Greetings, and welcome to Similarweb's Third Quarter Fiscal 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, RJ Jones, Vice President, Investor Relations. Thank you, RJ. You may begin. Thank you, operator. Welcome everyone to our third quarter 2023 earnings conference call. During this call, we will make forward-looking statements related to our business. These statements may include the expected performance of our business and our future financial results, our strategy, the potential impacts of 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, our anticipated long-term growth and overall future prospects. These statements are subject to known and unknown risks, uncertainties, and assumptions that could cause actual results to differ materially from those in the 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 March 23rd, 2023, and in particular, the 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, November 8th, 2023. We undertake no obligation to update any forward-looking statements we make today, except as required by law. As a reminder, certain financial measures we use in presentations of results on our call today are expressed on a non-GAAP basis. In particular, we reference non-GAAP operating loss, which represents GAAP operating loss, less share-based compensation, adjustments and payments related to business combinations, amortization of intangible assets, and certain other non-recurring items. We use this and other non-GAAP financial measures internally to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes. We believe these non-GAAP financial measures, when taken collectively, may be helpful to investors because they provide consistency and comparability with past financial performance by excluding certain items that may not be indicative of our business, results of operations or outlook. However, non-GAAP financial measures have limitations as an analytical tool and are presented for supplemental informational purposes only. They should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. A reconciliation between these GAAP and non-GAAP financial measures is included in our earnings press release, which can be found on our investor relations website at ir.similarweb.com. Today, we will begin with brief prepared remarks from our CEO, Or Offer, and CFO, Jason Schwartz. Then we will open up the call to questions from sell-side analysts in attendance. Please note that we publish a detailed discussion of our third quarter 2023 results in a letter to shareholders for investors to reference, as well as an updated investor presentation with a strategic overview of the business, both of which are available on our investor relations website. With that, I will turn the call over to Or Offer, CEO of Similarweb. Thank you, RJ, and welcome everyone joining the call today. In Q3, we reported another quarter of growth and operating improvements. We grew our revenue 10% over Q3 last year to $54.8 million. Our global customer base grew 12% year-over-year to nearly 4,400 customers, and our average customer spends nearly $51,000 with us annually. I'm very proud of the team as we crossed a series of profitability milestones. I'm excited to report that our Q3 non-GAAP operating margin showed a strong improvement of 29 percentage points compared to last year, which led us to achieving our first ever non-GAAP operating profits in a quarter. This is a significant achievement for us, and it is truly a team accomplishment, and I'm very proud of the team. Q3 metrics at the top of our funnel continue to stay strong. We had around 30 million visitors to our free tools at Similarweb.com in Q3, and we are on a phase of exceeding more than 120 million visits to our tools this year. As a result, our pipeline remains robust, and we are adding new customer and expanding our penetration into our market. During the quarter, we launched Similarweb 3.0, which is the latest generation of our platform. Similarweb 3.0 is a new way in which we package our offering that includes new data, insights, and navigation. We now have a better pricing alignment with our customer that enhance our go-to-market motion and improves our offering to our enterprise customer, and our average order value since launch has increased noticeably. We continue to make progress with Similar Ask, our digital intelligence AI assistant, that uses Similarweb digital data to answer real questions that the user types in free text without having to know how to navigate our platform. The latest version of the feature is now widely available to our platform and integrates AI-based trend analysis into the research results for websites benchmarking. We are just getting started with what is possible with generative AI, and we believe that merging Similarweb digital data with AI capabilities creates an amazing growth potential for us. I would like to take a minute to discuss the circumstances we are facing in Israel. As you know, one month ago, Israel suffered a horrific terrorist attack. We stand in solidarity with Israel while recognizing the human suffering across the region. We are proud to be an Israeli company with offices and employees around the world. Since October seven, our people have demonstrated a great resilience, keeping business as usual while adapting to the current situation. We continue to deliver our solution and insights to all of our global customers without interruption. To all Similarwebbers, we thank you for your continuing commitment to keep business operating, running smoothly. To our customers, partners, and you in the investment committee, we are grateful for your support. So many of you wrote to me personally to share solidarity. It means so much to me, and thank you so much. With that, Jason, I will turn the call over to you. Thank you, Or, and thank you to everyone joining us on the call today to discuss our third quarter results. I will briefly address our financial performance, and then we'll open up the call to questions. Our results in the third quarter reflect the cumulative effect of our focus on disciplined execution. Revenue was $54.8 million for the quarter and exceeded the high end of our guidance range. For our $100,000 ARR customer segment, NRR was 108%, as compared to 123% in Q3 last year, and now represents 55% of our total ARR. Despite longer sales cycles than we have seen historically, customer acquisition and logo retention were steady in the third quarter. Consistent with trends earlier this year, we saw challenges to expansion within our existing customer base as enterprises are continuing to optimize their budgets and spending. Some customers have reduced their spending with us in order to meet budget constraints while remaining a Similarweb customer. We are encouraged that 43% of our ARR is generated from customers with multi-year contracts, demonstrating the strength and longevity of those customer relationships, driven by the enduring value that we deliver. While our results on the top line were better than planned, we also exceeded expectations in our operating efficiency and on our bottom line. Our non-GAAP gross margin reached a new record of 83%. Our third quarter GAAP operating loss was $4.9 million, while our non-GAAP operating profit was $1.1 million. This result was our first ever profitable quarter on a non-GAAP operating basis and is a momentous achievement. Notably, as Or mentioned, our non-GAAP operating margin improved 29 percentage points versus the prior year. Turning now to Q4 2023, we expect total revenue in the range of $55.5 million-$56 million. For the full year, we now expect total revenue in the range of $216.8 million-$217.3 million, representing approximately 12% growth year-over-year, midpoint of the range. Non-GAAP operating profit for the fourth quarter is expected to be in the range of $500,000-$1 million, which would amount to our second profitable quarter on a non-GAAP basis. For the full year, we expect our operating loss to be between $8.6 million and $9.1 million. In the fourth quarter, we expect to reach our goal of sustained positive free cash flow quarterly. We continue to focus on balancing growth with profitability as we become sustained free cash flow positive. We believe that our team, our business model, and our balance sheet remain resilient as we navigate the current environment. As a global company headquartered in Israel, we remain united, resilient, and determined to achieve our goals. We are committed to keeping business as usual, and our focus on disciplined execution will continue. The opportunities in front of us will continue to inspire us, and our hope for peace will not relent. With that, Or and I are ready to answer your questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. 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 your handset before pressing the star key. One moment, please, while we poll for questions. Thank you. Our first question is from Ryan MacWilliams with Barclays. Please proceed with your question. Hey, guys. Thanks for taking the question, and congrats on the results, given the circumstances. It's great to see the improvements in profitability. Maybe for Jason, how did you see macro change during the quarter? You know, maybe, you know, certain different customer segments. And have you seen any changes from a macro standpoint since the end of the quarter to your customer base? Thanks. Hey, thanks, Ryan. So we're starting to see some improvements in the overall demand environment, you know, and deals starting to accelerate. We're seeing that mostly in Europe and in APAC. And still, U.S. is similar kind of trends like we've been seeing. But we're starting to see that demand starting to convert. We're a little optimistic going into the future. Excellent. And then in your shareholder letter, you said the average order value has increased since the launch of Similarweb 3.0. That's great to hear. Does this mean like a higher price point for the platform, or are customers adopting additional capabilities, or just a larger scope within organizations? A lot more detail there. Thanks, guys. Hey, Ryan, it's Or. Thank you for the question. So they kind of repackaged the different features in different motion, and it drove very nice growth in the AOV. So you get different feature for every package. Like, they really rebuild it from scratch. So it's very different than the old pricing structure we had. Good to hear. Thanks, guys. Thank you. Our next question is from Jason Helfstein with Oppenheimer. Please proceed with your question. Thanks. I just want to send support and best wishes to everybody in Israel. So first, you know, do you think we're at an inflection point here? I mean, obviously we saw the improvement in billings on a year-over-year basis. You know, how much of this is, you know, you're basically getting customers to move to sign contracts faster versus, you know, you're now starting to see customers add some more capabilities where they were not willing to do that, you know, you know, to, you know, and/or some pricing. So if you kind of, like, look at the three ways you can kind of drive billings, maybe break that down and, you know, I guess, do you think we're at an inflection point from here? Thanks. I will start. It's Or, and maybe our Jason also can add more information. I do start seeing a better dialogue around downsell. It's something that I feel that it's we in the end of the era of companies trying to optimize their budgets. I think this is a good indication that maybe there is a trend shift around that on that angle. And, Jason, maybe you have anything to add from your side? Yeah, I think that we're starting to see some of that, starting to trough. But I think the thing that continues to impress us is the continuous desire of customers to sign on for multi-year commitments. And that's very encouraging in an environment where people were trying to reduce commitments or reduce their spend. And the fact that we see again, year-over-year and sequentially, quarter-over-quarter, that number of the percentage of our ARR that's committed under multi-year agreements is something that we watch closely as a good sign for the durability. Thank you. Thank you. Our next question is from Rachel Adeoti with William Blair. Please proceed with your question. Yep. Thank you. I was wondering, if you could talk a little bit more about any impact you guys have seen to either, like, the sales cycles or pipeline conversion since you've introduced the new pricing and packaging plans earlier this quarter? Yeah, sure. And so I think that the new pricing and packaging we introduced improved a little bit the sales cycle and the conversion rate. But overall, in the past few quarters, those metrics got hurt because of the microenvironment. So we did see longer sales cycle around the SMBs that increased dramatically. I think around strat and strategic and enterprise account, it was a small increase. And the conversion rate, I think again, in the past few quarters, you saw that it was harder to convert mostly SMBs. And I do think it's improved the trend, but you know, you still need to do more improvement in order to back to the metrics that they were before the macroenvironment start changing early this year. Awesome. Thank you. And then maybe just following up on that, were there any adjustments you needed to make with the go-to-market motion or the sales force when you introduced the Similarweb 3.0? No. No. Awesome. Thank you. Thank you. Thank you. Our next question is from Brent Thill with Jefferies. Please proceed with your question. Hi, Or and Jason, this is John Byun for Brent Thill. I had two questions on Similarweb 3.0. I mean, it's been, I guess, two months since that was announced. I don't know if you could dig in a little bit in terms of details into, you know, where you've seen the most impact in terms of on the major solution category or add-ons. And then, second, you know, from the previous comments earlier, it does look like things are starting to maybe stabilize a bit. The net revenue retention numbers seem to be slowing the descent as well. And I don't know if you agree with that, and where or when do you think they might bottom? Thank you. Yeah. I will try to answer it, two questions I heard. I think the nice thing we're seeing with the Similarweb 3.0, that it's like a new approach when we kind of, when a customer now buying that package, he gets exposed to most of the features we have, even the premium one, but with the lower, capacity. So it's giving us also much better land-and-expand. So if you like one of the feature, you play once, twice, and if you want to repeat usage, you need, then you go to, like, a ladder approach. And we do see that those features that we introduced, and also one of them was the rank tracking capabilities. It's a capability we got from acquisition we did last year from a company called Rank Ranger. So those kinds of operational capabilities are increasing the user engagement and retention in the platforms, so they're coming more often, and they use the platform more. So it was a good success. Now with the Solution 3.0, all the customers getting exposed and to those features, and this is around that. The second question, from what I remember, was around the trend around the NRR. So we do see stability around the net retention that is stable, and in the past few quarters, it was tougher to do upsell. But I do feel and think this is going to change, hopefully, especially as the macro environment gets more stable. Thank you. Thank you. Our next question is from Brett Knoblauch with Cantor Fitzgerald. Please proceed with your question. Hi, Jason and Or. Thanks for taking my question. I just want to send my support as well. Maybe on the product front, could you maybe walk us through what the top two or three things are you're doing that you think will kind of increase the mission criticality of your platform? Maybe it's something to do with Gen AI, but just curious what you're doing on that front and what it means, kind of like a difficult demand backdrop. Yeah. Yeah, for sure. So I will answer in two parts. First, a lot of our teams, we shift them to improve stickiness and success of onboarding in the past few quarters, so we're putting a lot of emphasis about improving setup, onboarding. I think our platform is very deep and has a lot of capabilities, and we still feel that most of the customers are not aware of to all of the capabilities we have. We can have an amazing insight, and we know that if you push them and discover all those other capabilities, it is increasing retention and upsell and all, all the other metrics. So we're putting a lot of emphasis around that. And then regarding AI, we have a dedicated team that is, his whole job is to implement AI all across the platform. So we just released what we call the first version of Similar Ask, that help users to navigate inside our platform, like in free text. They can type whatever data they want to get, and he will walk them in the platform to the right place to find that. And I think the second part is we'll do integrate AI in many other parts to help you do the analysis, basically be your copilot, you know, as you use the platform. So there's a lot of exciting stuff that are working in progress, and we will introduce them slowly every quarter in different parts of the platform. Awesome. And then maybe one for Jason on, just sales cycles. I think you guys first mentioned the possibility of them elongating in the second quarter of last year. And I think every quarter since we've kind of had talked about sales cycles elongating. I'm just curious if they still have been lengthening quarter-over-quarter, or if they've kind of remained steady, and at what point, you know, if they are remaining steady, will it become maybe less of a headwind? Sorry, are you hearing that? I think that- Yeah. You're right. We started seeing the impact of that about Q2 of last year. We saw that the cycle starting elongating. I think the last couple of quarters, we've seen them stabilizing, kind of, you know, at the rate. We don't see them lengthening longer, but we do see them not getting. We didn't see them getting shorter. We're starting to see some of that, free up and starting to turn, but it's too early to say that that's a trend just yet. I think the number that we report in the investor deck, we share the, you know, the CAC payback period, which is now between 19-20 months on a gross profit basis. Historically, that's been in the 15-16 month payback period, and we think that as stuff starts shifting back to normal cycles, that we'll start seeing those payback periods starting to return back to those historical levels. Awesome. Thank you, guys. Thank you. Our next question is from Patrick Walravens with JMP. Please proceed with your question. Oh, great. Thank you. And we're keeping you and your families in our prayers. You know, first of all, congratulations on the profitability. I I mean, it's kind of a big deal, right? So, Jason, where can that go? What's the plan? Hey, Pat, thanks so much for the good wishes. And you know, we believe that on a long-term basis, you're gonna be seeing, you know, 85% gross margins and 25%, you know, non-GAAP operating margins. And we. That's our long-term margin and our long-term model, and that we think is somewhere in the neighborhood of $400 million-$500 million and has been consistent that way. And- Mm. And we're really excited to see that the numbers start, you know, pulling into, pulling into place, seeing, you know, gross margin getting 82%-83%. Seeing sales and marketing down to, you know, 41% and G&A, you know, already at 16% and coming down. I think there's a lot of efficiency that we talked about throughout this year that we were gonna deliver, and we are really focused on that disciplined execution that we've talked about over the last couple of quarters. Okay, and then, so once you hit free cash flow positive, will you feel like you can start operating a little differently? What do you mean? Well, what will you be able to do that you're not doing now? No, I think the model that we've built, you know, The model is designed to be profitable from the get-go. The beauty of the unit economics here are that we have a good retention rate, and more importantly, we have great ongoing margins in the second and third year. We lose money on the customer in year one. That's a 15-16 payback period. But in year two, we're wildly profitable on the customer. And so that retention that we have and the durability that you see in those multiyear deals gives us a lot of confidence that we're gonna be continuing to produce that. We'll continue to invest in the things that drive further growth, but we're very committed to operating as a profitable growth company. And I think that's what we said in the beginning of the year, and we're happy to see some of this stuff start to come to fruition with the achievement of operating profitability already this quarter. Yeah. Okay, last one for me. So as a customer and a user, an example of something I'd love to see you invest in would be an iPhone mobile app, and especially if you're gonna use GenAI, so I can just talk to my phone and tell them what I want to see in terms of the data from somewhere. So, that, you know, you know, Or, when am I gonna get one of those? Maybe when we start producing cash, I will start investing. Right. That was what we. Let's tell me tomorrow. Let's tell me Let's tell me tomorrow. Yeah. How to monetize. Now, when we'll be profitable, I can go back to those adventure of trying new things. But, so yeah, here's what we're gonna do with the, with the free cash flow. You got your answer. Okay. All right, great. Voice commands. Thank you. Our next question is from Tyler Radke with Citi. Please proceed with your question. Yeah. Hey, thanks for taking the question, and I'll echo my best wishes, and you know, good to see the resiliency here. Just wanted to just start off on the gross retention side. So it was encouraging to hear kind of the pickup and what seems to be, you know, new bookings and expansion bookings. But do you feel like you're starting to see the gross retention rates and that turn the corner? If you could just kind of comment on the timeline of seeing that bottom. Yes, we're starting to see, see that's I think Or mentioned, earlier, Tyler, that, that we're starting to see a, you know, a, a slowdown in the, in the down sales or, you know, the constriction of, of budgets that, customers are having. I think people have done the optimizations that they needed, and we're starting to see those things, you know, not only renew, but also renewing for, for longer periods of time. As you see, you know, that's that metric that we keep on watching, the multiyear, commitment. So that, that gives us some, degree of confidence, but again, we're starting to see it turn, and we're gonna keep on monitoring it over the next couple of quarters and see that, that, that turn is happening on a sustained basis. Okay. Okay, great. And, Jason, I know you're not providing, you know, official 2024 guidance. Obviously, you know, Q4 is a big quarter to get through. But if we just think about where you're guiding Q4, I believe in the high single digit revenue growth range, is that a good baseline for next year? Or maybe given what you're seeing on the new business side, we could see growth rates pick up from that 9%. And then secondly, on profitability, do you feel like, you know, certainly there's been a lot of margin expansion this year, but how should we just think about the puts and takes on the margin expansion side of the equation, too? Thank you. Yes. So, we're gonna obviously, you know, wait on giving guidance for 2024 till the end of the year. I think you're right that, you know, Q4 is an important part as we start thinking about that. But, you know, the optimizations and that we've done during the year, I think, have proven that we can operate more efficiently, and we've done that. The beauty of the model is that there's a lot of leverage, right? The same fixed cost that we have, whether that's in the gross margin line or in G&A, R&D, and the like, are highly leveraged as the revenue grows. That's. There should be, you know, further margin expansion as that continues to grow, but we'll give more guidance on all the margins for 2024, you know, at the beginning of the year. Okay. Thank you. Thanks. Thank you. There are no further questions at this time. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.