SEMrush (SEMR) - 2022 Q2 - Quarterly Report

Part I. Financial Information Financial Statements The company's H1 2022 results show revenue growth but a net loss due to increased expenses and Russia exit costs Unaudited Condensed Consolidated Balance Sheets Total assets slightly increased to $302.2 million while stockholders' equity declined due to the period's net loss Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $302,246 | $300,074 | | Cash and cash equivalents | $248,917 | $269,665 | | Goodwill | $6,740 | $1,991 | | Total Liabilities | $84,350 | $74,532 | | Deferred revenue | $48,488 | $40,469 | | Total Stockholders' Equity | $217,896 | $225,542 | Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income Revenue grew 41% in H1 2022, but a net loss of $10.9 million was recorded due to higher operating expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $62,610 | $45,005 | $119,738 | $85,003 | | Gross Profit | $50,012 | $34,767 | $95,553 | $65,992 | | Total Operating Expenses | $58,268 | $34,782 | $106,399 | $64,501 | | Exit Costs | $3,485 | $0 | $3,485 | $0 | | (Loss) Income from Operations | $(8,256) | $(15) | $(10,846) | $1,491 | | Net (Loss) Income | $(8,284) | $(279) | $(10,855) | $1,192 | | Diluted EPS | $(0.06) | $0.00 | $(0.08) | $0.01 | Unaudited Condensed Consolidated Statements of Cash Flows Net cash from operations fell sharply to $0.6 million in H1 2022, down from $10.1 million in the prior year Statement of Cash Flows Summary (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $589 | $10,059 | | Net cash used in investing activities | $(19,573) | $(1,871) | | Net cash (used in) provided by financing activities | $(251) | $137,040 | | (Decrease) increase in cash | $(20,748) | $145,228 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail the financial impact of exiting Russian operations, recent acquisitions, and accounting changes - In response to the Russia-Ukraine conflict, the company began exiting its Russian operations in March 2022, which involved relocating its Russia-based workforce[46][115] - On August 3, 2022, the company completed the sale of its two Russian subsidiaries for an insignificant amount of consideration[169] - The company incurred $3.5 million in exit costs during Q2 2022, with an additional $8.5 million in other costs expected by year-end 2022[118][119] - In H1 2022, the company completed two acquisitions, Backlinko and Kompyte, for a total of $14.0 million[104][106] - Beginning January 1, 2022, the functional currency for most foreign subsidiaries was changed from the U.S. dollar to their local currencies[77] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue growth was driven by more paying customers, while profitability was hit by higher costs and Russia exit charges Key Performance Indicators | Metric | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Paying Customers | >91,000 | 79,000 | | Annual Recurring Revenue (ARR) | $254.7 million | $188.0 million | | Dollar-Based Net Revenue Retention | ~125% | N/A (126% at Dec 31, 2021) | | ARR per Paying Customer | $2,792 | $2,351 | - The company is winding down operations in Russia and expects to incur total costs of approximately $17.5 million to $21.5 million during fiscal year 2022[173] Revenue by Geography (in thousands) | Region | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | | United States | $54,652 | $38,840 | | United Kingdom | $12,233 | $8,870 | | Other | $52,853 | $37,293 | | Total | $119,738 | $85,003 | - The increase in sales and marketing expense for H1 2022 was primarily due to a 35% increase in headcount and higher advertising expenses[210] - The company believes its existing cash of $248.9 million will be sufficient to meet operating and capital needs for at least the next 12 months[224][226] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are foreign currency exchange rates, with minimal exposure to interest rate risk - The company does not believe it has material exposure to interest rate risk as its cash and cash equivalents are held in cash deposits and money market funds[241] - The company has foreign currency risk from expenses denominated in various currencies; a 10% adverse change in the USD/ruble exchange rate would result in a $2.3 million loss[245] - The company has not engaged in hedging foreign currency transactions to date but may evaluate doing so in the future[246] Controls and Procedures Disclosure controls were deemed ineffective due to a previously identified material weakness in financial reporting - Management concluded that as of June 30, 2022, the company's disclosure controls and procedures were not effective[247] - A material weakness in internal control over financial reporting, first identified in 2019, persists due to deficiencies in the financial statement close process[248][388] - The company is implementing a remediation plan which includes formalizing processes, hiring additional finance personnel, and upgrading accounting systems[250][389] Part II. Other Information Legal Proceedings The company is not currently party to any material legal proceedings - As of the report date, Semrush is not involved in any material legal proceedings[256] Risk Factors Key risks include subscription dependency, intense competition, geopolitical instability, and a persistent material weakness - The business is highly dependent on customers renewing their premium subscriptions, which constitutes substantially all of its revenue[259] - Instability in geographies with significant operations, particularly Russia, presents a material risk, with estimated exit costs of $17.5M - $21.5M in FY2022[268][270] - The company's products rely on access to data from third-party sources like Google, and any loss of access could harm the business[272][273] - A material weakness in internal control over financial reporting related to the financial statement close process, identified in 2019, still exists[388] - The dual-class stock structure concentrates 81% of voting power with pre-IPO stockholders, limiting the influence of Class A stockholders[27][420] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred, and the use of IPO proceeds remains unchanged - There were no unregistered sales of equity securities in the period[432] - The use of proceeds from the IPO remains consistent with what was previously disclosed[433] Defaults Upon Senior Securities The company reports no defaults upon its senior securities - None[435] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[436] Other Information The company reports no other material information for this period - None[437] Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and corporate documents