Q3 2022 Similarweb Ltd Earnings Call
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Greetings welcome to similar words third quarter fiscal 2022 earnings call. At this time all participants are in a listen only mode. A question answer session will follow the formal pizza tuition if anyone should require operator assistance during the conference. Please press star zero on your child.
Phone keypad. Please note. This conference is being recorded I will now turn the conference over to Raymond Jones, Vice President Investor Relations. Thank you you may begin.
Thank you operator, welcome everyone to our third 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 economics.
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 timing predicted or implied.
Such forward looking statements for their 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.
Forward looking statements.
Also note that the forward looking statements made on this call are based on the information available as of today's date November 16 2022.
We undertake no obligation to update any forward looking statements made today, except as required by law.
As a reminder, certain financial measures, we use in presentations up results and on our call. Today are expressed on a non-GAAP basis in particular, we referenced non-GAAP operating loss, which represents a GAAP operating loss less share based compensation adjustments the payments related to business commendations.
Participation of intangible assets and certain other nonrecurring items, we use this and other non-GAAP financial measures internally to facilitate the 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 of the past financial performance by excluding certain items that may not be indicative of our business results of operations our outlook.
However, non-GAAP financial measures have limitations as analytical tool and are presented for supplemental informational purposes only.
It should not be considered in isolation from rising 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 CFO Jason Schwartz.
Then we will open up the call to questions from sell side analysts.
Please note that we published a detailed discussion of our third quarter 2022 results in a letter to shareholders or investors 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 offer C E O of similar web.
Thank you Jay and also thank you to everyone joining the call today.
We reported solid results you know Phil the Codell as we navigated the challenging macroeconomic environment.
<unk> grew 41%, although Q3 last year to $50 million in the third quarter.
Expansion of our global customer base, consisting of an SMB enterprise and strategic account stayed steady our customer base grew 21% year over year to 3900, and now average account spends about $52000 with us annually.
Up 15% over last year.
Although more although 53% of all any other country.
When you come from customer will spend more than $100000, but he is with us today.
There is 37% of our relationships consist of multiyear contract a metric that has expanded year over year since 'twenty 'twenty.
When we look back to 2020 digital transformation and become mission critical for every business and.
And we benefited greatly.
At the time, we became a public company nearly doubled revenue and we focus on continuing our rapid growth.
Okay.
Despite incredible trajectory, we have been experiencing since the outset of a bit from that makes it in 2022.
And are there plans, we are facing the impact of continued war in Ukraine, raising interest rates global inflation and customer with lineal budgets. When I believe they've been microeconomic condition will take longer to recover than we assumed.
And I'm looking at an entirely different economic climate in 2023.
To succeed in this environment, we must adjust up by all teams and sharpen our focus and thank the right action for our company.
This leads me to a truly difficult change I'm sharing with you today.
We have decided to reduce the size of our team by about 10%.
Goodbye to seem a little Woodburn Scold me and it looks to us.
We've been incredibly tenants similar windows that we have to say goodbye to him deeply slowly over the next couple of months. It made a lot of it just been trying to adapt to the quickly changing market condition.
However, now I know that we were overly optimistic and our estimate of the duration or the recession and it seems the market will take much longer to recover.
With that in mind, we suddenly needs to make.
Change.
In addition to the changes you know head count we will be reducing expenses across the company those changes will align to one keep decision accelerating the timeline to become free cash flow positive during 'twenty 'twenty free.
To achieve this we will match the phase of our investment with the attitudes around us and we will sharpen our focus and deploy resources carefully while nicole activities that create revenue.
What is great about similar lab is the tower solution.
He is very valuable.
Like these the visibility would give into the digital world all critical to companies can make a decision in those times.
We will double down on our customer names cause survive and win in this unpredictable economy.
We adapt to the microeconomic environment selling custom, though we greatly appreciate the support of our shareholders, although well navigating with US just on I want to turn the call although team.
Thank you ward and thank you to everyone joining us on the call today to discuss our third quarter results.
I will briefly address our financial performance and then we will open up the call up to questions.
Our results in the third quarter continued to demonstrate our disciplined execution.
Revenue reached $50 million for the quarter and exceeded our outlook of $49 $2 million on the high end of our range.
Our overall dollar based net retention rate or <unk> increased to 112% as compared to 110% in the third quarter of 2021 and for our 100000 dollar.
Our raw customer segment, and our ROE increased to 123% as compared to 122% in Q3 last year.
Our remaining performance obligations or RP hours increased 39% year over year to $158 million, 86% of which will be realized over the next 12 months.
As we exceeded our plans on that top line, we also exceeded expectations on our bottom line, our third quarter GAAP operating loss was $26 million, while our non-GAAP operating loss.
It was $13.3 million, which was much less than the $29 million loss, we had anticipated on the lower end of our guidance range.
<unk>, our non-GAAP operating margin improved over 1200 basis points versus the prior year.
In addition to increase sales, we deployed broad based operating efficiency measures 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 Q4 2022, we expect total revenue in the range of $55 million to $50 $9 million for the full year. We expect total revenue in the range of $192 $4 million to 192 $8 million, representing 40% growth.
Year over year at the midpoint of the range.
non-GAAP operating loss for the fourth quarter is expected to be in the range of 14.5 million to $15 million and for the full year between $67 4 million and $67.9 million compared to last year, our outlook includes impacts to cost of goods.
So relating to our data that AI partnership and to the acquisition of MB Mobile, we anticipate non-GAAP gross margin will be approximately 75% to 76% in Q4, 2022, and approximately 75% for the full year 'twenty.
'twenty two as a result of these impacts.
As we finished 2022 and plan for 2023, we are anticipating a different growth trajectory next year than we have experienced to date influence by rich recessionary conditions that won't persist forever and indeterminable amount their time as <unk> mentioned, we are adjusting our strategic.
[noise] priorities as we along with our customers prepare to face these increasing challenges globally.
Today, especially is a trying day in our history as we restructure our organization to balance our expectations for moderating growth with accelerating our path to profitability.
Our team our business model and our balance sheet remain resilient as we navigate these challenges the decisions, we're making and actions we are taking reflect our focus on becoming free cash flow positive during 'twenty 'twenty three.
With that or and I are ready to answer your questions.
Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question Kim.
May press Star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question is from Ryan Macwilliams with Barclays. Please proceed.
Thanks for taking the question.
Or given your insight into current market trends and through speaking with your customers. What are some of the things that you're seeing that could indicate ease prolonged changes in demand or similar web and are you seeing any more pressure on existing customer growth or new customer acquisition.
Right.
Hey, Ryan.
Here for me to thank you for the question.
And.
So what we're seeing I think it's similar and motion that's all in the market for more than a software company is that there is a slowdown in making business.
Well, it's mean that the process with the Peruvian and didn't know getting much longer they need to go and high heeled organizations will get approval from its 11, because it's a C. F O C E O.
And a lot of clients pushing us to the end of the year local and pushing into next year budgets.
And.
Lets me that the pressure is mostly coming from new business and we've seen stability on the credit book of business.
New business is tougher than that indicated that the K P idle until a little different and flipped it easily.
Yeah.
Hmm.
The color and then Jason we used to see the guidance for similar web becoming free cash flow positive move up year 'twenty 'twenty three mm one with a renewed focus on profitability. So how should we think about the benefit free cash flow from the reduction in workforce and is there any particular segment or area, where the employee head count changes.
As a primarily impacting things.
Hi, we're unable to hear the speakers please check and see if you have your line muted.
Yeah.
Are you able to hear me now yes. Please go ahead, thanks, Okay alright.
So.
So the reductions are actually all across the business I think you're you're seeing efficiencies already in this quarter in Q3.
In terms of that 200 basis point improvement in the operating expenses.
D C D. The Mart in come down on R&D and on sales and marketing and on G&A that was before we implement it.
The restructuring that we announced today that will come through towards the end towards the end of the year, we're looking to just drive the business to be more efficient.
And we think that that's the right way for us to be to be managing.
Going into 2023.
Perfect. Thanks, guys.
Our next question is from Arjun Bhatia with William Blair. Please proceed.
Hey, Thanks, guys.
Or I'm curious just as you as you look at the business, obviously, you're seeing slowdown and that's not.
Not unique to cause some or wherever I can see that across the space, but.
When you think about your business what are the different areas, where you think you may be more resilient and where do you think the impact may be more pronounced from a macro perspective, whether you break that out by industry or customer size between enterprise and SMB any color you have there would be helpful.
Hey, Jim and good to hear from you.
And thank you for the question so when we analyzing the defense segment.
Is it getting.
And that's where I will say that a bell.
I would say that Europe is there is a more more challenging and then and the rest of the world.
And I think you asked a little okay and in APAC. It's also but also good so the phase of doing business.
Maybe a little bit tougher, but let me see that is the extent of rolling from the motion side and that keeps SMB and so I think I said be in and doing good. So we see good traction though.
And enterprise.
Multiple and I think and strategically.
Maybe getting more complex it must be a lot of buzz.
Just getting from centralized to decentralized, but we still made clothing.
And Paul this thing where it may be a little bit more complexity.
And then five may be.
Good thing he condo buildings.
Okay got it and just maybe one for you. When you think about you know obviously, you're not going to guide to 223 at this point what do you think about the margin expansion. That's available looking ahead, where where do you see the most leverage.
I'll say must incremental leverage in the in the model versus how you're operating the business today.
Sure origin, we actually see it across the across the lines. You know are you. When you look at gross margin gross margin. If you recall, what the last year was oriented 70, 879% we.
We took a you know we've got we took a hit on that earlier this year because of the acquisition of.
The N b mobile ads b and the deals that we do with it.
With the data AI as that stuff gets blended in and we're already starting to see the leverage of that coming through.
At the gross margin.
Take rates are already up at at 76.
Yeah.
And we think that that's one thing that you'll see going into next year and we think that you will see efficiencies all across I mean look at the at the improvement that we were able to do on the sales and marketing side, taking that 255%.
Of of revenue consistently we've been consistently about 60 65, 66% when you look over the last seven quarters. So I think that youre going to see more and more efficiency coming through while we continue to maintain our our our unit economics are your economics.
So very very positive inherently drive a profitable business over over a two year lifespan of a customer.
Don't have to wait for three or four years in order to get recovery and profitability on a customer we feel very good about that.
Okay got it perfect. Thank you very much guys.
Our next question is from Jason <unk> with Oppenheimer and company. Please proceed.
Thanks, Hey, guys two questions. So first can you talk about e-commerce product adoption in the quarter versus perhaps like what you saw a year ago and are you still as bullish on this opportunity as you were in the past and then the second question.
You know when business from.
From a cost reduction perspective, I'm, assuming you're you know for example in sales and marketing just reducing head count.
Kind of rightsize the current opportunity how do you think that that that impact sales, though calling out of that so you know obviously you know.
Things will rebound, presumably late in 'twenty three.
How do you think about that you don't have to re hire on the other side of that and then consequently, no with R&D are you pushing out in product development.
Be higher on the other side so how much of this do you.
Think about driving permanent productivity gains versus Youre right sizing for the current environment and then we'll just need to rehire when the opportunity is right.
Thanks, Nathan and so the first question around the Super intelligent product, we still see a strong momentum and really good quarter from a.
Logo acquisition and a single global growth.
So we still have some good momentum we're focusing now on the U S market.
And so there's really nothing in the short term product economy E Commerce one.
And regarding them does he boosting false I think that when we look at that it was enforced we were mostly adopting and so we were trying to then the stumpage there wasn't as good to protect the revenue generating and Kim.
And the marketing sales and R&D.
Innovation in product there.
Product and and.
So basically.
And you know a G&A and got hit hard sometimes and that indeed that are more in intermodal.
And development. So I think we all know so because we are very bullish on that product and our product market fit our needs to our solution in those times.
And because we know this customer when the market that are more than ever now.
The depth of their plan for the next two we still clothing businesses.
It'd be just where that is just taking longer and thoughtful to close the deal.
And we're still bullish on the continued execution. So we are as I said, we didn't and we didn't cut in a way that we think that we need to be higher next year.
Thank you.
Yeah.
Our next question is from Tyler Radke with Citigroup. Please proceed.
Yeah. Thanks for taking the question.
I just wanted to better understand you know exactly how the timing of how you saw this play out because I think it's obviously a pretty big.
Tone change from the investment posture that you indicated at the beginning of the year. So was this something that you saw kind of play out in terms of.
So down in new customer acquisition in the quarter and are you expecting it to get worse or are you just kind of proactively adjusting for the macro environment that you may anticipate over the next year just given the headlines out there. Thank you.
And if things stay at or and.
I would say that when I look historically on the quarters I think Q1 was looking good for us and we're optimistic we were still hitting our internal targets.
In Q2, we really start seeing the slow down and we didn't know exactly to.
I understand and what this mean I seem to be just the beginning.
And the slowdown in and specifically into our cycle. So we did some adjustments already in the end of Q2, and a little to improve efficiency and marketing budgets ones I understand it's looks like it's going to be a slowdown we didnt know exactly.
And and.
Oh, Oh Oh.
Tough it couldn't be.
And I think you free was a little stronger indicate though that there is a slowdown and and I think.
Again, I think probably it would be like that by the end of the the company.
Company ended up to next year, I think there's going to be maybe in.
No recovery and no fixed though.
So then we decided and it's and basically we need to do go and do the substation and stands at the start of the G and clothing first of all about market conditions, and also money market promotion and sentiment.
We felt it a bunch of other two and what was the company to profitability.
And is that all yourself too to a market that's going to be in the next few quarters more challenging and the drive business than we thought this was the right decision to change its going to do.
And according to that the challenging environment.
That's helpful and maybe a question for Jason just as we think about cash flow breakeven next year I think that's a a much.
A bigger change than at least the consensus numbers are are indicating maybe just help us frame how how we get there I mean should we think about revenue growth and you know of teens or 20% and an opex flat or just help us understand kind of that.
Underlying assumptions to get US there and then secondly, if you could just kind of indicate your view on on when you you would expect things to get better you know obviously, it's a difficult decision to reduce the head count, but presumably you're not expecting things to improve.
The time soon just any any thoughts on when you would look to that to the higher do you think the group. Thank you.
Yeah. So Tyler thanks for the call I think you know the you know our our philosophy over here and it's always been that case is balancing growth and profitability and I you know what I.
Even being before we went public we had run the business efficiently and getting to cash flow profitability breakeven and slightly positive right before we went public and going when we went public the whole the value the whole our investment thesis was.
That we were going to accelerate that growth and know that we can return that investment over the next two.
24 months after deploying that capital and we've we did a really good job at that I think we were showing that that growth.
And what we've seen now was or is or just mentioned is we've seen that slow down happening.
We as a as a leadership team.
I always want to want to execute with that disciplined execution that operating efficiency we've.
You heard us talk about the our unit economics over and over again over the last number of quarters.
And it's not just empty words with US we take action I think that's why you're seeing the impact.
<unk> already having in Q3. Many of you have asked US before are you able to adapt if you see the market changes and we say, yes and here. It is we were able to do at today's decision on reducing the taking.
Taking a reduction in force is a tough decision, but it's the right decision for the business as we see you know going in in today's macroeconomic climate.
We see we see still the demand is there people are still buying people as you saw people are even still locking in multiyear deals. So that our customers are telling us that not only we need Zimmer web we can't afford to lose similar web from their budgets and therefore, they're locking.
That contract is in for a longer period of time, what we're doing from a from a planning perspective is to make sure that we have the operational flexibility kind of baseline from an expense side too.
You have to be able to be sustained cash flow positive sometime in 2023 accelerating that from 'twenty to 'twenty four because again, we think that's the right thing to them.
Yeah.
Thank you.
As a reminder, just star one on your telephone keypad, if he would like to ask a question.
Our next question is from Brett Knoblauch with Cantor Fitzgerald. Please proceed.
Oh on Jason.
Thanks for taking the question I guess given that the growth reset it kind of seems like we're walking back that $450 million target that you previously.
Guided to by the end of 'twenty 'twenty four I guess should we expect that the growth rate that you guys are guiding to in the fourth quarter call. It.
Kind of high 20% range due to the more normal over the next two years or should we expect additional deceleration over the coming quarters coming years, I guess, just any any help kind of frame it that the pace of growth over the coming quarters.
So I think when you would think.
Two as long as the market condition.
What we've seen today, we'd probably think that looking at next year, we hope to look maybe two tough quarter like maybe Q1 Q2 and then we.
We hope that a Q3 Q4, there is some comeback so.
And we still are optimistic and.
About the execution.
And about what's coming from what it's been from a gross the full next year, we would probably am provide this guidance in the next town and cool and then once we got to have the full year results.
Got it that makes sense and I guess should we expect.
I guess the majority of the growth over the medium term to kind of come from you guys pushing on your existing customers and I guess to that extent could you maybe talk about the adoption of your.
At any premium add on it and what you're seeing with that and how receptive customers are too to that problem.
Yeah. So we think the right strategy and going forward in this environment of course is to double down on our own custom notes, we're lucky to have a very broad.
The portfolios that we can introduce to them.
And optimal dose that's premium will be at least.
Did you talk about is one of them and we do we do we do see good traction, though so we do have and do you have hundreds of customers and Upselling. This modeling and we have a strong pipeline.
So.
This is one of them.
I'm offering, but again, we still have good innovation in Finland, and and the chauffeur products with the economy being when we just launched and you invest still are awesome fulltime that they've done.
Let's look very good and that we already onboard.
First of all customers on that.
And so there's still a lot of a lot of in Ireland.
It's one of these and they said no portfolio then we're very bullish on it.
And for the the the stock intelligence product is that the only data I believe you guys kind of said in the press release that it was expected to.
Kind of go live by the end of the year I guess is that life now or is this something that will go live over the coming weeks.
Yeah, It's it's already live and we're already starting first.
I think we had.
Tens of customers really starting to try them. So we'll give them trying to and they can look at some of the new concept I Hope you can tell me.
Some of these dropdown and also historically, we have tens of Spain customer who were buying did that song fourth film and that'll Davis and most sophisticated you I would be more insight and inflammation and we all kind of shifting them too.
The platform.
We've seen good.
Good traction.
Okay, and maybe just one last question on my end I guess have you guys been.
<unk> been more accommodative on the pricing.
I guess the pricing levels for your your range of products.
Those held firm on would you be kind of more accommodative on a pricing standpoint going forward.
Yeah. So it's a good question and it's also internal discussion we have internally if not what's the time, maybe to do some price increase because of things and the Forex exchange and stuff in there and we're seeing that with other companies to be this approach of doing price increase right.
And but right now when you didn't get to the final decision, but we do we have a much more flexible to boast about payment terms I think we understand the customers.
And want to do some cost saving and et cetera, So and I think we still we're still doing a yearly contracts, but sometimes we're giving them maybe quarterly payments monthly payments.
And it's a mix.
It makes them feel more comfortable so this is something that we did.
And now in a few regions.
Perfect. Thanks, a lot I really appreciate it thanks guys.
We have no further questions. This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Thank you everyone.
Thank you.
Yes.
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Okay.
Yeah.
Okay.
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Uh huh.
Okay.
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