Good day, ladies and gentlemen, and welcome to Similarweb Quarter 1 Fiscal 2021 Earnings Call. At this time, it is my pleasure to turn the floor over to your host, Rami Myerson. Sir, the floor is yours.

Thank you, operator. Welcome, everyone, to our first quarter 2024 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 impact 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, 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 20-F filed with the SEC on February 28, 2024, and in particular sections entitled 'Cautionary Statement' regarding forward-looking statements and 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 any forward-looking statements made on this call are based on information available as of today's date, May 8, 2024. 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 profit or loss, which represents GAAP operating profit or loss, net 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 analysis of our financial and business strengths and for internal planning and focus and 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 analytical tools and are presented for supplemental informational purposes only. They should not be considered in isolation or as a substitute for financial information prepared in accordance with GAAP. A reconciliation of 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 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 first quarter 2024 results and a letter to shareholders through Investor Relations to reference as well as an updated investor presentation of the 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. Or, please go ahead.

Thank you, Rami, and welcome to the team and to your first conference call with us. And good morning, everyone, joining the call today. We kick off 2024 with continued momentum in both top-line and bottom-line performance and delivered very strong first quarter 2024 results. We grew our revenue by 12% over Q1 last year to $59 million, and we generated nearly $10 million of free cash flow, an incredible achievement we are proud of. Our global customer base grew 16% year-over-year to over 4,800 customers and the demand for our solution at the top of the funnel remains strong. Our customers and prospects appreciate and value the importance of our digital market data for their business. As a result, our pipeline remains robust, and we are adding new customers and expanding our penetration into our market. We continue to invest to expand and enrich our Similarweb digital market data. In March, we acquired Admetrix, a digital intelligence leader. I would like to take this opportunity to welcome the Admetrix team to Similarweb. Digital intelligence is an important tool for corporates and marketing agencies. Online display advertising is estimated to attract more than $174 billion in spending in 2024, according to Statista. For certain global brands, it's already comprised of 60% of their global advertising budget. We plan to leverage our digital ad data, along with the Admetrix team's expertise, to enhance our digital intelligence offering and launch what we believe will be the best and most comprehensive digital advertising intelligence data in the market. This will supercharge our competitive intelligence offering. We plan to integrate and monetize this intelligence data across all of our solutions as well. For our shopper intelligence solution, we will add visibility into retail media online spending. For our stock intelligence offering, we will add insights for public company ad spending and ad revenue. And for our sales intelligence, we will improve our ability to help sales teams with better data to find and qualify digital advertisers and publishers. And this is why I'm very excited about this opportunity. Last year, we introduced and successfully launched SAM, our AI-driven digital assistant. Today, I am excited to introduce SAM, which is our AI-powered sales assistant model. SAM is designed to enhance sales efficiency and effectiveness by automatically delivering precise data-driven insights about prospects directly into our customers' sales workflow. As we all know, our emails are bombarded with cold outreach emails from salespeople, making it very hard for sales teams to engage with our prospects. With SAM, salespeople can use a text generation feature to suggest sales pitches that are more likely to resonate with a potential customer. SAM utilizes our market insight data and prepares relevant database insights that explain to the prospect why they need to engage with the sales teams. We're already receiving fantastic feedback from early adopters. We have reported a significant increase in outreach response rates. For one of our customers, SAM increased response rates by 20 times compared to their previous response rates. The same data is now open, and we look forward to seeing its adoption by our customers and its impact over time. I am very proud of the continued profitability and free cash flow momentum. We delivered our third consecutive quarter of non-GAAP operating profit and a very strong free cash flow in the quarter. This is a great achievement for us and a solid result of the hard work and discipline of the whole Similarweb team. I’m also really happy to welcome Susan Dunn, our new Chief Revenue Officer. Having spent 32 years at Nielsen IQ, including as its Revenue Officer, Susan knows the market research world inside and out. She has deep expertise in delivering business value and operating impact of market intelligence to many of the largest consumer brands in the world. Welcome, Susan. I’m confident that you are the ideal sales leader to drive our next phase of growth and expansion. Finally, I want to thank our team for another quarter of outstanding results and great execution. Remember, we are just getting started. Thank you, everyone, for your continued support. With that, Jason, I will turn the call over to you.

Thank you, Or, and let me join you in welcoming Rami and Susan to the team as well. Thank you to everyone joining us on the call today to discuss our first quarter results. I will briefly address our financial performance, and then we will open up the call to questions. Our performance in the first quarter reflects good top-line and bottom-line momentum. Revenue was $59 million for the quarter at the high end of our guidance range. Our $100,000 ARR customer segment now represents 58% of our total ARR, an all-time high, and NRR was 107%, consistent with Q4 2023. An area of strength for us was in our largest customers, where we closed four 7-digit contracts during the quarter following the 10 7-digit contracts we closed in the fourth quarter. These excellent results support our positive momentum. At the end of the first quarter, 42% of our ARR is contracted under multiyear commitments, demonstrating the strength and longevity of our customer relationships. Our remaining performance obligations also reached a new record of $214 million, up from $195 million at the end of Q4, providing a positive indicator of our performance durability going forward. While our results on the top line were towards the top end of expectations, we exceeded expectations on our bottom line. Our non-GAAP gross margin was 81% in the first quarter compared to 80% last year. Our first quarter GAAP operating loss was $2.7 million, while our non-GAAP operating profit was $2.8 million. This resulted in a non-GAAP operating margin of 5% and represented an improvement of 19 percentage points versus the prior year and the third consecutive quarter of non-GAAP operating profit. Our sustained focus on operating efficiency continues to deliver excellent results, and we generated $9.7 million in positive free cash flow in the first quarter, a 16% free cash flow margin and the second consecutive quarter of positive free cash flow. As a result, we ended the first quarter with nearly $55 million in cash and cash equivalents and no outstanding debt. Turning now to Q2 2024, we expect total revenue in the range of $60 million to $60.5 million. For the full year 2024, we continue to 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 second quarter is expected to be in the range of $1.5 million to $2 million. For the full year, we expect our operating profit to be between $7 million and $9 million, up from our previous expectations of $6 million to $8 million. As we discussed at the beginning of the year, we are focused on delivering profitable growth and making further progress towards the rule of 40 over time. We anticipate being profitable on a non-GAAP basis and generating positive free cash flow in all of the remaining quarters of 2024. And with that, Or and I are ready to answer your questions.

Thank you. The floor is now open for questions. And our first question comes from Arjun Bhatia from William Blair.

Congratulations on the strong results. I wanted to ask about the changes to your go-to-market strategy and the adjustments in pricing and packaging that you've implemented. Could you share how customers are responding to these changes, particularly at the lower end, and what your plans are for adjusting your go-to-market approach on the enterprise side? I know you hired a new Chief Revenue Officer, Susan, and I'm interested in learning about the initiatives she might put in place as she gets acclimated.

So what I heard there were two parts to the first one about the changes we rolled into the go-to-market. I think there were two big changes we made in the beginning of the year. One is to centralize and give more focus around customer success efforts for our SMB customers to provide them more focused value. The second part is aligning our strategic accounts by building more focus sector by sector to provide better support and value to our strategic accounts. So those two changes rolled out at the beginning of the year, and we're seeing great success with them in the few months we held them. Regarding the second question about Susan joining, we are super excited. She just joined last week. We're very excited to come with a lot of experience selling data in market research. I believe she can help us scale a lot or our strategic motion that is new to us. We're improving. As you heard from the earnings call, we are starting to close more and more 7-figure deals, and we're seeing huge success and potential at the strategic level as our data is very unique. We consider ourselves to be the top digital and data provider in the world. I believe there's a lot of potential, especially with the strategy we're pursuing, which Susan can help us a lot with.

The other one I wanted to ask is on sales intelligence, or maybe if we zoom out even further, where you're seeing incremental demand amongst your product suite? It sounds like you are making some investments in sales intelligence from a product perspective, which is why I brought that up. Can we zoom out and think product by product? And then on sales, specifically, I'm curious how you plan to monetize SAM. Is that something that's just going to be embedded or could it potentially have its own pricing?

Yes, of course. You're right; things are looking good across a few products in our innovative product line that are doing really well. We have shopper intelligence or stock intelligence, which are new products we introduced lately that are performing well. We also have a lot of custom products where people request unique data more on the strategic side, which is doing very well. On the sales intelligence front, there are a lot of great innovations, mostly in AI. This was the first product we implemented our AI strategy to enrich the workflow for the user. If you think about it, we are like a market research company, and sales organizations use us to find the most ideal prospects they should approach. They use our platform to find interesting insights to share with those prospects. With AI, all these workflows can be automated. You can ask AI for example, 'I am selling marketing automation software. Please find all the companies online that are not performing well compared to the competition.' and write an email to them showing them their shortcomings and how we can help. The AI can automate these processes like the email outreach and really help them open the door. This is a very unique approach to sales, as we face the challenge of dealing with numerous cold emails from people trying to prospect us. When we receive tailored insights showing us a specific pain point, it significantly increases our engagement. We are seeing a great increase in response rates from customers that work with SAM, so we are very excited about it.

And our next question comes from Ryan MacWilliams from Barclays.

This is Pete Newton on for Ryan MacWilliams. Or, now that we're kind of further into the year, how have you seen macro impacts on your business at this point? And how do enterprise spending budgets look for the rest of FY '24?

Yes. The macro environment is kind of the same. We don’t see it getting better like it was in 2021 or the beginning of 2022. It feels like we are going back to 2020 when things were slower. We always need to improve our execution to scale. That's what we’re seeing.

Okay, great. And then just a quick follow-up. Anything to call out in Q1 in terms of vertical performance?

Yes. I think regarding vertical performance, we have two teams doing a great job, still executing very well. We have a vertical selling to investors that is still performing really nicely, and we have the OEM side, which is selling to companies that want to integrate our data into their solutions and software, which is also doing really well.

And our next question comes from Brett Knoblauch from Cantor Fitzgerald.

This is Tommy Shinke on for Brett. Congrats on the quarter. Just on the acquisition of Admetrix, how should we be thinking about that? How much of the customer growth in the quarter can be attributed to customers coming over from that platform? And how should we think about this contributing to the financials, both on revenue and margins as we progress throughout 2024 and beyond?

It's Jason. Tom, thanks so much for the question. Admetrix was really not a material contribution to the quarter. It's a great business, and what we think Admetrix is really going to provide us with is that when we merge their knowledge with our data, we're going to build an outstanding ad intelligence product that can be monetized across not only our research intelligence solution, but also our investor intelligence, back intelligence, shopper intelligence - everyone really needs those data points. So, whether you're an investor looking for alternative data or whether you're a CPG company trying to understand the trends of retail ads, we think it's going to drive significant ROI with this acquisition. We're really excited about it.

Awesome. Sounds great. And then just if I may, on retention, I guess there's good stabilization in the quarter. We're seeing broader software churn, so it's great to see this. What's driving the stabilization? Is it the new pricing and packaging model with Similarweb? Demand for AI? I guess you guys mentioned SAM a lot in the call and the press release, so I'm curious to hear on that.

The retention metrics are based on historical data. If you're referring to the people who churned in Q1, they decided to leave in November or December of last year. They didn’t benefit from all the improvements we launched. If you're discussing the stabilization rate, it's because of a lot of initiatives we put in place last year. We now start collecting the fruits from those initiatives. We still implemented a lot of great changes, as I mentioned before, around our customer success organization in Q1, and we're very eager to see how that's going to impact retention going forward for our SMB sector.

And our next question comes from Tyler Radke from Citi.

Jason, maybe for you. Just wanted to see if you could put a little bit more color on the assumptions and the outlook. Obviously, decent beat here in Q1. You guided in Q2 slightly ahead but not raising the full year. Is that just conservatism? I know there are some go-to-market changes, and the macro is a little bit shaky, but any changes you would like to highlight as you're thinking about the second half relative to 90 days ago?

You know us, we like to give guidance that we know we can meet. We're really proud that we're hitting the numbers at the high end of the guidance that we've provided. I think that we see that trend continuing. And on profitability, we are seeing that efficiency coming through. We took the opportunity to raise the guidance on the profitability from $6 million to $8 million to $7 million to $9 million for the year. We are looking at that where we see fit.

Great. As you think about Similarweb 3.0 with lower upfront pricing, just considering that in regards to customer ARPU, obviously, that's putting some short-term pressure on that. When do you think that stabilizes in terms of ARPU? Is that next quarter? Or could this take a while just given that you are still seeing pretty strong new customer additions?

Yes. I think that the way to think about the model of our business is that we really have two ends of a barbell. On one hand, we have these large customers, the over $100,000 ARR, that we take from starting in thousands or tens of thousands up to hundreds of thousands of dollars. You're now seeing those customers that take up to millions of dollars worth of transactions, and that's a journey we're really proud of. When you look at the 378,000 customers we had at the end of the quarter, the overwhelming majority started far less than $100,000. Most customers don't start at that level. So we're really seeing that journey as the right trajectory for our business. We've seen our larger customers, those strategic accounts, getting bigger, and at the same time, we want to keep having a steady flow of 100 to 200 new customers every single quarter that can contribute to our net revenue retention in 2025 and beyond. So we're very satisfied with the levels we're seeing here. Whether it goes up or down by a few hundred dollars over time on the blended ARPU, we believe that's acceptable.

Our next question comes from Pat Walravens from Citizens.

First question, what tailwinds are you seeing from tech customers using your data to train their large language models? And can you help quantify that in Q1 relative to Q4 and how you expect it going forward?

I think we're still seeing nice momentum from companies looking to buy data for training their models. We saw some nice activity in the quarter. As for the future, we’ll have to wait and see if this continues to be a hot topic.

And then can you talk about the current state of the Investor Intelligence products? What's on the roadmap there? I think you mentioned in your prepared remarks adding ad spend and ad revenue — how meaningful a driver of growth do you envision Investor Intelligence being going forward?

I’m super bullish about our stock intelligence product. It’s our product that helps gather various signals from the digital world to evaluate public company performance before they release their earnings. This software is part of the alternative data market, which we estimate to be a $10 billion market and growing. We believe that by increasing our coverage—we currently support 3,000 stocks in the basic data and around a little above 100 stocks that have more advanced signals—we're going to be able to better predict outcomes. Moving forward, we still have a lot of data assets we need to map to different signals and upload to this platform. There are significant updates in our roadmap, including an app that tracks how many people install a company's app on their phone—a strong correlation to vehicle sales, for instance. These data sets will be introduced into the platform this quarter. We're also planning to include technographic data on how many people have implemented certain tools on their website, which can serve as indicators for customer metrics. So, there are amazing signals on the way, and we are absolutely bullish about this solution.

Thanks so much. And there appear to be no further questions at this time. I'd like to turn this back to management for any closing remarks.

Thank you, everyone. We're super excited about the quarter results, especially the almost $10 million in free cash flow. I’m really proud of that. We’re just getting started. Thank you, everyone.

Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.