Earnings call transcript Q1 2023

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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 Q1 2023 Earnings 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

ahead. to time, the conference go I this turn Blueshirt would Please with At Johnson like the Brinlea over Group. to

Brinlea Johnson

First Good Quarter morning, to and Semrush XXXX Call. welcome Conference Holdings

in We issued press May after results Monday, release on our will close the be X. discussing announced market

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

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

and that our our include profitability opportunities, XXXX, statements year including statements market and our position, of future statements quarter and performance, anticipated features, for free Forward-looking anticipate, market will. financial strategy, our words second acquisitions market intend industry and and for the condition, concerning any trends, believe adoption cash be margin expected guidance growth, our XXXX, seek operating and plan, full business, and products and goals their or such investments expected as about competitive can results, and new improvement, identified expect, future by existing financial and demand and the flow benefits,

only our subsequent our and reflect of to as statements. these do duty update and not views statements not upon as we views be relied These date should any today representing at undertake any

are and our the other the XX-K differ affect that as on our SEC. most to and could and risks well risks with matters could recent as actual report filed factors Exchange address subject results, these The important Form that Securities from Form our quarterly materially to to statements report please forward-looking discussion XX-Q actual Commission, and on Forward-looking annual filings results with the refer uncertainties that statements. cause of

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

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

Oleg Shchegolev

on I on the then quarter, results. everyone few and to strategic discuss morning good our the and will initiatives to provide a Brian our financial want you call. talks XXXX before about Eugene Thank highlights

revenue to variable I'm XX% up pleased also strong interest report pleased our I am organic million, milestone a of surrounding runway by demand marketing. for first issuing sustained new fueled customer the particularly expansion, quarter I additions XXX,XXX customers of record product that, we as with in $XX.X well believe Firstly, year-over-year. growth this customer, quarter paying net as have significant environment growth

in be continue This achieved additions the growth primarily platform. quarter, and record peak still we a and our registrations, achieving net long levels. customer net the record and adds new on hit our new our targeted of We've our personalized trials based promotions of new to optimistic history about success returning customer future to and customers

serving customers across industries global market and Global to businesses XXX small businesses. companies from start-ups and and segments ranging in Fortune countries XXX

us positions a that digital Our the range a digital enable as features to customer marketing us cater solution needs platform of to marketing tools leading XX-plus wide landscape. in

we because win solutions are our for to positioned and continue create that We offer value products and customers. uniquely

that all software unique is enables professionals build measure their across platform online and manage marketing Semrush to to campaigns visibility. channels improve

search taking, wide optimization. page comprehensive audits and betting research, engine of features have site optimization, area tools We analysis, offer and rank increasing a [indiscernible] cover a care that on

an to base. a of cancellation. platform, generate pause can customers. the customers products us initial it To see low us to or not translates our significance sticky demonstrate This user our is very for Our unusual ROI return tremendous following into for

and new employer. dependency of later demonstrates up customer marketing user dedication sign to leaving as of thousands and to and with only believe individual all of organizations a We new of value users professionals its also sizes. the employment, our their product see our examples necessity their We

our closing, a in dedicated we on to value. including in are In delivering and we number market a With focus balancing profitability to made on mind, adjusting strategy spending, executing shareholder of have operating I of am revenue this with improvements our our our and model, remain growth confident position.

exceptional speed Financial to technology. it Mulroy, of Brian really earnings started April wanted Semrush, call. have in our already Brian, Eugene, quickly has brings years Brian his background Semrush onboard. Before acumen I up are turn you on impressed to so welcome our experience and I over business. to to with XX his with and Officer, get first ability over He finance to we to financial and us new his early strong to Chief excited

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

Eugene Levin

you, quarter, Oleg. We a Thank strong XXXX starting solid momentum. delivered first with

making on mentioned focused are last As progress front. I each and on our XXXX efficiency in call, our enhancing are and we driving earnings on we portfolio operating product

more Let detail. in me explain this

a Tank, tuck-in announced of Traffic a we quarter, world-class and by premium leading small marketing leaders. community growth and Think and company education for This marketing content acquisition featuring

industry than Tank marketing is Think in more for of of Academy the hours content With one XXX education the resources most digital experts, from over XX the world. well-respected Traffic

improving the their new enhance will of library and training We existing expect, the further for expansive and modules. continue wealth marketers Academy of experts Semrush provide their knowledge to content

and We of educational Semrush and will and establish make marketers educate deliver premium for additional will experience Think for adding has overall that to and we tool an believe to our content premium our and Traffic a the aiming self-paced academy by customized benchmark best-in-class, new stickier product training resource platform, a be setting adding necessary generation program, education, enhancements marketers. We ongoing globally. marketing experience a Tank, and goals will by next marketers world-wide. believe that and ambitious digital a to digital for inspire

develop process to adding and new apps, cross the continue platform by products. our automating We selling our onboarding

multiple platform and This buy customers of fact, success now reinforces our Center to Semrush commitment products. In vision. more overall our XX% App than

generative presents us. for question what to to how the a get I of couple love business opportunities our generative explaining spend new AI minutes would means often We and AI

to are we our year and sources in with on App a This launched powered capabilities. aggressively Center. functionality, product particular incorporate our of focus several First, apps improve data we important generative adapting AI new AI

released we app ContentShake, Semrush GPT example, that virtually combines that For an content audience for data topic. with optimized is or create to any

in Video customers Instant launched our makes posts also media. text blog social in allowing We Creator repurpose videos from that to content existing seconds,

several everything have social also to AI apps hashtags and posts banners. and use from We copies media to ad that generate

products App executive use a summary uses as year, both scans our plan we can Xth understand. present an that products it have that that Throughout to Center. in to Analytics Analytics, most our grader within extracts Narratives technology Google portfolio even the and the information and We expanding an core this AI the App keep of important

more completed year-over-year. year focused several last experiments efficiently. now are we operating sustained, In from we with on Marketing, seeing are of and benefits levels trials the we’ve Finally, higher

more a experiments, are campaigns. of stronger, launching As efficient our result we

We strategy to in adjust territories continue our ROI. to and invest go-to-market improve channels to

paid of paid growth with better-than- spend We’re strong optimization bringing and marketing more in channels. and ahead plan for balance signs between of channels, of expected and QX organic across both, see already organic

net-new We will we’ve record seen heighten adds automation, our customer on and focus

to ways overall specifically on increased we’re accounts. dedicated, checks productivity our expansion to We have and plan and driving that sales for teams, expansion sales our focus customer to efficiency In sales retention, grow committed accounts higher to in drive efforts automated average team better with growth.

in are further and and investing now in efficiencies stronger to XXXX beyond. drive We actions sales results

Across we the of to plan compared percentage This year, and sales current staffed to revenue, manage according we a company to the as intend marketing and less prior on the carefully environment. year. expenses spend demand are to

XXXX. we modest compared to to expect As a growth result, be headcount

you turn first to detailed call earnings call. on guidance. our is provide a great Brian, it I financial the to performance now over board for your will will Brian, discussion Semrush of and who more have

Brian Mulroy

Thank business, thank Semrush can high revenue only loyal, recurring already weeks - that base. warm you for customer a the a values It CFO the few growing attributes and been margin, you, see all and has Eugene, and I welcome has a and introduction. a committed Oleg

serving segments, We market have and to across across businesses startups and industries opportunity a and customers forward global XXX huge to look agencies. small incredibly of companies to market am truly business, diverse global from all XXX in all ranging with Fortune a I countries, excited phase drive growth. next I working be an team. Semrush the to join and helping passionate management and experienced and

Now, results. our to XXXX turning QX

the Our XX% additions and high end million was year-over-year was guidance growth QX above of revenue net new per driven by customer. our range. of average in our record and Growth XXXX QX continued Revenue $XX.X up

first Our was dollar revenue for based the quarter net retention XXX%.

and cross-sell within net strong base. our expect as execute remain installed we on up-sell retention continue We to our to our revenue strategies

ARR as March XX, of XXXX. was million $XXX

up revenue and ago. approximately a and margin higher XXX was points continued from our costs. Gross gross quarter hosting party First service leverage from basis of from Margin third XX.X% benefited year

continue term. margin near in expect the gross We above XX% to

range drive Operating $X.X as expenses expenses to $X and end and guidance loss down carefully million. net of in million to Non-GAAP $X $XX were efficiencies, profitability. quarter, high continue towards million at X.X% we manage our the drive sequentially of sustained the was

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

$X.X fiscal Our in the year million. cash current flow from operations negative was

software million development expenditures and $X.X We also of of costs. approximately incurred million capitalized $X.X capital

to profitability. ahead leaders XXXX deliver underlying guidance, trends and the to in I capabilities Looking the in of confident am our business

approach improving that profitability, value. a opportunities We to to are disciplined maintaining committed continuing and expect will optimizing while efficiency future costs and drive and long-term invest growth in we to balanced

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

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

XX% full of represent to we midpoint the $XXX the which million revenue prior million, year, For of reiterating guidance year-over-year. $XXX growth approximately would our at are

year. non-GAAP to continue million expect the to breakeven of for $X full We net income

X.XX guidance non-GAAP a euro approximately remainder income Our exchange range assumes rate to of of dollar the for year. the the net

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

Operator

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

Unidentified Analyst

on Hey guys. This for Murphy. Mark is Arty [ph]

of the little adds part first helped? stable improved that paying customers really that impressive quarter-over-quarter Anything what's hood? what have of a driving you kind kind been Has the to worse more in quarter. that? environment demand Just going to And one under bit or specifically speak the of guys

Andrew Warden

very Thanks Andrew. question. the is This for much

So, I year, you marketing we organic really invested those to the last the of in drive new well primarily as continue last say that numbers that adds QX. as would paid Those a the record experiments experiments product channels growth and year. see in that is in net our

product our the demand a say cycle. last but from have those tailwinds strong a going see we stickiness reporting would to that forward. similar I that environment we continued it's for there's investments, believe from We've also

demand for I'm our we're a Overall, approach. believe balanced positioned that and confident in we generation motions

Unidentified Analyst

to Thanks. to Great. a some customers kind hype would of And know and going exciting just tools. is really from you translating how then curve still follow-up of or these pretty Thanks. now be generative kind because seeing through? adopt, these axle are they're Are usage? there learning take to Interesting AI I

Eugene Levin

This is Eugene.

see primarily give definitely two was want available you happened we started based that so bigger kind And Implementation of roughly from lot even implementing to just users. a that So, for and of ago. And only versions Guru our so tool We GPT features years usage. of was I GPT rightness X some here. early in GPT on. background

base end higher a but So, usage usually to it limited of we user had of the for a was while. Semrush lot somewhat

And realized that those we there with is products. a new for broader much changes, of audience now right kind

of all -- lot started a throughout also apps. features opening quite a of including good work of directions. to build are those we seeing lot we And AI a in we of in center of those terms traction in up shape. generate space encourage content partners And launch who So, usage

seeing it's think really A see is to say going maybe little we're a I topic. think the people demand about new excited to is terms them. early lot we wanting are much But moving try right such a especially of bit of capabilities to hot usage encouraging, traction in from now forward I AI is where very coming how generative and usage. it's because being

Unidentified Analyst

Very clear. Thank you.

Operator

at Needham. Berg We'll next Scott to move

Rob Morelli

competitively? to is Hey, or to this guys are for on Berg. this module, on separate functionality, ahead incremental looking the a Rob of about the driving functionality more AI Scott Continuing is generative you it Morelli monetize just stay as topic Thanks.

Eugene Levin

But We're once do we you of ask develops monetized. to definitely But version. how start can free extent now a you we can apply monetization. lot market paying. things some what you to to see the in we have features There going are generate understand to they right need that are to will content,

monetization as now. already of So, implemented in those features is

Rob Morelli

the guidance versus growth acceleration is And a it. a level you in modest confidence then that guidance soft? implies what Got revenue with of it bit that gives still macro

Brian Mulroy

Rob, Hey, Brian. it's

guiding we're the growth off-line year. does And that are leveling seeing Andrew really to comments some in yes of second So X.XX for were half. we have strong driving It I think assume some X.XX in we that confidence earlier demand. the made the the that

into the will continuing our that some rate allow achieve year that's that leveling drive half So quarter. in in to the expectation us we'll guidance. second off full And is the growth second

Operator

Lane Stifel. Next we'll Parker move to at

Matthew Kikkert

from to Parker. the vendor Kikkert To you macro on And trend. much driving you Matthew benefit how planning is to seeing This for consolidation? Hi. are start degree that what are

Eugene Levin

a [indiscernible]. have across big would trend vendor I been consolidation say

the So well. we're want while definitely as environment provide HubSpot space if to money. other people in an mentioning want for companies as seeing such they and something like don't buy value for they've to you been overspend a that best follow platforms this in this

We having they we're the other I customers on vendors could customers conversations just evidence from with based think happening choose but this of industry based course something we that and now. don't definitely anecdotal can quantify our are this from in on players provide we as well. hearing is how and

Matthew Kikkert

progress secondly shown Okay. you've Understood. the And App Center. then great on

And going with how R&D the developers think increasing are in as about contributor keep revenue number? is Center now a doing or we XX You that forward? working App terms What should apps. to company of the other

Eugene Levin

But a in just give trying ago. are more see was this is of seen to the and early success more time be. want So would that XXXX little resources we our to are I about something to even to in excited experimental still really probably we doubling started again say we've App background to really And started strategy. and where on terms more Center. on we of launched a it down resources compared behind it's not we're go-to-market to an of Center R&D doing historical long this. committing And if we was bit App allocation we were viable and product though where

systems. for what terms now we're especially in of In lot infrastructure doing apps we're a investing billing in

apps greater of in there So be is can flexibility terms a those how monetized.

in we this towards actually And We sourcing terms a team are is established partner then adding engineering in resources partner now that direction. of dedicated sourcing.

bring partners say We have course five just people there and of our goal but businesses. more are let's more as is not that to established partners

We are have. very excited about partners we

Now building doing products. great great they a job are

big for also couple badge of think names. a I to we want net partners of have

of what So terms in that's development. we app center aiming are in for

Operator

We'll move Michael at to KeyBanc. next Turits

Michael Vidovic

macro the and for just on you I guess in Vidovic saw Michael the is This you could Michael Hi. between overall about to talk broadly Turits. start QX environment now? environment that change demand in

Andrew Warden

take to it. question. be Andrew. Thank is I'd happy Sure, the for this you

only last campaign driving we registration the are adds in we A see customer. sustained with channels as I a particularly QX in year demand mentioned this focused new customer we've I But from activated multiple we trials say for and not also first-ever real growth. new in would the on audiences net investments again cycle elevated just our before. reported previous particularly do of couple see things So as

of This at audiences down. our the the has and struck driving new of on a best cord funnel which top with results further our is existing some ever

for supportive. of we to high to So drive see It's the impact back visibility programs sustain the continue your will high strong year to rest question continue that I that. think demand we and the going is to

Michael Vidovic

quick follow-up just a then And [indiscernible]. on Thanks. Great.

you've I On or is you I your guess customers re-achievable that XK to expectations know above point? level? sustainable was high how XK adds, the talked abnormally I what previously. guess at this expecting that are not and

Andrew Warden

it's our in think I with line expectations.

to guidance. our we I that everything remember that, is just according think need to

just the others has that we've given. like Our would business And look just I seasonality. guidance towards

Michael Vidovic

a lot. Thanks Great.

Operator

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

Elizabeth Porter

I NRR Hi. wanted on XXX. so of the Thank you much. follow-up to

some strong that from remain expect upsell cross-sell. of and you benefiting noted it You to

year? So that the we remainder are stabilize were inter-quarter the could QX? there level at upside see year? the as this to of you. could And for What the to risks of you move to kind speak we NRR any of the downside the it and from QX trends Thank

Eugene Levin

for is year end this how really year will start you is the a just go to our There the is going of just maybe it then this math up. down makes and Thank continue certain question. And thing on Eugene. it This and well. until But is formula not calculated. the is we're based the going that communicating

-- something year. moves from have denominator those sometimes do continue a numerator it's fluctuations you And to for that to just and because,

going terms year this of until growing we of will decline in it be, keep again, this number So start it to where is expect and slightly back. to the then end

those I a were when saying normal you environment to don't be think fluctuations, have reasonable to range. that XXX for in it expect somewhere it's And we

course, Of it's that's about But normal great. we floor sort usually environment XXX. as of better a if think

for I but will we later. But follow-up happy in have the done number said, right unfortunately of year. like wouldn't we we intra-quarter would now of – course, terms yeah, being be About to denominator remainder this to I in and the continue able be calculation of so provide there haven't expansion details

Elizabeth Porter

as Got the theme. a for it. then, on Thanks follow-up the clarifications. just consolidation And

motions go-to-market customers year next could kind of And that where color you. the buying what years? are products. drive multiple Any specific driving are a to ago XX% looked improvement? and you're the it of than Thank few over that greater go mentioned You on, how

Andrew Warden

look year front year don't we just up say the to [ph] we our of when particularly happy number more have in XX we platform in we follow that to expand. Ascent when overall on we versus over that. last would me have would over particularly about So this would those at be at I even that tools But show to promise invest that of I that accounts the time I look say continue

investing it's absolutely improve and this where average those number couple activities the next more But XX% give a in At over tell guidance us. priority point you specific can grow can't that and We that onwards could more from we I on absolutely checks. to years. of are for

Elizabeth Porter

Thank you. Okay.

Operator

We'll move Heaney James Jefferies. at to next

James Heaney

questions. Thank you for my taking

focused upgrading talk product what you your You about Could letter should mentioned you're those to that of on the when are those offerings. some we in expect show up? just more and upgrades

And then my second question.

could new you if customers your customers elaborate average clients adding more of number over how paying the on, that tiers? of versus growing just higher Thanks. the a over was new XX,XXX selling price XX%, into up-selling comment around at much higher-priced Just into

Eugene Levin

So let the me last start with question.

people into to I how going of bucket, this say, in be through So the terms get normal is upgrade. path would

buy people those would that's get So would say more. these eventually higher-tiers of something majority cases. I or into and then buying

is That said path short. sometimes this really

it months. of couple first can within So the happen

write it bucket. started larger qualify of months bigger a say companies started I a existing realize on and it know with is scale big don't it if would process more before need checks. your do So is expanded, new People they product of a where need got buying who normal quickly couple would it just just but kind something this customer when of to I small that to where they try that customer quite the came an and also is a

bundle is features front to SEO going we creating think ongoing launched but semantically together feature improvements have of to post. makes example for the keywords really of list everything, analyze to several sense that and pure sets most the innovative we've terms In if blog class mention I utilizes and in AI huge that groups particular in terms a be covering product ring on them of topic

on to features. organic algorithm unique SERP traffic based We've released really estimate new and

the traffic unique now really unique search if features algorithm is in in can now with you SERP this account. past a combination So algorithms blue links overall of XX traffic with trend search taken is line have estimation our and where into every

traffic So based each in of forecast composition we SERP on features result. particular

I don't is doing same. the know that any other company

of of focused and lot We've our AI, around happening So couple our across a really portfolio that things mentioned entire a launched primarily stance but of innovation we a didn't same that we've just or products. the products utilizing with seeing lot other products mention much. that At AI time they're of tons well. because as not are those of we're traction there

the So specific able tons stuff We'll me down more for have narrow details. happening. be to of to provide to question

James Heaney

you. it. Appreciate Thank

Operator

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

Oleg Shchegolev

want XXX,XXX your a important for XXX,XXX to It's to customer important you us. very strong delivered for we starts – closing, year questions. achieved and we milestone Thank say a In look the paying customers. milestone we very

marketing We are to committed very online easier for businesses making of size.

your for support. you Thank

We keep to you. looking you progress. forward Thank are updated on our

Operator

conclude your Thank participation. does you conference That for today's call.

You disconnect. may now

Semrush (SEMR) 9 May 232023 Q1 Earnings call transcript