Q2 2023 Semrush Holdings Inc Earnings Call

Speaker 1: Good morning and welcome to SEMrush Holdings second quarter 2023 earnings call. At this time all lines have been placed on mute to prevent any background noise.

Good morning, and welcome to some Rush Holdings second quarter 2023 earnings call. At this time all lines have been placed on mute to prevent any background noise.

Speaker 1: Following the speaker's remarks, there will be a question and answer session. If you would like to ask a question at this time, please press star followed by number one on your telephone keypad. To withdraw your question, again press star one.

Following the speakers remarks, there will be a question and answer session.

He would like to ask a question at this time. Please press star followed by the number one on your telephone keypad.

Draw your question again press Star one.

Speaker 1: I would now like to turn the call over to Brinley Johnson with the Blue Shirt Group. Please go ahead.

I'd now like to turn the call over to Brent Johnson with the Blue shirt group. Please go ahead.

Speaker 2: Good morning and welcome to Semrush Holdings' second quarter 2023 conference call. We'll be discussing the results announced in our press release issued after market close on Thursday, August 3rd.

Good morning, and welcome to stomach Holdings second quarter 2023 conference call, we'll be discussing the results announced in our press release issued after market close on Thursday August 3rd.

Speaker 2: With me on the call today is our CEO , Oleg Shlagevlov, our President, Eugene Levin, and our CFO , Brian Mulroy.

With me on the call today is our CEO well like Schlegel off our president he gained 11 and our CFO Brian Boy 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 but are not limited to statements concerning our expected future business and financial profile.

Speaker 2: Today's call will contain four looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Speaker 2: For looking statements include that are not limited to statements concerning our expected future business and financial performance and financial condition expected growth.

Our financial condition expected growth adoption and demand for our existing and any new products and features our App center expansion industry and market trends and our competitive position market opportunities sales and marketing activities, our leadership position the sufficiency of our staffing levels our guidance for the third quarter of 2023, and our full year two.

Speaker 2: adoption and demand for our existing and any new products and features, our app center expansion, industry and market trends, our competitive position, market opportunities, sales and marketing activities, our leadership position, the sufficiency of our staffing levels, our guidance for the third quarter of 2023 and the full year 2023, and statements about future operating results including margin improvements, revenue growth and profitability.

23, and statements about future operating results, including margin improvement revenue growth and profitability forward looking statements are statements other than statements of fact and can be identified by words, such as expect can anticipate intend plan believe seek orwell. These statements reflect our views as of today only and should not be rely.

Speaker 2: Board-looking statements are statements other than statements of fact and can be identified by words such as expect, can, 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. We do not undertake any duty to update these statements.

Upon as representing our views at any subsequent date, we do not undertake any duty to update these statements.

Speaker 2: Four Looking Statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially from these Four Looking Statements. For discussion of the risks and important factors that could affect our actual results, please refer to our most recent quarterly reports on Form 10Q and our annual report on Form 10K, filed with the Securities and Exchange Commission, as well as our other filings with the SEC.

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 most recent quarterly reports on Form 10-Q, and our annual report on Form 10-K filed with the Securities and Exchange Commission as well as our other filings.

As with the SEC.

Speaker 2: Also during the course of today's call, we 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 yesterday after market closed, which can be found at investors.semrush.com. And with that, let me turn the call over to Oleg.

Also 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 in our press release issued yesterday after market close which can be found at investors day that rush dotcom.

And with that let me turn the call over to OLED.

Thank you and good morning to everyone on vehicles.

Speaker 3: Our team performed well during the second quarter, with a revenue of $74.7 million, up 19% year-over-year. Importantly, we shifted to strong profitability, generating non-gap net income of $3.5 million.

Our team performed well during the second quarter.

Seven Q4 17.

19% year over year.

We shifted to strong profit.

<unk> non-GAAP net income of three point question.

Speaker 3: our strong performance this quarter has positioned us to raise our overall full year guidance. We are raising our full year revenue guidance as we continue to benefit from our expanded portfolio.

Our strong performance this quarter has positioned us to raise our overall guidance.

We are raising our.

Full year revenue guidance as we can.

Benefits from our expanded portfolio.

Speaker 3: We are also raising our full year non-guardant income guidance as we continue to drive towards sustained profitability.

We are also raising our full year non-GAAP net income guidance as we can.

Continue to drive towards sustained profitability.

Speaker 3: We have returned to our roots and have a healthy business focused on growth and profitability.

We have returned to our rich and Kip <unk> business focused on growth and productivity.

Speaker 3: Our impressive results are a testament to the value we provide our customers and our strategic position.

Our impressive results.

Similar to the value we provide our customers.

Our strategic position.

Speaker 3: Before talking about the quarter in more detail, I want to take a few moments to talk about why we are excited about the future for Simrush.

Before talking about the quarter in more detail I want to take a few moments to talk about why we are excited about the future for zimbra.

Over the last 12 years, we have.

Speaker 3: We have heavily invested in a unique combination of data assets and products to build a new category of software that helps customers improve their online visibility across all major channels such as search engine optimization, search engine advertising.

Heavily invested in a unique.

Combination of data as it's been.

To build a new kitchen.

Yeah.

Helps customers improve the online distributor gross.

I joke channels.

Search engine optimization search engine advertising so.

Speaker 3: social media marketing, digital PR, content marketing, and Amazon marketing.

You'll meet your marketing and digital content.

Content marketing almost no marketing.

Speaker 3: This forms the basis of our platform. And while we see foreign product competitors, we believe Simrush has become the platform of choice for businesses of all sizes across all industries.

This forms the basis of our work for.

While we see a.

Well the competitors do you believe some rush has become the platform of choice.

First of all sizes across all industries all over the walls.

Speaker 3: We spend all market segments from solepreneurs, all the way up to global agencies and Fortune 100 accounts.

We spent all market segments from sopra in yours Cold with me up two global agencies unfortunate hundreds of accounts.

Speaker 3: Our platform encompasses numerous separate tools and provides our customers with one-stop shopping for all their marketing technology.

Our platform.

In contrast, none of those separate tools and provides our customer with one stop shopping for all of their marketing technologies.

Speaker 3: We are very differentiated in the markets. We collect data from multiple different sources to build complete online visibility profiles of virtually every domain on the internet.

We have very differentiated it's in good markets.

Data from multiple different sources to builds come online because you bring the two profiles of virtually every day.

On the Internet.

Speaker 3: We will use this data to understand what specific market tactics are best suited for each of our customers in each geography in which way.

Have you been to use this data to understand what specific market tactics are best suited for each of our customers in each geography in which we can reach.

Speaker 3: Using this unique data asset, we give our customers actionable insights.

Using these unique data assets.

Our customers external insights.

Speaker 3: and the steps that we need to take to improve the online vision.

And the steps, we need to take to improve the online visibility.

Speaker 3: Once these steps are taken, we monitor the outcomes and help our customers report on the ROI of the marketing.

But once these steps are taken.

Monitor the outcomes and so our customers report on the ROI of their.

Mark.

<unk>.

Speaker 3: We are uniquely positioned to help our clients in ways that others cannot.

We are uniquely positioned to help our clients in ways that others cannot.

Speaker 3: were two main differentiators. First, our strong data assets, and second, industry dynamics. Let's pick.

Well there are two main differentiators, just storing the data assets.

Industry dynamics.

Take each of them separately.

Speaker 3: On the topic of our unique data assets, the data in the similar system is what we have collected ourselves, some of which is extremely difficult.

On the topic of our unique data assets the data in with some of our system.

Once we have collected ourselves some of which is extremely difficult to do.

Speaker 3: It's a unique combination of code, historical data we have collected from our customers, in combination with data from several other locations across the internet. And new data.

Unique combination of quote historical data, we have collected from our customers in combination with data from several of our locations across the internet and data.

Speaker 3: that's being fed into our algorithms that generates this highly accurate data set with predictive relyratio

That being said our algorithms, Virginia, it's highly curated data sets predictive capabilities.

Speaker 3: This creates a network effect since when our customers share their data with us, it makes our audience stronger.

Yes.

The network effect to spin our customers so.

So it gives us it makes our business stronger.

And even more predictive.

Speaker 3: This is something that would be very difficult for any of our competitors to report.

Just something that wouldn't be very difficult for any of our competitors to replicate.

Speaker 3: From an industry dynamics perspective, the big tech giants with huge data assets theoretically come to mind. When you think about companies with a lot of R&D, data and...

From an industry dynamics perspective, we did tick giants huge data assets JD com.

Come to mind.

What do you think about what the company is we have a lot of orange data into each hub.

Speaker 3: However, these companies make money primarily from advertising. So we believe that these tools are designed to get their clients to optimize their paid-as-a-project on their part.

This company is to make money primarily from Andre.

So we believe their tools are designed to get the clients to optimize.

Pricing on the web platform.

Speaker 3: Because of this, it is not in the best interest to give the clients unbiased advice on optimal use of their marketing efforts.

Because of this it is nothing best interest to give there.

The clients on why.

Otherwise on optimal use of marketing efforts.

Speaker 3: Particularly, if the best ally comes from organic efforts or on a platform other than their own.

Particularly if your best Alright comes from organic efforts or on the platform other than their own chip.

Speaker 3: Kim Rush, on the other hand, provides unbiased advice.

Tim Russ on the other hand.

Unbiased advice.

Speaker 3: to its customers and the highest expected ROI marketing activities across all platforms and is able to provide its customers with information how their competitors are doing. Something we believe the tech giants are unlikely to do because it would negatively affect the economics of the core advertising.

Its customers and the highest expected alright marketing activities across all platforms and is able to provide its customers with the information.

Right.

So I think we believe Jack guidance unlikely to do because it was negative.

Economics of our core advertising business.

Speaker 3: Before I conclude, I want to take a moment to highlight a couple of recent changes to our board of directors.

Before I conclude I want to take a moment to highlight a couple of recent changes to our board of directors.

Speaker 3: Starting yesterday, Anna Bird, who has been on the board since March, assumed the role of the audit committee chairperson.

<unk> yesterday on that Bert.

He has been onboard since March.

Assume they're all of the audit Committee chairperson.

Speaker 3: Anu has impressed me from day one and has more than 30 years of experience working with Philippines-ready companies to scale teams and enable growth.

On that has impressed me from day one.

His more than 30 years of experience working with Silicon valley companies to skilled teams and enable growth.

Speaker 3: I'm also pleased to announce with Mark Rennie.

I'm also pleased to start off with.

But mark erroneous.

Speaker 3: who has been on our board since 2019 and share.

So it has been on our board since 2019.

Yes.

Speaker 3: as an advisor two years prior, can't been appointed chairperson of the Board Effective yesterday.

As an adviser to years prior.

He has been appointed.

Person board effective yesterday.

Speaker 3: Mark is an accomplished CFO and advisor with broad financial and tech experience.

Mark is an accomplished CFO and advisor broad financial experience key, especially it's about building strong teams and partnerships in.

Speaker 3: He is passionate about building strong teams and partnerships with employees, business partners, and employees.

In place.

<unk> partners and stakeholders.

Speaker 3: driving new and innovative business models, and organizing businesses for rapid scaling and global.

The new and innovative business models, and organizing businesses support rapid scaling and global expansion.

Speaker 3: This transition is a result of my desire to focus more on the day-to-day management of the company as our Chief Executive Officer. Mark, we are excited to have your guidance and financial expertise to help drive our strategy of balancing revenue growth with focus on profitability.

This transition is a result of my desire to focus more on with day to day management of the company.

Our Chief Executive Officer, Mark very excited to have your guidance and financial expertise.

Helped drive our strategy of balancing revenue growth with focus on profitability.

Speaker 3: We are excited about where we sit today and what the future holds for you

We're very excited about.

We see it today.

And what the future holds for Cerberus.

Speaker 3: I will now turn the call over to Eugene and Brian to discuss the results of our quarter in one.

I will now turn the call over to Eugene and Brian to discuss the results of our quarter.

Details.

Speaker 4: Thank you, Oleg. We delivered a strong quarter and are focused on three main pillars of growth and making progress on each front. First, growing number of users. We have over 104,000 paying customers with our core platform and we have a long runway of adoption ahead of us.

Thank you all and we delivered a strong quarter and are focused on three main pillars of growth and making progress on each front first rolling number of users we have over 104000.

Customers with our core platform and we have a long runway of adoption ahead of us in Q2, we achieved solid net new customer additions and registrations with a more efficient sales and marketing engine.

Speaker 3: Q2, we achieved solid net new customer additions and registrations with a more efficient sales and marketing engine.

Second.

Speaker 3: We're having continued success cross-selling to our existing base through product and application.

We are having continued success cross selling to our existing base through product and applications.

Speaker 3: Our diverse customer base and expensive digital marketing platform features numerous products, tools, and add-ons that enable us to cater to a wide range of customer needs across the digital marketing landscape.

Our diverse customer base and expensive digital marketing platform features numerous product tools and add ons that enable us to cater to a wide range of customer needs across the digital marketing landscape.

Speaker 3: We will continue to execute on our strategy to leverage our brand and strong customer loyalty to cross-sell and up-sell into our base and grow our average ARR.

We will continue to execute on our strategy to leverage our brand and strong customer loyalty to cross sell and up sell into our base and grow our average <unk> per customer we have over 950000 free users and are exploring ways to monetize this app, which we believe presents.

Speaker 3: We have over 950,000 free users and are exploring ways to monetize this asset, which we believe presents significant long-term upside for the digital economy.

Significant long term upside for the business.

Speaker 3: Third, we continue to develop new products, including many with AI capabilities and to build out the apps.

Third we continue to develop new products, including many with AI capability and to build out the absent.

Speaker 3: will bring more complimentary apps from third-party developers into our base.

We'll bring more complementary apps from third party developers into our base.

Speaker 3: We often get the question of what generative AI means to our business. And I would love to spend a few moments explaining how generative AI presents new opportunities.

We often get the question of what January gets AIE means to our business and I would love to spend a few marlin, explaining how January give AI presents new opportunities for us as.

Speaker 3: As complexity increases, it will be important for customers to find worthy gain traffic. This is where SEMrush shows exceptional value.

As complexity increases it will be in quarter four customers decline, whereas the gain traffic. This is worth some rush chose exceptional doubts.

Speaker 3: AI technology drives a lot of utility and new marketing channels to our customers.

As technology drives a lot of utility and new marketing channels to our customers.

Speaker 3: We are aggressively adapting our products to incorporate new sources of data and improve functionality with a particular focus on AI capabilities.

We're aggressively adapting our products to incorporate new sources of data and improved functionality with a particular focus on AI capability.

Speaker 3: The traction we are seeing right now is very encouraging, especially in terms of use.

<unk>, we are seeing right now is very encouraging, especially in terms of usage. So far over 700000 users have used our January give AI powered fraud in fact I'm Super excited about January .

Speaker 3: So far, over 700,000 users have used our Generative AI-powered product.

Speaker 3: In fact, I'm super excited about Generative AI. We're pioneers and have had AI power features for a long time. Initially, we positioned them as products for upmarket, for more sophisticated users, but now we're implementing AI in many of our products across the board. For example, we have a product called Writing Assistant for people who need to scale content production, which makes it easy for everyone to generate content.

We are pioneers and have had AI powered features for a long time initially we position them as products for upmarket or more sophisticated users, but now we are implementing AI in many of our products across the board. For example, we have a product called writing assistant for people who need to scale.

Content production, which makes it easy for everyone to generate content we.

Speaker 3: We also recently launched a generative AI local product with a reply to review.

We also recently launched that January typically I local products, where they are applied to review feature now all of our customers who want to reply to reviews can do that more timely and Ken efficiently communicated. The message. We are very pleased with the results that show a 42% growth in the number of posted reply.

Speaker 3: Now all our customers who want to reply to reviews can do that more timely and can efficiently communicate their message. We are very pleased with the results that show a 42% growth in the number of posted replies in a matter of weeks after launch. Average reply time has reduced dramatically and the percentage of unanswered reviews is now close to zero. That of course drives a better customer engagement, better review scores, and importantly more business.

As a matter of weeks after launch average of applied times has reduced dramatically and the percentage of unanswered reviews is now close to zero.

<unk> drives a better customer engagement bedroom ive used scores and importantly more business.

Speaker 3: In summary, I'm very pleased with our customer growth, accept cross-selling, build out of App Center, and launch of new products, including solutions that merge AI with data capabilities. I will now turn the call over to Brian , who will provide a more detailed discussion of our financial performance and guidance. Go ahead, Brian .

In summary, I am very pleased with our customer growth.

Cross selling Buildout of App center, and launch of new products, including solutions that merge AI with data capabilities I will now turn the call over to Brian who will provide a more detailed discussion of our financial performance and guidance.

Brian .

Speaker 4: Thanks, Eugene. I'm 90 days into my tenure, and I cannot be more excited about what I have seen so far. The team we have in place and what the future holds for all of our stakeholders.

Thanks, Julien I had 90 days into my tenure and I cannot be more excited about what I have seen so far this team we have in place and what the future holds for all of our stakeholders. We are a high margin SaaS software business with a recurring subscription revenue stream.

Speaker 4: We have a high margin fast software business with a recurring subscription revenue.

Speaker 3: I'm impressed by the value that our customers get from our portfolio product.

I'm impressed by the value that our customers get from our portfolio of products. The combination of our algorithms and unique datasets is unmatched in the market.

Speaker 3: The combination of our algorithm and unique data set is unmatched in the market.

Speaker 3: I've seen the value firsthand, not only in the customer success stories I've witnessed, but in how we use our tools internally to help grow our own business.

I've seen the value firsthand not only in the customer success stories that witness.

How we use our tools internally to help grow our own business.

Speaker 3: The strong ROI of our products gives me great confidence in both my view of our strategic positioning and our financial outlook.

ROI of our products gives me great confidence in both my view of our strategic positioning and our financial outlook.

Speaker 3: Now turning to our second quarter results, we have a very strong quarter across the board. We continue to execute on the revenue growth pillars and maintain the disciplined and balanced approach to improving efficiency and profitability while also continuing to invest in future growth opportunities that we expect will drive long-term value at growth.

Now turning to our second quarter results, we had a very strong quarter across the board.

<unk> executed on our revenue growth pillars, and maintained a disciplined and balanced approach to improving efficiency and profitability. While also continuing to invest in future growth opportunities that we expect will drive long term value and growth.

Speaker 3: Our Q2 revenue was 74.7 million, up 19% from a year ago. Growth was driven by very strong new customer additions and continued growth in our average revenue per customer.

Q2 revenue was $74 7 million up 19% from a year ago.

Both was driven by a very strong new customer additions and continued growth in our average revenue per customer.

Speaker 3: Our dollar-based net revenue retention for the second quarter was 112%.

Our dollar based net revenue retention for the second quarter was 112%. We continue to expect our net revenue retention remains strong as we increase adoption of our full portfolio of products tools and add ons within our installed base.

Speaker 3: We continue to expect our net revenue retention to remain strong as we increase adoptions of our full portfolio products, tools, and add-ons within our install.

Speaker 3: Annual recurring revenue surpassed 300 million, growing 20% to 302.4 million euros.

Annual recurring revenue surpassed $300 million growing 20% to $302 4 million year over year.

Speaker 3: We reported significant improvement in the operating margin, which was up approximately 1000 basis points year over year. And 1200 basis points sequential.

We reported significant improvement in the operating margin, which was up approximately 1000 basis points year over year, and 200 basis points sequentially.

Speaker 3: significant improvement is a result of a number of factors. First, we reported significant improvement in gross margin, which was up 275 basis points year over year to 82.6%.

Significant improvement as a result of a number of factors first we reported significant improvement in gross margin, which was up 275 basis points year over year to 82, 6%.

Speaker 3: Gross margin benefited from higher revenue and our continued ability to gain scale and leverage from our platform. We continue to expect gross margin above 80% in the near term.

Gross margin benefited from higher revenue and our continued ability to gain scale and leverage from our platform. We continue to expect gross margin above 80% in the near term.

Speaker 3: Second, we continue to execute on our commitment to drive efficiency, checkfully managing expenses and drive towards sustained profitability.

Second we continue to execute on our commitment to drive efficiencies carefully managing expenses and drive towards sustained profitability. One example of this is in marketing, where we made the strategic decision to slow pace fast and prioritize organic and brand spend which is delivering impressive results.

Speaker 3: One example of this is in marketing, where we made the strategic decision to slow pace spend and prioritize organic and brand spend, which is delivering impressive results.

Speaker 3: We saw strong demand for our products across new subscribers, growing our total paid subscriber base by 14%, while also lowering our customer acquisition cost.

We saw strong demand for our products across new subscribers rolling our total paid subscriber base by 14%, while also lowering our customer acquisition costs.

Speaker 3: Across the company, we continue to carefully manage expenses and plan to maintain our current headcounts in the near term.

Across the company, we continue to carefully manage expenses and plan to maintain our current head count that in the near term. We believe we are sufficiently staffed to execute on our growth strategy deliver on our strategic priorities and manage the operations of our business.

Speaker 3: We believe we are sufficiently staffed to execute on a growth strategy, deliver on our strategic priorities, and manage the operations of our business.

Speaker 3: Within that context, our Q2 operating income also benefited from the timing of some expenses that we originally expected during the second quarter that we now expect will happen in the second half of 2023.

Within that context, our Q2 operating income also benefited from the timing of some expenses that we originally expected during the second quarter. We now expect will happen in the second half of 2023.

Speaker 3: Moving down the income statement, non-GAAP net income was positive $3.5 million, surpassing the

Moving down the income statement non-GAAP net income was positive $3 5 million, surpassing the high end of our guidance range the.

Speaker 3: The outperformance of our non-GAAP net income relative to our guidance was the result of the flow through of our operating income performance, along with better than expected interest income, and the timing of an accounting related tax provision that we now expect to take place in the second half of the year instead of Q2.

The outperformance of our non-GAAP net income relative to our guidance was the result of the flow through other operating income performance along with better than expected interest income and the timing of an accounting related tax provision that we now expect to take place in the second half of the year sort of T cell.

Speaker 3: Turning to the balance sheet, we ended the quarter with cash and cash equivalents and short term investments of 223.8 million down from 232.3 million in the previous quarter.

Turning to the balance sheet, we ended the quarter with cash and cash equivalents and short term investments of $223 8 million down from $213 3 million in the previous quarter.

Speaker 3: Our cash flow from operations in the second quarter was negative 6.3 million. Our positive non-gap net income was offset by temporary movements in some of our working capital accounts.

Our cash flow from operations in the second quarter was negative $6 3 million.

Our positive non-GAAP net income was offset by temporary movements in some of our working capital accounts.

Speaker 3: Going forward and on a yearly basis, we generally expect cash flow from operations to align closely toward non-gut-knit income, but this may fluctuate from quarter to quarter.

Going forward and on a yearly basis, we generally expect cash flow from operations to align closely to our non-GAAP net income, but this may fluctuate from quarter to quarter.

Speaker 3: Looking at the second half of the year, I'm confident in the underlying trends in the business and capabilities of our team to continue on the path to deliver strong growth and profitability. We are therefore raising our guidance according to the

Looking at the second half of the year and confident in the underlying trends in the business and capabilities of our team to continue on the path to deliver strong growth and profitability and we are therefore, raising our guidance accordingly.

Speaker 3: We expect revenue growth to reaccelerate with our expanding product portfolio. And because we are starting to face a more favorable year-over-year comparison.

We expect revenue growth to reaccelerate with our expanding product portfolio and because we are starting to face a more favorable year over year comparison.

Speaker 3: For the third quarter, we expect revenue in the range of 78 to 79 million dollars up approximately 19 percent year over year at the midpoint.

For the third quarter, we expect revenue in the range of $78 million to $79 million up approximately 19% year over year at the midpoint we.

Speaker 3: We expect third quarter non-gap net income of $3 to $4 million.

We expect third quarter, non-GAAP net income up $3 million to $4 million for.

Speaker 3: For the full year, we are raising our prior revenue guidance with $306 to $309 million, up to $307 to $309 million, which would represent growth at the midpoint of approximately 21% growth.

For the full year, we are raising our prior revenue guidance of $369 million up soon 307 for $309 million, which would represent growth at the mid point of approximately 21% year over year.

Speaker 3: We're also raising our non-gap net income expectations to two to four million for the full year 2023. This increase takes into account the strong operating profit we've delivered in the second quarter, but also reflects the few outstanding facts.

We're also raising our non-GAAP net income expectations due to a $4 million for the full year 2023.

Increase takes into account the strong operating profit we delivered in the second quarter, but also reflects a few offsetting factors.

Speaker 3: First, the shift in the timing of our accounting-related tax provision that I mentioned a moment ago.

First the shift in the timing of our accounting related tax preparation that I mentioned a moment ago.

Speaker 3: Second, the timing of some expenses, we had originally planned in the second quarter, now expect to occur in the second half of the year. And finally, the increase to our sum, your exchange rate from our prior guidance of 1.06 to now 1.10. As a reminder, approximately 30% of our expenses are denominated in the year. And finally, the increase to our sum, your exchange rate from our prior guidance of 1.10. As a reminder, approximately 30% of our expenses are denominated in the year.

Second the timing of some expenses, we had originally planned in the second quarter now.

Now expect will occur in the second half of the year and finally, the increase to our assumed euro exchange rate from our prior guidance of $1 six.

Now one that one zero.

As a reminder, approximately 30% of our expenses are denominated in euros.

Speaker 3: In closing, we are confident in our ability to grow and scale our business, and my enthusiasm for what lies ahead has only grown stronger since I started.

In closing we are confident in our ability to grow and scale our business and my enthusiasm for what lies ahead has only grown stronger since I started.

Speaker 3: We remain committed to a discipline and balance approach and spending, which will drive improved efficiency and profitability, even while we invest in future growth opportunities that we expect will drive long-term value and growth to our shareholder.

We remain committed to a disciplined and balanced approach to spending which will drive improved efficiency and profitability, even while we invest in future growth opportunities that we expect will drive long term value and growth to our shareholders with that we're happy to take any of your questions. Operator. Please open up the line for questions.

Speaker 3: With that, we are happy to take any of your questions. Operator, please open up the line for questions.

Certainly at this time I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad.

Speaker 1: Certainly. At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad.

Speaker 1: Our first question comes from Michael Turretts with Keybank. Your line is now open.

Our first question comes from Michael <unk> with Keybanc. Your line is now open.

Speaker 3: Hey guys, so I'll record two questions, one financial one at a high level. Very pleased to see some of the thought process around Gen AI. Where are we in terms of where we think that search will evolve with capabilities being augmented by chat and how you'll adapt to that? I think that we've seen you adapt in many ways. The search has changed to things like snippets in the past.

Guys solid quarter two questions one financial one at a high level.

We're pleased to see some thought process around around Gen AI.

Where are we in terms of where we think that search will will evolve.

With capabilities.

Wanted by chat and how you will adapt to that I think that we've seen you adapt in many ways searches changes things like snippets in the past. So curious about how you feel that your capabilities and value added will offer.

Speaker 3: be curious about how you feel that your capabilities and value add will offer, will adapt and add more value as you move forward.

Well, we'll adapt and add more value as we adapt.

Speaker 3: with chat as well. And then the second is just on ARR, which again, was a little bit below the street here, but you're raising the revenue guide for the year. So just join those two things.

With chat as well and then the second is just on <unk>, which again was a little bit below the street here, but youre raising the revenue guide for the year. So just during those two things up for me.

Speaker 5: I like, so always enjoy our conversations about generative AI and, you know, in private I usually can speculate a little bit more and then on those calls. But what we're seeing now is really,

Okay.

Hi, Mike.

I always enjoy our conversations about generation of AI.

And.

In private I, usually can speculate a little bit more and then on those calls.

But what we're seeing now is really.

Speaker 5: Google haven't released their version to general public yet. We are, of course, seeing some interesting things in closed beta.

Google Havent released their version two general public yet.

We are of course seeing some interesting things in closed beta.

Speaker 5: My conclusion right now is that directionally...

My conclusion, right now is that Directionally.

Speaker 5: Um, for a lot of queries, uh, there is not that much improvement or maybe even detriment in user experience. For example, it takes quite a while to generate an answer. Google always was trying to optimize.

For a lot of queries.

There is not that much improvement or maybe even detriment and user experience. For example, it takes quite a while to generate announced our Google always trying to optimize speed of response. So for many queries right now with the state of technology the present the user experience.

Speaker 5: speed of response. So for many queries right now with the state of technology, they present the user experience is actually not that great. For some queries, there is definitely improvement. Those are usually queries.

It's actually not that great for some quarters. There is definitely improvement those are usually queries that are multi model like complex questions, where there is no single answer.

Speaker 5: that are multi-model like complex questions where there is no single answer, let's read this way, there is no single piece of content that is a perfect answer for the question. Like for example, if you're looking for a perfect dress to go to a particular restaurant in a particular place during particular season and you incorporate all this information in the question, for those things generated PI does provide user experience, improvement.

Let's put it this way there is no single piece of content that there's a perfect answer for the question like for example.

If you are looking for a perfect dress to go to a particular restaurant in a particular place during particular season. When you incorporate all this information and the question for those things generate Upi does provide user experience improvement.

Speaker 5: So that's what we're seeing now. I think directionally, that's probably the release of where they're going to go. It will be default for some questions, but not default for other questions, depending on the type of query. And then for us, what it means is really

So that's what we're seeing now I think directionally, that's probably the if they released it where theyre going to go it will be.

Default for some questions, but not default for other questions depending on the.

The type of quarry.

And then for US what it means is really we've always been building our platform to be expandable.

Speaker 5: We've always been building our platform to be expandable and to be able to add additional features.

And.

To be able to add additional features.

Speaker 5: You know, Google have been adding multiple of those features every year. So adding this module or approach to how we do our competitive intelligence products for search engine marketing was key.

Google has been adding multiple of those features every year so.

This.

Modular approach to how we do our competitive intelligence products for search engine marketing was key.

Speaker 5: So for us, it's really just adding additional search elements to track and analyze. I don't think anything really changes materially for our customers. Of course, there is a debate around click-outs, but based on what we're seeing, for example, from Bing, they drive tons of traffic outside of Bing to, you know, even websites like Wikipedia. And it's really something that we've kind of grown up with. And people are coming up, within most of this stuff,

For us, it's really just adding additional search element to track and analyze I don't think anything really.

<unk> materially for our customers.

Of course, there is a debate around <unk>, but based on what we're seeing for example from being they drive tons of traffic.

Outside of being too even.

Even websites like <unk>.

And.

We think Thats really the best example of how chat experience could be form in terms of outbound traffic from search engines.

Speaker 5: We think that's really a best example of how chat experience could perform in terms of outbound traffic from search engines.

Speaker 5: And that financial question, I think Brian will take it. Yeah. Hey, Michael, thanks for the question. Just a couple of comments on ARR. We had a really strong quarter, so we grew 20%.

And then a financial question I think Brian I will take it yeah, Hey, Michael Thanks for the question. Mr. A couple of comments on IRR, we had a really strong quarter. So we grew 20%.

Speaker 5: That's the result of our strong capabilities to actually to across our growth pillars.

Yes, Thats the result of our strong capabilities to execute across our growth pillars and that 20% was a little bit ahead of our revenue growth. So we're confident in our ability to reaccelerate revenue in the second half.

Speaker 5: And that 20% was a little bit ahead of our revenue growth. So we're confident in our ability to reaccelerate revenue in the second half.

Speaker 4: So, you know, what was the specific question just around ARR? Just that it was lower than your expectation.

So yes, we are.

What was the specific question just around <unk>.

You said it was lower than your expectation.

Speaker 3: Just a little bit below the street, right? And also again, try to add another metric to that just again. What where do you see the trajectory on on going given where where we are in both. ARR and revenue.

A little bit below the street.

And also again.

Add another message that just again, what where do you see the trajectory on NR going given where we're at.

We are in the <unk>.

<unk> revenue.

Speaker 4: Yeah, so again, ARR was really strong, growing 20%. And then our expectation in the second half is that we'll continue to reaccelerate that. And of course, that will drive an acceleration and revenue as well. And then on NRR, I'm glad you asked that. NRR is a really important metric for us.

Yes, so yes, they are always really strong growing 20% and then our expectation in the second half.

We'll continue to Reaccelerate that and of course that will drive a reacceleration in revenue as well and then on <unk> I'm glad you asked that enterprise are really important metric for us.

Speaker 4: measures our success for a key growth pillar for us. So we're not only focused on expanding our customer base and continuing to drive adoption, we're also looking to cross-sell and up-sell into our loyal customer base.

Our success for <unk>.

Key growth pillar for us so we're not only focused on expanding our customer base and continuing to drive adoption.

We're also looking to cross sell and up sell into our loyal customer base and our NRI does remains strong it's well above 100% were.

Speaker 4: And our NRR does remain strong. It's well above 100%.

Speaker 4: We're pleased to see that it's strong and we're continuing to be successful in building out and expanding the footprint within our loyal customer base. But your right is NRR has been taking back down a bit and there's a couple of a couple things I'd give some color on. First, you know, there's some macro factors influencing that metric. So while it's been strong, in some periods we've had record new customer ads and demand for a product.

We're pleased to see that it's strong and we're continuing to be successful in.

Building out and expanding the footprint within our loyal customer base, but youre right as <unk> has been ticking down a bit.

And there's a couple of a couple of things.

Some color on.

First there's some macro factors influencing that metric.

So while it's been strong.

In some periods, we have had record new customer adds and demand for our products. We've also had a slight uptick in churn.

Speaker 4: We've also had a slight uptipping in turn and the turns of function of the current macro environment as our customers tighten budgets and and and look to optimize their spend. But the good thing for us is we see a significant portion of our customers return and as the macro improves. We'll expect we'll expect that trend to continue. So historically we've seen 30% of our customers return to us.

And the churn is a function of the current macro environment as our customers tightened budgets.

And.

And look to optimize their spend.

But the good thing for US is we see a significant portion of our customers return and as the macro improves we will expect will expect that trend to continue. So historically, we've seen 30% of our customers returned to us in a short period of time and I think as the macro environment improves we'll actually see that.

Speaker 4: in a short period of time. And I think as the macro environment improves, we'll actually see that that could uptick. At the same time, we're also encouraged by our ability to expand.

Second uptick.

At the same time, we're also encouraged by our ability to expand it.

Speaker 4: adoption across our full portfolio. So we have been successful in cross-selling and up-selling and doing that at a rate that's been increasing beyond levels we saw in 2022. So, you know, NRR continues to remain strong. It's a very important metric for us. We expect it will continue to be meaningfully above 100%.

The option across our full portfolio.

So we have been successful in cross selling and up selling and doing that at a rate that's been increasing.

Beyond levels, we saw in 2022.

<unk> continues to remain strong it's a very important metric for us we expect it will continue to be meaningfully above 100%.

Speaker 4: And as I said earlier, ARR and revenue will reaccelerate in the second half. And I think we'll see NRR follow closely behind that.

And as I said earlier <unk> and.

Revenue will reaccelerate in the second half and I think we will see NRI followed closely behind that.

Speaker 3: Great. Thanks, Brian . And Eugene. Thanks very much.

Great Thanks, Brian and thanks very much.

Speaker 1: Your next question is from Parker Lane with Stiefel. Your line is now open.

Your next question is from Parker Lane with Stifel. Your line is now open.

Speaker 6: Hi guys, thanks for taking the questions here. Brian , I just wanted to pick up on that last point you were talking about on churn. Are you seeing more reductions or customers outright leaving the platform as part of the budget optimization efforts that you talked about there?

Hey, guys. Thanks for taking my question.

Brian I just wanted to pick up on that last point you were talking about on churn are you seeing more SKU reductions or customers outright, leaving the platform as part of the optimization efforts that you talked about there.

Speaker 4: Now, I think it's a little different. So for us, churn is a little different. We don't see situations where customers are leaving our platform. What we see in times of tightening macro.

No I think thanks for the question I think it's a little differential for US churn is a little different and we but we don't see situations where customers are leaving our platform what we see in times of tightening macro.

Speaker 4: economic factors is they're just pausing their subscription. So we have a group of a cohort of users that are seasonal users. They use our platform on and off over a period of time.

Economic factors, they're just pausing their subscriptions. So we have a group of a cohort of users that are seasonal users. They used our platform on and off over a period of time.

Speaker 4: I think in times of, you know, the current macro environment, they may pause those subscriptions for a bit longer. So what we're confident they'll come back. As I mentioned before, in times of normal economic circumstances, we see 30% of our customers return, and we think that we're confident that number will be much higher once the current macro headwinds start to abate.

I think in times of the current macro environment. They may pause of those subscriptions for a bit longer so, but we're confident they'll come back as I mentioned before in times of normal economic circumstances, we see 30% of our customers return and we think that we're confident that number will be much higher once the current Max.

So headwinds start to abate.

Speaker 6: Got it. Understood. And then Brian , maybe sticking with you, looking at the website, you've clearly done a lot of work to get this App Center built out. A lot of really interesting tools there with a variety of free plans and different monetization efforts there. Where are we as far as the contribution of App Center and as you look at the growth algorithm going to 24, 25, how much can that actually contribute and lift the growth outlook here?

Okay understood and then Brian maybe sticking with you looking at the website, you've clearly done a lot of work to get these apps that are built out a lot of really interesting tools there with no variety of free plans in different monetization efforts, there where are we as far as the contribution of App Center and as you look at the growth.

The rhythm going into 'twenty four 'twenty five how much can that actually contribute and lift the.

The growth outlook here.

Speaker 7: Hi Parker, this is Eugene. So we're very happy with the growth we are experiencing, both in terms of demand and supply.

Hi, This is Eugene so are we.

We are very happy with the growth we are experiencing experiencing both in terms of demand and supply.

That said I think it's still early so right now the status I would I would say is very high growth at a relatively small scale no hold businesses $300 million <unk> App Center was introduced only in 2021 as an experiment we're very bullish.

As Sean Ed, but I think it's very early to start breaking it out as a separate line of revenue.

Understood. Thanks for the color you Jay.

Speaker 1: Your next question is from Adam Hotchkiss with Goldman Sachs. Your line is now open.

Your next question is from Adam Hotchkiss with Goldman Sachs. Your line is now open.

Speaker 7: Great, good morning. Thanks for taking my questions. When you think about your top of funnel, how proactive are you seeing companies be in terms of getting ahead of some of these Gen AI uncertainties that exist? Just would be curious, you know, to the extent your customer conversations have changed at all and wondering if you think, you know, these uncertainties in the market provide an opportunity for you guys to push free to pay conversion or some of your your modules that are helpful to folks.

Great. Good morning, Thanks for taking my questions. When you think about your top of funnel. How proactive are you seeing companies B in terms of getting ahead of some of these gen AI uncertainties that exist just shouldn't be curious.

To the extent your customer conversations have changed at all and I'm wondering if you think.

These uncertainties in the market provide an opportunity for you guys to push free to paid conversion or some of your modules that are helpful to folks.

I am saying.

Yeah.

Speaker 8: Surprisingly from customers, we're not hearing that much about uncertainties.

Surprisingly from customers.

We're not hearing that much about uncertainties.

A lot of them focused on opportunities that generate if AI provides.

Speaker 7: focus on opportunities that Generative AI provides.

Speaker 7: For example, tons of people across our user base now scaling content to the extent, content production to the extent they have never done it before. That's I think one of the bigger trends. We're seeing a lot of people, let's say using...

For example, thousands of people across our user base now scaling content to the extent the content production to the extent they have never done it before.

That's I think one of the bigger trends.

We're seeing a lot of people, let's say using less or freelance writers and using more in house editors again to scale content production I think that's been a big narrative across our user base, we had only couple.

Speaker 7: of freelance writers and using more in-house editors, again, to scale content production. I think that's been a big narrative across our user base. We had only a couple.

Speaker 7: clients on the agency side whose businesses have been disrupted. But I would say I can count those examples using fingers on only, you know, one of my hands. So,

Clients on an agency side, whose businesses have been disrupted.

I would say I can count. Those example, using fingers on only one of my hands. So.

Hmm.

Speaker 7: I would say actually, I think by now a lot of people figured out what AI can do and how it can improve their lives and how it cannot. Of course, their expectation that technology will keep improving. Of course, the expectation is that vendors will keep adding more features, more functionality. And everything we do is to satisfy this demand from our customers.

I would say actually I think by now a lot of people figured out what AI can do and how it can improve their lives and how it cannot.

Or is there expectation that technology will keep improving of course, the expectation is that vendors, we will keep adding more.

More features more functionality and everything we do is to satisfy this demand from our customers, but in terms of uncertainty I think maybe they are having a little bit of this what's going on.

Speaker 7: But in terms of, you know, uncertainty, I think, you know, maybe they're having a little bit of this, you know, what's going on.

<unk>.

Speaker 7: period in February . We don't see that now. I think by now most of people figured out where this thing is going.

Spirit in February we don't see that now I think by now most of people figure it out where this thing is going.

Speaker 7: Okay, great. That's really helpful. And then Brian , it would be just great to get a download of your view of the current cost structure. I think, you know, came in better in the quarter, raised the guide there. But, you know, when you look at, you take a step back at CFO , where do you see the most opportunity to create efficiencies from here without sacrificing growth?

Okay, Great. That's really helpful. And then Brian would be just great for you to download of your view of the current cost structure I think.

Came in better in the quarter, bringing to guide there, but when you look at.

Step back as CFO , where do you see the most opportunity to create efficiencies from here without sacrificing growth.

Speaker 4: That's a good question. Yeah, we were actually really pleased with the result this quarter. We did exceed our guidance range and then raised our non-gottenetic expectation for the year. And that's a function of, you know, we've been saying this. And of course, we've been committed to being disciplined and balanced in our approach to spending. But in general, we have a really high margin recurring revenue business.

Yes. It's good question, Yeah, we're actually really pleased with the results. This quarter, we did exceed our guidance range and raised our non-GAAP net income non-GAAP net income expectation for the year and Thats a function of we've been as we've been saying this and of course, we've been committed to being disciplined and balanced in our approach to spending but.

But in general we have a really high margin recurring revenue business and a lot of abilities that scale.

Speaker 4: and a lot of abilities to scale that business going forward and drive increased profitability. So we'll continue to say that our commitment is to drive towards profitability in positive free cash flow, but at the same time, we'll continue to invest in growth opportunities that drive long-term value and our ability to drive that profitability and sustain it, it's coming from a couple of different things.

That business going forward and drive increased profitability. So we will continue to say that our commitment is to drive towards profitability and positive free cash flow.

But at the same time, we'll continue to invest in growth opportunities that drive long term value.

And our ability to drive that profitability and sustained it it's coming from a couple of different things.

Speaker 4: I think everyone's seeing we have really strong gross margins. They're above 80%.

I think everyone has seen we have really strong gross margins there above 80% and we expect that we'll be able to continue to gain scale and leverage from that as we advance forward here, we have a really unique dataset and platform.

Speaker 4: We expect that we'll be able to continue to gain scale and leverage from that as we advance forward here. We have a really unique dataset and platform with the ability to scale and, you know, we continue to expect that low 80% gross margin to persist into the future here.

With the ability to scale.

We continue to expect that low 80% gross margin to persist into the future here.

Speaker 4: And then on the operating expense side, as you know, we've continued to optimize our marketing spends. There's two things, just to step back a bit on marketing. Last year, we really invested a lot.

Then on the operating expense side as you know we've continued to optimize our marketing spend.

Two things just to step back a bit on marketing last year, we really invest in a lot.

Speaker 4: in organic branding content and are really benefiting from that this year and able to improve our customer acquisition costs.

Our organic brand and content.

<unk>.

Really benefiting from that this year enable to improve our customer acquisition costs and we will continue to look for efficiencies and.

Speaker 4: and will continue to look for efficiencies and scale our marketing and sales engines.

And scale, our marketing and sales engines, and then R&D will continue to invest but we'll try to maintain our expense to revenue ratio about where it is.

Speaker 4: And then R&D, we'll continue with Invest, but we'll try to maintain our expense to revenue ratio about where it is.

Speaker 4: I think the areas where we have the most opportunity is in G&A. We're just about two years post IPO. We've been investing a lot in our infrastructure to make sure we can grow and scale our business and be efficient for the broader organization. And we'll really be looking at optimizing that. So I think you'll see G&A come down not only on an expensive revenue basis, but also on an absolute dollar as we start to realize some of the investments that we've been making in the last couple of years.

I think the areas, where we have the most opportunity is in G&A or just about two years post IPO, we have been investing a lot in our infrastructure to make sure we can grow and scale our business and be efficient.

For the broader organization and we will really be looking at optimizing that so I think youll see G&A come down not only inexpensive revenue basis, but also on an absolute dollar as we start to.

I realize some of the investments that we've been making in the last couple of years.

Okay really helpful. Thanks, Brian Thanks, Alex.

Speaker 1: Your next question comes from Elizabeth Porter with Morgan Stanley . Your line is open.

Your next question comes from Elizabeth <unk> with Morgan Stanley . Your line is open.

Speaker 9: Great, thank you so much. I wanted to ask them a strong customer ads. They've been consistent with about the run rate that you saw in the last two years during 2Q. I know you guys are doing a lot around marketing and in turn should come back. So how should we think about the run rate of new ads and does it follow a similar arc that you saw over the last two years? Or could it actually be a little bit better given some of the improvements you guys are making? Thanks. Thanks.

Great. Thank you so much.

After the strong customer and they've been consistent with about the run rate that you saw in the last two years guaranteed Kim I know you guys are getting a lot around marketing and insurance should come back. So how should we think about the run rate of new adds and does it follow a similar arc that you saw over the last 10 years.

Could it actually be a little bit better given to the improvements you guys are making.

Okay.

Thank you Elizabeth.

This is Alex.

Speaker 10: Look, first of all, last quarter, it was three efforts, new customer ads. And I would say with this quarter, we are also very satisfied with before we deliver it in new customer ads. And as Ben already said,

Luke.

First of all.

Last quarter.

And your question.

I would say.

Also maybe I was just wondering.

Before you leave.

The new customer adds.

I believe you said.

Speaker 10: We invested a lot in experiments last year in paid marketing experiments and organic experiments and so on. And right now we...

We invested to launch.

In experiments last year.

Rich.

Martin experiments and Theyre going to get the payments and so on.

Right now.

Speaker 10: found how to deliver our marketing more efficient. I think we have very focused on delivering the same pace of net customer addition. And I see a lot of opportunities in our marketing related to our organic channel.

Phones.

Total how do you view all of our marketing more efficient.

Ashish.

Yes.

Yes.

Focused on delivering.

Same pace of well.

Net customer addition.

Sure.

A lot of opportunity.

But your interest in our marketing.

Thank you Charles.

Speaker 9: Great, and then just as a follow-up, I wanted to hit on the expansion of the product portfolio and how should we think about the growth algorithm and to next year between the existing customer expansion and ability to attract new customers? Thanks.

Great and then just as a follow up.

I wanted to hit on the expansion of the product portfolio and how should we think about the growth algorithm into next year between the existing customer expansion and ability to attract new customers.

Yeah.

Speaker 5: Thank you. So, of course, not guiding next year yet, but in general, our number one priority is always to keep scaling user base as fast as possible. We think there is a huge runway left and that's number one priority. At the same time, we invest in a lot of...

Thank you so of course, not guiding next year, yet but in.

In general our number of number one priority is always to keep scaling user base as fastest possible. We think there is a huge runway lap and that's number one priority at the same time, we invest in a lot of.

Speaker 5: resources into, you know, product portfolio expansion and upmarket products in existing areas where we already have dominant market position, such as search engine optimization, for example.

Our resources into product portfolio expansion and upmarket products in existing areas, where we already have a dominant market position such as search engine optimization for example.

Speaker 5: So next year, again, not guiding anything, but...

So next year again, not guiding anything Bob.

Directionally I would I would like to see more growth driven by user base growth and then.

Speaker 5: directionally, I would, I would like to see more growth driven by user-based growth and then, um,

Speaker 5: you know, the remaining growth driven by expansion and then upsell cross selling to user base.

The remaining growth driven by expansion.

And then up sell cross sell into user base.

Got it thank you so much.

Okay.

Speaker 1: Your next question comes from Scott Berg with Needham. Your line is now open.

Your next question comes from Scott Berg with Needham. Your line is now open.

Speaker 6: Hi, everyone. Congrats on the nice quarter. And things are taking my questions. I guess I have two. One is to start off on your confidence on re-exceleration of revenue growth. It looks like in the fourth quarter and likely end it really next year. I know Brian mentioned it. I think Eugene kind of touched on it a little bit. I guess what really gives you the confidence there. I haven't heard any kind of clarification specifically. Brian , you mentioned easier comps, but it looks like it's more than just easy comp. So any color there would be helpful.

Hi, everyone and congrats on the nice quarter and thanks for taking my questions I can say it's Kew.

Wanted to start off.

On your confidence on Reacceleration of revenue growth.

It looks like in the fourth quarter and likely into early next year I know, Brian mentioned, it I think <unk> kind of touched on it a little bit.

I guess, what really gives you the confidence there I haven't heard any kind of clarification, specifically, Brian you mentioned easier comps, but it looks like it's more than just easy comp. So any color there would be helpful.

Speaker 4: Yeah, sure. Hey Scott, thanks for a question. There's a couple of things driving that. I think first and foremost, as you mentioned, we do have easier compares to the second half of 22.

Yeah sure Hey, Scott. Thanks for the question, there's a couple of things driving that I think first and foremost as you mentioned, we do have easier compares to the second half of 'twenty two.

Speaker 4: So, you know, the macro environment really started to impact results starting in the second half of last year. So those are baked into the second half and now we've got sort of comparable dynamics occurring in the third quarter and fourth quarter relative to last year.

So the macro environment really started.

<unk> results starting in the second half of last year.

So those are those are baked into the second half and that we've got sort of comparable.

Dynamics occurring in the third quarter and fourth quarter relative to last year.

Speaker 4: The other part of it though is just building on what Elizabeth was asking about. We're continuing to invest in grower portfolio.

Part of it though is just building on what Elizabeth was asking about we're continuing to invest and grow our portfolio and then continuing to gain traction on some of the products that we've launched over the last few years. So just to name a few we just monitor we're monetizing our social media platform, we've got a number of free users.

Speaker 4: and then continuing to gain traction on some of the products that we've launched over the last few years.

Speaker 4: So just to name a few, we're monetizing our social media platform. We've got a number of free users that are on that and we're launching a monetized version of it and expecting that to contribute to growth.

That are on that.

We're launching a monetize version of it and expecting that to contribute to growth.

Speaker 4: We're launching our enterprise product in the second half and then we're just continuing to gain traction with the app center digital PR and our intelligence offerings As they start to you know as they start to advance and cross-sell and just gain new customers across those platforms

We're launching our enterprise product in the second half and then we're just continuing to gain traction with the App Center, our digital PR and our intelligence offerings.

As they start to.

You can start to advance and cross sell and just gained new customers across those platforms.

Speaker 5: Great, super helpful. And then when I was in there over the summer, I know you demoed some of your new AI functionality. I felt it was probably the most practical use case of Gen AI that I've seen in some of the companies I cover so far, which is great to see. But how do you think about, you know, kind of pricing and monetization of that? Do you, as you get into this further, is it gonna be more about additional modules that customers can buy, or will the pricing be maybe just in some higher tiers and those customers might have to move up tiers to use it?

Great Super helpful and then.

I was in there over the summer I know you demo some of your new AI functionality.

Felt that was probably the most.

Typical use case.

In AI that I've seen in some of the companies I cover so far with St C. But how do you think about kind of pricing and monetization of that view as you get into this further is going to be more about additional modules that customers can buy or will the pricing be maybe just in some higher tiers those customers might have to move up tiers to use it.

So.

Speaker 4: First of all, thank you for very kind words and we keep improving the product. So, so by now they look even better and used even more frequently by our customers.

First of all thank you for.

Very kind words, and we keep improving the products. So so by now they look even better.

And the used even more frequently by our customers.

Speaker 4: I would say it will depend on a functionality. So some features where it's customary to charge money, we will charge money as well. For example, our content-friending tools, writing assistant content shake, all of them are monetized separately. Of course, Generative AI is not the only value proposition for those products, but it's a big chunk of value proposition.

I would say it will depend on the functionality. So some features.

It is customary to charge money, we will charge money as well for example, our content writing tools, writing assistant content shake all of them are monetized separately of quarters generated if AI is not the only value proposition for those products, but it's a big chunk of value proposition.

Speaker 4: So in those tools, you could say that we are monetizing a generative AI feature somewhat direct.

So in those two you could say that we are monetizing our generated if AI features somewhat directly there.

Speaker 4: There are also going to be a lot of products where generative AI is complementary and big part of value proposition, but not something we would charge separately for. The good example is implementation in local listings product, where we have a generative AI power that we're required to review feature. Extremely popular has great traction, even though we launched it just less than two months ago, to be honest. So in those cases.

There are also going to be a lot of products where jarrod.

Generate if AI is complementary and big part of our value proposition, but not something we would charge separately for.

The Good example is implementation in local listings product, where we have the generating of AI powered reply to review feature extremely popular has great traction, even though we launched it just.

Less than two months ago to be honest so.

In those cases.

We expect that.

Speaker 4: In addition of generated AI will increase adoption, will increase conversion, expansion, but we're not monetizing just generated AI features separately from the rest of the offering. So in those cases, we know there is value. We can measure it directionally, but we wouldn't be able to assign dollar value specifically to generate the AI.

The addition of generate Upi will increase adoption will increase our conversion expansion, but we're not monetizing.

<unk> generates Upi feature separately from the rest of the offering.

So in those cases, we know there is value we can measure it directionally.

But we wouldn't be able to assign dollar value specifically to generate upi.

Speaker 4: So I think if I had to assess, I would say 60, maybe 70% of implementations are going to be like local listings where generative AI is complementary and, you know, 30, 40% is going to be more of a direct monetization. Especially, I'm bullish on direct monetization when it comes to App Center where people create kind of more single-use products.

So I think if I had just asked I would say 60, maybe 70% of implementations are going to be like local listings were generated for AI is complementary and 30%, 40% is going to be a more of a direct monetization, especially I'm bullish on direct monetization when it comes to.

<unk> more people.

Create kind of more single use products.

Speaker 4: A really good example is our generative AI-powered social media.

Really good example is our generated by AI powered social.

Media.

Speaker 4: feature that creates content for different social networks.

Feature that creates content.

<unk> for different social networks.

Speaker 4: So this is a single purpose application primarily generated by AI-powered, monetized separately. So in App Center, I think is a great opportunity to, you know, provide more of this direct AI monetization apps.

So this is a single purpose application primarily generated by AI powered monetize separately.

So in that center I think is.

As a grade.

<unk>.

More and more of this direct model direct AI monetization efforts.

Very helpful. Thanks, and congrats again.

Thank you.

Speaker 1: Your next question comes from Mark Murphy with JP Morgan. Your line is now open.

Your next question comes from Mark Murphy with Jpmorgan. Your line is now open.

Hi, This is already on for Mark Murphy, Congrats on the quarter and thanks for taking the question.

Speaker 7: Hi, this is Artion from our program. Congrats on the quarter and thanks for taking the question. First, just in terms of men patterns of customer behavior, anything to call out with divergences across geographies on that.

First.

Just in terms of.

Demand patterns of customer behavior or anything to call out with divergences across those geographies on upfront.

Speaker 11: Hey, Mark, no, I don't think so. You know, we've we have, as we've always mentioned, we have a very well diversified customer base that we're in 150 countries. We span across all industries and market segments. Ole mentioned in his remarks.

Hey, Mark No I don't think so.

We have as we.

We've always mentioned, we have a very well.

Well diversified customer base that we're in 150 countries, we span across all industries and market segments like mentioned in his remarks.

Speaker 11: expanding from solopreneurs all the way up to global agencies and fortune 100 accounts. I did mention before that we do have some seasonal users.

We're expanding from Silicon Aura is already up the global agencies Fortune 100 accounts.

I don't think it was.

I did mentioned before that we do have some seasonal users.

Speaker 11: So, a cohort of users that, you know, are subscribing and unsubscribing based on project schedules and potential client flow. So, if there's any cohort of users where we're seeing anything that's unique just because of the macro environment, I'd say it's there. But I don't think there's any specific pockets geographically or across any industries that's really jumping out and behaving any differently than others.

A cohort of users that.

Our subscribing and Unsubscribing based on project schedules.

Potential client flow.

Any cohort of users, where we're seeing anything that's unique just because of the macro environment I'd say, it's there, but I don't think theres any specific specific pockets geographically or across any industries, that's really jumping out and behaving any differently than others.

Speaker 4: Yeah, the only thing I would add is last year we were saying that Europe is impacted much more by macro than United States. So now I would say compared to really bad year for Europe in 2022, this year seems much better. So that's maybe one thing that I would highlight. Like Europe shows certain improvement, but it's an improvement versus sort of bottom that they've reached last.

Yes, the only thing I would add is last year, we were saying that Europe .

Is impacted much more by macro than United States. So now I would say compared to really bad year for Europe .

In 2022, this year seems much better so so thats, maybe one thing that I would highlight like Europe shows certain improvement, but it is an improvement versus sort of bottomed that they've reached last year.

Speaker 7: Very helpful. And then turning back to, you know, generative AI and just AI generally, seems like you guys are having good traction. But are there any kind of pain points or areas where you see, you know, some hesitancy from from, you know, there's something holding back customers from adopting the new technologies and, and kind of how are you guys thinking about those those sorts of situations?

Got it very helpful and then turning back to.

And just generally it seems like you guys are having good traction but are there any kind of pinpoint to areas where you see.

Some hesitancy from Theres, something holding back customers from adopting the new technologies and kind of how are you guys thinking about those sorts of situations.

Speaker 4: I think the only part that, you know, not necessarily holding back, but

I'm, saying.

The only the only part of that not necessarily holding back but.

Speaker 4: I think chat GPT was such a good experience that people had really high expectations.

I think <unk> was such a good <unk>.

Experienced that people had really high expectations.

Speaker 4: But in reality, there are a lot of limitations. There are a lot of things that AI still cannot do where things where you have to orchestrate AI quite a lot. So I think that's...

But in reality there are a lot of limitations. There are a lot of things that AI is still cannot do work things, where you have to orchestrate AI quite a lot. So so I think that's maybe the only thing we are.

Speaker 4: maybe the only thing where people would like to do more, but it's not necessarily feasible with a current state of technology. Even though I'm not going to argue that technology is not impressive, it's super impressive, super helpful for many tasks.

People would like to do more.

But it's not necessarily feasible with the current state of technology, even though I am not going to argue that technology is not impressive super impressive super helpful for many tasks.

Speaker 4: But I think people, you know, after a challenge, you people have...

But I think people.

<unk> had some some expectations that were.

Speaker 4: some expectations that were kind of from science fiction novels. And technology is not there yet, unfortunately. It's phenomenal technology. And like I said, we're applying it everywhere we can, everywhere it works.

Kind of from science fiction novels.

And you too.

Technology is not there yet unfortunately, it's phenomenal technology and like I said, we're applying it everywhere we can everywhere works.

Speaker 4: But I think that's the only barrier for adoption right now. There are certain things that you just cannot do yet. For example, you know,

But I think that's the only barrier for adoption right now there are certain things that you just cannot do yet.

For example.

If you go to Chad GPT and U as Chad GPT to generate marketing plan for your business. If you'll give me a very generic check list of action items and this checklist will be more or less the same for almost every business.

Speaker 4: If you go to ChatGPT and you ask ChatGPT to generate marketing plan for your business, it will give you a very generic checklist of action items, and this checklist will be more or less the same for almost every business.

Speaker 4: And it's very hard to train it to give you a more actionable real checklist because, you know, Chat GPT doesn't know anything about your business specifically, your competitors. It actually doesn't even know what is more.

And it's very hard to train and to give you are.

Kind of more actionable real checklist, because GPT doesn't know anything about your business specifically your competitors.

It actually doesn't even know what is marketing. So you have to teach all of those things to get our use of technology.

Speaker 4: So you have to teach all those things to get a use of technology. And I think that's where sometimes, you know, people expect one thing, but they don't necessarily get it. And that's, I think, the only real barrier for adoption right now.

And I think thats, where sometimes.

People expect one thing, but they don't necessarily get it and.

That's I think the only real barrier for adoption right now.

Speaker 4: You know, and oh super sorry one more thing on on the enterprise side, of course, there are other considerations like legal Restrictions and so on but you know our user base primarily SMB so for SMB I think the only barrier is you know, it has to work and it has to work, you know in line with their expectations

And Super sorry, one more thing on that.

The enterprise side of course, there are other considerations like legal restrictions and so on but our user base, primarily SMB. So for SMB I think the only barrier is.

It has to work and it has to work in line with our expectations.

Thank you.

Speaker 1: Your next question comes from Brent still with Jeffries. Your line is now open.

Your next question comes from Brent Thill with Jefferies. Your line is now open.

Hi, guys. This is James on for Brent. Thanks for the question just on sales and marketing could you just talk about the reasons for the decrease in marketing spend is it just Q2.

Speaker 12: Hi guys, this is James on Forbrent. Thanks for the question. Just on sales and marketing, could you just talk about the reasons for the decrease in marketing spend? Is it just due to lack of returns or is it just a tougher macro tape and you've decided to pull back? And how are you thinking about marketing spend just for the rest of the year? Should we expect it to be down or do you expect to grow from here? Appreciate the help.

Lack of returns or is it just a tougher macro tape and you've decided to pull back and how are you thinking about marketing spend just for the rest of the year should we expect it to be down or do you expect it to grow from here I appreciate the help.

Speaker 13: I'm very glad I look last year and first quarter we experimented with trade marketing and organic marketing a lot and I believe in firstlli

Got it.

Look.

Last year first quarter.

The experiment.

Which markets, you're an organic marketing.

And I believe in first quarter.

Speaker 10: some ways how we can optimize it because of current environment, because of current setup of big channels and so on. And we started to implement this structure in the beginning of second quarter and right now we see results. And as you see from our results, we optimized so the marketing experience and at the same time we delivered some results. And for the rest of the year.

Some ways, how we can optimize it.

Because of the current environment because.

Current setup.

Channels, and so on and so on.

We started to implement.

Structure in the beginning of second quarter as I can obviously results as issue from our results.

We optimize.

On the marketing spend at the same time.

Delivered strong results.

And so for the rest of the year Brian .

Speaker 11: Yeah, the other thing just to build on too is last year we were investing heavily in our organic online presence. So we were developing content and channels to reach new customers.

Yes.

Yes, I think just to build on to is last year, we were investing heavily in our organic online presence. So we are developing content and channels to reach new customers.

Speaker 11: that yield results for a really long time. And we were making that investment last year and using our own products to do that. And that's exactly what we promote for our customers. So we're, you know, we're convinced our products are providing returns that yield more cost-effective, sustainable and trustworthy organic results.

That yield results for a really long time, and we're making that investment last year.

And using our own products to do that and Thats exactly what we promote for our customers So where we are.

Convinced our products are providing returns that yields more cost effective sustainable and trustworthy organic results.

Speaker 11: for a longer period of time. We made those investments last year, we're now getting the benefit from it. So at this point, just based on what Oleg mentioned and the second part around the organic investments, we're expecting our marketing spend basically maintain where it is now. So we'll continue to maintain it on an absolute dot-ler basis, and then as revenue grows, we'll see some flight increases in our expense to revenue ratio from the marketing perspective.

For a longer period of time, we made those investments last year and we're now getting the benefit from it.

So at this point just based on what <unk> mentioned in the second part around the organic investments, we're expecting our marketing spend basically maintain where it is now so we will continue.

Maintaining on an absolute dollar basis and as revenue grows we'll see some slight increases in our expense to revenue ratio from a marketing perspective.

Speaker 12: Okay, that's helpful. And then just one follow up quickly on the dollar-based net retention rate. Is it fair to say that that's more just to the macro and some customers pausing or slowing down or is there anything else that's pausing that, you know, slight drop in dollar-based retention?

Okay. That's helpful. And then just one follow up quickly on the dollar based net retention rate is it fair to say that that's more just macro and some customers pausing or slowing down or is there anything else that's causing that.

Slight drop in.

Dollar based retention.

Speaker 10: Just a while, I want to remind everyone that we should think about structure of our journey a little bit different. It's not the same like other companies when customers live with company and software and not returning back later. And

First of all I want.

To remind everyone.

We should.

Think about.

Structure of our children.

Difference insulet to assume like other companies when customers leave.

Leaving the company.

Okay.

Yes.

Our software.

No.

Returning back later.

Speaker 10: On our side, customers leave and it will come back later. Historically, we see a significant flow of customers who will return to us later. We move back to...

And our research customers.

Customers.

<unk>.

It will come back later.

Historically, we ship a significant pool of customers who.

Not related to us later.

Literally when you adjust.

Speaker 11: Could have just heard. Yeah, I mean, I think that's exactly it. And you know, what's interesting is we've heard on other calls that certain companies are seeing a decrease in demand or an extension of their sales cycle. So NERR of course is a function of both your ability to retain and an upsell and cross out within your base.

Yes, I think thats exactly yet.

Interesting is we've heard on other calls that certain companies are seeing a decrease in demand or an extension of their sales cycle. So <unk> of course is a function of both your ability to retain and upsell and cross sell within your base.

Speaker 11: For us, we're actually seeing really good strong demand. So we had record net new ads last quarter, and we also had record expansion within our existing install base. And it continues to be strong in the second quarter, and we're expecting that to continue to grow and build in the second half.

For us we're actually seeing really good strong demand. So we had record net new adds last quarter.

And we also had record expansion.

Within our existing installed base and it continues to be strong in the second quarter, and we're expecting that to continue to grow and build in the second half.

Speaker 11: So the upsell cross-sell component of NRR is really strong. As Oleg and I mentioned though, the one dynamic, which of course is macro, is just the increase in seasonal users. But we're confident they'll come back as soon as these macro headwinds start to abate and we start to get a macro.

So the upsell cross sell component of <unk> is really strong as a leg.

Pension, though the one dynamic which of course is macro.

The increase in seasonal users, but we're confident they'll come back as soon as these macro headwinds start to abate and we start to get a macro tailwind our expectation as we've seen historically is they'll come back and increase their usage and.

Speaker 11: our expectation as we've seen historically is they'll come back and increase their usage and we'll see that NRR numbers start to take back up again.

We'll see that MLR number start to tick back up again.

Great. Thank you.

Speaker 1: There are no further questions at this time. With that, I will turn the call back to the management team for closing remarks.

There are no further questions at this time with that I will turn the call back to the management team for closing remarks.

Speaker 10: I think everyone, for your questions, look in closing, I want to say, look, we delivered a strong first half of 2023 and we believe we are very well positioned to continue our growth, the ability and with strong profitability. Look, we have a high margin, it is a fast-substrate business with a recurring subscription revenue stream.

Thanks, everyone for your questions looking at closing.

To say it.

Look we delivered.

First half of 2023, and we believe we are very real.

You should continue.

Growth.

<unk>.

And we are strongly for the reducer look rehab.

High margin.

Oh.

First on our software business.

Recurring subscription revenue stream.

And both were very so Dave.

Celebrates 50 years since we started the tumors.

I say, thank you to our customers our employees, our investors and our trends. Thank you for your support and we look forward to keeping you updated on our progress.

Thanks, everyone.

Speaker 1: This will conclude the conference call. Thank you for joining us today. You may now disconnect.

This will conclude the conference call. Thank you for joining US today you may now disconnect.

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