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 20-F filed with the SEC on March 25, 2022, in particular, to 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 referenced 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 nonrecurring items. We use this and other non-GAAP financial measures internally to facilitate the 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 Or Offer, CEO of Similarweb.

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 a $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 macroeconomic 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 spend is 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 multiyear 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 the current macroeconomic condition 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 the 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 multibillion-dollar total addressable market, which consists of hundreds of thousands of businesses that all need digital market data to win and be successful in the digital world. We will experiment 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 that 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 excellence and efficiency. We will optimize our execution this year with a focus on 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. 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.

Thank you, Or, 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% compared to our 113% in the fourth quarter of 2021, and for our over $100,000 ARR customer segment, NRR was 120% 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 by 25 percentage points versus the prior year. This result reflects the impact of our broad-based operating efficiency measures we have 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 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 Or discussed, we have aligned our strategic objectives to balance our expectations for moderating growth with the acceleration of 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.

Perfect. Or maybe, Jason, can you just elaborate a little bit on 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?

Thank you for the question. It's Or. I would try to summarize Q4 as more stable in the quarter. If you look at last year and 2022 as a whole, Q1 was business as usual and then I think most of our sectors started seeing market dynamics around Q2, Q3 when much of the business dynamic became tougher as more and more corporates started to tighten the budgets. But I think you saw a little bit more stability. And hopefully, looking into this year, I think companies have got to understand what is the new way of doing business. And I think it's kind of a reflection on how 2023 will look.

Okay. Got it. That makes sense. And maybe just one more on the product side. I noticed you mentioned the Data-as-a-Service offering. Can you maybe just give us a sense of 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?

Yes. So we have put a lot of effort in the past few quarters to enhance and improve our Data-as-a-Service offering. It means that more data is available through APIs and data feeds. So it's more coverage and various different ways to consume the data. In the API ecosystem, there are few methods to push the data, and then through more inquiries, you get the answer, it's called Batch API, etc. There’s another approach when you have a bulk of data, like integration, that you can get the data through Snowflake, AWS. So we put a lot of effort to have everything available, and this unlocked a lot of opportunities for companies to get the data in a way that's more beneficial, and it's really helped our OEM vertical. So we have a significant sector of companies that use our data to enrich their own products, and we're seeing substantial success in the past few quarters. So this investment will yield a good ROI for us.

Or, how do you feel about the new deal pipeline at this point? Are you experiencing enough net new inbound customer opportunities? And what is driving some of the enterprise strength that you're seeing?

I think that looking at the pipeline, we feel strong confidence in the pipeline. And now we need to see how the roll will go. I think a lot of our organization right now has been focused on cost savings and they're building a new process about how purchases need to be done and the approval. So overall, the pipeline looks strong.

Excellent. And then one for Jason. Jason, just on the full year guide, can you break down some of the assumptions that led you there? And I feel this is conservative, and if there's anything baked into the guide for macro?

Sure. Our guide looks at and does take into account some of the things that we're hearing in the industry and broadly in the economy in terms of the inflationary environment and where folks' budgets are. At the same time, a lot of the feedback that we're hearing from our customers is that they use Similarweb as a very strategic part of building out their strategy, and not just as a tactical tool. And so we look at that, we look at the pipeline, and fortunately, we have a significant amount of our ARR that is tied up in or contracted as multiyear deals. So we have over 39% of our ARR contracted on multiyear deals. So we have very good visibility into the recurring revenue base.

I just want to ask about the e-commerce product, which is something I know you've been excited about. Just given that e-commerce has sort of gone through a COVID hangover, do you feel like that has impacted your ability to get clients to upgrade to that more expensive package? And then as we kind of burn off the COVID hangover, which looks like it's starting, but it's still kind of month-to-month, do you see that as something that could lead to a more meaningful update?

Jason, thank you for the question. The Shopper product is mostly focused on CPGs. They are the main target audience, and we see strong demand. I think Q4 and logo-wise was one of the strongest for that product, as it will yield a lot of new logos. So I think we are happy overall with the progress now.

This is John Byun on behalf of Brent Thill. I had two questions. One, on macro. I'm wondering what you're seeing so far in the environment, roughly six weeks or one and a half quarters into the new year, especially in Europe. It seems to have stabilized at least a little bit in terms of energy costs, so I just want to see what you're observing so far in the first six weeks. And then, second, in terms of your major product lines and add-ons, which one is being most resilient in terms of demand and expansion?

To address the first question about Europe, I am pleased to say that Europe was more stable in Q4, and we had good success, especially in the U.K., which was much better than what we've seen in Q2 and Q3. So I’m more optimistic about Europe’s stability right now. Regarding the different add-ons that we have, we just started introducing a new product for investors, which we call stock intelligence. For the current book of business last quarter, it was going very well. I'm very happy about that. Additionally, we have one product called sales intelligence or sales organization, and with the layoffs that have occurred, we saw a decrease in users. However, we didn’t see a significant impact on revenue as well, but this specific product is more correlated with user growth, and with the dynamics in the market, we foresee less upselling going forward. This is the only thing I can think of from the different product lines we have.

So, Or, 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 you’re thinking of repackaging or what type of price changes are you considering?

Yes. We have two major initiatives that I'm extremely excited about, which I believe will have a significant impact. Firstly, we are introducing what we call an enterprise package. As we continue to work with more large customers, we realized that we need to treat our pricing and packaging differently to carve out something that will be easier for enterprises to buy. This gives them the ability to manage multiple entities and regions, and it will also simplify closing deals in MSA with them. Additionally, this enterprise package includes needs specific to enterprises, like SSO, user administration restrictions, and managed API restrictions, which are mostly pertinent to large enterprises. The second initiative we will introduce later on in Q2 is new pricing and packaging that will enable us to cross-sell and upsell better with our core offerings, including research and marketing solutions. I believe that this new pricing and packaging will enable us to provide better solutions to specific customers, and ideally, this will positively impact our ACV with large accounts and expedite the signing of agreements.

No, that's helpful. And then you briefly talked about improving the efficiency of your go-to-market strategy, whether that’s shortening deal cycles or making it easier for customers to buy. What are you doing on your end? I think we've done research where we found customers trialing your products, especially your Shopper intelligence product, have an extremely high trial to purchase rate. How do you get that product in front of more customers while keeping an eye on the bottom line as well?

To understand the question, you’re asking how we're going to accelerate the sale of the Shopper solution product?

I guess all products, your entire go-to-market strategy in general. How should we think about you driving profitable growth or making that go-to-market strategy more efficient?

Yes. We need to make a lot of good decisions to optimize this process. For example, specific to the Shopper product, we basically dedicated our go-to-market organization in significant regions, like the U.S. market, is split by sector, by industry. So we established a very successful pod in the U.S. market that sells for CPGs. We directed a group of people now tasked with accelerating the Shopper product's growth while also selling our other products. By organizing them with different business lines, we're hoping to accelerate the growth of the Shopper product beyond our current book of business. These kinds of changes will help us maintain efficiency while also driving the growth of our different solutions.

Got it. And then maybe a question for Jason just on the long-term growth model, guiding to roughly 15% growth for '23. Obviously, macro is a big concern; hopefully, that doesn’t last forever. Assuming macro improves in 2024, will you begin to increase investments to reaccelerate growth? Would you sacrifice profitability to do so? Or do you expect to generate positive free cash flow from here on out while accelerating growth in a better macro environment?

Yes, Brett, that's the plan. In other words, once we achieve sustained cash flow positivity, our intention is to maintain that going forward. We have consistently trained ourselves and managed the business with very profitable unit economics. As we’ve discussed before, once you reach a certain growth rate at instant recurring base, that business slows down; however, we maintain 45% to 50% contribution margins on an annual basis. We believe this will enable us to continue investing while also driving positive free cash flow.

And 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. Can you just break down what drove the sequential margin improvement? Is that maybe more of an uptick in your application to any product and you're getting leverage with that?

Yes, it's the way we've always run the business. I think I've been addressing this for a couple of quarters. A little over a year ago, we were at a 78% to 79% gross margin. There were short-term hits that we had to absorb as we consumed new data elements that we were integrating, including the acquisition and the Data AI partnership. But as soon as we start generating revenue from those products, you see the leverage we have on fixed costs. It’s important to remember that our data costs are very manageable for us. None of the deals we have have a variable component, which drives efficient gross margin economics.

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 positively, but also negatively during the quarter? And then I just have a quick follow-up.

No, nothing specific for a particular industry. I mean, I think it’s tracking similarly to what we’re observing overall in the economy. E-commerce is somewhat weaker, while other segments are showing continued growth. However, we have seen growth across the board, with good net retention numbers and more importantly, strong gross retention across our customer base. One strong takeaway we’re hearing is that as customers went through their cost optimization exercises—whether that was headcount or software tools—they're informing us that Similarweb is not the product that they're questioning whether they need or don't need. Our unique data is highly valued, and they can’t access that information any other way. Thus, they rely on us, and you’re seeing more of that ARR committed through multiyear contracts.

Got it. That's great to hear. And then just quickly on the guidance for the year on the margin side. Based on the first quarter guidance and 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 what the key levers are driving that for the business?

Yes. A lot of our costs are fixed costs. And so as revenue grows, you will see margin expansion. That’s the beauty of operating a data business. It takes significant investment to build these systems. However, if you look at numerous data businesses, as they achieve critical scale, you'll observe significantly profitable operating margins. And I think what you’re witnessing over the last couple of quarters is that we take right operational efficiency decisions, and you experienced this quarter with a 25 percentage point improvement on the bottom line. We are committed to continuing this profitability trajectory, and the first indication will be sustained positive cash flow. We look forward to seeing meaningful improvements in cash flow already in the first half of the year compared to what it was last year.

So I was looking at the long-term gross margins. Have the efficiency gains from the layoffs back in November been fully realized and represented in this quarter's results? Or can we expect margin improvement to continue to accelerate going forward?

Thanks, Owen. Yes, I think you'll start seeing improvements beginning more in Q1. Q1 typically has nonrecurring expenses like company kickoffs that impact the first quarter, but we've factored that into our modeling and guidance. I think based on the guidance you've seen, there will be operational efficiencies and margin improvement over the course of the year.

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?

I'll take this question. This is a significant opportunity for us. We already have multiple teams internally working on integrating this remarkable technology across various areas of our business. I can highlight two areas where we are leveraging this technology effectively. The first one is categorization, especially in the e-commerce space. AI and OpenAI provide excellent capabilities to help categorize elements of different products and brands. Machine learning makes this a complex challenge, but they handle it well and efficiently. Secondly, and more importantly, the OpenAI technology allows us to input our unique data set that nobody else has, thus enabling us to summarize and extract insights. This is a huge advantage for us. We leverage our proprietary digital data on how the internet operates, doing this better than anyone else, which allows us to ask insightful questions using that data. For instance, we might query, 'please tell us the digital strategy of a particular company,' and then leverage our data to generate a comprehensive and insightful summary. We’re very excited about the future releases that will utilize these capabilities.

So, Tyler, regarding ARR, I think we added about $35 million or $36 million of net new ARR in 2022. We’re considering net new ARR and overall ARR growth for 2023, and we have taken steps to de-risk those assumptions due to macro conditions. Our pipeline numbers and customer discussions are part of those considerations. Starting with our strong retention base fosters the confidence we have going into Q1. We have a sizeable amount of the ARR that is due for renewal or is already contracted through multiyear commitments. As a result, we have a solid foundation to begin with and can factor in our pipeline assumptions to build out our outlook and ultimately the revenue guidance we've provided today.

Our first questions come from Arjun Bhatia with William Blair. 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.