10-Q 1 semr-20220331.htm 10-Q semr-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
            
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-40276
Semrush Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware84-4053265
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification Number)
800 Boylston Street, Suite 2475
Boston, MA 02199
(Address of principal executive offices including zip code)

(800) 851-9959
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:        
Title of each classTrading symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.00001 par value per shareSEMRThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes or ☐ No.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes or ☐ No.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
                                    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes or No
As of May 5, 2022, there were 43,119,803 shares of the registrant’s Class A Common Stock and 97,975,754 shares of the registrant’s Class B Common Stock, $0.00001 par value per share, outstanding.




TABLE OF CONTENTS

Page
Part I. Financial Information
Item 1.
Item 2.
Item 3.
Item 4.
Part II. Other Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.








SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements about Semrush Holdings, Inc. (“Semrush Holdings”) and our subsidiaries (collectively, the “Company”, “Semrush”, “we”, “us”, or “our”) and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations, financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would,” or the negative of these words or other similar terms or expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
•our future financial performance, including our revenue, annual recurring revenue (“ARR”), costs of revenue, gross profit or gross margin and operating expenses;
•the sufficiency of our cash and cash equivalents to meet our liquidity needs;
•anticipated trends and growth rates in our business and in the markets in which we operate;
•our ability to maintain the security and availability of our internal networks and platform;
•our ability to attract new paying customers and convert free customers into paying customers;
•our ability to retain and expand sales to our existing paying customers, including upgrades to premium subscriptions, purchases of add-on offerings, and increasing the number of authorized users per paying customer;
•our ability to access, collect, and analyze data;
•our ability to successfully expand in our existing markets and into new markets;
•our ability to effectively manage our growth and future expenses;
•our ability to continue to innovate and develop new products and features, improve our data assets, and enhance our technological capabilities;
•our estimated total addressable market;
•our ability to maintain, protect, and enhance our intellectual property;
•our ability to comply with modified or new laws and regulations applying to our business;
•the attraction and retention of qualified employees and key personnel;
•our anticipated investments in sales and marketing, and research and development;
•our ability to successfully defend litigation brought against us;
•our ability to successfully acquire and integrate companies and assets;
•the increased expenses associated with being a public company;




•the impact of the novel strain of coronavirus (“COVID-19”) on our business, industry and supply chain; and
•our ability to successfully relocate employees outside of Russia, including executing our relocation plans on the timeline we expect and at the anticipated cost.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations, projections, and assumptions about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information provides a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.





Risk Factors Summary
Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks and uncertainties include, but are not limited to, the following, which are described in further detail in Item 1A:
Our business and operating results will be harmed if our paying customers do not renew and/or upgrade their premium subscriptions or if they fail to purchase additional products.
If we fail to attract new potential customers, register them for trials, and convert them into paying customers, our operating results would be harmed.
The market in which we operate is intensely competitive, and if we do not compete effectively, improve and introduce compelling new products, add-ons, and tools, and offer high-quality customer service, our ability to attract and retain customers could be harmed.
We have incurred losses in the past and may not achieve profitability in the future.
Instability in geographies where we have significant operations and personnel, including in Russia, could have a material adverse effect on our business, customers, and financial results.
Our products depend on third-party data sources and third-party integrations, the loss or impairment of which could cause our business to suffer.
If we are unable to maintain and enhance our brand our ability to maintain and expand our customer base may be impaired, and our business and financial results may be harmed.
The loss of one or more of our executive officers or other key employees, a failure to attract and retain other highly skilled employees, or an inability to maintain our company’s culture could harm our business.
If we fail to maintain and improve our methods and technologies, including anticipating or adapting to new social media platforms, or fail to anticipate new methods or technologies for data collection and analysis, hardware, software, and software related technologies, competing products and services could surpass ours in depth, breadth, or accuracy of our data, the insights that we offer or in other respects.
Failures or loss of, or material changes with respect to, the third-party hardware, software, and infrastructure on which we rely, including third-party data center hosting, could adversely affect our business.
Facilities and third-party distribution channels to support our operations, could adversely affect our business.
Breaches, unauthorized access to or disclosure of, or changes in laws or public perception related to confidential information or personal information of any customers of our platform could cause our reputation to be harmed and we may be exposed to liability.
In recent periods, we have experienced, and expect to continue to experience, rapid growth and organizational change. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high-quality customer service, and customer satisfaction, or attract new employees and customers and our business could suffer.




We are exposed to risks associated with premium subscription and payment processing and any disruption to such processing systems could adversely affect our business and results of operations.
A significant portion of our operations is located outside of the United States, which subjects us to additional risks, including increased complexity, the costs of managing international operations, geopolitical instability, and fluctuations in currency exchange rates.
Adverse or weakened general economic and market conditions may reduce spending on sales and marketing technology and information technology which could harm our revenue, results of operations, and cash flows.
Changes in the sizes or types of paying customers that purchase premium subscriptions to our platform or products could affect our business, and our financial results may fluctuate due to increasing variability in our sales cycles.
Forecasts of our market and market growth may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, there can be no assurance that our business will grow at similar rates, or at all.
We may be subject to litigation for any of a variety of claims, which could harm our reputation and adversely affect our business, results of operations, and financial condition.
Our referral partners and resellers provide revenue to our business, and we benefit from our association with them. Our failure to maintain successful relationships with these partners could adversely affect our business.
The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of our IPO, including our directors, executive officers, and their affiliates, who as of March 31, 2022 held in the aggregate 81% of the voting power of our capital stock, which will limit or preclude your ability to influence corporate matters.




PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
SEMRUSH HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

As of
March 31, 2022December 31, 2021
Assets
Current assets
Cash and cash equivalents$259,824 $269,665 
Accounts receivable2,830 2,190 
Deferred contract costs, current portion6,886 6,338 
Prepaid expenses and other current assets4,612 5,345 
Total current assets274,152 283,538 
Property and equipment, net7,618 8,270 
Intangible assets, net11,379 2,925 
Goodwill8,079 1,991 
Deferred contract costs, net of current portion2,476 2,254 
Other assets3,743 1,096 
Total assets$307,447 $300,074 
Liabilities and stockholders’ equity
Current liabilities
Accounts payable$10,838 $9,942 
Accrued expenses19,718 19,479 
Deferred revenue47,548 40,232 
Other current liabilities1,687 1,896 
Total current liabilities79,791 71,549 
Long-term liabilities
Deferred revenue, net of current portion320 237 
Deferred tax liability111 268 
Other long-term liabilities2,662 2,478 
Total liabilities82,884 74,532 
Commitments and contingencies (Note 14)
Stockholders' equity
Class A common stock, $0.00001 par value - 1,000,000,000 shares authorized, and 42,935,892 shares issued and outstanding as of March 31, 2022; 31,841,861 shares issued and outstanding as of December 31, 2021
  
Class B common stock, $0.00001 par value - 160,000,000 shares authorized, and 98,132,354 shares issued and 98,027,264 outstanding as of March 31, 2022; 108,975,216 shares issued and 108,870,126 outstanding as of December 31, 2021
1 1 
Additional paid-in capital 266,727 264,871 
Accumulated other comprehensive deficit(494)(230)
Accumulated deficit(41,671)(39,100)
Total stockholders’ equity224,563 225,542 
Total liabilities and stockholders' equity$307,447 $300,074 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1


SEMRUSH HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(in thousands, except per share data)

Three Months Ended
March 31,
20222021
Revenue$57,128 $39,998 
Cost of revenue11,587 8,773 
Gross profit45,541 31,225 
Operating expenses
Sales and marketing25,830 16,457 
Research and development8,138 5,358 
General and administrative14,163 7,904 
Total operating expenses48,131 29,719 
(Loss) income from operations(2,590)1,506 
Other income, net159 51 
(Loss) income before income taxes(2,431)1,557 
Provision for income taxes140 86 
Net (loss) income$(2,571)$1,471 
Net (loss) income per share attributable to common stockholders:
Basic$(0.02)$0.02 
Diluted$(0.02)$0.01 
Weighted-average number of shares of common stock used in computing net (loss) income per share attributable to common stockholders:
Basic140,790 96,376 
Diluted140,790 131,356 
Net (loss) income$(2,571)$1,471 
Other comprehensive (loss) income
Foreign currency translation adjustments(264) 
Comprehensive (loss) income$(2,835)$1,471 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2


SEMRUSH HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)
Series ASeries A-1Series BCommon StockClass A Common StockClass B Common Stock
Additional
Paid-in
Capital
Accumulated Other Comprehensive Loss
Accumulated
Deficit
Total
Stockholders’
Equity
(Deficit)
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
Balances at December 31, 2020
3,379,400 $7,789 1,837,600 $10,270 4,681,400 $24,000 95,050,041 $  $  $ $4,975 $ $(35,815)$(6,840)
Conversion of Preferred Stock(3,379,400)(7,789)(1,837,600)(10,270)(4,681,400)(24,000)29,695,200 — — — — — 42,058 — — 18,058 
Issuance of Class A Common Stock in connection with the initial public offering, net of $13,378 in issuance costs
— — — — — — — — 10,000,000 — — — 126,622 — — 126,622 
Reclassification of Common Stock to Class B Common Stock in connection with the initial public offering— — — — — — (124,745,241)— — — 124,745,241 1 (1)— —  
Exercise of stock options— — — — — — — — — — 3,861 — 7 — — 7 
Stock-based compensation expense— — — — — — — — — — — — 593 — — 593 
Net income— — — — — — — — — — — — — — 1,471 1,471 
Balances at March 31, 2021
 $  $  $  $ 10,000,000 $ 124,749,102 $1 $174,254 $ $(34,344)$139,911 
Balances at December 31, 2021 $  $  $  $ 31,841,061 $ 108,870,126 $1 $264,871 $(230)$(39,100)$225,542 
Conversion of Class B Common Stock to Class A Common Stock— — — — — — — — 10,842,862 — (10,842,862)— — — —  
Exercise of stock options— — — — — — — — 197,828 — — — 924 — — 924 
Issuance of shares in connection with Employee Stock Purchase Plan— — — — — — — — 39,516 — — — — — — — 
Vesting of Class A Common Stock in connection with Restricted Stock Units— — — — — — — — 14,625 — — — — — — — 
Stock-based compensation expense— — — — — — — — — — — — 932 — — 932 
Cumulative translation adjustment— — — — — — — — — — — — — (264)— (264)
Net income— — — — — — — — — — — — — — (2,571)(2,571)
Balances at March 31, 2022
 $  $  $  $ 42,935,892 $ 98,027,264 $1 $266,727 $(494)$(41,671)$224,563 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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SEMRUSH HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Three Months Ended
March 31,
20222021
Operating Activities
Net (loss) income$(2,571)$1,471 
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Depreciation and amortization expense1,455 460 
Amortization of deferred contract costs2,083 1,322 
Stock-based compensation expense932 593 
Change in fair value of convertible debt securities(661) 
Deferred taxes283 (56)
Changes in operating assets and liabilities
Accounts receivable(353)(985)
Deferred contract costs(2,853)(2,420)
Prepaid expenses and other current assets1,240 (976)
Accounts payable2,317 1,579 
Accrued expenses(940)2,420 
Deferred revenue6,584 5,599 
Other long-term liabilities510  
Net cash provided by operating activities8,026 9,007 
Investing Activities
Purchases of property and equipment(370)(166)
Purchases of convertible debt securities(2,000)(500)
Capitalization of internal-use software development costs(286)(123)
Cash paid for acquisition of assets and businesses, net of cash acquired(14,000)(350)
Net cash used in investing activities(16,656)(1,139)
Financing Activities
Proceeds from exercise of stock options924 7 
Net proceeds from completing initial public offering 128,461 
Payment of capital leases(937) 
Net cash (used in) provided by financing activities (13)128,468 
Effect of exchange rate changes on cash and cash equivalents(1,259) 
Increase in cash, cash equivalents and restricted cash(9,902)136,336 
Cash, cash equivalents and restricted cash, at beginning of period269,841 35,619 
Cash, cash equivalents and restricted cash, at end of period$259,939 $171,955 
Supplemental cash flow disclosures
Cash paid for interest$73 $ 
Cash paid for income taxes$283 $158 
Deferred offering costs incurred and not paid$ $1,839 
Acquisition of fixed asset under capital lease$331 $1,024 
Property and equipment purchases not paid$ $ 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


SEMRUSH HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2022 and 2021
(in thousands, except share and per share data, unless otherwise noted)
1.Overview and Basis of Presentation
Description of Business
Semrush Holdings, Inc. (“Semrush Holdings”) and its subsidiaries (together the “Company”, or “Semrush”) provide an online visibility management software-as-a-service (“SaaS”) platform. The Company’s platform enables its subscribers to improve their online visibility and drive traffic, including on their websites and social media pages, and distribute highly relevant content to their customers on a targeted basis across various channels to drive high-quality traffic and measure the effectiveness of their digital marketing campaigns. The Company is headquartered in Boston, Massachusetts, and has wholly owned subsidiaries in Cyprus, Russia, the Czech Republic, Poland, Spain, and the United States.
The Company is subject to a number of risks and uncertainties common to companies in similar industries and stages of development that could affect future operations and financial performance. These risks include, but are not limited to, rapid technological change, competitive pressure from substitute products or larger companies, protection of proprietary technology, management of international activities, the need to obtain additional financing to support growth, and dependence on third parties and key individuals.
Public Offerings
On March 29, 2021, the Company closed its initial public offering (“IPO”) in which it sold 10,000,000 shares of its Class A common stock at a price to the public of $14.00 per share. The Company received $126.6 million in net proceeds after deducting approximately $13.4 million for underwriting discounts, commissions and offering expenses. Immediately prior to the completion of the IPO, all shares of common stock then outstanding were reclassified as Class B common stock, and all shares of redeemable convertible preferred stock and convertible preferred stock then outstanding were converted into shares of common stock on a one-to-one basis and then reclassified into Class B common stock.
On April 20, 2021, the underwriters of the Company’s IPO partially exercised their option to purchase additional shares of Class A common stock. In connection with the closing of the partial exercise on April 23, 2021, the underwriters purchased 719,266 shares of the Company’s Class A common stock for net proceeds to the Company of $9.2 million after deducting approximately $0.8 million for underwriting discounts, commissions, and offering expenses.
On November 23, 2021, the Company closed a follow-on offering (the “Follow-On Offering”) in which it sold 4,000,000 shares of its Class A common stock at a price to the public of $20.50 per share. The Company received $77.9 million in net proceeds after deducting approximately $4.1 million for underwriting discounts, commissions and offering expenses. Selling stockholders sold an aggregate of 1,000,000 shares of Class A common stock in the Follow-On Offering.
Effects of the Russian Military Action in Ukraine
Economic, civil, military, and political uncertainty exists and may increase in many of the regions where the Company operates and derives its revenue. Several countries in which the Company operates are experiencing and may continue to experience military action and civil and political unrest as a result of such action. The Company has significant development operations in the emerging market economies of
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Eastern Europe and more than half of the Company’s full-time employees are located in Russia. The Company is beginning to relocate its Russia-based workforce. Please refer to Note 18 for further details.
In late February 2022, Russian military forces launched significant military action against Ukraine, and sustained conflict and disruption in the region is likely. The impact to Ukraine and Russia, as well as actions taken by other countries, including new and stricter sanctions by Canada, the United Kingdom, the European Union, the U.S. and other countries and organizations against officials, individuals, regions, and industries in Russia, Ukraine and Belarus, and each country’s potential response to such sanctions, tensions, and military actions could have a material adverse effect on the Company’s operations. Any such material adverse effect from the conflict, enhanced sanctions activity, and subsequent responses may disrupt the Company’s relationships with its vendors, disrupt its delivery of services, cause the Company to shift all or portions of its work occurring in the region to other countries, and may restrict the Company’s ability to engage in certain projects in the region. For more information on the risks of regional instability to our operations, see Item 1A. Risk Factors under the header "Instability in geographies where we have significant operations and personnel, including in Russia, could have a material adverse effect on our business, customers, and financial results”.
Effects of COVID-19
The Company considered the potential effects of the COVID-19 pandemic on the Company. In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, and numerous new strains of COVID-19 have subsequently spread throughout the world. COVID-19 has continued to impact market and economic conditions globally. In an attempt to limit the spread of the virus, various governmental restrictions have been implemented, including restrictions with respect to business activities and travel restrictions, and “shelter–at–home” orders, that have had and may continue to have an adverse impact on the Company’s business and operations. In light of the evolving nature of COVID-19 and the uncertainty it has produced around the world, it is not possible to predict the COVID-19 pandemic’s cumulative and ultimate impact on the Company’s future business operations, results of operations, financial position, liquidity, and cash flows. The extent of the impact of the pandemic on the Company’s business and financial results will depend largely on future developments, including the duration of the spread of the outbreak both globally and within the U.S., the impact on capital, foreign currencies exchange and financial markets, and governmental or regulatory orders that impact the Company’s business, all of which are highly uncertain and cannot be predicted.
As of March 31, 2022, the Company has experienced long lead times for hardware affected by a semiconductor shortage attributed to the COVID-19 pandemic which may affect its ability to fully furnish the infrastructure within its data centers. The Company will continue to actively monitor the current international and domestic impacts of and responses to COVID-19 and its related risks.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the audited annual consolidated financial statements as of and for the year ended December 31, 2021, and, in the opinion of management, reflect all adjustments, consisting of normal recurring
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adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2022, and the results of its operations and its cash flows for the three months ended March 31, 2022 and 2021. The consolidated balance sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date.
The results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period.
The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 18, 2022.
The accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the unaudited condensed consolidated financial statements. As of March 31, 2022, there have been no material changes in the Company's significant accounting policies from those that were disclosed in the Annual Report on Form 10-K, except as discussed below.
2.Summary of Significant Accounting Policies
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates relied upon in preparing these financial statements include, but are not limited to, revenue recognition, expected future cash flows used to evaluate the recoverability of long-lived assets, contingent liabilities, expensing and capitalization of research and development costs for internal-use software, the average period of benefit associated with costs capitalized to obtain revenue contracts, the determination of the fair value of stock-based awards issued, stock-based compensation expense, and the recoverability of the Company’s net deferred tax assets and related valuation allowance.
Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made.
Subsequent Events Considerations
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. The Company has evaluated all subsequent events and determined that there are no material recognized or
8


unrecognized subsequent events requiring disclosure, other than those disclosed in this Quarterly Report on Form 10-Q.
Emerging Growth Company Status
The Company is an "emerging growth company," as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies." The Company may take advantage of these exemptions until the Company is no longer an "emerging growth company." Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards and, as a result of this election, its financial statements may not be comparable to companies that comply with public company effective dates. The Company may take advantage of these exemptions up until the last day of the year following the fifth anniversary of an offering or such earlier time that it is no longer an emerging growth company. The Company would cease to be an emerging growth company if it has more than $1.07 billion in annual revenue, has more than $700.0 million in market value of its stock held by non-affiliates (and it has been a public company for at least 12 months, and has filed one annual report on Form 10-K), or it issues more than $1.0 billion of non-convertible debt securities over a three-year period.
Revenue Recognition
The Company derives revenue from two sources: (1) subscription revenues via the Semrush Online Visibility Management Platform and the Prowly Public Relations Platform, which are comprised of subscription fees from customers accessing the Company’s SaaS services and related customer support; and (2) the Semrush Marketplace, which allows customers to pay a set fee for services or products offered through the marketplace.
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration it expects to receive in exchange for those products or services. There were no changes to the Company’s revenue recognition policies since the filing of its Annual Report on Form 10-K with the SEC on March 18, 2022.
For the three months ended March 31, 2022 and 2021, subscription revenue accounted for nearly all of the Company’s revenue. Revenue related to the Semrush Marketplace was not material for the three months ended March 31, 2022 and 2021.
Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. The Company primarily invoices and collects payments from customers for its services in advance on a monthly or annual basis.
Deferred revenue represents amounts billed for which revenue has not yet been recognized. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as long-term deferred revenue. Deferred revenue increased by $10,221 as of March 31, 2022 compared December 31, 2021. During the three months ended March 31, 2022 and 2021, $20,696 and $13,303 of revenue was recognized that was included in deferred revenue at the beginning of each respective period.
The Company has elected to exclude amounts charged to customers for sales tax from the transaction price. Accordingly, revenue is presented net of any sales tax collected from customers.
Transaction Price Allocated to Future Performance Obligations
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ASC 606 requires that the Company disclose the aggregate amount of the transaction price that is allocated to performance obligations that have not yet been satisfied as of the balance sheet dates reported.
For contracts with an original expected duration greater than one year, the aggregate amount of the transaction price allocated to the performance obligations that were unsatisfied as of March 31, 2022 was $1,298, which the Company expects to recognize over the next 12 months.
For contracts with an original expected duration of one year or less, the Company has applied the practical expedient available under ASC 606 to not disclose the amount of transaction price allocated to unsatisfied performance obligations as of March 31, 2022. For performance obligations not satisfied as of March 31, 2022, and to which this expedient applies, the nature of the performance obligations is consistent with performance obligations satisfied as of December 31, 2021. The remaining durations are less than one year.
Costs to Obtain a Contract
The incremental direct costs of obtaining a contract, which primarily consist of sales commissions paid for new subscription contracts, are deferred and recorded as deferred contract costs in the consolidated balance sheet and are amortized over a period of approximately 24 months on a systematic basis, consistent with the pattern of transfer of the goods or services to which the asset relates. The 24-month period represents the estimated benefit period of the customer relationship and has been determined by taking into consideration the type of product sold, the commitment term of the customer contract, the nature of the Company’s technology development life-cycle, and an estimated customer relationship period based on historical experience and future expectations. Sales commissions for renewals and upgrade contracts are deferred and amortized on a straight-line basis over the remaining estimated customer relationship period of the related customer. Deferred contract costs that will be recorded as expense during the succeeding 12-month period are recorded as current deferred contract costs, and the remaining portion is recorded as deferred contract costs, net of current portion. Amortization of deferred contract costs is included in sales and marketing expense in the accompanying consolidated statements of operations and comprehensive income (loss).
Concentrations of Credit Risk and Significant Customers
The Company has no off-balance sheet risk, such as foreign exchange contracts, option contracts, or other hedging arrangements. Credit losses historically have not been significant and the Company generally has not experienced any material losses related to receivables from individual customers, or groups of customers. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company's accounts receivable.
Credit risk with respect to accounts receivable is dispersed due to the large number of customers of the Company. The Company routinely assesses the creditworthiness of its customers and generally does not require its customers to provide collateral or other security to support accounts receivable. Credit losses historically have not been significant and the Company generally has not experienced any material losses related to receivables from individual customers, or groups of customers. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company's accounts receivable.
As of March 31, 2022 and December 31, 2021, no individual customer represented more than 10% of the Company’s accounts receivable. During the three months ended March 31, 2022 and 2021, no individual customer represented more than 10% of the Company’s revenue.
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Disclosure of Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, approximated their fair values at March 31, 2022 and December 31, 2021, due to the short-term nature of these instruments.
The Company has evaluated the estimated fair value of financial instruments using available market information. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. See below for further discussion.
Foreign Currency Translation
The Company operates in a multi-currency environment having transactions in such currencies as the U.S. dollar, Russian ruble, Czech koruna, euro, and others. The reporting currency of the Company is the U.S. dollar.
For all periods up to and including the year ended December 31, 2021, the functional currency of the Company’s foreign subsidiaries was the U.S. dollar, with the exception of Prowly, where the functional currency is the local currency, the Zloty. For all other entities, foreign currency transactions were measured initially in the functional currency of the recording entity by use of the exchange rate in effect at that date. At each subsequent balance sheet date, foreign currency denominated assets and liabilities of these international subsidiaries were remeasured into U.S. dollars using the exchange rates in effect at the balance sheet date or historical rates, as appropriate. Any differences resulting from the remeasurement of foreign denominated assets and liabilities of the international subsidiaries to the U.S. dollar functional currency were recorded within other income (expense) in the consolidated statement of operations and comprehensive loss.
Beginning on January 1, 2022, as a result of changes in the economic facts and circumstances of its business environment, the Company reassessed its functional currency determinations for all foreign subsidiaries and determined that the functional currencies of the Company’s foreign subsidiaries is the local currency at each of its subsidiary locations. Accordingly, beginning January 1, 2022, assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using period-end exchange rates, and revenues and expenses are translated into U.S. dollars using average exchange rates in effect during each period. The Company includes the effects of these foreign currency translation adjustments in accumulated other comprehensive income (loss), a separate component of stockholders’ equity.
The foreign currency exchange (loss) gain included in other income, net for the three months ended March 31, 2022 and 2021 was $(478) and $44, respectively.
Comprehensive income (loss)
Comprehensive income (loss) is comprised of two components: net income (loss) and other comprehensive income (loss), which includes other changes in stockholders’ deficit that result from transactions and economic events other than those with stockholders. For the three months ended March 31, 2022, comprehensive loss consists of net loss and the change in the cumulative foreign currency translation adjustment. The tax effect of the cumulative foreign currency translation adjustment is not significant for the three months ended March 31, 2022. Comprehensive loss equaled total net loss for the three months ended March 31, 2021.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires a lessee to recognize most leases on the balance sheet but recognize expenses on the income statement in a manner similar to current practice. The update states that a lessee will recognize a lease liability for
11


the obligation to make lease payments and a right-to-use asset for the right to use the underlying assets for the lease term. Leases will continue to be classified as either financing or operating, with classification affecting the recognition, measurement, and presentation of expenses and cash flows arising from a lease. For public entities, ASU 2016-02 is effective for years beginning after December 15, 2019. For non-public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2021 and interim periods in annual periods beginning after December 15, 2022. Early adoption is permitted. The Company plans to adopt this guidance in the year ended December 31, 2022. The Company is currently assessing the impact that adopting this guidance will have on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires that credit losses be reported as an allowance using an expected losses model, representing the entity's current estimate of credit losses expected to be incurred. The accounting guidance currently in effect is based on an incurred loss model. ASU 2016-13 affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for public entities for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. For non-public companies, ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company plans to adopt this guidance in the year ending December 31, 2023. The Company is currently evaluating ASU 2016-13 and the potential impact on its condensed consolidated financial statements and financial statement disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40). ASU 2018-15 updates guidance regarding accounting for implementation costs associated with a cloud computing arrangement that is a service contract. The amendments under ASU 2018-15 are effective for public entities for years beginning after December 15, 2019, and interim periods within those years. For non-public companies, ASU 2081-15 is effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021, with early adoption permitted. The Company adopted ASU 2019-12 during the year ended December 31, 2021. The adoption of ASU 2018-15 did not have a material impact on the Company’s financial position and results of operations.
In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income taxes by removing several exceptions in the current standard and adding guidance to reduce complexity in certain areas, such as requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. For public companies, the ASU is effective for years beginning after December 15, 2020, and interim periods within those years, with early adoption permitted. For non-public companies, the new standard is effective for years beginning after December 15, 2021, with early adoption permitted. The Company plans to adopt this guidance in the annual period ending December 31, 2022. The Company is currently assessing the impact that adopting this guidance will have on its condensed consolidated financial statements.
3.    Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents consist of cash on deposit with banks and amounts held in interest-bearing money market funds. Cash equivalents are carried at cost, which approximates their fair market value. At each of March 31, 2022 and December 31, 2021, restricted cash was $115 and related to cash held at a financial institution in an interest-bearing cash account as collateral for a letter of credit related to the contractual provisions for one of the Company’s building leases.
The following table is a reconciliation of cash, cash equivalents and restricted cash included in the accompanying condensed consolidated balance sheets that sum to the total cash, cash equivalents and
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restricted cash included in the accompanying condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021.
March 31, 2022March 31, 2021
Cash and cash equivalents$259,824 $171,867 
Restricted cash included in “other assets”115 88 
Total cash, cash equivalents and restricted cash, at end of period$259,939 $171,955 

4.    Fair Value Measurements
Cash equivalents include money market funds with original maturities of 90 days or less from the date of purchase. The fair value measurement of these assets is based on quoted market prices in active markets for identical assets and, therefore, these assets are recorded at fair value on a recurring basis and classified as Level 1 in the fair value hierarchy. As of March 31, 2022 and December 31, 2021, cash equivalents held in money market funds totaled $11,350 and $21,366, respectively.
The Company records contingent consideration resulting from a business combination at its fair value on the acquisition date. The Company generally determines the fair value of the contingent consideration using the Monte Carlo simulation model. Each reporting period thereafter, these obligations are revalued and increases or decreases in their fair values are recorded as an adjustment to operating expenses within the consolidated statements of operations and comprehensive loss. Changes in the fair value of the contingent consideration can result from changes in assumed discount periods and rates, and from changes pertaining to the estimated or actual achievement of the defined milestones. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration expense the Company records in any given period.
The total estimated fair value of the contingent consideration payable was $871 and $824 as of March 31, 2022 and December 31, 2021, respectively. The following table represents the key inputs used in the fair value calculation:
As of
March 31, 2022December 31, 2021
Risk free interest rate1.23 %0.45 %
Projected year of payment
2022 – 2023
2022 – 2023
Revenue volatility6.8 %22.3 %
Discount rate4.49 %5.87 %
The Company records its convertible note investments at fair value on the purchase date. The Company determines the fair value of these investments using the Black-Scholes Merton model. Each reporting period thereafter, these investments are revalued and increases or decreases in their fair values are recorded as adjustments to other income, net within the consolidated statements of operations and comprehensive loss to reflects the gains and losses. Changes in the fair value of these investments can result from changes in the estimated enterprise value of the issuers, the likelihoods and methods of such conversions, and other market factors. Significant judgment is employed in determining the appropriateness of these assumptions as of the purchase date and for each subsequent period. Accordingly, changes in any of the assumptions described above can materially impact the amount of gain or loss the Company records in any given period.
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As of March 31, 2022 and December 31, 2021, the Company measured its investments in convertible notes (see Note 6) and its contingent consideration associated with the acquisition of Prowly.com sp. z o.o (“Prowly”) on a recurring basis using significant unobservable inputs (Level 3) and did not have any assets or liabilities measured at fair value on a recurring basis using significant other observable inputs (Level 2). The changes in fair value of the contingent consideration associated with the Prowly acquisition were insignificant for each of the three months ended March 31, 2022 and 2021.
A rollforward of the fair value measurements of the convertible notes for the three months ended March 31, 2022, is as follows:
Balance as of December 31, 2021$500 
Additional investment in convertible notes2,000 
Change in fair value included in other income, net661 
Balance as of March 31, 2022$3,161 
The increase in the fair value of the convertible notes as of March 31, 2022 compared to December 31, 2021 is primarily driven by additional convertible note purchases of $2,000.
Changes in the estimated fair value of the contingent consideration payable are recognized over the three-year service period. A rollforward of the fair value measurements of the contingent consideration liability for the three months ended March 31, 2022 is as follows:
Balance as of December 31, 2021$424 
Expense recognized related to service period rendered106 
Balance as of March 31, 2022$530 

5.    Property and Equipment, Net
Property and equipment consists of the following (in thousands):
As of
March 31,
2022
December 31,
2021
Computer equipment$9,968 $10,045 
Furniture and office equipment880 948 
Leasehold improvements1,888 1,737 
Total property and equipment12,736 12,730 
Less: accumulated depreciation and amortization(5,118)(4,460)
Property and equipment, net$7,618 $8,270 
Depreciation and amortization expense related to property and equipment was $812 and $344 for the three months ended March 31, 2022 and 2021, respectively.
6.    Other Assets
Investments in Convertible Debt
In January 2021, the Company purchased two convertible debt securities (the “January 2021 Notes”) for a total aggregate investment of $500. Both investments mature on January 1, 2023 and receive
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interest at an annual rate of 6%. In January 2022, the Company purchased an additional convertible debt security (the “January 2022 Note”) in the amount of $2,000 that will mature on January 1, 2024 and receives interest at an annual rate of 6%. Interest accrues on each note and becomes payable upon conversion of each convertible note, or will be paid in connection with the repayment in full of the principal amount of such convertible notes.
These convertible note investments are classified as available-for-sale securities. The January 2021 Notes and January 2022 Note are included in other assets in the accompanying unaudited condensed consolidated balance sheets based on the maturity dates. The Company accounts for these investments, along with the embedded derivatives associated with their conversion features, by utilizing the fair value option within ASC 825, Financial Instruments, and accounting for the entire hybrid instrument at fair value through other income (loss). The Company recorded an increase in the fair value of the convertible notes of $661 for the three months ended March 31, 2022. Changes in the fair value of the convertible notes were not material for the three months ended March 31, 2021.
With respect to its investments in these convertible debt securities, the Company has a variable interest in an issuer of these securities, which is a variable interest entity. After evaluation of the relationship between the Company and this variable interest entity, the Company determined not to consolidate this variable interest entity’s results for the three months ended March 31, 2022 or 2021. Significant judgments included the determination that this variable interest entity lacked sufficient equity at risk to finance its activities without additional subordinated support, and that the Company was not the primary beneficiary of the variable interest entity given the Company’s variable interests do not constitute a controlling financial interest. The Company’s maximum exposure to loss as a result of its involvement with this variable interest entity is its convertible debt investments of approximately $2,250.

7.    Net Income (Loss) Per Share
In March 2021, the Company amended its certificate of incorporation to create two classes of common stock outstanding: Class A common stock and Class B common stock. As more fully described in Note 12, the rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one (1) vote per share and each share of Class B common stock is entitled to ten (10) votes per share. Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder at any time. Shares of Class B common stock are automatically converted into Class A common stock upon sale or transfer, subject to certain limited exceptions. Shares of Class A common stock are not convertible. See Note 12 to these unaudited condensed consolidated financial statements for additional information regarding the current conversion and transfer terms of the Company’s common stock. The Company allocates undistributed earnings attributable to common stock between the common stock classes on a one-to-one basis when computing net income (loss) per share. As a result, basic and diluted net income (loss) per share of Class A common stock and share of Class B common stock are equivalent.
Diluted net income (loss) per share gives effect to all potentially dilutive securities. Potential dilutive securities consist of shares of common stock issuable upon the exercise of stock options, shares of common stock issuable upon the conversion of the outstanding shares of Preferred Stock, and shares of common stock issuable upon the vesting of restricted stock awards (“RSAs”) or restricted stock units (“RSUs”).
For the three months ended March 31, 2022, the net loss attributable to common stockholders is divided by the weighted-average number of shares of common stock outstanding during the period to calculate diluted earnings per share. The dilutive effect of common stock equivalents has been excluded from the calculation of diluted net loss per share as its effect would have been anti-dilutive due to the net loss incurred for the period.
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For the three months ended March 31, 2021, dilutive net income per share was calculated by dividing net income by the weighted-average number of shares of common stock outstanding during the period, the dilutive impact of stock options and shares of common stock issuable upon the vesting of RSUs. The following table presents a reconciliation of the weighted-average shares outstanding used in the calculation of basic and diluted net income (loss) per share:
Three Months Ended March 31,
20222021
Weighted-average shares outstanding:
Weighted-average number of shares of common stock used in computing net income (loss) per share attributable to common stockholders—basic140,790,000 96,375,531 
Dilutive effect of share equivalents resulting from stock options 6,151,361 
Dilutive effect of share equivalents resulting from RSAs and RSUs 123,841 
Dilutive effect of shares issuable upon conversion of preferred stock 28,705,360 
Weighted-average number of shares of common stock used in computing net income (loss) per share attributable to common stockholders—diluted140,790,000 131,356,093 
The following potentially dilutive common stock equivalents have been excluded from the calculation of diluted weighted-average shares outstanding for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
20222021
Stock options outstanding6,151,841  
Unvested RSAs and RSUs1,266,479 1,733 
7,418,320 1,733 

8.    Acquisitions, Acquired Intangible Assets, and Goodwill
Acquisitions
Backlinko
On January 13, 2022, the Company completed an asset acquisition of Backlinko, LLC (“Backlinko”), acquiring certain of Backlinko’s assets for cash consideration of $4,000. The purpose of this asset acquisition was to acquire valuable content and to access an existing revenue stream in Backlinko’s SEO courses.
The Company accounted for this transaction as an asset acquisition and allocated the cost of the asset acquisition to the individual assets acquired. The Company allocated $3,915 to the acquired intangible assets and the remaining cost of the acquisition was allocated to the other assets acquired, which were not material. The identifiable intangible assets consisted of trade names and intellectual property, which the Company expects to amortize over the assets useful lives using a straight-line amortization method.
Kompyte
On March 14, 2022, the Company completed a purchase agreement with Intellikom, Inc., which does business under the name Kompyte (“Kompyte”) to acquire 100% of Kompyte’s assets for cash consideration of $10,000. The purpose of the acquisition of Kompyte was to acquire Kompyte’s assets, including its competitive intelligence automation platform. Aggregate acquisition-related costs associated with this business combination were not material for the three months ended March 31, 2022, and were
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included in general and administrative expenses in the consolidated statement of operations and comprehensive loss.
Upon the completion of the acquisition, Kompyte became a wholly owned subsidiary of the Company. The results of operations of Kompyte have been included in the Company’s consolidated financial statements from the date of acquisition.
The Company has accounted for this transaction as a business combination under the acquisition method. The total purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. The Company recorded the excess of the purchase price over those fair values as goodwill. The following table presents the purchase price allocation recorded in the Company’s consolidated balance sheet as of the acquisition date, which was preliminary as of March 31, 2022:
Purchase Price
Assets acquiredAllocation
Fair value of tangible assets:
Other assets$333 
Goodwill6,111 
Identifiable intangible assets4,500 
Total assets acquired$10,944 
Liabilities assumed
Current and non-current liabilities$944 
Total liabilities assumed$944 
Net assets acquired$10,000 
The Company allocated $4,500 of the purchase price to identifiable intangible assets consisting of developed technology, trade names, and customer relationships, which it expects to amortize over the assets useful lives using a straight-line amortization method.
These preliminary acquisition date values were generally determined through established and generally accepted valuation techniques and are subject to change during the measurement period as valuations are finalized. As a result, the acquisition accounting is not complete and additional information that existed at the acquisition date may become known to the Company during the remainder of the measurement period. As of the filing date of this Quarterly Report on Form 10-Q, the Company is still in the process of valuing Kompyte’s assets, including intangible assets and their related useful lives, and liabilities, including related income tax accounting.    
This business combination did not have a material impact on the Company’s consolidated financial statements. Therefore, actual results of operations subsequent to the acquisition date and pro forma results of operations have not been presented.
Intangible Assets
Intangible assets consisted of intangible assets resulting from the Company’s acquisitions and its capitalized internal-use software development costs. Intangible assets consists of the following:

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As of March 31, 2022
GrossNet
CarryingAccumulatedCarrying
AmountAmortizationAmount
Developed technology3,944 (315)3,629 
Trade name2,276 (145)2,131 
Content1,958 (89)1,869 
Customer relationships1,500  1,500 
Capitalized internal-use software3,379 (1,129)2,250 
Total as of March 31, 2022
$13,057 $(1,678)$11,379 
As of December 31, 2021
GrossNet
CarryingAccumulatedCarrying
AmountAmortizationAmount
Developed technology1,194 (266)928 
Trade name68 (30)38 
Capitalized internal-use software2,964 (1,005)1,959 
Total as of December 31, 2021
$4,226 $(1,301)$2,925 

During the three months ended March 31, 2022 and 2021, the Company capitalized $415 and $123, respectively, of software development costs, which are classified as intangible assets on the accompanying consolidated balance sheets. The Company recorded amortization expense associated with its capitalized software development costs of $131 and $129 for the three months ended March 31, 2022 and 2021, respectively.
Amortization expense for acquired intangible assets was $273 and $55 for the three months ended March 31, 2022 and 2021, respectively.
As of March 31, 2022, future amortization expense is expected to be as follows:
Amount
Remainder of 2022$2,444 
20233,392 
20243,163 
20251,006 
2026 and thereafter
1,374 
Total$11,379 
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Goodwill
The changes in the carrying value of goodwill during the three months ended March 31, 2022 were as follows:
Amount
Balance as of January 1, 2022$1,991 
Kompyte acquisition6,111 
Foreign currency translation adjustment(23)
Balance as of March 31, 2022$8,079 

9.    Accrued expenses
Accrued expenses consist of the following:
As of
March 31,
2022
December 31,
2021
Employee compensation$7,312 $10,580 
Income taxes payable630 2,375 
Other taxes payable5,962 3,264 
Vacation reserves3,555 1,988 
Other2,259 1,272 
Total accrued expenses$19,718 $19,479 
10.     Revolving Credit Facility
Senior Secured Revolving Credit Facility
On January 12, 2021, the Company executed a credit agreement with JPMorgan Chase Bank, N.A., in the form of a revolving credit facility, that consists of a $45.0 million revolving credit facility and a letter of credit sub-facility with an aggregate limit equal to the lesser of $5.0 million and the aggregate unused amount of the revolving commitments then in effect. The availability of the credit facility is subject to the borrowing base based on an advance rate of 400% multiplied by annualized retention applied to monthly recurring revenue. The credit facility has a maturity of three years and will mature on January 12, 2024.
Borrowings under the credit facility bear interest at the Company’s option at (i) LIBOR, subject to a 0.50% floor, plus a margin, or (ii) the alternate base rate, subject to a 3.25% floor (or 1.50% prior to positive consolidated adjusted earnings before interest, taxes, depreciation, and amortization (“adjusted EBITDA”) for the twelve months most recently ended), plus a margin. For LIBOR borrowings, the applicable rate margin is 2.75% (or 3.50% prior to positive consolidated adjusted EBITDA as of the twelve months most recently ended). For base rate borrowings, the applicable margin is 0.00% (or 2.50% prior to positive consolidated adjusted EBITDA as of the twelve months most recently ended). The Company is also required to pay a 0.25% per annum fee on undrawn amounts under the Company’s revolving credit facility, payable quarterly in arrears.
As of March 31, 2022, the Company had not drawn on this revolving credit facility. For the three months ended March 31, 2022 and 2021, the Company incurred $81 and $81 in interest expense, respectively, relating to this credit facility.
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11.    Income Taxes
We are subject to U.S. federal, state, and foreign income taxes. For the three months ended March 31, 2022 and 2021, we recorded provisions for income taxes of $140 and $86, respectively. Our effective tax rate for the three months ended March 31, 2022 and 2021 differs from the U.S. statutory rate primarily due to the jurisdictional mix of earnings and the valuation allowance maintained against our net deferred tax assets.
We recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to be in effect for the years in which differences are expected to reverse. On a periodic basis, we reassess any valuation allowances that we maintain on our deferred tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets. We maintain a valuation allowance on certain federal, state, and foreign tax attributes that are not more-likely-than-not realizable.

12.    Redeemable Convertible Preferred Stock and Stockholders’ Equity
Prior to the IPO, the authorized capital stock of the Company included 9,898,400 shares of preferred stock, of which 3,379,400 shares have been designated as Series A Redeemable Convertible Preferred Stock, 1,837,600 shares have been designated as Series A-1 Redeemable Convertible Preferred Stock and 4,681,400 shares have been designated as Series B Convertible Preferred Stock (collectively the “Preferred Stock”).
Immediately prior to the closing of the IPO, the outstanding shares of Preferred Stock were converted on a three-for-one basis into 29,695,200 shares of common stock. The holders of the Company’s Preferred Stock had certain voting, dividend, and redemption rights, as well as liquidation preferences and conversion privileges. All rights, preferences, and privileges associated with the preferred stock were terminated at the time of the Company’s IPO in conjunction with the conversion of all outstanding shares of Preferred Stock into shares of common stock.
As of March 31, 2022, the total number of shares of all classes of stock which the Company shall have authority to issue was (i) 1,000,000,000 shares of Class A common stock, par value $0.00001 per share, and (ii) 160,000,000 shares of Class B common stock, par value $0.00001 per share, and (iii) 100,000,000 undesignated shares of Preferred Stock, par value $0.00001 per share.
Each share of Class A common stock entitles the holder to one vote for each share on all matters submitted to a vote of the Company's stockholders at all meetings of stockholders and written actions in lieu of meetings. Each share of Class B common stock entitles the holder to ten votes for each share on all matters submitted to a vote of the Company's stockholders at all meetings of stockholders and written actions in lieu of meetings.
Holders of Class A common stock and Class B common stock are entitled to receive dividends, when and if declared by the board of directors (the “Board”).
Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder at any time. Automatic conversion shall occur upon the occurrence of (i) a Transfer, as defined in the amended and restated certificate of incorporation, of such share of Class B common stock, (ii) the affirmative vote of at least two-thirds of the outstanding shares of Class B common stock, voting as a single class, or (iii) on or after the earlier to occur of (a) the seventh year anniversary of the effectiveness of the amended and restated certificate of incorporation or (b) the date on which the outstanding shares of Class B common stock represents less than 10% of the aggregate number of the
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then outstanding shares of Class A common stock and Class B common stock. Further, upon either the death or incapacitation of a holder of Class B common stock, the shares held by such shareholder shall automatically be converted into one share of Class A common stock.
Stock Split
On March 15, 2021, the Board approved a 3-for-1 stock-split of the Company’s common stock. The stock split was approved by the stockholders on March 15, 2021 and became effective on March 15, 2021. Upon the effectiveness of the stock split, (i) every one share of common stock outstanding was increased to 3 shares of common stock, (ii) the number of shares of common stock into which each outstanding option to purchase common stock is exercisable was proportionally increased on a 3-for-1 basis, and (iii) the exercise price of each outstanding option to purchase common stock was proportionately decreased on a 3-for-1 basis. Additionally, shares of common stock reserved for issuance upon the conversion of the Company’s Preferred Stock were proportionately increased on a 3-for-1 basis and the respective conversion prices of the Preferred Stock were proportionately reduced. All share and per share data shown in the accompanying consolidated financial statements and related notes have been retroactively revised to reflect the stock split.
Common Stock Reserved for Future Issuance
As of March 31, 2022, the Company had reserved the following shares of common stock for future issuance:
Options outstanding6,151,841 
Options reserved for future issuance11,729,087 
Restricted stock outstanding105,090 
Restricted stock units1,161,389 
Total authorized shares of common stock reserved for future issuance 19,147,407 
n
]
13.    Stock-Based Compensation
In 2019, the Board adopted the Semrush Holdings, Inc. 2019 Stock Option and Grant Plan (the “2019 Plan”), which provides for the grant of qualified incentive stock options and nonqualified stock options or other awards, including restricted stock unit awards, to the Company’s employees, officers, directors, advisors, and outside consultants for the purchase of up to 8,682,600 shares of the Company’s common stock. In July 2020, the Plan was amended to provide for the grant of qualified incentive stock options and nonqualified stock options or other awards to the Company’s employees, officers, directors, advisors, and outside consultants for the purchase of up to 10,163,772 shares of the Company’s common stock. Stock options generally vest over a 4 year period and expire 10 years from the date of grant. Certain options provide for accelerated vesting if there is a change in control (as defined in the Plan).
The Semrush Holdings, Inc. 2021 Stock Option and Incentive Plan (the “2021 Plan”) was adopted by the Board on March 3, 2021 and approved by stockholders on March 15, 2021 and became effective immediately prior to the effectiveness of the Company’s registration statement in connection with its IPO. The 2021 Plan replaced the 2019 Plan as the Board determined not to make additional awards under the 2019 Plan following the pricing of the Company’s IPO. The 2021 Plan allows the compensation committee of the Board to make equity-based and cash-based incentive awards to the Company’s officers, employees, directors and other key persons (including consultants).
The Company initially reserved 13,503,001 shares of Class A common stock for the issuance of awards under the 2021 Plan. The 2021 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2022, by
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the lesser of 5% of the outstanding number of shares of Class A and Class B common stock on the immediately preceding December 31, or such lesser number of shares as determined by the compensation committee. This number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.
The Company accounts for stock-based compensation in accordance with the provisions of ASC 718, Compensation—Stock Compensation, which requires the recognition of expense related to the fair value of stock-based compensation awards in the statements of operations. For stock-based awards issued under the Company’s stock-based compensation plans to employees and members of the Board for their services on the Board, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model as discussed further below. For RSUs granted subject to service-based vesting conditions, the fair value is determined based on the closing price of the Company’s Class A common stock, as reported on the New York Stock Exchange on the date of grant. RSUs granted subject to service-based vesting conditions generally vest over a four-year requisite service period. For all other service-based awards, the Company recognizes compensation expense on a straight-line basis over the requisite service period of the award with actual forfeitures recognized as they occur.
Given the absence of an active market for the Company’s common stock prior to the completion of the IPO, the Board, the members of which the Company believes have extensive business, finance, and venture capital experience, were required to estimate the fair value of the Company’s common stock at the time of each grant of a stock-based award. The Company and the Board utilized various valuation methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. Each valuation methodology included estimates and assumptions that require the Company’s judgment. These estimates and assumptions include a number of objective and subjective factors, in determining the value of the Company’s common stock at each grant date, including the following factors: (1) prices paid for the Company’s Preferred Stock, which the Company had sold to outside investors in arm’s-length transactions, and the rights, preferences, and privileges of the Company’s Preferred Stock and common stock; (2) valuations performed by an independent valuation specialist; (3) the Company’s stage of development and revenue growth; (4) the fact that the grants of stock-based awards involved illiquid securities in a private company; and (5) the likelihood of achieving a liquidity event for the common stock underlying the stock-based awards, such as an initial public offering or sale of the Company, given prevailing market conditions.
The Company believes this methodology to be reasonable based upon the Company’s internal peer company analyses, and further supported by several arm’s-length transactions involving the Company’s Preferred Stock. As the Company’s common stock is not actively traded, the determination of fair value involves assumptions, judgments, and estimates. If different assumptions were made, stock-based compensation expense, consolidated net income (loss) and consolidated net income (loss) per share could have been significantly different.
The Company has recorded stock-based compensation expense of $932 and $593 during the three months ended March 31, 2022, respectively. The following table shows stock-based compensation
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expense by where the stock-based compensation expense is recorded in the Company’s unaudited condensed consolidated statement of operations:
Three Months Ended
March 31,
20222021
Cost of revenue
$11 $7 
Sales and marketing
133 190 
Research and development
149 67 
General and administrative
639 329 
Total stock-based compensation
$932 $593 
As of March 31, 2022, there was $3,161 of unrecognized compensation cost related to unvested common stock option arrangements granted under the 2021 Plan, which is expected to be recognized over a weighted-average period of 3.30 years.
The fair value of each option award was estimated on the date of grant using the Black-Scholes option-pricing model. As there was no public market for its common stock prior to March 25, 2021, which was the first day of trading, and as the trading history of the Company’s common stock was limited through March 31, 2021, the Company determined the expected volatility for options granted based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies. The expected life of options granted to employees was calculated using the simplified method, which represents the average of the contractual term of the option and the weighted-average vesting period of the option. The Company uses the simplified method because it does not have sufficient historical option exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the share option. The Company has not paid, nor anticipates paying, cash dividends on its ordinary shares; therefore, the expected dividend yield is assumed to be zero.
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The weighted-average assumptions utilized to determine the fair value of options granted to employees are presented in the following table:
Three Months Ended March 31,
20222021
Expected volatility52.3 %52.0 %
Weighted-average risk-free interest rate1.60 %0.58 %
Expected dividend yield  
Expected life – in years66
A summary of the Company’s option activity as of March 31, 2022, which all occurred under the 2019 Plan and the 2021 Plan, and changes during the three months then ended are as follows:
Number of OptionsWeighted-Average Exercise Price (per share)Weighted-Average Remaining Contractual Term (in years)
Outstanding at December 31, 2021
6,329,822 $2.32 8.14
Granted87,387 15.48 
Exercised(197,828)1.55 
Forfeited(67,540)2.01 
Outstanding at March 31, 2022
6,151,841 2.54 7.92
Options exercisable at March 31, 2022
3,645,386 1.197.73
The weighted-average grant-date fair value of options granted during the three months ended March 31, 2022 and 2021 was $7.78 and $9.09 per share, respectively. No tax benefits were realized from options during the three months ended March 31, 2022 or 2021.
The aggregate intrinsic value of options outstanding as of March 31, 2022 and December 31, 2021 was $60,252 and $117,734, respectively.
The aggregate intrinsic value for options exercised during the three months ended March 31, 2022 and 2021 was $2,154 and $19, respectively.
The aggregate intrinsic value for options exercisable as of March 31, 2022 was $39,206.
The aggregate intrinsic value was calculated based on the positive difference, if any, between the estimated fair value of the Company’s common stock on March 31, 2022 and December 31, 2021, respectively, or the date of exercise, as appropriate, and the exercise price of the underlying options.
On July 28, 2020, the Company issued 156,852 shares of its restricted common stock (“Restricted Stock Issuance”) to the founders of Prowly for a total fair value of $291 under the 2019 Plan. This Restricted Stock Issuance vests over a three-year service period, applicable to both founders. As of March 31, 2022, 51,762 shares have vested in connection with this Restricted Stock Issuance.
During the three months ended March 31, 2022 and 2021, the Company granted to employees RSU awards for 937,506 and 58,500 shares of Class A common stock under the 2021 Plan, respectively.
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During the three months ended March 31, 2022 and 2021, the Company recorded stock-based compensation expense related to the RSU grants of $315 and $1, respectively.
A summary of RSU activity under the Company’s 2021 Plan for the three months ended March 31, 2022 is as follows:
Number of SharesWeighted-Average Grant Date Fair ValueAggregate Fair Value
Unvested balance at January 1, 2022239,936$17.21 $4,129 
Granted937,50610.289,638
Vested(14,625)14.00205 
Forfeited(1,428)20.2829 
Unvested balance as of March 31, 2022
1,161,389$17.18 $19,953 
2021 Employee Stock Purchase Plan
The Semrush Holdings, Inc. 2021 Employee Stock Purchase Plan (the “ESPP”) was adopted by the Board on March 3, 2021 and approved by stockholders on March 15, 2021 and became effective immediately prior to the effectiveness of the Company’s registration statement in connection with its IPO. The ESPP initially reserves and authorizes the issuance of up to a total of 3,000,667 shares of Class A common stock to participating employees. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2022 and each January 1 thereafter through January 1, 2031, by the least of (i) 1% of the outstanding number of shares of Class A and Class B common stock on the immediately preceding December 31; (ii) 3,000,667 shares or (iii) such lesser number of shares of Class A common stock as determined by the ESPP administrator. The number of shares reserved under the ESPP is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization. The Company will continue to offer, sell and issue shares of common stock under the ESPP from time to time based on various factors and conditions, although the Company is under no obligation to sell any shares under the ESPP.
The first service period of the ESPP began on September 1, 2021, and the second service period of the ESPP began on March 1, 2022. The Company recognized $81 in expense related to these service periods for the three months ended March 31, 2022. On February 28, 2022, the Company issued 39,516 shares of its Class A common stock to its employees under its ESPP for the service period then ended.
14.    Commitments and Contingencies
Operating Leases
The Company leases office facilities under noncancelable operating leases that expire at various dates through 2028. In addition, the Company has multi-year, non-cancelable commitments with its data centers. Some of these lease agreements contain escalating rent payments. Rent expense is recorded on a straight-line basis. Rent expense was $1,333 and $928 for the three months ended March 31, 2022 and 2021, respectively.
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Future minimum amounts payable as of March 31, 2022, under the office facilities operating leases are as follows:
Operating Leases
Remainder of 2022
$3,081 
20232,930 
20242,013 
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