Semrush Holdings, Inc. Q1 FY2025 earnings call

Key Points from Bill Wagner - CEO

• Semrush has evolved from a single-product SEO solution to a leading digital-marketing platform. Q1 revenue was $105 million, exceeding guidance high-end, with non-GAAP operating margin of 11.6% and free cash flow margin up 360 basis points. - Enterprise SEO Solution has nearly 200 paying customers with average ARR per customer of ~$60,000. AI products, including AI Toolkit, have strong growth. - Early observations include optimism about AI-driven search opportunity, enterprise market potential, value of data platform, and impressed by employee adaptability and innovation. - Immediate priorities: double down on AI, accelerate enterprise innovation and product introductions, make it easier for customers to purchase and use platform, and strengthen data platform.

In the first quarter, Semrush reported revenue of $105 million, representing more than 22% year-over-year growth. The Enterprise SEO Solution is performing strongly with nearly 200 paying customers and an average ARR per customer of approximately $60,000. AI products have grown to over $4 million in ARR, with the AI Toolkit being one of the fastest growing new products. Annual recurring revenue for the quarter grew 20% year-over-year to $424.7 million. The calculated average ARR per paying customer grew to over $3,600, up more than 14% year-over-year. The number of customers paying over $50,000 increased 86% year-over-year to 388, and the number of customers paying over $10,000 grew approximately 40% year-over-year, reaching over 5,000. The Enterprise SEO Solution ended the quarter with $11 million of ARR.

Second Quarter 2025

• Expected revenue range: $108.2 million to $109.2 million, mid-point representing ~20% year-over-year growth. - Non-GAAP operating margin expected to be approximately 11%. ### Full Year 2025
• Reiterates revenue guidance of $448 million to $453 million, mid-point ~20% growth. - Non-GAAP operating margin guidance ~12%, but absorbs $8 million expense headwind due to exchange rate movement (previously assumed euro to USD rate of 1.05, now 1.13). - Free cash flow margin expected to be approximately 12%, up 260 basis points compared to 2024.

• Uncertain geopolitical and macroeconomic environment could cause elongated sales cycles and deferred spending by customers. - Exchange rate risk: Approximately 30% of expenses denominated in euros and revenue entirely in USD, margins unhedged against exchange rate movement, which could impact financial results if exchange rates fluctuate significantly.

Q: Mark Murphy asked about what customers should do regarding AI-driven search and the positive and negative ramifications for Semrush.

A: Bill Wagner stated that AI is a once-in-a-generation opportunity for Semrush. Enterprise demand for AI products like AI Toolkit and AI Optimization in the enterprise space is strong. It's early days, but overall AI expands the pie.

Q: Elizabeth Porter inquired about the confidence in the enterprise ARR target and NRR.

A: Bill Wagner said there's strong momentum in the enterprise side with existing products and upcoming AI Optimization launch. Brian Mulroy mentioned NRR is a backwards-looking indicator but net revenue retention will increase in the long run as enterprise portfolio grows.

Q: Jackson Ader asked about real-time retention rate and enterprise ARR target composition.

A: Brian Mulroy noted strong momentum in enterprise cohorts with growth in accounts paying over $10,000 and $50,000. Bill Wagner explained the $30 million ARR for enterprise exits the year mostly includes Enterprise SEO sales.

Q: Adam Hotchkiss asked about enterprise product pipeline, ARPU, and early feedback on AI Optimization.

A: Bill Wagner talked about the pipeline of 1,000 accounts interested in AI products and large enterprise opportunity. Brian Mulroy mentioned average ARR expected to approach and exceed $100,000. Bill Wagner said early feedback on AI Optimization is too early to share but customers are trying to figure out how to show up in AI-driven results.

Q: Luke Horton asked about April trends, AIO sales method, and offerings for small customers.

A: Brian Mulroy said no incremental direct impact from macro uncertainty yet. Bill Wagner mentioned AIO will be sold as add-on to Enterprise SEO and standalone, and AI Toolkit is for smaller customers starting at $99.

Q: Scott Berg asked about enterprise ARPU increase and AIO cannibalization of core SEO solutions.

A: Brian Mulroy explained ARPU increase is from expanding enterprise portfolio. Bill Wagner stated AIO is net additive for enterprise segment and not a trade-off with core SEO solutions.