Sprout Social, Inc

Please stand by. We're about to begin. Good day, everyone, and welcome to Sprout Social's fourth quarter 2021 earnings conference call. Just a quick reminder, today's call is being recorded. After today's prepared remarks, we will have a question and answer session. To ask a question, please press star 1 at this time, at that time. And now at this time, I'll turn things over to Mr. Jason Reckle, head of investor relations. Mr. Reckle, please go ahead. Thank you, Operator. Welcome to Sprout Social's fourth quarter 2020-21 earnings call. We'll be discussing the results announced in our press release issued after market closed today, and have also released an updated investor presentation, which can be found on our website. With me are Sprout Social's CEO, Justin Howard, CFO, Joe Del Preto, and President, Ryan Barretta. Today's call will contain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Board-looking statements include, among others, statements concerning financial and business trends, our expected future business and financial performance and financial condition, performance against our multi-year financial framework, our market size and opportunity, our plans and objectives for future operations, growth, initiatives, or strategies, our guidance for the first quarter of 2022 and the full year 2022, and can be identified by words such as expect, anticipate, intend, plan, believe, seek, or will. These statements reflect our views as of today only, shouldn't be relied upon as representing our views at any subsequent date, and we don't undertake any duty to update these statements. Board-looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially. For discussion of the risks and other important factors that could affect our actual results, please refer to our annual report on Form 10-K for the fiscal year ended December 31st, 2021, to be filed with the Securities and Exchange Commission, as well as any future quarterly and current reports that we file with the SEC. During the call, we'll discuss non-GAAP financial measures which aren't prepared in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures, along with reconciliation to the most directly comparable GAAP financial measures, are included in our earnings press release, which has been furnished to the SEC and is available on our website at investors.sproutssocial.com. And with that, let me turn the call over to Justin. Thank you, Jason, and good afternoon, everyone. Thank you for joining us. We're very pleased to report a fantastic conclusion to a remarkable year for our company. Our teams continue to execute at a high level, and our opportunity in 2022 is clear. As always, we appreciate your ongoing support and partnership as we forge towards leadership in the $100 billion market opportunity ahead. I plan to outline a few topics that stood out from the quarter and map to our investment priorities for 2022 before turning the call over to Ryan with additional detail and Joe for financials. We're pleased to have delivered greater than 40% revenue in ARR growth in 2021 with efficiency handily outperforming the Rule of 40 benchmark. Our opportunity is fundamentally driven by the secular emergence of social media management, our unique go-to-market strategy, and the differentiation of our technology platform. We're seeing great progress across all segments of our market with our focused investments in the mid-market enterprise leading to our strongest quarter as a public company. We shattered many of our own records and growth milestones during Q4, including a new high watermark for net dollar retention and a record met new ARR. We again added a record number of customers contributing more than 10,000 in ARR, up 56% year over year. again added a record number of customers contributing more than $50,000 in ARR, up 91% year-over-year. And we're very pleased to inform you of our first customer above the $1 million ACB threshold. Building on the recent free cash flow inflection in our business, the straight line from ARR growth to Billings growth to RPO growth outlines an acceleration in the growth and commitment customers are making to social. These fantastic growth numbers and many of the financials that you'll hear from Joe underscore a clear trend. Customers are investing in Sprout more meaningfully and for longer because social has emerged as mission-critical, successful outcomes in the next evolution of business. For this reason, our customers, large and small, are expanding both their investments and use cases for social across their organizations as social becomes a preferred communication channel for global consumers. The 2021 Gartner Digital Marketing Survey found social marketing to be the number one most effective channel of the purchase funnel for brand awareness and for conversion to sales. These findings, along with many similar studies, reinforce a generational change that requires replatforming of the enterprise tech stack. When we started as a company, social didn't even really have a seat at the table. Now social media leaders have executive roles, business strategy and social media strategy can't be compartmentalized, and the entire customer journey exists on social. This means our role in the market has expanded dramatically, and our opportunity with customers of all sizes continues to grow as social becomes even more mission critical. It's why we believe our opportunity is growing, as customers harness the power and utility of social across an ever-expanding set of use cases. We're making investments across the business to capitalize on this opportunity, but to fundamentally extend the foundation of our platform and to double down on our product strategy, we're planning to make our largest ever incremental R&D investment in 2022. This will represent a step function change from 2021, and we believe it will solidify our product and market leadership at a time when the industry is ours to execute against. We believe the barriers to entry in social are risen substantially, the competitive set is diminishing, and our advantages are compounding all at the right time. From a product perspective, we're expanding our capabilities to democratize social for new stakeholders and building deeper functionality for the most sophisticated users. The core investments in our platform are more critical than ever. We'll make the product even easier to adopt and use while also making meaningful advancements in social listening, premium analytics, social advocacy, and social customer care. We'll also be making strategic platform investments in social commerce, messaging, publishing, and reporting. The expansion of these capabilities is designed to create even more value for customers by providing users with the tools they need to excel in their specific workflow spread horizontally across an organization, and empower the teams with the collaboration required to truly harness the power of social. Building on our product leadership, we're also planning to capitalize on multiple strategic leadership opportunities. The recent addition of WooCommerce to our social commerce ecosystem, the recent addition of Yelp to our reviews capabilities, and advancements in unified messaging with WhatsApp are a few examples. We're also deepening the functionality and data sources within our most sophisticated products like listening and analytics that we believe will make Sprout the single source of truth for social data. We expect to hear new partner announcements over the course of the next quarter or two as well. The technical foundation that we've laid to this point and the additive plan investments to our roadmap in 2022 have never been more compelling. We believe we have a true and unique opportunity to define our category both as an overall platform and in each key product area to become the horizontal social system of record, intelligence, and action for businesses of all sizes in all industries. Beyond product and technology, we're also redefining the way we work. We're in the midst of the largest workplace shift of our generation, and we intend to make Sprout a career destination across disciplines and an incredible place to be a customer at the same time productivity and execution is one of the things i'm most proud of as a leader of our company rain or shine this team just delivers we challenge ourselves with an ever higher bar we do the work and we constantly seek to get better the resulting honors from workplace awards like glassdoor's best places to work in 2022 battery ventures 25 highest rated public cloud companies to work for where we ranked number three and a best workplace for parents by Great Place to Work empowers us to remain thoughtful, deliberate, and intentional with the strategy. We're a different kind of company, and we're excited to create value for our employees, our customers, our communities, and you, our stakeholders in 2022 and beyond. With that, I'll turn the call over to Ryan.

Thanks, Justin. Our collective teams really stepped up during Q4 and delivered a performance I'm incredibly proud of. With strong momentum in the business, the most exciting R&D roadmap we've ever had, and continued acceleration in our go-to-market hiring, we remain confident in our continued success in 2022. We spent the better part of last year speaking with you about our marketing focus in the mid-market and enterprise, our international sales and marketing investments, the expanding use cases of our platform, and the rising importance of the product-led sales motion. As these trends carry into this year, we expect to see both the value of an expanded platform with enhanced premium capabilities and the continuation of a social commerce inflection point. Most importantly, we plan to build on the compounding scale with now more than 31,000 customers, as well as our product leadership with industry-leading ratings from G2, TrustRadius, and others. Because we're product-led, we know that the incredibly exciting innovation that our R&D teams are working on will create tremendous value for customers and further enhance our competitive advantages. Our marketing team has doubled down on the content, strategies, and campaigns that needed to target the most sophisticated buyers. We're building on our foundation of success here with better account-based marketing, the recent beta launch of a dedicated Sprout community for practitioners, and are growing our strategic accounts team to bolster outbound sales. Internationally, we continue to migrate high-performing content to local languages and to localize our messaging. Our EMEA team continues to overdeliver. The recent addition of our APAC GM will help scale that business in 2022, and our recently hired LAC team leader will help us execute on our international playbook in that region. As Justin highlighted, the use cases for Sprout have continued to evolve, from social publishing and marketing to social customer care, customer success, business intelligence, advocacy, product intelligence, sales, comms, investor relations, and more. Social is a pillar for how business is done in all these functional areas, and social commerce sits at the intersection of each. Commerce pulls the entire customer journey into social, demanding a platform like Sprout to make social marketing more measurable, social customer care more effective, and to deliver more accurate customer sales, product, and community feedback. Businesses are also being forced to meet the customer at the initial point of product discovery. So it's no coincidence that a report from Accenture last month estimated that sales made through social commerce will triple by 2025 to more than $1.2 trillion. The investment in our product is designed to meet user demands head-on. The expansion of our platform will enable us to create value for specific subsets of enterprise users within each use case. But because we built a platform with tightly integrated capabilities, we can address any or all of these demands with a unified solution. It's what makes our go-to-market motion so powerful. and it's why we remain the industry's highest-rated technology platform across major categories in each market segment, from SMB up through the enterprise, according to thousands of customer reviews from G2 and others. We're taking the friction out of customer adoption and accelerating our product-led sales motion to deliver an even more efficient go-to-market model, and we're doing it at scale. While our current execution remains incredibly strong, our enterprise and mid-market teams dropped the mic during Q4. Our investments in sales capacity, onboarding, and success have been well aligned to the inbound customer demand signals we've seen. The combination of increasing use cases, expanding seat counts, rising premium module attach rates, and steady expansion at market are each massive opportunities for us to execute against in our ACV growth strategy. In this quarter, the large customer growth trends jumped off the page. Social has become a team sport, and we believe we're the software best equipped to help these cross-functional teams win. A sample of the amazing brands that grew with us this quarter includes Square, Omnicom Media Group, Johnson & Johnson Medical Devices, Illumina, Marsh McLennan, Archer Daniels Midland, The Container Store, Rackspace, Red Hat, Agrium, the United Nations, and the YMCA. Now shifting to a couple of Sprout customer stories. We have the opportunity to expand our relationship this quarter with Atlassian. Kristen Roth, social media manager of Atlassian, shared, we needed to consolidate point solutions and centralize our social media strategy in a unified platform. The smart inbox has been game-changing to our social customer care team to improve engagement across all social handles. As the number of Atlassian brands and footprint across markets has continued to grow, we've increasingly leaned on social listening for brand and competitive health. And consolidating these efforts with Spread's platform will improve collaboration across teams and streamline and up-level our reporting capabilities to ensure we're fully optimizing our social strategy. Another incredible customer highlight from this past quarter was Dong, the leader in revenue intelligence. Udi Ledergore, the Chief Marketing Officer at Gong, shared, we're a power user of Spread's publishing and reporting capabilities to track campaign performance and engagement across different types of social content. Spread's premium analytics offering helps us deeply understand our content trends and optimize custom reporting to uncover actionable insights for our business. Using Sprout, we experienced meaningful growth in engagement and followers over the course of 2021, unlocking even greater opportunities to advance the business impact of our social strategy in 2022. To bring it all together, we had another great quarter to cap off a fantastic year. I'm so energized by this special team and the opportunity to deliver value for our customers during a transformational time. New technology advancements in our platform, new stakeholders in social, and new strategic partnerships position our company for even more success in 2022. And with that, I'll turn it over to Joe to run through the financials. Joe?

Thanks, Ryan. I'll now walk you through our fourth quarter results in detail before moving on to guidance for the first quarter and full year 2022. We're very pleased to deliver greater than 40% revenue in ARR growth in 2021 with a 50-sheet approaching the Rule of 50 benchmark. Revenue for the fourth quarter was $53.3 million, representing 43% year-over-year growth. ARR exiting Q4 was $224.2 million, a 42% year-over-year. We're pleased to see very healthy new business as well as strong retention and expansion across our customer base. We added 1,057 net new customers in Q4 to finish the quarter with 31,762 customers, up 90% year over year. As always, we remain focused on high-quality revenue yield from our new customer cohorts, not the absolute volume of net addition. Our go-to-market efforts increasingly leaned into mid-market and enterprise customers this quarter. Our inbound demand remains very strong. We believe this gives us the ability to optimize for revenue yield while also delivering very healthy quarterly customer net addition, consistent with recent trends for the foreseeable future. The number of customers contributing more than $10,000 in ARR reached 4,917. Up with our expansion efforts, new use cases and a very strong year-end uptick in our premium module sales our ACB growth was again very strong at 90% year-over-year, surpassing $7,000 for the first time and extending the rapid growth we discussed coming out of Q3. In discussing the remainder of the income statement, please note that unless otherwise stated, all references to expenses, operating results, and share count are on a non-GAAP basis to exclude stock-based compensation expense Now, reconcile to our gap results in the earnings pressure rate that was just issued before this call. In Q4, gross profit was $40.3 million, representing a gross margin of 75.7%. This is up 110 basis points compared to gross margin of 74.6% a year ago. Sales and marketing expenses for Q4 were $21.0 million, worth 39% of revenue, down from 42% a year ago. We're continuing to accelerate our pace of hiring across both our sales and marketing teams with an emphasis on content marketing and SEO on the market. We were fortunate to hire aggressively during Q4, which positions our go-to-market teams well entering the year. But even as total expense growth excited for the sixth quarter in a row, we were again able to further improve year-over-year efficiency. Research and development expenses for Q4 were 10.9 million, or 20% of revenue, consistent with 20% a year ago. Our R&D headcount and absolute expenses again grew substantially this quarter as we accelerated hiring to an expanding set of product opportunities. We were planning our largest ever incremental investment in R&D in 2022, and as Justin said, we expect this will extend our market leadership and further differentiate ourselves in the market. General and administrative expenses for Q4 were $11.0 million, or 21% of the revenue, down from 22% a year ago. We expect our G&A expenses to increase in 2022 as we enter a more normalized spending environment, but to decrease as a percentage of revenue. Non-GAAP operating loss for Q4 was $2.6 million, or a negative 4.8% operating margin. This is an improvement of 400 basis points compared with a negative 8.8% operating margin a year ago. We are pleased with the improving efficiency as we scale and we surpass our expectations due to revenue outperformance. Non-get net loss for Q4 is 2.7 million for net loss of 5 cents per share based on 54.1 million weighted average shares of common stock outstanding. with a net loss of $3.4 million and $0.06 per share a year ago. Turning to the balance sheet and cash flow statement, we ended Q4 with $176.9 million in cash, cash equivalents, and marketable securities, up from $175.0 million at the end of Q3 2021. The total revenue at the end of the quarter was $69.4 million, a record sequential increase in the fastest year-over-year billings growth rate in our history. which could lead to greater Q4 seasonality in years ahead for this metric. Looking at those, our billed and unbilled contracts are remaining performance obligations, or RPO, of approximately $107.8 million, up from $87.2 million as of Q3 2021, and up 67% year-over-year. We expect to recognize approximately 82%, or $88.2 million, of total RPO as revenue over the next 12 months. Operating cash flow in Q4 was positive $2.5 million compared to negative $0.2 million a year ago. Free cash flow was positive $2.2 million in Q4 for a positive 4% free cash flow margin compared to a negative $2.0 million and a negative 5% free cash flow margin a year ago. For the full year 2021, free cash flow was $13.9 million or 7% free cash flow margin compared to negative 12% free cash flow margin in 2020. In addition to improving efficiency, the ongoing shift to annual and multi-year contracts is having a positive impact on our free cash flow as we grow. In 2021, our overall dollar-based net retention rate was 112%, an improvement of 200 basis points compared with 110% in each of the past two years. Our dollar-based net retention rate excluding SMB customers was 118% in 2021 compared with 117% in 2020. Shifting a mix of annual contracts and investments we've made in onboarding and customer success are structurally improving our expansion rates. We believe there's a strong multi-year runway to further expand dollar-based net retention from current levels. Shifting the formal guidance. For the first quarter, quarter of fiscal 2022, we expect revenue in the range of 56.1 to 56.2 million or a growth rate of 38% at the midpoint. We expect non-GAAP operating loss in the range of 2.2 million to 1.8 million. This represents an anticipated operating margin of negative 3.6% and improvement of more than 200 basis points year over year. We expect a non-GAAP net loss per share between 5 cents and 4 cents summing approximately 54.2 million weighted average basic shares of common stock outstanding. For the full year fiscal 2022, we expect total revenue in the range of $249 million to $250 million. This is an expected overall reported growth rate of 33%, which we believe positions us favorably against our medium-term growth goal. For 2022, we expect non-GAAP operating loss in the range of $7.4 million to $6.0 million. This implies annual non-GAAP operating margin expansion of between 40 basis points and 100 basis points, paving with our medium-term goals and highlighting the efficiency of our financial model. We're pleased to forecast margin expansion after more than 1,200 basis points of margin expansion in 2021 as we accelerate the pace of investment across many business units. We expect that we'll be aggressive with hiring during the first half of 2022. In our product-led business model, we believe this positions us well to create even stronger value for our customers. We expect a non-gap net loss per share between 14 cents and 13 cents, summing approximately 54.5 million weighted average basic shares of common stock outstanding. For your gap modeling purposes, we expect stock-based compensation to trend in the mid to high teens as a percentage of revenue consistent with fast industry benchmarking. In summary, our Q4 financial performance was indicative of a rising strategic emphasis our customers are placing on social. Our balance sheet and pre-cash flow strength provide us with future optionality, inbound demand remains strong, and our sales execution has been crisp. These strengths empower us to make meaningful investments in technology and go to market, which we believe will position Sprout to pull away and forge leadership in the $100 billion market opportunity ahead. With that, Justin, Ryan, and I are happy to take your questions. Operator?

Thank you. Ladies and gentlemen, again, at this time, if you have any questions or comments, simply press star 1. And if you are joining us today using a speakerphone, please pick up your handset before pressing star 1. And we'll take our first question this afternoon from Raymond Linschow at Barclays. Please go ahead.

Hey, thank you. Congrats from me on these amazing numbers. Two quick questions. Can you speak to what customers are doing with you if I look at the higher end of your market? Because the deal sizes you mentioned that we haven't seen before, so that kind of looks very interesting, and there were some very interesting brands you mentioned there. Can you talk a little bit about the difference of how they are using it and then how you were used in the past? And then the second question goes kind of right in line with that, and it's more about the R&D investments that you talked about this year. It looks like there's a kind of broad expansion of the product coming this way. How is that going to help you in a better product market fit if you continue to go further upmarket? Thank you.

Thanks for the question, Ray. I'll go first on addressing the large brands. Yeah, we're extremely excited with the momentum and execution we've seen in mid-market and enterprise. And a good portion of this is coming from a few different things. One, we've just seen an evolution in the way that social is being used by the enterprise. Years ago, what used to be just a marketing use case has evolved into marketing and across marketing. It's PR, it's content, it's brand, it's comms. into things like social customer care and customer support, where today, as we know as consumers, we're leaning heavily into going directly to social to get support versus picking up the 1-800 or emailing in. And then we've added over the last couple of years some sophisticated products in terms of analytics and social listening, which is providing a tremendous amount of data back to these enterprises that they're leveraging to really make smart business decisions. Which markets do they want to go into? How should they evolve their marketing? How should they evolve the way that they're competing? How should they evolve the way that they're building their products? And so what we've been seeing in the enterprise is this explosion in terms of use cases. We're seeing more users. than we ever did before. And we're seeing it really go across the enterprise. You combine that with the fact that our team, from a marketing perspective, has been investing more upmarket and enterprise-driven marketing strategies. And we've been adding enterprise AEs in terms of sales capacity to go execute against the opportunity. And you're seeing that in the 50K being at a 90% growth right there.

This is Justin. I'll chime in a little bit on the R&D side, you know, and how we're aligning those investments to kind of match the opportunity that we're seeing in the larger customers, the larger use cases. You know, to Ryan's point, a lot of that growth that we see has to do with the way that organizations are operationalizing social and taking it across larger teams with more users. So there's a lot of user growth baked in there. One of the things that we're doing on the R&D side to really lean into that is thinking about the kinds of tools and capabilities that larger teams need, the tools that they need to collaborate more effectively to work as large organizations with potentially many, many use cases and large volumes of messages.

So there's a good amount of work. work that goes into there.

There's a good chunk of the roadmap that is dedicated toward just those more sophisticated use cases generally. You know, are we building and expanding against the social listening, the more complex customer care needs, things that really speak to those organizations that are a little further in their maturity curve. But then, of course, also, you know, as early as we feel that we are in this market and given where many customers are in terms of where they are with maturity and adoption, we want to make sure that we're also carving out. We don't consider those to be solved problems. And everything that we're investing in, in kind of the bread and butter tools, all of that is in the direct path of revenue, meaning the fact that the vast majority of our revenue comes through and actually tries our product before they buy it. everything that we do to improve all of those experiences has the opportunity to increase conversion rates, increase user counts, and start to lean into and help customers understand some of the additional use cases that they may want to adopt. So, you know, the broad way to think about it is all of our R&D investment goes into some aspect, some lever of our revenue growth, but certainly biased toward a lot of the more sophisticated use cases, the larger teams, and larger opportunities that we're seeing in the market and in the enterprise.

Perfect. Thank you. Congrats.

Thank you. We'll go next now to Parker Lane at Stifle.

Yeah, thanks for taking the question, and congrats on the quarter. Sort of a follow-up to the last question, wondering if you can give us a little bit more on the profile of a customer that's spending a million dollars plus on Sprout Social. Is a customer like that fully tapped in terms of what you're offering today, or are there expansion opportunities even inside of that in the form of new users, new use cases, and even potentially the expansion of their social footprint to some of the newer channels out there that are emerging? Thanks.

Yeah, to answer the question, Parker, there is plenty of opportunity in that account. We're incredibly excited by that organization. It's a large technology organization. One of the things that I really appreciate about this is our team has been growing at that account for about 24 months. And so we took the initial footprint, and we've been doing the seed and grow approach that's worked really well for us. And that means that we're able to grow across brand organizations. As you get that first footprint in your organization, you go through the hard parts of legal and procurement, and then you have a trusted vendor. And from there, you're able to actually leverage those internal use cases, those internal advocates, to move across the organization. So we certainly see plenty of opportunity in this account and others like it in terms of going across more divisions and brands. To your point around social networks and other integrations that we'll add, there will be more opportunity there. And even with the use cases that we've earned the business in, we still see plenty of upside.

Got it. That makes a lot of sense. And then, Joe, one for you, a very nice growth year-over-year and sequentially on the bookings and deferred revenue front. Is that purely a reflection of this shift to the enterprise, maybe some longer durations there, or are there seasonal components that are now entering the business as the share of mid-market enterprise continues to expand that will sort of repeat on a going-forward basis? Thanks.

Yeah, Parker, it's a little bit of both. So definitely as we've gotten in more of these mid-market enterprise deals, they come with longer terms. There are bigger commitments. These companies realize the importance of social. We talked about this a little bit in our prepared remarks. We definitely saw a little bit of that seasonality in Q4 with some of these larger enterprise deals. So I think going forward, Parker, you're going to see a combination of us continue to drive more annual deals over month to month, and you can assume more seasonality in Q4 as well.

Appreciate it, and congrats again on the quarter.

Thank you. We go next now to Arjun Bhatia and William Blair. Awesome. Thank you very much, and congrats on a great quarter, guys. I wanted to touch on maybe just the large customer metrics.

It clearly seems like there's a step up and a trend that's been playing out over the last couple of years, especially when you look at the 10K and 50K customers.

I'm curious how the landing point of customers has changed over the past year as Social has evolved and it's gotten, I think, maybe higher on the priority list for larger customers. And then as you look at these milestones that you're disclosing, you know, are those typical landing points for you now?

If it's a $10,000 deal, a typical landing point or $50,000 if you're looking at enterprise deals? Thank you.

Yeah, thanks for the question, Arjun. So in terms of the large customers and how it's changed over time, I think you're right that there has been an inflection in that we're into speaking to more senior level executives at these companies today. I think more and more people have realized, brands have realized the importance of social to their overall strategy. and we're seeing more executives pay attention. So that means oftentimes they're joining demos. Oftentimes the practitioners that we're working with within the marketing department or customer care are producing reports, producing data and information that they're surfacing back up to these executives, oftentimes daily or weekly, to give them a really good sense of what's happening within social, how their brand is being represented, the sentiment on their brand and their competitors. So I think that's one of the things that I just highlight is that more and more in these conversations, we've got executive interest in how a brand is executing from their own social strategy and then what's happening in the marketplace. And as you might imagine, as you're getting into those conversations, there's more gravity around the solution. There's more gravity around the partner that you're picking and the focusing on innovation. and where the technology is going. So that's helped us a tremendous amount. And if I think about just the typical landing place, that's also meant that the opportunity to close more of these larger deals continues to happen. So in the mid-market enterprise specifically, Those companies coming in, they've got bigger problems. They've got bigger opportunities in front of them. They've got larger departments that are going to need access to Sprout. And so with that, it gives us an opportunity to start at a larger user count and start at a larger profile, social profile level. So those things are all converging and providing a tremendous amount of opportunity for us, and we feel like there's a lot of positive tailwinds there.

Awesome. Thanks, Ryan. And, Justin, maybe I want to touch on the product investments.

I'm curious if, you know, when you look at the competitive set, is there just where you're focusing these R&D investments, is there just a gap in the market, meaning, hey, you know, other players in the space are just not addressing the problems that you're seeing and that you're trying to solve for? Is that you know, that competitors are inefficient and that, you know, your customers are really driving this innovation push and this R&D push? Yeah. I mean, I think it's a combination of things. You know, I think it has more to do with just the architecture and the customer experience with the tools versus, you know, specific – um gaps that might exist and of course that's going to vary you know competitive competitor what the gaps are and which ones we really press on um but i think you know a lot of the momentum that we've seen and we've talked about this over several quarters is the fact that we're getting customers in and we're proving out our value with the product itself in their hands um just makes a monumental difference right it's one thing to solve the same set of problems on paper as a checkbox it's a very different thing uh for the platform to actually solve the the problem for the people behind the keyboard and allow them to do their day-to-day work um and we're we're hands down the best in the business there so i think that that is aligning more not only with what our customer is going you know you've heard ryan and i talk about this For a while now, the way that businesses will be evaluating and buying software in the future is shifting, and proving that value up front is important. Because we are product-led, because we are trial-led, we've had to put investment and focus in those kinds of experiences that really resonate that maybe others haven't spent as much time on. Got it. Very helpful. Thank you, and congrats again. Thank you. We go next now to Clark Jeffries at Piper Sandler.

Thank you for taking the question. Just another one here on standout enterprise activity in the quarter. I'd like to understand the context of the pipeline. Was this a progressive build into Q4, even into Q4 with a particularly strong pipeline? What was this an inflection in interest mid-quarter and how should we think about the level that you're seeing in 2021 from a pipeline perspective?

Yeah, thanks for the question, Clark. So I think one of the things that's been a really big competitive advantage for us, and Justin touched on it a little bit, is just the inbound motion that still exists for our business today and the product-led motion which we apply even in the enterprise. And so certainly... As you might imagine, with mid-market and enterprise type of organizations, the way their budget cycles work and the way that they typically procure software tends to be heavier at the end of the year in Q4. And so we certainly had some deals that were lined up where we'd been talking to these customers and working with them through the year. But the other benefit that we have here is with that inbound model, we still get a significant amount of pipeline in the enterprise every single month. which is setting up our teams to be able to execute. And we're still running at a sales cycle that runs between 30 to 45 days on average, and we will see deals in the mid-market and enterprise that hit those timelines. So it's a little bit of a combination. Exiting the year and going into Q1, we felt like we saw continued progression and opportunity within the pipeline and with the opportunities in front of us. So a lot of balance, I would say, and a lot of predictability around that pipeline. And because we're getting people into the product and using the product and using it in a 30-day trial, it creates a nice set of urgency because they're doing a lot of the work. They've built their processes and workflows in place. They don't want to lose that after the 30-day trial, which creates rapid sales cycles for us.

Great, thank you. And then maybe be able to help quantify the step function increase in R&D and whether we should think about it really being G&A or go-to-market investments that might be seeing better leverage here in 2022 and absorb that step up in R&D while still driving the year-over-year improvement in margins.

Yeah, Clark, I think you can expect that most of the leverage in 2022 will come from the G&A line. I don't think you're going to see right now the investments you want to make in R&D, even on the go-to-market side. You're not going to see significant leverage in either one of those items, but it'll come from G&A, Clark, in 2022.

Thank you very much.

Yeah.

Thank you. We go next now to Matt Vandele at BTIG.

Thanks for taking the question, guys. Nice job on the quarter. I guess looking at the social commerce opportunity, I think you mentioned that by 2025, estimates are there'll be well over a trillion dollars in total sales out there. How should we think about your ability to monetize that, what it could impact the model from an actual revenue standpoint if we get anywhere near that $1.2 trillion level that you mentioned?

Yeah, so, you know, current thinking is that we intend to monetize the software behind it. So, you know, our focus is on making sure that our platform is capable of all the things in and around the commerce process, that we're supporting brands that are selling through the social channels, giving all the tools they need to be successful there. But And I've said this a couple times, you know, it's early days. So we don't want to commit too specifically to what the revenue opportunities are there. Expect to see us initially monetized through GIST. improvements in potentially conversion rates and ACVs in users and use cases and what I would consider more like second order. I think it's also possible that there's a premium module around commerce that may come. And those are the things that we have our eyes on from a monetization perspective. And then I think maybe even a layer deeper than that, this is another example of just more of the things that happen in the world around commerce and business moving to social channels. And so the number of people involved, the number of users involved, the number of workflows and processes and all of those things that our customers need to be running through our platform just increases. Our value increases, our stickiness increases, et cetera. So substantial opportunity. Our focus right now is monetizing the software side of that business.

All right, very helpful. And then, Brian, as you look at the international growth, you mentioned EMEA continuing to be just a true standout portion of the organization, and now you have regional heads in both LATAM and APAC. Maybe what are some of the learnings or, you know, lessons you can accelerate that time to value for those new heads in the other regions that you take from EMEA and just overall kind of what you've been doing on the international stage so far? And, you know, how quickly do you think we should think about those two regions being more significant contributors?

Yeah, I think the biggest learning for us has just come from being on the ground in EMEA. I mean, a good portion of our international revenue really came from the foundation of what was built in north america through the inbound model and the very western centric u.s centric marketing and it created a lot of top of funnel that we were executing against from from u.s sales reps and back in 2019 we opened that amia office and we got a great team there that started very small and has continued to grow and we've been really really happy with the productivity that we've seen from the team we've learned a lot about the hiring profile in the regions. We've learned a lot about just productivity and ramping outside of the US. We've also learned a lot about the localized marketing and the opportunity to think about how we approach those markets. And so with that learning in place, We're taking it across to APAC and LATAM. And so we hired our GM, Enrita, in the summer, and she's just getting up and running with the team there. And then we've just hired our LATAM leader. So a lot of the same learnings in terms of ramping AEs and adding sales capacity. And then the piece that we're excited about that is still relatively nascent, but a big opportunity, is just the indirect approach to how we manage customers resellers and channel opportunities in the future. So I'd say over the next few years, you'll continue to see that grow. It'll still be led by EMEA, and then we'll see those other two regions really starting to come on later.

Very great. Thank you. We'll go next now to DJ Hines at Canaccord Genuity. Hey, guys. This is Luke on for DJ. Thank you for taking the question. So strong. When we think about what's sort of driving NRR today, is that more a function of... I know... But maybe you can expand on each of those drivers and whether sort of the algorithm that is driving NRR today has evolved as the platform has expanded in the chart in the market. Thanks. So your audio cut out a bit, at least for me, so I'll try and recap the question and then lean on Ryan to give you some insight here. What I caught, it sounds like the question is just what are the contributing factors to the NRR numbers between the improvements in growth of existing accounts and versus improvements in retention. Is that a good summary of the question there? Yeah, that's about right. Okay, perfect.

Yeah, thanks, Luke. So there are a few things that go in place there that I think are just massive opportunities for us. One is the mid-market and enterprise opportunity that we see in front of us. And we're really starting to see acceleration within those businesses over the last 12 to 24 months. and as we see that we know that those larger customers are going to come in they're going to land bigger we also know that they typically are signing on for longer contracts so moving the market enterprise is going to be a big deal moving into more annual multi-year contracts across all of our segments is going to be really big for us both in terms of contraction and later on in terms of growth and expansion And then the final piece is we've seen healthy success from our attach rates and our premium products. And so we've got this opportunity to go back to all of these customers and highlight some of the things that we've been doing over the last few years, specifically around premium analytics and listening. So we've got a few different levers that we're putting in place here that we're really excited about. I mean, we've talked about in the past and on this call just some great examples of customers that have grown with us. Atlassian is one of those great ones where we landed that one years ago from an acquired company in Trello and then had the opportunity to really go across the organization and grow footprint across departments. and divisions as well as the use cases. And that's a similar approach that we're taking everywhere. The last thing I'll maybe just add in is we've made a really healthy investment in customer success and specifically in improving the ratios of our customer success teams to the customers we work with, as well as investing in onboarding resources to ensure that their onboarding and their implementation is done really well so that they are driving adoption that are going to go in place there that we're

We're really excited about. Helpful. Thank you. You're welcome.

Hi. This is Elizabeth Elliott on for Stan. Congrats on the quarter. I just wanted to dig in a little bit more on that NRR. in the context of a lot of more premium modules and horizontal offerings that you guys have going on. So how should we think about expansion as we get, you know, into the next year?

Yeah, so, you know, a couple things that we think plays into that, which is the communities that we're landing, those are more inclined to grow.

And so

So that provides some nice tailwinds to those numbers. There's also a shift just in the overall composition of the customer base, right? At 30,000-plus customers, the shift today in terms of the mix of enterprise and mid-market versus SMB and agency, et cetera, just continues to get healthier and healthier. When we look at the dynamics, the NRR dynamics among those cohorts and the way that the shift of the total customer composition is happening over time, That's room still. And that's in addition to the work that we're doing to accelerate things like seed expansion, the purchase of add-on modules, et cetera. So those are a few of the things that play behind the scenes, and we think there's a great opportunity to continue to drive that forward.

Got it. And then on the margin guidance for about 40 to 100 months expansion, you know, it sounds like really the focus there is on R&D, but just more broadly, you know, what's the philosophy around revenue upside kind of flowing through versus investing? And what are some of the puts and takes to get you to that higher or kind of lower end of the range?

Yeah, so on that one, I think for us, you know, when we're looking at the investments we're making, Elizabeth, I understand your question correctly. I still think you're going to see us investing, you know, pretty heavily in sales and marketing. We've talked about the R&D investment, but I think what you're going to see from us is as you're progressive, as we see opportunities to invest more in the business. I think for us, we want to make sure we're not backing off the investment opportunities that are in front of us right now. Justin talked about this on his prepared remarks, is we see a pretty big opportunity in the space. We're seeing more and more success up in the mid-market enterprise. And so as that momentum continues to grow over the year, if we continue to see the success we've recently seen over the last six or 12 months, we're going to keep, you know, investing in this business. And that's why we wanted to give that little broader range of guidance on operating margin because we don't want to leave any opportunity on the table right now.

Got it. Very helpful. Thank you.

We'll go next and ask you, Michael Turitz at KeyBank.

Hi, this is Michael Zilovic from Michael Turitz. And just a quick one for me. I guess, are there any major technical areas or lack of certain feature sets in your offering today that you feel still notable headwinds to, I guess, landing larger customer deals? Or what's the biggest hurdle still?

Yeah. I feel like we are, you know, and hopefully this has come through in a lot of the discussions that we've had around our momentum in the market enterprise. We think we're well equipped for the deals that are out there. I think there are opportunities still as the market moves more toward social centric customer service. We want to do a lot of work there. where we've got an opportunity to really step into some large user populations and very strategically important initiatives for our customers. I think the opportunity around listening is still ripe for us and one that we want to continue to press on. Same goes for premium analytics. And then just making sure that we're keeping up with network expansion, right, as there are new places that matter to consumers, those in turn matter to our customers, and we want to make sure that we're doing things right to be ahead of the curve there and make sure that we're giving our customers the tools that they need to be all the places that they need to be. So there's not anything that we would look to and put on the board as deficiencies, but certainly opportunities.

where we think we can continue to step into a lot of the progress that we've seen.

Great, thank you. We'll go next now to Scott Berg at Needham.

Hi, everyone. Congrats on the good quarter. The metrics are great. I will go with one in the essence of time here, take things on a slightly different track. I think when you look at the commentary out of one of the large social platforms like a Meta recently on their quarter call, right, I think there seems to be a lot of shift of changing use cases around social media and certainly some of these customers or platforms are maybe trying to struggle or figure out how to work with changes like the IDFA changes in the Apple ecosystem. How do you all think about that, you know, kind of impacting your business over the next, you know, two to four years and how your customers are using your platform? Because I think the disruption seemed to catch some people by surprise, at least on that call.

Yeah. Yeah. So, you know, I think, and we've seen kind of varied results around IDFA across the varying network partners and, you I think how that's going to shake out from a revenue perspective for the networks themselves, I think they're doing a good job discussing that narrative. But for us, what's interesting here is we don't participate in the ads business. And so the impact there is not something that is a big factor in terms of our strategy, in terms of our roadmap, et cetera. I think where it has potential to be a factor for us long-term is that Historically, the organic side of social, the things that our customers spend all their time doing in our platform, has essentially been seen as a hedge against the advertising efforts, right? the advertising environment becomes tougher than organic and getting organic messages out and building and getting in front of your audience that way become important. As the shift from maybe advertising to off-site sales starts to move toward advertising is just not part of our business. And so as long as the trends continue in the relationship between consumers and brands, and how the various networks respond to that will be different, then the value that we contribute is as strong as it's ever been. We have to make sure that we're continuing to deliver the value that our customers need in the midst of things that might be changing on them. such as where they're putting their ad dollars, et cetera, and that we can help them with all the tools that they need to back up their social strategy as it moves. But the direct impacts just aren't a factor for this business.

Super helpful. Thanks, and congrats again on the wonderful quarter.

Yeah, thank you. The next now to Srinath Kothari at Baird.

Hey, Deshrenik, on for Rob. Really great quarter. I just got a quick one. So on the enterprise, mid-market, go-to-market, you mentioned about, of course, account-based marketing, growing strategic accounts to bolster outbound sales. Can you talk a bit about the Latinx pipeline and trial conversion, and especially the larger pipeline? Anything changing that you see on the ground or maybe looking out ahead amid this macro uncertainty situation? just regarding these larger deals. And maybe for Ryan, since you have seen those macro effects from your time at Salesforce, yeah, does that...

Yeah, thanks for the question. So I think there's a couple of things in there. One, I would highlight just our dedicated focus. So we have dedicated sales teams that are focused in on new business, so landing new logos. And then we have dedicated sales teams that are focused in on growing our footprint within the customer base. And that expertise and focus has been really helpful for us making sure that we are capitalizing on the full opportunity in front of us. So our growth teams that are selling to the customers have been doing a fantastic job building out the pipeline of opportunities for us. As you might imagine, in those customers, we've got great reputations. We have customers with high adoption. We are able to get around those organizations and identify opportunities pretty quickly versus going outbound and cold calling. And so that opportunity for us continues. We also know that from a penetration rate, we're still fairly low in the grand scheme of the number of customers that we have, 30,000, and we're sort of mid-teens in terms of the attach rate with our premium products. So we see quite a bit of pipeline in front of us. And then you pile on top of that just the use cases. A lot of our customers that have come in, the initial starting point typically is in the marketing department, and then it expands from there, oftentimes in the marketing department, going across brand and content and PR and comms and sometimes IR, but then also in the customer support and customer care. So the net of it is no macro headwinds or changes for us in terms of the pipeline that we've seen. We've got a healthy number of customers that have come in that are a perfect target for us to continue to grow, and we feel really great about the year ahead.

Got it. Got it. That's really helpful. Thanks a lot.

You're welcome. and ladies and gentlemen that will conclude today's question and answer session gentlemen i'll send the conference back to you for any closing or concluding remarks great thank you um as always thank you all for your time um thank you for the great questions and and the support uh the things that we've been talking about the last couple quarters have us just incredibly excited um 2022 is is set up to be um Just a fantastic year, and we look forward to catching up with you all in various contexts. And if we don't see you until the next one of these, then we'll talk to you then. But thank you. Have a great evening. Thank you. And, again, ladies and gentlemen, I will conclude today's Sprout Social's fourth quarter earnings conference call. I'd like to thank you all for joining us, and, again, wish you all a great evening. Goodbye.