Vimeo, Inc. (NASDAQ:VMEO) Q2 2023 Earnings Call Transcript

Vimeo, Inc. (NASDAQ:VMEO) Q2 2023 Earnings Call Transcript August 2, 2023

Ken Goff: Hi. I’m Ken Goff, Vimeo’s Head of Investor Relations. Thank you for watching our Q2 2023 interactive earnings video. Before we begin, a few comments: First, Vimeo’s Q2 earnings video and shareholder letter are available on the Vimeo Investor Relations site. Second, this video will discuss Vimeo’s outlook and future performance. These forward-looking statements typically may be preceded by words such as “we expect,” “we believe,” “we anticipate” or similar such statements. These forward-looking views are subject to risks and uncertainties, which are further described in our filings with the Securities and Exchange Commission (the “SEC”), and which could cause our actual results to differ materially from the views expressed in this video.

We have also provided information regarding certain key metrics and our non-GAAP financial measures, including certain forward-looking measures. These should be considered in addition to, and not as a substitute for or in isolation from, GAAP measures. Additional information regarding Vimeo’s financial performance, including reconciliations with comparable GAAP measures, can be found in our earnings release and in Vimeo’s filings with the SEC, as well as in supplemental information posted on the Investor Relations section of our website. Thank you.

Gillian Munson: Hi everyone, and thank you for joining our Q2’23 interactive earnings video. This afternoon, we published a Shareholder Letter you can find here with details and financials around the quarter, as well as our commentary on the results and outlook. Before getting into our performance for the quarter, I’d like to say how excited I am to have Adam Gross starting as Interim CEO on September 1st. Adam’s been a board member for the past two years and has a wealth of experience as a SaaS leader, he has started two companies, and held senior roles at high growth, industry-leading companies including Salesforce and Dropbox. In 2013 Adam sold Cloudconnect, a company he co-founded, to Heroku, a Salesforce subsidiary, and later served as CEO of Heroku, expanding the business from self-serve to enterprise.

Adam is an active startup investor and advisor in several companies including dbt, Cribl, Tailscale, and Buildkite. Adam has been with us part time for the last month and we are looking forward to him moving to full time on September 1. As a board member, he is already aligned with our strategy of simplifying Vimeo to make video more accessible to all. I’m confident that his insights, experience, and track record of scaling product-led companies will be significant assets for Vimeo as we continue to transition the company, return to growth, and drive profitability in the future. Adam provided us with a short intro video which you can see here. We are excited for the next stage of Vimeo with Adam, and would like to thank Anjali Sud, our CEO of the past six years, for all her contributions to the company.

We wish her the best of luck in her next endeavor. Turning to the quarter’s financials, we will talk through some non-GAAP terms, and you can find reconciliations to the closest GAAP terms in our Shareholder Letter. In Q2, we delivered $104 million in bookings, $102 million in revenue and $5 million in adjusted EBITDA, and our results this quarter reinforce my confidence that we are on track to moving Vimeo’s business model to one driving profitable growth in the future. Some of the highlights from Q2. First, Enterprise bookings grew 72% in Q2 to represent 17% of bookings, making up a larger percentage of total bookings than Other by six percentage points. This mix shift represents a nice tailwind as we work to return Vimeo overall to a growth posture.

Second, we are encouraged by what we are seeing on retention in our key products. Self-Serve retention on both a subscriber and dollar basis was stable sequentially. Vimeo Enterprise NRR was over 100% and bookings and logo retention were improved year-over-year. Third, we delivered on our promise to get more efficient while investing for our future, with an 18% year-over-year decline in non-GAAP operating expenses and adjusted EBITDA of $5 million, an $11 million improvement versus Q2 of last year. Fourth, we reduced the year-over-year rate of decline of our bookings by two points to 3% versus 5% in Q1. Excluding Other, we grew bookings 2% year-over-year, led by Vimeo Enterprise. Fifth, our innovation investments paid off with the release of an AI-powered video creation suite, which you can see Anjali discuss here.

Beyond these highlights for the quarter, we continued to sign impressive customers for Vimeo Enterprise, including Whole Foods for executive comms, Porsche for organizing and managing their video library, and Diageo and Volvo, both for video marketing on web and social. You can click here to see how workflow management company Monday.com is using Vimeo for external events, webinars, and lead gen. Turning to our outlook, we expect Q3 revenue to be slightly above $100 million. We expect Q3 adjusted EBITDA to be down sequentially on an absolute dollar basis, largely due to the timing of certain expenses, coming in near $2 million. For full year revenue, we continue to expect a mid-single digit percent decline, and we are updating our full year adjusted EBITDA guidance expectations to be in the range of $10 million to $15 million, up from the prior range of $5 million to $10 million, due primarily to our strong adjusted EBITDA performance in the second quarter.

Thank you for watching our Q2 2023 earnings video. We look forward to updating you again next quarter.

Adam Gross: Good morning and thank you for joining Vimeo’s Q2 2023 earnings live Q&A. Before we begin a few comments. First, this session will be recorded and available on the Vimeo investor relations site later today. Second, we will discuss Vimeo’s outlook and future performance. These forward-looking statements typically may be preceded by words such as “we expect,” “we believe,” “we anticipate” or similar such statements. These forward-looking statements are subject to risks and uncertainties, and our actual results to differ materially from the views expressed today. We have also provided information regarding certain key metrics and our non-GAAP financial measures, including certain forward-looking measures.

These should be considered in addition to, and not as a substitute for or in isolation from, GAAP measures. Additional information regarding Vimeo’s financial performance, including reconciliations with comparable GAAP measures, can be found in our shareholder letter and Vimeo’s filings with the SEC, as well as in supplemental information posted on the Investor Relations section of our website. With that I will turn it over to our CFO, Gillian.

Gillian Munson: Good morning. Thank you for joining Vimeo’s Q2 2023 earnings Q&A Session. I’m Gillian Munson, Vimeo’s CFO, and I am happy to be joined for the first time on quarterly earnings by Adam Gross, our recently name Interim CEO. Adam has been with us for about a month and is quickly ramping up on all things Vimeo. We are excited to have him on board, particularly given his wealth of experience as a leader in the SaaS space and as a member of Vimeo’s board over the past two years. We are all looking forward to working with him going forward. Before we jump into the Q&A, I’ll mention a few main highlights from the quarter. First, we continue to believe we are on track to return bookings to growth in the back half of this year.

Second, our efficiency initiatives continue to pay off with gross margin up, operating expenses down and improved profitably year-over-year in the quarter. And third, we showed that we could control costs while still investing innovation with our AI-powered video creation suite, which we believe will help make video easier and more accessible for all. It’s still very early days in terms of where video communication can go, particularly in the business world. I am confident that Vimeo’s platform and products can be part of facilitating this evolution and believe we are making good progress against our goals. We look forward to taking your questions.

Q&A Session

Operator: Our first question comes from Brian Fitzgerald at Wells Fargo. Brian?

Brian Fitzgerald: Thanks. Adam, welcome. We’re looking forward to working with you. Given your experience with SaaS businesses in the past, we are just wondering if there is anything you could share about what you would like to bring to the business in an operating role, any new priorities and strategy or go-to-market? Thank you.

Adam Gross: Yes, thanks so much for the question. Really three things I am excited about as I get up to speed here. The first is the technology. I think we are in the early days of seeing video’s impact on business. I think it’s going to be an exciting decade ahead as we – as what video is evolves and the applications for it in the enterprise expand and we have an opportunity to find new strategic ways to partner with our customers in bringing video value to them. And the second is the team. I’ve been a member of the board for two years. I had a hand in recruiting most of the management team and working with them in the boardroom, and so that’s really helped get up to speed quickly and very much looking forward to working with them as we continue to execute on the strategy.

And the last is really our kind of our go-to-market model. And if you look at my career and my experience at places like Salesforce and Dropbox and Heroku, one of the common themes is really being able to marry really innovative technology with innovative go-to-market models. And when you look at the opportunity we have to connect the self-serve business with the enterprise business. And you look at how really successful companies have done that in the past, again, like the Salesforces and Dropboxes of the world. I think that’s a really exciting opportunity for us here.

Operator: Our next question comes from Tom Champion at Piper Sandler. Tom?

Tom Champion: Thanks. Good morning, everyone. First question is around the AI-powered video creation suite and just curious, Gillian, if you could talk about the early experience here and if the product is available for enterprise and self-serve customers. I think last quarter you shared an interesting stat around users that upload video and use a creation tool and the related bookings there. Just curious if that plays into the thinking here.

Anjali Sud: Yes. Do you want me to start there or do you want…

Tom Champion: Yes, please. Please.

Gillian Munson: Okay. So on the AI suite, it’s very new. So I think that it’s too early to give you stats on how it’s doing, but it’s important to remember that Vimeo’s been on a journey with AI for quite a while, and we use AI in a variety of places throughout the product, all with the main goal of our strategy, which is to make video more accessible, particularly for business users. And so that is a theme throughout our products. And the AI creation suite is just one great example of how you can get up and productive on video fast using Vimeo. So I encourage you all to use it. You probably can use it for some of your research reports over time. I know that for us, for even earnings calls, it’s been a helpful tool for us to get the whole process done easier, faster and make it less scary, if you will, to make video something you use every day.

In terms of the strategy, we’ve talked a lot about this, that Vimeo has really expanded how customers use the products. And I think we talked last time about how we’ve gone from folks who are just uploading to folks who are using lots of different Vimeo tools to amend the video, create the video, distribute the video, and that continues to be a trend. And this is one of those type of tools. The AI creation suite is available on our enterprise products and in a handful of our higher end self-serve products. At the lower end of the product line, you’d have to upgrade to use the AI tools.

Tom Champion: Okay. All that makes sense. Maybe if I could sneak in one more. Gillian, maybe just remind us, I know SBC was a little bit of a odd result that this quarter, but just remind us how we should be thinking about that through the balance of the year and curious with margins generally better than expected. How are you thinking about investing behind growth? Does it make sense to think more about investing behind the top of funnel within self-serve or other investments to help stabilize and grow the business?

Gillian Munson: Sure. You snuck in two questions there, Tom, but I’m not going to get you on that. Okay. So for a stock-based comp, we are really on a journey with stock-based comp to bring it down at Vimeo. And that’s going to happen in a couple different ways. The key thing that stock-based comp represents to us and we think to our shareholders is dilution and as we look at the business, we think that we had been a little too free in terms of the amount of stock we gave away, particularly in 2022. Some of that was just required as we had a new management team come into the company, but we have gold ourselves to meaningfully bring that down and are on a path to doing that. Now, stock-based comp expense is a little bit of a trailing indicator of that initiative and also reflects some of the board and management changes you’ve seen happen over the last couple quarters.

So when you look specifically at Q2, our stock-based comp was actually a benefit. And the reason for that is, as Anjali announced her departure, we had to reverse some of the cumulative expense we had taken for some of the shares she won’t be taking with her. So that’s what that is. Now, when I look at stock-based comp, overall, I think we talked about this a few quarters ago that we were running in and around $20 million a quarter, which we felt was too high a number. With all the different changes and our hard work to make sure we keep dilution lower on burn rate, we think that those figures are going to be more in the $10 million to $12 million quarterly as we look forward here in terms of where we sit today. Okay. Then in terms of expenses and investing, so we have always believed that Vimeo has strong profit capability and that inherent in the business is really great profitability.

We have a 78% gross margin, as you saw, we’ve been continuing to bring expenses down. I think one thing we’ve done really nicely in 2023 is show that even in a transitional revenue period, we can get profitable and we can be free cash flow positive. So underlying that are actually continued investments to drive growth and we’re really trying to balance delivering profitability in a transitional time and a little bit of an uncertain time while also investing. So inherently we actually think the business could be more profitable, but the delta there is some of the investment we are making. We are really focused on great product, we’re really focused on making sure our customers are getting to the products easily. And so we will continue to make investments and sort of make those trade-offs between profitability investment, our balance sheet, and our really strong cash position puts us in a great position to do that, but we are also doing that while generating cash flow right now, which I think is a really nice thing for the company.

Tom Champion: Thanks for the comments.

Gillian Munson: You’re welcome.

Operator: Our next question will come from William Kerr at TD Cowen. William?

William Kerr: Great, thank you. So bookings growth was a lot better than we expected and the re-acceleration in enterprise was especially encouraging. Could you just touch on the current booking trends in 3Q and then maybe fundamentally how we should be thinking about the relationship between bookings and revenue?

Gillian Munson: Absolutely. Happy to. So as you know, we’ve been working our way through a period of down bookings. I think bookings were down in four of the last five quarters, and what happens is your bookings precede your revenue. So what you’ve started to see and have seen in the last couple quarters – three of the last quarters, is that revenue has fallen as well following those booking trends. So as we look at the business, we are on a path to return bookings to growth. That’s our strategy, and we want to return bookings to growth, and then we believe that revenue would follow. And we want to do this all profitably, as we’ve talked about. So in terms of the business, we continue to believe, and we confirmed in the shareholder letter that we believe we can get bookings back to growth by the end of the year.

And everything we are doing is oriented around that. We did reduce the rate of decline in bookings in Q2 by a couple points, which is great, but we’ve got a lot of work to do and a lot of heavy lift to move our way to the end of the year. As you frame it and you think about how to think about bookings as that leading indicator, we continue to believe it’ll be led by VE that’s where the strongest growth is in the business. And we continue to see VE growing as a percentage of the business and as a percentage of our bookings. It was just under 20% of bookings in the quarter offsetting that has been other, which is our OTT product, which is a really great ongoing product for us and in addition, some products that we’ve been deprecating. That’s now down closer to about 10% of bookings.

So as VE gets – the VE growth now will overcome that and lead us into growth. In the middle is self-serve, which is the core of the business and the thing that we’ve always talked about, growth comes through self-serve. And so we want to turn that to growth as well as we work our way to the end of the year. Putting it all together, you’ll be led by VE, self-serve, we hope to turn to growth and the other portion of our business will get to be such a small portion of bookings that it’s not going to be as much of a headwind on the overall growth rates over time. So that’s how we’re thinking about it.

William Kerr: Great, great. Thank you. And that kind of rolls into my second question, which is, on self-serve, how do you think about sub stabilization versus pricing and getting that as you get that back to growth over the coming quarters?

Gillian Munson: Yes. In self-serve, what you’re seeing in terms of sub declines sort of mirrors what you’re seeing in terms of bookings decline. But if you step back and look at it on a macro basis, what you’re seeing for the overall Vimeo and you’re going to see – start to see in self-serve is that we are focused on going to a higher level customer, a business customer, business customers use the product more, retain better, have all those financial factors that we think are beneficial for the business. So over time we are trying to work up ARPU in self-serve. It starts with AOV, it starts with where do you bring customers in? And we saw really nice double digit growth in AOV in the quarter. Now it takes a while to roll those AOVs through your overall ARPU, but that’s the strategy.

So ultimately my suspicion is we’ll be at a place where the ARPU is probably a little bit faster growth than say the subs as we continue to mix shift the business towards businesses over time. Right now, everything of the company is working on turning both bookings and subs back to growth. And then the pricing will be the X factor in terms of what that looks like in terms of velocity.

William Kerr: Great. Thank you very much. Appreciate the time.

Ken Goff: Our next question will come from Chris Zhang at Truist. Chris?

Chris Zhang: Hi. Thank you. I have this question on behalf of Yousaf [indiscernible]. What do you think is the level of steady state growths for both self-serve and enterprise business as the situation normalized for Vimeo?

Gillian Munson: Well, we’re right now really focused on getting the overall business back to growth. So we’re not – we don’t really guide by business, but I’ll come back to kind of where, I really want to make sure people understand the framing. VE is having very strong double digit growth, 72% in the quarter, and we continue to believe that’s where you’re going to have your outsized growth of Vimeo. And then self-serve, we want to get back to growth, and then as we get it back to growth, then we’ll figure out at what growth rate we land over time. But right now our orientation is around turning the overall bookings back to growth by virtue of that strong VE growth and then turning self-serve back to growth too soon to kind of peg long-term growth rates. But I would expect that you will always see the VE product have much stronger growth overall in our portfolio.

Chris Zhang: Thank you. Appreciate the time.

Ken Goff: Our next question will come from David Lustberg at Jefferies. David?

David Lustberg: Thanks and good morning guys. This is David on for Brent. Around Vimeo Enterprise, wanted to ask about the ARPU dynamics. I was wondering if you can tease out what’s going on and the declines there between different product mix versus seat based would be helpful?

Gillian Munson: Absolutely. So ARPU and VE has been about $20,000 for quite a few quarters here. And ultimately we think it’s going higher. We think we can get to higher wallet share in companies overall. The challenge with ARPU, of course, is that when you are growing a business this fast, you have a mix of both customer sizes and new customer incoming price points that you have to sort of mix in to get to an overall ARPU. So over time we expect that to go up, but because it’s still a smaller business, it can be a little bit lumpy as we work our way through. So when we look at – there are no trends between customers or customer sizes that were particularly notable in the quarter. I think overall our aim is to get ARPU up.

There’ll be a number of factors that get there, another indicator that we’re making progress along that would be our NRR. So as you saw in the quarter, NRR was over 100% that again is kind of where we were last quarter as well and coming up. And so we’ll move – we want to move NRR up, we want to move AOV up, we want to move ARPU up. But we are also really excited whenever any customer wants to come to Vimeo. So in this early stage of growing the business, if people come in lower than the ARPU and we can move them up over time, that’s an opportunity for us that we’ll take. So it will probably take a little time for the averages to move, but the trend is the same is to the positive. And then as it relates to VE overall business, when you look at Vimeo, I think two years ago Vimeo’s overall ARPU was less than $200 and it has come up meaningfully over the last couple years as a result of VE’s growth and some of the other work we’re doing in the business.

David Lustberg: Got it. That’s super helpful. And then, maybe to follow-up on, you beat me to my next question on NRR. But I think it’s two consecutive quarters of over 100%. Maybe if you could provide any color, I know you guys maybe a little bit more locked about the numbers. But how that trended specifically versus last quarter, if it’s high or lower around the same? And then I know you said you plan on continuing to raise that higher. Is that a dynamic of, hey, like we’re past the COVID cohort that kind of came on and turned off and you guys feel that that could be more of a steady increase over time as we get more to this normalized environment?

Gillian Munson: Yes, a couple factors on NRR. COVID cohorts don’t really have too much to do with our VE business. That really is a business that we almost kind of really took off. It was very, very small and has grown much more meaningfully into – in the post-COVID period. The COVID cohorts kind of has more to do with the self-serve business. In terms of NRR, we think of it as a holy grail of customers being happy, expanding their use of Vimeo. And that’s what we’re aiming both the product teams at in terms of all the new features and functions they’re bringing to enterprises as well as our sales force in terms of their relationships with customers. So NRR to us is a really good sign that we’re doing a good job at that.

The way we expect to expand ARPU inside customers is both by expanding the use of Vimeo across a company. So oftentimes Vimeo will start in one department and then expand out because people say, oh wait, this is really dead simple way to do video and while my partner over here might want to use it. I, of course, always believe that the whole finance team should use Vimeo and then the HR team and the marketing team actually it tends to start more in the HR and the marketing then fly over to a finance team. But that’s the idea. So it’s both going to be expansion of the number of people using Vimeo and with all the kind of cool new features that we continue to bring out expansion of features. So it’s along both lines is where our strategy sits.

David Lustberg: Great. Thank you.

Gillian Munson: You’re welcome.

Ken Goff: At this point, there are no further questions. I’d like to hand the call back to Gillian.

Gillian Munson: Thank you for joining our Q2 2023 live Q&A. We look forward to updating you again next quarter. Have a great day.