Maggie O'Donnell - Director, Investor Relations Avishai Abrahami - Co-Founder and CEO Lior Shemesh - Chief Financial Officer Nir Zohar - President and Chief Operating Officer.

Brent Thill - Jefferies Ronald Josey - JMP Securities Mark Grant - Goldman Sachs Group Deepak Mathivanan - Barclays Alyssa Johnson - KeyBanc Capital Markets Naved Khan - SunTrust Robinson Humphrey Jason Helfstein - Oppenheimer Sterling Auty - JPMorgan Chase & Co.

Matthew Pfau - William Blair & Company Mark Mahaney - RBC Capital Markets Jonathan Kees - Summit Insights Group Timothy Klasell - Northland Capital Markets.

Good morning. My name is Twig, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wix.com 2018 Second Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session.

[Operator Instructions] I will now hand it over to Maggie O'Donnell, Director of Investor Relations..

Thank you. Good morning everyone and welcome to Wix Second Quarter 2018 Earnings Call. Joining me today to discuss our results are Avishai Abrahami, CEO and Co-Founder; Nir Zohar, President and COO; and Lior Shemesh, CFO. During this call, we may make forward-looking statements, and these statements are based on current expectations and assumptions.

Please consider the risk factors included in our press release and most recent Form 20-F that could cause our results to differ materially from these forward-looking statements. We do not undertake any obligation to update these forward-looking statements. In addition, we will comment on non-GAAP financial results.

You can find all reconciliations between our GAAP and non-GAAP results in our press release, presentation slides, shareholder update and our interactive analyst center on the Investor Relations section of our website. Now I will hand it over to Avishai Abrahami, who is going to say a couple of words about the quarter. .

Thank you, Maggie, and good morning, everyone. Thank you for joining us today. We had another great quarter at Wix. The momentum and excitement we shared at the Analyst and Investor Day in June are reflected in this strong results. Both collection and revenues beat our expectations again.

Revenues increased 41% year-over-year and collection grew 37% year-over-year. Free cash flow also grew in the quarter to nearly $24 million our highest ever. These results prove that what we talked about at the Analyst Day that Wix continues to be a real combination of strong top-line growth and growing cash flow. .

As a reminder, for every 100,000 new subscription we add, we estimate future collection of more than $165 million over the next eight years. We now expect our existing cohort to generate $4.6 billion in collection over the next eight years based on a current cohort behavior.

Finally, consistent with what we shared at our Analyst and Investor Day, the momentum of our product development is expanding our market opportunity. We continue to provide Wix user of all skill levels and backgrounds with a complete product platform so they can create their dreams online.

Development of Wix Code continues, and users of all skill levels, including experts and professionals are creating many different kinds of websites and web applications. Activity in the Wix Code Forum, our community for Wix Code users are also increasing. Users have contributed over 35,000 posts and comments which have generated over 1 million views.

We remain excited about the opportunity Wix Code presents for the coming years. We also recently launched a mobile site builder for Wix enabling users to create professional-looking websites entirely from a mobile device. And Wix ADI continues to be a positive contributor to the overall conversion improvements.

We are experiencing early success in additional languages other than English and plan to release more before the end of the year. I am very happy by our progress so far this year and remain very excited about the remainder of the year. With that, I am going to hand it back to Maggie. .

Thank you. Please limit yourself to one question, so that everyone gets a chance to ask a question.

Can we have the first question please?.

[Operator Instructions] Your first question is from Brent Thill with Jefferies. Please go ahead..

Thank you. You had mentioned that code users are starting to buy more premium subscriptions. Although in the quarter, the premium growth actually decelerated from past periods.

I am curious if you could just walk through, what you are seeing in for apps there is some anomalies that are creating a deceleration in that growth as it relates to some of the metrics that you would release?.

Sure. This is Lior. So, obviously, let’s remember that in terms of seasonality, Q2 is weaker than the first quarter, usually the first quarter is very strong especially about premiums are added. Many reasons for that.

Second, I think that we have some impact and we kind of focus it when we provided the guidance for the quarter, specifically from the World Cup. So we need to also to take it into account.

But overall the conversion is up even when we look at the new cohorts in the second quarter compared to the first quarter, and the main reason for that is for the adoption of the Wix Code and also the contribution of the ADI in other places of the world. So, it actually was even above our expectations. .

Thank you..

Thanks, Brent.

Can we have the next question please?.

Your next question is from Ron Josey from JMP Securities. Please go ahead..

Great. Thanks for taking the question. So, Avishai, in the press release you mentioned two goals for 2018. I think it was increased penetration of existing markets and then continue to see progress and the benefits of larger market opportunities.

I just want to understand a little bit more as head into the back half of the year, talking about increasing penetration and existing markets, is that just more marketing, more products. And then, as it relates to the larger market opportunity, just any plans around code and broadening the appeal as we head into the back half would be helpful.

And then, Lior, just a follow-up to Brent’s question. You talked about code above expectations. Any insights on the users there would be helpful. Thanks again. .

So, I think that, this is Avishai answering the first part of the first question, which is, what we are looking at is actually to continue to expand into new markets and there was a geography and in terms of seeing that people can do with Wix. And Wix code is of course a dramatic, a big stepping toward that direction.

But on the other hand, or we also looking like that’s increasing marketing of the product in different markets. So, it’s a combination. But I think a big part of it is the additional products that we are launching and having them being accessible to more users. .

Yes, and for the other question with regard to the users and so on, so in general, we see that the increase of conversion although it’s sometimes it’s really hard to tell, as you know. But we know that there is a contribution for the new codes, specifically for people that’s using the Wix code.

We do see more professionals and agencies and experts actually using the Wix code creating an amazing websites. And it’s pretty much consistent with what we thought although its performance was a bit better. But I think that overall, it’s even more than now increased our excitement about the contribution of the Wix code for the next coming years. .

Great. Thank you. .

Thanks, Ron.

Can we have the next question please?.

Mark Grant with Goldman Sachs. Please go ahead..

Hi, thanks for taking the question. I just wanted to get a better handle on some customer trends here on the gross new subscriptions, it seems like the mix of the annual subs has stayed pretty consistent around that two-thirds range.

Can you give us a sense of how retention has trended among those annual subscribers? And I am not asking for specific retention numbers, just hoping you can help us understand how that behavior has trended over the last couple of years and if you’ve noticed anything changing there?.

Hey, it’s Nir, Mark. So, in terms of the both the trending of the split between annuals and monthlies, as you said it’s pretty stable. In terms of the retention of those over the past two years, we’ve actually seen a slight improvement.

If we remember the presentation and the discussion we had around the business model and the negative churn and it was basically just the positive retention when we look at the newer cohorts and we clearly saw that the newer cohorts had better retention than the older ones.

Naturally, that has changed in the Analyst Day, that’s basically the year-over-year trend that we are seeing. .

Okay, thank you..

Great, thanks, Mark.

Can we have the next question please?.

Deepak Mathivanan from Barclays. Please go ahead. .

Hi, thanks for taking the questions. So, first one sort of related to the questions, from a couple ones ago. And I think you have factored in – I don’t know, direct monetization from code in the back half guidance at this time. But how should we think about the benefits to conversion that’s factored in.

Obviously, you’ve raised back half guidance a little bit more than 2Q outperformance.

So, do you expect or have you factored in continued improvements on cohorts related conversion into the guidance for back half? And then, second question is related to GDPR, GDPR is now in effect, are you seeing any constraints in converting a previously registered user through campaigns like email marketing or something with efficiencies might be a little less now.

More broadly, on that topic, how should we view the registered user base at this time? I mean, what percent do you think long-term you can target and convert, because some of them probably are now registered under the old privacy lots. .

Hey, Deepak. So, with regards to the code and the improvement of conversion, so, as always, the guidance that we provide is based on what we see right now. So we have seen some improvement in conversion and it’s already embedded in the guidance that we provided for the second half of the year.

Actually, the fact that we increased the guidance for the full year is mainly because of that.

And look, I think that, we are very – as I mentioned before, we are very excited about it and we think that we can – that the Wix Code is a major contribution in the future for the new cohorts and to the improvement of conversion in the following deals and it would take some more time.

But it doesn’t embedded any – it doesn’t embed – that there is no impact of – in continuous improvement of conversion on the guidance that I provided. Just what we see right now. .

Hey, Deepak, it’s Nir. In regards to the GDPR, so, it’s been a few months now that we are in full compliance to the new regulation. I have to say that we actually saw no impact neither on registration of new users or behavior of the existing user or users of conversion in any manner. .

Thanks, guys. .

Thanks, Deepak.

Can we have the next question please?.

Alyssa Johnson with KeyBanc Capital. Please go ahead..

Thank you. I was hoping to ask about international. I was wondering if you could kind of parse out any kind of one-time impacts that you saw in World Cup versus how we should think about that as a driver in the back half of the year.

You have new products kind of with ADI rolling out more and more internationally as well as your new mobile site builder, how that kind of plays into your existing markets as well as new potential international markets?.

Okay, so, with regard to the World Cup, we know as a fact that its impact you know in the quarter. It’s hard to tell by how much. We do see – for example a drop in the overall number of user in specific days especially you know the last days and during the finals of the game. But, so, basically there is an impact.

It’s hard to estimate exactly what was the impact. With regard to the ADI, and as a new product, we do expect that conversion will be improving over time from those products. And as I mentioned before, it includes only what we see.

I don’t feel right now continuous improvement, although we hope, certainly we hope that there will be continuous improvement with regard to that. .

Thanks, Alyssa.

Can we have the next question please?.

Naved Khan with SunTrust. Please go ahead. .

Hi, thanks a lot. I had two questions. One on the premium to user cohort, and even at the end of the day, there is a good possibility of introducing that.

How should we think about it in terms of timing? Do you think that you might see it sometime this year or do you think it’s more likely that we see it next year? And then, I had a follow-up on ARPS?.

Okay.

So, with regard to the cohort that we just mentioned that we do expect that the improvement, specifically about conversion will continue into 2019 and as I mentioned, will be a positive impact on the new cohorts in 2019 and I think that this is something that has started, but we need to remember that when we started the year, most of the top-line is actually coming from existing cohorts.

So we need to take it into consideration. But when we talk about the new cohorts, so, yes, we do anticipate continual improvement as a result of that.

And in terms of future additional modeling of monetizations at different tiers for codes, we have quite a few ideas of things that we intend to test in the next several months in order to understand what works best. And once we kind of understand and stabilize them, then those things will have to be modeled into the future and into 2019. .

Okay, perfect. And then, on the ARPS, I think you called out two factors. One is the vertical apps and the second was improved mix of higher priced subscription package.

What is contributing to the mix of higher priced subscription packages?.

So, as - I think that as you indicated is mostly the continued uptick of vertical application adoption. If we try to compare it to on a year-over-year basis, right now the adoption of vertical by new cohorts it’s approximately is a bit more than 40%. So actually, it’s a 30% increase on a year-over-year basis which is quite big.

And this is something that is super, super interesting, because what you see right now is the direct contribution of the adoption of the vertical which obviously increase the ARPU.

But the indirect effect is even bigger, because it’s when you think about it, it’s increased the satisfaction of the customer, the secrets of our customers and obviously they include conversion.

So I think that this is a nice evidence of the fact that the strategies that we took and decided to use the vertical into basically to a level low kind of a [Indiscernible] made that - those kinds of professionals to use the vertical.

I think that it was the right decision, because obviously we can see the fruits of it right now and some which you see as the increase in the ARPU. .

Thank you..

Thanks, Naved.

Can we have the next question please?.

Jason Helfstein with Oppenheimer. Please go ahead. Jason Helfstein, your line is open. .

Do you hear me?.

Yes, yes, we could hear you. .

Please go ahead. .

Okay, so, how are you thinking about your product outlook relative to the guidance? Does the guidance or at least the high-end of guidance assume impact of many new products in the back half and then, kind of timing third quarter versus fourth quarter? And then, secondly, anything you can share with us about the dynamics of a Wix Code subscriber, because we can’t really see it within the numbers.

But, are you seeing a Wix Code subscriber generally having a higher ARPU? Any kind of color around what type of customers that’s bringing in and obviously, your comments suggests that there is a longer-term benefit from that and just how we should think about that? Thanks. .

Yes. So, I would start with the first question about the new products. So, as always, we include in the guidance the products that exist today with the current performance. New products are not in the guidance or a improvement in performance of existing products also are not part of the guidance. We would like to guide it when it happens.

With regard to the second question, Nir?.

Yes, so, again, these are initial trends that we’ve observed.

So we see – I think we still need more time in order to actually build a model out of it, but definitely I think, at least two interesting behaviors that we see is that, on one hand, as they takes longer to convert which kind of makes sense, because it’s a more complex product and just building a web application or a complex website functionality on Wix Code just takes a longer time.

On the other hand, we do see that these users are building more websites, which is, I think it’s indicative towards the fact that it’s something that is what – it’s something about professionals and people, professionals need in order to achieve – I would say, a higher value for return on their own business of catering for customers. .

Thank you. .

Thanks, Jason.

Can we have the next question please?.

Sterling Auty with JPMorgan. Please go ahead. .

Yes, thanks. Hi guys.

Did you guys get a full quarter worth of benefit from the new languages on Wix’s ADI or maybe just a partial quarter and is there any additional languages that you anticipate rolling out in the coming quarters?.

Hey, Sterling, so, it is Nir. It’s some and some. In some languages we had the full impact for the quarter in others it was partial as it was rolled out within the quarter. And yes, we do intend to roll out further languages throughout the second half of the year. .

Absolutely..

Great, thank you..

Thanks.

Can we have the next question please?.

Matt Pfau with William Blair. Please go ahead..

Hey guys. Thanks for taking my question. Just wanted to get some further clarity on the guidance to revenue guidance for the back half of the year here. So, if I look at the guidance, it kind of implies that there is going to be a further deceleration in growth of net premium subs added in the back half of the year.

And so, just trying to understand perhaps some, what puts and takes or factors are for premium sub-additions in the back half of the year? Thanks. .

So, yes, let me, I would – I will relate to the - both top-line and premiums, because I guess that you are talking about both of them. So with regard to the top-line, we actually increased the guidance for the quarter, the guidance for the full year by approximately $3 million on the high range of what we provided before.

Very important also to mention, that we had some negative impact of currency. It was not significant, it was small during the second quarter mainly from the decrease of the euro and the British pounds, compared to the dollar. It actually went down by approximately 4%. So we had some impact of a few millions of dollars.

So it’s something that is also important to mention, although it’s not significant. But the other thing about the premiums, we need to remember that the fourth quarter is behaving totally differently from all the other quarters, because usually you’ll see an up on increase in collection, while you see decrease in net premiums.

The reason for that is, obviously because of all the holidays, and vacations during the fourth quarter, which obviously impacts the cohorts. But on the other hand, you see the renewal of all kinds of promotions that usually you do during this period. And it’s coming in with a full price.

So, I think that in terms of seasonality, the second quarter is totally different, then the second half of the year is totally different from the first half of the year. But I do anticipate that this year is not going to be different from any other year before, meaning that it’s in line with what we’ve seen before. .

Great. Thanks..

Thanks Matt.

Can we have the next question please?.

Mark Mahaney with RBC. Please go ahead..

Yes, I wanted to ask about the – that’s up in your international markets and the registered user growth continues to be up year-over-year and then that you do provide this detail on your increased geographic penetration.

So, is that a decent proxy for where your new registered users are coming from? So, just any color on the geographic mix shift of new registered users? And then, in that same thing, on the international side, I assume that these markets, given your business model kind of ramped profitably the same way that others do that there is probably not dramatic start-up costs in any of these markets since you don’t have a really a sales force.

Just comment on, as the business become increasingly geographically dispersed or diverse, what that means to profitability if anything? Thank you..

Okay. So I will start with the first question. We don’t see any change from previous periods in terms of the – in terms of where the users are coming from. Again, a big part is coming from outside of North America, when we talk about users, about two-thirds. And so, there is no change from previous periods.

But I do think that you are right, I mean, there is opportunity in other places of the world like Asia-Pacific and so on. But it depends on many, many, many factors. But in general, I don’t think that there will be any impact on our profitability when we are penetrating into these countries.

First of all, you are right, with the software business model and we don’t need foot on the ground in order to be successful there. The second thing, we always act according to the TROI, meaning that, if someone theoretically, the payments or the pricing is different, so obviously, also the investment in marketing is different.

So, on a TROI basis, it’s really remain the same and therefore the profitability should be the same and we actually already see that, because, the behavior and the economics of Latin America for example is totally different than North America. And so, this is the way that we manage it. .

Okay. Thank you, Lior..

Thank you Mark.

Can we have the next question please?.

Jonathan Kees with Summit. Please go ahead..

Great. Thanks, thanks for taking my question. I’ll keep in one question.

It’s really one topic, just curious, if you’ve gotten any product changes from – or directional changes from your in-processing partner Square or if you are ultimately taking any different direction there in terms of – in order to use as a partner for a POS, maybe using other vendor or just add some partner to facility there? Thanks. .

Hey, Jonathan. So, I am assuming that you are asking about the Square due to the Weebly acquisition. .

Yes. .

In fact, yes, so, the fact is that, we haven’t seen any change in the, kind of the overall behavior in the market and the way we think about it, Square has been a good partner for us in terms of the POS and the payments for our users who need it. Our customers like it. They are users – they ask for it and they want that service.

So we don’t anticipate any changes in the near future in that aspect. It’s a good product and a very good relationship between the two companies. .

And no changes from them, in terms of what – how they want to take this?.

No. .

Okay. .

None. .

Thanks. .

Great, thanks Jonathan.

Can we have the next question please?.

Tim Klasell with Northland Securities. Please go ahead..

A quick question also around the competitive environment. With Code, are you, maybe you can give us some color of who you think the type of customer you are tracking? What were they using and what could have they been using? And as part of that, are you seeing any more, you are competing more up against WordPress.

We’ve noticed more of them our channel checks. Thank you. .

So, when we look at the Wix Code, first part was what kind of – right, customers. So we that the – who they have historically used and what were they using before they jumped off to the Wix Code. So, we do see – if you are asking, if we do see an increase of people that used to use WordPress and now are moving to use Wix’s assets, yes, we do see that.

But it’s not only that. We also see people that used really codes from scratch moving to Wix Code and we see people that use systems like Drupal moving to Wix Code.

So, it’s a bigger – it’s a bigger set and just saying, how it takes from WordPress, But – and this is by the way, what gets us so excited, why, because it means that the potential is so much bigger.

And the functionality that people use from Code, well, so, the more – we see a lot of database used, okay, and that’s something very common where people only – and this is something that we also see designers and that a way capital of doing and we are really enjoying seeing how they do that and how well it works.

Beyond that, there is tons of people that actually go in and just program stuff, which I found to be fascinating, because I just saw that the level of need for the additional functionality Wix Code has provided is tremendous. .

Okay, great. Thank you very much. .

Great, thanks Tim. I think we have time for one more question..

Lloyd Walmsley with Deutsche Bank. Please go ahead. .

Hey, thanks for the question. It’s actually Seth [Ph] on for Lloyd. I was just curious if you could talk about the new mobile cycle there and what you are seeing in terms of behaviors for users coming into that funnel. Are you seeing, maybe better site completion rates? Or premium upgrade rates or any other insights you can share there? Thank you..

So, well, we just launched a product. And then, we believe that long-term, right, it’s a strategic product, because we think that long-term more and more people would – that grew up using a mobile phone and a smartphone as their computer, right, will be using that product to build their website. It’s a pretty awesome product.

If you didn’t try it, you should definitely try it. It’s a really using the full – of the ADI to build your site, you can really manage, you can do everything from there. And so, it’s a fantastic product. So, now, the result that we see are very early stage, but, of course, we believe that long-term that will be an important product in a tool set. .

Great, thank you Seth. Thanks everyone for joining today. .

This concludes today's call. You may now disconnect..