Sprout Social, Inc

Please stand by, we're about to begin. Good afternoon, ladies and gentlemen, and welcome to Sprout Social's first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, press star one again. And now I'd like to turn the call over to Mr. Jason Reckle, Vice President of Investor Relations and Corporate Development. Please go ahead.

Thank you, Operator. Welcome to Sprout Social's first quarter 2022 earnings call. We'll be discussing the results announced in our press release issued after market closed today, and I've also released an updated investor presentation, which can be found on our website. With me are Sprout Social's CEO, Justin Howard, CFO Joe DelPretto, and President Ryan Barreto. 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. Forward-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, in our guidance for the second 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, should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-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, 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 are not prepared in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures along with reconciliation to the most directly comparable gap financial measures, are included in our earnings press release, which has been furnished to the SEC and is available on our website at investors.sproutsocial.com. With that, let me turn the call over to Justin. Justin?

Thank you, Jason, and good afternoon, everyone. Thank you for joining us. 2022 is off to a great start and is shaping up to be a transformative year for our company. Our teams continue to execute at a high level, Our product roadmap is unlocking new ways for our customers to realize the full potential of social, and our new partnerships are accelerating our path towards industry leadership. We appreciate your ongoing support and guidance as we capitalize on this massive opportunity in front of us. Since we recently spoke with you in February, I'm planning only a few short highlights today before turning the call over to Ryan and Joe. We're pleased to again deliver greater than 40% year-over-year revenue growth with efficiency again hitting the rule of 50 benchmark. Our opportunity continues to be fundamentally driven by the mission-critical importance of social media management, our disruptive, efficient go-to-market strategy, and the differentiation of our platform. Our execution this quarter was strong. Our product pipeline, partnership momentum, and go-to-market execution continue to be highlights. With further Q1 momentum in the number of customers contributing more than 10,000 in ARR, up 52% year over year, and an acceleration in our number of customers contributing more than 50,000 in ARR, up 97% year over year. We believe we have the opportunity to elevate this performance in the quarters to come. This is particularly encouraging because at nearly 700 customers, our 50,000 customer cohort is already growing at a faster pace than our $10,000 customer cohort had been growing at a similar scale. We feel this underscores the magnitude of our ACB opportunity and the upside impact that partnerships have in the opportunity to contribute. We believe our strategy and execution are allowing us to pull away from the market and we plan to further accelerate our industry leadership social system of record intelligence at action. The free cash flow inflection in our business is validation of this as customers are making increasingly strategic commitments to Sprout and we're able to deliver incrementally capital efficient returns on our investments. While we remain prudent in acknowledging that many geopolitical and external factors face the world today, the underlying fundamental strength of our business puts us in a fortunate position to raise both our growth and margin expectations for the year. Last quarter, we outlined an aggressive R&D plan for 2022 with an ambitious product roadmap that we believe positions Sprout to define our category. Our announced partnership with Salesforce in March was an incredible validation of our technology, our market leadership, and our approach to customer success. It also represents a multi-year revenue opportunity. But it's our technology roadmap that we believe will deliver value to our customers and position our company to maximize our long-term potential. The innovation we are building for customers today and the roadmap we expect to deliver has never been more exciting. Our strategic platform investments in social commerce, messaging, publishing, and reporting are foundational to the ways our customers execute their social strategy. Our roadmap in social customer care has been prioritized, and we're on track for significant advancements this year in social listening, analytics, and advocacy. Building on our product leadership, our partner momentum has also never been greater, and you should expect new announcements from us in Q2 to further expand our footprint. We are working on powerful, elegant integrations with new partners and have multiple opportunities to go deeper in commerce, messaging, and listening with both new and existing partners. Our work here aligns well to both our product roadmap and the competitive modes that are strengthening around Sprout as we grow. The combination of our customer scale, our fully unified social media management platform, and the breadth and depth of our network and partner integrations are significant and compounded competitive advantages. We believe we have a true and unique opportunity to define this category as an overall platform and in each key product area. But this is not made possible without the incredible work and commitment from our teams. We're actively working to make Sprout a career destination across disciplines and to redefine the way that we work.

I've never been more excited about our team, including elite talent and leadership we've onboarded recently that we expect will help us achieve our ambitious growth goals over the many years to come.

Through the midst of the largest workplace shift of our generation, our commitment to people, development, and an inclusive culture positions us to remain thoughtful and intentional with our growth strategy.

We're still just getting warmed up and we're excited to create value for all of our stakeholders in 2022 and beyond. With that, I'll turn the call over to Ryan.

Thanks, Justin. I agree. 2022 is shaping up to be a transformative year for our company. Our product roadmap is both accelerating and delivering new opportunities for growth. Our international expansion is building momentum. Our pace of hiring has shifted into a higher gear, and we have more upside on our mid-market and enterprise pipeline stemming from our partner announcements. I've never been this excited about our opportunity as our efforts across the company are converging at the right time with a market that is quickly shifting in our direction. We expect to capitalize, and we aspire to emerge from this year as a category-defining company. Our marketing team got off to a fast start with strong top of funnel growth, setting our sales team up for success. We continue to target the most sophisticated buyers building on our foundation with better account-based marketing and new co-marketing and co-selling notions with Salesforce and other partners. We launched our spread community to customers this quarter, which establishes the first of its kind community for social practitioners to build relationships and share ideas and best practices. We already have thousands of customers engaging. Agency owner, Angie Giudicesi, described it this way. The community that Sprout Social has created for agencies and freelancers alike is one of the most priceless things I've found in my 10 plus years as a social media manager. If I encounter a problem I've never seen and can't find the answers I'm looking for, I know that I can always reach out to Sprout's community and crowdsource solutions from people all over the world. In addition to other social media professionals, the team at Sprout is always there to try and find a resource or an answer as well. Because our market and customer use cases are dynamic and evolving rapidly, there is an enormous opportunity with community and an enormous opportunity for our software to solve increasingly strategic problems for customers. The emergence of new, innovative social media platforms also creates complexity for brands across use cases, driving further urgency to consolidate social media management into a platform like Sprout. PR is a new use case we've been talking about, and our customer HashiCorp covered it well. We realized a lot of value with social listening and wanted to expand our usage of Sprout Social, said Martin Bergman, public relations manager at HashiCorp, a leader in multi-cloud infrastructure automation software. We added a broader set of listening topics and expanded the company, industry, and partner insights we monitor, which helps teams across the company understand the conversations happening on social media. As Martin alluded to, social has become a team sport, and we believe we're the software best equipped to help these teams win. The elegance and ease of use of Sprout are step one. Our collaboration, permissioning, and workflow capabilities are step two. A new customer this quarter, LL Bean, really put this thesis to work. We are excited to streamline social efficiency and improve collaboration across our team by partnering with Sprout, said Lori Brooks, the manager of social media and influencer marketing at LL Bean. In researching social platforms, we found that Sprout outperformed others by offering a comprehensive suite of solutions within one platform. The usability of the platform, collaboration capabilities, and sophisticated reporting ensure that our teams are able to maximize and grow our investment in social and share our successes with our leadership team. This quarter, we also had the opportunity to partner with Plaid, a financial technology platform powering the largest names in fintech. Plaid had been managing social natively and manually monitoring all social profiles, which was becoming cumbersome for their comms, marketing, and support teams. Spad chose to work with Sprout to improve social listening, incorporate better analytics into their program, and to increase the speed and engagement with their customers. The investments we're making in product and customer success are designed to meet all these business needs head on and provide customers with a holistic social strategy. Our partnership with Salesforce means we're going deeper, enabling enhanced integration and workflows with Service Cloud and Sales Cloud to deliver more value to our shared customers. It's become clear that both Salesforce and its customers need and want an industry-leading social platform. And we're working closely together to ensure that Sprout reinforces the value of the entire Salesforce tech stack while offering even more differentiated functionality. And you can see Sprout delivering immense value when you look at the brands that we grew with this quarter. A few notable brands on this list included IBM Watson Health, US Department of Labor, Cruise LLC, a subsidiary of General Motors, Radisson Hospitality, Danaher, ServiceMaster, Pure Storage, Fenberg, Palo Alto Networks, Extra Space Storage, and longtime customer Trek Bikes. Even as our S&D and agency teams executed well this quarter, our mid-market and enterprise teams continued to deliver outstanding new business performance in what is typically a seasonally slower enterprise quarter. This is evidenced by the fact that we accelerated the growth rate of our greater than 50K customer cohort. The combination of increasing use cases, expanding seat counts, rising premium module attach rates, and the steady drumbeat of upmarket expansion, and now with the exciting addition of our Salesforce partnership, are all combining to put a sizable ACV growth opportunity in front of us. We're off to a strong start, and we're only getting stronger as 2022 unfolds. Our market is dynamic and quickly growing, Our product roadmap positions customers to unlock tremendous potential. Our team continues to up-level at every position as we scale. And we believe our partnership momentum will be additive to our future success. We're building Sprout to be a world-class place to build and grow your career and a world-class place to be a customer. And we believe the foundation is in place for a defining year in our journey with the right team, the right product, and a huge market to capitalize on the opportunity. With that, I will turn it over to Joe to run through the financials. Joe?

Thanks, Ryan. I'll now walk you through our first quarter results in detail before moving on to guidance for the second quarter and full year 2022. We again delivered greater than 40% year-over-year revenue growth with efficiency hitting the Rule of 50 benchmark. Revenue for the first quarter was $57.4 million, representing 41% year-over-year growth. ARR exiting Q1 was $239.1 million, up 39% year-over-year. We're pleased to see very healthy new business, as well as strong retention and expansion activity. We're particularly pleased that the two-year stack growth rate of ARR accelerated for the fifth consecutive quarter. We expect this trend will continue as we grow faster at scale, underscoring the durability of our multi-year growth expectations. We added 1,038 net new customers in Q1 to finish the quarter with 32,800 customers, up 17% year over year. As always, we remain focused on high-quality revenue yield from our new customer cohorts, not the volume of net additions. Our inbound demand has continued to strengthen in 2022, now complemented with an increase in enterprise pipeline from our recent partner announcements. We plan to continue optimizing for revenue yield while also delivering healthy quarterly customer net additions for the foreseeable future. The number of customers contributing more than $10,000 in ARR reached 5,349, of 52% from a year ago. The number of customers contributing more than $50,000 in ARR reached 692, up 97% from a year ago. I want to emphasize a point Justin made. Our 50K customer cohort is currently growing faster than our 10K customer cohort did a similar volume of customers, underscoring the significance of our future ACV opportunity. Q1 ACV growth of 19% year over year Built on the rapid growth that we delivered in 2021, we have many factors that we expect will allow us to sustain durable medium-term ACV growth. In discussing the remainder of the income statement, please note that, unless otherwise stated, all references to our expenses, operating results, and share count are on a non-GAAP basis to exclude stock-based compensation expense and are reconciled to our GAAP results in the earnings press release that was just issued before this call. In Q1, gross profit was $43.9 million, representing a gross margin of 76.4%. This is up 40 basis points compared to a gross margin of 76.0% a year ago and is our highest gross margin in five years as we scale into meaningful investments we have made in customer onboarding. Sales and marketing expenses for Q1 were $21.4 million, or 37% of revenue, down from 40% a year ago. We further accelerated our pace of hiring across both our sales and marketing teams with an emphasis on content, SEO, and international expansion on the marketing side in our mid-market enterprise and growth sales team. We were fortunate to hire aggressively throughout the quarter. Research and development expenses for Q1 were 11.3 million, or 20% of revenue, up from 19% a year ago. Our headcount and absolute expenses again grew substantially this quarter, as we continue the trajectory of our largest ever incremental dollar investment in R&D. We believe this will extend our market leadership, further differentiate ourselves in the market, and position Sprout as a category-defining software company. General administrative expenses for Q1 were 12.4 million, or 22% of revenue, down from 23% 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 Q1 was 1.2 million for a negative 2.1% operating margin. This is an improvement of 360 basis points compared with a negative 5.7% operating margin a year ago. We are pleased with improving efficiency as we scale and we exceeded our expectations due to revenue outperformance. Non-GAAP net loss for Q1 was 1.4 million for a net loss of $0.03 per share based on 54.3 million weighted average shares of common stock outstanding, according to a net loss of $2.5 million and $0.05 per share a year ago. Turning to the balance sheet and cash flow statement, we ended Q1 with $180.8 million in cash, cash equivalents, and marketable securities, up from $176.9 million at the end of Q4 2021. Deferred revenue at the end of the quarter was $76.7 million, a strong sequential increase, even after the record sequential increase we delivered in a seasonally strong Q4. As we noted last quarter, we do think that our business is becoming more seasonal over time as our mix of enterprise changes, with a high watermark expected each Q4, followed by a low watermark in Q1 of each year. Looking at both our billed and unbilled contracts, our remaining performance obligations, or RPO, put approximately $115.9 million from $107.8 million exiting Q4 2021 and up 55% year-over-year. We expect to recognize approximately 83% or $96.8 million of total RPO's revenue over the next 12 months. Operating cash flow in Q1 was positive $5.4 million compared to $3.6 million a year ago. Pre-cash flow was positive $5.1 million of 48% year-over-year for positive 9% pre-cash flow margins with an 8% pre-cash flow margin a year ago. Before getting to formal guidance, I do want to clarify the quarterly cadence to operating expense and profitability as we tighten our plan this year. Based on the timing of annual corporate expenses and the timing of hiring, we anticipate that Q2 will represent the low-water mark for margins, operating profitability, and pre-cash flow. As indicated in the increase in our 2022 margin goals, we're pleased that annual efficiency is progressing ahead of our prior plan. Shifting to formal guidance. For the second quarter of fiscal 2022, we expect revenue in the range of $60.2 million to $60.3 million or a growth rate of 35%. We expect non-GAAP operating loss in the range of $3.2 million to $3.0 million. This represents an anticipated operating margin of negative 5.1%. We expect a non-GAAP net loss per share of approximately $0.06 assuming approximately 54.4 million weighted average basic shares of common stock outstanding. For the full fiscal 2022, we now expect total revenue in the range of $252 million to $253 million. This is an expected overall reported growth rate of 34% to 35%, up from our prior expected growth rate of 33%, and tracking well against our medium-term goals. For 2022, we now expect non-GAAP operating loss in the range of $6.4 million to $5.8 million. This implies annual non-GAAP operating margin expansion of roughly 90 basis points to 110 basis points, up from our prior margin expansion range of 40 basis points to 100 basis points. We're pleased to forecast faster revenue growth with improved efficiency, even as we make growth investments across the company. We expect a non-GAAP net loss per share between 13 cents and 12 cents, assuming approximately 55 million weighted average basic shares of common stock outstanding. In summary, our Q1 financial performance highlights the rising strategic emphasis our customers are placing on social. Our balance sheet and free cash flow strength buy us with future optionality. Inbound demand is robust, and our pipeline upmarket is unlike anything we've previously experienced. These strengths empower us to make investments in technology and go to market, which we believe positions Sprout to define our category and forge leadership in the $100 billion market opportunity ahead. With that, Justin and Ryan are happy to take any of your questions.

Operator?

Thank you. Ladies and gentlemen, at this time, if you have any questions or comments, simply press star 1. And if you do find that your question has been answered, you can withdraw your question by pressing star 1 a subsequent time. We'll go first this afternoon to Remo Linschao at Barclays.

Hey, congrats from me. Two quick questions. One is, um the the partnership or the the announcement with field force stood out to me because that um uh that's something that it kind of seems kind of odd that a vendor that is in that space is kind of kind of uh announcing that with you can you speak to that uh please in terms of how that came together and and what it entails and what the opportunity is there it's a question one question two would be um on large last quarter we talked a lot about like the success you have up market.

Any more updates on that one? Thank you.

Hey, Ramel. Thanks for the question. It's Ryan here. Yeah, on the first part with Salesforce, We've had a longstanding partnership with them from an integration standpoint. We've worked with Salesforce customers for years and years. And as the markets progressed over time, I think they've taken note of just the work that Sprout's been doing in the marketplace and seeing a lot of their CRM customers leveraging the Sprout platform. And as I think as they started to think about their investments and their strategy going forward, realized that we are also just a great resource for them and their customer base as it relates to just best of breed social solutions. And so this is something that you don't typically see in the market, but we're adding tremendous value together to these customers. And so we've had these integrations that existed today with Sales Cloud and Slack. and Service Cloud, and we see additional opportunities to go deeper into those integrations to add even more value to Salesforce customers, reinforcing just the value of the CRM stack on top of the work that they're doing in social. And we announced the partnership in early March, so not that much time in the quarter, but have seen some really great progress in terms of the interactions across our teams, as well as the co-selling that's happening with customers today and great feedback from those customers that have interacted with both of our teams and transitioned over. So more to follow from us there, I think, in future quarters, but feeling pretty good about that partnership and the opportunity in front of us. From a large customer perspective, We continue to see a lot of growth. I think that the number, hopefully, that jumped off the page for everybody is just the 50K growth being at a 97% growth rate. We continue to see just a great fit for customers that are in that mid-market and enterprise space. They're consuming a number of our products and seeing tremendous value. I think they're finding a real differentiation in our go-to-market strategy with the way that we're getting into the product before they sign a contract. or pay us any money. And the speed to implementation, the speed to ROI has been tremendous for them as well in terms of the value that they're getting right away. So continued execution happening there. And as Justin mentioned in the prepared remarks, our innovation coming on the roadmap and some of the more sophisticated things that we're going to continue to build in will just continue to increase our differentiation upmarket.

Okay, perfect. Makes sense. Congratulations. Thank you. Thank you. We go next now to Elizabeth Porter at Morgan Stanley.

Hi, thanks so much, and congrats on the quarter. I wanted to touch on what you're seeing in the broader just demand environment. The upside in the quarter and the full year suggests good momentum. We just appreciate any incremental color you have on, you know, any changes in top of funnel engagement, sales cycles, or demand trends by GEO. Thanks.

Yeah, I appreciate the question. It's been pretty consistent for us. And I think that's been just one of the hallmarks of our business with the inbound motion that we're running now complemented with the outbound motion. We've seen great consistency and we have a lot of data to tell us where that business is. And our top of funnel has been really healthy. We continue to be running a lot of campaigns and focused ABM efforts and outbound strategies against our mid-market enterprise space. I think for us also what this comes down to is just Social is mission critical for the companies that we work with. And for them, they know that they need to participate within this arena. And the Sprint platform has just proven to be something that is compelling for them in their own go-to-market strategies and the way that they're interacting with customers. So we certainly, like everybody else, are reading the headlines and seeing what's happening in the macro environment. But we're seeing a lot of progress and success in our own business and a lot of consistency coming into Q1 and going into Q2.

That's great to hear.

And then just as a follow-up, I was hoping to get an update on the premium module attach rates. And more specifically, I'm curious if that just macro uncertainty and environment, does that drive customers to look for tools like listening that much more just to get a pulse on the customer?

Thanks.

Yeah, this is Justin.

Sorry, I'll touch on the second half of that question, and then maybe Joe can jump in on the first. I definitely think that there is some strategic drivers as things, whether it's macro conditions or refocusing efforts across various platforms or shifting advertising focus, whatever it might be, where the value of just making better business decisions, having greater visibility across the business, having greater visibility across the landscape, et cetera, becomes another lever that these folks can pull, right? And being able to drive that kind of progress within their own businesses through the efficiency of social ends up being a really compelling aspect of that. So I think that there is some opportunistic investment here happening where other avenues may not be as successful at the moment. So let's lean further into social. But then as Ryan mentioned, there's just a tailwind of more and more organizations just hitting a level of maturity where social is such an important part of their strategic efforts across the board. So we see kind of a mix of that, and it's kind of a all-weather scenario, right? When things are booming, social is the place to be. When there's uncertainty, social is the place to be, and we're there for the customers in either environment.

Yeah, then on the attach rates, Elizabeth, so we don't disclose the actual number each quarter. What I can tell you is we saw solid momentum in this area in Q2, and they continue to rise on a quarter-over-quarter basis, and we're in that mid-to-high teens kind of range as it relates to attach rates.

Great. Thank you so much.

Thank you, we go next now to Scott Berg at Needham.

Great, thank you. This is John Godine for Scott Berg. Appreciate you taking my questions. First, just kind of at a high level when considering the Salesforce partnership and their history in the space, as well as your commentary around your deal with Plaid, which has been managing natively previously. Just wondering if you guys are really seeing maybe an inflection point in the broader realization kind of the complex nature and requirements of managing a social strategy. In addition, you know, do you think, in addition to the breadth of functionality, do you think that, you know, customers are really placing more value on your guys' quick time to value and ease of use relative to some of the other competitors in the space?

Thank you.

Yeah, I appreciate the question. So a couple things. One, when I think about the Plaid example, what a great organization doing some pretty amazing things. And I think we are still seeing this across the board. And we've mentioned this previously, but we think that we're really early in the space when we look at the number of businesses that are on social and the amount that have adopted a solution like Sprout. Plaid's a great example, really forward-thinking company, doing more and more on social, realizing that it needs to be the tip of the spear in terms of their strategy and needing to invest in a solution that was going to allow them to be able to do this in a more efficient manner, in a way that they could collaborate with their entire organization and get more sophisticated data back. And so we see this quite often in our business where fantastic brands, really developed organizations are still earlier days in terms of their investment strategy. And this really ties to the second part of your question, which is time to value, ease of use, elegance within the product on top of great sophistication matters a lot. so when we walk into every account and say we want you to get into the product we want your your hands on the keyboard we want you in the trial making sure that this is going to work perfectly for you you start to see as a customer right away the value you start to implement some of your business processes in the trial and then from there it is really easy to turn you on and go live and so You know, still today, over 90% of our revenue comes from customers that have actually been in the product before they've purchased. So I think both of those things are just really important for us here in the market and very differentiated.

And I'll quickly add to the second point that you made around the time to value and ease of use. You know, it's it's logical when we think about how rapidly social is expanding across an organization, both in terms of the number of people who are participating on behalf of the organization, the number of departments involved, the number of use cases involved, that ease of use, that time to value, that rapid learning curve, those are all huge advantages, right? Because we've got large pockets of people across the organization that need to be up and running and successful With this platform and the approach that we've taken to how we build and the emphasis that we put on user experience is really critical in those scenarios. Because we have to ultimately have the people behind the keyboard be successful. And that plays right into the strategy that we've had from day one. So I do think that that's a powerful advantage there to your point.

Awesome. And then second, you touched on it briefly, but just curious if you could dig into a little bit more how you are seeing any of your customers' broader data strategies evolve. If really you're seeing more tighter integration, I guess, with kind of the broader overall customer engagement stack. Thank you.

Yeah.

Yeah, I would say that we're definitely at a time now where at least some of the more some of the customers that are further along in the social journey that are more mature in operationalizing social across the organization are definitely starting to lean more into those areas and look for how can we develop a tighter picture of our customers? How can we get visibility into all of the intelligence coming through listening, et cetera, into a broader set of the things that we care about as an organization?

And that's driving

It's powering the adoption within those organizations to a degree and getting additional use cases involved to a degree that I don't think was probably as present two years ago as it is today. And the integrations are powering or opening the doors for those types of conversations and strategic decisions with inside the organization. So we're hitting a point now where more and more organizations are thinking about it and taking advantage of it and starting to really think holistically about their data stack as it relates to social and what social's role is in that.

I would also just quickly add on there, not specific to integration, but specific to the data strategy. We're hearing this more and more from our sales team and our customer success team and directly from customers that practitioners, the folks that live in the solution, are now more and more being asked by their executive team to surface data and insights. Sometimes it's on a weekly basis or quarterly basis. But more and more executives are looking to understand that the data that exists within social today, the themes, the trends, the sentiment, and they're leveraging that as another really critical data point as they inform their own strategy. So that has definitely continued to increase over time.

Very helpful. Thanks, everyone. Thank you. We'll go next now to Parker Lane at Stifle.

Yeah, hi. Thanks for taking the question. Wanted to circle back on the 50K ARR customer cohort. Very strong quarter there. I think the second highest you've had in the data that we have. But looking at the last few years, the fourth quarter was actually the high watermark. What's the best way to think about seasonality in terms of those 50K ARR customers this year? Should we expect that trend that we've seen in recent years to continue, or is there something that we should be aware of as far as that cohort's concerned? Thank you.

Yeah, I mean, I think and Justin kind of covered this a little bit.

I think Joe did a little bit in the prepared remarks as our businesses continue to shift increasingly into the mid market and enterprise. With just the buying cycles of those organizations, as well as the size of deals that we're seeing, I think we will continue to see more seasonality pushed into fourth quarter. We're excited about, obviously, the results that we've seen in 97% growth rate going into Q1 with the 50K. There's a really strong start to the year for us. We expect to have a lot of consistent growth through the year with those 50K customers. And one of the data points that I found fascinating and exciting for our business is that if you look at the 50K today, they're actually growing faster than the 10K at a similar scale. So we continue to see a lot of headroom and opportunity for us there. We'll have some consistency through the year, but I do think that the Q4 will be a bigger increase in terms of the volume of customers that are closing in at that size and scale.

Thanks, Ryan. And in terms of that cohort, again, is there any industry that you'd say is overrepresented in there today, maybe more receptive to the message of Sprout and social media management than others?

You know, one of the distinct advantages of our business, and it speaks to the total addressable market, is just that we see customers from all industries and verticals that end up in this area. And so certainly, as you might imagine, organizations that might fall into retail or more B2C are going to be there. But we see things in tech. We see government. We see higher ed. So I wouldn't say that there's any concentration within that area, which is just another opportunity that our entire enterprise and mid-market team sees for the future of this company.

Appreciate the feedback. Thank you. Thank you. We go next now to Rob Oliver at Baird.

Great, thanks. Good afternoon, guys. I have two questions. Justin, one for you to start. Obviously, Twitter's in play right now. You guys have traditionally had a very strong relationship with Twitter. There's just chatter about turnover there and advertisers pausing. So obviously, too early to tell in terms of direct impact for your business, but we'd just love to hear your take to the extent that you can share on what's happening there and what we might expect. And then I had a quick follow-up for Ryan.

Yeah, yeah, sure. So, yeah, it's been interesting. And, you know, we've built many, many relationships over the years and have had longstanding relationships across product and engineering, go to market, and the leadership parts of the organization. So, you know, the last couple of weeks have been a little busy for them. I think to your point, we're not anticipating any changes in our relationship. But, you know, more broadly, I think that there's still some questions right past the initial headlines on what are some of the directions that we're going to see Twitter take. And I think baked into that are some really potentially positive and exciting things around just better health from a spam perspective, the validation of users, openness of the platform, et cetera. But I think, you know, my read is that folks just want to better understand what the plan is and what are going to be the most important things for that organization. And, you know, I think there's going to be a lot of people that are empowered by that. And something that's been fascinating that we've seen with Twitter over the many, many years and leadership changes that they've had, those people just love the mission. I agree with them. Twitter is such a powerful, powerful part of society at this point. And they're going to, I think, by and large, want to continue doing that work. But we need to figure out what the go-forward plan is and what the priorities are going to be, you know, once and if that deal closes.

Got it. Okay. That's helpful. Thanks a lot. And then, Ryan, I had one for you. You guys called out the HashiCorp win this quarter on the PR side, and that struck me. You guys have been talking for some time about different use cases and the success you've had there. I think traditionally that has been a different budget from marketing. And so we'd just love to hear about that win. Is that representative of perhaps another pool of dollars that you guys are able to go after as perhaps some of the PR guys start to assess maybe some of the legacy tools they're using for monitoring what's out there? Thank you.

Yeah, thanks, Rob. Yeah, I mean, we've been winning business within this area. I think more and more we're just seeing a lot of what was traditionally just happening in PR happening directly on social. And so, you know, there's things happening in our product today that I think address a good amount of what those customers need. I think about a lot of the listening components that we have today, as well as some of the functionality we're building in to just better understand customers. your audience. I think it puts us in a really great spot to continue to help organizations specifically within the PR world. And today we have a lot of those customers. So I think that there's an opportunity to continue to expand our footprint within that area. I'd look at it as an opportunity where we'll have a chance to grow our market as we grow our product and our roadmap. But it's certainly just one of those use cases that has continued to evolve over time that we're getting excited about. Great.

Thanks again. Appreciate it, guys. Thank you. Thank you. We go next now to DJ Hines at Canaccord Genuity.

Hey, guys. Nice quarter here. Thanks for taking the questions. So I wanted to ask, just back to the Salesforce partnership, but based on what you're seeing in terms of the opportunity build there, how would you characterize the average size of opportunity coming through that partnership versus maybe what you typically see in your direct channels? Just trying to think about, you know, how they might help contribute to the model.

Yeah, so most of the business that we have seen, I think most of the business today is mid-market and enterprise. And so it fits really nicely into our go to market strategy, our capacity where we're already executing. That's the biggest part of our business today and the fastest growing. So it's continuing to align with within that realm. It's still pretty early for us, given that the announcement was in March. And, you know, the sunset of Salesforce's product is going to happen over time. But we're seeing some really positive things in terms of the enablement that's happening with our teams and the Salesforce marketing cloud teams, as well as the co-selling that's been happening so far. So we get really excited about it. We see these opportunities and these deals looking like our mid-market and enterprise with ideally some upside in front of them as well.

Yeah. Okay. Perfect. And then, Joe, I want to ask about billings, right? I obviously picked up your comments on seasonality. It makes perfect sense. Can you just remind me the mix of annual, quarterly, monthly invoicing that you have and maybe how that's changed over the last year or two as you see more traction in the enterprises?

Yeah, for sure. So right now it's around 55%, 60% annual invoicing, and then the rest is pretty much monthly. We do very little, some quarterly, but not a lot. And so that's kind of the mix right now, DJ. And what I can say is that continues to move more to annual deals, right? And as Ryan mentioned earlier, the mid-market enterprise have been the strongest in Q4. We're seeing a little bit more seasonality. And so I think what you're going to see is you're going to see more of that, you know, increased billings in Q4. You saw the outcome of that was just really strong free cash flow in Q1. And so I think you can expect, you know, a similar type trend year over year. And we've talked about this before. Because of that mix, between the quarters, it's going to bounce around a little bit. And it's not something that, you know, obviously we want to move more deals to annual, but it's not going to be something that's going to be consistent just given the mix.

Yeah, of course. Okay. Thank you, guys. Thank you. We go next now to Michael Turrett at KeyBank.

Hey, guys. One macro question, and then back to the financials and seasonality. So, on the macro, are you able to discern any difference between potential impact or not on your different segments, SMB versus mid-market versus enterprise? I mean, you know, potentially challenged tobacco might worry more about SMB.

Yeah, this is Justin. So the answer is no at this point in terms of discernible difference in behavior. I think, you know, some of the things that we were dealing with in 2020, for example, were more distinct in the SMB. We're not seeing that effect today, and those parts of the market are performing very well. It stands to reason that the SMB would likely be first impacted. We're just not seeing it show up in the data or the pipeline.

And then, Joe, same question as DJ's, I think, on seasonality, but relative to ARR, new ARR, which was strong, you know, in the high 30s, but a little less sequential growth in ARR than you've been seeing. So is that a matter of seasonality as well?

yeah that that's exactly right michael i think we've seen this you know q1 is typically the smallest quarter from an air are suspected if you you know if you look at it over the last you know couple of years and so i think you're going to continue to see q4 be the high water mark probably from an air net arr standpoint and then have the q1 probably be more of the low water mark as we build um throughout the year so i so this was as we expected you know as you can tell by our guidance we increased our annual guidance more by our beat. So this was right in line with what we were expecting. So we feel pretty good about the quarter.

Great. Thanks, everybody. Thank you. We go next now to Arjun Bhatia at William Blair.

Perfect. Thank you. I wanted to maybe go back to the large deal flows. I think it was very impressive, especially considering it's just Q1 But as you get into these $10,000 deals, $50,000 ARR deals and beyond, are you noticing any change in the buyer profile or in sales cycles as customers are investing more and more in Sprout? And I'm curious, when you view the go-to-market motion upmarket, does the Salesforce partnership impact how much you're investing in your direct go-to-market motion at all?

Thanks, Arjun. It's Ryan. I'll jump in here first.

Yeah, if I think about just the 10K and the 50K and the dynamics behind them and what's maybe changed, I would say that we're seeing wider audiences in the conversations that we're in. One, it's going deeper in the organization from an executive level. It's more common that you're going to see VP level or, in some cases, CMOs or CDOs, chief district officers, in the conversations. Certainly they want to see the data that they're going to be getting out of a platform like Sprout, but there's more gravity around the solutions. And that's been a great opportunity for us. It's great conversations. For us, it's outside of just the features and the functionality that maybe somebody at a practitioner level would care about most, but it's getting into what's the impact on the business? How is this going to help generate growth or improve customer experience, reduce costs? All of those things have materialized really nicely for us in terms of the opportunities in the larger accounts. We're getting multi-threaded across the organization. There's more stakeholders and more departments that are involved, which means more use cases and more users. So that's been a really nice trend for us. And then if I think about the Salesforce piece and the partnership, I mean, one, certainly going into any of these accounts from a partnership perspective and selling together, is just great validation of Sprout as an organization and Sprout as a platform. So that's been tremendous for us. We are still selling direct on those deals. So we feel really good about our capacity plan and the hiring that we're doing across our teams. And we feel really good that we're gonna have the right amount of folks to be able to manage the opportunity. And as we've always done, if we see more opportunity

um where we think we can we can generate even bigger returns we'll make the investments in those spots but right now i'm feeling really good about our team and our capacity and the partnership that we have perfect um that's very helpful and actually i wanted to ask about the partnership strategy as well i think you called that out a couple times in the in the prepared remarks of your intentions to uh invest further in in additional partnerships and i'm curious um if, if, um, where you're prioritizing on the partnership front, is it go-to-market partnerships with, um, you know, whether it's resellers or agencies, or are we talking about, um, technology partnerships where there's deeper product integrations for maybe e-commerce or, or customer care, just trying to get a better sense of, um, where those, uh, partnership priorities are.

Yeah.

As you can imagine, the answer is, is all of the above. Um, you know, the, uh, Increasing our footprint with new what we call network partners, which are the networks themselves and the relationships and the things that we're building together. The technology partnerships around integrations and some of that comes with some go-to-market motion and investment alongside it. But really thinking about those just from a technology perspective and trying to be where our customers need us to be in terms of integrations. And then just a ton of progress and emphasis across the organization and within Ryan's organization, particularly around the revenue partnership opportunities and what those look like, where we can add value to pockets of customers for organizations like Salesforce and others. So we've got all three of those strategies in constant motion.

Perfect. Very helpful. And congrats on a good start to the year, guys. Thank you. Thank you. We go next now to Matt Bandley at BTIG.

Good afternoon, guys. Thanks for taking the question. I wanted to look at some of the 50K customers or maybe even the 10K and just ask a question or two around what total market or wallet share is looking like now. When you go into these 50K opportunities, you know, are you still landing relatively small compared to what the ultimate opportunity is? Or should we think about some of these as customers a little more ready and willing to take on a bigger part of the platform? And that's sort of the differentiation point between 10K and 50K in some cases.

Hey Matt, thanks for the question.

Yeah, I mean, I would tell you just generally the customers that were closing in both the 10K and 50K feel like they're early stage in terms of the opportunity. It's pretty rare for us to close a customer, any of those segments where we feel like it's totally sold through. The big difference certainly between a 10K and a 50K is going to be the number of users. And some of those might just be just how penetrated are we in the organization across departments. So a good 10K deal might just be marketing that we're in, and it might even just be a portion of the marketing department, not the entire marketing department. They may be consuming an add-on product like our listening or analytics. And the same thing with the 50K. Oftentimes in the 50K, it might just be one department, depending on the size of the organization. And we've talked in the past about some of the organizations that have come in at over 50K, and it's just marketing today, where we've got a huge opportunity that sits behind marketing from a care perspective or going deeper in an organization. So the users tend to be the biggest leverage point for us in terms of being able to grow those accounts. And then we think about the premium add-ons as the icing on top in terms of the opportunity. So I would say just the main headline or takeaway for us is that we're seeing Certainly more gravity around social right up to the executive level, as we've shared a little bit on this call. But even when we're landing at that rate, I still am seeing a tremendous amount of headroom. And in the last call, we talked about our first million-dollar account, and it was a great example over, you know, a two-year period of landing pretty small on something that began really with a trial and then winning many different departments across the organization. and significantly growing. And we feel like we've got a lot of those potential accounts in our base today.

And maybe just quickly to underline that, I think one of the things that we've seen is social is just a bigger beast than it was two years ago or five years ago. And the starting investment for an organization of scale, you know, within the mid-market enterprise specifically, even just that first step of maturity and bringing social into the organization is a broader project. It involves more people than it used to. And so those customers that were landing in 50K are probably at a similar stage of their journey as the customers that came into our funnel at 10. But to Ryan's point, just tons of upside. And typically for us, the larger the starting investment is actually a better signal of more upside rather than less or the idea that that account might be penetrated.

All right, very helpful. And I know there's only so much time I need to call, but would love to get any kind of update on social commerce. You know, how are some of the initial tech partnerships with Shopify or Facebook going? And some of the early adopter customers, where are they at in terms of usage and just sort of building out that product for the long tail here?

Yeah.

Yeah.

So consistent with kind of the way that we spoke about it the last couple of quarters is social commerce is going to be a long journey. And we're gladly out in front of it and working with customers and partners on how this space is going to shape up. We've seen fantastic traction with the integration and the capabilities that we've built today. We've got a team that's more than one that's running hard at like future sets of capabilities. But I think we're still, the networks, us, our customers, still feeling out what the ultimate strategy is going to be, what the investments are going to look like, what the nuance of the different networks and different social commerce opportunities are going to be. So the stage we're in now feels like we're kind of in the trenches, learning with our partners, learning with our customers. They're finding great success with the things we have, and we're really happy with the uptake that we've seen there. As we get further along and there's more product releases to talk about, we may add some more color there, but for today's state, we're off to a great start.

All right, great. Thank you. Got it. Thank you. We'll go next now to Brett Knobloch at Cantor Fitzgerald.

All right, Dean, thanks for taking the question. Just maybe one from the competitive landscape dynamic. As you're looking or moving up market to mid and enterprise, can you talk about what's kind of the main difference between decisions or what's driving decisions? Is it pricing? Is it functionality? You know, kind of speed to value? And, you know, are the competitive dynamics changing at all in any favor towards you guys? Thank you.

Hey, Brett. Yeah, thanks for the question. I would say that the biggest driver in the enterprise and the large organizations is um a couple things one for sure it's the ability to get the return on investment and speed to value and so we're seeing this time and time again organizations now and justin just highlighted it and you heard it a little bit in our prepared remarks social is a team sport and there's a lot more people involved today than ever before and so the the products and the platforms that customers want to use need to be intuitive they need to be elegant they need to be powerful And we're hearing this time and time again that that is a big driver for customers today because the business user needs to be empowered to do the things they need to do in real time in the product. And that might be social listening. It might be running reports for analytics. It's certainly in the way that they're engaging with customers from a customer care perspective. And if you have more people in the platform, it just needs to work. So that has been a huge differentiator for us. You will hear me say this a lot, but hands on the keyboards and getting people in the product before they buy is a massive differentiator for us. We're continuing to get feedback just about our customer success and customer support. We talked a little bit today about the fact that we've introduced a new customer community. And that customer community I'm really excited about. We've got thousands of customers engaging in the community today. They are providing best practices to each other. They're getting moderation from our team in there. They're getting access to additional resources. But that matters a lot within this space. We're still so early in this industry where even the practitioners that are in it have not been in it for that long. And so we see our role being driving great education and awareness and best practices for all the things that they could be doing. So that community, that customer success has been a huge differentiator. And then innovation. Beat to innovation would be the third point that I give you. We have built Sprout organically on one code base. We move incredibly quickly when we introduce new functionality to our customers. And that matters a lot for our customers because they're counting on us to be able to do all of their social work. They don't log into these individual platforms. They log into Sprout to engage with their customers. And I think about Instagram carousels as maybe a good example from the quarter. We introduced this new functionality with Instagram carousels. We were one of the first companies to put it out in the market. Many of our competitors still don't have it. And so that's just, it's a tactical example, but a very important one for our customers because they're relying on us to do their work.

Perfect. Thanks so much.

Maybe just one follow-up if you have time. Any update on maybe adding support for TikTok? Is that an A2022 catalyst?

No proper update today. Stay tuned. Thank you. And we'll take our last question this afternoon from Clark Jeffries at Piper Sandler.

Hello. Thank you for taking the question. Joe, just, you know, I think we've touched on seasonality a couple times on the call, but I wanted to briefly touch on linearity. You know, are you seeing, even in a Q1, due to these kind of higher volume of larger deals, deals get closed later in the quarter, situations where revenue linearity might be more back-end loaded than it was historically?

Yeah, if I think of like the revenue guidance that we give, I definitely think it's going to be more back towards the end of the year to your point, Clark. I think that's a fair assumption.

All right, perfect. And then, you know, a follow-up question of, you know, Ryan, you mentioned hiring shifting into a higher gear. Just generally, how has the hiring plan played out year to date? Do you find yourself having any difficulty in either R&D or sales hiring in the regions that you're looking at?

I'll start, and then Justin, if you want to talk about the R&D.

Yeah, from a sales perspective and a hiring perspective, we really started to I'm feeling very good about our approach to the market. I think one of the things just in the hybrid workforce that we're running today, you know, in the past a few years ago, we were really only pulling from Chicago talent. And then later it was Seattle and Chicago and Dublin. And now in our hybrid approach, we've got folks that are located all over the world. And so that's giving us access to bigger talent pools, greater talent. And we've got really good over the last couple of years plus at onboarding people in this way and getting them up and running and ramped really quickly. So feeling very good about that. And the last point before I hand it to Justin there is just culture continues to be a huge differentiator for us. That's why people end up coming to Sprout and what drives them over here on top of the mission that we have. And being an employer of choice is something that we are really focused in on. And so that's been a nice differentiator for us and a nice tailwind.

Yeah, I'll just add, across the organization, the points Ryan mentioned have mattered a lot. I think there's, as an industry, I think the current dialogue is that it's maybe been a more challenging labor market over the past 12 months. um the commitments that we made you know so we weren't sitting on the sidelines we decided a year and a half ago um we're committed to hybrid work and um we got a head start on that and that's just been phenomenal in terms of our hiring funnel uh the talent the people that we're bringing into the organization um and it it's exciting uh the To Ryan's point, just the pool, the opportunity to work with people who are in places that might not historically have a lot of opportunity, like there's just so many positive benefits. And it puts us just in a really, you know, because we've got a great platform, great reputation, great culture, et cetera. And we've really made clear our go forward plan around what work is going to look like. I think that's just been a something that's attracting phenomenal people. And, you know, I do onboarding with our new customer cohorts, and they're only getting bigger and bigger.

They don't fit in our Zoom grid anymore. Thank you very much. Thank you. And at this time, I'd like to turn the call back over to Mr. Howard for any closing comments.

Yeah, thank you. Thank you for all the questions. I know we're maybe a little over on time, so I'll keep this quick. Thanks for your time. Thanks for the support. Thanks for the conversations throughout the quarter. We'll look forward to having more of those with you. And thanks as always to our team, just doing a knockout job and really proud of the results we've delivered this quarter. Thanks, everyone.

Thank you, Mr. Howard. Ladies and gentlemen, that will conclude Spouse Social's first quarter 2022 earnings conference call. We'd like to thank you all so much for joining us and wish you all a great remainder of your day.