SEMrush (SEMR) - 2025 Q1 - Quarterly Report

Part I Financial Statements 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 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][40] - 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][87][91] 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 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 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][130] - A recent management transition aims to bolster innovation, with the former CEO moving to CTO to focus on AI and product development[136] Non-GAAP Financial Measures 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 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] - Sales and marketing expenses rose 22% to $41.3 million, mainly due to a $5.2 million increase in personnel costs[163] - Research and development costs increased 27% to $21.9 million, primarily from a $4.4 million rise in personnel costs[164] - General and administrative expenses grew 19% to $22.0 million, driven by a $3.9 million increase in personnel costs[165] Liquidity and Capital Resources 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] - Net cash provided by operating activities was $22.1 million in Q1 2025, up from $14.8 million in Q1 2024[172][173] - 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][176] Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - The company has not engaged in hedging foreign currency transactions to date but may evaluate doing so as international operations expand[188] Controls and Procedures 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] - 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] Part II. Other Information Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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] Other Information 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] Exhibits 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] 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]