SEMrush (US:SEMR)2025-08-05 13:30Financial Data and Key Metrics Changes - Revenue for the quarter was $108.9 million, representing a 20% year-over-year growth [4][13] - Non-GAAP operating margin was 11%, down approximately 240 basis points year-over-year due to a weaker U.S. Dollar [16][22] - Annual recurring revenue (ARR) grew 15.3% year-over-year to $435.3 million, with average ARR per paying customer increasing to $3,756, marking over 15% growth compared to the same quarter last year [17][18] Business Line Data and Key Metrics Changes - The Enterprise segment is now the largest contributor to overall company growth, with enterprise SEO solutions growing to 260 customers and an average ARR of approximately $60,000 [4][5] - The AI Toolkit, launched at the end of Q1, became the fastest-growing product in the company's history, achieving $3 million in ARR within a few months [6][8] - ARR from enterprise and AI products is expected to approach $50 million by the end of the year [8][19] Market Data and Key Metrics Changes - Approximately 116,000 paying customers were reported, down sequentially from the prior quarter, primarily due to softness among freelancers and less sophisticated customer segments [14] - Dollar-based net revenue retention was 105%, with strong retention in the Enterprise segment consistently above 120% [14][19] Company Strategy and Development Direction - The company is focusing on high-growth areas, specifically enterprise and AI search, reallocating resources away from lower-value customer segments [9][20] - A strategic decision was made to not increase marketing spend in response to rising customer acquisition costs in the lower end of the market, instead prioritizing investments in enterprise and AI products [9][20] - The company announced a $150 million share repurchase program, reflecting confidence in its business and valuation [25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth potential in the enterprise and AI segments, despite experiencing softness in the lower end of the market [10][12] - The company believes that the shift to AI and LLMs (Large Language Models) presents significant opportunities for growth [11][12] - Management anticipates that the current pressures in the lower end of the market are temporary and expects stabilization in the future [36][64] Other Important Information - The company adjusted its full-year 2025 revenue guidance to a range of $443 million to $446 million, reflecting approximately 18% growth at the midpoint [21] - The non-GAAP operating margin guidance remains at 12%, despite the reduced revenue outlook and foreign exchange headwinds [21][24] Q&A Session Summary Question: Pressures in the low-end customer segment - Management indicated that the pressures are fairly contained to freelancers and less sophisticated customers, primarily impacted by rising cost per click [28][29] Question: Liquidity of the stock and buyback program - The share repurchase program is seen as a way to express confidence in the company's future potential and momentum in enterprise and AI [30][32] Question: Down market weakness and macro factors - Management believes the weakness is contained to the low-end segment and not reflective of broader macroeconomic conditions [36][38] Question: Customer acquisition costs and market dynamics - The increase in customer acquisition costs is primarily affecting the low-end segment, while other segments continue to perform well [51][56] Question: Future trajectory of the low-end customer base - Management expects stabilization in the low-end segment, with ongoing strength in the SMB and enterprise segments [62][64]