Good day, everyone, and welcome to the Similarweb Q2 '24 Earnings Call. At this time, I would like to hand it over to your host, Rami Myerson. Please go ahead.

Thank you, Karen. Welcome everyone to our second quarter 2024 earnings conference call. Joining me today are our CEO and Co-Founder, Or Offer; and our CFO, Jason Schwartz. Yesterday, after market closed, we released our results for the second 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 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 filed on Form 20-F 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 have decided to shorten our prepared remarks. So we will begin with Or and Jason's highlights of the quarter and then we will open the call to questions from sell-side analysts. With that, I'll turn the call over to Or. Or, please go ahead.

Thank you, Rami, and welcome, everyone, joining the call today. Three years after ringing the bell at the New York Stock Exchange following a successful IPO, we are proud that Similarweb today is a growing, profitable and cash-generating company. I'm super excited that this quarter our efforts to accelerate growth were successful. Our growth is primarily driven by improved go-to-market motion and the innovation that we're doing on our R&D side. As a result of those successful efforts, we feel confident in our continuing business growth and we are increasing our outlook for 2024 revenue and non-GAAP operating profit. During the quarter, we were able to upsell and sign the contract with our first eight-figure ARR customer and increased our customer count to more than 5,000 customers. It is great to see the continuing demand for our data from both new and existing customers. Last week, we launched our newest improved version of our digital data estimation. The new version significantly enhanced our accuracy and coverage of our data and provide broader insight for more than 30 million new websites that we added to our coverage and many more countries than we had included in our previous data versions. We're excited about these new data improvements and the potential that they bring. This new improvement will increase our position as the leader in the digital market data and we have already received initially good and positive feedback from our customers. We continue to benefit from the positive tailwind of the AI revolution. As part of their significant investment in AI infrastructure, many large global tech companies are engaging with us to access our digital data to feed their LLM model. Those companies recognize that LLMs require high-quality, fresh, and scalable data to generate and update outputs and realize the potential of our data to fit their model. They also acknowledge that Similarweb digital data is the most unique and high-quality data source in the market for their modeling. Some of the world's leading LLMs are already training on Similarweb data. We believe that there are even more ways Similarweb can benefit from the evolution of AI. We're seeing that many of the large global consumer brands are eager to learn how the new world of AI and chatbots is changing their customer online behavior. They are keen to understand how the path to purchase is changing, where consumers are doing their research before making purchasing decisions, and how new AI chatbots are impacting this behavior. This is where our digital consumer data is already providing a range of insights, and I believe that this is a significant opportunity that can have substantial potential for Similarweb as the AI revolution evolves. In July, we acquired 42matters, a Swiss app intelligence provider, to expand our app data capabilities in the rapidly growing app market. By combining 42matters and Similarweb, we have expanded our app intelligence offering across app store data, app engagement, and app SDK data. We can now provide enhanced insights for app developers and brands into the performance of their own app versus their competitors and the markets. We are also going to add this app market data to enrich all of our other solutions that will benefit from the combination of having web and app data in one platform. We would like to welcome the 42matters team to Similarweb and look forward to working together to build the number one global app intelligence provider. I want to thank the whole team for another successful quarter of excellent results and growing execution. We believe that we are still only starting to realize the potential of our data and the addressable market we serve. And as I like to say, we are just getting started. Thank you, everyone, for joining the call today and for your continued support. With that, I will turn the call over to Jason. Jason?

Thanks, Or and everyone joining us on the call today to discuss our second quarter results. I'll provide highlights of our financial performance and then we'll open up the call to questions. Revenue growth continued to accelerate to 13% year-over-year in the second quarter, driven by new customer growth and improving retention. In Q2 '24, we achieved an overall net revenue retention rate of 99% and an NRR of 109% for our over $100,000 ARR customer segment, an improvement relative to the first quarter of 2024. We believe this quarter's NRR demonstrates a positive change in trajectory and expect further improvement in the quarters ahead. Our operational performance in the quarter demonstrates our continued commitment to disciplined execution, and we delivered a fourth consecutive quarter of non-GAAP operating profit and a record non-GAAP operating margin of 9%. We generated $6 million of free cash flow in the quarter and $16 million of free cash flow in the first half of 2024. Our remaining performance obligations for RPO totaled $217 million at the end of Q2 '24, up 24% year-over-year. We expect to recognize approximately 75% of total RPO as revenue over the next 12 months. Following the strong results that we're reporting today, which exceeded expectations, we are raising our guidance for both revenue and non-GAAP operating profit for the full year 2024. In Q3 '24, we expect total revenue in the range of $62.5 million to $63 million, representing approximately 15% growth year-over-year at the midpoint of the range. For the full year 2024, we expect total revenue in the range of $246 million to $248 million, a $2 million increase from our previous expectations. Non-GAAP operating profit for the third quarter is expected to be in the range of $2.8 million to $3.2 million. For the full year, we expect our operating profit to be between $13 million and $15 million, up from our previous expectations of $7 million to $9 million. Our guidance reflects increased operating expenses, primarily related to increased headcount, which we intend to invest in to further accelerate our revenue growth. We anticipate being profitable on a non-GAAP basis and generating positive free cash flow in all of the remaining quarters of 2024. We remain focused on delivering profitable growth and making further progress towards the Rule of 40 over time, as well as achieving our long-term profit and free cash flow targets. And with that, Or and I are ready to answer your questions.

And we'll take our first question from Arjun Bhatia from William Blair. Please go ahead.

Perfect. Thank you, guys, and congrats on a great Q2 here. One thing that stuck out to me in the Shareholder Letter, and Or, in your prepared remarks, is your getting interest from some of these large tech companies to buy your data to train their LLMs. It sounds like you had that from that eight-figure customer you mentioned. So when you think about just the economics of that, how do you make sure that value is aligned? And how do you go about pricing a use case like that? And it sounds like you're expecting more of these. So any insight into how that kind of flows through the business side for Similarweb would be very helpful.

Hi, Arjun. Thank you for the question. It's a good question. And I had two questions here. The first one is about the demand for this offering. So we do see an increase in demand for consuming more digital data by those big tech companies that are building those LLMs. So we are expecting this offering to accelerate down the road. And regarding pricing and packaging of this offering, it's a good question. It's new, and there are still a few ways how you can price and package it. It's a lot about consumer preferences, and there are many ways the customer may want to obtain the data. It's very custom, but I think we're doing a good job now building trust and working as a good partner with those companies to build a great solution for them.

Very interesting. Okay, we'll stay tuned on that. And the other one, when I look at your growth drivers, it looks like the revenue from customers exceeding $100,000 is growing above 20%, at least by my estimation from your disclosures, which is much higher than your overall revenue. So what is driving that? And maybe can you touch a little bit on the similarities and differences in demand that you're seeing from smaller customers versus larger ones and how buying behaviors are diverging between those two groups.

Yes, we do see more success in the strategic account segment. In the past quarter or so, we have become much better at serving those customers. As we announced, we've secured our first eight-figure customer this quarter, which is super exciting. We are improving how we serve them and the way we collaborate. Our ability to serve the biggest companies in the world has been bolstered by the increasing appetite for digital data. So there is significant opportunity, and we're doing a great job now. And, I don't know, Jason, maybe you have anything to add on that?

Yes, I would probably just add that, remember, part of that is also intentional. One of the things that we did with version 3.0 was to make it easier for customers to get started and onboard with Similarweb. And based on our history, we saw that in this eight-figure customer we announced yesterday – we started with them as a few tens of thousands of dollars and over time it grew 450x to become an eight-figure customer. They have purchased four of our solutions across multiple departments and geographies. This customer journey is representative of what we see more broadly. They start small with us, we can land them in a more nominal number than the $100,000 or more. But over time, they land, retain, and expand, which leads to seeing significant growth once they reach that $50,000 to $100,000 range. They begin to recognize more opportunities to leverage our data, whether through productized solutions or DaaS and integrations that Or discussed.

Okay, got it. Super helpful. Thank you both, and congrats again here.

Thank you. And we'll take our next question from Jason Helfstein from Oppenheimer. Please go ahead.

Hi, this is Steven Hromin on for Jason. So just one question from us. Do you expect Similarweb 3.0 to continue driving lower ARR per customer, given that the lower entry points allow companies to start up quickly? And just a follow-up on that?

Yes, we took the strategy to make it much easier to onboard. This is why you're seeing a nice acceleration in our customer growth. We're also seeing great success with our self-service customers who come in just to try and get familiar with this digital market data. As they become more familiar, they're ready to transition to more yearly engagements. So we're seeing a very strong success there as well. It has proven itself to offer an easy entry point for our customers, which allows for growth over time.

Awesome. Just a follow-up in terms of margins sort of on that per customer. I was wondering, do you see that there's almost better margin for smaller customers since there's less that you have to spend to service them?

Yes, for the self-service customers, absolutely. It's a very good margin. You're right about that. This is likely what you're seeing increase in our overall Average Order Value because we're gaining many more customers at the lower end, but we're quite confident in our ability to grow their AOV over time.

Understood. Thank you.

Thank you. And our next question comes from Surinder Thind from Jefferies. Please go ahead.

Thank you. First question is just on the plan for increased headcount. Any color that you can provide there in terms of whether this is more sales-focused or focused on engineering? How should we think about the build-out of that part of the expense profile?

Mostly sales-related. We see strong momentum. Revenue is increasing, as you can see, we've accelerated our growth in the past three quarters from 11 to 12, and now 13. We've already guided for the next quarter, suggesting we'll talk about 15. This means we need to hire more customer success personnel to manage our book of business. There are significant opportunities ahead of us, so this is primarily about increasing headcount.

Thank you. And then for the net revenue retention for clients smaller than $100,000. Any incremental color there? It seems like the trends are bottoming. Is that a fair read of where the data is, and what you're seeing at this point? We're also approaching the one-year anniversary of the rollout of the new sales motion. If that would somehow influence the NRR number.

Yes. We're observing a positive trend in retention. As you can see in the numbers, we're very pleased about that. All of these efforts are, of course, the result of initiatives that we started a year ago, and we're beginning to see those fruits ripen. So you're correct about your assessment.

Thank you. That's it for me.

Thank you. And we'll take our next question from Ryan MacWilliams from Barclays. Please go ahead, Ryan.

Hi, guys, thanks for taking the question. On the 42matters acquisition, I would love to hear about how you're seeing interest from customers in monitoring mobile app analytics at this point. And from Jason, how are you thinking about the top and bottom line contribution from 42matters? And is anything baked into the guidance? Thanks.

Thank you, Ryan. Let me answer the first question, and then I'll turn it over to Jason for the second. From our customers, we've known for a while that the majority of them, when they operate in the digital realm, typically have website assets that they need to grow, and many of them also have app assets that they strive to succeed with. Sometimes the app serves more of a retention play. But I think that the majority of our customers who want to make digital investments seek a holistic view of the digital landscape, which combines both web and app. This acquisition will enable us to deliver that comprehensive view to our customers. We foresee many cross-sell and upsell opportunities because most of our customers, whether B2C, B2B, or investors, would likely want access to both types of insights. Consequently, I'm very optimistic and bullish on that acquisition.

Yes. Hi Ryan. Yes, we built that into the guidance we have for the remainder of the year. 42matters is a great team, a small business. It has some incremental contribution, and as Or said, we are bullish about the impact it can have selling into our customer base. In terms of the bottom line, its contribution is minimal. The expansion and profit guidance are mainly driven by the results of our core business efficiencies.

Appreciate the clarity there. And then just on the overall macro, we're getting a lot of different viewpoints from investors and companies. However, with you improving RPO, improving NRR, and increasing net new customers, it seems like you're perhaps bucking some of the more pressing macro concerns we're seeing elsewhere in software. Are there any key trends driving your improvement quarter to quarter? How do you feel overall about how macro is impacting your business at this point? Thanks.

Yes, that's a very good question. As I mentioned earlier, we put in considerable work to enhance our strategy and self-serve approach, which have both performed exceptionally well, driving substantial growth and success. All of the efforts we implemented are yielding improvements. We have consistently observed strong demand at the top of the funnel. For us, effective execution is key to driving growth in a very large market. Regarding the second question about market dynamics, it reminds me of the COVID period. When markets are facing difficulties, such as a recession, companies often double down on gathering market data to understand their positioning. As a result, we think that our solution helps provide visibility about market dynamics and organizational positioning in challenging environments. Hence, we believe these factors provide a favorable tailwind for our business.

Appreciate the context. Thank you.

Thank you. And we'll take our next question from Brett Knoblauch from Cantor Fitzgerald. Please go ahead.

Hi, yes, thanks for taking my question, and congrats on the quarter. As you look at your broader product portfolio, where would you say you're spending the most time? Or where do you think demand has really inflected higher across that product portfolio? And any update on Shopper Intelligence and how demand is looking for that?

Yes, we've seen strong demand especially for our DaaS, Data-as-a-Service offerings. As we gain recognition as the leading digital data market provider, many clients wish to implement our data into their own dashboarding systems. Therefore, we have experienced good success in those areas. Our stock intelligence product for public investors is also performing well this quarter. The more we are able to productize it and introduce it to the market, the better the outcomes we see, particularly in those two lines of business.

Perfect. And then just on the acquisition, is there any way to quantify how much of the full-year guidance comes from this, perhaps call it, organic demand versus some of the inorganic revenues? Would you say that most of the guidance is just from the core business doing better and not so much from the acquisition?

So the acquisitions generally add a small contribution to revenue. The meaningful growth we’re observing comes predominantly from our core organic business. As reflected in the increase in the number of customers and the results in RPO and NRR, the momentum remains robust. The addition of a small business will always enhance top-line growth to some extent. However, the overall contribution from these acquisitions is not material when considering annual revenue.

I think it's important to add that our strategy is to find a strong, entrepreneurial team that possesses excellent data assets. We believe that by investing and prioritizing synergies with our core offerings, we can create a scalable impact. Usually, these acquisitions involve relatively small businesses.

Got it. Then maybe just one last question on the eight-figure deal. Could you help quantify what that deal went from? Before eight-figures, how much of an uplift was that?

It was in the seven-figure range before, but we managed to increase it significantly. And now, Jason?

What I would add is that this customer actually started with our company nine years ago as a similar customer. They began with a few tens of thousands of dollars in ARR, and today, they exceed eight-digits while consistently growing and utilizing multiple products from Similarweb across various departments and geographical areas.

Got it. Thank you, guys. Really appreciate it.

Thanks. Thanks so much.

And next we'll go to Patrick Walravens from Citizens JMP. Please go ahead.

Hi, guys, thank you for taking my question and congrats on the quarter. This is Nick Lee on for Pat. With the new data version you guys mentioned in the Shareholder Letter, can you quantify how much more accurate this new version is compared to the old one?

Yes, of course. We have our internal measurements. The accuracy has significantly improved across the board. There are various ways to assess it by country, website size, and website vertical. However, we have increased accuracy in all segments, and we have also expanded our coverage. As mentioned, we've added over 30 million websites to our estimation, and we are very excited about this. This is a significant update for us, and we undertake it after extensive testing to ensure that it's dramatically better than our previous version.

Awesome. Thank you.

And there appear to be no further questions at this time. Ladies and gentlemen, this does conclude today's Similarweb Q2 '24 earnings call. We thank you for your participation. You may disconnect your lines at this time and have a great day.