Okay, good afternoon, everyone. Welcome. I'm Mark Murphy, software analyst with J.P. Morgan. It's great to be here with the management team of Semrush. We'll try to go in order here. We have President Eugene Levin next to me. We have CEO and founder Oleg Shchegolev sitting in the middle, then we have Brian Mulroy, who is the CFO on the far end. First off, gentlemen, thank you so much for being here with us. You got it. Maybe you can begin by just giving a brief introduction of yourself and Semrush for the benefit of anyone out there who's not familiar. Look, I'm a CEO and founder. My name is Oleg Shchegolev. Started this company many years ago. Started it with my friends and our co-founder, Dmitry. We've started the company for many years. We have raised money 2 times and almost didn't touch with money. You can imagine our story is quite unique. I'm happier to, happy to be here, happy to take all these questions. Hey, everybody. Brian Mulroy, just recently joined as CFO. I spent last 20 years in finance and in SaaS tech companies. I was at Nuance Communications for about 10 years and then spent the last few years at Microsoft. I'm excited to be here with the Semrush team. I've been intrigued from the start about the market opportunity that Semrush has ahead of it and the capability to execute and continue their strong growth and profitability trajectory that they're on. Some of the things I love about it, just the company is incredibly diverse. In 150 countries, in just about all market segments. We scale all the way from small business owners right up to Fortune 500 and global agencies and across all industries out there. Very well-diversified company, well positioned for growth in the future here. My name is Eugene. I'm President at Semrush. Joined roughly seven years ago. Before that, I worked in venture capital. Did everything from seed stage to late stage and pre-IPO. The funny thing, I was actually using product myself a long time before I joined the company for due diligence. When I met Oleg, company was so profitable that they didn't need my money. I was trying to invest, but they refused. I figured out the only way for me to get shares in that kind of business is just to go and work for Oleg. Have been very fascinating journey so far. I love those stories. Maybe you can spend a few moments just walking us through the evolution of Semrush having started it. Because Because Oleg, if we go way back in time, this really was an SEO tool, right? Many, many years ago. It's been evolving. You're a much broader SaaS provider. You talk about online visibility. You talk about, you know, being able to handle marketing analytics. Maybe you can take us through that and just explain the very most basic elements of kind of the value proposition and how it's being used just in terms of, you know, how a company grows its search traffic, you know, understanding the keywords, maybe getting some insights into their competitors along the way. Yeah, sure. Look, to be honest, we started. Before we added SEO applications and so on, it was competitive intelligence functions and so on. Look, we were engineers, and then we started this business as a hobby. It was so interesting for us what was going on around. At some point, we started to add applications related to search engines, related to search engine optimization, related to Site Audits and all these recommendations, how to build right content, how to optimize it, how to remove things, add things, fix something, and so on. Right now, we have many applications related to many channels in online visibility space. You can think about applications for search engine optimization. You can think about applications for content marketing, social media, digital PR, paid advertising. It's very important. Right now, all these channels in online visibility, it's so interconnected. For a successful business, it's not possible to achieve great results without giving attention to all these channels. We have enough applications for all these directions, and then we continue to build it by ourself and with help of other companies around us. That's great perspective. Eugene, is there anything you would add to that? I think as we are starting to build a true platform, the one thing I would add is that there are so many different use cases in marketing that at certain point, almost every big vendor reaches the point where, you know, it is necessary to make a next step and become a platform. For us, what it means is that we need to enable third-party developers to build platforms on top of our data, on top of our ecosystem, to cover all multitude of different use cases. We launched our App Center in 2021 and already reached the point 20% plus of Semrush customers buy multiple products, which is, for me, a true testament that there are, you know, as many different problems as people. To have really broad offering, you have to enable a true ecosystem where other people can build on top of, you know, services that we provide. Okay. We agree with that vision for sure. Now if we step back and look at it from the time the business was founded, you have scaled this business quite well, and you've done it with capital efficiency, which is rare, right, in the software arena. Zero to you're pretty quickly approaching $300 million in ARR. What I would say is the amount of cash burn you've had is very minimal, right? Compared to the typical software company. It's not been any real material amount. What do you think is there in the DNA of this company that has allowed you to differentiate in that way in terms of scaling it up, growing it well, but doing it in this kind of disciplined, efficient manner? We're very proud of that DNA and capability to be able to grow and scale the business in a very efficient way. I think there's 3 things in our DNA that are important. One is there's just a really strong culture of discipline and being thoughtful and analytical about every dollar spent and making sure that we're optimizing it for future growth and value. We'd also have a very strong and scalable platform, so our gross margins are up 80%. You know, the team here, a very talented group of engineers that have been using best in class and more modern approaches to be able to scale a SaaS platform. Able to gain a tremendous amount of scale and profitability out of our core business. In general, we have a very low touch, sort of a frictionless process with our customers. We've been able to grow to over 100,000 paying customers and about 900,000 freemium users, with a very low touch sales model. We've got a lot of scale and efficiency in the business, and we're just getting started. Let's talk about how comprehensive this the platform has become as well, because I think there's an element to that that is sort of unusual. This goes back a few quarters, you're able to appear in 14 of these G2 categories. I always try to, for people who haven't seen it's like an open source Gartner Magic Quadrant type of a thing coming from customers. Semrush was actually a leader in 10 of them. I have a feeling that those numbers might have actually increased since we looked at that. How is it you're able to cover so much ground, just in terms of your engineering effort being able to kinda take on so many different categories without sort of looking back and saying, "Well, we kind of overextended ourselves and diluted our efforts or sort of..." You know, you don't wanna become jack of all trades, master of none. Yeah, 100%. Also, you're right. By now we're in 20 categories. Yeah. Based on G2, that collects reviews from real customers, we're leaders in 20 different product categories. In online visibility space, I don't know any other company that can say the same. The question is absolutely correct. When you look at most companies, it's very hard to be good in several things. It's very hard to be good in 20 different things. When I ask myself how we managed to achieve this, have several answers. A lot of them are around culture of engineering that we reinforced in the company throughout all those years. It's, it's funny, I was reading recently a book about early days of Amazon and how they've been executing this sort of build backwards vision. We independently came up to something very similar, where you give people a lot of freedom, a lot of responsibility, you give them enough resources, and they almost run as if they're a startup within a startup. This way, we can have 20 different teams focused on different product categories, each of them being very, very competitive, specifically in what they do. We don't, you know, shuffle people between different projects. We don't say, "Oh, we've built this," let's say, "Site Audit. It looks great. Let's move people somewhere else." Because once you do this, even temporarily, you stop innovating. To keep innovating, to be leader, you have to keep investing resources in the product. I think that's been one part of it, so culture of engineering. The second big part is data assets. When we start building new products, we don't have to reinvent everything. We don't have to build everything from scratch. There are a lot of data assets in the shared infrastructure that each team can use when they're building new product. The same way a lot of things are built as microservices. Another thing that is very similar to how Amazon operates. When, again, every team builds new product, they don't have to build all the components from scratch. They can go and check what we already have in microservices and just keep using that. That just adds enormous amount of scalability. The platform play and opening this for third-party developers was really just a natural evolution, almost like giving them the same tools that we already have internally. Eugene, I want to, I want to drill kind of straight into that second element that you talked about, which is the scale of the, the data assets. We've always been impressed by that. 27 trillion links, 24 billion keywords. I know these numbers are always growing too, but 50 billion petabytes of storage. That should be a burden. I think for a lot of businesses, it would be a burden to handle that much data. Your gross margins are very high. Your gross margin is around 80%, and your CapEx is low. It's around 1% of revenue. How are you able to do that? There's a lot of ingesting, there's a lot of processing. When it comes to links and keywords, you're indexing, you're storing a lot of it. How are you able to do that at such a low cost? I think there are a lot of, sort of, technical tricks, so to speak. I think in essence, this all boils down to Oleg and his co-founder, Dmitry, being engineers. Funny thing, I also was. I have master degrees in software development. I think it was really just DNA of the company to do this very efficiently. Oleg, do you wanna add? Yeah, Dmitry and I, we were engineers, and first engine we built by ourself. We still understand a lot related to how to build storages, how to operate with data and what does it mean to balance between speed and efficiency and cost and so on when it's related to data storage. I would say key success was to avoid moving to clouds too early. About 10 years ago, it was moment when many companies moved to clouds just because it was very popular. At that moment, we decided to continue developing our own systems. I would say it's more or less similar, like having own clouds. At the same time, it was great culture of experiments all the time. As Eugene said, we have a great culture of our product development. We've enough freedom for our teams, and they like all these experiments with new technologies. We try to use new innovations related to new challenges what we receive all the time. I believe at end of the day, it's some sort of culture what we created by ourself when we started to build these engines at the start and how we saved this culture during all these years, and what culture of development we have right now. It's in the DNA, it's in the culture, but it's also, it is also kind of a build your own mentality, right? If I understand what you're saying, that if you, if you had gone out in the early days and just used all the AWS, all the Azure, all the Google services, well, they're taking their cut of all this, and then you can't custom optimize that entire stack to suit your exact, kind of, use case around online visibility and marketing. Yes. Yeah, that is correct. We train our muscles related to all these things, how to store data by ourself. Even right now, we are still using clouds very smart and avoid storing all data to clouds. We have our special storages when it's related to most important information and so on. I believe, many startups start playing with clouds too early. We cannot change the developing culture just because we jump to clouds. Right. I can provide kind of more of a quantitative example. A lot of you probably familiar with commercial databases such as Redshift or BigQuery. Yep. Really good databases for many use cases. If we try to use those databases for, let's say, our Domain Analytics products or for our Backlinks products, it would be either not possible technologically or we would be paying 10 times what we pay. It's not about not using clouds at all. It's about using them smart for things they were designed for and building custom and proprietary solutions for things that are unique, where you can gain efficiency by having unique technology. I see. Okay. Now what about, I think as we kinda cut through the layers of the stack when we think about it, all... We talked about how much data you're storing and ingesting and indexing. Can you give us any insight into what the sources of the data are? If we said, how many are there, what are the types or categories of sources that you're pulling from? Are you... Can you remind me if you're able to publicly disclose any of them? Well, I'm not sure we can talk about particular vendors. I just don't remember our agreements with them. To give you a scope of types of data that we have. I would say we are quite unique in online visibility management space because we combine three key types of data. First type of data is data that we crawl across the web. We have our own crawlers that act like search engine crawlers. They go to every website, follow every link, and build the map of the Internet. Understand how different websites are connected. The second type of data is data that we buy from third-party providers that can include ranking data or could include panel data. Essentially, this is data about market, what's going on around and, you know, who's doing well, who's not doing well. Of course, there is a lot of processing. Raw data is only as good as, you know, your algorithms that analyze it, but essentially very valuable type of data. The third type of data that we have is data that our customers share with us through connectors with, you know, Facebook or Twitter or Google Analytics or Google Search Console. Essentially, they're bringing their own data and sharing with us. Of course, we also have access to open APIs provided by some social networks, again, such as Twitter and Facebook. What happens is that other players in online visibility management space, they would usually have only one type of this data. Let's say you have social media company, they have this kind of public API access to Twitter data, and that's pretty much all they do. They're trying to get all their insights from this one source. Of course, this one source is going to be very one-sided. Content in Twitter is relatively short, so all they can do is advise about short form of content. They have no idea what kind of content performs well in search engines. Can be distributed through digital PR. Semrush combines all those data sources, so we can give 360-degree view. Like, this is content that works well in search, this is content that works well in social media. By the way, if you wanna save time, if you follow this advice, it will perform well in several channels. I think that what makes us really unique compared to point solutions, and it boils down to data. Yeah. That's great to think that there is a differentiator for you. Maybe I can ask you a bit about when you think about kinda the pyramid of business sizes and where you're focusing, it's fascinating to think you have 30% of the Fortune 500 they're using Semrush. You know, some of the examples you've got up there on the website, you've got Tesla, Procter & Gamble, Amazon, Walmart, GE, you know, the best of the best. The overall ASP of Semrush is quite low. It is less than $3,000 ARR per customer. Even if we compare it to another company that's thought of as being SMB, which is HubSpot, you're running about a quarter of what they get. Yet you seem to have more focus on the mid-market. Can you help us to connect the dots on that? What I mean by that is, how does it fit together that you have these large enterprise logos, but you have the low ASPs? Yeah, I can comment on that. The... You know, one thing we're proud of is the fact that we are very well diversified. For sure, we are very strong in SMB, but we have a presence in every market segment. Individual business owners, small business owners that are looking to do marketing on their own without capabilities of hiring a marketing organization, they're using us, all the way up to global agencies and Fortune 500 accounts. We're above that 30% now. That was the IPO number. We'll continue to grow and scale and increase our presence in that market. Maybe best just to kinda step back and just talk about our growth pillars- What our strategy is. We think about four main growth pillars. There's probably about 40 to 45 million marketers out there, and we have other buyer personas and markets that we're targeting, but that's the main one. We're just ticked over the 100,000 mark. We have a ton of runway left in our core strategy to be able to drive adoption to our core platform. Oleg mentioned before we have about 55 applications that expand outside our core, and we're targeting social media type users, digital advertising, content marketing, local marketing, PR, and of course, SEO and SEM. We'll continue to grow and scale that business. We've got a whole cross-sell, upsell strategy where once we land, we'll continue to sell more of these 55 apps and grow our average ASP or average ARR per customer. We also have about 900,000 free users. A third pillar of growth is to continue to grow our education. We've got 900,000 free users. We're gonna continue to look to ways to monetize that and expand our ASP in that way. Finally, we have this third-party App Center, where because we have such a strong presence in the market, a really good brand and customer loyalty and commitment, there's other third parties that are looking to leverage our core competency and expertise in those markets, and will give us another means to be able to cross-sell and expand that ASP over time. We're just getting started. We do have customers that are paying well over $100,000 per year, but of course, we have those smaller customers. I'm sorry, well over how much? Over $100,000 per year. Yeah. Absolutely. Okay. We'll continue to do that. The other key thing is we haven't really leveraged the enterprise selling motion yet. We've been able to get to where we are, 100,000 paying customers with a very low cost, low touch, frictionless sales model. We have an enterprise product that's going GA later this year. We'll start to push into that market, start to think about an enterprise class bundled platform that'll really drive that ASP up over time. Now, just going back about 30 seconds to what you were describing, Brian. 900,000 free customers, about 100,000 paid customers. Is that the right ratio? I'm glad you're saying that you have this plan to kinda monetize the, the free users. Sometimes the free users, though, are very important in their own right. Yep. Right? To kinda keep certain flywalls going. What do you see as the right ratio? Maybe can you talk to your strategy on how you set the paywalls that would convert from free to paid? Absolutely. Just a little bit of a background on our freemium strategy. We're very long-term focused, so we think of obviously short-term and trying to get an entry into our product and then rapid conversion. But there's more to it. We're looking more in the midterm to be able to experiment and push new apps out to market. We're pushing products and leveraging our scale and our brands to push into new markets and experiment and see if there's future opportunities to monetize. We're not looking for immediate conversion or monetization of those apps. We're gonna see growth in our free users just from that strategy. We're also, again, very long-term focused. We're in 50 universities as part of the core marketing curriculum. We want the next generation of marketers to think of Semrush as the de facto standard for marketing tools and resources and online awareness, and grow in their career and leverage us for all aspects of doing their best work inside their marketing career. We're very long-term focused there. We wanna continue to push into more universities. Our perspective is we're not always so concerned about short-term conversion of those free users into paying customers. We're looking at developing an ecosystem long term, and we'll want that free user base to grow very rapidly over time. You have this long-term mindset. In the short term, you know, kind of retrospectively, we look back on Q1, you added 5,000 net new paying customers, which I think by a small margin was actually a record. Yep, it was a record. for the company. You're doing that in a very challenging environment, right, across the software industry. What do you think is the explanation for that? How are you able to do that when the end markets are so challenging? I think there's a couple of key things. Like any company, we're not immune to macroeconomic environments. I just came from Microsoft and had to cut about $200 million out of a division budget that I was responsible for. The phrase of the day was just push it out, push it out, push it out. We need to meet our budgets. We gotta meet guidance. Companies are just looking for short-term mechanisms to be able to squeeze budgets and get through a short-term macro environment that's happening now. Longer term, though, what's happening is our customers are seeing that our platform is actually a means to be able to optimize their spend. Companies spent well over $200 billion in paid search last year. That was up 33%. Moving into 2023, as we start to see diversification of channels for companies to engage with their consumers, that spend will increase. Our tools provide an alternative and more optimized means to be able to reach their customers in a more long-term, trustworthy way, where it's organic, and allows your marketing spend to go longer. I think we're gonna see a tailwind, and you saw that in the Q1 where we had record net new ads. As companies and our customers and our subscribers start to see the value of the platform and the capabilities to optimize their spend, they'll be more inclined to subscribe in these types of environments and less. With that comment, the customer ads do bounce around. I'm wondering if you think when you're out there interacting with investors, do you think people are kind of underestimating the potential durability of that metric, the ability to keep adding customers at that type of a rate, just given, like, kind of the market sizing and then a lot of the product drivers and initiatives that you've got the size of the free customer base or? Again, it is a challenge. It is obviously a challenging environment. Is it more likely that we're kind of bouncing around between, say, 2,000 and 5,000, 3,000 and 5,000 for a little while? I think I can take this one. There is definitely a lot of volatility, you know, pretty much everywhere, not only in stock market, of course. I think what people are looking at right now is, as a reference point, is last year, especially H2 of last year. H2 of last year was not just, let's say, a drop and then it stabilized. It was actually financial environment that was deteriorating throughout- Right the H2 of the last year. That would create a lot of very distorted sequential metrics. I think, you know, in a normal environment, we think you're right. In a normal kind of environment, in the long run, I think people underestimate us. You know, it's not a bad place to be. I would rather surprise people positively than negatively. Okay. Fingers crossed. Maybe we're down to about 5 minutes. Maybe we can do a quick scan of the audience and see if any of you might have a question. Just go ahead and raise your hand, and we'll be sure to get you a microphone. Anyone? Okay. People are thinking about it, but they're not quite there. Let's go into then in the remaining minutes that we've got, maybe we can touch on the competitive landscape. There are a few large vendors out there. The one that people usually think of, right or wrong, is Similarweb. There's this kind of long tail of smaller competitors. Many of them are private companies. Who is it that you come across most frequently? You know, what would you highlight as your differentiation? Are there any of them that you look at and say that, you know, they could come a little closer to competing with you on, the kind of the comprehensiveness of the platform or, not quite? Look, if you think about our business, we are platform. As I mentioned before, we have applications for many channels related to online visibility. Yeah, we have some. We have some point solutions around us. Look, Similarweb is a sizable company, but at the same time, we are so focused on competitive intelligence, and we have very small intersection with them just related to competitive intelligence. We believe what's for our customers, when it's needed to deliver value related to online visibility, it's very important to have applications for all directions, for all channels. You can think about our customers, very different sizes, very different businesses. We don't see any companies around us who try to implement the same approach related to platform and many applications. Yeah, we have some mentions related to Similarweb sometimes, but we are not competing with them at all. We don't see like competition. If you think about other point solutions, we're not competing with them, too, just because they try to deliver value in just in one or few channels, and we try to help to leverage how channels interconnected. You cannot deliver good results for social media without thinking about your content. You cannot deliver great content marketing without having in mind your search engine optimization strategy and so on. I can continue with many examples related to it. I think we don't know any other companies who try to do the same. Okay. In a minute and a half, we have to cover generative AI somehow. Let me Clear for that. Maybe you can talk twice as fast. What was amazing is when you mentioned that you've been working with ChatGPT in your products for about two years. I used to always wonder, because I would see how you would have this capability where, you know, your product could create some marketing copy and blog, you know, blogging and all that on its own. I never knew how you, how it was happening. Can you just connect the dots for us on: Because you've had that for a while, and you were early there, but now you're bringing to market all these new products. You've got, you know, newer versions and newer products among ContentShake AI and AI Writing Assistant and then AI Social Content Generator. Can you help us connect the dots on what you were doing previously and what you have now? Yeah. I'll try to be quick. Yeah, super excited about generative AI, implementing it in many, many products. We were one of the pioneers. We had a product called Writing Assistant, was available on our Guru plan. We always felt it's kind of more of advanced product for people who need to scale production and, you know, produce hundreds of pieces of content where AI would make a difference. What we're seeing now is actually makes even more difference on the lower end. There are a lot of small businesses who wanna write content, but they don't know how. They're stuck. They're not the best writers in the world. With generative AI, they finally can go from zero to one, and we're happy to help them to do that, and we're bringing some of the functionality in our App Center so it's more accessible for kind of lower segment, let's say starting at $50 per month. Seeing a lot of traction with those products. Wonderful. You're right on time, here, for the ending of this. I wanna thank all of you, Eugene, Oleg, and Brian. Very kind of you to have come over here and share some time with us. All right. Let's have a big round of applause. Thanks very much.