Vimeo(VMEO) - 2023 Q4 - Annual Results

Part I Shareholder Letter Strategic Overview and Business Performance Vimeo is shifting to a product-led growth model, re-orienting enterprise offerings and reducing marketing spend, which significantly improved 2023 profitability - The company is re-orienting its enterprise products around three primary use cases: marketers acquiring customers, employees using video for internal communications, and media businesses monetizing video[5] - Vimeo is shifting its Self-Serve & Add-Ons business to a product-led growth strategy, increasing product investments while reducing marketing spend, which may impact near-term bookings but is expected to improve long-term conversion and retention[7] - Welcomed new enterprise customers in Q4 including Hermes, Domino's Pizza, Southwest Airlines, Gartner, and Toyota, many of whom started as self-serve subscribers[6] 2023 Profitability Improvement (YoY) | Metric | Improvement (YoY) | | :--- | :--- | | Net Income | Up more than $100 million | | Adjusted EBITDA | Up more than $40 million | 2024 Financial Context and Outlook Vimeo anticipates 2024 top-line declines due to legacy product deprecation and reduced advertising, but expects to maintain Adjusted EBITDA profitability and return to growth in H2 2024 - The company is proactively deprecating products such as Magisto, WIREWAX, and Wibbitz, which is expected to create a revenue headwind in 2024 as the 'Other' segment still comprised 17% of Q4 revenue[12] - Advertising expenses will continue to be reduced in 2024, following reductions of 12% in 2022 and 21% in 2023, to reallocate funds towards product-led growth initiatives[13] - The company expects a gross margin near 77% in 2024 and plans to increase investment in research and development[14] - Overall bookings and revenue are projected to be down year-over-year in 2024, but Adjusted EBITDA is expected to grow before the impact of substituting cash for some equity compensation[16] Q4 Financial Overview Q4 2023 Key Financial Metrics | Metric | Value | | :--- | :--- | | Total Bookings | $101M | | Total Revenue | $106M | | Gross Margin | 78% | | Net Income | $8M | | Adjusted EBITDA* | $13M | | Ending Cash | $301M | | Cash Provided by Operating Activities | $10M | | Free Cash Flow* | $10M | Q4 Financial Details Bookings & Revenue Q4 2023 saw total bookings decrease by 3% year-over-year, while total revenue remained flat at $106 million, marking the best YoY comparison since Q3 2022 Q4 Total Bookings & Revenue | Metric | Q4 2023 | YoY Change | | :--- | :--- | :--- | | Total Bookings | $101M | -3% | | Total Revenue | $106M | 0% | Vimeo Enterprise Vimeo Enterprise achieved significant Q4 growth with bookings up 34% and revenue up 61% year-over-year, driven by a 49% subscriber increase and 103% Net Revenue Retention Vimeo Enterprise Q4 Performance (YoY) | Metric | Q4 2023 | YoY Change | | :--- | :--- | :--- | | Bookings | $21.6M | +34% | | Revenue | $16.8M | +61% | | Subscribers | 3,300 | +49% | | ARPU | $20,953 | +9% | - Net Revenue Retention (NRR) for the Enterprise segment was 103% in Q4[29] - Key customer wins in Q4 include the University of Southern California, Hermès, Cooley, Aramco Europe, Domino's Pizza, Zuora, Southwest Airlines, Gartner, and Toyota Motor Corp[30] Self-Serve & Add-Ons The Self-Serve & Add-Ons segment stabilized in Q4, with improved YoY decline rates in bookings and revenue, despite an 8% subscriber decrease, offset by a 6% ARPU increase Self-Serve & Add-Ons Q4 Performance (YoY) | Metric | Q4 2023 | YoY Change | | :--- | :--- | :--- | | Bookings | $68.0M | -3% | | Revenue | $71.2M | -3% | | Subscribers | 1.4M | -8% | | ARPU | $203 | +6% | - The company observed year-over-year improvements in conversion and AOV, which helped offset traffic impacts from reduced advertising spend[37] - Bookings and logo retention rates were up both year-over-year and quarter-over-quarter[37] Other The 'Other' business segment experienced a significant Q4 decline, with bookings down 36% year-over-year to $12 million, partly due to renewal timing Other Segment Q4 Performance (YoY) | Metric | Q4 2023 | YoY Change | | :--- | :--- | :--- | | Bookings | $11.6M | -36% | | Revenue | $17.6M | -18% | Expense & Profitability Vimeo's strong expense discipline in Q4, including a 12% YoY reduction in GAAP operating expenses and 17% in advertising spend, led to a net income of $8 million and record Adjusted EBITDA of $13 million - GAAP and non-GAAP gross profit margins were both 78%, up one percentage point year-over-year[43] - Total GAAP operating expenses fell 12% YoY, and Q4 headcount ended at 1,070, down 13% YoY[45] - Advertising spend was reduced by 17% year-over-year in Q4 as part of a strategy to shift resources to product initiatives[49] Q4 Profitability Metrics | Metric | Q4 2023 | Q4 2022 | | :--- | :--- | :--- | | Net Income | $8.4M | ($5.1M) | | Adjusted EBITDA | $13.3M | $6.5M | Balance Sheet & Cash Flow Vimeo ended Q4 with a healthy balance sheet, $301 million in cash, and generated $10 million in both net cash from operating activities and Free Cash Flow, an $8 million YoY improvement - Ended Q4 with $301 million in cash and cash equivalents, up $27 million year-over-year[55] - Generated $38 million in cash from operations for the full year 2023[55] Q4 Cash Flow (YoY) | Metric | Q4 2023 | YoY Change | | :--- | :--- | :--- | | Net Cash from Operating Activities | $10M | +$8M | | Free Cash Flow | $10M | +$8M | Financial Guidance Vimeo projects full-year 2024 revenue to decline 4-8% to $385-400 million with flat Adjusted EBITDA, while Q1 2024 revenue is expected around $100 million with $7-9 million Adjusted EBITDA Full Year 2024 Guidance | Metric | Guidance Range | | :--- | :--- | | Revenue | $385M - $400M (down 8% to 4% YoY) | | Operating Loss | Approx. $5M | | Adjusted EBITDA | Essentially flat with 2023 | Q1 2024 Guidance | Metric | Guidance Range | | :--- | :--- | | Revenue | Approx. $100M | | Operating Loss | $2M - $4M | | Adjusted EBITDA | $7M - $9M | GAAP Financial Statements Consolidated Statement of Operations For the twelve months ended December 31, 2023, total revenue was $417.2 million, but significant operating expense reductions led to an operating income of $13.0 million and net earnings of $22.0 million, a turnaround from 2022 losses Full Year Statement of Operations Highlights ($ in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $417,214 | $433,028 | | Gross Profit | $325,638 | $329,433 | | Total Operating Expenses | $312,591 | $412,371 | | Operating Income (Loss) | $13,047 | ($82,938) | | Net Earnings (Loss) | $22,032 | ($79,591) | | Diluted EPS | $0.13 | ($0.49) | Consolidated Balance Sheet As of December 31, 2023, Vimeo's balance sheet shows total assets increased to $622.9 million, cash and cash equivalents grew to $301.4 million, and total shareholders' equity rose to $382.2 million Balance Sheet Highlights ($ in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $301,372 | $274,497 | | Total current assets | $351,468 | $324,326 | | Total Assets | $622,920 | $605,431 | | Deferred revenue | $168,610 | $167,388 | | Total Liabilities | $240,688 | $251,573 | | Total shareholders' equity | $382,232 | $353,858 | Consolidated Statement of Cash Flows For full year 2023, Vimeo generated $37.8 million in net cash from operating activities, a significant improvement from 2022, resulting in a $26.6 million net increase in cash and ending with $301.4 million in cash and cash equivalents Full Year Statement of Cash Flows Highlights ($ in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $37,785 | ($37,071) | | Net cash (used in) provided by investing activities | $531 | $830 | | Net cash used in financing activities | ($11,695) | ($10,588) | | Net increase (decrease) in cash | $26,602 | ($47,511) | Disaggregated Revenue and Operating Metrics Full year 2023 segment performance shows Vimeo Enterprise bookings grew 53% to $71.4 million, while Self-Serve & Add-Ons and 'Other' segments experienced declines due to legacy product de-emphasis Full Year 2023 Segment Performance | Segment | Metric | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Self-Serve & Add-Ons | Revenue | $285.5M | $304.7M | | | Subscribers (EOP) | 1,379.7k | 1,505.0k | | | Bookings | $281.5M | $297.3M | | Vimeo Enterprise | Revenue | $56.5M | $39.3M | | | Subscribers (EOP) | 3.3k | 2.2k | | | Bookings | $71.4M | $46.8M | | Other | Revenue | $75.2M | $89.0M | | | Subscribers (EOP) | 67.0k | 93.3k | | | Bookings | $50.1M | $67.0M | Supplemental Information Reconciliations of GAAP to Non-GAAP Measures This section details reconciliations of GAAP to non-GAAP measures, adjusting for non-cash expenses to derive metrics like Adjusted EBITDA, which for Q4 2023 was $13.3 million from $5.6 million operating income - Adjusted EBITDA is calculated by taking operating income (loss) and excluding stock-based compensation, depreciation, amortization of intangibles, and restructuring costs[77] - Free Cash Flow is defined as net cash from operating activities less capital expenditures, contingent consideration payments, and restructuring costs[81] Principles of Financial Reporting & Definitions Vimeo defines its non-GAAP financial measures, including Adjusted EBITDA and Free Cash Flow, and provides specific definitions for its business segments and key operating metrics like Subscribers, ARPU, and Bookings - Defines "Self-Serve & Add-Ons" as subscription plans sold directly online, including Starter, Standard, and Advanced plans[87] - Defines "Vimeo Enterprise" as the video offering for teams and organizations sold through a sales force, which includes advanced security and marketing integrations[88] - Defines "Bookings" as fixed fees for SaaS services that subscribers have paid or committed to pay during their subscription period or 12 months, whichever is shorter[92] Dilutive Securities This section outlines Vimeo's potential dilutive securities, including 12.4 million SARs/stock options and 12.5 million RSUs as of February 15, 2024, with estimated dilution ranging from 3.7% to 5.4% at various stock prices Outstanding Dilutive Securities (as of 2/15/2024) | Security Type | Shares (millions) | | :--- | :--- | | SARs and Stock Options | 12.4 | | RSUs | 12.5 | Other Information This section contains cautionary statements regarding forward-looking information, outlines Vimeo's corporate overview as a video experience platform, and provides investor relations contact details - The report contains forward-looking statements subject to risks and uncertainties, and actual results could differ materially from those projected[101]