Earnings call transcript Q3 2022

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Operator

Good morning. My name is Denis. And I will be your conference operator today. At this time I would like to welcome everyone to the Semrush Holdings' Third Quarter 2022 Results Conference Call. All lines have been placed on mute to prevent any background noise. there a remarks session. speaker's the will question-and-answer be After [Operator Instructions]

like I Please conference to over now go to Relations. the Investor turn would VP, Bob ahead. Gujavarty,

Bob Gujavarty

welcome VP morning. conference results Investor Good Bob Holdings' Gujavarty, am Relations, quarter I call. and to XXXX Semrush third of

discussing announced will market press after in release be We on Monday. our issued closed the results

Andrew President, With our CFO, Shchegolev; and CEO, Eugene and me Levin; Oleg on the call is Warden. our CMO, Fetisov; Chairman our our Evgeny

to in highlight Virtual like participation this Before in and Needham we would begin, Annual our Software-as-a-Service the XXth I week. Southwest Dallas, conference, One-on-One IDEAS Conference both

call Safe statements, Harbor Today's Litigation which the the of pursuant Private Securities to XXXX. forward-looking contain provisions of Reform are will Act made

full-year opportunities, financial demand condition, growth, strategies, and our our and on our anticipated Forward-looking the of statements successfully include market new fourth timeline ability relocation statements for market position, concerning quarter guidance and and and and adoption cost. for trends, expected the performance, our employees expect, Russia, features, and we market existing business, our including expected XXXX, products and competitive the industry to plans executing and our at relocate financial future outside the XXXX

any not forward-looking should intend, be These as today relied our date, reflect these duty statements. be as or we subsequent words will. to statements and undertake and expect, any by upon plan, our such can statements identified anticipate, These seek, do of at update views believe, views only, not representing as

results to forward-looking from risks that that to cause and statements. actual address those matters statements Forward-looking materially uncertainties are subject differ could

on actual please Securities SEC. annual to Form our filed the our report and reports Commission, affect Form For the a important that refer XX-Q, as factors as could discussion with other Exchange quarterly well with results, filings XX-K our on our and risks the of

close, the schedule is measures. investors.semrush.com. Also to refer found GAAP release currently available certain during which financial market reconciliation today's of course results a non-GAAP versus in at press showing can the There non-GAAP after be our call, we'll issued

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

Oleg Shchegolev

the a experienced Thank morning our Despite $XX.X demand you and I'm environment, more quarter. results previous everyone year-over-year, very growth with the uncertain the million, in call. with revenue third quarter. and we to X% pleased XX% solid up up of from good on

offset customers end September, paying of As than of with customers, that customer new marketing leveraging partially had note XXXX quarter in new customers, third period. the XX,XXX strength from adds the would in of job more [per has and The approximately those growth. in done team we wonderful we customer our had lower by was I particularly the slightly year-ago revenue a customers expense to annum] high existing And expansion larger [Ph]. average this the

and go-to-market We growth continue customer quarter. hopeful am new I solid continue that spending, our in fourth to we see will fine-tune to the

this this SMM space. professionals, marketing to active addressable social [Ph] expand beyond in our demonstrating [agitated] product our the On Social estimate closer more to [Ph] rolled our We Management a to of users total Toolkit. users marketing our are half XX,XXX digital monthly over than of media professionals. And ability these we with update ended brings Toolkit, major the we us the with paychecks] and believe I [future out front, update Media quarter leaders market

allows our growth, focused the see we our late however growth App customers As in introduce mentioned] our Center Center, strong with as projects] applications [Ph], which new in third-party our quarter. cases we use of a [Ph], use Despite [indiscernible] of [all In relatively fewer purpose-built January variety on the platform. continued on to our team introduced launches, App user may [I remains XXXX. XXXX,

simply this should [indiscernible] Center App remarks, and apps of lineup quarter. growth will up is We aggregation] Center on but the great Semrush extending We the fourth in to have as as [Ph] set done. not his the a boost a central our the reach [aggregators] in Eugene our to a [tollbooth to see of App App goal [Ph] platform. Center mobile near-future, set have in expand launch platform

It's more compared face a we environment a uncertain year clear demand ago. to

our under However, and growth. easy all are to product Semrush our looking been boxes. deliver This year these is investment; continue to has strong quick easy but and any but full are we with a choice products of I successful substantial despite believe Semrush on return the company, focus a budget uniquely purchase, remains. Today, use, strong public that sustain to schedule. has of executed positioned these to on challenges always matter. Customers focus we for revenue and challenges, checks their in growth, ahead efficiency relocation operated [indiscernible] and delivered program being efficiency

by but will unit] underpinned [Ph] We growth growth [solid pursue economics.

our I Center App over will turn Eugene now the for detailed to strategy. of more a discussion call

Eugene Levin

Oleg. Thanks,

clear is and to technology successful immediately that highly result professionals. in There mortgage that of Looking give very fragmented, handful of is use has direct therefore of fragmentation cases a varied companies. is product is technology categories large birth marketing the the market the what stack at public The to and are space, are been enough consolidation a of the slow. preferences

vendors on and few For most examples. social and marketing email media in and use small such through niche are social SEO management, remain cases. example, Semrush are market But, our Mailchimp, focused

expand into digital leverage competitive areas other such success categories R&D. and PR, intelligence, through internal to new as primarily SEO in creation, content We

As for internally to elsewhere. need cases build look but all use R&D use ability our for feasible invest the to we different the our thereby, resources limit cases practical And exponentially. would to as continued expand expand to solutions ahead, extremely not Semrush or

including we variety has to crux the build in customer the seek the third a without this, niche have is product To address This capabilities solution address to strategy our instances solve App third overwhelming party the capacity and to of of cases development. use offer which not needs wide where internal Center of fragment that party many our to offer decided adoption internally. wide we intend applications a market

Semrush portion by possible will but the we of created Over a by made the driven partners revenue long term, Semrush only are platform. by substantial be believe products

feature Center Another App potential model users. monetize of the active is the to free promising

of full may a we have growing of large very and many free the for you modest on of users know, be have their cohort These the may As active level platform. entry requirements users and the overkill needs. program functionality

as functionality a limited in interested up use cases with possibility be app Semrush future may to to by lower priced the the offered subscription their expand. in trade They

whether like strategy Wix will Semrush developers see or to foundation companies grow to Semrush. future. continue believe wide they value lay we believe leading third-party As Center the platform, be I collaborating will for platform App with A growth that the increasingly the central in our well our strategy. is partners, I into The

provide of performance. detail discussion Evgeny financial our now will

Evgeny Fetisov

Eugene. you, Thank

plan. up favoring But, Third X% customers. growth expansion the million our user was XX% and unchanged quarter largely revenue average than pro growth the growth $XX.X quarter in was year-over-year Customer consistent mix moderated from previous of entry previous with quarter. level with [Indiscernible] existing slightly from the revenue due more lower only per product quarter. up XX% of to

mentioned by expected, of customers as to easy impacted our expansion previously. the quarter was I dollar-based XXX% retention [indiscernible] the lower also down comparisons from COVID periods As for existing net impacted the third revenue and

gross basis basis from and previous up year of points was the over Non-GAAP points XXX from up a quarter. margin ago, XX.X% XXX

achieving services. strong in forecasting are leverage cost We our

quarter million the However, investment including I expect sales the growth with gross in exit fourth were X% costs in previous margin in from non-GAAP quarter, operating the $XX.X year-over-year slightly up XX% expenses, and decline will marketing. and of quarter. coming the majority Total for up

Up was development compensation year, X% flat resources XX% $X.X year-over-year the third the quarter. related primarily The brand quarter. year-over-year relocating reflects expense geos. from to was Sales and cost XX% increase million in essentially The was up as high marketing quarter, $XX up to million well but the due as and marketing previous investment and expense third growth Research in quarter. increased to headcount. increased year-over-year and the prior in from headcount sequential and development previous from higher the

quarter. compared spending to Investment is previous cost represent a higher footprint The to G&A to with a of higher loss net increase. and the wider non-GAAP cost margins income I to would associated non-GAAP approximately of not $XX.X to up more million, of net that quarter. of systems XX% robust the quarter. more second the expenses our costs ago, geographic XX% related million and were and in personnel also to non-GAAP year-over-year and higher growth by support cost locations. of net and growth more the was headcount up key than XX% million higher and $XX,XXX primarily relocating exit in year loss $X.X contributed from loss a a net revenue $X.X than contributed the offset IT non-GAAP Strong

Turning we the $XXX to million from the only second $XXX with in quarter. the slightly sheet, million of balance cash, quarter entered down

to capital Our in approximately pleased cash non-GAAP our with cash quarter, continue of and I income the use outperform was the net our operating from flow expenditures. minimize $XXX,XXX, our of ability operations and quarter. we $XXX,XXX am will negative our incurred generation fourth to in expect cash

our we the the is environment we products. although quarter the more be slightly a prudent guidance, it demand is quarter strong to to impacts ahead believe economic fourth for given believe cautious Semrush, which for Looking typically more challenging

fourth revenue the to at in quarter million, up year-over-year the $XX.XX expect We XX% midpoint. million $XX.XX approximately of range

year-over-year. in $XXX.X million represent growth XX% the million, expect which range of full-year, the revenue XX% the would of $XXX.X For to

a expect the $XX.X XXXX. $XX $XX million We of of to million million non-GAAP quarter on million loss a fourth full-year loss non-GAAP for $XX.X to of

Russia, quarter hiring of spending the we the is these impact incremental The two and at the new extent, employees full-quarter to to fourth additional locations. due a relocated primarily the from in lesser

related to payroll as locations. new incur multiple to expect expenses, benefits as supporting increases We higher well office and

deliver to headwinds, continue we are although are to another of we year I We and well, believe execute well-positioned not growth. immune macroeconomic solid to

open for questions. we're that, happy the to questions. please of With any line your take Operator,

Operator

first go question Elizabeth line comes Stanley. the from your Morgan And Instructions] with of [Operator Please Porter ahead.

Elizabeth Porter

wanted much. just cycles. bit on the lot We've a I Semrush spend touch scrutinizing about it to a like small deal seems is macro. dynamic and from insulated so given customers little again sizes more companies you more, the heard just thank deal from of short the Great, but

you're at occur? from changes quarter? to the the improvement the exactly did they when believe did start to start end are they July, I an so and seeing, Thank August you. what was of So, happen

Eugene Levin

this hi, is -- So Eugene.

core in in But don't impact our So, terms in of see we performance of we difference. base, that terms much macro, of see larger accounts.

limited largely business for But counterintuitive many I was larger I pretty mostly app well, which going right the surprisingly, actually, that now process. this think yes, say segment is talked through -- is renewal holding small somewhat stores to and to. So, our would we transactions, customers existing is

Sometimes bit current takes it downsize with to they little would subscription, they they so they them where layoffs previously sometimes their buy have longer, subscriptions. experience their stayed more, sometimes

So, to that's number about segment, of expansions, macro referring the But when answer what Does -- we when we look business at question? well. is that total pretty pretty we small talk doing are situations.

Elizabeth Porter

Yes, customer it around segmenting some just up-sell did. changes you and leadership, retention. And then in believe, last quarter, versus mentioned acquisition versus I the sales

to I So, Thank those you've were of that reoriented alternatively, you've from leadership if or, any wanted some changes sales? sales there seen the what since you. ask improvements are disruptions

Oleg Shchegolev

don't would This say right, changes have current right I I what being are selling, changes some a all we macro. sincerely for results people in is to from I concerns morning. Yes, Oleg. the you're more big now. impact connect again would such to but time see Good

Elizabeth Porter

Thank [Technical difficulty] you.

Operator

the Heaney of is Our James go from line ahead. Jefferies. with next question Please

James Heaney

thanks. Great,

for or my you macro, what just the assuming guidance, gets curious year? the about things do next on are year? stable? one is just are talked relocations, it the second obviously, Thank but about, And You terms another you. you're worse QX incremental relatively for planning you're headcount, on thinking headcount around question of how any Just in assume that next adding then for

Oleg Shchegolev

And optimistic and one sort we season some to fourth our demand time, it's very, years, to signals what very hard year. of feel quarter, things. was the on last look, At are same our face we this imagine positive holiday long-term in before these future. we from it new Related side seasonality will couple from COVID some

of related want so we to that it, a fourth process our it's related that and bit stop, it the headcount for now, now. -- of our such next -- This with many [Ph] second around Russia, our of [doing our to of expectations for hiring things expect needed are there result almost be to And kind a companies to second and was quarter. headcount not question at our And to put not our from any because was increase layoffs, I As us think, are and who don't cautious on we little such] and needed freezed. year, side. relocation on right because [indiscernible] it's right hiring moment year,

are now I we think shape. in good a right very

James Heaney

you. Thank

Operator

ahead. next Your Murphy is Mark go line Morgan. Please from the question with of JP

Mark Murphy

Thank very you much.

the I'm Just down stepped following a it if in bit to saw in or there that level? it's up the October, earlier Evgeny, feel QX, and environment, does to and safe July is like bit say -- at you of you August as September an out the winter can kind getting it environment curious, in it what what and that question, in tougher summer from you that back and assume remaining start compare back maybe into the demand-wise just you compare demand head is a had you

Andrew Warden

CMO in -- is terms say by would of our so that record was months of typically in demand terms is of at actually So, pointing saw August we summertime, years saw this our were demand, one Semrush. lowest commenting pivot. Andrew Warden, we of on one and surprised August environment, the just but here I to the

experiment; into then see we is, this see of piece will very we as an we one another we when September launch in go little to environment, week upswing say, again, October, demand demand. second a continues week, strong, The I pressure, but bit another and be in

we're So, right but we point optimistic. that's why be cautious, to now,

Mark Murphy

Okay.

that of cautious optimistic, I I changing. really do I and better, through it's worse, sometimes but as listen was way is don't -- I'm passes? So, degrading is demand environment kind that. feel which environment mean, but understand trying better, sometimes it's you get to just time the the

Andrew Warden

at anything this any degrading. sign point don't I that see is

Mark Murphy

Okay.

Andrew Warden

For us.

Mark Murphy

understood. in we XXXX into there. next XXXX. seasonality early had look can weighted reasons had of Okay, it's as I and various pretty Then, you it that I think been booking, the ask about year, -- you been first-half and you've think And

you was to expect COVID in continue higher of a you that in more in to XXXX business it's the the the have those environment; where of changes more there. normal you're pricing or packaging think back some some little into to We there type booking Do bookings going revert second-half? and with trend do first-half something perhaps

Evgeny Fetisov

brand that, And have plus our in the executed Andrew sure of like? there it of think will but somewhat we and lot more seasonality be a but be next events unique there have because, when said, details can more little year with kind campaigns couple -- been during we spikes so some provide think you Yes, it not some similar would equally yea. like I especially to we I'm spend, our comes to flatten around campaigns. been had previous you would bit expect years if

Andrew Warden

happy would provide to I comment. be the additional

in the planned that, some larger think quarter. the especially March, campaigns at of first earlier our when we delayed of XXXX, we were which look until in launching were I week So

for We set and very launch are early now early very, in in in position already the the QX season quarter. campaigns for a or different up to

So, the again, continue. we that optimistic will into to markets, expect as are we're pushing be, we see demand we more

Mark Murphy

you. Thank

Operator

with Berg Needham. Please line next Scott question of from is the ahead. Your go

Scott Berg

partners my functionality how of were help opportunity everyone. of the couple questions. And wanted those the comment that we comments amount here. -- the that of coming what's revenue ultimately bring, possible a monetize the was strategy the will long-term make to kind I Thanks to because think start just with the Congrats the on commentary good better on think about I think with significant the your through that's Center new. you some generate I if to users for product? free to I expect here, platform. a the off because Hi, coming Wanted you quarter. App there understand taking have some

Eugene Levin

topics for of that's because like thank talk one question So, first you that about. of all, to the I the

think users, the that of we In of way this free about per products at our is entry-level terms month. $XXX starts monetization

this is is to in it journey, business for we they some maybe a a our on many struggling, reasonable provide is for not. to maybe their quite expect which much. [indiscernible], is much For marketing they price people don't money, they're just spend that pay And plan, don't entry-level early Maybe and they're their lot people package, invest the functionality want very starting don't also, that a to all them robust. that need even of

let's could grow, who say increase of time, businesses that over start $XX, Center, something $XX free buy more, we with then, and they percentage probably And with for start think users more. as smaller, something. will would App they active their as learn So, or they paying

idea and helps from the active course thinking free Center very we users to say. customers. with by And it's so gaming potential, very that's a lot us, to for of a that's covered is inspiration So, this in early of way lot We terms paying around to long-term hard models like different products. in market business this, how of are for the then a App increase But companies about is familiar market, Amazon Steam lot of use of find you're fragmented marketplace with if there or, cases different executed by gaming. a conversions

companies of SaaS really for space. within SaaS world, Shopify, us of And, are are models. has apps that marketplace in like terms examples course, in those there So, example, inspire other of ecosystem good

-- course to say. is it's at percentage is are my you app those but feasible so, optimistic, too for see of revenue But, of like very So, what looking think we ours. early can I centers, examples point

Scott Berg

look at little your And structure of cost we into some that the most their in Thank I'm you. here look likely excluding exit and the if -- the the structure then new thinking a are in cost takes follow-up there expenses we that if the right in costs. relocated way to year puts QX. for sure my worth QX. fell enough. and into other QX, are Russian in of question, $XX locations what's trickle should operating million And we a bit employees at there's QX, next or about Fair model of effectively Is start consider? But

Evgeny Fetisov

Evgeny. is So, Scott, this

as be moving, because will quarter using next QX be So, were to right. QX the baseline still people in a year, for

them in or transit Some were in locations. buffer of

base will final next that that's QX So, be we incurring then where the proper that's when modeling start of start their to locations. full people in in being will year, it cost will -- -- our

Scott Berg

Great, questions for helpful. taking very my Thanks everyone.

Eugene Levin

Thank you.

Operator

question with next the ahead. Michael Turits is go from Please KeyBanc. Your line of

Michael Turits

commented. not Hey, guys. so, you you One and with what that? quarter? try But the believe addressing what how do you ARPU did the And on expansion, and gross [indiscernible] sure am in and expansion I Oleg, rate this you about were can just the issues App rate? if can the decline talk happen you decline you Can growth the Center, around retention in them? quickly are parse review

Eugene Levin

Michael, Eugene. this is

So, rate gross on expansion versus change quarter. much the last didn't

lower saw diluted higher the we and that demand new rate. which start with from is the say average what So, cohorts growth overall the would check I

factor there. big a that's So,

higher slow than of the that time same per when new growth it's in which of to So, the at Otherwise, so, enter or blended quarter-over-quarter initially this, a account. year substantial check. growing from as client number to by XX% cohorts may average blended contrary I we XXk But strong and growth lower the more have year-over-year, than would we look our -- demand I ways, [indiscernible], more at customers leads customers think base rate. priced rates, that check the be affects XX%

Michael Turits

Okay.

of higher ads words in So, ads, this in more still the rate. the prices at a But still coming diluting of are other that lower terms point? at because

Eugene Levin

this. to I look way right the that's right that's think to at --

Michael Turits

Speakers] [Multiple

side the of what terms And expansion the on about then in rate? expansion lower Okay. net

Eugene Levin

more around happy details So, I provide to expansion. am

buy take So, a of look, more more about I it's time. the really said customers lot. yes, who And, I sometimes like deals already said, existing like behavior

on for some tier them subscriptions So, lower of remain longer.

expense. Some in them were of locked

Some procurement of them have what compared they different a to requirements ago. had year

drop they subscriptions. said see So, softer it's We a But layoffs, people had don't of their buy would -- environment. sometimes if people in less. like I more

lower of yes, we of see where contributes most that's to self said the on When to they difference. So, service, those bit transactions that. be like eager to segment what would But, end, is tiers, to do expansion. more they where are high total a much that Evgeny growing comes are much more it number don't really reluctant But little a buy some subscription higher previously SMB well.

Michael Turits

your mix compels App would mean guess to it. your Center is make there to third is thanks. so your on I channels them are there is and then would I them? your mean if you [indiscernible] bundling a to for parties platform the commercial I side, loyal on the logic I one to [Indiscernible] obviously alternative Okay, keep platform that brand guess logic platform? And technical on real running I running already name it build versus what them or product on question have sticky

Eugene Levin

I So, I that said [Ph] is very [market] start like general in fragmented. would

to expensive that trust gain the for for them upfront. for product. of to them to audience. to get almost to brand is wide impossible earn recognition And more for what means their them much harder access fragmentation much it's So, It's value software horror It's it's and developers explain advertise.

Semrush new to with value I enormous provides that's partnering So, developers. where think app all

saying over And have XX,XXX app been We have a asset And have attracts of that quarters free a couple developers. that active Over huge we for XXX,XXX users. paying queue. a customers. I that's

us. Right to working the technical are which we lag with just lot partnerships who to a now launch people ability have is want We our of bottom integrate on.

assets. is with asset like Semrush audience very high terms of big a people us would App said, And among with lot data a us our is where from to build powers data buying of sometimes our demand a partner general, I in But developers. partnerships. app But have some also have more and data of rather us is but course, lot we expensive. favorable applications. Center for data for we partner And third-party

for to reason big of partners on them their another that's instead build own. So,

Michael Turits

right, thanks. All

Operator

next ahead. go of is Lane Parker from question Your Please the with line Stifel.

Unidentified Analyst

[Matt can us for year so about sense this Thinking give any on far, top top from the Hi, [Ph] you acquisitions Lane. kind line? that's it's into a of for Erasmus] of Parker the contribution line plug

Eugene Levin

It's very minimal, say percentage than point. Matt. less would I X

So, most of organic. our is growth

Unidentified Analyst

questions, that the one Okay, been wrong? great. back consistently I And going customer expansion say did growing? larger then, lower of hear did you the have to base first smaller activity in customers was more the that Or, and

Eugene Levin

correct. Yes, that's

Unidentified Analyst

Okay, got it. Thanks.

So, that's it me. from

Operator

joining And at call. conclude are And this there time, today's will you for further questions. conference Thank all no this today.

disconnect. now may You

Semrush (SEMR) 15 Nov 222022 Q3 Earnings call transcript