Good morning. I'm Bob DeGiovardi, VP of Investor Relations, and welcome to Semrush Holdings' 2nd quarter 2021 results conference We will be discussing the results announced on our press release after market close on Monday. With me on the call Oleg Sheygoa our CFO, Evgeny Petitsa and our CFO, Eugene Levin. Before we begin, I would like to highlight our participation in several virtual investor conferences to be held during the Q3. We will attend the KeyBanc Virtual Technology Leadership Conference on August 11th and the Piper Sandler Global Technology Conference on September 14th.
Today's call will contain forward looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements include statements concerning our expected future business and financial performance and financial condition, expected growth, adoption and demand for our products and features, expected investments and their anticipated benefits, industry and market trends, our competitive position, market opportunities and our guidance for the Q3 of 2021 and the full year 2021 and can be identified by words such as expect, anticipate, intend, plan, believe, seek or will. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially from these forward looking statements. For a discussion of the risks and important factors that could back to our actual results, please refer to our final IPO perspectives filed with the Securities and Exchange Commission, our quarterly reports on Form 10 Q, as well as other filings with the SEC.
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 on our press release issued after a market close, which can be found on our website at investors. Semrush.com. And with that, let me turn the call over to Oleg.
Thank you, and good morning to everyone on the call. I am pleased with our performance in the Q2. Revenue of $45,000,000 was up 58% year over year and up 13% sequentially. Call. We saw strength across all our major markets, but particularly strength from markets outside the United States and United Kingdom, which grew 65% year over year.
Our paid users grew 29% year over year, Looking at some of the product highlights from the quarter, we saw strong traction with our digital media marketing tools. As I mentioned in May, we transitioned these tools to a free to use model with the goal of driving wider adoption. Call. The initial results were promising as we had over 30,000 active figures at the end of June. Call.
According to G2 rankings, we are a leader in social media management, and I believe The stronger adoption of our solutions is further validation of our leadership position. Many investors [SPEAKER MARTIN PEREZ DE SOLAY:] Ask about the primary use case that drives customers to adopt Semrush. It's an interesting question, because our product The offering is far broader than the point solutions offered by our competitors. There is a wide variety of use cases, and I would like to highlight a couple of those to help investors better understand What is driving our growth? Pretty chimney sweeps is a contractor in the Washington DC area that provides critical services related to safety, upkeep and construction of chimneys and fireplaces.
Pridi is a new service provider in the market dominated by larger brands with much larger advertising budgets. Call. Pridji engaged with Ardent Growth, a digital marketing agency, to revamp the company's digital marketing strategy. Call. Using Semrush tools, Arden Grove conducted research to plan an effective site architecture, SEO and content strategy that could The results speak for themselves.
1st page rankings Went from approximately 30 in September of 2019 to over 300 As of October 2020, and organic traffic increased by over 2,000%. When a prospect searches for chimney sweep in Washington, DC, 3dclean is ranking 3rd behind AAGES list and Yelp. We improved visibility translated directly There is an increase in traffic and conversions, and as a result, we did chimney sweeps Revenue has grown substantially. And amid a global pandemic that saw many SMEs struggle, The company is preparing to expand. We are focused on solutions for SMEs, but our solutions are widely deployed call.
Universal Health Services is a leading provider of hospitals and healthcare services. Call. In November 2019, The UHS SEO team purchased a Semrush license and began analyzing the state of the pilot facilities websites. The SEO team quickly realized the facility sites were lacking content that would drive relevant traffic. Using the Semrush keyword tool, SEO writing assistant and topic research, call.
The SEO and content teams began producing content around behavioral health and saw immediate results. Call. With Semrush, we team streamlined the process of creating highly effective content and grew conversions by 49% in 5 months. With the help of Semrush, UHS grew the number of in house campaigns by 10x in 1 year, call, while also cutting costs by 60% as compared to outsourcing we work to agencies. I would like to close with a few comments on the breadth of our data assets.
A few investors We are confused about what data we collect and analyze. I want to make it clear that while building the map of the Internet Working on producing our insights, Semrush collects billions of discrete data points Through a combination of internal and external sources. We take that data and transform it into Actionable insights for customers. However, we only collect publicly available data, which does not include Sensitive non public data like credit scores, financial assets and payment information. Our practices are designed to comply with identity for advertisers regulations in the United States And the general data protection regulation GDPR in Europe.
Looking ahead, I do believe we will see a reduction in micro targeting, and it may result in less paid ad spending on the part of SMEs. A lot of open rates could make it extremely difficult to measure returns on paid advertising for sites that generate Relatively modest target, which includes many SMEs. I don't believe the overall marketing budget at SMEs will shrink, As it is more challenging, whatever, to reach potential customers, rather, I believe a portion of And budget will shift to paid and organic search. I believe this would be a tailwind for Semrush As we offer a best in class solutions focused on improving organic and paid search results. With that, I would like to pass the call to Yudhoy for a more detailed discussion of our financials.
Thank you, Oleg. Q2 revenue of $45,000,000 was up 58% year over year and came in above our expectations. Growth was once again driven by steady increase in paying customers and an increase in the average monthly recurring revenue per paying customer or Evercheck. We experienced average share growth in the Q2 of approximately 19% from the year ago period As we continue to see a tailwind from the price adjustments we implemented earlier this year that among other results led to the growth in the number of additional user Licenses purchased and the richer mix of guru and business accounts. Our trailing 12 month revenue retention was 121% as of the end of June, up from 160% at the end of March.
These results reflect an improvement in churn as compared to the higher levels experienced during the Q2 of 2020. Gross margin of 77.3% was 170 basis points from a year ago, but down slightly from the previous quarter. The year over year improvement was due to higher revenue and sequential decline was largely due to additional spending on third party data and increase in hosting fees. Non GAAP operating expenses of $34,300,000 in the quarter were up 50% from a year ago and up 18% from the previous quarter. The growth was driven by additional headcount as well as the high cost associated with operating as a public company.
Higher public company expenses contributed to the 35% sequential increase in G and A in the quarter. I I expect operating expenses to continue to grow in the back half of the year, but the growth will be more weighted to marketing and product development with G and A spending growth moderating. Call. Strong revenue growth and higher gross margin were partially offset by higher operating expenses and contributed to non GAAP net income of $290,000 in the 2nd quarter, up from a net loss of $1,900,000 a year ago. Turning to the balance sheet.
We ended the quarter with cash and cash equivalents of $180,800,000 up from $171,900,000 as of March 31. The increase in cash was primarily due to approximately $10,000,000 received in April from the partial exercise of the over allotment option granted to the IPO underwriters. Cash flow from operations in Q2 was marginally positive after an exceptionally strong Q1. Looking ahead to guidance. We We expect 2nd quarter revenue in the range of $47,300,000 to $7,700,000 representing 47,000 to 48 call.
For the full year, I expect revenue in the range of $182,000,000 to $184,000,000 which would represent 46% to 47% year over year growth. We expect to accelerate our investments in the second half of the year with a focus on marketing. These investments will likely weigh in profitability and therefore expect a non GAAP loss of $4,500,000 to $4,000,000 and non GAAP loss of $7,900,000 to $6,300,000 for the full year 2021. We achieved 58% revenue growth in the 2nd quarter and our 2nd consecutive quarter of non GAAP profitability. Our performance in the first half of the year clearly suggests we have a large opportunity ahead of us and a proven go to market strategy to capture that opportunity.
Our solid financial performance in the first half of twenty twenty one combined with the results of our successful IPO puts us in a position to make incremental investments to support growth, investments that I believe will benefit the business going forward. With that, Alek, Eugene and I are happy to take any of your questions. Operator, please open the line for questions.
Your first question comes from the line of Michael Turits with KeyBanc.
Hey, guys. Congratulations on another good quarter post Hi, Pia. One very high level question. Obviously, you've accelerated really strongly coming out of COVID With digital transformation being led by digital marketing and other front office spending areas, how much do you think that's a pull that we've now seen, how much do you think this is a sustainable growth rate that we can see into the next couple of years?
This is Oleg. I think our strong quarter and our strong performance
in first call. This is
a clear signal for us what we have worked in regulation. Our market is call. We have the best of our team, Jeff. And we are working on
Call. I think you've rightly mentioned there is some I would say there is sample forward From the back half of the year, given how strong the first half was on the back of the reopening that we see across the board. So as you may see from our guidance, our outlook for the say, for Q3 and for the back half of the year, I would say it's slightly more moderate as we would need to see how the situation unfolds across the globe in different markets.
Call. And then you've given us as a follow-up, perhaps you could the growth in average check or revenue per customer of 19% is a Fantastic acceleration. Perhaps you could parse that for us. You called out some impact from pricing, but can you maybe Does that stack rank the other impacts, whether it's in terms of incremental products or incremental units? What's really driving that strong growth
in the ARR for customer?
Call. Yes. There are a number of factors which drive the average share growth. One is the continuous change in the product mix. So we see a higher share of higher priced packages.
And again, following the changes in pricing, we see our Our new customers lending on average the new lending on average check, which is about 20% higher than we had last year. I think that will be the 2nd contributing factor. And the third one, as you mentioned, is the accelerated growth in add ons and additional User shipments such as user seats. So all of those contribute to this higher ever check growth. So there is we see that we provide more value, which our customers take, call.
And this is reflected in the growth of the chip.
Great. Very helpful. Again, congrats on a great second quarter out.
Call. Thank you.
Your next question is from Mark Murphy with JPMorgan.
Yes, thank you very much. I will add my congrats On a solid Q2. I wanted to ask you, if you could just comment on how ambitious are your plans call. And the social media marketing realm and as social media channels are starting to be viewed as a more important marketing channel than the website itself for more companies out there. What is it that customers are asking you to build for them to optimize their visibility in social media.
Thank you. I will start
with midterm plans, with midterm undertaking of social media call. Management tools for us and here it's very important for us to give call. Functions and insights and tools for some call. Marketers who are not so experienced with online marketing, it's very important to bring them to such marketing industry and call. And I think in general, we want to give more and more value to such unexperienced audience.
Call. But if you talk about long term trends, Yves, please. Hi, this
is Eugene. So In terms of overall pipeline, we definitely have a lot of features and plans. Right now, the focus is mostly To get a bigger presence to become a key player in the social media management ecosystem. Call. Answering your question about websites versus social media presence, I think for an average business, Definitely, website is going to be more important for foreseeable future, but we are seeing a lot of And the new generation of marketing people who start with social media and then Later evolved into broader web presence with websites.
So I think that's kind of just To reiterate Oleg's point about building products for entry level marketers. And then moving forward And answering your question about other things that people ask us to build, So existing customers definitely ask us to build products for other buyer personas. So for example, people from Customer success departments who also monitor mentions and want to reply to them, especially when there are some complaints about quality of products call. Where things that can impact reputation. So hope it answers the question.
In the short term, focus only on call. Market share, right, on user growth, in the long run, We'll probably start going into different buyer personas within same organizations.
Just a couple of quick ones for you. One is a housekeeping item. I don't know if you happen to have or if you're disclosing where headcount call. And did for Q2 and then the other part of this financially, the I'm trying to think back historically. Call.
Do you have a feel for how your ARR, if you look at the sequential call. Build in the ARR numbers, which look very strong in Q2, has that historically been Stronger in Q2 or in Q3 and if you have any high level commentary on just maybe call. How we could think about that into Q3 of this year? Thank you.
Right. I will start with third And we are not disclosing it, but I think we could highlight what, as Remote approach. I think with our culture, with our structure, with how we build autonomous teams, how we Many schemes with goals and so on are working really well. And with our focus on We don't see any significant difficulties. We're hiring such a more robust approach.
Call. Mark, In ARR, I wouldn't be reading into it right now too much because we see, I would say, fair amount of Distortions which are based on the start of the COVID and post COVID reopening, which affected seasonality. But if we look at the typical year, I'd Today, there would be a slowdown at the end of the year as we end December and probably the mid year as we go into the summer. I mean, There you would have some like seasonal slowdown. But again, this particular year may be different.
Call.
Just to clarify, Jenny, there's a slowdown a midyear slowdown. Do you mean just
the typical July August Because people are on vacation or do you mean
are you saying?
Yes, yes, yes. I would say that yes, when we look at the say call. End of the Q2, that will be end of June where the vacation period starts. So that's where there will be typical Slow down versus the end of Q1 or when we look at the end of Q4, that will be end of December where everybody is Still in the Christmas holiday mode. That's why this period will be slower versus the end of Q3, which will be very busy.
That's what it meant.
Very clear. Thank you. I appreciate that. Take care.
Thank you, Mark.
Your next Question is from Brent Bracelin with Piper Sandler.
Thank you and good morning here. I want to With the international, international momentum has cited this one of the upside levers this quarter here that drove another quarter of accelerating growth. Call. What's driving the success internationally? Is this just an underserved region?
Is the Success coming from maybe underserved market segments around small businesses, mid sized businesses? And any color on the opportunity international would be Helpful given the momentum you're seeing here this quarter.
Hi, this is Eugene. So In general, I think it's largely related to how different markets going out of COVID and how Different restrictions are getting less strict. So ultimately, people a lot of people are going back to business, a lot of People can start consuming more. So that means a lot of businesses have to do more investments in marketing to attract this new demand. I think in general, just curve in United States was not the same as curve in many other places.
For example, In United States, vaccination started earlier than in many even European countries. So that meant that, For example, in U. S, we would start seeing this couple of months earlier than in the rest of the world. So that probably explains at least part of the In between growth rates in United States and the rest of the world.
Got it. So it's another piece of recovery internationally just different driving different momentum there. Super helpful. I guess, and as a follow-up for me, just looking at the Semrush App Center, I know it's new, but it looks like there's About 9 add on products ranging from $15 a month to $200 a month add ons. I know you You specifically called out the success in local listing add ons this quarter, but how should we think about increasing attach rates of these add on products call.
That provide an incremental lift to growth once we anniversary the price increase. Just trying to understand that potential of that App center as a way to drive additional add on product revenue.
First of all, we are very happy with this action, but we see it with our app center. We launched it at the end of Q1 and right now this year. Very positive feedback from our customers And we have also positive feedback from vendors from partners. Call. And we have good pipeline of future applications.
In general, this
Yes. Right now, this is at the very early stages of the launch. So it's more we look more And what our customers say as rather than the numbers. I think it will be too early to bake in these numbers and do any good forecasts, if you ask me, Brent, And the U. S.
Just one more. Yes,
it seems a good interest, but a little too early to have a kind of financial impact, which leads into my last question, Eugenie. Average price per check rose 19%. Just specifically, how much of that increase was tied to the price increase versus kind of increase of add on products?
Call? So I'd say the largest impact comes from 2 parts. 1 is the change in the mix Of the lower priced plants versus higher priced plants. And the 2nd largest will be coming from the, I would say, higher average share From new bank customers. I mean, the usage of add ons also contributes.
This is will be the 3rd I would say 3rd most important one.
Call. Okay, very helpful color. That's all I had. Thank you.
Thank you.
Your next question is from Tom Roderick with Stifel.
Call.
So I guess I'd love to start On kind
of the value of the entire value prop here, I mean, there's been all sorts of noise about IDFA out there and Cost of various mobile advertising strategies have gone way up. So we've seen to create a little bit more of a lever relative to the demand for some of your products, many of which have a little bit of a longer life in terms of generating Marketing leads. Can you talk about just the broader impact that some of those, you know, marketing changes have had On the demand stream. And then, as Dannon, you were kind of talking about spending on 3rd party data has gone up. I'd love to understand how the cost of that 3rd party data perhaps has had perhaps there's been a ripple effect call relative to some of the downstream effects from IDFA?
Thanks.
Call. So this is Eugene. I'll start with the first one about broader trends that we see in advertising and how they impact Call. So I think one development that we've seen in Our previous quarter is that Google technically changed the timeline for cookie depreciation in Chrome browser. So that was kind of positively received by the advertising industry.
But at the same time, when we do surveys for our customers and we ask them on what part they're going to increase marketing And then what part they're going to decrease marketing spend moving forward. Retargeting is still one of the areas where they're planning to decrease spend. And then when we go into more kind of qualitative feedback collection, then they Highlight that they're going to expand their spend on content specifically and especially long term marketing activities. So for example, evergreen content that ranks for a long time and can be used years forward. And this increase is going to come to To some degree from reallocation of the budgets from retargeting to content marketing.
So That's kind of feedback that we are collecting from our customers. At the end of the day, I think Google extended call. This kind of time that brands have to adjust to new reality, but it doesn't mean that call. Retargeting is here to stay for a long time and other intrusive forms of advertising. My expectation that we are going to see reallocation of resources from those things to more sustainable organic marketing.
And Tom, on your question on the data costs, basically this is a as we alluded to this Earlier, we continue to invest into diversification of the data sources. Whenever we have a data source or whenever we source data for 1 or another product or feature, call. We usually would rely on the multiple sources to avoid any issues with loss of 1 or another vendor. Call. So that is a continuation of our investments into getting more, I would say, more data sources plus increased data quality for a number of products.
This is a step up increase. It is not connected to a growth with the growth of revenue. So I expect that we will see operating leverage as we go forward. However, having said that, we may continue buying more data if we find this like suitable and attractive. Call.
Outstanding. And that's really good color on the reallocation from retargeting the content. So that's great. I hate to go back to Mark Murphy's question, but I think it was kind of a good one with respect to setting expectations On the path of the ARR journey as we go through the year and maybe putting a finer point on it, I want to make sure I understood what you're talking about. Just historically again from Q2 to Q3, were you saying that that is kind of a flattish call.
Seasonal trend from Q2 to Q3. So if we just went back and look at last year, there was a jump from Q1 to Q2 and then In Q2 to Q3, would we expect that to be flattish at that $120,000,000 mark, which is what filings have shown for the Q2 of last year? Or was that up? I'm just trying to get a feel for how we should set expectations for ARR. I know you don't formally guide to it, but Historically, is that up single digits, flat in Q3?
Just again, sorry to kind of beat that dead horse, but would love to
Couple of years mixed everything up. I mean, we had a typical seasonality prior to 2019. Now it's very difficult to say what's a typical or Normal quarter looks like. What I was saying is that when we're looking at, say, new demand, we would have a slower growth At the end of December and as we enter into the summer period, that's what I was trying to say. Otherwise, I mean, our return revenue will be like Stay in the solid base, which would continue to expand.
So right now, we are more cautious into setting Expectations for the back half of the year as we, I would say, seen a atypically strong Q1 or, I would say, Q1 as well. And then call. It's difficult to say what the back half of the year would look like. I mean, we are seeing a, I would say, Softer new demand base and everybody's going to vacation, right? So we want to make sure that Q2 is what we will get, right?
But then call. I'm sorry, I'm hoping I'm giving you enough I'm sorry, Q3. I'm hoping I'm giving you enough color there, Tom.
Well, you are. I mean, part of it is I'm not really asking you to guess exactly how the 3rd quarter is going to shake out. But just If you have the number for Q3 for last year, and again, I know it was a weird year because it started Q3 started pretty slow and then ended pretty hot for SMB. So just as we get to the end of this year, it'd be interesting to know if that's going to be a tougher compare or an easier compare just relative to how last year shook out. So call.
I would say yes, Tom, I
think it will be tough
to compare because the growth at the end of last year was strong. So we that will be my take on it.
Call. Okay. No, that's helpful. I appreciate that detail. So thank you very much.
It's great. I'll jump back in the queue.
Thank you.
Call. Your next question comes from Brent Thill with Jefferies.
Great. This is James on for Brent. Thanks for taking the questions.
Could you guys talk about the reasons for raising the
full year revenue guidance, but then not taking up the non GAAP net loss guide, Understanding that you're investing more in marketing than you originally planned, but just curious if there's any markets that you're looking to lean More heavily into on the marketing side and just if you could talk about some of those investments, that would be really helpful. Thank you.
Call. Sure. Thank you for the question. As we have mentioned in our last quarterly call, we will We'll be investing more into the marketing as we go into the year. And as you rightly mentioned, that's that will be largely that will be the key, I would say, investment Now, a direction where we'll be putting money into.
So as we are growing our revenue, we see more room for Investments and we want to support the growth as we go into the end of the year and as we transition to 2022. There is no particular mark which we can say we will be allocating this money on. We our growth is Broadly distributed amongst the geographies where it were by present. So it's more I mean, it will be I would say it will be as evenly distributed as it was before.
Call. Got it. And then I guess just another follow-up on the price increases. You've had a couple of quarters now, I guess, to digest those. Curious if you could just comment on how How that's impacted churn and then just new customer adds and sort of what you're thinking for the rest of the year?
On demand and customer acquisition, because
there's so many rounding things here and we see such call.
And I would say it's hard to say our Board was embarked on new customers.
Call. And if we this is Vivien. If you look at the churn, the churn levels were, I would say, normal or I would say slightly better than usual in the first half of the year. So if anything, this transition to the new pricing was very successful from what we see from what we saw.
There are no further questions at this time. I will now turn the call back over to the speakers for closing remarks.
Call or when we report Q3 results. Thank you.
This concludes today's conference call.