Earnings call transcript Q1 2023

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Operator

Hello. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Sprout Social First Quarter 2023 Earnings Call. [Operator Instructions].

Thank you. of and President may Development, Vice begin. Rechel, Investor Corporate Relations you Jason

Jason Rechel

Welcome First Sprout Call. you, to Thank operator. Social's Quarter Earnings XXXX

We'll me and Del Ryan announced after results can CFO, be updated be Joe press our which Social's discussing issued website. Barretto. CEO, on release Howard; With investor in presentation President, market Sprout also Preto; have our today and found released are an close the Justyn

safe are Today's of harbor call the contain pursuant will Reform XXXX. provisions which Private of made Litigation statements Securities the to forward-looking Act

among and expected guidance and as market against as our include, financial seek and to statements. from identified for products, growth, results our These today not our expected the views pricing, statements performance others, trends, business, and XXXX do framework, be views as financial size upon Forward-looking future not or by the statements year only, believe, operations, subsequent and any at concerning duty business future strategies initiatives, performance quarter and multiyear investments, customer opportunity, financial, and our plan, our second could we partnerships condition, financial undertake objectives intend, our of should such update XXXX be words or reflect any anticipate, our relied of full representing these statements and date, will. expect, planned

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

the as and XXXX, the we quarterly for current any XXXX, other risks Exchange fiscal with reports by Form of each XX-Q Commission, the please Form discussion filed a ended quarter XX-K that on well supplemented on SEC. XX, report March and the to quarterly and ended file and the factors report that refer our future as December year could annual For results, important XX, affect our Securities actual with for our

to per profitability discuss income, income accepted call, non-GAAP to principles. and which references operating non-GAAP non-GAAP are generally margins with non-GAAP financial accounting share. prepared earnings In in the accordance particular, refer measures, we'll net During not and

financial non-GAAP our included the these our on which comparable been is and to available at of along are SEC release earnings investors.sproutsocial.com. measures has GAAP the press website measures furnished reconciliations in with to directly Definitions most financial

that, the Justyn. call With turn me let to over

Justyn?

Justyn Howard

Thank everyone. you, good and you, joining afternoon, your always, and Jason, time as for for Thank us today.

anchor detail of expansion margin better accelerating our last year, improve deprioritizing going growth. will we strong the to while had raise here that set provide trajectory making throughout us have to forecast growth an business tail incredibly margin XXXX. began changes and by business we're begun pricing materially Late aligning Today, we to progress core long-term low-value up additional of ARR growth our and believe around for long our those that the business around how our efforts and

helped drive record us During QX, margins like Leading ACV and us flow. paying acceleration during XX% new each to deal year-over-year more record ARR growth year-over-year customers which saw in further cRPO accelerated paying year-over-year sizes indicators addition customers or or we more business and $XXX,XXX and in in meaningfully ARR. $XX,XXX than QX, in cash in growth in XX% alongside growth double RPO more free

X% and also of from $X,XXX below health our customer down ARR, ARR, XX% spend our made improvement XX% the in and in logos of to meaningful quality of noncore with that ARR We representing customers of base total XXXX. our now

and focused of also very with momentum and points nearly changes highest XX% XXX market. pricing XX% year-over-year our total our the expansion away business basis ARR our as accelerating business to customers continue greater These our energy growth low The healthiest delivered ACV resources we are ARR across the than within faster growth team. than shift end better of new baseline from

drawing the metrics properly accelerate across healthiest and healthier begun in aligning By the replace with lower focus, parts to the our line as the in economics. we revenue we've Sprout improvements and around growth key expect to fundamentally quality sand point of unit entry a our business

teams we we our shifted success accelerated QX, smallest changed time, million the $X of and roughly In customer low-quality churn at and customers, prices, away revenue. growth from same which ACV believe in

have of $X,XXX NDR base. of noncore for a As This our less of total I specifically position and in quarter, X% customer resources, lower margin ARR. these proxy a growth mentioned, our Until will with of anchor investment spite an negative customer investment significantly than XXX%, is success total this meaningful we the in than accounting more sales than less our customers success now than XX% as removing rest been customers allocated customer resources this and cohort believe fundamental was and for just barely company and over customer acceleration. headcount shifting our for ROI,

anticipated demand We also November. the initially volume our since in trial changes our deemphasized leads. we top on funnel We've low-value last making high-volume, great decline pricing funnel made top of and while our experienced of progress

points, marketing a work revenue content, the pre-price to trial April. believe near-term messaging in SEO, on far with and the market At move we've this greater opportunity. team's of change levels volume underscores further through volume acceleration However, and overall far size higher our beginning in we exceptional seen our price March,

growth the the ARR April and new from consistent April inefficient positively positive impacted tiers low-end being in with through business, business shift our believe We March performance in a top-of-funnel renewed net and outlier. of away enterprise demand healthiest our

in ARR as acceleration strong We expect ongoing QX through in and performance that an and progress the will healthy year. new we a April QX growth continue through net result

our these churn ACV demand. funnel lowest QX and $X ARR top customers, further customer accelerating pleased dynamics million consistent increase new QX a build in business improving of to competitive XXXX expansion we're forecast with from we healthy spite initiatives. our into as looking growth during We're In base, execution, healthier of and on

XX% deliver results, to ARR of great continue with year-over-year. enterprise also greater new net enterprise in investments QX Our than growth

accelerated machine platform engagement. our in acquisition road quickly map to facets sophisticated several now care, our of publishing, Repustate listening, across During QX, of and we learning employee messaging and social AI are extending more our and

build tailor greatly We're to in QX, on upon going and combination AI intentional with impactful workflow existing we with into solutions customer workflows. customer intuitive valuable allowing bring We're to deeper to most our routing OpenAI's to a technologies being functionality Late social and approach to AI of our the advancements these thoughtful built customers and and these model. GPT to care further social. unique aspects of

total and selecting opportunity this see We we opportunities to to continue suite our base. of success with sequentially basis Premium XXX products quarter, see by module nearly ongoing full again rates customers attach points improving strong of were expansion our over XX% as meaningful and customers unlock with unlock greater higher We business to care, analytics capabilities time believe ahead. to even drive of each customer decisions. social our value road our map will drive quarters social these listening as data the in in metrics premium customer AI,

need execute customers with Through the very of will businesses today of the excited partnership to customers culture, We engagement. strategic to they consumers an announce and long-standing with scale. holistic to channels of continue our most one Global provide are a voice our find strategy extension validate valuable for Twitter. to the of real-time tools to as also the social partnership, our continue strength Twitter authentic to at have to foster relationships

a said, parts Sprout XXXX. believe our into efficiency growth we fully focus are upmarket, our evolution We've clear multiyear which winner. our pricing shed benefit most All of anchors make productive will meaningfully the market and in to coming investments momentum from in and category

position We to people Sprout our are hire uniquely maximize competitive flex years our across talented will potential ahead. of all continuing to company that advantages in to the incredibly our

to that, call With turn I will over the Ryan.

Ryan Barretto

to more for our our for value in I'm who who customers future. grateful Thanks, teams consistently and our strengthening see the the continue Justyn. for are foundation platform

demand the for the highlighted, alignment will Justyn our of products XXXX. position accelerate productive our through to strategic we most ARR expect around growth As market and that our of tiers us durability

is and believe strongest where already market. team We efficient competitive have fastest-growing supports the This believe considerable growth we our pointed our of even at this more entire XXXX. and momentum differentiation. we beyond tiers is durable we've built Our

in February, customer positioning the Annual seventh was Sprout happy In consecutive Our enterprise for Awards the to year. Software our point. a GX's Best are and and competitive strengthen, reviews mid-market by recognized proof key continue

are Top a We as featured Software XX and in Companies X Best for including Global Software Product enterprise. categories,

We We take this are of software great social based media in enterprise. category in top media SMB, on only social software enterprise the voice management the pride only and it's software customer. and the the mid-market across completely because recognition ranked recognized management the

return of less million recently net a of This achieve than customer Total of in strong Sprout and Forrester over XXX% enabled feedback a X to months. of a value investment. The grounded years $X.X Economic delivering present return type period and payback customers with value study X is found that of Impact a investment on

This commission by found nearly save X-year that reach Forrester in customers our tech organic to by productivity, costs their over study XX%, times boost improve and social enabled faster conducted a $XXX,XXX on product response deliver Consulting legacy period.

our refined distinct focus of the product, advantage factors our unique comes highly winning in architecture enables believe efficient in and motion. our our a relentless combination social, our go-to-market leadership which these innovation We elegance company. faster for create and the Together, market a from

as the to industry-leading for our grateful are enterprise. software, vote especially incredibly We continue the customers in Sprout who

Salesforce. with partner to opportunity our is unique Also

migrated During handful QX, our customers, Service out-of-the-box XX a leveraging we integration. are which of Cloud

XXXX of of announced we XXX We an in year. Social QX X,XXX shared Studio estimate this and transitioned we last of in When partnership XXX roughly during customers. our X,XXX year, March roughly to

contributions told will And from seasonality We've we grow as looking to the watermark XXXX. year QX low be also this relationship believe the meaningfully of migration course you each ahead, and in for expect positive QX. over this linearly that

opportunity into XX which has is times over Studio larger thousands Social functionality Service unwinding a for than alone. the customers, also this also believe has next been multiple is we Social built and that potential of Cloud months,

as Our opportunity, with a majority through of Salesforce's into data, and multiyear is work us. in of conversations visibility with provides momentum we front contracts typical customers still which the work

more this are We'll medium- share product Salesforce opportunities positioned for excited for have we a we social standard Service our all more this on to long-term work believe customers. the that later have transition, Sprout with Beyond our presented Cloud by integrations to year. just as

including Services, quarter, to Pool Lots, list initially served U.K. Big an customers, conversations Campbell this Primera, Day. on & Department share medium-term and with we of customers and Soup grew GE like on our at Investor Power, which framework, presented We amazing my perspective World Pictures, Ohio [indiscernible] Europe, Dave XXXX with Universal Buster's, our model my Building Health, market Company, I'd the [indiscernible]. addressable of EmblemHealth

Day second look a XX there. this in September year to you planning welcoming for We of forward Investor We're many Chicago.

like I'd expectations. event, help this As we to look to refine ahead your

our XXXX, in for use cemented growing These cases evolved teams Since we're evolve to the strategic pull to networks market importance new fragment the their businesses. complexity further to social social solving has as users. emerge of teams that and

We materially also pricing strengthened accelerated and our we've our momentum upmarket evolving strategy. competitive our position while believe

at in have We was number billion market an enterprise XXXX, of and faster on in ACVs the assessed through social $XX our ACVs even grew QX. year-over-year XXXX, on and From addressable while rate segment-level XXXX our at which QX businesses total served grown ACVs. XX%, mid-market addressable based QX our their

as the utility ACV to continues of grow. stronger anticipate growth ahead social We

solution primarily see enterprise. point a consolidation mix and upper replacement the lower We in greenfield, legacy tool opportunities enterprise to with continue the in to of mid and mid-market new greenfield

While prioritizing XXXX SAM TAM significant low factors forecast our to we're our upside potential well XXXX create in logos, forecast. as as not ACV these aggregate

target. will ability upside that expansion deal anticipated our this support growth year. margins unit of we our changing We customer each to dollar expanding while expect sizes through business in ongoing margin also The improving to over total least well expanding grow basis remainder applications annually outlined at the net this Meanwhile, and as opportunity of per contribute XXX economics points mid-market each inside installed XXX base base, enterprise and quality expanding confidence new to forecast. and retention broadening XXXX plans total our on as XX% XXXX to the in outperform

way of the proud through and time an our on potential. the path I'm to believe we're delivering uncertain unlock we're full

competitive are Our delivering resonating new partnerships and has believe enhancements been product our customers, value positioning our we our to are stronger. have changes never pricing market, the strong with tremendous momentum,

excited to enterprise sales continue and we're successful as on amazing market. We scale are category-defining focused We're of hiring talent, work most a recruiting ahead the tiers the and company. our for we

And with Joe it that, to the I'll through to turn financials. over run Joe?

Joe Del Preto

quarter before moving for our the in detail I'll and Thanks, Ryan. first second on walk now full year quarter to you guidance results through XXXX.

We fastest-growing our our this playbook further efficient quarter most to aligned and segments.

customer into more metrics to with disclosures. Our added aim the provide shift is detail

Beyond forecast customer year. for we with raise are pleased growth accelerating base, to strong across this ARR greater core growth our efficiency even our

XX% year-over-year. was the revenue XX% million, quarter for Subscription year-over-year. Revenue $X.X million, first up $XX.X was $XX.X nearly XX% revenue was Services year-over-year million, representing down growth.

was new net to million QX This away than record success $XXX.X exiting ARR million, decision lowest-value the shift ARR XX% was customer our believe XX% course year-over-year logo a over mix. informed the XXXX. churn have occurred resources more of accelerated part percentage Enterprise up customers approximately which we up year-over-year. that from our to low-value $X of of in

grow. success, while total allows support healthiest improving to economics overall our as us and we change growth customers strategic focus unit The our and around resources profitability

growth in course new expect ARR over ARR We net the total QX and XXXX. accelerating of strong growth

contributing noncore than than the year-over-year. these customers $X,XXX of less QX. end from XX,XXX in in of customers, at ARR of total XX% declined was less number customers down to ARR The ARR QX X%

Just the than ARR quarters we've than mid-market around ago, more of X and over count for customers Less logo than product declined have ARR. strategies nearly customer enterprise, was shift XX% quarter accelerated customer each $X,XXX number accounted we years past a for our X now than total XX,XXX, focus XX% more past sequentially of our each count, $X,XXX of which XX and the the days. ARR our go-to-market less and as

now our than from total XX% QX. XXXX of rate QX focused growth XX% was in has at cohort in customers the ARR. The X over our XX,XXX than with past ARR $X,XXX quarters ARR ARR customers and contribute rate exceeded represent more than more growth of consistent greater more that This than

Given growth shedding we Sprout contribution pricing to optimize this rate growth software, accelerating a believe use healthy low-value changes this that cases on our cohort, year, partnerships new expansion our growth and expanding business in for this positions from anchor logo potential.

contributing XX% The than more more XX% contributing than than in from number the number customers of customers $XX,XXX ARR $XXX,XXX customers number ARR in from ARR grew year and in ago. year a The a ago. $XX,XXX grew of XX% a more from grew ago, contributing of year

with grew this us existing quarter now customers paying million also than We more ARR. X customer and $X have an in

year-over-year XX% accelerated XXXX. ACV from QX QX growth of

execution than more logos compounded low-value New a each the base underlying business of deal on pricing year-over-year, modules of installed and our exit seat sizes expansion the changes from that doubled number premium and ongoing counts rate. attach

normalize growth more ACV to accelerate before year-over-year further the rates expect will our We through QX with growth beginning trend. consistent ACV to prior

compared gross a million, was basis non-GAAP margin XX.X%. a This year XXX representing gross a of up QX, In XX.X% non-GAAP margin gross is $XX.X ago. points to profit of non-GAAP

were of QX sales XX% XX% Non-GAAP million marketing and from or for expenses year revenue, a ago. $XX.X up

meaningful growth investments well hire and to to fortunate future, enterprise make in particularly continue customer are quarter We in throughout roles. the and our

$XX.X were down XX% ago. from or a year for development XX% expenses and QX research million revenue, Non-GAAP of

future support million ago. XX% QX general Non-GAAP of of a investments our expenses for or and down were to administrative continue revenue, to make $XX.X transformative evolution XX% from the We R&D year platform.

We expect of to consistent moving as G&A deliver revenue a percent leverage forward.

income operating of positive XXX million operating for QX basis Non-GAAP for year-over-year. $X.X was points margin, improvement an X.X% a non-GAAP

continue to non-GAAP record non-GAAP invest we margins as business. even are We a the have operating record income operating to and pleased across

$X.X net loss of XX.X common net for average $X.X $X.XX year was share compared outstanding a Non-GAAP ago. million and to for of share of based income income per net QX weighted million non-GAAP shares million on stock per a $X.XX

statement, marketable This the securities. Repustate paid of in end cash cash, acquisition ended we cash QX. cash $XXX.X up to for at and flow with QX includes and million Turning equivalents $XXX.X million and from is sheet balance of the

Deferred revenue the of was the end quarter at million. $XXX.X

billed our $XXX.X approximately XXXX up and year-over-year. from Looking million RPO at contracts, $XXX.X exiting million, totaled both and unbilled XX% up

over total as the expect RPO We million of $XXX approximately to XX% revenue XX months. next or recognize

we billings. talked QX quarter, on invoice an impact Last about

based deferred this growth difference we our the the and will and rate mix has RPO lumpy to monthly quantifying again annual between to contracts, material. continue quarter billings strong impact, be of billings was and While very upon from growth. Without continue and historically RPO revenue the expect quarter-to-quarter

Operating million million continues to to million Free $X.X positive cash $X.X on flow positive our year was for And compared contracts free and a cash to ongoing impact $X.X a QX cash through ago. have multiyear grow. XX% the in as flow strong efficiency, was cash positive free a annual flow record shift we flow margin.

Shifting to guidance. formal

we revenue $XX.X second quarter growth expect to XX%. rate fiscal million of For a million the or the $XX.X in range XXXX, of of

amount material expect XXXX and business model will far a accelerate a expect enterprise. revenue by led We of our for with mix low-quality of through healthier

We services expect year-over-year. to revenue decline

million negative operating represents midpoint. of $X.X $X.X expect million. in loss X% We operating range the non-GAAP an the This non-GAAP of to margin at

performance-based reminder, we our a a each As of execute compensation majority R&D QX hiring year. in and annual

XX.X low-end This ARR per overall of common XXXX $X.XX, We reported to we from rate to maintaining million an basic range full accelerating million. stock expect forecast away QX, of $XXX.X a XX%. during migration million of in weighted loss our of our growth are spite expected net share revenue of roughly assuming In non-GAAP is $X average approximately shares a million $XXX.X year outstanding.

be will XXXX revenue lower services expect to continue We than levels.

XXX year-over-year. total and expectation exceed than the XXX to our year faster full ARR fiscal we our points at go growth from ARR reported than For XX% least to points prior XXXX, up greater by up revenue now basis expect revenue, of basis

pleased non-GAAP to XXX points operating margin expansion For to implies operating $X.X on of points, expect our improvement rate We're up now million. in of XXX range of This basis to margin expansion XXXX, XXX basis non-GAAP income deliver operating to our growth million non-GAAP forecast improve points of expect durable, basis profitable XXX margin and the to from non-GAAP points. a basis. annual we basis $X.X prior

We average $X.XX, non-GAAP basic shares income $X.XX range now up be net and weighted of of expect million approximately of will outstanding. This $X.XX. $X.XX and per between common our from share prior stock XX.X

the In team, of conclusion, of and business we're very model resiliency of execution our software. our the proud value which underscores our our of

as in and never competitive valuable unique in a our been a market. away customers, category-defining important from pull and company position we're believe to our more has billion more Social emerge or we to a $XXX set

Ryan Operator? any to that, I questions. take of With and are your happy Justyn,

Operator

Instructions]. [Operator

question first Lenschow with Our from Raimo is Barclays.

Raimo Lenschow

lot Obviously, like of I but the -- the thing, think, bit of kind outlook like talked -- give what's does you little Because is little are and around? for came call a Can to here, part like kind ARR a in main that some on confidence the are actually turning you're you of digest year. struggling the that the this nice it you in the most that, a lower factors the suggest year investors raising just the already, bit. that's back the improvements here what but quarter,

Ryan Barretto

start lot a in business now the have sub that our between Ryan. than of and growth which customers, confidence. the $X,XXX growing things the XX%, at greater really differences frame, base which XX% given is us a rate. this well just customer we X% $X,XXX, are the and Raimo, versus here. few to dynamics There's a I'll One, tried the the as of are

perspective, seeing that as progress that, have great of we just coming group benefit XX% of the really enterprise of year-over-year. net some are here the well. data seeing On up we're given of April timing top And an enterprise. we out our add in the call, also, just From

we saw So different QX very we in the than a in of what lot April. saw were that dynamics churn

sales from the then getting a the work of terms saw to in to team and thanks just from really our top to perspective, standpoint prepricing nice and levels back from team. a From of perspective, of we changes a marketing our competitive of execution inbound the really see model, top a funnel great great comeback, funnel progress volume continuing

the year So the predictability the all and in great putting about in the things have those opportunity. a confidence good us are to really and team position

Raimo Lenschow

at -- you in one kind goes don't then that could be kind the Because what's confidence one there? that's you like quicker for Like of said cohort -- follow-up year? how the X% so that And than of you that of What's Or left the the moment, the lower here. you, moving obviously had rest want. think? expectations the that for

Ryan Barretto

that think cohort, you're correctly. kind Raimo, X% in sub if $X,XXX the the of I understood Yes, at remaining Yes. I

media we in price-sensitive, a that terms I our at look mentioned that if least for we generally the the prepared QX, about of there they're mature business. play we the probably by that usage of impacted management in in macroeconomic. think in things social what and think terms in we were the it remarks as bunch was pretty importance there most they're of also folks are of and the that those And those folks, of customers are saw their

into so And that as coming April, and the QX. happen in there there saw of made. of at a a saw what good been data we certainly out we But really improvement progress and have we look in bunch

the left. belief in ones based remain what there is the that Our that data stickier customers we that than are the that see bucket and on

those ultimately pricing within that will over time, the roll few years, We next cohort. off think likely over certainly that

We the up we're especially that market, the larger changes with they're replaced also know with stickier pricing that greater customers opportunity as by we're and to opportunities today, being much expand. customers, adding much customers seeing new

Operator

with Genuity. Hynes Canaccord DJ from is question next The

David Hynes

Social love would perspective that? Salesforce. mean thoughts ARR get a been the customers they what's where first size the or of ARR And on a there terms that contribution? the narrative of your with fall kind on opportunity it's that migration customers sense any out have have remains I on the already moved larger I to there's but that that of in spectrum made your Ryan, think Studio decision, of customer

Ryan Barretto

and terms that of in front it the on the think actually we opposite I likely have visibility we pipeline in seen is of the us. executed we've far into what so what both from

partnership. great feel we about that Obviously,

to the in numbers, talked Cloud XXX Service about We've of last in terms year. close got of XXX We quarter. went with In first QX. integrations the live we and Tableau

just So scratching surface like opportunity. we we're that the feel on

We still the customers our certainly some not but months into Salesforce competing right we up few this, typically QX losing going that of of their multiyear ELAs. in that people with And first also know We 'XX QX, do. the ending end cases, many XXXX on and contracts. Salesforce are probably remember were customers on and of were QX

we those a I Obviously, from which But pipeline, what those within going the a cohorts. seem and, a of we're that opportunity ahead deal of would a that the seeing lot still we remaining us us. of is pretty like on to potential. why companies, and with amount and $XXX,XXX in I'm us, front The base fair ACV of say early our has opportunities in Salesforce to sizes of won still we believe, But share opportunity $XX,XXX in have amount they tremendous decided to $XX,XXX partner see with are today. tremendous impact continue

closed account logos highlight, growth probably it, I'd which know if We've is piece We note. the $X,XXX million look $XX,XXX at is I X.XX customer other think over, this our opportunity, there's The you years. relationship over strong. just years, last added. last that call important new X the $XXX But about this to

for We opportunity it's at a us. opportunity Salesforce. the ACVs. Salesforce like amount see of so tremendous good and outside We certainly of And

David Hynes

was a been The of it strategy. double-click headlines as to I kind lots light of was kind I'd obviously, what's nice Twitter love lots of on There's around then release press see And ecosystem. of the the on inside to mean, inside follow-up, of announcement happening organization, changes that their details. Makes today. kind Yes. sense.

do change? you as might what Twitter? like the is to your should Sprout how with risks today? And it of about thinking pertains works be What we are there How relationship think it kind

Justyn Howard

that some and is Yes. the be prioritizing of a market they that the not -- before changes, of of the that may did Justyn. parts same a have the This There's Great the plans lot commentary for of the of around some definitely future. lot they they ecosystem the question.

to bucket takeaway relationship, is are is relates the different been. a both than upon mutual And with team, making we the it one a making the fast that we value with where sure team, collaborating off that that transition, strategic that And commentary strategic of continuing got we long-standing a of we a sure as early, and relationship. today, where in falls far this in that as think key announcement that strength I in establish saw the relationship. a to work as are Sprout, obviously, you we very into got has that that to relationship start as closely and that the lot

get several So to as that the there next and was for marketplace, possible that may foundation within years be more it change the work us to the happening while done. important for set with team tightly early as

I mentioned, we fall seeing and kind partners where news really of And a of of ecosystem the headlines the sit. that category that a So we're than lot into progress. of different out as about happy broadly the we're more

Operator

Bhatia Arjun with The next question is Blair. from William

Arjun Bhatia

would if look And of it look Just were the pricing -- some of trends. we we customer noncore or customers the attribute drove the in churn, more changes at that those kind dedicated following what the reallocation past? of you success maybe to the the to resources up customer on at kind if that of

side flip a the of about in core what reallocation in base the I a might -- the that sales might would would bit I more that love get do little customer that, attention little upmarket maybe the bit team? hear And customer from success to

Justyn Howard

more question. add. to Great Yes. This might Yes. is Justyn. Ryan I'll off us there. start have

that QX. combination we things the saw that a of in into impact So think we went it's that,

an I changes business the and That think some for primary the one several the to was unhealthy we for that of catalyst made. start, of the that declining has of of historically past been sort years. part

that the right with XXX%. we we was that is, part less I inclined grow. far NDR less along as market from a mentioned at, less of earlier, around group It's journey, their to think in mentioned, general, sticky

our of The shared bulk is certainly, from XX% So the very, business. very growing differently. very that we've different

so And to of resources, change things some pricing we together of you of in top made some that the of conditions, those layer the all contributed macro and the that terms of shifts on when acceleration. internally

as I value, think company higher We there's on does, align these about that better when a business, et that think opportunity few we think new as of growth, here of we an higher customers. really the the view potential things. touched we internally entirety to cetera, see reallocation what around better what we

at sort business quality out improving cycling of We've only revenue, upside more also elsewhere had the revenue we're felt by that resources a where not giving some the work So more but we of of of organization us of some financial paying our in all the in that headroom, attention. pointed we of there. people mechanics this the opportunity pointed lot got fundamental because lower across wanted base, and we XX% market our talented like

saw growth of think solid well I that rest other of the ARR in we that. all the performance enterprise -- saw as referenced performance business of across year-over-year We the the we contributing XX% some that. as some to

direction road valuable resources and talent, the in a marketing pointed just backdrop, made, focus as but also the to additional in et just map, is the it shift cetera, the not we same really going company. future, the us whether all of of be product in And resources that be for sales

Arjun Bhatia

about be or OpenAI AI of this position the the marketing integrating role think you term? generative those like some actually media longer aligned Sprout announced That's kind seems management department? change of might do do of And generative of some into to how to starting thinking with trends -- a platform. you AI helpful. with social it And Perfect. the advent How partnership you're then capabilities and you

Justyn Howard

Yes. Yes. question. Great

greater ML, our think creation, to adjacent sure that reach, we to much allow in social, bandwidth job -- to using make, and we're them just do that to improvements to build are that to tools build I to things where dramatic the efficient across is any our that do et AI, cetera, is time, role generative them efficacy, be social we ways the are customers make can them more in that over our output, greater where superpowers allow give to unique to improve the this the they improve and our content And to can much optimization, sprout. customers we capabilities the think, that channels. of can their allows effective essentially where do, of we that unique in have more them their and

So that's focused. where we're

introduced of to parts already, lot yet lot A already. are a come. Some of we've the of of exciting talked that, more that about that,

about of more that us this begin hear more to we roll out. You'll from as

multiplier efforts. allow customers' a that we to But ultimately, the of the be should work of tasks our for on eliminating be and redundant We should we expect the them some the -- marketing building focus around really healthy with in fall some that let of and are relationships, take our more rest the of customers, our the expanding background and et Sprout centered care engaging messages, cetera, that. let parts

Operator

from with next Parker Stifel. is question The Lane

Jeffrey Lane

back through Curious number the to you some actively a the please? if visibility Is that traction the in driven contract again by in you could nice into pipeline, in this that migrations. on dig and year the confidence of double more, you quarter. Can the little things really the some bit Ryan, relationship that durations just your have of comment partnership and Salesforce there? XQ linearity then the in into

Ryan Barretto

those the from the seeing we're that Parker. really Yes. a visibility pipeline that of with. Certainly, customers good amount is we're into Yes, feel working Happy things. to we now the it opportunity, combination and of about

joint have happening collaboration but the directions. we have it with active both between think Sprout in and channels directions both past, in Salesforce one ourselves the I most we channel of I've be And leads going at team. this the mentioned Slack might and in a

really that. excited about So we're

enablement into from pulled a more being also customer but an perspective, with both conversations, at sales teams perspective Salesforce. We're the over

So including into that what Cloud teams, evolved with QX. quickly in started the released as sales integration cloud Service teams has marketing other we

got On that, that a of about. coming events top up of really excited we've bunch we're

as Engineering, Solutions World speaking to week the a this of there, and our going Head having be Cortney, we're opportunity well. at then Tour later Connections have We year next with

tasks So as as just on terms of the into pipeline lead opportunities. basis a visibility current a the combination ongoing daily on open and of in collaboration well traction

Jeffrey Lane

resource there. to was allocation channel. shifting curious about And Understood. hear to over the then it. bit Got I a agency more little gears

curious You channel customer customers, behind year could partner just you impacting if about the what give there of and sense the us sort highest success is that and tier talked the seeing of the prioritization but growth agency of a here. resources how you're traction of the at start

Ryan Barretto

we're opportunity The one about. really is Yes. excited agency

the in parts of sensitivity. house, more them of as probably macroeconomic have SMB well shared price in more pressure the side more of those had on I think that, the in we've folks especially as certain past,

we've partnerships we're them agencies past investing best have approaching relationships, our terms contracting them continued where that they're similar referral is what our the us. in channel a and that see source. today done these referral and to becoming to great -- opportunity Sprout in to we've to brand those today great then from and lot bringing brand way really perspective, best And pipeline businesses source, The that of in a directly have of with

So bit of I think terms that the the a a agency is way business world. done in little change in getting of dynamic

I in think way, we've be from the an versus from perspective. strategy forward. structure org that set up and and we move direct direct both customer And will perspective it a as team a sales success referral more

Operator

is question Elizabeth next The Morgan Porter with from Stanley.

Elizabeth Porter

putting the add with softness call can of tougher, the later again the out? that of help incremental logo macro absolute it at high rate was of volume of below ask us we 'XX to customers, behind since some threshold, If I the the wanted half at had at about adds. that competition we of the XQ I just the customer some adds, perspective? can reacceleration XXXX. just $XX,XXX see you adds absolute level you're XQ resources, dropped on to kind customers end lowest If $XX,XXX looks the the kind large from the unpack you understand in look any but or

Ryan Barretto

Yes.

things I do a there. think there's standpoint. that think of combination it's I opportunities from a reacceleration

of is as our that. quarters about of this the QX think coming shape linearity the for just some being think fiscal off of I highest us of year, the that we

a of across pipeline healthy the there's that's building that think happening I enterprise.

enterprise to that shared perspective. up we over comment before to do being the the back ARR I our around just point XX% net want from

of So we on the here, deals. about that both us the as really teams front opportunity in feel building are good the way the pipeline well executing as

And of well little opportunities the part we of in. those of relative disclosed the as coming reason bit more about are of that things front the in in like opportunities terms size a $XXX,XXX us just

Elizabeth Porter

you growth. provide growth? in And a recognize can about thinking the benefited Studio But like as XXXX it. bigger harder that just growth durable then highlighted can changes it's of a potentially as incremental factors that XXXX Got a to pricing some specific But those follow-up, out you as comp play I some on it more against some relates you Social drivers be expect to shed early know XXXX. just are quickly what TAM. just confidence? I drivers And to your light how

Joe Del Preto

to Happy Joe, that. This Yes. Elizabeth. answer is

what is the we've confidence gives our kind mid-market really here the what is the making. been and talking us about think enterprise up we're I investments into move of

it, last so, about we're hiring months investments just where those and and XX focusing think probably started the you over like making If it's area or the the most. we've

at, example, a from we're If organization into if scratching just that across on investments. the for in look now and of believe are the our just XX% at new and business increase feel much year-over ACVs new of the like our we surface the larger, that we're those net ARR part look we fact deals enterprise, basis, you you getting the doubled

that we of half then and we're XXXX making the investments year things the us going other seeing were of on like growth customers, healthy XXXX. of have we customer some driving in I side the in our we've talked lot momentum at also about, into we base, back all just we give into customer NDR the get think some and we the so and most of and the get listening as a this And social of and into the R&D the and care we look think for example, part those also expansion then of about, feel the that those we're that confidence of

Operator

Michael is KeyBanc. from The next with Turits question

Michael Turits

Thanks as see be a of see adds adds of for quite versus linear mostly might other giving Or the wondering that how And then could it's I growth the into lasting? of help us from that you 'XX? obviously the you big 'XX said you color see you continuing this on and 'XX 'XX? was me the think you the if do on and ahead and some here. migrations Salesforce that opportunity? a net there's opportunity what magnitude in long opportunity Salesforce both you do do you. But In words, impact --

Ryan Barretto

over public is This From they're end spread in of it is we've on what usually the through the From multiyear 'XX the see customers, date do going Ryan. what years. -- conversations are X that they contracts, out we Salesforce I know I with seen terms next of mean contracts. months announcement to of 'XX. XX

opportunity, to see going about through going think think and that we're through the 'XX. just we we're if to it it see I Studio Social So do 'XX

to Salesforce in our overall as we but of I little a this the perspective ecosystem, would fruit customers, Social the shared and bit we're around is also low-hanging Studio just terms highlight, this and partnership well before solution strategy building Salesforce for the and be And thousand best the customer, customers our product couple we that a if integration Social our Salesforce. one there's hundred is know a where, strategy you. of you're Sprout in very

opportunity much goes and one and is So Social of and well larger yes, itself the the Salesforce end itself ecosystem 'XX. opportunity beyond the Studio 'XX

Michael Turits

landscape a you could Great. And the then on competitive comment if bit. I wonder

-- has been moving You're necessarily, but they moving moving a upmarket. down Sprint wouldn't say have priced I that now. was offering it lower market

way? like do a headwind So feel you encountering more? that's you them And any are you in to

Ryan Barretto

perspective, seen data customers' the not competitive QX change and ahead from in have to I we anything not the data. a From look the we or in have Yes. seen as beyond, feedback that product. any And

win the that We're about large seeing before We perspective. within a a We're that in enterprise more enterprise than from great feel space. certainly really lot in rates our space. enterprise we've an ever and seen more them deals

that So moving Sprout that share are platform. customers the details many over our have to the opportunity the are of on customers we to

to be go-to-market while that And is years. there watch thing how about great, over XX-plus say motion we've the I over little the will We I and really the obviously, probably we've think next materializes. only would honed other interesting built it that feel

Our a there business XX-day on free weapon where built we've trial and -- get of space, best continues hands the the the keyboard majority in customers to their of product. foundation in our be the actually our within they're the and

do excited to the with same Sprout. get can the they opportunity do comparison have we apples-to-apples others about an so So

not And no, growing material deals against in enterprise. difference under in upmarket Sprint certainly market, in or enterprise any we're more ever like the seeing change So than before. competitors

Operator

The next with VanVliet question from is BTIG. Matthew

Matthew VanVliet

what surmise best mix one on viewpoint. at you your follow-up formal a little what how of tracked only of that least sort from fronts. both go prices seeing the a months? data? guess, raised? few from on But the I'm in can a RFP have albeit Ryan, rates that, last any there, or sort win more you're seeing from And different multivendor since to evaluation of those importantly sort maybe of a I more Maybe, Are you deals curious process changes a major maybe were of

Ryan Barretto

enterprise, just in the From rewind in we more are we've over common ago, motion that if enterprise. while Yes. Thanks, an than I years more RFPs the a last few the and the historically RFP goes little Matt. perspective, certainly in definitely been into of

about opportunity. Certainly, really well to we respond to deals, last great a from about us to really that. couple legal win resources solution engineering perspective be feel feel good and and those We we've able a the that added those RFPs enable over to years, of

RFP of many in asking their besides to ways, outside actually those the product. the box We're to and go also, into checking get process customers

the process their inform beyond actually that And so customers and checking technology to excited we use on versus boxes really just spreadsheet. get decision a when go

the in are mid-market companies, in it's competitors. not I certainly competitive but It's From rare. be multiple RFPs, the agency more you'll enterprise, It see the X usually Those end lot main RFPs. up would the in definitely might and that really doing that that, the the more to than certainly it's underneath a usually a in So the in SMB enterprise, say X are space. that neighborhood that standpoint, competitors of X.

customer mid-market the -- the enterprise than underneath that it SMBs, for a that's even And company and the in to us it tends and more or are competing the used product just is be a then unless opportunity our before.

volume so free a used trial trial the of and product in Sprout.That for think, differentiator we've And I -- again, and customers the and over that, is the had that come used the they've to used word really that. evaluated just in us it We'll see mouth. us enables customer time, trial have good see that of we'll surveys, And the before. us because oftentimes,

rates. -- everyone to terms competitive So and here. our really with compete around about and then future great about was feel feeling quarter great strong think in ability we another just QX else, the question, of the win the we're I

Matthew VanVliet

versus Joe, about the cash model right. you're But free and understanding some flow increases? think the viewpoint that the the here. of to to gaining here, on we flowing a that helpful. dropping of and basis then, that on on How the bucket a through push were using -- there's continue of accelerator bit hiring growth what's All should sort the price the overall incremental upside if couple an out of especially bottom good of And of margin upside little sort from on quarters prices since side, the Very raised. the

Joe Del Preto

Yes, Matt.

operating overperformed on the So full back didn't to guidance. our because then in as QX I bit the We reinvest QX. little this business. we wanted think of we And year some on raise a that of much in income you saw

you're the year. to So I see continue think that going to throughout

that to opportunities. I money the continue think of we confidence high reinvest to a just have level outperform and see we because

do to that to you'll extent the us money a from given. majority see of backwards reinvest So into to but guidance the within have continue to don't I not see basis I go points. stay us to we've that XXX that XXX that business, the the we think extent not we that, think you'll

you'll that given into we us a still that guidance the right of opportunity the front to the upside extent expect we back invest but overperform, now we So to the see business just expect, us. majority of in

Operator

Jeffries Sandler. The from next question Clarke Piper with is

William Jeffries

goes. on implies flat to would where is number those of your that the wanted just I ARR for guidance a from current or dollar that year basis exiting to sort maybe segment kind framework ARR noncore down of contribution that customers clarify that be

that pricing monthly on they basis understand And of I of as could of renewal, relative they when that, annual are terms understand or versus customers part a customers those you of at help in noncore think much -- just effect. a the how were churned to us

Joe Del Preto

Yes.

second a part out to a -- that's skew to question, direct things of not Clarke, towards of that. going of We're break So your the assumption more necessarily don't monthly percentage, that obviously there. out X% giving couple make percentage of on annual. the you monthly, but the They definitely we without can

of As in we how going the where the this talked far it's the year where through we the out remarks expect, cycle as we about release about process talked those prepared this, business. the or in of earnings think , flows I to kind like multiyear a of customers rest that be

So we has a material it don't to this year's think impact ending ARR.

not from the on huge a but see be to it XXXX. I going you'll down slightly X%, think it's impact

William Jeffries

to over And maybe and the a you call in couple defining are times, segments, And How SMB? the business is it ARR Perfect. on a mentioned of up question clarifying then enterprise, just mid-market X XX%. enterprise you that? fair

Joe Del Preto

SMB split employees X,XXX XX is way so X,XXX employees segments employees to XX below is mid-market is the over those Yes, is businesses, out then we employee and enterprise.

Justyn Howard

This is Justyn.

just part of little of nuanced is SMB that for market mid-market. of is that beyond is a there like example, of, our we're make see in organization more a the If attractive advanced shed. market that there that we the is to -- they've us. think That still that the more very part is points more socially is distinction customer price spending base beginning sophisticated, a a those for I to that variable

that cetera. et enterprises, some companies mid-market are there mid-market, with Similarly, outspend

make total we're focusing want SMB. sense? we entirety way. of resources, about when and I it Does view the So make our don't with to to quite opportunity that where think kind of that bucket We conflate less sure than the not that $X,XXX the

William Jeffries

. absolutely. Yes,

Ryan Barretto

think that last about. one SMB deals in If is we're about excited closed point one data ACV I $XXX,XXX recent deal. of that the we the Maybe space

sophisticated and point, those well. spaces and those So agency customers. businesses winning those SMB we're certainly Justyn's in exist these supporting customers can as to in And

Operator

The next question is Oliver from with Rob Baird.

Robert Oliver

enterprise Ryan, increased dollars marketing, bit, to mid-market you your some use to on, What's a dollars, you be of high more incremental my and that thought enterprise. be I support those guys think, talked going of kind moving of those about focus end this salespeople? just question up little but and sales first around for and are would around

are you even accelerating moving talk your you sales this that, And I towards guys mean know I for some would said point quite upper it certainly, evolved. But more time. been to mid-market about how motion has you've honing quarter enterprise.

just motion follow-up. get sense that for And a reps a how you So with quick where evolved. and sales has enterprise are then

Ryan Barretto

Yes. Yes, absolutely. Yes.

generation. solution predominantly investing enterprise leadership You're a AEs come amount of We've the them some and tremendous opportunity reps of enterprise. We spot engineers BDR in in enterprise on been see and the outbound to as as the pipeline alongside in there. enterprise, well to support some

customer on enterprise. success shifted we up some those noncore and the business perspective, that into in the a were mid-market resources of customers strategic From

also of job a helping retention just much but customers, us improve to give to better of more well, foundation so going as not to ratios us a improving enabling a doing from, we're investments through So all the those and there today. expand those that lot gross

lot changed doing. the motion, of been of In terms been we've sales same the on used the of that been it's talent historically enterprise. things that's the We've in what's to dynamics selling a more adding

They're is the folks capabilities us rep a have the or for where businesses probably also closing they the that that a in and close accounts is those to approach a X X quarterly and close in monthly multiple one business. of on transactions, those to deals basis, not is X-figure a going basis. the way still year. but more have This key sophistication to be going X-figure of velocity The

as a it's market. well us sophistication play So as up for velocity

RFPs. The I is think in shared you is just just different Matt's other probably I thing that before question

approach the But before. doing last over ever process. differentiate that XX the to done than are of We do before that really this they getting months that in of about RFP refining how the works. more a underlying We're we the with they're proving making an in all excited sign our product, there the we customers thing product is those we've that sure in us, is contract get

one in the out of that of competitive and to our speed usability has really the differentiation is sophistication the and And stood things our platform. value

that And that our technology they so but confidence they're before this, want doing that so profiles. We leading also listening. We them customers customers a a decision. risk. the just running time for experiencing certainty especially the they people make really And like found we mitigating social And our in appreciate our of with in want product. all have having their we want them appreciate connecting in that, We them we social there not us, want reports.

the to those that we've the evolved, while. last some little over added things So of are that have

Robert Oliver

saw we're Great. press release thoughts But you you this, you details of ChatGPT in guys social which That's some guys that asked just a clearly, time DJ question we you people. about press -- know put then know talked of for any are a out. little hear helpful. on what a just doing, bit and going to and are guys earlier the for we more guys. things I lot already get I And media release already to of have the about but enhancements general saved

question think there it on is of to, a is got to just you that trying be Sprout of seat-based out now driven do and driven it platform, factored to a would too you something that? to think module? think other out Sprout? we're about it about about And me the something kind -- you through from I about buy amount ChatGPT that when Is pricing. value price But versus just extent an early for? how automation all additional the thinking that tremendous types Is it it right relative of more Is in paid figure

Justyn Howard

too early think but too to indicate to little think where probably Yes. about, goes. Not early we a that

would something monetized. I think fall be would on some we're internally of into that the excited we're about working that that probably ideas

think average continue makes they're has more the those teams, the to average work them, better, manage. we today, certainly that's importantly, about than Sprout easier. as is looking gets think in manager when the our I social to that to going can But but person platform to media possibly even expand not do be -- they shrink

think to that of publish, customers, that content, with time with a organic the that that engagement, them work conversations is keeping the do the having to to and that I of potential are routine that et that the going our happening the time engage And is has from And put we cetera. campaigns the I their cetera. think the through lot of with for to social, offload all publishing see of and to content et ChatGPT more they that inclination into be others,

going time, now over out that we're today. think to larger I than going So years it's X meter have still we from teams to do

that to see we're seat going still I think growth.

they're that be monetize we're a us with of things going going it the thought better lot about think what's differently are to plate and to on the more past. their of certainly, I to build. to But job going able opportunities do tackle to be in we of a than there for that

Ryan Barretto

obviously, And doing is, better general, really think that just that work and with up there, that data. those more insights you value about usable of one to valuable I'll sitting maybe in insights important organization speeding about business on set add decisions. we're of about you we have about the all an make to think of the think in ChatGPT thing reach and able and all the data you a discovery think Then wider making really AI excited and get I other we're

products when about these that to on go product that and know want markets this today, insights might get or So into. great if innovate listening create business data they they customers that we on we they are positioning think them these make decisions to leveraging appropriately, points competitive allow on

more will out opportunities believe that. a about of that we're these of when which think so becomes of that they get we get And really insights speed front the some so us, in things, utility in lot can work important that we even we they data that manner an and up even the more those And part social here their the doing business. impact all of of of

Operator

this Howard are There to any At closing Justyn it further time, questions. over no for I'll remarks. turn

Justyn Howard

drive the to and the for really everyone Certainly this where the all changes I been accelerate how to to this specifically quarters there far. around of we to accelerate that's want to saw continue pricing thank the meant around business over focus several the opportunity with and time that of duality the our out the was so that and next again as the performance XX% nuanced and opportunity the as that to drive. kind our continues a realignment just more and well more and come for Yes. to and playing impetus little we incredibly exists today get in Great. performing revenue

of a look with you of more your weeks. everyone. the to energy, and over Thanks, couple appreciate time So we lot and forward chatting next

Operator

and Ladies call. you this for today's participating. gentlemen, concludes conference Thank

You may now disconnect.

Sprout Social (SPT) 2 May 232023 Q1 Earnings call transcript