Things kicked off. My name is Rishi Jaluria. I cover software here at RBC. Welcome back, everyone, and really appreciate it. Delighted to have with me Semrush. We have Brian Mulroy, who's the CFO, and Eugene Levin, who is the President. Thank you guys so much for being here. Thanks for having us. And then obviously, at any point, please feel free to raise your hand and ask questions. Wanna keep this as interactive as possible. But, you know, maybe let's just start with a little bit of an overview of Semrush for the generalists in the room, a little bit about yourselves, and then, you know, then we can kind of jump into the evolution of Semrush from a singular SEO tool into this broader platform. Sure. So in general, our mission is to help people get more visibility online, help them to be discovered. People in this day and age, they have to maintain good visibility across all the places where consumers spend their time, which is, you know, searching for stuff, using search engines like Google or Bing, or, you know, scrolling through their news feeds, using their social media accounts, or watching YouTube videos, reading digital media outlets. Our mission is really to help everyone to improve their visibility in all those places where consumers could potentially interact with their brands and help them to get discovered. Great. Maybe let's talk a little bit about competition, right? So there's a few large vendors, bunch of smaller competitors. Talk a little bit about how you view the competitive positioning, and when you win deals, why do you win? We see our space primarily as a greenfield opportunity in a way that, you know, when we win, it doesn't mean that someone loses. Usually, it means that there is no one else to offer same combination of products. Unlike other players, we provide not just point solutions, but an entire platform that helps people to improve their visibility in all key channels, and I think that's unique for us. And for most of businesses, when they buy Semrush, it's not like we're replacing something. We're the first product of this kind that they buy. And, you know, sometimes we consolidate spend that previously could go into point solutions- ... and now they're, you know, using this money to buy the entire platform. But that, even that is a minority of our new business. And in most cases, it's really us versus them not doing anything ... and losing opportunities to get more customers. Yeah. And what are these point solutions that you are sometimes displacing? So you could have, let's say, product for, you know, technical SEO, or you could have, point solution product for social media, right? So with Semrush, you could buy, you know, over 50 different products all in one place that cover all the areas of, kind of online visibility management. So the most notable competitors are probably historically from, you know, this SEO space- ... that you've mentioned, because that's where we grew up. Yeah. Still have a lot of people in that neighborhood who consider us to be their competitors, but we don't really see them as our competitors anymore because we kind of outgrown the space. Yeah. Yeah. Got it, got it. Maybe alongside that, how would you think about the TAM that you're going after? 'Cause I think of a lot of people think of SEO, they're gonna say niche TAM, but you've clearly expanded your product offerings well beyond that. How do you think about TAM? Okay. Yeah, I mean, we have a very strong TAM and SAM that, first of all, continues to grow in and of itself, and then we continue to diversify our platform, so we're actually getting access to more markets. So our market opportunity is in the billions, and we feel like we're just getting started. We're in the early innings of being able to capitalize on that market opportunity. We have over 100,000 paying customers today, about a million free users, and we continue to grow those in meaningful double digits every single year. And we'll continue to get success in doing that. And, you know, our growth strategy is simple. We wanna continue to grow and scale our existing customers. We have a very strong cross-sell and up-sell strategy, where we're leveraging pricing and packaging and diversifying our portfolio to basically provide solutions that are close adjacencies to what our customers are already doing. And we're able to leverage our contacts, our strong brand and relationship to be able to cross-sell those solutions into those markets and expand our SAM and TAM even further. And then we're highly a profitable company, so we've got 83% gross margins, delivering you know good operating margins and continuing to invest in R&D and partnerships so that we continue to expand our our TAM and accelerate growth as a result of that. Yeah. Maybe on the margin front, so you have been seeing this kind of big step up in margins. What's driving that, and how should we be thinking about what terminal margins in this business look like? Yeah, sure. Good question. Yeah, so just to just get everybody up to speed that maybe is not familiar with Semrush, we just had a fantastic third quarter. We improved our operating margins by 1900 basis points year-over-year, and improved it sequentially by 700 basis points. And overall, it's a function of us just being incredibly disciplined and balancing our spends. So we're focused quite a bit on efficiency, but also looking to balance investments to make sure we're focused on long-term growth and value. So growth is a huge part of it. The fact that we are growing over 20% allows us to expand profitability. But that 20% growth in our revenue comes, as I said, at gross margins that are above 80%. So we just hit 83% gross margin this past quarter, that's up 170 basis points, and it's just, you know, it's the result of an incredibly talented team that knows how to scale and get leverage out of our platform and data sets, and be able to deliver that functionality out to millions of users at a relatively low variable cost. And then from an OpEx perspective, you know, Semrush is unique in that we've got an incredibly strong set of customer data metrics where we see their buying patterns of behavior even before they subscribe to Semrush, where they're using and getting access to our digital assets. We see them cross over into our sites, explore our products, do trials, and ultimately convert to a paying customer, and we've got strong data that we're looking at, to see how they evolve with Semrush as we continue to deliver more value and technology to the market. So because of that data, we're just relentlessly focused on analyzing it, and understanding how our investments in sales, marketing, and R&D are optimizing that, and we're able to fine-tune it, make sure it's as efficient as possible, and deliver profitability to the bottom line. Yep. Yep, got it. Maybe let's talk a little bit about macro and a couple topics there. So maybe broadly, like, everyone's getting impacted by macro. It's a topic that every single question during meetings is covering that. What have you seen so far kind of over the past year and a half, really, I think, since people started talking about macro? How is it manifesting it, and what needs to happen for you to start to see macro trends get better? Yeah. Yeah, we're not immune. I mean, I don't think there's a software company out there or a company that's immune from macro, but interestingly, we've seen record demand. So the traffic that's hitting our digital assets and our site, and individuals who are exploring our platform and seeing how it can provide value for their businesses, is at a record and growing every single month and quarter. So we're gaining momentum and getting a lot of interest out there, and then we're seeing that convert into record gross adds. So we just had, in our third quarter, we added $20 million of net new ARR. That's a record for the third quarter. So in spite of macro, and in spite of the fact that, yes, it does affect us, we're still faring very well. And it's because of a couple of reasons. One is we just continue to invest and diversify our portfolio, so we're bringing more products to market. We've got a lot of pricing and packaging leverage, so we did an 8% price increase this year. And we've got opportunity to do that to our installed base and to continue to expand it. And then there's a secular market shift happening where, you know, this macro environment is causing companies to compress their budgets, but that doesn't mean they're doing it all across the board. So what we're seeing is our customers are shifting dollars from areas that aren't effective for them to be able to grow their business, and they're shifting it to areas that are proven- Yeah ... to be more effective for them, and that's what our platform actually does for them. It gives them that visibility and understanding, and allows them to optimize their spend. So as a result, we're seeing an interesting sort of contra dynamic when it comes to this macro environment. Yeah. Maybe... Oh, sorry, go ahead. . The question, just for the webcast was, can you put that 8% price increase in historical context? What does historically price increases look like? Yep. Yeah, we actually, so we don't usually increase pricing for existing customers. So we've preserved that, and the last time we did a price increase is in early 2021. Yeah, January 2021. So it's been a few years since we've done that. It's, you know, it's something that we're doing a lot of research on and testing, to really understand the right elasticity of our offerings. And we see that there's still some dry powder and opportunity there, so we're just starting on that. Perfect. Any other questions from the field? All right, I'll jump right back into it. So you, you kind of brought up this whole idea of, you know, companies trying to rationalize their spend, which makes sense in, in an uncertain macro environment. Let's flip it the other way, though. How have your own cloud optimization and software rationalization efforts gone? And, and do you, do you think that, like, there's still more to do from where you are today, or is it more of a, like, one and done and, and, you know, you're kind of at, at, at a new normal, I guess? You're saying margin optimization in general, or... Well, no, I'm talking about specifically, like, your own cloud rationalization. Yeah. Yeah, and just in general, I mentioned before, we have 83% Gross Margin. We use a mix of private and public cloud environments, and we have our own internal data that we pull together. But, you know, we built up this platform over the last 12-15 years, and we've developed an incredible data set that we've been able to scale with relatively minimal- Yeah ... variable cost. We create this network effect where every customer we bring on board, we're able to get access to their data, improve it, so that every incremental customer that comes on board has an even more valuable asset to be able to leverage for their own business. So we do that with relatively low cost with... And, you know, every single quarter over the last year, we've improved gross margin, and we'll continue to do that, but we are- ... investing in other businesses, so we're not, we're not gonna guide, in the next year what our gross margins and cloud margins would look like. But, they're very strong in the 80%. We expect we can sustain it at those levels, and we'll, we'll provide some more insights in 90 days. I think one of the other ways to think about the, you know, efficiency of the model is that a big part of our business is kind of competitive intelligence or market intelligence type of products. And they're extremely expensive to get off the ground, like to scale them to the level where they provide certain value for majority of customers. But once you are at that level, you don't necessarily need to spend more money to serve more users, right? It's really an asset. You invest a lot of money upfront to build it, but once you have it, you have it. And it also presents a moat because other people to get to the comparable quality of product, they will have to spend all the same amounts of money that you've spent, you know, during the last, let's say, 10 years to build- Yeah ... this data asset. So I think that both, you know, shows scalability, efficiency, and kind of moat around the business. Another example of businesses who operate the same way from kind of gross profit margin profile is ZoomInfo, for example. Mm-hmm. Also very high gross profit margins, also years and years of investments in data infrastructure, but once you have it, you have it. Yeah ... and it's very scalable. Yeah, no, that's a great example. Maybe sticking to the data you have, and I know earlier this year, there was kind of a case out there of, "Hey, look, SEO software won't be necessary with generative AI." Obviously, that has not played out, and if anything, it's probably gone the other way. Maybe can you talk about how generative AI has presented tailwinds and if any headwinds, and your kind of overall strategy to take advantage of the data and distribution you have and monetize some of this generative AI? So the way to think about those generative AI models is they know the language, they don't know what to say. Mm-hmm. So if you ask them for advice, let's say you ask them for advice about SEO, let's say for your website, and then I do the same two days later, we'll get roughly the same answer. 'Cause the model is trained using very generic content that is not industry-specific or your website-specific, so it gives the same advice to all the peopl You can modify it a little bit with prompt, but even that is not going to get you quality of insights that is, like, actually usable. And we've did a lot of experimentation trying to... you know, we understand it wouldn't give people sort of task lists for their website for optimization, but at least we thought maybe it could generate directionally strategy, like at least high-level items. And it cannot do even that, so it comes with very basic checklists of things. You can just go and read the first article that, you know, in Google for how to do SEO, they'll give you the same checklist. So we knew very early that that's not what this technology's for. Yeah. That said, if someone else knew what to do to improve performance of a particular website in a particular industry and were able to share this information with ChatGPT and say, "Can you please generate me an article that ranks well for this topic? And by the way, I know what it means to rank. This is the description." And, you know, send this information in some kind of structured format to train, not to retrain the whole model, but to train kind of instance that works only for your business or your niche. So that's where we saw a lot of potential. Yeah. We implemented it in several of our products, in Writing Assistant and our Content Shape product, where, you know, you're not asking it to write just generic content. You're saying, "I want you to write something that ranks well for this combination of keywords. Yeah. And what happens on the back end, Semrush goes and looks through our market intelligence data and says: "Okay, to rank, you need to do A, B, C, D, and so on." It's a very long list of recommendations. And then we feed this into GPT, and after that, it actually can give you a decent- ... article that would probably rank for a particular keyword. So it's really marriage between this, you know, generative AI technology that can effectively write human language content using certain inputs, and then using Semrush's unique proprietary data assets to generate those inputs. 'Cause by itself, GPT has no logic. It has no model of the world, doesn't know what is Google and what is to rank and what is keyword and so on. But you can teach it. Yes. Yeah. Got it, and then maybe on the monetization piece, right? I know now with generative AI, we're all focused on driving adoption and usage. Over time, how should we be thinking about your ability to monetize it? Does it involve maybe adding a consumption element? I think there are parts where customers will just expect that they get it- Mm ... and they want to see it as a part of the product, but they, they're not going to pay extra for it. Those are going to be features where you can maybe, by implementing AI early, gain market share or get more customers, improve conversions. Mm-hmm. You're probably not going to increase your average revenue per user. Example of those use cases is we have the Listing M anagement software that helps people to reply to reviews online. And previously, people would have to write the reply themselves. Now, we proactively generate- Mm ... three different answers. You can choose any of them. So instead of spending half an hour drafting a polite response to a, you know, angry or happy customer, now you can just push a button, it goes live. So, this is an example of feature where now maybe more people buying this product, but they're buying the whole thing, not just, you know, a feature that allows them to reply to reviews, so. Yeah. Another example where I think you can monetize it directly is this Writing Assistant product, where we are actually adding something unique, where we can charge premium for that. Like, without Semrush, you can use ChatGPT to write text. It's just never going to perform well, or let's say never is unlikely to perform well. Or you can use combination of Semrush and GPT, and in this case, probability of this content perform well is way, way higher. Yeah. Because we're adding value, we can charge premium for an AI-powered feature. Got it. Got it. That's, that's helpful. I always thought those polite reviews to my negative reviews were- Yeah ... personalized, but now I know what the secret is. Maybe let's talk about your move upmarket, right? As you've tried to expand more into the enterprise side of the equation. You know, how has that been going? What's your strategy to grow there, and any metrics you can give us around that? So the strategy's very straightforward. Unlike most of companies that need to go upmarket and land new customers, we already have a lot of customers that are large corporations. We have over 25% of Fortune 500. Across our user base, we have more than 5,000 large enterprises with more than 500 employees. We already have relationship with them. They've always been asking to do more and to add certain features, and we wouldn't prioritize them because they're a relatively small portion of accounts. Only a year ago, we looked at this group again, and we said: "Well, you know, actually, if we do this and this and this, we think we can charge way more money. Mm-hmm. And, you know, way more, I think we estimated anywhere between 10x, 15x what we charge on average. So we started adding more engineering resources, building prototypes, then closed beta. And even in closed beta, we already saw very encouraging results, people willing to pay money upfront, like, even for, like, early access. It's too early to share, you know, more metrics- Yeah ... 'cause we've launched it just a couple of weeks ago. Mm-hmm. But early feedback is very, very, very positive, and people are saying, like: "Finally, now we see you've heard us, and you're doing what we asked you to do- Yeah ... a long time ago." So it's very encouraging. And early traction is great, and, you know, average revenue per user in our closed beta cohort is actually much higher than- Mm ... even our aggressive targets. Yeah. Got- We're expecting at this point about 10-15 times what our average ARR per customer is with that enterprise play. Gotcha, gotcha. And, and I'm assuming that also mix shifts your other leading indicators, like NRR upwards and everything as- Yep ... as this grows. Everything inflects upwards. Yeah ... with success with enterprise, for sure. Right. Yeah. And, of course, as your LTV increases in certain segments, you can spend more money acquiring new customers in those segments- Yeah ... so improves your marketing efficiency. Yeah. So there are all kind of advantages of having a product portfolio that goes from, you know, the very bottom of the market to the- Yes ... the world's biggest corporations. Yeah. Maybe alongside that, maybe can you walk us a little bit through your go-to-market, right? 'Cause you have a blended go-to-market, where you have obviously the self-service that a restaurant can go and sign up and become a paying customer right away. Then you obviously have, especially with this enterprise move, much more of the kind of traditional enterprise sales motion. Maybe help us kind of think about what does that blended go-to-market model look like? In general, we like to be as efficient as possible- Yeah ... and nothing can be more efficient from my point of view as self-service sign-up. And I don't think this is going to change. Even for those large enterprises, they wanna get as soon as possible into the product. There have been definitely older generation of software where they wouldn't let you use the product until you had a conversation with- Yeah ... someone. And I think a lot of people had totally different experience as consumers of digital products themselves. You know, Netflix is not asking you to talk to anyone if you have a big family or, you know, if you wanna maybe buy it for your grandparents as well. So, you can just add a credit card or even use Apple Pay, and people are used to that, so I don't think there's any reason to change that motion. But then, of course, we can programmatically look and say, "Oh, this person's from Microsoft." And then as you see several people from Microsoft using, you know, a self-service version of the product, you're like: "Okay, maybe I should call their boss. Maybe we should start consolidating this account." So I think that's gonna... the motion that is not going to change. Where we could do more, of course, is for those larger accounts, work on, you know, bigger deals, where a lot of usage is consolidated, and this way, we would be able to provide more onboarding, so they get better customer experience. I think that's probably the only change, you know, with our moving upmarket. And, of course, you need a little bit different training for your own sales reps. Yeah. You know, the deals on, you know, in SMB segment, they're more transactional, where you show the product and then you expect people to make a decision. With enterprise, of course, there's a little bit more dancing around, and you need also to prove you're a subject matter expert and not just sales professional. But, you know, we have very good sales leadership who have done those transitions many, many times before. Yep, that's really helpful. Maybe let's take that to the next leg, right? So you talked about an example of trying to consolidate multiple self-service accounts within a larger enterprise customer. What's the motion look like to start to get multiple product adoption? "Hey, we're using Semrush for SEO, but here's all these other things that we think those customers will benefit." How do you drive that cross-sell within your existing customer base? It depends. Usually we actually start with adoption. Mm-hmm. So people will discover those additional products through promotion or through additional marketing materials. Maybe they visit certain webinar, where industry experts show them how to use other products that they're not using, and then they start using product themselves. At some point, they can hit usage limits, where we ask them to buy paid version. So that's probably number one way to cross-sell. Now, again, with bigger accounts, you do this a little bit differently in a way that you wanna push this adoption a little bit more proactively, even to the point where you could say, "Well, let's bundle a lot of things- Mm-hmm ... and, you know, sell it as a single package, where they maybe pay a little bit more now, but they get way more value out of it. As adoption grows across other teams, then maybe a year later, we have a real conversation about them paying the full price. So a lot of companies have done this very successfully, in the past. I think, you know, the one we're following really close is HubSpot. Yep. They've been very, very successful with their bundling strategy. Oh, yeah, absolutely, absolutely. Maybe let's go back to the macro thread, but start to think a little bit ahead to 2024. You know, we're, like, a month-and-a-half away from that being a reality. What are kind of your expectations from a macro perspective into next year? Sure. Yeah, I mean, I guess we had some good news today, and the market reacted favorably. We, as I said before, I mean, we're, of course, not immune from macro, but at least in the near term, we've been able to be very successful and generate strong demand. We've had accelerating growth from the second quarter into the third, and we're guiding that we'll see that continue into the fourth quarter, so we're pleased with our performance. What we're seeing out there is, the longer this macro environment sustains, I think companies are going to start to see that they lose market share, that they're gonna see effects on the top line, and they're going to have to rethink their investments, and really think about how they're going to weather through this if it advances for longer. And we're well-positioned to be there for them and provide the expertise and the platform they need to figure out how to do that in the most optimal way. So we feel like we're strongly positioned. We're always looking at different markers. We look at this one Goldman Sachs report that mentions they're starting to see some, you know, some troughing in the market and some green shoots of recovery in certain areas, so we are optimistic. But, we're gonna keep moving along, executing on our strategy, continuing to bring new customers into the Semrush world, continue to cross-sell and upsell and invest in new products that are close adjacencies. Our plans aren't necessarily gonna change. We think we're well-positioned with the right strategy and right level of spend, and we'll keep moving things forward. Great. In the minute we have left, I want to combine the next two questions into one. All right. So part one, what's the biggest decision you're gonna, you know, make as a management team over the next three years? Number two, what's the single biggest item that excites you most about the future of Semrush? All right, I'll take the first. Okay. So, biggest decision. We are fortunate that we're in a position with a competitive moat and a loyal customer base, where we don't really think about one key decision. You know, there are companies out there where there are significant secular market shifts or technological advancements, where if they don't get that one decision right, it's obviously gonna materially affect how they perform in the long run. For us, we've got a really strong foundation, a really strong market opportunity ahead of us, and we need to string together a series of smaller decisions to make sure we continue on that trajectory. So, we're, you know, making the decision about what products we invest in, how we evolve our selling motion, how we continue to grow and invest in our customers, those are all key things that we're looking at. And like I was saying before, the good news is we have an incredible wealth of data about our customers and about our traffic that allows us to fine-tune our decisions in real time, and make sure that we're always optimized and making the best decision going forward. So we're in a good position. Yeah. I think what gets me really excited is really the direction that we decided to take several years ago with our platform. Mm-hmm. So in general, marketing technologies is a very fragmented space. So to stand out in a fragmented space, you have to consolidate a lot of these cases sort of under one umbrella, and it's very taxing on your R&D. So what we decided to do is to really open the ecosystem for third-party developers, where if they already have certain functionality that our customers would benefit from, they can just integrate with us, and we will sort of bundle their products with our products and sell it all together to our customers. And that's really what gets me really excited about the future, because right now, we are still, you know... For the whole business, it's very early, but for this specific initiative, it's, like, very, very early. And, you know, It's like with kids, right? You know, they you know, start walking. You can see that very soon they will be running around. But as all gets only more and more exciting- Yeah ... as, as they grow. So same thing here, like, you know, started a couple of years ago, already seeing a lot of great, great traction, but I think, you know, still so much more potential to realize. Yep. It's a great place to jump off. Thank you so much, guys. Appreciate it. All right, thank you. Appreciate it.