Similarweb Ltd. Q1 FY2025 Earnings Call

Greetings, and welcome to the Similarweb Q1 Fiscal 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rami Myerson, Vice President, Investor Relations. Thank you. You may begin.

Thank you, operator. Welcome, everyone to our first quarter 2025 earnings conference call. Joining me today are our CEO and Co-Founder, Or Offer and our CFO, Jason Schwartz. Yesterday, after market close, we released our results for the first 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. 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 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 in 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 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. I'm extremely proud of the first quarter financial results that we reported yesterday. Revenue increased by 14% to $67 million, ahead of our expectation. Our customer base grew 19% year-over-year to more than 5,700 ARR customers at quarter end. We reported six quarters of positive free cash flow while we continue our investment to realize the long-term potential of our business. The investments we began in the fourth quarter in sales and R&D are starting to generate positive returns. We doubled the number of inside sales reps selling in this quarter, as compared to Q1 last year, and our progress on releasing new features like GenAI, traffic intelligence, and free AI agents is something for our staff to be proud of. We completed and accelerated recruitment of new salespeople at the end of the first quarter, and we are encouraged by indicators of improved productivity as they ramp. More than 80% of the new hires should be fully ramped by Q3, and we expect this team to deliver in the second half of the year as planned. I'm excited by our customer reaction to the launch of the new products since the beginning of the year. Those products provide tools that empower our customers to maximize ROI from our data and reduce time to value. We launched App Intelligence, expanding our app data and incorporating the acquisition of 42matters last year. I'm thrilled that Similarweb can now provide digital data on more than 4 million iOS and Android mobile apps in 58 countries. App Intelligence gives our customers visibility on app data, including downloads, usage patterns, engagement, retention, and audience demographics. We are seeing strong demand, and 484 of our customers have already signed up for App Intelligence. We're excited to be the leading company providing full digital visibility to brands, combining web, mobile web, and app data, and providing our customers with a holistic, real-time view of the entire digital world on one platform. This comprehensive coverage is quickly turning Similarweb into a mission-critical resource for anyone needing to understand digital behavior and market dynamics around the world. We continue to develop products and capabilities to capitalize on the AI revolution. In March, we launched our AI Chatbot traffic intelligence into our platform, and I'm really excited that our customers can now see data on the prompts and chatbot products that are sending traffic to websites as part of our web intelligence offering. As more customers move from traditional search to chatbots, this information is becoming critical for companies to drive impact in this new digital channel. I believe that we are the leading company in the world providing this critical information to our customers who want to succeed in the digital ecosystem, and I'm very proud of that. The response from our customers has been truly amazing, and the commercial pipeline for this data is growing fast. On top of that, we are also rolling out a series of AI agents to help our customers maximize the commercial opportunities provided by our data. Our first AI agents are already live on our platform. The first one is the SEO strategy AI agent, which shows digital marketing professionals what they should do to promote their content strategy and how best to do it in order to win. The second agent is our traffic trend analyzer AI agent, which automatically detects unusual spikes in sales demand and identifies their causes, thereby helping companies act before the competition. Until now, analyzing and formulating an understanding of the reasons behind those changes was very hard and time-consuming, but this now can help them save time and get to the insights faster. The third agent we released is our meeting prep AI agent for sales teams, which builds a strategic one-pager meeting brief using our digital signals and market data to reduce the time salespeople spend on research to prospect and help them improve their win rates. The new product launches in the quarter are the first encouraging indicators that the investments we began will grow faster and produce higher margins going forward as part of this journey as an AI-first company. As I like to say, we are just getting started. Thank you everyone on the call for continued support. With that, I will turn the call over to Jason.

Thanks, Or, and everyone joining the call today to discuss our first quarter results. I'll provide highlights of our financial performance and then we'll open up the call to questions. We generated $67.1 million of revenue in Q1, a 14% increase relative to Q1 '24. Revenue growth was driven by the 19% growth in customers, mainly in the below $100,000 ARR cohort, as well as expansions and upsells from our over $100,000 ARR customers. NRR for our over $100,000 customers increased by 400 basis points year-over-year to 111%, and 300 basis points year-over-year to 101% for the overall customer base. We are proud that 52% 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 totaled $253 million at the end of Q1, up 18% 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 was in line with expectations, and we reported a non-GAAP operating loss of 2% in Q1 due to the increased investment in sales and R&D discussed in the past. We're committed to profitable growth over time, and if returns on these investments do not materialize as planned, we're prepared to rapidly respond and improve profitability as we have in the past. We think it's worth noting that over the last three years, we've improved operating margins by more than 4,000 basis points from minus 45% in the first quarter of 2022. This performance and our unit economics provide us with confidence in our ability to achieve our profit and cash flow targets. We generated $5 million of normalized free cash flow in the quarter, a 7% free cash flow margin and the sixth consecutive quarter of positive free cash flow. We expect to continue to generate positive free cash flow on a quarterly basis in 2025. Turning to our outlook, we continue to monitor the global macroeconomic and market developments, leveraging the insights provided by Similarweb digital data to assess the potential impact of tariffs on our different end markets. So far, we have not experienced a material impact on our business. For the full-year 2025, we are maintaining our previous guidance and expect total revenue in the range of $285 million to $288 million, representing 15% year-over-year growth at the midpoint of the range, and expect our non-GAAP operating profit to be between $1 million and $4 million. For Q2 2025, we expect total revenue in the range of $68.6 million to $69 million. The non-GAAP operating loss for the second quarter of 2025 is expected to be in the range of $0.5 million to $1 million. We remain focused on delivering profitable growth over time, as well as achieving our long-term profit and free cash flow targets. With that, Or and I are ready to answer your questions.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Arjun Bhatia with William Blair & Company. Please proceed with your question.

Great. Thank you so much. I'm curious, obviously the investments are a big part of the story here. And it seems like you've completed the accelerated hiring process. I'm curious, Or, how you feel about the quality of the team that's been brought on. And as you're tracking the ramp to productivity for some of the go-to-market investments and the sales reps, what exactly are you looking at to ensure there's ROI on those investments and that the ramp to productivity is happening in line with expectations to get your team productive by, I believe you mentioned Q3?

Hi, Arjun. Of course, thank you to everyone for joining the call today. We look forward to speaking with everyone, and thank you, Arjun, for the first question. Regarding the quality of the hiring, we're very happy with the quality. We've learned a lot over the past few years about how we can bring the right persona to sell our specific offerings related to insight, data, and analytics. We've built a very good process for measuring the activities and what we expect from those new hires to deliver in every part of the onboarding process, including how many meetings and the win rates we expect to see. So right now, things are looking good.

Okay, great. And then on the product side, you've integrated the AI chatbot traffic data into your platform now. What sort of early indications of usage or interest are you seeing from your customer base? Obviously, very pertinent and timely, given some of the comments we've heard recently from the ecosystem about traffic potentially shifting from search to AI chatbots, but I would love to hear what you're seeing in your customer base in terms of interest in your innovation on that front.

Yes. It's very nice. The customers are really excited about it and there's a wow effect when we show them the data. It's very unique. So it's great to see that, feel like in the early days when we launched Similarweb and there was a sense of magic that people realized that this data is out there and the insights we can get from it. The reaction has been excellent, and it's uncovering many interesting insights and providing visibility into something that is currently very much a black box. I think most website owners don't have a clear idea about the impact of how much traffic these chatbots are generating as a channel. Additionally, they lack visibility about what people are asking as prompts, and we've now brought that data to light. The impact has been significant.

Thank you. Our next question comes from the line of Raimo Lenschow with Barclays. Please proceed with your question.

Hey, guys. This is Damon Cavan on for Raimo Lenschow. Thanks for taking the question. Great to hear that the new talent you recently recruited has been driving improved yield and strong pipeline. Can you help us understand the level of visibility that you have for some of the deals that are supporting the revenue reacceleration in the second half of the year? Just trying to gain clarity on the mechanics of the growth implied by the guidance in the second half.

So we hired many people across the go-to-market organization, and there are many different positions there. You have account managers that need to drive upsells and renewals, and in sales, you have new sales representatives, inside sales, and enterprise people that need to land higher deals. We also have entry-level staff focused on self-serve customers and transitioning them to annual contracts. Each role behaves differently and has different ramp-up times; the more senior the representative, the longer the sales cycle tends to be. For inside sales, you can see a much faster ramp and yield. The others take more time by nature.

Got it. Thanks, Or. And then maybe just one for Jason. Is there anything factored into the top and bottom line guidance from the Search Monitor acquisition?

Yes, nothing material on that. There was a small business, and we're excited to have it onboard, but it is not a material contribution for the quarter or the year.

Got it. And then just one quick question, if I may. Is there any change to your guidance philosophy for the rest of the year? I understand that it's an uncertain environment, so just trying to understand some of the mechanics for the rest of the year? Thanks, guys.

We haven't changed a lot of the assumptions, FX and the like, but we'd like to provide guidance that we know we can meet. So the same philosophy.

Thank you. Our next question comes from the line of Surinder Thind with Jefferies. Please proceed with your question.

Thank you. Or, can you maybe talk a little bit about your larger clients, the $100,000 clients, the behavior that you're seeing there and some of the ongoing conversations, perhaps? It looked like the NRR number dipped a little bit quarter-over-quarter by about a percentage point.

Yes, of course. I think the decline of this 1% was kind of expected as last year in Q3, we had significant upsells in Q1. This year, the upsell was not as large as Q1, so that is reflected in the numbers. Overall, in the bucket of $100,000 customers, I think we have over $400,000. We see a mix of large companies and digital-first companies engaging with us as a trusted digital market data provider, continuing to buy more diverse solutions and growing significantly.

Got it. And then just kind of the reverse with some of the smaller clients in the SMB space?

Yes. We still see substantial demand at the top of the funnel, with hundreds of thousands of registrations monthly, and we’re experiencing success converting them to yearly customers. Additionally, we reported a significant increase in multi-year engagements, which is a positive indication that companies see value in our offerings and want to engage with us for the long term.

That's helpful. And then just one final question for me. As you think about your strategy around building insights for the different chatbots, is there any color you can provide on the various partnerships you envision?

Regarding coverage, we feel confident that we can cover all significant chatbots and provide full visibility. We hope to launch a comprehensive AI Intelligence module this quarter that will combine our traffic intelligence with insights on market share based on chatbot interaction. This second part will allow clients to track how often their brand is mentioned in comparison to competitors and analyze the sentiment of those mentions. This enhancement will enhance our value proposition in this digital channel.

Thank you. Our next question comes from the line of Jason Helfstein with Oppenheimer & Company. Please proceed with your question.

Thanks, everybody. I guess I'll ask a few questions. As you look to sell the AI-related products, are you targeting a different audience within the client? A lot of your initial efforts were typically with the marketing department, but will it now need to go to a higher level? How do you envision selling the AI products differently than some of the legacy products? Second, aside from upgrading the overall quality of salespeople, how is the strategy different now under the new Chief Revenue Officer? Lastly, the billings did slow this quarter. Is there an emerging pattern indicating that first quarter is a slowing billing quarter?

Thanks, Jason, for the questions. I heard three questions: one regarding the Ideal Customer Profile (ICP) for the AI intelligence module, another about the CRO, and a third about billing. Regarding the Ideal Customer for the AI intelligence data, we know it’s a new avenue. Right now, we’re presenting it to most of our users and there’s significant excitement across various personas because this is new and appealing to many roles from marketing to branding to SEO and PPC. It's early to say exactly who will end up being the buyer, but likely it will be around marketing and possibly search dimension acquisition or brand. As for the CRO, like any executive, our new CRO just completed their first year, and typically it takes a year to set up their organization before fully executing their strategy. We’re excited to see how they’ll proceed. I'll let Jason discuss the billing inquiries.

Hey, Jason. On the billing side, it’s a seasonal thing. Sometimes customers request that their invoices be moved from one month to another. You see that shifting occasionally. However, overall, free cash flow remains strong. This quarter saw a 7% free cash flow generation, and we’ve guided that we’ll continue to maintain positive free cash flow throughout the year.

Thank you. Our next question comes from the line of Tyler Radke with Citi. Please proceed with your question.

Hey, gentlemen. Good morning. Thanks for taking the question. I wanted to follow up on the queries regarding billings, focusing on bookings. It appears that current RPO bookings have slowed significantly over the last couple of quarters. I understand there have been some large compares in that metric over the past year and a half due to large deals signed. Can you clarify what’s driving this change and whether we can expect a rebound in current RPO in the latter half of the year?

Thanks for that, Tyler. Yes, current RPO was up 9% year-over-year. We believe this to be somewhat seasonal. Some of those larger deals were signed in Q2 and Q3 of last year, and as we approach renewals, those will contribute to bookings and current RPO. Therefore, we expect a bounce-back towards the end of the year.

Got it. So we’ll see replenishment of those numbers in the upcoming periods.

Exactly. Also, regarding the NRR comment that Or made earlier, remember, last year we announced numerous big upsells and the crossover to eight-digit customers. At this point during a 12-month look back, those figures are already in the baseline, so the NRR needs to take these big deals into account. We are confident about the pipeline but we're aware of the stringent comparisons we face over the next couple of quarters.

Yes, great. And new customer additions looked quite strong, with quarter-over-quarter growth in new logos exceeding last year's Q1. Can you talk about the average deal size for new clients? Is it consistent with last year, or perhaps lower as you prioritize new logos? What changes have occurred in the profile of customers with the new sales motion and larger sales force?

Yes, very consistent with our strategy from the past 18 months. We’ve talked about the barbell strategy, part of which involves 60% of our ARR being generated from customers spending over $100,000 a year. Those customers are nearing an average spend of $370,000. Meanwhile, we also have this momentum motion acquiring new customers every day, quarter. We added approximately 230 new customers quarter-over-quarter and nearly 1,000 net new customers in the past year. As part of our strategy, newer customers tend to bring lower deal sizes compared to our average revenue per customer. However, it’s worth noting that more than 80% of our existing customers who spend above $100,000 started below that threshold. We’re experienced in landing, retaining, and expanding, and this strategy is evident in our performance over recent quarters, which is reinforced in Q1.

Thank you. Our next question comes from the line of Luke Horton with Northland Capital Markets. Please proceed with your question.

Yes. Hey, guys. Thanks for taking the questions, and congrats on the quarter. Jason, in your prepared remarks, you mentioned that if the investments in new sales hires don’t yield expected results, you'd be prepared to improve profitability. What timeline are new sales hires given here to demonstrate results? If the outcomes aren't as anticipated, what are the nearest levers to pull for improving profitability?

Yes, we've been through this process before. We mentioned in the quarter that we're already seeing more sellers closing business in Q1 than in the previous year. As Or stated, you can assess the ramp of inside sales representatives within the first couple of months. We're encouraged by our findings. We expect 80% of new hires to reach full ramp by Q3. If it turns out that performance is not as desired, we'll reduce unproductive capacity while continuing to execute. Historically, we've adjusted sales and marketing ratios; back in Q1 2022, sales and marketing accounted for nearly 66% of revenue and we've since reduced that below 50% while maintaining growth. We're confident that the hiring we've done will accelerate performance heading into 2026.

Okay, great. I appreciate the insight there. Lastly, regarding the 2025 outlook, does this still account for the 1% to 2% foreign exchange headwind on revenues, or has that assumption changed?

We haven't altered any assumptions. As we've seen volatility, we're sticking with the guidance based on the original assumptions used to build our outlook at the year's start.

Thank you. Our next question comes from the line of Adam Hotchkiss with Goldman Sachs. Please proceed with your question.

Great. Thanks for taking the questions. Or, can you identify the most crucial execution item for this year? Is it ramping salespeople, accelerating growth, innovating the platform, or something else? What needs to occur to validate your vision following the investments made earlier this year?

Thank you for the question. If I had to choose one item with the highest potential impact, it would be enhancing our upsell enterprise motion. We have over 1,000 enterprise clients who engage with us and are purchasing one or two of our solutions, while we offer seven or eight different solutions. I see a sizable opportunity to drive expansion within our existing customer base, and I’m excited to engage more effectively in this area, which could yield significant returns. Additionally, focusing on account management for enterprise has the greatest potential for impact within our commercial organization. If I can optimize this team, it will likely result in a strong positive outcome.

Great, that's helpful. Regarding the data as a service and broader language model opportunities, could you provide an update on progress in Q1 relative to your expectations?

The internal motions for data as a service have been quite successful. We have an OEM team that sells our data to software vendors enhancing their offerings. This team is performing excellently. Additionally, we’re seeing substantial demand from new verticals of software companies interested in insights on chatbots and GenAI. It’s a promising area driving revenue growth, and performance this quarter has been strong.

Thank you. Our next question comes from the line of Austin Cole with Citizens. Please proceed with your question.

Great. Thank you. This is Austin Cole on for Pat Walravens. Or, I wanted to revisit the AI Chatbot traffic product. The idea of gaining visibility into GenAI output has been a recurring conversation. Now that you’ve launched this product, could you provide insights on customer engagement and how this informs your total opportunity outlook?

Yes, that’s a great question. The total opportunity is significantly enhanced once we fully develop the second part of the AI offering to help clients measure their market share and visibility concerning chatbots. For instance, consider a scenario where a million people using chatbots ask questions about running shoes; the chatbot might mention five to ten brands. While only a small fraction of those interactions lead customers to external websites, the majority stay with the chatbot or take other actions. By providing visibility into the traffic generated by chatbots and the associated prompts, our offering becomes more robust. Currently, we've opened the AI Traffic GenAI model as a beta to our existing paying yearly customers to gauge their reaction and encourage engagement—this has converted many credit card customers to annual plans. We plan to monetize this model in the upcoming quarter, which will further amplify its impact.

I appreciate that clarification. Just one for Jason regarding the investments—while it doesn’t seem likely, is there anything in the pipeline today indicating you’d need to adjust your investment plans?

No, currently, there’s nothing prompting such changes. This was merely a sentiment we gauge from various investors over recent months, and we wanted to clarify that point.

Thank you. Our next question comes from the line of Scott Berg with Needham & Company. Please proceed with your question.

Hi, everyone. Thanks for taking my questions. I appreciate the comments on pipeline activity with the ramp in sales reps. But how is the expansion activity going? If I look at your customer additions over the last year, it appears to be slightly lower than your historical rate. Historically, you’ve had good opportunities to expand with clients over time. How is that process going in the current macro environment? Are you noticing any changes in the cadence of that activity? Any commentary would be beneficial.

Scott, it’s Jason. We've observed a healthy pipeline build. The NRR figures reflect challenges faced last year with significant sales and upsells. However, we've seen promising activity this quarter. A noteworthy example is a large U.S. retailer customer who began with us in 2023, utilizing our Web Intelligence for their SEO and performance teams, initially at $100,000. By Q1, they had expanded to include the category management and e-commerce merchandising teams, leading to substantial growth—this customer has quadrupled their engagement with us in just two years. This situation exemplifies the value that large retailers can extract from us, and we believe this increasing tendency for upselling in our product portfolio will carry through for the remainder of the year.

Helpful. Thank you. I understand there isn't a significant effect on guidance from your acquisition of Search Monitor, but how do you see that affecting your product platform moving forward?

We’re excited about the Search Monitor acquisition, which brings two use cases we are currently less strong in. First, it aids PPC teams in managing paid acquisition and protecting their brands' budgets, which can run into millions or tens of millions monthly across countries. This tool is quite sticky and can be AI-driven. It will offer great ROI for PPC teams as we integrate it with our current offerings, providing valuable market data. The second use case is related to the management of affiliate programs, ensuring compliance with guidelines while promoting products. Both use cases are highly operational and can create significant synergy when combined with our market data. We expect to integrate their offerings into our current portfolio by Q4 or Q1.

Thank you. We have reached the end of the question-and-answer session, and I’d like to turn the floor back to CEO Or Offer for closing remarks.

Thank you, everyone. We’re super excited about this quarter and this year. I want to thank everyone for joining the call, especially our shareholders, for their confidence. We look forward to speaking with all of you in the next few weeks. Thank you so much.

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your line at this time. Thank you for your participation and have a great day.