Q1 2022 Similarweb Ltd Earnings Call
Greetings and welcome to the somewhat web Q1 fiscal 2022 earnings conference call.
At this time all participants are in a listen only mode.
That session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press Star then zero on your telephone keypad.
As a reminder, this conference is being recorded.
Now I'll 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.
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.
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 protective results or the timing predicted or implied by such forward looking.
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 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 presentation 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 intangibles.
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 and they should not be considered in isolation from whereas 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 Dot similar web dot 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.
Please note that we published a detailed discussion of our first quarter 2022 results.
The 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 similar web.
Thank you Jay.
Hello to everyone joining the call today.
Two have you all here on our one year anniversary of being a public company.
We saw the 'twenty to 'twenty, two strong and posted excellent revenue growth, 51% over Q1 last year and exceeded $44 million all all in the first quarter.
Our customer base growing 27%.
Nearly 3700 and average account spend nearly $50000 with us annually.
Hello, I'm, all although 53% of our annual recurring revenue comes from customer will spend more than $100000 filling it with us, but also adult excite us as we continue to see momentum building in our business.
The one thing that I think we had similar web and doing better than anyone else.
Predict how the antenna behave.
Although to create this prediction of digging telling me haynesville well all traffic move on to the digital world.
We think vast amounts of digital signals generated from activity in the digital ecosystem and converted it into intelligence.
And market data with process to death by using advanced proprietary machine learning techniques to produce comprehensive and timely because it does take in that is there.
Solution.
We built on top of the desktop enhance the centrella revenue driven operation steam of our customers, which includes a set of marketing analytics call Mills and all designed to directly benefits a wide range of fuel cells from the C suite to operational teams.
The refined doctor and actionable insights, we provide our customers give them a competitive advantage to win the market.
We see constantly how to innovate and improve our solution in all our underlying dot though.
This call today, all we made a major investment and improvement in our mobile web and mobile app that offsets it.
Crossing all our marketing channels, which include referral keywords and other profit metrics.
We are also enhancing our solution to leverage off the doctor from Dod tie I previously known as App Annie.
Which is the leader in intelligent bathroom as well as shipping new feature releases that constantly make our product portfolio more valuable to our customers.
Our go to market execution continued to be highly efficient globally.
4% 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 and edge in their markets continue to gain momentum today.
Today, 35% of our relationship consist of multi year contracts and metrics that continue to expand year over year since 'twenty 'twenty.
Our customary I appreciate the strong volume, we all fell with nearly 80% of our customer base currently purchasing more than one solution from us.
Before concluding I would like to take a moment to recognize the contribution of our 65 team member in Ukraine will continue to work well.
When and where they can earn extra old another situation.
Our hearts are with you and you all 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 multi billion dollar market opportunity.
Jason I will turn the call over to you.
Thank you war and thank you to everyone joining us on the call today.
Those of you who have been on our previous earnings calls you will notice that we are conducting things differently.
Just 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.
Ill 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 and a half million dollars on the high end of our range importantly, our overall dollar based net retention rate or.
<unk> increased to 115% as compared to 103% in the first quarter of 'twenty, 'twenty, one and $400000 <unk> customer segment, and our increased to 127% as compared to 115%.
In Q1 last year, our go to market execution during the quarter were stellar.
Remaining performance obligations or RPE OS increased 68% year over year to $159 million.
Our plans for 2020 to 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 and 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 $25 million loss on the low end of our guidance range. This result includes <unk>.
Non comparable expense impacts from our acquisition.
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, and a half 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.
non-GAAP operating loss for the second quarter is expected to be in the range of negative $23 million to negative 23, and a half million dollars and for the full year of 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 EM be 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 three year target of $450 million to $500 million in AOR and positive free cash flow as we exit 'twenty 'twenty four.
With that or and I are happy to take your questions.
Yes. Thank you.
And as Matt said at this time, we will be conducting a question and answer session.
If you would like to ask a question. Please press Star then one on your telephone keypad.
Confirmation tone will indicate that your line is in the question queue.
Are there too if he would like to remove your question from the queue.
All participants using speaker equipment, it may be necessary to pick up your handset before pressing that he's well known please while we poll for questions.
And our first question today comes from Arjun Bhatia with William Blair.
Perfect. Thank you very much and congrats on a great Q1, guys.
Want to start with a with the net retention rate obviously, a lot of strength there that metric continues to move up as a upsell and cross sell takes hold I'm curious if you can just dig into maybe the underlying drivers a little bit more seats more data consumption.
Ross cell, that's driving that I know you did mention them, 80% of our customers are using multiple products. So lessons get unpacking of that metric and how high you think that can go if there's continued momentum there.
The year progresses here.
Yeah, Hi, Al speaking.
Thank you for the question. So if I had to think out of my hands about all the different methods of contributes to the growth I think.
All of them are they have a nice contribution some of them is the cross selling of introducing a.
New products like the shop at all our Sim solution to our customers.
One of them that is more of a data consumption.
All of these areas. We are also able to upsell our R. A T I a product and then go with the consumption.
And also we have we had success with a metered approach that is adding more users to our.
Some other hum.
Comps in our capabilities.
One of the lines of business have and are and I think we will continue to have great momentum.
We're getting better and we continue to innovate and bringing more and more solutions and improving our own products. So our customers are happy and buying more.
Very helpful. Thanks, and then one of my Oh, a follow up if I can on <unk>.
The app Annie or the big data AI partnership rather can you just give us a sense for any updates on the development of that Oh that solution on the mobile side are we still set a launch by Q2 and would love to hear if there's any you know.
Early customer commentary since the partnership was announced in terms of a risk.
Reception or potential deployment.
Yeah.
So we also very exciting excited about this the abdominal shape. The team here is working really hard and as we.
And quota before it would be in lunch and introduced into the markets in the next few weeks.
And and the team is very exciting about that they think it's unlocked a lot of opportunities for us and.
In specific regions and you know and when we're in a region where activity is more dominant like southeast Asia and in those areas when we have customers.
And listen don't because it's all dependent on the ethical system.
And we're going to introduce this and of course I I.
I think it's when the there's also a nice contribution to the opposite of close to that motion.
Perfect. Thank you very much and congrats again guys.
Thank you and the last question comes from Ryan Macwilliams with Barclays.
Thanks for taking my question and just wanted 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 most recent quarter was there any impact from FX or anything we should think about as you move through this year.
Not materially.
For us most of our contracts and by the way Ryan good to hear from you and thanks for the feedback, but most of our contracts.
Our are denominated in U S dollars so while.
While there often is.
Somebody who buy in euro or or otherwise.
But it wasn't a material impact this quarter.
Yes.
I appreciate that and then what sounds like RPM growth accelerated and there's some strength in that retention of your business, but or you know why you guys have seen you know 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 you know how do you think.
Your customers would maybe interact more or interact less with similar web under those circumstances.
Hey, what's up.
So.
If it's a good question and so what we saw historically, even when we look at when Covid happened and there was lots of uncertainties in the market. What we discover back then and I can also think what's going to happen is the world would go into this uncertainty.
Uncertainty time their need for market data is growing because of companies in that stage need more context about where that stands.
The uncertainties and helping them more then Aldo will they all go into the planning their strategy and they needs market data for that.
So I hope that the engagement with that we will increase.
I hope it's centered around your question.
That helps for sure because the color loved this format. Thanks guys.
Thanks, Matt.
Thank you.
Thank you and the next question comes from Jason Houston with Oppenheimer.
Okay.
I have two questions one.
One.
If we do start to see slowing.
Slowing corporate spending and we're obviously seeing companies talking about some pausing and slowing head count already.
Hi.
What's the maybe call it the seasonality on account renewals.
And then just kind of when you would start to see that you had clients taking longer.
You know sign up renewed et cetera, or you know 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 expect it to get to positive free cash.
Exiting 'twenty four.
I mean, you know any discussion about accelerating that.
And any commentary on that thank you.
And thank you, Jason and good to hear from you.
So regarding the sales cycle and it was as though you wrote and 40 35 to.
35% of the FDA.
We have a multiyear.
So.
You know so big Big chunk of the book of business, especially the big contracts.
Locked in for multiple years.
And I think that the other the other accounts that are smaller even if it's a big companies and all while still all average and contact us.
Around 60 K so.
I think that it's not that significant demand, which was caused companies to try to optimize it as a.
The core product is not that expensive isn't live on what they've seen there so.
I'm not sure we can.
And if so are you lending a slowdown there.
And now with maybe it's too early to know.
And I don't think that there's slow and question and so we do we do look on the in the market dynamics and ER.
And we did that and communicate our path to profitability in 2024, and we working how old are into that direction now.
And that also internally we did look how we can be more efficient. So we understand the market dynamic in the tone of voice and so we do are now with a lot of emphasis on disciplined execution.
Sure that's it.
And money and where it places we don't do we have great momentum just continued to do what we do.
And continue to deliver and be more efficient as we do that so and we all are seeing that and executing.
Yeah.
Alright, Thank you and the next question comes from Brent Thill with Jefferies.
Jason just on the economic environment.
Environment I guess, when you think about raising guidance and into the face of a stiffening macro headwind are you assuming in the guide a lower close.
Close rate on on what Youre seeing in the pipe are you assuming the same <unk>.
Conversion rates as you go into the back half of the year, meaning is there a pipeline that good and your your your your.
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.
Yeah.
Hey, Greg good too.
Good to chat.
Like I 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.
That backlog in and being a it really in our Aurora business not just a monthly a month to month contract for the multiplied by 12.
It gives us that confidence.
To being able to give the guidance that we do.
So we're obviously looking at the at the numbers looking at the pipeline and looking at the conversion rates.
That we've had in the first part of the year.
And I'm in current quarters and using that as we'd guide.
Okay to give a guidance yet you know we can be.
Okay, Great and then just a quick follow up Jason on the multi product adoption by customers can you just give us a sense of the average number of adopted products versus past levels in one what you're seeing on there and maybe a add on with whats happening with shopper intelligence.
Yeah.
Sure.
<unk>.
As we've said in the prepared remarks, nearly nearly 80% of the of the customers today purchased more than one solution.
Oftentimes that starts.
With both the digital research intelligence and digital marketing intelligence.
Because those two go hand in hand, we see more and more customers that are now getting onto a third solution as well depending on the on the business that they're in and if there isn't a transactional like a retail or a CPG business.
The add on that they do afterwards is shopper intelligence had been more of a b to b or a publisher business. The thing that they add on thereafter is is really the same solution. So we see.
That trend and that customer journey going from one to two to three.
Happening just a mix of which product sets of solutions that are looking for very depending on the on the industry customers.
Thank you.
Thank you and the next question comes from Tyler Radke with Citi.
Great. Thanks, so much for taking the question I wanted to unpack the improvement in net retention rate that I think you saw both in the 100 K 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.
Okay.
Yeah.
Hum.
I think the the equivalent coming many angles.
So locally tension is improving very well.
Cross sell upsell are improving customers are happy air product gets in Peru, where I'm doing much better job.
On the relationship and working with our customer we put a lot of emphasis in the past year and that hasn't really grew our top top notch customer success organization because of the customer services.
And we hired a lot of great consultants that work with those customers helping them.
No our working on the system get the insight go down our lives. So all of those efforts, we put I think almost two years ago are really building.
Clothing for good fruits now.
And.
And I think this is the majority of them. Thank you Jason.
Got it.
Around that.
Yeah.
Yes, I think I think you hit on that are really well cause.
It's obviously both sides.
Both from the Brooklyn, the gross retention as well as the as well as the upsell, which drives the net but I think the.
What were you mentioned is that more and more our customers are able to see and measure the ROI and that I get to I think it's a good mentioned of the Forrester report that is available on our on our site that we mentioned in the in the press release.
That suddenly we're able to have not only the sale 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 are that Forrester attribute.
I think it's a good metric for for folks to look at that that quantifiable ROI.
That drives that that growth for our customers and ultimately drives that net retention that we're delivering.
Results that we show today.
And Jason.
Are you expecting that net retention could continue to improve from here or is this kind of a.
A peak just as you think about what's embedded in the guide.
Yes.
We don't guide on an N R R.
We're very proud of the achievements in and we think that this is something that that we've worked hard on and be the results you're seeing in the numbers today remember that is the results of all the investment that we've done over the last 12 months to 18 months because <unk> is really a 12 month look back number.
And that has to do with that disciplined execution that we 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.
Great and then I just wanted to follow up on Brents question about close rates. It sounds like Youre, saying that you have very good pipeline visibility until you're not really making any material changes in your close rate.
James I just wanted to clarify that that's what you meant and then separately.
These are just kind of characterize how you've seen.
The macro environment in any business environment evolved through.
April and May if if it's better or worse than what you saw in March. Thank you.
Sure.
We're seeing activity continue.
In line with what we saw previously again, where we're conscious of the macro headwinds we take we've taken that into account.
In the in the guidance that we put together again, it's the it's just the way we've been operating for a long time at where we're at.
Humbled by the by the results that we're able to deliver I would report to you now and the a and B you know up guide that we did that that's sad.
When we think about I think it was mentioned when we think about the macro environment. We look back at what happened over the last two two at the half years. When you think about at the start of Covid.
I think we all in here internally, we were not yet a public company.
We were concerned.
Concerned, there's what would that do to pipeline and how that would impact.
Spending and adopt similar what I think the takeaway that we learned.
The results from our conversations with customers is that they need to mobile web.
As much if not more in tough times that in good times because in good times you want to drive you are about driving your your growth in the digital intelligence that similar provides enables decision makers and operators to make smarter business operating decisions in tough times that Mike.
We see the macro trends today.
Even more important to be able to optimize that 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 youre looking for.
And where are the opportunities to them.
Take advantage or to steal market from your competitor or tiny dented by which markets you maybe should reduce your investment.
And we've seen that happened over the last two years and I think that that's something that we hear from customers today.
As I'm thinking about how to leverage similar web.
They plan their the remainder of 2022 budgets and going into 'twenty three in today's macro environment.
Thank you.
Thank you and once again, please press star zero, a lot on their own rather if you'd like to ask the question again Star then one will allow you to speak.
And our next question comes from Patrick Wall Ravens with JMP.
Oh, great. Thank you and.
Let me add my congratulations on two quarters in a row of 50% plus growth.
And let me add my thoughts prayers and well wishes for your your team in Ukraine.
Jason on can we just talk more about that about the.
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're only burn for.
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.
Hey, Pat.
So so sure I'd, maybe take a step back on that and just talk.
Talk about.
How cash flow works and similar web.
In general there is some seasonality too to the renewal cycles that we have those typically have higher renewal cycles in Q4 at 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.
So this is something that that we do account for them.
And we think that's good.
That is something that you that you've seen and we've shown in the past will perform that way if you've looked back over the last couple of years as well.
Having said that.
We are going.
We will be burning less than overall on an operating basis less than $50 million this year.
And.
Including the obviously the burden that we had for this quarter. So we're talking about.
You have 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.
To take us the way through.
On to the cash flow profitability that we got it to them and are reaffirming today.
Yeah. It sounds like it's more than enough and you know and I heard or his comments about we're looking for efficiency, but.
When you look at I'm here in Tel Aviv do you know when you look at all of the startups that are starting to you know.
You say, okay, we're gonna grow less fast and we're going to conserve our cash I mean do you guys think about that.
How do you how do you.
What do you view the current burn.
Burn rate and so it is slowing down.
We don't think we should slow down, but we shouldn't speed up this is a different approach.
Because we're seeing a huge tam in front of Oh, yeah they'd likes to say, we always just getting started.
And we're seeing a huge market to catch it all on technology and offering is very unique.
And so in a different world in a different environment than maybe we would even accelerate their rules.
As we've seen the microeconomics and they said done a voice.
The thing that we need to continue to execute the Senate is we are doing now.
I'm just wondering do you have anything to it.
Yeah, maybe I'd just add to where is that you know when you look at if you look at the at the payback periods that 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 that second year that net that retention rate.
We've got about a 40, 45% to 50% contribution margin and just to clarify that would that is that gross.
Margin minus the cost of sales and marketing resources that the customer success that we have in order to retain and expand those customers those that's providing a 45% to 50% 50%.
Contribution margin when you look back over the trailing four quarters. So so.
The model itself.
It is highly efficient and we were focused on that and if you look back right.
Right right that as we came to market in the IPO a year ago.
<unk> taken the company to cash flow breakeven business.
And slightly profitable on a cash bar side.
We're growing at 32% and as George said, we see the massive Tam ahead of US we know that the that the model itself.
Is is there is sufficient we've got that disciplined execution that we've been doing for a number of years in order to to deliver that that cash flow profitability in 2024 on on $450 million to $500 million of AOR.
Great. Thank you.
Thank you and then a question as a follow up from Ryan Macwilliams with Barclays.
So again, thanks, guys for taking the question or I know last quarter, you talked about the desire to further your market leading position.
And alternative data intelligence, but now with the drafting off Patricks question.
Some of the challenges that you know some startups or late stage companies are seeing like are you tempted to be the market consolidator or add additional functionality as we go through this year, maybe pick up some teams or product they might take longer to develop.
Okay and so it's a great question, we are still inspire two to be the leading player in what we call. The alternative that the ecosystem I think it's like a new market that is now raising and they are public investor like us. Since then and we are really have really great momentum.
And this quarter, we plan to launch a new platform dedicated or are they in Bristol solution. So it's gonna be a platform that you would be able to query stock and not website like we have in our apps like we have in our core products.
And this platform and will enable us to integrate as much faster more different data sources.
And that's helped to invest still then get signal.
Both performance like Crazy to combat Oh, let's see enough of them, but many of those.
<unk> done it they've adopted this is aldo.
And visibility.
So and I know and I hope that once we got a lunch and stopped building up this platform. So those will then I'll make a.
And it would make us.
And it will able us to.
By an integrated company faster and then we can be even more bullish on acquisition and consolidation in this market.
And stay tuned we will put it in better this quarter.
I appreciate that color.
And Jason just on the gross margin side, great to hear about the rebound in step up planned for the second half can you just walk through like some of the components of how you are getting more leverage on the gross margin line is it just more usage of and be mobile product just more color there would be helpful. Thanks.
Yes, both the N b mobile as well as the.
B the data AI.
License agreement with <unk> that starts hitting growth.
Cost of sales this quarter.
Our fixed costs and so much like the <unk>.
Much like our other parts of our beta acquisition or a data assets that we that we build out those are fixed costs that service. The same number of customers, whether that's 50 or 500 or 5000 customers and as more and more we increase.
The number of customers and increase the revenue per customer and therefore, the overall, Oh Roaring and revenue for the company, we're able to leverage that fixed cost and that's the historical trend that we saw previously that took you know what.
That took our gross margin from 54% in 2018 to 71% to 77% to 78.
Over the three years thereafter limits here.
We mentioned last quarter.
M B and N. B, then announced data AI partnership we're going to be short term hits as we integrated those costs into our into our data.
Into our data edge, but once that starts delivering in and and attracting more and more customer and revenue.
You'll see that advertising and leverage.
To drive additional gross margin.
Excellent I appreciate the color thanks, guys.
Thanks Man.
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.
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Thank you.
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Okay.
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Yes.