Semrush Holdings

Q3 2023 Prepared Remarks

Brinlea Johnson, Investor Relations

Good morning and welcome to Semrush Holdings’ third quarter 2023 conference call. We will be
discussing the results announced in our press release issued after market close on Wednesday, November
1st. With me on the call is our CEO, Oleg Shchegolev, 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 condition, expected growth, adoption and demand for our existing
and any new products and features, our AppCenter expansion, industry and market trends, our
competitive position, market opportunities, sales and marketing activities, the sufficiency of our staffing
levels, our guidance for the fourth quarter of 2023 and the full year 2023, 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 date and we do not
undertake any duty to update these statements.

Forward-looking statements address matters that are subject to risks and uncertainties that could cause
actual results to differ materially from these forward-looking statements. For a 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.

Also, during the course of today's call, we refer 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 close, which can be found at investors.semrush.com.

And with that, let me turn the call over to Oleg.

Oleg Shchegolev, CEO and Co-Founder

Thank you and good morning to everyone on the call.

Our team executed well this quarter, delivering revenue of $78.7 million, up 20% year-over-
year. Importantly, we also generated strong profitability, reporting non-GAAP net income of $8.4
million. Due to our solid performance this quarter, we are raising our full year Non-GAAP Net income
guidance as we continue to drive towards sustained profitability.

We have built a business focused on driving strong, sustainable growth with improving profitability and
this quarter was no exception.

Before handing it over to Eugene and Brian to talk about the quarter in more detail, I would like to touch
on a few highlights we discussed on our last earnings call and share why we are excited about the future
of Semrush.
On our last call, I talked about how we have heavily invested, and continue to invest, in a unique
combination of data assets and products to create a software platform that helps customers improve their
online visibility across all major channels.

While there are point product competitors, we believe Semrush has become the platform of choice for
businesses of all sizes, across all industries, all over the world, to improve their online visibility.

We remain differentiated in our market. Importantly, we are uniquely positioned to help our clients
because of our strong data assets and because of certain industry dynamics.

Our strong competitive positioning that comes from our unique data assets is based on a combination of
our own intellectual property and historical data that we have collected from our customers, used together
with new data that’s being fed into our algorithms. Collectively, this allows us to generate strong
predictive capabilities that can drive significant ROI for our customers.

When looking at industry dynamics, big tech search engine companies primarily make their money from
advertising. As a result, their tools are designed to get their clients to optimize paid advertising on their
own platform. Because of this, we believe it is not in their best interest to give those clients unbiased
advice on optimal use of their marketing efforts – particularly, if the best ROI would come from organic
efforts or advertisements on a platform other than their own.

Semrush, on the other hand, provides unbiased advice to its customers and seeks the highest expected
ROI marketing activities across a vast array of platforms.

This is important because we continue to benefit from the tectonic shift of dollars being allocated away
from physical visibility towards online visibility.

Historically, companies spent their efforts creating their physical world brands. They were able to be
competitive without a significant online presence that leveraged Search, Organic, Social Media, and
Digital PR.

But the world has changed and in order to be successful, businesses now must not only embrace these
new ways to create awareness for their brands, but they must excel at them. Now, more than ever, brands
recognize that the competitive world we live in demands that they distinguish themselves online.

To be successful, businesses need to be easily discovered online, they need to appear at the top of the
rankings, and they need to be a part of the discussions that are happening on social media channels, as
these are critical components to connecting with consumers in the places where they now spend their
time. We are still in the early innings of this exponential shift, and we believe the compelling ROI
provided by Semrush only continues to strengthen as online markets become more saturated.

Through our unique data set and 15 years of expertise and investments in R&D, we have built a platform
for companies to enhance and maintain a competitive online presence across all channels.

This is the essence of what Semrush does. We are the GPS of the Internet – we help companies establish,
maintain, and enhance their online presence. Our customers can choose which marketing content is the
most efficient for their business. And they can map out new routes and change routes at any time.

Let me provide a client example of an SMB furniture manufacturing client whose organic rankings and
online sales were stalled for three years. Then they began their journey with us and everything
changed. First, they started with Site Audit to fix website problems and generate a strong site health
score. Then, they added the backlink audit tool, to improve their online visibility. Next, they built a
keyword strategy using our Keyword Magic and Keyword Overview tools, and explored what their
competitors were doing, and how they were faring with our Organic Research report and Position tracking
tool. They began to show impressive step-ups in engagement and over the next two years, they saw a
73% increase in organic traffic.

This example underlines how businesses are increasingly shifting their time, effort, and money to create
awareness of and visibility for their businesses online. We believe businesses that are best able to
analyze, plan and execute on this shift will have the potential for exceptional results, and Semrush
provides all the tools, in one place, where they can do this. These industry tailwinds and our unique
software offering positions us well to enjoy lasting, durable growth.

We are excited about where we sit today and what the future holds for Semrush. I will now turn the call
over to Eugene and Brian to discuss the results of the quarter in more detail.

Eugene Levin, President

Thank you, Oleg.

We delivered another solid quarter and continue to be focused on three main growth pillars to set us up
for long-term, durable growth …and we are making progress on each front. To review, our three main
growth pillars are:

1. Increasing new user growth,

2. Maximizing the value we generate from our users,
3. And adding new products to our portfolio to address client needs and market trends.

Let me provide an update from this quarter:

First, we continued increasing new user growth. We now have over 106,800 paying customers with our
core platform and believe we have a long runway of adoption ahead of us. In Q3, we achieved solid net
new customer additions and registrations with a more efficient sales and marketing engine than we’ve
seen in prior quarters. By using our platform for our own internal use and optimizing our sales and
marketing spend on organic efforts, we boosted our own online presence.

Turning to the second growth pillar, we have a strategy to grow as our customers grow and maximize the
value we generate from our users. During Q3, we saw continued success leveraging our brand to cross
sell and upsell into our base.

This quarter, we also initiated a rollout of some new pricing.

We took the opportunity to optimize our pricing strategy to better align with the tremendous value our
product delivers. During Q3, and into the early part of Q4, we tested price increases with a cohort of
customers, and we were encouraged by the response, as net adds, and retention were in line with our
expectations and recent trends.

In our view, this indicates customers have a strong need for our offering and are willing to pay more
given the unique benefits it provides them with. While we are still in the early phases of pricing
adjustments, these initial findings suggest there may be room to prudently raise prices to better capture
the value we provide, which we think, over time, would also contribute further to our growth.
Our plan is to be thoughtful and measured. We expect to continue testing and analyzing data so that any
broader pricing changes are backed by customer insights while maintaining our commitment to delivering
exceptional value.

The last pillar of our growth strategy is adding new products to our portfolio to set us up for long-term,
durable growth, and during Q3, we made good progress on this front. During the quarter, we saw
excellent adoption of some of our AI products and features and launched new monetization initiatives for
our social media tools.

We also saw continued adoption of the AppCenter, which is one of the ways in which we are efficiently
adding tools and capabilities for our clients to further increase their ROI from our platform.

We are pleased about the adoption of additional customer products, especially in our mid-market and
enterprise segments. As we move upmarket, clients find more value in our products, continue to add
more functions and features, and as a result, we are able to generate higher ARPU.

In summary, I am very pleased with our success driving customer growth, maximizing the value of our
user base, and expanding our product portfolio.

I will now turn the call over to Brian who will provide a more detailed discussion of our financial
performance and guidance. Go ahead Brian.

Brian Mulroy, CFO

Thank you, Eugene.

Before I discuss our third quarter results in more detail, I'd like to reflect on what I've learned here over
my first two quarters as CFO I’d also like to lay out my vision for how Semrush will operate as a finance
organization - both internally and externally.

Over the past two quarters, I've traveled to several Semrush offices, and I've met with our team leaders to
discuss their business. I've been incredibly impressed with our team and their command of their
respective markets and products. I see a meaningful opportunity for Semrush to achieve durable growth
over the next several years by further penetrating our served markets with our online visibility
platform. Importantly, I see an opportunity for us to do this while also driving significant improvements
to our profitability.

To facilitate this, I have a relentless focus on data and metrics for decision-making throughout the finance
organization. Because Semrush has such a valuable customer data set, the finance team has the ability to
segment our user base to understand their buying patterns, churn dynamics, and interest in new products,
among many other things. Our plan is to rigorously analyze this data to allocate our investments in sales,
marketing, and product. We expect the outcome of this will be a disciplined approach that enables us to
capitalize on our biggest opportunities while simultaneously driving operating efficiencies. We expect
this ROI framework will apply to our capital allocation decisions - whether that is for internal projects,
external M&A, or the optimization of our capital structure.

This will take some time to be fully realized in our results, but we are already deep into our 2024 planning
and have begun using this framework. We will give you more details on our 2024 outlook when we report
next quarter, but I feel very encouraged by what we are seeing so far, and I look forward to sharing them
with you in approximately 90 days.
With that, I'd like to turn to our third quarter results in more detail...

We had a very strong quarter across the board. Our Q3 Revenue was $78.7 million, with growth
accelerating to 20% year over year. Growth was driven by solid new customer additions and continued
growth in our average revenue per customer as we continue to execute on our cross-sell and up-sell
strategy.

Our dollar-based net revenue retention for the third quarter was 109%. We expect our dollar-based net
revenue retention to trough within the next quarter or so and then begin to trend up as we increase
adoption of our full portfolio of products, tools and add-ons within our installed base.

Annual Recurring Revenue surpassed $320 million, growing 21% to $322.8 million year over year.

We reported significant improvement in our Operating Margin, which was up approximately 1900 basis
points year over year and up 700 basis points sequentially. This significant improvement is the result of a
number of factors.

First, we reported significant improvement in Gross Margin, which was up 230 basis points year-over-
year to 83.4%. Gross Margin benefited from higher revenue and our continued ability to gain scale and
leverage from our platform. We continue to expect strong gross margin above 80% in the near term.

Second, we continue to execute on our commitment to drive efficiencies, carefully manage expenses and
drive towards sustained profitability.

One example of this is in Marketing, where we made the strategic decision to slow paid spend and
prioritize organic and brand spend which is delivering impressive results. We saw strong demand for our
products across new subscribers, growing our total paid subscriber base by 14% while also lowering our
customer acquisition costs.

And across the company we continue to carefully manage expenses and plan to maintain our current
headcount for the near term. We believe we are sufficiently staffed to execute on our growth strategy,
deliver on our strategic priorities and manage the operations of our business.

Within that context, our Q3 operating income also benefited from the timing of some expenses that we
originally expected to occur during Q3 that we now expect will happen in the fourth quarter of 2023.

Moving down the income statement, non-GAAP net income was positive $8.4 million, surpassing the
high end of our guidance range. The outperformance of our non-GAAP net income relative to our
guidance was the result of the flow-through of our operating income performance.

Turning to the balance sheet, we ended the quarter with cash and cash equivalents, and short-term
investments of $230.1 million, up from $223.8 million in the previous quarter.

Our cash flow from operations in the third quarter was $6.4 million.

Looking at the fourth quarter, I am confident in the underlying trends in the business and capabilities of
our team to continue the path to deliver strong growth and profitability. We are tightening our top line
guidance to a new range of $307.0 million to $308.0 million compared to our previous range of $307.0
million to $308.0 million. We are also meaningfully raising our non-GAAP net income guidance to
account for our improved efficiency. We now expect non-GAAP net income in the range of $9 to $11
million, up from our previous range of $2 to $4 million. This takes into account the strong operating
profit we delivered in Q3 but also reflects a few offsetting factors, including the timing of our tax
provision and the timing of some expenses we had originally planned in the third quarter but now expect
will occur in the fourth quarter of the year.

For the fourth quarter, we expect revenue in a range of $82.7 to $83.7 million dollars. We expect fourth
quarter non-GAAP net income of $4.1 to $6.1 million dollars.

Finally, our updated guidance assumes a Euro exchange rate of 1.08. As a reminder, approximately 30%
of our expenses are denominated in Euros.

In closing, we are confident in our ability to grow and scale our business and remain committed to a
disciplined and balanced approach to spending, which will drive improved efficiency and profitability,
even while we invest in future growth opportunities that we expect will drive long term value and growth
to our shareholders.