Similarweb Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 14, 2024

There are 9 speakers on the call.

Operator

Greetings, and welcome to SimilarWeb's Q4 Fiscal 2023 Earnings Call. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, R. J.

Operator

Jones, Vice President, Investor Relations. Please go ahead.

Speaker 1

Thank you, operator. Welcome everyone to our Q4 fiscal year 2023 earnings conference call. During this call, We will make forward looking statements related to our business. These statements may include the expected performance of our business and our future financial results, Our strategy, the potential impacts of rising interest rates, rising global inflation and current macroeconomic and geopolitical conditions, including the current war in Israel, Challenges in our business and in the markets in which we operate are anticipated long term growth and overall future prospects. These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or implied during the call.

Speaker 1

Further reported results should not be considered as an indication of future performance. Please review the forward looking statements discussion in our shareholder letter along with our Form 20 F filed with the SEC on March 23, 2023, and in particular, the sections entitled Cautionary Statement Regarding Forward Looking Statements and risk factors therein for a discussion of factors that could cause our actual results to differ from the forward looking statements. Also note that any forward looking statements made on this call are based on available information as of today's date, February 14, 2024. We undertake no obligation to update any forward looking statements we make today, except as required by law. As a reminder, certain financial measures we use in presentations of results and on our call today are expressed on a non GAAP basis.

Speaker 1

In particular, we reference non GAAP operating profit or loss, which represents GAAP operating profit or loss less share based compensation, adjustments and payments related to business combinations, amortization of intangible assets and certain other non recurring items. We use this and other non GAAP financial measures internally to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes. We believe these non GAAP financial measures, when taken collectively may be helpful to investors because they provide consistency and comparability with past financial performance by excluding certain items that may not be indicative of our business, results of operations or outlook. However, non GAAP financial measures have limitations for financial information prepared in accordance with GAAP. A reconciliation between these GAAP and non GAAP financial measures is included in our earnings press release, which can be found on our Investor Relations website at ir.

Speaker 1

Similarweb.com. Today, we will begin with brief prepared remarks from our CEO, Or Offer and our CFO, Jason Schwartz. Then we will open up the call to questions from sell side analysts in attendance. Please note that we published a detailed discussion of our 4th quarter fiscal year 2023 results in a letter to shareholders for investors to reference as well as an updated investor presentation with a strategic overview of the business, both of which are available on our Investor Relations website. With that, I will turn the call over to Or Offer, CEO of SimilarWeb.

Speaker 2

Thank you, RJ, and welcome, everyone, joining the call today. In Q4, we reported another quarter of growth and operating improvements. We grow our revenue by 11% over Q4 last year to 56,800,000 Our global customer base grew 16% year over year to over 4,700 customers And our average customer spends around $50,000 with us annually. The top of our funnel continued to stay We had around 13,000,000 visitors to our free tools at similarweb.com in Q4 and we 120,000,000 visits to our tool in 2023. As a result, our pipeline remains robust We are adding new customer and expanding our penetration into our market.

Speaker 2

The changes we made to packaging, insights and navigation in the launch SimilarWeb3.0 in Q3 are bringing in new customers, creating upside from bigger average orders at renewals. We are excited to see all the new customers at our entry level price points, especially in our monthly packages, which are no touch with low acquisition costs. Pricing alignment with our customer with 3.0 has greatly enhanced our go to market mode and improved our offering to our enterprise customers. It is even better with our strategic customers who are reaching new heights with us. We closed a record number of 7 figure deals during the 4th quarter because some of the largest companies in the world are recognizing the value of actionable insight they can be extract from our data at scale.

Speaker 2

We are rapidly becoming a go to source for data to power up competitive advantage for the largest companies who are investing massive resource into Gen AI. We believe that we are just getting started with what is possible with generative AI and only beginning to see its tremendous growth potential for us. I'm very proud of our team as we achieve an important milestone that we want to reach this year. We were Profitable on a non GAAP basis in the 4th quarter and our Q4 non GAAP operating margin show a strong improvement of 30% points compared to last year, which led to us achieving our 1st positive free cash flow quarter since our IPO. This is a great achievement for us and reflects a lot of smart work and discipline from our team.

Speaker 2

We want to continue to build on this performance in the coming year in terms of growth, profitability and free cash flow. To do this, we are focused on execution in 4 areas. 1st, we intend to build on the positive momentum with our strategic account. We want to land and expand in those large global customers. 2nd, we are focused on increasing the net retention of our enterprise and SMB customers, Helping our customer to take advantage of everything in Civil Lab 3.0 is a customer success priority for us.

Speaker 2

3rd, we will enhance and innovate in our product line. One area where we have a great opportunity to drive market penetration is with our mobile data and app intelligence as well as by unleashing our own Gen AI similar as capabilities with our data. Lastly, we will continue to operate efficiently. We'll carefully invest when needed to support growth and create operating leverage. Thank you, everyone, for your continued support.

Speaker 2

We look forward update everyone on our progress. With that, Jason, I will turn the call over to you.

Speaker 3

Thank you, War, And thank you to everyone joining us on the call today to discuss our 4th quarter results. I will briefly address our financial performance and then we will open up the call to Our performance in the 4th quarter reflects our focus on disciplined execution. Revenue was $56,800,000 for the quarter and exceeded the high end of our guidance range. For our $100,000 ARR customer segment, to 120% in Q4 last year and now represents 57% of our total ALR. Closing out the longer sales cycles we have seen in 2023, customer acquisition and logo retention were steady in the Q4.

Speaker 3

And as Orr mentioned, an area of strength for us was in our strategic accounts where we closed 10 7 digit contracts during the quarter, an outstanding result that is fueling our positive momentum. As we concluded 2023, 42% of our ARR is contracted under multi year commitments, demonstrating the strength and longevity of our customer relationships and our remaining performance obligations also reached a new record of $195,000,000 a positive indicator of our performance durability going forward. While our results on the top line were better than planned, we also exceeded expectations on our bottom line. Our non GAAP gross margin reached 81% in the 4th quarter. Our 4th quarter GAAP operating loss was $1,100,000 While our non GAAP operating profit was $4,700,000 this resulted in a record non GAAP operating margin of 8% and represented an improvement of 29 percentage points versus the prior year.

Speaker 3

Our focus on operating efficiency throughout 2023 drove excellent results, culminating in us generating $3,500,000 in positive free cash flow in the 4th quarter, a 6% free cash flow margin. We achieved our stated goal of becoming free cash flow positive as we enter 2024, which is a momentous result for our team. Turning now to Q1 2024, we expect total revenue in the range of $58,500,000 to $59,000,000 For the full year of 2024, we now expect total revenue in the range of $242,000,000 to $246,000,000 representing approximately 12% growth year over year at the midpoint of the range. Non GAAP operating profit for the 1st quarter is expected to be in the range of $1,000,000 to $1,500,000 For the full year, we expect our operating profit to be between 6 $8,000,000 In 2024, we are focused on achieving profitable growth and making progress towards the rule of 40. We anticipate being profitable on a non GAAP basis and generating positive free cash flow in all four quarters of 2024.

Speaker 3

As we navigate the current macro environment, we are building momentum and increasingly optimistic. We believe we are well positioned to take advantage of the mass adoption of generative AI by the world's largest businesses, which is just beginning. We believe that companies that leverage our data and insights will achieve lasting data driven competitive advantages, ones that will be sustained with our unique and powerful offering in the near and long term. And with that, Oren and I are ready to answer your questions.

Operator

Thank you. At this time, we will be conducting a question and answer session. The first question we have is from Arjun Bhatia of William Blair. Please go ahead.

Speaker 4

Hey, guys. It's Rachel on for Arjun. Thanks for taking my question and congrats on the quarter. I wanted to ask about linearity in the quarter and then into Q1 so far, it looks like some of the underlying metrics like CRPL and then net new customers outpaced revenue growth. So any color on linearity would be helpful.

Speaker 4

Thanks.

Speaker 3

Hey, Rachel, it's Jafin. Thanks for the question. We did see Some more back end of the on the linearity, particularly with some of the bigger deals that were closed in the latter half of the quarter. So you do see some linearity over there. But we're really excited with the results that we had and I think this is a Good indication of what we should see going forward.

Speaker 4

Awesome. Thanks. And then just one more maybe on some of those bigger deals. Were those deals that got pushed out from earlier quarters? And then anything specific you would attribute that momentum to with those strategic customers?

Speaker 2

Yes. So I think that a lot of those deals happened in Q4 and closed in Q4. I think that our strategic motion gets better and better. We did a lot of improvement in the past year round pricing, packaging, introducing and innovation, a lot of solutions. And all of those are start to yield fruits that we are very And Jason, if you have something to add?

Speaker 3

Yes. And then we've been saying for the last couple of quarters how sales cycles were elongated. Some of these deals have been in the pipeline for a while and just took a long time to close. We're very excited to see that that did ultimately that those deals did ultimately convert and are providing us Good momentum as we enter 2024.

Speaker 4

Yes, makes sense. Thanks for taking my question and congrats again.

Operator

The next question we have is from Shireen Dossend of Jefferies. Please go ahead.

Speaker 5

Thank you. I'd like to touch base on NRR and more specifically those customers that are averaging below $100,000 in contract value. Can you talk a little bit about the churn level there? It's continuing to decline at this point. Any color that you can provide there of where we think it should stabilize?

Speaker 5

It seems like it's stabilizing, but I just want to kind of understand that cadence.

Speaker 2

Hey, it's all. It is stabilized. We see it stabilize and we see even a little bit increase if you look on the logo retention. I think it's the best indication to see that there is a shift momentum. So in the global retention, you will see improvement in the retention rate.

Speaker 2

So we're seeing this indication positive now.

Speaker 5

Thank you. And then in terms of just As you think about the multi year contracts, how do you anticipate that impacts the cadence of the recovery at this point, obviously, there will be some clients that are coming up for renewal that maybe haven't renewed at the lower desired levels that they would have just because of being involved in the longer contracts?

Speaker 2

I don't see any good impact. Those customers that are multi year are usually companies that really love our solution and decided to engage with us for the long term And because they feel they got a great price and great Hawaii for what they paid. So I think they will come and we will able to close them to even more years down the road and even offer them more products, those are our best customers.

Speaker 5

Got it. And then I guess the final question here as you think about SimilarWeb 2.0, the rollout, the initial uptake, How do you anticipate it impacts the payback period?

Speaker 3

Yes. Great question and thanks, Surendra. We actually start seeing the what will start happening on the payback period is more and more Time to close the deal, in other words, the speed at which we're able to get that And those deals starting to close faster will drive that yield will drive the better ROI or recovery on the cash side. So We see that starting to impact and we should see some more of that towards the middle or latter part of 2024.

Speaker 5

Got it. And then the final related question just There would be as you think about the initial uptake, obviously, clients coming in at smaller packages size. What is the path for the upgrade there to get them to more normalized for what you would what I would call target account levels? Is that How much of that is near term macro driven? How much of it does it provide with you as an engagement point?

Speaker 5

Just any initial color there at this point of how those conversations are going?

Speaker 3

Yes. We're very encouraged by what we're seeing The 3.0 pricing, when we look at the 3.60 some customers that are over 100,000 dollars. The overwhelming majority of those customers historically started well below $100,000 And what we've done over the years is take customers through that journey, starting with one solution, good, going to better, going to best, And then going from one solution to a second solution, third solution, and that's how you take somebody from being a $10,000 customer going tens of 1,000 to 100 of 1,000 and even multimillion. I think what 3.0 was really institutionalized that into best practices With scalable needed measures that make it easy and more seamless for customers to start at an entry level price, which is easy for them to transact at and grow over time, and we're starting to see that play out. We feel very encouraged that this is the right way to engage with our customers and think that it will impact not only the speed that we're able onboard customers like the 16% logo increase that we saw this year, but also the improvement of NRR over time.

Speaker 5

Thank you. That's it for my questions.

Speaker 2

Thank you. The

Operator

next question we have is from Ryan McWilliams of Barclays. Please go ahead.

Speaker 6

Hey, guys. This is Damon Coban on for Ryan. Thanks for taking the question and congrats on the results. Great. Great.

Speaker 6

Customers. We noticed a comment in the shareholder letter that 4Q's performance from both logo retention and upsells should affect NRR positively in the future periods. Should we take that as 4Q being the potential trough And what's some stability in 4Q in 20.4?

Speaker 3

Yes. We think that we have hit the trough and we're looking forward to seeing That metric continued to expand and grow over the year. It's as we also mentioned, Larry, it's a focus area for us to drive that improvement as well.

Speaker 6

Excellent. And also great to see momentum and improvement in overall net new customers. Do you view this as maybe a budget plus at year end or is this essentially a sign for positive trends in customer buying behavior?

Speaker 3

I don't think that was budget flush. I think that it was more about buying patterns. I think, again, Some of the simplicity that we've introduced with 3.0 and the packaging that we have makes it easier for people to get started. And you see that that's impacting the number of logos that we're able to onboard and we're very excited about that.

Speaker 6

Perfect. Thanks, guys.

Operator

The next question we have is from Jason Helfstein of Oppenheimer. Please go ahead.

Speaker 6

Hi, this is Steve on for Jason. So I have two questions. Number 1 is you added 341 accounts quarter over quarter, that's the highest in your time as a public company. Was the strength solely driven by customers signing up for and utilizing similar 3.0 at lower pricing or was there something else at play? And then secondly, where do you see the most upside within your products, e commerce, app store or competitive benchmarking?

Speaker 6

Thanks.

Speaker 2

Yes. I think the strong momentum is that it's a very good execution from our team. Also, we have the self serve offering that a lot of customers choose to buy yearly, so it's also nice boost. And going into this year, I do see a good First one, on the core offering, the competitive intelligence use case is very strong. There's a lot of improvement there.

Speaker 2

I think the shopper that is the e commerce or people buy online solution is also doing very well. So I think all of them have great momentum right now as we into 2024.

Operator

The next question we have is from Tyler Radke of Citi. Please go ahead.

Speaker 7

Yes, thanks for taking the question. Good morning. So wanted to go back to the large 7 figure deals that You saw in the quarter, sounded pretty encouraging on that front. Can you just talk about what industries You saw those in was this kind of more within the investor intelligence space or more B2C, B2B. And then I'm just curious like if you compare and contrast over the last 90 days and you look at your segments across SMB, mid market and enterprise.

Speaker 7

If you could just provide some color on which ones are getting better or worse or staying the same, just so we can kind of think about the moving pieces on the demand side? Thank you.

Speaker 2

Hi, Taylor. I think the momentum we're seeing in our strat account is a lot of The sectors we serve in the stock accounts are mostly CPGs, the big CPGs of the world, Telcoin Financial Services and Big Tech, all of them we're doing well. We did a lot of great change with way we operate our strat motion, focus them, working closer with the big accounts, so all across the board we see good momentum there. And what was the second question?

Speaker 7

Yes. If you just looked across your kind of 3 key segments, Your enterprise and Strat, mid market and SMB, which ones from a demand perspective got better or worse relative to The Q3, did you see further stabilization across everything or maybe SMB was still challenged, but enterprise got stronger. Just curious How kind of the demand patterns compared across those relative to 90 days ago?

Speaker 2

Yes. I think we saw in Q4 a little bit acceleration in the Strata, as we're saying. Strata was doing really great. And also in the low part of the market in S and B, we saw a strong momentum. So those 2 really with acceleration.

Speaker 7

Great. And then maybe a question for you, Jason. On the expense side, obviously, Pretty impressive margin expansion this year and I think operating expenses were down 14%, which is pretty significant. How are you thinking about just given that you are starting to you are profitable On a non GAAP basis, you're starting to see some positive momentum in the business. What how are you thinking about the spending forecast for next year, what are the areas you're comfortable deploying incremental investments in and where are you still being cautious?

Speaker 7

Thank you.

Speaker 3

Yes. Thanks for the question. We What we're really using is the rule of 40 as a guide. We think and as we've I said before and want to reiterate that now that we've got to profitability, we intend to stay there. But we still think that there's that we're just at the beginning of the penetrating TAM that we see in front of us.

Speaker 3

So we will continue to be a profitable business, both on a cash flow and on an operating basis. But If we see the opportunities to continue to invest back in the business that will drive more top line growth, we will continue to do that Both on the sales and marketing side and on the R and D side.

Speaker 5

Thank you.

Operator

The next question we have is from Pat Walraven of Citizens JMP. Please go ahead.

Speaker 8

Great. Thank you and happy Valentine's Day guys. I have two questions. The first one is, I was talking to a partner at a big venture fund who said a year ago it was all about cutting costs and now we're starting to think about growth again. Is that part of what's going on with you guys?

Speaker 2

Yes. Yes, I think we've been into a process of cutting costs Turned the company to profitable. And now then when we're done with that, we all we back all hands on driving growth, but possible growth, as Jason said, accelerating growth again, but maintaining the possibility. As we said in the earnings call, we expect to have free cash flow every producing free cash flow every quarter during 2024.

Speaker 8

But I'm wondering, are your customers starting to shift from cutting costs to thinking about growing and investing again?

Speaker 2

I would say that you're probably right. I will say that in a lot of the markets, it's probably going through the same transition we've been through. So most of the corporate, they're finishing with the cost optimization and now all eyes on growth, Like how we can grow, but in a responsible way.

Speaker 8

Yes. And then, Orest, can you just give us an example on The Gen AI side and how your data fits in?

Speaker 2

I think that the AI is every LLMs, they need the unique data that you need to train them on. So first of all, some companies use our underlying data to train their LMs to be smarter, to understand the Internet better. So this is one big angle. The second angle, you know that consumer behavior change. So because Gen AI come and people behave differently.

Speaker 2

They search differently. They use a lot of companies implement co pilots and AI. So There's a lot of demand from the big corporate around consumer behavior change. So is my consumers behave different than before? And then they need market visibility, and this is where SimilarWeb is best in the world to give you visibility how consumer behavior change.

Speaker 2

Those two angles that AI is driving is really give us a nice tailwind.

Speaker 8

Awesome. Thank you.

Operator

We have reached the end of the question and answer session.

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Key Takeaways

  • Q4 revenue was $56.8 M, up 11% year-over-year, and SimilarWeb achieved its first positive free cash flow quarter since its IPO, with non-GAAP operating margin improving by 30 percentage points.
  • The global customer base grew 16% to over 4,700, with an average annual spend of $50 K, and the company closed a record number of seven-figure deals in Q4, particularly among strategic and enterprise accounts.
  • The launch of SimilarWeb 3.0—featuring revamped packaging, insights and monthly self-service pricing—has accelerated new customer acquisition and expanded deal sizes at renewal.
  • Management’s 2024 priorities include expanding within strategic accounts, boosting net retention across enterprise and SMB customers, innovating in mobile/app intelligence and generative AI, and driving disciplined spending for profitable growth.
  • SimilarWeb is positioning its data as a critical input to large companies’ generative AI initiatives, supporting AI model training and insights into evolving consumer behavior.
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Earnings Conference Call
Similarweb Q4 2023
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