SEMrush Holdings, Inc.

Everyone, and welcome to the SEMrush Holdings first quarter 2024 results conference call. My name is Drew, and I'll be the operator for today's call. After today's presentation, we will begin the Q&A session. To register a question, please press Start, followed by 1 on your telephone keypad. To withdraw your question, please press Start, followed by 2. With that, I'll hand over to Brynlee Johnson, Investor Relations. Please go ahead.

Good morning, and welcome to SEMrush Holdings first quarter 2024 conference call. We'll be discussing the results announced in our press release issued after market close on Monday, May 6th. With me on the call is our CEO, Oleg Shlegelov, our President, Eugene Levin, and our CFO, Brian Mulroy. 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 performance and financial conditions, expected growth, adoption, and demand for existing and any products and features, our expected growth of the customer base and specific customer segments, the expansion of our content-shaped tool, industry market trends, our competitive position, market opportunities, sales and marketing activities, future spending and incremental investment, our guidance for the second quarter of 2024 and the full year 2024, and statements about future pricing and operating results, including margin improvements, 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, or will. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent state. We do not undertake any duty to update these statements. Forward-looking statements address matters that are subject to risk and uncertainty 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. During the course of today's call, we referred 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. As noted last quarter, our results for the first quarter and our forward-looking guidance uses our new non-GAAP definition. We are no longer providing guidance for non-GAAP net income and instead guiding to both non-GAAP operating margin and free cash flow margin. Definitions for these are presented in our earnings release. We've also updated our definition of non-GAAP income from operations on which non-GAAP operating margin is calculated to exclude amortization of acquired intangible assets, acquisition-related costs, restructuring costs, and other one-time expenses outside the ordinary course of business. For example, our exit costs incurred primarily in 2022, in addition to the current exclusion of stock-based compensation. The updated definitions are reflected in our first quarter 2024 financial results. All future financial statements will reflect the new definition for the current and prior periods. We are also providing a reconciliation of the old definition to the new definition for the periods presented. We believe this update allows investors to better understand our financial performance better align with measures used internally by management and operating our business, and permit a better evaluation of the efficacy of the methodology and information used by management to evaluate and measure our performance. Now, let me turn the call over to Oleg.

Thank you, and good morning to everyone on the call. In the first quarter, we delivered revenue of $85.8 million of 21% year-over-year and IRR growth of 21% year-over-year. We reported income from operations of 1.5 million and non-GAAP income from operations of 9.7 million in the first quarter. Importantly, we generated free cash flow of 12 million and a free cash flow margin of 14%. We exceeded our prior guidance, and I am pleased to say we are raising our full year 2024 guidance. Our business is focused on driving strong, sustainable growth while also expanding profitability and generating free cash flow. Before handing it over to Eugene and Brian, I would like to touch on a few highlights about our strategy to continue to scale the business and capture the significant market opportunity we see ahead. We have strong competitive positioning as the platform of choice for businesses to improve their online visibility. There is a growing trend of businesses of all sizes investing more time, effort, and resources into enhancing their online visibility. We are leveraging our unique datasets to differentiate ourselves in the market. We continue to make progress on each of our growth pillars. In the first quarter, we reported nearly 112,000 paying customers and now have over 1,125,000 free active users. We believe there are millions of marketers and business owners who will benefit from our platform and we plan to grow both our paying customers and our free active user base. We have an extensive loyal install base that spans over 160 countries across all industries and market segments, from solopreneurs to Fortune 500 companies. We continue to deliver higher value to our customers by cross-selling and upselling within our base. And as we increase our focus on moving up markets, we expect to drive an increase in average or pool, which, as reported today, is nearing 3,200. Our strong profitability, deep competitive mode, and authentic loyal base allows us to continue to invest in the business. We continue to build on our technology and customer foundation with investments designed to further our business objectives. Our reinvestment privileges include launching new AI-based tools like ContentShake and expanding the enterprise. As we highlighted last quarter, we officially soft-launched an enterprise SEO product into the market in late October 2023. And we are pleased to announce that it is now generally available. It is already being used by a select number of large-scale business customers, including one of the largest apparel companies and one of the largest market research companies. While we are still in the early stages, The initial signs we are seeing are very encouraging. Importantly, our enterprise offering has the opportunity to create a meaningful inflection in our pool. And this product carries our pools that tends to be 10 to 15 times our company average. We believe our early adopter customers are experiencing significant returns on their investments after migrating to the platform. Features like automated workflows, corporate level access controls, customized dashboards, and a built-in professional service network are helping our customers drive meaningful improvements in efficiency while also delivering significant time and cost savings. In 2024, we remain focused on continuing to grow our core business, upselling and cross-selling our offerings, and expanding our platform. In conclusion, I am very pleased with our start to 2020 block, and I am optimistic about our ability to capitalize on future growth opportunities throughout the year. I will now turn the call over to Eugene and Brian to discuss the results of the quarter and our outlook in Monitail.