Earnings call transcript Q4 2022

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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 Holdings Fourth Quarter 2022 Results Conference Call. Today's conference is being recorded. All lines have been placed on mute, to prevent any background noise. there’ll question-and-answer remarks [Operator speakers’ the be session a Instructions]. After will of at the transcript be prepared A call. remarks available the investors.semrush.com after

this President like to At go would the I over conference ahead. to Bob Investor of turn Vice Relations. Please Gujavarty, time,

Bob Gujavarty

I'm the Investor and the Good after our release results Semrush announced Bob Levin; welcome call. conference market VP CEO, XXXX Oleg Evgeny CFO, and President, Warden. our Monday. is issued on quarter our in call fourth results Gujavarty, With close We'll to CMO, Andrew of morning. our Relations, Holdings be me our on discussing press Shchegolev; Fetisov; Eugene

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

views should free about to be plan, will. by margin not undertake future including profitability flow any not as reflect duty our our anticipate, and business and statements date, future at anticipated of include and improvements, Forward-looking statements our for and market existing and adoption identified any subsequent demand today update opportunities, These these concerning the investments statements the our operating condition, can and goals guidance relied believe, of benefits, be words financial and and position, any trends, quarter for statements only expect, features, acquisitions full strategies, results, performance and as statements. and or and and XXXX year our market our growth, first such we competitive expected market cash our intend, seek as representing their and industry do XXXX views products upon financial new expected

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

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

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

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

Oleg Shchegolev

Thank everyone you, from morning and year-over-year quarter above and was to X% environment, XX% came in revenue the on $XX economic good the Fourth a Despite call. previous up our of quarter. expectations. challenging market up revenue more million

million, XX% reported beaten year, up We strong a year we year-over-year range estimates as a throughout of $XXX XXXX. revenue full

business we with have and we We business. a well-positioned are a a as who growing market, are excited

where our different on audiences campaign, channels promising. initiatives few strategic I with number had to Semrush a which to of results. beyond successful users new to net and growth, marketing campaigns, highlights which determine in launched about will would marketing our fact We a we talk across we that drive variety wide the XXXX, core first particularly conducted best is brand customer provide wanted of experiments brand our XXXX. then Eugene a XXXX, In future and the

period. as additions with have net These customer over however, despite than new ago XX,XXX environment. customers, we results were positive a Because slightly more largely in delivered customer challenging we additions year the lower paid XXXX record were

partially were to customer existing We churn see continue offset new customers. by record of additions, which

of data and about some to propensity customers to churn share to Semrush. wanted I return

to average, more who example, platform. Semrush For chose customers the of on XX% than returned

product customer necessity for marketing value of all in of which at return, and We of professionals of conduct the this to are return its believe April XXXX, XX%. onset customers our For sizes. COVID-XX was more the of organizations rate the lockdowns than level demonstrates thousands

seeing improvements in already personalized targeted promotions the implementing quarter. first We are thus help and far are to churn address

are history the of We future returns customer about on the post-pandemic. customer, based new growth record the optimistic

with additions to experienced we start new record fact, customer strong in January a In XXXX and February.

much Other February have is indicators, as year-over-year XXXX, XX% as important new registrations hit which for leading peak trials in levels significant. and trials

to guidance, we it XXXX growth year and through balanced rate the a return in improvement significant be of margin QX and ahead our non-GAAP third breakeven Looking expect initiatives. run efficiency and will in quarter, expect to we starting time a growth to

approximately expect first revenue of quarter, $XX.X to in up we the the For range XX% $XX.X million, year-over-year.

quarter of loss $X non-GAAP $X to net million first expect million. We

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

$X We expect equivalent million year approximately of $X.X including net XXXX, income costs. full to non-GAAP million the for exit

roughly investors now of approximately remind $X.XX relocation program, are a net currencies. euro the would My our for assumes incurred XX% XXXX rate and year that post $X euro non-GAAP costs of our guidance of the fixed income remainder year. related for in I to

trends deploying by encouraged and in XXXX. focused underlying have QX And are very in efficient been capital. profitability we achieving non-GAAP on the business remain in I

with We customer are industries no geographies, are size across uniquely positioned consolidations. diversified and and

XXXX. and target we to degree a even customers will possible flexibility. Our qualities high strategies widest our go-to-market of be the price believe provide I offer points and more competing customer these base in

and We helping while to shareholder all remain profitability. for closing, navigating year. want and future on on In growth strategy through customers employees, a deliver challenging I partners us to and execution drive value focused our growth, thank strong our

with to to Mulroy years recent over Brian it announcement brings to strong very exceptional holding SAP made He Microsoft and Officer, wanted skills, in over Nuance XX, of we and I at finance technology. turn has roles finance effective highlight appointing Eugene, leadership XX Brian Chief recently the Financial most April Communications. XXXX. experience as background I Semrush, Before an

last financial instrumental key we to thank our expertise four I building also to Evgeny the his want and years. Evgeny in for endeavors. His future his was success Semrush in foundation, over wish contributions

to Eugene. And now I pass it

Eugene Levin

results and in XXXX future. our even with more the pleased about I'm Oleg. you, excited Thank

portfolio, expanding operational During XXXX, driving and focused the search our product new organization positive free technologies cash leveraging changes, delivering expenses landscape and managing and we will flow. across be efficiency while on

more area detail. each in Let me cover

adapting plan we updating every as incorporate data new functionality. to to and sources the we of First, year have and continue improved product

develop apps, will onboard subscription platform further our capacity the by be to onboarding main process bundles apps making bought new increasing App adding automated; one, three, two, to new to outside our Center; of We allowing plans. more and

We be to uniquely by a itself, our the As landscape. Semrush management across our our and an implemented entire our generative technology, planning Center. AI have this position of generative search to to the use several but in year, our positioned our in vendor, tailwinds in products keep expanding leading the can products, industry online App of already This products. technology including rather both within to strong from two software and products product portfolio is visibility are business: changes portfolio AI tracking. and not engine we is AI Generative benefit of writing used system core that

and data landscape more web landscape on As digital and the marketers digital on data. demand reliance spike we as the heavily insights. rely this in for And changes, will builds, search see data

Google optimization as offer date. market player becoming sell more Bing for on example, Bing can benefit meaningful For and for we share top to is gaining us those of products will bigger, we

answer and navigate visibility new provide. that require We our chat as optimization and complex combined we address an ever-changing sophisticated online for questions more is can or regular search we environment. customers can engine search interfaces can than optimization engines help products interfaces, to Additionally, and engines search the introduce in

operating we Second, efficiently. will more be focused on

revenue. with in of marketing launch We our strategy drive efficient more spend return sales territories investment. respect With we G&A of go-to-market reduction productivity result percentage marketing, on campaigns, on best expect of will focus to a increased which the focus to channels, expansion and to on and fine-tune as

to expect on focus those more channels highest with campaigns budget and the on We of investment. our return

balanced a organic changes automation performing in investment Currently, organic focus channels. spend to organic expect heightened non-brand paid an our that and more with search We XXXX our channel made our plan. marketing between deliver. search We are above starting team in on in go-to-market is and

first better-than-expected is year-to-date. ROI on in off the optimizing Our channel our emphasis paid with quarter paying

As a marketing a to expect XXXX. we throughout result, of as percentage revenue spend decline

expansion accounts In customer increased we teams, and on drive team efforts and average check focus will to grow our expansion automated to sales in ways productivity Sales and especially scale. improved retain retention, growth. testing at sales are

even Our to us view to performance right in deliver now yield Combined, is reach. better enable XXXX. better these XXXX actions should we'll invest efficiency in and in efficiency grow sales our

to We to as the lower to continue run the most way is in expenses are be environment believe environment. the growth appropriately of than for for and us we the for in We headcount XXXX. business expect remainder and current current the will demand staffed prudent XXXX modest this manage

flow. cash how free finally, operates. core are Semrush focused agility positive delivering on are And and the of we Efficiency

capital, to profitability. growth been pursue historically path We we'll continue strategy have of stewards to and very set with good a a

call will for I performance. the our now to financial a more detailed turn discussion over Evgeny of

Evgeny Fetisov

company Oleg see been towards has journey Semrush path And an enjoyed preparing you, incredible thanks Eugene. and Thank It public, ideal the our team. go to growth. time I we on together. have together my and and to working many certainly in tremendous to our results

QX up was million our XX% revenue Now sequentially. up full results. turning and and XXXX $XX.X of year to year-over-year X% QX

we paying in revenue million was full year-over-year. to up average customers core Turning higher customers. $XXX.X revenue year place paying growth lower and increase priced ago, to Compared XX% from revenue have of seen customers. in the an in Growth a was by of year driven customer per higher

ago the down Our dollar-based in net the year with consistent revenue expectations. retention quarter XXX%, prior from our was fourth for XXX% period,

net mid-teens retention term. continue revenue the to the will at We long believe settle over

previous million XX% ARR XX, up the XXXX, of December as year. was $XXX from

expect a our cost In sequential given new and than locations expenses is approximately personnel timing faster campaigns, our margins which first to quarter. $XX.X reminder, revenue, reflected XXXX, costs largely of brand holidays soft, ARR in the education as in December marketing I seasonally As due acceleration and million. program, in the grew higher operating fully

a hosting a benefited remain lower basis cost from result, should Gross margin Fourth lower above XX.X% XX% year will was I margin margin expect gross and XXXX. services. for third-party and gross from and higher revenue over up This ago. quarter XXX as persist, of points throughout cost

Operating operating the expenses, XX% cost as as growth XX% were a locations. well the we from and the up the is year year employees, up with increase by The which in including ended excluding year-over-year headcount up million with XXX quarter. from in with high-cost ago costs, year-over-year associated XX% X,XXX equity in contractors, was driven quarter, as previous $XX.X

well marketing Sales performance up higher and the headcount spending programs. increase reflects from expense million in largely and fourth increased quarter. and as The marketing year-over-year XX% the quarter, on up XX% as was $XX.X previous brand

and sales that also a into of and the increase sequential and sales marketing note pre-classification expenses previous function in year-over-year to I as of quarter, leadership a would marketing the were from costs fourth recognized partly G&A. was G&A

spend. We we quarter, a in the as and to up year-over-year lower as as marketing operating headcount geographies. efficiency fourth of year-over-year higher reflects and million previous increase development our as higher-cost expense related expense great drive percentage was in in expect compensation Research $XX.X quarter. XX% increased the sales in expense and revenue to XX% The from be and sequential well an XXXX

I to in of spending percent flat G&A build approximately relatively with line expense and as continue our be but we $XX.X functionality. fourth the products year-over-year, from previous XX% expect and platform as of quarter. revenue deliver essentially the new was quarter R&D to million a

the and costs costs, revenue on benefited investments it increase growth. an as G&A will sequential year-over-year grow company executive The separate expense public XXXX, related in absolute costs functions locations to systems pace allocating The basis, to comparison earlier. and referenced they higher In from new of below people. but reflects

net compensation shareholder of to During is million including and a the higher than a less portion margins higher growth our outside million non-GAAP stock-based part quarter, relatively to being prevalent. we where nearly as solid a U.S., Also loss due dilution note, loss of workforce to net $X $XX.X of revenue the year of a have to by contributed compensation exit a in compared $X.X non-GAAP ago. were of expenses, more million stock-based located large gross of low and offset result costs

and short-term the to equivalents balance $XXX.X cash of sheet. ended Turning the $XXX.X million, down previous with quarter. from We quarter in investments the million cash and

fiscal negative in flow million the million $X.X and approximately we year $X.X $X.X software cash operations million, expenditures of capital incurred capitalized of costs. Our development was current from and

well execute to while to believe year environment. continue we economic summary, looking visibility In to uncertain improving have a ahead we I more also XXXX, deliver despite solid of We're margins. another growth,

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

Operator

go Instructions] [Operator first Stanley. We'll Elizabeth Morgan to Porter at

Elizabeth Porter

of QX the for Net called adds I ask in the Great. the after fairly Thank out I environment. churn. And to demand last softened question. couple higher some you for being wanted you robust on recognized quarters.

churn? you changes saw segments then So And were any any demand the adds were fully there in environment occurred? QX color Thank in emerge softer new to in versus so, changes what and started Or -- when that the those in the you. helpful. attributable of very on to any of sort customer what QX? And kind be QX if would were

Andrew Warden

Thank the you very question. Andrew. much for is This

adds continues But So our environment an would guidance. else, QX I been additions of number the we of have outcome ran impact I this customer to record in us within sure the from our of that into customer Like brand the seeing we QX, through macroeconomic want make in carrying We're far. that are say we've and XXXX. the this well to marketing growth net overall base. a XXXX, campaigns added so on year mention everyone seeing customer

Elizabeth Porter

size can Great. forward. the customer And seen which then NRR how And that sales across per the -- just other And you average just double-digit think we [ph] check was growth? in going XXXX? sustain the companies, you've an many highlighted about focus softness, growth increased should into there guys and ARR growing given on

Evgeny Fetisov

Elizabeth, is this Evgeny.

macro, mean to average I average guess. the accelerate. impact we the slight QX. with this But an should to the I line expecting get there what think expect environment, saw -- growth from as back will the in say, I we -- in would average QX, normal more we be be I we check grow, to slightly to

Elizabeth Porter

so you Thank much. Great.

Operator

at to Stifel. next Lane move We'll Parker

Parker Lane

Thanks the taking questions. guys. Hi, for

Have You either that customer being viewing embracing the see that, alluded top you a customers to to started the that Google expansion? more as of you many use through to of today. long-term benefit already supporting on your are acquisition case or benefits are of Or new business? of

Eugene Levin

now, Thank Eugene. seeing right we're demand actually This is you the for question. honest, this be feature. not lot of To for a

gaining of beneficial our and be that today. that Our business, reference how are something not potential about was for necessarily market would share customers being asking

initial of right we're top And competitive actual we intelligence that how much new sort on been gained. of not a lot while Also It's actually usage have we us have products these show saw this, stabilized. features growth now. spike, seeing of of

situation. monitoring we're So

features I to becomes wanted Bing player highlight engine -- space, delighted that be a real to just search provide Eve customers. our in new we absolutely would to features

Parker Lane

on for front, Or writing you and you curious, were tools the third Thanks Understood. those develop clarifying then a And that in-house on did for? tracking? that. assistance some for I was just generative party solutions contracted AI those

Evgeny Fetisov

on models. we're we lot. course, But of also our GPT of So own use using a top that,

algorithm right First of all, to you the give trick GPT need input. is that

course, capabilities we of GPT. So then, of perform this content And our pure what algorithms use make define what will right is well. input, generative

Parker Lane

Great. Appreciated. the feedback. Thanks for

Operator

at We'll next Needham. to Scott go Berg

Scott Berg

we some how the in particular? customers? questions. elevated about returned taking have customers I for start small region you saw that that here. able quarter? higher on to large the to But in guess maybe couple should of I comment. appreciate that Are the vertical to customers XX% churn I you or versus Thanks a I churn your the churn wanted everyone. maybe Any think the particular isolate Hi, platform. churn

Eugene Levin

Yes.

who lot January in or churn. stand the larger So though That Even that that a is end I of they us particular highlight in out. on think churn was December, in did renewal long telling no QX QX, I right actually, rather of there in would sure. region were were back customers that real more February. really they're in than a actually and not segment getting now

back, so with have them. But in a already line And I lot of that think them got provided. actually that's seeing commentary we're Oleg

based yet. we're historically. on On But see the that don't unfortunately, lower optimistic we've seen what we end,

Scott Berg

QX Got this GAAP for led fairly been understand to in from year has the leverage loss the to year. back your profitability half model help drive guided trying year, from it. the where of Helpful. the in the comments, profitability not And net in significantly then comes the the

-- of something expense, marketing cost of maybe goods? leverage second in from leverage and from that is from sales understand come will some made most G&A? there that you. Does come the half? come comments to Or Thank just the trying You that where on in

Evgeny Fetisov

Evgeny. this Scott, is

the go will of then as three of would I also factors: percentage driven I will be second, percentage say, will say, the would be, will, cost will One, as go the a revenue spend marketing flexibility margin the would down above And a down main like So by, say, revenue. solidly substantially well. gross rest XX%; I as

costs So G&A be and revenue. will will in lower as and be sales a of then be lower lower percentage will

The we will go stay say, would there, and which R&D, XX%. up only I I will would would slightly up say I above then slightly probably be

Scott Berg

helpful. questions. Got for Thanks it, my taking very

Operator

Michael [Operator go Instructions] KeyBanc. at to Turits next We'll

Michael Turits

A morning. Good questions. couple of

higher of First year in in an fully we terms apples-to-apples that the sense of you all, this just operating in were having costs, year? relocation this But of region. costs the terms where expense you in comparison had relocation are the

So into to obviously, then seems this as year? go we how And headwind. a apples 'XX, do longer but a we to of and apples, headwind have -- that be therefore, much completely no

following incremental how how So goes headwind this the much of of year? that an year, much in away

Evgeny Fetisov

in for which like separate There in split that majority XXXX, about thank talk it And $XX-plus million I -- in costs, clearly in question. million are expect the $XX.X million XXXX. and would two about Michael, guess we parts. QX. you I $X.X we of onetime

will then expect that and be -- we So over.

forward. are more be in expensive there I is we XXXX, through business which won't believe the be every we margins going that as relocated as we will QX a mentioned, to cost improving very locations. -- of and profitability business go can our repeating And the on guess but quarter the higher then solid I I base We efficiency. Now probably since you model myself, improving plan and plan again,

efficiency expect every We to through following quarter. be

Michael Turits

use thanks simple to for of as business. made then in very that. And shifts your a engine generative that guess search this of and when congratulations And is add people's -- I over websites opposed On the a broadly a company to then put the -- search versus the How change extent search function? to to is, that operations value ability transition chat that optimize much question to having AI, search functionality. does as listed optimization a the listed function functionality a moves chat certain

Eugene Levin

Thank this a you. internally. definitely is lot discussing And time spending something of we're

I think we what from be. to -- at going don't final know this implementation is the point,

user-friendly. We have a implemented think, I which only couple to of seen this, approach very being examples their is,

what actually if top know the do. is far, to to going what this of articles. so model I outputs don't a think seen produce based very you Google feature try to We But similar on what couple happens of snippet we've from are

answer it's expectation that seen more of provide examples, so from sources. we've So takes most And more provides several to really real those in sources. estate and combination far

to a very and which optimizing for point tracking of help as in So recommendations And to this we've for well of actually, as of snippets. optimizing those can people feature very future from lot time. for support be long similar demand people features a how we seen snippet, our proactive mentioned for rent features technical do and a those snippet, view, is about

go should hard tell now, seeing the in it's those is similar help I have. the bit have until But answers. already mentioned customers our to ability With get view, to to very we from when customers like needs. But So a able said, we be see positive are them about our they fine-tuning, if way actual things minor point to serve we technical implementation. what those very of are our little we this we to that a

Michael Turits

course Evgeny much. good [Indiscernible]. of thanks luck. very Eugene,

Operator

participation. And We and that today's conference conclude you question-and-answer the for your does thank session call.

disconnect. now may You

Semrush (SEMR) 14 Mar 232022 Q4 Earnings call transcript