SEMrush Holdings, Inc. Q1 FY2024 earnings

Semrush opened fiscal 2024 with first quarter revenue of $85.81 million, up 21.1% from $70.87 million in the prior-year quarter. Gross profit rose to $71.17 million from $58.23 million, and gross margin improved to 82.9% from 82.2%. The operating line swung to a profit: operating income of $1.47 million against an operating loss of $10.77 million a year earlier, and operating margin of 1.7% compared with negative 15.2%. Net income was $2.14 million versus a net loss of $9.86 million, and diluted EPS was $0.01 compared with negative $0.07.

Cash generation changed shape too. Operating cash flow was $14.78 million in the quarter, compared with a use of $3.61 million a year earlier. Capital expenditures were $0.76 million, up from $0.27 million. Free cash flow, a non-GAAP measure the company defines as operating cash flow less purchases of property and equipment and capitalized software development costs, was $12.0 million, with a free cash flow margin of 14.0%. Free cash flow and operating cash flow are different measures. Non-GAAP income from operations was $9.7 million against a non-GAAP loss from operations of $6.5 million, and non-GAAP operating margin was 11.3%. Management also broadened the non-GAAP definition this period to exclude amortization of acquired intangibles, acquisition-related costs, and restructuring and other costs on top of stock-based compensation.

The customer base kept expanding. Semrush ended the quarter with nearly 112,000 paying customers, up 10% from a year ago, and ARR of $354.2 million, up 21%. Dollar-based net revenue retention was 107%, consistent with the previous quarter. Customers paying more than $10,000 annually grew 32% year over year, and registered free active customers exceeded 1,125,000, up 27%. ARR per paying customer was $3,163, versus $2,881 a year earlier. Deferred revenue, current portion, was $63.98 million, up from $56.26 million. Remaining performance obligations were $1.39 million, down from $1.77 million. On the product side, the Enterprise SEO Platform became generally available on May 6, 2024 after a soft launch in October 2023. The company also introduced Semrush Copilot, launched AdCreative.ai, and upgraded its .Trends competitive intelligence product with daily and weekly website traffic data.

Guidance points to continued growth with non-GAAP profitability. For the second quarter of 2024, management expects growth of approximately 20% year over year at the midpoint of its range, with a non-GAAP operating margin of approximately 11.0%. For the full fiscal year 2024, the company guides to growth of 19% to 20%, a non-GAAP operating margin of 10.5% to 11.5%, and a free cash flow margin of approximately 8.0%. Semrush no longer guides to non-GAAP net income, and now guides non-GAAP operating margin and free cash flow margin instead.

The risks center on cost discipline and execution against those targets. Fixed costs come from multi-year data provider commitments that run through 2026 and from leases for office space and data center facilities. The sales model depends on new hires reaching productivity, which can take several months or more, and on existing customers moving to premium tiers with add-ons and additional user licenses. Management says existing cash, cash equivalents, and short-term investments should cover operating and capital needs for at least the next 12 months. It points readers to the risk factors in its annual report on Form 10-K and subsequent filings for the fuller list of uncertainties.