Wix.com Ltd. Stock

It looks like we are live. Let's get started here. I'm Jamesmichael Sherman-Lewis. I'm on the Internet team here at Citi. Joining us is Lior Shemesh, Chief Financial Officer; and Nir Zohar, President and COO. Thank you both for joining us here.

Before we get into, obviously, Base44 and Wix's product road map, I wanted to zoom out for a second. There's a broader kind of debate here around the evolving role of a website in the Agentic Web. As AI agents increasingly browse and transact online, agentic traffic beginning to exceed human traffic, how does Wix think about the long-term value of a website? And how does it inform your product road map?

So I think it's about a year ago, that same argument or the same question was about is the rise of AI means that websites are completely going away? I don't think that is the -- are you with me?

It's not the first time that this happened to him.

Quick technical difficulty. So here we are.

Okay. So last year, the question was more about will websites even exist because AI will come and basically make them redundant. I don't think that's a concern anymore. If anything, I think that with vibe coding either on the high-end professional level or the more less sophisticated simple level of Base44, there are more and more things being created. And with more and more of the things being created, some of them are websites, some of them are applications, but I think we're going to see more rather than less. I do believe, and we're seeing it, and we're playing a part in it is that the -- how AI interacts with websites will keep on evolving and changing.

So I would say one aspect of it is we've just integrated Harmony into Gemini. So it's going to be super easy for you to go through Gemini and immediately go into the creation path, which makes a lot of sense. We understand your intent, we understand what you're looking for and the AI immediately puts you into the right flow that will make you happier by getting the experience you were looking for. A different part of it, which is more the transactional level in front of -- with websites is what's going to happen with a catalog when you want to buy something and you want to get an offer.

Now I think that the idea that everything is going to turn textual is -- I actually think it's ridiculous, okay? I'll give you a beautiful, beautiful text about the hotel room I want you to book or a few good images of the room and the beach next to it. I'm pretty sure which one will resonate better with you, right? So text is not enough for us as humans. So I think -- and you can say the exact saying about -- same thing about the shoes you want to buy. And if it's not exactly what you wanted, I'll show you the alternatives, I'll give you different selections. So I think there's definitely a change there in the sense that the AI would like to pull in the right thing that matches your search, matches your inquiry, matches the thing you're looking for. I think that's a better experience.

But whether the full transaction happens within the agent or ends up pulling you back to a full-blown website, you need that place where everything exists in a seamless manner, has the right text for the catalog, the right images, videos, measurements, colors, prices, different prices for different places if it's cross-border, different taxes in different places. There's a lot of complexity. And even if you transact on the agent, at the end of the day, something needs to synchronize and make sure that something was -- a transaction happened, fulfillment will happen next, something was removed, deducted from the inventory. If there are a few agents that are working with my websites, it needs to synchronize between them.

And I think that this is definitely a change that's happening. It's actually happening slower than anyone anticipated. The fact that it's happening slower in my mind, doesn't mean that it's not happening, just that it takes a lot more time to adapt. But I think that definitely, we're going to see a change in how people interact with websites and what websites do for them. It's going to increase the level of complexity, not decrease it, which I think is where we intend to be very much kind of ahead of the game to try and solve that complexity for the small businesses, our clients, the ones who cannot afford to pay huge tickets in development costs in order to solve those kind of issues.

So increasing complexity, AI accelerating content creation, Wix's strategy here, as I see it, it seems to be enabling user choice in how they do that creation. Wix Harmony, maybe having some of the conventional like drag and drop, you've got Base44 natural language, but also headless integrations with major LLMs. Based on kind of what you're seeing this year, what channels and solutions are customers really gravitating towards?

Well, it really depends about who they are. I think we're seeing -- obviously, we're seeing the regular behavior of most of the self-creators who are still going to Harmony because this still embodies the most simple and fully curated solution that is -- has all the guardrails. And I think for people who are not tech savvy, this is very important. But we're also seeing some self-creators are starting to gravitate towards trying to do it fully blown on vibe coding, and we're seeing more of those on Base44.

So there are sites being created on Base44, even though the majority is still applications, there's still quite a few -- there are now quite a few websites being created on Base44. So that's one side of it. If you look at partners, and obviously, their business has been much more under the gun than the self-creators and they're seeing a lot of pressure, but they are also trying many, many different things. So some of them are trying to build websites on Base44. Some of them are trying to build applications and offer applications to their customers through Base44, whether with the Base44 website or a Wix website or someone else's website.

And then headless is also picking up, still relatively small. It's -- again, it's mostly more of a professional play. So it can be partners or actual engineers or people who want to build front end in one place and then they want to take advantage of the very elaborate and deep business stack that we built on Wix over the years. And with headless, it becomes super easy for them to adopt and enjoy that. I would just say, I don't think my job at this time is to try to foresee the future. First of all, I'm happy that's not my job because I'm going to miserably fail. I think it's impossible. Things are changing extremely fast right now.

I think my job and our job as a management is to try to understand what are the most relevant outcomes that we can consider in our space, and then try to gear up and have a good solution out there. So whichever way the pendulum swings, we can capture opportunity.

By the way, this is exactly one of the reasons that we bought Base. When we thought about it earlier those days, we were thinking, okay, what is going to be just vibe coding, combination and so on. And that was one of the reasons why we decided to buy Base.

Providing optionality.

Exactly. Exactly.

Let's stay on Base44 for a minute. ARR went from $100 million early March to $150 million by mid-May. I think that growth trajectory continued through 2Q, as I think we've discussed. What key parts of the product road map kind of going forward from here are you really excited about?

Base44, there is so much. Try to track the release notes on X from coming from either the Base team or from Maor. It is something new that's coming every couple of days. So it's really hard -- it's hard for me to get attached to one specific thing and say, that's the thing. But I think the fact of the matter is that the glass ceiling, so to speak, and it's not really a glass ceiling, but I think what's above our heads still on Base44 more than anything else is the fact that most people that are not in tech and are in this room have never heard about vibe coding. They have no idea what it means.

So go out to Sixth Avenue and ask around a little bit. You'll see that the vast majority never heard the term. A few heard the term, but don't know what it means. And maybe 1 or 2 or 0 understand that vibe coding is something that can benefit their own lives by going in and using natural language to create a piece of software that can do something for them. And I think that's the most -- to me, the most interesting thing. I think that's going to be the biggest thing that is going to affect the growth trajectory is that as this becomes more widely distributed and populated and everyone knows about it, then that's where things expand dramatically.

It's not that I'm not excited about the product. It's evolving -- really evolving tremendously well, but it's already a healthy product, right? So I think that it will continue expanding. There are more opportunities, there are business opportunities. We're going to -- we told the Street that we said that we hired a VP for sales. We're going to start building an enterprise muscle for Base44. But I still think that just the expansion of the category, which is just getting -- just being born is the most exciting part there because that's where the breadth of the TAM comes to play.

Widening the customer funnel, the aperture. That makes a lot of sense. For the customers that are using Base44 already, I think you've said cohort trends are improving almost every month, but it's not maybe yet at Wix's level of retention, correct me if I'm wrong. With the first kind of cohort of annual subscribers coming up for renewal, what leading indicators are you seeing on that front?

So for the -- first of all, you have to remember, we started selling annual subscriptions in August last year. Numbers were very, very small. I think statistically, we'll have more validity throughout Q1 -- Q4, sorry. That being said, I would say we're seeing good indications, meaning that it's as we expected and definitely, we have no concern looking at the numbers we're looking at right now. I think that the retention is -- first of all, the retention is different and probably will remain different because some of the nature of what is being done is very different. There is much more call for personal use of applications on Base44 than there are for personal websites on Wix, okay?

And even there, if somebody builds a personal website, they usually will hold on to it for a long time. With applications, you might actually build something, which is a onetime thing for you. But it doesn't mean that the next time you want to build or create something or a piece of software, you're not going to come back again to Base44. So I think the longer-term understanding of how the cohorts behave, we still don't have enough in order to fully understand it, and it's also expanding very, very fast. So we're seeing new things all over the time. But I'm actually encouraged by it because I think if we can get to a point or we can get to a place where people really expand their use into Base44 personally all the time.

So I start by building an app for my business, and then I understand that it's simply simple that I might actually build 2 or 3 more apps for my business for different functions because business will usually have one website, but they may have an application for running the staff, an application to do loyalty and a different application to deal with inventory and something that can replace my CFO and do the finance for me. Then a person that is covering that as the business owner at some point, may say, "Oh, I can actually use it to do something for my kids' soccer team or something for the PTA or et cetera." And I think as this expands, we can actually get Base44 be even more popular than Wix is. And that's obviously very exciting.

Yes. Lior, let's...

By the way, replacing CFO, it's really, really hard. Can I tell you that?

Lior, let's bring you back in the conversation so I can keep your job.

But I think that just going back to this like for a minute, I think that the first indication that we get, it is within our expectations, which is really, really good. I mean the fear that something, wow, it's going to be like a complete failure. It's not the case. I think that within our expectation, even a bit better, let me say that, but it's really good. I think that it can only improve. Nir, for example, mentioned the fact that we're trying to build the enterprise business. So we do see indication that actually on a dollar value, even it's better because it means that we see more and more businesses when they build the application on Base, obviously, the retention there is super high.

Great. Can we talk briefly about the economics of Base44 and some of these -- the newer models that you've implemented? So 2 new in-house models, the Wix Harmony LLM and Base 1 for Base44, each cutting inference costs by about 5% of the frontier model alternatives. Can you talk broadly about the decision to open source, the advantages in specializing on your own data? And then potentially a third one squeezed in, how you expect to adapt your proprietary models as frontier models continue to evolve?

Yes. So I think the easy value that everyone sees immediately is the inference cost savings. I would actually argue that it's the least interesting one because I think it would have happened anyway. It probably would have happened -- took a longer time, but eventually, just on the nature of the kind of competition there is around it, it should have come down. The other thing I think that's driving costs on AI compute, obviously, is energy and data centers, the lack of both. But we all know that there is so much investment into expanding that. So over time, I would expect the cost to come down anyway.

Naturally, because we don't want to wait, the fact that we can save a ton and improve the margin profile quickly by doing it now is a huge benefit. That being said, I think that there are 2 other things that are actually even more important. They're not immediate, but they're more important. One is if the core or one of the core things that Base44 does is understanding what's the best flow in order to create and code web applications for a certain kind of customers, then obviously, sharing that know-how with a third party that might, at some point, either deliver the -- train their own models and then let competitors use it or become a competitor themselves is a huge, huge disadvantage.

So I think for us, using this is an important way to protect our IP. And I would say that once you encapsulate the problem you have and the issue you're trying to solve with your own model, you also have a better chance to improve on that specific undertaking, whereas when you're only reliant on the improvements of a third party that does something much wider, you may get some benefit, but not necessarily the exact benefit that fits the problem you're trying to solve. So if Fable is much better at deep research, I'm not sure that helps me with building applications, right? It doesn't mean that it's not amazing for deep research. So I think that's another thing that over time, we'll be able to create and curate a better solution by focusing on our own efforts on our own trained model.

Now to your question, what happens when the new big innovation comes out, it's a great question. I think that, first of all, we are tracking it all the time. This is why we keep on using frontier models. It's all the time. We're never going to be completely disconnected. And we're actually using a bunch of the top-notch new ones all the time and testing them. And I think at least so far, we've seen a lot of those kind of outsourced solutions managed to catch up rather quickly. You're asking what if comes a new one that nobody catches up with and it is so good, it does something so different that you have to go and replace and go back to it. I don't know. It's a great question.

And if ever I have to deal with it, then maybe we'll come back and say, guys, we're going to increase cost right now because we're going to use it, but here's the benefit and here it might make sense. So it can happen, but it needs to be a smart business decision that I can articulate and explain to you why it makes sense, right? If it comes to it, we'll have to engage with it.

Understood. On the cost side, and Lior, maybe you have some input here as well. But BASE44's profitability is continuing to improve. We have a few metrics that we're anchoring on now, TROI modestly longer than 12 months, 60% gross margins in the second half. The question really is, how do you think about the structural profitability today, inclusive of free users versus potential leverage ahead? And then parallel to that, how do you think about TROI as you lean into marketing again in the second half?

So I think that when you talk about TROI and gross margin, in the end of the day, we manage risks, okay? So it means that if I see that I have a higher gross margin, I can take more risk in terms of the TROI. I think that let's start with the gross margin. What we see right now, and we did mention what we expect from the second half of the year. So definitely within what we provided. And let me say, even a bit better, which is a really, really good indication because it means that when we go to next year, we are definitely going to improve the overall gross margin for next year.

Again, assuming there is no new model that we will implement. I can tell you even more than that. I think that technically, we can even increase the gross margin, but we want to use more of the frontier model in order to compare. So I think that we are in a very good place, and we are going to see that next year, definitely, the gross margin is going to improve, okay, based on what we know right now.

Now with regard to the overall profitability, I think that then the only question that remain is how much we are going to invest in marketing. And this is something that we'll have to decide as we progress because there's a lot of opportunities that can be like new products coming from Base that we would like to invest. I don't want to be in a position where we hurt the growth because of the free cash flow, okay? We need to deliver and we need to make sure that we will continue with the growth.

So I think that definitely, when we provide the guidance, we are going to provide much more explanation about what we see, why and what we decided to do. But in terms of the margins itself, it's getting better. By the way, the same also for Wix. I'm going to see for the core Wix, I'm going for improvement in the gross margin next year. The consolidated, it's a question about the mix between Base and Wix.

Makes a lot of sense. If we could switch gears quickly. Partners, just wanted to hit on that quickly. Some volatility this year, $50 million bookings headwind. Could you elaborate a little bit on the pipeline pressure, but really, the question is more on, have the headwinds changed? Have you seen any change in the magnitude of the headwinds or...

So the simple answer is no. We haven't. We haven't seen improvement. We haven't seen deterioration. Obviously, we also already absorbed the surprise factor the last time when we announced it in June. And I think -- again, I think the role of partners in this ecosystem is changing. Are they going to be completely gone in 2 or 3 years from now? I don't know. I don't think so, but I don't know. I think that if they do, because they lose all of their business to essentially AI machines that can do everything instead of them, then we intend to own at least one of those AI machines and be part of that change.

In the meantime, I actually think that as much of the simpler stuff become very easy to do with AI, but a lot of the complex stuff as a business owner are still very complex for you. And business owners still have that tendency to try to steer away from technology, one, because it scares them and two, because it defocuses them from their business, which is what they know how to do best, unless it's digital business. Then I think the role of the agency can just evolve to be someone who is much of a partner to the business owner in helping them run it more effectively in a world where there are lots of other new technological opportunities that suddenly they can unlock with better website building on Harmony or on Base44 with adding applications around the business, maybe with running the business with that AI cluster of experts that is being built on Symphony.

And I think what we want to understand, while we are improving the product and trying to kind of slow the bleeding, hopefully stop the bleeding, but at least slow the bleeding, and this is something we're going to do very, very soon. We also are talking to like many, many tens of our top agencies to try to understand what is the experience, what is changing, how their jobs are changing. And then from that to curate solutions of how can we help them evolve into the next phase of what is a partner, what is an agency in the age of AI. And I don't think anyone has all the answers yet, but we're working closely with them in order to get there.

Perfect. I wanted to open it up to the audience for any questions before we keep going.

Just out of curiosity, could you maybe just let us know the split between the queries based on frontier models versus Base 1, your own internal LLM? Just if you could quantify, that would be very helpful.

We don't want to provide because for a few reasons. I think that it's mostly about the fact that it keeps on changing, okay? It's not something that I want to commit to. It's not something that I can commit to. I think that the fact is that you want to test, you want to understand. In some of the cases, customers actually will prefer to use the frontier models. So it's something that we are...

But I would definitely say that if you look at the first half of the year or early in the year towards what it is right now, the portion of the frontier model usage has changed dramatically. It's a big change. It's not small. Again, we're not going to quantify it exactly, but it's very big.

On your prior subject of evolution, I think we're potentially in this transition period as well where bookings have kind of lagged revenue growth for a few quarters now. Lior, I think you mentioned specifically that you hope that, that dynamic changes next year. What would need to be true for that to occur?

For the...

For the inflection to potentially happen.

Look, I think that in the end of the day, what we do right now, I think that most of the time trying to figure out about what will be the growth drivers because there's a lot of changes right now. Even within Base, I mean, we spoke about Base, about new product, there's so much opportunities with Base. So definitely, this is one of the growth drivers that we are investing a lot. Second, with Wix, I mean there are mostly -- I mean, there are like 3 things, and Nir mentioned that. But definitely, Symphony. I believe that also within Partners, we have more opportunities. And also, we talk about the headless. So we are also evolving into a place where no matter where you do the front end, you'll still be using Wix. And I think that this is super important to understand because even if you use Anthropic or use ChatGPT or whatever, I think at the end of the day, do you want to be in a position where you can present our solution and everything that we've worked so many years and establish a lot of understanding about what small business needs, what kind of vertical, what kind of connections and so on. So I think that we are working very hard in order to make sure that we can generate more growth from those growth drivers. But let's see, I think that it's too soon, but we're really, really optimistic about it.

You said it's a transition. I think it's an underestimation of what's going on. First of all, like 10 years ago when we were sitting here, we had basically -- we were a few years after the IPO. We had one editor and we're talking about how we are adding all of those business solutions and verticals in order to help people unlock more value as they want to build websites. And it wasn't that we were not invested in other things so much as the world was just a much simpler world back then. I think the shift that we're seeing now is really dramatic.

I think it's less dramatic sometimes because people are trying to describe it as if the sky are falling and everything is going to go away tomorrow. I don't think that's the case. But I do definitely think that we are going through a massive shift of a new Internet, which is the Internet in the age of AI. And it definitely presents a huge amount of risks, but also massive opportunities.

And I think everything we're talking about, think about all the things -- the number -- the sheer number of different products and different things that we are talking about just now in 20 minutes, okay? Again, I couldn't cover so many things last time because we didn't have -- or 10 years ago because I didn't have so many things going for me. I think all of that is geared up towards making sure that we can not only survive this shift, we actually want to come as winners in this shift. And I think we have a good chance, but we'll have to work very hard.

In that shift in the platform evolution, I think the new products are interesting, right? Just obviously, headless kind of changing the access and entry point. Symphony though, usable by businesses that are not even on Wix at all. How does Symphony maybe change your TAM and how you think about creating new products that are maybe very different from the products you used to have?

So I think, obviously, there's about -- if you look at kind of the go-to-market or the kind of the profile of the user, you can say, well, there's a lot of similarities. But I think the TAM is actually a new TAM or an independent TAM because it tries to answer a completely different need than something else. At the end of the day, so much AI innovation, so many great things you can do with AI. You can really leverage AI to make your business much, much, much better. The vast majority of the people have no idea how to approach it. And if Symphony is successful, and I don't know to say it is, it's a 3 weeks old product, way too soon to determine anything.

But I think that on paper in terms of the opportunity, it's a super interesting opportunity. It's interesting because if it works, then yes, then it's independent of Wix can cross with Wix definitely, but it's not determined on me bringing a customer to Wix and then selling them Symphony, but a whole new and independent opportunity. And I think the great thing about this age of AI is that this is a product we developed like in a matter of months with a very, very small team. I personally really believe in it and hope that it's going to be a big hit. But I also have the appetite to do more of these and try to go after new big opportunities. I think, again, to go back to what I said before, it's an era with a lot of opportunities. So this is -- I think this is very exciting for us.

Era of opportunities, I think, is a perfect place to end. So thank you both so much for coming. I really appreciate having you here.

Good morning, and thank you for standing by. Welcome to the Wix Second Quarter Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Emily Liu, Investor Relations. Please go ahead.

Thanks, and good morning, everyone. Welcome to Wix's Second Quarter 2026 Earnings Call. Joining me today to discuss our results are Avishai Abrahami, CEO and Co-Founder; Nir Zohar, President and Co-Founder; 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, except as required by law. 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 section of our website, investors.wix.com. With that, I'll turn the call over to Avishai.

Thanks, Emily. As I mentioned in our shareholder letter, our strategy is centered on deepening our ownership of the technology stack behind our AI products while expanding Wix's role across the AI ecosystem and throughout the entire user journey from ideation online to fully operational businesses and deployed software. We're pursuing this through 2 distinct purpose-built paths rather than betting on a single outcome for how AI reshapes online creation.

Wix Harmony continues to serve self-creators through visual drag-and-drop creation paired with AI. BASE44 serves a different and fast-growing motion, natural language, vibe coded app and software creation.

Running both in parallel means we capture demand wherever the market evolves. We achieved a significant product milestone this quarter in support of this strategic priority with the introduction of Base1, the first platform in its category to launch a proprietary LLM.

Building this model in-house was a deliberate choice. It gives us tighter control over quality, faster iteration cycles and a better long-term cost structure. It also means every interaction on the platform continues to compound into a proprietary data asset, one that keeps improving Base1 rather than benefiting an external vendor's model. On the economics, Base1 is also driving tangible margin improvement for BASE44. As we shift more inference to our own model and continued cost optimization work, we see AI-related costs fall across free and paid users, improving the BASE44 gross margin from roughly 0% when we started the year to approximately 60% in the second half of the year. This trajectory reflects the business moving past early-stage hypergrowth economics toward a more sustainable margin-healthy model with further room to improve.

Base1 also demonstrates what is possible when bringing together Wix's 20 years of expertise building and making complex technology accessible to everyone with BASE44's nimble and ambitious AI-powered workflow.

The same data science organization that led the development of the Wix Harmony LLM, our first purpose-built AI model introduced earlier this year, was able to support the BASE44 team directly with existing research, infrastructure and experimentation capabilities achieved over years of AI development. This team, which I work closely with, played an invaluable role in the creation of Base1 and was a major reason we were able to bring our model into production so quickly. With continued demand strength and more control over the technology stack powering the platform, we are doubling down on a strategy that has already proven successful.

The vision behind Wix Harmony is focused on building AI and human collaboration into the core editing experience, helping users generate, refine and iterate on content while staying fully in control of the final results. This reflects a broader principle behind everything we build. As the market, the technology and user expectations keep shifting, our focus is to continuously evolve our platform to the needs of our users. We've continued to make significant advancements in Wix Harmony as part of this ongoing commitment. Our focus now is execution, leaning into our position of strength to create products that generate real value for users and durable growth for Wix. With that, I'll turn it over to Nir.

Thanks, Avishai. I want to start with a quick overview of the growth trends we're seeing across the business, then explain how those insights inform our investment strategy. We continue to execute on our plan in the second quarter with steady top line performance. Bookings grew 12% year-over-year and revenue grew 15% year-over-year, driven by strong BASE44 performance and continued growth in our core Wix business, in line with our expectations with encouraging performance from Wix Harmony. As a result, year-over-year self-creators revenue growth accelerated sequentially to 14% this quarter, underpinned by healthy business fundamentals, including improving conversion from free to paid users, stable retention behavior and a robust top of funnel.

Partners revenue grew 17% year-over-year, in line with the expectations we provided in early June. Encouragingly, we saw a step-up in BASE44 contribution to the Partner segment in the second quarter as professionals increasingly leveraged AI and AI agents in their workflows and expanded their pipelines to include software creation. GPV in Q2 grew 3% year-over-year, driven primarily by the wind down of our subsidiary, InkFrog, as part of our organizational realignment in June to refocus efforts on high-return products. InkFrog had a moderate contribution to GPV but low monetization. Its wind down improves our mix towards better monetized GPV dollars, resulting in better take rate. After our June outlook adjustments related to our partners business, I want to make it clear that our partners business remains a key area of investment and focus. We are already actively testing new solutions with our agency partners and believe that these solutions will align our platform with how the partners and agencies ecosystem is evolving.

Turning to BASE44, which continued on its strong growth trajectory in Q2. Top-of-funnel demand remained elevated with the newest cohort outperforming the previous one, while renewal activity led overall BASE44 growth. Encouragingly, we continue to see more new and existing users choose annual plans as they increasingly trust BASE44 for their software needs.

Given the continued strong demand, meaningful product improvements and the significantly improved margin profile of the BASE44 business driven by Base1, which Lior will speak to in more detail shortly, we plan to invest further into BASE44. As a result, we are raising our TROI target moderately, underscoring our confidence that the opportunity in front of us remains competitive but massive. Our priority is to aggressively capture BASE44 market share as the AI-powered app creation space continues to be dynamic and growing with strong belief that the strategic investments we're making today will drive sustained growth and market leadership over the long term. With that, I'll hand it over to Lior, who will discuss how we expect these priorities to flow through the financials. Lior?

Thanks, Nir. In the second quarter, we delivered continued solid top line growth and continue to position the business for long-term success and free cash flow generation by innovating our platform and managing the business with discipline. You just heard from Nir about our strategic priorities and top line trends, so I'll focus my remarks on the cost side of the business, where we drove strong execution on initiatives that I believe will create meaningful leverage over time. I am proud to say that we have delivered on a key initiative planned for this year. A company-wide priority for 2026 was to lower inference costs with our own LLMs.

We started with our Harmony model earlier this year. Then in June, we launched our Base1 model, which we believe structurally improves the margin profile of the business, and we are seeing immediate results. We now expect non-GAAP gross margin for BASE44 to be approximately 60% in the second half of this year. This is a very significant improvement from the near 0 gross margin entering 2026. These cost savings are expected to translate into approximately 2 points of total non-GAAP gross margin improvement in the second half of the year versus the first half for the consolidated business.

Turning quickly to the second quarter. Let's start with gross margin. Our second quarter total non-GAAP gross margin was 67%, a slight increase sequentially and down 3 points year-over-year. Our lower year-over-year total non-GAAP gross margin was driven by continued elevated investments in BASE44 to support its rapid growth and elevated AI compute costs as we scale and maximize gross profit dollars.

Our second quarter margin reflects stable gross margins in our core Wix business compared to the prior year period. Total non-GAAP operating income came in at 12% of revenue, primarily driven by continued higher levels of sales and marketing expenses in the quarter. Non-GAAP S&M expenses remained elevated in the second quarter as expected, as we continue to accelerate marketing investments into BASE44 in order to capture strong top-of-funnel demand trends throughout the quarter, while also seeing AI inference and compute costs associated with free BASE44 users continue to increase sequentially. As Nir discussed, with the margin profile of BASE44 fundamentally improved, we are going to lean into S&M expenses to capture increased demand. As a result, we plan to reinvest the entirety of the gross margin savings I just discussed back into sales and marketing activities. As a result, we anticipate third and fourth quarter sales and marketing activities to remain elevated as we now aim towards a moderately longer TROI.

Finally, turning to our balance sheet. We ended Q2 '26 with approximately $960 million in cash and cash equivalents and $1.63 billion in short- and long-term debt. Let's turn now to the outlook for the third quarter and second half of 2026.

We are maintaining our current guidance and continue to expect bookings to grow at a low teens percentage, lagging revenue growth by a few points and revenue to grow at a low to mid-teens percentage on a year-over-year basis for the full year. We expect third quarter revenue to grow at a low double-digit percentage on a year-over-year basis. For the full year 2026, we are maintaining our expectation for free cash flow margin, excluding acquisition and restructuring costs to be in the high teens.

Our full year outlook assumes that the approximately 2 points of non-GAAP gross margin improvement in the second half in the consolidated business will be reinvested into BASE44 sales and marketing through the rest of the year. This reflects our expectation that demand for BASE44 will remain elevated, enabling us to capture additional market share as the business continues to outperform.

We expect to offset this increased sales and marketing investment in BASE44 with lower AI costs and decreased marketing costs for core Wix in the second half of the year, in line with seasonality and lapping the Super Bowl investments earlier this year. We expect R&D expenses to remain stable in the second half of the year compared to the first half as the FX headwind from a strengthening Israeli shekel offset savings from our organizational realignment. As a result, we continue to expect non-GAAP operating margin for the consolidated company to step up in the second half of the year, putting us on track to achieve our free cash flow outlook.

In conclusion, our conviction in our near-term strategy and ambitious AI-focused product road map remains unchanged. The team is incredibly focused on executing our shared vision, and I am confident that key initiatives like Harmony and BASE44 are the right areas of investment. We are utilizing this year to lean into our future growth and leverage AI across every function to drive higher output.

The decisions we are making today will pay off in the long term as we continue to build, refine and deliver products that capture additional market share and drive compounding financial performance for our shareholders. Operator, we are now ready for questions.

[Operator Instructions] Our first question comes from the line of Ygal Arounian of Wedbush.

I want to first dig in on Base1 and the proprietary LLM and maybe if you could expand on the product in general, how it's built, but maybe if there's any quality trade-offs and potential for further AI cost improvements and compute cost improvements over time. Just love to get a little bit more detail on that. And then I have a follow-up.

Of course. So Base1 is a model that we train in-house. It is a big part of the concept is that we always keep training it based on what we see that works better for our users. And this is a lot where the secret sauce is. How do you know what is good? How do you know what is bad? Because essentially, every time you write a prompt in BASE44, the model usually generate thousands or hundreds of thousands of source code lines, and we have to somehow know how to pick the good results as the bad results. So once you do that, and we're able to push that back into the model and keep turning it to continuously be better. Today, because of this approach, we're in a place that we can already see that the result of Base1 are better than any of the models that we have from frontier providers, okay? It's not better for everything.

I want to be very clear about it. It's better for BASE44, right? But we do see a significant improvement. And of course, the cherry on the top is the fact that it also costs dramatically less. We think that this is part of a very long-term strategy where we'll be able to continue and improve Base1 as a result of that continuously improve one of the critical parts of BASE44, making BASE44 a better product.

Okay. Great. And can you maybe just give an update also on what you're seeing in the partner ecosystem as more bills are going towards lab coding and AI builds? And how is the competitive environment changing around that as well, maybe with BASE44 in particular, but just more broadly and how those -- that cohort is building and starting sites and online experiences?

Ygal, it's Nir. So I think I'm not going to go back to what we already shared, but I do want to talk more broadly on kind of the dynamics we're seeing. There's definitely more and more appetite also for the part on the partner's ecosystem for AI solutions and AI products. We're seeing this across the board. We're seeing this, obviously, with the ones who are using Harmony on the Wix side. We're seeing it with more and more of them using BASE44, some of which to create websites, some of which to create and build applications for their clients. And we're also definitely seeing it in those kind of conversations we're doing with all of our kind of advanced beta testers on new products that we intend to release to the hands of the partners. So I think from that standpoint, we're probably going to keep on seeing that. And our goal is to be able to deliver value across the full portfolio of our products and offerings.

Our next call comes from the line of Elizabeth Porter.

I wanted to follow up again on the BASE44 gross margin improvement, which is really impressive. So how much of the expected improvement to the approximately 60% non-GAAP gross margin in the back half of the year has already begun to be reserved versus remaining kind of in the forecast period? And what percentage of inference traffic is currently running through Base1? Are there any constraints we should consider before broader deployment?

Elizabeth, it's Lior. I can tell you that the range that we provided for the gross margin, we already see it. I think that this is why we feel a lot of confidence about what we've managed to do. And it was not happening like in day 1. It's happened gradually over the last few weeks. But we've already started to see the increase in gross margin within the range that I already provided within my guidance.

Great. And then just as a follow-up, I believe BASE44's earliest annual cohorts are approaching or starting to pass their first renewal period. So just curious what you could say about the renewal behavior relative to some of the monthly cohorts or core Wix? And what are sort of the cohort indicators that give you confidence that the BASE44 ARR is durable?

Elizabeth, so yes, you're correct. We are nearing kind of the first round of the annual renewals for BASE44. And naturally, we're not there yet. So we are not ready to comment or speak about it. In terms of what we're seeing in terms of the monthly behavior on BASE44, we commented on this in the past. Naturally, it is not at the same rate as Wix, which makes a lot of sense. Wix is a brand and a product that has been existed for many years. We have a much higher annual rate there. People know the brand very well. That being said, we are seeing an improvement almost every month in terms of the behavior there. And we take all of that into consideration when we are assuming our growth trajectory, both for the ARR as well as how we spend our TROI. So we have -- I would say we feel comfortable.

Our next question comes from the line of Alexei Gogolev of JPMorgan.

Can you hear me?

Yes.

Great. I wanted to follow up on Elizabeth's question about traffic running through Base1. Any update there? And generally, like what are the biggest drivers of BASE44 demand right now? Maybe you can talk about user types or channels and what indicators tell you that demand remains elevated?

Well, we already are running significant traffic on models that are not the classic frontier models. And by saying that, we continuously now test what is the right balance and how to effectively use each model that we have. It's very complicated because we were all trying to estimate what is the best model to solve that specific application that the user is trying to build, right? And that varies a lot. But I think that the interesting part is that our ability to predict better which model to use is also improving.

The biggest drivers of BASE44 demand is actually the satisfaction of users from the application that they build because what we see is that when somebody is successful in building an application and is happy with what he built, he will share it with his friend, share it with coworkers, and that is the biggest driver of new users. in addition, of course, to marketing. Because of that, we are such big believers in the product quality that the better the product quality is, the better demand will become. And we've seen that in the early days of Wix, of course. So we are very familiar with this pattern of behavior.

In terms of user types, well, I would say about 40% of our users are trying to build personal projects and things that are related to their life or their personal goals in life and 60% are business-oriented applications, people are taking that what they do at work. In addition, when you look at the business segment, you see a big variety. However, I want to -- maybe one thing worth emphasizing is that we have more enterprises than we have at Wix. So we ended up having more large businesses on BASE44 than we have at Wix.

Beyond that, it's a big mix. And I think the fact that it's a big mix is a huge part of the strength of the product, just showing that is versatile enough that it can be used by many kind of people in many different scenarios, and that is a big way for us to appreciate the potential strength of BASE44.

And just a quick follow-up. What -- to what extent is partner activity migrating towards BASE44? And how do you ensure that this increases total lifetime value rather than shifting revenue between those buckets?

Well, -- what we see now is the beginning, and it might be a big trend, but we don't know yet, right? It's very early. It's kind of hard to estimate how the world will evolve with different technologies, AI technologies because it never happened before. What we can say is that we do see some partners that reduce the activity on Wix. And then a lot of them have increased their activity on BASE44. I want to be clear, it's not that people are just moving between BASE44 to Wix and Wix to BASE44, right? We see that also people that use some of our competitors and agencies there are moving to BASE44. And I'm sure some of our partners, right, have left using different products in the vibe coding offerings. So -- but we do see this migration. I think it will be very irresponsible for me now to try and predict how it evolve in the next year, but we'll update when we have more information.

Our next question comes from the line of Stefanos Crist of Needham & Company.

I just wanted to follow up on that last question. As you see some partners shifting to BASE44, can you talk about the difference in economics for selling the switches, maybe just on revenue or margin contribution?

Very -- I think this is the answer. There's no clear answer. It depends what they're doing. A lot of those partners are actually ended up doing more heavy application for their customers. In fact, in my conversation with partners, one of the things we're very happy about is that from building a website and charging $1,000, now they can build application and charge $15,000 or $30,000, okay? And so I think, again, even for them, a lot of it is new and it's being reshaped. So -- but in terms of the general value on the economy side for Wix, there is that, I would say, at this stage, I would pretty empirical because you might build less projects, but more expensive projects, then you utilize more BASE44 then the result of that is that our take on that is a bit bigger. However, this is yet to be proven, and we need to wait a few more at least months to be able to come back with a clear number.

Yes. With regard to the margins, I think that right now, when we started to use Base1, I think that right now, BASE44 is more or less the same profitability as many other software companies. I think that also there is a lot of -- there is some -- I believe that there is more room for improvement. So definitely, the gross margin is -- and profitability is much better than what it was like even just a few months ago.

Got it. And just a follow-up on the Base1 cost savings, is that expected to only help BASE44 margins? Or can that help the rest of the company?

Well...

Go ahead.

Base1 used for BASE44, we did the same thing, if you guys remember with Harmony. And with Harmony, we also use our own LLM model that we managed to reduce cost significantly. So you can say that we're using the same strategy across the board. And this is why we saw increase in profitability in the second half of the year compared to the first half.

Our next call comes from Josh Beck of Raymond James.

I wanted to ask about the TROI framework. I believe historically, it's been less than 12 months and with the opportunity you see ahead, you're kind of willing to lean in. So any kind of metrics you can share on how much you're willing to extend it? Is it at somewhat of a maximum point as we exit the year? Or is that something that could maybe flex up higher based on market conditions?

Josh, it's Nir. So first of all, this is a framework that allows us to run investment into marketing what we deem is the right cadence and the right risk profile, so to speak, on the investment.

Sorry. With high discipline.

Yes, with very high discipline. Now to your question, is there a ceiling or a max? The answer is, right now, we think this is to be in a very good framework, and we don't expect to increase it necessarily anytime soon. Obviously, many things can change over time that can benefit it, okay? Either whether it's going to be more improvement on the gross margin that can be something that's interesting for us.

Adaptation of more into annual subscriptions on the BASE44 subscription, which will just drive more of the TROI forward, meaning that we collect faster. So there are so many different parts and moving parts throughout this -- how we calculate this, then we definitely can make adaptation through it, but it's always through a very clear formula. So it's about us understanding how quickly we can get the investment back.

Okay. And then maybe a follow-up for Lior, just on how to think about bookings. If you look to last year, it kind of been within a point of revenue growth and obviously dipped about 3 points below. Is that a good baseline to kind of use as we model going forward until we maybe start to lap some of these changes? Any pointers on bookings or kind of any color on how we should think about modeling partners as well?

At this point of time, definitely, you see in a 2026 situation where you see that revenue growth is higher than bookings from obvious reasons, but it doesn't mean that it will continue into 2027. It really depends on how fast we are going to generate more growth, for example, from base or from other new products that we are going to launch, meaning that if we see that we can get a new product like a new funnel, more customers, generate more growth, BASE44 continue under the same rate and even accelerate, for example. So it might be a situation where we see acceleration in bookings. So it's really, really hard for me to tell you that the same cadence actually will continue into 2027. It might change. I actually hope that it will change.

Our next question comes from the line of Ken Wong of Oppenheimer.

I just wanted to kind of dig in on Josh's bookings question just now. Any assistance in terms of thinking about that low teens bookings trajectory in the second half? Is it kind of a dip and then reacceleration fairly consistent both quarters? And then that spread between revenue and bookings of a few points, is that pretty consistent in both 3Q, 4Q?

Ken, this is Lior. So let's try to understand what is the reason first, and then I can answer you. The reason is we spoke about it before about partners. And we do see a situation where we are going to deliver more kind of AI tools to our partners to try obviously to accelerate the growth in partners. We are going to see more partners coming to base. So it's hard for me to tell you about 2027, if it will continue the same way. As I mentioned before, I hope that, that won't be the case. But what happened in the second half of the year, it's mostly because of partners. And obviously, we are dealing with it.

Right now, the entire company is concentrated only on one thing to generate more profitable growth, and we are doing it through base. but also through our new product tweaks, we spoke about it before, more tools to our partners, definitely with Harmony. So I certainly hope that it will change in 2027, but it's too early for me to say.

Okay. Understood. And then just on the revenue guide, the implied Q4 number does seem to suggest a bit of acceleration there and the comp is still pretty tough. And the bookings have been a little soft in the first half. So just the confidence in that 4Q revenue number, what's underpinning that, Lior?

So I think that the Q4 revenue, first of all, is -- I don't see it much different than the Q3, meaning that I don't see acceleration in Q4 compared to Q3. But definitely, we see a lot of benefit coming mostly from BASE44 into the numbers. So Q3 and Q4 revenue growth on a year-over-year basis, more or less the same, but I don't see acceleration in Q4 compared to Q3.

Our next call comes from the line of Robert Cooberth of Evercore.

Two questions, please. As partners use BASE44 in place of Wix Studio, just wondering if you could talk about the attach rate of Wix Business Solutions on a headless basis. Maybe also just some early learnings from some of the headless initiatives you have with the LLM partners as well. And then I just wanted to double-click on the GM profile in H2. I think you said 1 point to 2 points of benefit H2 over H1 from BASE44 or the Base1 model specifically. But then you also talked about some AI savings in the rest of the business. So just wondering if you were to put that all together, maybe you could give us a consolidated view of the GM improvement in H2?

Yes. I will start with the gross margin and about the 2 points that you just mentioned. And then Avishai will continue with the first one or Nir. So with regard to the gross margin improvement in the second half, I said that it's going to improve by 2 points, and this is mostly coming from the savings that we see compared to the guidance we provided previously about BASE44, meaning that the improvement is in gross margin and the usage of the model of Base1 and the fact that it's -- as Avishai mentioned, that it's even performed better.

So we see that the usage of Base1 is even much higher and better than what we expected and faster. Therefore, we updated the gross margin as a result of that, meaning that we see a dramatic change in gross margin of BASE44, and it's translated to a 2-point improvement in the consolidated revenue, in the consolidated gross margin.

Rob, for the first part of your question, so as Avishai mentioned before, partners -- you asked about partners using BASE44 instead of Studio. The dynamics here, as Avishai said, about partners and BASE44 are very, very early. And it's very -- I think it's too early to comment about whether it's supplementing or it's actually additional. By the way, we are seeing some that are using both. for different use cases. And I think that as time progresses, we'll probably have segmentation more and more of some partners and agencies that are sticking to one product, others that are using different products for different kind of projects that they're doing. So I think it's early in this cycle. It's definitely an evolution of this segment, and it should be very interesting.

Our goal is to try to be there and deliver the right value on whether they're trying to go one way or the other. By the way, to some extent, and the second part of your question was about headless. It also applies to headless. Obviously, in a world where there are more and more agentic solutions out there, we want people to be able to benefit from the value of the business stack that's on Wix in a very easy manner. And this is what is headless is all about. It's something we're starting to see pick up. But again, it's an early cycle. Obviously, it's much -- it is aimed towards people who are more professional in their use and what they're trying to build. And we're seeing chassis coming to this from various places over the Internet that -- where the professionals are dealing and working with agentic solutions. It can be things that are coming from a topic, OpenAI, our own stack.

And our goal is to definitely be there and add that to the portfolio of solutions that we offer the professional crowd. I do think that in the coming few quarters, it's going to become more and more clear exactly what is the preferred path for each and every one of them.

Our next question comes from the line of Naved Khan of B. Riley Securities.

So I understand you guys are not updating the ARR for BASE44, but just curious if the trajectory is similar to what we saw between your last few updates. And are you still taking share from Lovable in the U.S.? Are you still ahead there? Because I think that's something you had pointed to before. So that's my first question. And then in terms of just the BASE44 mix of monthly versus annual, can you just maybe talk about how that mix looks like? It seems like you're getting more annual versus monthly, but any color there would be helpful.

So for the ARR, as we said before, this is not a KPI we intend to report. It's trending in similar manners as before. In terms of what you asked about the mix of monthly and annual, then yes, I would say there's more adoption of annual, but we're not in a place where we want to break it out to the exact numbers right now. For the Lovable market share in the U.S., do you want to comment on that, Avishai?

Yes. I think that it's important to say we are not taking shares from Lovable. We are inventing a new market together with Lovable. And we are competing on the percentage of that going forward. And -- but I think it's mostly us supporting each other more than competing with each other by educating the market and educating people to the fact that they can now build applications themselves and invent products and actually make that manifest that in reality, which was -- is shocking for most people. So we -- I would say we will more support each other than competing with each other.

Yes, I misspoke. I think you had said that you were ahead of Lovable in terms of taking the share, but not necessarily.

By the way, it's very hard. If you're trying to find the precise market split between us to Lovable, it's extremely hard. They are a private company. They report numbers based on metrics that are not clear, okay? So it's very hard for us to distinguish marketing on their numbers from real numbers. And I can say that our estimation is that in the more important market, the United States, we are ahead of them. But to say by how much is, again, tricky. We can only look at secondary metrics that we can measure on the Internet. I would say we're in a very good place.

Our next question comes from the line of Andrew Boone of Citizens.

I wanted to go back to Base1. Can you just talk about the improvements of the model? If we think about the trajectory of Base1, should we really think about a parallel path with open source more broadly? So as we think about Kimi K3, if we think about other open source models that have come to market, is that the right trajectory of what we see for improvements for Base1? Or how do we think about that? And then just connect that more broadly to what we're seeing in terms of conversion or retention, how do we think about the improvements of models with BASE44 improving the overall business?

And then secondly, just more of a bigger picture question. A lot of people think about frontier models and their progress and especially just the competitive threat from Claude code or other frontier type models. How do we think about just the competitive moat, broadly speaking, for Base1 and open source more broadly versus what is the frontier as we think specifically about cutting assistance?

All right. Those are 3 different questions. The first one is Base1, will it improve in parallel with open source model. So I want to be saying, first of all, the answer is yes, of course. However, I don't think that, that is the most significant part of the improvement, right? For most of the applications that you want to build today, Kimi K3, GLM 5.2, 5.4, I think, and Claude, or 5 -- Opus 5, or all the latest codecs, good enough for most applications, right? Because most of us don't do those complicated things that require that extra few percent in model intelligence, right?

So for most of the applications, the improvements that we need to make on Base1 are to build those applications better, okay? And it's a different thing. It's not about how we make it more intelligence in Hungarian poetry, right? Which is one of the things that on any other of those things on molecular biology, right, all those things that those models are trying to push the envelope. A lot of what we need to do is how we make applications that people prompt.

And a lot of the time, those are not professional developers, they don't prompt them in a professional way, right? They're locking a lot of the definitions. They don't put all the information that you need. How do you make those base make Base1 better at solving those specific problems. And so yes, we will benefit from continuation of development in the open source environment, absolutely. But the vast majority of the value will come from what we do and not from improvement in the open source models.

How does Base1 improved impact conversion and retention. I believe that was your second question. Well, obviously, if you come to Wix to BASE44 and you prompt something and you get a bad application, you're going to convert a lot going to a lot less than if you went to BASE44, the same prompt and get a better application. Even if you don't get a perfect application, but in a place that you can now feel confident that if you start working and continuously to prompt, you get to what you want, that's already a dramatic improvement in your chances to convert. And we see that. We measure that. We have now a year of consistent measurements on that. We know that, that's the case. So by improving Base1, I'm confident we will continuously improve BASE44 conversion. which is why I'm so excited about it.

The other side of it, of course, is exactly the same for retention. What is the competitive moat for best one and open source broadly based on tier models? That's a very long question. I think that is beyond the scope of this conversation, I'll just say my two cents. Currently, everybody is using exactly the same algorithm, okay? Yes, we do some engineering modification on top of it, and -- but that's pretty much it. So the moat is not huge, okay, for frontier models. However, they've proven in the past that they have the ability to innovate even within the same algorithm, which is attention-based transformers, right? That's the algorithm and create new things. So if they continue to do that, they'll have some kind of a moat. There is another side to that is that there is a level where it doesn't matter or legal action or government action will start preventing the evolution and release of new models. We see it with [indiscernible], right, on security, cybersecurity issues. So I think that between -- and the fact that for a lot of the clients, the current model are already intelligent enough.

So if you're a commercial model, a continuous commercial model, but for the task that your customers need that extra intelligence that you've added are not significant, okay? It's very hard to justify prices. In other words, it's a very interesting conversation. I think beyond the conversation of our discussion, but I think it's extremely important for the Western world to have really strong frontier models in the Western world. And I really hope that those guys at OpenAI and Anthropic and Google will continue to innovate and drive fantastic products.

Thank you very much. This concludes our question-and-answer session. Thank you for your participation in today's conference. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Wix' First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded. I will now hand the conference over to your speaker host for today, Emily Liu, Head of Investor Relations. Please go ahead.

Thanks, and good morning, everyone. Welcome to Wix's First Quarter 2026 Earnings Call. Joining me today to discuss our results are Nir Zohar, President and Co-Founder; 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, except as required by law.

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 section of our website, investors.wix.com.

With that, I'll turn it over to Nir.

Thank you, Emily. Hello, everyone. Before we begin, I would like to share that Avishai sends his best. He won't be on the call today because he very recently celebrated the birth of his son. We offer him our warmest congratulations, and I am certain he is looking forward to connecting with all of you soon.

The velocity of change within our industry has been remarkable throughout the last few quarters. As this momentum increases, it is increasingly evident which organizations are truly designed for longevity. Over the past several quarters, the pace of change in our space has been extraordinary. And the faster things move, the clearer it becomes to me which companies are built to last.

The winners in the AI era will be ones that have the underlying systems and infrastructure needed to actually run and scale AI effectively as well as the product depth for AI to be integrated seamlessly into solutions that are genuinely useful for users. All of this needs to be underpinned by a deep understanding of the market and user expectations. This is a major competitive advantage for Wix and importantly, one that is very difficult to replicate.

In this new era, our goals remain the same: place value in the hands of our users, increase our market share, cement our position as one of web creations defining players and be the platform users choose when they build online. I want to emphasize that we have been intentionally building toward AI's ability to transform online creation for years. This was demonstrated in as early as 2016 with our launch of Artificial Design Intelligence, or ADI, and most recently in the rollout of Wix Harmony as well as our acquisition of Base 44, now the largest AI-powered app creation platform in North America by market share.

AI has made building online simple and anyone can generate a simple good-looking website in minutes. But that's as far as it goes. The real complexity begins the moment you hit publish.

How does it drive engagement? How do you host it, get found on search engines, run your storefront, secure your customers' data and actually operate a business day-to-day. These are the hard problems, and we've been solving them for 20 years through continuous product innovation and user feedback.

We continue to set the standard for what's possible in the online creation market, and I am proud to share that we recently achieved an important innovation milestone. Wix has built and deployed our first proprietary LLM. This model was built specifically to power the design engine of Wix Harmony, and the early results are compelling. Our internal testing shows our model is meaningfully faster than the alternatives, produces fewer errors and delivers noticeably better outcomes for users building Harmony websites.

We also have complete control in our own product development and improvement cycle. We can iterate daily, guided by feedback from our massive user base in ways that a general purpose model simply cannot. Importantly, building and relying on our own LLM means significantly lower inference costs that sit firmly within our own control as we scale the Harmony platform. We expect this Wix built LLM to be the first in a broader portfolio of proprietary AI models across a number of use cases as they become increasingly central to our product road map.

As AI models become widely available across the industry, I believe differentiation will increasingly come from the experience built on top of these models and around Agentic capabilities. That's exactly where we've invested and where we continue to push. Owning our proprietary model gives us a unique depth and data advantage that can't be replicated while also providing greater cost control and significantly lower inference costs.

Still, we also have the flexibility to continue to leverage the best third-party models for the right use cases. So we are never constrained. This breadth of options combined with the unique assets we've built means our users will always get the best possible outcome. I also want to be clear about something fundamental. For Wix, web creation has always been our mission, not an off-the-cuff offering on the side, two decades of singular focus on these users and on this market.

That depth of expertise layered on top of the meaningful investments we've made into infrastructure and our integrated product environment over many years is not something a new entrant can replicate quickly or easily. This defining strategic advantage, combined with our brand strength, scale and ecosystem creates a powerful competitive moat. And it's why hundreds of millions of people around the world rely on us today for online creation.

Turning now to the new first quarter cohort, which saw 6.4 million users which now includes Base44. This Q1 2026 user cohort generated nearly $52 million in bookings in its first 3 months, a 46% increase compared to the bookings generated by the Q1 2025 cohort over its first 3 months. Putting Base44 aside, our new core Wix users generated healthy bookings with growth nearly as strong as what we saw in the Q1 2025 cohort last year despite a slightly smaller user base. This growth is particularly encouraging as Q1 2025 was by far the strongest post-COVID cohort and the high bar to reach, underscoring the continued demand for our growing suite of web creation offerings and the power of our platform.

New cohort bookings were driven by noticeably improved year-over-year and quarter-over-quarter conversion of new users into paid subscriptions, powered by Harmony, which was rolled out in late January across our main geographic markets. Monetization of these new users was also strong as they purchased higher-priced subscriptions and increased attach of business solutions, signaling the growing mix of high-intent users compared to the prior year quarter cohort.

This quarter, we ramped up our marketing efforts meaningfully as anticipated, driven by incremental spend on Base44. We went all in on capturing Base44's robust top-of-funnel demand, which continued its strong upward momentum and building our brand as a leading AI-powered application creation platform. In addition to strong demand, we also saw positive signs in the user behavior and cohort quality of Base44.

Retention is improving as more users are choosing annual subscriptions, either through new purchases or renewals. Monetization is also steadily increasing, resulting in stable TROI even as marketing spend stepped up in the first quarter. As a result, Base44 achieved $150 million in ARR in mid-May, demonstrating sustained growth momentum on the $100 million of ARR achieved in early March.

Acquisition marketing spend for Base44 and Core Wix, excluding Super Bowl expenses and AI costs attributed to free users totaled approximately $90 million this quarter. Time to return on this $90 million is projected to be 7 to 9 months. This accounts for a similar return time line on spend in the core Wix business as we saw in previous years as well as Base44's longer but stabilizing return horizon.

Existing user cohorts were healthy with bookings growth continuing to be driven by strong retention and solid monetization. This strength was against slower-than-anticipated partners growth as a result of smaller partners cohorts added over the past few quarters as we pulled back partners focused marketing spend. This smaller top of funnel drove user mix to shift towards self-creators and away from partners in recent quarters.

We expect this dynamic to remain a drag on partners' bookings and revenue growth going forward as we continue to narrow our funnel while we realign our marketing strategy and build out significant platform and product enhancements.

Before I turn it over to Lior, I want to address how we are operating amid the current war in the Middle East that began in late February. First and foremost, our teammates and their families are safe, which always remains our top priority. That said, with more than 60% of Wix employees located in Israel, we did experience a headwind to the productivity of our team over the past couple of months.

As a result, certain product time lines for our partners' audience have been pushed out. We're working hard to catch up as fast as we can and minimize the impact of these delays. But above all else, we want to ensure all products perform against our high standards and are truly the best on the market before we put them out to users. Still, we are not backing off of our ambitious product road map and our excitement for the robust AI and more advanced tools still to come in 2026 remains unchanged.

Finally, I want to quickly touch on our execution of the repurchase program that we announced earlier this year. In April, we completed a modified Dutch auction tender offer of approximately 18 million shares for $1.6 billion. By repurchasing nearly 30% of our equity base, we were able to return meaningful value to shareholders. We believe this will prove to be very accretive to our existing shareholder base in the long run as we execute on our strategic plan.

With that, I'll hand it over to Lior.

Thanks, Nir. In the first quarter, we delivered solid top line growth and generated free cash flow against our guidance. As Nir mentioned, we are encouraged by the growth driven from positive early behavior from Wix Harmony and continued out performance of Base44. Excitingly, Base44 achieved $150 million of ARR in mid-May as we strengthened our leadership position in North America.

We believe this demonstrates that our deliberate investments in sales and marketing, particularly in Q1, are paying off, leading to better monetization and conversion against the near-term margin pressure that we expect to improve over the long term. We continue to believe in the massive opportunity in AI-powered online creation particularly for SMBs and our focus is on executing on our product road map to deliver continued solid performance in the coming quarters and years ahead.

Before I get into the detail of the quarter, I want to quickly address how we think about incorporating AI within our products and across our organization and the resulting margin dynamic. I think about this in two main ways, with the most top of mind being the cost of delivering AI-powered products to our Wix and Base44 users.

As Nir discussed, we have been lowering inference cost of users by optimizing third-party AI model usage, leveraging open source models and most recently building our own LLM to power Harmony. As we apply this strategy to more of our products, particularly Base44, we believe that the large majority of these AI costs will be firmly in our control.

Second, we are leveraging AI internally at Wix more broadly, which has already driven tangible benefits in certain areas of our business. In the customer care organization, for example, we have ramped the integration of AI over the past 3-plus years. This has allowed us to optimize headcount, which has decreased by more than 40% since 2022, while maintaining or even improving in some areas, our services to users.

We believe that there is another opportunity to utilize AI across our R&D organization where we are seeing early signs of progress. For example, we are working to shift our Wix R&D structure to align more closely with that of Base 44, which has been a leader in leveraging AI to drive productivity since day one. We are learning from them and working to implement those same operating principles at Wix. As we execute on this strategy with good line of sight, we expect faster output will more than balance out the cost of AI usage across our organization.

On to our first quarter results. Total bookings in Q1 was $585 million, up 15% year-over-year and total revenue was $541 million, up 14% year-over-year. Top line growth was driven by strong new cohort behavior and retention of our existing user base in our core Wix business as well as Base44 outperformance.

During the quarter, we experienced a larger-than-expected slowdown in partners' growth, which still grew 19% year-over-year despite a deliberate pullback in studio marketing efforts over the past few quarters.

Additionally, GPV remains soft as SMBs on the platform continue to experience macro pressure. GPV grew 12% year-over-year to $3.8 billion in the first quarter. Turning to margins. First quarter total non-GAAP gross margin was 66%, declining sequentially and year-over-year.

This reflects stable gross margins in our core Wix business compared to the prior year period. We expect AI costs to remain minimal and Core Wix gross margins to be relatively unchanged through the rest of 2026. Lower total non-GAAP gross margin was driven by elevated investments in Base44 to support its rapid growth. We continue to incur elevated AI compute costs as we scale to meet stronger-than-expected Base44 demand and maximize gross profit dollars. As a reminder, we believe these AI costs to be front-loaded as new users consume more AI inference bandwidth during their initial build phase.

Total non-GAAP operating income came in at 5% of revenue, primarily driven by meaningfully higher sales and marketing expenses in the quarter. We leaned into the massive growth opportunity ahead and made significant advertising and branding investments into Base44 against our TROI target, which currently stands at less than 12 months.

It is worth reiterating that our blended TROI across the company is 7 to 9 months as we balance stable returns on core Wix acquisition spend against the elevated spend and longer TROI of Base44 as demand ramps.

First quarter sales and marketing investments also included approximately $24 million for the purchase and production of our Super Bowl ads for both Base44 and Wix Harmony. We saw a significant uptick in traffic volume to both of our platforms following these commercials, demonstrating the efficacy of these investments in driving brand awareness. This meaningful increase in sales and marketing expenses resulted in a large onetime step-up in working capital benefits. As a result, we achieved free cash flow of $112 million in Q1 or 21% of revenue.

Let's turn now to the outlook for the rest of 2026. We are maintaining our guidance and continue to expect both bookings and revenue to grow at a mid-teens-digit percentage on a year-over-year basis for the full year. Our outlook takes into consideration the slower-than-expected start to the year in our partners business, which we are aiming to supplement with accelerated growth initiatives across our core Wix business, focusing on optimizing our top of funnel further as well as strengthening the performance of our existing user base.

Of course, we also expect Base44 growth to continue on its current trajectory, which is gaining momentum. For the second quarter of 2026, we expect revenue to also grow at a mid-teens percentage on a year-over-year basis, similar to the first quarter.

For the full year 2026, we expect free cash flow margin, excluding acquisition-related expenses to be in the high teens. This includes the impact of foregone interest income on our cash balance that was used to fund our tender program as well as interest expense on our new $500 million credit facility. Assuming pretender completion capital structure, we expect full year free cash flow margin would be in the low to mid-20% range.

Our full year free cash flow outlook also includes a sizable FX headwind on our cost base as a significant portion of our operating expenses are denominated in Israeli shekels, which has strengthened meaningfully compared to the U.S. dollar over the past year and even more so through the first 5 months of 2026. We expect a $64 million headwind on our full year expense base, primarily occurring in the second half of the year. We will continue to monitor our currency fluctuations and utilize our hedging program opportunistically.

Finally, turning to our balance sheet quickly. Following the completion of our $1.6 billion tender offer in early April, we are now in a net debt position. Having shrunk our total number of shares outstanding by nearly 30%, our goal is to return to a net cash position efficiently. In conclusion, our conviction in our near-term strategy and AI-focused product road map remains firmly unchanged. Key initiatives such as Harmony and BASE44 continue to perform well, which gives me the confidence that these are the right areas of investment and that the bets we made were the right ones for Wix.

We are using this year to lean into our growth and to utilize AI in everything we do. We are making every function more productive through faster adoption of AI tools to drive higher output. The products that we build refine and deliver are all powered by a singular belief in our early AI adoption. We believe that we have laid the foundation to capture additional market share across an evolving online creation ecosystem. This will drive strong compounding financial performance for our shareholders over time.

Operator, we are now ready for questions.

[Operator Instructions] Our first question coming from the line of Josh Beck with Raymond James.

I wanted to maybe ask a 2-parter. So one on Base44 and the momentum there. Obviously, it's scaling very nicely. What have maybe been some of the standout use cases? And how do you see it as kind of additive to the core business?

So that's one question. And then on the partner channel and how we should be thinking about the shape of a rebound. Is that going to be very tied to the product cycle? Just what should we be looking at there?

Josh, it's Nir. So for your first question about the Base44, I think we're happy actually to say that we're still using -- we're seeing a very wide variety of use cases. And it's really -- some of it is personal uses, some of it is solopreneurs, some of it is small businesses. And we think that there's going to be more and more specialization that's going to go and happen throughout the platform over time as we understand what is -- where there is differentiation happen between those different use cases and where everyone can benefit from the generalized platform.

That being said, I think -- so it's obviously -- it's a great expansion for our top of the funnel, and it's very close to what we've been doing in Wix for many years. However, I think there's another opportunity that is very interesting, which we're seeing is that some of the more small business-oriented use cases can also be relevant to applications needed by business owners that on Wix. And that's another, I think, great opportunity that still lies ahead.

In terms of the partners business, well, I think that the shape, I'm not sure how to answer what the shape will be, but it's definitely, definitely, definitely tied to the product cycle. The fact of the matter that we had a big, big emphasis on self-creators as well as Base44 in the last few quarters. And we knew that with the massive changes that are happening around us in the environment, of how things are being created with AI, the workflow and the needs of partners and how we can answer those is changing rapidly, and we have to match that also in terms of our product offerings.

So as I mentioned before, those are a little bit delayed and not at the same -- at the cadence that we were hoping for throughout this year because of what's transpired throughout Q1 and beginning of Q2, but we are working diligently to catch up. So our hope is that we can introduce more innovation and more good news for our partners throughout the rest of the year and kind of catch up.

And our next question coming from the line of Deepak Mathivanan with Cantor Fitzgerald.

So first, can you talk about what you're doing to building your own LLM? Is that based on fine-tuning open source models? And anything you can share on how the inference compute cost compares with the Frontier models? You also -- when do you see the potential to deploy this in Base44, which is having significant inference costs?

And then perhaps can I follow up on the partner business, particularly the studio users. Are you seeing some of the developers increasingly use other AI platforms as a part of their workflows? Anything you can see on how their behavior is changing?

Deepak, so in relation to our own model that is now supporting Harmony, and I have to say, by the way, you mentioned rightfully so that it helps control the inference costs and bring them significantly down. I'm not going to I'm not going to share exact numbers, but I can say that compared to using Frontier models, it really is marginal cost.

By the way, that's not the only benefit. Another benefit that comes out of it is the fact that we get better quality and we can control it. So we can adapt it, add more to it and train in further down the line of improving the output of the model. So this is obviously something we're very happy about on the Wix side and the Harmony side.

Your question towards where can we expect to have the same thing on Base44. The answer is that I don't have an exact time line. Obviously, it's a bigger or more complex undertaking than the Harmony one just because it is much more generalized the -- the Harmony use case. That being said, it is something we believe and our top engineers are the ones who are dealing with it. So we put really like the best commando team on it. And Avishai is actually very closely managing himself because it's his area of expertise as well as his passion. And we do believe that this is a problem that we can solve. But it's really hard for us to quantify or to quantify the time line at this point.

For the partners, so I think it's a variety of things. And I also think in terms of what they're using, they are using some AI platforms. By the way, some of them are using Harmony and are very happy with it on one end. And also they're pointing out to us specific holes, if you may, or missing capabilities that are obviously there because we build Harmony for self-creators and not in the view of partners, but it gives us great visibility into what kind of innovation, what do we need to do next on the partner side in order to make them more successful and happier.

We are also seeing -- starting to see some overlap, very interesting overlap, I would say, for some of the partners with Base44, and we think that can be another great opportunity further down the road.

Our next question coming from the line of Brent Thill with Jefferies.

This is John Byun for Brent Thill. Actually, on the last comment you just made, I mean, some of our surveys show that a lot of partners are increasingly adopting Base44. I just wanted to see how widespread you think that is.

And then in terms of -- another question related to Base44, in terms of the current broad pool of users and customers, what are you seeing in terms of them using both Base44 and Wix? Are you starting to see any dual usage or synergies there?

Yes. So I think -- obviously, I'm not going to share percentages, but I can say that we are seeing like there is a decent amount of partners' usage on Base44. So it's not marginal. It's something that we do believe can become a deeper trend. And obviously, this is something we would love to support. I think it makes a lot of sense. First of all, because if partners see that as a better avenue and a better path to build the core website of the business, then why not?

And secondly, and I think even more importantly, if Base44 becomes the main hub for them to supplement and increase the value they can deliver to the business with creating its own -- the own custom needed applications to improve the business, then obviously, that's a great addition. So from that standpoint, this is something that we're definitely looking deeper into and we would love to cultivate.

And obviously, over time, we can create more and more synergies also between the two platforms that will just make both the life of the partner more effective and their business more effective, but also would make the -- running the business more effective. And this is definitely something that's interesting for us.

Our next question coming from the line of Trevor Young with Barclays.

Great. First question, can you size the spend it took to get your LLM up and running? And then going forward, how should we think about the cost to continue to improve models because it sounds like that's becoming a bit more core to the strategy going forward?

And then second question, Lior, maybe a bit more of a housekeeping one on the balance sheet. $1.6 billion in cash went out here in 2Q, $600 million came in from the credit facility, which sounds like that was fully tapped. Just to confirm kind of pro forma here in 2Q, are we around $900 million of cash and equivalents on hand plus any free cash flow in the quarter?

Trevor, I'll take the first part of the thing and can then shift gears to Lior for the second part.

So in terms of the spend on the Harmony LLM and again, we're not breaking out the exact number, but it's quite small, okay?

These are not like massive research costs and GPU investments that you can consider when you think about big frontier models. This is something that we managed to do at a very reasonable cost, which also means that for us to continue training it and improving it, should not be something that puts any real weight on our expenses.

So with regard to the cash lever, yes, it's about $900 million in cash and cash equivalents for the second quarter. Obviously, it doesn't take into consideration the cash that we are going to generate in the near term.

Our next question coming from the line of Brad Erickson with RBC Capital.

First, just obviously, investors are worried here about the competitive risk from all the vibe coding platforms. So I guess, when we think about the kind of -- and notice the lack of visible customer growth even when you put together the core and Base44, what would you guys point investors to in the results or just other observations in the business of why that's not the case, why that competitive risk is not the case?

And then second, just a housekeeping. With the new cap structure, maybe could you give us any quick numbers on what's baked into the guide on interest income and expenses?

Brad, I'll take the first part and then switch over to Lior. So I think that's from the kind of competitive vibe coding risk, generally, I think there are lots of noise out there about what everyone is doing. I think if you look at specific or direct competitors to Base44 such as Lovable and such.

And obviously -- definitely, that's a solution that's crafted to similar, not exact, but similar targets. And I think that from that standpoint, we're seeing a healthy -- what I would say, a healthy competition. There's so much going out there -- going out there right now that obviously, competition is something you have to be very alert to and can actually make it better all of the time.

If I look at the more kind of the bigger platforms, I think so far, what we've seen from them is not really putting any pressure on either on Wix or Base44. It doesn't mean that, that's not going to change, and they might innovate towards that end at some point. I think that our role here is to be able to keep on pushing for the best product out there in terms of the solutions and what it gives our users and customers.

As well as I think doing what we're doing right now, which is working hard and diligently to capture market share and to become leaders. I think Base44 managed in a very short time span to really take the lead at least in the kind of the key and the most lucrative markets in North America. And the goal is to keep on working on maintaining a leadership position there and globally.

So I think for investors, if they are worried, then I think definitely competition is something we're looking out for. But I think at this point, it is actually making us better both on the Base44 side as well as the Harmony side.

Yes. So with regard to the question about the interest income and interest expenses in the outlook, I think that it's a good question, and it's exactly the differences between what we provide before, which we maintain in terms of the overall free cash flow, low to mid-20s. And it's about $100 million, meaning that if you take the differences between what we provided before or last quarter, which we maintain, meaning that we are not going to have any change in our free cash flow guidance between the first quarter, between what we provided last time to what we provide right now.

The only difference coming from the -- what I call like the non-operational free cash flow expenses, which is mostly the interest that we paid for the loan and the interest that we lost for the fact that we paid for the buyback. All in all, it's approximately $100 million.

Our next question coming from the line of Stefanos Crist with Needham & Company.

Just wanted to ask on the sales and marketing step-up. Can you quantify how much of that was like the onetime for the Super Bowl? And then how should we think of run rate for the rest of the year?

So yes, I mean, some of it is -- which regard was about the Super Bowl. I can tell you that the overall Super Bowl was the entire cost of the Super Bowl, remember, we had two, both for Wix and for Base44, and it was more than $20 million.

Now this is a onetime, which is not going to repeat at least this year. So yes, I mean, you should see a drop in the overall sales and marketing at more or less at the same amount. But most of the increase that we had in the first quarter actually coming from the investment in Base. We saw a very big demand to the product.

I mean you actually saw that in literally in just more than two months, we got to $150 million of ARR. We are building the foundation for -- I think that's an amazing business. So we definitely -- we spoke about it last time, we would like to invest based on the same TROI that we had. So we will continue to invest as long we maintain the same TROI. But yes, I mean, you should see a drop in the sales and marketing expenses starting in the second quarter.

Got it. And if I could follow up on the acquisition earn outs, if you could just give any color on expectations for the rest of the year.

Expectation about what, again...

The acquisition earn-outs from Base44, I think there was $37 million in the first quarter expectation...

So look, every quarter, we are going to have increase the provision for the M&A, and it's strictly dependent on those milestones that we set as part of the M&A agreement. So my belief that as we see that it's gain is continue to grow every quarter, we are going to see another provision up to a certain cap that we have as part of our M&A agreement.

Our next question coming from the line of Naved Khan with B. Riley Securities.

I just wanted to clarify something on Base44. It seems like you're seeing usage pick up with partners. Previously, I think Avishai's commentary had been that the usage was more tilted towards individuals and not professionals and SMBs. So should we expect that mix to kind of shift as you press on the gas with marketing and as the product changes and evolves.

So that's my first question. And the second question is just on the base44 gross margin. How much -- or what -- just maybe qualitative or talk about -- like how much gross margin improvement we can expect to see as we move through the year and as the business continues to scale?

Naved, for the first question about partners in Base44, I have to say these are early days of it. So it's hard for me to say what is the expectation of that Base44 is going to be driving into the partners' growth. Again, over time, my hope is that it can definitely serve them. But I don't think I have enough track record at this point in order to project it and give any kind of accurate prediction to it. We definitely think that this can potentially become something more meaningful over time.

So I'm going to take the question about the gross margin improvement. We are going to see on a quarter-over-quarter basis improvement in the gross margin of Base. Now remember, that for the entire company, there are two things that we need to take into consideration. The gross margin for Wix is stable. We talk about Harmony and we talk about the model, which actually enable us to be in a gross margin where the gross margin is stable throughout the year.

Now with regard to Base, also the mix is changing, meaning that base become more and more significant as part of the overall revenue. So this is why the consolidated gross margin is going to have an impact because of that. But when we look at the gross margin for Base on a stand-alone basis, we see significant change in the gross margin. We managed to reduce the cost significantly. Again, we spoke about some of the reasons also in the last quarter.

Everything that we said actually happened. We managed to optimize more and more the model. Still, there is a lot of optimization that we can do over there. But I can tell you that just in the last three months, the changes were significant. Also remember that usually when people build their application, most of the AI costs happen when they start to build the application. later on, the cost is not that significant.

Definitely, we are going to see a big change in the gross margin between the first quarter to the fourth quarter. I'm not going to provide numbers. I think that it's very soon, but we're already positive in terms of the overall gross margin for base. And I expect to have a significant change throughout the year, definitely on a quarter-over-quarter basis.

And our next question coming from the line of Jamesmichael Sherman-Lewis with Citi.

This 46% new cohort bookings growth is encouraging. Could you help unpack the contribution from base44 users or Harmony improving conversions versus core Wix users? At minimum last quarter, I think we talked about Base44 new sign-ups at nearly 2/3 of new Wix customers.

And then my follow-up, through April and May, how are these newer cohorts performing? And is your top of funnel expanding again?

James, well, actually, I'm not going to separate Base and Wix for the cohort. I can say that generally, we've seen health on both sides. And naturally, Base is becoming a much bigger contributor than before. From our standpoint, this is very encouraging because this is exactly why we wanted -- we made the acquisition as well as the ongoing investment, which I think kind of materialized and proved itself to be more and more sound and healthy throughout 2025 and going into this year. So I'm not going to break out the numbers, but I can say that definitely -- we've seen good performance and good health.

In terms of April and May, generally, I think we're seeing ongoing good trends in terms of the core growth and performance. So I don't think there's anything specific to call for, in terms of what we've seen so far.

And then the second part of the question is about Harmony and its improved conversion and monetization. What's exactly the question about it? Sorry, I missed that part.

Sorry, the second half of the question was around top of funnel expansion. Are you seeing any improvement there relative to 1Q?

Sure. So that I touch when I talk about April and May, but I would say definitely, I think the good signs that are coming from -- on the Wix side is coming from -- obviously, from the Harmony that's been very well received. And naturally, with it being a new product and a new editor, it impacts, first and foremost, the new users and the new cohorts.

So we are encouraged about it. I think it's also worth pointing out that Harmony is still a very young product, meaning that there's a lot of additional improvement that we plan to put into it in order to solidify it and make it even better.

Now last question will come from the line of Andrew Boone with Citizens Bank.

I wanted to go back to Base44. You guys now have cohorts that are nearing a year in terms of base 44. Can you maybe compare some of the older, more mature cohorts, their retention trends versus core Wix? How should we think about that?

And then on pricing, as we think about just the core Wix product and the pricing that you guys have enacted over the past years, does AI change anything in terms of your pricing strategy?

Andrew, so I think, first of all, you have to remember, I'm not going to share details -- deep details on this. We see this as highly competitive. But I can say that for the Base44 cohorts for the -- for annual subscriptions, obviously, we still need more time for them to get to the full year mark and renew and learn more about them. I think that the -- for the monthly subscriptions on Base44, we've been measuring them for a while now. We've been measuring them also against what we're seeing and used to see on Wix, so we can understand the comparison. And we can say that there's an ongoing improvement that is really kind of incremental improvement from one month to the next, which is part of the things we find encouraging of Base44 becoming a better and better business all of the time.

In terms of pricing strategy, -- so I don't think at this point that it makes a significant change for our pricing strategy. Obviously, the model on Base44 is different than Wix. So I'm assuming you're referring mostly to Wix. And I think on Wix at this stage, we think the current structure is the right one. Obviously, if at some point, we introduce something which is very intense on token consumption, then we'll have to charge for that as well. But at least for now, that's not the case.

And that's all the time we have for our Q&A session. Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the Wix Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Emily Liu, Investor Relations. Please go ahead.

Thanks, and good morning, everyone. Welcome to Wix's Fourth Quarter and Full Year 2025 Earnings Call. Joining me today to discuss our results are Avishai Abrahami, CEO and Co-Founder; Nir Zohar, President and Co-Founder; 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 section of our website, investors.wix.com. With that, I'll turn the call over to Avishai.

Thanks, Emily. 2026 is shaping up to be a defining year and the start of a new chapter shaped not just by the continued shift towards AI, but by AI beginning to prove its real-world value and utility more broadly. At Wix, we expect to begin to see the ball backs we've made over the past few years translate into measurable impact. When we founded Wix, 20 years ago, our vision was straightforward, make Wix the go-to platform for anyone, anywhere to create online. Over the years, we've delivered on that ambition. What started as a simple do-it-yourself website builder has grown into the leading online presence creation platform serving not just self creators, but also businesses of all sizes as well as professional designers and developers. .

In recent years, the web has undoubtedly become much more AI first. And that shift is redefining how and what people build online. AI has dramatically expanded the world of what's possible and created new dimensions that hadn't existed before. As a result, Wix's market opportunity today is exponentially larger than that of 2006 or even 2025, primarily driven by our expansion into the application space, facilitated by our acquisition of Base44. This total addressable market expansion has advanced us leaps and bounds towards achieving that long-term vision of being the go-to place for anyone to build whatever they can imagine online.

With the addition of Base44 to our platform, users can now build tailored software applications, smart mobile applications, pro-level visual content and of course, websites, but so much more powerful and sophisticated than ever before. These are all things you can create on Wix today, which is incredible, but the possibilities ahead are much, much bigger. Importantly, as our business in time has evolved over the past 20 years and will continue to evolve over the next 20, we remain focused on simplifying very complex technologies and making them accessible to anyone and everyone. Today, there are 2 new cornerstone offerings to advance our vision. The first is Wix Harmony. Wix Harmony is the first of its kind website creation platform that blends intuitive visual editing with the flexibility and power of wide coating.

Wix Harmony provides a unified AI layer that spans across the full weeks experience, allowing for a real AI partner to be with you every step of the way as you create, manage and grow an online presence or business. After launching in English in January, we are now expanding Wix Harmony globally in other languages, and I'm very pleased with the early performance we're seeing, particularly across conversion and monetization metrics. We believe Wix Harmony has the potential to fundamentally reshape how individuals and small businesses build and scale online, not just on Wix, but across the Internet as it becomes increasingly AI driven. Over time, we plan to gradually make Harmony the default experience for new and existing users and evolution we anticipate will drive meaningful long-term impact across conversion, engagement, retention and monetization.

The second new pillar of our strategy is Base44, our leading Vive coding platform that expands our reach into the vast world of software creation and significantly grows our TAM. We are equally ambitious in this new world as we are in the world of website creation through innovation and strong marketing execution, Base44's user base is scaling rapidly. Today, the number of new users joining Base44 is nearly 2/3 of the number of new users joining Wix. This is an indicator of the platform's accelerating momentum and highlights the opportunity ahead to empower a massive and compounding cohort of users to build whatever they want online. Just 1 year after Moor founded the company and 9 months after our acquisition, Base44 recently reached approximately $100 million of ARR, placing it among the fastest-growing software platforms in history.

While Base44 is already emerging as a top platform to build lightweight personal projects, we're seeing adoption from a growing community of businesses and enterprise-sized organizations, too. Companies in the tech, banking and healthcare industries as well as government organizations and nonprofits are using Base44 to build customized software solutions. We are seeing users develop their own CRM capabilities, product and project management tools, ERP systems, workflow automation frameworks and financial reporting applications. Importantly, this momentum and growth is completely organic with no sales team at Base44 today, self-propelled adoption by enterprise size organizations demonstrates the strength of the platform as well as our successful marketing execution.

As much as we are pleased by the success so far, I believe the real potential still lies ahead as Vibe coding permeates beyond early tech-forward adopters to the broad online population. I haven't been this excited to kick off a new year in a long time. In just the first 2 months, we've made bold moves across both our product road map and capital strategy, which Nir will speak about shortly, we are confident in our strategy, our ability to execute and the opportunity in front of us. as the Internet shifts further towards AI, which is reshaping how people create in this AI era and significantly expanding what's possible to build online. With that, I'll turn it over to Nir.

Thanks, Avishai. I'd like to start with Q4 user cohort trends and what we're seeing there today before discussing our capital strategy and the announcements made today. As we closed out 2025, our new user cohorts exited the year with strong momentum. In the core Wix business, new cohort bookings maintained double-digit growth in the fourth quarter, fueled by a healthy top of funnel, higher conversion from free to paid subscriptions in key markets and increased monetization per user. When we include Base44, new cohort bookings growth accelerated very meaningfully quarter-over-quarter, driven by particularly robust demand for Vibe coating capabilities. .

The strength we saw in our new cohorts also extended to existing core Wix users. Our users are more active, engaged and impactful than ever, demonstrated by resilient revenue retention in 2025. With net revenue retention of 105% in 2025, we nearly matched the strong retention we saw in 2024 despite the persistent GPV headwinds throughout 2025. This demonstrates that the inherent stickiness and creation power of our user base continues to improve. The strength of this user base, supported by high retention and growing user value is also reflected in the projected 10-year value of existing cohorts, which grew 14% year-over-year. For the first time ever, we now project over $20 billion in future bookings over the next decade from current Wix users.

This opportunity exists within just our core Wix business and doesn't yet include Base44 where the potential is both new and much larger. Throughout the year, we continue to increase user value as both new and existing users demonstrated better monetization. This was a result of a steady shift towards higher-tier subscriptions, greater adoption of business solutions and GPV growth. Paid subscription volume in our key markets, particularly in the U.S. where we generate a majority of our revenue increased year-over-year in 2025. Additionally, business subscriptions made up a significantly larger share of our total subscription mix in 2025 compared to 2024.

Looking into 2026, these positive cohort dynamics are gaining more momentum. In these early months of the year, new cohort bookings growth in the core Wix business has accelerated compared to last year's already very strong cohort growth. This is a direct result of Wix Harmony. which is helping both new and existing cohorts convert more effectively, build more and capture greater value. Finally, before I turn it over to Lior to walk through our financials and 2026 expectations, I would like to make a few comments on our repurchase plans for this year and the equity investment we announced this morning. As you heard from Avishai, we have a bold and ambitious strategy centered around reshaping the possibilities of online creation over the next few years.

We believe the products we're building today will drive accelerating growth in the core Wix business over time as we extend our leadership as the go-to AI-powered online presence creation platform globally, notably with Wix Harmony. In tandem, we are seeing explosive growth at Base44, which we expect will become a profitable and meaningful long-term growth engine. Accordingly, we believe that our current stock performance greatly undervalues these opportunities as well as the fundamental strength of our business. So taking full advantage of this and demonstrating our immense conviction in our strategic plan, we expect to complete the large majority of our $2 billion repurchase program this year.

We plan to do this as quickly and aggressively as we can. Sharing in our conviction, Durable Capital Partners has led a $250 million equity investment in the form of a private placement of our ordinary shares and warrants. In addition to being highly respected equity investors, Henry, Anuk and the team have been longtime supporters of Wix and developed a deep understanding of our business. Their investment is a powerful endorsement of our long-term vision and ability to execute as we build the next era of the Internet. We are thrilled to partner with them as we pursue our strategy, accelerate growth and create lasting value for our users and shareholders. With that, I'll hand it over to Lior.

Thanks, Nir. We exited 2025 with strong cohort momentum, a clear strategic plan and poised for continued growth in 2026. We're delivering on our ambitious product road map. At the same time, our cohorts are strengthening, as Nir discussed, driven by positive early behavior from Wix Harmony and continued outperformance of Base44 as we expand our reach across the entire online creation journey. We expect 2026 to be a pivotal year as we make category-defining innovations and expand our leadership across the broader online ecosystem as AI tech increasingly makes the impossible now possible setting the foundation for long-term growth acceleration. Before I get into our expectations for 2026, I want to quickly recap our Q4 and full year 2025 results.

Bookings and revenue growth were healthy in the fourth quarter, building on the incredibly strong growth we saw in the same quarter last year. Total bookings in Q4 was $535 million up 15% year-over-year, while total revenue was $524 million, up 14% year-over-year. Top line growth was driven by strong new cohort behavior and solid retention of our existing user base in our core Wix business as well as Base44 outperformance. Base44 finished the year with approximately $59 million of ARR above our expectations at the time of acquisition. Excitingly, Base44 recently reached approximately $100 million in ARR, a major milestone that underscores our rapid growth and growing market leadership.

Strong ARR growth was driven by product innovation that has resonated a rapidly expanding user base, improving conversion and consistent upgrade and renewal trends. Overall strength in Q4 was tempered by continued GPV headwinds as SMBs on the platform saw macro pressure, resulting in seasonally softer than anticipated GPV on the platform. encouragingly higher selling and larger businesses increasingly come to Wix to build and operate their storefronts. GPV grew 11% year-over-year to $3.7 billion in the fourth quarter and 11% year-over-year to $14.3 billion for the full year. GPV growth, coupled with a steady increase in take rate throughout the year drove year-over-year transaction revenue growth of 18% in Q4 and 19% in the full year.

Partners revenue grew 21% year-over-year to $203 million in Q4 driven by solid studio performance as well as strong adoption of Google Workspace and Marketing Solutions. This was partially offset by the GPV headwinds I just mentioned. Turning to margins. fourth quarter total non-GAAP gross margin ticked down slightly sequentially and year-over-year to 68% as expected, and total non-GAAP operating income came in at 15% of revenue. Lower total non-GAAP gross margin was driven by investments in Base44 to support its rapid growth. We continue to incur elevated AI compute costs as we scale to meet stronger-than-expected Base44 demand and maximize gross profit dollars.

We believe these AI costs to be front-loaded as new users consume more AI inference bandwidth during their initial build phase. We anticipate non-GAAP gross margin for Base44 to improve sequentially throughout 2026 as we proactively optimize AI model usage and cost primarily through enhancing prompt cashing, batching request focused model routing and more favorable pricing from LLM providers, approximately 1/3 of Base44's AI inference cost today is attributed to token consumption of free users and included under S&M expenses in the fourth quarter to align with industry standards. We believe AI costs incurred by free users as a percentage of total AI cost will decline over time as conversion improves. Even after incorporating AI related costs associated with free users into cost of revenue, Base44 non-GAAP gross margin is already positive today, reflecting healthy underlying unit economics that we believe will continue to improve.

We expect Base44 gross margin to increase as the year progresses. Higher operating expenses in the quarter were driven by accelerated advertising and branding investments into Base44 against our TROI target, which currently stands at less than 12 months. These increased investments were anticipated as we captured elevated top of funnel traffic exiting the year. Non-GAAP gross margin and operating profit margin in our core Wix business improved sequentially and year-over-year, driven by healthy top line growth paired with a stable and disciplined operating cost base. We exited the year with free cash flow of $156 million in Q4 or 30% of revenue. Fourth quarter free cash flow in the core Wix business was stable compared to the previous quarter.

Moving on to 2025 full year results. Total bookings in 2025 grew to $2.07 billion, up 13% year-over-year. Total revenue in 2025 was $1.993 billion, an increase of 13% year-over-year. Total consolidated ARR was $1.836 billion at the end of the year, up 14% year-over-year. Total non-GAAP gross margin was stable for the full year while non-GAAP operating margin declined modestly as investments in Base44 offset non-GAAP growth and operating margin expansion in the core Wix business. We generated free cash flow, excluding acquisition-related expenses of $605 million or a milestone, 30% of revenue in 2025.

Turning now to what we expect in 2026. With new cohort momentum driven by Wix Harmony and the continued outperformance of Base44, we anticipate bookings and revenue growth to accelerate this year. Before I get into the numbers, I want to comment quickly on our updated guidance philosophy. As innovation evolves our opportunity set and expands Wix's TAM into new areas, we are refining our guidance approach to reflect a broader range of potential outcomes. So for the full year 2026, we expect bookings and revenue for the consolidated business to grow at mid-teens percentage year-over-year. For the first quarter of 2026, we expect revenue for the consolidated business to grow at a mid-teens percentage on a year-over-year basis. We expect innovation-driven growth to be accompanied by high impact but disciplined investments to fully unlock the market opportunity ahead for both Wix and Base44.

For the full year 2026, we expect free cash flow margin in the low to mid-20% range, assuming current capital structure and excluding acquisition expenses. This wider-than-normal guidance range reflects the dynamic hyper-growth trajectory of Base44 and the inherent variability that accompanies this level of rapid growth. We are playing to win and are willing to make the necessary investments in order to scale Base44 into the market leader. So if Base44 top line growth outperforms more meaningfully we may experience further pressure on near-term free cash flow margins. In our core Wix business, we expect solid bookings and revenue performance with flat to expanding free cash flow margin for full year 2026.

In addition to accounting for our current capital structure and the exclusion of acquisition costs, this expectation also takes into account, one, a material currency headwind on our total payroll expense base net of our hedging activity as the U.S. dollar continues to significantly weaken against the Israeli shekel. Two, negligible AI inference costs associated with Wix Harmony as a result of proactive infrastructure optimization completed last year, 2026 is shaping up to be a foundational year as we drive forward innovations that we believe will cement Wix's leadership and expand our role across an evolving online creation ecosystem. Operator, we are now ready for questions.

[Operator Instructions] Our first question comes from the line of Brad Erickson with RBC Capital Markets.

I have a couple. First, I guess, if we look at the organic growth you're embedding into the full year bookings guide, can you lay out maybe and maybe rank some of the contributors there between thinking about things like payment volumes or subscriber mix shift or pricing, so start there.

This is Lior. So we don't assume a significant change. We don't assume any increase in pricing or changing pricing. I believe that the entire guidance that we provided for 2026 actually reflects the growth that we see within the Wix core business and Base44. But besides of that, I cannot indicate about something that is kind of extraordinary, the same goal for GPV payments and so on.

Understood. That's helpful. And then just stepping back, what types of businesses or applications are you seeing users set up with Base44? And kind of how much crossover is there with what you see on Wix's core platform? Like are they would you say they're kind of a decidedly different customer profile? Or do you see some of those folks making a choice between the two? .

We see using kind of application people building trains for themselves, for their family and then press growth applications, all the way for application imported business for the for the enterprise application we've seen. Yes, in replacement in companies automation, a lot of different things, really, it's a huge variety. I think that's one of the things that makes us so excited about Base. It looks like people are so creative in the time for that because of that is essentially insulate. We don't see any kind of competition and you can see that they are very mostly different usage also as we see now. Clearly, Harmony is accelerating and Base44 is accelerating we don't think from each other.

Our next question comes from the line of Josh Beck with Raymond James.

At kind of higher level question with Base44. It seems like it's sewing up market -- and then obviously, Harmony is kind of more geared towards the self-clear. So do you see those trends persisting in terms of the segmentation and how far upmarket do you expect Base44 to go? And then a financial question related to I believe you said about 1/3 of the inference costs are coming from the free users. I think that's kind of a snapshot for today, is that happening maybe quicker than you had anticipated, meaning the conversion of free to pay is happening at a pace maybe above your expectations? Would love some comments there.

It's Nir. I'll take the first one. In terms of the self creators question and the more upmarket. So I think definitely on the Harmony side, Harmony is a product we built for the self-creaters. So I think the association you're making between -- the association you're making between self-care and Harmony is the right one. For Base44, Avisshai just said before, the range of opportunity in terms of the kind of usage is still extremely wide. And it makes sense. It's really a very vast TAM in the making, and it's expanding all the time. So we are seeing all kinds of usages. By the way, I would -- I think we're definitely also seeing a lot of personal use as well in Base44, and there, I think it's too early to say whether it's more of one or the other. And to be honest, I think we're going to work very hard to help it segment it over time. to try and win on both ends for Base44.

I will take the second question. Yes, about 1/3 as of now related to free users. Look, I believe that when we started, it was higher than that. I think that we are keep on increasing conversion, and it's a really, really good sign. And we also become more and much more efficient in terms of how we use the model between the different type of users. So I do believe that the portion related to that will decrease in the future as the overall cost will decrease. .

Our next question comes from the line of Ken Wong with Oppenheimer & Company.

Great to see the amazing Base44 outcome. Can you give us a sense for kind of what accelerated that growth sequentially -- and I realize kind of you're still working through some of the details, but I would love to get a sense for what the base ARR bookings looks like in fiscal '26 that is reflected in the free cash flow margin guide of low to mid-20s?

So yes, I mean, we do see acceleration and in a way, also better than what we expected. I think that the fact that we've already gotten to a $100 million of ARR actually reflect that. And with regard to the assumptions about the booking, we do not break it down between weeks and base. We believe that it's already -- it's actually -- it's already an organic product internally and we are not relating it separately. A big part of Base44 growth is actually based on the synergy with Wix and it's super important to understand it. Therefore, we are not going to provide separately between Base and Wix. But we did mention the ARR, which I think that can -- and also the growth of the ARR that should give you a very good indication of what we assume with regard to that, we are very optimistic about it. .

Fantastic. And then if I could have just a quick follow-up. I think the early guide was that you would see second half acceleration of the core, specifically partners. It does seem like it may be downtick a little bit. Would just love to get any color from you in terms of what you saw in Q4 on the core legacy Base business. I mean, Wix business, sorry.

Yes, sure. Well, we actually saw acceleration in our Q4 compare. I mean we said that from the very beginning of the year, that we will see acceleration of core Wix in the second half of the year. And this is exactly what's happened. The only thing that kind of were not expected is some kind of modest softness in GPV that partially was also compensated by the fact that we see a better growth in terms of subscriptions. So I think that if you look at the second half of the year for Wix, we actually did see some acceleration also in the fourth quarter, mostly coming from creative subscriptions. .

Our next question comes from the line of Andrew Boone with Citizens..

Or net airport. So there's a little bit of a conversation going on. Can I ask in terms of Base44 and LTV. If I think about the payback period of 1 year, how do we think about that now that you're just having customers that are hitting that 1-year mark how are you guys estimating the LTV or the payback period using that framework as you guys define CAC for Base44. And then I'd love to ask just it looks like about $30 million of acquisition cost in 2025. you guys ring fence what that would look like for 2026 and how we should think about that within the free cash flow guide?

Sure. So you're right. I mean Base is a very young company, a very young product. And by the way, this is why we are very also conservative about the guidance. But right now, based on the information that we have, based on the history that we already have, we are looking at less than 1 year of and this is how we manage the acquisition cost. I think that it's very important to mention right now that we're investing for growth. We are not necessarily trying to optimize our gross margin. We are optimizing dollar profit. And right now, definitely, we intend to invest in growth and by the way, you can see that also reflected in part of our free cash flow guidance. .

So with regard to the -- so this is with regard to the TRI. By the way, it's the same Wix methodology that we use for many, many years, and we are very good at it. With regard to the $30 million of acquisition cost in 2025, definitely, it's going to be higher in 2026 because we see the demand in the market. And as I mentioned before, we plan to pursue that. We plan to go and make sure that we will continue to get a lot of market share and expand this business. We see a great potential about this business.

Our next question comes from the line of Deepak Mathivanan with Cantor Fitzgerald.

So 1 on Harmony and then 1 on OpenAI partnership. First, you noted that the early range on Harmony, you're seeing improving conversion, what type of users are you seeing initially? Are you seeing perhaps more sophisticated tech users adding advanced capabilities to their websites with some of the more traditional SMBs, it's Harmony helping the capabilities of the websites become more sophisticated at all in the early days. Can you talk a little bit about that? And then on the partnership with OpenAI for Apps STK in addition to just integrating for new website creation when Wix is invoked as an app. What are some of the other benefits in terms of how ChatGPT is navigating the websites created by Wix that you're potentially seeing any color you can add on how deeper this partnership can evolve over time? .

Of course. So for the first part, we're pretty much seeing everybody using Harmony that was using Wix before. So it's everything from personal website to the salon website to large company in enterprises, so pretty much everybody. At this stage, Harmony does not support a data base. And that will be added soon. So a bit less special website, but nothing major.

And for your other question, can you repeat it, please? It was breaking for me in the end.

Yes. I was curious, in addition to partnership on apps with open AI do you see potential opportunities in terms of how Wix websites are perhaps navigated and search by open AI in the future, particularly ChatGPT.

Well, yes, of course. I think that it's a very big subject. I think that what we are seeing, and if I remember, a year ago, I spoke about the fact that it's very unlikely that the LLN companies will start building back for the various services. And so the local ones not going to be the whole e-commerce start. They're not going to build data basis for business, taking bring the layer of intelligence on top of that. And this is just 1 example where we allow Wix users to build the intelligence that provides their web right. It's even more interesting because it's immune intelligence in Wix talking to the test. I think that this creates manos opportunities for the future. There's so much more we can do there, because it's not APIs in the standard way. It's true, essentially, it's 2 intelligences that are discussing and working together to website. .

And that is a fantastic pattern that can be grown a lot. As for how open or any other airline can we exit, we support pretty much everything we support, of course, making the taxes. If our customers choose so we can make the tax visible and easy to crawl and built in a way that is very easy for the MRMs to process. We also have a way to reach, so we can give the line more than just a contract that will normally over the website because LLM like with a lot of content when humans centers want to read less. So this is one-off that will be, of course, support on every Wix website and pretty much how we stand. I think that this is not a small in a long road map of how we collaborate and create the new Internet and agent indirect, but for humans. So still need the visual still this is if you need to buy products. However, you want to create the ability for agents to work together for humans to have a better experience.

Our next question comes from the line of Trevor Young with Barclays..

First question just on premium subs. The clients persisting there even when layering in Base44. I appreciate the commentary that growth in key markets like the U.S. was positive. That metric is still negative for the second year in a row. Why is that? And how much more churn is there among these lower-value subs?

It's Nir. So I think this is -- as a reminder, this is very much aligned with our strategy around bringing value to the cohorts and priority, I think cohort value over the sub -- and this is something we've been pursuing for a few years now and have been talking about. And again, throughout the year, we've seen more opportunities around geographies and areas where we can go after higher value subscription which is why we prefer to go after those. So you can -- obviously, you see the lower net subs, but you're seeing the higher value that comes into the cohorts over time.

And just a follow-up question. How should we think about the composition of growth between self creator and partner in '26. Is partner now kind of like a low 20s grower? Or could that slow further? And then on self-creator, clearly, that will pick up from the contribution from Base44. But should we assume that the core self-creater business remains stable, given that Harmony is coming in at the same price puts as the older editor product?

Yes, I think that for self creator, I think that you should assume that it is stable. We actually -- when you think about it, we do see some acceleration in terms of the new cohorts. I think that we already indicated that for the performance of Harmony. So it's mostly has an impact, a very positive impact on self creators, especially for the new cohorts. Remember that most of the cohorts already performing meaning that most of the effects of Harmony is a new cohort. So we are going to see that over time. With regard to partners, we have a lot of innovation that we are going to do in the future, in the near future, but also Trevor remember that Base44 has a ton of interesting thing for our partners that they can actually use for their customers, and it's more revenue stream for them.

So we believe that although right now, most of it salties, we believe that it's a great opportunity also for partners to use Base44 in the future.

Our next question comes from the line of Mark Zgutowicz with Benchmark.

Question on Harmony, and then I had a follow-up on your LM partnerships. But on Harmony, just curious what the early cohort KPIs that you're seeing there in terms of conversion, ARPU, attach rate, churn, relative to the traditional cohorts? And how durable do you see these KPIs across your geo mix?

So I'll start with Harmony, as we mentioned, we see a very good performance of the new cohorts. We actually see a better conversion, faster monetization and also higher ARPU. So we believe -- we hope that this trend will continue. Again, I think that it's too early. But we feel very positive about the first reaction and performance of this product, which, in a way, we expected that, but it's always nice to see that. .

Got it. And then in terms of the partnerships you have open AI with Harmony and topic via Base44. Curious how the economics work here and specifically the revenue split with these partners? And then within Wix and ChatGPT, that framework there, what percent of new Harmony sign-ups do you expect to come here over time? And how do you manage a theoretically lower platform or take rate if these AI interfaces become your major distribution partners.

It's Nir. So first of all, obviously, we can go into economics. We have with different deals and agreements we have with the LLM partnerships. I think it is -- I think it is worthwhile mentioning that we actually have quite a few different kind of corporations and partnerships and joint ventures with each and every one of them in completely different areas of the wide range of infrastructure that Wix has and support. On the Wix side, on the Base44 side. We've been doing research with them for many, many years now. So also the research teams are very tightly connected on the Anthropic side on the Google side, on the open AI side and others. I don't think -- and currently, we're not assuming any kind of impact on the -- specifically on the Wix inside thing.

So I cannot actually comment on changes that will be incurred because of it. If it becomes over time, for some reason, a much more significant stream, then obviously, we can address that. But for the time being, we don't expect that to be significant.

Our last question comes from the line of Mike McGovern with Bank of America.

For Base44, when you think about going from I think, about $60 million in ARR exiting the year to now over $100 million or close to $100 million in such a brief period of time. Can you just double-click on kind of what was able to accelerate that growth? I know they've added a couple of key features like payments. Is there anything else in there?

So I don't think we can call to 1 specific product release or change and also you have to remember that the cadence of improvement and innovation there is massive. So there's much more that's happening all the time. But it's a combination of the ability to increase the user base, the increase is coming first and foremost because there is more and more brand awareness. We did a Super Bowl campaign, which definitely did not hurt and was very beneficial. And is this brand awareness grows and also I would say is the awareness to the category grows for more and more people that obviously, the demand is increasing. And you can then -- we match that demand with our stellar marketing team that has been working very diligently to ignite and push the Base44 growth over time. .

And then I would say definitely the product is improving. And also, we keep on optimizing many, many parts of both the funnel, the product, the business model. We're basically taking so many things out of the Wix playbook and everything we learned over the past 2 decades in how to run a successful subscription business and we applied to Base44 in the right relevant way. And I think you're seeing the results.

Got it. And then when we think about kind of tokens that and free tokens for trial users within Base44. How much of that, when we think longer term is somewhat self-inflicted in that S&M expense increase, and you could just lower that over time as Base44 scales and just awareness grows?

Well, I think it's a great question, and we'll keep on testing and understanding where the threshold should be. It can definitely can find ways to move the threshold as time progresses. We do think that having the free tokens there and having a freemium model, is great because you want to give people the opportunity to test drive, to pilot the product and try it out. And we think that, obviously, the people who are gaining value from it will continue, and those are the people we will monetize immediately. The ones who don't may come back later on. And we've seen the same thing when we were building the Wix model. whereas again, base 4 is a very young product.

On the with, we are seeing people who are converting who joined us 10 or 15 years ago. That's amazing. So over time, building a big cohort base where people can experience your product, love your products, but if they don't necessarily need it right now, we'll come back to it later, is a big benefit. That being said, we definitely think there's more things we can do to hone the model -- the business model over time, and we'll align that as we go forward.

This concludes the question-and-answer session. Thank you all for your participation on today's call. This does conclude the conference. You may now disconnect.

All right. Let's get started. My name is Chris Zhang, and I'm part of the UBS Payments and Fintech Research team. We're super excited to have Wix here with us, again. We have Lior Shemesh, Chief Financial Officer; and Emily Liu, Head of Investor Relations with us. Welcome back and very excited to have you.

Thank you for having us.

All right. Let's kick it off. So BASE44, maybe to start off, how do you define the opportunity set you're pursuing with the BASE44 acquisition? And why do you believe BASE44 is the right path to unlocking the opportunity?

Well, it's a great first question. I think that if I may, just to start with the introduction of what -- exactly what we did, BASE44, it's amazing Vibe-coding platform. I believe that we are obviously going to see that in terms of the numbers, and we are going to talk about it a lot, but it's opened a completely incremental time for us. Think about all those people that's looking to build all kinds of applications. It can be like application for your family. It can be a big enterprise that using a BASE to build a dashboard in order to help these employees in terms of the production activity. People that use it to build CRM. We see so many use cases that already started to happen. I'll also talk about the profitability of it and why it's so exciting. But it's opened a completely new time for us.

When you think about -- when we started Wix, I remember when I joined Wix like 13 years ago, that when Wix started, we actually established Wix in order to help people to create and build the website, although they don't have any understanding and know-how about code. Okay? Because in the old days, you need to know how to use code. For example, if you use WordPress, right? With Wix, you can build the website, drag and drop very easy. Usually, we tell you exactly what you need, and based on that, you build the website and we created like the most strongest brand in the world right now for website creation.

When we think about it, BASE44 is actually the same. It's helping people to create all kinds of applications without the ability to know how to code. So as I mentioned before, it's opened a completely new time for us, huge opportunity. And I believe that -- and we believe that it will be also super successful and profitable in the future. The right way to look at it, think about business, you need one website, but how many applications, all kinds of applications, sometimes hundreds of applications. So definitely, I think that we are truly excited about it. And we've already started to see that with the results.

All right. That's awesome. And just to help us understand more about the product and maybe the unit economics. I know it's still early days and there must be a lot of interest in testing the product you're improving, I guess, maybe either longer term or maybe just for the paying versus free subscriptions. How do you see the unit economics with BASE44?

I will let Emily answer if you think about the products and who exactly are the audience and who are the people that are actually using BASE. In general vibe coding, what are the type of people that use vibe coding. And then I will get to the business model about BASE.

Yes, sure. So when we talk about vibe coding, there's still some misconception that vibe coding is just this one homogenous user base. But really, we see it in two spheres. One is really geared for developers and an engineering team. So you're talking about QuadCode and Cursor and WindSurf. Those are IDEs, specifically for engineering teams. Our teams internally use -- our R&D teams do use and leverage these vibe coding tools that moves developers away from coding manually line by line to more describing things logically and then having vibe coding take the rest. So you're able to just ship code a lot faster.

That's not where we are playing in this field. We're on the other side where it's really like Lior said, opening the world of software and application building to end consumers with no or very low coding experience. So it's the freelance developer or someone that has a software idea, they're now able to execute on it. It's for smaller design and product teams, not within the R&D organization but within these enterprises that are looking at prototype tools or build internal tools for their own consumption.

And then, of course, the biggest population is everyone like me and you, who have something, have an idea, they need a widget, they need something. And that's where BASE has really been shining. Our market share of this particular AI-powered application building. So that second sphere was very minimal, low single-digit audience traffic share in June when we acquired it, and now it's double digits around 10%. So that's a factor of the product mean that much better. We launched a new builder a few weeks ago, and that's really shown in user adoption and feedback. So that's been really great. And then we've also invested a lot in marketing, and that's what it takes to build a great brand for a new product in a new space.

All right. Awesome. Thanks for the background. And I think you also talked about BASE44, having not had any marketing motion until right after the acquisition, right, after it became part of Wix. Maybe can you talk about the marketing efforts, which, for example, which channels are you targeting? And how is that similar to your work different from your efforts around Wix Editor?

Yes. I think that first of all, we are talking about different intent of customers. People that come to Wix, people that's looking to build the website. People usually that come to Wix, people are actually looking to build applications, not necessarily a website. Actually, we don't see many people use BASE44 to build website. So I think that it's a different use case. Now, as I mentioned before, I think that we've done an amazing job, and I'm not too modest about it, but we managed to build a super strong brand meaning that most of the people right now that are looking to build the website end up with Wix. I think that we can do the same thing with BASE44 to create a really, really strong brand and we already started to do that. I think that -- Emily mentioned the fact that we are right now more than 10% of this entire space growing in almost no time. So I think that we have the capabilities, the know-how how to do that, how to do marketing campaigns, how to use, for example, YouTube and create content online and to do it like an acquisition type of marketing.

So I believe that we have the ability to do that. And definitely, we are going to invest, we are going to talk about it very soon about the business and about the margins. But I believe that we are talking about a different type of customers, again, people are looking to build applications. And we're definitely going to take the opportunity and to create the brand associated with that.

All right. That's amazing. And you talked about more recently the updated ARR target by year-end, that's over $50 million. And in the past, you've talked about it beyond this are going to head rapidly towards $100 million. Maybe just can you help us understand some of the milestones you've set for BASE44 at the time of the acquisition? Are those the ARR targets? Or are there some other things as well?

If you remember, when we bought BASE and people ask me about, okay, what's going to happen to your margins. I said, okay, I'm not going to assume there will be no difference compared to what we've already said to the market. And then again, we mentioned in the last earnings that we are going to invest more because the demand is huge. I think that what we've seen in the past few months since the time that we acquired BASE44, that the demand is right, really booming. I think that, first of all, the product is much, much better than when we started. At the very beginning, people use it to build application with database, with integration for all kinds of use cases. And then we saw that it was much more than what we expected, which is kind of a good problem to have. The demand is so big and so huge that we said that, okay, when we bought BASE, it was about $3 million of ARR. We are going to finish the year with more than $50 million of ARR in a very short period of time. And when I'm talking about ARR, it's very important to mention, we are a public company. And when we report ARR, it's a real ARR that is recurring and you do taking into consideration the future churn and so on.

So yes, I mean, I think that it's much more than what we expected. We continue to see this kind of level of increase on a week-over-week basis, and we are truly excited about it. We didn't like say that we want to reach $100 million or $200 million in this specific amount of time. I think that it was much more than what we expected. But I truly believe that we are on the right path to get to what we mentioned about the $100 million very, very soon. So I think that from what we see until now, we are super excited and even much more excited about this opportunity than when we started with.

All right. That's awesome. And we definitely look forward to following the progress there. Maybe just as you mentioned, touched on margins a little bit, maybe just dive into it. At the third quarter earnings, you lowered the full year '25 gross margin outlook and raised the OpEx -- non-GAAP OpEx as a percentage of revenue. And then with one quarter left, of course, that means even a bigger swing or impact in Q4. Maybe just can you first recap some of the investments you're making that cost of margins to be lower? And then how should we think about the trajectory in 2026?

Sure. So I'm afraid that it will be kind of a little bit a long answer. Emily told me to do it as short as I can, but I will try. Let's start with the core Wix because I think that it's really important to explain this margin thing though like most of the questions today that I got was about the margin and what is the impact of -- based on our margin. Let's start with the core Wix. I expect for 2026 at the core Wix margin will actually improve and expand. I think that we are going to have better gross margin for Wix. It's come from a fact that we see a lot of savings coming from the care organization. We can do much more and to serve much more users with less resources.

So this is with regard to the gross margin of Wix. With regard to the operating expenses, again, we are going to be more efficient. And I think that the fact that AI can help us generate and produce and develop more products in a much more efficient way, meaning that the free cash flow for Wix definitely is going to be higher than 30%.

Now let's go to the impact of BASE44 and what it means. One of the most amazing things about this acquisition is the synergy with Wix. Think about a company that's growing so fast. And now you want to create everything to support it in order to scale it up. You need the infrastructure, you need to build security, you need to build care organization. You need to know how to do marketing, you need to recruit talented people, engineers. We have it, it already exists. It already exists. It's just -- we connected to the Wix CRM. We already have the security built in place, we already have the infrastructure to support it. We already have the care organization. We already have G&A and everything to scale it up. So in the end of the day, we are not going to increase even on headcount in order to support this growth because it's all coming from the own resources of Wix. And this is why the synergy makes it so impressive.

Now again, so what are the costs that I'm going to have. We are talking about 2 types of costs. The first 1 is about marketing. The second is about the cost of AI. Both of them are variable cost, I can stop it in 1 day. And it all comes with the fact that it starts with marketing. We see the demand, and we invest in marketing. We do it through acquisition. We are establishing the brand. But the most interesting stuff is that we do it based on our own methodology, which called the TRY, meaning how much time it takes me to get $1 of investment in marketing. For sure, it won't be more than 12 months, but it means that I'm taking into consideration the churn, the retention, the conversion, the usage that I see and it's all blended to this TRY and according to that, I'm making my investment. This is one.

Second is the cost of AI, and we definitely see the gross margin. I can tell you right now that the gross margin for paying user is positive. It's around 30%, 40% and I believe that it will improve, and it will improve from 3 reasons. The first one, think about new customers, new cohorts when they start to use BASE44, this is where all the prompts happening. This is where they build the application. This is where most of the cost is happening, right? But when you look at cohorts and customers that already build their application, they need to prompt a little bit in order to make changes, right? But it's not that high, meaning that people that already build application, they are more profitable than people that just started to build the application. So it really depends on the mix between existing to new customers. Definitely next year, we are going to see more cohorts for people that already finished, completed application. So definitely, by definition, the margin is going to get better.

Second thing it's about the cost of AI. I truly believe when we started when we bought this business, we already took down the cost of AI by approximately 30% on a relative basis. Why? Because there are more players, it's not just Anthropic, it's also Gemini 3, which is an incredible product. And I believe that in the end of the day, the cost of LLM will continue to go down. There's no other way. There are more players over there. And I think that it just makes sense, in a way it already started to happen. The third thing is about our ability to make a lot of optimization to the cost meaning that you can use less LLM in order to do the same application. I think that there's a lot of optimization that we already started to do, and I believe that it will continue.

So next year, definitely gross margin is going to be positive as it is now, even perhaps better. So the only cost that I'm going to have on top of it is for the marketing, as I mentioned before. I don't believe that it will bring us to a place where we are going to be worse than mid-20 for the blended free cash flow. I will be surprised if it will be even mid-20, I believe that it can be even higher than that. But it's a good investment, meaning that we are going to invest in growth. We are going to invest in a business that I believe will be super profitable and super interesting, and it's an amazing growth engine for us.

So this is why when I'm talking about the cost, it's cost that we know for sure that we see the returns of it. But again, when you think about it, it's like one-off cost. Why? Because there is misalignment between top line to cost. I'm recognizing the entire cost of marketing and AI right now where I see the top line coming over time. In 2027, I already see the fruits of it. So this is why I call it kind of a onetime investment where you actually -- because of the super high growth that we see right now, but this is why we are truly a believer in this business.

So I'm sorry for the long answer, but I think that it was super important for me to explain the kind of the economics behind it.

This is amazing. We really appreciate all the details. So just to recap, the core business margin is still improving, expected to be definitely better this year, north of 30%. And for BASE44 overall gross margin positive and then for the overall total consolidated business for the free cash flow from where you're looking right now, it's mid-20s or better free cash flow margin.

Yes, exactly. It's a good summary.

Right. Awesome. And then just one follow-up on the free cash flow margin. I think just for this year, it looks like the numbers -- the free cash flow margin has benefited from some of the outsized positive impact from working capital changes. How should we think about a normalized level of contribution from the working capital changes to your free cash flow margin going forward?

So again, it's a good example of what we're seeing right this year, like a one-off benefit. Why? Think about the super growth business where we need to invest most of the cost at the very beginning where we see the fruits of it later on. But it's simply issue of payment terms, okay? Well, I have vendors that I'm already recording the expenses, but I'm going to pay them based on payment terms only next quarter. So you see the benefit of working capital. But obviously, over time, it's kind of one-off because then there is no more alignment between the cash to the P&L expenses. But again, this is what's happened usually when you have like a super growth -- incremental growth in every company and you have payment terms. So you have like one-off benefit coming from working capital. And this is exactly the case also this quarter and also the fourth quarter.

All right. That's awesome. And then aside from fourth quarter, looking back at the core business, you touched on the margins. That's super helpful. And then how should we think about the growth of the core website business. Maybe if you can just provide some color in terms of top of funnel, the conversion, the pricing or any comp dynamics.

So I'm happy for the question because I think that in the last couple of months, most of the question was around BASE44. But we have $2 billion of income coming from the core business, which I remember that at the beginning of the year, I said that we view acceleration and we forecast acceleration in the second half of the year, and it happened. It's not because we know how to predict the future because we started to see the performance of the new cohorts. And it's coming from 3 different reasons. The first one, we see better top of funnel, more intent of those customers. We see better conversion and increased ARPU. Increased ARPU coming from the fact that we see also a different mix of customers, more mature businesses that are using more business solution, payments, e-mail marketing solutions, Google Workspace and so on.

The strength of top of funnel that we've seen lately coming from we believe, 3 different reasons. The first one is because the strength of the brand. The brand of Wix become better and better, more people looking for Wix. Actually, the search for Wix is all-time high. People are looking for Wix in order to build the website. Second, we see some kind of improvement in terms of the macro, especially in North America, meaning that most of the growth actually coming from the U.S. We see some improvement in terms of business formation. Third, I believe that people recognize the fact that in order to be discoverable with AI, they need to use a platform like Wix.

Think about the old days of SEO, okay? Today, the SEO using Wix, the SEO is much better than, for example, building website on WordPress. But it took a lot of time to do that. There's widgets that we have that explain to you exactly how you need to do your SEO, what you are missing in order to have the best SEO. But think about ChatGPT, think about Gemini. If you build an online store and you are selling furniture, how you will be recognized? How will you be discoverable with ChatGPT? You need to build those capabilities. There's no way that you can do it yourself as there's no way that you can build the best security. And therefore, using the Wix platform or for that regard, you can also use Squarespace or Shopify. But at the end of the day, it's connected, for example, to the galleries that we have. And then you know, okay, if I'm looking for a specific furniture, I know how to do it through the Wix because it's part of the LLM integration. And I can actually do also a deal using PayPal and to do like to complete the interaction and actually someone that's looking for this specific furniture also to buy within the ChatGPT, but it's all done in the back end of Wix.

So at the end of the day, people really, really understand that if they want to have a good business with the best website, the best design website that it's on the website that can actually be discoverable on the different LLM. They need to use Wix, and we see the strength of the brand. So definitely the last quarters actually proved that. We've got to a place where we see all-time high in terms of the performance of the cohorts and we say that it's improved. It actually happened in the second half of the year. So we are truly excited about it. And again, we look forward for the product that we are going to launch for self-creators that I believe will just improve it.

All right. That's amazing. And you actually also answered a lot of the questions that I'm going to have for the upgraders because that's...

Because I knew what you're going to ask.

Those are very important points. And I think one follow-up or feedback or questions we received from the investors is also just on the new product side, the new self-creator products next year. Will there be any accompanying significant marketing investments associated with the product launch or why or why not, just from your experience?

We are going to continue with the TRY methodology as we did for so many years. So there has been no difference. You know that for every dollar that we invest in marketing for the core Wix most of it return in day 1 because most of the customers are non-monthly. Actually, we see a phenomenon that many people starting to do like 2 years and 3-year subscription. There will be some branding investment. But again, it's not going to be significant or huge even to have like a significant impact on the financials.

All right. That's great. It's great to follow. I guess the follow-up or clarification on this point. I'm sure that's -- investors will appreciate it. I guess just moving -- looking at the corporate level, over the last 2 years through -- or exactly 8 months over Q3 of '25, you spent, I think, exactly $1.0 billion rounded $1.0 billion on share repurchases, which was 100% of our cash flow during that period and double your 2023 Investor Day target. And of course, you're still going to generate a ton of cash flow -- free cash flow in Q3, you've effectively doubled the size of your cohort. So the shares at the current level, how would you -- how much would you like to spend on the buybacks in relation to the free cash flow going forward?

How much we did, $1.5 billion?

Yes, since 2021.

Since 2021, $1.5 billion. Look, I think that definitely, we will continue with buyback. I mean I think that, first of all, we intend to eliminate the dilution that we have for granting equity to our employees even reducing share count by doing so, and we are very successful, by the way, in the last couple of years. Definitely, we also need to take advantage of the current share price, and we are in discussion with our board. But there is an opportunity. I think that right now, it's a good investment.

All right. Awesome. Yes, we agree. Maybe just a couple of kind of rapid fire your high-level thoughts. What do you think of pricing next year?

You want to take it?

Yes. I think, look, like we have a new product coming next year, the new self-creator product. And I think launching that driving adoption, fixing the bugs on it and making sure that users are really enjoying that product is probably our primary focus. We don't have any plans right now to increase pricing. But of course, like we test it very, very regularly. So we could do it on our classic editor, the new editor, we could do it on studio, but there's just nothing planned right now.

All right. I appreciate that. And I guess the next one. It's going to be a little bit of a change because I think you're starting to pay taxes. And how should we think about that for 2026.

About what?

The tax rate, corporate tax rate.

Yes. I think next year, OECDs like Pillar 2 is likely going to come into effect. So I think we expect like a corporate tax rate of around 15%.

All right. Awesome. That's super helpful. Maybe just in the last minute or so I'd just like to open it up for any audience questions.

It's Tim from [indiscernible]. But do you see any structural advantages of Squarespace partnering with Perplexity versus you partnering with Gemini?

No, we haven't seen any change in terms of the competition, especially not from Squarespace. I think that since they went private, we haven't seen really real changes about competition. I believe that we're actually taking more market share. But let's wait and see. I think that they have a good product, not as good as our product. But I believe that the technology gap between us to them just keep on increasing.

And I'll say too, I think like our end goal, and I'm sure it's similar for them too, is to make sure our merchants and our Wix user sites appear and are very well visible in all of these AI search engine. So I think eventually, the end goal would be for us to integrate directly with these LLMs, and I think that's probably what the next era of web would likely be anyway.

All right. Awesome. With that, please join me in thanking Lior, Emily and also the people that joined us here today. Thank you so much, and I look forward to some more of the progress.

All right. Thanks.

Thank you. Thank you.

Good day, and thank you for standing by. Welcome to Wix' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded.

I will now hand the conference over to your speaker host, Emily Liu, Head of Investor Relations. Please go ahead.

Thanks, and good morning, everyone. Welcome to Wix' Third Quarter 2025 Earnings Call. Joining me today to discuss our results are Avishai Abrahami, CEO and Co-Founder; Nir Zohar, President and Co-Founder; 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 section of our website, investors.wix.com.

With that, I'll turn the call over to Avishai.

Thanks, Emily. With vibe coding and our decades of proven expertise in democratizing emerging technologies for everyone to enjoy, we will be able to deliver products that unlock entirely new value for small businesses and people.

Let me start by setting the stage. When I think about vibe coding, I tried to simplify things by breaking the world apart into 2 categories. One is the developer sphere. This is Claude code, cursor wind surf and all these tools, which are great for engineers. These tools integrate directly on the source code of a project, enabling complex technical programming, which require significant user expertise, the second there is where everyone else leaves, the majority of humanity who don't quote or even think they can code. Suddenly, with vibe coding, they can create pieces of software that improve their personal lives or help to build their businesses, all by simply using natural language.

For example, a school teacher can create a custom app to track attendance and post grades. A neighborhood restaurant can build an application to handle their staff schedule and other to manage vendors and other to sort inventory and so on and so forth. These people can now build any type of application they need or want with 0 coding knowledge. Bottom line, vibe coding is unlocking access for regular people to build software intuitively without any technical barriers. This story sounds exactly like Wix's story back in 2006. We didn't invent websites back then. They were already widely available but only to big companies with engineering budgets. There was an absolute barrier for the average person.

We knew there was a way to enable an online presence for everyone. This was and still is the mission of Wix. We intend to do for software, what we did for websites, enabling everybody to build applications without any need for a developer. What's different today is that the software application market is many, many times bigger than the website creation market. Think about it. That same neighborhood restaurant needs only one website, which they likely built on Wix, but they may need many applications to successfully run their business. Up until now, creating the application a business owner may want has been too expensive or completely inaccessible. And without this new tech probably would never have been built. We are already seeing this huge opportunity materialize as the AI-powered app building space has grown exponentially over the past year, and we are taking a bigger and bigger piece of this pie.

BASE44 share of audience traffic increased from almost nothing to more than 10% in October. Among local tools, BASE44 is quickly proving to be a leader and the best solution on the market today with enormous white space. still ahead. BASE44 is also getting better, fast. We recently launched our new builder transitioning BASE44 from a predominantly user-reliant tool to an expert developer partner for everyone. The new builder represents a fundamental architectural advancement moving to an agentic coding environment with multi-agent players, BASE44 can now validate, debug, refactor for performance and fix its own work, making ad creation faster, smarter and more powerful than before. Please do not mistake my obvious enthusiasm for BASE44 and the AI-powered at building opportunity as lack of excitement about Wix. It is no secret that we intended to release a new flagship product as early as this summer and as CEO, I am clearly unhappy that I still cannot share it with you today. However, seeing it in our labs gives me more and more confidence that the wait will be worthwhile. I expected early 2026 and truly believe that it will deliver great value to our users.

I want to impart one last thought about the massive importance of building products that allow humans and AI to work in tandem. People building big tech projects, creating websites or developing applications, whether engineers or not need to be able to control the outcome of the creation. This is why we continue to put a huge emphasis both at Wix and at BASE44 on curating the right combination of visual editing capabilities for humans and powerful AI vibe coding. This combination will allow for high-quality outcomes with less iteration while giving humans the right level of control and calibration. The future of creation will be interactive, intelligent and accelerating and adjusted the cost of this transformation.

With that, I'll turn it over to Nir.

Thanks, Avishai. We're pleased to see the new user cohort behavior in our core business from the first half of the year continued through Q3 and into October. These robust cohorts have been a key driver of our top line growth fueling momentum we've seen throughout the year. They also provide a solid foundation for continued growth as we move into Q4 and 2026.

Organic traffic continued to improve as more users actively searched for Wix online underscoring Wix's continuously improving brand awareness and top positioned platform for web creation. Solid traffic from paid channels also drove higher traffic as we captured robust demand while operating within our TROI guardrails. New users purchase more advanced website subscriptions, adopted more business applications and purchased longer-duration subscriptions at an accelerating clip demonstrating the growing trust our users place in Wix. With new cohort bookings following a similar shape to the second quarter cohort, cohort growth continued to trend strongly through the third quarter. We also welcomed our first full quarter of new BASE44 cohorts under the Wix banner in Q3, which performed better than anticipated.

As the vibe coding market has exploded this year. BASE44 has meaningfully outgrown most peers. We now estimate our share of audience traffic to AI-powered application builders to be more than 10%, up from low single digits in June. This growth in a matter of just months is a result of a fantastic product with organic reach supercharged by our expertise and investments as well as application of Wix's proven strategic playbook to BASE44. In addition to establishing a dedicated customer care team and expanding BASE44's R&D capabilities, we focused on building up a comprehensive full-scale brand and marketing function. Remember, BASE44 did not have any marketing motion when we acquired it in June. On day 1 after the deal closed, we started to apply a marketing plan that has been fine-tuned and tested over the past 2 decades, a key competitive differentiator for Wix to BASE44. This included refining the company identity, messaging and visual system to better reflect our market ambition.

We also launched campaigns in key channels and core geographies, compelling branding and effective marketing is crucial to growing BASE44's reach beyond just early adopters and capturing the huge white space Avishai spoke about, returns on our initial marketing investments meaningfully exceeded expectations as demand ramped through the quarter. As a result, we were able to confidently scale marketing efforts above our initial August plan.

Today, BASE44 serves over 2 million users around the world. This is more than 7x more users than we had at the end of June. Impressively, this translates into more than 1,000 new paying subscribers joining daily. We now anticipate BASE44 to achieve at least $50 million of ARR by year-end, an increase from our previous expectations. We also continue to see positive trends in our main geographic markets as we improved monetization of the growing population of users and conversion improved sequentially. Better monetization was also a result of healthier commerce activity in the third quarter. Transaction revenue accelerated, increasing by 20% year-over-year, driven by 13% growth in GPV and an elevated take rate. Merchants are continuing to opt for weeks payments. The opportunity remains large as we continue to strive towards capturing and addressing the full spectrum of merchant needs for our long-term commerce strategy.

To wrap it up, our solid Q3 results illustrate the durability of our core business, which remains healthy against a dynamic operating environment. It also speaks to our ability to enter new markets efficiently and effectively, highlighting Wix's innovation first mindset and a proven first-mover advantage. I remain confident in our ability to drive long-term growth by delivering essential tools that help users both new and old, adapt, operate and succeed in any environment.

With that I'll hand it over to Lior.

Thanks, Nir. We accelerated growth entering the second half of the year with third quarter results exceeding expectations. This performance was driven by strong fundamentals in our core business and an exceptional first full quarter of BASE44 under the Wix banner, as you just heard about from Nir. The team is executing well as we build the critical foundation for sustained momentum in 2026 and beyond.

There were a few highlights in the third quarter, but I'd like to start with our financial results. Total bookings grew to $515 million in quarter 3, up 14% year-over-year. This strong performance was driven by robust new user cohorts joining the platform, existing users finding success and adopting more business applications as well as better-than-expected results from BASE44. Total revenue grew to $505 million, also up 14% year-over-year and above the high end of our guidance range. Partners revenue grew 24% year-over-year to $192 million, driven by continued traction among professional designers and solid studio adoption. Domains, marketing applications and Google Workspace saw a particular strength within the partners business in the most recent quarter.

Transaction revenue was $65 million, up a strong 20% year-over-year driven by slightly improved GPV growth, coupled with a sustained elevated take rate as merchants continue to attach Wix payments. GPV grew 13% year-over-year to $3.7 billion. Partners remained the primary driver of GPV growth, contributing approximately 55% of total GPV.

Turning to the cost side. We recognized our first full quarter of costs associated with BASE44. Before getting into the details, I'd like to start by explaining the business dynamics of BASE44, which differs from core Wix, as Nir discussed, we are seeing top line growth for BASE44 trend above our initial expectations. The very large majority of these users are on monthly subscription plans a stark contrast to the more than 80% of Wix's mix attributed to annual or longer duration plans. This translates into a linear bookings dollar trajectory for BASE44 compared to Wix's front-loaded bookings behavior. As a result, most of BASE44's bookings are expected to come in future quarters as these monthly cohorts build and renew. However, the cost associated with these BASE44 users are impacting our financials today. This misalignment between bookings and operating expenses is resulting in a short-term headwind to our free cash flow.

We also anticipate a short-term headwind on operating profit as we incur startup costs and initial growth investments for BASE44, while revenue ramps, but remains insignificant to our top line today, the 2 areas we see the most impact are cost of revenue and sales and marketing. On the cost of revenue side, we are incurring AI processing and compute costs to support ramping BASE44 demand. These costs tend to be front-end heavy as new users consume more AI tokens during their initial build phase. These expenses offset continued AI-driven productivity efficiencies across the customer care organization and improved Business Solutions gross margin. As a result, total non-GAAP gross margin in Q3 was 69%, down slightly from 70% in Q2 as expected.

On the sales and marketing side, third quarter non-GAAP sales and marketing expenses increased 23% sequentially as we built and deployed the marketing strategy for BASE44. This is a result of accelerated branding and acquisition marketing investments above our initial August plan to capture stronger-than-expected demand, particularly in the back half of the quarter. I'm very encouraged by BASE44's TROI, especially so early on, a signal of sustained user strength that isn't fully reflected in the P&L due to the monthly mix dynamic. We also saw a slight increase in non-GAAP R&D expenses, which were up 7% compared to the second quarter as a result of higher overhead, AI and other expenses as planned.

As a result, non-GAAP operating income was $90 million or 18% of revenue in the third quarter. This excludes $35 million of acquisition-related expenses primarily earn-out payments for the BASE44. We expect earn-out payments to continue to trend upwards as BASE44 ARR approaches the high end of its lofty previously said performance target, Q3 free cash flow was $159 million or 32% of revenue. This is an increase from free cash flow margin of 30% last quarter as we generated strong bookings and realized working capital benefit associated with the higher costs I just discussed. I expect operating and free cash flow margins to improve over time as we optimize multiple areas of our business model.

Today, we're already beginning to see AI cost decrease as LLM's improve and competition continues to ramp. I expect this to continue, if not accelerate, Additionally, I expect sales and marketing expense leverage as branding investments normalize once we move past the initial branding investment costs. TROI target should tick lower as BASE44 scales to. We also expect BASE44's user and subscription mix to optimize over time. In the long term, I expect BASE44 to have similar operating and free cash flow margins to Wix. We continue to strategically manage our balance sheet. In September, we issued $1.15 billion in 0% convertible senior notes due 2030. These notes follow the maturation and payback of our previous tranche of 2025 convertible notes. We expect to deploy this cash for business purposes, potential M&A opportunities and continued share repurchases.

We repurchased approximately 1.3 million weeks ordinary shares for approximately $175 million underscoring our continued commitment to returning value to shareholders. This leaves approximately $225 million remaining on our current authorized program.

Let's now talk about how we expect to finish out the year as health in our core offering, along with ramping BASE44 contribution is setting the foundation for a strong fourth quarter. We are raising our full year bookings outlook to $2,060 million to $2,078 million or 13% to 14% year-over-year growth, up from the 11% to 13% year-over-year growth previously expected. This increased expectation is driven by meaningful outperformance of BASE44, which we expect to continue as we accelerate marketing investments to capture the stronger-than-anticipated demand we're seeing today. As a result, we expect BASE44 to achieve at least $50 million of ARR by year-end, an increase from our previous plan. Our guidance also assumes a stable macro continued strength in our top of funnel and current FX rates.

For revenue, we are updating our previous full year outlook to $1,990 million to $2,000 million, up to 14% year-over-year. This is a shift towards the high end of our plan, up from the 12% to 14% growth previously expected. The dynamics differ between bookings and revenue as BASE44 outperformance is offset by a continued shift in our core business mix towards longer-duration subscription packages. On the cost side, we now expect non-GAAP gross margin to be 68% to 69% of revenue and non-GAAP operating expenses to be approximately 50% of revenue for the full year. These updated expectations reflect the front-end heavy AI and sales and marketing costs against linear revenue and bookings behavior due to higher anticipated bookings and working capital benefits partially offsetting these increased cost expectations, we expect free cash flow of approximately $600 million in 2025 or 30% of revenue for the full year.

I'm looking forward to a strong finish to 2025 as we enter 2026 on solid footing. Operator, we are now ready for questions.

[Operator Instructions] Our first question coming from the line of Ygal Arounian with Citi.

So a couple on BASE44. Can we just dive into the dynamics of monthly subs versus the sort of more traditional annual subs that you get for core Wix? What are you seeing there in terms of churn and those subscription dynamics? And as people sign up monthly, can you get them to sign up annually more often over time? Is that the expectation? How does that change your kind of visibility into investment as some of the margins come down here? And then I have a follow-up on the cost side.

Well, this is Avishai. I think that as with regards to the percentage, of course, at this stage, lean a lot more towards a monthly subscription and annual subscription. And we've also seen it in Wix in the beginning [indiscernible] time when we put the trust to platform. And then they will actually feel more comfortable to pay an annual subscription. And I think we are heading in that. Vibe coding is still so new that we're heading towards that direction.

And -- but the aim from Wix, the vast majority are early subscriptions, annual subscription. Then on BASE, most of our users are still on monthly subscriptions. When it comes to churn, it's very early to say, and it's changing very quickly. So it's very hard to say. Obviously, churn is higher than the standard Wix, which almost doesn't exist, right? There's almost no change. But if you look on a core basis. But BASE, it's better than we expected and we know there's so much more we can do. So we are very optimistic. And we think that share will probably not going to be a problem going forward, right? If everything continues to advance in the same way it is now.

Okay. You talked about, Avishai, in the past that these platforms of [ vibe ] quarters are good for prototyping. But eventually, when you have a finished product that sort of has to live somewhere else, right, because a lot of the back-end stuff is developed. Is that part of the factor for churn? And then on the cost side, just on the gross margins and the AI compute, is there anything that you can do within your control outside of LLM costs coming down to keep costs down, for example, using your own internal data to help build versus relying on third-party LLMs as much?

Well, I'm not going to go into all the details here, but yes, there's a lot we can do on cost, okay? It's not a priority at this stage, right? It's something that we're also investigating. I think the [indiscernible] now is to build a better product and capture more market share. But I mean that long term and log is not multiples, we can dramatically improve the cost of AI for BASE44. There's so much we can do from training our own models to do part of it from partnerships with the different vendors from the fact the [indiscernible] reality that cost is always declining. And so I think there's going to be a tremendous amount of opportunities for us to reduce the cost of the AI for BASE44.

And so the first part, I'm sorry, I missed that. So we do see -- you're right, when you say a lot of it is just for prototyping, right? And that's great for people to actually build an application that is just for game or for a few people, and then the prototype is the application, right? It doesn't need scale. It's okay if it kind of like a tiny [indiscernible]. But we are getting to a place that today with BASE44, you can really build more full applications. They take quite a way to go on what we can do there and how to make it even better. But we are getting to replace. And of course, we have some usage that's already built really large applications that have been deployed and we can see that. So if a year ago, you couldn't do by vibe coding for anything real. And a few months ago, you could do vibe coding for multi prototypes.

And for applications, I think today, we are starting to see more applications that are real and are being used in the commercial level. For website, it's still different. I think website, there's still a gap that needs to be close vibe coding to build real websites that are Google-friendly, data LLM friendly, that are -- the privacy was that required by law and a bunch of other things. And there's still quite a business to go, but we hope to close that early next year.

Ygal, this is Lior. Just a couple of more points about the cost. I think that what is interesting here is that new users coming to BASE, they are obviously consuming more AI tokens, right, more bandwidth as they build their apps. But what we see is a big difference between, obviously, the cost of newcomers. So the one that actually continue because they might modify do some changes, but it's really not the same.

But it means that for example, if you take this year compared to next year or next year, you are going to have much more of the recurring revenue. It means that the profit, obviously, will be totally different. So it's not just about the fact that as Avishai mentioned, that we already started to see the cost of AI goes down, but it's also about the model itself that is so different between newcomers to the one that actually already build their apps and just maintaining it.

Our next question coming from the line Deepak Mathivanan with Cantor Fitzgerald.

Avishai, just wanted to ask a big picture question for you. Wix is pretty well positioned to kind of reengineer the web for the AI era by making a lot of small business websites kind of agent ready, right, so they can be discovered by Gemini, ChatGPT and others more effectively where the current rev architecture, which includes a lot of total consumption for them. Can you talk about the vision you have for Wix for this era and how you're planning to capitalize on this big secular theme for the next 3 to 4 years? What are you doing, perhaps the new product or from others in the future to make the websites of both your current and future customers kind of agent-friendly so they can get the traffic, transactions, everything from agents?

So yes, you are right. I think that you're touching a very important point. We're going to see in the next couple of years. And we're already starting to see that, but probably going to accelerate transition and changing in many ways that you consume content website or discover website with the content -- or just discover the content without even the website, right? So there's a lot of things that are changing now.

The first thing that we're doing in Wix in order to support and enable all our customers to enjoy that new mode is that every Wix website is now indexable by LLMS, right? So we make the data available to any LLM, and there's a few formats for that. And so we ensure that ChatGPT can actually read your content and discover your website. That's the first part. The second part is that we continuously add new standards for how to do e-commerce, the one that OpenAI released a few months ago. And a bunch of others in order to enable all the functionality to be available within LLMs or be discovered by LLMs and then run on your website.

In addition to that, but there's a few more things that we think that how the user interface will change in the next couple of years. I'm not going to go into details, but I think that, that's another super interesting opportunity for our customers. And we intend, of course, to provide fantastic solutions for that. So if you look at it long term, I mean the fact that -- and not just wage like the other platform are there. But if you are an owner of a business and you try to build a website in the old way, you're going to find that you're not supporting all these new standards are coming every few months, right? There's a new standard that you need to support to be part of the new world of AI, then I think the platform we have to work for you pretty hard in order to make sure that all those standards that will ensure your business visibility in this new world are part of what we supply.

Got it. And then maybe one quick one for Nir. Can you talk about the cohort retention trends of BASE44 and how it compares versus Wix on monthly customer plans, perhaps on month -- one retention or monthly retention given that you have had BASE now for a few months?

Sure, Deepak. So naturally, it's still very early. Just as you said, it's just a few months. When we look at it, we're seeing kind of similar behavior to what we know from the monthly on Wix. And I would actually dare to say that it's better than what you used to see at Wix in the early days. So I think we are -- Avishai referred to this at the beginning when he was talking about the monthly's behavior. Our belief is that we're going to work on a few different things in tandem that we are going to eventually improve the dynamics.

One, as we garner more brand visibility and brand recognition, it would be easier for people to transition to the annual plans and then obviously will give us more visibility and better TROI, faster TROI, so to speak. And secondly, there's a lot of more improvements we can do in create more motivation for people to retain and strengthen their connection with the platform. And our belief is that we should see better results as time progresses. Again, it's very, very early.

Our next question coming from the line of Andrew Boone with Citizens Bank.

I'd like to touch on Wix vibe and just the learnings of vibe coding as it relates to website creation today. How do we get self-created to that double-digit kind of target that we've talked about in the past? And then going back to BASE44, can you guys just help us understand the pathway to getting margins up to core Wix levels? What does that have to look like? And kind of what are the assumptions that need to take place around retention?

Andrew, I'll take the first -- the first one about Wix vibe. So Wix vibe is -- it's a beta of something we're trying out. And it's part of our general strategy in terms of product and understanding. Avishai spoke about this today and in the past about -- the higher complexity there is between vibe coding and building websites all that Google-friendly, as you put it, Google-friendly, LLM-friendly matching accessibility needs, security, et cetera, et cetera, et cetera. And obviously, we think there needs to be a better solution there, and we're working towards it.

Andrew, with regard to the second question, I think that we need to relate to the 2 different confidence in terms of the investments that we are making. And the first one we spoke about it before, is about the AI. And I think that I would like to take the opportunity and spend like a couple of minutes in order to explain it better.

By the way, for both cases, also for the sales and marketing and also for the cost of goods sold, we have a really proven track record how we can actually, over time, we can drive growth and be in a place where we believe that we can drive even more profitability and I will try to explain. So with regard to the air cost, I kind of spoke about it before. We see a very strong user demand. Very important to mention that both of the investments, also sales and marketing and also the AI cost, which is a part of the cost of goods sold, they are both drag because of a very, very strong demand. As we know, from an accounting point of view, we first recognize the cost only later recognize the revenue. So by definition, when you have such a hyper-growth business, you recognize more costs at the very beginning and then you recognize the revenue over time.

So by definition, we are going to see a higher profitability in a later stage. But at least at the very beginning, this is the situation. Also, in terms of the air cost, I kind of spoke about it before, new users consuming more AI tokens. So it means that the more that we have more our customers and that are maintaining their application. and stay with us in terms of the application. So obviously, we are going to see that their margin profile is much better than the new one. But right now, all of the customers, most of the customers because [indiscernible] in new platform are new. So we all understand this situation. The other thing is about the cost of AI. We've already started to see we are going to see more players in this market. which eventually going to lower the cost. So I believe that we are going to see the dramatic change in terms of the overall cost, which is obviously going to have a positive impact very much that you saw -- we saw at the very beginning when we started the business at Wix, the hosting was totally different in terms of its cost, right? And today is much, much, much more profitable than it used to be in the past.

With regard to the marketing, it is really the same methodology as we use at Wix, meaning that we invest marketing based on TROI. So it means that when you have such a hyper-growth business, you invest more right now in order to capture the demand under the TROI methodology, meaning that we are not investing money in marketing, and we don't see the short-term returns. And this is something that is really important to mention because when you have such a growth, you invest right or more, you're recognizing the cost immediately and only after you recognize the revenue. In order to summarize everything, I think that already next year, we are going to see improving margin as a result of that. But yes, I mean, we are going to see some pressure on margin because of all the reasons that I mentioned before. We are going to see that the TROI target are optimized. We are going to see that air cost decrease. We are going to see base 44 mix of customer change. All of that are going to drive the profitability to be very similar to the one that we see in Wix, and we strongly believe because we've been there.

Our next question is coming from the line of Josh Beck with Raymond James.

Yes. Maybe following up on Lior's comments there. When we look at kind of the Q4 gross margin guidance implied, I think it's something in the order of 66% or so. Assuming that creative core subscriptions are kind of in the mid-80s, it would indicate a pretty big different for BASE, which, as you mentioned, I think it has to do with this hyper growth dynamics. You have effectively these new cohorts being the vast majority. So should we kind of assume that as long as this is in a hyper growth phase going from $50 million to $100 million, there should be kind of this drag and not until we get beyond that phase, it goes away? Just kind of any other guidepost to kind of help us think about the duration of this drug would be great.

It's a great question. It's I think that is kind of interesting because this kind of drug is a drug that we really like, right, because it's coming from a very high growth, and I believe that's also a profitable growth in the future. I think that it's too early for me to say because yes, you're right, the more that we have a very high growth, it means that we have more new customers that building their application, and it's more expensive, as I mentioned before, from recurring customers.

But we also see quite a big decrease in the air cost. But also in terms of our ability, for example, to do changes in our model in order to take the margins to take the margins up. So it's really hard for me to answer the question. It really depends what is stronger, meaning the growth effect or the ability to actually reduce the cost. But I do believe, for sure, looking at the trends right now, that I believe that the margin just will continue to improve as we already started to see that from Q4 -- from Q3 to Q4.

Okay. Very helpful. And then maybe just a follow-up on the pricing construct. Obviously, we can all see the BASE44 pricing and the premium and some permutation of good, better, best. Is that at a point where you're still experimenting? Or do you feel like if you were to take one of these plans and kind of run out that customer's life cycle that it already does have quite attractive profitability built in? Or are you still tweaking the pricing? How are you thinking about that?

Josh, it's Nir. I think it's very, very early. So naturally, we're just going to be testing different things and different ideas and see what lands the most balance and smart optimization between the margins and the financial results and our top priority, which is grabbing market share.

Our next question coming from the line of Ken Wong with Oppenheimer.

Maybe first, just as we think about that bookings guide, last quarter, you guys had mentioned that the majority of the raise was coming from the core. Any color on how we should be thinking about the contributing factors to the 4Q bookings? And then second, just on the profitability. I think we get it a lot of upfront costs. You guys had already started messaging that perhaps less margins going forward as we try to rattle through the higher OpEx and the gross margins, I mean, is it fair to assume that we might still see some margin expansion? And any early thoughts there, Lior?

Sure. So I will start with the guidance. I think that it's fair to say that most of the increase in guidance coming from the strength that we see with the BASE business, BASE44 business. I think that it's very much kind of different from what we've seen only last earnings. Remember, it has been like 5 months from the minute that we've bought this business. The first earnings that we had like a few months ago, we've seen the demand. But in the last few months, it's even much, much bigger than what we anticipated at the very beginning. This is why we've decided to invest more. And I do believe that BASE would turn out to be a significant growth driver for weeks.

With regard to the margin headwind, yes, I believe that it will continue. And let me even say differently. I hope that it will continue because it means that we are going to see a much higher demand. I think that in this case, it's really the same as what we have seen in the past from Wix. Every time that we've launched a new product, it was actually the case at the very beginning with the ADI even when we started the partners business, we saw such a huge demand. And obviously, we are investing in marketing to capture it. So yes, I mean in the short term, we are going to see some more pressure on margin. I'm not sure where the margin expansion will start again. It is going to be 2026 or late 2026. It really depends on the demand that we are going to see for this business.

Our next question coming from the line of Trevor Young with Barclays.

Great. First one, Avishai, on the new self-creator tool that was expected first this summer and then pushed to the fall, now getting pushed out again to some time in '26. Can you expand on what the delays are there? Is there some sort of reimagination going on with the tool, trying to figure out what's going on in terms of the product launch and timing?

Actually, in most of the reason for the delay is about just fine-tuning the technology. So it's solving a lot of technical challenges and bags and making it really stable and working faster. And I support the most projects tools we do in software, which anyways tend to be delayed. But this one to be fair to the team, right, is using a lot of new technologies that didn't exist before. So a lot of AI stuff that never existed before. So it was a bit harder to estimate some of the effort that will go into finalizing them.

I think we are beyond this point. In fact, it's kind of entering already the first stage of a closed beta within here inside of Wix. So I feel very confident we're going to see it very early in 2026. And we're actually going to have, I think, a much better product.

Great. And as a follow-up question, on the 3Q cohort commentary trending similar to 1H. If I recall correctly, 1Q cohort collections grew 12%, 2Q was 14%. So should we assume 3Q was kind of low teens growth territory. So did something change in August and September to cause a step down relative to the 20% growth that you had flagged back in the July time frame?

Trevor, it's Nir. Not so much, actually. No, I think we've seen some expected seasonality. And generally, we've seen the courts behave as we expected. And we're seeing an ongoing strength going into the rest of Q3 and into Q4.

And that's the end of our Q&A session. Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.

Thank you, everyone.

Thank you.

All right. So I'll jump right in. Ygal Arounian on the Citi Internet team. Thanks, everyone, for joining. I'm very pleased to have Wix, CFO, Menashe Shemesh and President, Nir Zohar here with us. Thank you so much for being here.

Thank you for having us. .

Yes. Really excited. So we're going to jump right into what's been the biggest topic, and I'm sure you've been getting a lot of questions on it today, just on the evolution around GenAI, Vibe coding in particular, we'll dig into a few things.

And I know we talked about this at earnings, but it remains really tough mind for investors and just -- what -- from your point of view, what is the evolution that's happening here in the web building space, kind of SMB OS around Vibe coding in particular, GenAI? Where are things headed? How does it impact you guys? How does it not, just start at a high level and then we'll take it from there.

Sure. So I think -- I think that Vibe coding is a technological capability, right? It's a fantastic and interesting capability. But now the question is, how do you deploy that and what can you do with it? And from our perspective, there are two core questions. One is, what can you do with Vibe coding and website building, which I'm not going to expand very much on, but we are going to be innovating in a very interesting way in what -- how can one benefit the other.

And this is something that you can stay tuned and you're going to see coming out, and I think it's going to be very interesting to see how they complement each other. But I think it's important to understand that when you think about Vibe coding and website building, you want to have something which is at a much higher level of curation, because when you create a website today, you still expect it to behave in a certain manner. You want it to be accessible. Because there are accessibility laws in the U.S. and in Europe, and if you're defaulting them, you're actually -- you can be sued, as your business can be sued.

You want to be compliant on the different layers of security, and you want to make sure that you cannot be breached. And when you're Vibe coding, then even though you're using a machine, you are the one who's writing the code. You're just asking you're using Natural Language to ask the machine to write the code for you?

And we believe that for that work well with the website, there's need to be a different solution that creates a curation in a manner that makes sure that you don't mess up when you do the coding, because you may create all those holes within the system that is going to lead you expose and we, as a platform, sorry, I want to make sure that we keep you safe.

So we believe it's going to be -- there's a very interesting opportunity in putting Vibe coding into the Wix universe. We're going to do so sometime in the near future. And I think it's going to be very interesting to see how that evolves and what does it do? To the quality of building websites and also the outcome. Like what can you get out of it? What can -- how can you complement your website with capabilities that are being coded on top of it?

I think the other side of it is what we see is the opportunity around applications. And it's -- I think it's an adjacent opportunity, but there's a lot of similarities in our mind to what actually Wix did to websites. So if you travel back in time with me to 2008 when we first released the first Wix product, websites existed. Lots of people have websites, but those people were actually enterprises, because only big companies could afford high-quality websites.

And we said we want to operate under these four principles, which is we want to remove the barrier of the technology first. So we want to make the technology available for everyone, not only enterprises and big companies. We want the user interface that allows you to do so to be something that is intuitive, that is not only something that high-end designers and engineers can use, but like the average [ Joe ] can easily leverage.

And we want the outcome to be very reliable and exactly what you were aiming for. And lastly, we wanted to look extremely well and to look professional, because that resonates on how professional you are and how professional your business looks like. And I think what's happened Wix in the beginning is that we got a huge amount of demand and traffic, which we still do because people really needed that. Everyone wanted to be able to have a website, but almost no one could.

And I think we're going to see the exact same thing happened with the ability to build a simple application, and simple pieces of front-end code with Vibe coding. Because even today, to build something that increases the efficiency of your business, it's something that only an enterprise can do. You would -- I heard -- I met this women yesterday. She told me she's using BASE44 for her home. She gave -- she built an app for her young kids to give them their chores around the house and for them to complete them and ping in the app.

And if you do extra, you get extra credits. And at the end of the day of the week, there is a competition. Nobody can do that on their own. Suddenly, there are tools that allow you to create those kind of things, and it can be for your home, for your family, for your kids, for your business, for your clients, and that's a real game changer. And -- it's a market that is just starting to happen.

Okay. Everyone here heard about Vibe coding, that's great, but you're all professionals, go out of the hotel, go to Sixth Avenue and ask people -- what do they know about Vibe coding. They answer is "what the hell are you talking about my friend." But I do believe that's going to happen. And I think that could be on its own a massive market that we can play into with BASE44, which is also why we're so excited about it.

Yes. Okay. Will dig into BASE44.

That's a short answer.

That was a great, very short answer. We only have 2 minutes left. Okay. So obviously I talked about the application side of the earnings call. You also the way you talked about it was that it's complementary to the website building use case. But it sounds like you're saying that maybe over time, those two things merge. Is that true? And with BASE44, and maybe I'm not interpreting the way you said the right way with BASE44, does that remain its own thing? Does it get integrated into Wix, like how does that evolve over time?

So, I think. I don't -- again, I do think there might be an overlap for sure. There's always an overlap, right? -- is very -- is a very complex app or an app that also you want to expose to the outside world and just put it on the Internet can become a sort of a website, right? That being said, I think still the use case of websites is significantly stand-alone one. And the use case of building applications is still significantly stand-alone one, which is complementary to the expansion of our total TAM.

That being said, can we use functions of Vibe coding in the website, we are building an environment -- for sure, but it's the utilization of technology, which is one thing. And another thing is this new addressable market of applications which I think we have a great opportunity to be one of the leaders in, maybe the leader, definitely want to be #1, but we have to work together.

Okay. All right. So let's talk about that BASE44 and I mean, BASE44 is -- when you bought it, it was a few months brand-new single million. It's still a few months old. Single million, the single million ARR at the time you bought it. Talked about exit rate for this year at 40 to 50. Is that kind of still the case? What is it about BASE44 that you guys saw that made that be the kind of attractive target for you guys, because there have been a few other kind of notable ones that have been making a lot of noise in the market as well. What's different about BASE44, why that one .

Well, I think, first of all, there was a clarity that the opportunity of the market is there based on BASE44, but also the others in the market, as you mentioned, there are other players that have been starting to get traction. And when we looked at that market, we definitely thought there was a real big opportunity here that we want to be a part of. .

And I think specifically, why BASE44 and not someone else was they -- as we were trying to learn and understand what we want to do and do we want to acquire? Do we want to build this on our own. They launched -- he -- not they. It was one person. He launched in Israel. And we said, "Hey, this guy just launched. It's super interesting. The product looks fantastic. It's -- we tried it. It works really well. He's across the street, let's call him up and let's grab a coffee and have a conversation. And I think from the first meeting that [indiscernible] the CEO, founder, and Avishai and I had, which was grabbing a coffee in the office. We felt that there is amazing chemistry.

Obviously, very easy cultural fit with him being from across the street. But also it was very clear that we are set to achieve similar things. We want to build great technologies, great products that we can put in the hands of many users. He wanted to build something huge in general, but we also had the passion to do it from Israel. We shared that kind of passion and vision. We saw that we get along extremely well together.

And we thought that this is an opportunity to get ahead of what we would have done if we would have started developing on our own instead of getting something that's already in the making. Getting somebody who's been extremely passionate about this thing for 8 to 9 months. Again, it sounds like a very short amount of time, but it doesn't -- didn't exist before that. So that's the beginning of time.

And essentially, the ability to also -- there is a benefit of negotiating with one person and not with a whole capitable of investors. It's easier. It's faster. You don't have lots of employees to worry about and you start building everything around him instead of trying to replace stuff. So we also assume that the integration is going to be much easier. And we saw a ton of potential synergies in how we operate and what he needs in order to be successful and believe that if we put the Wix machine next to him, then he can get to success faster. By the way, he also thought that the same way, which is why we decided to go through with this.

Yes. Okay. Great. So let's -- let's get you involved. Let's talk about putting the Wix machine next to him. And just in general, on the investment profile -- you talked about our earnings, no change to the free cash flow margin guidance, but the change in the mix of how we're getting there acceleration, but more acceleration on bookings growth, but more costs associated with it.

We also committed to seeing margins continue to expand and not kind of come down. So how should investors think about as maybe there's more investment across the space coming into -- in GenAI and Vibe coding and what the investment profile looks like for you guys here?

As weird as it sound. As a CFO I'm so happy to make this investment. I think that there's three different components to this investment. The first one is about direct-related costs to the top line, meaning the cost of the AI, right? Usually, when you do the -- write the application and you prompt, so you're creating cost and this is the cost of goods sold. And the reason why already in the guidance we spoke about it specifically about the gross margin is because of that.

Now remember that it's growing super fast. And at the very beginning, when people write the application, the prompts, they are creating the cost. But once they build the application, the costs are meaningful. It's not like really a lot of costs related to that. So actually, you need to look at it on a core basis, meaning that when you start the application, there are costs and then later on none. So therefore, in a very hyper growth business like this, usually, it's associated with more costs at the very beginning. But I believe that long term, it's exactly the same model as Wix. We've already started to see the costs going down dramatically even after 2 months, talking about the cost per prompt that we are getting from our partners. This is one. So I think that this is more or less tied to the growth. The more we see growth bookings, revenue, obviously, we are going to have more cost of goods sold.

But over time, it's exactly the same as the Wix model. I do believe that it's even more interesting, because I think that the cost related to that in the end of the day, will be, by far, very similar to hosting, become a commodity. The second thing is about the marketing. The marketing is tied to [ TROI ]. So there is no strict budget to that from my point of view as long as we will continue with the growth. We will pay for marketing. We invest in marketing and the same [ TROI ] that we have, out on the same rules. So this is the second item.

The third one is obviously headcount, like [ care ], like R&D and so on. So it's about -- and you spoke about the apps. I think that it's really interesting tied to the Wix machine, but I think that the synergies is amazing. So we are able to prioritize the head count within the overall Wix. So I don't assume that it would be significant. .

And by the way, had we decided to build this internally, we've done the same thing, would have allocated x amount of customer care and y amount of R&D and other amount of head count for marketing in order to run a new product. It's just priorities within the organization.

But you're hiring for this

Sometimes within the Wix ranks, but not necessarily from the outside.

So the impact on the P&L is obvious, because it takes time to the revenue to catch up and you have the cost. But on the free cash flow, it's less meaningful because we're actually getting the bookings in a very fast -- but I do believe that looking at the model is very similar to Wix. We are going to see the impact of a very fast growth business, is going to have an impact. And we already mentioned that in the last earnings. So my hope that, obviously, that it will continue.

Yes. Okay. One more from maybe capital allocation perspective, like -- and you said, you guys historically built everything and here, you decided to build everything internally, you decide to make the acquisition kind of speed up the process. Made another AI acquisition not too long ago. Does the evolution here change how you think about M&A? Or do you still lean much more towards building internally versus M&A?

We've done so little M&A, I can lean a little bit into M&A and still mostly build. I think for me, the healthy thing to do or the healthy thing to learn how to do as a company is to also be able to leverage these kind of M&A opportunities in an effective way. So am I going to go -- are we going to go on an acquisition spree. No. Do we want to be able to also increase the size of the business and find these kind of opportunities, definitely. If I encounter another -- if I encounter another BASE44 like opportunity, I'll be more than happy to consider it.

But I think we still are mostly a build company maybe with a touch of some acquisitions.

Okay. All right. Maybe we'll leave GenAI a little bit more into the conversation as we go along, but let's shift from Vibe coding...

We can have the GenAI answer the questions as well.

We should -- and next year, will be replaced by GenAI, I'm sure. Okay. Your -- the top of funnel trends have been good and improving, especially on the new cohorts. So you went from plus 12% in 1Q, plus 14%, 2Q plus 20% in July. Can you talk about what's driving that? Yes. Just talk about what's driving that? And anything you can add on since July that you could share or?

So I'm not going to add more, more numbers post July. I think we'll have to wait with that. But I will say that I think the contribution in the -- is first and foremost, comes from the brand. And that supports organic demand, which in turn supports our ability to also acquire more customers at the same TROI -- and that's -- I think that is the key part of it, so to speak.

I would guess, again, we thought that maybe some of it is also slightly better macro activity. But to be honest, we felt that other companies are not really mentioning anything like that. And so maybe it's mostly our brand and less macro, I don't know. I think those are the kind of the key -- the two main factors that can impact that. And obviously, we are happy about it and feel that it's a very healthy trajectory for our business.

Okay. Was there any pricing in that plus 20 contribution, there was some slight price increases on some of the business here.

No. It's mostly the catch-up that we did, but it's so small. I think that...

And then the growth in the cohort is it's small. Yes. So it's just kind of pure organic .

It's a pure organic growth. And this is why we're so excited about it. .

Okay. And that was x BASE44, the plus 20

That was x BASE44.

Okay. Could we maybe talk about pricing and the pricing philosophy for a little bit more. There was very little pricing taken this year, some pricing last year. You've previously talked about kind of every other year, not committing to it, but as like a kind of template for how you think about pricing. So how do you think about pricing and pricing opportunity today? And then on the studio is priced below the core editor -- why is that? And is there an opportunity to get studio, if it's a professional product that provides more to kind of catch up?

So it seems to be as very simple. We prioritized adoption to anything else, which was why we did just want to touch it. You have to remember that in studio in many cases, it's not necessarily new users that are buying, but the existing partners who are building the new project. So it's a little bit of a different mentality in how we -- the user mentality is a bit different, which is why we want to just keep things mostly on adoption and growth.

Generally speaking about pricing, again, we don't have a set date or a set cadence that we must meet of the roughly two years. Historically, if you look back in the last 6 or 7 years, that was kind of the cadence. But the way we go about it is we research. By the way, we research every year. It's just not necessarily we get to the decision to raise prices. Sometimes we do that just in order to stack it and make sure that it's easier for us to make the decision as we go along. And we want to always take a look at -- test a little bit always a little price sensitivity, understand what is changing the product, how do we -- why do you -- why would you raise prices? Usually, it's because you're giving people more than you did before, especially in the subscription business, when you raise prices, you raise prices to people who are already paying you, not only to people who are buying some -- a new subscription.

So we want to see that you've added enough additional value to justify it. And also, you want to see what's happening around you generally in subscription businesses on the Internet, how they're behaving, how are you stacked against your competitors. Many years ago, we wanted to be the lowest price point or at least have the lowest price points in the space. We've moved away from that. We prioritized ARPU and quality of the subscriptions against mass. And from that standpoint, we don't want to be the cheapest, but we also don't want to exceed the rest of the market and be the most expensive. So we have to take all of that into account as we calculate and figure out what we're going to do. I guess everyone is saying, oh, okay, Nir, are you going to raise prices in 2026? And the answer for that is, I don't know yet. Maybe, but I'm not sure.

Got it. So pricing is one aspect. ARPU has been going up regardless of pricing anyway you do provide more -- and so maybe we come back to GenAI here, because GenAI and monetization of GenAI products has been a driver of that. So can you talk about ARPU growth in general contribution from GenAI. And you guys have launched and continue to launch even outside of BASE44, a number of GenAI products, some of which you're monetizing directly.

So first of all, I think the contribution of GenAI to ARPU is we're starting to see it, but it's not very significant yet. It is mostly coming from the GenAI tools, ability to expose and help customers adopt more business solutions and functions that they didn't pay for, whether it's email marketing or using Google AdWords and things to advertise their business and things like that. So I think from that standpoint, that's a part of it, but it's not a massive one.

The other thing, I think, that's driving ARPU over time, obviously, is more GPV and maturity of commerce businesses that then gets attached. And the general kind of ongoing improvement to our products and their suitability for the business. Because a good amount of the ARPU increase is coming from people moving towards the higher-priced subscriptions, which are more business oriented in nature.

Yes. I think that the other thing is we've seen continued change in mix of our customers. When we will see much more mature customers with existing business -- and this is why, by the way, we see that for partners, the GPV already passed the 55%, while the contribution to the overall revenue is about 1/3, meaning that we see much more mature businesses with high GPV, using all kinds of business application. And this is what keeps on increasing the ARPU over time.

Okay. But let's spend a little bit more time on partners and studio. So I think last year, we spent -- we started with studio and spent a lot -- I think as much time as we did on Vibe coding on studio last year. Can you give us just a kind of general update on where Studio is? What's left? Like is there a new evolution of it, another product to come on the studio side adoption from partners and agencies and kind of where it sits today and the opportunity over the next 12 months, 12 to 24.

Well, I think the importance and the significance of partners in our business has not gone away. And if anything, it's even more important. And I think from that standpoint, Studio kept on being a driver of that success in that growth. We're still very, very happy with it. Obviously, you're hearing a little bit less about it, because after a while, you launched the product. Everyone is very excited then you need to hunker down, just incrementally improve it.

And we are seeing -- we're garnering the and getting the results on those ongoing improvements. going back to what Lior mentioned in kind of the higher GPV portion of the partners in the overall cake is a good example to that success. So I think from that standpoint, it remains a very important piece of our business and a very significant product for us.

Definitely, definitely, definitely, there's going to be a time probably in the future, where we want to iterate in a more deeper way than just small iterations and do something more significant. Not because anything is wrong just because you want to keep on improving your products and you want to keep on innovating, and surprising and delighting your customers in order to keep them happy. I definitely think that the -- there will be a call for another interesting upgrade to studio in the following 12 months or so.

Got it. And -- but adoption from agencies and partners, the building -- turning on more sites, building faster? Is that how it's going.

It keeps on trending similar to what we've been talking about in the past.

Got it. Okay. And then maybe just broadly on the Partner segment, decelerated a little bit, still growing very nicely in the mid-20s. How should investors think about the kind of growth profile for Partners.

I think that we should expect to have like more or less the same growth growing in -- also in the new medium term. I don't expect it to change, meaning that we still believe that it's going to be a high growth business for us in the next few years.

Is BASE44 an opportunity for the Partners business? Are you seeing any adoption on Vibe coding from them or still separate?

I think at some point, yes. By the way, also not only for their adoption, but just generally, eventually, there's always a use case for people to prefer somebody to do it for them. I could create my own beautiful app for my business, but I'm too busy. So even if I'm going to use and pay the subscription to BASE44, I would love to have some designer or a partner or agency to do it for me. My belief it is still, we're still very early in the cycle. I haven't seen it yet, but I do believe that there is a future in which this becomes also a part of it.

Okay. Self creators talked about getting back to 10% plus growth. I think that's still kind of the target -- what gets you there?

Greater product. Yes. This is what we've been doing for many years. I think that also, if you're looking at the last earnings that we provided about the continued growth. It's mostly about the product. It's product. Yes, of course, we can also -- there will be some price increase in the future, and you mentioned that. But I think that the key thing is about the product, and we've seen that.

The growth of the core that we really spoke about in the -- really at the very beginning of this discussion, was everything about and we said that it's pure organic growth about the product. And a lot of it is happening actually with self-creator. It's about them using, for example, the different AI tool to finish the website to their satisfaction, increased conversion, using more tools. It's about the product and we do intend to launch a significant product very, very soon and much more tools in order to support it. So definitely, I believe that we can get there.

Got it. No time line to share on the new product. Okay. Can you talk about what you're trying to solve in that new product that isn't available right now -- is that giving away too much.

Let's do that after we launch it, and then I'd love to explain.

Okay. All right. One interesting thing that you guys have done is you launched the kind of, I think you called it GEO, so generative engine optimization product. Can you talk about that what that solves for your customers? And are you -- what are you guys seeing in the changes in GenAI Search? -- how's driving traffic, I think, so I think search traffic was down a little bit. Organic traffic was up, like that having any impact for you guys. The interesting thing is that some other kind of SMB software companies called out search as a headwind, but it didn't seem to be a factor for you guys.

First of all, because honestly it hasn't -- we haven't seen that. I think we saw minor changes, but it's so small, and the overall was beneficial, which goes back to the ability to grow the core. But even if there's a tiny decrease on organic on SEO and a small increase on the AI Search, the -- it wasn't big enough for me to talk about headwinds or otherwise.

So I don't know, before us, it's still early, and we don't see that kind of a change. That being said, a big part of what we always have been working very diligently over the years to give our customers is the ability to deal with how to be found and how to drive the traffic to their own websites.

Some of it is data acquisition on their own or e-mail marketing and things that can attract customers -- and some of it for many years, was really improving the SEO capabilities in Wix. We were pretty much -- I think, the first company to get access to Google's Direct API to index our uses websites immediately after being there being published on Google. But we then supplied our customers with also very elaborate capabilities of how to improve their SEO position over time and make sure that they keep on getting traffic and that they use in -- they implement SEO in the right way.

We are starting to venture in this -- still to this new territory of the Agentic Search the AS search agents where there's -- you need to treat the website in a different manner in order to appear and to get the result -- the right results on the agent. It's early on. I'm sure it's going to keep on changing and evolving over time. But we have to keep ahead of it just in order to make sure that we give those customers the best advice and best tools to adapt their websites to this changing environment. By the way, my hope is some of it is going to be starting to get automated over time or semi-automated in a way that we can be a layer -- a technology layer in between that is going to do it for them as much as we can.

Because going back to what I said in the beginning about the Wix principles, first and foremost, we take this big technological challenges that keep on coming and evolving -- and again, if you're a big company, if you're a big business, you've got the deep pockets and then to deal with them. If you're a smaller business, midsize means a small business, tiny business, there's no chance you can deal with them on your own. And that's where we think we give the extra value for you in order to be successful. By the way, that's also why we can justify raising prices all the time -- we give extra value, nil value, not theoretical value.

Right. Okay. Any questions from the audience? We have about a minute left, go on upfront.

You talked about appealing to AI searches. Is that -- are you also looking at how to appeal to Agentic searches? Like how do you deal with a web of agents looking to do things automatically for others? Is that in the same category for you?

I think it's definitely looking at it, but it's still relatively early. You have to remember, a lot of those things are just being introduced. They're still not widely spread. It's still not -- definitely not been standardized. It will happen, and we are very much engaged. By the way, we're in a great relationship. It's pretty much all of the big players out there. And we'll create the right adaptations of the websites and also for our own business as things roll out.

Okay. 30 seconds buybacks, stock pressure just around the thematic stuff around GenAI, valuation is really attractive. I think you authorized more on the buybacks. How do you think about that capital allocation and the buybacks right now?

We'll keep doing, keep on doing. I mean it's even more so definitely when there's such a stock pullback. But generally, our commitment to our shareholders over the years have been first and foremost, to offset our stock-based compensation dilution. And then throughout the years also to aim to reduce the share count. And I think if you look at the past, put a trend line of share count over the past 3, 4 or 5 years, you can see that there is definitely a reduction in decline, and our goal is to continue doing so. Obviously, times like this, they supply an additional opportunity.

We've already bought more than $1 billion, definitely continue to do so.

Okay. Great. All right. That's our time. Thank you, guys. Really appreciate it. Thanks, everyone, for joining.

Thank you everyone.