SEMrush Holdings, Inc.

Good morning. My name is Audra and I will be your conference operator today. At this time, I would like to welcome everyone to the SEMrush Holdings fourth quarter 2022 results conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. A transcript of the prepared remarks will be available at investors.zemrush.com after the call. At this time, I would like to turn the conference over to Bob Givardi, Vice President of Investor Relations. Please go ahead.

Good morning. I'm Bob Givardi, VP of Investor Relations, and welcome to Zemrush Holdings' fourth quarter 2022 results conference call. We'll be discussing the results announced on our press release issued after market close on Monday. With me on the call is our CEO, Oleg Shagalov, our CFO, Evgeny Fetisov, our President, Eugene Levin, and our CMO, Andrew Wharton. 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 existing and any new products and features, investments and acquisitions and their anticipated benefits, industry and market trends, our competitive position, our market strategies, market opportunities, our guidance for the first quarter of 2023 and the full year 2023, and statements about future operating results, including margin improvements, profitability, and free cash flow goals, 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 discussion of the risks and important factors that could affect our actual results, please refer to our most recent quarterly report 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 with the SEC. Also, during the course of today's call, we'll refer to certain non-GAAP financial measures. There's a reconciliation schedule showing the GAAP versus non-GAAP results currently available on our press release issued yesterday after market close, which can be found at investors.samrush.com. And with that, let me turn the call over to Oleg.

Thank you, and good morning to everyone from the call. Fourth quarter revenue of $69 million goes up 28% year-over-year and up 5% from the previous quarter. Despite a more challenging macroeconomic environment, revenue came in above our expectations. We reported a strong year, a full year revenue of $264 million up 35% year-over-year, as we beat and raised estimates throughout 2022. We have a well-partitioned business with a growing market, and we are excited who we are as a business. I wanted to provide a few highlights on 2022, and then Eugene will talk about our future strategic initiatives in 2023. In 2022, we launched Our first brand marketing campaign conducted a wide variety of experiments across different channels to determine which would drive the best results. We had a number of successful brand marketing campaigns that attracted net new audiences and users to Sivaraj beyond our core customer group, which is particularly promising. These results were largely positive as we delivered record new customer additions in 2022, despite a more challenging environment. We closed the year with over 95,000 paid customers. However, net customer additions were slightly lower than the year-ago period. We continued to see record new customer additions, which were partially offset by churn of existing customers. I wanted to share some data about churn and propensity of customers to return to ChemRush. For example, on average, more than 30% of customers who churned SEMrush returned to the platform. For the customers who churned at the onset of COVID-19 lockdowns in April 2020, the return rate was more than 40%. We believe this level of customer feedback demonstrates the value of our product and its necessity to thousands of marketing professionals for organizations of all sizes. We are implementing targeted personalized promotions to help address churn and are already seeing improvements thus far in the first quarter. We are optimistic about the future growth based on the record new customer ads and history of customer returns post-pandemic. In fact, we experienced a strong start to 2023 with record new customer additions in January and February. Other important leading indicators, registrations and trials have hit new peak levels as much as 79% year-over-year for trials in February 2023, which is significant. Looking ahead to 2023 guidance, we expect it will be a year of balanced growth and significant margin improvement starting in the first quarter, and we expect to return to a non-GAAP break-even run rate in Q3 time through our growth and efficiency initiatives. For the first quarter, we expect revenue in the range of $70.7 million, up approximately 23% year-over-year. We expect the first quarter non-graph debt loss of $87 million. For the full year, I expect revenue in the range of $306 to $309 million, which would represent growth at the midpoint of approximately 21% year-over-year. We expect non-graph net income of equivalent to $3 million for the full year 2023, including approximately 1.3 million of exit costs. I would remind investors, with our relocation program, roughly 30% of our costs are now incurred in euro and euro-linked currencies. My guidance for 2023 non-graph net income assumes a year rate of approximately 1.08 to the dollar for the remainder of the year. I remain very encouraged by underlying plans in the business and have been efficient in deploying capital and we are focused on achieving non-graph profitability in Q3 2023. We are uniquely positioned and are diversified across geographies, industries, and customer size with no considerations. Our price points and go-to-market strategies target the widest possible customer base, and we offer our customers a high degree of flexibility. I believe these qualities will provide to be even more compelling in 2023. In closing, I want to thank all our employees, customers, and partners for helping us deliver strong growth while navigating through a challenging year. We remain focused on shareholder value and execution on our strategy to drive growth and future profitability. Before I turn it over to Eugene, I wanted to highlight the recent announcement we made appointing Brian Mulroy as Chief Financial Officer effective April 10, 2023. Brian brings an exceptional background to SEMrush with over 23 years of experience in finance and technology. He has a very strong leadership skills, most recently holding SVP finance roles at Microsoft and Nuance Communications. I also want to thank Yevgeny for his key contributions to SEMrush over the last four years. His expertise was instrumental in building our financial foundation, and we wish Yevgeny success in his future endeavors.