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

Transcription

1 Wix.com Second Quarter 2014 Earnings Call Transcript August 6, 2014 Joe Pollaro, VP Strategic Partnerships and Investor Relations Good morning. I d like to welcome everyone to today s call to discuss Wix s second quarter 2014 financial results. Joining us from management are Avishai Abrahami, Co-Founder and CEO; Nir Zohar, President and COO; and Lior Shemesh, CFO. After management s prepared remarks, we ll open the call up to questions. Before we begin, I would like to remind everyone that during the course of this conference call management may make forward looking statements which are subject to various risks and uncertainties that could cause actual results to differ materially from our current expectations. A detailed discussion of such risks and uncertainties is contained in our annual report on Form 20-F for the year ended December 31, 2013 filed with the Securities and Exchange Commission on March 20, Forward-looking statements made during this conference call speak only as of today s date, and the company undertakes no obligation to update them to reflect subsequent events or circumstances. I would like to remind you that during the course of this conference call we will discuss some non-gaap measures in talking about the company s performance. Reconciliations to the most comparable GAAP financial measures are provided in the tables in our press release. Unless noted otherwise, all comparisons are versus the prior year period. This conference call is also being broadcast on the Internet and is available through the investor relations section of Wix s website. Additionally, we have posted to our investor relations site a supplemental data sheet containing additional financial information for comparison purposes to prior periods along with a slide presentation reviewing second quarter results. So with these formalities out of the way, I d now like to turn the call over to our Co-Founder and CEO, Avishai Abrahami.

2 Avishai Abrahami, Co-Founder, Chairman and Chief Executive Officer Thanks Joe, and thanks to everyone for joining us. We have lots to talk about today as we delivered strong results for the period that exceeded our prior outlook. We also announced several new products and partnerships and crossed some significant milestones as a company, which is particularly exciting. I m joined by Nir and Lior to provide more details as well, so let s get started. Highlights The momentum in our business continued as we grew all of our key metrics: Collections in Q2 grew 79% year-over-year to $39.9 million Revenue in Q2 grew 82% year-over-year to $33.9 million I m also excited to say that during the second quarter we crossed 50 million registered users and 1 million premium subscriptions, ending the quarter with 1.02 million premium subscriptions. Achieving these milestones is extremely gratifying for all of us at Wix. It reflects the intense focus we have on product development and our mission to bring simple and affordable web development to tens of millions of people worldwide. We celebrate these milestones and the hard work behind their achievement, and we are laser focused on bringing our platform to the next 50 million users and beyond. Moving onto some product highlights: Wix Mobile has now been used to build over 3.5 million mobile sites to date as this product continues to grow in popularity with our users. We continue to see great utilization of WixHive by our users, who have saved in total over 20 million contacts and activities. We also have several apps being developed today that are being connected to the WixHive API. Our AppMarket continues to experience tremendous growth with nearly 210 apps and over 35,000 installations per day. One of our newest apps allows users to integrate their Etsy store into their Wix website without any coding or configuration. We developed this app using the Etsy API because many of our

3 users were managing separate stores. They managed their Wix e-commerce store, which had their own branding and vision, and they sold goods through the Etsy marketplace. With this app, they can now sell items through both from their Wix site. Additionally, the app allows our users to brand both stores consistently, and it keeps our users customers on their site rather than directing those customers to Etsy to make a purchase. We also formed a partnership with Wave to offer its app in our App Market. Wave s app helps businesses manage all aspects of finance and accounting invoicing, payments, receipts, expense management and more. Users can now connect Wave to their Wix website and manage all the finances of its business in the WixCloud. These apps are great examples of how we continue to evolve the Wix platform beyond website creation and into the OS where users can manage and grow their business online. Product Announcements WixShoutOut Turning now to some new product launches, last month we introduced WixShoutOut a powerful tool that allows businesses to easily create, distribute and share great-looking newsletters, updates or promotions. WixShoutOut is accessible to all of our users globally through their Wix Dashboard and can be put to use with literally just a few clicks and requires no coding at all. The ShoutOut looks and works fantastically well on desktop and mobile and can be sent via and social networks, including Facebook and Twitter. This is the first product we have launched that utilizes the WixHive API. Through WixHive, contacts collected and managed on a Wix website are now accessible by products like WixShoutOut. This product enables small business owners to manage their website and customer communications from a single environment, something that has been out of reach or too expensive for them until now. We have seen lots of use cases for WixShoutOut including sales, invitations, open houses, album releases and promotions of a new Wix website. Since the launch of WixShoutOut less than 30 days ago, over 60,000 ShoutOuts have been sent to millions of recipients around the globe. We are offering ShoutOut for free today as we complete our beta testing, after which we intend to add it to our stable of freemium products. On our IR website, we have included a link to introduce WixShoutOut and a video that explains more how WixShoutOut works. As we have said, our vision is to extend the Wix platform into solutions that allow our users to not just create their online presence but also manage and grow their business or organization

4 through the WixCloud. We are really excited about WixShoutOut and its evolution into a powerful product for any type of small business. Vertical Product: WixHotels One of the biggest advantages of Wix is that we have more than 50 million users across a very diverse set of vertical markets. But, we also work with large groups of businesses in the same industry, which creates a lot of new opportunities for innovating technologies. For that reason, our strategy includes the development of new technologies and solutions that address specific vertical needs for building, managing and growing a business online. And today, we are announcing our first vertical solution, WixHotels. This tailored solution brings simplicity to every aspect of operating online for a hotel owner. We make it super easy for a hotel owner to build a fully-integrated reservation and booking engine onto their Wix site, including displaying room availability, details and pricing, inventory management and taking payments. All of this is done code-free and in the WixCloud, making it simple to use, fully adapted for mobile and affordable. WixHotels is also connected to our WixHive API, so hotel owners can manage their customer lists on our platform and leverage data for marketing campaigns, updates and promotions. Currently in a soft launch, WixHotels is available through the Wix App Market with several users already taking advantage of this great offering. Wix s vision is to make the web a place where everyone can create and contribute. We now have the capabilities in place to develop more tailored products for small businesses across many vertical markets to simplify creating, managing and growing a business online. I ll now hand it over to Nir, who will provide some additional details on our performance this quarter. Nir?

5 Nir Zohar, President and Chief Operating Officer Thank you Avishai. Let me walk through our user and subscription growth this quarter as well as some recent announcements and updates on partnerships and payments. User and Subscription Growth Beginning with our user and subscription growth, we added over 110,000 net premium subscriptions in the quarter, which is a tremendous accomplishment that exceeded our expectations. On slide 11 in the presentation we posted on our IR site, we show the live active subscriptions at the end of each quarter from our last five Q1 user cohorts. We continue to see very consistent performance of our user cohorts that we have observed historically. In particular, you can see that the conversion of users to premium subscriptions in the Q cohort continues to be strong through this most recent quarter. Additionally, our Q cohort has performed better through five quarters than our previous Q1 cohorts. We attribute this improved retention to several product enhancements and launches over the last year, including adding more apps to our App Market, launching our Mobile 2.0 product and adding dozens of new design features and functionalities to our Editor. These product enhancements increase the functionality of our user s sites and improve the user experience, both of which drive conversion and retention. Google Domains We recently announced that Wix has partnered with Google on the open beta launch of its new domain registration service, Google Domains. Through this new partnership, Wix will complement the Google Domains service with our web development platform. Our integration makes connecting a domain to a new Wix website seamless. Upon purchasing a domain from Google and choosing Wix to build their site, users will be re-directed to and registered with Wix.com where they can begin using our editor and easily connect their newly purchased domain. This partnership builds on our ongoing relationship with Google in providing small business owners with a way to create and manage their online presence through a user-friendly and affordable solution. We believe Google Domains could be a meaningful and attractive user acquisition channel for us and are excited about continuing our strong relationship with Google.

6 Payments / Google Brazil To further drive conversion and retention, we continue to improve our payment capabilities for our users outside of the US. Our proprietary billing system enables users in foreign countries to purchase Wix subscription packages using local payment methods they recognize, trust and can easily access. As there is not a single solution that provides full coverage for businesses that accept recurring payments in most markets, our system allows us to integrate with any local payment gateway and acquirer in the world, greatly increasing our ability to accept payments. Since we launched our solution in Brazil, we have seen a 70% increase in the processing success rate for subscription package purchases. Also in Brazil, in order for Google to sell their apps in local currency and with local credit cards, when users make a purchase, they are re-directed to Wix as a reseller. As a Google Apps Reseller, we provide Google s users with a smooth payment process through our platform, supporting local currency and local credit cards. This partnership gives us more exposure to potential users in Brazil who are looking to create and manage their digital presence. Wix in the Classroom Before I hand it over to Lior, I want to share with you a great story about a use case of Wix that illustrates the power of our platform. Through an online education blog, we recently learned that Wix is being used by several teachers across the US as an educational tool. Teachers use Wix to not only expose their students to an easy way to build web content but also to assign projects. We actually learned of a 3 rd grade teacher who took her students on a field trip to local historical sites and then tasked the students with using Wix to create virtual storybooks showing what they learned. We were really happy to learn about this, and it reinforces our belief that the web can and should be accessible to anyone and that the use cases are endless. And with that, I d like to turn the call over to Lior to review the financials in more detail. Lior?

7 Lior Shemesh, Chief Financial Officer Thanks Nir and thanks everyone for joining today. Q2 was another outstanding quarter for us. We continue to experience significant growth, and we will once again be increasing guidance on collections and revenues as well as on new adjusted EBITDA. Let me walk you through our key metrics from the quarter, review our second quarter financial results and wrap up with our outlook. First, our KPIs: Registered users as of the end of the second quarter totaled 50.3 million, a sequential increase of over 4 million for the second consecutive quarter. We ended the second quarter with approximately 1,019,000 premium subscriptions, adding over 110,000 on a net basis during the period. This is a sequential increase of 12% and was driven by continued strong conversion we are seeing not only in users that joined during Q2 but also from prior user cohorts. Q2 collections were $39.9 million, a 79% increase over the prior year period. Growth here was driven by an increase in premium subscriptions during the quarter. We also continue to see users choose annual packages at a higher rate than monthly packages. Having reviewed our KPIs, I ll now turn to our second quarter financial results. Please note that all of these figures are non-gaap and exclude stock based compensation expense and one-time items, unless I note otherwise. Revenue in the second quarter was $33.9 million, an increase of 82% over the prior period. The growth in revenue was driven by the increase in premium subscriptions and collections as well as an increase in ARPS by slightly more than $1. Gross margin in the second quarter was 82%, which is consistent with recent quarters. R&D expenses in the second quarter were $12.2 million, or 36% of revenue, vs. $5.7 million or 31% of revenue in the previous period. The increase here was driven by our continued headcount increase, in particular the hiring of developers and engineers to support product

8 development. We added 48 R&D employees in Q2 bringing our total headcount in this group to 375, still more than 50% of our employee total. Marketing expenses were $23.1 million in the second quarter compared to $12 million in the prior year period. As a percent of collections, marketing remained at 58%, consistent with Q1 and our target for the year. The increase in marketing was driven mainly by our TV and radio advertising as well as branding campaigns. G&A expenses in the second quarter were $2.7 million, or 8% of revenue, compared to $1.4 million, or 7% of revenue, in the prior period. New EBITDA calculation Before I discuss profitability for the quarter, I d like to walk you through a change in our calculation of adjusted EBITDA that we are implementing. Over the last two quarters, deferred revenue has grown significantly, primarily driven by an increased percent of annual subscription packages purchased compared to monthly packages. As a result, beginning this quarter, we will include the change in deferred revenue and prepaid domain registration costs in our calculation of adjusted EBITDA. This change provides two benefits: First, this calculation more accurately reflects the cash flow and financial performance of our business as it aligns our cash collections with operating expenses each quarter. As the difference between collections and revenues increases, the prior calculation of EBITDA does not reflect the cash profitability of our business as it is based on revenue we are only able to recognize for accounting purposes. Second, this calculation will provide our investors with a metric that our management team uses to evaluate and model our business. So we would like to provide a metric that is indicative of the performance of our business as we see it. For all historical periods and for the remainder of 2014, we will continue to disclose adjusted EBITDA calculated under the prior definition, which for ease of reference will be referred to as prior adjusted EBITDA. We will refer to the new calculation method as new adjusted EBITDA. Beginning in the first quarter of 2015, we will only disclose new adjusted EBITDA. You can see both calculations of EBITDA on the supplemental data sheet that is available on our IR site.

9 With that said, our second quarter prior adjusted EBITDA was negative ($9.5) million. We exceeded our guidance on prior adjusted EBITDA due to our top line performance and slightly lower operating expenses than planned in the quarter. New adjusted EBITDA, which adds back the deferred revenues and prepaid domain registration costs in the period, was negative ($4.1) million in the second quarter. This compares favorably to our outlook for the second quarter, which was ($5) to ($6) million had we provided guidance using the new adjusted EBITDA calculation. Second quarter net loss was ($10.4) million, translating to a non-gaap loss per share of ($0.27) cents based on a share count of 37.7 million. Please note that we are not changing the calculation of non-gaap net income and EPS. Capex in the quarter was $1.5 million and free cash flow was roughly negative ($3.2) million. We continue to maintain plenty of liquidity, ending the quarter with just over $97 million in cash on our balance sheet and no debt. Our employee count at the end of the quarter was 736. Guidance Turning to our outlook for the third quarter of 2014 and an update to our full year guidance: For the third quarter, We expect collections to be in the range of $42 to $43 million and revenue in the range of $35 to $36 million. Prior adjusted EBITDA for the third quarter is expected to be negative ($11) million to ($12) million. New adjusted EBITDA is expected to be negative ($4) to ($5) million.

10 We are also increasing our outlook for the full year: We now expect collections for 2014 of $163 to $166 million and revenue in the range of $136 to $138 million. We are maintaining our prior adjusted EBITDA guidance of negative ($38) to ($42) million. We expect new adjusted EBITDA to be negative ($14) to ($16) million. This is an improvement to the range of new adjusted EBITDA guidance of negative ($15) to ($17) million that would have been issued last quarter had we calculated adjusted EBITDA this way. I ll also note that this is a significant improvement from our initial full year guidance of negative ($22) to ($24) million that we would have issued at the beginning of the year had we calculated adjusted EBITDA this way. And with that, we will now take your questions.