Similarweb Q1 2024 Earnings Call Transcript

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May 8, 2024

There are 8 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to SimilarWeb Quarter 1 Fiscal 20 24 Earnings Call. All lines have been placed on a listen only mode, and the floor will be open for questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host, Rami Meyerson. Sir, the floor is yours.

Speaker 1

Thank you, operator. Welcome, everyone, to our Q1 2024 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 impact 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, our 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 February 28, 2024, and in particular, sections entitled Cautionary Statement Regarding Forward Looking Statements and Risk Factors therein for a discussion of the 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 information available as of today's date, May 8, 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, or results obtained 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 combination, 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 focusing 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 as an analytical tool and are presented for supplemental information purposes only. They should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.

Speaker 1

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. Similareb.com. Today, we will begin with brief prepared remarks from our CEO or author and CFO, Jason Schwartz. Then we will open up the call to questions from CellSouth Amherst in attendance. Please note that we published a detailed discussion of our Q1 2024 results in a letter to shareholders for investors for reference as well as an updated investor presentation of the strategic overview of the business, both of which are available on our Investor Relations website.

Speaker 1

With that, I will turn the call over to Ofer, CEO of SimileWeb. Ofer, please go ahead.

Speaker 2

Thank you, Rami, welcome to the team and your first conference call with us. And good morning and welcome everyone joining the call today. We kick off 2024 with continued momentum in both top line and bottom line performance and delivered very strong Q1 2024 results. We grew our revenue by 12% over Q1 last year to $59,000,000 and we generated nearly $10,000,000 of free cash flow, an amazing achievement we are proud of. Our global customer base grew 16 percent year over year to over 4,800 customers and the demand for our solution at the top of the funnel remains strong.

Speaker 2

Our customer and prospects appreciate and value the importance of our digital market data for their business. As a result, our pipeline remained robust and we are adding new customer and expanding our penetration into our market. We continue to invest to expand and enrich our CintaWeb digital market data. In Maersk, we acquired Admetrics, a digital ad intelligent leader. I would like to take this opportunity to welcome the Admetrics team to the similar web.

Speaker 2

Ad Intelligent is an important tool for corporates and marketing agencies. Online display advertising is estimates attract more than $174,000,000,000 in spending in 2024 according to Statista. For certain global brands, it's already compressive of 60% of their global advertising budget. We plan to leverage our digital ad data along with the Admetrics team's expertise to enhance our digital ad intelligent offering and launch what we believe will be the best and most comprehensive digital advertising intelligent data in the market. This will supercharge our competitive intelligent offering.

Speaker 2

We plan to integrate and monetize this intelligent data through all of our solution as well. For our shopper intelligent solution, we will add visibility into retail media online spend. For our stock intelligence offering, we will add for public company ad spend and ad revenue. And for our sales intelligence, we will improve our ability to help ad sales team with better data to find and qualify digital advertisers and publisher. And this is why I'm very excited about this opportunity.

Speaker 2

Last year, we introduced and successfully launched SimilarX, our AI driven digital intelligent assistant. Today, I am excited to tell you about SEM. SEM is our AI powered sales assistant module. SEM is designed to enhance sales efficiency and effectiveness by automatically delivering precise data driven insight about prospects directly into our customers' sales workflows. As we all know, our e mails are bombarded with call outreach e mails from salespeople that we all mark as spam, making it very hard for sales team to engage with our prospects.

Speaker 2

With SEM, salespeople can use AI text generation to suggest sales pitch that are much more likely to resonate with the potential customer. Same utilize our market insight data and prepare relevant database insight emails that explain to the prospect why they need to engage with the sales teams. And we already receiving fantastic feedback from early adopters of them, we have reported a significant increase in outreach response rates. For one of our customers, SEM increased response rates by 20x compared to their previous response rate. The same beta is now open and we are looking forward to seeing and it's adopting by our customers and its impact over time.

Speaker 2

I'm very proud of the continued profitability and free cash flow momentum. We delivered our 3rd consecutive quarter of non GAAP operating profit and a very strong free cash flow in the quarter. This is a great achievement for us and a solid result of the smart work and discipline of the whole Cimdor team. I'm also really happy to welcome Susan Dunn, our new Chief Revenue Officer. Having spent 32 years at Nielsen IQ, including as its revenue officer, Susan knows the market research world inside and out.

Speaker 2

She has a deep expertise in delivering the business value and operating impact of the market intelligence to many of the largest consumer brands in the world. Welcome, Susan. I'm confident that you are the ideal sales leader to drive our next phase of growth and expansion. Finally, I want to thank our team for another quarter of outstanding results and great execution. Remember, we are just getting started.

Speaker 2

Thank you, everyone, for your continued support. With that, Jason, I will turn the call over to you.

Speaker 3

Thank you, War. And let me join you in welcoming Rami and Susan to the team as well. Thank you to everyone joining us on the call today to discuss our Q1 results. I will briefly address our financial performance and then we will open up the call to questions. Our performance in the Q1 reflects good top line and bottom line momentum.

Speaker 3

Revenue was $59,000,000 for the quarter at the high end of our guidance range. Our $100,000 ARR customer segment now represents 58% of our total ARR, an all time high and NRR was 107% consistent with Q4 2023. An area of strength for us was in our largest customers where we closed 4 7 digit contracts during the quarter following the 10 7 digit contracts we closed in the 4th quarter and excellent results that supports our positive momentum. At the end of the Q1, 42% of our ARR is contracted under multi year commitments, demonstrating the strength and longevity of our customer relationships. Our remaining performance obligations also reached a new record of $214,000,000 up from $195,000,000 at the end of Q4, providing a positive indicator of our performance durability going forward.

Speaker 3

While our results on the top line were towards the top end of expectations, We exceeded expectations on our bottom line. Our non GAAP gross margin was 81% in the first quarter compared to 80% last year. Our 1st quarter GAAP operating loss was $2,700,000 while our non GAAP operating profit was $2,800,000 This resulted in a non GAAP operating margin of 5 percent and represented an improvement of 19 percentage points versus the prior year and the 3rd consecutive quarter of non GAAP operating profit. Our sustained focus on operating efficiency continues to deliver excellent results and we generated $9,700,000 in positive free cash flow in the 1st quarter, a 16% free cash flow margin and the 2nd consecutive quarter of positive free cash flow. As a result, we ended the 1st quarter with nearly $55,000,000 in cash and cash equivalents and no outstanding debt.

Speaker 3

Turning now to Q2 2024, we expect total revenue in the range of $60,000,000 to $60,500,000 For the full year 2024, we continue to expect total revenue in the range of $242,000,000 to $246,000,000 representing approximately 12% growth year over

Speaker 4

year at the midpoint of

Speaker 3

the range. Non GAAP operating profit for the Q2 is expected to be in the range of $1,500,000 to $2,000,000 For the full year, we expect our operating profit to be between 7 $1,000,000 $9,000,000 up from our previous expectations of $6,000,000 to $8,000,000 As we discussed at the beginning of the year, we are focused on delivering profitable growth and making further progress towards the rule of 40 over time. We anticipate being profitable on a non GAAP basis and generating positive free cash flow in all of the remaining quarters of 2024. And with that, Oren and I are ready to answer your questions.

Operator

Thank you. The floor is now open for And our first question comes from Arun Bhatia from William Blair. Go ahead, Arun.

Speaker 5

Perfect. Thank you. Hey, Jason. Hey, congrats on the strong results here. I wanted to ask on the go to market changes and the pricing packaging adjustments that you've made.

Speaker 5

Could you just share with us how customers are receiving those both at the low end and maybe how you plan to adjust or where you are in the process of adjusting go to market with on the enterprise side and I know you hired a new CRO, Susan. I'm curious what initiatives she might implement as she gets up to speed here?

Speaker 2

Hi, Arun. Thank you for the question. And so on what I heard that there was 2 parts for the question. The first one about change we rolled into the go to market. So I think there was 2 big changes we did in the beginning of the year.

Speaker 2

One is to centralize and give more focus around customer success effort to our lower part of our customer for our SMB customers. So give them more focus on value. And the second part is aligning on our strat account, basically building more focused pod by sector in order to give better support and value to our staff account. So those two changes rolled up in the beginning of the year and we've seen great success with them in the few months we hold them. And regarding the second question about Susan joining, so we're super excited.

Speaker 2

She just joined last week. So she and her literally her 2nd week. We're very excited that she come with a lot of experience selling data, insights, market research of Mifu. And I think she can help she will help us scale a lot our stop motion that is new to us. We're getting better.

Speaker 2

As you heard from the earning, we start closing more and more with 7 figure deals and we're seeing a huge success and potential at the start as our data is very unique. We consider really the top digital and data provider in the world. And I think there's a lot of potential, especially with the start and we're sure that Susan can help us a lot there. I hope it answers your question.

Speaker 5

Yes, very helpful. Thanks, Sorg. The other one I wanted to ask on sales intelligence or maybe if we zoom out even where you're seeing incremental demand amongst your product suites? It sounds like you are making some investments in sales intelligence from a product perspective, which is why I brought that up. But yes, if we could zoom out and just kind of think product by product.

Speaker 5

And then on sales specifically, I'm curious how you plan to monetize SAM.

Speaker 1

Is that something that's just going to

Speaker 5

be embedded or something that you could potentially have an add on pricing for?

Speaker 2

Yes, of course. So I think you're right, there is it's looking good on a few products that we sell. 1, our innovation product doing really nicely. We know we have a shopper intelligent, our stock intelligence, its new products we introduced lately that's doing well. We have a lot of custom product people come and want some unique data more on the strategic side and it's doing very well.

Speaker 2

And on the sales intelligence, yes, there's a lot of great innovation mostly on AI. And it was the first product we implement the AI strategy in order to enrich the workflow for the user. And if you think about it, we are like a market search company and the sales organization use us to find the most ideal prospect they should approach. And they use our platform to find interesting insights to share with those prospects to tell them, listen, I see this and this data in SimilarWeb, You should speak with me. I have a solution to help you solve this pain that I see.

Speaker 2

Now with AI, all this workflow can be automatically. So it's very nice. So you can tell the AI, listen, I'm selling a marketing automation software. Please find me all the companies online that their email traffic is not doing well compared to their competition. And write me e mail to send them to show them that they are not in a good place and they should speak with me.

Speaker 2

So the AI can optimize all this process, write the e mail and really help them open the door. And this is a very unique approach to sell because as I said in the earning call, we all feel this pain that we bothered with a lot of e mails of people try to prospect you that are just called e mail that everybody markets spam. And when you get these kinds of insights, that tailor to you, that show you that you have a pain, somebody can really help you. This approach from 40% is very powerful and really we're seeing a great increase of response rate to the customer that work with them. So we're really excited about it.

Speaker 5

Perfect. Very helpful. Thank you, Orest. Thank you, guys. Take care.

Operator

And our next question comes from Ryan McWilliams from Barclays. Go ahead, Ryan.

Speaker 6

Hi, thanks for taking the question. This is Pete Newton on for Ryan McWilliams. Or now that we're kind of further into the year, how have you seen macro impact your business at this point and how do enterprise spending budgets look for the rest of FY 'twenty four?

Speaker 2

Yes. So macro environment is kind of the same. Like we don't see it better like it used to be in 2021 or beginning of 2022. It's kind of, as I feel, going back to 2020 and when it was before. And we all just need to do we work harder and do better job and execution to scale.

Speaker 2

So I think this is what we see. And there was a second question or was there only one?

Speaker 6

Was just one for now. And then just how you think about budgets for rest of the year on the enterprise side, based off what you've seen so far early this year?

Speaker 2

I think it's looking good. I think it's looking in a good place.

Speaker 6

Okay, great. And then just a quick follow-up. Anything to call out in 1Q in terms of vertical performance?

Speaker 2

Yes. I think on the vertical performance, we have 2 teams that are doing great job, still executing very well. We have a vertical selling to invest over. It still performed really nicely. And we have the OEM team and the sell to companies that want to integrate our data into their own solution and software, which is also doing really well.

Speaker 6

Very helpful. Thanks guys.

Operator

And our next question comes from Brett Knoblauch from Cantor Fitzgerald.

Speaker 7

This is Tommy on for Brett. Congrats on the great quarter. Just on the acquisition of Admetrics, just I guess how we should be thinking about that. How much of the customer growth in the quarter can be attributed to customers coming over from that platform? And then how should we think about this contributing to the financials, both on revenue and margins as we progress throughout 2024 and beyond?

Speaker 3

Yes. Hi, it's Jason. Tom, thanks so much for the question. EdMetrix was really not a material contribution to the quarter. It's a great business and what we think EdMetrix is really going to provide is to when we take their knowledge together with our data, we're going to be building out a outstanding ad intelligence product and ad intelligence data that can be monetized across not only our research intelligence solution, but also our investor intelligence, stock intelligence, shopper intelligence.

Speaker 3

Everybody really needs those data points to tell them what's going on in whether you're an investor looking for that alternative data or whether you're a CPG company and trying to understand the trends of retail ads. So all of that is stuff that we think is going to be the driver of that ROI on this acquisition. Really excited about it.

Speaker 7

Awesome. Sounds great. Thanks, Jason. And then just if I may on retention, I guess, good stabilization in the quarter. We're seeing broader software churn, so it's great to see this.

Speaker 7

I guess what's driving the stabilization? Is it the new pricing and packaging model of SimilarWeb, demand for AI? I guess you guys mentioned the SAM a lot in the call and the press release. So I'm just curious to hear on that. Thanks.

Speaker 2

The retention is no, it's historical data information, do you think that the people that churn in Q1, they made it so we're talking about customers that decided to churn in November, December last year. So they don't didn't enjoy from all those nice benefits we launched now. I think if you're talking about the stabilization of the rate, right, because of that we were pulling last year that we now start collecting the fruits. We still did a lot of great changes, as I said, around our customer success organization in Q1 that we very eager to see how it's going to impact the retention going forward. We put a lot of the CEA around our SMB sector and we moved most of the people there to be value people focused on product engagement and education.

Speaker 2

So still hope that all these initiatives will help to increase retention of lifetime.

Speaker 7

Awesome. Thank you, guys, and congrats again.

Speaker 3

Thanks.

Operator

And our next question comes from Tyler Rife from Citi. Go ahead, Tyler.

Speaker 4

Hi, thanks for taking the question. Jason, maybe for you, just wanted to see if you could put a little bit more color on the assumptions in the outlook. Obviously, decent beat here in Q1. You guide in Q2 slightly ahead, but not raising the full year. Is that just conservatism?

Speaker 4

I know there's some go to market changes. Macro is a little bit shaky, but any changes that you'd like to highlight as you're thinking about the second half relative to 90 days ago?

Speaker 3

Hey, thanks, Tyler. You know us. We like to give guidance that we know to meet. We're really proud that we're hitting the numbers on the high end of the guidance that we've done. I think that we see that trend continuing.

Speaker 3

And on the profitability where we are seeing that efficiency coming through, we are we took the opportunity to raise the guidance on the profitability from $6,000,000 to $8,000,000 to $7,000,000 to 9 ,000,000 to $9,000,000 to $7,000,000 to $9,000,000 to $9,000,000 to $9,000,000 to $9,000,000 to $9,000,000 to $9,000,000 to $9,000,000 to the year. So we are looking at that where we see them make sense.

Speaker 4

Great. And then as you think about the SimilarWeb 3.0 with the lower upfront pricing, just as we're thinking about customer ARPU here, obviously, that's putting some short term pressure on that. When do you think that stabilizes just in terms of that ARPU? Is that next quarter or could this take a while and just given that you are still seeing pretty strong new customer additions?

Speaker 3

Yes. I think that the way to think about the model of the business is that we really have two ends of a barbell. On one hand, we've got these large customers, the over 100,000 that we take them from starting at 1,000 or 10 to 1000 together 100 of 1,000 of dollars. And now you're seeing those guys taking up to 1,000,000 of dollars in transactions. And that's a journey that we're really proud of.

Speaker 3

In fact, when you look at the $378,100,000 customers that we have at the end of the quarter, the overwhelming majority of them started well less than $100,000 Most customers don't start at that level. And so what we've seen is that journey is the right way for us to do. And we think that that's the that has been our success over time. And that's one of the things that we're doubling down. On one hand, you're going to see those large customers, those strategic accounts getting bigger And at the same time, we want to keep on having flow of 100, 200 customers every single quarter that come in because those customers become the NRR for 20252026 beyond.

Speaker 3

So we're actually very happy with the levels that we're seeing over here and if it goes up or down by $500 over time on the blended ARPU, we think that that's okay.

Operator

Our next question comes from Pat Wallevens from Citi. Go ahead, Pat.

Speaker 3

Thanks so much. This is Aaron Kimson on for Pat. First question, what sort of tailwinds are you seeing from tech customers using your data to train their large language models? And maybe can you help us quantify that in 1Q relative to 4Q and how you expect it going forward?

Speaker 2

I think we're still seeing nice momentum of companies looking to buy data to trading their LLM in different angles. So we still saw some nice activity in the quarter. Going forward, I don't know. It's an interesting question. We'll need to wait and see if this will still be hot topic.

Speaker 3

Got it. And then, Orest, can you talk about the current state of the Investor Intelligence product? What's on the roadmap there? I think you mentioned your prepared remarks adding ad spend and ad revenue and how meaningful driver of growth do you envision Investor Intelligence being going forward?

Speaker 2

Yes. And thanks for this question. So I'm super bullish about this product, this solution of Stock Intelligence. And we know it's our product that help you get all the different signals from the digital world that you can evaluate public company performance before they release their earning. And this software is part of what we will call the alternative data market that we assume is probably $10,000,000,000 market and growing.

Speaker 2

And we believe that the more we're going to increase the coverage. Right now, we support 3,000 stocks in a basic data that is multilectronic and engagement. And we have, I think, around a little bit above 100 stock that are more advanced when you can get signals that can show you revenue growth, customer growth and you get more signals that correlate with what the companies are reporting and this is very exciting. You can really see a very clear R square that we can predict some companies' performance and

Speaker 1

it is very

Speaker 2

impressive. Now going forward, we still have a lot of data assets we need to map to different signals and upload to this platform. So I know that in the roadmap, they're going to introduce our app data. We have very good app data about usage and think about that you can see how many people install Tesla app on their phone. This is very strong correlation to how many Tesla cars have been sold on there.

Speaker 2

So this data set will go into the platform in this quarter. And we have more data set like technographic, about how many people implement Zendesk Chat in their website. This is a very strong signal for Zendesk adding customer in a quarter. Those are amazing signals. This technographic data set would introduce also all this quarter or next quarter into the stock intelligent.

Speaker 2

So very exciting thing there and I'm super bullish about this solution.

Operator

And there appear to be no further questions at this time. I'd like to turn this back to management for any closing remarks.

Speaker 2

Thank you, everyone. We're super excited on the quarter results, especially the almost $10,000,000 free cash flow. Super proud on that and just getting started. Thank you, everyone.

Operator

Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time and

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