Similarweb Ltd.

Greetings. Welcome to SimilarWeb's second quarter fiscal 2021 earnings conference call. At this time, all participants are in 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 from your telephone keypad. Please note that today's conference is being recorded. With us today are Orr Ofer, co-founder and CEO, and Jason Schwartz, CFO. At this time, I'll turn the conference over to Annie Rosenberg with Investor Relations. Annie, you may now begin.

Thank you, Operator. During this call, we will make forward-looking statements related to our business, including statements related to the expected performance of our business, future financial results, strategy, the potential impacts of the COVID-19 pandemic and associated global economic uncertainty, 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. Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Please review our filings with the SEC, including our final prospectus and the section entitled Risk Factors Therein, filed with the SEC on May 12, 2021, for discussion of the factors that could cause our results to differ. Also note that the forward-looking statements on this call are based on information available as of today's date. We disclaim any obligation to update any forward-looking statements except as required by law. As a reminder, certain financial measures we use in this presentation and on our call today are expressed on a non-GAAP basis. We use these 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. However, non-GAAP financial measures have limitations as an analytical tool and are presented for supplemental informational purposes only. They should not be considered an 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 at the conclusion of our earnings press release, which can be found on our investor relations website at ir.similarweb.com. With that, I will turn the call over to Or Ofer, CEO of SimilarWeb.

Thank you, Annie, and thank you all for joining us here today for our Q2 earning call, which is also our first as a public company. It is a real privilege to be here with all of you on the call today. Our recent IPO was an exciting milestone for our employees, customers, investors, and partners. and I want to thank them for their confidence in us over the years. I also would like to welcome our new investors to the SimilarWeb family. During today's call, Jason, our CFO, and I will provide details of our Q2 results, as well as provide Q3 and full year guidance for 2021. I will start today by covering highlights of our financial performance, Q2 2021 was a record quarter for us, and I'm pleased to report that our revenue increased 49% year over year to $32.5 million. We are also very happy that we were able to accelerate our growth versus Q2 2020. Continuing our trend of accelerating growth, We also took advantage of a strong demand for our solution as companies across the globe focused on digital transformation. In Q2, we also improved our gross margin by more than 250 basis points year over year to 78.5%, highlighting the scalability of our platform. Our free cash flow was negative $3.3 million, reflecting the strong fundamentals of our business. even as we expanded our operations. I want to expand further on those results and also touch on a few key trends that we see as existing for our business. But first, since many of you are new to SimilarWeb, I wanted to spend a few minutes talking about our business and market opportunity and how we believe our offerings are disrupting traditional markets and helping businesses compete and win opportunities. in the digital world. SimilarWeb was born out of my own personal pain. I was trying to do some market research for my offline business many years ago, but no matter what I searched for, I couldn't find anyone with the insight I needed. I saw a market opportunity, and 14 years later, SimilarWeb is a leader in market intelligence for the digital world. Today, our customers are some of the largest and best brands, leaders like Walmart, Google, Publicis, Merck, DHL, and CNN, and many more. A lot has changed since we wrote our first lines of code. Digital has become a preferred way to communicate, transact, and deliver products and services. It is an important growth driver and strategic focus for most businesses today. At the same time, it's made every market much, much more competitive. In this environment, businesses have no visibility into the online activity of their customer, prospect, partners, and competition. In reality, they are flying blind. Similar web cuts through the lack of visibility, delivering a comprehensive view of the digital world to our customers, providing them with market data and insights to help them win in the digital world. The data, and more importantly, The actionable insight that we provide empowers our customers to be more competitive in the markets. We call this digital intelligence. Digital intelligence is embedded in critical business processes and gives organizations the means to understand and gain insight from all relevant digital activities. It creates a powerful competitive advantage. It empowers companies to make better business decisions increase their confidence and help them win the market. Sometimes it can mean the difference between business success and failure. To paint a picture of how digital intelligence can make this kind of impact, I want to share a conversation we recently had with one of our customers, the head of digital marketing at Stashow, one of the top travel insurance companies in the UK. When COVID hit, their entire business was at risk of failure. SimilarWeb helped them to adapt to the new reality. With SimilarWeb, they were able to quickly identify which market recovered the fastest from initial lockdown and focus on those opportunities. They also used SimilarWeb to identify new market segments. For example, younger travelers looking to insure against COVID-19 risk. They were able to create new products designed for these emerging segments. and use SimilarWeb Insights to build a strategy to reach the new audience. According to the company, and I quote, SimilarWeb kept us in business. When times are challenging, it's all about understanding what the competition is doing, where we fit in the market, and what's going on in the market overall. It's notable that in Q2, we completed an upsell deal with StaySure, increasing their ARR value of their contract by over 30%. This example isn't unique. No more than ever, companies need visibility into what's happening in the digital ecosystem if they want to survive and win. Digital transformation is accelerating, but all that investment cannot be optimized without comprehensive, accurate, and timely market data that integrate into the corporate workflows. This makes digital intelligence and mission critical. We believe this massive opportunity and we estimate that our total addressable market today is over $34 billion. Delivering this kind of impactful digital intelligence isn't an easy task to do. It is extremely difficult to gather massive quantities of digital signals across the Internet, each signal providing only a small perspective of what's going on in the digital world. And it's even harder to use those signals to build the models that are designed to measure and predict how the digital world behaves. This is what we do. Just think, every day, we need to estimate traffic for tens of millions of websites and apps in over 190 countries and in over 200 industries. And we need to do it really well because we know that leading companies and investors around the world will make critical business decisions based on the insights we provide in our platform. We have been working on solving this problem and creating this technology for over 10 years. Over time, we invest significant resource and funds in our data assets and acquisition and building a very strong competitive mode around our technology. To achieve that, We've built a unique R&D organization that operates an innovative, fast-paced culture. Every month, this team delivers hundreds of innovative data and feature enhancements that improve our customer retention and increase average customer spend. We have continued to expand this team, which now includes nearly 250 top-notch developers, PhDs, data scientists, and big data engineers, and we're very proud of their work. We also build a very efficient sales and marketing organization to approach and affect this very large market opportunity. This start by attracting and engaging prospects with our widely used free tools. On our website and for a popular browser extension, we provide free access to a broad range of basic capabilities as well as opportunity to explore our paid offering. The cost-effective leads from this freemium inbound motion are efficiently converted to pipeline opportunities for our sales team to pursue. We complement this with an outbound sales motion focused on developing new opportunities with larger target accounts. After successfully landing a new customer, we also have a team of client success analysts who help our customers realize more value from our platform, resulting in more strategic relationships and expanding revenues This land and expand motion is working very successfully for us. I want to turn now and discuss our Q2 performance. I would like to mention a couple of highlights and how they illustrate several of our business strategies, specifically around our land and expand self-motion, creating of new channels of indirect growth, and the introduction of new products and data sets. Let's start with our land and expand. Over the last 12 months, we accelerated new logo acquisition, landing over 600 new customers and crossing the 3,000 customers' logo threshold in Q2. We are building on this strong new logo acquisition by refining our motion around customer retention and growth. As an example of this, in Q2, we completed one of our largest deals in similar web history with a major e-commerce company, This customer began a journey with us in 2016, starting with one use case and around 50K in annual ARR. Today, they use SimilarWeb across 25 teams globally with around 1,500 users, representing over $3.5 million in ARR. Our Q2 upsell was a seven-figure ARR upsell with a multi-year commitment, including the addition of hundreds of new users. as well as an upsell of premium product feature and extended data sets. It's also highlighting our land and expand motion in operation. Where we started small and over time, we're able to expand to additional user use case, department and geographies within the customer. This land and expand motion is driving significant growth among our largest and most strategic customer segments. Those companies where we are generating more than 100K in ARR. We grew the number of those accounts by 52% year-over-year, and nearly 60% of this growth came from existing customers, where our ARR expanded to more than 100K. Overall, our ability to retain customers and expand ARR is reflected in the highest level of NRR that we have ever recorded. NRR strongly improved from 101% in the end of 2020 to 106% at the end of Q2. In that critical customer segment of accounts with over 100K in ARR, we improved NRR to 118%, up from 113% at the close of 2020. Beyond our direct sales motion, we continue to develop indirect sources of demand. First, we recently announced the availability of similar web digital insights on the AWS Data Exchange. With the AWS Data Exchange, As data exchange, companies ranging from CPGs to hedge funds can enrich their big data analysis with digital marketing intelligence, including website traffic, keywords, and retail transactions. While this did not have a material contribution to Q2 results, I believe that this partnership will broaden our customer reach and further help customers integrate SimilarWeb into their workflows. And in Q2, we also introduced an affiliate marketing program and a partner referral program, launching two new indirect channels for lead and opportunity creation. Also, in Q2, we launched a new solution, our Shopper Intelligence, which is targeted at the rapidly growing e-commerce segment. Shopper Intelligence analyzes consumer shopping behavior across desktop and mobile, and provide a comprehensive solution for understanding the digital customer journey and what consumers are buying online. Our goal is that Shopper Intelligence will analyze and deliver insights about digital consumer behavior across both e-commerce marketplaces and first-party shopping websites. We are off to a strong start with this new solution. We have already closed new businesses, in a diverse set of industries, not just in primary CPGs audience, but also in retail, pharma, technology, and private equity. I am looking forward to giving you more details on those wins in the future. We believe that Chopper Intelligence is an innovative product with features that are unique in the market, and I'm super excited about it, and I think we have a huge opportunity in front of us with this new offering. In Q2, we also made significant additions to the scope of data and insight available through similar web platforms. We completed the acquisition of the assets of SimilarTech, which we believe is one of the best providers of technographic data in the market. The acquisition enabled us to more completely integrate SimilarTech data into our solution and the opportunity to leverage their data to build some exciting new features as well. Separately, we recently announced a significant advancement in our capabilities in our keyword generator, which enables search professionals to find and explore keywords relevant to expanding their business. The keyword generator now includes support for YouTube, the world's second largest search engine, as well as Amazon, where 60% of the product searches currently originate. Those enhancements expand our coverage by over 800 million keywords, extending our breadth of coverage and keyword volume accuracy. Beyond these efforts, we continue to invest in our organizational growth and development. We continue to scale our organization to support our strong growth. Employee ad funds in Q2 grow nearly 60% year over year. We continue our efforts international expansion, opening up a new direct sales presence and office in Germany. Recently, we also announced a new office in Reston, Virginia, where we will focus on hiring sales and marketing roles and where we expect we will be able to tap into strong local talent in the areas of digital measurement and market research. Finally, I'm very excited to announce that last week we closed on a new headquarters facility in the Tel Aviv area. This new building will accommodate our rapid growth and we will be able to fully design this space to meet our needs for our growing team. Our new similar web headquarters is located in the center of the Tel Aviv metropolis and I expect that when completed, it will be a significant attraction that will enable us to continue to recruit top talent here in Israel. Finally, as we said during the IPO, we will leverage our momentum and continue to pursue both organic and inorganic growth strategies. We will invest in our sales and marketing efforts to accelerate customer acquisition because of the high ROI we get on those investments and the big market opportunity we see. We will take advantage of our strong financial position to opportunistically target and acquire companies in order to improve and expand our data, use case and addressable market. We are operating in a fragment market and we believe we have the opportunity to be the consolidator. Wrapping up, I'm very proud of the company we have built. We have followed our 2020 performance with a strong and accelerating growth in the first half of 2021. We have outstanding leadership, and our team is smart, bold, fast, talented, and experienced. We have a strong balance sheet. Our solutions are market-leading and providing timely and comprehensive data and insight that we believe our customers cannot get anywhere else. Every day, thousands of businesses rely on similar web solutions to make mission-critical decisions. We believe we are recognized as the standard of the measure of the digital world. Our insights are frequently referenced publicly by CEOs, major publications, and respected research trends. Our platform has become a required experience for job opportunities and a notable skill that users highlight on LinkedIn. We are confident in our growth strategy and we have a track record of strong operational execution. It's still early in our journey, And we believe we are in a great position to capitalize and catch share and increase share of a very large market. And as I like to say, we are just getting started. With that, I would like to turn the call over to Jason Schwartz, our CFO. Jason.