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spk09: Greetings and welcome to the SimilarWeb fourth quarter fiscal year 2022 earnings call. At this time, all participants are in a listen-only mode. The 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. I would now like to turn the call over to RJ Jones, Vice President of Investor Relations. Thank you. You may begin.
spk04: Thank you, operator. Welcome, everyone, to our fourth quarter 2022 earnings conference call. During this call, we will make forward-looking statements related to our business. These statements may include the expected performance of our business and our future financial results, our strategy, the potential impacts of the COVID-19 pandemic and its associated global economic uncertainty, 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 20F filed with the SEC on March 25, 2022, in particular the section entitled Risk Factors Therein, for a discussion of the factors that could cause our actual results to differ from the forward-looking statements. Also note that the forward-looking statements made on this call are based on the information available as of today's date, February 15, 2023. We undertake no obligation to update any forward-looking statements we make today, except as required by law. As a reminder, certain financial measures we use in presentations of results and on our call today are expressed on a non-GAAP basis. In particular, we reference non-GAAP operating loss, which represents GAAP operating loss less share-based compensation, adjustments and payments related to business combinations, amortization of intangible assets, and certain other non-recurring 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, 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 in isolation from or as a substitute for financial information prepared in accordance with GAAP. A reconciliation between these GAAP and non-GAAP financial measures is included in our earnings press release, which can be found on our investor relations website at ir.similarweb.com. Today, we will begin with brief prepared remarks from our CEO or offer and our CFO, Jason Schwartz. Then we will open up the call to questions from sell-side analysts in attendance. Please note that we published a detailed discussion of our fourth quarter 2022 results in a 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 Orr Offer, CEO of SennlerWeb.
spk05: Thank you, RJ, and welcome everyone joining the call today. As we completed 2022, we reached a key milestone for our business as we crossed over the $200 million ARR mark. This was a special milestone for me. It took us almost seven years to grow to $100 million ARR business, and we achieved that in 2020. And then it took us only two years to double that and cross the $200 million of ARR in 2022. While the year was filled with unexpected challenges, we were able to achieve healthy growth and begin accelerating our path to profitability. We reported a solid result in the fourth quarter as we navigated the challenging microeconomic environment. Revenue grew 28% over Q4 last year to $51 million in the fourth quarter. The expansion of our global customer base consisting of SMB, enterprise, and strategic accounts has been steady. Our customer base grew 16% year-over-year to over 4,000 customers, and our average account spent about $52,000 with us annually, up 80% over last year. Furthermore, 55% of our annual recurring revenue comes from customers who spend more than $100,000 per year with us. Today, 39% of our ARR is generated from customers with multi-year contracts, demonstrating the durability of those customer relationships. This is a metric that has grown year over year since 2020. Looking forward to 2023, we believe current microeconomic conditions will persist for some time. To succeed in this environment, we have adjusted our strategic objectives and sharpened our focus to deploy resources carefully on core activities that create revenue and improve profitability. Our first objective is to successfully serve strategic customers. Now, more than ever, our strategic customers are increasing and expanding their use of our data. Our second objective is to grow our number of accounts through product-led growth and effective go-to-market strategies. We have barely penetrated our multi-billion dollar total addressable market that consists of hundreds of thousands of businesses, that all need digital market data to win and to be successful in the digital world. We will experience with different approaches to packaging and pricing this year. The third objective is to accelerate the adoption of new products and add-ons. Today, SimilarWeb is a multi-solution company with many products and solutions we can offer to our customers. we see a big opportunity to continue cross-selling those solutions to our current book of business. Last but not least, we'll strive to operate efficiently with an excellent inefficiency. We will optimize our execution this year with a focus for finding new efficiencies across our sales and marketing areas. This will enable us to achieve cash flow positive by the fourth quarter of this year. We believe that our digital data is simply the best. Period. Our customers tell us that our solutions are more valuable than ever in today's environment. We will continue to double down on our customers' needs to survive and win in this unpredictable economy. Jason, I will turn the call over to you.
spk10: Thank you, War. And thank you to everyone joining us on the call today to discuss our fourth quarter results. I will briefly address our financial performance. and then we will open up the call to questions. Our results in the fourth quarter continued to demonstrate our disciplined execution. Revenue reached $51.3 million for the quarter and exceeded our outlook of $50.9 million on the high end of our range. Our overall dollar-based net retention rate, or NRR, was 109% as compared to our 113% in the fourth quarter of 2021, and for our over $100,000 ALR customer segment, NLR was 120% as compared to 125% in Q4 last year. Our remaining performance obligations, or RPO, increased 24% year over year to $171 million 80% of which will be realized over the next 12 months. As we exceeded our plans on the top line, we also exceeded expectations on our bottom line. Our fourth quarter GAAP operating loss was $14.6 million, while our non-GAAP operating loss was $10.9 million, which was less than the $14.5 million loss we had anticipated on the low end of our guidance range. Notably, our non-GAAP operating margin improved 25 percentage points versus the prior year. This result reflects the impact of our broad-based operating efficiency measures we implemented across the business. Turning now to Q1 2023, we expect total revenue in the range of $52.5 million to $53 million. For the full year, we expect total revenue in the range of $221 million to $222 million, representing approximately 15% growth year over year at the midpoint of the range. Non-GAAP operating loss for the first quarter is expected to be in the range of negative $11.5 million to negative $12 million. and for the full year, between negative $30 million and negative $31 million. We anticipate non-GAAP gross margin will be approximately 77 to 77.5% in Q1 2023, and approximately 78 to 79% in fiscal year 2023. Importantly, we intend to achieve sustained positive free cash flow by the fourth quarter of 2023. Please note that our free cash flow may fluctuate seasonally as we progress through the year. In particular, we anticipate substantial improvement in the first half of 2023 as compared to the first half of 2022. Ultimately, we expect our quarterly cadence will be positive when we finish the year. Our projected growth trajectory in 2023 reflects our assessment of the impact of recessionary conditions on our business that will persist for an indeterminable amount of time. As Orr discussed, we have aligned our strategic objectives to balance our expectations for moderating growth with accelerating our path to profitability. Our team, our business model, and our balance sheet remain resilient as we navigate the challenging environment. With that, Or and I are ready to answer your questions.
spk09: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two 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. One moment, please, while we poll for your questions. Our first questions come from the line of Arjun Bhatia with William Blair. Please proceed with your question.
spk08: Perfect. Thank you for taking the question. Or maybe, Jason, can you just... uh flush out a little bit of what you saw in the buying environment in q4 how that differed versus the past few quarters and maybe what you're incorporating into the 2023 outlook that you provided hey thank you for the question it's all
spk05: And I would try to, I think I would summarize Q4 as most stable quarter. You know, if you look on last year and 2022 as a whole, Q1 was, you know, business as usual. And then I think most of our sector starts seeing market dynamic around Q2, Q3 when I think business dynamic becoming tougher as more and more corporates start to type their budgets. But I think Q4 will show a little bit more stability. And hopefully, looking into this year, I think companies understand that it's a new way of doing business. And I think it's kind of Q4 for the reflect on how 2023 will look like.
spk08: Okay, got it. That makes sense. And maybe just one, another one on the product side, rather. I noticed you mentioned the data as a service offering. Can you maybe just give us a sense for where you are in bringing that product to market, especially with larger customers? It seems like something that would resonate and how should we think about the monetization of that offering?
spk05: Yeah, and so we did put a lot of effort in the past few quarters to kind of enhance and improve our data as a service offering. It's meaning that more data is available through APIs and data fields, so it's more coverage. and more different way to consume the data. So in the API ecosystem, there's few motion for push the data and tomorrow you query, you get the answer. It's called batch API and et cetera. There's another approach when you have bulk of data, like integration, that you can get the data through Snowflake, through AWS. So we put a lot of efforts to have everything available And this unlocked a lot of opportunities to companies to get the data in the way that more benefits to them. And it really helped our OEM vertical. We have a big sector of companies that use our data to enrich their own products. And we're seeing a big success there. So this investment really needs a good ROI for it.
spk08: Thank you for taking the questions, guys.
spk09: Thank you. Our next questions come from the line of Ryan McWilliams with Barclays. Please proceed with your questions.
spk02: Hey, Orr, how are you feeling about the new deal pipeline at this point? Like, are you experiencing enough net new inbound customer opportunities? And what is driving some of the enterprise strength that you're seeing?
spk05: I think looking on the pipeline, we feel a strong confidence on the pipeline. And now we need to see how the role will go. I think even a lot of organizations right now that's been through a lot of cost saving, you know, and they're building a new process about how purchases need to be done and the approval. And so I think overall pipeline looks strong.
spk02: Excellent. And then one for Jason. Jason, just on the full year guide, you know, can you break down some of the assumptions that led you there and, you know, if you feel this is conservative and if there's anything, you know, baked into the guide for micro? Thanks.
spk10: Sure. You know, our guide looks at and does take into effect some of the things that we're hearing in the industry and broadly in the economy in terms of, inflationary environments and where folks' budgets are. And at the same time, a lot of the feedback that we're getting, that we're hearing from our customers, that they use Simulweb as a very strategic part of building out their strategy and not just a tactical tool. And so we look at that, we look at the pipeline, and fortunate is, again, that we have a significant amount of our ARR that is tied up in or contracted on multi-year deals. So we have today, um, you know, over 39% of our ALR is, is contracted, uh, on multi-year deals. So we have a very good, um, a very good, uh, visibility into the recurring revenue base.
spk09: Thank you. Our next questions come from the line of Jason Hovstein with Oppenheimer. Please proceed with your questions.
spk07: Thanks guys. I just want to ask about the e-commerce product, which is something I know you've been excited about. Just given that obviously e-commerce has kind of gone through a kind of COVID hangover. Do you feel like that has impacted your ability to get clients to kind of upgrade to that more expensive package? And then kind of as we kind of burn off the COVID hangover, which
spk05: know it looks like it's starting but it's still kind of month to month um that that's something that you could see a more meaningful uptake thanks hey jason thank you for the question and so so the shopper product and is mostly focused for cpgs so they are the main target audience and and we see a strong demand well and i think q4 and logo wise was one of the strongest for that product able to add a lot of net new logos. So I think we are happy overall from the program.
spk09: Jason, you may be muted. Did you have a follow-up?
spk07: No, I'm off that. Thank you.
spk09: Okay. Thank you. Our next questions come from the line of Brent Thill with Jefferies. Please proceed with your questions.
spk01: Hi, thank you. This is John Bion on behalf of Brent Thill. I had two questions. One, not a question on the macro, but I'm wondering what you're seeing so far in the environment, you know, six weeks or quarter and a half into the new year, especially in Europe. I mean, Europe seems to have stabilized at least a little bit in terms of, you know, energy costs and so on. So I just want to see what you're seeing so far. in the first six weeks. And then second, in terms of your major product lines and add-ons, which one of those is being most resilient in terms of demand and expansion? Thank you.
spk05: I'll go. The first question is around Europe. And so... Happy to say that Europe was more stable in Q4, and we had good success, especially in the UK, much better than what we've seen in Q2, Q3. And so I'm more optimistic about Europe's stability right now. And regarding the different add-ons that we have, we just started introducing a new product for the investor. We call it Stock Intelligence. for the current book of business last quarter, and it was going very well. I'm very happy about that. And I think from stability-wise, one interesting thing, we have one product called Sales Intelligence for sales organization, and with the layoffs around that happened, we saw that there was a good decrease in users, but we didn't see a big impact on revenue there. But this specific product is more correlated with user growth. With the dynamic in the market, we saw that there's probably going to be less upsets going forward. This is the only thing I can think about from the different lines of products we have. Thank you.
spk09: Thank you. Our next question has come from the line of Brett Knobloch with Cantor Fitzgerald. Please proceed with your question.
spk03: Hi Oren, Jason, thanks for taking the question. Oren, I guess in your prepared remarks, you talked a bit about experimenting with packaging and pricing. Could you elaborate a bit more on that? I guess with which products are you thinking of maybe repackaging or what type of price changes are you thinking about?
spk05: Yeah, we have two big initiatives that I'm extremely excited about that I think will have a significant impact And about the first one, we are introducing what we call an enterprise package. In other words, we have more and more big customers that we work with. We realized that we need to treat our pricing and packaging differently, like to carve out something that will be more easy for the enterprise to buy, that gives them the ability to have multiple entities and multiple regions. And then it's easy for us to close and save with them. And another thing put there in this enterprise package, a lot of the enterprise needs, like SSO, all kinds of user admin restrictions, and big API manage, and all kinds of restrictions that mostly big enterprise needs. So this is the first thing is to introduce this enterprise package. And we hope this will increase our ACV with those big accounts at length. And we'll also make the signing agreement with them easier and faster. The second motion that we're going to introduce later on in Q2 is a new pricing and packaging that will enable us to cross-sell and up-sell better the core offering we have that is the research solution and the marketing solution. A lot of the time we sell it as a bundle today, and I think with this new pricing and packaging, we will be able to bring better solutions to the specific customers. So this will be an enterprise one that I talk, we will introduce this quarter, and the big pricing and packaging for the core products, we will introduce in Q2. Those two things that are going to happen that I think will have very good impact.
spk03: I know that that's helpful. And then you guys kind of briefly talked about, you know, I guess improving the efficiency of your go-to-market strategy, whether that's kind of shortening deal cycles, making it easier for people or, I guess, customers to buy. I guess, what are you doing on your end? You know, I think we've done research where we found, you know, customers who trial, especially your shopper intelligence product, the trial to purchase rate of those customers who actually trial is extremely high. So I guess how do you get that product in front of more customers and how do you guys do that while keeping an eye on the bottom line as well?
spk05: Just to understand the question, is how we're going to accelerate the sale of the Shopper Solution product?
spk03: I guess all products, I guess your entire GTM in general. I guess, how should we think about you guys, you know, driving profitable growth or kind of making that go-to-market more efficient?
spk05: Yeah, so we made a lot of good decisions how to optimize this process. Like, for example, specific for Shopper, we basically dedicated our go-to-market organization in the big region, like in the U.S. market, is split by sector, by industry. So what we did, basically, we have a pod, a very successful pod in the U.S. market that sells for CPGs. So we basically now went to this pod and a group of people and tell them, you're now also in charge of accelerating the shopper product other than also selling the other product. And by aligning them with one of the different business line, we're kind of hoping to accelerate then the growth of the shopper product outside of the current book of businesses you currently have as well so those kinds of things we change will still make us be very efficient and also drive the growth of the cost of different solutions that we have got it and then maybe a question for for jason just on the kind of the long term
spk03: kind of growth model um you know guiding to call it 15 growth for for 23 obviously macro is a big concern um hopefully that doesn't last forever you know assuming you know say macro improves you know in 2024 will you guys you know begin to you know increase investments to re-accelerate growth would you guys sacrifice profitability to do so or you know would you kind of say that you have to kind of cross the Rubicon for profitability and expect to generate kind of positive free cash flow from here on out. And you'll expect to be able to do that while accelerating kind of growth in a better macro environment.
spk10: Yeah, Brett, that's the plan. In other words, once we, you know, turn sustained cash flow positive, our intention is to continue to maintain that going forward. We have always trained ourselves and managed the business on very profitable unit economics. And so as we've talked through before, once you hit a certain growth rate and recurring base, that recurring business is throwing off 45% to 50% contribution margins on an annual basis. We think that'll be a great way to continue to invest while driving continuous free cash flow.
spk03: Sorry, if I could just ask one more. Gross margins were really strong this quarter. The guide for this year is also really strong, at least better than what I was expecting.
spk10: i guess can you just break into what drove the kind of sequential margin improvement um you know is that uh maybe more of an uptake of your app any product and you're getting leverage with that yeah it's it's the way that we've always run the business i think i've been talking about this for a couple of quarters go back uh a little over a year ago we were at the 78 79 um gross margin we there were short-term hits that we had to take as we consumed new data elements that we were integrating, including the MB acquisition and the data AI partnership. But as soon as that gets, you know, we start generating revenue from those products, you start seeing the leverage that we have on the fixed cost. And a reminder that our data costs are really a fixed cost, and none of the deals that we have have a variable component in there, which is what drives such efficient gross margin economics.
spk03: Awesome.
spk09: Thanks for your time. Thank you, guys. Thank you. Our next questions come from the line of Noah Harmon with JP Morgan. Please proceed with your questions.
spk11: Hey, guys. Thanks for taking our questions. You know, I noticed in the shareholder letter You called out a few verticals where you saw really strong growth during the quarter. Were there any verticals in particular that stood out, you know, just positively but also negatively during the quarter? And then I just have a quick follow-up.
spk10: No, nothing, you know, for a particular industry. I mean, I think It's tracking similar to what we're seeing overall in the economy, e-commerce being a little weaker, and some of the other things overall showing continued growth. But we've seen growth all across the board, and also good net retention numbers, and more importantly, gross retention numbers across our customer base. And I think that's one... strong takeaway that we're hearing from our customers. As customers went through their cost optimization exercises, whether that was headcount or software tools and the like, our customers are telling us that SimilarWeb is not that product that they're evaluating whether they need it or don't need it because we have the best data and they can't get you know, can't get that kind of information anywhere else. And so they're relying on us, and I think that's what you're seeing in more and more of that ARR being contracted for multi-year commitments.
spk11: Got it. That's great to hear. And then maybe just quickly on the guidance for the year, on the margin side, You know, based on the first quarter guidance in the fiscal year, it sort of implies a pretty rapid expansion, I think, towards the back half of the year. Can you maybe just unpack, you know, what are some of the key levers driving that for the business? Thanks.
spk10: Yeah, I think that you're going to see, you know, a lot of our costs are fixed costs. And so as the revenue grows, the margin expands. And that's the beauty of being a real data business. You know, it takes a lot to start building this stuff out. But if you look at a lot of other data businesses, what happens is as they start hitting critical scale, you get wildly profitable operating margins. And I think that's what you're seeing over the last couple of quarters as we've taken the right decisions to drive operational efficiency. And you're seeing this quarter 25 percentage points improvement on the bottom line. And it is our intention to continue to drive that kind of profitability. And I think the first indication that you guys will continue to see is our drive to hitting sustained positive cash flow and we look forward, like we mentioned in the letter, to see meaningful improvement in the cash flow already in the first half of the year compared to what it was last year for the first half of the year.
spk09: Thank you. Our next question has come from the line of Pat Walravids with JMP Securities. Please proceed with your question.
spk06: Hi, thanks for taking the question. This is Owen on for Pat. So I was looking at the kind of long-term gross margins, and my question is, I guess, so have the efficiency gains from the RIF back in November been fully realized and kind of representative in this quarter's results, or can we expect to kind of see margin improvement continue to accelerate going forward? Thanks, Owen.
spk10: It's Jason. Yeah, I think that you'll see that happening in starting more in Q1. Q1 always has some, you know, one-time kind of expenses like company kickoffs and the like that hit the first quarter. But we've taken that into our modeling and our guidance. And I think that like you're seeing, based on the guide, that you're going to see further operational efficiencies and margin improvement over the course of the year. And that's the guide.
spk06: Great. Thank you. And that's it for me. Thanks for taking the question.
spk10: Thanks so much.
spk09: Thank you. Our next question has come from the line of Tyler Radke with Citigroup. Please proceed with your questions. Yes, thanks for taking the question.
spk12: Or I'm curious how you're thinking about the generative AI opportunity specifically with some of the announcements around ChatGPT from a search perspective. How are you thinking about integrating this into your product and what are the future opportunities for monetization?
spk05: Oh, I love this question. So this is a big thing for us and we already have multiple teams here internally, working, integrating this really amazing technology in many areas of our business. I can talk about two areas when we're really enjoying the benefits of this technology. The first one is categorization, especially in the e-commerce world. So AI and open AI have really great capabilities to help you categorize elements or different products, different brands. So in machine learning, this is kind of a tough problem, and they do very well, very easy, very efficient. And the second thing I think that is more important, and the nice thing about the OpenAI technology is that you can feed them with data, and then you can summarize, give you answers, pull insights, and then it's all about if you have a unique data set that nobody else has this is a big big advantage and this is how we leverage because we have a unique data that nobody else has our digital data how the internet is working we're doing it better than anyone else with it and it's our proprietary data so we're feeding it to the ai and then we can ask a question on top of our data so we can tell them please tell us what is the digital strategy of CNN and company. And then you look on our data and then you pull out an amazing summary that extend you again, very easy, very simple, what they do, what is the insight, and so and so. So we kind of trying to leverage to put this on top of our platform to pull automatically for you all the insight and summarize a lot of the information that is there. So a lot of exciting stuff. is going to release using these capabilities on the road.
spk11: Thanks.
spk12: And Jason, just in terms of ARR, I think you added about 35 or 36 million of net new ARR in 2022. How are you thinking about the net new ARR and just overall ARR growth for 2023? And how have you kind of de-risk the assumption there given what you're seeing in the macro?
spk10: So obviously we're looking at our pipeline numbers that we see and the discussions that we're having with our customers. We've been looking at that and looking at the upsell opportunities that we have. The greatest part when you talk about net ARR growth starts with knowing that we have a strong retention base. And that's where, again, the confidence that we have with the coming into Q1, we had a significant amount of the ARR that was up for renewal to already being contracted either through multi-year commitments or also people who went into Q4 said it's time to renew and renewed early in order to do to make sure that they had the budget that they were going to be able to do. So we had, you know, I think a good base to start with, and we have confidence in the recurring base that we have, and then use our assumptions on pipeline in order to build out AOL and ultimately the revenue guidance that we've given today. Okay, thank you.
spk09: Thank you. There are no further questions at this time. And with that, this does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time and enjoy the rest of your day.
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