Similarweb(US:SMWB)2024-02-28 14:11PART I Key Information This section outlines critical information for investors, focusing on significant risks that could impact the company's business, financial condition, and operations Risk Factors The company identifies numerous material risks, including a history of net losses, intense competition, technological vulnerabilities, evolving regulatory compliance, and geopolitical instability in Israel - The company has a history of net losses, reporting losses of $69.0 million in 2021, $83.7 million in 2022, and $29.4 million in 2023, and may not achieve or maintain profitability in the future62 - The business is susceptible to geopolitical risks due to its significant operations in Israel, including the recent conflict with Hamas, which could adversely affect operations and lead to decreased revenues266267 - Changes in data privacy laws (e.g., GDPR, CPRA) and public perception could impact the company's ability to gather and process data, which is fundamental to its solutions, potentially increasing compliance costs and legal exposure175176 - Competition is intense and comes from market research firms, traditional media measurement solutions, management consultants, and new market entrants, including large technology companies that could develop competing products7172 Information on the Company This section provides a comprehensive overview of Similarweb's business, detailing its core function as a digital data and analytics company, its product offerings, market opportunity, and growth strategies Business Overview Similarweb is a leader in digital data and analytics, transforming billions of raw data points into proprietary "Similarweb Digital Data" delivered through SaaS, DaaS, and Advisory Services to help businesses with strategy, customer acquisition, and monetization - Similarweb's core product is "Similarweb Digital Data," created by collecting and processing billions of digital signals daily from four main sources: first-party direct measurement, a contributory network, public data capture, and partnerships303319 - The company estimates its total addressable market (TAM) to be approximately $52 billion, driven by trends like the growing recognition of data-informed decision-making and advances in analytical capabilities310312 Customer Metrics (as of Dec 31, 2023) | Metric | Value | | :--- | :--- | | Total Paying Customers | 4,712 | | Customers with ARR ≥ $100,000 | 365 | | Percentage of ARR from customers ≥ $100,000 | 57% | - Growth strategies include acquiring new customers, expanding spend from existing customers, continuous innovation in technology, democratizing data access, collecting more data points, and pursuing M&A opportunities349350351 Operating and Financial Review and Prospects This section provides management's discussion and analysis of the company's financial performance, highlighting revenue growth, narrowed net loss, operational efficiency, and liquidity position Operating Results In 2023, Similarweb's revenue increased by 12.8% to $218.0 million, gross profit rose to $170.9 million with a 78.4% margin, and net loss significantly decreased to $29.4 million due to revenue growth and reduced operating expenses Key Financial Results (2022 vs. 2023) | Metric | 2022 (in thousands) | 2023 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $193,234 | $218,019 | +12.8% | | Gross Profit | $139,960 | $170,929 | +22.1% | | Gross Margin | 72.4% | 78.4% | +6.0pp | | Loss from Operations | ($87,856) | ($28,807) | +67.2% | | Net Loss | ($83,661) | ($29,373) | +64.9% | - The number of paying customers grew by 16.4% to 4,712 as of December 31, 2023, from 4,049 a year earlier394419 - Sales and marketing expenses decreased by 17.5% to $101.2 million in 2023, primarily due to a $14.3 million reduction in compensation related to decreased headcount and a $2.2 million cut in marketing expenditures424 Non-GAAP Operating Loss Reconciliation | Metric | 2022 (in thousands) | 2023 (in thousands) | | :--- | :--- | :--- | | Loss from operations (GAAP) | ($87,856) | ($28,807) | | Share-based compensation | $16,987 | $18,127 | | Other adjustments | $7,078 | $5,865 | | Non-GAAP operating loss | ($63,791) | ($4,815) | Liquidity and Capital Resources The company's primary sources of liquidity are cash from customer payments and borrowings from its credit facility, with cash and cash equivalents at $71.7 million and a significant improvement in net cash used in operating activities in 2023 Cash and Liquidity Summary (as of Dec 31, 2023) | Metric | Value (in thousands) | | :--- | :--- | | Cash and cash equivalents | $71,732 | | Restricted deposits | $10,020 | | Borrowings under Credit Facility | $25,000 | - Net cash used in operating activities decreased to $3.0 million for 2023, compared to $46.1 million for 2022, primarily due to a smaller net loss448 - As of December 31, 2023, the company had total contractual purchase and operating lease obligations of $99.3 million451 Critical Accounting Estimates Management identifies several critical accounting policies requiring significant judgment and estimation, including revenue recognition, capitalization of deferred contract costs, share-based compensation, internal-use software, and valuation of goodwill and intangible assets - Revenue from SaaS subscriptions is recognized ratably over the contractual term, which is typically 12 months461462 - Sales commissions are capitalized as deferred contract costs and amortized on a straight-line basis over an estimated benefit period of three years465 - Goodwill and intangible assets from acquisitions require significant estimates regarding future cash flows, useful lives, and discount rates for valuation472475 Directors, Senior Management and Employees This section details the company's leadership, compensation practices, board structure, and employee base, including aggregate compensation for directors and executives, and employee distribution - The aggregate compensation paid to directors and executive officers for the year ended December 31, 2023, was approximately $13.1 million498 - As of December 31, 2023, the company had 899 employees, with 568 in Israel, 170 in the United States, 101 in Europe, and 60 in the Asia Pacific region606 - The company has a classified board of directors divided into three classes with staggered three-year terms552553 - As a foreign private issuer, the company follows certain Israeli corporate governance practices instead of NYSE rules, particularly regarding shareholder meeting quorums and the composition of the nominating/corporate governance committee548549 Major Shareholders and Related Party Transactions This section discloses the company's ownership structure, indicating a high concentration of ownership among executive officers, directors, and major shareholders, and confirms the presence of related party transactions - As of February 14, 2024, all directors and executive officers as a group beneficially owned approximately 59.8% of the company's ordinary shares247615 Major Shareholders (Beneficial Ownership as of Feb 14, 2024) | Shareholder | Percentage | | :--- | :--- | | Anglo-Peacock Nominees Limited | 16.4% | | Viola Group | 14.3% | | MIH E-Commerce Holdings B.V. | 14.2% | | ICP S1, L.P. | 7.3% | | Or Offer (CEO) | 8.3% | Additional Information This section covers supplementary corporate information, including material contracts, exchange controls, and a detailed discussion of tax considerations for Israeli and U.S. shareholders - The company does not believe it was classified as a Passive Foreign Investment Company (PFIC) for the 2023 taxable year, but notes this is a factual determination made annually and cannot be guaranteed for future years230680 - The standard corporate tax rate in Israel is 23%, but the company may be eligible for reduced rates under programs for "Preferred Technological Enterprises," though it has not yet examined its eligibility due to its current loss-making status236651 - For non-Israeli resident shareholders, capital gains from selling shares are generally exempt from Israeli tax, provided the shares were purchased after the company was listed on a foreign exchange and the gains are not attributed to a permanent establishment in Israel Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from foreign currency exchange rates, interest rates, and inflation, with primary currency risk arising from NIS-denominated operating costs versus USD, GBP, and EUR revenues - A hypothetical 10% change in foreign currency exchange rates would have impacted the company's net loss by $10.0 million for the year ended December 31, 2023706 - The company's primary foreign currency exposure is due to operating costs in Israel being denominated in NIS, while revenues are primarily in USD, GBP, and EUR706 PART II Controls and Procedures This section addresses the company's internal controls, with management concluding that disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were effective719 - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2023722 Corporate Governance and Other Matters This part covers various governance and compliance topics, including the audit committee financial expert, Code of Business Conduct and Ethics, principal accountant fees, and the cybersecurity risk management program Principal Accountant Fees (2022 vs. 2023) | Fee Category | 2022 (in thousands) | 2023 (in thousands) | | :--- | :--- | :--- | | Audit Fees | $508 | $508 | | Audit Related Fees | $0 | $299 | | Tax Fees | $106 | $154 | | All Other Fees | $28 | $0 | | Total | $642 | $961 | - The company has implemented a cybersecurity risk management program based on the NIST Cybersecurity Framework, with oversight delegated to the Audit Committee747748752 - The company has adopted a Code of Business Conduct and Ethics applicable to all employees, officers, and directors728 PART III Financial Statements This section contains the company's audited consolidated financial statements for fiscal years 2021-2023, prepared in accordance with U.S. GAAP, along with the independent auditor's report Consolidated Balance Sheet Highlights (as of Dec 31, 2023) | Account | Value (in thousands) | | :--- | :--- | | Assets | | | Cash and cash equivalents | $71,732 | | Total Current Assets | $146,385 | | Total Assets | $239,013 | | Liabilities & Equity | | | Deferred Revenue (Current) | $99,968 | | Total Current Liabilities | $184,185 | | Total Liabilities | $223,466 | | Total Shareholders' Equity | $15,547 | Consolidated Statement of Comprehensive Loss Highlights (for year ended Dec 31, 2023) | Account | Value (in thousands) | | :--- | :--- | | Revenue | $218,019 | | Gross Profit | $170,929 | | Total Operating Expenses | $199,736 | | Loss from Operations | ($28,807) | | Net Loss | ($29,373) | | Net Loss Per Share (basic & diluted) | ($0.38) | Consolidated Statement of Cash Flows Highlights (for year ended Dec 31, 2023) | Account | Value (in thousands) | | :--- | :--- | | Net cash used in operating activities | ($3,038) | | Net cash used in investing activities | ($2,586) | | Net cash provided by financing activities | $1,192 | | Net decrease in cash and cash equivalents | ($6,078) |