SEMrush (US:SEMR)2023-03-14 16:00Part I Business Semrush operates a leading SaaS platform for online visibility management, serving over 95,000 paying customers globally with subscription-based services and strategic acquisitions - Semrush is an online visibility management SaaS platform aiding companies in enhancing their digital presence across various channels38 Key Customer and Financial Metrics (as of Dec 31, 2022) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Paying Customers | >95,000 | >82,000 | | Active Free Customers | >803,000 | >537,000 | | Countries Served | >157 | >145 | | Annual Recurring Revenue (ARR) | $275.1 million | $215.7 million | | Revenue | $254.3 million | $188.0 million | | Net Loss | $33.8 million | $3.3 million | - The company's growth strategy emphasizes new customer acquisition, existing customer expansion, continuous product innovation, and opportunistic M&A525354 - The platform leverages over 14 years of proprietary technology, analyzing 770 million domains, 23 billion keywords, and 43 trillion backlinks4757 Subscription Plan Pricing (as of Dec 31, 2022) | Plan | Monthly Price | | :--- | :--- | | Pro | $119.95 | | Guru | $229.95 | | Business | $449.95 | Risk Factors The company faces significant risks including customer retention, intense competition, reliance on third-party data, geopolitical instability, and evolving data privacy regulations - Business performance heavily relies on retaining paying customers and their subscription renewals and upgrades9293 - The company operates in a highly competitive market, facing pressure from specialized point solutions and larger, better-resourced competitors9799 - Platform functionality depends on access to third-party data sources; loss of access or unfavorable terms could adversely impact the business103104 - The company has a history of net losses, including $33.8 million in 2022, and may not achieve or sustain future profitability101 - Geopolitical instability, particularly the conflict in Ukraine, resulted in significant expenses for employee relocation and the sale of Russian subsidiaries108109 - Evolving data privacy laws like GDPR and CCPA, along with tracking technology regulations, could impair marketing and product functionality, potentially leading to significant fines176177178 - The dual-class stock structure concentrates 89% of voting power with pre-IPO stockholders, limiting Class A stockholder influence on corporate matters36241 - Material weaknesses in internal control over financial reporting, specifically in the financial statement close and cash disbursement processes, rendered disclosure controls ineffective as of December 31, 2022211578584 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None252 Properties Semrush maintains its headquarters in Boston, leases various global offices, operates data centers in Virginia and Georgia, and terminated its St Petersburg lease in 2022 - Corporate headquarters are located at 800 Boylston Street, Boston, MA, with a lease for 16,467 sq. ft. expiring in 2027254 - The company operates two data centers in Ashburn, Virginia, one in Atlanta, Georgia, and two Google Cloud locations in Virginia and South Carolina255 - The lease for 122,031 sq. ft. of office space in Saint Petersburg, Russia, was terminated in August 2022 due to the company's exit from the country254 Legal Proceedings The company anticipates no material adverse effect on its financial condition or operations from any current legal proceedings - The company is not currently involved in any legal proceedings expected to have a material adverse effect on the business257 Mine Safety Disclosures This item is not applicable to the company - None258 Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Semrush's Class A common stock trades on the NYSE under "SEMR", with no dividends paid or planned, and no issuer equity purchases - Class A common stock trades on the NYSE under the symbol "SEMR", while Class B common stock is neither listed nor traded261262 - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future264 - Net proceeds from the March 2021 IPO and subsequent underwriter option exercise totaled $135.9 million265 Reserved This item is not applicable - Not applicable269 Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, Semrush's revenue grew 35% to $254.3 million, but net loss widened to $33.8 million due to increased operating expenses and $11.3 million in Russia exit costs, while maintaining strong liquidity Results of Operations In 2022, revenue grew 35% to $254.3 million, but operating expenses surged 63% to $242.1 million, leading to a net loss of $33.8 million from $3.3 million in 2021 Comparison of Results of Operations (2022 vs. 2021) | Metric (in thousands) | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $254,316 | $188,001 | $66,315 | 35% | | Gross Profit | $205,763 | $146,067 | $59,696 | 41% | | Total Operating Expenses | $242,136 | $148,560 | $93,576 | 63% | | Sales and marketing | $126,889 | $81,122 | $45,767 | 56% | | Research and development | $41,204 | $24,322 | $16,882 | 69% | | General and administrative | $62,779 | $43,116 | $19,663 | 46% | | Exit costs | $11,264 | $0 | $11,264 | N/A | | Loss from operations | ($36,373) | ($2,493) | ($33,880) | 1359% | | Net loss | ($33,848) | ($3,285) | ($30,563) | 930% | - Revenue growth was primarily driven by an increase in paying customers from over 82,000 to over 95,000, alongside growth in user licenses and add-on purchases313 - Sales and marketing expenses increased by $45.8 million, primarily due to a $23.6 million rise in marketing and advertising spend and a $20.1 million increase in personnel costs from 38% headcount growth316 - Research and development costs increased by $16.9 million, mainly due to a 40% increase in headcount for product development teams317 Liquidity and Capital Resources As of December 31, 2022, liquidity included $79.8 million cash and $157.8 million short-term investments, with $9.6 million net cash used in operations, a shift from $23.8 million provided in 2021 Key Liquidity Metrics (as of Dec 31, 2022) | Metric | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $79.8 | | Short-term investments | $157.8 | | Accounts receivable | $3.6 | - The company holds an undrawn $45.0 million revolving credit facility maturing in January 2024326327 Cash Flow Summary (2022 vs. 2021) | Cash Flow Activity (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | ($9.6) | $23.8 | | Net cash used in investing activities | ($179.8) | ($4.6) | | Net cash (used in)/provided by financing activities | ($0.3) | $215.3 | Critical Accounting Policies and Estimates Key accounting policies include revenue recognition for subscriptions, capitalization of sales commissions over 24 months, and stock-based compensation valuation using Black-Scholes - Revenue from SaaS subscriptions is recognized ratably over the contract term, treating subscription and support as a single performance obligation342 - Incremental costs to obtain a contract, mainly sales commissions, are capitalized and amortized over an estimated 24-month customer relationship period346 - Stock-based compensation is valued using the Black-Scholes model, with key assumptions including 53.3% volatility in 2022 and a 6-year expected life348353 - As an "emerging growth company," Semrush has elected to use the extended transition period for adopting new or revised accounting standards354 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, particularly the euro, and interest rate changes on its short-term investment portfolio - The primary market risks are foreign currency exchange rates and interest rates356 - Foreign currency risk primarily stems from operating expenses in foreign currencies, mainly the euro; a 10% change in USD/EUR would impact operations by $3.5 million359 - Interest rate risk relates to the company's $237.5 million in cash and investments, but its short-term nature limits material impact from rate changes357 Financial Statements and Supplementary Data This section presents Semrush's audited consolidated financial statements for 2022, including balance sheets, income statements, cash flows, and detailed accounting notes Consolidated Balance Sheets As of December 31, 2022, total assets were $298.7 million, with cash decreasing to $79.8 million offset by $157.8 million in short-term investments, while liabilities increased to $98.8 million Consolidated Balance Sheet Summary (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $79,765 | $269,665 | | Short-term investments | $157,774 | $0 | | Total current assets | $257,379 | $283,538 | | Total assets | $298,690 | $300,074 | | Liabilities & Equity | | | | Total current liabilities | $88,701 | $71,549 | | Total liabilities | $98,786 | $74,532 | | Total stockholders' equity | $199,904 | $225,542 | | Total liabilities and stockholders' equity | $298,690 | $300,074 | Consolidated Statements of Operations and Comprehensive Loss In 2022, revenue increased 35% to $254.3 million, but operating expenses, including $11.3 million in Russia exit costs, led to a net loss of $33.8 million or ($0.24) per share Consolidated Statement of Operations (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenue | $254,316 | $188,001 | $124,875 | | Gross profit | $205,763 | $146,067 | $94,945 | | Total operating expenses | $242,136 | $148,560 | $101,090 | | Loss from operations | ($36,373) | ($2,493) | ($6,145) | | Net loss | ($33,848) | ($3,285) | ($7,012) | | Net loss per share | ($0.24) | ($0.03) | ($0.07) | Consolidated Statements of Cash Flows In 2022, net cash used in operations was $9.6 million, a reversal from 2021, with $179.8 million used in investing, resulting in $79.8 million cash at year-end Consolidated Statement of Cash Flows (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($9,624) | $23,761 | $5,852 | | Net cash used in investing activities | ($179,832) | ($4,633) | ($6,084) | | Net cash (used in) provided by financing activities | ($345) | $215,324 | ($1,672) | | Net (decrease) increase in cash | ($190,076) | $234,222 | ($1,904) | | Cash, cash equivalents and restricted cash, end of year | $79,765 | $269,841 | $35,619 | Notes to Consolidated Financial Statements Notes detail accounting policies, the impact of Russia exit costs, 2022 acquisitions, credit facility terms, tax provisions, and stock-based compensation expenses - The company completed the sale of its two Russian subsidiaries on August 3, 2022, incurring total exit costs of $11.3 million in 2022, including a $1.7 million loss on the sale388512516 - In 2022, the company acquired Backlinko for $4.0 million and Kompyte for $10.0 million, adding $4.9 million to goodwill504506507 - The company maintains a full valuation allowance against its worldwide net deferred tax assets due to a history of cumulative net losses525 - Total stock-based compensation expense was $7.4 million in 2022, an increase from $2.7 million in 2021562 - The company has multi-year commitments with data providers totaling $33.2 million through 2026565 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes or disagreements with its accountants regarding accounting principles or financial disclosure - None576 Controls and Procedures Management concluded disclosure controls were ineffective as of December 31, 2022, due to material weaknesses in financial statement close and cash disbursement processes - The CEO and CFO concluded that disclosure controls and procedures were not effective as of December 31, 2022578 - Material weaknesses were identified in internal control over the financial statement close and cash disbursement processes, specifically regarding period-end recognition and expense cutoff584 - Remediation efforts are underway, including new hires and external firm engagement, but material weaknesses were not fully remediated by year-end585589 Other Information The company reports no other information for this item - None590 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable591 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders594 Executive Compensation Executive compensation details are incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders595 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders596 Certain Relationships and Related Transactions, and Director Independence Details on related party transactions and director independence are incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders597 Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders598 Part IV Exhibits, Financial Statement Schedules This section lists documents filed with the 10-K, confirms financial statement inclusion in Item 8, and provides a detailed exhibit index - This section contains the financial statements (Item 8), confirms the omission of financial statement schedules, and provides an index of all exhibits filed with the report601602603 Form 10-K Summary The company provides no summary for this item - None610