Similarweb Q2 2024 Earnings Call Transcript

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August 7, 2024

There are 8 speakers on the call.

Operator

and welcome to your SimilarWeb Q2 'twenty four Earnings Call. All lines have been placed on a listen only mode and the floor will be open for questions and comments following At this time, it is my pleasure to turn the floor over to your host, Rami Myerson. Sir, the floor is yours.

Speaker 1

Thank you, Karen. Welcome everyone to our Q2 2024 Earnings Conference Call. Joining me today are our CEO and Co Founder, Paul Arthur and our CFO, Jason Schwartz. Yesterday, after market close, we released our results for the Q2 and published a discussion of our results in a letter to shareholders as well as an investor presentation with a strategic overview of the business on our Investor Relations website at ion.similarweb.com. Certain statements made on the call today constitute forward looking statements, which reflect management's best judgment based on currently available information.

Speaker 1

These statements involve risks and uncertainties that may cause actual results to differ from our expectations. Please refer to our earnings release and our most recent annual report filed on Form 20 F for more information on the risk factors that could cause actual results to differ from our forward looking statements. Additionally, certain non GAAP financial measures will be discussed on the call today. Reconciliations to the most directly comparable GAAP financial measures are available in the earnings release and the earnings presentation. We have decided to shorten our prepared remarks, so we will begin with all of Jason's highlights of the quarter, and then we will open the call to questions from sales side analysts.

Speaker 1

With that, I'll turn the call over to Paul. Paul, please go ahead.

Speaker 2

Thank you, Rami, and welcome everyone joining the call today. 3 years after ringing the bell at the New York Exchange following a successful IPO, we are proud that SimilarWeb today is a growing profitable and cash generating company. I'm super excited that this quarter, our efforts to accelerate growth were successful. Our growth is primarily driven by improved go to market motion and the innovation that we're doing on our R and D side. As a result of those successful efforts, we feel confident in our continued business growth, and we are increasing our outlook for 2024 revenue and non GAAP operating profit.

Speaker 2

During the quarter, we were able to upsell and sign the contract with our first 8 figure ARR customer and increase our customer count to more than 5,000 customers. It is great to see the continued demand for our data from both new and existing customers. Last week, we launched our newest improved version of our digital data estimation. The new version significantly enhanced our accuracy and coverage of our data and provide broader insights for more than 30,000,000 new websites that we added to our coverage and many more countries than we had included in our previous data version. We're excited with those new data improvements and the potential that they're bringing.

Speaker 2

This new improvement will increase our position as the leader in the digital market data, and we already got initially good and positive feedback from our customers. We continue to benefit from the positive tailwind of the AI revolution. As part of the significant investment in AI infrastructure, many large global tech companies are engaging with us to access our digital data to feed their LLM model. Those companies recognize that LLM require high quality, fresh and scalable data to generate and update outputs and realize the potential of our data to feed their model. They also recognize that similar digital data is the most unique and high quality data source in the market for their model.

Speaker 2

Some of the world leading LLMs are already training on SimilarWeb data. We believe that there is even more ways SimilarWeb can benefit from the AI revolution. We're seeing that many of the large global consumer brands are eager to learn how the new world of AI and chatbot is changing their customer online behavior, And they are keen to understand how the path to purchase is changing, where consumers are doing the research before making purchase decision and how the new AI chatbots are impacting this behavior. This is where our digital consumer data is already providing a range of insights, and I believe that this is a great opportunity that can have a significant potential for similar web as the AI revolution evolves. In July, we acquired 42 META, a Swiss app intelligent provider to expand our app data capabilities in the rapidly growing app market.

Speaker 2

By combining 42 Metals and similar web, we have expanded our app intelligent offering across app store data, app engagement, and app SDK data. We can now provide enhanced insights for the app developer and brand into the performance of their own app versus of their competitor and their markets.

Speaker 3

We are

Speaker 2

also going to add this air market data to enrich all of our other solutions that will benefit from the combination of having web and app data in one platform. We would like to welcome the 42 Metals team to the similar web and look forward to working together to build the number one global app intelligent provider. I want to thank to the whole team for another successful quarter of excellent results and growing execution. We believe that we are still only starting to realize the potential of our data addressable market we serve. And as I like to say, we are on we are just getting started.

Speaker 2

Thank you everyone for joining the call today and continue your support. With that, I will turn the call over to Jason. Jason?

Speaker 4

Thanks, Omar, and everyone joining us on the call today to discuss our Q2 results. I'll provide highlights of our financial performance and then we'll open up the call to questions. Revenue growth continued to accelerate to 13% year over year in

Speaker 2

in

Speaker 4

NRR of 109% for our over $100,000 ARR customer segment, an improvement relative to the Q1 of 2024. We believe this quarter's NRR demonstrates a change of the trajectory and expect further improvement in the quarters ahead. Our operational performance in the quarter demonstrates our continued commitment to disciplined execution and we delivered a 4th consecutive quarter of non GAAP operating profit and a record non GAAP operating margin of 9%. We generated $6,000,000 of free cash flow in the quarter and $16,000,000 of free cash flow in the first half of twenty twenty four. Our remaining performance obligations or RPO totaled $217,000,000 at the end of Q2 'twenty four, up 24% year over year.

Speaker 4

We expect to recognize approximately 75% of total RPO as revenue over the next 12 months. Following the strong results that we're reporting today and that exceeded expectations, we are raising our guidance for both revenue and non GAAP operating profit for the full year 2024. In Q3 'twenty four, we expect total revenue in the range of $62,500,000 to 63,000,000 approximately 15% growth year over year at the midpoint of the range. For the full year 2024, we expect total revenue in the range of $246,000,000 to $248,000,000 a $2,000,000 increase from our previous expectations. Non GAAP operating profit for the 3rd quarter is expected to be in the range of $2,800,000 to $3,200,000 For the full year, we expect our operating profit to be between 13 $1,000,000 up from our previous expectations of $7,000,000 to $9,000,000 Our guidance reflects increased operating expenses primarily related to increased headcount in which we intend to invest to further accelerate our revenue growth.

Speaker 4

We anticipate being profitable on a non GAAP basis and generating positive free cash flow in all of the remaining quarters of 2024. We remain focused on delivering profitable growth and making further progress towards the rule of 40 over time, as well as achieving our long term profit and free cash flow targets. And with that, Oren and I are ready to answer your questions.

Operator

Thank you. Ladies and gentlemen, the floor is now open for questions. And we'll take our first question from Arjun Bhatia from William Blair. Please go ahead.

Speaker 5

Perfect. Thank you guys and congrats on a great Q2 here. One thing that stuck out to me in the shareholder letter and or in your prepared remarks is that you're getting interest from some of these large tech companies to buy your data to train their LLMs. It sounds like you had that from that 8 figure customer you mentioned. So when you think about just the economics of that, how do you make sure value is aligned?

Speaker 5

And how do you go about pricing a use case like that? And it sounds like you're expecting more of these. So any insight into how that kind of flows through the business side for SimilarWeb would be very helpful.

Speaker 2

Hey, Harjem. Thank you for the question. It's a good question. And I had two questions here. The first one is about the demand for this offering.

Speaker 2

So we do see increase of demand for consuming more digital data by those big tech companies that's building those LLMs. So we

Speaker 1

are expecting

Speaker 2

this offering to accelerate down the road. And regarding pricing and packaging of this offering, it's a good question. It's new. And there is still few ways how you can price and package it. It's a lot about consume and there's many ways the customer would want to get the data.

Speaker 2

It's a lot very custom. And but I think we're doing good job now, building trust and working as a good partner with those companies to build a great solution for them.

Speaker 5

Very interesting. Okay. We'll stay tuned on that. And the other one, I think when I look at your growth drivers, it looks like the $100,000 the revenue from $100,000 plus customers is growing above 20%, at least by my estimation from your disclosures, which is much higher than your overall revenue. So what is driving that?

Speaker 5

And maybe can you just touch a little bit on the similarities and differences in demand that you're seeing from smaller customers versus larger ones and how buying behaviors are maybe diverging between those two groups?

Speaker 2

Yes, we do see more success in the strategic account in the past quarter or so. We become much better with serving those customers as we announced. We've got our first 8 figure customer this quarter that was super excited. And we're becoming better with the way we serve them, the way we work with them. And because we do serve the biggest companies in the world and the appetite for digital data is increasing.

Speaker 2

So there's a lot of opportunity and we're doing a great job though. I don't know, Jason, maybe you have anything to add on that?

Speaker 4

Yes. I would probably just add that, remember, part of that is also intentional. One of the things that we did with 3.0 was to make it easier for customers to get started with an onboard with SimilarWeb. And we know the Apicos based on the history and you see that in this 8 digit customer that we announced yesterday was we started as a few tens of 1,000 of dollars and over time grew 450x to an over 8 digit customer. And they have bought 4 of our solutions across multiple departments and multiple geographies.

Speaker 4

And that's the kind of journey that we see over and over again. And so the customers start and we land with them, we could land with them in a more nominal number than the $100,000 or what. But over time, they land, retain and expand and then you start seeing them. When they get to that $50,000 $100,000 number, they start realizing that there are even more and more places where they can leverage our data, whether it's through the productized solutions or the DaaS and integrations that Or was talking about.

Operator

Thank you. And we'll take our next question from Jason Helfstein from Oppenheimer. Please go ahead.

Speaker 6

Hi, this is Steve Hohman on for Jason. So just one question from us. Do you expect SimilarWeb 3.0 to continue sort of driving lower ARR per customer given kind of the lower entry points allow companies to kind of just start up quickly? And just a follow-up on that.

Speaker 2

Yes. We took the strategy to make it much more easy landing, and this is why you're seeing a nice acceleration in our logo growth customers. We're also seeing great success in our self sourced customer that come just put credit card, trying to get familiar with this digital market data. And then as they getting more familiar, they're ready to move on from a yearly engagement. So we're seeing a very strong success there.

Speaker 2

So it's really proved itself to give easy lending for our customers and then grow them over time.

Speaker 6

Awesome. And just a follow-up. In terms of margins sort of on that kind of per customer, I was wondering for smaller customers, do you see that there's almost better margin there because there's a lot less that you have to spend to service them? Yes.

Speaker 2

On the self serve customer, yes, for sure. It's a very good margin. And so you're right about it. It's probably what you're seeing increasing our overall AOV because we're getting much more customers in the lower part, but we're very confident on our ability to increase their AOV over time.

Speaker 6

Understood. Thank you.

Operator

Thank you. And our next question comes from Surinder Thind from Jefferies. Please go ahead.

Speaker 4

Thank you. First question is just on the plan for increased headcount. Any color that you can provide there in terms of is this more sales focus, a lot more engineers? How should we think about the build out of that part of the expense profile?

Speaker 2

Mostly sales related. We're seeing strong momentum, revenues increasing. You can see that we are able to increase our growth in the past 3 quarters, 11% to 12%, now 13%. We already gave guidance for next quarter that talk about 15. And it's mean that we need to hire more customers success to deliver the book of business.

Speaker 2

We're seeing a lot of opportunity ahead of us. So this is mostly the implicit headcount.

Speaker 4

Thank you. And then for the net revenue retention for when we look at clients that are smaller than $100,000 any incremental color there? It seems like the trends are bottoming. Is that a fair read of where the data is and what you're seeing at this point? We're also approaching the 1 year anniversary of the rollout of the new sales motion and if that would somehow inflect the NRR number.

Speaker 2

Yes. So we're seeing a positive trend on the retention, as you can see in the numbers. We're super happy about that. All of those efforts is, of course, efforts we started a year ago and now we start to collect those fruits. So you're right about your assumption.

Speaker 4

Thank you. That's it for me.

Operator

Thank you. And we'll take our next question from Ryan McWilliams from Barclays. Please go ahead, Ryan.

Speaker 7

Hey, guys. Thanks for taking the question. On the 42 Matters acquisition, Or would love to hear about just how you're seeing interest from customers on monitoring mobile app analytics at this point? And from Jason, how are you thinking about the top and bottom line contribution from 42 Matters? And is anything baked into the guide?

Speaker 7

Thanks.

Speaker 2

Okay. So thank you, Ryan. And let me answer the first question. I'm going to let Jason answer the second one. So from our customers, we know for a while that the majority of our customers, when they operate in the digital world, they have usually a website asset that they need to grow and a lot of them have apps, assets that they also want to be successful.

Speaker 2

Sometimes the app is more for retention play. But I think that most of our customers that want to do digital research or digital investment, who want to see an holistic view about the digital world that is a combination of web and app together. And this acquisition will enable us to provide this holistic view to the customers. And we see that there's probably a lot of cross sell upsell opportunities because the majority of our customer, doesn't matter if it's B2C, B2B or Investo, you probably would want to have access to both of those insights. So I'm very optimistic and bullish on that acquisition.

Speaker 2

And Jason?

Speaker 4

Yes. Hey, Ryan. Yes, we built that into the guide that we have for the remainder of the year. There were 42 Matters, a great team, a small business. So it has some incremental where, as Orest said, bullish about the impact that it can have selling into our customer base.

Speaker 4

On the bottom line, very small contribution there. The expansion on the profit guide is really the results of a lot of the activity and the efficiencies that we have going through our core business on that.

Speaker 7

Appreciate the color there. And then just on the overall macro, getting a lot of different viewpoints from investors and companies there, but with you guys improving RPO, improving NRR and improving net new customers, it just seems like you're kind of maybe bucking some of the more pressing macro concerns that we're seeing elsewhere in software. I guess are there any key trends that are driving your improvement quarter to quarter? I guess how do you guys feel overall about how macro is impacting your business at this point? Thanks.

Speaker 2

Yes. So it's a good question. I think as I talked a little bit earlier today, we did a lot of work improving our strat motion and our self serve motion that are doing extremely well, driving great growth and success. And all of those efforts we did are basically improving. And we always saw the demand we had on top of the funnel.

Speaker 2

So for us, it was mostly just executing right. And we can drive a lot of growth because we really operate in a very big time. Now regarding the other question about market dynamics, I think it's reminding me a little bit about when COVID came. I think that when markets are struggling and you have a tough dynamic, maybe recession, I do not a lot of companies tend to double down on get market data to understand their positioning. So we think that we have a benefit here as our solution help get companies visibility about market dynamics and where they're positioned in this hostile environment.

Speaker 2

So I think that those stuff are kind of giving nice tailwind to business like us.

Operator

And we'll take our next question from Brett Knoblauch from Cantor Fitzgerald. Please go ahead.

Speaker 3

Hi, guys. Thanks for taking my question and congrats on the quarter. I guess as you look at your broader product portfolio, where would you say you're spending the most time or I guess where do you think demand has really inflected higher across that product portfolio? And any update on Shopper Intelligence and how the demand is looking for that?

Speaker 2

Yes. We saw nice demand, mostly a lot about our DAS, data as a service, because people want to as they more recognize us as the leading digital data market provider, They want to implement our data into their own dashboarding system. So this was these lines of business had a good success. And our stock intelligence and the product that we sell for public investor is doing quite well this quarter as well. The more we're able to privatize it and introduce it into the market, we're seeing great success there as well.

Speaker 2

And so those two lines of business did really well this quarter.

Speaker 3

Perfect. And then just on the acquisition, I guess, is there any way to quantify how much of maybe the full year guide is coming from this maybe, call it, organic demand versus some of the inorganic revenues? Or would you say maybe most of the guidance is from the core business doing better and not so much from the acquisition?

Speaker 4

So the acquisitions are for the most part have been small businesses. So there is a contribution that they will add, but we're actually seeing good momentum in the core organic business. You see it in the number of customer adds, you see it in the RPO, you see it in the NRR. And so, there's every time you add a small business in, there's going to be some additional top line growth with that. But overall, when you look at the total revenue for the year, the contribution from these acquisitions is really not material.

Speaker 2

Yes. I think to add on top of that, that our strategy is to find mostly strong team within entrepreneurial spirits that have great data assets. But we know that if we will invest and prioritize and match with our core offerings, it can scale. And so this is the assumption. So they're usually very small businesses.

Speaker 3

Got it. And then maybe just one last question on the 8 figure deal. I guess, could you maybe help quantify like what that deal went from before 8 figures? I guess, how much of an uplift was that?

Speaker 2

It was 7 figure deal before, but we were able to significantly increase it. And now, Jason?

Speaker 5

Yes. And what

Speaker 4

I would say is that, again, when it started, this customer started as a 9 years ago as a similar customer, they were a few tens of 1,000 of dollars of ARR. And today, it's a well over 8 digits at a steady grower and user of multiple products from similar lab across many, many different departments and geographies.

Speaker 3

Got it. Thank you, guys. Really appreciate it. Thanks so much.

Operator

And next we'll go to Patrick Walravens from Citizens JMP. Please go ahead.

Speaker 3

Hey, guys. Thank you for taking my question and congrats on the quarter. This is Nick Lee on for Pat. With the new data version you guys

Speaker 4

mentioned in the shareholder letter, is there a way to quantify how much more accurate this new version is,

Speaker 2

course. We have our internal measurement. It's significantly better and improved dramatically. There's many ways to look on the measurement. It's by country, by size of website, by vertical of website, but we increase accuracy all across the board and also increased a lot of coverage as I wrote.

Speaker 2

We had more than 30,000,000 more website that we're now adding to our estimation, and we were super excited. For us, it's a big thing to do such a big update, And we'll do it once in a while after we did a lot of testing to see that it's significantly improving our digital estimation.

Speaker 4

Awesome. Thank you.

Operator

And there appear to be no further questions at this time. Ladies and gentlemen, this does conclude today's SimilarWeb Q2 'twenty four earnings call. We thank you for your participation. You may disconnect your lines at this time and have a great day.

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Key Takeaways

  • SimilarWeb delivered 13% revenue growth in Q2, achieved a record 9% non-GAAP operating margin, and generated $6 million of free cash flow, marking its fourth consecutive profitable quarter.
  • Enhanced go-to-market execution and R&D innovation drove the signing of its first 8-figure ARR customer and expanded its customer base to over 5,000.
  • Launched a new digital data estimation engine with significantly improved accuracy and coverage, adding insights for over 30 million websites and more countries.
  • Secured demand from large tech firms using SimilarWeb’s fresh, high-quality data to train LLMs and is helping brands understand AI-driven changes in online behavior.
  • Acquired 42 Matters to establish a leading app intelligence offering by integrating app store, engagement, and SDK data with web analytics.
AI Generated. May Contain Errors.
Earnings Conference Call
Similarweb Q2 2024
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