Q3 2024 Similarweb Ltd Earnings Call
Rami Myerson, Jason Schwartz, Raymond Jones, Or Offer For more information, visit www.fema.gov
Speaker Change: Greetings and welcome to the SimilarWeb third quarter 2024 earnings call.
Speaker Change: At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: I would now like to turn the conference over to your host, Rami Myerson, Vice President and Vest Relations for SimilarWeb. Thank you. You may begin.
Rami Myerson: Thank you, operator. Welcome, everyone, to our third quarter 2024 earnings conference call. Joining me today are our CEO and co-founder, Or Offer, and our CFO, Jason Schwartz.
Rami Myerson: Yesterday, after market close, we released our results for the third quarter and published a discussion of our results in a letter to shareholders, as well as an investor presentation with a strategic overview of the business.
Rami Myerson: Certain statements made on the call today constitute four different statements which reflect management's best judgment based on the currently available information. These statements involve risks and uncertainties that may cause actual results to differ from our expectations.
Rami Myerson: Please refer to our earnings release and our most recent annual report, filed on 4-20-F, for more information on the risk factors that could cause actual results to differ from our forward-looking statements.
Rami Myerson: Additionally, certain non-GAAP financial measures will be discussed on the call today. Reconciliations, the most directly comparable GAAP financial measures, are available in the earnings brief and the earnings presentation.
Speaker Change: We will begin with Or and Jason's Halat in the quarter, and then we will open up the call to questions from cell-side analysts. With that, I'll turn the call over to Or. Or, please go ahead.
Thank you, Rami, and welcome, everyone, joining the call today.
Or: I am extremely proud of the third quarter financial results we reported yesterday. Revenue growth accelerated again to 18% year-over-year growth in Q3, driven by increase in annual customer and improving retention.
Or: This is the fourth quarter in a row that we reported accelerating revenue growth and the second quarter of accelerating customer growth.
Or: SimilarWeb is one of the only a small group of public software companies that have reported accelerating growth over the last year.
Or: We have improved our marketing capabilities, driving more meetings for our sales team and increasing brand awareness. We built a strong customer success organization that helped turn around our NRR trend over the last three quarters.
and is now back above 100% again.
Or: Susan Dunn, our new CRO, is driving a series of improvements in our go-to-market motion, and I am happy with the progress she is making. It is great to see the success these initiatives are starting to deliver.
Or: SimilarWeb's mission is to help companies to be successful in the digital world by providing them with the most accurate, comprehensive, and actionable digital data.
So, every business can win their market.
Or: For more than a decade, we have invested and continue to invest in serious,
Or: of properties, capabilities that empower us to create our unique digital data.
Or: The continued customer growth and improved retention trends are indications of the confidence our customers place in the quality of our data and their ability to generate value from the data and the solutions we provide.
Or: The significant investment we have made over the years to build similar web-unique digital data means that we are in a great position to benefit from the AI revolution. Right now, I see four distinct options for us to capitalize and monetize the generative AI opportunity.
Or: The first one is that digital data is a critical and fundamental component of every AI and LLM tech stack.
Or: And that is why many of the largest global tech companies are engaging with us to access our digital data to train their LLM and ensure their models are accurate and relevant.
Last quarter we announced our first 8-digit customer.
Or: And today, I'm pleased to share that during October, we secured our second 8-digit customer.
Or: This is also a big tech customer who has been with us nearly 10 years and also used our web intelligence, self-intelligence, shopper intelligence through the platform and API integration across many divisions and geographics.
Or: It is now also using similar web digital data to train its LLM, and we continue to engage with several other companies on similar opportunities.
Or: The second motion with the opportunity for us in the JANTEV AI is that we believe that the changes that LLM are already having on the online customer behavior and the evolution of the journey from search to chatbots.
Or: are more material and present a much more significant opportunity for a similar web.
Or: We are engaging with several brands that are keen to understand how the transition from traditional search engines to chatbots for the consumer to find information that leads to transactions will impact their business.
Or: The evolution of the customer journey and the risk of omission from the output of DLLM is a growing concern for every band around the world.
Or: Similar web digital data can provide a range of insights that can assist brands in understanding the impact and navigating this new version of the way consumers gather information.
Speaker Change: I believe that this is a great opportunity that we are uniquely positioned to capitalize as the AI revolution evolves.
Speaker Change: The third way we are enjoying the AI revolution is of course integrating AI into our own products and solutions. Help them increase the usage and speed to insights to our customers. Last year we introduced similar ASK.
Speaker Change: And earlier this year, we introduced SAM, our self-assistant agent, in our self-intelligence solution. We are deploying and implementing more AI agents per use case across all of our solutions to drive more high customer engagement.
Accelerating the Adoption and Use of Our Solutions.
And the fourth area.
Speaker Change: is, of course, is integrating AI into our own internal process and tools, driving more efficiency and reducing cost.
Speaker Change: We're already seeing improvement in the development cycle around our engineering.
Speaker Change: and reducing our customer support responses time with those tools and implementation. And there's many more to come, to drive more cost saving and improve efficiency all across our organization with AI.
Speaker Change: I am very bullish on the opportunity ahead of us. We are staffing up our go-to-market teams to capture the big opportunity that we are seeing on top of our funnel and continue to grow.
Speaker Change: In Q3, our marketing team generated a record high of more than half a million registrations on our website and created a record high number of meetings.
this year to our go-to-market teams.
Speaker Change: On the brand awareness side, I'm super pleased that SimilarWeb has been adopted by leading media outlets and corporate executives as a preferred measure of the digital world. Jeff Bezos and Elon Musk appreciate the critical importance of high quality data.
Speaker Change: And they, along with many business leaders, reference similar web when making observations on the digital world.
Speaker Change: Even this week, when Sam Altman, OpenAI CEO, wanted to show how big the chatgpt.com website is, he referred to similar web data in his tweet.
Speaker Change: We appreciate the confidence those leaders express in our data. Our goal is to be the number one partner for digital success.
Speaker Change: I want to thank the whole team for another quarter of excellent results and great execution during a period of macroeconomic uncertainty and geopolitical challenge.
Speaker Change: We believe that we are still only starting to realize the potential of our data and the addressable market we serve, and as I like to say, we are just getting started.
Jason: Thank you everyone on the call for continued support. With that, I will turn the call over to Jason.
Jason: Thanks, Or, and everyone joining us on the call today to discuss our third quarter results. I'll provide highlights of our financial performance, and then we'll open up the call to questions.
We generated $64.7 million of revenue in Q3.
Speaker Change: As Or mentioned, revenue growth continued to accelerate for the fourth consecutive quarter to 18% year-over-year in Q3, driven by new customer growth and improving retention.
Speaker Change: Our remaining performance obligations, or RPO, totaled $212 million at the end of Q3.
Speaker Change: up 27% year-over-year. We expect to recognize approximately 76% of the total RPO as revenue over the next 12 months.
and an NRR of 111%.
Speaker Change: for our over $100,000 ARR customer segment, an improvement relative to the second quarter of 2024 for both metrics. We are encouraged by the change in the trajectory over the last two quarters and expect further improvement in the quarters ahead.
Speaker Change: The increase in multi-year contracts to approximately 45% of our ARR demonstrates the importance and critical nature of our data and we expect will contribute to improved retention rates ahead.
Speaker Change: Our operational performance in the quarter demonstrates our continued commitment to disciplined execution, and we delivered a non-GAAP operating margin of 7%, a fifth consecutive quarter of non-GAAP operating profit.
Speaker Change: We generated $9 million of free cash flow in the quarter, a fourth consecutive quarter of positive free cash flow.
Speaker Change: Free cash flow in the quarter was positively impacted by the phasing of customer receipts that we had expected to collect in the fourth quarter. We expect to continue to generate positive free cash flow over the coming quarter and in future quarters as well.
Speaker Change: Following the results that we reported yesterday and that exceeded expectations, we are raising our guidance for revenue and narrowing the guidance range for non-GAAP operating profit for the full year 2024.
Speaker Change: In Q4-24, we expect total revenue in the range of $64.7 million to $65.7 million, representing approximately 15% growth year-over-year at the midpoint of the range.
Speaker Change: For the full year 2024, we expect total revenue in the range of $249 to $250 million, an increase of $2.5 million at the midpoint of the range relative to our previous expectations.
Speaker Change: Non-GAAP operating profit for the fourth quarter is expected to be in the range of $1.5 to $2.5 million. For the full year, we are narrowing the range and expect our operating profit to be between $14 and $15 million.
Speaker Change: Our guidance reflects increased operating expenses primarily related to increased headcount.
Speaker Change: As Or mentioned earlier, we've decided to accelerate our hiring to capture the opportunities presented by the growing demand for our data and solutions.
Speaker Change: After delivering four quarters of accelerating revenue growth, non-gap operating profit, and positive free cash flow,
Speaker Change: We remain focused on delivering profitable growth and making further progress towards the Rule of Forty over time.
Speaker Change: as well as achieving our long-term profit and free cash flow targets.
Speaker Change: And with that, Or and I are ready to answer your questions.
Speaker Change: Thank you. At this time we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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.
Speaker Change: Our first question comes from the line of Ryan McWilliams with Barclays. Please proceed with your question.
Hey guys, thanks for taking the question.
Speaker Change: For Great to See New Customer Growth Accelerate, how would you attribute what drove the stronger new customer growth?
I'm sure it's a mix, but...
Speaker Change: Is it maybe a better macro environment, or is it more due to some of the changes the mobile web has made and its market improvements?
Speaker Change: As I said in the early call, our marketing team is doing an excellent job.
Lately driving more brand awareness more conversion for more
Speaker Change: and a big amount of visitors that we have. And we're seeing an increase in legislation, customer growth.
Speaker Change: a very strong top of the funnel, so it's, from what I see, a lot of improvement internally and doing a great job of the team.
Speaker Change: Appreciate that. And then Jason, any early insight into how we should think about our models for next year and revenue growth in 2025? Things are certainly accelerating here, but how should we think about the key drivers of next year growth? Thanks.
Jason: We'll give full guidance on 2025 at the beginning of the year, but I think that the momentum that you see and the exit rates are good indications to the momentum that we intend to see going forward. So, as we said, we're going to continue to be.
Jason: focused on that profitable growth, continuing to have both operating and cash flow profit on a quarterly basis going forward as well.
Thanks, guys.
Speaker Change: Thank you. Our next question comes from the line of Jason Helstein with Oppenheimer and Company. Please proceed with your question.
Hey everybody, two questions or from a
Speaker Change: How has the mix shifted, you know, whether it's like, I don't know, versus a year ago and maybe where are you seeing the most interest? Obviously, you highlighted AI, but it's still super early, but within the kind of other products, like, what seems to kind of have the most momentum from a business standpoint?
Speaker Change: And then second question, Jason, can you unpack the revenue volatility a little bit?
between the 3Q year-over-year and the 4Q guide year-over-year.
Speaker Change: Does this have to do with a spike in the billings in 2Q, the way it flows through the accounting, and then kind of what was the catalyst for that, just maybe unpack why we're kind of seeing a revenue slowdown in the fourth quarter on just on an accounting basis.
Speaker Change: We have our core product, the Web Intelligence, which continues to doing very well. We're seeing more demand on the SEO part. We did a lot of progress there in the past.
Speaker Change: So marketing organization drive more growth around the search channel and we've seen great success there
Speaker Change: Also, we have a strong quota on our self-intelligence tool, we're seeing high demand.
Speaker Change: We had a lot of good progress there. We introduced the same service system, AI agents that will help customers to get better insights, faster leveraging the AI capabilities, so this one's doing very well.
advisory services organization has a lot of demand.
Speaker Change: A lot of big brands coming with all sophisticated needs and insights about digital activity. So I think those three had really good moments right now.
https://www.youtube.com
Speaker Change: And then, on the guide, I think by now you guys know, we like to give...
Thank you. Thank you.
Speaker Change: We like to give guidance that we know we can meet, and, you know, there's...
Speaker Change: We're an ARR business, and so a lot of the visibility that you have between RPO and the deferred revenue, you know, just flows through the accounting, and that's how the revenue works.
Speaker Change: Okay, so they're just really, like, it's not representative of any kind of trend as we're thinking about into next year.
No, I don't think so. Okay. Thank you
Speaker Change: Thank you. Our next question comes from the line of Arun Bhatia with William Blair. Please proceed with your question.
Speaker Change: If I can start with you, this is the second big deal that you've announced with a big tech company to use your data to train LLMs.
Speaker Change: Can you just maybe help us understand what's so special and unique about
Speaker Change: similar web data that is attracting these companies to license it for LLM training and how does that fit into that specific
Speaker Change: LLM training use case, and then maybe you can just touch on.
Speaker Change: Something about these contracts, whether we should expect these to be recurring and the data to be needed to continually be refreshed over the coming years as these models become a little bit more mature.
I am okay.
So I tell you just some just to
Speaker Change: explain to you more. We announced a second customer to be eight-figure customers, but we do close more than two deals around working with companies who want to claim the LLM.
Speaker Change: So this is an initiative that we've seen growing nicely with the AI evolution.
Speaker Change: And regarding your question to give more visibility about our LLM using our digital data.
Speaker Change: And I will explain to you how I think it works from that perspective. In order to build a really good chatbot,
Speaker Change: You need to feed them, I assume, with three data sets. The first data is probably the Internet data, the web data, all the content that you can learn and be smart and read all this knowledge.
Speaker Change: The second data set you probably need to feed him is what I will call conversation data, the chatbots would learn to speak like humans did, this is probably when they're giving him Reddit data and all kinds of...
Speaker Change: The third element that LLM needs is to be up to date with what's happening in the world. He needs to know that Trump won the election, or anything that's happening. In order to be up to date, he needs digital data.
Speaker Change: That's what's happening right now in the world. What people are searching right now, what they're reading, what they're talking about. And this is where the digital data gets very important.
Speaker Change: And something that you need to feed those elements daily that will be up to track and they have context when you talk with the chatbot this morning and talking about the election he will know what happened.
Speaker Change: So, this is where our dataset is feeding the brain and I hope it answers the question.
Speaker Change: Yep, yeah, that's very helpful. Thanks, Orr. And then, Jason, if I can just come back to the prior question on the fourth quarter revenue guidance.
I think even compared to past.
Speaker Change: Guides it's more conservative from like a sequential perspective when we're comparing q3 to q4
Speaker Change: And it sounds like some of these new LM contracts should start to go live.
Speaker Change: you know, in the coming quarter. So is there some extra conservatism in there in the Q4 number or anything else that we should be aware of that might be just throwing off timing of RevRec next quarter and beyond?
Speaker Change: Again, I think it's just when these deals come in or go live and how the reverend flows through in general for us.
Speaker Change: Once people get activated or start using the data, depending on that, we just recognize the revenue of a subscription term.
So...
Speaker Change: There's just the reality of that, as well as the Q4 bookings that we hope will come through. The timing of when those come in within the quarter depends on how much of that is going to be recognized in the quarter. We use the same methodology consistently and we like to give guidance we know we can meet.
Okay, perfect. Thank you both.
Speaker Change: Thank you. Our next question comes from the line of Scott Berg with Needham & Company. Please proceed with your question.
Scott Berg: Hi everyone, really nice quarter. Thanks for taking my questions. I have two. Or in your prescripted remarks.
Scott Berg: The second option that you're trying to capitalize on in the Gen-AI theme caught my eye.
Scott Berg: believing that LLMs are changing online customer behavior, consumer data today.
Speaker Change: I guess, how much of that are you seeing in your business today from customers and companies trying to capture and better understand that data, or is that a trend that you think really impacts the business more going forward versus what you've already seen today?
Speaker Change: Hi, thank you for the questions. So this is early things we start seeing more and more brands.
Speaker Change: start to realize that the consumer changes the way they consume information.
Speaker Change: For example, if I want to plan a trip and vacation to Miami or Hawaii or whatever,
Speaker Change: Most of the changes that I would start with in the chatbots and then show me the top hotel top restaurants And I start consuming my information from the chatbots other than what used to be search
So this consumer behavior...
Speaker Change: It's something that the brands are starting to really understand now and want to get more visibility about how much time they are being presented as one of the options to the consumer, how it's driving consumer behavior to drive action and transaction.
Speaker Change: So we see right now that more and more brands start realizing it.
Speaker Change: And they now seek for market data, digital data, to see how they've been perceived, if they are being recommended by the chatbots, and how, and what is the market share, etc.
Speaker Change: And we are kind of the best company in the world to give this data and help them drive for the right action.
Speaker Change: Got it, very helpful. And then, Jason, you talked about the recovery and net revenue retention, had a nice increase in the quarter here. You also made the comment that you expected to go higher here, I believe, in the short term.
Speaker Change: Not that you're predicting or going to tell us what you think it's going to necessarily be in Q4 and early next year But how do we think about that trajectory? Can it return to the levels that you saw in maybe 2020, 21, or 22? Or do you think you ultimately settle in somewhere in between those levels and where you are today? Thanks
Thank you.
Speaker Change: like the momentum that we're seeing both in the retention and as well as the upsells and cross-sells that we're having with customers, I think what you're hearing
Speaker Change: are twofold, and there are two things that give us a little bit of confidence over there. One is the fact that 45% of our revenue is already...
Speaker Change: Locked in on multi-year commitments and that gives us a lot of confidence and commitment to the retention of the book of business that we have.
Speaker Change: And then the second thing is you're seeing over and over and it's
Speaker Change: this large deal that Orr talked about earlier, is again another indication or another example of how we land, retain, and expand those customers.
taking them from.
Speaker Change: you know, thousands of dollars to tens of thousands of dollars to hundreds of thousands to millions and now multi-million accounts. That is the motion. We are very encouraged by that and the team that we put in place on the customer success and account management side.
Excellent. Thanks again for taking my questions. Thanks, Gord.
Speaker Change: Thank you. Our next question comes from the line of Surinda Singh with Jefferies. Please proceed with your question.
Thank you. In terms of just the...
Speaker Change: in the near term? Is this something where maybe the jump went from an 8 million ARR to a 10 million ARR? Or how should we think about that with the latest upsells?
Speaker Change: So I think the nice story about those two eight-figure deals, it shows you the amazing long-term relationships we have with those companies.
Speaker Change: Those two companies that now have eight-figure engagement with us, they all started very little, almost ten years ago, when they started engaging with us around our web intelligence offering.
Speaker Change: getting more digital visibility, and over the years each one of them started buying more of our solution. If it sells intelligence, shopper intelligence, and more, again, trust with our data and capabilities, we start to go to more equity-focused events,
Speaker Change: And this is how you build over many years those relationships and engagements to drive those big deals. And I think this will give you the confidence.
Again, more like those to come down the road.
Speaker Change: More and more companies depend on the digital world for driving more revenue and success in the business. We want to be there.
Digital Market Data Provider.
Speaker Change: So, I'm very happy with that and hope more to come down the road.
Thank you. And then, in terms of just...
Speaker Change: If you think about accelerating the hiring within your sales force, can you talk maybe a little bit about...
Speaker Change: The incremental opportunity and where you're focused on at this point. Is that more There's new clients coming on and you see there's a bigger opportunity there in the near term Or are we finally kind of seeing the thawing out?
Speaker Change: with existing clients where there's enough demand that, you know, we can start to see, I think you've mentioned higher NRR, but just a meaningful improvement in the ability to upsell to those clients.
Thank you very much.
Thanks for watching!
Speaker Change: Thank you for the questions. We see two great ways that we can accelerate our go-to-market expansion. The first one is to hire more sellers to take over all the meetings and demand we're seeing on top of the funnel, basically the inbound, the increase in the inbound
The second area is basically doing grant-and-repeat.
around the enterprise client.
Speaker Change: You know, we have more than 5,000 customers today, we know exactly in which market.
and industry customers really need our solution.
Speaker Change: We actively approach those customers and educate them about our offerings that drive our success on the enterprise side. Our market is massive.
Speaker Change: We talked about it a lot of times, but we're focusing on a very big TAM, and we believe that every company that operates...
Luke Gehring, Hello everyone, my name is Raymond Jones.
So we see a good opportunity there, so we also...
Speaker Change: Especially now that we are a multi-solution company and we can come to a customer and have a web intelligence for the website and app intelligence for the app activity and shopper for the Marketplace Amazon strategy so I can present and come with a lot of great offering
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Patrick Walravens with Citizens JMP. Please proceed with your question.
Oh, great. Thank you.
Speaker Change: I have one for each of you, but my first one, or how's your new head of sales, Susan Dunn, doing?
Speaker Change: What changes has she made and what is she most focused on?
Speaker Change: Wow, Susan is amazing. I cannot tell you how much I feel lucky that she joined us.
A true industry leader.
Speaker Change: She comes from an amazing background. She was the CEO of Nielsen IQ. You know, it's a $5 billion ARR business. She was leading thousands of people.
Speaker Change: She grew there, since she's been there more than 20 years, you know, living and learning. So she has a lot of industry background, house, selling data, insights, very deep knowledge around the CPG ecosystem.
Speaker Change: And she has a true executive and she's doing a really great job now, all the right moves, ramp up the go-to-market and really set up to success to capture the amazing time we're approaching.
And we're very excited about it.
or what size we get to that long-term model.
Sure, it's between $400 to $450 million.
Speaker Change: And that long-term model is 85% gross margin, 25% operating margin, and 30% free cash flow, meaning at that level, we'll be talking about $120 to $135 million of free cash flow.
Speaker Change: Congratulations to you guys and thank you. Thanks so much. Thanks so much, Pat.
Speaker Change: Thank you. As a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Tyler Radke with Citi. Please proceed with your question.
Hi, good morning. Thanks for taking the question.
Speaker Change: Just going back to the questions around some of the AI use cases and AI deals, can you just remind us...
exactly the
Speaker Change: the nature of those in terms of how they're structured, and then for deals that sort of involve an AI consumption or API or data access, what are you seeing just in terms of those average deal sizes? How much bigger are they than kind of the traditional similar web deals?
Speaker Change: Okay, so there is basically, if you're talking about the AI deal, we talked about two
So
different products. We said the first one is...
Wayne, Adam, and Emma.
Speaker Change: and Digital Gaza to train their chatbots to be up-to-date with what's going on in the world.
Speaker Change: and growing. You know, you start small with one data set.
Speaker Change: See if improving the model then is not any more normal.
Speaker Change: The second, those brands want to understand how they perceive non-consumers using chatbots.
Speaker Change: And there, you know, it's increased by the number of people who want to understand.
Speaker Change: what people ask and the answers and it's also by region, by platform, so it's also by there it starts with five figures and then it can go up.
Thank you.
Speaker Change: And Tyler, just to add, those are all, you know, subscription, annual recurring revenue, and as Ora was saying before, we do think that these contracts need to be renewed because of the value of the freshness of the data that the LLMs need in order to keep up to date with the data.
Speaker Change: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Offer for any final comments.
Thank you.