Wix.com - Q3 2022

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Wix Q3 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during that session, you will need to press star one one on your phone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ms. Emily Liu, Investor Relations Analyst. Please go ahead.

Emily Liu (Investor Relations Analyst)

Thanks, good morning, everyone. Welcome to Wix's third quarter 2022 earnings call. Joining me today to discuss the results are Avishai Abrahami, CEO and Co-Founder, Nir Zohar, our President and COO, and Lior Shemesh, our 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 actual 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 and key operating metrics. You can find all reconciliations between our GAAP and non-GAAP results in the earnings materials and in our interactive analyst center on the investor relations web section of our website, investors.wix.com. With that, I'll turn the call over to Avishai.

Avishai Abrahami (CEO and Co-Founder)

Thanks, Emily, and good morning, everyone. Thanks for joining us today. I wanna start today's call with a few highlights from the quarter and provide an overview of some of the exciting new products we recently announced. Nir and Lior will then share more details on our operations and financial results, and then we will take some questions. Despite continued uncertainty, the strong fundamentals of our business, along with great execution, led to revenue growth ahead of our expectation and significant improvement in profitability. Revenues in Q3 were $346 million or 8% growth year-over-year. On a constant currency basis, revenues were $351 million or 10% growth year-over-year. We consider our global reach to be one of the key competitive advantages.

However, given the recent changes in foreign exchange rates, it has become a meaningful headwind to our financial results. Our Free Cash Flow this year would be more than double if you assume year-over-year constant currency rates. While there is a great deal of uncertainty and volatility in the macroeconomy, which we expect will continue into 2023, we are focused on what is under our control. We are already seeing the result of the Cost Reduction Plan we put in place last quarter, with improvements to margins and Free Cash Flow this quarter. Our non-GAAP gross profit grew more than 10% year-over-year, resulting in a non-GAAP gross margins of 63%. We returned to positive cash flow excluding the investment in our new headquarters.

Given the successful execution, I'm happy to say that we are on track to achieve our Free Cash Flow margin targets for this year and next year that we outlined in our Three-Year Plan. We also continue to focus on building our platform to be the leading destination for creating and managing an online presence for self-creators, professionals, and developers. Our platform is built to meet the needs of any type of user and any type of business. We continue to add products, services, and solutions to the platform to deliver more value to our users and partners and help them succeed online and offline. As part of our strategy in growing Partners revenue, we've built more of our platform for designers and developers. We intend to continue and expand and open our platform to accelerate more powerful solutions for developers.

To highlight our commitment to this community, in September, we hosted our first-ever developer conference, Wix DevCon in New York. Hundreds of developers joined us as we introduced new capability and heard of their feedback on how they use Wix. At DevCon we announced Wix Blocks, our new high-velocity ecosystem that enable professionals, designers to build responsive and customizable components. These components are then reusable across multiple websites built in Wix and Editor X. Wix Blocks enable professionals to create an application with the ease of drag and drop and allow them to work concurrently on the same project. All of these features increase developer productivity and efficiency. We've been using Wix Blocks internally, and I can say it has created a very positive change in our dev velocity here.

We believe that this offering will bring more developers and projects to Wix and create a more rich experience for them and others. We also announced our new eCommerce vision, a new platform that provide developers with the freedom and flexibility to build scalable, custom e-commerce experiences for any business needs. Wix Blocks and the new Wix eCommerce platform are just two example of how we are expanding our offering for professionals coming to Wix and growing the value of our platform.

Lior Shemesh (CFO)

We remain committed to delivering the best-in-class products and services to all of our Self-Creators and Partners to allow them to create and succeed online. Before I hand it over to Nir, I just wanna thank the entire team here at Wix for all of their hard work and for their continued focus on our users and their needs. I'll now hand it over to Nir to talk a bit more about Q3 and provide an operational update. Nir.

Nir Zohar (President and COO)

Thank you, Avishai. Thank you everyone who is joining us today, this morning. As Avishai mentioned, the fundamentals of our business remain strong, as can be seen in the cohort bookings data. As you can see on slide 12, cumulative cohort bookings for our Q1 2022 cohort increased to over $47 million through Q3. This is 5% higher than the Q1 2019 cohort in its first three quarters and 8% higher on a year-over-year constant currency basis. This growth is a continuation of the trend we saw last quarter and evidence of our strong fundamentals. Conversion and retention rates remain at high levels, and average bookings per subscription continues to increase. Despite the volatile macroeconomic environment and unfavorable effects we are experiencing, we continue to improve the monetization of users through data-driven marketing and a robust product offering.

Our user additions of 4.7 million in Q3 reflect the current demand environment. As the global economic slowdown continues, beginning in September, we adjusted our marketing spend to focus on high-intent users. This resulted in a slight headwind to new user additions in Q3, while meaningfully improving return on our marketing investments. We expect this effect to continue through Q4. Operationally, we continue to execute on our Cost Reduction Plan that we outlined last quarter. We are hiring new employees only for high priority positions, and we continue to drive operational efficiencies across our customer care, R&D, and sales and marketing teams. We have also continued to optimize overhead costs through reductions in our real estate footprint, software costs, and third-party advisory costs. I'm also excited to report that last month we moved the first wave of employees into our new headquarters campus in Tel Aviv.

We also consolidated the rest of our Tel Aviv team that was spread out among about a dozen small locations in the city to a single location in the port. In addition to the operating cost savings we will realize from having a small number of offices, bringing our employees in Tel Aviv physically together is already delivering efficiencies to how we work. Building our new campus and relocating thousands of people has been a massive project, and I'm incredibly proud of all of the hard work from our team to make it happen. The second and final wave of employees will move to the campus next summer, at which point all of us in Tel Aviv will be under one roof. Before I hand it over to Lior, I also want to take this opportunity to recognize our team in Ukraine.

I'm really proud of our people and how they remain strong during these extremely hard and stressful times. With all of the hardships they have experienced, which has actually intensified recently, our Ukraine team's efficiency and productivity remain high. Our thoughts are always with them and their families while we continue to focus on everyone's safety and well-being. With that, I will now hand it over to Lior to walk through more details on our financials. Lior?

Lior Shemesh (CFO)

Thanks, Nir, and welcome everyone. As Avishai mentioned, we exceeded the top end of our guidance range for revenue in Q3, and we greatly improved our margin this quarter, leading to positive Free Cash Flow, excluding our headquarters CapEx. We believe this trend of improving margins and Free Cash Flow will continue into Q4 and next year. To begin, I want to share an update on our Cost Reduction Plan and the benefits we are already seeing. Total non-GAAP gross margin improved from 62% in Q2 to 65% in Q3, and we expect another 100 basis points of improvement in 2023. Non-GAAP operating income improved by over 280 basis points in Q3 compared to last quarter. In Q4, we expect to generate positive non-GAAP operating income for the first time since Q4 2019.

We now expect total non-GAAP operating expenses to be roughly flat in 2023 compared to this year, driving positive non-GAAP operating income for the full year. This trend, along with improved gross margins, means that nearly all of our incremental revenue in 2023 will flow to bottom line. We generated positive Free Cash Flow, excluding headquarters CapEx, of $4.6 million in Q3. To sum up, we are already seeing significant benefits from our Cost Reduction Plan and are sticking to the commitment of cash flow margins we've made in our two-year plan. Now I'll quickly go through some highlights of our Q3 results. Revenue was $345.8 million or 8% year-over-year growth, which was slightly above the high end of our guidance range due to strong performance in our user cohorts.

On a year-over-year constant currency basis, revenue was $350.8 million, or 10% year-over-year growth. Transaction revenue, which is subset of Business Solution revenue and is composed primarily of Wix Payments, was $36 million in Q3, or 12% year-over-year growth. GPV was $2.5 billion in the quarter, roughly flat compared to last quarter as we continue to see slow growth in online purchase activity. Our take rate, measured as transaction revenue as a percentage of GPV, continued to increase as the percentage of GPV running through Wix Payments growth. Partners revenue, which include all type of revenue generated through designers and developers who build sites for others, as well as B2B partnerships, grew to $86.9 million, or 24% year-over-year. On a constant currency basis, year-over-year growth was 26%.

We continue to see more partners building on Wix as we gain more traction in the professional community despite macro pressures impacting project pipelines. Total bookings in Q3 was $352.5 million, and on a year-over-year constant currency basis was $366.5 million. I want to highlight a few things related to these results. Know that FX rates impact bookings much more significantly than revenue as we collect the cash up front for subscriptions and renewals. Slow growth in GPV also impacted bookings this quarter. Also remember that in Q3 of last year, we recognized bookings related to B2B partnership of $48 million, which included our largest ever B2B partnership, Vistaprint, creating a very difficult comp this quarter.

If you remove this amount from bookings in Q3 of last year, our FX neutral year-over-year growth this quarter is 12%, which is the true indication of our growth on a year-over-year basis. Changes in booking related to B2B partnerships do not indicate near-term changes in revenue because they have very different revenue recognition schedules. Bookings associated with those B2B partnerships are recognized into revenue over multiple years, while bookings associated with our subscription packages typically are recognized into revenue over one year. Finally, as the macroeconomic conditions remain challenged today, we have seen companies we speak to about B2B partnerships tighten project budgets and risk appetite, slowing the magnitude of new agreements. We expect this trend to continue in Q4 and next year. Despite all of this, we are excited by the strength of our B2B pipeline and the growing contribution from existing partnerships.

Turning to our outlook for the remainder of the year, we expect total revenue in Q4 to be $349 million-$354 million, or 5%-6% year-over-year growth. Last quarter, our full-year revenue outlook was 8%-10% year-over-year growth. Factoring in FX changes since the summer, we have narrowed our outlook to 9% year-over-year growth. The midpoint of our full-year outlook has not changed as we increased the bottom end of the prior range. For the full year, assuming constant currency, total revenue would be about $20 million higher or 10%-11% year-over-year growth. We expect Free Cash Flow in Q4 to be $47 million-$50 million, excluding our headquarters CapEx. Achieving this range will produce the highest Free Cash Flow quarter in our history.

For full-year Free Cash Flow, excluding headquarters CapEx, we stated last quarter that our expectations were 2%-3% of revenue due to FX changes. We now anticipate Free Cash Flow margin to be at around 2% of revenue for the full year. Assuming year-over-year constant currency, our Free Cash Flow for the full year would be $43 million higher or a total of 5% of revenue, which is the high end of the range we presented in our Three-Year Plan. We will provide more detail on 2023 during our Q4 earnings call in February, but I can comfortably say now that with the success of our Cost Reduction Plan and the operational efficiency improvements, we expect to achieve the Free Cash Flow margin in 2023 consistent with the Three-Year Plan we shared in May.

With that, we will now go ahead and take your questions.

Operator (participant)

Thank you. As a reminder, to ask a question, you'll need to press star one one on your phone. Please stand by as we compile the Q&A roster. One moment for our first question. Our first question will come from Brent Thill of Jefferies. Your line is open.

Brent Thill (Managing Director and Tech Sector Leader for Software/Internet Research)

Thank you, Lior, just on the cost savings plan, where do you still see the biggest opportunity ahead to drive improved efficiency? Maybe for Avishai, just as it relates to overall demand, can you just give us a sense of Where are the pockets of strengths you're seeing and where maybe some of the weakness you're seeing show up a little more pronounced? Thanks.

Lior Shemesh (CFO)

Yeah. I will start with the first question. I believe that the cost reduction that we've made will be enough to meet the targets that we set in our May Analyst Day. I think that it's also very important to understand that we are committed to the Free Cash Flow targets that we outlined in the May Analyst Day. We will adjust the cost accordingly based on the macroeconomics that we see. I think that it's very important to mention that we believe that we can reach this goal even with a lower growth in terms of the top line.

Avishai Abrahami (CEO and Co-Founder)

I'm not sure I understand how to connect the question about cost reduction and demand. I can say overall on demand, what we're seeing is that demand is pretty stable now, and we're still seeing the same fundamental strength that was before, conversion, retention and ARPU. The top of the funnel is stable and back or a bit above pre-COVID levels. I find that encouraging. What we see it with everybody, and I think all of our peers experience something similar. We are actually on a relative basis, again, a bit ahead, I think. Stable, doesn't decline anymore, and I think that as the recession will continue to evolve, we'll continue to see changes there.

Brent Thill (Managing Director and Tech Sector Leader for Software/Internet Research)

Thank you.

Operator (participant)

Thank you. One moment please for our next question. Our next question will come from Andrew Boone of JMP Securities. Your line is open.

Andrew Boone (Managing Director)

Hi, guys. Thanks so much for taking my questions. Can you talk about the demand from Partners versus Self-Creators? I want to go to marketing. I believe the original guide was for no change in acquisition marketing. Can you just help us understand whether there's a change as you guys focus on higher intent users? Is that an adjustment for near-term macro, or is there something else that you guys are changing in terms of the payback targets? Thanks so much.

Nir Zohar (President and COO)

Hey, Andrew. I'll take the first question about the demand from partners. You know, you said how is that related to what we're seeing demand from Partners versus demand from Self-Creators, and obviously those two have a relation between them, right? Naturally, when the Self-Creators or generally small businesses have the least tendency to onboard online to build a commerce website, or to expand their business online, that will also affect the amount of projects that our partners are getting. From that perspective, obviously, we've seen a decline from previous years' growth, but still, are seeing a very healthy growth, even so. You have to remember that for us, again, we're still seeing the compounding effect on the cohorts of the partners.

With that big strength, even at this growth rate, and this is obviously something that's gonna continue benefiting us as we go forward.

Avishai Abrahami (CEO and Co-Founder)

On marketing. Currently, we adjusted the marketing according to market demands as the slowdown on the global economy continues, we're seeing that the demand behaves differently in different kind of channels of demand. We're seeing that it made very little effect on the high intent users and more of an effect on the low intent users or people that were more of a casual interaction and then got into a bit of more of a commitment. Of course, we adjusted our marketing activity according to that. As far as the effect it will have on the new cohorts, currently it seems to be very small effect, so I'm very optimistic that this actually allow us to be better.

We'll continue to update as it evolves.

Andrew Boone (Managing Director)

Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question will come from Ron Josey of Citi. Your line is open.

Ron Josey (Managing Director)

Great. Thanks for taking the question. I wanted to maybe follow up a little bit, Avishai, on your comments on macro and the letter. I think the letter talked about some delay in new signings of B2B partners, but then also a smaller competitive landscape here. I just wanted to understand that a little bit more, both on just the partnerships and then the competitive landscape. Lior, just a question on CapEx, because we're getting it from clients, but total HQ CapEx was $27 million, but it looks like total CapEx was $22 million. Can you help us understand the dynamic between the two, please? Thank you, guys.

Avishai Abrahami (CEO and Co-Founder)

Lior, we can answer both.

Lior Shemesh (CFO)

I will start with the B2B partnership. There are actually two cases over here that we need to understand. First of all is the, you know, the obvious one, which is due to the macro uncertainty, those B2B partners less willing to commit to a long-term agreement. Now, let's remember how exactly we recognized the bookings for B2B partnerships. It is based on a multi-year commitment of our partners. For example, Vistaprint, we recognize $48 million as bookings. Well, that was the level of commitment that we had in the agreement. First of all, we see less appetite to provide the long-term commitment, which is, you know, makes sense during uncertain times.

The second thing is obviously, you know, the slowdown overall in the market also affect, you know, our partners, because in the end of the day, it's the same users, the same end users that they serve. It's very important to mention that this does not diminish the potential of a deal. It only affect the amount recognized in booking upfront, meaning that the overall potential of a deal is remain the same, you know, in term of revenue, is mostly impact, as I mentioned before, about the willingness to commit. This is with regard to that. With regard to the CapEx of about $27 million in Q3, I'm not sure exactly what was the question. What was the question?

Ron Josey (Managing Director)

Sorry. It was more. It looks as if the CapEx total CapEx was a little bit lighter than the CapEx spent on HQ. We can follow up about it later.

Lior Shemesh (CFO)

Oh, okay.

Ron Josey (Managing Director)

Also any insights on the smaller competitive landscape as well? Understood the partner side. Thank you, Lior.

Avishai Abrahami (CEO and Co-Founder)

Yeah. If you're asking about smaller competitors that compete directly with us, then I think that we've seen that there is a slowdown everywhere, as we had, of course, in a recession. The economy, of course, is not growing this quickly, and I think that all of us that provide solutions for formation of new businesses, for marketing department, for the way that you advertise or the way you monetize, of course, experience that. On a relative basis, I think we are actually doing better than most or the one that we met.

We've actually managed to continue to increase our position in the market, which makes me very confident that once we're going to see recovery from the recession, all the hard work we place into our products and brand will bear fruit.

Ron Josey (Managing Director)

Thank you, Avishai.

Operator (participant)

Thank you. One moment for our next question. The next question will come from Elizabeth Porter of Morgan Stanley. Your line is open.

Elizabeth Porter (Executive Director of Equity Research)

Great. Thank you so much for the question. The Q4 guidance implies about 5%-6% revenue growth year-over-year exiting fiscal 2022. How should we put that into context, just relative to Street's 11% growth for fiscal 2023? My question is, do you think the business can accelerate growth into next year? If so, how do the factors like B2B contribution or pricing start to net with some of the macro softness? Thanks.

Lior Shemesh (CFO)

Again, I think that, you know, we explained before about, you know, the reasons for the revenue growth. I want to provide a few numbers with regard to the FX that, you know, can explain, you know, at least a big part of the reason. The FX effect on yearly basis is more than $40 million. A lot of it is actually, you know, happened in the last couple of quarters and also in the last quarter, you know, what happened to the euro and the British pound. I think that this is something that we need to take into account. Obviously, we see the effect of the slowdown.

It's important to mention that because, you know, we hope, we all hope and assume that it will recover at some point of time. We do believe that the fundamental of the business are very strong. We don't see change in those fundamentals. Therefore, once the economy will recover, I believe that we will be back to what we said during the analyst day in terms of what we see as a potential growth, both for Self-Creators but also for Partners.

Elizabeth Porter (Executive Director of Equity Research)

Got it. Quick question on retention. I know you mentioned it remained strong through September, and you rolled out new prices in the spring. Just what has been the reaction for customers that have renewed over the recent months? Any difference in the ability to absorb higher prices in either the self-creator or the partner channel?

Nir Zohar (President and COO)

Hey, Elizabeth. It's Nir. No, no. We haven't seen anything which is a significantly different reaction to what we expected. Obviously, expectations were built on our past experience of doing these kind of price changes and exercises for our user base. Even in this environment, we didn't see any significant change or impact that came through that. Obviously, we've seen the positive impact of seeing higher ARPS coming from the price increase.

Elizabeth Porter (Executive Director of Equity Research)

Got it. Thank you very much.

Operator (participant)

Thank you. One moment please for our next question. Our next question will come from Trevor Young of Barclays. Your line is open.

Trevor Young (Director and Senior Internet Equity Research Analyst)

Great, thanks. Just dovetailing on that last comment, that you're seeing some lift from pricing. How much lift is embedded in the 4Q rev guide from price? And then second question on international, with both LATAM and Asia continuing to lag in terms of growth, I know those are smaller as a percentage of revenue, but how critical is it for you to get momentum going there, and what's gonna be the strategy to, you know, get growth to come back in line with, you know, total company?

Lior Shemesh (CFO)

I will start with the first question about the pricing. As you all know, we began to roll it out in April, May, so a bit more than half of our customers were already exposed to that. Obviously, it will continue in Q4 and in full effect halfway through 2023. There is a positive impact of our pricing. We mentioned before that we see a positive in terms of the value of the cohort, and this is part of our models also for Q4 and definitely for 2023 as we talk about it on the February call. With regard to Asia Pacific, most of the impact was actually on the GPV. This is why you see that happening.

Meaning that we see a more kind of a slowdown on online purchasing, and that affected, you know, the overall GPV and, you know, it is reflected in the business solution.

Trevor Young (Director and Senior Internet Equity Research Analyst)

Great. Thank you.

Operator (participant)

Thank you. One moment for the next question. Our next question will come from Ken Wong of Oppenheimer & Co. Inc. Your line is open.

Ken Wong (Managing Director and Senior Analyst of SaaS/Applications Software)

Great. Thanks for taking my question. I just wanted to clarify some statements around just cash flow, Lior. You mentioned that you're on track to hit your Three-Year Plan, that would be 10%-20% Free Cash Flow margin. For 2023, let's say 10% since that's the low end. You also mentioned that with the cost cuts that we can anticipate an additional $150 million of operating income. Is it fair for me to layer that $150 million on top of the 10% margin hypothetically?

Lior Shemesh (CFO)

The $150 million that we indicated in the shareholder update was to provide some kind of understanding about the differences between the operating loss that we assume in 2023 during the analyst day and the overall operating profit that we are going to have in 2023 as a result of the cost reduction, meaning that it's all part of it. As I mentioned before, we are committed to the profitability targets in the Three-Year Plan. Everything that we've done in the last few quarters is to make sure that we will meet it. For your question, we will meet what we indicated as targets. It will not. The $150 million is not on top of it.

Ken Wong (Managing Director and Senior Analyst of SaaS/Applications Software)

Okay, great. That was just clarification.

Lior Shemesh (CFO)

Okay.

Ken Wong (Managing Director and Senior Analyst of SaaS/Applications Software)

Just on the B2B side, recognizing that you guys are seeing a little bit of headwinds there, you guys still grew 12% kind of constant currency, excluding Vistaprint. Is that the right run rate to think about that business growing, or should we kind of dial that down a little bit because of the incremental headwinds you're seeing?

Lior Shemesh (CFO)

The 12% that we mentioned before was after you take into account the effect of the tough comp, meaning that trying to take out the Vistaprint effect, and then you get to the 12% growth in terms of the overall bookings. Look, I think that we all understand that it is hard. This is why we didn't provide guidance for bookings rather than revenue. Bookings is more lumpy because of those B2B partnership deals. Sometimes they push in one quarter, sometimes two quarters. We still have a lot of belief in this business. I think that it's even performing better once when you see the pipeline, but also about the competition that you know many of our competition in this market literally disappeared.

I believe that we are positioned in a much better way, business-wise, to take more market share in this specific segment. With regard to the overall booking and what we see for next year, well, it's hard to tell. I think that on February we are going to shed more light on what we believe will be the bookings, the revenue for next year. Again, one thing that I can mention, that excluding the overall economy, the macroeconomy effect that we see right now, we believe that the target that we set in our Three-Year Plan for the long term is the one that we really believe in.

Ken Wong (Managing Director and Senior Analyst of SaaS/Applications Software)

Okay, fantastic. Thank you, guys.

Operator (participant)

Thank you. One moment, please, for our next question. Our next question will come from Naved Khan of Truist Securities. Your line is open.

Naved Khan (Director and Senior Equity Research Analyst)

Yeah. Thanks a lot. Two questions from me. First one on the cost side. We saw the Israeli currency weaken versus the dollar, and considering that all of your R&D out of Israel, I didn't see a dollar impact on the cost side in Q3. How should we think about that? Then you talked about going after the higher value customers. Where are you seeing the opportunities? Is it mostly geo-focused, meaning you're finding those customers here in the U.S. versus other markets? Just give us a thought there.

Lior Shemesh (CFO)

Yeah. With regard to the Israeli shekel, it's a great question. Usually because we are exposed so deeply to the Israeli shekel and dollar, as we pay most of the salary in Israeli shekel, we do a hedging program that was approved by our board of directors. We did it at the beginning of the year in order to make sure that we can meet the budget. Therefore, most of the year, all of the year actually, even part of next year is already hedged in a less favorable dollar to shekel as we see right now. There is literally no difference when it go up and down because of those hedging program.

Nir Zohar (President and COO)

About your second question, Naved, in terms of the opportunities for the higher intent users, you know, naturally, we do not share for competitive reasons the details of how we operate our marketing. I can just generally say that the opportunities are global, and obviously we go after them wherever we see them.

Naved Khan (Director and Senior Equity Research Analyst)

Thank you.

Operator (participant)

Thank you. One moment please for our next question. Our next question will come from Deepak Mathivanan of Wolfe Research. Your line is open.

Deepak Mathivanan (Equity Research Analyst)

Hey, guys. Thanks for taking the questions. I just have two. Within the partner business, can you help us a bit more on the agency side? You've added a lot of people over the last few years to kind of, you know, onboard more agencies and professionals. How are the returns there so far? What is the kind of best way for investors to track it? The second question maybe for Lior, you know, the $150 million cost savings is a good start, but if I kind of look at your fixed cost base in areas like, you know, customer support and then headcount in sales, et cetera, it's still somewhat elevated with the 2019 levels.

Where do you see more opportunities to reduce cost if macro continues to weaken and, you know, returns on some of these investments that you've made in the past 12 months are maybe slow to come by? Thank you so much.

Lior Shemesh (CFO)

With regard to the second question about the cost. Yes, the cost still seem, they are still elevated from the 2019, obviously, because our business is also elevated. I believe that we took a $150 million cost reduction decisions, and it's on a runway basis, meaning it's something that is going to repeat. What we actually created, and we mentioned that, is that in 2023, for example, the entire growth in revenue is going to be shown as profits, because we are not going to increase the expenses, you know, versus 2022. In some cases, we actually decrease it. Now there is, you know, kind of, differences when you look at the overall expenses.

For example, we, you know, still are, you know, investing in R&D and something that we will continue to do. I believe that in terms of the efficiency, you know, of the company, we always look for efficiencies, and we will continue to do that. You know, for example, with care, it was not just about headcount reduction, but also, you know, developing new technologies in order to support our customer in a much more efficient way. To your question, we will continue to do that, to find more ways to be more efficient, and by doing that, you know, to create more leverage on our expenses. This is one. With regard to partners, I believe that Nir can answer that.

Nir Zohar (President and COO)

Yeah. In terms of the partners and the agencies, you know, as we highlighted in our Analyst Day, obviously we've invested into the product as well as the technology, as well as the people who support that business. We've done so because and we demonstrated that and when we broke out the partner cohorts, is that we're seeing that compounding revenue retention that is unique and so special for those specific cohorts. Obviously, with the slowdown, their own pipeline has slowed and to some extent, but we assume that once there is a recovery, they will obviously benefit from that, like everyone else.

In terms of, I think one of the things that is worth mentioning is that we do believe that the cost reduction measure that Lior mentioned will probably accelerate the margins of partners even better than what we thought about before.

Deepak Mathivanan (Equity Research Analyst)

Got it. Okay. Thank you.

Operator (participant)

Thank you. I'm seeing no further questions in the queue. I would now like to turn the conference back to the company for closing remarks.

Emily Liu (Investor Relations Analyst)

Thanks, everyone. Thanks to everyone who asked a question, and thanks everyone for joining. Have a great day.

Operator (participant)

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.