Q1 2021 SEMrush Holdings Inc Earnings Call
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Good day, Thank you for standing by and welcome to the Sim Roche Holdings first quarter 2021 results conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. The ask a question. During the session you will need the press star one on your telephone. Please note that today's call is being recorded if you require any further assistance. Please press star zero.
I would now if they had the conference operating Mr. Bob <unk>, Vice President of Investor Relations.
Good afternoon, I'm, Bob because you've already VP of Investor Relations and welcome to the <unk> Holdings first quarter 2021 results conference call.
We will be discussing the results announced in our press release issued after market closed today with me on the call is our CEO of like she'll go up our CFO of Guinea for Pizza, and our CSO Eugene loving the.
Before we begin I'd like to highlight our participation in several virtual investor conferences to be held during the second quarter.
We will attend the Needham virtual technology and media conference on May 20th of the Jpmorgan Technology Media Telecom conference on May 25.
And the Baird Global consumer Technology and services conference on June <unk>.
Details on our attendance at these conferences can be found on our website investors <unk> com.
Today's call will contain forward looking statements, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Forward looking statements include statements concerning our expected future business future financial performance and financial condition expected growth market opportunities and our guidance for the second quarter and the full year 2021 and can be identified by words, such as expect anticipate intend plan believe.
Seek or will.
These statements reflect our views as of today, only and should not be relied upon as representing our views at any subsequent date and we do not undertake any duty to update these statements.
Forward looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially from these forward looking statements for.
The discussion of the risks and important factors that could affect our actual results. Please refer to our final prospectus filed with the Securities and Exchange Commission, our quarterly reports on form 10-Q, as well as our other filings with the SEC.
Also during the course of today's call, we will refer to certain non-GAAP financial measures. There is a reconciliation schedule showing the GAAP versus non-GAAP results currently available in our press release issued after market closed today, and which can be found at our website investors that same rush dotcom.
And with that let me turn the call over to alike.
Thank you.
And good afternoon to everyone on the call.
I believe many of those joining us on the call today may be new stories from our sort of so I would like to take a few minutes to cover all of the story and all of a product offerings later are the.
For some performance on third quarter and all of the look for the full year.
<unk> is the leading popcorn for online visibility of management.
The base, we believe is the new software category.
The category with the total addressable market is nearly $13 million and potentially greater.
I believe we are well positioned to gain share and since 2016 rehab grown revenue at a camp.
And all the growth rate of over.
The 50%, while growing our base of customers count over percentage.
So the average consumer all of their just spend more than six hours per day on line and is overwhelmed by the information.
Businesses of all sizes target of two breakthrough this wall of noise to connect with potential customers.
All of the solutions businesses breakthrough the noise and become visible to potential customers.
We offer a broad range of solutions and according to data from the two.
And these are our growth 19 different categories, including its current pace of intelligence and social media marketing.
I believe the breath of our platform.
Key differentiator in the marketplace as many of our competitors one of the author of sporting solutions today.
<unk> was founded by myself and my friends meeting Melnick of in 2008 in St. Petersburg, Russia, and we opened Oh of course orcas in the United States in the following 12.
Today, we are headquartered in Boston, Massachusetts, and we have more of a 1000 in place in August of this in five countries.
Looking at growth large distances and various time zones has been part of the DNA from very beginning.
I believe these helped us.
The pandemic work from home environment.
All of the global workforce supports the global operation.
And the.
2022, because the customers in over 100 fortunate of Congress and approximately 55 per cent of all of the revenue was generated from customers outside the United States.
We have a very low friction sales stages here for you.
From a pricing model.
Ken sorry, Oh of product free of charge, but the excess before go for IBD, Joe where blood farm requires them to become a big customer.
We have no specific customer or industry concentration.
We have built a business the growth customers of <unk>.
Types of platform is used by very large enterprises, who can drive each of you well into the six figures as well as small businesses on our entry level program at <unk>.
122 of Golar per month.
I am very excited about the opportunity ahead of us rehab for a large and diverse customer base of rapid growth underpinned by robust margins and the rehab barely scratched the surface of what we believe is a very large market opportunity of chip.
Looking at the first quarter revenue of 14 million dollar was up 44% year over year all of our best year over year growth since 2019, the growth pattern in the quarter was consistent with the pattern over the last few years all of paid users grew 31.
Percent year over year.
Average check grew by about 17% year over year.
I want to express my thanks to all of our employees, our customers and our partners.
All of them were key to delivering the strong results of our first quarter of publicly traded company.
Looking at some of further highlights from the quarter moving.
We have launched epicenter with two third budget apps, initially and more on where.
We want to unlock the creator of potential of our partners an epicenter of key.
Key element of the stages here.
Offer access to all of our data assets to some customers today.
However, epicentre real of more easily allow third party developers to innovate on top of all of our unique data assets.
On the topic of our data assets, the first milestone and Rick what Oh buildings. The debate now contains more than 41 trillion links up over 50% from a year.
We believe our database is larger than many of our competitors in the space larger datasets can help the more value for our customers and further differentiate our offering from growth of our competitors.
Finally, I want to highlight our ranking in juice and the list of best Global software sellers for 2021.
For a ranked number 26, alongside leading brands like Microsoft Google Zoom Slack and all of us.
This was a remarkable achievement given our size and our limited the brand marketing efforts, so far and I believe our rankings speaks to the strength of our product and all of the relationship with our customers.
IPO was not wind, but the profit at the beginning of what I believe will be a very successful journey. Our platform continues to resonate with customers of all sizes and vacation.
Homeland the visibility to the management is poised for rapid growth and so is shim rush.
You bet I would like to pass the call to you of Guinea for more detailed discussion of our financials.
Thank you Alex.
The one baby of $40 million was up 44% year over year and came in above our expectations growth was driven by steady increase in paying users and an uptick in the average monthly recurring revenue being customer or ever check.
I attribute the higher than expected share growth to the number of factors price.
Price connection with Duke in January continuous changing the subscription mix with more users moving to Google in business, our higher price plans sales of additional user licenses and project limits and Leslie growing share of competitive intelligence add on in the company's revenue.
As a reminder of the new pricing playing apply only to new paid users and the reported but only a small portion of our total 73000 paid users so pricing could prove to be a tailwind for the balance of 2021 as well as for 'twenty to 'twenty two.
I would also like to note that our trailing 12 months revenue retention improved from the Huntington, 14% at the end of December two of 116% at the end of March I believe the decline in this metric from 2019 through 'twenty 'twenty was primarily the result of COVID-19, Lockdowns in the first half of 2020 and trends in 'twenty to 'twenty, one so far.
Fourth this year.
Gross margin of 78, 2% was up 200 basis points from a year ago as the growth in the hosting fee scheme in the well below the pace of revenue growth.
Hosting fees represent our largest expense within cost of goods sold so any savings from the eastern slated for a significant improvement in gross margin.
Operating expenses of $29 $7 million in the quarter were up 29% from a year ago, but only up slightly from the previous quarter of the year over year increase was primarily due to an increase in head count to support the growth of the business as well is that we need for a public offering as we transition to the public company.
I expect the pace of spending to accelerate across all functional areas for the remainder of the year as we continued to invest to support our growth and we incur additional costs associated with operating as a public company.
Let's turn to revenue growth combined with slower growth in cost of goods sold and the duration of the expenses contributed to net income of $1 $5 million from the first quarter up from a net loss of one $9 million a year ago.
I believe the first quarter demonstrates the potential operating leverage of our business model as top line growth translated into better margins.
Turning to the balance sheet, we ended the quarter with cash and cash equivalents of 171 $9 million up from $35 $5 million a year ago.
We generated 90 million of cash flow from operations and we received approximately $130 million of proceeds from the IPO net of expenses. The company also the Houston approximately $10 million in April from the partial exercise of there'll be over ortman option granted to the idea of underwriters.
The first quarter was exceptionally strong as operating cash flow margin exceeded 20% for the full year 2021 I expect the operating cash flow to be neutral or marginally positive as the pace of spending will grow for the remainder of the year.
Looking ahead to guidance I expect second quarter of revenue in the range of 42 to $242 $7 million, representing 49% year over year of growth.
For the full year I expect revenue in the range of 175 $277 million, which would represent 40% to 42% year over year of growth.
As I mentioned previously strong revenue growth of allows us to make incremental investments in the marketing and to a lesser degree sales to support the revenue growth and we expect these investments to way of an operating income margin in the near term.
I expect second quarter of non-GAAP loss of 442 for $1 million and $7 nine to $6 $3 million for the full year.
I am pleased with the company's performance in the first quarter as we delivered the revenue acceleration and margin expansion.
Looking ahead I believe we are well positioned to continue to deliver strong revenue growth in 2021, while making the necessary investments to support our long term objectives.
With that I'll ask Eugene and I are happy to take any of your questions at the range of please open the line for questions.
And at this time this is a way of asking the question.
At Star one of your telephone Keypad Star one and all.
The first question comes from Michael <unk> with Keybanc.
Hey, guys. Congratulations on the great first quarter at the gate two questions one one of them.
And the other on pricing on branding.
In terms of customers that we talk to we always heard a fantastic views of you guys and your name and your brand, but I'm not sure. The investors have appreciated that or the dust completely widespread is there something that you can be doing too.
Promote that brand even more so your differentiation stands out and then I was wondering if you could quantify the pricing uplift this quarter.
Total revenue where that might go over the next year.
Thank you.
Yes, Youre right.
We have Oh, we see great opportunity in front of us to spend more on bridging we see great opportunity to educate the market.
Around us.
As you can see of when we think about future spend of our.
Marketing.
Reshaped such opportunities of the spending one for Enbridge.
And this is here of getting Oh jumping on another front. So we'll be spending more time visiting conferences and meeting the investor So that I think that'll be our contribution and promoting the company amongst the investor community. So we plan to be very active in the coming quarters as well.
Great and then on the.
On pricing any quantification of all of the how much of an uplift you've seen so far or the contribution for the year.
So we clearly this idea of getting again, so we clearly see a positive effect from the Erie packaging. So the the average checks comes higher need.
And the basically close to what we've.
Change the of notional of pricing plans for I would say like 15% to 20%. So the results actually better than we anticipated in terms of the overall customer reception.
Okay, great. Congratulations again, thanks, guys. Thank you.
And our next question comes from Brent <unk> with Piper Sandler.
Hi, guys. This is actually hand of Rudolph on for Brent today. Thanks for taking my question.
The first one for me just wondering if you could talk about what you feel really drove that strong customer adds in the quarter.
Thank you.
The first of all I want to dimension, what the such.
Higher demand Oh have you started to feel a few quarters ago I would say, it's short quarter when the fields such.
Hi, Jim and from all customers.
I expect towards such sales.
We will continue but at the same time, it's hard for.
To say, how long I think we should be careful of if all expectations.
It could be something of duration.
In the next quarters, but at the same time.
It brings us to previous toward the cabal of the global digital transformation. It started couple of years ago. The REIT.
Expect it will continue.
<unk> quarters next the next few years.
The <unk>.
Some some potential from obvious tailwind.
Gotcha.
Yeah.
Okay, Great and Oh, Yeah go ahead.
Yeah.
Are we going to say something.
No no no I'm, sorry that was like it. Please go ahead Oh okay.
And then the second question I guess, how how is logo churn in the quarter and then kind of a third question on the that.
Talk about what you were seeing in terms of your freemium motion and the conversion of free to paid customers in the quarter.
Thank you for the question Harlan This is <unk> guinee again, so on the logo churn we saw that it was slightly better than we had in the previous quarters and you can see this in our trailing 12 months revenue retention, which nudged up 216% as we have mentioned in our remarks, so so far we see aes.
A set of some improvement in how we retain our customers.
And then the second question was the flow.
On the on the on conversion rate.
Yeah I can take this one so.
In terms of conversion of from premium model, we are very happy with how this model performs we didn't see any changes in Q1.
So still.
Our premium products contributed significantly to user acquisition and demand overall demand generation efforts.
Say no no material changes in Q1 comparing to previous year.
That's helpful. Thank you.
And our next question comes from Chris Merwin with Goldman Sachs.
Thanks, so much for taking my question.
Yes, I wanted to ask about some of the drivers of the increase in check size. I think you mentioned a number of them. There is of course of the pricing change there was kind of like there was some.
The customers migrating to higher price tiers.
As much as you can can you break out the magnitude of those drivers for us and yeah, how should we be thinking about the sustainability of those drivers.
Progress through through the year here. Thank you.
Great. Thank you for the question. This is Heath Guinea gain so the the where a number of drivers as you mentioned so one is the I mean, the price increase will probably be a little less pronounced in Q1, because it was just we we just introduced it in and was clearly applicable to the new customers only so what we see driving the average check apart from the.
The Oh.
The packaging is migration from the lower price points to the higher price points.
Shift in the share of higher price points and overall.
Like a subscription the portfolio.
Sales of additional use English limits, such as keywords or projects plus.
The successful sales of add ons. So our add ons are growing faster I mean revenue for.
Don't say growing faster than the total company's revenue so debt all of that contributes to I would say.
The more or less equally important to the growth of <unk> of the average check and a.
Eugene you May you want to add something yes. So one thing that I think we could also share is that we are also looking at number of customers on more expensive subscriptions. The to go beyond our three core plans. So for example, we look at number of.
Customers, who paid us more than $10000 in the last 12 months and this number for example in Q1 grew more than 50% year over year. So that's also one of the kind of one quantitative.
Things that you can take and hope it provides more color behind the growth of the average revenue per user.
Okay, great. Thank you and maybe just one quick follow up I think you called out the number of back links in the in the quarter I know its in the trillions and it sounds like it's growing almost 50% year on year can you talk a bit about I guess first of all how youre able to you why does the growing as fast as they are I mean, it's well in excess of your your customer growth. How we think about you know.
Metric like that in for.
Factoring your ability in a positive way to acquire even more customers to grow with your customers. Just 70 net add some more context around that number if we could thank you.
Yes, so the.
The Eugene I'll take this one so when we think about the importance of number of back links and why we are sharing this metric I think it goes back to.
Two of our product and how product is very relevant part of our overall customer acquisition strategy.
In general when you have a big database, what it means for and custom.
Customer that they will have more insights they will have more ideas about how to build links and especially if they're really small business, sometimes in checkers with last backwards, there's a lot of and find anything about their business, but in checkers like some rush with a lot of links they will be able to find something.
So what it means is that a people will have more complete picture will just.
Improves the overall quality of the product and then at the same time it opens products like back links analytics for broader set of small businesses and hopefully helps us to acquire more customers, but yet again. The primary goal is just to improve overall quality of product and have more complete sort of map of the internet.
Thanks very much.
Yes.
And our next question comes from Tom Roderick with Stifel.
Hey, everybody. Thanks for taking my questions. Congratulations on the IPO and wanted to ask a question just thinking about the semi product portfolio and you have kind of of the holistic vision of.
Short term strategies digital market strategies long term strategies and if I think about you know how your potential clients and existing clients out there are reacting to short term and long term, whether it's you know paid advertising on the short term payback side or search engine optimization of the long term side, how are they shifting the demand.
And for either end of that as the economy recovers is there more of an emphasis on one of the other are you seeing more demand for newer solutions would just love to understand how are the the improving economy of sort of impacting which end of the demand curve of digital marketing.
Okay. Thank you so much really really good question and I.
Are you, saying.
I think what we have seen is is going to be indicated of only two the segment of the market right not necessarily.
For the whole market, but what do we see as debt.
In general.
People want to spend more on paid channels, but the problem with paid channels of that they're saturated.
So in general we keep seeing transition from short term marketing accuses towards long term marketing of QE just across the board yet again, if you if you talk to people who sell AD words, because they don't see all of the side of the market. They will probably save that they see a huge increase in demand for.
Search ads, but since we see all of the sides, we definitely see increase in demand for our search ads bought we see even bigger demand.
The words more organic growth and long term growth activities and marketing.
Yeah, No. That's that's excellent feedback and I appreciate the view towards the towards the longer term.
As you as you look at some of the newer solutions, whether it's on the the conversion of our loyalty side or perhaps its even just you know a lot of the core search engine optimization side.
Can you point to some of the newer solutions of the Upsells that the semi she has been offering of the market that are starting to impact the deal size of customers in and starting to have some real traction.
Do you know anything on the the newer front that you've rolled out in the last couple of years on the add on front of would love to hear more about that thank you.
Yeah, absolutely. So I think we did really good job during the previous couple of years in building this product portfolio and building those add on some of them that you've mentioned all of for example, our adopt trans add on the previous that was called traffic analytics.
Is having great traction right now local listings also has really good traction, especially in the United States. We also sorry.
Started cross sell and probably a new product that we acquired in September and we're constantly building new things, but for the damage will be too early to have material impact on our revenue, but one of those things for example is split signal.
New product that is really in early.
Early beta and this this product is designed for bigger companies with large web sites and also price differently at the higher rent.
So we are constantly adding new products, but I think if you look at what drives revenue to day those will be things that we already done in the past and right. Now we are more of of leveraging all of the hard work that our product teams have done previously.
Fantastic. Thank you for the detail I appreciate it in the shop.
Thank you.
And our next question comes from Brent Thill with Jefferies.
Most of the world any any trends of your day.
You saw during the quarter in terms of the strength in I don't know if you had growth rates as it relates to what happened in those geos.
Yes, Brent Unfortunately, we lost the first part of the real question can you. Please repeat this one yes.
Just overall.
In U S versus the rest of World you know what what did you see any material changes or differences in each of those regions.
We actually havent seen any differences. So we have been growing fairly steadily across the globe and most of the I would say top of markets that we had so the market share for our top countries remain the same throughout the quarter and actually was fairly consistent for all of the last several quarters.
So it's a broad the like broad the consistent growth the globally.
And you highlighted that low touch sales model is there any changes as it relates to the success you've had with this model are you continuing with that go to market model are you contemplating.
Any changes on your go to market in terms of adding.
Now inside sales reps are outside sales reps to further penetrate this market.
You didn't change.
I'll go to the markets.
The first quarter.
In retail the same so not flow.
I think all all open of the oceans or other things related to.
Our go to market and so in a flow of very consistent.
We didn't face each day.
Okay. Thank you.
And our next question comes from Mark Murphy with J P. Morgan.
Hi, Good afternoon. This is Matt Coss on behalf of Mark Murphy Congrats on the first quarters of public company out of the gate just.
Just a question of retention it was good to see that uptick, but do you think it gets back to the levels you saw in the prior year like closer to that 120 per cent range at some point once we're at once we've completely lapped the effects of COVID-19.
So Matt. Thank you for the question. This is <unk> getting we'd love to be able to be very precise in terms of the number of cannot do the unfortunately, so what do we expect to happen as debt for the retention rate all things being equal to continue to go up as of this past quarter smoothed from the.
And then the right into the denominator of the calculation. So I think for the for like for the next.
Two of three quarters will continue to see it going up and the leveling out of maybe moving marginally down so that's the expectation.
I hope this is helpful.
Yeah that's helpful.
And then I think you said to <unk> question you saw the same sign up flow and I just want to make sure. So you haven't seen any change to the number of free users that you're bringing on to the platform is that correct.
The amount of a piece.
For users.
Uh huh.
But the.
Yes, you're right we didn't change our.
So I know Paul and even more of we mentioned already all of your packaging.
The expected in the beginning of this quarter, we expect so.
The decline in new paying customers because of the specialty packaging, but we didn't face.
All of our metrics all of our conversion from from pre customer store to great customers.
The assistance.
Okay.
Thank you very much.
And as a reminder of your wife asked a question Thats Star one of your telephone Keypad Star one.
And there are no further questions at this time.
That does conclude today's conference call. Thank you for your participation you may now disconnect.
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