Part I [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Semrush reported Q1 2025 revenue of $105.0 million (up 22%), net income of $0.85 million (down 60%), and $22.1 million in operating cash flow Consolidated Statements of Operations Highlights (Q1 2025 vs Q1 2024) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | **Revenue** | $105,018 | $85,812 | 22.4% | | Gross Profit | $85,147 | $71,167 | 19.6% | | (Loss) Income from Operations | ($74) | $1,468 | -105.0% | | **Net Income Attributable to Semrush** | $849 | $2,138 | -60.3% | | Diluted EPS | $0.01 | $0.01 | 0.0% | Consolidated Balance Sheet Highlights (as of March 31, 2025) | Account | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $64,665 | $48,875 | | Short-term investments | $197,125 | $186,693 | | **Total Assets** | **$416,501** | **$390,943** | | Deferred Revenue (Current) | $79,926 | $71,827 | | **Total Liabilities** | **$138,343** | **$124,591** | | **Total Stockholders' Equity** | **$278,158** | **$266,352** | Consolidated Statements of Cash Flows Highlights (Q1 2025 vs Q1 2024) | Cash Flow Activity | Q1 2025 (in thousands) | Q1 2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $22,109 | $14,779 | | Net cash used in investing activities | ($5,686) | ($31,981) | | Net cash (used in) provided by financing activities | ($345) | $434 | | **Increase (decrease) in cash** | **$15,790** | **($17,275)** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail SaaS revenue recognition, 2024 acquisitions impacting goodwill, increased stock-based compensation to $9.1 million, and the U.S. as the largest market - The company primarily derives revenue from SaaS subscriptions, which accounted for **nearly all revenue** in Q1 2025 and Q1 2024. Revenue is recognized ratably over the contract term[39](index=39&type=chunk)[40](index=40&type=chunk) - The company completed several acquisitions in 2024, including Third Door Media, Exploding Topics, Ryte, and Brand 24, accounting for them as business combinations and allocating purchase prices to assets, liabilities, intangible assets, and goodwill[82](index=82&type=chunk)[87](index=87&type=chunk)[91](index=91&type=chunk) Stock-Based Compensation Expense (Q1 2025 vs Q1 2024) | Department | Q1 2025 (in thousands) | Q1 2024 (in thousands) | | :--- | :--- | :--- | | Cost of revenue | $44 | $39 | | Sales and marketing | $1,627 | $770 | | Research and development | $2,466 | $636 | | General and administrative | $4,975 | $3,670 | | **Total** | **$9,112** | **$5,115** | Revenue by Geographic Area (Q1 2025 vs Q1 2024) | Region | Q1 2025 (in thousands) | Q1 2024 (in thousands) | | :--- | :--- | :--- | | United States | $45,937 | $40,646 | | United Kingdom | $9,245 | $8,324 | | Other | $49,836 | $36,842 | | **Total Revenue** | **$105,018** | **$85,812** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes 22% revenue growth to customer expansion and upsells, with ARR reaching $424.7 million, while managing increased operating expenses and generating $18.5 million in free cash flow [Key Factors Affecting Our Performance](index=31&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) Performance is driven by customer acquisition, retention, and product innovation, with paying customers reaching 118,000, ARR at $424.7 million, and 106% net revenue retention Key Performance Metrics (as of March 31) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Paying Customers | ~118,000 | ~112,000 | | Annual Recurring Revenue (ARR) | $424.7 million | $354.2 million | | Dollar-based Net Revenue Retention | 106% | N/A (106% as of Dec 31, 2024) | | ARR per Paying Customer | $3,608 | $3,163 | - Growth is focused on acquiring new customers and expanding within the existing base through upselling premium offerings, add-ons, and additional licenses[127](index=127&type=chunk)[130](index=130&type=chunk) - A recent management transition aims to bolster innovation, with the former CEO moving to CTO to focus on AI and product development[136](index=136&type=chunk) [Non-GAAP Financial Measures](index=32&type=section&id=Non-GAAP%20Financial%20Measures) Non-GAAP income from operations rose to $12.2 million (11.6% margin) and free cash flow increased to $18.5 million (17.6% margin) in Q1 2025 Reconciliation of GAAP (Loss) Income from Operations to Non-GAAP Income from Operations | (in thousands) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | (Loss) income from operations (GAAP) | ($74) | $1,468 | | Stock-based compensation expense | $9,112 | $5,115 | | Amortization of acquired intangibles | $1,379 | $692 | | Restructuring and other costs | $1,312 | $2,124 | | Acquisition-related costs, net | $484 | $338 | | **Non-GAAP income from operations** | **$12,213** | **$9,737** | Reconciliation of Net Cash from Operations to Free Cash Flow | (in thousands) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22,109 | $14,779 | | Purchases of property and equipment | ($725) | ($759) | | Capitalization of internal-use software costs | ($2,879) | ($2,015) | | **Free cash flow** | **$18,505** | **$12,005** | [Results of Operations](index=37&type=section&id=Results%20of%20Operations) Q1 2025 revenue grew 22% to $105.0 million, but gross margin declined to 81% due to a 36% rise in cost of revenue, leading to an operating loss of $74,000 Revenue Comparison (Q1 2025 vs Q1 2024) | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $105,018 | $85,812 | $19,206 | 22% | - Cost of revenue increased **36% to $19.9 million**, driven by higher integration/data costs (**+$2.0M**), depreciation/amortization (**+$1.4M**), and personnel costs (**+$0.8M**)[162](index=162&type=chunk) - Sales and marketing expenses rose **22% to $41.3 million**, mainly due to a **$5.2 million** increase in personnel costs[163](index=163&type=chunk) - Research and development costs increased **27% to $21.9 million**, primarily from a **$4.4 million** rise in personnel costs[164](index=164&type=chunk) - General and administrative expenses grew **19% to $22.0 million**, driven by a **$3.9 million** increase in personnel costs[165](index=165&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2025, the company held **$64.7 million** in cash and **$197.1 million** in short-term investments, with **$22.1 million** in operating cash flow, ensuring sufficient liquidity - The company holds **$64.7 million** in cash and cash equivalents and **$197.1 million** in short-term investments as of March 31, 2025[169](index=169&type=chunk) - Net cash provided by operating activities was **$22.1 million** in Q1 2025, up from **$14.8 million** in Q1 2024[172](index=172&type=chunk)[173](index=173&type=chunk) - Net cash used in investing activities was **$5.7 million**, a significant decrease from **$32.0 million** in the prior year, mainly due to lower net purchases of short-term investments and proceeds from an investment loan repayment[175](index=175&type=chunk)[176](index=176&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces interest rate and foreign currency risks, primarily from euro-denominated expenses, with a 10% euro fluctuation potentially impacting results by $3.0 million - The company is exposed to interest rate risk on its **$261.8 million** portfolio of cash, cash equivalents, and short-term investments, but does not expect a **10%** rate change to have a material effect[184](index=184&type=chunk) - The company has foreign currency risk as significant expenses are denominated in euros and other currencies. An immediate **10%** change in the USD-to-euro exchange rate would result in a **$3.0 million** gain or loss[186](index=186&type=chunk) - The company has not engaged in hedging foreign currency transactions to date but may evaluate doing so as international operations expand[188](index=188&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2025[189](index=189&type=chunk) - No changes were made during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[191](index=191&type=chunk) Part II. Other Information [Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary legal proceedings but does not anticipate any material adverse effects on its business or financial condition - The company believes the ultimate cost to resolve any pending ordinary course legal matters will not have a material adverse effect on its business, operating results, or financial condition[195](index=195&type=chunk) [Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) This section refers to detailed risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - The report directs investors to the 'Risk Factors' section of the Annual Report on Form 10-K for the year ended December 31, 2024, for a description of risks and uncertainties[196](index=196&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities occurred during the quarter, and IPO proceeds use remains consistent with prior reports - The company reported **no unregistered sales** of equity securities in the period[197](index=197&type=chunk) - There has been **no material change** in the use of proceeds from the company's IPO as described in the 2024 Annual Report on Form 10-K[198](index=198&type=chunk) [Other Information](index=46&type=section&id=Item%205.%20Other%20Information) A Rule 10b5-1 trading plan for CTO Oleg Shchegolev's family trust, adopted in December 2024, was terminated in February 2025 before any sales - A Rule 10b5-1 Trading Plan adopted by The Oleg Shchegolev Irrevocable Non-Exempt Trust of 2020 on December 13, 2024, was terminated effective February 26, 2025, before any sales occurred[200](index=200&type=chunk) [Exhibits](index=47&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications and XBRL data files - Exhibits filed with the report include certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits **31.1**, **31.2**, **32.1**) and XBRL interactive data files[202](index=202&type=chunk) [Signatures](index=50&type=section&id=Signatures) - The report was duly signed and authorized on **May 8, 2025**, by William Wagner, Chief Executive Officer, and Brian Mulroy, Chief Financial Officer[212](index=212&type=chunk)

Financial Data and Key Metrics Changes - The company reported revenues of $105 million in Q1 2025, representing over 22% year-over-year growth and exceeding the high end of guidance [7][17] - Non-GAAP operating margin was 11.6%, with a free cash flow margin of 17.6% [8][18] - Cash flow from operations was $22.1 million, leading to a cash flow from operations margin of 21.1% [18] - Annual recurring revenue (ARR) grew 20% year-over-year to $424.7 million, with average ARR per paying customer increasing to over $3,600, up more than 14% year-over-year [18][19] - Dollar-based net revenue retention at the end of Q1 was 106% [20] Business Line Data and Key Metrics Changes - The enterprise SEO solution has nearly 200 paying customers with an average ARR per customer of approximately $60,000, which is almost 20% higher than previous expectations [8][19] - The company achieved $11 million of ARR from the new enterprise SEO solution [19] Market Data and Key Metrics Changes - The number of customers paying over $50,000 increased by 86% year-over-year to 388, while customers paying over $10,000 grew approximately 40% year-over-year [19] - The company expects the enterprise SEO solution to exit the year with $30 million in ARR [10] Company Strategy and Development Direction - The company plans to double down on AI and extend its leadership position in AI-driven visibility [12] - There is a focus on accelerating innovation and new product introductions to drive growth in the enterprise segment [13] - The company aims to make it easier for customers to purchase and use its platform, including a new guided onboarding flow and AI assistant [13][14] - Strengthening the data platform is a priority, with expectations to increase the richness and durability of the data [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the market opportunity and future of the company, particularly regarding AI-driven search [9][16] - The company remains mindful of the uncertain geopolitical and macroeconomic environment but believes it has a strong platform to unlock growth opportunities [16] - For Q2 2025, the company expects revenue in the range of $108.2 million to $109.2 million, representing approximately 20% year-over-year growth [20] Other Important Information - The company reiterated its full-year revenue guidance of $448 million to $453 million, translating to approximately 20% growth at the midpoint [21] - The company is facing an incremental $8 million expense headwind due to recent movements in exchange rates [22][23] Q&A Session Summary Question: What should customers do about the decline in search volumes on Safari? - Management sees AI as a once-in-a-generation opportunity and emphasizes the importance of understanding AI-driven search for brands [27][29] Question: Is the ARR result this quarter constrained or lower than expected? - Management indicated that the lower ARR is due to seasonality and a strategic focus on higher-value customers, particularly in the enterprise segment [30][31] Question: What gives confidence in the acceleration of enterprise SEO customers? - Management noted strong momentum and enthusiasm from sales and product leaders, expecting continued growth with the upcoming launch of AI optimization [35][36] Question: What is the outlook for net revenue retention (NRR)? - Management remains optimistic about long-term NRR growth, driven by success in cross-sell and upsell strategies, particularly in the enterprise portfolio [39][41] Question: How is the AI optimization product expected to be offered? - The AI optimization product will be sold as an add-on to the enterprise SEO product and as a standalone product [67] Question: Will there be a lower-end offering for smaller customers? - The AI Toolkit is positioned as an entry-level product for smaller companies, priced at $99 [69] Question: What is the potential for average ARR per customer to exceed $60,000? - Management expects the average ARR to approach and potentially exceed $100,000 as the enterprise portfolio scales [57][58]

Financial Data and Key Metrics Changes - The company reported revenues of $105 million in Q1 2025, representing over 22% year-over-year growth and exceeding the high end of guidance [5][15] - Non-GAAP operating margin was 11.6%, with a free cash flow margin of 17.6% [6][16] - Cash flow from operations was $22.1 million, leading to a cash flow from operations margin of 21.1% [16] - Annual recurring revenue (ARR) grew 20% year-over-year to $424.7 million, with average ARR per paying customer increasing over 14% to approximately $3,600 [16][17] - Dollar-based net revenue retention at the end of Q1 was 106% [18] Business Line Data and Key Metrics Changes - The enterprise SEO solution has nearly 200 paying customers with an average ARR per customer of approximately $60,000, which is almost 20% higher than previous expectations [6][17] - The AI Toolkit, launched in Q1, has quickly grown to over $4 million in ARR, making it one of the fastest-growing new products in the company's history [6] Market Data and Key Metrics Changes - The number of customers paying over $50,000 increased by 86% year-over-year to 388, while those paying over $10,000 grew approximately 40% year-over-year [17] - The company expects the enterprise SEO solution to exit the year with $30 million in ARR [8] Company Strategy and Development Direction - The company aims to double down on AI and extend its leadership position in AI-driven visibility, with plans to introduce AI-specific products and enhance existing offerings [10][12] - There is a focus on accelerating innovation and new product introductions to drive growth in the enterprise segment [11] - The company plans to make it easier for customers to purchase and use its platform, including a new guided onboarding flow and AI assistant [11][12] - Strengthening the data platform is a priority, with expectations to increase the richness and durability of data [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the market opportunity and future of the company, particularly regarding AI-driven search [7][13] - The company remains focused on unlocking opportunities to accelerate both top-line growth and profitability despite geopolitical and macroeconomic uncertainties [13] Other Important Information - The company reiterated its revenue guidance for 2025, expecting revenue in the range of $448 million to $453 million, translating to approximately 20% growth at the midpoint [19][20] - The company anticipates potential elongated sales cycles and deferred spending due to the uncertain environment [20] Q&A Session Summary Question: Impact of AI-driven search on customers - Management views AI as a significant opportunity and is advising customers to understand how they can show up in AI-enabled search [25][26] Question: ARR results and potential constraints - Management indicated that Q1 results were influenced by seasonality and a strategic focus on higher-value customers [28][29] Question: Confidence in enterprise SEO momentum - Management expressed confidence in the enterprise segment's growth, supported by strong sales and upcoming product launches [34] Question: Net revenue retention concerns - Management acknowledged that net revenue retention is a backward-looking metric but remains optimistic about long-term improvements [39][40] Question: Early feedback on AI optimization product - Management noted that it is too early for detailed feedback but emphasized the strong interest from customers in AI-driven solutions [55][56] Question: Macro uncertainty and sales cycles - Management reported no current impact from macro uncertainties, maintaining strong growth momentum [60] Question: Pricing strategy for AI optimization - Management indicated that AI optimization will be offered as an add-on to existing products and as a standalone solution [63][64] Question: Opportunities for smaller customers - The AI Toolkit is positioned as an entry-level product for smaller companies, priced at $99 [65]

Core Insights - SEMrush Holdings, Inc. reported quarterly earnings of $0.07 per share, matching the Zacks Consensus Estimate and showing an increase from $0.04 per share a year ago [1] - The company achieved revenues of $105.02 million for the quarter ended March 2025, exceeding the Zacks Consensus Estimate by 1.06% and up from $85.81 million year-over-year [2] - SEMrush shares have declined approximately 14.6% year-to-date, contrasting with the S&P 500's decline of 4.7% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.08, with expected revenues of $108.56 million, and for the current fiscal year, the EPS estimate is $0.35 on revenues of $446.78 million [7] - The estimate revisions trend for SEMrush is currently unfavorable, resulting in a Zacks Rank of 5 (Strong Sell), indicating expected underperformance in the near future [6] Industry Context - The Internet - Software industry, to which SEMrush belongs, is currently ranked in the top 37% of over 250 Zacks industries, suggesting that companies in the top half tend to outperform those in the bottom half by more than 2 to 1 [8]

[Semrush First Quarter 2025 Financial Results](index=1&type=section&id=Semrush%20First%20Quarter%202025%20Financial%20Results) This report details Semrush's financial performance and business achievements for the first quarter of 2025, along with future outlook and financial statements [Financial & Business Highlights](index=1&type=section&id=Financial%20%26%20Business%20Highlights) Semrush achieved strong first-quarter 2025 results, with revenue up 22% to $105.0 million, ARR growing 20% to $424.7 million, and significant expansion in high-value customer segments, alongside robust profitability and free cash flow [Q1 2025 Financial Highlights](index=1&type=section&id=Q1%202025%20Financial%20Highlights) Key financial metrics for Q1 2025 demonstrate strong revenue and ARR growth, alongside improved non-GAAP operating margin Q1 2025 Key Financial Metrics (Year-over-Year) | Metric | Q1 2025 | Change (YoY) | | :--- | :--- | :--- | | Revenue | $105.0 million | +22% | | Annual Recurring Revenue (ARR) | $424.7 million | +20% | | Paying Customers | ~118,000 | +5.1% | | Dollar-based Net Revenue Retention | 106% | N/A | | GAAP Operating Margin | (0.1)% | Down from 1.7% | | Non-GAAP Operating Margin | 11.6% | Up from 11.3% | | Free Cash Flow | $18.5 million | N/A | [Q1 2025 Business Highlights](index=1&type=section&id=Q1%202025%20Business%20Highlights) Business highlights for Q1 2025 include strategic investments in AI, significant growth in high-value customer segments, and an expanding free customer base - Advanced and expanded offerings with investments in Generative AI, launching AI Optimization (AIO) and AI Toolkit to enhance content creation and marketing capabilities[12](index=12&type=chunk) - Demonstrated strong growth in high-value customer segments[9](index=9&type=chunk)[12](index=12&type=chunk) - Customers paying over **$10,000** annually grew by **39%** year-over-year[12](index=12&type=chunk) - Customers paying over **$50,000** annually increased by **86%** year-over-year to **388**[9](index=9&type=chunk)[12](index=12&type=chunk) - Ended the quarter with over **1.0 million** registered free active customers[12](index=12&type=chunk) [Financial Outlook](index=2&type=section&id=Financial%20Outlook) Semrush reiterated its full-year 2025 guidance and provided Q2 projections, anticipating approximately 20% year-over-year revenue growth for both periods, while absorbing an $8.0 million expense headwind from unfavorable foreign exchange rates Q2 2025 Outlook | Metric | Guidance Range/Value | | :--- | :--- | | Revenue | $108.2M - $109.2M (~20% YoY growth) | | Non-GAAP Operating Margin | ~11% | Full Year 2025 Outlook (Reiterated) | Metric | Guidance Range/Value | | :--- | :--- | | Revenue | $448.0M - $453.0M (~20% YoY growth) | | Non-GAAP Operating Margin | ~12% | | Free Cash Flow Margin | ~12% | - Full year 2025 guidance now absorbs an incremental **$8.0 million** expense headwind due to a revised EURO to USD exchange rate assumption (from **1.05** to **1.13**)[10](index=10&type=chunk) [Consolidated Financial Statements](index=6&type=section&id=Consolidated%20Financial%20Statements) The unaudited consolidated financial statements present Semrush's Q1 2025 financial position and performance, highlighting a GAAP net income of $0.7 million, increased cash to $64.7 million, and robust operating cash flow of $22.1 million [Statements of Operations](index=6&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) The unaudited condensed consolidated statements of operations detail revenue, gross profit, and net income for Q1 2025 and Q1 2024 Q1 2025 Statement of Operations (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Revenue | $105,018 | $85,812 | | Gross Profit | $85,147 | $71,167 | | (Loss) Income from Operations | $(74) | $1,468 | | Net Income | $655 | $2,003 | | Diluted EPS | $0.01 | $0.01 | - Total stock-based compensation expense increased to **$9.1 million** in Q1 2025, up from **$5.1 million** in Q1 2024[29](index=29&type=chunk) [Balance Sheets](index=8&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) The unaudited condensed consolidated balance sheets present the company's financial position at March 31, 2025, and December 31, 2024 Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $64,665 | $48,875 | | Total Assets | $416,501 | $390,943 | | Deferred Revenue (Current) | $79,926 | $71,827 | | Total Liabilities | $138,343 | $124,591 | | Total Stockholders' Equity | $278,158 | $266,352 | [Statements of Cash Flows](index=9&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) The unaudited condensed consolidated statements of cash flows summarize cash movements from operating, investing, and financing activities for Q1 2025 and Q1 2024 Q1 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22,109 | $14,779 | | Net cash used in investing activities | $(5,686) | $(31,981) | | Net cash (used in) provided by financing activities | $(345) | $434 | | Increase (decrease) in cash | $15,790 | $(17,275) | [Reconciliation of GAAP to Non-GAAP Financial Measures](index=7&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Financial%20Measures) This section provides reconciliations of GAAP to non-GAAP financial measures, detailing adjustments for items such as stock-based compensation to derive non-GAAP income from operations and free cash flow for Q1 2025 Reconciliation of GAAP (Loss) Income from Operations to Non-GAAP (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | (Loss) income from operations (GAAP) | $(74) | $1,468 | | Stock-based compensation | $9,112 | $5,115 | | Amortization of acquired intangibles | $1,379 | $692 | | Restructuring and other costs | $1,312 | $2,124 | | Acquisition-related costs, net | $484 | $338 | | **Non-GAAP income from operations** | **$12,213** | **$9,737** | Reconciliation to Free Cash Flow (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22,109 | $14,779 | | Purchases of property and equipment | $(725) | $(759) | | Capitalization of internal-use software costs | $(2,879) | $(2,015) | | **Free cash flow** | **$18,505** | **$12,005** | [Definitions of Non-GAAP Measures & Key Metrics](index=4&type=section&id=Definitions%20of%20Non-GAAP%20Measures%20%26%20Key%20Metrics) This section defines key non-GAAP measures and metrics, including ARR, Dollar-based Net Revenue Retention, Free Cash Flow, and Non-GAAP Income from Operations, explaining their calculation and purpose for financial analysis - **Annual Recurring Revenue (ARR):** Total subscription revenue expected contractually over the next **12 months**, assuming no changes[20](index=20&type=chunk) - **Dollar-based Net Revenue Retention:** Compares revenue from a cohort of customers over two consecutive **twelve-month periods**[22](index=22&type=chunk) - **Free Cash Flow:** Defined as net cash from operating activities less purchases of property and equipment and capitalized software costs[23](index=23&type=chunk) - **Non-GAAP Income from Operations:** Excludes Stock-Based Compensation, Amortization of Acquired Intangible Assets, Acquisition Related Costs, and Restructuring Costs[24](index=24&type=chunk) [Supplementary Information](index=3&type=section&id=Supplementary%20Information) This section provides details on the upcoming conference call, a company overview, standard forward-looking statement disclaimers, and contact information for investor relations and media - A conference call to discuss the results is scheduled for **May 8th, 2025**, at **8:30 a.m. ET**[14](index=14&type=chunk) - The report includes forward-looking statements concerning financial guidance, demand for products, and future operating results, which are subject to risks and uncertainties detailed in SEC filings[16](index=16&type=chunk)[17](index=17&type=chunk) - Provides contact information for Investor Relations (The Blueshirt Group) and Media (Jena Sullivan)[34](index=34&type=chunk)

Group 1 - Gary Alexander has extensive experience in covering technology companies on Wall Street and working in Silicon Valley, which provides insights into current industry trends [1] - He has been a contributor to Seeking Alpha since 2017 and has been quoted in various web publications, indicating his influence in the investment community [1] - His articles are syndicated to popular trading apps like Robinhood, suggesting a broad reach to retail investors [1]

Core Insights - SEMrush Holdings (NYSE: SEMR) is expected to see growth accelerate back to the mid-20s percentage range, indicating a positive outlook for the company [1] Group 1: Company Overview - SEMrush Holdings has been previously rated as a buy, reflecting confidence in its growth potential [1] - The company operates in a competitive landscape where various investment strategies, including fundamental, technical, and momentum investing, are utilized to assess its performance [1] Group 2: Investment Strategy - The investment approach taken by the author incorporates elements from different strategies to enhance the investment process [1] - The platform used for sharing insights aims to track investment ideas and connect with like-minded investors [1]

Analyst's Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or ...

Financial Performance - Company achieved $411.6 million in Annual Recurring Revenue (ARR) as of December 31, 2024, up from $337.1 million in 2023, representing a growth of 22%[242] - Revenue for the year ended December 31, 2024, was $376.8 million, an increase of $69.1 million or 22% compared to $307.7 million in 2023[279] - Non-GAAP income from operations for 2024 was $45.8 million, compared to $11.6 million in 2023, showing a significant improvement[256] - Free cash flow increased to $35.3 million in 2024 from $0.3 million in 2023, marking a substantial rise[260] - Gross profit for 2024 was $311.3 million, reflecting a 22% increase from $255.3 million in 2023, maintaining a gross margin of 83%[280] Customer Metrics - The number of paying customers increased to approximately 117,000 in 2024 from 108,000 in 2023, indicating a growth of 8.3%[242] - ARR per paying customer rose to $3,522 in 2024 from $3,125 in 2023, reflecting an increase of 12.7%[247] - Average Annual Recurring Revenue (ARR) per paying customer increased to $3,522 as of December 31, 2024, from $3,125 as of December 31, 2023, driven by strong upsell activity[279] - The number of paying customers grew to approximately 117,000 as of December 31, 2024, up from nearly 108,000 as of December 31, 2023[279] Expenses and Costs - Cost of revenue increased by $13.2 million or 25% to $65.5 million in 2024, primarily due to higher integration and data costs, depreciation, and personnel costs[280] - Sales and marketing expenses rose by $17.5 million or 14% to $144.3 million in 2024, with personnel costs being the primary driver[281] - Research and development expenses increased by $22.6 million or 39% to $80.1 million in 2024, largely due to higher personnel costs and increased headcount[282] - General and administrative expenses increased by $1.2 million or 2% to $78.6 million in 2024, primarily driven by higher professional services costs[283] Cash Flow and Investments - Net cash provided by operating activities for 2024 was $47.0 million, resulting from net income of $7.4 million adjusted for non-cash charges of $51.1 million[290] - Cash and cash equivalents as of December 31, 2024, totaled $48.9 million, with short-term investments at $186.7 million and accounts receivable at $9.0 million[286] - Net cash used in investing activities for 2024 was $58.2 million, primarily due to $151.2 million for short-term investments and $25.9 million for acquisitions[292] - Net cash provided by financing activities for 2024 was $1.9 million, consisting of $4.1 million from stock option exercises, offset by $1.6 million in debt repayment[295] - Cash flows from operations and cash on the balance sheet are expected to meet capital needs for at least the next 12 months[288] Strategic Initiatives - The company launched the general availability of the Enterprise SEO solution in 2024, contributing to its product innovation strategy[239] - The company plans to continue investing in product development to enhance its technological capabilities and expand its product offerings[248] - The company expects to continue investing in research and development to enhance its platform and customer experience[267] - The company anticipates fluctuations in cost of revenue as it expands its customer base and invests in data center operations and customer support[265] Other Financial Metrics - The company’s dollar-based net revenue retention rate slightly decreased from 107% in 2023 to 106% in 2024[246] - Stock-based compensation expense as a percentage of revenue increased to 7.4% in 2024 from 5.0% in 2023[256] - Other income, net decreased by $0.2 million to $12.1 million, representing 3% of total revenue for 2024, down from 4% in 2023[284] - Provision for income taxes increased by $9.3 million to $13.0 million, accounting for 3.5% of total revenue, up from 1.2% in 2023, primarily due to increased profits in foreign subsidiaries[285] - Deferred revenue increased by $8.5 million due to the addition of new customers and business expansion[290] Currency and Investments - The company has not engaged in hedging of foreign currency transactions but may evaluate this as international operations expand[314] - The company’s investments are primarily in short-term investments and money market funds, totaling $235.6 million as of December 31, 2024[312]

Financial Data and Key Metrics Changes - Fourth quarter revenue grew 23% year-over-year, with full year revenue growth of 22% [10][34] - Non-GAAP income from operations for Q4 was $11.8 million, with a non-GAAP operating margin of 11.5%, up approximately 150 basis points year-over-year [10][35] - Full year non-GAAP income from operations was $45.8 million, representing a non-GAAP operating margin of 12.2%, up 840 basis points compared to 2023 [10][35] - Cash flow from operations was $11.9 million in Q4 and $47 million for the full year, with free cash flow of $9.5 million in Q4 and $35.3 million for the full year [35][36] Business Line Data and Key Metrics Changes - Annual recurring revenue (ARR) for Q4 grew 22% year-over-year to $411.6 million, with enterprise-sized customer ARR particularly strong [36] - The number of customers paying over $50,000 increased 82% year-over-year to 336, while customers paying over $10,000 grew 40% year-over-year to over 4,300 [37][39] - The average ARR per paying customer grew to over $3,500, up nearly 13% year-over-year [36][37] Market Data and Key Metrics Changes - The company closed over 40 enterprise SEO deals in December alone, with more deals in Q4 than the rest of the year combined [12][38] - The enterprise customer segment showed strong growth, with 144 enterprise SEO customers by year-end [38] Company Strategy and Development Direction - The company plans to enhance its product portfolio with more enterprise capabilities, focusing on AI-driven offerings [14][41] - The strategy includes increasing paying customers across all segments and expanding average ARR per customer [41][44] - The company aims to lead in AI optimization, launching a new AI optimization solution in closed beta in the first half of 2025 [16][41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's trajectory and ability to execute, highlighting strong positive momentum continuing into 2025 [19][45] - The outlook for Q1 2025 expects revenue in the range of $103.9 million to $104.7 million, representing approximately 22% year-over-year growth [42][44] - For the full year 2025, revenue guidance is set between $448 million and $453 million, translating to approximately 20% growth at the midpoint [44] Other Important Information - The company has appointed Bill Wagner as the new CEO, effective March 10, 2024, with Oleg Shchegolev transitioning to Chief Technology Officer [18][21] - The company is focused on maintaining efficiency and profitability while investing in growth opportunities [41][90] Q&A Session Summary Question: Thoughts on DeepSeq and its impact on the roadmap - Management noted that technology democratization is beneficial for consumers and enhances freemium models, with DeepSeq contributing to lower inferencing costs [48][50] Question: Changes in macro environment and momentum - Management indicated no significant changes in the macro environment, with continued softness in the lower end of the market [53][55] Question: Reason for CEO change and initial priorities - The leadership change is seen as timely to address new opportunities, with a focus on aligning growth among the user base and enterprise opportunities [59][62] Question: Downtick in net revenue retention (NRR) - NRR was reported at 106%, with softness in the lower market impacting the metric, but management expects it to remain strong moving forward [64][66] Question: Details on AIO and its integration - AIO will be tested for pricing and packaging, with an enterprise version expected soon [71][73] Question: Strong month of December for enterprise deals - The strong performance was attributed to ongoing investments and the sales organization ramping up productivity [75][77] Question: Difference in ARPU between existing and new enterprise customers - There was no significant difference in ARPU between existing and new customers, with strong success seen across both segments [93][95] Question: Guidance for fiscal 2025 and macro outlook - The company maintains a prudent outlook for 2025, awaiting more concrete economic indicators before adjusting guidance [99][101] Question: Functionality and pricing of new AIO features - Initial functionality will focus on measuring visibility in AI-powered search, with pricing to be determined based on customer feedback [103][105] Question: Growth in the $10K customer segment - Growth was driven by both enterprise contributions and enhanced sales strategies targeting leadership within organizations [107][109]