Squarespace: Q4 and full year 2023 financial results

Squarespace, Inc. announced results for the fourth quarter and year ended December 31, 2023.

“Squarespace surpassed $1 billion in revenue for the first time in its 20-year history in 2023, driven by new customer growth across markets and strong retention, which speaks to our robust product offering,” said Anthony Casalena, Founder & CEO of Squarespace.

“During 2023 we also made important strides in enhancing the foundation of our long-term growth through our acquisition of Google Domains, the launch of Squarespace Payments, and key product and feature introductions including new AI capabilities that expand our ecosystem and broaden accessibility to entrepreneurs wherever they are on their journey. Entering our third decade, we are in a strong position to capitalize across our core verticals of enabling small business, commerce and international expansion.”

“Squarespace delivered a record fourth quarter that exceeded our expectations across the board,” said Nathan Gooden, CFO of Squarespace. “We are combining increased scale and profitability with consistent execution and a relentless focus on innovation for entrepreneurs to set a strong foundation for sustainable growth and value creation. We view share repurchases as an integral part of our capital allocation strategy and the $500 million authorization announced today underscores the strong financial momentum in our business.”

Fourth Quarter 2023 Financial Highlights

• Total revenue grew 18% year over year to $270.7 million in the fourth quarter, compared with $228.8 million in the fourth quarter of 2022, and 16% in constant currency.
  • Presence revenue grew 20% year over year to $188.4 million and 18% in constant currency.
  • Commerce revenue grew 14% year over year to $82.3 million and 13% in constant currency.
• Net income totaled $5.3 million, compared with a net loss of $234.0 million in the fourth quarter 2022. The 2022 result included a $225.2 million non-cash goodwill impairment charge. Excluding the impairment charge, net loss for the fourth quarter of 2022 was $8.8 million.
• Earnings per share totaled $0.04 based on 136,153,002 basic and 139,387,350 dilutive weighted average shares in the fourth quarter, compared with a loss per share of $1.72 based on 136,340,283 basic and dilutive weighted average shares in the fourth quarter of 2022.
• Cash flow from operating activities increased 56% to $61.1 million for the three months ended December 31, 2023, compared with $39.1 million for the three months ended December 31, 2022.
• Total bookings grew 23% year over year to $286.1 million in the fourth quarter, compared to $232.1 million in the fourth quarter of 2022.
• Unlevered free cash flow increased 57% to $65.0 million representing 24% of total revenue for the three months ended December 31, 2023, compared with $41.5 million for the three months ended December 31, 2022.
• Adjusted EBITDA increased to $64.7 million in the fourth quarter, compared with $63.1 million in the fourth quarter of 2022.

Full Year 2023 Financial Highlights

• Total revenue grew 17% year over year to $1,012.3 million in 2023, compared with $867.0 million in 2022, and 16% in constant currency.
  • Presence revenue grew 18% year over year to $704.3 million and 17% in constant currency.
  • Commerce revenue grew 14% year over year to $308.0 million and 14% in constant currency.
• Net loss was $7.1 million, compared with a net loss of $252.2 million in 2022. The 2022 result included a $225.2 million non-cash goodwill impairment charge. Excluding the impairment charge, net loss for the full year 2022 was $27.1 million.
• Loss per share of $0.05 based on 135,531,363 basic and dilutive weighted average shares in 2023, compared with a loss per share of $1.82 based on 138,409,491 basic and dilutive weighted average shares in 2022.
• Cash flow from operating activities increased 41% to $231.1 million in 2023, compared with $164.2 million in 2022.
• Total bookings grew 19% year over year to $1,075.1 million in 2023, compared to $906.1 million in 2022.
• Unlevered free cash flow increased 46% to $241.0 million representing 24% of total revenue in 2023, compared with $165.6 million in 2022.
• Adjusted EBITDA increased to $235.4 million in 2023, compared with $147.5 million in 2022.
• Cash and cash equivalents at year-end 2023 of $257.7 million; total debt was $568.8 million, of which $49.0 million is current, debt net of cash and investments totaled $311.1 million.
• Total unique subscriptions increased 10% year over year to over 4.6 million in 2023, compared to 4.2 million in 2022.
• Average revenue per unique subscription (“ARPUS”) increased 9% year over year to $228.02 in 2023, compared to $209.16 in 2022.
• Annual run rate revenue (“ARRR”) grew 19% year over year to $1,105.7 million in 2023, compared to $931.7 million in 2022.

2023 Business Highlights

Product Innovation

Squarespace provides superior design and ease of use technology for entrepreneurs everywhere. Our passion for innovation drove all areas of our business. In 2023, the Company:

• Relaunched Squarespace Domains with a more complete domain management experience for domain-first customers following our acquisition of Google Domains Assets.
• Launched Squarespace Payments, which fully integrates with our customers’ online stores to accept fast and secure payments and provides a seamless purchase experience for their customers all in one place.
• Unveiled Squarespace Blueprint, our guided website design system that provides professionally-curated layouts and styling options.
• Advanced Acuity Scheduling’s platform technologies and introduced new branding to help streamline the client booking experience with a centralized dashboard, mobile app tools, and payment features.
• Invested in Squarespace AI to make it easier than ever for users to generate custom content. Generative AI integrations help populate websites, email campaigns, and commerce store descriptions, enabling customers to efficiently publish and specialize content for their brand identity.
• Released our annual compilation of new products and features, Squarespace Refresh, where we showcased new tools spanning commerce, client invoicing, courses, email marketing, enterprise customer collaboration, and more.
• Enhanced Tock’s User System with a new iOS app and new reservation features, and integrated Reserve with Google to help Tock customers increase their visibility and drive diners to their businesses.
• Established a partnership with SoundCloud to bring SoundCloud Next Pro artists the opportunity to create a beautiful website with unique, music-themed domains.

Marketing & Brand

Our marketing investments, design-centric ethos, and go-to-market channels bolster our brand recognition and keep Squarespace top of mind for new audiences. This year, Squarespace:

• Continued to globalize our product suite by increasing our currency options by 5x.
• Introduced the second edition of Squarespace Collection (formerly Squarespace Icons) with Magnum Photos, where we partnered with six world renowned photographers to create signature website designs inspired by each photographer’s creativity and built on our website editor, Fluid Engine™.
• Teamed up with Adam Driver for our 9^th Big Game campaign, “The Singularity,” where we honored Squarespace’s founding history as a pioneer in website building.
• Hosted our second Circle Day where we engaged thousands of members of our Circle partner program from around the world. Members shared advice and strategies on how to leverage strengths, skills, and connections to expand every web designer’s professional toolkit.
• Received multiple Fast Company awards, including Fast Company’s Most Innovative Companies and Innovation by Design, won two Webby Awards and our Big Game commercial won top honors from ADC, AICP, Cannes Lions, Ciclope, D&AD and the One Show.

Corporate

Squarespace is focused on creating and delivering value to entrepreneurs, partners, and investors. In 2023, the Company:

• Acquired Google’s Domains business, representing millions of domains, and established an exclusive reseller agreement for any customer purchasing a domain along with their Google Workspace subscription from Google directly.
• Won multiple awards recognizing the excellence of our organization including Comparably’s Best Places to Work in New York.
• Celebrated our 20^th anniversary; across two decades the Squarespace platform has been used by millions to build beautiful brands and businesses online.
• Returned approximately $26.0 million to shareholders under our share repurchase program as of December 31, 2023, which represents approximately 1.3 million shares.

Share Repurchase Program

Squarespace’s board of directors authorized a general share repurchase program of the Company’s Class A common stock of up to $500 million with no fixed expiration. These Class A common stock repurchases may occur in the open market, through privately negotiated transactions, through block purchases, other purchase techniques including the establishment of one or more plans under Rule 10b5-1 of the Securities Exchange Act of 1934 or by any combination of such methods. The timing and actual amount of shares repurchased will depend on a variety of different factors and may be modified, suspended or terminated at any time at the discretion of the board of directors.

Outlook & Guidance

For the first quarter of fiscal year 2024, Squarespace currently expects:

• Revenue of $274 million to $277 million, or year-over-year growth of 16% to 17%.
• Non-GAAP unlevered free cash flow of $83 million to $86 million. This is the result of:
  • Cash flow from operating activities of $77 million to $81 million, minus
  • Capital expenditures, expected to be approximately $2 million to $3 million; plus
  • Cash paid for interest expense net of associated tax benefit, expected to be approximately $8 million.

For the full fiscal year 2024, Squarespace currently expects:

• Revenue of $1,170 million to $1,190 million, or year-over-year growth of 16% to 18%, which includes contributions in the range of $85 million to $88 million related to our acquisition of Google Domains Assets.
• Non-GAAP unlevered free cash flow of $290 million to $310 million. This is the result of:
  • Cash flow from operating activities of $266 million to $288 million, minus
  • Capital expenditures, expected in the range of $4 million to $6 million; plus
  • Cash paid for interest expense net of associated tax benefit, expected to be approximately $28 million.

Definitions of Key Operating Metrics

On September 7, 2023, we closed an asset purchase agreement between us and Google LLC (“Google”) to acquire, among other things, Google’s domain assets (the “Google Domains Asset Acquisition “). Unique subscriptions and average revenue per unique subscription do not account for single domain subscriptions originally sold by Google as a part of the Google Domains Asset Acquisition (the “Acquired Domain Assets”).

Annual run rate revenue (“ARRR”). We calculate ARRR as the monthly revenue from subscription fees and revenue generated in conjunction with associated fees (fees taken or assessed in conjunction with commerce transactions) in the last month of the period multiplied by 12. We believe that ARRR is a key indicator of our future revenue potential. However, ARRR should be viewed independently of revenue, and does not represent our GAAP revenue on an annualized basis, as it is an operating metric that can be impacted by subscription start and end dates and renewal rates. ARRR is not intended to be a replacement or forecast of revenue.

Unique subscriptions represent the number of unique sites, standalone scheduling subscriptions, Unfold (social) and hospitality subscriptions, as of the end of a period. A unique site represents a single subscription and/or group of related subscriptions, including a website subscription and/or a domain subscription, and other subscriptions related to a single website or domain. Every unique site contains at least one domain subscription or one website subscription. For instance, an active website subscription, a custom domain subscription and a Google Workspace subscription that represent services for a single website would count as one unique site, as all of these subscriptions work together and are in service of a single entity’s online presence. Unique subscriptions do not account for one-time purchases in Unfold or for hospitality services nor do they account for our Acquired Domain Assets. The total number of unique subscriptions is a key indicator of the scale of our business and is a critical factor in our ability to increase our revenue base.

Average revenue per unique subscription (“ARPUS”). We calculate ARPUS as the total revenue during the preceding 12-month period divided by the average of the number of total unique subscriptions at the beginning and end of the period. ARPUS does not account for Acquired Domain Assets or the revenue from Acquired Domain Assets. We believe ARPUS is a useful metric in evaluating our ability to sell higher-value plans and add-on subscriptions.

Total bookings represents cash receipts for all subscriptions purchased, as well as payments due under the terms of contractual agreements for obligations to be fulfilled.

Gross merchandise value (“GMV”) represents the value of physical goods, content and time sold, including hospitality services, net of refunds, on our platform over a given period of time.