Similarweb Ltd. Q1 2023 Earnings Call
Greetings and welcome to the similar wet first quarter fiscal 2023 earnings call.
At this time all participants are in listen only mode. A brief question and answer session will follow the formal presentation.
We know what you require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is not my pleasure to introduce your host RJ Jones, Vice President Investor Relations. Thank you you may begin.
Thank you operator, welcome everyone to our first quarter 2023 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 rising interest rates rising global inflation and Curt macroeconomic conditions challenges in our business and in the markets in which we operate 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.
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 23, 2023, and in particular, the sections entitled cautionary statement regarding forward looking statements and risk factors or.
For a discussion of the factors that could cause our actual results to differ from our forward looking statements.
Also note that any forward looking statements made on this call are based on information available as of today's date May 10 2023.
We undertake no obligation to update any forward looking statements that 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 in payments related to business combinations amortization of intangible assets and certain other nonrecurring items.
We use this and other non-GAAP financial measures internally to facilitate analysis of our financial and business trends.
And for internal planning and forecasting purposes.
We believe these non-GAAP financial measures when taken collectively may be helpful to investors, because they provide consistency and comparability with past financial performance.
Excluding certain items that may not be indicative of our business results of operations or outlook.
However, non-GAAP financial measures have limitations as an analytical tool and are presented for supplemental informational purposes only.
They should not be considered in isolation from or 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 independence.
Please note that we published a detailed discussion of our first quarter 2023 resolve any 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 C. E O of similar web.
Thank you all day and welcome everyone joining the call today.
We reported solid results in the fourth quarter.
By the challenging microeconomic environment, we grew over revenue by 19% over Q1 last year to $52 $8 million.
Our global customer base, consisting of SMB enterprise and strategic accounts grew 14% year over year for nearly 4200 customers.
Average customer spends about 51000, Illinois with us annually up 4% over the last deal.
We have much to be proud of this quarter when looking at our task of profitability.
First on gross margin was nearly 80%.
They're called Nextel investment in marketing and R&D are showing strong returns in marketing metrics at the top of the funnel all very positive and show increasing trends.
R&D team made Vincenzo that time solution, and we will provide more value to existing and prospective customers.
Lastly, Oh operation Mouthing, showing amazing improvement of <unk>, one percentage points compared to last deal.
Earlier this year, we announced our goal to achieve sustained positive free cash flow by Q4 Q1 results show, we are making great progress.
We are focused on deploying our resources carefully on the core activities that creates revenues and improved profitability.
With this in mind, we are reducing our head count by 6% in Q2.
We're excited to see all progresses happening in the world of AI with all the new capabilities of Yahoo will bring we see a lot of opportunities for our company on a few fronts. The first one is to improve on that analysis at scale using AI to excel in speed accuracy and quality.
Next it will enhance our product development by using AI capabilities will finding and analyzing insight and other unique data which extremely powerful.
What will be different for us is when those AI will meet our unique data assets. We are one of the only companies that.
Have this comprehensive data on activity did they keep the world covering more than 10 years.
One thing I would be training on all the coverage that similar web digital debt that has we will be able to develop new capabilities to conduct <unk>.
Then Steve analyses for companies from simple inquiries of their specific needs and provide prediction of what will be next.
We're uniquely positioned to benefit from the change and how would we use our data to help companies to win in the digital world.
We believe that similar where digital is best of its kind available anywhere.
Customer will generate revenues and enhance the monetization in the digital world customer.
Customers tell us that they make better decision navigating this uncertain environment because of Sumitomo.
We remain determined to help our customers overcome the challenges to win in this unpredictable economy and beyond Jason I will turn the call over to you.
Thank you war and thank you to everyone joining us on the call today to discuss our first quarter results I will briefly address our financial performance and then we will open up the call to your questions.
Our results in the first quarter demonstrate our continued focus on disciplined execution towards achieving our strategic objectives.
Revenue was $52 $8 million for the quarter and in line with our guidance range. Our overall dollar based net retention rate or <unk> was 105% as compared to 115% in the first quarter of 2022.
$400000 AOR customer segment <unk>.
Aurora was 114% as compared to 127% in Q1 last year and now represents 55% of our total AOR.
While customer retention was good in the first quarter, we saw a more challenging environment to drive upsells within our customer base as businesses struggled with budget cuts in the current macroeconomic environment.
Pipe tight budgets, we are encourage that 40% of our <unk> is generated from customers with multi year contracts, which has continued to grow steadily and sequentially demonstrating the durability of those customer relationships and the value that our data is delivered to our.
<unk>.
While our results on the top line were in line with our plans we exceeded expectations on our bottom line, our first quarter GAAP operating loss was $13 $1 million, while our non-GAAP operating loss was $7 $2 million, which was significantly below the low end of the park.
<unk> range no.
Notably our non-GAAP operating margin improved 31 percentage points versus the prior year and as Warren mentioned, our gross margin improved to nearly 80%. These.
These results reflect the ongoing impact of our broad based operating efficiency measures.
Implemented across the business.
Turning now to Q2 2023, we expect total revenue in the range of $53 $3 million to $53 8 million for the full year. We continue to expect total revenue in the range of $221 million to $222 million representing approximately 15.
8% growth year over year at the midpoint of the range.
non-GAAP operating loss for the second quarter is expected to be in the range of <unk>.
Six and a half million to $7 million and for the full year between 'twenty, one and $22 million.
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 progressed through the year.
In particular, we anticipate significant improvement in Q2 2023 as compared to Q2 2022.
With our reorganization, we announced today, we anticipate savings to be realized in the back half of this year or.
Ultimately, we expect our quarterly free cash flow cadence will be positive when we finish 2023.
Our updated growth projection for 2023 reflects our assessment of the impact of continuing macroeconomic pressures on our business that will persist for an indeterminable amount. That's fine we continue to balance our expectations for moderating growth with accelerating our.
Path to profitability the decisions, we're making and the actions we are taking align with our intent to become free cash flow positive by the end of this year, we believe that our team our business model and our balance sheet remained resilient as we navigate the challenging environment.
And with that or and I are ready to answer your questions.
Thank you we will now conduct a question and answer session.
We would like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
So participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Once again Thats star one at this time.
One moment, while we pull for my first question.
Our first question comes from Arjun Bhatia with William Blair. Please proceed.
Hey, guys. Thanks for taking the questions.
Can we start with the head count reductions that you announced.
Would love a little bit more detail on where you're cutting heads where you're reducing some of your expense.
Expense exposure and how should we think about.
What that means for topline growth for the remainder of the year is there potential for that to be disruptive or are these non revenue generating roles that are being cut here.
Hey, Jim.
And thank you for the question.
So the guidance states. So are we all stand heading on plan I think when we.
We need the reduction we look over in the company and try to see where we can optimize so.
So a big part of that was around SMA alone and then in other departments like operation when we decided to go to be more lean.
And.
So this is where we had a 6%.
As I said.
To change that guidance, we stay on track.
Okay got it that's helpful and then.
Some good progress on the margin front getting to free cash flow breakeven.
One of the things that stuck out this quarter was the gross margins which were <unk>.
To increase for a couple of quarters now, but as you think about this 80% range do you think thats sustainable here or should we expect some more fluctuation as we.
Progress through through this year.
Hello.
First.
We felt it was an excellent progress very proud with the number was able to achieve in that front.
And yes on the long term, we hope that you'll be even above 80, but yes. It may be important in the next quarter or two it's going to be up and down a little bit down the old social ATM.
Alright perfect. Thank you appreciate you taking the questions.
Our next question comes from Ryan Macwilliams with Barclays. Please proceed.
Hey, guys. Thanks for the question good to see that.
Continued progression on the profitability front in raising our full year operating income guide. Despite also certainly on the macro side.
Just flip those economic headwinds, Jason maybe any commentary on how macro impacted you guys.
As you expected or any worse in the quarter and like did it get incrementally more difficult.
Following March and Silicon Valley Bank.
April .
Yeah.
Yes, Brian .
If you hear from you.
The the like we shared in the in the shareholder letter, we're seeing again.
Extent extension of sales cycles are taking longer.
And it's impacting Upsells.
The budget that people need slimmer budgets that people have so we're seeing that happen as well.
And we're seeing similar kinds of trends, we're seeing demand top of the law of topline demand actually increasing.
Throughout the quarter and growing.
Into into Q2, so we're seeing that in April .
Uh huh.
That's overall, where we are seeing.
Yeah.
Excellent and then or I was thinking about so with all this activity around AI.
AI and large language models.
I'm thinking like what interesting and placing come from a combination of you know your data set and things like that GPT.
So I am sure. Despite the macro you really excited.
Given all the technology investment.
Could you help us again, just remind investors why your data set is unique and what like insights or near term use cases do you think some of them are up can help customers.
With large language bottles in the near term.
Yeah, so regarding our uniqueness.
Sure.
Probably a little bit of both.
And the competition in the market I think we are very unique in quantity and also the ability to give full visibility to the digital world.
Very few companies.
These unique.
Unique downtown.
And then when you take these really.
Well behaved for the past 10 years and you can train day in London on that it's can come with Geely amazing stuff. So just came out of the week of hackathon.
<unk> N V. One would have been play for one week.
Such a <unk> a capability that they came out really crazy stuff.
And one of the advantage.
And they are really helping.
Discovery of insight and then translate those insights into action, what they think that most of the companies.
<unk>.
Beth and insights.
You need to work very hard to find those insights.
Doing a lot of research in and really accelerate that Mike. So this is really something that I think we've oh sector.
<unk>.
Excellent color.
Okay.
Next question comes from Jason <unk> with Oppenheimer. Please proceed.
Hi, This is Steve Hoffman on for Jason.
So given that billings continues to slow and customers are growing faster than billings. When do you see kind of an inflection occurring and what indicators you're looking for.
Youre looking at I should say to kind of indicate.
When that will occur thank you.
Yeah. So again, we're seeing we've got the one big benefit that we have in our businesses today, 40% of our of our renewals.
We have already signed up our book of business are signed up on a multiyear commitment. So we've got good visibility there.
During the during.
The last couple of months, we see some customers who are asking for.
Yeah.
Semi annual payments or a quarterly payments and that will affect the billings number but it wouldn't affect the overall cash flow numbers and I think as <unk> mentioned and you've seen the numbers say they did drive that.
Well to do to get to that profitability or close to that.
Cash flow positive.
It is more tangible than ever.
Okay. Thank you very much.
The next question comes from Brent Thill with Jefferies. Please proceed.
Hi, Thank you this is John Byun footprint so.
I think in the past you talked about some changes in product bundling and packaging and pricing and I Wonder if you could talk about that in terms of the.
I think a low entry point, you alluded to as well as a higher price enterprise tier.
If you can give an update on the.
Timing and maybe any sort of response at this point.
And so it's a good question and so we start rolling up a new package for the enterprises that container vessel enterprise features and this.
It's Oh V was increased 4% and.
In the first quarter. So it's about indicate though and this is on the power plant project.
Project, we were running a hub and.
Thank you Moshe.
Going to have much better land and expand all along the motion. So we do think there is a good leverage on that.
The second half of the year.
Great. Thank you and then maybe.
Jason.
The <unk>.
Decline, obviously, given all the macro trend.
Trends, but wondering how you expect that to trend for the rest of the year end.
Is there a time the thing when they could bottom and go from there. Thank you.
Yes so.
We saw during this quarter is actually strong overall rich.
Retention evidenced by law.
Logo retention.
And if you look.
At our 100000 dollar accounts.
The ones that make up 55% of our revenue, but the lower retention is like 98% very very high.
The challenge that we have given them the.
The market environment is that the upsells that we've seen historically are just taking longer and so youre seeing that impact the near term.
<unk> numbers, but overall the durability.
The health of the relationships that we have with our customers I think are strong.
Okay. Thanks very much.
The next question comes from Noah <unk> with Jpmorgan. Please proceed.
Hey, guys. Thanks for taking the questions and congrats on the quarter.
Just curious coming back to the 6%.
Head count reduction could you.
Maybe just give us some sense of what the.
Total maybe cost savings would be or what where do you sort of baking into the guidance now for the for the full year given the reduction.
Hi, it's Jason so thanks.
But the guidance that we have as you know.
The improvement that you see in the back half of the year.
The guidance reflects that I think you'll see we're seeing already a few million dollars of improvement on that front and then going forward you will see even more.
In 2024.
Okay, Yes that was all from my side. Thank you.
The next question comes from Brett.
No block with Cantor Fitzgerald. Please proceed.
Hi, guys. Thanks for taking my questions.
Jason maybe the first one for you I guess that you guys target kind of reached a pause.
Positive for gas in the fourth quarter.
Is that still a.
On plan, excluding the head count reduction or is the head count or what the head count reduction needed for you guys to reach that target.
[laughter].
It was unplanned irrespective of this and I think that.
The b.
Optimization that we've done in the head count is again, just a further focus on our disciplined execution.
And trying to drive efficiency across the board prioritizing the areas that.
Are you contributing the most and I think that our weaker contribution.
To take the time to optimize that.
And if it means when the can a little bit in order to pick it up again were making those choices.
Okay understood and then on the second quarter revenue guidance, you know kind of got it for an additional 800000 or so can you just.
Talk about what's going into that.
I think in your prepared remarks, you guys said that top of funnel metrics and demand kind of outlook was improving but yet I guess the sequential growth.
What you guys you guys are guiding for is it looks like to be lower than anything else that you guys have delivered so I guess that's helpful to understand is on us.
Yeah two.
Two things on that front, one is sales cycle like we are.
For for a couple of corporate we see them lengthening.
You see that already in our CAC payback periods that.
So it's just.
Something that we wanted to.
Accommodate four and the second is the linearity during the quarter.
As deals come in.
More customers take the time and it comes towards the end of quarter the contribution for the.
For the current quarter.
Lower whereas going forward that'll be it for a full quarter.
Contribution. So there are two factors that go into that.
Perfect.
Maybe a question asked differently.
What do you think the that could bottom out like you think there's more room for that to decline below a 105, we see that trend closer to 100, any insight on where that could potentially bottom.
Yes.
Yes.
Yeah.
So we see that again, the what we're seeing right now is.
His long sales cycles on the upsell.
And we're seeing customers optimizing.
All the way through like I said, we're seeing strong.
Logo retention and that's something that we can continue to fall.
Sorry.
Overall, we are seeing again.
5% of our revenue pushing those very very large accounts. When you look at the math on that those customers are spending more like $600000 a year on average with us.
And those have a very strong retention numbers on the low end of the slides on the low end of the spectrum do you see a little more churn.
So there's a blend that happens.
In one quarter or another.
Overall, that's what we see and the nice thing about our business. When you look at at the nearly 4200 customers that we have 75% of them are buying multiple products. So it'd be two products or more and the fact that we have that installed base that continues to climb have multi.
We will use as a symbol that creates a greater stickiness, but making that others have.
Perfect. Thanks for asking the question Jason I appreciate it.
The next question comes from Patrick Wall Ravens with JMP Securities. Please proceed.
Oh, great. Thank you.
I have three questions, but they're all related to similar web digital data. So I think you'll like it but I'll just tell you what they are the number one how much are you generating today from people using your data your datasets to train.
AI models.
Number two is that really a market there I mean, it seems like a lot of the dataset debuts like hugging.
Hugging face on Wikipedia CAGR are all public and free.
And then number three if there really is a market where do you guys have to do to drive the monetization there.
And I hate to take its a very interesting question.
And I think by the way I think that the.
The maintenance of our that we would want to try and be able to then we will not try to leverage that to give it to them.
I think there I don't think there is a market.
But they are huge for us have been referring to insight.
And answering critical questions to customer.
But to do so.
And.
The opportunity with this definitely this would be extremely powerful so.
I Hope this answer your question.
And or is there anything you need to do to drive them.
More of that today than you're already doing.
Hmm.
No, we just need to self implement that in many different level of our offering.
Alright, thank you.
Once again to ask a question Thats Star one on your telephone keypad. Our next question comes from Tyler Radke with Citi. Please proceed.
Yeah.
Yes. Thank you so Jason you talked about strong logo retention and I'm just wondering within those those logos. How overall seats is tracking obviously, there's there's been layoffs among your customer base and a lot of pressure on seat based model. So.
Are you seeing any.
Increased kind of down sales in it.
Or pricing pressure, either either from tighter budgets and in.
Competition, who may be in a worst spot than than yourselves.
So.
The solutions to the market size products.
So out of them.
Basically the growth of them, but it is not really and correlates with seats. So if you're thinking about that he sold solution marketing solutions stocking intelligence solutions.
Yes.
Growth are behind us.
Even if companies doing layoffs, we don't move the champion.
If it meets its.
It's okay, we have one towards the sales intelligence and entities.
This is Walter.
Is it.
Baird.
You can see that it correlates with the growth of the account or downside, but this is only one of them.
Okay and then.
With the guide it looks like Youre holding the full year.
Unchanged.
I guess implicitly.
You're expecting revenue to step up a bit.
In Q3 Q4 could you just talk about.
Your confidence level in.
Second half pipeline the renewal base.
And given everything going on just the puts and takes on being able to maintain.
The guide here. Thank you.
Yeah, and so I think we have a strong feeling about maintaining the guidance, we do see and we didn't talk about it a little bit.
And then.
Maybe before about seeing.
The top of the funnel increase and you're seeing demand going on but people visiting our website people registered to check out our products and the amount of meetings, we're able to do.
So the range to our own go to market. So we do see strong move to bill.
And I think that is.
As long as the market starts maybe bonds back in the second half of the year. It should also see from this movement, but we do feel confident about the guidance right now.
Okay. Thank you.
Once again to ask a question at this time that star one on your telephone keypad.
There are no further questions in queue at this time. So this does concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Yeah.
Okay.
Okay.
[music].
Okay.
Yes.
[music].
Okay.
[music].
Yes.