Q2 2023 Similarweb Ltd Earnings Call
Good day, ladies and gentlemen, and welcome to the similar web second quarter fiscal 2023 earnings call. Our hosts for todays call is Raymond Jones, Vice President of Investor Relations. At this time, all participants are in a listen only mode.
Later, we will conduct a question and answer session I.
I would like to now turn the call over to your host Raymond the floor is yours.
Thank you operator, welcome everyone to our second 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 current 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 our reported results should not be considered as an indication of future performance.
These 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 for a discussion of the factors that could cause our actual results to differ from the forward looking statements.
Also note that any forward looking statements made on this call are based on information available as of today's date August nine 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 up results and on our call. Today are expressed on a non-GAAP basis in particular, we reference non-GAAP operating loss, which represents GAAP operating loss less share based compensation adjustments and payments related to business combinations amortization of.
Assets and certain other nonrecurring items, we use this another 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.
Ability with past financial performance by excluding certain items that may not be indicative of our business results of operations or outlook.
However, non-GAAP financial measures have limitations as analytical tools and are presented for supplemental informational purposes, only and they should not be considered in isolation from whereas a substitute for financial information prepared in accordance with GAAP.
A reconciliation between these GAAP and non-GAAP financial measures is included in our earnings press release, which can be found on our Investor Relations website at IR Dot similar web dot com.
Dave will begin with brief prepared remarks from our CEO or offer and CFO Jason Schwartz.
We'll open up the call to questions from sell side analysts in attendance.
Please note that we published a detailed discussion of our second quarter 'twenty to 'twenty three results the letters to shareholders for investors referenced 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 wet.
Okay.
Thank you Andre and welcome everyone joining the call today.
In Q2, we reported another quarter of growth in operating improvements we grew our revenue 17% over Q2 last year to $53 7 million.
Global customer base and grew 12% year over year, and a little more than 300 customers.
Our average customers.
The nearly $51000 with us annually in line with Q2 last year I'm very proud of our great progress in this quarter on a basketball possibility or not.
<unk> gross margin was nearly 80% again and our Q2 non-GAAP operating margin showed a strong improvement of 75% points compared to last year that is extremely significant.
This year, we announced our goal to achieve sustained positive free cash flow by Q4, our Q2 results show, we continue to make great progress and we feel very strongly that we will achieve our goal this year.
When we originally plan are all controlled this year, we thought we would see market trends started to recover in Q3 and Q4 in fact, we see that our pipeline remains strong and we are adding new customers and expanding our penetration into the markets.
But at the same time, we see that enterprises are still continuing to optimize their budgets and spending sales cycle, how long ago than in the past and some customer needed to reduce their spending with us in order to fix bill corporate budgets.
Meaning is similar words custom mill and despite this our logo retention of our $100000 customer remain it's 98%.
Our results also show we are investing efficiently you know marketing R&D and product divisions in marketing in Q2 metrics at the top of our funnel stayed positive we had more than 25 million unique visits or using our free tools. It's.
It seems the windows com in Q2, and we are forecasting that's more than 100 million unique visits all really use our free tools. This year. This is truly a remarkable achievement so our marketing organization.
Our product team has been working on new features in our solution. This will provide more value to our customers we are in.
Excitingly release coming up in Q3, one of them is called similar web free Dot O, which is a new way of how we package our offering that include new data insight and navigation and will lead to a better pricing and alignment with our customers.
And hence our go to market motion and improve I'll also lean enterprise customers.
We had a really exciting recent launch of a feature called is similar.
That is already live in the platform.
And this is being used by our early adopter customers similar to ask is the first digital intelligent AI assistant designed to answer the question that users type and free text without having to know how to navigate all platform.
Solving one of the hardest problem every insight and analytics software and that is the ability to find insights into data quickly and then ship them and by introducing similar ask we hope to solve this holy Grail data to insight and insight to action.
In the future, we believe that using similar asking capabilities would it be like having a conversation with the world's most effective and tenant markedly so to unleash strategy consultant and data scientist combined in one.
The I can give answers to critical business question instantly does that accelerate our time to feature development and drive more efficiency in our product development cycle and product adoption.
We believe our upside potential from working with AI is high and we look forward to bringing similar to ask them to the market.
In our view similar web digital data is the first of its kind available on the market today and melting it.
Capabilities will unlock amazing growth potential for us down the road.
With that Jason I would turn the call over to you.
Thank you ward 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'll open up the call to questions.
Our results in the second quarter continued to demonstrate our disciplined execution.
Revenue was $53 $7 million for the quarter and near the top of our guidance range. Our overall dollar based net retention rate or <unk> was 101% as compared to 115% in the second quarter of 2022.
100000 dollar a all of our customer segments and all of our was 109%.
So 127% in Q2 last year and now represents 55% of our total ALR.
While customer acquisition and logo retention were steady in the second quarter, we saw challenges to expansion within our existing customer base.
Customers needed to reduce their spending with us in order to fit their corporate budgets, while remaining to be a single wide customer.
We are encourage that 42% of our a R. Broadridge generated from new customers with multi year contracts, which has continued to grow steadily and sequentially demonstrating the strength and longevity of those customer relationships driven by the enduring value that we deliver to our customers.
While our results on the top line were in line with our plan, we continue to exceed expectations on our bottom line, our second quarter GAAP operating loss was $9 $8 million, while our non-GAAP operating loss was three and a half million dollars, which was better than the lower end.
Of our guidance range, notably our non-GAAP operating margin improved five percentage points versus the prior year. These results reflect the ongoing impact of our broad based operating efficiency initiatives, we have deployed across the business.
Turning now to Q3 2023 we expect total revenue in the range of $54 $1 million to 54, and a half million dollars for the full year. We now expect total revenue in the range of $216 million to $218 million representing approximately 12%.
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 $2 8 million to $3 $2 million and for the full year of between 16 million and $17 million. This implies a non-GAAP operating loss margin of five 4% for the second half.
This year at the midpoint and improvement of over four and a half percentage points as compared to the first half of this year.
Importantly, we are on track to achieve our goal of sustained positive free cash flow by the fourth quarter of 2023.
We continue to focus on balancing growth with accelerating our path to profitability and to align our actions with our intent to become sustained free cash flow positive. We believe that our team our business model and our balance sheet remained resilient as we navigate the current environment.
With that or and I are ready to answer your question.
At this time, we will conduct a question and answer session.
If you would like to ask a question. Please press Star then the number one on your telephone keypad now and you will be placed in the queue in the order received.
Once again to ask a question. Please press Star then the number one on your telephone keypad now.
Yeah.
Our first question comes from our June Padilla with William Blair. Your line is open.
Alright. Thank you guys. So much for taking the question.
I know.
Customers are still optimizing bond.
Uncle, and we're seeing that across the space come up in Q2 and later for a bit.
Or or Jason can you touch on.
What's the common paths and customers are taking to reduce spending cutting products out right away or do you think Bob what.
What do you normally see in them.
When you think about the recovery rate whenever it happens later this year or early in 'twenty or how are you positioning yourself with those customers. So that you can really expand budgets start to come back and macro stabilizes.
Hi, John good to hear from you if at all.
Thank you for that question is and I think to answer the question.
And we need to look on the different lines of business that we have we have to defend it.
So that can be centrally to defense use case. So if you look at for example, a set of intelligent solution that we sell.
Turning to the sales organization with a lead generation lead enrichment and stuff.
And then when you when you have reduced budget is basket because the company has that been for a round of layoffs.
And then because this product is a big base.
Does it mean the.
The spend is going down.
And so as we look at this and.
The most of the products that they're stocking diligence when he said that the goal.
Besides the scope.
Its invest less in tech or into a digital outlet.
And content.
And besides that she's there investments college aimed to golden all yet that there is all done.
Yeah.
Some of their consumption.
So this is just example.
Sure.
Yeah.
Okay got it and then what.
I know last quarter, we haven't we've just talked about pricing changes.
What are you seeing kind of just bundle.
Some some of your products.
Any early feedback that you've seen from the pipeline that top of funnel as a result of some of those changes.
Or are you seeing anything yet.
In future periods.
Yeah, So we launched the.
The change in a quarter or go into one team one of the pilots.
It was very successful and I think a month ago, we launched globally to the entire go to market. The feedback is good that you can really simplify and.
The mental model of how you price and how you're aligned with the value.
And I think it's a draw.
Drive.
More success in.
Win rate hopefully, maybe shorten our sales cycles are longer but that's a few codell.
And I think those will be going to be a nice opportunity for migration. So it was a good.
Opportunity to go back to some of the current customer demand.
Presenting them Daniel.
And pricing and then some other than like you can make migrate them to Disney's frozen and so it's a good time.
Opportunity for Austin.
This is what they hope to have them.
Okay perfect very helpful. Thank you.
Thank you.
Your next question comes from Jason <unk> with Oppenheimer. Your line is open.
Hi, This is Steve Hoffman on for Jason. Thank you for taking our questions. So first our sales cycles and payback periods have been longer than average for the past few quarters, but what changes have you tried are made to try to shorten. These have you seen any change order to date in that or same trend as in.
Quarter, and then similarly on marketing do you anticipate leverage in S N M or having to make head count reduction to reach that fourth quarter guide.
Guidance or is that not necessary. Thank you.
Yes, Thanks, Steve.
I, we don't anticipate needing to take any and don't plan on taking any head count reductions, we think that our that the plan that we have now we feel confident in the guidance that we've given.
And on the sales cycle look where we're seeing.
The sales cycles are still longer or medical you had talked about how businesses are still struggling with the with the macro environment and managing their budgets are through the year and we see that the pipeline is actually strong we actually have a good visibility into deals and deals are still progressing.
But the timing of getting those things down.
Or still a longer cycles than it has been in the past.
Okay. Thank you very much.
Your next question comes from John Do you with Jefferies. Your line is open.
Hi. Thank you. This is John again on behalf of Brent Thill, maybe one more question on the macro.
Any differences you're seeing in behavior between yeah, youre, very large enterprise customers and somewhat small and mid market.
And any signs of maybe loosening the first five.
Five weeks of this quarter versus Q2.
And yes.
Changing behavior in a way.
Yeah.
The more pressure on the small accounts.
And in the very very big and and cooperates.
We see more pressure most class the bulks is showing.
Optimization on budgets.
And so it's I can they're just very small companies and very very big corporate.
And then on similar ask I mean, it looks very interesting I'm wondering.
How far along you are with the development on the data is there.
<unk> four for going G. A this year or is it something more like you're looking at next year.
Thank you.
So the good news is already live in the platform and our people in some of our better customers already been lucky enough to engage and use this capability of free tax and discovering insight that's much fast though.
Very exciting.
And when you play and understand all the capabilities.
The local fulfillment easier.
And that'll be launching them probably in the next week or so to be tayo.
Paying customer and it's only the beginning.
The more we play an integrated discover more use cases, more and creating value.
And it gives our customers. So it's I think it's only the beginning of really great relationship.
Great. Thank you.
Your next question comes from Tyler Radke with Citi. Your line is open.
Yeah, Hi, good morning, Thanks for taking the question wanted to ask you just some of the trends you're seeing across industries, we've heard from some others that.
Software reporting to me than the tech vertical.
Remains under pressure.
If you can just kind of highlight that.
But the demand pattern, and where you're seeing the longer sales cycles play out either by product or by.
By industry. Thank you.
Yes, I think it's correlating the tool to or the answer and before that so I'll jump.
And for example, taking the seats, mostly B b.
And that's buying a solution and that usually buying our system solution.
And that is.
As I said before.
And that they didn't they didn't nail friend.
And for Us.
And then the rest all vertical.
Sticking to them.
Some of them are adjustment there the investments start to G and so in this investing best thing back.
So then you see there are they at a Nymex and then no maybe.
A C V go down let me close didn't do so well.
I think so you see most of them tech sector and then the vessels.
And we also see.
There had been CPG and it looks strong.
And also by is I think another nice Oh wait two did you see that Europe is he's bet, though.
Europe is doing he's doing well.
And in China, we started seeing a little bit slow on this but the overall.
All the rest is kind of the same.
And just wanted to unpack the.
The expansion headwind a bit more specifically on net retention it looks like that ticked down pretty meaningfully.
You know wanted to see if you had visibility into where we're in when that drops and specifically are you seeing any pricing pressure and in addition to down sells you now in terms of reduced pizza capable. Thank you.
Yeah. Thanks, Tyler I think what we're really seeing over there is that budget pressure that our customers are feeling.
And that impacts not only their current spend with us, but also to our ability to expand with that and that was at that.
Whether it's new dollars from a new customer or new dollars from an existing customer those sales cycles are just taking longer on the one of the things that we've done really a real focus on is recognizing that the installed base that we have those customers are.
Are they the long term value that we have and the length of those relationships and the steps the depth of those relationships that we have are the ones that are going to continue to provide us that a lifetime value of those customers and so we're really encouraged stating that on there.
It was on our large customers, we're at 98% logo retention, which are mentioned and the fact that 42% of our customers or our <unk> is contracted on multi year multi.
Multi year commitments.
It reminds us how much that customers you see similar up as being a significant part of the growth of their business.
Yeah.
Your next question comes from Ryan Macwilliams with Barclays. Your line is open.
Hey, Thanks for taking the question. This is Pete on for Ryan Macwilliams, I'm really pleased to see the profitability improvement and operating leverage in the model.
I was on the AI front, how do you foresee generative AI enhancing similar web is a unique data asset and it can it help you guys capture and process, even more available data on the internet.
Our language on day one.
So the same engine one and so I think that is very interesting because we need to try to and play Oh. They are two answers a lot of let's say you see a lot of insight and.
And on in the downtown and I'm trying to understand what's called what was then we'll go spicy and leasing the way we used.
To go to the open web and try to explain why southern website to have a spike eutrophic wipes will jump in so we can go and understand what's happening in the in the same manner.
But looking on the desktop.
Available online. So there is a lot of use cases, when you can see that the eye is that good.
And no and clothing the bridge between the data we showed the insight in what happened.
The open web so a lot of great application and all that.
Jason you want to.
And so the first question we haven't.
I think he was just commenting on the improved leverage and our efficiency in the business and.
So much.
Okay, and then just two more from me first on the AI adoption. How do you think about the timing of that you think that's more of a next year phenomenon as customers reset budgets or expectations for that this year.
I think that they will need a few I would say month full quarters of integration with the feature in the.
So there's a lot of innovation and I'm very curious to see how what wouldn't get to adopt and even now would be say three textbooks that we released and we start thinking about what people are searching and can be very interesting to see if he can adapt if people don't really know.
So tien tsin I wouldn't change the way, they behave and aldi analyze that down other than going over tables and graphs.
Sales of books.
<unk> be interesting to see and then we need to integrate so I think you need a few quarters of integration you Lance.
The first version now to see how these are using it.
Now she's going to end up so I don't think there'll be some integration.
I think that by the end of the yield.
And what companies, where they want to discover what the best use case to leverage AI to the capabilities and only next year to really get into that.
So it's something really that value.
The acceleration value destruction from from using that.
Okay. That's helpful. Thank you and then and then just one for Jason.
Should macro through do you think you can maintain these improved levels of profitability, while still investing to capture growth opportunities in the future.
Yes for sure.
Is that a lot of the the the unit economics that you're seeing.
Is that the our existing book of business and we're able to drive 50% to 55% contribution margin on that I think that that is the the flywheel that that continues to fund the business.
And with the improved macro environment, we should see the the CAC or the cost of acquisition going back to the historical trends a 15 to 16 month payback a as opposed to what we're seeing now which is more like 19 to 20 months payback.
Yeah.
Very helpful. Thanks, guys.
Once again to ask a question. Please press Star then the number one on your telephone keypad.
Our next question comes from Noah Herman with J P. Morgan Your line is open.
Hey, guys. Thanks for taking the questions.
So you mentioned, how you have about I think 25 million unique visitors on using some of your free tools and do you expect that to sort of jump to a 200 million by the end of this year and I'm.
I'm just curious you know.
How should we think about maybe the acting as a potential lever to convert more customer additions throughout the year and also too I mean do these customers also have access to.
The new similar apps tool that you've launched and could that also act as a potential pricing lever, but with those customers longer term. Thanks.
I think general off just to.
Explain the the the announcements we are now having more than $25 million.
Million unique visitors for the quarter and we are forecasting that during the next few quarters, we're going to be growing a little bit.
You're going to have in 2020 free overall for the U 100 million people using a free tool is very big exposure to similar web brand capabilities understand of the technology. We provide those digital intelligence. So this is what make us excited and I understand this is a very strong.
And then to build pipeline on top of that especially as you grow that you have such a strong day and Brent and fourth big and I think that we have a.
Big audience out over those 25 million people that were just fell to try and then paid version that you get the free trial.
So right now the similar last because they only open to data and customer and next week, we'll be open to our paid customer deals. So what it does mean that from the people who choose to legislators to try Oh paid solution.
Seven day free trial, there will be exposed down the road just given all that's going to be able to see and try it again.
And they themselves.
Got it. Thank you and then just a quick follow up on it's great to see the improvement on the bottom line.
Obviously, I'm still seeing some challenges with expansions, but I guess, just putting the you know the macro.
Headwinds aside I mean, how should we sort of think about you know at this point, but I'd been normalized top line growth for the business.
Is that you know hopefully starts to cede going into going into next year. Thank you.
Yeah, I think we're going to be we're going to be able to give guidance for next year. When we get to Q4, I think will be all be a lot smarter as to how the macro starts shaking out in over the course of the next three.
Three months.
And we still think that they need.
He then the uniqueness and value that we bring with it with the dip.
Similar web digital data is we're gonna be.
He is going to drive that that growth ultimately what we're committed to is that efficient growth and where we are.
Or have the conviction that we will be sustained free cash flow positive starting in Q4 and going forward.
At this time there are no further questions.
This does conclude today's similar web second quarter fiscal 2023 earnings call. Thank you everyone for attending and have a wonderful rest of your day.
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Right.
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Okay.