Summary
Semrush reported second quarter 2023 revenue of $74.7 million, up 19.3% year over year. Year-to-date revenue was $145.6 million, up 21.6%. Gross profit for the quarter was $61.7 million, up 23.4%. Gross margin expanded 2.8 percentage points to 82.6%. Year-to-date gross margin was 82.4%, up 2.6 percentage points. The company posted an operating loss of $2.3 million, but that loss narrowed 71.8% year over year. Operating margin was negative 3.1%, up 10.1 percentage points. Net loss was $0.3 million, narrowed 96.6%. Diluted EPS was $0.00, swinging to a profit. For the six months, operating loss was $13.1 million, a loss that widened 20.8%. Net loss for the six months was $10.1 million, narrowed 6.6%. Diluted EPS year to date was -$0.07.
ARR reached $302.4 million as of June 30, 2023, up 20% year over year. Paying customers exceeded 104,000, up approximately 14%. Dollar-based net revenue retention was 112%, compared with 116% in the previous quarter and 118% as of December 31, 2022. Registered free active customers exceeded 951,000, up 35%. Customers paying more than $10,000 annually grew by more than 34%. ARR per paying customer was $2,904, compared with $2,767 a year earlier. Semrush released several AI-related products, including Accessibility Scan Monitor, Kompyte GPT, Summarizer and Compose with AI in SEO Writing Assistant, and Ask AI in ContentShake.
Management raised full-year 2023 guidance. For the third quarter, Semrush expects revenue of $78.0 to $79.0 million, which at the midpoint represents growth of approximately 19% year over year. It expects third quarter non-GAAP net income of $3.0 to $4.0 million. For the full year, the company raised revenue guidance to $307.0 to $309.0 million from $306.0 to $309.0 million. That would represent growth at the midpoint of approximately 21% year over year. It also raised full-year non-GAAP net income guidance to $2.0 to $4.0 million from breakeven to $3.0 million. Non-GAAP net income for the second quarter was $3.5 million, compared with a non-GAAP net loss of $6.1 million a year earlier. The company said reconciliation of non-GAAP net income guidance to GAAP is not available without unreasonable efforts because of variability in share-based compensation and related tax items.
Cash flow and balance sheet items deserve attention. Operating cash flow was negative $6.3 million for the quarter, up 15.1% year over year. For the six months, operating cash flow was negative $9.9 million, down 1784.7% year over year. Capital expenditures were $0.7 million in the quarter, down 71.6%. Deferred revenue was $55.9 million, up 15.8% year over year. Remaining performance obligations were $0.9 million. Free cash flow for the six months was negative $11.2 million, compared with negative $4.2 million a year earlier, according to the MD&A. The credit facility matures on January 12, 2024.
Risks include the need to sustain customer growth and retention, manage costs while investing in AI and product development, and absorb foreign currency fluctuations. The 10-Q points to risk factors in the company's SEC filings. Headcount grew in sales and marketing, research and development, and general and administrative functions. Sales and marketing expense decreased in the quarter, while research and development and general and administrative expenses increased. The company expects its existing financial resources to meet operating and capital needs for at least the next 12 months. The quarter showed solid top-line growth, margin improvement, and a return to non-GAAP profitability, but the year-to-date operating cash flow swing and the decline in net revenue retention are worth watching.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $74.7M | $70.9M | +5.4% | $62.6M | +19.3% |
| Gross profit | $61.7M | $58.2M | +6.0% | $50.0M | +23.4% |
| Gross margin | 82.6% | 82.2% | +0.5 pp | 79.9% | +2.8 pp |
| Research & development | $14.1M | $13.9M | +1.7% | $9.7M | +46.0% |
| Sales & marketing | $30.2M | $35.5M | -14.8% | $30.9M | -2.1% |
| General & administrative | $19.4M | $18.6M | +4.0% | $14.2M | +36.4% |
| Total operating expenses | $64.0M | $69.0M | -7.2% | $58.3M | +9.9% |
| Operating income (loss) | -$2.3M | -$10.8M | +78.4% | -$8.3M | +71.8% |
| Operating margin | -3.1% | -15.2% | +12.1 pp | -13.2% | +10.1 pp |
| Net income (loss) | -$279.0K | -$9.9M | +97.2% | -$8.3M | +96.6% |
| Net margin | -0.4% | -13.9% | +13.5 pp | -13.2% | +12.9 pp |
| Diluted EPS | $0.00 | -$0.07 | +$0.07 | -$0.06 | +$0.06 |
Risks
Substantially all revenue comes from premium subscriptions, and most paying customers choose monthly terms that can be cancelled monthly. The filing warns that failure to renew or upgrade these subscriptions would adversely affect results.
Growing adoption of AI chatbot platforms such as ChatGPT could lower demand for traditional search engine technologies and require significant compliance, research and development, and sales resources to build integrations. Competitors may also use AI to develop superior point solutions.
The platform relies on third-party data from websites, social media APIs including Facebook, Twitter, Instagram, Pinterest, and LinkedIn, and negotiated data providers. These providers can change terms with little notice, restrict access, or cease operations, which could reduce platform functionality.
Products depend on search engine algorithms and third-party platform policies, such as Google's spam and abuse policy for email distribution and link building. Algorithm changes could diminish or obsolete backlink analytics and other tools.
Most paying customers are on month-to-month premium subscriptions and a large portion are SMBs, which are more susceptible to economic fluctuations. The dollar-based net revenue retention rate was approximately 112% as of June 30, 2023, compared with 118% as of December 31, 2022.
The filing cites an overall tightening and increasingly competitive labor market and costs and complexities from relocating personnel out of Russia. MD&A attributes higher R&D and G&A costs to headcount growth and relocation to higher cost countries.
Extensive cookie and tracking regulation, including the e-Privacy Directive and a potential e-Privacy Regulation, could restrict data collection. Semrush has received inquiries from European data protection authorities regarding its cookies practices, and the outcome is uncertain.
Expansion into large enterprise customers may lengthen sales cycles, increase selling and support costs, and increase credit risk, while SMB sales involve lower retention and plateauing upgrade potential.
The filing discloses that Semrush has been the target of attempts to exploit system vulnerabilities, including a brute force attack that resulted in access to affiliate program partner contact information. Remote work by employees and third-party providers increases cybersecurity incident risk.
Substantial operations and subsidiaries are in the Czech Republic, Cyprus, Spain, Serbia, Armenia, Germany, the Netherlands, and Poland. Risks include geopolitical and military conflicts and the relocation of personnel out of Russia.
Operating cash flow declined to negative $9.9 million for the six months ended June 30, 2023 from $0.6 million provided in the prior-year period, and accumulated deficit was $83.1 million as of June 30, 2023. The filing notes past net losses and no assurance of sustained profitability.
SaaS KPIs
All quarters →ARR per Paying Customer
Paying Customers
ARR
Dollar-Based Net Revenue Retention
Registered Free Active Customers
Summary, forecast, risks and KPIs are extracted from SEMrush Holdings, Inc.'s SEC filings for Q2 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.