Q4 2022 Similarweb Ltd Earnings Call
[music].
Greetings and welcome to the similar web fourth quarter fiscal year 2022 earnings call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
What should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the call over to RJ Jones, Vice President of Investor Relations. Thank you you may begin.
Thank you operator, welcome everyone to our fourth quarter 2022 earnings conference call.
During this call we will make forward looking statements related to our business. These statements may include the expected performance of our business and our future financial results our strategy the potential impacts of the COVID-19 pandemic and its associated global economic uncertainty.
Dissipated long term growth and overall future prospects. These statements.
They 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.
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, they're in 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 the information available as of today's date February 15 2023.
We undertake no obligation to update any forward looking statements, we make today, except as required by law.
As a reminder, certain financial measures, we use in presentations of results and on our call today are expressed on a non-GAAP basis.
In particular, we reference non-GAAP operating loss, which represents GAAP operating loss.
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 and comparability with past financial performance by excluding certain items that may not be indicative of our business results of operations or outlook.
All of our non-GAAP financial measures have limitations as analytical tool and are presented for supplemental informational purposes, only and they should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.
A reconciliation between these GAAP and non-GAAP financial measures is included in our earnings press release, which can be found on our Investor Relations website at IR Dot similar web dot com.
Today, we will begin with brief prepared remarks from our CEO or offer and.
And our CFO Jason Schwartz.
Then we will open up the call to questions from sell side analysts independents. Please note that we published a detailed discussion of our fourth quarter 2022 results a letter to shareholders for investors to reference as well as an updated investor presentation with a strategic overview of the business.
Of which are available on our Investor Relations website.
With that I will turn the call over to or offer CEO of central West.
Thank you Jay and welcome everyone joining the call today.
We completed 2022 will reach a key milestone for a lot of business as we crossed over the $200 million.
Okay.
This was especially a milestone for me its two class almost seven years to grow to 100 million dollar.
No business.
And we achieved that in 2020 and then it took us only two years to double that and close to 200 million go a little bit in 2022.
While the year was filled with the unexpected challenges, we were able to achieve healthy girls and began accelerating our path to profitability.
We posted solid results in the fourth quarter as we navigated the challenging microeconomic environment.
And you grew 28% over Q4 last year to $51 million in the fourth quarter.
The expansion of our global customer base, consisting of SMB enterprise and strategic accounts has been steady.
Our customer base grew 16% year over year to over 4000 customers.
Our average account spend it all it's $52000 does anything.
The 80% over last year.
So there are more than 55% of our annual recurring revenue come from customers, who spend more than $100000 per year with us.
Today, 39% of all L. A is generated from customers with multiyear contracts demonstrating the durability of those customer relationships.
This is a metric that is growing year over year ever since 'twenty 'twenty.
Yeah.
Looking forward to 'twenty to 'twenty, three we believe occurrence microeconomic condition will persist for some time.
In this environment, we have adjusted our strategic objectives, and Shelton, our focus to deploy resources carefully on our core activities that create revenue and improve profitability.
Our first objective is to successfully serve strategic customer knows no molding F. L O strategic customers are increasing and expanding their use of our dump them.
Our second objective is to grow the number of accounts through product led growth and effective go to market strategies.
We have barely penetrated multibillion dollar total addressable market consisting of hundreds of thousands of businesses. That's the only digital market downtime to win and to be successful and digital world.
We would experience with different approaches to packaging and pricing this year.
This adds up to us to accelerate the adoption of new products and add ons today similar web is the multi solution company with many products and solutions we.
We can offer to our customers, we see a big opportunity to continue cross selling those solutions to our current book of business.
And last but not least well strive to operate efficiently with.
Excellent and efficiency.
Optimize our execution this year with the focus for finding new efficiencies across our sales and marketing area.
This will enable us to achieve cash flow positive by the fourth quarter of this deal.
We believe it's all digital Delta is simply the best period.
Our customers tell us that our solutions are more valuable than ever into the environment.
Continue to double down on our customers' needs to survive and win in these unpredictable economy there.
Jason I will turn the call over to you.
Thank you ward and thank you to everyone joining us on the call today to discuss our fourth quarter results I will briefly address our financial performance and then we will open up the call to questions.
Our results in the fourth quarter continued to demonstrate our disciplined execution.
Revenue reached $51.3 million for the quarter and exceeded our outlook of 59 million on the high end of our old range. Our overall dollar based net retention rate or <unk> was 109% as compared to our 113%.
In the fourth quarter of 2021 and four hour over 100000 dollar cuts AOR customer segment.
Our was 120% as compared to 125% in Q4 of last year.
Our remaining performance obligations or RPI increased 24% year over year to $171 million, 80% of which will be realized over the next 12 months.
As we exceeded our plans on the top line, we also exceeded expectations on our bottom line.
Our fourth quarter GAAP operating loss was $14 $6 million, while our non-GAAP operating loss was $10 $9 million, which was less than the 14 and a half million dollar loss, we had anticipated on the low end of our guidance range.
Notably our non-GAAP operating margin improved 25 percentage points versus the prior year. This result reflects the impact of our broad based operating efficiency measures, we have implemented across the business.
Turning now to Q1 2023, we expect total revenue in the range of 52, and a half million to $53 million for the full year. We expect total revenue in the range of 221 million to $222 million, representing approximately 15% growth year.
Over year at the midpoint of the range non-GAAP operating loss for the first quarter is expected to be in the range of.
Negative 11, and a half million to negative $12 million and for the full year between negative 30 million and negative $31 million, we anticipate non-GAAP gross margin will be approximately 77% to 77.5% in Q1 'twenty two.
Three and approximately 78% to 79% in fiscal year 'twenty two 'twenty three.
Importantly, we intend to achieve sustained positive free cash flow by the fourth quarter of 2023.
Please note that our free cash flow may fluctuate seasonally as we progress through the year input.
In particular, we anticipate substantial improvement in the first half of 2023 as compared to the first half of 2022.
Ultimately, we expect our quarterly cadence will be positive when we finish the year.
Our projected growth trajectory in 2023 reflects our assessment of the impact of recessionary conditions on our business that will persist for and indeterminable amount of time as already discussed we have aligned our strategic objectives to balance our expectations for moderating growth.
With accelerating our path to profitability our team our business model and our balance sheet remained resilient as we navigate the challenging environment.
With that or and I are ready to answer your questions.
Yeah.
Thank you we will now be conducting a question and answer session.
I would like to ask a question. Please press star one on your telephone keypad.
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One moment, please while we poll for your questions.
Our first questions come from the line of Arjun Bhatia with William Blair. Please proceed with your question.
Perfect. Thank you for taking the question.
Or maybe Jason can you just.
Flush out a little bit of what you saw in the buying environment.
In Q4, how that differs versus the past few quarters and maybe.
What you're incorporating into the 2023 outlook that you provided.
Uh huh.
Hey, Thank you for the question Oh.
And I think I want to summarize Q4 was more stable core pill. You know if you look on the last year and 2022 as a whole.
Q1 was as you know business would you and then I think.
Most of our cyclical thing market dynamics, a lot in Q2 Q3 win.
It seems business day, and then becoming tough so as more and more co played style to types of budgets.
I think your phone so little bit more stability.
And Oh for me.
Looking into the theaters I think than companies that understand but there's a new way of doing business and I think.
And then hopefully we can make them whole 'twenty 'twenty. So you would think.
Okay I got.
Got it that makes sense and maybe.
Maybe just one.
Another one on the product side, rather I noticed you mentioned that data as a service offering.
Can you maybe just give us a sense for where you are in bringing that product to market.
Especially with larger customers it seems like something that would resonate and how.
How should we think about the monetization of that are of that offering.
Yeah.
So we.
We put we indeed food that otherwise for them in the past few quarters to tunnels and enhance and improve our.
Service offering meaning that more data is available through a P ons in battlefield.
It's more comprehensive.
And more different way to consume without them for when the API ecosystem, there's a few.
Motion, who push their that and tomorrow, you quit or do you get the NSAID its called a bunch a P I shouldn't and and Sidra Theres. Another approach when you have bulk of clock like integration that you can get through that that's real snowflake. So AWS.
So we put that out those efforts with everything available and this unlocks a lot of opportunity to two companies to get them done find a way that's more benefits.
And it's a really help I'll, then OEM vote to come or we have a big stick those of companies and that you are worried about them to enrich their own products.
And we're seeing a big success and the best quote so there's investments we need to go to a lifeline.
Alright, Thank you for taking the questions guys.
Thank you. Our next question is come from the line of Ryan Macwilliams with Barclays. Please proceed with your questions.
Please state your question, Hey, or how you feel about the new deal pipeline at this point.
Sure enough net new inbound customer opportunities and what is driving some of the enterprise strength that you're seeing.
I think I am looking on on the pipeline that we've seen the strong confidence and on the pipeline and and now we need to see how the rule will go I think and.
Isn't that a lot the organization right now that's being split off the cost saving and know them. They didn't think a new Pos system, both hold purchase needs to be done in the approval.
And so I think overall pipeline looks strong.
Excellent and then one for Jason Jason just on.
The full year guide.
You used to break down some of the assumptions that lets you there and we feel this is conservative and if theres anything you know baked into the guide for macro.
Yeah.
Sure you know our garden looks at does take into effect some of the things that we're hearing in the industry and broadly in the economy in terms of you've gotta wear inflationary environment, where I'm focused budgets are I'm at the same time a lot of them.
Feedback that we're getting that we're hearing from our customers are going to use similar lab as a very strategic part of building out their strategy and how they are not just a tactical tool and so we'd look at that when we look at the pipeline and and are fortunate.
Is again that we have a significant amount of our AOR that is tied up in our contracted on multi year deals. So we have to be a you know over 39% of our Air War is.
It was contracted a multiyear deal so we have a very good.
A very good visibility into the recurring revenue base.
She's the color thanks, guys.
Thank you. Our next question is come from the line of Jason housekeeping with Oppenheimer. Please proceed with your questions.
Thanks, I just wanted to ask about the e-commerce product, which is something I know you've been excited about.
Just given that obviously e-commerce is kind of dog I'll do I'll talk over the hangover you feel like that that has impacted your ability to get clients to upgrade to that more expensive package and then kind of as we kind of burn off the COVID-19 hanging off of which you know it looks like it's starting but it's still kind of month to month that that's something that you can see.
A more meaningful update thanks.
Hey, Jason Thank you for all the questions and Oh.
So the shopper product and is mostly focused full CPG isn't so that was the main thing at the Orleans.
And we see it and we see strong demand, though and I think Q4 and logo wise was one of the strongest for this program.
They've been through the month of May.
And that's a new logo.
And so I think we have to be over one from the program.
Oh.
Jason you may be muted did you have a follow up.
I'm all set thank you okay. Thank you.
Our next question will come from the line of Brent Thill with Jefferies. Please proceed with your questions.
Hi. Thank you. This is John Byun on for Brent Thill I had two questions one.
I had a question on the macro but wondering what you're seeing so far in the environment and you know.
Six weeks or month, no quota and a half into into the new year, especially in Europe , I mean, Europe seems to have stabilized at least a little bit in terms of you know energy costs and so on and so I just want to see what you're seeing so far hum in the first six weeks and then second in terms of you know your all your major product lines and add ons and where are you you know, which one of those.
You know most resilient in terms of demand and expansion. Thank you.
And I go to the first question is around the euro and so happy to say that Europe was most favorite in Q4, and we had good success, especially in the U K U.
And much better than what we've seen in Q2 Q free.
And so I'm more optimistic about Europe ability right now.
And then regarding the different add ons that we have.
And we we just start introducing a new product for the investable recorded stoking pathogens.
So the current book of business in the last quarter.
Going very aware of them.
I'm very happy about that and.
And I think some stability wise one interesting thing I think we have one product called sales intelligence full centered organization.
And with the with the lay offs around that's happened we saw that there was good the decrease and use those but we didn't see a big impact on revenue and bell, but this specific product is more correlated with user growth.
They're never going to the markets. We saw that are probably going to be less upset with going forward.
This is the only thing I can think about and from the different lines of products we have.
Thank you very helpful.
Thank you. Our next question is coming from the line of Brett Knoblauch with Cantor Fitzgerald. Please proceed with your questions.
Yeah.
I learned Jason Thanks for taking my question.
Or I guess in your prepared remarks, you talked a bit about experimenting with packaging and pricing can you elaborate a bit more on that I guess with which products are you thinking of maybe re packaging or what type of price changes or are you thinking about.
Yeah, we have two big initiatives that I am extremely excited about what they're saying when you live there.
It impacts and I'll do the first one when we are introducing what we call enterprise search engine.
No as we have more and more of the customer that we work with we realize that we need to treat all pricing and packaging differently like to kill volunteer or something that would it be more easy to the enterprise to buy that gives them the ability to have multiple entities in multiple regions and.
And then its easy for us to close.
And then as an MSA with them and then other thing put there in this enterprise package a lot of the enterprise needs I guess if so.
What kinds of user admin restrictions and D. J P. I amendments and all kinds of bleach and its mostly begin to place them. So this is the first thing you tend to lose at least twice that kitchen.
And then we have we hope that this would increase though.
And C V with those big accounts.
Lindsey.
And then we will also make the signing of the agreement then easy and fast I'm mistaken in motion with them introduce later on in Q2 is the new pricing and packaging and that's what enabled us to.
Cause further opposite the co offering we have is the research publishing and the marketing solution and the lot of the time and so there is abundant today and I think with the new pricing and packaging, we wouldn't be able to.
To bring better solutions to the specific customer. So this wouldn't be an enterprise one that they do we wouldn't caboose.
This hotel.
And then in the big five food and packaging, so that the co product, but it sounds like.
We went into the computer.
Those two things.
Weapon.
I think with those building blocks.
Yeah.
I know that that's that's helpful. And then you guys kind of briefly talked about you know I guess improving the efficiency of your your go to market strategy whether that.
I'm kind of shortening deal cycles, making it easier for people, who are I guess customers to buy.
I guess what are you doing on your end you know I think we've done research, where we found you know customers to trial, your especially your shopper intelligence product that that trial to purchase right.
So actually trial is extremely high so I guess, how do you get that product in front of more customers and you know how do you guys do that while keeping an eye on the bottom line as well.
So just wanted to understand the question then is how we can accelerate the sale of the short term solution.
Yeah.
Well I guess all products I guess your entire G. T N N General I guess, how should we think about you guys.
Driving profitable growth are kind of making that go to market more efficient.
Yeah. So we made a lot of good decision out of the mines. This process like for example, the specifics will show Bill we we basically dedicated then.
And our go to market organization in being the bigger than like in the U S market is plagued by sector, but in the scoop.
So what we did is basically we have a very successful both in the U S market the debt settles for CPG.
So we basically went through this in a group of people until the Midsummer.
Also in childhood accelerating the shopper product. Although then also southern albacore and by aligning them.
We did one of the different business line, we kind of hoping to accelerate.
Then the growth of the shopper product outside of the current book of businesses do currently have as well.
So those kinds of things would change we still may cause it to be very efficient and also drive the growth.
After the close and all different solutions between them.
Got it and then maybe a question for Jason just on that kind of a long term kind of growth model.
Got him to call it 15% growth for for 'twenty. Three obviously macro is a big concern hopefully that doesn't last forever.
Assuming you know say macro improves down in 2024 will you guys begin to increase investments to Reaccelerate growth, which you guys sacrifice profitability to do so or you know would you kind of say that you have to kind of cross the rubicon for profitability and expect to generate positive free cash flow from here on out and Youll.
Expect to be able to do that while accelerating kind of growth and a better macro environment.
Yeah, Brett, but that's the plan in other words once we get a return.
Sustained cash flow positive our intention is to continue to maintain that going forward.
And we have always trained ourselves and manage the business on very profitable unit economics, and so as we've talked through before.
Once you hit a certain growth rate and recurring.
Recurring base, the AR that business that recurring business is throwing off 45% to 50%.
Contribution margins on an annual basis, we think that'll be a great way to continue to invest one while driving.
Continuous free cash flow.
Right and sorry, if I can just ask one more gross margins were really strong this quarter. The guide for this year was also really strong or at least better than what I was expecting.
I guess can you just break into what drove the kind of sequential margin improvement.
Is that maybe more of an uptake of your App, Annie product and you'll get leverage with that.
Yeah, I'd say, it's the way that we've always run the business and I think I've been talking about this for a couple of quarters go back a little over a year ago, we were at 70, 879%.
Gross margin, we did where short term hits that we have to take as we consumed do what new data elements that we were integrating including the M B acquisition and the and the payday I partnership, but as soon as that gets you in a while.
We start generating revenue from those profit from those products you start seeing the leverage that we have on the fixed on the fixed cost.
<unk>, that's our data cost plus I mean, none of the deals that we have had a variable component in there which is what drives such a fishing gross margin economics.
Awesome. Thanks for your time, Thank you guys.
Thank you. Our next question is come from the line of Noah <unk> with J P. Morgan. Please proceed with your questions.
Hey, guys. Thanks for taking our questions I noticed a knee in the shareholder letter you called out a few verticals where you saw.
Really strong growth during the quarter were there any verticals in particular that stood out.
Just positively but also negatively during the quarter and then I just have a quick follow up.
No nothing nothing.
Yeah.
For a particular industry I mean, I think it's tracking similar to what we're seeing overall in the economy I e-commerce being a little weaker and some of the other things overall.
Growing showing continued growth.
We've seen a growth all across the all across the board and also good our net retention numbers are and more importantly, gross retention numbers of course all of our.
Across our customer base and I think that's one a strong takeaway that we're hearing from from our customers.
Customers went through.
Yeah, there are there cost optimization.
Exercise it.
As head count or or software tools and the like our customers are telling us that similar web it is not that product that they're evaluating whether they need it or don't meet it because we have the best data and they can't get you know I can't get that kind of information anywhere else.
And so they're relying on us and I think that's what you're seeing in more and more of that a large ship being contracted for multiyear commitments.
Got it got it that's great to hear and then maybe just quickly on the on the guidance for the year on the margin side.
Based on the first quarter guidance and the fiscal year, it sort of implies a pretty rapid expansion I think towards the back half of the year can you maybe just unpack what are some of the key levers driving that business. Thanks.
Yeah, I think that you're going to see a lot of our costs are fixed cost and so as the revenue growth margin expansion and that's the beauty of being a real data business. You know it takes a lot of it takes a lot to start building this stuff out, but if you look at it.
Lot of other data business says what happens is as they start getting critical scale.
Do you get a wildly wildly profitable operating margins.
And I think that's what you're seeing over the last couple of quarters as we take.
Taking the right decisions on the to drive operational efficiency and you're seeing this quarter, you're going to 25 percentage points improvement on the bottom line and it is our intention to continue to drive that kind of profitability.
I think the first indication that you guys will continue to say is our drive to.
Hitting sustained positive cash flow and we look forward like we mentioned in our letter to see meaningful improvement in the cash flow already in the first half of the year compared to what it was last year for the first half of the year.
Thank you. Our next question is come from the line of Pat Walraven with JMP Securities. Please proceed with your questions.
Hi, Thanks for taking the question. This is Owen on for Pat.
So I was looking at the.
The long term gross margins and.
My question is.
Yeah.
I guess, so have the had the efficiency gains.
Some of the risk back in November have been fully realized and kind of.
A representative in this quarter's results or can we expect to kind of see.
The margin improvement continue to accelerate going forward.
Thanks, Jason Yeah.
Thank you.
You'll see that happening in starting more in Q1.
Q1 always has some.
One time kind of expenses like our company kept kick off something like that that hit the first the first quarter, but we've taken that into our modeling and our guidance and I think that like you're seeing them based on the guide that you're going to see further operational efficiencies and margin improvement over the course of.
A year.
And that's the guidance.
Yeah.
Great. Thank even though that's it for me thanks for taking the question.
Thanks, so much.
Thank you. Our next question will come from the line of Tyler Radke with Citigroup. Please proceed with your question.
Yeah. Thanks for taking the question or I'm curious, how you're thinking about the generative AI opportunity specifically with some of the announcements around chat G. P. T from a search perspective.
How are you thinking about integrating this into your product and what are the future opportunities for monetization.
Oh I Love this question.
So this is a big thing for us and we already have multiple teams here internally.
Working integrating and it's really amazing technology.
In many area all four business.
Can talk about two areas when we really enjoying the benefits of this technology.
First one is particularly nation, especially in the corner of the world.
So a I and open the AI really great capabilities will help you've got to go out and amendments or different products.
And brands.
So and the machine learning this is kind of.
Thus problem and then they do very well and very easy very efficient.
And the second thing I think that is more important.
And the nice thing about the opening of young technology.
Is that you can feed them with all of them. Then you can summarize give U N cells inside.
And then it's all about if you ever unique data that nobody else has this is a big big advantage and this is how we leverage because we have a unique death or there's nobody else in our digital data and how they implement is working we're doing even better than anyone else's and it's all proprietary about them. So we see the need.
Two the AI and then we can ask any question on top of our Doctor, but we can tell them believe pillar one thing that the digital strategy and then and company and then you're looking at that and then they pull out an amazing summary that extend you against a very easy very simple what they do what is the insight and.
So and so so and we've kind of trying to level and just to put it doesn't double of our platform.
Pull up the monthly for you all the insight and summarize and lots of the inflammation that is there so a lot of exciting stuff.
Relief using this.
Around the world.
Yeah.
Thanks and Jason.
Just in terms of.
R. R. I think you added about 35 or 36 million.
I've met New E. R. R. In 2022 how are you thinking about the net new air our and just overall are our growth for 2023 and <unk>.
How would you kind of derisk the assumption there given what youre seeing in the macro.
So obviously, we're looking at at all.
Pipeline numbers that we see in the discussions that we're having with our with our customers we've.
When looking at that and.
Upsell opportunities that we have.
The greatest part when you talk about when that AOR growth starts with knowing that we have a strong retention base and that's where again the confidence that we have with the with the coming into Q1, we had a significant amount of the AOR AR that was.
Upper in the world already being contracted either through multiyear commitments or also are people who ran the good Q4 said, it's time to renew when and a renewed early in order to go there.
To make sure that they have the budget that they were going to be able to to do so we had you know.
A good base to start with that and we have confidence in them.
<unk> base that we have and then use the our assumptions on pipeline in order to to build out a L. L and ultimately the revenue guidance that we've given today.
Okay. Thank you.
Yeah.
Thank you there are no further questions at this time and with that this does conclude today's teleconference. We appreciate your participation.
You may disconnect your lines at this time and enjoy the rest of your day.