Similarweb Ltd.

Greetings and welcome to the SimilarWeb Fourth Quarter Fiscal Year 2024 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Rami Meyerson, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Welcome, everyone, to our fourth quarter 2024 earnings conference call. Joining me today are our CEO and co-founder, Orr Offer, and our CFO, Jason Schwartz. Yesterday, after market close, we released our results for the fourth 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 on our investor relations website at ir.similarweb.com. Certain statements made on the call today constitute forward-looking 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. Please refer to our earnings release and our most recent annual report. File them for 20F for more information on the risk factors that could cause actual results to differ from our forward-looking statements. Additionally, certain non-GAAP financial measures will be discussed on the call today. Reconciliations to the most directly comparable GAAP financial measures are available in the earnings release and the earnings presentation. We will begin with Or and Jason's highlights of the quarter, and then we will open up the quarter's questions and sell-side analysis. With that, I'll turn the call over to Or. Or, please go ahead.

Thank you, Remy, and welcome everyone joining the call today. I'm extremely proud of the financial results for the fourth quarter and the 2024 that were reported yesterday. Revenue for the year of nearly $250 million was up 15% year-over-year, and for Q4 was up 16% year-over-year. Overall NRR was 101%, and for the over 100K ARR customer, the NRR was 112%, up from 111% in Q3 and 107% for last year. Our customer base grew 17% year over year, ending with more than 5,500 ARR customers. In Q4, we signed 15 customer contracts, each of which were seven-digit contract values. Our top-line demand remains strong, with more than 10 million visitors to our website on a monthly basis, and more than 120 million users visiting our SimilarWeb website in 2024. I'm encouraged by two new customer relationships with companies that are global leaders in the financial sector. In December, we announced that S&P Global, a leader in credit scoring and risk management analytics, will begin to integrate SimilarWeb digital data into its credit risk analysis. And today, I'm also excited to share that Bloomberg Professional Services has entered into a multi-year agreement to supply similar web digital data to Bloomberg Terminal subscribers. I believe that these deals highlight the strength and the versatility of our data assets as alternative data for investors. But 2024 was not only about revenue and customer growth. We also demonstrate our disciplined execution as a top-line growth accelerated. We delivered our first full financial year of non-gap operating profit and free cash flow. And I'm super proud that we delivered a rule of 26 performance for the full year of 2024. with a great mix of accelerating growth and improving possibilities. As a leading supplier of digital data, the AI evolution presents a significant opportunity for SimilarWeb. High-quality, comprehensive, actionable, and trusted data like SimilarWeb is a critical component for every AI and LLM tech stack. The AI revolution presents a significant opportunity for our digital data with many new use cases. Last quarter, I discussed about four different opportunities for us to capitalize and monetize the generative AI opportunity. The first one is embedding AI solution into our own platform. The second one is helping brands navigate the shift in consumer behavior They're driven by increased of the use of the chatbots and all those brands need this visibility and they come to us. The third one is providing fresh data for LLM training. And the last one is stream internal process and make more efficiency internally in our company. To capitalize on this huge growth opportunity, we have decided to ramp up our investment in R&D and our go-to-market teams. We plan to increase our investment in R&D to enhance our data collection and measurements for the new Gen AI world and continue to develop additional products and solutions that companies require to compete and win in this new world. We are also investing in our go-to-market teams, hiring people across all the geographies, as well as upskilling and expanding our sales force to capture the opportunity presented by the AI revolution and the high demand we are seeing on top of our funnel. I believe that we are still only starting to realize the potential of our data and the addressable market we serve. This investment will reduce our operating profit in the short term, but I believe it will enable us to continue to accelerate growth and capitalize on the growth opportunity. As we have demonstrated, we know how to drive efficiency and scale and believe that this is the right time for us to make those investments. And as I like to say, we are just getting started. Thank you to everyone on the call for continued support. And with that, I will turn the call over to Jason.

Thanks, Or, and everyone joining us on the call today to discuss our fourth quarter results. I'll provide highlights of our financial performance, and then we'll open off the call to questions. We generated $65.6 million of revenue in Q4, a 16% increase relative to the fourth quarter of 2023. For the full year of 2024, we generated $249.9 million of revenue representing 15% growth over 2023. Revenue from our $100,000 ARR customers increased and represents 61% of our overall ARR. The number of $100,000 ARR customers grew to 405 at the end of 24, increasing 11% year over year. As this customer base grew, the average ARR per customer increased 7% year over year to approximately $376,000. The increase in the average annual revenue per customer was driven by further product adoption and expansion by our customers. We are proud that 49% of our ARR is contracted under multi-year contracts, up from 42% last year. We believe this demonstrates the importance and critical nature of our data to our customers, and we expect these multi-year contracts will contribute to improved retention rates ahead. Our remaining performance obligations, or RPO, total $246 million at the end of Q4, up 26% year over year. We expect to recognize approximately 69% of total RPO as revenue over the next 12 months. Our operational performance in the quarter and the full year demonstrates our continued commitment to disciplined execution, and we delivered a non-GAAP operating margin of 4% in Q4, a sixth consecutive quarter of non-GAAP operating profit. For the full year, we delivered a non-GAAP operating margin of 6%, an 800 basis point improvement relative to 2023, and our first full year of operating profit on a non-GAAP basis. We generated $2.7 million of normalized free cash flow in the quarter, a fifth consecutive quarter of positive free cash flow, and $27.7 million in 2024, reflecting an 11% free cash flow margin. We expect to continue to generate positive free cash flow for 2025 as well. Turning to our outlook for 2025. For the full year of 2025, we expect total revenue in the range of 285 to $288 million, representing 15% year-over-year growth at the midpoint of the range. In Q1 2025, we expect total revenue in the range of 66 to $66.5 million. For the full year, we expect our operating profit to be between $1 and $4 million. Non-GAAP operating loss for the first quarter of 2025 is expected to be in the range of $1 to $1.5 million. Our guidance reflects increased operating expenses to accelerate our hiring to capture the opportunities presented by the growing demand for our data and solutions, as Orr mentioned. After delivering a year of accelerating revenue growth, non-GAAP operating profit, and positive free cash flow, we remain focused on delivering profitable growth over time, as well as achieving our long-term profit and free cash flow targets. And with that, Orr and I are ready to answer your questions.

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. 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. One moment please while we poll for questions. Thank you. Our first question is from Surrender Fendt with Jefferies. Please proceed with your question.

Thank you. Can you provide a little bit more color on this incremental spend? I'm estimating it's about $20 million versus expectations here. How much of that is towards the go-to-market strategy? How much is that towards R&D? And how should we think about the cadence of hiring as we look across the year?

I think the majority of the spend is for accelerating a go-to-market and ramping it up. And we just see also nice advancement in the R&D. But I think also the forks and pressure that we saw in Q4 and Q1 is also part of that $20 million that you're talking about.

And then just the cadence of the spending, like how did you come up with that number in terms of just thinking about, was it that you just wanted to keep, you know, margins kind of positive at this point? Like why not more? Why not less at this point?

Yeah, I think it's a great question. So our philosophy was always that we are pivoting our company to profitability and we're going to stay profitable moving forward. as long as we're going to see good opportunity to accelerate our growth. We're still a small cap company. We're ending up the year with close to $250 million, meaning that we have a lot of markets to capture. And we did report that we see a lot of strong demand on double the funding. So we made a decision to do a big investment and help capture this opportunity as long as we are growing and profitable growth and keeping the company profitable on the free cash flow basis and the EBITDA for the year. And we can maximize the opportunity as we do see that we can bring Signalware to be one of the top-growing software companies in the public market with the opportunity ahead of us, and we want to capture it.

Got it. And then I guess it's my second or the follow-up question here. Can you talk a little bit about the growth outlook in terms of the midpoint being 15% year over year, that seems like it's roughly the same as what it was in 2024. So with the incremental spend, is the idea that you're expecting to see an acceleration in growth in 2026 then? Or is there expectation of what, how do we think about the return or what we should expect in terms of the acceleration that we should expect? And maybe why is there not perhaps higher expectations for growth given all the spend in 2025?

I think it's an excellent question and you're right. I think there's two elements that this is why we decided to come with the 15 as a starting line for the year. What we did see is that because we are arming our go-to-market and hiring a lot of people during the end of Q4 and still continue hiring them in Q1 and a lot of our Sellers and managers are spending time with interviewing, ramping people, and also going for change management. So we replace managers and all performance in Q4 and then ramp up people. So we did see a little bit of softness with execution in Q4, now going into Q1. And on top of that, we have the Forex pressure. We as a global company, around 50% of the revenue comes outside of the U.S. We saw a headwind from the Forex on Q4 that hurt the growth. And, you know, if you start the year, you're already below, so you need to close that up. Then you saw another headwind on the Q1, meaning that the Q1 is a little bit soft, and we died for 12%. But you see we are very confident on the 15 for this year, meaning that During the next quarter, we're going to see an acceleration of the growth. That means that we are expecting a much more growth rate going into Q3, Q4 as an easy rate for 2026. So you're going to see a significant increase in growth in the second part of the year. And this is why we decided to give 15 of the starting points.

Okay, thank you. That's helpful on understanding the near-term dynamics.

Thank you. Our next question is from Ryan McWilliams with Barclays. Please proceed with your question.

Hey, guys. Thanks for taking the question. Maybe for Jason, how did revenue results in the fourth quarter perform versus your expectations into the quarter? It looks like you guys kind of came in around the high end of your guide. And usually you do a little higher than that. And then can you quantify any one-time impacts to consider for the fourth quarter? Like if there was an FX impact, what that looked like either on the revenue or profitability side?

Sure. Thanks, Ryan. So as Orb mentioned, we saw, you know, some of the FX pressure hitting in Q4, and part of that is built into the guide. It's about 1% to 2%. on run rates, so that is built into some of what you see in achieving the high end of our guide for Q4, as well as the guide that we have going forth.

Okay, and then just on the fourth quarter, was there any FX impact to that quarter? And then I guess, how would you characterize the quarter in general versus your expectations into the quarter?

I think that, again, from an overall perspective, it was a good quarter. You see acceleration in terms of the larger customers, both in growth of 11% year over year. In customer count, the ARR, average revenue from those customers, up 7%. Seeing the NRR for that group pick up another 1%. We think that that was very strong indications of what was going on, as well as some of these large relationships, one of which we had shared previously while we were on the road of the S&P. The second one, which we announced just today with Bloomberg, a multi-year relationship as well. We think those things are good indications as to what we have been working on and continued that growth. So we were pleased with where it was. The FX headwinds are something that we are dealing with in terms of the guidance going forward, but we feel comfortable with the overall momentum that we're seeing in the business.

I'll leave it there. Appreciate the color. Thanks, guys.

Thank you. Our next question is from Arjun Badia with William Blair. Please proceed with your question.

Perfect. Uh, thank you guys. Um, or maybe one for you on the AI investments you're making. Um, I know you mentioned that a lot of it's, uh, go to market, but on the product side, I think you mentioned you're investing in data collection and forecasting, um, to get ready for, for the gen AI kind of revolution. Can you expand on that a little bit? Because I had assumed that the platform, the way it exists today, has a lot of those capabilities and can be maybe more easily pivoted for Gen AI, but it sounds like there's some more change on the platform required. So what are you changing and what's evolving on the product side of

Yes. Hi, Arjun. Thank you for the questions. There's two fronts now that we need to make investments. Basically, we want to integrate AI in order to accelerate the insight coming from our data to make our customer life easier to discover value and get away from the platform. We're starting a really amazing innovation with that. We're basically putting agents on top of our platform and automatically generating insights. So we shifted a lot of the teams to start working on those innovations, and we don't want to stop the regular cadence. We had to do some investment at that front to continue the development to make our platforms much better for the majority of the users. This is the first front. The second front is we're getting more and more demand for brands that want to get better visibility on the change chatbot and Gen AI is having the consumers and the way they search consumer information and making purchase decisions. And in order to do that, we need to collect and analyze much more granular data around chat conversation and the different channels and basically introducing what I will call Gen AI intelligence. The brands can understand the sentiment and the impact each one of those chatbots have on their brand and purchase decision. So this is some investment that we are doing now to collect this data, productize that, and start presenting to customers in a more scalable way. So this is another front-end investment that we are doing.

Okay, understood. Thank you. And then, Jason, one for you again on the revenue guidance. It seems like there's a few changes on go-to-market that you're incorporating in, but is it fair to say this is a more conservative outlook on 25 than you've given historically? Are the changes just driving any kind of change in your guidance philosophy as you maybe wait to see how the year unfolds in the first half here before growth really starts to pick up? What did you consider when you were giving the revenue guidance?

Sure, Arjun. As you know, we like to give guidance. We know we can meet. And we looked at the backlog that we have, as well as some of the macro, like the FX impact, And we built all that into our assumptions. As Orr mentioned, when you look at the guide, which starts at a midpoint of 12% for Q1 and ends with a 15% for the full year, that mathematically means that we are expecting to have a strong backhand of the year that is already built into our philosophy, which is exactly what we've been talking about, that we are accelerating the investment in our go-to-market teams in order to drive that contribution happening in the back end of the year, and we think this is the right way to approach that. Okay, got it. Thank you.

Thank you. Our next question is from Luke Horton with Northland Securities. Please proceed with your question.

Yeah. Hey, guys. I just wanted to touch on gross margin, which is down sequentially here. Could you talk a little bit about what drove this? And then is this kind of a level you see it being added across 2025 as you guys are investing in the business?

Yeah, so I think this little bit decrease in grossing margin is to mostly invest in this new data capturing for the Gen AI, so we need to pursue the investment. And then on top of that, we also introduce two new data sets of AppIntelligent and AppIntelligent. This is two acquisitions we did in 2024. So we are now integrating those data sets. So every time we are adding more data sets, it's increasing a little bit the growth margin. But we expect that to get better over the year.

Got it. And then just on the Bloomberg customer announcement, it seems like a very nice win. I was just wondering if this is going to be like an add-on that people will be paying separately as an add-on for that service or if this will be just embedded into everyone who has a Bloomberg terminal and that this is kind of a fixed contract for you guys or if it has anything to do with people adding that on to their Bloomberg.

Yeah, so we're very proud of this engagement. It's many years of dialogue and Bloomberg testing our data and getting to the conclusion that we are the number one digital data providers of choice. And this is why they decided to go with us. It was a long discussion and we feel very proud about this relationship. And what I remember that they will add us, they will take a small portion of our data that represent digital growth and will add it as part of their alternative data solution for their subscribers. I'm not sure if it will be free to the subscribers or a little bit premium, but the consumer will be able to get exposed to the concept of digital marketing data and how it can predict public companies' growth. And if they would love and use it, they can come to SimilarWeb and by more advanced solution that we are offering with our stock intelligent. So what will we see in Bloomberg is a small part of our capabilities for all of the subscribers.

Got it. Makes sense. Awesome. Well, thanks for taking the questions, guys.

Thank you. Our next question is from Jason Helfstein with Oppenheimer. Please proceed with your questions.

Hey, everybody. So just really, it's kind of like one question. How do you think about the timing of the payback on the increased investments, again, around like AI and go to market? Should we think about target margins for 26 and 27? Or do you want to think about it like your progress to a rule of 40 scale? And then can you kind of be maybe a bit specific on, you know, how you see yourself progressing over the next few years, obviously, given that everyone's surprised by the level of investment? but you obviously are confident around the payback. Thank you.

Yeah, we are confident. Thank you for the question, Jason. We are confident on demand because it solves the hardest part, that is, we need demand. And it's there, and we just need to approach and monetize it. And what we're doing now is just changing the way we are growing. We are focusing more on growth versus maintaining profitability. I think that last year we were super proud, you know, with driving 15% growth and 11% free cash flow. And going into this year, we're just going to change the balance to, you know, be more on the growth side. And I think we're going to see the return in the second part of the year, the ROI of this investment. And going into 2026, we are positioning the company to be top-notch growth software company and of course profitable and would start to work on increasing possibility and to probably double digit around 2026.

Thank you. Our next question is from Scott Berg with Needham and Company. Please proceed with your question.

Hi, everyone. Thanks for taking my questions. Or I wanted to focus on a comment you had early in the Q&A that you did see some softness in your fourth quarter execution. Can you help elaborate on that a little bit? And I guess as you look at that softness, is it corrected for in Q1, or how do we think about the timing to returning to a more normalized sales cadence? Thanks.

Yeah, we start seeing improvement. We know we have an amazing CRO, Susan Dunn, which came over from Nelson IQ. And as she, you know, driving good changes and doing some great change management in order to set the foundation for the growth. And, you know, so moving low performance, getting new storm managers and increasing the hiring. We saw that it creates some, you know, more noise in the go-to market, and we're able to stabilize it. And we're seeing better performance now in Q1. Funny enough, all across our team around the world, the seller has got too many meetings from the high demands that it starts hurting the win rate. So we were not hiring fast enough in Q4, and we're now also closing the gap in Q1. And so we do see strong performance now to hitting the floor.

Very helpful. And then Jason, as we look at your guidance for this year, this is kind of a follow-up to the last question. Your revenue growth guidance suggests the rest of the year accelerates from the Q1 guidance here today. First of all, is that an accurate statement? I assume that it is given how the math works. But then two, is your confidence accurate? high in that acceleration relative to what you're seeing on the sales execution side here in Q1?

So on the first question, the answer is yes. Like you said, that's the way the math works. So we do see that acceleration coming in the back end of the year. We also see, you know, pipeline. And so we have some visibility that gives us the confidence that we build the guidance that And like I like to say, we like to give guidance we know we can meet.

Thanks again.

Thank you. Our next question is from Adam Hotchkiss with Goldman Sachs. Please proceed with your question.

Great. Thanks so much for taking the questions. You've talked a lot about this initiative to monetize brands that are navigating shifts in consumer behavior. I just want to get an update on how that's trending, particularly your conversations into the beginning of the year. How are brands sort of evolving to the evolving gen AI environment and how does SimilarWeb plan to address that?

Yeah, I think more and more brands start to look out there for more visibility about how much consumer are querying chatbots about their brand or about their industry and how the answers that chatbots are giving are changing the decision of purchase they're going to make. And they want to understand if this sentiment is positive on them or negative or if the chatbots are bringing them the right choice and how they can impact the chatbots to understand the resource the chatbots are using in order to generate those answers. And this is data that probably only similar web can bring, maybe very few companies in the world can give the visibility about what people asking the chatbot what are those answers and how they're impacting the consumer journey. So we are positioned I think, the world to supply those answers that are becoming more and more important to brands as the consumer behaviors change and they start using more and more of those chatbots for purchase decisions.

Okay, great. That's helpful. And then could you just give us an update on the large language model opportunity? I know this evolves quickly and you've signed a couple of eight-figure deals here, but I'm curious how you're thinking about monetization potential now that we're a couple of months away from some of those announcements. Have you had any incremental conversations with folks that give you confidence around monetization? How should we think about that?

Yeah, I think there is not a lot of companies with numbers that's trying to build those chatbots. Probably less than 100, maybe single digit. It's not a big market. It's a lot of... investments they need to do in order to build those chatbots. So this market is not big, but when they are going into those adventure to build chatbots, they will need the best data to feed those LLMs. And when they want to choose the best data providers, like Bloomberg, they all ended up engaging with similar web as they recognize us as the leader for digital market data. They know that we are the best one to provide this data. So it's, you know, low-level engagement because there's not a lot of them. But if we have, it's great engagement.

Okay. Thank you very much.

Thank you. Our next question is from Patrick Walravens with Citizens JMP. Please proceed with your question.

Oh, great. Thank you, and thanks for all the color on this. Forgive me, or if I go back to Q4, I mean, how – sort of a series of questions here. How soft was the execution in Q4? Like, was it a pretty big miss by the sales team? When's the last time you guys had, you know, a soft execution quarter? Was Susan surprised, right? And when you broke it down after, you know, where – What caused it, right? So, like, we don't usually hear that too many leads or too many meetings is the reason for a miss, right? Usually we hear things like, you know, customers didn't want to commit. So if you could drill into that more, that would be great. And I just think the reason it's important is because you're investing on the back of that. So we just want to sort of close that, get a better understanding of why you decided to invest in sales and marketing if Q4 wasn't very good, right? Thanks so much.

Yeah, of course. And I think it's a great question. Thank you for raising it, Pat. I think that Q4 was okay. It wasn't great. Usually our Q4 is amazing if you look historically on 2023 and 2022. And Q4 was okay. It was soft. I wish it was better, but it was okay. And we had some areas in the business when the softness were stronger, mostly because of managerial low performance and decision that wasn't being claimed before. And in Q4, we took the opportunity to improve and do improvement around the market. We did some change management in EMEA, and it was behind the change management in Japan when they were behind the numbers. and i think this is also was impacting you know the performance a little bit and but the new people we hire their own place and they look looking good so i'm fully confident and i see the numbers and we are investing because we we polish on the what we see that's super helpful thank you

Thank you. Our next question is from Ashley Kim with Citi. Please proceed with your question.

Hi, Oren and Jason. Thanks for the question. I just wanted to ask about the 15 customer contracts that were seven figures. Could you kind of give more color on whether the deals grew into that or whether anywhere new lands and how many of those were AI related?

Yeah, Ashley, first of all, thank you for asking this question because I think it's important to discuss this great indication. This is a record high quarter for closing seven figures deal. And as you saw in the past few quarters, we started putting eight figures engagement. All of those indicate that we are now ready to increase our engagement with our customers The majority of those 15-7 figures were expansion. It's meaning that we have more and more customers that are now ready to invest more with us. And we, from our side, are now ramping up more seniors on the process to negotiate and expand more. and really great business of customers that SimilarWeb have. And you can also see that with the multi-year increase of our customers, we are now going into this year with almost 50% of the book of businesses multi-year. This is a very strong indication that the customers are trusting our data and want a long-term relationship. I think this 15 deals showing you that a lot of them are now ready to invest more with us. We, from our side, just need to hire more executives, more experienced sales people on both sides in order to drive this expansion and improving our NRL going forward.

Thank you.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing remarks.

Thank you, everyone, for the questions. We have the confidence for a really great year, the end of 2024, with a really amazing result. And we are looking very positive going into this year. And good luck to all of us. Bye-bye.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.