Similarweb Ltd (SMWB) 2022 Q1 法說會逐字稿

Greetings and welcome to the Similarweb Q1 Fiscal 2022 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Raymond Jones, Vice President, Investor Relations. Please go ahead, sir.

Thank you, operator. Welcome, everyone, to our first quarter 2022 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 the COVID-19 pandemic and its associated global economic uncertainty, 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.

Again, actual results and the timing of certain events may differ materially from projected results or the timing predicted or implied by such forward-looking statements. Further, reported results should not be considered as an indication of future performance. Please review our Form 20-F filed with the SEC on March 25, 2022, in particular the section entitled 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 the forward-looking statements made on this call are based on information available as of today's date, May 11, 2022. We undertake no obligation to update any forward-looking statements we make today, except as required by law.

As a reminder, certain financial measures we use in presentations of results and on our call today are expressed on a non-GAAP basis. In particular, we reference non-GAAP operating loss, which represents GAAP operating loss, less share-based compensation, adjustments and payments 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 informational 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 our CFO, Jason Schwartz. Then we will open up the call to questions from sell-side analysts in attendance. Please note that we published a detailed discussion of our first quarter 2022 results in a letter to shareholders for investors to reference as well as an updated investor presentation with a strategic overview of the business, both of which are available on our Investor Relations website.

With that, I will turn the call over to Or Offer, CEO of Similarweb.

Thank you, RJ, and also to everyone joining the call today. I'm happy to have you all here on our 1-year anniversary of being a public company. We started 2022 strong and post excellent results. Revenue grew 51% over Q1 last year and exceeded $44 million in the first quarter. Our customer base grew 27% year-over-year to nearly 3,700, and our averages account spend nearly $50,000 with us annually. Furthermore, over 53% of our annual recurring revenue comes from customer who spend more than $100,000 per year with us. Those results excite us as we continue to see momentum building in our business.

The one thing that I think we, at Similarweb, do better than anyone else is predict how the Internet behave. In order to create this prediction of digital behavior or how traffic move on the digital world, we take vast amounts of digital signals generated from activity in the digital ecosystem and convert it into intelligence and market data. We process the data using advanced proprietary machine learning techniques to produce comprehensive and timely digital signals. The solution that we build on top of the data enhance the essential revenue-driven operations team of our customers, which includes sales, marketing, analytics, e-commerce, and are designed to directly benefit a wide range of users from the C-suite to operational teams.

The refined data and actionable insight we provide our customers give them a competitive advantage to win the market. We see constantly how to innovate and improve our solution and our underlying data. This quarter, we made major investment and improvement in our mobile web and mobile app datasets across all marketing channels, which include referrals, keywords and other traffic metrics. We are also enhancing our solution to leverage up data from data.ai, previously known as App Annie, which is the leader in app intelligent data, as well as shipping new feature releases that constantly make our product portfolio more valuable to our customers.

Our go-to-market execution continue to be highly efficient globally. 54% of our revenue comes from outside of the United States in the first quarter. The expansion of our global customer base consisting of SMB, enterprise and strategic accounts looking to gain an edge in their markets continue to gain momentum. Today, 35% of our relationship consists of multiyear contract, a metric that continue to expand year-over-year since 2020. Our customer appreciate the strong value we offer with nearly 80% of our customer base currently purchasing more than one solution from us.

Before concluding, we would like to take a moment to recognize the contribution of our 65 team member in Ukraine, who continue to work when and where they can through an extraordinary situation. Our hearts are with you, and you are inspiring us all. Again, we are off to a great start in 2022, and we are only just beginning to unlock our potential within a multibillion-dollar market opportunity.

Jason, I will turn the call over to you.

Thank you, Or, and thank you to everyone joining us on the call today. For those of you who have been on our previous earnings call, you will notice that we are conducting things differently. Based on investor feedback, we are prioritizing spending time on answering investor questions and reducing prepared remarks. As part of this shift, we published a shareholder letter, which discusses our results in detail as a supplemental part of our quarterly reporting. I will briefly cover a few clarifying topics now. Then we will open up the call to questions.

Our results in the first quarter continued to show our commitment to disciplined execution. Revenue reached $44.3 million for the quarter and exceeded our outlook of $41.5 million on the high end of our range. Importantly, our overall dollar-based net retention rate, or NRR, increased to 115% as compared to 103% in the first quarter of 2021. And for our $100,000 ARR customer segment, NRR increased to 127% as compared to 115% in Q1 last year. Our go-to-market execution during the quarter was stellar as our remaining performance obligations, or RPOs, increased 68% year-over-year to $159 million.

Our plans for 2022 include increased investment in customer acquisition costs ahead of our historical payback period. We are executing in line with our plan to remain below 18 months on average, as indicators for returns remain consistent. As we exceeded our plans in revenue, we saw incremental gains flow through to our bottom line. Our non-GAAP operating loss was $19.8 million, which was less than the $20.5 million loss on the low end of our guidance range. This result includes noncomparable expense impacts from our acquisitions. Importantly, we achieved an estimated 32% incremental non-GAAP operating profit margin from the midpoint of the ranges.

Turning now to Q2 2022. We expect total revenue in the range of $45.5 million to $45.9 million. For the full year, we are raising guidance and expect total revenue in the range of $196 million to $197 million, representing 43% growth year-over-year at the midpoint of the range. Non-GAAP operating loss for the second quarter is expected to be in the range of negative $23 million to negative $23.5 million and for the full year between negative $82 million and negative $83 million. Compared to last year, our outlook includes impacts to cost of goods sold related to our data.ai partnership and to the acquisition of Embee Mobile. We anticipate non-GAAP gross margin will be approximately 73% to 74% in Q2 2022 and 75% to 76% for fiscal year 2022 as a result of these impacts. Our first quarter 2022 results indicate we are starting on track to reach our 3-year target of $450 million to $500 million in ARR and positive free cash flow as we exit 2024.

With that, Or and I are happy to take your questions.

(Operator Instructions) And our first question today comes from Arjun Bhatia with William Blair. .

Perfect. Congrats on a great Q1 guys. I want to start with the net retention rate. Obviously, a lot of strength there. That metric continues to move up as upsell and cross-sell takes hold. I'm curious if you can just dig into maybe the underlying drivers a little bit. Is it more seats, more data consumption, cross-sell that's driving that? I know you did mention 80% of customers are using multiple products. But would love to just get an unpacking of that metric. And how high you think that can go if there's continued momentum there as the year progresses here?

Or speaking. Thank you for the question. So if I had to think out of my head about different method that contributes to the growth, I think all of them have a nice contribution. Some of them is the cross-selling of introducing new products, like the Shopper or our sales solution to our customer. Some of that is more about data consumption and some of the users were also able to upsell our API product and then it grew with consumption. And also, we have great success with the metered approach that is adding more users or other upsell capabilities that each one of the lines of business have. And I think we will continue to have a great momentum on that. We were getting better and we continue to innovate in bringing more solution and improving our own products, so our customers are happy and buying more.

Very helpful, Or. And then one, if I -- a follow-up if I can on the App Annie or the data.ai partnership rather. Can you just give us a sense for any updates on the development of that solution on the mobile side? Are we still set to launch by Q2? And would love to hear if there's any early customer commentary since the partnership was announced in terms of reception or potential deployments.

Yes. So we're also very excited about this partnership. The team here is working really hard. And as we quoted before, it will be launched and introduced into the market in the next few weeks. And the team is very exciting about that. I think it's unlocked a lot of opportunities for us in specific region and in a region where app is more dominant, like Southeast Asia and those areas when we have customers, and in different verticals that are more dependent on the app ecosystem. So we're going to introduce this. And of course, I think it will -- they have also a nice contribution to the upsell, cross-sell motion as well.

And the next question comes from Ryan MacWilliams with Barclays.

I just want to say I appreciate the shareholder letter on your website. That was definitely helpful when looking through the quarter. Jason, just on the full year guide and also just from this -- from most recent quarter, was there any impact from FX or anything we should think about as we move through this year?

Not materially for us. We get most of our contracts -- and by the way, Ryan, good to hear you from you and thanks for the feedback. But most of our contracts are denominated in U.S. dollars. So while there often is -- somebody will buy in euro or otherwise, but it wasn't a material impact this quarter.

Appreciate that. And then look, it sounds like RPO growth accelerated and there's some strength in that retention in your business. But Or, while you guys may have seen any impact from like macro headwinds at this point, how do you think about your exposure to the potential for a worsening macro environment? And how do you think your customers would maybe interact more or interact less with Similarweb under those circumstances?

What's up? So it's a good question. And from what we saw historically, even when we look in the -- when COVID happened and there was a lot of uncertainties in the market, what we discovered back then, and I can also think which will happen, is the world will go into this uncertainty time. The need for market data is growing because companies in that stage need more context about where they stand. If the uncertainty is hurting them more than others, they all go and replanning their strategy and they need market data for that. So I hope that the engagement will increase. I hope it answer your question.

And the next question comes from Jason Helfstein with Oppenheimer.

I have 2 questions. One, if we do start to see slowing corporate spending, I mean, we're obviously seeing companies talking about kind of pausing and slowing head count already. What's the -- can you maybe talk about the seasonality on account renewals and then just kind of when you would start to see that if you had clients taking longer to sign up, renew, et cetera? Or how that would play into your typical cycle of upselling new products with each renewal? And then second, obviously, the market is increasingly focused on cash flow and visibility to cash flow. You guys put in the letter that you expected to get to positive free cash exiting '24. I mean, any discussion about accelerating that and any commentary on that.

Thank you, Jason. Good to hear from you. So regarding the sales cycle, as we wrote, 35% of the deal we have are multiyear. So a big, big chunk of the book of business, especially the big contracts, are already locked in for multiple years. And I think that the other accounts that are smaller, even if it's big companies, are still -- our average contract is around $50,000. So I think that it's not a significant amount when companies try to optimize it. The core product is not that expensive. So this is around what I think there. So I'm not sure we're going to kind of feel any slowdown there, and now maybe it's too early to know. .

And regarding the cash flow question, so we do look in the market dynamics and we did communicate our path to profitability in 2024, and we're working hard into that direction. And I think that also internally, we did look how we can be more efficient. So we understand the market dynamic and the tone of voice coming. And so we do are now -- put a lot of emphasis about disciplined execution, making sure that we'll not spend money where -- places we don't do. We have great momentum. We'll just continue to do what we do and continue to deliver and be more efficient as we do that. So we are seeing that and executing it.

And the next question comes from Brent Thill with Jefferies.

Jason, just on the economic environment. I guess when you think about raising guidance into the face of a stiffening macro headwind, are you assuming in the guide a lower close rate on what you're seeing in the pipe? Are you assuming the same conversion rates as you go into the back half of the year? Meaning, is your pipeline not good and you're taking close rates down and you still can raise guide? Or are you keeping the same methodology in place based on what you see right now? .

Brent, good to chat. Like Or said, we've got a very, very disciplined approach to execution and how we forecast. And so we've got great visibility into our pipeline and also have great visibility into our backlog. Having all of that backlog and being a really -- an ARR business, not just a monthly -- month-to-month contract, but are multiplied by 12, gives us that confidence to being able to give the guidance that we do. So we're obviously looking at the numbers, looking at the pipeline and looking at the conversion rates that we had in the first part of the year and in current quarters and using that as we guide -- to give guidance that we know we can be.

Okay. Great. And just a quick follow-up, Jason, on multiproduct adoption by customers. Can you just give us a sense of the average number of adopted products versus past levels and what you're seeing on there, maybe add on what's happening with Shopper Intelligence?

Sure. So as we said in the prepared remarks, nearly 80% of the customers today purchase more than one solution. Oftentimes, that starts with both the Digital Research Intelligence and the Digital Marketing Intelligence, because those 2 go hand in hand. We see more and more customers that are now getting onto a third solution as well. And depending on the business that they're in, if they're in a transactional like a retail or a CPG business, the add-on that they do after is Shopper Intelligence. If they're more of a B2B or a publisher business, the thing that they add on thereafter is really the sales solution. So we see that trend and that customer journey going from 1 to 2 and 2 to 3 happening. Just a mix of which product sets or solutions that are looking for vary depending on the industry that the customers have.

And the next question comes from Tyler Radke with Citi.

Great. I wanted to unpack the improvement in net retention rate that I think you saw both in the $100,000 customers as well as the overall customers. What's the primary driver of that? Is it more on the gross retention side? Or is it just the cross-sell and uptake of some of the new products? And how are you thinking about the sustainability of that improvement as you think about the rest of the year?

I think the improvement come in many angles. First, also logo retention is improving very well and cross-sell/upsell is improving. Customers are happier. Product gets improved. We are doing a much better job on the relationship and working with our customers. We put a lot of emphasis in the past 1.5 years and really grew top-notch customer success organization, customer services. And we hire a lot of great consultants that work with our customer, helping them working on the system, get the insight, get the ROI. So all of those efforts we put, I think almost 2 years ago, are really starting to get fruits now. And I think this is the majority now. Jason, you have any more thoughts around that?

Yes. Or, I think you hit on that really well. But it's obviously both sides, Tyler, both from the gross retention as well as the upsell, which drives the net. But I think the -- what, Or, you mentioned is that more and more our customers are able to see and measure the ROI, and that I think -- it's a good mention of the Forrester report that is available on our site that we mentioned in the press release. That suddenly we're able to have not only the sales solution, which we had previously had, good metrics on the ROI, but also now on the Digital Research Intelligence and Digital Marketing Intelligence Solutions, and that's over 600% ROI for the customers that Forrester interviewed. I think it's a good metric for folks to look at. That quantifiable ROI that drives that growth for our customers and ultimately drives that net retention that we're delivering in the results that we showed today.

And Jason, are you expecting that net retention could continue to improve from here? Or should -- is this kind of a peak just as you think about what's embedded in the guide?

Yes. We don't guide on NRR. We think -- we're very proud of the achievements, and we think that this is something that we've worked hard on. And the results you're seeing in the numbers today, remember, is the results of all the investment that we've done over the last 12 to 18 months, because NRR is really a 12-month look-back number. And that has to do with that disciplined execution that we've been talking about internally and sharing with you. Because recognizing the need to not only land, but go from land to retain and retain to expand, that's the model that we've been executing on.

Great. And then I just wanted to follow up on Brent's question about close rates. It sounds like you're saying that you have very good pipeline visibility and so you're not really making any material changes in your close rate assumptions. I just wanted to clarify that that's what you meant. And then secondly, if you could just kind of characterize how you've seen the macro environment and business environment evolve through April and May, if it's better or worse than what you saw in March.

Sure. So we're seeing activity continue in line with what we saw previously. Again, we're conscious of the macro headwinds. We've taken that into account in the guidance that we put together. Again, it's just the way we've been operating for a long time. And we're very humbled by the results that we're able to deliver and report to you now and the up guide that we did. That said, when we think about -- I think Or mentioned, when we think about the macro environment, we look back at what happened over the last 2, 2.5 years. When you think about at the start of COVID, I think we all -- and here internally, we were not yet a public company.

We weren't concerned as what would that do to pipeline and how that would impact spending and adoption of Similarweb. I think the takeaway that we learned from the results and from our conversations with customers is that they need Similarweb as much, if not more, in tough times than in good times. Because in good times, you want to drive your -- about driving your growth and the digital intelligence that Similar provides enables decision-makers and operators to make smarter business operating decisions. In tough times like we see the macro trends today, it's even more important to be able to optimize and know where you should be investing and where you should be optimizing, where you should be focused on in order to deliver the business growth that you're looking for.

And where are there the opportunities to take advantage or to steal market from your competitor or to identify which markets you maybe should reduce your investment in. And we've seen that happen over the last 2 years. And I think that that's something that we hear from customers today as they're thinking about how to leverage Similarweb as they plan their -- the remainder of 2022 budgets and going into '23 in today's macro environment.

(Operator Instructions) And our next question comes from Patrick Walravens with JMP.

Great. And let me add my congratulations on 2 quarters in a row of 50%-plus growth, and/or let me add my thoughts, prayers and well wishes for your team in Ukraine. Jason, on -- can we just talk more about the cash and the burn? So you have $120 million in cash and no debt, right, and your operating loss this quarter was $20 million, but you only burned $4 million. So that's great. But how much should we expect you to burn through the rest of this year? Was this quarter really unusual because of collections or something like that?

Pat, so maybe take a step back on that and just talk about how cash flow works in Similarweb in general. There is some seasonality to the renewal cycles that we have. Those typically have higher renewal cycles in Q4 and the beginning of Q1, and you see that cash flow come in heavily in Q1 and Q2. And because we typically invoice our customers a year in advance upfront, so you've got higher cash collections in the first part of the year than in the back end of the year. And so this is something that we do account for and we think that is something that you've seen in the -- we've shown in the past or performed that way if you look back over the last couple of years as well.

Having said that, we are going -- we aim -- we will be burning less than -- overall on an operating basis less than $50 million this year. And including the -- obviously, the burn that we had for this quarter, so we're talking more than enough. And from a cash on the balance sheet today, we have $125 million, plus the additional $75 million credit facility. So we look at our available cash as being over $200 million. We think that's more than enough to take us the way through to the cash flow profitability that we guided to and are reaffirming today.

Yes. It sounds like it's more than enough. And I heard Or's comments about we're looking for efficiency. But when you look at -- I'm here in [Tel Aviv]. When you look at all the startups that are starting to just say, okay, we're going to grow less fast and we're going to conserve our cash, I mean, do you guys think about that? How do you -- what do you view as the pros and cons? How does the burn rate today is slowing down?

So we don't think we should slow down, but we shouldn't speed up. This is a different approach, right? Because we're seeing a huge time in front of us. We -- as I'd like to say, we're always just getting started. And we're seeing a huge market to capture our technology and offering is very unique. So in a different world and different environment, maybe we would even accelerate our growth. But as we're seeing the macroeconomics and as I said, tone of voice, we think that we need to continue to execute the same as we are doing now. Jason, maybe you have anything to add.

Yes. And maybe I'd just add, Or, is that when you look at -- Pat, if you look at the payback period that we, again, we shared both in the shareholder letter and in the investor presentation, we're tracking now on a 15 to 16-month payback on a gross profit basis for customer acquisition. And on the flip side, when you look at that second year, that retention rate, we've got about a 45% to 50% contribution margin. And just to clarify that, what that is that gross margin minus the cost, the sales and marketing resources, the customer success that we have in order to retain and expand those customers. Those -- that's providing a 45% to 50% contribution margin when you look back over the trailing 4 quarters.

So this -- the model itself is highly efficient and we're focused on that. And if you look back right as we came to market and the IPO a year ago, we had taken the company to a cash flow breakeven business and slightly profitable on the cash flow side. We're growing at 32%. As Or said, we see the massive tab ahead of us. We know that the model itself is efficient. We've got that disciplined execution that we've been doing for a number of years in order to deliver that cash flow profitability in 2024 on $450 million to $500 million of ARR.

And the next question is a follow-up from Ryan MacWilliams of Barclays.

Or, I know last quarter you talked about the desire to further your market-leading position in alternative data intelligence. But with -- addressing on Patrick's question, some of the challenges that some startups or late-stage companies are seeing, like are you tempted to be the market consolidator or add additional functionalities as we go through this year, maybe pick up some teams or product that might take longer to develop?

Okay. So it's a great question. We are still inspired to be the leading player in what we call the alternative data ecosystem. I think it's like a new market that is now raising in the public investor ecosystem, and we are -- already have really great momentum. This quarter, we plan to launch a new platform dedicated for the industrial solutions. So it's going to be a platform that you will be able to query stock and not website like we have in -- or apps like we have in our core products. And this platform will enable us to integrate much faster more different data sources that help investors get signals on performance like credit card data or real estate data or any other alternative data that is out there that help get visibility. So -- and I hope that once we're going to launch and start rolling out this platform, it's also going to make -- it will make us -- will enable us to buy and integrate companies faster and then we can be even more bullish on acquisition and consolidation in this market. So stay tuned. We put it in better this quarter.

Great color. And Jason, just on the gross margin side, great to hear about the rebound and step-up plans in the second half. Can you just walk through like some of the components of how you're getting more leverage on the gross margin line? Is it just more usage of Embee Mobile product? Just more color there would be helpful.

Yes. Both the Embee Mobile as well as the -- well, the data.ai license agreement that starts hitting cost of sales this quarter are fixed costs. And so much like the -- much like our other parts of data acquisition or data assets that we build out, those are fixed costs that service the same number of customers, whether that's 50 or 500 or 5,000 customers. And as more and more -- we increase the number of customers and the increase the revenue per customer, and therefore, the overall ARR and revenue for the company, we're able to leverage that fixed cost more.

That's the historical trend that we saw previously that took gross margin from 54% in 2018 to 71% to 77% to 78% over the 3 years thereafter through last year. Like we mentioned last quarter, the Embee and the then announced data.ai partnership were going to be short-term hit as we integrated those costs into our data edge. But once that starts delivering and attracting more and more customer and revenue, you'll see that amortize and leverage to drive additional gross margin.

Thank you. And that concludes both the question-and-answer session as well as the event itself. Thank you so much for dialing in. You may now disconnect your lines.

Thank you.