of the language.

And as we are adding and rolling out more languages, we see that contribution coming also from other countries around the world.

So I think that -- but beyond that, I want to say something, which is, for me at least, is really exciting, is that we can see that the growth of the brand is supporting everything, right.

And there is such a great traction that we're getting so many organic ways just because people know so much better that Wix exists and what it can do for their business that it's really that great.

So -- and then, my follow-up question would be, with this fastest growth and accelerating growth in the U.S. where you really have your highest level of competition, have you seen any changes in the competitive dynamic, specifically with one of your competitors, Weebly, recently selling the Square?

So I think that as we now know, of course, it's a new acquisition.

So of course, we didn't see any impact from that.

But I do want to say, again, that I think that the gap between us and our competitor is actually shrinking -- it's actually growing.

And the amount of competitors we have is continuously shrinking, right?

And if you look at the -- for the history, right -- and we used to have Microsoft with FrontPage, Apple with iWeb, Adobe with Muse and Catalyst, Yahoo!

with Yahoo!

sites, Intuit with Homestead, right.

And then a bunch of others, [Balantris] with WixHive and [Instaprint] with Bootwebs.

There were so many of those, right, acquisition and mergers in these companies and all of the product, they just don't exist anymore.

They all are gone.

And so pretty much I can -- I think that we've seen another transaction that it is happening in this market, and I think it's just a testimony to how well Wix is doing compared to our competitors, right.

We pretty much had I think, what is it 8x, the amount of premiums that it had, right.

And we started the same year.

So I think that that's a testimony to how good the team behind me is in their execution.

One more little follow-up.

If you look at your 50% growth in the U.S., do you have a estimate of what the growth of Editor software subscriptions are in the U.S. overall?

I mean, another way of saying this, are you taking share?

I do -- from other companies?

Absolutely.

I think that when we look at the -- when we started, it was more than -- and we look at our traditional competitors, Webspace, Weebly, and at that time, it was also I think a lot of Homestead, Yahoo, Microsoft.

It was -- we were the smallest.

And I think now, we are probably bigger than everybody else combined in terms of growth.

And I mean, that's my guess, right, most of them don't disclose their numbers.

But from the little that we understand.

So absolutely, I think we are taking a lot of the share.

Your next question comes from the line of Deepak Mathivanan from Barclays.

This is Aki on for Deepak.

So a question on vertical product adoption.

I was wondering if you could give an update on the uptake on the vertical product offering in the last couple of quarters in terms of what are the big verticals for you guys right now.

And then specifically on eCommerce, anything you can share there in terms of growth rates, that would be great.

What was the last word?

In growth rates.

On growth rate.

And you want to take this Lior?

Or do you mind if I take it?

I think that in terms of verticals, Deepak (sic) [Aki], we see a much higher adoption actually.

If I'm looking it at on a year-over-year basis, it actually increased by almost 70% on top of last year.

And I think that when you look at verticals like Bookings, eComm, Video, and so on, they'll continue to increase and the adoption is actually getting better and better.

By the way, this is also one of the reasons why we see also increase in our ARPU, and also a better retention and satisfaction from our customers.

And I think that this trend will -- obviously will continue.

Your next question comes from the line of Naved Khan from SunTrust.

Yes, this is Nate Mitchell on for Naved Khan.

I wanted to ask about your guidance.

We noticed that you're raising collections slightly more than revenue.

I just wanted to know what you're seeing that has you doing this.

Are you talking specifically about the second quarter?

For the full year 2018.

So I think that every time that we see increase in conversion, for example, so the collection actually reacts immediately.

And revenue, it takes a bit of time to catch up with that.

So usually, when we see upside, you usually see that more stronger in terms of collections than revenue.

But obviously, revenue eventually will catch up with that, so this is like the reason.

It's -- and by the way, it's also about where it's actually going to fall in the quarter.

If it's, like, in the middle of the quarter, so the upside should be the same.

But if it's more towards the end of the quarter, so obviously, the upside on collection will be higher than revenue.

This is the reason, but beside that, like nothing unusual.

Your next question comes from the line of Brent Thill from Jefferies.

Just on the collections side.

You had 39% in the quarter, but you're guiding for 35% to 36% on an easier comp.

And in this quarter, you had a tougher comp.

Can you just talk through some of the puts and takes?

And you mentioned the World Cup was a Q2 headwind in the shareholder letter, can you just maybe talk a little bit about the impact of that?

Sure.

So looking historically, usually Q1 is a very strong quarter for us.

Obviously, we assume that the momentum, the conversion, the ARPU and all the strong KPIs that we had during the first quarter will continue into the year.

But the World Cup is a good example of simply uncertainty.

We obviously don't want to provide guidance if we have uncertainty with regard to the effect of the World Cup, so you have to wait and see and the effect of it will be mostly during June and July.

So again, usually the first quarter is very, very strong.

We are very excited about the rest of the year.

And obviously, we prefer to provide the guidance in a way that we can be sure that this is exactly what is going to happen.

Usually, when we provide it, we provide it based on understanding of, this is what we have right now, this is what we are sure about.

And you -- we usually don't want to take risk about guidance.

Your next question comes from the line of Sterling Auty from JPMorgan.

So the 5.9 million registered users in the quarter was flat year-over-year for the first time, at least in my model for the first quarter.

Should we -- is there anything to read into that?

And how should we think about the registered user growth from here?

And then on a different topic, the ASC 606 change gave you a couple million dollar lift to revenue in the quarter.

Lior, can you just remind us what causes that?

Sterling, it's me.

I'll take the first half, and Lior will obviously take the second half.

In terms of registered users, we spoke about this many times in the past that this is not what we optimize for.

Our optimization in terms of our acquisition and the way we spend marketing is towards the TROI.

And in fact, if you think about it, we brought the same size of cohort as last year, but with much better results.

And that's because we optimized and we changed the mix in order to match where is the best place to spend and invest into the best TROI.

For example, so in this cohort alone, we saw an increase of almost 10% in registered users in English-speaking countries.

So in our minds, this is actually something which is a very good indication.

And we kind of pointed it out in the cohort slide in the -- on the deck.

It's Slide #9.

And if you look at it in kind of a multiyear prospect, you can see that registered users from 15 to 18 grew by 30%, while the premium subs in the first quarter actually grew by 107%.

Just means that, we are getting better and better all the time in the efficiency of our marketing, and obviously, also as the brand keeps getting stronger and stronger, that also contributes.

Sterling, this is Lior.

So with regard to the change of the -- of accounting, the 606, 605, the impact is actually coming from recognizing revenue on domains once we collect the money, but that we used to recognize it all the time.

For example, if -- so domain for 1 year, 2 years, so right now, we recognize it once we collect it, very similar to the way that we recognize collections.

But that was the only change.

Your next question comes from the line of Mark Grant from Goldman Sachs.

So just want to go back to Wix Code for a second.

One of the expectations on our side has been that devs could use Wix Code to do freelance and other work for their own customers and bring those customers into the Wix ecosystem.

Is that what you're seeing?

Or I guess, said in another way, are you seeing average collections per sub for Code users higher than what you're seeing for the rest of the business?

So yes and yes.

It's getting a lot of those answers -- easier answers, but I'll elaborate on that.

Yes, we do see people that are using Wix Code are actually tending to build more website for other people, way more than one project.

And we see that a lot of them are agencies and a lot of them are just people that do more projects.

Sometimes, those are not websites.

Sometimes, they were building (inaudible) project for their own company, right?

And we've seen it -- that's another growth thing that we're seeing coming from Code.

But the answer to both of your questions is yes.

Great.

And then, just a quick housekeeping one for me.

Can you give us a sense of what the FX assumption is in the collections guidance going forward?

We saw a little bit of a tailwind from that in the quarter.

Mark, this is Lior.

So obviously, I cannot provide the FX effects going forward.

I wish I could.

But I can tell you that for the first quarter, the year-over-year impact was about $4 million, especially from the euro and the British pound.

Going forward, well, I don't know, I think that if it remains the same, it's already embedded with our guidance.

So let's hope that it is.

Your next question comes from the line of Matt Pfau from William Blair.

Just wanted to ask a follow-up on Wix Answers.

And I guess, you did mention that the request for the functionality came from some of your existing customers.

But as you look out at the financial contribution from this product, is it mainly geared towards more of your existing customer base and perhaps improving retention there by customers adopting more functionality?

Or is it more a tool from a customer acquisition perspective to perhaps bring in customers that maybe you couldn't previously address, because this functionality wasn't there?

Matt, it's Nir.

So first of all, most -- Answers, the core of the reason to have Answers is our own.

That's a switch we are using in order to support our own customers.

We definitely saw that some of our users have usage to it, and we're seeing them using it.

But I don't think that it's going to be an acquisition channel for more Wix users.

We might be surprised, but there is no indication for that at this point.

We do believe, and that goes to what Avishai mentioned in his opening remarks that, at some point some of our friends who are running startups in Israel said, "Hey, we love what you're using, what is it?

And we told them that it's an in-house product" and they asked to use that.

And it kind of shed light on the fact that companies, whether they are small or midsize, have a use for that specific solution, which is great in terms of the combination of the -- both the ticketing system and a knowledge base and a connection to a call center, and it's all geared up towards -- to scale up in terms of number of agents and number of users, and it's geared up for international use.

So there is a potential that that's going to grow as a different kind of a -- as a different kind of revenue stream.

It's hard for me to say by how much.

We think that it's no extra effort for us to open it up and give that opportunity for this to grow.

We'll monitor it.

And obviously, if it grows, we'll report back and share the results.

Your next question comes from the line of Tim Klasell from Northland Securities.

My first question is to do around the new subscribers.

Obviously, this is new premiums.

This is a very good quarter, nice performance.

But how about the quality of those subscribers?

I'm sure you analyze the type of products they took, maybe the geographic location, what have you.

What sort of quality of the subscribers did you sign this quarter?

And as we look back at this in a few years, the cohort analysis, do you think this group will perform at, better or maybe not so good as what we've seen in the past?

So it's Nir.

our belief is that this is a high quality group of users.

And I think, we have -- the indications that I think we mentioned, right.

The higher ARPU, the increased penetration of usage of the verticals in the applications.

These are all indications to the fact that these people are using more of the offering in our system.

I think also that, that growth in the registered users that we saw in English-speaking countries that are commonly a more mature market.

These are all -- we believe, are indications that these should be at least as good as the cohort in terms of the way that it performs and perhaps even better.

Your next question comes from the line of Lloyd Walmsley from Deutsche Bank.

This is actually Seth on for Lloyd.

Just a follow-up on Wix Answers.

I was just wondering if we can get maybe a little more clarity about how long you were using it internally.

How long it took to make an external version?

And then also, I thought it was a pretty crowded space, so just wondering how you expect to differentiate there?

And what kind of costs should we expect to maybe get that business off the ground and ramping further perhaps with the sales force?

And then, just as a follow-up, is there any other internally built systems that folks have been asking for to be able to be used externally?

So this is Avishai, and thanks for the question.

So how long we used it internally?

So I think we used it for about 5 to 6 years.

And the number one reason was that we needed a functionality, and we couldn't find it in other places.

I think that in many ways, every space is -- today is a bit competitive, right.

But I think that this product really has unique values that you don't see so often in this market.

And I think that's why we got such good traction from people who really asked to use the product.

And so we're very optimistic, and I believe it's a fantastic product.

We could not have supported so many people at Wix, which I know is a support staff, without Wix Answers.

Now it's really -- I think that it's definitely worth a try to anybody who needs a knowledge base and ticketing system.

Beyond that, we don't -- not going to put a huge amount of money now into the launch.

We're going to do what we always do.

Start doing marketing test and doing more marketing and test.

So I'm very -- I do believe that we're going to be very cautious and treat that very seriously, okay?

You also asked about costs to make it available for the public.

So it actually was marginal, as we built this as a multi-tenant tool for internal use.

So it almost has no additional R&D spend on it.

And generally, this is a small team that has been developing it.

And 100% of the features and capabilities that are embedded into the system are things that we are using internally.

So we would have developed them anyway.

In terms of other services, yes, there are a lot -- there is a few interesting things.

At this stage, we don't have any intention for releasing another one immediately.

And we'll only do so, I think, in a case in which there is a system that is ready to go, such as Answers was.

We don't want to put an extra effort into systems now in order to make them available.

That's not the core business.

Your last question comes from the line of Jonathan Kees from Summit Insights Group.

Glad to make it in.

I'll follow instructions and keep it short.

I just wanted to get a sense of the marketing spend for the rest of the year.

Q1 obviously had the Super Bowl.

And I know you mentioned about TROI here in terms of marketing dollars and the -- you have the World Cup, which -- but this is more in the marketing spend there.

Is that something that is going to be a marketing spend for you guys.

And there's also other stuff that's -- for this year, that could be opportunities or it could be cost centers in terms of marketing spend.

Just trying to gauge in terms of the consistency of marketing spend throughout the year.

Sure.

So first of all, it's important to mention that the way that we decide how much marketing to invest is based on the TROI model, meaning that it's cash on cash.

And the reason for that is very simple.

We determined back in the past that we would like to be at 7 to 9 months.

So literally, we don't provide to the CMO budget, only this KPI, which is 7 to 9 months.

From my point of you, if you can invest $200 million in a quarter, that would be great.

But we -- based on the model that we have and the leverage that we are getting, because marketing is invested to bring the new cohorts, right?

While all the historical cohort continue to generate more and more cash for us.

So based on that, we can understand that the overall percentage of marketing or the percentage out of collection will be declining throughout the year.

And we provided back in February, the guidance for sales and marketing, which we -- our focus is to be at 35% to 36% out of collection, which is a few points decrease from last year.

And this is, by the way, one of the reasons why we can get leverage on our business model and generate more and more cash in terms of free cash flow.

So I think that this will continue throughout the year and also next year.

Great.

Thank you, everyone, for joining us today.

We appreciate your time, and we look forward to speaking with you again.

This concludes today's conference call.

You may now disconnect.