SEMR - NYSE

Good morning. Thank you for attending today’s Semrush First Quarter 2025 Earnings Conference Call. My name is Megan, and I’ll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the call over to Brinlea Johnson with Blueshirt Group. Please go ahead.

Good morning, and welcome to Semrush Holdings first quarter 2025 conference call. We will be discussing the results announced in our press release issued after market close on May 7th. With me on the call is our CEO, Bill Wagner; and our CFO, Brian Mulroy. 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, but are not limited to, statements concerning our expected future business and financial performance and financial condition, expected growth, adoption and existing and future demand for our existing and any new products and features, our expected growth of our customer base and specific customer segments, the continued development of our products, industry and market trends, our competitive position, market opportunities and growth strategies, sales and marketing activities and strategies, future spending and incremental investments, our guidance for the second quarter of 2025 and the full year 2025, statements about future pricing and operating results, including margin improvements, revenue growth and profitability, statements about transition and the impact of recent changes to our executive management team, and assumptions regarding foreign exchange rates. Forward-looking statements are statements other than statements of fact and can be identified by words such as expect, can, anticipate, could, 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. For a discussion of the risks and important factors that could affect our actual results, please refer to our most recent annual report on Form 10-K, filed with the Securities and Exchange Commission, as well as our other filings with the SEC. And, finally, 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. Now, let me turn the call over to Bill.

Thank you, and good morning. I am thrilled to be joining you all on my first earnings call as the CEO of Semrush. As a Semrush board member over the last several years, I’ve had the opportunity to watch the company grow and evolve from a single-product SEO solution for specialists to the leading digital-marketing platform for companies of all sizes. Now as CEO, I’m excited to work with the team as we continue on the next stage for Semrush, an era in which we will be expanding our best-in-class data platform, seizing the emerging opportunity presented by AI, adding new capabilities to our platform and expanding our reach into the enterprise market. We reported revenue of $105 million in Q1, representing more than 22% year-over-year growth and exceeding the high-end of our guidance. We delivered non-GAAP operating margin of 11.6% and increased our free cash flow margin by 360 basis points over the same period last year. We are especially pleased by the strong performance of our Enterprise SEO Solution, as we now have nearly 200 paying customers at an average ARR per customer of approximately $60,000, almost 20% higher than the expectations we shared at our Analyst Day last fall. We are also very encouraged by the customer reaction to our AI products, which in a short period of time have grown to over $4 million in ARR. This includes AI Toolkit which we launched in Q1 and quickly became one of the fastest growing new products in the company’s history. As I step back to reflect on my first 60 days in the CEO seat, I want to share some early observations. Over the past 8 weeks, I’ve been spending time with employees and customers alike from around the world, and without a doubt I am even more optimistic about the market opportunity and future of Semrush. A few takeaways: First, AI and the emergence of AI-driven search presents a once-in-a-generation opportunity for Semrush. While it’s still early, companies I’ve spoken with are anxious to understand the impact of Answer Engines on their business. We expect Semrush will become the go-to source companies will turn to, to analyze, monitor and proactively shape their brand presence within these new AI-driven search environments. Second, the Enterprise SEO experiment for Semrush is over and the results are in: we are confident the enterprise market will become a significant growth driver for Semrush for years to come. We now expect our Enterprise SEO solution, which we released less than 12 months ago, to exit the year with $30 million in ARR. Third, even though I was closely connected with the company as a director, I still did not fully appreciate the value of our data platform. It is essentially a data warehouse for digital marketing, turning messy, fragmented marketing signals across almost every digital channel into clear, real-time insights that drive action. The vastness and quality of our data, along with our ability to continue adding new data sources, represents a unique moat that is highly valued by our customers. Lastly, I have been inspired by our employees. I’m sure most CEOs think their employees are special, but as I’ve traveled to our offices and spoken to hundreds of employees, I’ve been particularly impressed with their adaptability and their innovation, two traits that will serve us well on the next part of our journey. Of course, I still have a lot to learn as I continue to work with the team and talk to customers, but my early observations have allowed me to form early conviction around four immediate priorities: First, we will double down on AI and extend our early leadership position in AI-driven visibility. We know AI is a game changer, and I am confident no company is better positioned than Semrush to help companies of all sizes build their brands and generate online visibility across both search engines and answer engines. In addition to the introduction of AI-specific products, we are already leveraging AI within our products to automate workflows and help customers move more quickly and efficiently. But honestly, I think we are just scratching the surface and the teams are excited to push even harder in this direction. Second, we will accelerate the pace of innovation and new product introductions to drive even more growth in the enterprise segment. We have proven we can successfully sell into the world’s largest brands, even if this initial success has been driven by a single SEO solution. Our next solution for the enterprise market, AI Optimization, is now in open beta and we have already seen strong interest from our customer base. We expect AI Optimization to go GA later this quarter and to be followed by several additional enterprise solutions later this year. Third, we will make it easier for our customers of all sizes to purchase and use our platform. True to our belief that marketing should be accessible to every business, in the second quarter, we are introducing a new guided on-boarding flow as well as AI Assistant, that helps users get started, highlights opportunities to increase visibility and automatically optimizes campaigns in real time. These changes remove friction and deliver value faster, especially for smaller, resource-constrained teams. Later this year, we’ll be making additional enhancements to purchase and on-boarding flows to continue to reduce friction and decrease the time to value for our customers. Lastly, we will further strengthen our best-in-class data platform. Our early success in AI underscores the value of our structured data and the team and I believe we have an opportunity to increase the richness of our data and extend the durability and value of our data platform. This will require some additional focus from our product and engineering teams, but we expect to cover any additional expenses by reallocating existing resources. In summary, there is a great deal to be excited about. My first 60 days makes me believe that there is a much bigger opportunity in front of the company. Of course, we have a lot of work to do, and like everyone else, I’m mindful of the uncertain geopolitical and macroeconomic environment. I believe Semrush has built an incredibly strong and durable platform and we remain focused on unlocking opportunities to accelerate both top-line growth and profitability. With that, I will turn the call over to Brian to walk you through the financial results of the quarter. Brian?

Thank you, Bill. We had a solid first quarter across the board, further demonstrating our ability to consistently grow revenue while also increasing our profitability. Our first quarter revenue was $105 million, exceeding the high-end of our guidance and growing 22% year-over-year. Growth was driven primarily by an expansion of our average revenue per customer as we continue to execute on our cross-sell and up-sell strategy, as well as an increase to the overall number of paying customers. In addition, we saw very strong adoption of our Enterprise SEO Solution during the quarter. We achieved positive non-GAAP operating income of $12.2 million in the first quarter, also exceeding our guidance and resulting in a non-GAAP operating margin of 11.6%, up approximately 30 basis points year-over-year. Cash flow from operations was $22.1 million in the first quarter, for a cash flow from operations margin of 21.1% We generated $18.5 million of free cash flow in the first quarter leading to a free cash flow margin of 17.6%. We ended the quarter with cash and cash equivalents, and short-term investments of $261.8 million, up $26.2 million from the previous quarter. Annual recurring revenue for the quarter grew 20% year-over-year to $424.7 million. Our calculated average ARR per paying customer grew to over $3,600, up more than 14% year-over-year versus the same quarter last year. As part of our continued momentum in our Enterprise segment, the number of customers paying over $50,000 increased 86% year-over-year to 388. In addition, we now have over 5,000 customers paying over $10,000, which grew approximately 40% year-over-year. This strong growth is a direct result of our investments in our enterprise selling motion and launch of our Enterprise SEO Solution. Our Enterprise SEO Solution now has nearly 200 paying customers with an average ARR per customer at approximately $60,000. We ended the quarter with $11 million of ARR from our new Enterprise SEO Solution. As of March 31, 2025, we had approximately 118,000 paying customers. Our dollar-based net revenue retention at the end of the first quarter was 106%. We continue to believe our dollar based net revenue retention will remain strong and increase as we expect our more sophisticated accounts to grow as a percentage of our mix, and these customers have higher net retention than our company average. I’ll now provide our outlook for the second quarter and the full year 2025. For the second quarter of 2025, we expect revenue in a range of $108.2 million to $109.2 million, which at the mid-point would represent growth of approximately 20% year-over-year. We expect our second quarter non-GAAP operating margin to be approximately 11%. As a reminder, we closed the Brand24 acquisition in early Q2 2024. The transaction added about $7.5 million of annual recurring revenue and contributed a little over 2 months of recognized revenue in that quarter. Beginning in Q2 2025 we mostly lap that contribution, so Brand24 no longer creates a year-over-year uplift in our reported growth rate. For 2025, we are reiterating our previous revenue guidance of $448 million to $453 million, which translates to growth of approximately 20% at the midpoint. Given the uncertain geopolitical and macroeconomic environment, we believe it is possible that we could see elongated sales cycles and deferred spending by our customers. As a result, despite our outperformance in the first quarter and positive momentum in our business, we are reiterating the full year revenue guidance we gave last quarter. As it relates to full year 2025 non-GAAP operating margins, we are also reiterating the guidance we gave last quarter of approximately 12%. However, this guidance now absorbs an incremental $8 million expense headwind due to the recent movement in exchange rates. Our previous guidance assumed a euro to U.S. dollar exchange rate of 1.05 and we are now modeling an exchange rate of 1.13. Approximately 30% of our expenses are denominated in euros and, today, our revenue is entirely denominated in U.S. dollars, so our margins are effectively unhedged against this exchange rate movement. If we were not impacted by fluctuations in the exchange rate, our full year operating income would have benefitted from the leverage in our model as demonstrated by our strong first quarter performance. Similarly, we continue to expect our free cash flow margin to be approximately 12%, up 260 basis points compared to 2024. Our free cash flow benefits from expanded profitability as well as continued growth in our Enterprise cohort and in particular our Enterprise SEO Solution deals that we typically structure with a minimum annual commitment with annual billing. In closing, we started off 2025 with strong Q1 results, exceeding guidance. We are executing on our cross-sell and up-sell strategy and continue to see strong adoption of our Enterprise SEO Solution. I remain optimistic about our ability to continue to drive growth, strong profitability and free cash flow. With that, we are happy to take any of your questions. Operator, please open the line for questions.

Absolutely. [Operator Instructions] Our first question will go to the line of Mark Murphy with JPMorgan. Mark, your line is open.

Thank you so much. So, Bill, I wanted to ask you, because AI-driven search is coming up in the news again with Apple saying that search volumes on Safari had declined month-over-month for the first time in April. And they’re mentioning SearchGPT and Perplexity and Claude. What exactly should your customers be doing about that? What are you advising them to do? And how do you think about the positive and negative ramifications for Semrush? And then, I have a quick follow-up.

Sure, Mark. Thanks for the question. As I said, Mike, in my prepared remarks, from an online visibility perspective, we see AI as a once-in-a-generation opportunity for us. And our brands are trying to figure out, in addition to how they show up in search, how do they show up in AI-enabled search or AI-driven search? And that is net new for them. So, I mean, our enterprise, the demand for our enterprise AI product, I think, is an example of that AI Toolkit, which I mentioned earlier, is one of our fastest growing, if not the fastest growing product we ever launched. And, the demand we’re seeing from customers around AI Optimization in the enterprise space, really strong. So, look, it’s early days. You saw the news yesterday about Apple and Google use in Safari. But what we think overall, it’s expanding the pie and that’s the opportunity for us.

Okay. And then just as a follow-up, I guess, for you or Brian, you’ve got the goal of growing 20% plus. Is the ARR result this quarter, I think it’s just a tick under 20%? Is it somehow constrained or just a tick lower than you might have hoped? Did you model it out that way? I think we’re trying to understand if maybe Q1 was a little bit of a low watermark on the net new ARR or what was their modest macro impact in certain industries? Anything like that would be very helpful.

Yeah. Hey, Mark. I think that’s exactly right. The right framing for it. We did plan for it that way. It’s due to seasonality and in particular, the mix of our business skewing more towards higher value than, I’d say, lower volume customers. That shift is intentional. So, we’ve tuned our sales and marketing to attract and focus on higher quality customers, and in particular, focus on enterprise and our new AI solutions. That shift is going to drive a little bit of a different seasonality than we’ve seen in the past. So, we’re absolutely committed to our CAGR that we mentioned at the Analyst Day and see the first quarter more as a seasonality dynamic than any indication of a difference in that trend.

Okay. Thank you very much.

Thank you, Mark. Our next question will go to the line of Elizabeth Porter with Morgan Stanley. Elizabeth, your line is now open.

Great. Thank you so much. Really encouraging to see the Enterprise SEO momentum and the target for $30 million ARR in the year. It looks like that target reflects customers about doubling from the – you have today. So, I just wanted to double click on kind of what gives you the confidence in that acceleration on the customer side, just given some of the comments around longer enterprise deal cycles.

Yeah. Thanks for the question, Elizabeth. This is Bill. So, I think not only have we seen some success, and we came up with a strong Q4, and then a good Q1, and we expect momentum to build through the year for sure on the enterprise side. And, again, I think that’s largely on the backs of one product and a scaling salesforce, so that we launched last year, less than 12 months ago. So, there’s a lot of momentum there. And when I came aboard and spoke with the sales leaders and spoke with the product leaders and spoke with customers, just a significant amount of enthusiasm. And that’s our existing product, and we’re about to launch AI Optimization for enterprise customers. And so, we think that’s going to not only boost average sale price, but I’ve seen a really strong funnel from our customer base. So, one of the first things I saw was actually the size of the opportunity there in funnel. So, we’re excited about the launch of a new product. Frankly, that would be additive to what we see today. Right now, we’re just focused on the existing products. So, we’ll have to see how the reception is, but we’re excited.

Great. And then maybe for Brian, just a follow-up. The NRR of 106%, I think it’s coming up to be a little bit lower than we were looking for just given the stabilization that we had at 107%. So given some of the enterprise momentum, are we seeing incremental weakness in that SMB type side of the bucket? So if you could just kind of balance out, what might be holding that NRR back? That’d be helpful.

Yeah. Sure. It’s the right question to ask. We’ve been in the 106% to 107% range for a while here. I think what’s key is, just remember, our net revenue retention metric is a backwards looking indicator. So between the numerator and the denominator, we’re measuring across a 24-month period. It’s a really long time, and of course, takes a long time to influence that number. What we’ll continue to say and we remain optimistic about is our net revenue retention will increase in the long run. We’re continuing to gain success and traction with cross-sell and up-sell and, in particular, enterprise portfolio. As Bill mentioned this morning, our Enterprise SEO product is gaining strong momentum and growing its and scaling at a nice rate. We’ve just launched our AIO products, and there’ll be more enterprise features, capabilities, and products in the future. So, we’re confident that overall in the long run, net revenue retention will reflect that success.

Got it. Thank you.

Thank you, Elizabeth. Our next question will go to the line of Jackson Ader with KeyBanc Capital Markets. Jackson, your line is open.

Great. Good morning. Thanks for taking our questions. I guess if I can just follow-up on the – given that the metric, Brian, is so backwards looking, right, taking into account things happened 24 months ago. Can you give us an idea of maybe what NRR in period or more of a real time retention rate would look like?

Yeah, for our enterprise cohorts, so we’ve talked about the 8,000, it’s now 8,500 or above 8,500 enterprise sized accounts, so companies that have more than 500 employees. We’re seeing that number continue to rise. We talked about that at our Analyst Day. It’s very strong. We’re seeing growth overall for accounts paying over $10,000 above 40%, accounts paying over $50,000, over 80% growth. So, we’re seeing really good strong momentum in the enterprise, and the mix of our business is skewing towards that. So, it’s not only improving within the enterprise cohort, but that becomes a larger part of the business, it will also influence the overall consolidated number.

Okay. All right. Understood. And then, Bill, the $30 million or $30 million in ARR, on the enterprise to exit the year, is there any reason why that $30 million versus the $11 million, where you stand today wouldn’t be all incremental? Is there anything in the $30 million that would be different from the $11 million at the end of the first quarter? Thank you.

Hey, Jackson. If I understand the question, I think the way to think about that $30 million is it includes, mostly SEO, our Enterprise SEO product that makes up the bulk of that $30 million. So there’s not other things kind of in that number. It’s Enterprise SEO sales. I think in future quarters, obviously, we’re going to talk a lot about the receptivity of AIO, our enterprise AI product that’s now an open beta. So, I think, hopefully, that will add on to that number from there. But right now, that number is our SEO number for enterprise.

Okay. All right. Great. Thank you.

Thank you, Jackson. Our next question will go to the line of Adam Hotchkiss with Goldman Sachs. Adam, your line is open.

Great. Thanks so much for taking the questions. I guess to start, you mentioned AI Optimization being the next product for Enterprise GA. Could you just talk a little bit about your pipeline or selection process for enterprise functionality and what’s on your roadmap? And as you continue to innovate and launch products, what do you see the potential for AARPC [ph] going to over time, potentially even in excess of that $60,000 level?

Yeah. I think on the enterprise side, first of all, Adam, I think we’ve given a lot of data here on the call about what we see as the opportunity. The pipeline is, we have 1,000 people, 1,000 accounts that are on our watch list for people who have expressed interest in our AI products. So that’s a great pipeline, a great way to get started, but it’s not even GA yet. So we want to be tempered in our outlook and enthusiastic as we are about the product and the early interest from our customers. That said, as Brian just pointed out, we have 8,500 enterprise customers who are using our kind of core products. We only have 200 who are using Enterprise SEO. So that’s a lot of opportunity for us. And then when you layer in, the AI opportunity, that’s probably why we’re so excited.

That’s great. Really appreciate that.

Go ahead.

Yeah. Just on your average ARR question, we’ve been talking about Enterprise SEO alone driving the average up to $50,000, and we’ve probably proven that out with the initial cohort of 200, nearly 200 Enterprise SEO customers. That number goes up. So, as we build and scale our enterprise portfolio, and we did hint at this at Analyst Day, our expectation is that the average will approach and even exceed 100,000. Even today with the existing portfolio, we do have accounts that are well into the hundreds of thousands of the possibility, and expectation is there.

Okay. Yeah. That’s really helpful. Thanks. And then just anything – any more color you can give on the early feedback from the AI Optimization product in close beta. How do customers want to measure success with a product like that, and how do they think about ROI?

I think it’s probably too early to share our customer feedback. I think we need a little bit more volume other than anecdotal. What I do know in talking to customers and talking to our sales team is, I’ve had the question earlier on the call, companies are trying to figure out how they show up and how they appear in AI-driven results. So, no one’s backing away from search. What they’re trying to do is understand how they can shape content, how they can monitor, how they’re showing up in LLMs, and how they can create content, how they can monitor, what other competitors are doing. That’s all opportunity for us. And we think we are perfectly positioned to do that, and customers look to us to be the leader in that space. And that’s the opportunity we intend to fulfill.

Okay. Great. Thanks, Bill. Thanks, Brian.

Thank you, Adam. Our next question will go to the line of Luke Horton with Northland Capital Markets. Luke, your line is open.

Yeah. Hey, guys. Congrats on the quarter. Just wanted to touch on kind of how month of April has been trending just sort of the macro uncertainty, if those conversations with customers, you’re starting to see some of those longer sales cycles, and I guess just anything else around here as we progress into 2Q?

Hey, Luke. It’s Brian. Yeah. We’re not seeing it yet. So, we had a great first quarter, delivered 22%, more than 22% growth and overachieved on our guidance. We’re seeing strong momentum with Enterprise SEO and optimistic about AIO and other enterprise capabilities. As of now, we’re not seeing any incremental direct impact from the uncertainty and the environment that we’re all hearing about in the headlines. The growth drivers that are powering our business remain firmly in place, and we’re excited about what the year ahead holds for us. We’ll keep you posted on what we see for sure, though.

Got it. Thanks. And then, I know we’ve talked about the AIO solution here quite a bit, but just was wondering as far as how that will be offered to customers. Will that be like an upsell to the existing Enterprise SEO Solution? Will there be tiers to the AIO solution or kind of, I guess, sort of pricing strategy and kind of how customers will be accessing it.

Yeah, Luke, it’s Bill. So, yeah, we haven’t finalized our pricing, which we’ll do before we go GA here later this quarter. But, you should expect that we’ll sell it as an add-on to our enterprise SEO product and also as a standalone product to enterprise. So we’ll sell both ways. That may come as a bundle, may become as two different standalone products, but we intend to have the opportunity that customers can just pick and choose. But I suspect, based on the data we’re seeing, is that customers will buy both.

Okay. Got it. I guess then would there also be a lower end of the offering geared towards your smaller customers, those freelancers and solopreneurs that that they could also be purchasing?

Luke, I think that’s where AI Toolkit is really our entry level product, it starts at $99. It helps the smaller companies, maybe less sophisticated marketers, just quickly understand how they show up in in AI-driven search. And as we mentioned, it’s one of, if not the fastest growing product we’ve ever launched. So, we feel like we’re off to a good start on that end of the market as well.

Awesome. Great. Well, thanks for taking the questions, guys, and congrats again on the quarter.

Thank you, Luke. Our next question will go to the line of Scott Berg with Needham. Scott, your line is open.

Hi, everyone. Thanks for taking my questions here. And welcome, Bill, looking forward to working with you more. I guess a couple here. I just wanted to clarify the comments, I think, that Brian made a moment ago around the Enterprise SEO and the ARPU movement this year is, by my math, it sounds like to get to your guidance here this year, ARPU probably this year still moves up about 50% from current levels. Is that purely driven by, I guess, more seats, the larger number of seat counts in those particular customers? Or is there something else in the pricing mechanics to drive that type of ARPU outlook?

Yeah. Hey, Scott. Just to clarify and make sure I’m understanding the question. To get to the Enterprise SEO target that Bill mentioned requires ARPU expansion?

Correct. Yes.

Yeah. I mean, look, we’ve been successful in both acquiring new customers, expanding existing, from our core up to enterprise, and expanding existing customers that have already adopted our Enterprise SEO Solution to higher average ARR. So, we expect that to continue. To get to that number, it’s a combination of continuing to expand our average ARR from the company average up to that $50,000 to $60,000 range that we’ve seen for Enterprise SEO. We expect that will continue and, of course, acquiring new customers. So, I wouldn’t say that we’re going to go higher than $50,000 to $60,000 to get to the $30 million. It’s mostly a function of getting more customers to adopt it.

Great. And then from a follow-up, I know, you’re all excited about your AIO solution, which certainly should be given the changes in how consumers and end users are searching for Internet based data out there. But as you look at opportunities to sell AIO going forward, does that cannibalize or put kind of new pressure on your ability to sell the core SEO solutions? Or is it really more of an enhancement to selling those products?

Hey, Scott. This is Bill. Thanks for the question and the welcome. So, no, keep in mind, we’re talking about very sophisticated users in the Enterprise segment, and that’s why our enterprise SEO product is done so well, because it’s a really powerful tool with deep insight. They want to the same insight on the AI side, so they need both. And really that’s what our data says and what we believe. Again, we have to go out and sell it in the upcoming quarters, so we’ll have to wait and see. But we don’t see it as a trade-off. We see it as net additive. And I’ve not heard from any large enterprise that they’re going to have one and not the other. To me, I think it’s going to be additive and increase the opportunity for us. And then keep in mind, as I mentioned in my prepared remarks, we intend to increase – introduce other products for the enterprise market later this year. So, we’re very bullish.

Understood. Thank you for taking my questions.

Thank you, Scott. There are no additional questions waiting at this time. So, I’ll pass the conference back over to the management team for closing remarks.

Thank you all for joining us today. We reported a strong quarter as our positive momentum continued into 2025. I’m excited to be part of Semrush and remain focused on introducing new innovations and driving more value for our customers, while consistently delivering strong growth, profitability, and free cash flow.