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spk02: Greetings, and welcome to SimilarWeb Q4 Fiscal 2023 Earnings Call. 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 and then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, RJ Jones. Vice President, Investor Relations. Please go ahead.
spk08: Thank you, Operator. Welcome, everyone, to our fourth quarter and fiscal year 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 impacts of rising interest rates, rising global inflation and current macroeconomic and geopolitical conditions, including the current war in Israel, challenges in our business and in the markets in which we operate, our anticipated long-term growth and overall future prospects. These statements are subject to known and unknown risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected or implied during the call. Further, reported results should not be considered as an indication of future performance. Please review the forward-looking statements discussion in our shareholder letter along with our form 20F filed with the SEC on March 23, 2023, and in particular, the sections entitled Cautionary Statement Regarding Forward-Looking Statements and Risk Factors Therein for a discussion of 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 available information as of today's date, February 14, 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 profit or loss, which represents GAAP operating profit or loss, less share-based compensation, adjustments of 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 publish a detailed discussion of our fourth quarter and fiscal year 2023 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 websites. With that, I will turn the call over to Or Offer, CEO of SimilarWeb.
spk00: Thank you, RJ, and welcome, everyone, joining the call today. In Q4, we reported another quarter of growth and operating improvements. We grew our revenue by 11% over Q4 last year to 56.8 million. Our global customer base grew 16% year-over-year to over $4,000. 700 customers, and our average customer spends around $50,000 with us annually. The top of our funnel continues to stay strong. We add around 13 million visitors to our free tools at similarweb.com in Q4, and we extended 120 million visits to our tool in 2023. As a result, our pipeline remains robust, and we are adding new customers and expanding our penetration into our markets. The changes we made to packaging, insight, and navigation in the launch of SimilarWeb 3.0 and Q3 are bringing in new customers, creating upside from bigger average orders at renewals. We are excited to see all the new customers at our entry-level price points, especially in our monthly packages, which are no-touch with low acquisition costs. Pricing alignment with our customers 3.0 has greatly enhanced our go-to-market mode and improved our offering to our enterprise customers. It is even better with our strategic customers who are reaching new heights with us. We closed a record number of seven-figure deals during the fourth quarter because some of the largest companies in the world are recognizing the value of actionable insight that can be extracted from our data at scale. We are rapidly becoming a go-to source to power up competitive advantage for the largest companies who are investing massive resources into Gen AI. We believe that we are just getting started with what is possible with generative AI and only beginning to see its tremendous growth potential for us. I'm very proud of our team as we achieve an important milestone that we want to reach this year on. We were profitable on a non-GAAP basis in the fourth quarter, and our Q4 non-GAAP operating margins show a strong improvement of 30% points compared to last year, which led to us achieving our first positive free cash flow quarter since our IPO. This is a great achievement for us and reflects a lot of smart work and discipline from our team. We want to continue to build on this performance in the coming year. in terms of growth, profitability, and free cash flow. To do this, we are focused on execution in four areas. First, we intend to build on the positive momentum with our strategic account. We want to land and expand in those large global customers. Second, we are focused on increasing the net retention of our enterprise and SMB customers, helping our customers to take advantage of everything in CW3.0, is a customer success priority for us. Third, we will enhance and innovate in our product line. One area where we have a greater potential to drive market penetration is with our mobile data and app intelligence, as well as by unleashing our own Gen AI similar S capabilities with our data. Lastly, we will continue to operate efficiently. We will carefully invest where needed to support growth and create operating leverage. Thank you, everyone, for your continued support. We look forward to update everyone on our progress. With that, Jason, I will turn the call over to you.
spk07: 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 performance in the fourth quarter reflects our focus on disciplined execution. Revenue was $56.8 million for the quarter and exceeded the high ends of our guidance range. For our $100,000 ARR customer segment, NRR was 107% as compared to 120% in Q4 last year and now represents 57% of our total ARR. Closing out the longer sales cycles we have seen in 2023, customer acquisition and logo retention were steady in the fourth quarter. And as Orr mentioned, an area of strength for us was in our strategic accounts where we closed 10 seven-digit contracts during the quarter, an outstanding result that is fueling our positive momentum. As we concluded 2023, 42% of our ARR is contracted under multi-year commitment, demonstrating the strength and longevity of our customer relationships. And our remaining performance obligations also reached a new record of $195 million, a positive indicator of our performance durability going forward. While our results on the top line were better than planned, we also exceeded expectations on our bottom line. Our non-GAAP gross margin reached 81% in the fourth quarter. Our fourth quarter GAAP operating loss was $1.1 million, while our non-GAAP operating profit was $4.7 million. This resulted in a record non-GAAP operating margin of 8% and represented an improvement of 29 percentage points versus the prior year. Our focus on operating efficiency throughout 2023 drove excellent results, culminating in us generating $3.5 million in positive free cash flow in the fourth quarter, a 6% free cash flow margin. We achieved our stated goal of becoming free cash flow positive as we enter 2024, which is a momentous result for our teams. Turning now to Q1 2024, we expect total revenue in the range of $58.5 million to $59 million. For the full year of 2024, we now expect total revenue in the range of $242 million to $246 million, representing approximately 12% growth year-over-year at the midpoint of the range. Non-GAAP operating profit for the first quarter is expected to be in the range of $1 to $1.5 million. For the full year, we expect our operating profit to be between $6 and $8 million. In 2024, we are focused on achieving profitable growth and making progress towards the Rule of 40. We anticipate being profitable on a non-GAAP basis and generating positive free cash flow in all four quarters of 2024. As we navigate the current macro environment, we are building momentum and increasingly optimistic. We believe we are well positioned to take advantage of the mass adoption of generative AI by the world's largest businesses, which is just beginning. We believe that companies that leverage our data and insights will achieve lasting data-driven competitive advantages, ones that will be sustained with our unique and powerful offering in the near and long term. With that, or an eye are ready to answer your questions.
spk02: 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 and then one on your telephone keypad. The confirmation then will indicate your line is in the question queue. You may press star and then two if you would like to remove the question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we call for questions. The first question we have is from Arjun Bhatia of Fulimble. Please go ahead.
spk01: Hey, guys. It's Rachel. I'm for Arjun. Thanks for taking my question, and congrats on the quarter. I wanted to ask about linearity in the quarter and then into Q1 so far. It looks like some of the underlying metrics like CRPO and then net new customers outpaced revenue growth. So any color on linearity would be helpful. Thanks.
spk07: Hey, Rachel. It's Jason. Thanks for the question. We did see some more... back end on the linearity, particularly with some of the bigger deals that were closed in the latter half of the quarter. So you do see some difference in linearity over there. But we're really excited with the results that we had. And I think this is a good indication of what we should see going forward.
spk01: Awesome, thanks. And then just one more, maybe on some of those bigger deals, were those deals that got pushed out from earlier quarters? And then anything specific you would attribute that momentum to with those strategic customers?
spk00: Yeah, so I think that a lot of those deals happened in Q4 and closed in Q4. I think that our strategic motion gets better and better. We need We did a lot of improvement in the past year on pricing, packaging, introducing and innovation, a lot of solutions. And all of those are still to yield fruits. We are very excited. Jason, maybe you have something to add?
spk07: Yeah. And then, you know, we've been saying for the last couple of quarters how the sales cycles were elongated. Some of these deals have been in the pipeline for a while. And just took a long time to close, we're very excited to see that those deals did ultimately convert and are providing us, you know, good momentum as we enter 2024.
spk01: Yeah, makes sense. Thanks for taking my question and congrats again.
spk02: The next question we have is from . Please go ahead.
spk06: Thank you. I'd like to touch base on NRR and more specifically those customers that are averaging below $100,000 in contract value. Can you talk a little bit about the churn level there? It's continuing to decline at this point. Any color that you can provide there of where we think it should stabilize? It seems like it's stabilizing, but I just want to kind of understand that cadence.
spk00: Hey, it's all. It is stabilized. We see it stabilize, and we see a little bit increase if you look on the log of retention. I think it's the best indication to see that there is a shift momentum. So in the log of retention, you can see improvement in the retention rate. So we're seeing this indication positive now.
spk06: Thank you. And then in terms of just As you think about the multi-year contracts, how do you anticipate that impacts the cadence of the recovery at this point? Obviously, there will be some clients that are coming up for renewal that maybe haven't renewed at the lower desired levels that they would have just because of being involved in the longer contracts.
spk00: I don't see any good impact. Those customers that are multi-year are usually companies that really love our solution and decided to engage with us for the long term because they feel they've got a great price and great ROI for what they paid. So I think they will come and we will be able to close them to even more years down the road and even offer them more products. Those are our best customers.
spk06: Got it, and then I guess the final question here is you think about in the RUB 3.0, the rollout, the initial uptake, how do you anticipate it impacts the payback period?
spk07: Yeah, great question, and thanks, Dorinder. We actually start seeing the... what'll start happening on the payback period is more and more time to close the deal. In other words, the speed at which we're able to get that and those deals starting to close faster will drive, that yield will drive the better ROI or recovery on the cash side. So we see that starting to impact and we should see some more of that towards the middle or latter part of 2024.
spk06: Got it. And then the final related question just there would be, as you think about the initial uptake, obviously clients coming in at smaller packages size, what is the path for the upgrade there to get them to more normalized or what I would call target account levels? Is that... How much of that is macro-driven? How much of it does it provide you as an engagement point? Any initial color there at this point of how those conversations are going?
spk07: Yeah, we're very encouraged by what we're seeing with the 3.0 pricing. When we look at the 360-some-odd customers that are over $100,000, the overwhelming majority of those customers historically started well below $100,000. And what we've done over the years is take customers through that journey, starting with one solution, good, going to better, going to best, and then going from one solution to a second solution, third solution. And that's how you take somebody from being a $10,000 customer to going tens of thousands to hundreds of thousands and even multimillion. I think what 3.0 was really institutionalized that into best practices with with scalable metered measures that make it easy and more seamless for customers to start at an entry-level price, which is easy for them to transact at and grow over time. And we're starting to see that play out. We feel very encouraged that this is the right way to engage with our customers and think that it will impact not only the speed that we're able to onboard customers, like the 16% logo increase of this year, but also the improvement of NRR over time.
spk06: Thank you. That's it for my questions. Thank you.
spk02: The next question we have is from Ryan McWilliams of Barclays. Please go ahead.
spk04: Hey, guys. This is Damon Cobb. I'm on for Ryan. Thanks for the question, and congrats on the results. Craig, given the momentum of customers, we noticed a comment in the shareholder letter that 4Q's performance from both logo retention and upsells should affect NRR positively in the future periods. Should we take that as 4Q being the potential trough and put some stability in 2024?
spk07: yeah i i where we think that we have hit the the the truck and we're looking forward to seeing that metric uh continue to expand and grow uh over the years it's as we also mentioned whether it's a focus area for us to drive that improvement as well excellent and also great to see momentum and improvement in overall net new customers do you view this as maybe a budget plus at year end or
spk04: Is this essentially a sign for positive trends in customer buying behavior?
spk07: I don't think that was a bunch of flush. I think that it was more about buying patterns. I think, again, some of the simplicity that we've introduced with 3.0 and the packaging that we have makes it easier for people to get started. And you see that that's impacting the number of logos that we're able to onboard and we're very excited about that. Perfect. Thanks, guys.
spk02: The next question we have is from Jason Hofstein of Oppenheimer. Please go ahead.
spk03: Hi. This is Steve on for Jason. So I have two questions. Number one is you added 341 accounts quarter over quarter. That's the highest in your time as a public company. Was the strength solely driven by customers signing up for and utilizing SimpleWeb 3.0 at lower pricing, or was there something else at play? And then secondly, where do you see the most upside within your products, e-commerce, app store, or competitive benchmarking? Thanks.
spk00: Yeah, I think the strong momentum is that it's a really good execution from our team. Also, we have the self-offering that a lot of customers choose to buy yearly, so it's also a nice boost. And going into this year, I do see a good momentum. First of all, on the core of the competitive intelligence use case is very strong. There's a lot of improvement there. I think the shopper that is the e-commerce or people who buy online solutions, it's also doing very well. So I think all of them have great momentum right now as we're going into 2024.
spk02: The next question we have is from Tyler Radke of Citi. Please go ahead.
spk09: Yeah, thanks for taking the question. Good morning. So I wanted to go back to the large seven-figure deals that you saw in the quarter. It sounded pretty encouraging on that front. Can you just talk about what industries you saw those in? Was this kind of more within the investor intelligence space or more B2C, B2B? I'm just curious, like, if you compare and contrast over the last 90 days and you look at your segments across, you know, SMB, mid-market, enterprise, if you could just provide some color on which ones are, you know, getting better or worse or staying the same, just so we can kind of think about the moving pieces on the demand side. Thank you.
spk00: Hi, Taylor. I think the momentum we've seen in our Strat account is a lot, of course, the sector they serve. The sectors we serve in the Strat account are mostly CPGs, the big CPGs of the world, telecom, financial services, and big tech. All of them, we're doing well. We did a lot of great change with the way we operate our Strat motion, focus them. working closer with the bigger accounts, all across the board we see good momentum there. And what was the second question?
spk09: Yeah, if you just looked across your kind of three key segments, your enterprise and strat, mid-market and SMB, which ones from a demand perspective got better or worse relative to the third quarter? Did you see further stabilization across everything, or maybe SMB was still challenged, but enterprise got stronger. Just curious how kind of the demand patterns compared across those relative to 90 days ago.
spk00: Yeah. So I think we saw in Q4 a little bit acceleration in the strata, we're saying started was doing really great. And also in the, in the, in the low part of the market in the SMB, we saw a strong momentum. So those two really reflect acceleration.
spk09: Great. And then maybe a question for you, Jason, on the expense side, you know, obviously pretty impressive margin expansion this year. And, you know, I think operating expenses were down 14%, which, which is, you know, pretty, pretty significant. How are you thinking about just given that you are starting to, you are profitable in a non-gap basis, you're starting to see some positive momentum in the business. What, how are you thinking about the, the spending forecast for next year? What are the areas you're comfortable, you know, deploying incremental investments in and where are you still, you know, being cautious? Thank you.
spk07: Yeah, thanks for the question. We are, what we're really using is the rule of 40 as a guide. We think, and as we've said before and want to reiterate that, Now that we've got to profitability, we intend to stay there, but we still think that we're just at the beginning of the penetrating term that we see in front of us. So we will continue to be a profitable business, both on a cash flow and on an operating basis. But if we see the opportunities to continue to invest back in the business that'll drive more top line growth, we will continue to do that. both on the sales and marketing side and on the R&D side.
spk04: Thank you.
spk02: Ladies and gentlemen, just another reminder. I'd like to ask a question. You're welcome to first start and then one. The next question we have is from Pat Warraven of Citizens J&B. Please go ahead.
spk05: Oh, great. Thank you. And happy Valentine's Day, guys. I have two questions. The first one is, I was talking to a partner at a big venture fund who said a year ago, it was all about cutting costs. And now we're starting to think about growth again. Is that part of what's going on with you guys?
spk00: Yeah. Yeah. I think we've been into a process of cutting costs, turn the company to profitable. And now then when we're done with that, we all, we back all hands on driving growth, but possible growth as Jason said, not accelerating growth again, but maintaining the possibility. As we said in the early call, we expect to have a free cash flow, producing free cash flow every quarter during 2024.
spk05: But I'm wondering, are your customers starting to shift from cutting costs to thinking about growing and investing again?
spk00: I would say that you're probably right. I will say that a lot of the markets, it's probably going through the same conditions we've been through. So most of the corporate, they're finishing with the cost optimization and now all eyes on growth, like how we can grow, but in a responsible way.
spk05: Yeah, yeah. And then, Or, can you just give us an example on the Gen AI side and how your data fits in
spk00: I think that the AI is every LLM, they need the unique data that you need to train them on. So first of all, some companies use our underlying data to train their LLMs to be smarter, to understand the internet better. So this is one big angle. The second angle. you know, that, um, consumer behavior change. So because, uh, Jenny, I come and people behave differently. They search differently. They use a lot of companies, implement co-pilots and AI. So there's a lot of demand from the big corporate around consumer behavior change. So is my consumers behave different than before? And then they need market visibility, and this is where SimilarWeb is the best in the world to give you visibility of how your behavior changes. So those two angles that the AI is driving really give us a nice tailwind.
spk05: Awesome. Thank you.
spk02: We have reached the end of the question and answer session, and this concludes today's conference. Thank you for joining us, You may now disconnect your lines.
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