Similarweb - Earnings Call - Q2 2025

Transcript

Speaker 5

Greetings. Welcome to the Similarweb second quarter fiscal 2025 earnings call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation today. If anyone should require operator assistance, please press star zero from your telephone keypad. Please note the conference is being recorded. I'll now turn the conference over to Rami Myerson, Vice President of Investor Relations. Thank you. You may now begin.

Speaker 6

Thank you, operator. Welcome everyone to our second 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 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 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 on the call today. Reconciliation 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.

Speaker 2

Thank you, Rami, and welcome everyone joining the call today. I'm extremely proud of the second quarter financial result that we reported yesterday. Revenue increased by 17% year over year to $71 million ahead of our expectation. Our customer base grew 18% year over year to almost 6,000 ARR customers at quarter end. We reported a seventh quarter of positive free cash flow and returned to positive operating profit in the quarter. We are also reiterating guidance for 2025 revenues and raising our profit guidance for the year. Customer interest in our GenAI data and solution is amazing, and the revenues from our GenAI data and new solution were approximately 8% of second quarter revenues and are growing. We are focused on three high-impact opportunities where Similarweb is uniquely positioned to lead. The first one is our Similarweb GenAI intelligence.

In April, we launched AI Traffic to show how much website traffic comes from GenAI sources, as well as the prompts and landing page driving traffic. In June, we expanded our product line with the AI Brand Visibility, giving companies daily insight into how often they are seated in AI chatbot platforms across key topics. The second one is our AI agent. We are rolling out AI agents to help our customers maximize the value they can extract from our data in the shortest time. We're receiving great feedback from our customers, and usage is growing by 60% month over month since launch. The third one is our generative AI and LLM data. We are supplying our unique and fresh digital data to companies that are building their own LLM and generative AI applications.

Last year, in Q2, we signed a seven-figure ARR contract with one of our big tech customers to use our data to train and improve its LLM. This customer was already using four of our solutions across multiple business units and countries. After signing this contract, they became Similarweb's first eight-figure ARR customer. In June this year, this customer renewed and expanded the contract for GenAI application and LLM data with a multi-million dollar ARR and a multi-year upsell. Contracts like this one demonstrate the durability of those AI transactions as recurring revenue streams and provide me with the confidence in our ability to convert additional customers and expand our AI revenue streams. We continue to invest in our technology and expand and enhance our data to deliver the most comprehensive view of the digital world.

In Q2, we expanded our product offering to empower customers with deeper insights across the digital landscape. We launched Similarweb Ad Intelligence, giving businesses a clearer and more complete view of the digital ad spend and paid marketing universe, leveraging the capabilities of Admetrics that we acquired in 2024. We also introduced additional modules to our Mobile App Intelligence and Shopper Intelligence, providing our customers with more tools and data to succeed and win their markets online. The investment in go-to-market that we started in the fourth quarter of 2024 is ramping as planned, and we are starting to see initial results. One of the KPIs we track for salesforce productivity is the number of salespeople booking deals, and I'm super happy that the number of salespeople booking deals increased by 50% year over year in the second quarter.

I'm also super proud we continue to operate efficiently and return to profitability in the second quarter, as well as reporting our seventh quarter of positive free cash flow. As I like to say, we are just getting started. Thank you to everyone on the call for continued support, and with that, I will turn the call over to Jason.

Speaker 0

Thanks, Or. Everyone joining us on the call today to discuss our second quarter results, I'll provide the highlights of our financial performance, and then we'll open up the call to questions. We generated $71 million of revenue in Q2, a 17% increase relative to Q2 2024. The revenue growth was driven by the 18% growth in overall customers and big tech customers who licensed our digital data for developing their GenAI applications and LLMs. Our second quarter results benefited from one-time fees for customers who completed their evaluations at the end of the quarter, earlier than expected. We are optimistic that these evaluation contracts will convert into ARR contracts during the second half of 2025. NRR for our overall customer base increased by 100 basis points year over year to 100%. Notably, our renewal rate in the second quarter was the highest in three years.

NRR for the over $100,000 customers decreased by 100 basis points year over year to 108%. The NRR for the $100,000 customers reflects the significant upsells of the number of large contracts booked during 2024. These customer contracts are now included in the NRR baseline in 2025. We are proud that 57% of our ARR is contracted under multi-year contracts, up from 44% last year. We believe this demonstrates the durability of our revenues and the importance of our data to our customers. Our remaining performance obligations, or RPO, totaled $274 million at the end of Q2, up 26% year over year. We expect to recognize approximately 68% of total RPO as revenue over the next 12 months. Our operational performance in the quarter was better than expected. We reported a non-GAAP operating profit of 3% in Q2 as a result of our continued disciplined execution.

As a reminder, over the last three years, we have improved operating margins by 4,500 basis points from minus 42% in the second 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 $4 million of normalized free cash flow in the quarter, a 5% free cash flow margin, and the seventh consecutive quarter of positive free cash flow. We plan to continue to generate positive free cash flow on a quarterly basis going forward. For the full year 2025, we are maintaining our revenue guidance and expect total revenue in the range of $285 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 $5 and $7 million, an increase from our previous expectation.

For Q3 2025, we expect total revenue in the range of $71.5 to $72 million. Non-GAAP operating profit for the third quarter of 2025 is expected to be in the range of $1.5 to $2 million. We remain focused on delivering profitable growth over time, as well as achieving our long-term profit and free cash flow targets. Or and I are ready to answer your questions.

Speaker 5

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, you may press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, for our first question. Thank you. Once again, it's star one to ask a question. The first question today comes from the line of Raimo Lenschow with Barclays. Please receive their questions.

Speaker 1

Hey, good morning, and congrats from me. That was an amazing outcome. Can we talk about the large customer and how that potentially kind of played out for you and will play out in the future? I'm just trying to understand, was that a proof of concept that the customer had to kind of pay some money for, so you got the fees in, and then now when he goes into full contract, it comes through? Can you talk a little bit about the mechanics there, but also then like a little bit deeper into like what is he doing there? I had one follow-up for Jason.

Speaker 2

Yeah, thank you for the question. Usually, when we engage with companies who want to train their LLM models, the process is that you deliver them a one-time bulk of data that they can test and validate that the data is improving their model and make it more accurate. They pay a one-time fee for this data for the testing. After they test and validate that the data improves, we engage with them with long-term commitments, usually multi-year ARR deals.

Speaker 1

Perfect. That would be something that not just one of these customers can do. That's actually something that a lot of them will benefit, correct?

Speaker 2

A lot of them can benefit, and also there are multiple data sets that they can buy and use for multiple use cases around improving the LLMs. The opportunity is in both fronts: more customers buying once it's proved that it can improve the LLMs, and the second one that they can get more data to improve other areas of those motions.

Speaker 1

Okay, perfect. Yeah, makes sense. Jason, on the NRR, it dipped down a little bit, and you explained that 2024 cohort. NRR is obviously backwards looking, so it doesn't really help us there in that respect. How do I have to think about that number kind of inflecting going forward again? Do I just have to work through that cohort and then it starts looking better? Is that kind of the right mechanics there? Maybe just one last word as well, Jason, on the customer adds this quarter or the customer growth, new customer growth was really strong. Kind of what drove that? Thank you.

Speaker 0

Hey, Raymond, thanks so much. Yes, you know on the NRR, like we've been talking about, I think you're right. There was great growth last year, and we're working through the cohort. Those large expansion deals from 2024 are having a lapping effect as we go into 2025. I think your second part is really the indication. When you look at the customer adds, the overall customer adds is up 18%, but if you look in the large customers, the customers that are over $100,000, it grew by 13%. If you look at the absolute number, the absolute number went up from quarter on a sequential basis, was up 22 additional customers. That's the highest sequential growth that we had in the last three years.

I think that's an indication that our land and expand strategy, bring them in at a modest start point, ACV, and then see them land, retain, and expand and grow. Now you're seeing them crossing over that $100,000 number as well.

Speaker 1

Perfect. Yeah, well done. Thank you.

Speaker 5

Our next question is coming from the line of Arun Bhatia with William Miller & Company. Please receive their questions.

Speaker 3

Hey, team. William Miller for Arjun Bhatia. Congrats on the quarter and thanks for taking your question. When you prepared the remarks, you mentioned you're optimistic that the GenAI and LLM-related data evaluations completed in the quarter have the potential to convert in the second half of the year. What do you think it'll take for these AI data prospects to convert into paid customers?

Speaker 2

In just the sales cycle, they engage, you get in the data, they need to test it, they need to validate. We feel very strong around it. We position as the number one digital data company in the world right now and the number one of web data. Those LLMs do the learning and training on web data. We feel very confident that we can build a very good pipeline and convert it down the road.

Speaker 3

Great. Thank you.

Speaker 0

Willow, I would just add that, as we mentioned in the letter, these deals, once they finish that evaluation, are typically seven-digit contracts, and those things are not signed overnight. It has a process as well. I think that going back to, you know, I think Raymond asked the question, that first customer from last year who had done their evaluation and then, you know, in Q2 last year signed an ARR customer contract, and that was a one-year contract. Now, when they lapped into the second year, not only did they renew, but they renewed, upsold with a multi-million dollar upsell, and also extended that to a multi-year commitment. I think that's the path that you should be thinking about of these deals.

Speaker 3

That's a great point. Thank you.

Speaker 5

Thank you. The next question is on the line of Patrick D. Walravens with Citizens. Please proceed with your questions.

Speaker 4

Fantastic. Thanks, guys, for taking the question. This is Nick on for Pat. A few months ago, you introduced your four new agentic AI products, and I know it's still early, but could you share what customer conversations around these products look like? Are we seeing, you know, general interest in them? Among the four, which is seeing the most traction?

Speaker 2

GenAI has a lot of attraction. I think it's the fastest growing product we have currently in our product portfolio, and we're seeing a lot of demand for that and a very, very strong pipeline going forward. I think almost every one of our customers, when we present them, are trying and evaluating them, that solution.

Speaker 4

Great. Thank you very much, and congrats on the quarter.

Speaker 5

The next question is from the line of Adam Hodges with Goldman Sachs. Please proceed with your questions.

Speaker 4

Hi, guys. This is Greyson Hunter Sklba for Adam. Thank you for taking the questions. I wanted to start on the guide, just looking at the 3Q guide and then the 4Q implied numbers, a bit of acceleration implied in the 4Q number. I'm curious on what is driving your confidence there and how the ramping productivity from some of those new resources factors into that guide. I just have a quick follow-up.

Speaker 0

Hey, Greyson, Jason. Like we talked about in the shareholder letter, we have a good pipeline that we've been talking about for a couple of months now. I think now you're starting to see these conversions of these large transactions coming through. We've got some visibility, but as Or said, the sales team's got to close the business. That's really what's going on to the back end of the year. This is what we've told you since early 2025. We said that we believe that the acceleration you would see happening in the back end of the year, and hopefully that you're starting to see that stuff come through.

Speaker 4

Great, thank you. I just wanted to—oh, sorry, go ahead.

Speaker 2

No, regarding the go-to-market productivity, we also see a nice improvement. We also shared it in the investor letter, and we talked about it, that we had a record high of salespeople closing deals. You see that they start ramping up, and we're looking forward for them to closing more deals in Q3 and Q4.

Speaker 4

Great. Thank you. I just wanted to touch quickly on profitability. Nice beat in the quarter. Obviously, a nice flow through to the full year number there. I'm just curious if there's anything to call out there or if that was just a function of some higher top line revenue than expected. Thank you.

Speaker 0

Yeah, obviously, the beat on the top line obviously flows through to the bottom line. That's for sure. Our philosophy is to operate as a profitable growth company, and that discipline that we've had for the last three years that showed, that translated into a 4,500 basis point improvement over the last three years, is something that we practice every single day. You're seeing some of that discipline execution come through as well.

Speaker 4

Great. Thank you.

Speaker 5

Thank you. The next question is from the line of Jason Stuart Helfstein with Oppenheimer. Please receive your questions.

Speaker 4

Hey, everyone. Obviously, the numbers, particularly around the RPO and the billings, definitely suggest a pickup in the business, and there are a number of things happening. Can you, like, how is your way to allocate the success? You have the improved sales productivity from the changes you made last year. You've got new, you know, you've got the AI products coming online. You've got the new mobile products. I don't know if there's upgrades and changes you made around some of the, you know, some of the commerce tools, et cetera. Is there a way to just unpack how much of, let's say, that 9% acceleration in RPO is from sales versus product? I don't know how deep you want to go on the product side. Thanks.

Speaker 0

Hey, Jason. Sure. Without going into, you know, product by product, I think that there are a couple of things that are driving this. When you look at the RPO, there are new and exciting products, and you're seeing that already in the Gen AI products. I think the last quarter we called out the app product, and we have already at that point well over 400 customers who are using that new product and enhanced app intelligence that we have. I've been on the road and with our teams, and I sit here with the sales teams, and they say that the two things that in literally every conversation that people are asking about are the Gen AI suite and also the app intelligence. That is something that is definitely driving pipeline and conversions.

On the flip side, when you look at RPO, I think that it's important to also look at not only is the overall revenues growing, but when you look at the multi-year, that is now up to 57% of our ARR. Looking back just a year ago, it was only 44%. I think that, one, also drives up the RPO overall, but secondly, gives us a lot of visibility and confidence into the durability and the revenues.

Speaker 5

Thank you. The next question is from the line of Lucas John Horton with Northland Securities. Please receive your questions.

Speaker 4

Yeah, hey guys, congrats on the quarter. Thanks for taking the questions. Just wanted to talk about pricing on the data licensing side. How are you thinking about pricing for these data licensing contracts? You noted that this accounted for 8% of revenue mix in the quarter. I'm just curious how you think about this mix shift going forward.

Speaker 2

Those are very big data deals, not only by dollar, but also amount of data. They start with usually seven figures in deals, and there is a lot of room for expansion. As I talked a little bit before, because there's many different data sets that can be used on training those LLMs from web data, app data, consumer behavior data, et cetera, each data set is priced differently.

Speaker 4

Okay, I got it. As far as mix shift, how you see that going forward, which accounted for 8% in the quarter, is it a little too early to tell?

Speaker 2

There is a strong pipeline for those offerings, but it's not only the data for LLM, it's also the Gen AI module that helps track brand visibility on the chatbots and the traffic websites get from Gen AI. Of course, the AI agent. We have three different offerings around AI that we're now bringing into the market. It looks strong, and we're seeing great demand all across those three offerings.

Speaker 4

Okay, got it. Yeah, just kind of piggybacking off of that, you guys have launched several kind of AI agents and products and enhancements throughout this year. Just wondering how much of the focus now is on continued new product development versus kind of selling with the current product suite, and just kind of the focus between the two?

Speaker 2

Yeah, it's a combined strategy. Basically, you take each one of the product offerings we have today and you add agents to it. You know that the stickiness will go up, how high the customer exceeding from those solutions will go up. Those agents are integrated inside of our solutions.

Speaker 4

Okay, got it. Awesome. Thanks for taking the questions and congrats again on a really nice quarter here.

Speaker 0

Thank you.

Speaker 5

Thank you. As a reminder, to ask a question, you may press star one. The next question is from the line of Tyler Maverick Radke with Citi. Please proceed with your questions.

Speaker 7

Hi there. Thanks for taking the question. Or, could you talk a little bit more about the sort of licensing dynamics that you called out this quarter? How often do you see this? Is this a big part of the pipeline? I guess for Jason, in any way you can sort of quantify the revenue impact in the quarter. I think people are just trying to understand the big picture. Obviously, this is a big revenue stream today, but is there a risk that this is sort of a one-time deal? Just your confidence level in being able to sustain them as a durable subscription.

Speaker 2

Thank you for the question. I don't think, and all those engagements are not supposed to be a one-time deal. The process is that you pay one time to go into the evaluation of the data when you need Similarweb to shift your infrastructure, a big amount of data. They pay one time for that. Once the data is landed on their servers, they try to start to evaluate. Once they go through this process and see the uplift and the improvement in their models, they come and engage for the long term. Basically, you see that we are engaging with those companies for a long time. As Jason said before, we already renew one of those customers for multi-year engagement. We are very confident that the pipeline we have going forward is not only strong, but also a big opportunity outside of that.

Speaker 4

Jason, any classification of how big that was?

Speaker 2

How big was it?

Speaker 4

What is the transactional component of the one-time licensing?

Speaker 2

Yeah, it was a little over $1 million. Remember, it was over $1 million, I should say. Remember the deals that we had last year, which had already gone through the evaluation and turned into ARR, and we talked about those in Q2, Q3, and Q4 last year. Those are recurring revenues and are going through. One of the things that we called out earlier and talked about in the shareholder letter is that the deal that we had signed in Q2 last year had also not only renewed, of course, it came up for renewal, it was an ARR deal last year. It now got up for, it came up for renewal in Q2. Not only did they renew, they upsold at a multi-million dollar ARR deal on top of what they already had in the baseline.

Secondly, they extended that not only to be an ARR and just a one-year term, but into a multi-year deal. I think that gives us a little bit of confidence that these transactions are not just a one-shot deal. The opportunity that we have there is not only to train the LLMs, but on the ongoing, not only the pre, but also the post. Or, you may be able to talk about that a little bit as well.

Speaker 5

Thank you. Next question is a follow-up from the line of Patrick D. Walravens with Citizens. Please receive your questions.

Speaker 7

Thank you. Jason, as you look back over the last three quarters, you have a great, it looks like you're going to have a great move up in your stock now. Two quarters ago, we had a huge move down. Do you feel like there are any lessons that you've learned or things that you would have done differently in terms of smoothing out the experience for yourselves and for your investors?

Speaker 2

I think one of our biggest lessons is to do a much better job on communication. I think our strategy and our commitment to show and deliver what we say is on track for the past four and a half years that we're a public company. I think that's just being much better in communication. We can contribute a lot for that going forward.

Speaker 7

Jason, any thoughts from your end?

Speaker 0

I think they, you know, I agree with Or on that front. As we look, you know, going forward, part of the additional color that we've given this quarter, hopefully, is appreciated and gives some insight into how the continued growth is expected to be.

Speaker 7

Okay. Thank you, guys, and congratulations.

Speaker 5

Thank you. This now concludes our question and answer session. I'd like to turn the floor back over to Or Offer for closing comments.

Speaker 2

Thank you, everyone, for joining our call, especially our shareholders for the support. We look forward to speaking to you again over the coming days. Have a great week, everyone. Thank you.

Speaker 5

Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.