Q2 2021 SEMrush Holdings Inc Earnings Call
Good day, and thank you for standing by welcome to the Rush holding second quarter 'twenty 'twenty..1 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 to ask a question. During the session you will need to press star 1 on your telephone.
You require any further assistance. Please press star zero I would now like to hand, the conference temperature your speaker today.
Bob do Bharti. Please go ahead.
Good morning, I'm, Bob could you already VP of Investor Relations and welcome to <unk> Holdings second quarter 2021 results Conference call.
We will be discussing the results announced on our press release issued after market close on Monday.
With me on the call is our CEO I'll like cycle, our CFO is getting deeper and our CFO Eugene 11.
Before we begin I'd like to highlight our participation in several virtual investor conferences to be held during the third quarter.
We will attend the Keybanc virtual technology leadership conference on August 11, and the Piper Sandler Global Technology Conference on September 14th.
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 and financial performance and financial condition.
Expected growth adopt.
Adoption and demand for our products and features.
<unk> investments and their anticipated benefits industry and market trends and our competitive position market opportunities and our guidance for the third quarter of 2021 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 a discussion of the risks and important factors that could affect our actual results. Please refer to our final IPO prospectus filed with the Securities and Exchange Commission, our quarterly reports on form 10-Q, as well as other filings with the FCC.
During the course of today's call, we refer to certain non-GAAP financial measures. There's a reconciliation schedule showing the GAAP versus non-GAAP results currently available on our press release issued after market close which can be found on our website at investors <unk> Dot com.
And with that let me turn the call over Telework.
Thank you and good morning to everyone on a per call.
I am pleased with our performance in the second quarter.
Revenue.
$45 million was up 58% year over year and up 13% sequentially.
We saw strength across all our major markets, but particular strength.
From markets outside the United States, and United Kingdom, which grew 65% year over year.
Oh paid users grew 29% year over year, while average check grew by approximately 19%.
Yeah.
Looking at some of the product highlights from the quarter, we saw strong traction with our social media marketing tools.
As I mentioned in my <unk>.
Transition risk tools to pre 2 use model.
The goal of driving wider adoption.
The initial results look promising.
We had over 30000 extra few years at the end of June.
According to <unk>.
We are a leader in social media management, and I believe <unk>.
Adoption of our solutions.
Uh-huh validation of our leadership position.
Okay.
Many investors ask about where primary use case.
It drives customer startup similar.
It's an interesting question because our product offering is far broader than reported solutions offered by our competitors.
There's a wide range of use cases, and I would like to highlight a couple of growth to help investors better understand what is driving our growth.
Thank you chimney sweeps is a contractor in the Washington D. C area, which provides critical services related to safe to upkeep and construction of chimneys and fireplaces.
<unk> is a new service provider in a market dominated by larger brands, we have much larger advertising budgets.
<unk> engaged audience.
Audience growth at digital marketing agency <unk>.
The company is digital marketing strategy.
Using timber rush pools, often growth conducted research to plan and effective size architecture, as Shaw and content strategy that could rapidly increase previous typical operator.
The results speak for themselves.
Speech rankings Brent from approximately.
In September of 2019.
2 or 3 foundries also October 3 inch adventure and organic traffic increased by over 2 fold 1% range.
When a prospect searches for chimney sweep in Washington D C.
Pretty clean.
Ranking.
Behind <unk> and deal.
We improved visibility translated debt.
They're doing it.
In traffic and conversion and us.
Bridget chimney sweeps driven Europe has grown substantially.
And I mean, it's a global pandemic with so many SMA struggle the company is preparing to expense.
We are focused on solutions for Smbs, but all of our solutions are widely deployed across enterprise customers as well.
Universal Health services.
Leading provider of hospital and healthcare services.
<unk> corporate marketing ease of internal resource supporting marketing and communications strategist and multi channel tactics for future corporate it's sub.
Subsidiary.
In November 2019.
You chose issue a team or a.
Similarly license and begun.
<unk> per state pilot, especially if you strip sites.
In short you quickly realized the FERC energy sites.
Watching content, but.
It's really been tragic.
Using various timber SQL cool yeah sure Rajeev I assist in total research, but issue and content teams began producing content.
Gold Hill and saw immediate results.
We've shamrock.
<unk> reported operating highly effective content and do conversions by 14, 9% in 5 months.
With the help of Sim Rush Uhm grew the number of in house campaigns by Tenex in 1 year.
I'll also cutting costs by 60% as compared to our sourcing revoked.
Yes.
I would like to close a few comments on the breadth of our data assets.
Your investors very confused about what data, we collect and analyze I want to make it clear.
While building the map of the Internet, where working on producing operating sites.
Calix billions of discrete data points from.
A combination of internal and external sources.
Take that data and transform it into actionable insights for customers. However, we only collect publicly available data does not include sensitive nonpublic data like courageous course peninsula assets.
And payment information.
Our practices are designed to compliance.
Identity for advertisers regulations in the United States and the general data protection regulation G per in Europe.
Looking ahead I do believe we will see day reduction in micro targeting and it may result in less speed it spending on the part of consumers.
Hello, the opt in rates could make it extremely difficult to measure returns on paid advertising both sides, but generate relatively modest traffic, which includes mainly SME as I.
I don't believe the overall marketing budget.
You'll see.
As it is more challenging with teva to reach potential customers, rather I believe a portion of it budgets will shift to paid and organic search.
I believe this would be a tail of inflows from rush as we offer a best in class solutions focused on improving organic and paid search results.
With that I would like to pass the call to your unique for a more detailed discussion of our financials.
Thank you Ole.
Q2 revenue of $45 million was up 58% year over year and came in above our expectations.
Growth was once again driven by steady increase in paying customers and an increase in the average monthly recurring revenue per paying customer or average check.
We experienced every share growth in the second quarter of approximately 19% from the year ago period, as we continued to see a tailwind from the price adjustments. We implemented early this year that among other results have led to the growth in the number of additional user licenses purchased and the richer mix of Goto and business accounts.
Yeah.
Our trailing 12 month revenue retention was 121% as of day end of June up from 160% at the end of March.
These results reflect an improvement in churn as compared to the higher levels experienced during the second quarter of 2022.
Gross margin of 77, 3% was up 170 basis points from a year ago, but down slightly from the previous quarter.
The year over year improvement was due to higher revenue and sequential decline was largely due to additional spending on third party data and an increase in hosting fees.
Non-GAAP operating expenses of $34.3 million in the quarter were up 50% from a year ago and up 18% from the previous quarter.
The growth was driven by additional head count as well as the high costs associated with operating as a public company.
Higher public company expenses contributed to the 35% sequential increase in G&A in the quarter.
I expect operating expenses to continue to grow in the back half of the year, but the growth will be more weighted to marketing and product development with G&A spending growth moderating.
Strong revenue growth and higher gross margin were partially offset by higher operating expenses and contributed to non-GAAP net income.
$290000 in second quarter up from a net loss of $1.9 million a year ago.
Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $188 million.
Up from $171.9 million as of March 31.
The increase in cash was primarily due to approximately $10 million received in April from the partial exercise of bit over allotment option granted to the IPO arthritis.
Cash flow from operations in Q2 was marginally positive after an exceptionally strong first quarter.
Looking ahead to guidance I expect second quarter revenue in the range of $47.3 million to $47.7 million, representing 47% to 48% year over year growth.
For the full year expert revenue in the range of $180 million to $284 million, which would represent 46% to 47% year over year growth.
We expect to accelerate our investments in the second half of the year with a focus in marketing this investments will likely weighted profitability and therefore expected third quarter non-GAAP loss of $4.5 million to $4 million and non-GAAP loss of $7.9 to $6.3 million for the full year of 2021.
We achieved 58% revenue growth in the second quarter, and our second consecutive quarter of non-GAAP profitability.
Performance in the first half of the year clearly suggest will have a large opportunity ahead of us and a proven go to market strategy to capture that opportunity.
Our solid financial performance in the first half of 2021 combined with the resources from our successful IPO puts us in a position to make incremental investments to support growth investments that I believe will benefit the business going forward.
With that Alex Eugene and I are happy to take any of your questions.
<unk>. Please open the line for questions.
At this time, if you would like to ask a question press star 1 on your telephone keypad again that is star and the number 1. Your first question comes from the line of Michael <unk> with Keybanc.
Hey, guys congratulations on another good quarter post.
1 very high level question.
Obviously, you've accelerated really strongly coming out of Covid with digital transformation being being led by digital marketing and other front office spending areas.
How much do you think that's a pull forward that we've now seen and how much do you think this is.
A sustainable growth rate that we can see into the next couple of years.
Thank you.
Well first of all good morning.
Uh huh.
This is others.
I think.
Our strong quarter and Uh huh.
Awesome performance in first half book this year.
Yes.
Clear channel force with vivo.
No detection.
Mark just a huge we have recapped the best opportunity.
And.
We are working on our numbers for next year and so on.
Even though from all of its book.
Uh huh.
Yes.
No I think you're right as I mentioned there is some I would say there is simple forward from.
Moving to say this back half of the year given how strong the first half was on Oh tobacco during your opening debt, we see growth. The board. So I'll as you may see from our guidance our outlook for the for Q3 and for the back half of the year I would say is slightly more moderate.
As we would need to see all the station that force unfolds across the globe in different markets.
Okay, and then you can ask follow up perhaps you could.
The growth in average check our revenue per customer or 19% of it fantastic acceleration, perhaps you could parse that force that you called out some impacts from pricing, but can you maybe stack.
Stack rank the other impacts whether it's in terms of incremental products are incremental units, but what's really driving that strong growth in the AAR per customer.
Yes, there are a number of factors, which drive the average share growth..1 is the continuous changing the product mix. So we see a higher share of higher priced packages and again following the changes.
Changes in pricing, we see our new customers lending on average.
The new blending in average check which is 20% higher than we had last year I think that'll be the second contributing factor and the third 1 as you mentioned is the accelerated accelerated growth and add ons and additional usage limits such as user seats. So all of those contribute to this highest ever share growth. So there is.
We see that we provide more value whichever customer stake and this is reflected in our in the growth of our of the chip.
Great very helpful again, congrats on a great second quarter out.
Thank you.
Your next question is from Mark Murphy with J P. Morgan.
Yes. Thank you very much I'll add my congrats on a solid Q2.
I wanted to ask you if you could just comment on how ambitious are your plans.
Social media marketing realm, and as social media channels are starting to be viewed as a more important marketing channel than the website itself for you know more companies out there what is it that customers are asking you to build for them too.
To optimize their visibility and social media.
Thank you.
I will start with your.
Total claims.
Total understanding.
From <unk>.
Management tools force.
Here, it's really important for us to give.
Functions.
<unk>.
Total <unk> for some.
Marketers, who are not so experience with online marketing.
Important to bring them to such marketing industry.
Alright.
Right inside slide B here.
I think in general we want to forget from 1 more weighted into such an experience, but if you talk about long term plans.
Really.
Hi, This is Eugene so.
In terms of overall pipeline, we definitely have a lot of features.
And plans right now the focus is mostly to GAAP.
A bigger presence to become a key player in the index social.
Social media management ecosystem.
Answering your question about websites versus social media presence I think 4 for an average business are definitely website is going to be more important for foreseeable future, but we're seeing a lot of and a new generation of marketing people.
Cool start with social media and then later evolved into broader web presence with website. So.
I think that kind of just reiterate as I'll explain to board diligent process per entry level margins marketers and then moving forward.
And you know ask of answering your question about other things that people ask us to build so existing customers definitely ask us to build products for other buyer personas. So for example people from customer success departments, who also monitor mentions and want to reply to them, especially when there is.
Complains about quality of products or things that can impact reputation. So hope it answers the question in a short term.
Our focused only on <unk>.
Our market share right on on user growth in the long run will probably start going into.
Different buyer personas within same organizations.
Okay understood. Thank you for that Oh leg and Eugene.
Jenny I had just a couple of quick ones for you at day, 1 is that as a housekeeping item I don't know if you happen to have or or if youre disclosing where head counts.
Ended for Q2, and then the other part of this financially.
I'm I'm trying to think back historically.
Do you have a feel for how your E. R. R. It if you look at the sequential.
Build in the E R R numbers, which looks very strong in Q2.
How has that historically been stronger in Q2 or in Q3 and if you.
If you have any high level commentary on just maybe how we could think about that into into Q3 of this year. Thank you.
Right.
Start with <unk>.
So accounts.
Perfect.
Sure.
We are not disclosing it but.
I think so.
Right.
Oh.
Many other companies.
If there is such new related share.
Newmont's book approach.
Uh huh.
I've seen.
Vivo percentage.
What are your relative.
Remote approach I think.
Paul will call. It shows if all were structured before we built.
Total most gm's Halloween.
Managed teams vehicles and so on.
They're doing really well and Oh focus on best talents. We follow are focused on.
Oh, yes.
But <unk> I.
I think essentially more of a voice helps us.
B B.
Oh sure.
Significant difficulties hiring.
So is your mortgage book approach.
It helps.
Perfect.
I appreciate it mark when into it in the air or I wouldn't be reading into it right now too much because we see I would say for a fair amount of distortions, which were which had based on the.
Start with the Covid, and then post Covid do opening which affect the seasonality, but if we look at the typical year I'd say there would be a slowdown at the end of the year as we end December and probably the mid year as we go into the summer.
Debt there you would have some like seasonal slowdown, but again as these particular year it may be different.
Just to clarify journey.
There's a slowdown a midyear slowdown do you do you mean, you mean, just the typical July and August because people are on vacation or or do you mean.
Yeah, I would say yes.
Yeah, when we look at the end of the end to end of the Q2 that will be end of June worthy vacation theater. It starts. So that's why they would be typical.
Flow down versus say end of Q1.
When we look at the end of Q4 that'll be end of December where everybody is still in the pre Christmas holiday mode. That's why did this she they'd give us will be schoolwork versus the end of Q3, which would be very busy that's what I meant.
Very clear. Thank you I appreciate that take care. Thank you Mark.
Your next question is from Brent price line with Piper Sandler.
Thank you and good morning here I wanted to start with the international on the international momentum outside the that's 1 of the upside levers this quarters here that drove another quarter of accelerating growth.
Driving the success internationally.
Was this just an underserved region is there.
It is the success coming from maybe underserved market segments around small businesses mid sized businesses.
And any color on the opportunity international would be Super helpful. Given the momentum you're seeing here this quarter.
Yeah.
Hi, This is Eugene so.
In general I think it's largely related to how different markets going out of corded and how different restrictions are getting less strength. So ultimately people a lot of people will go back to business a lot of diebold.
Start consuming more so that means a lot of businesses have to do more investments in marketing to attract this new demand.
I think in general just curve in the United States was not the same as curb and many other places for example in the United States vaccination started earlier than in maybe even European countries. So that man that for example in U S. We will start seeing this.
Couple of months earlier than in the rest of the world. So debt probably explains at least part of the discrepancy between growth rates in United States and the rest of the world.
Got it so it sounds like piece of recovery internationally, just different driving momentum there Super helpful. I guess, then as a follow up for me just looking at the some rush App Center I know.
But it looks like there's about 9 add on products ranging from $15 a month to 200 dollar a month that arms I know you specifically called out the success in local listing add ons this quarter, but how should we think about increasing attach rates of these add on products could that provide an income incremental lift to grow.
Once we anniversary the price increase just trying to understand the potential of that App center as a way to drive additional add on product revenue.
First of all Oh.
Oh really.
A restriction, which we achieved COVID-19.
Oh up center.
We launched it.
Okay.
The first quarter.
Now each year variable addition back from our customers.
<unk>.
Also it was just a bit from from vendors.
From partners.
Uh huh.
Good pipeline for future applications.
In general this year.
Davidson.
We had a very positive, but as when we talked about attachment rates.
Oh, yes, yes.
Right now this is at the very early stages of the lunch. So it's more we look more at what our customers see us rather than the numbers I think it will be too early to bake in this numbers from doing it with forecasts. If you ask me Brad.
And maybe.
Just wanted more interest yeah. It seems a good interest, but a little too early to have a kind of financial impact which leads into my last question. The Ginnie average price per check rose, 19%, just specifically how much of that.
The increase was tied to the price increase versus kind of increase of add on products.
So I'd say the largest impact comes from 2 parts..1 is the change in the mix of the lower price points versus higher price plans and the second largest will be coming from the app.
I would say.
Every share from you got in your bank customers I mean, the the usage of add ons to also contribute this is will be the third I would say it was more of an important 1.
Okay very helpful color, that's all I had thank you.
Thank you.
Next question is from Tom Roderick with Stifel.
Yes, hi, everybody. Good morning, Thank you for taking my questions. So.
I guess I'd love to start on.
Kind of the value of the entire value prop here I mean, there's been all sorts of noise about.
I'd say out there in the cost of various mobile advertising strategies have gone way up so it would seem to to create a little bit more of a lever relative to the demand for some of your products many of which have.
A little bit of a.
Longer life in terms of generating marketing leads can you talk about just the broader impact that some of those privacy of marketing changes have add on on the demand stream and then Afghani. You were you were kind of talking about spending on third party data has gone up I'd love to.
Understand how the cost of that third party data, perhaps has had perhaps who's been a ripple effect relative to some of the downstream effects from resi. Thanks.
Thanks.
Okay.
So this is Eugene I'll start with the first 1 about broader trends that we see in advertising how they impact.
Future so.
I think 1.1 development that we've seen in <unk>.
Previous.
Or is that a Google tactically change the timeline for cookie depreciation in chrome browser so that was.
Kind of positively.
Received by the advertising industry, but at the same time, when we do surveys all for our customers and we asked them on what par is theyre going to increase marketing spend on and what part of their go into decreased marketing spend moving forward re targeting is still 1 of the areas where they are planning to decrease spend.
And then when we go into more kind.
Kind of qualitative feedback collection, then they highlight that theyre going to expand their spend on content, specifically and especially long term market unit Gvg's. So for example, evergreen content that ranks all for a long time and can be used years forward.
And this increase is going to come to some degree from reallocation of the budgets from re targeting to content marketing. So so thats going to kind of feedback that we are collecting from our customers.
At the end of the day I, saying.
Google extended this kind of time that brands have to adjust to a new reality, but it doesn't mean that.
Retargeting is here to stay for a long time and bother intrusive forms of advertising.
My my expectation that we're going to see reallocation of resources from those things to more sustainable organic marketing.
And Tom on your question on bid day day costs.
Basically this is a as we alluded to this earlier, we continued to invest into a diversification of the data sources whenever we have a data source or whenever we source data for 1 or another product or feature we.
Usually we would rely on the multiple sources.
To avoid any users with a loss of 1 or another.
The vendor so that they that is a continuation of our investments into getting more I would say more data sources plus increased data quality for for a number of products. This is a step up increase it is not connected to a growth.
With the growth of revenue. So I expect that we will see operating leverage as we go forward. However, having said that we may continue to buy more data if we find this.
Suitable and.
They tried it.
Outstanding debt, that's really good color on the on the reallocation from re targeting the content. So that's great.
I hate to go back to Mark Murphy's question, but I think it was kind of a good 1 with respect to setting expectations on on the path of the ALR journey as we go through the year and maybe putting a finer point on it I want to make sure I understood. What you were talking about just historically again from Q2 to Q3 were.
You were you, saying that that is kind of a flattish.
Seasonal trend from Q2 to Q3. So if we just went back and looked at last year. There was a jump from Q1 to Q2 and then from Q2 to Q3 would we expect that to be flattish at that 120 million Mark which is what filings have shown for the second quarter of last year or was that up I'm just trying to get a feel for how we should set expectations.
I know you don't formally guide to it but historically is that you know is that up single digits.
In Q3, just again, sorry to kind of beat that dead horse, but would love to.
Debt modeling purposes, yes.
That's that's absolutely worth it so what I tried to say there and I'm sorry, if I wasn't clear as debt last couple of years mixed everything up I mean, we had a I would say typical seasonality Brian to 2019 now it's very difficult to say, what's the typical or normal quarter looks like what I was saying is that when we're looking at say new.
<unk> demand, we would have a slower growth and day end of December and as we enter into the summer period. That's what I was trying to say otherwise I mean, our our our recurring revenue will be these like staying where it is solely the base, which would continue to expand so right now we are more cautious in into setting expectations for the back half.
For the year as we I would say <unk> seen a typically strong first quarter or I would say Q1 as well and then it's difficult to say what the back half of the year would look like I mean, we have seen a I would say our software.
Software, new demand Beast, and everybody's going to vacation right. So we wanted to make sure that the peak Q.
Q2 is what we will get right, but then.
And so I'm, hoping I'm, giving you enough.
I'm, sorry, I hope I hope I give you enough color there Tom.
Well you are in I mean part of it is I'm not really asking you to GAAP exactly half of third quarter is going to shake out, but just if you have the number for Q3 for last year and again I know it was a weird year because it started Q3 started pretty slow and then ended pretty hot for S. M. B. So just as we get to the end of this year it'd be interesting to know if that's going to be.
Tough compare or an easier compare just relative to how last year shook out so I would say.
I would say, yes, Tom I think it will be tough to come very close to growth at the end of last year was shrunk so that'd be my take on it.
Okay.
That's helpful. I appreciate that detail. So thank you very much that's great I'll jump back into queue.
Thank you.
Again, if you would like to ask a question press star 1 on your telephone keypad again that is star and the number 1. Your next question comes from Brent Thill with Jefferies.
Great. This is James on for Brian. Thanks for taking the questions could you guys talk about the reasons for raising the full year revenue guidance, but then not taking up the non-GAAP net loss guidance understanding that you are investing more in marketing than you originally planned but just curious if there's any if there's any markets that you are looking to lean more heavily into on the marketing side.
And just if you could talk about some of those investments that would be really helpful. Thank you.
Sure. Thank you for the question as.
As we have mentioned in our last quarterly call, we will be investing more into the marketing as we go into the year and as you rightly mentioned debt that'll be largely.
That'll be the key I would say investment.
Nah, it friction, where we'll be putting money into it. So as we are growing our revenue we see more room for investments and we want to support the growth as we go into the end of the year and as we transition into 2022 there.
There is no particular market, which we can say we will be allocating this money on.
Our growth is broadly distributed amongst the geographies, where it were but present. So it's more I mean, it'll be I would say it will be as evenly distributed as it was before.
Got it and then I guess just another follow up on the price increases you've had a couple of quarters now I guess to digest those.
If you could just comment on how that's impacted churn and then just new customer adds and.
So what youre, what youre thinking for the rest of the year.
It's not per se.
Oh, Oh, which was embarked on.
On demand from customer acquisition.
Because so many of their own J kings here.
We shoot such soft months vicious Bush.
Such high levels generally thought around us.
<unk>.
I would say, it's hard it's hard to say.
What was in part from our new customers.
And the second.
And if we keep.
We are gaining with a look at the churn the churn levels, who are I would say normal or I would see slightly better than usual in the first half of the year. So if anything this transition to the new pricing was very successful from what we see from what we saw.
Okay.
That's great. Thanks.
There are no further questions at this time I will now turn the call back over to the speakers for closing remarks.
Thanks, everybody for joining us we will look forward to seeing you at our virtual investor conferences in third quarter or when we report third quarter results. Thank you.
This concludes today's call everyone else has left the call.
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