Hello everyone. Alexei Gogolev here from the J.P. Morgan software team. Today I'm delighted to welcome here with us, CEO of Squarespace, Anthony Casalena. Anthony, thank you for joining us today. I would love to maybe start off with some of the amazing drivers of your first quarter performance. Very impressive and obviously within your website business specifically, how much of that improvement was related to maybe some seasonal factors, but more importantly, maybe some, you know, strong growth in top of the funnel, some attribution factors, if you can elaborate on that strong growth? Sure. Whoa, loud. Thank you for having me. Q1 is seasonally our strongest quarter. On top of that, one of the highlights we had from our most recent call was actually this Q1 was the highest number of trials in the website product that we've seen ever, including any COVID quarter. That was actually really encouraging to see. Hopefully some positive macro signals there. Also, over the past couple of quarters, I'd say there are three or four things that are also contributing to that growth. One, towards the end of the summer last year, we updated our attribution models internally, which allowed us to shift spend confidently into more direct channels and away from certain brand channels, and helped us optimize that. That was leading to very efficient traffic coming in. As you saw the our CAC declined on a year-over-year or quarter-over-quarter basis. It was good to see that going in the right direction. We also launched a couple of product improvements that were really helping us out. One is Fluid Engine. Over the summer, we've been improving that. Easiest to use page builder we've ever released. I think it was and the most expressive, so that's being well received. We launched in September improvements to our mobile onboarding flow. All that mobile traffic coming in, obviously difficult to create a website from your phone. People want a different onboarding path, so we had some optimizations there. Also in Q1, we've been testing and launched something we call Blueprint, which is a way for people to sign up for Squarespace without having to go through the template store onboarding, so they can piece together a site from parts. We're seeing conversion improvements as a result of that too. We do get asked a lot about macro. Obviously, I have no specific insight into that generally, but I would remind people that historically, when recessionary things were in the environment, Squarespace was countercyclical to those trends, mostly because we're a low-cost provider. As people, you know, lose their jobs, enter the workforce, they're either starting projects or they put a resume or a portfolio online. All kind of good for websites. You know, frankly also, when companies go out of business, sometimes the website, they don't they don't even shut the website down. They need a contact form. They might keep the domain name. It's not exactly tied to, you know, small business lifecycle. Yeah, we were thrilled with the quarter. Perfect. This is probably the fastest that today I've gotten to the AI topic. I feel like it's important that we discuss it in the prospect of Squarespace. Could you maybe start us off with your AI journey, when it began and how it evolved? Yeah. Obviously in front of a lot of people's minds, as you kinda saw on the earnings call and whatnot. Our industry is really no stranger to AI. We've had startups that have appeared, you know, eight years ago, nine years ago, that were using AI to create websites. One of our main competitors had it as part of their onboarding flow for five years. We've had machine learning engineers inside our company for as long as all this has been going on. We've always used it mostly for website setup. I think people are getting really excited about it now as large learning models evolve or, sorry, large language models evolve for content generation. Obviously, content not ready is one of the main reasons why somebody would have trouble signing up for Squarespace. They don't have their images. They don't know what to write. We see tailwinds coming in from two places related to AI. One is just the inclusion of, you know, text generation in all of our, all of our content blocks. Then also with Squarespace Blueprint for onboarding, we think we can do a lot of prompt engineering to help people get more variety out of those designs moving forward. Squarespace has really for two decades eliminated the need for people to code websites, so we're not really thinking much about that. For, you know, $16-$18 a month, we do way more than just code a website for you. We are hosting storage, bandwidth, CDN, DDoS protection, DNS, domain registration, email deliverability, SEO optimization, analytics, payments. You know, when we hear these sort of like, "Oh, it's all going away due to AI," it's like, yeah, it's gonna be a tailwind for us in a lot of places, but Squarespace just does so much at that price point that we really don't think is related to what AI is targeting right now. You mentioned some of those potential benefits that AI could bring to website building space. Could you elaborate a bit more on those? Yeah. The two main ones for us, again, these are not things we're surprised by or are new. These are evolutions on things that have already been in our space for a long time. The two are just the integration of large language models into our open text fields. The second one is the integration of like, basically prompt engineering on top of these models to go into our Squarespace Blueprint setup system. I think there's probably some more opportunities around automation, really it's the setup process that we're most interested in right now. In terms of, sort of level of investments and type of AI-based products, that you're currently offering to your customers, can you discuss, some of those investments that are needed? Well, the interesting thing about it is that actually with the way that these models are being introduced, it actually means that Squarespace has to have less of an investment that we previously would have needed in these categories because everything that OpenAI is providing, for instance, is done via an API call. I mean, we've had much bigger machine learning teams in the past than we do right now. Again, we're... Of the two areas I mentioned, integrating with Blueprint will happen, you know, over the summer, later in the year, and having it integrated with the text fields is actually already currently in production. It's just not rolled out to everyone yet. I think we're behind. I think we have 5% or 15% general availability on that model. It's an exciting time for us and I'm just really frankly happy that these things are so accessible and that we don't have to train and build a large language model of our own, which, as you know, costs tens of millions of dollars. You mentioned Blueprint. I think you launched it after your earnings calls. Could you maybe discuss the product a bit more? What does it do and how does it help users? Yeah, sure. It's part of our setup process, we've been testing it in Q4, more general availability of it appeared in Q1. We're announcing it at the earnings call, it's really been in production for a while, we're seeing a positive result from that test. Essentially, when you go to Squarespace, we have the fun task of trying to figure out what you meant by website in your head. You go into Squarespace, historically we've had the template store, where it's these really beautifully staged examples of websites, you go and you pick one and you make it your own and you customize it, right? We don't start anyone with a blank screen or a blank page. What Blueprint is doing is decomposing those templates into parts and giving people a set of setup questions so that when they go to Squarespace, they're not picking a full template from the template store. They're saying, "I like this header," you know, "I'm mostly selling appointments," you know, "I'm gonna be not selling products. I want this as my footer. I need a map here." It's just a more streamlined way to get started with the product. At the end of the day, the template store is kind of a very flawed mechanism. Not that we have anything too much better. You have Blueprint and some other things, you know, you don't know what people are reacting to in the template. Did they like the font? Did they like the pictures? Did they like the nav items? What was it? You can't really tell when they're onboarding. Blueprint gives us a way to get to a more accurate representation of what they wanted while they're in the onboarding process. Slightly changing gears from AI, Squarespace has relatively high gross margins compared to many of their competitors. Can you talk about the key differentiation factors in your business model versus your peers? Sure. You know, our gross margins are north of 80%. You know, we're guiding near the 20s% in free cash flow. The other important thing to keep in mind about Squarespace is we've always been an incredibly efficient company when it comes to spend. Squarespace operated from cash flow break even since it was founded almost two decades ago, and we've been profitable for about five. In that is just a real discipline around how we're spending, right? You know, also interesting fact from the funding story is it was started with $30,000 and run to break even for seven years before accepting any other money. Outside of the funding round right before the IPO, Squarespace has only accepted about $50 million in primary capital in those 20 years. This is in the DNA of the company. It's not something we're pivoting towards. Along the way, because we operated our own infrastructure and data centers, we've been actually very selective about what we move to the cloud and when, and so we've got a lot of efficiency in there. Obviously, we're hybrid operating on our own slash cloud, but, you know, when you actually don't have any money to buy more servers, you're pretty good about getting as much out of them as you possibly can. You see that reflected in the margins. What else? Our customer operations group is operating more efficiently than ever. You know, that remains a great source of savings and, you know, Basically, that group's completely in-house, and they're really well run. Yeah, a lot of that's built into that margin profile. Understood. Can you elaborate a bit more on what you see as the most efficient strategy to attract and retain your customers? For the attract side of that, you know, Squarespace is no stranger to advertising. We've done advertising from the beginning when I bought the first Google AdWords for $100 in a month, and then $200 and then $400, and now, you know, we've got, I think Nine Super Bowl ads behind us. You know, I'm really proud of the engine we've built because we've tried to be really, really risk-taking, but also disciplined. Otherwise, how can we operate the cash flow break even if we weren't doing that or we were throwing our money away? That's why, you know, when we, when we launch things like our attribution model update that I mentioned earlier from last September, yeah, that stuff goes a long way with how we can deploy that, deploy that advertising spend. You know, you'll see us across obviously direct response advertising, things like AdWords, but we're also a big brand advertiser because you need to be top of mind when somebody goes and thinks they need a website. That doesn't happen for most people a lot in their life. We're in a very competitive landscape where it's now really boiled down to just a few big players that people know when they go and make a website. They're not all googling, "How do I make a website?" They've heard of us or one of our competitors. I think the other thing that has been great about the ability to do brand advertising is I think it's really helped us shape in people's minds what Squarespace stands for and why they should use it. I think we've got one of the highest quality customers who are attracted to us versus anyone in the space. We use the brand moments to put messages out there and tell people, you know, what's going on as this company evolves. I mean, we've gotten really into commerce tools in the past decade. A lot of other services for people to for entrepreneurs to run their business. People might think of us as just, you know, they know us for the website builder, which is really good. They should know us for that. We do so much more than that these days. We use the brand platform to push that out. I think some of it's being announced, but the Art Directors Club and all the award shows are happening now in New York, and we won In-House Agency of the Year, Brand of the Year, the Super Bowl Ad with our production company around, they won Production Company of the Year. We're pretty good about that stuff, and I'm really proud of the in-house agency and what we're able to do with that. The other part of that, too, is because we've got this powerful in-house agency, and we think of ourselves as a portfolio of brands now, those skills that were used to promote the Squarespace brand can promote the Acuity brand, can promote the Unfold brand, the Bio Sites brand, the Tock brand. Like, what we're able to do in, like, a week when working on those brands, I think brands couldn't dream of doing it in a year. We just have that muscle, and we use it internally. That's been really positive for us. Anthony, moving on to some of your future aspirations. I wanted to talk to you about payments. First of all, why did you decide to launch payments on your platform? What about Squarespace Payments is going to add to your customers? How are they going to benefit from it? Yeah. One way of phrasing that is, why didn't we do it sooner? We were a super early adopter of Stripe back when it was much younger, about 10 years ago, we always had a pretty good rev share there. Frankly, our customers don't come to us knowing what Stripe is. They don't care. They just want to accept payments. They're not, you know, these big companies that are doing, like, multi-vendor analysis with payments. They just want one place, everything in one place, one brand. They already trust Squarespace. They told us that. They want one interface where they're going in one support contact to call that manages all these aspects of their business. First off, it's for customer demand. They wanted it. On top of that, we will have better margin profiles over time with that payments business, and we will be able to offer other products on top of that related to financing and all the other things that are in the payments ecosystem. Payments is big for us. Again, Squarespace is not just selling physical products. We sell services, we book appointments, we take reservations, we do pre-order. Like, there's a lot of different kinds of payments that are around the Squarespace platform. That platform volume will be a bigger and bigger component of Squarespace into the next decade. It's critical for us to own payments. You know, we have a lot of effort put in there. Hired a new executive to run payments who has over a decade in experience. He started about five, six months ago now. I'm really confident to announce that, you know, we will see customers on that payments platform by the end of the year. We're gonna be starting with new customers before moving over existing ones, but we're so far on track to do that. Obviously not something we're gonna see, like, an in-year revenue impact from, but it's just the beginning of something really important for us. Moving on to your international strategy. In the most recent quarters, I think we've seen your international business growing broadly in line with domestic. Would you expect it to accelerate going forward? I feel like you've been talking a lot about spending more on international exposure. For sure. You know, we've been going on for about eight years now. We're always launching new currencies, new payment methods like SEPA as of last year. When we go into a new market, it obviously takes us some time to kind of ramp up. We see a lot of international markets growing faster than the U.S., and some, you know, growing slower as we get started there. I'm pretty happy with the progress we've made there. I think the product is, you know, at its core, very internationalizable. I think certain things like commerce takes us a little bit longer, local shipping, you know, all that kind of stuff. It's, it's great. I think the other thing that you're seeing there when you see international a little bit flatter than the US growth is that we did update pricing in the U.S., and it's taking us longer to roll that out to international markets, either because our list prices are different or we're just being cautious and wanna make sure we don't screw something up. That'll kind of cause it to normalize a bit more over time, and I think you'll see the international markets outpacing the U.S. at times. We're very pleasantly surprised in the growth we've seen in Australia, the U.K., and Canada in particular. Yeah, we'll keep pushing on that for sure. Who do you see as your main competitors internationally? The same as the ones domestically. Right. Okay. With regards to your initial results from price increases that you mentioned, you obviously started some of those legacy price increases at the end of last year. How has this been progressing? Have you been surprised by the low level of churn that you've seen? Yeah. The churn that we modeled of being at an acceptable threshold level for seeing after doing the price increases, we were far below that. We kind of not aggressively, we briskly rolled out the pricing increases to the rest of the population. Now we started with U.S. also. We didn't increase prices for pounds and all that. That stuff's happening now. The other thing is, because we've never raised prices as a company, a lot of our customers are actually far below list price, so we didn't wanna just give people a, you know, 30% price increase in a given year. Even in the U.S., we have customers that are going to be remaining below our list price. But very happy with the resiliency of the customer base. If you think about it also with regards to our ability to do this versus some of our peers, Squarespace uniquely across all of our peers, never had a free plan, never had aggressive discounting. I think that, you know, we have a little bit more leeway to move these prices up versus, you know, dealing with customers that were very, very price sensitive to begin with. Think a very large share of your customers are on annual plans. Mm-hmm. Would you say that, majority of the customers in U.S. have already accepted these new price increases, and you've seen sort of the peak? As of Q1, a lot of them have. Yeah. We're now sort of looking for more price increases internationally to come through. Internationally is the next step. You know, people have asked if we're gonna increase prices again on those legacy customers in the U.S. It's something we'll look at probably next year. I don't think we wanna do too many in a 12-month period. Understood. Perfect. What do you believe are the key differentiating factors for Squarespace, specifically in the web tools, design products, versus some of your competitors? How do you think your market share has performed in the last 12 months? To the market share question, I think we're a net taker as opposed to one that's losing it, losing market share. I think, you know, we've been really pleased there. Look, in the core web tool space, there are very few companies that scale that do everything we do. I rattled it off, you know, earlier when talking about an answer to the AI question, Squarespace is really good at, like, 20 things at once and has the biggest investment in design and creativity of any of our competitors and arguably most other tech companies. That has been a real strength in what we offer people because that image of how people appear online is very, very important to them, and it's a big differentiator in them being successful in running their business. It's really this all-in-one platform with the tools for design and now evolving into really a commerce engine. We sell physical products, digital products, take reservations, have tools for time-slotted businesses, have appointment-based systems. On the call I, in the past, earnings call I mentioned, we've got, you know, specific products coming out for classes and courses. We've got tools coming out for workflow-based sellers. That's people, you know, you could be a wedding photographer. Somebody submits something in a contact form, you know, you send them an invoice, you break that into payments. Tons of tools coming out there. It's a mix of all that stuff with payments that has me pretty excited for the future of Squarespace right now. There's just so many things we can do on top of that website platform that keeps us modern into the next decade. It's amazing. It's like Squarespace is two decades old, and it feels really just modern to me. We touched upon international exposure, but, apart from some of the markets that you've mentioned, Australia and U.K., are there other international markets that you're particularly excited about, places where you see a lot of opportunity? Yeah. When we're looking at international markets, we're always looking at, you know, the adjacencies to the U.S., how the brand's gonna resonate, the number of connected internet users, number of businesses, you know, appetite for a DIY product. Yeah, the Nordic countries, you know, we have efforts right now in France, Germany, Italy. Actually we just started an exploration and some work on our first Asian market, which will, you know, again, nothing this year, but into next year we have some focuses there. In terms of your capital allocation strategy and how it sort of plays together with your M&A outlook, what are your thoughts in that respect? We're incredibly cash generative, which is a great spot to be in, and gives us a lot of options for what we do with that cash. You know, last year at this time we were doing buybacks. You know, we had just completed some large M&A, and we're at an integration phase. You know, for most of this company's history, we were always building, not buying. We didn't buy our first company until four or five years ago, if that. The sweet spot for us in M&A is right now... You know, as we look at that portfolio of things we can do for entrepreneurs, right? Look at what we already do, service-based sellers, classes and courses, invoices, hospitality and reservations businesses, Tock can handle events, it really becomes a build versus buy. Some of those things on the list around appointments and time-slotted businesses, we chose to buy. Those were the Acuity and Tock acquisitions. Really, I'd like to focus kind of on sub-$100 million purchases where the functionality either would benefit from Squarespace's big advertising stream and the attachments of websites or something where we can do the rebrand and attach kind of in a different way, like Acuity or Tock. Yeah, I think we've done a good job at buying those well. A lot of the companies that were in our M&A portfolio, there's only four of them, had no external investors. They were founder-led. I'd like to think we're a really great spot for founders. I have a lot of sensitivity, obviously, to them in the various stages of their journey. Yeah, that's kinda how we're thinking about it. Opportunistically looking around. Perfect. In that range. Yeah. I wanted to see if there are any questions in the room. Yeah. Hi. Can you talk a little bit about how you're doing the payment business? Are you guys, like, white labeling Stripe like the way Shopify did, or you're building the whole infrastructure? We're gonna be working with a partner. It's not announced who that is yet, we will not be building all that infrastructure layer stuff all the way down. Companies like Adyen and Stripe are great in that space and at scale. We're gonna be taking over the interfaces, some aspects of the risk management, the payout site, the payout system, stuff like that. Another follow-up question. Like, in terms of your customer base, what percentage of customers you will say it's, like, e-commerce related as opposed to services commerce? I forget the exact most recent breakdown, but in the, in the, in the quarter, we do break out the percent of revenue coming in from commerce-related activities versus non-commerce-related activities, and we were trying to, you know, get that to around 50/50 over time. Obviously, there's much more revenue potential in the commerce-related activities, both in the SaaS fees we can charge and in the take rate we can get from something like Squarespace Payments on the, on the gross platform, on the payment volume flowing through the system. Perfect. Are there any more questions in the room? Great. Anthony, this has been great. I appreciate your time, and thank you for being with us today. Thank you for the questions. Thank you all for coming, and a pleasure being here. All right. There we go.