Similarweb Ltd (SMWB) 2024 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Similarweb quarter one fiscal 2024 earnings call. (Operator Instructions) At this time, it is my pleasure to turn the floor over to your host, Rami Myerson. Sir, the floor is yours.

Thank you, operator. Welcome, everyone, to our first quarter 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 impacts of rising interest rates, rising global inflation and current macroeconomic, and geopolitical conditions, including the current law in Israel, challenges in our business and in the markets in which we operate, our anticipated long-term growth, and overall future prospect.

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. Further, the 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, the sections entitled Cautionary Statement Regarding Forward-Looking Statements and Risks Factors therein, for a discussion of the factors that could cause our actual results to differ from the forward-looking state.

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 of results on our call today are expressed on a non-GAAP basis. In particular, we reference non-GAAP operating profit or loss, which represents GAAP operating profit or loss less share-based compensation, adjustments impairments related to business combinations, amortization of intangible assets, and certain other nonrecurring 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 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.

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.similarweb.com.

Today we will begin with brief prepared remarks from our CEO, Or Offer, and 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 first quarter 2024 results in a letter to shareholders and investor for 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. Or, please go ahead.

Thank you, Rami, and 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 deliver a very strong first quarter 2024 results. We grew our revenue by 12% over Q1 last year to $59 million, and we generated nearly $10 million of free cash flow, an amazing achievement we are proud of.

Our global customer base grew 16% year-over-year to over 4,800 customers and the demand for our solution at the top of the funnel remains strong. Our customer and prospect appreciate and value the importance of our digital market data for their business. As a result, our pipeline remains robust and we are adding new customers and expanding our penetration into our market. We continue to invest to expand and enrich our Similarweb digital market data. In March, we acquired Admetricks, a digital ad intelligent leader.

I would like to take this opportunity to welcome the Admetricks' team to the Similarweb. Ad intelligent is an important tool for corporates and marketing agencies. Online display advertising is estimated to attract more than $174 billion in spending in 2024, according to Statista. For certain global brands, it's already comprises of 60% of their global advertising budgets.

We plan to leverage our digital ad data along with Admetricks teams' expertise to enhance our digital ad intelligent offering and launch what we believe will be the best and most comprehensive digital advertising intelligence data in the market. This will supercharge our competitive intelligence offering. We plan to integrate and monetize this ad intelligent data for all of our solution as well. For our shopper intelligence solution, we will add this ability into retail media and online spend.

For stock intelligent 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.

Last year, we introduced and successfully launched SimilarAsk, our AI driven digital intelligent assistant. Today, I am excited to tell you about SAM. SAM is our AI-powered sales assistant module. SAM is designed to enhance sales efficiency and effectiveness by automatically delivering precise data-driven insight about prospects directly into our customers' self-workflows.

As we all know, our e-mails are bombarded with cold outage e-mails from salespeople that we all mark spam, making it very hard for sales team to engage with our prospects. With SAM, salespeople can use AI-text generation to suggest sales speech that are much more likely to resonate with the potential customer. SAM utilize our market inside data and repair the relevant data base insights emails that explain to the prospect why they need to engage with the sales teams.

And we are already receiving fantastic feedback from early adopters of SAM, where we have reported a significant increase in outlets response rates. For one of our customers, SAM increases response rates by 20x compared to their previous response rate. The SAM data is now open and we are looking forward to seeing and its adapting by our customers and its impact over time.

I'm very proud of the continued profitability and free cash flow momentum. We delivered our third 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 Similarweb 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. 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. Thank you, everyone, for your continuous support.

With that, Jason, I will turn the call over to you.

Thank you, Or, 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 first quarter results. I will briefly address our financial performance and then we will open up the call to questions.

Our performance in the first quarter reflects good top line and bottom line momentum. Revenue was $59 million 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 seven-digit contracts during the quarter following the 10 seven-digit contracts we closed in the fourth quarter, an excellent result that supports our positive momentum.

At the end of the first quarter, 42% of our ARR is contracted under multiyear commitments, demonstrating the strength and longevity of our customer relationships. Our remaining performance obligations also reached a new record of $214 million, up from $195 million at the end of Q4, providing a positive indicator of our performance durability going forward.

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 first quarter GAAP operating loss was $2.7 million, while our non-GAAP operating profit was $2.8 million. This resulted in a non-GAAP operating margin of 5% and represented an improvement of 19 percentage points versus the prior year and the third consecutive quarter of non-GAAP operating profit.

Our sustained focus on operating efficiency continues to deliver excellent results, and we generated $9.7 million in positive free cash flow in the first quarter, [up 16%] free cash flow margin and the second consecutive quarter of positive free cash flow. As a result, we ended the first quarter with nearly $55 million in cash and cash equivalents and no outstanding debt.

Turning now to Q2 2024, we expect total revenue in the range of $60 million to $60.5 million. For the full year 2024, we continue to expect total revenue in the range of $242 million to $246 million, representing approximately 12% growth year-over-year at the midpoint of the range. Non-GAAP operating profit for the second quarter is expected to be in the range of $1.5 million to $2 million. For the full year, we expect our operating profit to be between $7 million $9 million, up from our previous expectations of $6 million to $8 million.

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, Or and I are ready to answer your questions.

(Operator Instructions)

[Arun Bhatia], William Blair.

Great. Hey, Jason. Hey, Or. 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. Could you just share with us how customers are receiving those both at the low end and maybe how you plan to adjust the -- 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?

Hi, Arun. Thank you for the question. So from what I heard that there was two parts for the question and first one about change we rolled into the go to market. So I think there were two big changes we did in beginning of the year. One is to centralize and give more focus around customer success effort to lower part of our customer or SMB customers, so give them more focused on value.

And the second part is aligned on our start account, basically building more focus spot by sector in order to give better support and value to our start accounts. So those two changes rolled up beginning of the year end, and we've seen great success with them in the few months we've rolled them.

And regarding the second question about the Susan joining. So super excited. She just joined last week. So she in her, literally second week, we're very excited. She come with a lot of experience selling, data, insight, marketplace search from NielsenIQ, and I think she can -- she will help us scale a lot, our start motion. That is new to us.

We're getting better, as you heard from the earning, we start closing more than more seven-figure deals. And we're seeing renewed and success and potential at the start as our data is very unique. We consider really the top digital and data providers in the world, and 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.

Yeah, very, helpful. Thanks, Or. 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 yeah, if we could zoom out and just kind of think product by product and then on sales specifically, I'm curious how you plan to monetize the SAM? Is that something that's just going to be embedded or something that you could potentially have an add-on pricing for?

Yeah, of course. So I think you're right, there is looking good on a few products that we sell. One our innovation product doing really nicely. We have a shopper intelligent or stock intelligence, it's 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, that is doing very well.

And on the sales intelligence, yeah, there's a lot of great innovation, mostly on AI. And it was the first product we implemented AI strategy in order to enrich the workflow for the users. And if you think about it, we are like a market research 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 tell them, listen, I see this in this data in Similarweb, you should speak with me, I have a solution to help you solve this pain that they see.

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

So the AI can automize of this process, write the email, and really help them open the door. And this is a very unique approach to sell because as I said in the earnings call, we all feel this pain that we are bothered with a lot of e-mail as people try to prospect you that are just cold email that everybody market spam. And when you get this kind of insight, to tailor it to you, to tell you that you have a pain, somebody can really help you. This approach of conformity is very powerful. And really, we're seeing a great increase of response rate to the customer that work with SAM. So we're really excited about that.

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

Ryan MacWilliams, Barclays.

Hi. Thanks for taking my question. This is Pete Newton on for Ryan MacWilliams. Or, now that we're kind of further into the year, how have you seen macro impact your business at this point and how the enterprise spending budgets look for the rest of FY24?

Yes. So macro-environment is kind of the same. Like, we don't see it getting better like it used to be in 2021 or beginning of 2022. It's kind of, 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. So I think this is what we see.

And there was a second question or there was only one?

No, it was just one for now. And then just how you -- anything about budgets rest of the year on the enterprise side based off what you've seen so far early this year?

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

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

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

Very helpful. Thanks, guys.

Brett Knoblauch, Cantor Fitzgerald.

Hi, guys. This is Tommy Shinske on for Brett. Congrats on the great quarter. Just on the acquisition of Admetricks, 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?

Yes. Hi, it's Jason. Tom, thanks so much for the question. Admetricks was really not a material contribution to the quarter. It's a great business. And what we think Admetricks 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 and intelligence product and intelligence data that can be monetized across not only our research intelligence solution, but also our investor intelligence, stock Intelligent, shopper intelligence, 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 it's going to be the driver of that ROI on this acquisition. Really excited about it.

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

The retention is not historical. Data information is -- you thing that the people that churn in Q1 they made (technical difficulty) so you're talking about customers that decided to churn in November, December last year. So they didn't enjoy from all those nice benefits we launched now.

I think if we're talking about the stabilization of the [exchange] rate because (technical difficulty) we were calling last year, that's now solved, collecting the fruits. We still need a lot of great changes, as I said, around our customer success organization and in Q1 that we very eager to see how it's going to impact the retention going forward as I said. We put a lot of the [tacsea] around our SMB sector and we moved and most of the people there to the value people focused on product engagement and education. So still all these initiatives will help to increase retention over time.

Awesome. Thank you, guys, and congrats again.

Thanks.

Tyler Radke, Citi.

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're guiding Q2 slightly ahead, but not raising the full year. Is that just conservatism. I know there's some go-to-market changes, macros 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?

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. 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 million to $8 million to $7 million to $9 million for the year. So we are looking at that where we see them makes sense.

Great. And then if you think about the Similarweb 3.0 with a lower upfront pricing. This is 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 this could just take a while just given that you are still seeing pretty strong new customer additions?

Yeah, I think that the way to think about the model of the businesses 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 thousands or tens of thousands to get hundreds of thousands of dollars. And now you're seeing those guys taking up to millions of dollars of transactions. And that's a journey that we're really proud of.

And in fact, when you looked 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 end, you're going to see those large customers, buy 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 2025 and 2026 and beyond. So we're actually very happy with the levels that we're seeing over here. And it goes up or down by $500 over time on the blended ARPU, we think that that's okay.

Thank you.

Pat Walravens, Citizens.

Thanks so much. This is Aaron Kimson on for Pat. First question, what sort of tailwinds are you seeing from 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?

I think we're still seeing nice momentum of companies looking to buy data to train their LLM on different angle. So we still saw some nice activity in the quarter. Going forward, I don't know -- it's interesting question. We'll need to wait and see. This will still be hot topic.

Got it. And then, Or, can you talk about the current state of the investor intelligence products? What's on the roadmap there? I think you mentioned in your prepared remarks, adding ad spent and ad revenue and how meaningful driver of growth do you envision investor intelligence being going forward?

Yes. And thanks for this question. So I'm super bullish about this product, this solution of stock intelligence. And 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 soft early part of what we would call the alternative data market that we assume is probably $10 billion market and growing. And we believe that the more we are going to increase the coverage right now, we support 3,000 stocks in the basic data, and it is mostly like traffic and engagement.

And we have, I think, around a little bit of about 100 stocks that are more then -- when they 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 and can really see very clear, R square that we can predict and some companies' performance. And it is very impressive.

Now going forward, we still have a lot of data assets that we need to match different signals and upload to this platform. So I know that in their roadmap, they are going to introduce our app data. We have very good at 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 are being sold [or no].

So this data set will go into the platform in this quarter, and we have more data set like Technographic, both 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 Technographics data set will introduce also or this quarter or next quarter into the stock intelligence. So very exciting thing there. And I'm super bullish about this solution.

Very helpful. Thanks so much.

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

Thank you, everyone. I'm super excited from the quarter result, especially the almost $10 million free cash flow; super proud of that and just getting started. Thank you, everyone.