Yahoo Finance SEMrush Holdings Inc (SEMR) Q1 2024 Earnings Call Transcript Highlights: Robust Growth and ...
Revenue: $85.8 million, up 21% year-over-year.
Income from Operations: $1.5 million GAAP; $9.7 million non-GAAP.
Free Cash Flow: $12 million, with a free cash flow margin of 14%.
Annual Recurring Revenue (ARR): $354.2 million, up 21% year-over-year.
ARR per Paying User: Grew 9.8% year-over-year.
Dollar-based Net Revenue Retention: 107%.
Gross Margin: Improved nearly 80 basis points year-over-year to 82.9%.
Non-GAAP Operating Margin: 11.3%, up 20 basis points year-over-year.
Cash and Cash Equivalents: $243.1 million, up $4.6 million from the previous quarter.
Q2 2024 Revenue Guidance: Expected to be between $89.1 million and $90.1 million.
Full Year 2024 Revenue Guidance: Raised to between $366 million and $369 million.
Full Year 2024 Non-GAAP Operating Margin Guidance: Between 10.5% and 11.5%.
Full Year 2024 Free Cash Flow Margin Guidance: Approximately 8%.
Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
SEMrush Holdings Inc reported a strong revenue of $85.8 million, marking a 21% year-over-year increase.
The company has successfully expanded its customer base to nearly 112,000 paying customers and over 1,125,000 active users.
SEMrush Holdings Inc generated a significant free cash flow of $12 million with a free cash flow margin of 14%.
The launch of new AI-based tools and expansion into enterprise markets have been positively received, particularly with large-scale business customers.
The company has raised its full-year 2024 revenue guidance to a range of $366 million to $369 million, reflecting confidence in continued growth and profitability.
Negative Points
Despite overall growth, there are ongoing macroeconomic challenges that could impact the business environment.
The company's dollar-based net revenue retention has troughed at 107%, indicating potential challenges in customer retention or expansion.
SEMrush Holdings Inc is still in the early stages of its enterprise product offering, which may involve risks and uncertainties in scaling and customer adoption.
There are significant investments being made in enterprise sales and marketing, which could impact short-term profitability if not managed effectively.
The company faces intense competition in the SEO and digital marketing space, which could affect its market share and pricing power.
Q & A Highlights
Q: Hi, everyone. Next quarter here and thanks for taking my questions. I have two, I wanted to start with a macro question a little bit more high level, your ARR additions last three quarters have been and very good, especially on a year-over-year basis? A: (Brian Mulroy - Chief Financial Officer) Thank you. And you have a list of if market condition, I would say we don't see any kind of significant changes of the macro for all businesses in all segments, we believe which is still challenging. At the same time we delivered, I believe, not Lumistar results in current and current environment. And we have a right?
Q: Got it. Helpful. And then the last question for me is, Brian, you mentioned you expect in our to trough in this most recent quarter here sounds like you make some system changes on the sales side to maybe incent that cross-sell expansion a little bit more. But how do we think about the impact of your new enterprise sales motion on our overtime. Is that a sale that's still very much a land and expand opportunity, maybe buy modules or seats or are your enterprise customers having the opportunity to maybe land much larger that might not offer some expansion opportunities there? A: (Oleg Shchegolev - President, Chief Executive Officer, Co-Founder, Executive Director) Yes, sure. Yes. So two things and are really pleased with the performance I'm pleased with the performance over many quarters, we've been able to maintain very strong, durable retention on a gross and a net basis. And in the most recent fourth quarter, we've seen a trough at 107%. And we have talked about that over the past couple of quarters that it is somewhat of a lagging metric that measures performance over 21, 24 month period. So it's doing exactly what we expected and troughing, and we expect it will tick up over time, especially as we move up market and start to take advantage of the enterprise SEO product.
Q: And thank you a follow on to kind of the enterprise customers in your local markets. Can you maybe talk about them behavior or potential between the US enterprise customers and maybe international opportunity? A: (Eugene Levin - Chief Strategy and Corporate Development Officer) Yes. Thank you. Thank you for the question. Also. Of course, United States is a number one market right now for us, almost half of the opportunity from our point of view at the same time. If you actually look at a list of our early customers that we acquired since soft launch in the end of October, we are at least half of them are international companies. We have very strong traction in Germany and France and other markets. And as you probably know, in general, we always had a philosophy in mind to build products for global use because even our US customers there are a lot of them are also multinational companies who sell overseas and across the globe.
Q: Thank you. And then as a follow-up on just the sales structure for the enterprise opportunity here, how would you describe the changes that you've made? I mean, you've kind of talked about it on the call, but how disruptive are the changes or how significant are the changes? Because obviously, SMB sales are very different than enterprise sales. And then how much more change should we expect before we kind of get to what I would call full productivity levels? A: (Brian Mulroy - Chief Financial Officer) Yes. So good question. Just two questions there. One is what changes that we're making to SMB and how does that impact it? And then what investments in enterprise?
Q: Hey, guys. It's Jackson Ader from KeyBanc Capital Markets. I hope you're doing well. So the first question is from Brian. I know you guys have talked about the balance of growth and profit. But just given the results of late, have shown more more upside kind of being heavily skewed toward margin, is there a could you in fact, deliver a little bit faster ARR growth if you were to make some additional investments. And I'm curious if the answer is yes, like where would you make those investments? A: (Brian Mulroy - Chief Financial Officer) Yes, this is a really, really good question. It's something that we think about every single day. We're always challenging ourselves and the leaders throughout the organization to make sure they're focusing on investments that will drive long-term growth and value for us and our shareholders and our goal here, we've talked about this our goal at some rushes to achieve in an efficient frontier. So we want to be investing in the business. So long as that investment drives incremental results, but we don't want to be overspending and getting past that efficient frontier where the incremental return doesn't justify the investment for Sam rush in 2024. We are investing quite a bit.
Q: Great. Thanks for taking the questions. I guess to start, I just wanted to touch a little bit more on the enterprise product. When it when we look at the early access page, we see stats like Ten-X, faster SEO productivity and generating a 360 degree view of customer data, which seems like a pretty ambitious message to send that prospective enterprises. A: (Eugene Levin - Chief Strategy and Corporate Development Officer) Great question. So our yes, I mean, of course, you know to sell you have to sell. So of course, Ten-X is definitely achievable, but people need to put work in the you know, fine tune the product to their needs, which we help them win. But to give you just a couple of examples of why I think 10 access, maybe even conservative, we have, for example, customers who use our internal linking module. And when you do internal Lincoln for a small website, it's hard you can do it using whiteboard. You just put 20 pages and figure out how to connect them now our enterprise customers, they have millions of pages. So there is no whiteboard in the world that is big enough to put all those pages and figure out how to connect them. So that's why we crawl their website. We understand what other websites linked to them. So we can figure out externally profile internally and profile the map of the website and figure out what pages should be connected to other pages and sort of share that authority of the page with other pages using AI and machine learning.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
