Q2 2022 Similarweb Ltd Earnings Call

Greetings and welcome to similar with Q2 fiscal 2022 earnings conference calls.

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I would now like to turn the conference. So what's your host Mr. RJ Jones, Vice President Investor Relations.

Please go ahead Sir.

Thank you operator, welcome everyone to our second 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 impact 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 the projected results or the timing predicted or implied by such forward looking statements.

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, there and 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 available information as of today's date August 10 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.

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 used 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 comparability with past financial performance by excluding certain items.

And that may not be indicative of our business.

Results of operations or outlook.

However, non-GAAP financial measures have limitations as analytical tools and are presented for supplemental informational purposes only.

To 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 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 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 second quarter 2022 results in your 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 Alejandra and also thank you to everyone joining the call today.

We posted excellent results in our second quarter, and we focused on more efficient growth for our company.

Revenue grew 46% over Q2 last year to 47 6 million Boe at all.

In the second quarter, the expansion of our global customer base, consisting of SMB enterprise and strategic accounts remaining strong.

Our customer base grew 25% year over year to over 3800.

And now our and our average account spend about $51000 with us annually.

16% in just a year since our IPO.

They'll know over 53% and fall in love with recurring revenue come from customers, who spend more than 100000 dollar per deal with us.

They are 36% so far relationships consistent multiyear contracts and matrix that has continued to expand yoga yoga since 'twenty 'twenty.

As the global macroeconomic environment has become more insult them similar web offering and solution has become even more important to our customers.

The visibility into the digital ecosystem and how it would behave and change is critical information to in those times that help our customers make the right strategic decisions to navigate through economic stormy weather and be successful.

As a reminder, we collect extensive online Doctor then was he find it and packaging into solution of actionable insights for customer, which enable them to make better decision and they'll competitive market. The solution. We built on top of all of our data in fact, the revenue driven.

Teams of our customers, including sales marketing analytics any coal metals.

And that'll designed to help a wide range. If you will from the C suites to the operational teams.

Every quarter, we seek to innovate and improve upon our solution and add to our underlying data our customer look forward well feature additions. This quarter, we took a major step forward.

Able us to provide more value to our customer first we quietly blayne, because angel, which immediately in hand, so it's still capabilities with the complementary technology and data.

This acquisition represents a great example of all M&A as a strategy, which we aspire to continue.

Second we launched our App intelligent pro Doc that incorporate data from our data.

Formerly up any.

Polymer.

We give our customers an expanded view of activity across the digital world.

The initial customer responses are positive and we plan to add more seats show over time Lastly, we are in the middle of exciting build cycle for how in Bristol intelligence solution, which would which will deliver timely insights for a new experience to our investor customers.

We anticipate we will be bringing the new experience to market in the back half of the deal.

Again, our customers greatly appreciate the value, we deliver especially in times of uncertainty we are adopting to the microeconomic environment with our customers as we continue to innovate and grow we are also focusing more on operational efficiency that would lead us to becoming profitable.

We are only just beginning to unlock our potential would be in a multi billion dollar market opportunity.

So I wouldn't term to call although the.

Thank you war and thank you to everyone joining us on the call today to discuss our second quarter results I will briefly address our financial performance and then we will open up the call to questions.

Our results in the second quarter continued to show our commitment to disciplined execution revenue reached $47.6 million for the quarter and exceeded our outlook of $45 $9 million on the high end of our range.

Courtney weight, our overall dollar based net retention rate or <unk> increased to 115% as compared to 106% in the second quarter of 2021.

For our $100000 AOR customer segment, and all of our increase to 127% as compared to 118% in Q2 last year.

Our remaining performance obligations or RPE OS increased 53% year over year to $160 million, 87% of which will be realized over the next 12 months.

As we exceeded our plans and revenue we also exceeded expectations on our bottom line. Our non-GAAP operating loss was $19 $8 million, which was less than the $23 million loss on the low end of our guidance range.

The two factors driving this result, where sales above expectations and operating efficiency across the business.

As a reminder, this result includes non comparable expense impacts from our acquisitions as compared to the prior year.

Turning now to Q3 2022 we expect total revenue in the range of $48 $8 million to $49 $2 million for the full year. We continue to expect total revenue in the range of 196 million to $197 million representing four.

3% growth year over year at the midpoint of the range.

non-GAAP operating loss for the third quarter is expected to be in the range of $29 billion to $21.5 million and for the full year between 80 million and $81 million compared to last year our outlook includes.

<unk> to cost of goods sold related to our data AI partnership until the acquisition of N V. Mobile we anticipate non-GAAP gross margin will be approximately 74% to 75% in Q3 2022 and between 75 to 76 per cent for.

Full year 2022.

As a result of these impacts.

Our second quarter 2022 results indicate we are running our business very efficiently during a time of increasing challenges globally.

The decisions, we are making reflect our focus on maintaining strategic flexibility and balance sheet resilience and pursuing profitable growth.

With that or and I are happy to take your questions.

Thank you very much.

At this time.

Inducting a question and answer session.

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One moment, please light V 44 questions.

Our first question comes from the line of.

Ryan Mcwilliams.

With Barclays. Please go ahead.

Thanks for taking the question.

And so as we enter.

No more difficult macro environment I appreciate you calling out in prepared remarks that you're starting to see maybe a little more softness from customers in the EU, maybe those that are more focused than the SMB as well can you just highlight some of the things you're seeing on the ground and how that maybe impact your strategy over the next six to 12 months.

<unk>.

Hey, it's Oh speaking.

For the question.

So I think it's a we do see you know its soft now and in the market.

I think it's.

Phil it's more than just a little bit harder to do.

Yes.

So.

The life cycle of closing a deal.

Longer.

And I think there's like a lot of tactics with the customer.

So a jobs.

All day and all of them.

Clothing, the budgets and so on so.

Seeing the slowness I think a lot in Europe .

In other regions.

That's similar to what we're seeing with basically across the software universe and that makes sense and for Jason you know just for on free cash flow in the quarter can you provide some puts and takes there any changes worth calling out and then how can we think about the path forward from here for the rest of.

This year someone freak out for a lot.

Yeah sure Ryan So I think that.

You see that that's been kind of disciplined execution.

Uh huh.

But we think that the free cash flow the normalized free cash flow.

Well it should not exceed $50 million for the year and so get aware here at the halfway point I think we've been managing that well.

Just as a reminder, you know.

From.

A cash flow perspective, a significant amount of our renewals happen.

It happened in Q4, and Q1 and so a lot of that cash flow comes in in the end of Q4 beginning of.

She wanted to April of a year. So we're getting into the trough from a billing standpoint those are be seasonal.

Weaker part of our cash flow cycle and so what.

What we always do is look at it on a on a rolling 12 month basis. The one other thing to call out.

You saw in the release that we.

We did have to be good move into our new headquarters here in Israel. So we add you had cash capital expenditures that's related to that the buildout and the new the new headquarters here that we had talked about a few quarters ago and you see that coming through on the cask worldwide.

This quarter, we break that out.

And you know show you both a total free cash flow and the normalized free cash flow in the release.

You said the color Scott.

Thanks Man.

Thank you our.

Our next question comes from the line of Jason How Stein with Oppenheimer. Please go ahead.

Hey, Thanks, guys I'm just wanted to ask won just about how you're thinking about gross margins into next year. So there's obviously been investments that have depressed. The gross margin first half of this year do you feel like next year with what you have in kind of the product pipeline, we should be able to see meaningful growth in the gross margins.

I don't know if it'll get back to you know 70, 879, but something you know.

You know call. It you know more like high seventies, you know more something like we saw in 'twenty, two 'twenty 2020, one and then separately, how you're thinking about sales and marketing.

<unk> investment to the extent that the world is a little bit slower and if you let more flow to the bottom line. Thank you.

Yeah.

So thank you Justin good to hear from you.

So let's talk about the gross margin. So the short answer is yes, we are.

I'm, hoping to improve the numbers.

I'm, not saying that we're going to get to the ABL.

It was like the long term model, but that's on the and probably most of them the docomo.

From the population of adult acquisition. This is the biggest chunk around all that Oh, my God volatile coal.

And I think looking into the future and I've seen it.

Definitely not going to increase and we are in a very good place and currently so the answer is yes, and probably will increase nicely.

The other thing as anomaly M I.

Again, we make a lot of decision to be more efficient drilling.

Colton. This time, so we are optimizing and hopefully also with improvement around spend.

Spend in sales and marketing going forward based on the allergist.

Yeah, I mean, I'm glad I'm back.

Yeah, I agree with you on that and I think that what are the things that you all were going to start seeing that efficiency flow through this quarter.

You have a 200 basis point improvement on the sales and marketing line and a lot of that revenue growth.

You don't go to the to the bottom line in this quarter, we're making decisions actively to be more efficient, but it's part of.

The strategy and I think you're starting to see that come through in the numbers already in Q2.

Jason do you have any more questions.

Our next question comes from the line of event to us.

With Jefferies. Please go ahead.

Hi, This is John Byun for Brent Thill, Thanks for taking the question.

So looking through the guidance for the rest of it looks like Q4 imply similar growth too.

Q3, so wondering how you're you thinking about you know how much macros embedded.

And also how the wonder how the trends are going so far in the quarter in July August what that's notable change from let's say June .

And then second part of question just wanted to ask about just in terms of the broader operational efficiency you know, how you're thinking about the cost structure.

Do you have into next year.

Any change in head count plans and so on thank you.

Hey, John Thanks for the question so.

I'm a.

First we'll talk about the growth trend and then and then talk about how we think about the operating efficiency.

So as we mentioned you know we were not immune to the macro economic trends that we see happening where we talk about a.

B O deal cycles that are getting done, they're just taking longer or tech or requiring additional levels of reviews within within the organization and that's stuff that we.

Take into account goes we prepare our guidance and you've heard me say before that we like to give guidance that we know we can meet and so that is that those assumptions that we have are are baked into that into the guidance.

And from an efficiency standpoint.

You know like like I said, we are proactively making decisions too to balance that growth and cash flow and to be to be more efficient and you see that coming through I'm not on the lines already.

And we do as we mentioned in the in the shareholder letter that.

That'd be released last night and.

This is something that that we are focused on.

Who work diligently as we had with that kind of disciplined execution and focus on our unit economics to drive those operational efficiencies to get to sustained cash flow. So.

And so that that is baked into our assumptions as we start thinking about planning and guiding for 2023.

Thank you I will add that on top of that we did are you know looking into the our head count plan for 'twenty 'twenty free you know that Q3 and Q4 are now is the time that we all start ups, you know hiring and blending to hiring the people for.

For next year for 2023 and of course, we're taking into account because of the decision we made to be more efficient.

Probably impact the future of our hiring plan.

Thank you for the call it.

Thank you. Our next question comes from the line of Tyler Alaska.

Please go ahead.

Good morning, I was wondering if you could talk about your performance in other geographies relative to plan.

We've heard mostly from companies that theyre seeing some issues in Europe , but just wondering if you're assuming that those conditions are that you saw in Europe spread to the rest of the geographies and kind of what you're baking in from a geo perspective for the rest of the year. Thank you.

And so what's interesting question would be then also when you tell them look around that.

Interestingly enough we have some regions that are good quarter like our Japan operation was doing doing well.

Well the U S. So so I think we're doing very well it's represent now almost 65% of our revenue.

Yes.

And I think it was up slightly from 50% of the U S and it was up 55%. So U S was good performing.

Two of interesting and dynamic.

They made me queue. For example, we have a very good scaling operations in Germany.

And but you pay them a sense of why we were more thoughts boggling I'm trying to think if any molecule nation I'll go Jason maybe you know what.

I think this is a good overview of vote.

The global impact.

Yeah and in fact, Jason.

Maybe just what you're assuming.

On the guidance.

From a.

A geographic perspective, if you're if you're assuming things get worse or kind of stayed the same.

No.

So we've taken some assumptions over there.

Based on regions and some of the things that we've seen in the pipeline already.

Even in Europe , we've got still a good solid pipeline. That's that's there and so we look at all of those factors as we put together our guidance so are there.

There are some things that will be.

We assume will be similar some things of Williston.

You know who knows.

And we want to make sure that we're all we've given guidance that we could meet.

Great and and from a hiring perspective could you just give us a sense what what are the areas that you're maybe slowing down or pulling back on the most is it does it primarily kind of marketing related or is it is it you know on the on the direct sales side, just give us a sense where you are.

Spending less on from a head count perspective, thank you.

Hi.

With me I'm trying to think about Oh.

So I think on the marketing side, we did a lot of changes lately I think.

And we were able to optimize our marketing organization is as it was a little bit bigger than what we were planning and so we did.

Probably the Booth said come Phil.

And the marketing organization may be a little bit around clients Silva says.

And maybe a little bit about an oven D area.

I think those are the major.

And also on the challenge and really cool thing right.

And do you have plan to X amount of people and maybe some of the heat cool tell them.

Well now when you're doing an adoption to higher income.

You need less workforce to execute them back.

Great. Thank you.

Thank you.

Our next question comes from the line of Arjun Bhatia with William Blair. Please go ahead.

Perfect. Thank you guys for taking the question.

You mentioned a couple of times in your prepared remarks and in the shareholder letter that demand could increase and uncertain time, certainly Microsoft those customers you know.

I think rely on data to drive their business a little bit more could you just maybe dig a little bit deeper into how that's actually coming through is that.

Are there certain products that you expect will benefit more than others and a more uncertain environment within your portfolio or do you think it's gonna be more.

Concentrated in new customers versus existing customers I'm, just curious how you're thinking that might play out.

Yeah of course, so we see this we see we see.

In the past a similar phenomenon when COVID-19 hit.

When.

The world, what's going on with distress in any cyclical.

Or struggling.

And the 12 and was a great example.

We saw that they've been resolved and they all came back and Baltimore and they'll go to adopt those strategy. So we do think that's going to get into a singular motion now in the.

And one could get more hectic.

One area, we do see now this there is little bit increase in demand for example, as in the investor they'll become when.

When we seeing that they're not those are public investors now try to.

The realized and when is the right time to market bonds back. So the more we didn't know that they can get.

No doubt.

When she stopped a little bit, though they can start planning when to start investing again.

So and some of the web is the best that unfolds well get those indication.

They get to the World performance. So we'll start seeing them, having more interest. So it's more about Oh services from us and I think those are the first well to come that stop thinking about it.

No the situations that we're probably going to see more of those won't be called.

And without getting.

Getting more demand for market will dig into the market.

Got it.

That's very helpful. And then maybe one for Jason I'm just it seems you know your net retention rate is obviously.

I'm doing very well are in and in this environment can you just give us a sense for how you expect that might play out for the remainder of the year as you know the macro backdrop gets a little bit more challenging and I'm wondering if you have any more granularity.

That metric that you can share with us in terms of you know.

Which which customers are expanding and how the gross retention might be changing if at all.

So origin at it.

It's great to hear from you.

The gross retention numbers are actually for the most part pretty stable.

B B.

Thing I think that we look at.

<unk> is really the rate.

The expansion and the buying power.

Customers have you know one of the what are the things that gives us some confidence in our in our numbers.

And the durability of our L a or is that already.

Already 36% could be a L. R is on you signed up for multiple years and so those are things, even though we report it and think of our business is a annual recurring revenue business, but having already 36% of that signed up a multi year deals means that that's.

That's revenue that is not up for.

Renewal if you will during that period of time, and so that gives us that confidence over there.

We're seeing in a number of the large customers that you know the things that they need or experience getting more detail. It's worth mentioned being able to to get that intelligence in different regions. So people are expanding within products to two additional regions.

And also where they need some of the deeper product information like shopper, where we saw a sharper intelligence you know pick up this quarter.

I do.

That's something that we're starting to see that we're starting to see an a mall.

More and more customers are actually integrating our solutions into their into their stuff and we're seeing some great movement on our OEM strategy is as more and more customers are integrating similar web into their products. So those kinds of things to the extent that they.

Continued during days you know.

We've kind of macroeconomic trends, we think are gonna be upsides to the number and and we continue to watch for.

Awesome, that's very helpful. Thanks, again, guys and nice job.

Thanks, So much. Thank you our next question.

Some line of Noah <unk> with J P. Morgan. Please go ahead.

Hey, guys. Thanks for taking my questions and congrats on a solid quarter.

Can you provide us any color on maybe customer usage on the platform and what are your expectations for pricing going forward. Thanks.

Pricing on the platform how can you can you repeat the question.

Yes, just any any change in in maybe a pricing or maybe if you could touch on any maybe pricing power you have.

For the platform itself.

And the pricing and packaging I think it's an area that we are.

We did not optimize as to whether they want us to be.

And then I think the more of our solution.

Looking more deep and more.

More on mystic.

So Beth.

And producing a.

That's a pleasant and packaging to our customer to.

So we have a win win.

Some other indices that we have a strong believer both booking win win.

The more of a customer that gets them a level I.

It's not something that we can able to increase the price.

So we all driving into an area with each one of their lines of business, we have five of them.

We will have a very strong need to approach.

On top of that we'll have a mood with the best which one of them.

And in the EM and also nonetheless.

Logging you can add on top of book.

So I'm not seeing a tougher place until you're always optimizing Emily.

By our director of pricing and packaging so.

And I really hope that there's a lot of leverage to the more efficient.

I hope it to answer the question.

Got it thank you and just maybe any color on what youre seeing in terms of usage.

From customers, maybe over the past few months and what you've been seeing.

Heading into the most recent quarter as well.

Well you said you is growing up and always and we are putting a lot too.

And for it than a product into work on discover ability and easy to use over the classroom.

So we have ongoing team that's always working to improve new spinach.

And not only that they did they usually there's also two other customers.

More and more features is a very big lots along with menu functionality.

Oh, it's something that we all work in Ghana.

Great success.

Great. Thank you.

Thank you. Our next question comes from the line off of that block.

Cantor Fitzgerald. Please go ahead.

[laughter] IOR and Jason Thanks for taking my question I was just wondering if you could provide some incremental color on the demand you're seeing for your App intelligence product is that exceeding our expectation and then similarly, a update on maybe adoption of your shopper intelligence product as well as that has much higher AC.

These.

How is the sales force thinking about selling those two are they prioritizing either of them or are they still landing with your your core digital research and digital marketing products.

Yeah. So first of all thank you for the question.

So regarding the the App intelligent model.

So the first and it should be more great. So we have.

Hundreds of requests from many many customers.

Same demo and getting more.

And more information about this new offering.

And it's a very good indication and also we already closed a number of those deals.

It's a good momentum.

Also in the market dynamic become and stuff are you seeing that its taking us longer to close this pipeline for bulk of the market dynamic we are seeing in there.

The person who should be very great and wakes.

We're excited about about this offering going forward.

That all being shut down.

So Bryan Deneve James So indeed, it was introduced to the market with very high HCV.

And mostly because.

We launched the product and we didn't put it out the ways to have good better best offering though.

As much as you can well one big prize.

It was having good momentum in the beginning but down the road because its tougher to continue because every industry. You go on a different part of the platform when it goes out to all of them comprise.

So.

I think a few months ago, we change.

And the ability for us.

It's nice and buys the soco hopefully.

Good better best offering them. These.

So still the noble acquisition shook out this quarter and that was very good compared to the quarter before that.

And regarding the Gulf War like they are doing well.

No.

Private banking for that and then maybe just on your full year revenue guide it.

Kind of implies you know a 13, 5% sequential growth between three.

<unk> in four Q and you look at you know last year you grew call. It you know, 12.5% or so you know in that timeframe backdrop is obviously much more difficult in this macro environment. So can you just help us understand what gives you confidence that youre going to see the kind of acceleration in for Q4.

Mr than what maybe what you saw last year, given the relatively more uncertain macro environment.

Yes, so we.

If we look at the backlog and the deals that we've got in place and as well as.

The pipeline that we're looking at in the discussions we're having.

We put all that together and that helps us.

Our our guidance and are confident that we have to put that together.

Our goal is to always aimed to give guidance guidance that we know we can meet and we continue to do that through.

Three of these drivers as well.

Understood. Thanks, very much thanks, guys.

Operator any other questions.

Yes, there's one question I think so.

Question comes from the line of Patrick a lot of events.

M. P Securities. Please go ahead.

Oh, great. Thank you and let me add my congratulations on.

The continued growth.

Right, Jason let's talk about our cash so you have $94 million on the balance sheet you burned 19 on a normalized basis I get the collections will be better in the back half of the year.

But even so then the operating losses, you're guiding to or you know still in the $20 million per quarter.

So the bear case, which.

I think we should we should address it is that you have five quarters of cash right.

That's not the case, but let's address it and you haven't guided yet for next year. So what can you tell us.

Where are you comfortable having that cash balance bottom when do you expect to be free cash flow positive.

When do you think you'll make these decisions.

Great. Thanks.

Thanks, so much for the question, yes, so you're right. We ended the ended the quarter with.

Just under $94 million.

Of cash on the balance sheet by remind you. We also have a $75 million.

Undrawn credit facility and so we view ourselves.

Having you know.

Over a $160 million of liquidity and feel very comfortable with the with the cash and liquidity resources that we have available for us in order to execute on our plan.

That being said one of the things that we continue to do is focus on that same disciplined execution that we've done you know throughout our throughout our our history.

I like to always go back to where we were pre IPO.

Pre IPO, we took this company from being a minus $26 million cash burning company in 2018 two.

Following gear cutting that burned by more than a half by more than 50% to 11 and a half million and then the following year, but less than 5 million in Q1 to Q.

Q1, 2021, right before going I've got becoming public we turned into a cash generating cash positive free cash flow company.

And then what we did.

Part of our execution was to accelerate that could use the proceeds of the IPO to to drive that growth.

On very favorable unit economics, and deliver the kind of growth and outstanding results in terms of net net customer adds in terms of ARPA per customer revenue per customer and of course the <unk>.

Retention numbers driving to an over 50% revenue growth.

What we're doing now is continuing to balance growth and cash flow.

And we're making those decision proactively in order to be more a fishing you're already starting to see that come through this quarter.

In terms of they are in terms of the margin improvement all across the P&L and we think that that you know that those are the indications that you that hopefully be the investment community will be following to show to see that operating a fishing fleet.

Through.

And as we've guided a this is something that we've been focused on to get to that sustainable free cash flow.

Already talking about that earlier this year when we started our guiding our 2022 numbers.

We continue to be focused on that as we plan for 2020.

Three and beyond.

Okay, great. Thanks for that perspective, Jason.

Thanks.

Thank you.

Ladies and gentlemen, this concludes the question and answer session.

On behalf of similar that that concludes this conference you may disconnect. Your lines at this time. Thank you for your participation.

Thank you everyone.

Yeah.

Thank you.