Similarweb Ltd (SMWB) 2025 Q2 法說會逐字稿

Greetings. Welcome to Similar Web second quarter fiscal 2025 earnings call. (Operator Instructions) Please note the conference is being recorded.

I'll now turn the conference over to Roy Myerson, Vice President of Investor Relations. Thank you. You may now begin.

Thank you, operator. Welcome everyone to our second quarter 2025 earnings conference call. Joining me today are our CEO and co-founder or author and our CFO, Jason Schwartz. Yesterday after market closed, we released our results for the second quarter 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 I.web.com.

Certain statements made on the call today constitute forward-looking statements which reflect management's best judgment based on the currently available information. These statements involve risks and uncertainties that may cause actual results differ from our expectations. Please refer to our earnings releases and our most recent annual report, Father inform 20 for more information on the risk factors that could cause actual results to differ from our forward-looking statements.

Additionally, certain non-gap financial measures will be discussed on the call today. Reconciliation to the most directly comparable GAAP financial measures are available in the earnings release and the earnings presentation. We will begin with all and Jason's highlights of the quarter, and then we will open up the call to questions from salesside analysts. With that, I'll turn the call over to all. Oh, please go ahead.

Thank you, Rami, and welcome everyone joining the call today. I'm extremely proud of the 2nd quarter financial results that was reported yesterday. Revenue increased by 17% over a year to $71 million ahead of our expectation. Our customer base grew 18% year over year to almost 6,000 AR customers at quarter end.

We reported a seventh quarter of positive free cash flow and returned to positive op operation profit in the quarter. We are also reiterating guidance for 2025 revenues and raising our profit guidance for the year. Customer interest in our GenAI data and solution is amazing, and the revenues from our GenAI data and new solution were approximately 8% of second quarter revenues and are growing.

We are focused on free eye impact opportunities where similar web is uniquely positioned to lead. The first one is a similar web GN AI intelligence. In April, we launched AI traffic to show how much website traffic comes from Gen AI sources, as well as the prompts and landing page driving traffic. In June, we expanded our product line with the AI brand visibility, giving companies daily insight into how often they are seated in AI chatbot platforms across key topics.

The second one is our AI agent. We are rolling out AI agents to help our customer maximize the value they can extract from our data in the shortest time. We are receiving great feedback from our customers and usage is growing by 60% month over month since launched. And the first and the third one is our generative AI and LLN data. We are supplying our unique and fresh digital data to companies that are building their own LLM and JT AI applications.

Last year in Q2, we signed a seven-figure ARL contract with one of our big tech customers to use our data to train and improve its LLM. This customer was already using four of our solutions across multiple business units and countries. After signing this contract, they become similar with first eight-figure ARL customer. In June this year, this customer renewed and expanded the contract for GAI application and LLM data with a multi-million dollar ARR and a multi-year upsell. Contracts like this one demonstrate the durability of those AI transactions as recurring revenue stream and provide me with the confidence in our ability to convert additional customers and expand our AI revenue streams.

We continue to invest in our technology and expand and enhance our data to deliver the most comprehensive view of the digital world. In Q2, we expanded our product offering to empower customers with deeper insights across the digital landscape. We launched similar web ad intelligence, giving businesses a clearer and more complete view of the digital edge spend and paid marketing universe, leveraging the capabilities of ed metrics that we acquire in 2024.

We also introduced additional models to our mobile app intelligent and shopper intelligence, providing our customers with more tools and data to succeed and win their markets online. The investment in go to market that we started in the 4th quarter of 2024 is ramping as planned, and we are starting to see initial results. One of the KPIs which tracks for Salesforce productivity is the number of salespeople booking bills, and I'm super happy that the number of salespeople booking bills increased by 50% year over year in the 2nd quarter.

I'm also super proud. We continue to operate efficiently and return to profitability in the 2nd quarter, as well as reporting our seventh quarter of positive free cash flow. And as I like to say, we are just getting started. Thank you to everyone on the call for continued support, and with that I will return.

The call over to Jason.

Thanks or and everyone joining us on the call today to discuss our 2nd quarter results. I'll provide highlights of our financial performance and then we'll open up the call to questions.

We generated $71 million of revenue in Q2, a 17% increase relative to Q2 2024. The revenue growth was driven by the 18% growth in overall customers and big tech customers who licensed our digital data for developing their Gen AI applications and LLMs.

Our 2nd quarter results benefited from one-time fees for customers who completed their evaluations at the end of the quarter earlier than expected. We are optimistic that these evaluation contracts will convert into ARR contracts during the second half of 2025. NRR for our overall customer base increased by 100 basis points year-over-year to 100%.

Notably, our renewal rate in the second quarter was the highest in three years. NRR for the over $100,000 dollar customers decreased by 100 basis points year over year to 108%. The NRR for the $100,000 customers reflects the significant upsells of a number of large contracts booked during 2024. These customer contracts are now included in the NRR baseline in 2025.

We are proud that 57% of our ARR is contracted under multi-year contracts, up from 44% last year. We believe this demonstrates the durability of our revenues and the importance of our data to our customers. Our remaining performance obligations, or RPO totaled $274 million at the end of Q2, up 26% year over year. We expect to recognize approximately 68% of total RPO as revenue over the next 12 months.

Our operational performance in the quarter was better than expected. We reported a non-gap operating profit of 3% in Q2 as a result of our continued disciplined execution. As a reminder, over the last 3 years, we have improved operating margins by 4,500 basis points from 42% in the second quarter of 2022.

This performance and our unit economics provide us with confidence in our ability to achieve our profit and cash flow targets. We generated $4 million of normalized free cash flow in the quarter, a 5% free cash flow margin, and the seventh consecutive quarter of positive free cash flow. We plan to continue to generate positive free cash flow on a quarterly basis going forward.

For the full year 2025, we are maintaining our revenue guidance and expect total revenue in the range of $285 to $288 million representing 15% year over year growth at the midpoint of the range, and expect our non-gap operating profit to be between $5 million and $7 million and increase from our previous expectation.

For Q3 2025, we expect total revenue in the range of $71.5 million to $72 million. Non-gap operating profit for the third quarter of 2025 is expected to be in the range of $1.5 million to $2 million. We remain focused on delivering profitable growth over time as well as achieving our long-term profit and free cash flow targets.

And with that, Or and I are ready to answer your questions.

(Operator Instructions)

Raimo Lenschow, Barclays.

Good morning and congrats for me. That was an amazing outcome. Can we talk about the large customer and how that potentially kind of played out for you and will play out in the future? I'm just trying to understand was that a proof of concept that the customer had to kind of pay some money for, so you got the fees in and then now when he goes into full contract, it comes through and so can you talk a little about the mechanics there, but also then like. A little bit deeper into, like, what what is he doing there and then I had one follow up with Jason.

Yeah, thank you. For the question. And usually when we engage with companies who want to train the LLM models, the process is that you deliver them one time and bulk of data. And that they can test and validate that the data is improving the model and make it more accurate. They pay a one-time fee for this data. For the testing. And after the testing. And validate the data improve, we engage with them with long term commitments, usually multi years of AR deals.

Okay, perfect. So then that would be something that not just 11 of these customers can do that's actually something that a lot of them will benefit, correct?

A lot of them can benefit. And also there are multiple data sets that they can buy and use for multiple use case on improving their lens. So the opportunity is in both fronts more customers buying once it proves it's once it's proved that it can improve the lens.

And the second one that they can get more data to to improve other areas of those motions.

Okay, perfect. Yeah, makes sense. And then Jason on the N, so it dipped down a little bit and you explained that 2024 cohort, N is obviously backwards looking, so it doesn't really help us in that respect. But how do I have to think about that? Kind of inflecting going forward again, do I just have to work for that cohort and then it starts looking better?

Is that kind of the right mechanics there? And then maybe just one last word as well, Jason, on the customer ads this quarter or the customer growth, new customer growth was really strong, kind of what drove that. Thank you.

Rama, thanks so much.

Yeah. On the NRR.

Like we've been talking about it, I think you're right, it has, there was a great growth last year, and we're working through the cohort. Those large expansion deals from 2024 is, having a lapping effect as we go into 2025. But I think your second part is really the indication. When you look at the customer ads, the overall customer ads is up to 18%, but if you look in the large customers, the customers that are over 100,000.

.

It grew by 13%. And if you look at the absolute number, went up on a sequential basis was up, 22 additional customers. That's the highest, sequential growth that we had in the last three years. So I think, that's an indication that Our land and expand strategy, bring them in at a modest growth modest, start point ACV and then see them land, retain and expand and grow, and now you're seeing them crossing over that $100,000 dollar number as well.

Perfect, yeah, well done. Thank you.

Arjun Bhatia, William Blair and Company.

Argentia, congrats on the quarter and thanks for taking your question. So in your prepared remarks, you mentioned you're optimistic that the GenAI and LLM related data evaluations completed in the quarter have the potential to convert in the second half of the year. What do you think it'll take for these AI data prospects to convert into paid customers?

And it's just the cell cycle they engage, you get the data, they need to test, they need to validate, and we feel very strong around that. We position as the number one digital data company in the world right now and the number one of web data, those LLM.

Do their learning and training on web data. So we feel very confident that that we can build a very good pipeline and convert it down the road. Okay, thank you.

Well, I would just add that, as we mentioned in the letter, though these deals, once they finish that that evaluation. Are typically seven digit contracts that are, and those things are are not signed overnight. It has a process as well, but I think that the going back to, I think Ramo asked the question that that first cost from from last year who had done their evaluation and then, in Q2 last year signed. An AR ARR contract and that was a one year contract. Now when they lapsed into the 2nd year, not only did they renew, but they renew upsold with a multi-million dollar upsell and also extended that for a multi-year commitment. So I think that's the the the the path that you should be thinking about of these deals.

Yes, that's great. Good point. Thank you.

Patrick Walrivens, Citizens.

Fantastic. Thanks guys for taking the question. This is Nikon for Pat. A few months ago you introduced your four new Agentic AI products, and I know it's still early, but could you share what customer conversations around these products look like? Are we seeing, general interest in them? And among the four, which is seeing the most traction?

So definitely the Gen AI has a lot of attraction. I think it's the fastest growing product we have currently in our product portfolio, and we're seeing a lot of demand for that and the very slow pipeline going forward. I think almost every one of our customers when we present them are trying and evaluating them. That's the solution.

Great. Thank you very much and congrats on the quarter.

Adam Hotchkiss, Goldman Sachs.

Hi guys, this is Grayson Skelbon for Adam. Thank you for taking the questions. I wanted to start on the guide, just looking at the 3Q guide and then the 4Q implied numbers, a bit of acceleration implied in the 4Q number, so I'm curious on what is driving your confidence there and.

You know how the ramping productivity from some of those new resources factors into that guide and I just have a quick follow up.

Hey Grayson, it's Jason. Like we talked about in the letter, in the shareholder letter, we have a good pipeline that we've been talking about, for a couple of months now. I think now you're starting to see these conversion of these large transactions coming through.

And you know we've got some visibility, but as we said, we've got, we got the sales team's got to close the business, but that's that's really what's going on to the back end of the year. This is what we've told you since since early 2025. We said that we believe that the acceleration you would see happening in the in the back end of the year and hopefully that you're starting to see that stuff come through.

Great thank you and then I just wanted to, oh. Sorry go ahead. Now regarding the go to market, productivity, we also see a nice improvement. We also, share it in the investor letter and then, and we talked about it that we had a record high of salespeople closing deal. So you see that they start ramping up and, we're looking forward for them to closing more deals in Q3 and Q4.

Great thank you and then I just wanted to touch quickly on profitability nice beat in the quarter, obviously a nice flow through to the full year number there. I'm just curious on if there's anything to call out there or if that was just a function of, some higher top line revenue than expected.

Thank you.

Yeah, obviously the beat on the top line obviously flows through to the bottom line. That's that's for sure. But again, we all, our philosophy is to operate as a profitable growth company and so that that discipline that we've had. For the last, 3 years that showed, that that translated into a 4,500 basis point improvement over the last 3 years is something that we practice every single day. And so you're seeing some of that discipline execution come through as well.

Great, thank you. Thank you.

Jason Hellstein was Oppenheimer.

Everyone, obviously the numbers, particularly around the RPO and the billing, definitely just pick up the business, and there are a number of things happening. So, can you like how your way to like allocate the success, so, you have the improved sales productivity from the changes you made last year. You've got new, you've got the AI products coming online, you've got the new mobile products, I don't know if there's like upgrades and changes you made around some of the commerce, tools, etc.

So is there a way to just like unpack how much of the, let's say that, 91 acceleration and RPO is from like sales versus product and you know I don't know how deep you want to go on the product side of things.

Hey Jason, sure, we could, without.

Going into.

Product, by product, I think that there are a couple of things that are driving this. When you look at the RPO, there are new and exciting products and you're seeing that already in the Gen AI products. I think the last quarter we called out the app product and we have, already at that point, well over 400 customers who have who are using that new product. And enhanced, app intelligence that we have.

I've been on the road and with our teams and I, sit here with the with the sales teams and they say that the two things that in literally every conversation that people are asking about are the Gen AI suite. And also the app intelligence and so that's something that is definitely driving pipeline and conversions. On the flip side, when you took when you look at RPO I think that it's important to also look at not only is the the overall revenues growing, but when you look at the multi-year that is now up to 57% of our ARR, looking back, just a year ago, it was only 44%, and I think that that, one gives also drives up the RPO overall, but secondly gives us a lot of visibility and confidence into the durability and the revenues.

Luke Horton, Northland Securities.

Yeah, hey guys, congrats on the quarter. Thanks for taking the questions. Just wanted to talk about pricing, on the data licensing side. So how are you thinking about pricing for these data licensing contracts and you noted that this is this accounted for 8% of revenue mix in the quarter. So just curious how you think about this mix shift going forward.

So those are very big data deals also, not only by dollar but also amount of data and so they start with usually 7 figures and deals. And there is.

A lot of room for expansion. And as I talked a little bit before, because it's there's many different data sets that can be used on training those LN from web data, app data, consumer behavior data, etc. So each data set is priced differently.

Okay, got it. And then as far as next shift how you see that, going forward, which accounted for 8%, in the quarters is it a little too early to tell?

So there is a strong pipeline for those offering, but it's not only the data for LLM, it's also the Gen AI module that helps track brand visibility on chatbots and the traffic websites get from Gen AI and of course the AI agents. So we have 3 different offerings around AI that we now bringing into the markets and it looks strong and we're seeing great demand all across those free offerings.

Okay, got it, yeah, and just kind of piggybacking off of that with you guys have launched several kind of AI agents and and products and enhancements throughout this year just wondering how much of the focus now is is on continued new product development versus kind of selling with with the current product suite and just kind of the focus between the two.

Yes, so it's a combined strategy basically you take each one of the product offerings we have today and you add agent to it, the stickiness will go up, why the customer ex exceeding from those, solutions will go up.

So those gentle integrate in inside of our solutions.

Okay, got it. Awesome. Well, thanks for thanks for taking the questions and congrats again on a really nice quarter here.

Tyler Radkei, Citi.

Hi there, thanks for taking my question. Or could you talk a little bit more about the sort of licensing, dynamics, basically you called out this order. How often do you see this? Is this a big part of the pipeline and I guess for Jason any anyway you can sort of quantify, the revenue impact of the quarter.

I think people are just trying to understand big picture, obviously this is a big revenue stream today, but is there a risk that this is sort of a one time deal and sort of just your confidence level and being able to sustain it as a durable subscription.

Yeah, thank you for the question. So I don't think and all those engagements are not supposed to be a one time deal. The process is that you pay one time to go into the evaluation of the data when you need similar to 50O infrastructure, a big amount of data, so they pay one time for that.

Once the data is landed on their servers, they TRY to self evaluate and once They're going through this process and see the uplift and the improvement in Dell models, then they come and engage for the long term. And, basically, we will see that we are engaging with those companies for a long time as Jason said before, we already renew one of those customers for multi-year, and engagement, so we are very confident that the pipeline we have going forward is not only strong but also a big opportunity outside of that.

Jason, any qualification of how big that was.

How how big what was it? The sort.

Of the transaction, sorry, the transactional component of the the one time licensing.

Yeah, so it was a little over a million dollars. So, remember one of the, it was over a million dollars I should say the, okay, the remember the deals that we had last year which had already gone through the evaluation and turned into AarR and we talked about those, in Q2 and Q3 and Q4 last year. Those are recurring revenues and are and are going through. One of the things that we called out earlier and talked about in the shareholder letter is that the deal that we had signed in Q2 last year had also not only renewed because it came up for renewal, it was an ARR deal last year. It now got up for it came up for renewal in Q2. Not only did they renew. They upsold at a multi-million dollar ARR deal on top of what they already had in the baseline and secondly extended that not only to BA ARR and just a one year term, but into a multi-year deal, and I think that that is, gives us a little bit of confidence that these transactions are not just. A one shot deal. The opportunity that we have there is not only to train the the LLMs but on the ongoing, not only the pre but also the post and or may may be able to talk about that a little bit as well.

Patrick Warrens, Citizens.

Oh great, thank you. So Jason and if you look back over the last, three quarters. I mean you have a great, looks like you have a great move up in your stock now and two quarters ago you had a huge move down. Do you feel like there are any lessons that you've learned or things that you would have done differently in terms of smoothing out the experience for yourselves and for your investors?

Yeah, I think one of our biggest lessons is to do a much better job on communication. I think our strategy and our commitment to show and deliver what we say is on track for the past 4.5 years that we're a public company, and I think that's just being much better in communication and we can contribute a lot for that going forward. Jason a thoughts from your end?

Yeah, I think they.

I agree with or on that song, and as we look, going forward, part of the additional color that we've given this this quarter hopefully is is appreciated and give some insight into how how the continued growth is expected to be.

Okay, thank you guys, and congratulations.

Thank you. This now concludes our question and answer session. I'd like to turn the floor back over to our offer for closing comments.

And so thank you everyone for joining our call, especially our shareholders for the support. We look forward to speaking to you again over the coming days. Have a great week, everyone. Thank you.

Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.