Summary
Semrush's third quarter revenue rose 34% year over year to $65.8 million. Year-to-date revenue reached $185.5 million, up 38%. Gross profit was $53.4 million for the quarter, up 41%, and gross margin was 81.1%, up 4.2 percentage points. Revenue increased in all regions, and no single customer accounted for more than 10% of revenue. The customer base grew to more than 94,000 paying customers as of September 30, 2022, from 79,000 a year earlier. ARR stood at $267.3 million, up from $201.5 million a year earlier. ARR per paying customer was $2,844, compared with $2,551. Dollar-based net revenue retention was 122%, down from 125% in the previous quarter, which points to slower expansion from existing customers.
Profitability weakened sharply. The operating loss was $10.3 million for the quarter, and the loss widened. Operating margin was -15.6%, down 14.9 percentage points. Net loss was $9.1 million, and the loss widened. Diluted EPS was -$0.06, swinging to a loss. On a year-to-date basis, the operating loss was $21.1 million, swinging to a loss. The year-to-date net loss was $19.9 million, swinging to a loss, and diluted EPS was -$0.14, swinging to a loss. Non-GAAP net loss was $7.1 million for the quarter, including $5.8 million of expense associated with the winding down of Russia operations, compared with non-GAAP net income of $12 thousand a year earlier.
Cash generation turned negative. Operating cash flow was -$0.6 million for the quarter, down 106.7%. For the nine months, operating cash flow was $0.01 million, down 100.0%. Capital expenditures were $1.2 million for the quarter, up 50.7%, and $4.0 million year to date, up 157.8%. Deferred revenue was $47.1 million, up 30.7% from a year earlier. Free cash flow, a non-GAAP measure, was negative $5.3 million for the nine months, compared with $16.8 million a year earlier. The MD&A states existing cash will be sufficient to meet operating and capital needs for at least the next 12 months. The company has a $45.0 million revolving credit facility and had not drawn on it as of September 30, 2022.
Guidance points to slower growth. For the fourth quarter of 2022, Semrush expects revenue growth of 25% to 26% year over year and a non-GAAP net loss in a range of $12.5 million to $11.5 million, including $2 million to $1 million of incremental one-time relocation costs tied to the Russia wind-down. For the full year 2022, the company guides to revenue growth of 34% to 35% year over year and a non-GAAP net loss in a range of $26 million to $25 million, including $11 million to $10 million of one-time relocation costs. Management cited a more challenging demand environment and customers scrutinizing spending.
Business highlights include strong growth from larger accounts. The number of customers paying more than $10,000 annually rose more than 70% year over year in the third quarter. App Center gross ARR surpassed $3 million. Agency growth kit ARR more than doubled from a year ago. The social media management toolkit now has more than 50,000 monthly active users. A partnership gives Wix customers limited access to the keyword research tool. Risks remain. The MD&A states the company expects to continue incurring operating losses and negative cash flows for the foreseeable future. The Russia wind-down has already cost $5.8 million in non-GAAP expense for the quarter, and the company expects an additional $1.6 million in other relocation costs during the year ending December 31, 2022. Macroeconomic headwinds and foreign exchange fluctuations could pressure demand and results.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $65.8M | $62.6M | +5.1% | $49.3M | +33.6% |
| Gross profit | $53.4M | $50.0M | +6.8% | $37.9M | +40.9% |
| Gross margin | 81.2% | 79.9% | +1.3 pp | 76.9% | +4.2 pp |
| Research & development | $10.1M | $9.7M | +4.8% | $6.2M | +64.1% |
| Sales & marketing | $30.6M | $30.9M | -1.1% | $20.7M | +47.9% |
| General & administrative | $17.0M | $14.2M | +19.6% | $11.4M | +49.6% |
| Total operating expenses | $63.6M | $58.3M | +9.2% | $38.2M | +66.5% |
| Operating income (loss) | -$10.3M | -$8.3M | -24.2% | -$330.0K | -3007.3% |
| Operating margin | -15.6% | -13.2% | -2.4 pp | -0.7% | -14.9 pp |
| Net income (loss) | -$9.1M | -$8.3M | -9.8% | -$615.0K | -1378.4% |
| Net margin | -13.8% | -13.2% | -0.6 pp | -1.3% | -12.6 pp |
| Diluted EPS | -$0.06 | -$0.06 | ±$0.00 | $0.00 | -$0.06 |
Risks
Substantially all revenue comes from paying customers with premium subscriptions, and customers predominantly choose monthly terms that can be terminated or adjusted monthly. Dollar-based net revenue retention rate declined to approximately 122% as of September 30, 2022 from 126% as of December 31, 2021, so non-renewal or downgrades would harm results.
Adverse economic conditions and a potential recession may cause customers, especially SMBs that make up a large portion of the paying customer base, to reduce discretionary spending on the platform or cancel month-to-month premium subscriptions. Management noted increased economic uncertainty and that customers may delay purchasing decisions or seek lower-cost alternatives.
The market is fragmented and intensely competitive with low barriers to entry, and point-solution competitors may have more targeted products or greater resources. Pricing pressure could force the company to cut prices, offer discounts, or increase sales and marketing spending.
Future growth depends on attracting new free and paying customers through unpaid and paid marketing and converting trials and free users to premium subscriptions. If these efforts are less effective, the company may need to increase marketing spend, raising customer acquisition costs.
The Russia-Ukraine conflict forced relocation of employees and wind-down of Russian operations; as of August 10, 2022, the company no longer has operating subsidiaries in Russia. It incurred $4.1 million and $6.3 million in other relocation costs during the three and nine months ended September 30, 2022 and expects total fiscal 2022 relocation costs of approximately $10 million to $11 million.
The company had a net loss of $19.9 million for the nine months ended September 30, 2022 and expects to continue incurring operating losses and negative cash flows for the foreseeable future as it invests in the business. Operating cash flow was $0.01 million for the nine months ended September 30, 2022, down 100.0% from $18.75 million in the prior-year period.
The platform relies on third-party data sources and social media APIs, and most relationships are governed by provider standard terms that can change with little notice. Loss of access or less favorable terms could force expensive alternatives and reduce platform functionality.
The company faces intense competition for highly qualified personnel, especially software engineers and sales professionals, and has incurred increased employee costs due to the competitive labor market. It relocated approximately 600 employees from Russia and may continue to incur significant costs to retain them outside Russia.
Changes by search engines and social networking sites to algorithms, anti-spam policies, or API access could diminish efficacy of products such as backlink analytics and email distribution, potentially making them obsolete or requiring costly product changes.
A security breach could expose customer personal data and credit card information, leading to liability, regulatory action, and reputational harm. The company has already experienced a brute force attack that resulted in access to affiliate program partner contact information.
The platform depends on third-party data center hosting facilities and cloud providers, and disruptions or supply chain delays could interrupt availability. The company previously experienced delays migrating to its Virginia data center due to limited hardware availability from COVID-19-related supply chain delays.
Approximately 54% of revenue for the nine months ended September 30, 2022 was generated from paying customers outside the United States, exposing the company to geopolitical instability, foreign exchange fluctuations, sanctions, and local regulatory changes.
SaaS KPIs
All quarters →ARR per Paying Customer
Paying Customers
ARR
Dollar-Based Net Revenue Retention
Summary, forecast, risks and KPIs are extracted from SEMrush Holdings, Inc.'s SEC filings for Q3 FY2022 (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.