Good day, and thank you for standing by. Welcome to the Wix Q3 2023 Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Emily Liu with Investor Relations. Emily, please go ahead.

Thanks, Stacy, and good morning, everyone. Welcome to Wix's third quarter 2023 earnings call. Joining me today to discuss the results are Avishai Abrahami, CEO and Co-Founder; Nir Zohar, our President and COO; and Lior Shemesh, our 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 most recent Form 20-F that could cause our actual 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 and key operating metrics. You can find all reconciliations between our GAAP and non-GAAP results in the earnings materials and in our Interactive Analyst Center on the Investor Relations section of our website, investors.wix.com. With that, I'll turn the call over to Avishai.

Thanks Emily and good morning, everyone. We delivered a tremendous third quarter that exceeded both growth and profitability expectations for another consecutive quarter. Revenue in Q3 grew to $394 million, which is $3 million above the high end of our guidance. We generated more than $62 million of free cash flow, or 16% of revenues, ahead of our expectations. As a result of our outperformance year-to-date, we are again raising revenue and free cash flow guidance for the year, and we now expect to finish 2023 ahead of the margin targets set at our Analyst Day in August. As we begin to wrap up an outstanding yearֵ, I want to spend most of my time today talking about products that we expect will be our primary growth engines going into 2024 and years to come, Wix Studio and AI. Like prior quarters, our Partners business was a meaningful driver of our strong top-line performance in Q3, growing 38% year-over-year. We continue to find success with professionals through ongoing dialogue to better understand their needs and best-in-class product innovation that resonates with the community. As we spoke about at our Analyst Day in August, we took all that we have learned from Partners over the years and created Wix Studio, our new cornerstone product for Partners. The reception, feedback and early KPIs have been incredible. The resounding consensus is that Studio provides agencies with everything they want and more for all of their web creation and project management needs. Users particularly love Studio’s responsive AI technology that simplifies high-touch and time-intensive tasks such as ensuring consistent design across web pages on different screen sizes. They are also enjoying the AI Code Assistant inside the new Wix IDE, which allows them to write cleaner code and detect errors easily. Most importantly, Studio…

Thank you, Avishai, and thank you everyone for joining us today. Following the strong performance that we’ve seen so far this year, I want to revisit the key growth pillars we spoke about at our Analyst Day which we expect will drive our business in the coming years. First, as Avishai mentioned, Q3 was another quarter of accelerating growth in Partners revenue. We expect growth in the Partners business to continue with a long runway of opportunity ahead, particularly as Wix Studio ramps. The initial months of Wix Studio have been fantastic with more partners coming to Wix and an increase in projects per Partner. We also continue to see Partners adopting more Business Solutions products and driving meaningful growth in GPV. Combined, these behaviors give us confidence that the compounding growth in Partners cohorts and revenue will continue. Compounding Partners growth is complemented by re-accelerating growth in our stable and profitable Self Creators business, which we saw once again this quarter. We expect our market-leading product innovation as well as our powerful AI products and technology to drive higher conversion, monetization and retention as we maintain our leadership position in the website building space. Avishai spoke about the AI Chat Experience for Business, and in its early weeks we have already seen its positive impact on conversion and revenue. We have more AI products in our pipeline that we believe will continue this trend, and I am confident that our innovation paired with macro recovery will return our Self Creators business to double-digit growth. The third pillar of our strategy is Business Solutions growth. We saw outstanding transaction revenue growth in Q3, increasing 22% year over year, highlighting higher GPV as well as increased adoption of Wix Payments. We expect continued increases in transaction revenue and GPV as well…

Thanks, Nir. We carried forward our positive momentum into Q3 with another quarter of results that exceeded both growth and profitability expectations. Our exceptional performance year to date enables us to increase full year guidance again and provides increased confidence in our ability to achieve, and even exceed, the milestones in our three-year plan provided at our Analyst Day in August. We now expect to exit the year with free cash flow margin of 20% to 21%, which is within striking distance of the minimum 25% free cash flow margin targeted for 2025. Additionally, we also expect to generate more than $3.5 of free cash flow per share in 2023, above the $3 per share anticipated in August, as a result of robust free cash flow generation and careful dilution management throughout the year. Notably, following a second consecutive quarter of positive GAAP net income in Q3, we expect to achieve positive GAAP net income for full year 2023 with GAAP profitability expected to be achievable in 2024 as well. I am incredibly proud of this achievement as it puts us ahead of the GAAP target in our three-year plan. Moving on to the details of the third quarter. Total revenue of $394 million was up 14% year-over-year and exceeded the top end of our guidance range by $3 million dollars as we continued to execute on our strategic initiatives. Total bookings were $389 million dollars, up 10% year-over-year. Strong top-line growth was again driven by our Partners business. Partners revenue grew 38% year-over-year in Q3, marking a third consecutive quarter of accelerating growth. With Partners now contributing to more than 40% of overall GPV, total GPV in Q3 grew 14% year-over-year. This growth in GPV coupled with an increased take rate as merchants continue to adopt Wix Payments resulted…

Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from Trevor Young with Barclays. Trevor, please go ahead with your question.

Great. Thanks, guys. First, just any insights on the slight deceleration bookings, particularly in light of the easier compare. It looks like it deceled both on a reported basis and ex-FX. And then second question, on a geo basis, what drove that market acceleration in Europe and Asia, and what drove the slowdown in North America to partially offset that?

So I would answer both of the questions. This is Lior. So with regards to the bookings, it came in where we expected. I think that it’s also worth mentioning the B2B partnership and I spoke about it briefly before. We see actually a very positive change to this business. As I mentioned before, we completed with product and integration with previous customers or previous partners. So we don't have to do it again. It means that it's not necessary for us to demand any kind of commitment from our partners going forward. Also, when you look at the macro environment, people, our partners, obviously are not willing to provide a long-term commitment. By the way, I am not willing to do that with regard to my -- with my vendors. So from now on, we are not going to recognize a multi-year commitment as part of booking, at least that is more than one year. So it's going to have a kind of a negative effect on booking short-term but not long-term, but it's not going to have any impact on revenue, it's important to mention. Second reason to your question, we had a slightly higher percentage of monthly players, partly driven by new subs from B2B partnerships, as well as in other specific geographies. Again, there is no impact on revenue, just about the booking. Third reason, I believe, is from because of the fact that that was the first full quarter of slapping price increase from spring 2022. However, we benefited from compounding growth in part of course driven by business solution. So it's even kind of more than compensated for that. I believe that going forward, we need to remember that we have not yet benefited from strong growth engines that we have, for example, Studio that we just launched, but also all the AI tools that we ordered to see the contribution in terms of increased conversion, but also increasing revenue. With regard to the second question about the geo growth, so in the slide of last quarter, we had a mistake, meaning that Europe was not 2%. It was 9%, going up to 11% this quarter, actually accelerating. So that kind of explains part of the confusion that we have in geo.

Great, thank you for that clarification.

Standby for our next question. Our next question comes from Ygal Arounian with Citi. Ygal, go ahead with your question.

Hey, good morning, guys. First of all, just the best wishes to you guys and your families and everyone. And hope you guys are doing okay and wishing for better times in Israel and the region. I have two questions. First, just on the acceleration in Partners and in Studio and the impact that's driving there. I think typically when you guys launch new products, it feels like it takes a little bit more time until you start seeing a more meaningful impact and it's coming through the numbers. Are you seeing it -- is that been a notable driver of the acceleration in third quarter? Or is it really more still to come? So you're seeing some good early signs, but it's not contributing a lot to the numbers yet. And then on the AI side, just to follow up on the comments around driving better conversion. So a lot of new AI products coming through. Can you just expand on that comment on conversion, what you're seeing in the KPIs around conversion, monetization, and retention? Thanks.

Yeah. So I will start with the first question about Partners. So you're absolutely right. We still don't see a significant impact of Studio because we just launched it. I think that this is why we are so excited about it. Every -- the entire growth that we see right now are coming from our previous products and everything that we've done with partners, including Editor X, not necessarily Studio. And we need to remember that we still see the compounding effect of it, meaning that any agency that joined like few quarters ago, we see the benefit of it right now, buying more and using more payments, for example, or Google Ads. So we see a tremendous increase in business solution. A big part of it is because of partners. The reason why we are so excited because we believe that Studio is a great engine for us to continue and increase growth for partners in the future. We are going to see some of it next year.

I believe your second question was in regards to what kind of effects we're seeing from different AI products that we are launching, mostly in regards to improvement in conversion. And we do actually see an improvement in conversion, which is probably the most important KPI by which we measure our success in deploying new products. The reason for that is that with AI we're able to ask the user better questions and to understand in a smarter way what it is that the user is trying to achieve. From that we're able to generate a better starting point for their business on top of Wix. And that is not just the skeleton. We are also able to fill in a lot of the information, a lot of the content that the user would normally have to fill in manually. The result is that the amount of effort and knowledge that you need to create a website and for your business on Wix is dramatically reduced and from that we are able to see very good results in terms of improvement of conversion.

Thank you.

Standby for our next question. Our next question comes from Andrew Boone of JMP Securities. Andrew, please go ahead with your question.

Good morning and thanks for taking my question. We as well are also thinking about you guys. I wanted to tie back the comment of self-created growth returning to double digit with sales marketing going forward. Historically you guys have had a very strong framework between those two items. And so, can you just talk about how we should expect your marketing and performance marketing specifically to either ramp as we think about self-creators getting back to double digit growth or anything else you want to unpack there?

Andrew, so this is Lior. So I believe that, looking at the history of weeks, almost the entire growth that we managed to deliver in the past was due to products. Obviously, Avishai mentioned, for example, the AI tools that we just launched, and we see a tremendous increase and potential upside for the future, to be more specific about conversion, for example. We also see a much bigger usage of our business solution tools like payments, for example. So looking at everything and including and hopefully the market and the macro recovery in the future, we do believe that we will be able to gain a double-digit growth for self-creators.

Great, thank you. And then I just wanted to touch on gross profit margins. Can you just help us unpack the improvement there and how do we think about that going forward? Any change from Analyst Day? Thanks so much.

So yeah, certainly. So we saw this year a tremendous improvement in margins -- in gross margins. And it came mostly from two places. The first one is a lot of improvements and savings that we had with our infrastructure, mostly the hosting activities. So we had a lot of savings over there, but also about our care organization. So, for example, benefiting from all kinds of AI tools that enable us to be more efficient. So I believe that that was most of the improvement that we've seen this year. I believe that next year we are going to see some more improvement. I'm not sure that it will be drastic this year, but we're certainly going to see more improvement, especially around being more efficient, but also from the fact that we see a much better gross margin coming from the business solution, for example, payments. As tech rate is increasing, we are able to generate more margins out of transaction revenue. I believe that this is something that will continue also next year and will drive gross margin up again next year.

Thank you.

The question was just about the gross margin or the overall profitability, for example, the operating expenses?

I was going to keep it to gross profit margin. I'll let somebody else go and ask that off. Thank you.

Standby for our next question. Our next question comes from Chris Zhang with UBS. Chris, please go ahead with your question.

Hey, good morning. Thanks for taking our question. So I have the first question regarding the marketing expense this year. You lowered the guide for the market expense by about 200 points as a percentage of revenue. Can you maybe unpack the drivers of the reduction? How much from the more direct response channels, how much from the partner spend that you previously expect to go up. And also, can you talk about the return environment right now on the acquisition marketing as a lot of competitors mentioned leaning more into the more direct channel versus the partner spend?

Hey, Chris, it's Nir. I think I'll kick this off and we all can go into maybe a little more of the financial aspects if needed. But generally, already last year, we communicated our change in marketing strategies, strategy that worked extremely well for us. We leveraged the strength of our brand against buying traffic, understanding that we can get better our lives simply because the brand is compensating because it's strengthened so much throughout the last few years. Throughout this year, we communicated continuing this strategy, but also basically deploying a lot of marketing dollars towards the release and the launch of Wix Studio. Now, we explained and we put most of that spend in the second half of the year. But if you remember, when we shared the, kind of, the cadence of the release of Wix Studio, Q3 was about, mainly about an internal launch. So we were launching to our existing partners and therefore we didn't need to spend and to use most of the marketing budget. So the plan was always to put more of it to use in Q4. Even Q3, by the way, within the plan of the internal plan, we managed to create some savings, which was great. But the goal was to put more of it towards Q4. That being said, looking at the first few weeks of the launch of Studio, the adoption is fantastic. It's higher than we even expected. So we believe that the actual deployment of the marketing dollars will be done more gradually between Q4 and heading into 2024.

That's super helpful. I guess if you can also comment on the return environment, and I think that's also kind of related to the self-creators, the grocery adaptory and how you're thinking about probably just putting some dollars in or incremental dollars in the acquisition marketing?

So, with regard to the self-creators, there is not much of a change from the last quarter. The thing that we showed that the changes that we've made is consistent and stable. We managed to generate, obviously, the same amount of collection with less investments in marketing. And I think that it's great to see that these strategies are actually working due to the fact that the brand becomes much, much stronger. Right now, the return obviously has changed dramatically when compared to the beginning of last year, [with strength] (ph) at less than one quarter. I believe that when we see the strength of our brand, we believe that this is something that can continue and sustain also over the next couple of years. So we do not see any significant change over there for self-creatives.

Thank you very much.

Standby for our next question. Our next question comes from Bernie McTernan of Needham and Company. Bernie, please go ahead with your question.

Great, thanks for taking the questions. And just reiterating, thoughts and prayers with you guys and the Wix team. Maybe just on self-creator, talking about getting back to double-digit growth, how much of that can you control versus waiting on the macro? Anything that you can call it technology or maybe even just marketing wise to -- that you control to get that growth back to double digits?

Hey Bernie, it's Nir. So I think on the self-creators, obviously macro environment is something we cannot control and we don't anticipate to control. But we do believe that a lot of our product innovation is towards generating that growth in any environment. And obviously, if there's a recovery, that can be even a plus to that growth. From what we've seen already, first and foremost, I think that the AI innovation that we are aiming for, and I wish I just explained how does the AI drive convergence and yet this is the first milestone or a first part of a much deeper and wide product around AI and the creation for self-creators that we plan. Obviously, that improvement in conversion can be a big driver for growth. And marketing is something that follows products. So if the conversion improves, then obviously we can consider what more we want to do in terms of the marketing towards self-creators. But from that standpoint alone, we think there's a significant potential for growth. The other side of it is the business solution. The business solution, although they're growing much faster on the partner side, they are also growing significantly on the self-creator side. And we've seen that both on the side of GPV and growth and adoption of selling and e-commerce platforms, whether it's stores or scheduling or restaurants or hotels or events and we have a very wide variety which is part of -- big part of our strength. So the GPV growth is definitely a driver there as well as other solutions that are more business solutions, email marketing, Google advertising, et cetera. So our belief is yes, we can drive it. That's in our control, and hopefully recovery will come on top of it.

Understood. And then just to follow up on Wix Studios, I know it's really early days, but adoption higher than expected. Anything you can comment just in terms of like tangibly what you're seeing, whether it's the partners being more efficient or you think you're taking share of their workload? Would love just to get some more tangibles in terms of just like exactly what's happening as the adoption occurs of Wix Studios.

Well, I think that there is a variety. There are many different kinds of partners that are using Wix Studio. And I think that when you look at more of the freelancers or the people that do it part-time, then it is just a more familiar user interface. It is very similar to a lot of design software. So traditional design software, you see how to use that, it's very easy for you to adapt to Wix Studio. And then because of the power of the AI tools, you can create very strong, very professional websites because the AI will continue and finish for you the thing that would normally require you to specialize in different variations of web designs. In the case of the more professional companies, what we're seeing is that the way we built it is that it enables you to finish things very quickly in kind of a sketch mode and then take that sketch mode and make it into a real live website, while having the ability to go really below the hood into the CSS, into the code and change it to the exact specification that you want. What it means is that overall in terms of operation, you save a tremendous amount of time, you can do things that before that would require to hire very expensive people to do the specific things. And then, so the overall thing, right, is the increased efficiency while even going into making better projects. So we're seeing different values, different kinds of partners, of course.

Stand by for our next question. Our next question comes from Ken Wong with Oppenheimer & Company. Ken, go ahead with your question.

Thank you for taking my question. Avishai, I wanted to touch on the Intuit Mailchimp agreement. I think the earlier press releases seemed to lean largely towards utilizing their CRM, their marketing tools. You mentioned it's a bilateral agreement. Can you help us understand kind of how much of a commitment there is to potentially using the Wix website builder. And then just following up on the shift to kind of shorter duration B2B deal, I mean, should we assume the same level of exclusivity with these partners going forward? Any comments on those two would be great.

Hey, Ken, it's Nir. I'll tackle the first Intuit question and then hand it over to Lior. So I think in terms of what we intend to do together on the Mailchimp side and maybe other functions on the Intuit portfolio, first, I think what's very interesting for us is from the conversations we've had with their fantastic team over the last few quarters, it's very clear that there's a lot of overlap in terms of the profile of the Wix users and the Intuits users, but very little overlap in terms of the offering, meaning that we are complementing each other in many ways in many different places. The idea for us is to map these places and start hooking up the user flow in a way that will be as seamless as possible for the end customer but will be able to deliver the core values of Wix and the core value of Intuit, of Mailchimp to the best possible way and the best possible experience for the end customer. It means from our standpoint that eventually we will have better products offering, where they're spending a lot of effort and we're not. And they'll have better -- much better offering on the digital presence and the creation tools that we're spending a lot and they're not. And the combined upside will be a very healthy experience for the end user who will be willing to pay for more services. So our hope is we're going to generate something here which is a win-win-win, Intuit, Wix, and obviously most importantly, the customers and the users. Lior, you want to take the B2B?

Yeah, sure. So, Ken, to your question, there is no change in the type of the arrangements, meaning that if we have exclusivity, it will remain exclusive. I believe that the only change is about the fact that we will not recognize booking anything that is beyond one year. I believe that it's first of all, more conservative. Second, there's no need. I believe that we have the best product right now in the market to serve partners. They want to bring the power of Wix to their customers. And we are the best alternative in order to do that. I think that it's also saving them R&D cash, R&D money, and provide them with the best solution. So this is something that will continue. The second reason, obviously, why it doesn't make sense to recognize as booking, any commitment that is longer than one year is because of the lumpiness of this business. You can have a huge agreement in one quarter, the other in the following quarter, there's no other -- no huge agreement. So it's kind of making this business kind of lumpy between the quarter and it doesn't make sense. And in any case, it doesn't involve any impact on revenue. So I believe that that would be the best decision. And secondly, it's opened more larger town for us because then you don't negotiate on the commitment, you negotiate on the assets, on what is more important in order to make this partnership successful.

Perfect. Thank you.

Standby for our final question. Our final question will come from Mark Zgutowicz with the Benchmark Company. Mark, please go ahead with your question.

Thank you, and good afternoon. Just a follow up on the gross margin question. Just curious how much more runway you have over the next 12 months on customer care leverage there, and how meaningful that's been in terms of driving gross margin levers versus other lever points like hosting efficiencies? And then the second question, just curious how meaningful was the B2B partnership contribution to re-queue partners revenue and any expectations as you look into ‘24 in that regard? Thanks.

So, I’ll start with the first question. I'm not going to provide details about how more efficient we can be with care. It's always the case, by the way, we always look for more ways to be and more means to be more efficient. I did mention that we are going to see some contribution and some more efficiency around gross margin next year. But it can be also from the fact that we are more efficient in payments, we are more profitable in payments as we scale up this business. And obviously there will be more cases where we can drive efficiency. So of course, we are going to do that. But I'm not going to go into the details of it. With regard to the contribution of partners of the B2B partnership for this year, so of course, it was more significant than last year. And it's a SaaS business as any other SaaS business. So it will be more significant in the following years. This is like the nature of it. But I must say that most of the improvements that we see in our Partners business is actually coming from the fact that we are getting more and more agencies. I did mention many times in the past that we see that as like the most, the strongest growth driver that we have. It's mostly coming from more and more agencies joining Wix and the compounding effect of it.

Thanks much. It’s helpful.

This concludes the question-and-answer session. Thank you for participating in today's conference. This does conclude the program. You may now disconnect.