Sprout Social, Inc

Hello, everyone. Thank you for joining us and welcome to Sprout Social fourth quarter 2025 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. I will now hand the call over to Alex Kurtz, VP of Investor Relations and Corp Development.

Thank you and welcome to Sprout Social's fourth quarter 2025 earnings call. We will be discussing the results announced in our press release issued after the market closed today, and have also released an updated investor presentation, which can be found on our website. With me are Sprout Social CEO, Ryan Barreto, and CFO, Joe DelPretto. 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. All statements other than statements of historical fact are forward-looking. These include, among others, statements concerning our expected future financial performance, including our Q1 and 2026 outlook and business plans and objectives. It can be identified by words such as expect, anticipate, intend, plan, believe, seek, opportunity, or will. These statements reflect our views as of today only and 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 a discussion of the risks and other important factors that could affect our results, please refer to our annual report on Form 10-K for the year ended December 31st, 2025 to be filed with the SEC, as well as our most recently filed 10-K and 10-Qs. During the call, we will 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 the reconciliations to the most directly comparable GAAP financial measures, are included in our fourth quarter earnings release, which has been furnished to the SEC and is available on our website at investors.sproutsocial.com. We've also developed a new metric, approximated subscription revenue contribution for customers contributing $30,000 and above in ARR. We believe this metric is useful in measuring our success in serving this particular customer cohort. Please refer to the detailed definition of this metric and how it's calculated in the appendix to the earnings presentation on our website. This metric is intended to approximate the subscription revenue of a subset of customers over a historical period by using their average ARR as a proxy and showing this quarterly estimate on a trailing 12-month basis. For brevity, we will refer to this metric through the rest of this call as 30K and above subscription revenue. With that, let me turn the call over to Ryan. Ryan?

Thank you, Alex, and welcome to our fourth quarter earnings call for fiscal 2025. Sprout delivered another strong quarter with revenue of $120.9 million, representing 12.9% year-over-year growth, and we closed out the year with non-GAAP operating margin at 10.5%, up 306 basis points year-over-year. Current remaining performance obligations grew 14% year-over-year to $284.7 million, and total remaining performance obligations grew almost 15%, with solid growth in our longer-term RPO balances. This growth is being driven by multi-year contracts that now represent nearly half of our contract mix, up from about a third two years ago, which illustrates our success moving upmarket. Our go-to-market team delivered solid growth in our 50K plus ARR customer count, up 18% year over year. During this quarter, we landed strategic wins with amazing global brands like GE Aerospace, Archer Daniels Midland, Pulte Group, Caesars Entertainment, Cox Enterprises, Gibson Brands, and The Knot Worldwide. These customers demonstrate our continued success serving the most socially sophisticated enterprise customers. Sprout also delivered strong non-GAAP free cash flow in the fourth quarter at $10.9 million and for the year at $45.9 million, an improvement of approximately 55% year over year. This improvement underscores our ability to drive leverage in our model. In 2025, we took a major step forward, enhancing the intelligence in our platform. With Sprout AI, we're using our differentiated data layer and proprietary agents to help teams move from insight to action faster, starting with trellis and listening and expanding across key workflows in 2026. Alongside that, we strengthened our multi-product portfolio with a reimagined influencer marketing platform, meaningful advances in social care, guardian for trust and compliance, and the introduction of NewsWhip for real-time PR and comms intelligence. Overall, our multi-product strategy continues to drive meaningfully higher win rates. We entered 2026 with strong product momentum and a clear opportunity to expand within our base as customers consolidate vendors. I'm also excited to share that Lori Jimenez has started as our new chief revenue officer. Lori hit the ground running and led our revenue kickoff last month. She brings great commercial software experience from SMB to the enterprise after leading teams at companies like Box, Meta, Google, and most recently, WorkRamp. I wanted to start today's remarks with important behind the scenes details to help you understand our business at a deeper level. We know that many in the investment community are in the process of discerning the potential impacts of AI across categories and in specific companies in the software space. We'll talk more about our AI strategy and our progress in general, but first I want to speak to two of the prevailing concerns directly. The first concern is moat durability in a world where agents are becoming proficient at writing code. Even if an agent could generate perfect, secure, production-ready code on demand, that's still not the hard part. The hard part is making it work in production, permission data access, reliability at scale, and governed workflows that enterprises trust. On a given day, we ingest and publish more than 1 billion social interactions and data points from hundreds of volatile APIs across more than a dozen social networks. All of this is real time, uniquely structured across networks and message types, and not meaningfully accessible to LLMs today. This data comes from our elevated network partnerships, which are made possible by deep, longstanding relationships, in many cases governed by complex legal agreements, rapid execution as platforms change, robust security and compliance, and a track record of proven customer value. Access to high quality social data has been getting more restricted, not less. Platforms have tightened controls and increased enforcement against unapproved scraping, especially for AI training. We believe this makes reliable, compliant access under the right permissions a true differentiator. At the end of the day, social data access is permissioned and controlled by the platforms, not by the model layer. So reliable access at scale is earned, not assumed. Even if the data were accessible, we believe the magnitude needed to power core features is unwieldy and untenable for in-house solutions or upstarts to manage. In fact, many of the largest LLM providers with their massive arsenal of resources are customers of Sprout and rely on our platform to meet this mission-critical area of their business. We've built hundreds of features underpinned by a complex matrix of sources and endpoints optimized over more than 15 years of incredibly challenging engineering feats. We translate raw social activity at enormous volumes into structured, comparable signals, adding customer-specific context, routing logic, semantic meaning, and workflow. Staying in constant lockstep with our network partners and evolving customer needs is even more involved still. Together, these technical strengths form the foundation of Sprout as a social system of record and action, where social data becomes governed workflow, measurable outcomes, and trusted execution across teams. We'll go deeper in an upcoming investor-focused webinar we are running with our CTO, Alan Boyce, and distinguished engineer, Kevin Stanton. This event will take place on March 11th and will be hosted on our IR website. More details to come. Most people are surprised to learn about the complexity and scale of the engineering challenges involved in bringing all this together in an elegant platform for tens of thousands of brands around the world. These are arguably some of the most difficult challenges in SaaS. This moat is hard earned and we believe is very durable in an AI world. We also believe AI development will radically improve our own products, operations, and efficiency, and it already is, but that's only possible because of the foundation we've built and the complexity we've already tackled. All of this is also a key factor in the second prevailing concern, the durability of revenue, potential seed erosion, and the terminal value of SaaS businesses. We agree that many categories of software will need to adapt to counter this potential, especially front-end heavy, narrow applications with less architecture and data complexity touching large portions of the workforce. We do not anticipate that this will play out in the same way in the relatively nascent and understaffed category of social media, where trust, compliance, direct connection with customers, and precision are inextricably linked to a brand's reputation. Rather, we believe that AI will unlock new capabilities, use cases, and revenue opportunities for Sprout over time. As we expand our AI products, called Trellis, across the platform, we expect the ROI customers are seeing to translate into durable business results for Sprout through deeper adoption, broader use cases, and over time, new monetization levers aligned with outcomes we're delivering. In May, at Breaking Ground, we'll share our roadmap and initial packaging and pricing framework, including how we're scaling Trellis from listening into publishing, reporting, and care. Now, I'd like to dedicate the remaining portion of my remarks today discussing two important and highly connected strategic initiatives. First, our multi-year plan to drive our two distinct customer segments and how this plan can drive better overall growth at Sprout. And second, how we can improve the overall margin profile of the company over the next two years with a new target of reaching 30% against our Rule of 40 framework by 4Q2027. Let's start with our two customer segments. As Alex highlighted in his intro, to provide greater visibility into these customer cohorts, we're now disclosing two years of historical data for an approximated subscription revenue metric, which you can find in our IR deck on our website. Over the last year, we have provided insight into our 50K and above customer segment. We continue to see success in this segment since we initiated our focus here in 2023 with approximated subscription revenue contribution growth of 27% in FY 2025, driven by strategic investments in our products, marketing, and go-to-market resources. Moving forward and from what you'll see in our IR presentation, we're widening the discussion of our larger customers to now include those over 30K of approximated subscription revenue. Customers over 30K are generally more socially sophisticated, have more advanced marketing strategies, have deeper budgets, and view social as a more strategic part of their business. This customer spend level and above is more broadly representative of how we manage our go-to-market and R&D investments, as well as the fact that these customers provide a strong expansion pipeline to matriculate to 50K and above. In FY 2025, 30K and above subscription revenue grew by 22% and represented 59% of our total subscription revenue across all customers. These customers are looking for a highly scalable platform that can deliver the capabilities, workflows, security, speed, and innovation that's required to deliver on their social strategies at scale. And that's what we are bringing to them and to the market. We are now consistently winning larger ACV opportunities with some of the most socially sophisticated customers, and our win rates continue to trend positively against our core competitors. And win rates are multiples higher when an opportunity includes a premium product. In addition to the revenue growth here, the success of this multi-year strategy to serve more socially sophisticated customers has put us in a position to serve Fortune 500 companies like Honda, McDonald's, Procter & Gamble, Palo Alto Networks, and Xerox. We couldn't be more proud to partner with these globally recognized brands. The success we have seen has been driven by major advancements in our social care capabilities, strong adoption of our influencer marketing platform, as well as consistent updates to our core publishing and listening capabilities. We see even more opportunity as our go-to-market teams bring Newswhip deeper into our customer base to solve complex real-time PR comms challenges, and our guardian capabilities deliver the trust, security, and compliance enterprises need. We're committed to deepening our success with this customer segment and believe we have the products, roadmap and teams to continue to win here. As we move throughout fiscal 2026, you will see Sprout unlock what we believe is the market's richest data asset that we have built over the last 15 years and will power a whole new set of AI and enterprise capabilities. This includes... Number one, Trellis. Trellis is Spread's proprietary AI agent that transforms social data into actionable insights by giving teams instant contextual answers, eliminating manual time-intensive analysis. In our early beta with listening, more than a thousand users are already empowered to produce executive-ready insights in minutes instead of hours, pinpointing what's driving sentiment shifts and isolating the themes behind them. Our 2026 roadmap focuses on high value use cases in listening, publishing, reporting, and care that will give customers intuitive ways to interact with social data and build custom agent workflows. We believe deep cross product integrations, unified data, and a standardized agent platform will position Sprout to lead the emerging social intelligence category. Number two, security and compliance. In 2026, we will make significant investments in the enterprise-grade foundation that large organizations require through our Guardian product. We will deliver automated user provisioning, including system for cross-domain identity management integration, streamlined group configuration, and advanced tag management to reduce administrative overhead at scale. For regulated industries, we will advance Guardian with blocked words approval, data unmasking, AI assist for custom data types, and customer audit improvements, giving compliance and legal teams the controls they need to run social operations with confidence. And number three, autonomous media monitoring and crisis intelligence. This is Sprout's AI-powered media monitoring agent that detects breaking stories and delivers analyst-grade intelligence reports within minutes. Our 2026 roadmap will deliver a comprehensive context, including share of voice, sentiment analysis, geographic distribution, and predictive growth trajectory, transforming media monitoring from reactive tracking to strategic crisis preparation. Our 30K plus customer segment has stronger unit economics, a better retention and expansion profile, and they tend to adopt more of our strategic products than is typical with our smaller customers. On this point, for customers above 30K, we generally see a multi-product attach rate well over 70%, which is multiples of our corporate averages with products like Influencer Marketing and News Whip, which carry higher ACV. Let me take you through three customer stories from the quarter that should help illustrate why we see so much opportunity here. This quarter, we closed a $1.4 million new business deal with a global information systems leader. We successfully consolidated fragmented point solutions into a single enterprise-grade platform for 450 users, significantly reducing operational complexity. By unifying publishing, listening, and advocacy, their 50-plus global teams are empowered to drive faster data-led decisions while maintaining centralized governance. This partnership demonstrates Sprout's unique ability to drive ROI and scale across a massive global footprint. We also closed a $630,000 expansion deal with a Fortune 50 global technology company. By deeply integrating social intelligence within Salesforce Service Cloud, we've created a unified data set that allows their teams to make faster decisions and provide consistent customer care across every channel. This expansion was driven by our ability to replace legacy tools with a stable long-term solution that unifies the agent experience. Through this dedicated partnership, we've simplified complex workflows, ensuring their teams are up and running quickly to deliver exceptional, secure social support at scale. Last, I'd like to highlight a $1.3 million new business deal, the Global Nonprofit. Sprout has become the central engine for their national and regional communication strategy. We're enabling this organization to scale social operations nationwide across all 50 states, supported by a specialized national team. By deploying our advanced listening capabilities, we provide the localized state-level insights and trending content predictions necessary for them to maintain brand relevance in a complex media landscape. This win highlights how Sprout is critical for large scale organizations to benchmark sentiment against competitors and to ensure data hygiene through precise custom reporting. Our platform is not just a tool for them. It's an intuitive workspace that has fundamentally improved their cross team collaboration and mission critical workflows. Now let's turn to the sub 30K business. While we believe there's strong potential in this customer segment, it clearly has been a headwind to the growth of spread over the last several years. It's a business that has its very own distinct dynamics as far as customer acquisition costs, pricing and packaging, and how these customers use our platform relative to larger customers. We believe we can turn the sub 30K segment from a drag on growth and profitability into a more productive and efficient part of the business over the medium term. Importantly, we continue to see healthy inbound interest and pipeline volume in this cohort, but today the motion is too expensive and we haven't had the right product market fit, which has made it a drag to growth and efficiency. We're addressing that in two ways. First, we're evolving our self-serve motion powered by automation and AI to move customers through evaluation, onboarding, and support with minimal human touch. That lowers the cost to acquire and serve, and we expect it to improve conversion and unit economics over time while keeping our direct sales capacity focused on more socially sophisticated customers. Second, we're launching a simplified product offering designed around the functionality these customers actually need with a faster time to value at a price point that matches their current willingness to pay. Over time, as a portion of these customers mature and their needs expand, we expect natural expansion into higher tier plans and select premium modules like listening, influencer marketing, and NewsWeb. The goal is straightforward. Over the medium term, better conversion and retention at a much lower cost to serve creates a more efficient run rate business and a healthier contributor to the business. Next, I want to share more about a new company-wide objective. Using the Rule of 40 framework, we're targeting a combined growth plus margin of 30 by the fourth quarter of 2027. We define that as year-over-year revenue growth plus current quarter non-gap operating margin. The path to this objective maps directly to the segment plan we just walked through. First, we keep scaling 30K plus by driving new business wins and by expanding within our customer base while increasing premium module attach rates in both areas. Second, we stabilize sub 30K by simplifying the offer, improving time to value, and shifting more of that motion to self-serve so we improve unit economics. And third, we expand margin through disciplined hiring and spend, more hiring in lower-cost markets, AI and automation to raise productivity, while keeping our incremental spend and hiring focused on the highest leverage priorities across R&D, go-to-market, and G&A. With the momentum we're seeing in 30K+, the actions underway in sub-30K, and the leadership we've added, we believe we're well positioned to reach our 30% Rule of 40 target by the end of 2027, with opportunity beyond that in subsequent years. The future of our category will be defined by AI-native, real-time intelligence delivered through extensible platforms that customers trust to drive outcomes. Our strategy is to be the social intelligence layer for modern organizations, connecting data, context, and action so teams can make better decisions faster. With our differentiated data, proven platform, and deep enterprise relationships, we believe we're positioned to lead, and our segment strategy gives us a clear path to execute. Before I turn it over, I want to say thank you to Joe. As we shared a couple weeks ago, Joe will transition in March to a new opportunity. Over the last eight years, he's been a trusted partner and friend, and he's helped build a strong financial foundation through discipline execution and a high caliber team with a deep bench of leaders we rely on every day. With that, one last time, over to you, Joe.