Wix.com Ltd. (WIX) Q3 2015 Earnings Report, Transcript and Summary

Good morning. My name is Sean, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wix.com 2015 Third 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 turn the conference over to Mr. Joe Pollaro, Head of U.S. Operations and Investor Relations. Please go ahead, sir.

Good morning. Welcome to Wix’s third quarter 2015 earnings call. I quickly read a disclaimer and then we will get started. During this call, we may make some forward-looking statements about the future performance of the company, and these statements are based on current expectations and assumptions. Please consider the risk factors included in our most recent Form 20-F that could cause our actual results to differ materially from those in these forward-looking statements. We do not undertake any obligation to update these forward-looking statements. In addition, we are going to comment on non-GAAP financial results. You can find the reconciliations for these in our press release and the presentation slides that we posted on our website. As I said earlier this morning, we did posted some supporting materials on our IR site and now we are going to have the team go through a few very brief comments on the quarter and then we will move right into Q&A. So, with that, I will hand it over to our Co-Founder and CEO, Avishai Abrahami.

Thanks, Joe, and thanks for everyone for joining our call today. I want to say a few words about our performance this quarter and highlight some products we just launched, and then I’ll hand it over to Nir. We had an outstanding quarter. We grew our user base by 4.8 million and we added 140,000 premium subscriptions, our largest quarterly increase ever. We had very strong growth in collections and revenues. Exclude -- excluding the impact of currency, we grew collections over 47% year-over-year, beating our guidance for this quarter. We also exceeded our revenue guidance, growing 50% over last year. We expanded our gross margin to 84%. On top of all this, we grew our profitability to nearly $5 million, also exceeding our prior outlook. So I’m very happy with our financial performance this quarter, which shows that our business continued to be very strong. Wix is a technology company and software company. We have no sales people at Wix, and more than half of our 1,000 employees are in R&D. We take a platform approach to address the needs of SMBs getting online globally. We have demonstrated this approach with the launch of products such as our App Market, Wix ShoutOut, vertical applications like Wix Hotels, Wix Stores and Wix Music and our CRM system. All of these products create a powerful ecosystem for any SMB owner to completely move their business online. We will continue to innovate and lead the market in this way, and the new Wix Editor and the launch of the new Wix Music are great examples of this. As promised, we launched a complete redesign of our editing environment. This release is significant as it represents the biggest change we have made to our core product in the last three years and we really believe it sets a new standard for code-free platforms. We have made the UI much more visual and much easier for our users. The new Editor comes with new features like parallax scrolling, video backgrounds and strip layouts. These are sophisticated features in website development, but are super easy to use on Wix. We began testing the new Editor to groups of new users this summer. And it has been live to all users globally for about four weeks. The early results are outstanding. The initial results show an increase in conversion of new users to paid subscriptions from 15% to 20%. This data proves that the investment we have made in R&D is paying off. We also recently announced the launch of a new version of Wix Music, which is a very exciting vertical for us. What we have done with Wix Music is bring all of the functions a musician needs into a single, online platform. So now the independent musician, who does not have a label deal can build a great website, sell music commission-free, sell band merchandise, distribute music from outlets like iTunes and Spotify and promote shows and sell tickets all from Wix. With Wix Music, we are lowering the technical barriers for musicians coming online. And we are changing the economics for them. This product perfectly illustrates our vision of creating technology enabling a business to move online. What is also exciting is that we are launching Wix Music with an innovative marketing campaign in partnership with YouTube. It is called Opening Act and what we are doing is running Wix musicians’ videos ahead of the music videos of the biggest stars in the world. This will get our musician users over 100 million views during this campaign, exposure they would never get otherwise. This has never been done before in YouTube and it has been great to partner with them on this. I’m really excited about both of these products and we will have more announcements before the end of the year. I’ll now turn it over to Nir.

Thank you Avishai. Before we begin, I just want to share my excitement about the new editor. I personally believe this product is better than anything out there. It really goes up to 11. So on to the quarter. We had a record growth this quarter in premium subscriptions, adding 140,000 on a net basis. This is 32% more than we added last year in Q3, which is proof of our ability to convert our user base into paid subscriptions at an increasing rate. We have updated our cohort chart on slide eight in the presentation we posted. To reiterate something we’ve mentioned in the past, one of the great benefits of our model and the behavior of these cohorts is financial visibility. When we start a new year, over 70% of our collections come from our existing user cohorts. And when we start a new quarter, it is more than 80% of collections. This visibility enables us to efficiently manage our marketing investment. And it generates significant leverage on this investment. We have also recently focused on reducing passive churn, which is something I want to highlight. Passive churn comes out of processing errors like expired credit cards or outdated payment information like users who forgot to update their account number after a card change. Our efforts here have paid off as we have successfully reduced our passive churn rate by nearly 10%. I view this as a huge success and just one example out of many of how we use operational excellence to maximize the value of our cohorts. Also during the quarter, we continued to successfully execute our new promotion program that we started in Q2. Offering promotional pricing is nothing new for us, but as we discussed on our call last quarter, we have made a change of how we offer promotional pricing to our users across the globe. Importantly, we have been able to add users with lower introductory pricing while strengthening the lifetime value of our cohorts with more users and greater collections in total. Additionally, the users that convert with a promotion behave very similar to non-promotional users with no meaningful impact on attrition. We are very pleased with the results of this program, which contributed to our subscription growth this quarter. Look for us to continue with our pricing programs as we enhance the lifetime value of our user cohorts. Finally, a few data points on the quarter. 42% of our new subscriptions this quarter came from new users in Q3, with the balance coming from older cohorts. Our conversion on the current quarter’s users improved in Q3, illustrating our ability to increase this number with a combination of product and marketing. 77% of the new subscriptions this quarter were annual, which is essentially the same number as Q2. Overall, 81% of our 1.6 million premium subscriptions are annual today. This is a dramatic shift from six quarters ago when 66% of our premium subscriptions were annual. While this shift has impacted ARPU, the net benefits are very positive resulting in higher collections, lower attrition and improved cash flows that can be deployed more quickly towards marketing to attract new users and R&D for new product development to drive conversion. With that, I will hand it over to Lior.

Thanks, Nir and good morning everyone. Our collections were up 47% year-over-year on a constant currency basis to $65.7 million, which exceeded our guidance, and 38% year-over-year to $61.6 million on a reported basis. Through Q3 of this year, we have reported collections of $175 million, while in constant dollars on a year-over-year basis, our collections would have been $12 million more or $187 million. This is 53% higher than the prior year, which is tremendous growth. We generate 50% of our revenue outside the U.S., which we view as a key strength and differentiator among our competitors. But obviously currency has been a headwind to our financials this year. When we provided our Q3 guidance, we stated that currency would impact our collections by about $3 million on a year-over-year basis based on FX rates at that time. However, the Brazilian real and the Russian ruble have seen significant declines against the dollar of about 30% and 20%, respectively, since Q2. While currency has impacted our results, our business in both of these locations remained very, very strong. To illustrate that, you can see in the slide number 11 in our presentation that our collections in Brazilian real has doubled this year. But this growth is obscured by the decline in the Brazilian real versus the dollar. So due to the FX rate declines and our rapid growth outside the U.S., the FX impact on Q3 collections was over $4 million on a year-over-year basis, or $1 million greater than if the rates had remained the same throughout the quarter. Excluding this impact, we actually exceeded our outlook for the quarter on a constant currency basis. Revenue on the quarter was $53.6 million on a reported basis, which also exceeded our guidance, and $56.3 million on a constant currency basis. Our average revenue per subscription is also up year-over-year, excluding the impact of currency and the mix shift to more annual plans that has taken place over the last year. The increase in ARPU is being driven by increased sales of apps in our App Market, vertical apps and other revenue sources such as domains and images. We continue to generate cash as we expanded our adjusted EBITDA in the quarter to $4.7 million, up 34% over last quarter and well ahead of our prior expectation of $3 million to 4 million. Free cash flow was $5.4 million, and our cash balance is now over $100 million, which is more cash than we had after the IPO. Our growth in profitability can be largely attributed to the increased leverage we are realizing in our model. Both last quarter and this quarter for every dollar of increased collections, we are generating incremental margin, and we expect that to continue. Most notably, our marketing expense as a percentage of collections fell from 48% in Q2 to 46% in Q3 as our older cohorts continue to generate collections, as Nir highlighted earlier I’ll now move onto our outlook for Q4 and our updated outlook for the full year. For Q4, we expect the following: Collections in the range of $66 million to $67 million. If we assume constant exchange rates from Q4 2014, our collections outlook would be about $3 million higher on a year-over-year basis. Excluding this currency impact, our collections guidance would be $69 million to $70 million. We expect revenue in the range of $55 million to $56 million and we expect continued growth in adjusted EBITDA in the range of $5 million to $6 million. We are updating our full year outlook due to currency. The incremental impacts from currencies we saw in Q3 will carry into Q4. As a result, we are lowering the top end of our reported collections outlook by $3 million. Our revised collections outlook is $241 million to $242 million on a reported basis. However, on a constant currency basis, we are actually raising midpoint of our range. Our updated range on a constant currency basis is $256 million to $257 million or $15 million higher using rates from 2014. This range represents growth of approximately 50% over last year. In summary, we are raising the midpoint of our collections guidance on a constant currency basis by $1.5 million. For revenue, our revised range is $202 million to $203 million, reflecting an increase to the bottom and to the bottom range and our previous range of $1 million. We are also raising our outlook for the full year profitability as we continue to see increasing leverage in the model through the remainder of the year. We now expect adjusted EBITDA of $12 million to $13 million, an increase from our prior range of $10 million to $12 million. So now let’s move onto your questions.

[Operator Instructions] Your first question comes from the line of Sterling Auty from JPMorgan. Your line is now open.

Yes. Thanks. Hi, guys. Wanted to start with the success you’re seeing in some of the promotional pricing. Let me sure I better understand how it impacts the revenue for this year and how you’re coming up to the better long-term value calculation under the promotional programs?

Well, I think that -- Sterling, this is Avishai -- and you’re asking about the promotions, and I think that the major significance for that is it’s last move multiple into the yearly package on the short term. On the long term, of course it gives you some additional discount, but people tend to buy more expensive packages. We do expect to leverage from that next year because the discount is a one year discount in most cases. So I think that on the short term, it decreased the amount of a revenues because you get a discount of 20%. On the long term, we’re probably going to see that increases that because the discount in next year is going to be nonexistent, I mean the 20% will be by the discounted promotions now there. So it decreased revenues by 20% increased collection and…

And Sterling, this is Lior. In addition to that and to what Avishai just mentioned, I think it’s also important to note is on to reference due to the no that we had about ARPU to the table that we provided. Actually, ARPU, if you look at it this quarter have increased by 10% year-over-year and this is despite the fact that we do those kind of promotions. So it means that even if on the short term, we see an impact on the ARPU. For the long term it’s actually increasing the LTV and this is something that is important to remember, but again despite that fact, ARPU actually has been increasing by 10% year-over-year.

Are you saying that each individual use it because I can understand that you look at the premium subscriptions are getting, the 140,000 is a very nice result, better than what I would have expected. So obviously you’re getting the volume of premium subscriptions, but I just wanted -- I am not sure I understand how if you get a discount in year one, how that changes, how that certainly gives you a higher LTV per customer?

Hey, Sterling, this is Nir. So basically the way we got around to doing, this is based on a very thorough research into our data around generally campaigns and promotion. And we basically found out that if we do some of those promotions very early on in the user lifecycle, we end up getting a higher amount of premium subscriptions within the cohort. So generally, we just get more subs in the quarter because it’s conversion at the beginning. And the second part to it is the people, as Avishai mentioned, they start at the discount, but they tend to go towards their higher price packages, they will renew on the second year at a higher price points which you will then add more value into the courts from year two and onward. Does that make sense?

That makes perfect sense. And I may last one more of a housekeeping. You talked about the improvement in the passive churn, is there any sense what portion of your churn is passive?

About I would say about half of it.

All right. Great. Thank you, guys.

Your next question comes from the line of Deepak Mathivanan from Deutsche Bank. Your line is now open.

Thanks. Two questions for me. First, one of the biggest changes with the way the new site Editor, the way you guys package certain vertical apps into site Editor for some verticals? I know it’s still early, but can you discuss about the adoption rates and what you're seeing from people choosing these higher ARPU products? And do you expect any ARPU uplift from that and then I have a follow on marketing?

Well, it’s still pretty early to actually give results that we feel confident standing behind them. But as Lior actually mentioned, you’ll see that this quarter has 10% ARPU increase compared to previous years, right, for the previous year. So we do see that a lot of it is because we bundle some of the applications with more expensive packages, but some it is also coming from the fact that people just buying the application directly. We do see much stronger adoption of new products in the new Editor. It’s more visible, easy to access and we are probably going to have more that as we and be able to answer that later in the quarter.

Okay. Got it. That’s helpful, Avishai. And then on marketing investments, you already have a very high mix of annual packages now. These customers have relatively low churn rates compared to your monthly packages? How should we think about your investments on marketing for fiscal year ’16, you are on track to spend roughly about $120 million this year and kind of added like a $0.5 million subs? Are you planning certain targets -- to target certain specific subs for the next year with marketing or how should we think about, how you would balance that?

So, first of all, with regard to for -- with regard to next year, we are obviously going to provide the specific guidance during the February call. But you -- I think that you should expect that that marketing budget is going to increase and because we view a growth as number one factor for us. So marketing budget is going to increase, obviously, we are going to see also higher leverage in our model.

Got it. Thanks, Lior. Thanks very much…

With regard to, okay.

Your next question comes from the line of Jason Helfstein from Oppenheimer. Your line is now open.

Hi. So two questions. So just, first back on currency, you obviously gave the impact of the dollar amount of currency? But can you talk about -- the -- is there way to look at subscribers who pay you in dollars but live outside the U.S., did you see any shift in either the average price they were paying or new subscribers coming on, paying in dollars? And then, secondly, it’s kind of we look at any update on kind of the marketing project, the marketing program with Facebook? Thanks.

So, okay, let me start with the first question, so you asked about, if we see impact to users bringing dollars outside of the United States. And the answer is that we don’t see anything significant, but we have to keep in mind that most of the places that we do charge in dollars are places that been -- has been less affected by changes in currencies. So, for example, places that Australia, right, will be a place and other countries, but biggest changes happening in actually Brazil and in Russia and there everything is local currency. That answers your first question. Can you repeat your second question?

Yeah. Just an update on the Facebook marketing tool uptick, any statistics you can share with the success in that product?

While we see that it’s part of the ShoutOut project and we’re running a couple of things that we do with Facebook, in Facebook there. And I have to say that we see that this is a very successful product. We love what ShoutOut is doing and it is growing very quickly. And it’s actually doing pretty well.

Okay. Can I just ask one follow-up just quick? Do you have any data that support that if you walk or hire promotions that that the qualities inscribed still remains the same. So one of the concerns in the market is when these companies do have promotions, it concerns you adding lower quality subscribers which will have a higher churn rate later. So what gives you the confidence that that won’t be the case?

Well, this is Nir. First of all, we’ve done many promotions like these in the past and when I mentioned before that we based our current plan based on data. We actually went back and checked what were retention rates, our renewal rates for those cohorts in order to do the math and asses whether it makes sense or not. Naturally, we’re still as always optimizing, testing, checking different discounts, different period of how long to undertake. And we’ll keep on doing those kind of optimization basically as long as we find something serious that works better.

Thank you.

Your next question comes from the line of Samad Samana from FBR Capital Markets. Your line is now open.

Hi. Good morning. Thanks for taking my questions. So when you talk about promotional activity being different this year versus last year. Can you give us an idea of how much that’s impacted collections this year versus last year adjusting for the discounts?

So we do not provide the collection that were impacted by the promotion. We don’t provide those kinds of data. But obviously, the overall impact on collection was obviously positive and I think the most important thing is that also increasing our LTV.

Got you.

I think you should get some really good estimates if you look at what Sterling was saying to number of new stops compared to.

Got you. And then -- as I look at my model, this looks like it was the strongest level of conversions for new cohort that the companies ever had. And I’m curious what’s driving that whether it’s the improved marketing efforts or whether that’s commercial activity. And if you can kind of define the magnitude between those two different efforts?

Both. It’s actually combination I would say of the ongoing general effort that we make on the product. There are many more things in the vertical but there are two, I would say, bigger things that affected that in Q3. One of them is indeed those -- that promotions, the ongoing sign-up promotion that we mentioned before that’s also in part why we decided that it makes sense to do both. And second part is the new editor which as we mentioned is having a much better success in helping people achieve the websites that they were aiming for and therefore obviously also convert to premium.

And then on the app store, is there a particular -- is there a particular app that’s striving that? Is it partner apps? Is it the Wix Hotels and Wix Restaurants, some of the company’s specific ones, could you help us -- or could you let us know which ones are helping you perform the best there?

Well, I think that every app in its own segment. So, I think we addressed that the e-commerce for example is affecting about roughly about 11% to 12% of our users. So, we can see dramatically, major improvements coming from users that are coming to try and build e-commerce and Wix. And by improving that, we can see that the hotels, whether this with hotels. Musician, I believe we just disclosed that we had about 3 million musicians in Wix. And we can see immediately that the results of conversion there are significant. So, every time or just a segment, we can see a major uplift and we can see at least those two and that we do disclose the numbers for B2B. And I think that the overall effect of having more and more, segment being addressed by us is going to create a major change on the overall conversion and of course, user satisfaction because they get a better product, we can do a lot more in Wix. And we just cross the 200 million users being managed by users on Hive and that’s huge. And this is exactly the result. People are going deeper and using Wix more to way to manage their business than just website.

That’s helpful. Congrats on a great quarter.

Thank you.

Thank you.

Thank you.

Your next question comes from the line of Nat Schindler from Bank of America Merrill Lynch. Your line is now open.

Hi guys. Congrats on another great quarter. Want to just go a little more detailed into what you just said, Avishai. Our e-commerce usage is 11% to 12% of users. Is that inclusive of third-party apps or is that just your e-commerce suite?

Actually, it’s mostly e-commerce with other results and it is just e-commerce suite. We have today about 210,000 e-commerce users in Wix Premium, users in Wix, which is actually the premium websites in Wix, which we think is outstanding, considering you think about the top five is about 160,000. Something like that, I believe 200,000. So that’s just e-commerce part. We can see that conversion for example has dramatically increased.

So what drives one of your users, usually the switch from your much less expensive premium package to an addition of a third-party app like Shopify that cost quite a bit more on a monthly basis on top of your package.

Well, I think that it’s all about functionality. So the 210,000 e-commerce websites that we have are mostly about that we needed to have a shopping cart, right. If you buy the musician product to retail product, it means that you need a functionality and then you switch to a more expensive package. But you also get a lot more, right. If you have e-commerce, if you have the hotels, you get a full booking system for hotel, way to present your moves or way to distribute your inventory. This is really kind of like a fantastic offering and then again, we have to connect to share that, communicate with your customers. So, I think all this functionality creates value that is very easy for our users to understand and upgrade to more expensive packages.

Great. Thank you.

[Operator Instructions] Your next question comes from the line of Kerry Rice from Needham. Your line is now open.

Thanks a lot. My first question is when we think about revenue guidance for Q4, did you include any FX impact into that guidance and if not, should we assume kind of a similar impact as we saw from -- that you guided for collections? And then the second question is can you give us an update on your native mobile app launch? Thank you.

Okay. So, I’ll start with the first question. We obviously -- we do not provide the guidance for revenue in term of constant dollar and we do that for collection. But to answer your question, just the Brazil real and Russian ruble impact on collection was about $3 million. So, you should assume that those $3 million for the six month has also impacted the revenue for the six months with approximately $1 million. So it means that if we had without this currency impact, you should expect that the revenue for Q4 obviously should have been higher than that.

And in regards to the native mobile app build, so we are actually the midst of self launching it. We currently have a body think about 500 native apps of users, using it. And we are adding somewhere around the 100 to 150 a day, it is a soft launch. We see really good results with it. It’s a complete native experience. You go in and you actually have this whole store available in native experience. I think that -- unless you are huge website like Amazon, almost nobody has a native experience that they can actually support a complete experience, e-commerce experience. And so it is going very well. I expect that we’re going increase the rates dramatically this quarter. I just want to add something. We actually have a surprised coming on this one and we’re going to share that with you guys, I think during the quarter. We added something that is -- at least I find to be fascinating and to see the affects of it.

Any update on pricing on that?

Yes.

No. We still -- before actually are having results for our testing on pricing. We are going to charge a rate. It’s going to be a part of a more specific e-commerce package and also probably as a standalone offers. You can choose. But we don’t have enough data on the effects of -- testing the price, as we -- we are set to test pricing before we actually published it.

Thank you.

Your next question comes from the line of Aaron Kessler from Raymond James. Your line is now open.

Great. Thanks, guys. Couple of questions. First, just going up on the passive churn, you noted a 10% improvement. One is that mostly internal efforts, or anything or kind of third-parties there and any impact kind of from the shipping 10 rollout in the U.S. that we’ve seen and I guess that puts obviously, side of that as a small impact to them? And second anything specific on the Wix Editor conversion improvements that you point out or is it just the overall new platform leading to better conversions? Thank you.

Hi. So, I’ll take the first question in terms of the improvement in the churn. So it’s mostly an internal effort. Obviously, when you look for all sorts of solutions sound, then you do with the credit card, our company and difference being in gateways around the world. I can say that for us, it’s an ongoing effort we always have in terms of improving the lifetime value of the cohort. So in part we do that at the top of the funnel and improve vision and in part we do it in terms of retention and improving those kind of things. In terms of generally doing payments on a global scale like we do, it’s a real effort. It’s very complicated and overtime it will become very kind of a core competency of Wix, which allows us to do these kinds of improvement overtime. I think that it really illustrates that operational excellence in the company and how we push that forward in order to improve our results.

I just want to add to what Nir said. It’s not just about increasing the value of the cohorts in the lifetime value. It’s just about user satisfaction. Nobody wanted to get into website with the business council, because they forget to update their credit card. And so -- but augmenting this, right, we’re pretty much solve a big pain for our users.

In order -- just the last part of your question about the churn was in terms of Netflix. So we’ve actually went forward and research it. We actually spoke with Netflix a few times to understand their system versus our system. And so far, we haven’t seen any significant impact.

Okay. And just a second question on the Wix Editor conversion, any specific things you would call out that’s helping on the Wix Editor, the new format?

You mean why this is converting better or what’s the size of the conversion.

Yes. Exactly. Anything in the new Wix Editor that drive better conversion or it’s just ease of use? Is that the main thing?

Well, I believe it’s a combination. It’s not just ease of use. So, first of all, it easier to use. The UI is more consistent. There is a lot of new ways of presenting things. I think the other thing is that we push out a lot of the content. So it’s so easy to see how many options you have, and all the different kinds of elements, images, layouts, possibilities that you have. So, we push a lot of those forward and by enabling that we allow users to take more of creativity and personalized the website today to do whatever they dream about presenting themselves. And that’s probably and when you’ve seen that this is something that throughout the life of the company has been major. The more that we allow users to express their dreams online, the better that conversion is. And we also add a lot of new functionality that allow you to create the website that is super modern. So, from parallax to video backgrounds, website that react differently when you stretch and then move them around. And so lot of things all of those are combined I believe to create this massive uplift on conversion.

Great. Thanks.

It’s really a much better product. As we’ve said it goes upto 11.

Your next question comes from the line of Tim Klasell from Northland Securities. Your line is now open.

Yeah. As long as we're talking about the new Editor, given the timing of that going into broad distribution at the beginning of this quarter, there was probably not a whole lot of impact in Q3 and we'll start to see it in Q4. Is that correct?

You talk obviously in terms of topline, right?

No. No. Just a conversion rate from it to premiums.

So, obviously, the impact is on your new users. So, it means that it has an impact on new users and not users who coming from older code. So any users in Q3 or Q4 obviously will see the impact and we have a better conversion. And we already started to see that during the third quarter.

Okay. Okay. Good. And do you think that was a surge or as people were anticipating that, I know you didn’t broadly advertise it, but did the users anticipate that, do you think that improvement may taper off overtime or do you think that is sustainable?

Well, I do believe, first I do believe that users were predicting that we are going to do that because we spoke a lot about it on the phones and supported and spoke about the functionality that we are going to introduce a new ways of doing things. So there was some expectation, but I think most of this expectation comes from existing users and not from new users. So I do believe that when we measured conversion changes, we only looked at the conversion change on new users. So to some level there was an expectation, but mostly the way that we measure new improvement on conversion was from new users that I don’t think were able to actually predict it.

Okay. Good. And then just quick question on the guidance, you mentioned a $3 million greater impact because of currency shift primarily in Brazil and Russia, and there was a $1 million impact in Q3, which would imply a $2 million impact in Q4? Was that just a reflection of a gradual change or the change over the quarter of Q3 now being applied over a full quarter of Q4 or was there something else that maybe has changed recently?

No so. As you mentioned, this is mainly due to the Brazilian real which has dropped only in the third quarter by 30% and the Russian ruble by 20%. So the impact in Q3 was approximately $1.5 million and this is something that will order to Q4 so in total for the six months it’s about $3 million. So that was the full impact and it’s only resulted from what’s happened to the currency during the third quarter.

Okay. Okay. Good enough. Thank you very much.

Your last question comes from the line of Mark Mahaney from RBC Capital Markets. Your line is now open.

Thanks. Could you provide a little more color on the source of the new subs at 140,000, I don’t know, vertical market demographics, anything that gives us a sense of where are these subs or how these subs may gave have been different than kind of new subs that you’ve added in the past? And secondly, could you go over this math on the ARPU of 10% year-over-year? The way we calculated, it looks like revenue per subscribers down 3%? Is that gap just purely due to FX or are you calculating a little differently than we are? How do you get that 10% year-over-year and put some context around that last couple of quarters as this is being also by that level or is it really accelerated on that, I guess, on the ex-FX basis? Thank you.

Hey, Mark. This is Nir. Take -- I’ll take the first question and then handed over to Lior. But in terms of the -- generally in terms of the thought of the new subscription, obviously, it’s a higher conversion rate for the reason that we elaborated about before. But if you look at splits and the source, it’s -- it hasn’t changed in any significant manner during the year.

With regard to the ARPU, so you right about your calculation, but what I -- but actually in, you can look at in the Page #7 the material that we’ve provided. You can see all the direct table which kind of reconcile between the calculated ARPU to the ARPU excluding the impact of the currency and also excluding the impact of the shifting between monthly to yearly, because eventually what we’re trying to show is the real thing that happen to the ARPU in term of the business. So if you exclude those two items, you can actually see that ARPU has been increased by 10% year-over-year. Last quarter it was 6% year-over-year. And I think that this is what reflects best what’s happened in terms of our business where we see that more people buying more expensive packages. And Avishai I mentioned before about the e-commerce and more application and we chattered into different vertical. So I think that this is all good healthy things that happened and actually because of that we manage to increase the ARPU.

Excellent. Thank you, Lior. And thank you, Nir.

Your next question comes from the line of Mitch Bartlett from Craig-Hallum. Your line is now open.

Sure. Two questions please. The answer to Tim’s question about the conversion rate going up 15% to 20% on only new users, there is no reason to expect that that wouldn’t be the case for the registered user base coming into premium subscriptions as well. That’s the first question. Second question is, I guess, we’re all trying to figure out kind of revenue growth rates for 2016 based on the improvement in conversion and the improvement in your passive churn, the reduction in your passive churn. Is it likely that you -- I think you’ve already said that you’re going to lean more to growth than to profits, is it likely that you’re going to reinvest those kind of improvements back into growth in 2016 above and beyond what most people are looking for?

So let me sure that I understand your question. As the first part of approved conversion, are you asking if we’re going to see the same 15% to 20% increase on conversion of old users, or are you asking we’re going to see that going forward?

On old users as well, yes. On old users that are converting in? Go ahead. I’m sorry.

I mean, users that already came to Wix built the website. We’d probably be less exposed to that unless they come in to rebuild their website. That doesn’t -- it’s not something that happened, it’s often of course that new users come in and they try to build the website from the beginning. Most of the users if they spend more time using Wix, they probably know more about how to use Wix. So I would assume that the effect on old users will actually be smaller, okay, also in terms of percentage and also in terms of time that will take them actually to be able to utilizing functionality. You don’t need any functionality unless you want to change the website to do something new. So I believe that’s the answer to answer your first question.

With regard to the second part of your question, I want to start with saying that Wix has a very healthy and typical SaaS model. So of any other SaaS model, it’s very predictable. It means that when we start the year, more than 70% of our collection coming from older users. And I wish I mentioned before most of the impact for the new editors going to be on the new users. So it means that we are going to see the benefit of collection rolling into 2016, but it’s not going to be a huge one because most of it is going to be later on. That said obviously, every increment in dollar that we are going to do out of it and I think that we said it before the profitability is sustainable, it’s also going to increase in the future. But every incremental dollar, the first target for us is growth, so it means that every incremental dollar that we can we’ll invest in growth. But we also should assume that profitability is going to be higher.

Great. Thank you.

And that concludes the Q&A portion of the call. Thank you for participating. You may now disconnect.