Operator: Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Semrush Q1 2023 Earnings Call. Today’s conference is being recorded. All lines have been placed on mute, to prevent any background noise. After the speakers’ remarks there’ll be a question-and-answer session [Operator Instructions] At this time, I would like to turn the conference over to Brinlea Johnson with the Blueshirt Group. Please go ahead.

Brinlea Johnson: Good morning, and welcome to Semrush Holdings First Quarter 2023 Conference Call. We will be discussing the results announced in our press release issued after market close on Monday, May 8. With me on the call is our CEO, Oleg Shchegolev; our CFO, Brian Mulroy; our President Eugene Levin, and our CMO, Andrew Warden. Today’s call will contain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning our expected future business, and financial performance, and financial condition, expected growth, adoption and demand for our existing and any new products and features, investments and acquisitions and their anticipated benefits, industry and market trends, our competitive position, our market strategy, market opportunities, our guidance for the second quarter of 2023, and the full year 2023, and statements about future operating results, including margin improvement, profitability and free cash flow goals that can be identified by words such as expect, anticipate, intend plan, believe seek or will.

These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date and we do not undertake any duty to update these statements. Forward-looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. The discussion of the risks and important factors that could affect our actual results, please refer to our most recent quarterly report on Form 10-Q and our annual report on Form 10-K filed with the Securities and Exchange Commission, as well as other filings with the SEC. Also, during the course of today’s call we refer to certain non-GAAP financial measures. There is a reconciliation schedule showing the GAAP versus non-GAAP results currently available in our press release issued yesterday after market close, which can be found at investors.semrush.com.

And with that, let me turn the call over to Oleg.

Oleg Shchegolev: Thank you and good morning to everyone on the call. I want to provide a few highlights on the quarter, before Eugene talks about our 2023 strategic initiatives and then Brian will discuss our financial results. Firstly, I am pleased to report first quarter revenue of $70.9 million, up 24% year-over-year. I’m also pleased with our strong customer growth issuing the significant milestone this quarter of 100,000 paying customers I believe that, we have a variable runway for growth fueled by product expansion, record net new customer, additions as well as sustained demand environment particularly surrounding interest in organic marketing. This quarter, we achieved a record in net new customer additions and registrations, and trials continue to hit new peak levels.

We’ve be achieving the success of our targeted personalized promotions and still optimistic about our future growth based primarily on the record net new customer adds and our long history of customers returning to our platform. Global serving customers in 150 countries across industries and market segments ranging from small businesses and start-ups to Fortune 500 companies and global businesses. Our digital marketing platform features 55-plus tools that enable us to cater to a wide range of customer needs positions us as a leading solution in the digital marketing landscape. We continue to win because we are uniquely positioned and offer products and solutions that create value for our customers. Semrush is unique software platform that enables marketing professionals to build manage and measure campaigns across all channels to improve their online visibility.

We have a comprehensive [indiscernible] offer a wide area of tools and features that cover search engine optimization, increasing care research, rank taking, betting analysis, site audits and on page optimization. Our sticky products can generate tremendous ROI for our customers. This translates into a very low user base. To demonstrate the significance of our platform, it is not unusual for us to see customers return to us following an initial pause or cancellation. We also see examples of individual users leaving their employment, only to later sign up as a new customer with their new employer. We believe our user dedication and dependency demonstrates the value of our product and its necessity to thousands of marketing professionals and organizations of all sizes.

In closing, we are executing on our strategy of balancing revenue growth with a focus on profitability and remain dedicated to delivering shareholder value. With this in mind, we have made a number of improvements to our operating model, including adjusting our spending, and I am confident in our market position. Before I turn it over to Eugene, I wanted to welcome our new Chief Financial Officer, Brian Mulroy, to his first Semrush earnings call. Brian started early April and brings his exceptional background to Semrush, with over 23 years of experience in finance and technology. He has already impressed us with his strong financial acumen and ability to get up to speed so quickly on our business. Brian, we are really excited to have you onboard.

With that, I’ll hand the call over to Eugene.

Eugene Levin: Thank you, Oleg. We delivered a strong first quarter, starting 2023 with solid momentum. As I mentioned on our last earnings call, we are focused on enhancing our product portfolio and driving operating efficiency in 2023 and we are making progress on each front. Let me explain this in more detail. This quarter, we announced a small tuck-in acquisition of Traffic Think Tank, a leading marketing education company and community featuring premium content by and for world-class marketing and growth leaders. With more than 300 hours of content from over 90 industry experts, the Traffic Think Tank Academy is one of the most well-respected resources for digital marketing education in the world. We expect, the wealth of knowledge of their experts and their expansive content library will further enhance the Semrush Academy to provide new training for marketers and continue improving existing modules.

Semrush has ambitious goals to establish a customized and best-in-class, self-paced training platform, setting a new benchmark for digital marketing education, and aiming to deliver a premium experience for marketers globally. We believe that by adding Traffic Think Tank, and ongoing enhancements to our academy program, we will inspire and educate the next generation of digital marketers. We believe that by adding additional educational content and an overall premium experience will make our product stickier and will be a necessary tool and resource for marketers world-wide. We continue to develop our platform by adding new apps, automating the onboarding process and cross selling our products. In fact, more than 20% of Semrush customers now buy multiple products.

This success reinforces our commitment to our App Center and overall platform vision. We often get the question of what generative AI means to our business and I would love to spend a couple minutes explaining how generative AI presents new opportunities for us. First, we are aggressively adapting our product to incorporate new sources of data and improve functionality, with a particular focus on generative AI capabilities. This year we launched several important AI powered apps in our App Center. For example, we released ContentShake, an app that combines Semrush data with GPT to create content that is optimized for virtually any audience or topic. We also launched Instant Video Creator that makes videos from blog posts in seconds, allowing our customers to repurpose existing text content in social media.

We also have several apps that use AI to generate everything from social media posts and hashtags to ad copies and banners. We have an Analytics Narratives App that scans Google Analytics, extracts the most important information and uses AI to present it as an executive summary that even a 5th grader can understand. Throughout the year, we plan to keep expanding our portfolio of products that use this technology both within our core products and in the App Center. Finally, we are focused on operating more efficiently. In Marketing, we’ve completed several experiments from last year and we are now seeing the benefits with sustained, higher levels of trials year-over-year. As a result of our experiments, we are launching stronger, more efficient campaigns.

We continue to adjust our go-to-market strategy to invest in territories and channels to improve ROI. We’re bringing more balance between organic and paid marketing channels, and already see strong signs of growth across both, with organic ahead of plan in Q1 and better-than- expected optimization of spend for paid channels. We will heighten our focus on automation, and we’ve seen record net-new customer adds In our sales teams, specifically in expansion and retention, we’re committed to driving better efficiency with dedicated, automated ways to grow our customer accounts. We plan to focus sales efforts on expansion and increased sales team productivity for accounts that have higher average checks to drive overall growth. We are investing now in actions to drive stronger sales results and further efficiencies in 2023 and beyond.

This year, as a percentage of revenue, we plan to spend less on sales and marketing compared to the prior year. Across the company we intend to carefully manage expenses and are staffed according to the current demand environment. As a result, we expect headcount growth to be modest compared to 2022. I will now turn the call over to Brian, who will provide a more detailed discussion of our financial performance and guidance. Brian, it is great to have you on board for your first Semrush earnings call.

Brian Mulroy: Thank you, Eugene, and thank you Oleg for the warm welcome and introduction. It has only been a few weeks and I can already see that Semrush has all the attributes a CFO values – a high margin, growing recurring revenue business, and a loyal, committed customer base. We have a huge market opportunity and a truly diverse global business, serving customers in 150 countries, across all industries and across all market segments, ranging from small businesses and startups to Fortune 500 companies and global agencies. I am incredibly excited to join Semrush and to be working with an experienced and passionate management team. I look forward to helping drive the next phase of growth. Now, turning to our Q1 2023 results.

Our Q1 Revenue of $70.9 million was up 24% year-over-year and above the high end of our Q1 2023 guidance range. Growth was driven by record net new additions and continued growth in our average revenue per customer. Our dollar based net revenue retention for the first quarter was 116%. We continue to expect our net revenue retention to remain strong as we execute on our up-sell and cross-sell strategies within our installed base. ARR was $293 million as of March 31, 2023. First quarter gross margin of 82.2% was up approximately 250 basis points from a year ago. Gross Margin benefited from higher revenue and continued leverage from our hosting and third party service costs. We continue to expect gross margin above 80% in the near term. Operating expenses were $69 million in the quarter, down 4.3% sequentially as we continue to drive efficiencies, carefully manage expenses and drive towards sustained profitability.

Non-GAAP net loss was $7.1 million and at the high end of our guidance range of $8 to $7 million. Turning to the balance sheet, we ended the quarter with cash and cash equivalents, and short-term investments of $232.3 million, down from $237.5 million in the previous quarter. Our cash flow from operations in the current fiscal year was negative $3.6 million. We also incurred approximately $0.3 million of capital expenditures and capitalized $1.1 million of software development costs. Looking ahead to 2023 guidance, I am confident in the underlying trends in the business and capabilities of our leaders to deliver profitability. We are committed to maintaining a disciplined and balanced approach to optimizing costs and improving efficiency and profitability, while continuing to invest in future growth opportunities that we expect will drive long-term value.

For the second quarter we expect revenue in the range of $73.6 million to $75 million, up approximately 19% year-over-year at the midpoint. We expect the second quarter non-GAAP net loss of $3 million to $1.5 million. For the full year, we are reiterating our prior revenue guidance of $306 million to $309 million, which would represent growth at the midpoint of approximately 21% year-over-year. We continue to expect non-GAAP net income of breakeven to $3 million for the full year. Our non-GAAP net income guidance range assumes a euro exchange rate of approximately 1.06 to the dollar for the remainder of the year. With that, we are happy to take any of your questions. Operator, please open the line for questions.

Operator: Thank you. [Operator Instructions] We’ll go first to Mark Murphy at JPMorgan.

Operator: We’ll move next to Scott Berg at Needham.

Operator: Next we’ll move to Parker Lane at Stifel.

Operator: We’ll move next to Michael Turits at KeyBanc.

Operator: And our next question comes from Elizabeth Porter at Morgan Stanley.

Operator: We’ll move next to James Heaney at Jefferies.

Operator: And that does conclude our question-and-answer session. At this time, I would like to turn it back over to management for any closing remarks.

Oleg Shchegolev: Thank you for your questions. In closing, we want to say look we delivered strong starts to the year and we achieved a very important milestone 100,000 customer – 100,000 paying customers. It’s a very important milestone for us. We are very committed to making online marketing easier for businesses of size. Thank you for your support. We are looking forward to keep you updated on our progress. Thank you.

Operator: That does conclude today’s conference call. Thank you for your participation. You may now disconnect.

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SEMRUSH HOLDINGS INC

Q1 2023

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