All right, I think we're ready to kick things off. I'm DJ Hynes. I'm one of the senior software analysts here at Canaccord. Delighted to have Semrush here with us today. This is the 44th year that Canaccord's done this conference. We couldn't do it without the companies that come and bring the growth and all the investors who ask the questions. So, thank you to everyone for being here today. We're gonna do this as a fireside chat. We have Brian is the CFO, Eugene is the President of Semrush. If there's any questions from the audience, raise your hand, we'll work them into the conversation, but I have stuff that should get us through a half hour or so.
Maybe just to level set, in case we have folks who are hearing the Semrush story for the first time, do you want to talk a little bit about kind of what the business does and how you guys are positioned in the ecosystem?
Yeah, absolutely. For those new to Semrush, we're a high-margin, recurring revenue SaaS company. Our focus is on marketing, and in particular, what we call top-of-funnel online awareness. The key focus areas are organic search, paid search, social media, local marketing, brand marketing, intelligence, and content marketing. Just to give you a couple examples, for those not familiar with those words, when you search, all of us search on Google, trying to find out information about events, experiences, and companies, and I can guarantee you, none of us in the room ever click page two. Has anyone done that, ever? You know, it's sort of, it's not where companies want to be.
So we help companies understand what contents, keywords, phrases, will allow them to rank ahead of their competitors at the top of the organic search results, and even recently, inside the Featured Snippets that we're starting to see, that are more AI-generated. For local marketing, I had an experience the other day where I had to do a wire. I typed in the name of the bank, found their address, went to that, and it was an abandoned building, and that company clearly wasn't focused on making sure that they had up-to-date hours, locations, and information. So it's also important from a local perspective to make sure, to the extent there's a local component to your marketing, that you're keeping that refreshed and up to date. A third example, with social media, every business, like individuals, want followers.
They want to be able to put content out there that's going viral. They're getting likes and comments, and then able to listen to feedback across the social media channels about their business, so they can take that feedback and incorporate it into their own product development or experiences. So those are just a few examples. Our focus is in providing non-biased advice, tools, and technology that allow them to enhance their reputation, awareness, perception, and experiences across all those different channels. From a financial perspective, just high level, we're just about approaching $380 million in annual recurring revenue. That's up 25% year-over-year in the second quarter.
13.4% non-GAAP operating margins, $230 million in cash on the balance sheet, and really good free cash flow generation that we expect to sustain. So a nice, profitable, high-growth company.
That's a perfect summary. Maybe you could just talk about kind of the importance of online visibility and maybe the thematic drivers that are pushing customers to you guys.
I, I think one of the fundamental things that are happening, and have been happening for about a decade now, is that at the dawn of the internet, it was fairly easy to get visibility. You would have a website, other people wouldn't have a website, so as someone searches for products and services, they find you instead of finding other people. Today, having website is easier than ever, having social media account is easier than ever, creating content is easier than ever. So absolutely everyone, absolutely every business can have a voice, but it is almost impossible to be heard, and because of that, businesses need sophisticated tools that can help them to break through this noise. Another way to think about what we do is that, let's say you live in New York or in Boston, you know, 100 years ago.
There is not a lot of traffic. You can have a map, and when you need to get from A to B, you just use your pencil, draw the road, and you can get from A to B. Now, fast-forward to today, there is a congestion, there is a lot of traffic, it's unclear where to park, so you need GPS to tell you how to get from A to B. And this GPS also needs to track every other car to tell you what road is busy, what road is going to be busy, you know, two hours later, and so on. So Semrush is like this very robust, kind of Google Maps, but for online marketing.
So when you compare yourself to competitors, and you say: Well, now, right now, maybe I'm 10% behind in terms of market share or awareness, and I need to be the leader in my niche and my segment, we can tell you what specific steps you need to take, what content to create, how to distribute this content. Content will provide you AI tools that help you to create this content in a way that it engages your audience in search engines and social media, that resonates with influencers, and so on. So I think that's why our portfolio of products is so compelling. That's why we're seeing so much success.
Yeah, yeah. There, there's also a flywheel aspect to the business, right? You have customers that share information with you. You guys have 116,000 paying customers, you know, 1 million free users. Just talk about how that flywheel works and how it makes your algorithms better.
So actually, the same idea, like we, you know, we've talked a little bit about this GPS and all the cars that use, let's say Google Maps, they share or Waze, they share data, so that helps to improve maps and navigation for everyone who uses it. So the same way, we have the same flywheel effect, where we have a lot of customers who maybe use product for free, but they share their data as they use our reporting or analytics tools. And we use this as a source of truth data to calibrate our estimates, such as traffic estimate or search volume estimate. And as we have more and more source of truth, we get more and more accurate metrics.
The way it works, because we have extremely accurate metrics, best that money can buy, we attract a lot of potential customers to use the product. As those people use the product, they start using reporting tool, analytics tool, they start sharing their own data. So our learning sample gets bigger. As it gets bigger, we can further improve quality of our metrics, which attracts more customers, who share more data, which improves quality of insights, which attracts more customers, and that just keeps reinforcing the flywheel.
Yep, virtual cycle. Can we talk a little bit about competition and kind of, I guess, what creates Semrush's moat or competitive differentiation?
So data is, of course, a big moat, especially when you have this, this kind of flywheel effect. But one more thing is that we also have a lot of historical data because we have been doing this for, for many years. So if someone wants to start collecting some of those data assets today, they will know how internet looks today. They cannot have a time machine and go back, you know, in the, in the past and figure out how internet looked, you know, maybe two years ago, three years ago. And without historical data, it's actually very hard to build correlations between what people do in terms of marketing and their overall outcome. So because we have historical data, we can say: Well, this business have been trying to do A, B, C, and D, and, you know, the growth was mediocre.
But then, when they stopped doing C and D, and did only A and B, growth have accelerated, so probably A and B is what is driving the outcome. We can run those correlations and then use those correlations to give people the best advice about what they should be doing with their own marketing. Without this historical context, it's just very hard to provide the same value. On top of this, you know, we work in a very fragmented space with a lot of point solutions. In those environments, platforms like Semrush really benefit because they provide, you know, better value for money, better user experience, and also can connect the dots between different, datasets.
For example, if you're buying point solution from a social media company or content marketing company, they give you only type of advice that is related to this particular channel. But Semrush can give you insights across all the channels, and we can do it in a very unbiased way. If you are only doing social media, you cannot tell people to do more SEO because it's not in your best interest. But Semrush sees all the interactions, so we will tell some people who are not very strong in SEO and where there's an opportunity, we'll tell them to create more content for search engines. But for other businesses where we see them doing really well in SEO, but not doing that well in, let's say, influencer marketing, we'll tell them to do more influencer marketing.
Yeah. Yeah. Yeah, makes sense. You guys have historically been an SMB-oriented firm. You've introduced enterprise products, which I, I wanna talk about, but maybe we'll start with SMB first. Can you just talk about kind of what you're seeing from a demand perspective at that end of the market, and who the typical buyer is, and what they're trying to accomplish?
Yeah, this, probably worth going through a little bit of history. It's a little bit of a misconception that we're just SMB.
Sure.
We actually scale across all market segments, so we have small agencies and small business owners, like local painters, restaurants, and other contractors that use us, all the way up to the Fortune 500 accounts like Nike, Marriott, and the biggest brand names out there. Our core competency and where we started was in search engine. So, we had a product that companies of all sizes used and continue to use today. Where the SMB component comes in is marketing generalists and small business owners, as we started to simplify the product, started to see tremendous value beyond just the specialist that were focused on search. We started to acquire tens of thousands of small businesses and marketing generalists that are using our search engine product.
And it allowed us to diversify and create a more robust and comprehensive set of tools across all marketing channels. So over the last four or five years, we've been acquiring more small businesses that use us not just for search, but for social media, intelligence, brand monitoring, and marketing, content marketing, as we've started to leverage AI, and we're one of the ones that have been using ChatGPT since generation one. As we start to build that out, businesses have been relying on us more and more. So we've evolved from just a point solution to now a suite of products or a platform for SMBs, and we're gonna repeat that cycle in the enterprise, where we already have 8,000 enterprise accounts.
They rely on us every day for search engine support and intelligence, and we're gonna start to round out the portfolio and create a suite, and a platform of products that are leveraged by the enterprise as well.
Yep, yep, makes sense. Can we talk about kind of the macro as you see it-
Sure
... as it pertains to SMB, I guess, particularly? It seems like nerves are, you know, high, and we're getting mixed data points from public software companies around the state of SMB. What are you guys seeing?
Yeah, there's no question. I mean, we read the headlines, we're reading all the analyst reports, and for sure, hearing that many companies are not only challenged, but starting to see potential increases and softness in other areas. We're not immune by that. Of course, as macro would transition into a tailwind, we'd for sure see a benefit, but we're weathering through it really well. And the key is, there's three fundamental things. One is, businesses that are starting to challenge and even constrain spend in marketing. They're not just doing that across the board. They're looking at the areas that have the lowest ROI, and then reinvesting that into areas that are more modern digital experiences, and that's where we play.
So there's a secular market shift from less efficient, less ROI, mechanisms and disciplines, to ones that are more modern and sophisticated. The second thing is we have an extensive portfolio, so we have been, benefiting from cross-sell, upsell. Our average ARR per paying customer over the past three years has gone up 50%, as, our loyal install base has adopted new products. And then recently, we're starting to create much more sophisticated, enterprise-specific, products that command a much higher, price point, almost 10-15 times what our average is. And that's starting to pick up. We just launched a major product in May. We're starting to get some good early traction and good logos.
So it's a combination of that secular shift, cross-sell, upsell capabilities, and not just being dependent on one SKU, and then this upmarket motion, together, that are helping us to weather through this and sustain 20%+ growth.
Yeah. Yeah. Maybe we can double-click on the last part of those three drivers, which is the more sophisticated-
Mm-hmm.
-customers and the product build-out that you guys are pursuing. Maybe just talk a little bit about those products, what they're actually doing for, you know, the larger customers, and then you alluded to the higher ASPs, but maybe you can hit on-
Yeah
... unit economics as well.
Yeah. Yeah, so in terms of functionality, there is, of course, the same data platform, the same unique data assets that we bring to the table, and our enterprise product works on top of the same data infrastructure and uses the same key insights. What is different between needs of small businesses and large businesses is level of customization, automation, and services, and that's where we focus when we build enterprise-level products. So when it comes to customization, small businesses, they don't necessarily have a lot of specific requirements. They just wanna see what works best for most of the companies, and for them, you build, you know, one dashboard based on research, and it works for, you know, 80% of audience quite well.
Now, enterprises, on the other hand, they have a lot of very specific requirements that are unique for their business, and they want their reports and dashboards to be fully customized to their needs. So our enterprise platform provides very high level of customization. You can slice and dice data in any way you want. You can use different widgets. You can do custom metrics. You can do custom segmentation. A good example would be, you know, company like Target sells shoes, and company like Nike sells shoes, but it's a very different-
Yeah
... type of type of shoe. You know, for Target, shoes are just one segment. All the shoes are one segment, and for Nike, it's 20 different segments. You know, have tennis shoes, they have, you know, basketball shoes, and so on, running shoes. So setup is totally different for those two different clients. The second thing is automation and AI. There are certain things that are easy to do when you have a small website with, let's say, 20 pages, and almost impossible to do when you have a large website without automation. A good example would be internal linking. You need to figure out how to connect different pages on your website. If you have 20 pages, you put all of them on a whiteboard, and you just figure out manually how to connect them. If you know what you're doing, takes maybe 30 minutes.
If you have a website that has millions of pages, like a lot of our customers do, there's no whiteboard where you can fit all this information, and you cannot possibly do this manually. So you need automation and AI to really figure out the optimal structure of your website to maximize crawlability and discoverability and friendliness for, you know, search engines, but also to improve user experience. And there are tons of those workflows, not just internal linking, of course, content optimization, forecast, opportunity forecasting, and so on. And then the third part is services. Well, while you know, small businesses usually don't need a lot of kind of handholding, large companies want someone to help them with strategy.
Yeah.
Maybe help them with more complex projects, like, let's say, website migration. Often, those projects are not something where you would wanna have a full-time employee doing this. Say, website migration is something you do maybe every seven years, 10 years. So it doesn't make sense to hire someone full-time, but there are world-leading experts who have done this website migration for many, many different businesses, and you wanna leverage their knowledge and expertise. The best way to do this, you go to Semrush and say, "I need help with this, and this, and this," and we have a very extensive network of experts, so we connect our brand customers with our experts partners. And it's a win-win-win.
Our expert partners get new customer, our brand customers get the best help they can get, and we facilitate the sort of transaction, get a small fee for that. But at the end of the day, the most important part, customer becomes more successful in what they're doing.
Yeah. Yeah. And Brian, maybe you could hit on the unit economics, you know, an enterprise versus an SMB, and kind of the direction that leads the model.
Yeah, absolutely. So, obviously, like anything, there's a scale. There isn't a bright line between an SMB and the enterprise. We see on the low end of SMBs, all the way up to a sophisticated SMB, a very different economics in terms of what their amounts they can spend and the propensity to adopt different products. We start out, though, at about $2,000 a year. Our average is $3,200, and for the enterprise, it tends to be $50,000 on average, and could even scale up into multiple hundreds of thousands. So very wide range of portfolio and potential, depending on the market. The way we scale it is, first and foremost, the technology that you're using and a number of marketing disciplines that you need to be, to take advantage of.
The second is how many keywords, phrases, how much data and information you need on your consumers to inform your business and the campaigns that you need to be successful. The number of users, you know, we could have teams that are in hundreds, or for a small business, there might be one or two individuals, or even the business owner themselves wearing different hats all the time. So we scale across a number of dimensions. Like I said, anywhere from 2,000 all the way up into multiple hundreds of thousands, depending on the segment.
Yeah. Can we talk a little bit about kind of the go-to-market motion?
Yeah.
You know, I have to think of $3,000 sales different than a six-figure, you know, type of sale. So, A, how do you take the product and service to market? And then, B, does it, does it need to evolve as we go further up?
Yeah, no question. So again, just like the price point scale, so does our go-to-market motion. But the two sort of ends, the bookends are, we have a strong, what we call, product-led growth motion. We're actually able to transact millions of transactions a year through our e-commerce platform with credit cards, and no human interaction at all. We can acquire the account through our marketing efforts, move them through a trial, registration, ultimately a paying customer, and not only educate them about the platform, but also support them in a fully automated way.
So very low, low cost, really good customer acquisition cost to lifetime value multiples, and is a significant volume, and of course, an increasing volume of business that we're actually able to put that through that as we're leveraging AI and advanced digital means to be able to engage with those accounts. On the other side, there's the enterprise, and we've been building out for years an enterprise go-to-market, where there's a need for demand generation, typical lead qualification, opportunity management, and then navigating through procurement, legal, negotiating custom terms and conditions, and ultimately getting to a closed deal. So we have capabilities to do both. We've been able to acquire and build contracts with about 8,000 enterprise, including some good logos like Marriott, Salesforce.com, Nike, and many others.
We just launched this enterprise SEO product that's more tailored to their needs, so there is an investment that we're working through to scale that up so that we can meet the greater demand that we expect in the future. So it's more of an evolution for us to build that out, not something new that we're just getting into.
Yeah. As we think about sources of budget, is this customers having to come up with new budget to spend on Semrush solutions, or is it they're maybe already spending that money with somebody else, and they're kind of reallocating, you guys are taking more wallet share of what's an already existing, you know, pool of marketing dollars? Like, how do you think about it?
Yeah, no new budget at all. If anything, with the... Especially with enterprise SEO, it's an opportunity for them to expand traffic, increase revenue, so there's a top-line growth component to this. It's not just about the ROI and return on the specific investment that they're making from a cost perspective. But the environments as they exist today is a combination of multiple fragmented solutions, internal IT development to bring those solutions together, and individuals that do a lot of manual work in Excel to create the environment and the focus that they need to enhance their online awareness. So with Semrush, we can replace all of that and do it in a more cost-effective way.
Yeah. Yeah. Maybe I'll pause there and see if there's anything from the audience that people wanna ask, or I can keep going. You guys did a, a couple of acquisitions recently. Maybe you could talk through those, kinda how they fit into the portfolio and what the strategy is.
Yeah. So one of the deals that we have done recently is a company called Brand24. It's a really good example of things we like to buy. There's a really strong product that fits really well into our roadmap. Very good team with whom we have good chemistry, and transaction was, you know, financially very attractive as a allocation of capital. And in general, last year, we've started pushing new products and started monetizing them, and one of those new products was social media portfolio of products. We saw a lot of initial success and decided to double down and keep expanding the portfolio. One thing that we didn't have was social media listening.
We sort of tested the water, and we did App Center partnership with this particular partner, so we could understand bundling potential and cross-sell potential. And as we analyzed the metrics, we felt, you know, we definitely willing to double down, but to make economics more attractive, we would probably wanna benefit 100% from this push, rather than kind of smaller revenue share from the partnership. And we did the deal with them, which again, was financially very attractive. Another company that we have acquired recently, called Ryte. So this is more of an investment in our enterprise SEO portfolio as we started selling our enterprise SEO product to our customers, we've noticed there is still one area where they use additional products, which is website experience, and technical SEO.
We could, of course, build it ourself, or we could partner with other people by licensing technology. At the same time, we had an opportunity to acquire this company. We felt their product is extremely strong. Team have invested a lot of resources into R&D, and the fastest and most cost-effective way for us to acquire this technology would be through an acquisition.
Yeah.
So we've done that deal as well. So that's kinda our approach. We want things that are very synergetic, where people have very strong products and teams, and like I said, deal makes sense financially.
Yeah. Yeah. Maybe as a parting thought, as our shot clock winds down back there-
Ten seconds?
Yeah.
I guess-
We have some extra time, so-
Uh-
So no super rush. But yeah, if there's, you know, a key message you want investors to take away from the session and kind of, you know, what excites you about the business-
Yeah
... for the second half in 2025, that would be great.
I might be able to do one better. We are doing an analyst day, October 1st, in New York. It's at 151 West 42nd Street. Love to see you all there. If you'd like to attend, reach out to our IR team, and hopefully we'll see you there. At that event, we'll talk more about Semrush's history, the foundation and competitive moat that we've built, and our vision for the future. We're all crazy excited about what the company's been able to achieve to date, but even more optimistic about the future, particularly as digital marketing and digital trends continue to expand and more business gets transacted online.
Yeah. Well, this is great. Eugene, Brian, thank you guys very much for doing this.
You got it.
The support. Thanks for having us.
Thank you.