SEMrush Holdings Inc.
03/02/2026 | Press release | Distributed by Public on 03/02/2026 15:35
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis, including information with respect to our planned investments in our research and development, sales and marketing, and general and administrative functions, contains forward-looking statements based upon current plans, beliefs, and expectations that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled "Special Note Regarding Forward-Looking Statements" and Item 1A. Risk Factors included elsewhere in this Annual Report on Form 10-K. This section of this Annual Report on Form 10-K discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 have been omitted from this Annual Report but can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, which was filed with the SEC on March 3, 2025. The period-to-period comparison of financial results is not necessarily indicative of future results.
Company Overview
We are a leading online visibility management SaaS platform. We enable companies globally to identify and reach the right audience for their content, in the right context, and through the right channels. Our platform utilizes data and intelligence at the core surrounded by AI-powered interconnected hubs focused on AI and AI search optimization, search engine optimization, paid advertising, social media management, local marketing, brand marketing, and content marketing. Each of these marketing channel hubs is uniquely designed to ensure our customers can analyze, enhance and measure website navigation and performance, content relevance and authority, and overall prospective customer interests and engagement, and most importantly show how each channel is connected to the others to provide a much needed means for our customers to optimize returns on their investments. Since our founding in 2008, we have achieved a number of significant milestones, including:
•2010:Surpassed 1,000 customers.
•2015:Surpassed 10,000 customers.
•2016:Launched Semrush Brand and Content Marketing tools.
•2017:Completed our first round of financing and introduced collaboration features, including the ability to add users and share projects and received U.S. and UK search awards for the "Best SEO Software Suite".
•2018:Completed another round of financing led by Greycroft and e.ventures; surpassed $70 million in ARR; and launched Semrush Local and Semrush Intelligence.
•2019:Surpassed 50,000 customers and $100 million in ARR.
•2020:Received multiple awards, including "Best SEO Software Suite" and "Best Search Software Tool" according to the European Search Awards, our headcount grew to more than 900 employees globally.
•2021: Completed our IPO and the Follow-On Offering and surpassed $200 million in ARR.
•2022: Launched our first AI product powered by ChatGPT 1.0.
•2023: Surpassed $300 million in ARR, 100,000 paying customers, and 1,000,000 active free customers.
•2024: Surpassed $400 million in ARR and launched the general availability of the Enterprise SEO solution.
•2025: Surpassed $460 million in ARR and launched an expanded suite of generative AI products including the AI Visibility Toolkit and Enterprise AIO. Enterprise platform ARR grew to $37 million. AI products surpassed $38 million in ARR. Entered into a Merger Agreement with Adobe.
Recent Developments
On November 18, 2025, we entered into the Merger Agreement, pursuant to which, and upon the terms and subject to the conditions therein, Merger Sub will merge with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Adobe.
Subject to the terms and conditions of the Merger Agreement, at the Effective Time, each share of Class A common stock and each share of Class B common stock, in each case, issued and outstanding immediately prior to the Effective Time, subject to certain limitations, will be converted into the right to receive $12.00 in cash, without interest. With respect to the outstanding equity awards of the Company, such awards will generally be treated as follows.
Options: Each vested Option and each Option held by a Specified Individual will be cancelled and cashed out for a payment equal to the excess of the Merger Consideration over the exercise price of such Option in respect of each underlying share. Otherwise, each unvested in-the-money Option will be assumed and converted into an Adobe RSU Award, based on the spread value of the Option and the Adobe Trading Price, with no less favorable vesting terms. Options with an exercise price equal to or greater than the Merger Consideration will be cancelled for no consideration.
RSU Awards: Each RSU Award held by a Specified Individual will be cancelled and cashed out for a payment equal to the Merger Consideration in respect of each underlying share. Each other RSU Award will be assumed and converted into an Adobe RSU Award representing equivalent value based on the Adobe Trading Price, with no less favorable vesting terms.
PSU Awards: Each PSU Award that becomes vested at the Effective Time in accordance with the terms of the applicable award agreement will be cancelled and cashed out for a payment equal to the Merger Consideration in respect of each underlying share (with achievement of applicable performance metrics determined based on actual performance in accordance with the terms of the applicable award agreement), and the portion of the award that does not become vested at the Effective Time in accordance with the terms of the applicable award agreement will be forfeited for no consideration. Each other outstanding PSU Award will be assumed and converted into an Adobe RSU Award (with applicable performance goals deemed achieved based on actual performance through the latest practicable date prior to the Closing Date) representing equivalent value based on the Adobe Trading Price, with no less favorable service-based vesting terms.
RS Awards: The restricted stock award relating to shares of Company Common Stock will be assumed and converted into a restricted stock award of Adobe representing equivalent value based on the Adobe Trading Price, with no less favorable vesting terms.
Under the terms of the Merger Agreement, the completion of the Merger is subject to certain customary closing conditions, including, among others: (i) the Company Stockholder Approval, which was obtained on February 3, 2026; (ii) the accuracy of the parties' respective representations and warranties in the Merger Agreement, subject to specified materiality qualifications; (iii) compliance by the parties with their respective covenants in the Merger Agreement in all material respects; (iv) the absence of any law or
order restraining, enjoining, or otherwise prohibiting the consummation of the Merger; (v) the expiration of the waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (which has occurred), and receipt of other approvals under specified antitrust and foreign investment laws; and (vi) the absence of a Company Material Adverse Effect (as defined in the Merger Agreement) on or after the date of the Merger Agreement that is continuing as of immediately prior to the closing.
The Merger Agreement contains customary representations, warranties and covenants made by each of the Company, Adobe and Merger Sub, including, among others, covenants by the Company regarding the conduct of its business during the pendency of the transactions contemplated by the Merger Agreement, public disclosures and other matters. The Company is required, among other things, not to solicit alternative business combination transactions and, subject to certain exceptions, not to engage in discussions or negotiations regarding an alternative business combination transaction.
Both the Company and Adobe may terminate the Merger Agreement under certain specified circumstances, including, among others, (i) if the Merger is not consummated by August 18, 2026, subject to an extension to November 18, 2026, in order to obtain required regulatory approvals, (ii) in the case of Adobe, if the Company materially breaches its covenants not to solicit alternative business combination transactions or the Company's Board of Directors effects a change of recommendation with respect to the proposed transaction or (iii) in the case of the Company, in order to enter into a definitive agreement with respect to a "superior proposal" subject to certain requirements. In certain circumstances in connection with the termination of the Merger Agreement, including if the Company materially breaches its covenants not to solicit alternative business combination transactions, the Company's Board of Directors effects a change of recommendation, or the Company terminates the Merger Agreement to enter into a definitive agreement with respect to a "superior proposal," the Company would be required to pay Adobe a termination fee of $63,000,000 in cash.
The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by the full text of the Merger Agreement, a copy of which is filed as Exhibit 2.1 hereto and is incorporated by reference herein. The Merger Agreement has been attached to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company, Merger Sub or Adobe. In particular, the assertions embodied in the representations and warranties contained in the Merger Agreement are qualified by information in confidential disclosure letters provided by each of the Company and Adobe to each other in connection with the signing of the Merger Agreement or in filings of the respective parties with the SEC. These confidential disclosure letters contain information that modifies, qualifies and creates exceptions to the representations and warranties and certain covenants set forth in the Merger Agreement. Moreover, the representations and warranties in the Merger Agreement were used for the purposes of allocating risk between the Company and Adobe rather than establishing matters of fact. Accordingly, the representations and warranties in the Merger Agreement should not be relied on as a characterization of the actual state of facts about the Company, Merger Sub or Adobe. The Merger Agreement should not be read alone but should instead be read in conjunction with the other information regarding the Merger Agreement, the Merger, the Company, Merger Sub, Adobe, their respective affiliates and their respective businesses, that will be contained in, or incorporated by reference into, the proxy statement on Schedule 14A that the Company will file, as well as in the Forms 10-K, Forms 10-Q, Forms 8-K and other filings that the Company may make with the SEC.
Following the completion of the Merger, the Company will be delisted from the NYSE.
Key Factors Affecting Our Performance
We regularly review a number of factors that have impacted, and we believe will continue to impact, our results of operations and growth. These factors include:
Acquiring New Paying Customers
We expect increasing demand for third-party online visibility software, particularly enterprise and artificial intelligence solutions, to accelerate adoption of our platform and products. Our recurring subscription model provides significant visibility into our future results and we believe ARR is the best indicator of the scale of our platform and products, while mitigating fluctuations due to seasonality and contract term. We define ARR as the total subscription revenue as of a given date that we expect to contractually receive over the subsequent 12 months from customers on an annualized basis, assuming no increases, reductions or cancellations.
As of December 31, 2025 and 2024, we had approximately 108,000 paying customers and 117,000 paying customers, respectively, accounting for $471.4 million and $411.6 million in ARR, respectively. During the year ended December 31, 2025, we experienced a decrease of approximately 9,000 paying customers. This decrease was primarily attributable to continued softness at the lower end of the market where our customer segment includes freelancers and less sophisticated users. We believe this softness is attributable to macro-economic pressures, industry-wide increases in paid search cost-per-click, and some consolidation in the market from AI.
Retaining and Expanding Sales to Our Existing Customers
We serve a diverse customer base across a variety of sizes and industries that is focused on maximizing their online visibility. We believe there is significant opportunity to expand within our existing customer base as customers often initially purchase our entry-level subscription, which offers lower usage limits and limited user licenses, as well as fewer features and functionality. We have demonstrated the ability to expand contract values with our existing customers as they use our products and recognize the critical nature of our platform and often seek premium offerings through incremental usage, features, add-ons, and additional user licenses.
Our sales team is largely focused on driving account expansion by encouraging our customers to fully recognize the potential benefit from our comprehensive platform and the additional features and functionalities available in our Enterprise and AI Optimization ("AIO") solutions. As a result, we continue to see increased momentum cross-selling our broader digital marketing platform within our existing customer base. Our customer cohorts typically experience their lowest dollar-based net revenue retention rate during their second full year after becoming a customer, after which the dollar-based net revenue retention rate typically improves and we are able to drive increased spending across the remaining customers within the cohort.
Our dollar-based net revenue retention rate enables us to evaluate our ability to retain and expand subscription revenue generated from our existing customers. Our dollar-based net revenue retention rate as of December 31, 2025 and December 31, 2024 was approximately 104% and 106%, respectively. The decrease in our dollar-based net revenue retention was the result of softness in the lower end of the market. In the near term, we anticipate continued pressures on dollar-based net revenue retention as softness at the lower end of the market continues.
We calculate our dollar-based net revenue retention rate as of the end of a period by using (a) the revenue from our customers during the twelve month period ending one year prior to such period as the denominator and (b) the revenue from those same customers during the twelve months ending as of the end of such period as the numerator. This calculation excludes revenue from new customers and any non-recurring revenue.
We have successfully increased ARR per paying customer over time and believe this metric is an indicator of our ability to grow the long-term value of our platform and products. We expect ARR per paying customer to continue to increase as customers adopt our premium offerings and we continue to introduce new products and functionality. Our ARR per paying customer as of December 31, 2025 and 2024 was $4,369 and $3,522, respectively, in absolute unrounded amounts. We define ARR per paying customer as of a given date as ARR from our paying customers as of that date divided by the number of paying customers as of that date. We define the number of paying customers as the number of unique business and individual customers as of a given date. We define a business customer as all accounts that contain a common non-individual business email domain (e.g., all subscriptions with an email domain of @XYZ.com will be considered to be one customer), and an individual customer as an account that uses an individual non-business email domain.
Sustaining Product and Technology Innovation
We have a strong track record of developing new products that have high adoption rates among our paying customers. Our product development organization plays a critical role in continuing to enhance the effectiveness and differentiation of our technology in an evolving landscape and maximizing retention of our existing customers. We intend to continue investing in product development and generative AI to improve our data assets, expand our products and enhance our technological capabilities. We have recently expanded our offerings to include Site Intelligence, a site health and monitoring solution designed to keep websites technically prepared, visible and resilient in the new era of AI and search, and an official app in ChatGPT, and Enterprise AIO, a Semrush Enterprise solution that provides businesses with the tools to track, control, and optimize brand presence across AI-powered search platforms, and AI
Toolkits, an AI-powered, all-in-one platform that provides businesses with streamlined workflows, centralized marketing tools, and the ability to drive measurable performance.
Non-GAAP Financial Measures
In addition to our financial results determined in accordance with U.S. generally accepted accounting principles ("GAAP"), we believe that non-GAAP income from operations, non-GAAP income from operations margin, free cash flow and free cash flow margin, each a non-GAAP financial measure, are useful in evaluating the performance of our business.
Non-GAAP income from operations and non-GAAP income from operations margin
We define non-GAAP income from operations as GAAP income from operations, excluding stock-based compensation, amortization of acquired intangible assets, acquisition-related costs, restructuring costs and other one-time expenses outside the ordinary course of business. We define non-GAAP operating margin as non-GAAP income from operations divided by GAAP revenue. We believe investors may want to consider our results with and without the effects of these items in order to compare our financial performance with that of other companies that exclude such items and to compare our results to prior periods.
Stock-based compensation.Stock-based compensation is a non-cash expense accounted for in accordance with FASB ASC Topic 718. We believe that the exclusion of stock-based compensation expense allows for financial results that are more indicative of our operational performance and provide for a useful comparison of our operating results to prior periods and to our peer companies because stock-based compensation expense varies from period to period and company to company due to such things as differing valuation methodologies, timing of awards and changes in stock price.
Amortization of acquired intangible assets.Excluding amortization of acquired intangible assets from non-GAAP expense and income measures allows management and investors to evaluate results "as-if" the acquired intangible assets had been developed internally rather than acquired and, therefore, provides a supplemental measure of performance in which our acquired intellectual property is treated in a comparable manner to our internally developed intellectual property. These amounts are inconsistent in amount and frequency and are significantly impacted by the timing and size of acquisitions. Although we exclude amortization of acquired intangible assets from our non-GAAP expenses, we believe that it is important for investors to understand that such intangible assets contribute to revenue generation.
Restructuring and other costs.Restructuring and other costs include restructuring expenses as well as other charges that are unusual in nature, are the result of unplanned events, and arise outside the ordinary course of our business. Restructuring expenses consist of employee severance costs, charges for the closure of excess facilities and other contract termination costs. Other costs include litigation contingency reserves, asset impairment charges, and gains or losses on the sale or disposition of certain non-strategic assets or product lines.
Acquisition-related costs.In recent years, we have completed a number of acquisitions, which result in transition, integration and other acquisition-related expense which would not otherwise have been incurred, are unpredictable and dependent on a significant number of factors that are deal-specific or outside of our control, are not indicative of our operational performance (or that of the acquired businesses or assets) and are likely to fluctuate as our acquisition activity increases or decreases in future periods. By excluding acquisition-related costs and adjustments from our non-GAAP measures, management is better able to evaluate our ability to utilize our existing assets and estimate the long-term value that acquired assets will generate for us.
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
|
(Loss) income from operations
|
$ | (22,812) | $ | 8,308 | |||||||
| Stock-based compensation expense | 52,625 | 27,999 | |||||||||
| Amortization of acquired intangibles | 5,966 | 4,346 | |||||||||
| Restructuring and other costs | 6,621 | 2,230 | |||||||||
| Acquisition-related costs, net | 10,938 | 2,917 | |||||||||
|
Non-GAAP income from operations
|
$ | 53,338 | $ | 45,800 | |||||||
The following table sets forth a reconciliation of our (loss) income from operations (as a percentage of revenue) to non-GAAP income from operations margin (percentage amounts may not sum due to rounding):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
|
(Loss) income from operations (as a percentage of revenue)
|
(5.1) | % | 2.2 | % | |||||||
| Stock-based compensation expense (as a percentage of revenue) | 11.9 | % | 7.4 | % | |||||||
| Amortization of acquired intangibles (as a percentage of revenue) | 1.3 | % | 1.2 | % | |||||||
| Restructuring and other costs (as a percentage of revenue) | 1.5 | % | 0.6 | % | |||||||
| Acquisition-related costs, net (as a percentage of revenue) | 2.5 | % | 0.8 | % | |||||||
|
Non-GAAP income from operations margin
|
12.0 | % | 12.2 | % | |||||||
Free cash flow and free cash flow margin
We define free cash flow, a non-GAAP financial measure, as net cash provided by operating activities less purchases of property and equipment and capitalized software development costs. We define free cash flow margin as free cash flow divided by GAAP revenue. We monitor free cash flow and free cash flow margin as two measures of our overall business performance, which enables us to analyze our future performance without the effects of non-cash items and allows us to better understand the cash needs of our business. While we believe that free cash flow and free cash flow margin are useful in evaluating our business, free cash flow and free cash flow margin are each non-GAAP financial measures that have limitations as an analytical tool, and free cash flow and free cash flow margin should not be considered as an alternative to, or substitute for, net cash provided by operating activities in accordance with GAAP. The utility of free cash flow and free cash flow margin as a measure of our liquidity is further limited as each measure does not represent the total increase or decrease in our cash balance for any given period. In addition, other companies, including companies in our industry, may calculate free cash flow and free cash flow margin differently or not at all, which reduces the usefulness of free cash flow and free cash flow margin as a tool for comparison. A summary of our cash flows from operating, investing, and financing activities is provided below. We recommend that you review the reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable GAAP financial measure, and the reconciliation of free cash flow margin to net cash provided by operating activities (as a percentage of
revenue), the most directly comparable GAAP financial measure, and that you not rely on free cash flow, free cash flow margin or any single financial measure to evaluate our business.
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 59,583 | $ | 46,996 | |||||||
| Net cash provided by (used in) investing activities | 162,942 | (58,222) | |||||||||
| Net cash (used in) provided by financing activities | (7,535) | 1,870 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 415 | (432) | |||||||||
| Increase (decrease) in cash and cash equivalents | $ | 215,405 | $ | (9,788) | |||||||
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 59,583 | $ | 46,996 | |||||||
| Purchases of property and equipment | (1,793) | (3,802) | |||||||||
| Capitalization of internal-use software costs | (14,865) | (7,862) | |||||||||
| Free cash flow | $ | 42,925 | $ | 35,332 | |||||||
The following table sets forth a reconciliation of our net cash provided by operating activities (as a percentage of revenue) to free cash flow margin (percentage amounts may not sum due to rounding):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net cash provided by operating activities (as a percentage of revenue) | 13.4 | % | 12.5 | % | |||||||
| Purchases of property and equipment (as a percentage of revenue) | (0.4) | % | (1.0) | % | |||||||
| Capitalization of internal-use software costs (as a percentage of revenue) | (3.4) | % | (2.1) | % | |||||||
| Free cash flow margin | 9.7 | % | 9.4 | % | |||||||
Components of our Results of Operations
Revenue
We generate nearly all of our revenue from subscriptions to our online visibility management SaaS platform under a SaaS model. Subscription revenue is recognized ratably over the contract term beginning on the date on which we provide the customer access to our platform. Our customers do not have the right to take possession of our software. Our subscriptions are generally non-cancellable during the contractual subscription term, however some of our subscription contracts contain a right to a refund if requested within seven days of purchase.
Cost of Revenue
Cost of revenue primarily consists of expenses related to hosting our platform and products, acquiring data, AI inferencing costs, merchant account fees, and providing support to our customers. These expenses are comprised of personnel and related costs, including salaries, benefits, incentive
compensation, and stock-based compensation expense related to the management of our data centers, our customer support team, and our customer success team. In addition to these expenses, we incur third-party service provider costs, such as data center and networking expenses, data acquisition costs, allocated overhead costs, depreciation and amortization expense associated with our property and equipment, and amortization of capitalized software development costs and intangible assets acquired through business combinations and asset acquisitions. We allocate overhead costs, such as rent and facility costs, certain information technology costs, and employee benefit costs to all departments based on headcount. As such, general overhead expenses are reflected in cost of revenue and each operating expense category.
We expect our cost of revenue to increase in absolute dollars due to expenditures related to the purchase of hardware, data, expansion, and support of our data center operations and customer support/success teams. We have seen improvement in our cost of revenue as a percentage of revenue as revenue has increased, and expect it to remain near current levels. It may fluctuate from period to period depending on the timing of significant expenditures. To the extent that our customer base grows, we intend to continue to invest additional resources in expanding the delivery capability of our products and other services. The timing of these additional expenses could affect our cost of revenue, both in terms of absolute dollars and as a percentage of revenue in any particular quarterly or annual period.
Operating Expenses
Sales and Marketing
Sales and marketing expenses primarily consist of personnel and related costs directly associated with our sales and marketing department, including salaries, benefits, incentive compensation, and stock-based compensation, online advertising expenses, and marketing and promotional expenses, as well as allocated overhead costs. We expense all costs as they are incurred, excluding sales commissions identified as incremental costs to obtain a contract, which are capitalized and amortized on a straight-line basis over the average period of benefit, which we estimate to be two years. We expect that our sales and marketing expenses will fluctuate as a percentage of revenue based on the timing of related costs. New sales personnel, including our recent investments in Enterprise sales staff, require training and may take several months or more to achieve productivity; as such, the costs we incur in connection with the hiring of new sales personnel in a given period are not typically offset by increased revenue in that period and may not result in new revenue if these sales personnel fail to become productive.
Research and Development
Research and development expenses primarily consist of personnel and related costs, including salaries, benefits, incentive compensation, stock-based compensation, and allocated overhead costs. Research and development expenses also include depreciation expense and other expenses associated with product development. Other than internal-use software costs that qualify for capitalization, research and development costs are expensed as incurred. We plan to increase the dollar amount of our investment in research and development for the foreseeable future as we focus on developing new AI-specific products, features, and enhancements to our platform. We believe these investments will improve customer experience, make our platform more attractive to new paying customers, and provide us with opportunities to expand sales to existing paying customers and convert free customers to paying customers.
General and Administrative
General and administrative expenses primarily consist of personnel and related expenses, including salaries, benefits, incentive compensation, and stock-based compensation, associated with our finance, legal, human resources, IT, and other administrative employees. Our general and administrative expenses also include professional fees for external legal, accounting, and other consulting services,
insurance, depreciation and amortization expense, as well as allocated overhead. We expect to increase the size of our general and administrative functions to support the growth of our business. We expect to continue to incur additional expenses as a result of the proposed Merger, operating as a public company, including costs to comply with rules and regulations applicable to companies listed on a U.S. securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, increases in insurance premiums, investor relations, and professional services. We expect our general and administrative expenses to decrease as a percentage of revenue over time. Our future general and administrative expenses will be significantly dependent on our ability to successfully consummate the Merger as well as related expenses.
Exit Costs
During the second quarter of 2022, we began relocating our Russia-based workforce to other jurisdictions. As of June 30, 2023, we had substantially completed our relocation efforts. All costs associated with our relocation efforts are included in the consolidated statements of operations in our operating expenses under the line item, Exit Costs. Exit costs in connection with our relocation efforts include employee severance and fringe benefit costs, the loss on the sales of our Russian subsidiaries, and other associated relocation costs. We do not expect to incur exit costs associated with our relocation efforts in future periods.
Other Income, Net
Included in other income, net are foreign currency transaction gains and losses. The functional currencies of our international locations are the local currencies for these regions. Any differences resulting from the re-measurement of assets and liabilities denominated in a currency other than the functional currency are recorded within other income, net. We continue to expect our foreign currency exchange gains and losses to continue to fluctuate in the future as foreign currency exchange rates change.
Other income, net also includes amounts for interest income and expense, other miscellaneous income and expense, and gains and losses unrelated to our core operations. We have elected the fair value option in respect to the accounting for our convertible debt securities and investment loan receivable investments, allowing for increases and decreases in the fair value of such investments to be recorded to other income, net for each reporting period. Interest expense is related to interest associated with outstanding finance leases.
Income Tax Provision
We operate in several tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business. We account for income taxes in accordance with the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. In addition, this method requires a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We continue to evaluate the need for a valuation allowance, which is dependent on our future financial performance and expected long-term projects. However, any such change is subject to actual performance and other considerations that may present positive or negative evidence at the time of the assessment. Our tax expense for the years ended December 31, 2025 and 2024 primarily relates to increased profits in our foreign subsidiaries, the non-deductibility of certain equity awards and the requirement to capitalize certain research and development costs which results in a current U.S. tax provision but no deferred tax benefit as a result of the valuation allowance maintained against our net deferred tax assets.
On July 4, 2025, the One Big Beautiful Bill Act, or the "OBBBA", was enacted in the United States. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company has assessed that the legislation effective in 2025 did not have a material impact on our consolidated financial statements as of and for the year ended December 31, 2025.
Results of Operations for the Years Ended December 31, 2025 and 2024
The following tables set forth information comparing our results of operations in dollars and as a percentage of total revenue for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods.
|
Year Ended December 31,
|
|||||||||||
|
2025
|
2024
|
||||||||||
|
(in thousands)
|
|||||||||||
|
Revenue
|
$
|
443,644
|
$
|
376,815
|
|||||||
|
Cost of revenue (1)
|
86,308
|
65,477
|
|||||||||
|
Gross profit
|
357,336
|
311,338
|
|||||||||
|
Operating expenses
|
|||||||||||
|
Sales and marketing (1)
|
176,593
|
144,340
|
|||||||||
|
Research and development (1)
|
97,170
|
80,080
|
|||||||||
|
General and administrative (1)
|
106,385
|
78,610
|
|||||||||
|
Total operating expenses
|
380,148
|
303,030
|
|||||||||
|
(Loss) income from operations
|
(22,812)
|
8,308
|
|||||||||
|
Other income, net
|
12,710
|
12,094
|
|||||||||
|
(Loss) income before income taxes
|
(10,102)
|
20,402
|
|||||||||
|
Provision for income taxes
|
9,395
|
13,027
|
|||||||||
|
Net (loss) income
|
(19,497)
|
7,375
|
|||||||||
|
Net loss attributable to noncontrolling interest in consolidated subsidiaries
|
(540)
|
(861)
|
|||||||||
|
Net (loss) income attributable to Semrush Holdings, Inc.
|
$
|
(18,957)
|
$
|
8,236
|
|||||||
(1)Includes stock-based compensation expense as follows:
|
Year Ended December 31,
|
|||||||||||
|
2025
|
2024
|
||||||||||
|
(in thousands)
|
|||||||||||
|
Cost of revenue
|
$ | 406 | $ | 239 | |||||||
|
Sales and marketing
|
7,425 | 4,742 | |||||||||
|
Research and development
|
14,764 | 5,906 | |||||||||
|
General and administrative
|
30,030 | 17,112 | |||||||||
|
Total stock-based compensation
|
$
|
52,625
|
$
|
27,999
|
|||||||
The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated (amounts may not sum due to rounding):
|
Year Ended December 31,
|
|||||||||||
|
2025
|
2024
|
||||||||||
|
Revenue
|
100 | % | 100 | % | |||||||
|
Cost of revenue
|
19 | % | 17 | % | |||||||
|
Gross profit
|
81 | % | 83 | % | |||||||
|
Operating expenses
|
|||||||||||
|
Sales and marketing
|
40 | % | 38 | % | |||||||
|
Research and development
|
22 | % | 21 | % | |||||||
|
General and administrative
|
24 | % | 21 | % | |||||||
|
Total operating expenses
|
86 | % | 80 | % | |||||||
|
(Loss) income from operations
|
(5) | % | 3 | % | |||||||
|
Other income, net
|
3 | % | 3 | % | |||||||
|
(Loss) income before income taxes
|
(2) | % | 6 | % | |||||||
|
Provision for income taxes
|
2 | % | 3 | % | |||||||
|
Net (loss) income
|
(4) | % | 3 | % | |||||||
|
Net loss attributable to noncontrolling interest in consolidated subsidiaries
|
- | % | - | % | |||||||
|
Net (loss) income attributable to Semrush Holdings, Inc.
|
(4) | % | 3 | % | |||||||
Comparison of the Years Ended December 31, 2025 and 2024
Revenue
Our revenue during the yearsended December 31, 2025 and 2024 wasas follows:
|
Year Ended December 31,
|
Change | |||||||||||||||||||||||||
|
2025
|
2024
|
Amount | % | |||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||
| Revenue | $ | 443,644 | 376,815 | $ | 66,829 | 18 | % | |||||||||||||||||||
For the year ended December 31, 2025, revenue increased by $66.8 million. The majority of this increase was driven by strong upsell and cross sell activity, partially offset by continued softness at the lower end of the market where our customer segment includes freelancers and less sophisticated users. This trend is also reflected in the growth of ARR per paying customer to $4,369 as of December 31, 2025 from $3,522 as of December 31, 2024.
Cost of Revenue, Gross Profit and Gross Margin
|
Year Ended December 31,
|
Change | ||||||||||||||||||||||
|
2025
|
2024
|
Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Cost of revenue | $ | 86,308 | $ | 65,477 | $ | 20,831 | 32 | % | |||||||||||||||
| Gross profit | $ | 357,336 | $ | 311,338 | $ | 45,998 | 15 | % | |||||||||||||||
| Gross margin | 81 | % | 83 | % | |||||||||||||||||||
For the year ended December 31, 2025, cost of revenue increased by $20.8 million.This increase was primarily driven by a $11.0million increase to integration and data costs, a $3.5 million increase to depreciation and amortization costs, a $2.5 million increase to personnel costs, a $1.5 million increase in hosting fees, a $1.0 million increase to other costs, and a $0.9million increase to merchant fees.
Operating Expenses
Sales and Marketing
| Year Ended December 31, | Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Sales and marketing | $ | 176,593 | $ | 144,340 | $ | 32,253 | 22 | % | |||||||||||||||
| Percentage of total revenue | 40 | % | 38 | % | |||||||||||||||||||
For the year ended December 31, 2025, sales and marketing expense increased by $32.3 million. This increase was primarily driven by a $23.8 million increase in personnel costs as a result of higher wage, commission, and stock-based compensation costs. The increase to sales and marketing expense was also driven by a $3.6 million increase in other costs, primarily driven by increased professional and consulting fees, a $2.9 million increase in advertising costs, and a $1.9 million increase in allocable overhead costs primarily driven by an increase to allocable IT costs.
Research and Development
| Year Ended December 31, | Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Research and development | $ | 97,170 | $ | 80,080 | $ | 17,090 | 21 | % | |||||||||||||||
| Percentage of total revenue | 22 | % | 21 | % | |||||||||||||||||||
For the year ended December 31, 2025, research and development costs increased by $17.1 million. This increase was primarily driven by a $16.5 million increase in personnel costs as a result of higher wage and stock-based compensation costs.
General and administrative
| Year Ended December 31, | Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| General and administrative | $ | 106,385 | $ | 78,610 | $ | 27,775 | 35 | % | |||||||||||||||
| Percentage of total revenue | 24 | % | 21 | % | |||||||||||||||||||
For the year ended December 31, 2025, general and administrative expense increased by $27.8 million. This increase was primarily driven by a $20.2 million increase in personnel costs as a result of higher wage and stock-based compensation costs. The increase was also driven by a $7.3 million increase in professional service costs, including legal expenses, mainly attributable to costs incurred in connection with the Merger.
Other Income, Net
| Year Ended December 31, | Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Other income, net | $ | 12,710 | $ | 12,094 | $ | 616 | 5 | % | |||||||||||||||
| Percentage of total revenue | 3 | % | 3 | % | |||||||||||||||||||
For the year ended December 31, 2025, other income, net increased by $0.6 million. This increase was primarily due to an increase in fair value adjustments compared to the prior year.
Provision for Income Taxes
| Year Ended December 31, | Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Provision for income taxes | $ | 9,395 | $ | 13,027 | $ | (3,632) | (28) | % | |||||||||||||||
| Percentage of total revenue | 2 | % | 3 | % | |||||||||||||||||||
For the year ended December 31, 2025, the provision for income taxes decreased by $3.6 million. The decrease in the provision for income taxes for the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily due to lower (loss) income before income taxes, the effects of changes in the tax provision recorded on the earnings of our profitable foreign subsidiaries, restrictions on the deductibility of equity awards, restrictions on the deductibility of transaction costs, and the impact of the requirement to capitalize and amortize certain research and development costs which results in a current provision for U.S. taxes but no deferred tax benefit as a result of the valuation allowance maintained against our net deferred tax assets.
Liquidity and Capital Resources
As of December 31, 2025, we had cash and cash equivalents of $264.3 million, short-term investments of $5.0 million and accounts receivable, net of $26.5 million.
Our principal uses of cash in recent periods have been to fund operations,invest in capital expendituresand short-term investments, and strategically acquire new businesses and assets. This cash is held in deposits and money market funds.
We believe our existing cash, cash equivalents, and short-term investments, will be sufficient to meet our operating and capital needs for at least the next 12 months. Our future capital requirements will depend on many factors, including those set forth under Item 1A. Risk Factors.
Operating Activities
Our largest source of operating cash is cash collections from our customers for subscription services. Our primary uses of cash from operating activities are for personnel costs, online advertising, and hosting costs.
Net cash provided by operating activities during the year ended December 31, 2025 was $59.6 million, which resulted from a net loss of $19.5 million adjusted for non-cash charges of $84.4 million and a net cash outflow of $5.3 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $52.6 million of stock-based compensation expense, $14.7 million for amortization of deferred contract costs related to capitalized commissions, $13.9 million of depreciation and amortization expense, $5.0 million of non-cash lease expense, $1.5 million in other non-cash items; partially offset by $2.1 million for accretion of premiums and discounts on investments and $0.9 million for change in fair value included in other income, net. The change in operating assets and liabilities was primarily the result of a $21.9 million increase in deferred revenue, a $13.2 million increase in accounts payable, and a $5.5 million increase in accrued expenses. These inflows were partially offset by a $20.4 million increase in deferred contract costs, an $18.2 million increase in accounts receivable, a $5.3 million decrease in operating lease liabilities, and a $1.7 million increase in prepaid expenses and other current assets. Net cash provided by operating activities for the year ended December 31, 2025 includes $5.0 million of advisory and opinion fees and $0.3 million of filing fees associated with the Merger, as well as $4.9 million of cash outflows associated with changes in the timing of certain bonus payments and equity awards.
Net cash provided by operating activities during the year ended December 31, 2024 was $47.0 million, which resulted from net income of $7.4 million adjusted for non-cash charges of $51.1 million and a net cash outflow of $11.5 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $28.0 million of stock-based compensation expense, $12.5 million for amortization of deferred contract costs related to capitalized commissions, $10.1 million of depreciation and amortization expense, and $4.6 million of non-cash lease expense; partially offset by $3.3 million for accretion of premiums and discounts on investments. The change in operating assets and liabilities was primarily the result of a $12.9 million increase in deferred contract costs, a $4.8 million increase in prepaid expenses and other current assets, and a $4.4 million decrease in operating lease liabilities. These outflows were partially offset by an $8.5 million increase in deferred revenue due to the addition of new customers and expansion of the business and a $1.4 million increase in accrued expenses.
Investing Activities
Net cash provided by investing activities for the year ended December 31, 2025 was $162.9 million, which resulted from $324.6 million in proceeds from sales and maturities of short-term investments and $7.8 million proceeds from repayment of investment loan receivables. These inflows were partially offset by $140.8 million used to purchase short-term investments, $14.9 million in capitalization of internal-use software costs, $6.4 million used for the purchasing of noncontrolling interest shares, $5.6 million used in cash paid for acquisition of assets and businesses, net of cash acquired, and $1.8 million used in purchases of property and equipment.
Net cash used in investing activities for the year ended December 31, 2024 was $58.2 million, which resulted from $151.2 million used to purchase short-term investments, $25.9 million used in cash paid for acquisition of assets and businesses, net of cash acquired, $7.9 million in capitalization of internal-use software costs, $7.8 million used in funding of investment loan receivables, $5.4 million used for the purchasing of noncontrolling interest shares, and $3.8 million used in purchases of property and
equipment. These cash outflows were partially offset by $147.5 million in proceeds from sales and maturities of short-term investments.
Financing Activities
Net cash used in financing activities for the year ended December 31, 2025 was $7.5 million and consisted of $10.1 million in taxes paid related to net share settlement of equity awards and $1.1 million in repayment of acquired debt; partially offset by $3.9 million in proceeds related to the exercises of stock options.
Net cash provided by financing activities for the year ended December 31, 2024 was $1.9 million and consisted of $4.1 million in proceeds related to the exercises of stock options; partially offset by $1.6 million in repayment of acquired debt and $0.6 million of cash outflows relating to payments on finance leases.
Share Repurchase Program
In August 2025, we announced the 2025 Repurchase Program under which we are authorized, but not obligated, to repurchase up to $150.0 million of the Company's outstanding Class A common stock. Under this inaugural program, the Company may purchase its Class A common stock from time to time on the open market (including pursuant to Rule 10b5-1 trading plans), through privately negotiated transactions, or other available legally permissible means, each in compliance with Rule 10b-18 under the Exchange Act. The timing, manner, price, and amount of the repurchase will be subject to the discretion of the Company's management, and it may be suspended or discontinued at any time. During the year ended December 31, 2025, no shares were repurchased under the 2025 Repurchase Program, and no such repurchases are planned prior to the closing of the Merger.
Contractual Obligations and Commitments
Our principal commitments consist of obligations under leases for office space. For more information regarding our lease obligations, see Note 4 "Leases" to the consolidated financial statements of this Annual Report on Form 10-K. In addition to our leases, we also have commitments with certain data providers expiring at various dates through 2028. For more information regarding our commitments with data providers, see Note 15 "Commitments and Contingencies" to the consolidated financial statements of this Annual Report on Form 10-K. We expect to fund these obligations with cash flows from operations and cash on our balance sheet.
Recent Accounting Pronouncements
Refer to sections titled "Recent Accounting Pronouncements" in Note 2 "Summary of Significant Accounting Policies" to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.
Critical Accounting Policies and Estimates
Our audited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these audited consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates.
We believe that of our significant accounting policies, which are described in Note 2 "Summary to Significant Accounting Policies" to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our audited consolidated financial condition and results of operations.
Revenue Recognition
Revenue Recognition Policy
We generate revenue primarily from subscriptions to our online visibility management SaaS platform, which is comprised of subscription fees from customers accessing our SaaS services and related customer support. We offer subscriptions to our platform primarily on a monthly or annual basis, and we sell our products and services primarily through a self-service model and also directly through our sales force. Our subscription arrangements provide customers the right to access our hosted software applications and customers do not have the right to take possession of our software during the hosting arrangement.
We recognize 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 we expect to receive in exchange for those products or services.
We recognize subscription and support revenue ratably over the term of the contract, beginning on the date the customer is provided access to our service. These subscriptions are generally stand-ready obligations as the customer has access to the service throughout the term of the subscription, and our performance obligations are satisfied with the customer over time. We consider the SaaS subscription and related support services to have the same pattern of transfer to the customer. As such, they are accounted for as a single performance obligation.
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. We primarily invoice and collect payments from our customers on a monthly or annual basis.
Deferred revenue represents amounts billed for which revenue has not yet been recognized. Deferred revenue that is expected to be recognized during the succeeding twelve-month period is recorded as current deferred revenue and the remaining portion is recorded as non-current in the accompanying consolidated balance sheets.
Revenue is presented net of any taxes collected from customers.
Costs to Obtain a Contract
We capitalize incremental direct costs of obtaining revenue contracts, which primarily consist of sales commissions paid for new subscription contracts and expansion to recurring subscription contracts. We amortize these commissions 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 our technology development life-cycle, and an estimated customer relationship period based on historical experience and future expectations. 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 (loss) income.
Stock-Based Compensation
We measure stock options and other stock-based awards granted to employees and members of our board of directors for their services as directors based on the fair value on the date of the grant and recognize the corresponding compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. We have only issued stock options with service-based vesting conditions and record the expense for these awards using the straight-line method. See Note 14 "Stock-Based Compensation" to the consolidated financial statements of this Annual Report on Form 10-K for additional information on fair value measurement of stock-based awards.
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