Sprout Social, Inc

Hello, everyone. Thank you for joining us and welcome to the Sprout Social second quarter 2026 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 to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Lexi Johnson, Investor Relations Manager. Lexi, please go ahead.

Thank you and welcome to Sprout Social's second quarter 2026 earnings call. We will 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, Ryan Barretto, and Vice President of FP&A, Aaron Grotman. 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 Q3 and 2026 outlook in business plans and objectives, and can be identified by words such as expect, anticipate, intend, plan, believe, seek, opportunity, target, 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 actual results, please refer to our annual report on Form 10-K for the year ended December 31st, 2025, as well as our quarterly report on Form 10-Q for the quarter ended June 30th, 2026 to be filed with the SEC. 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 reconciliations to the most directly comparable GAAP financial measures, are included in our second quarter earnings release, which has been furnished to the SEC and is available on our website at investors.sprapsocial.com. As a reminder, we will be referring to the metric Approximated Subscription Revenue Contribution for customers contributing $30,000 and above in ARR. Thank you, Lexi, and welcome to our second quarter earnings call for fiscal 2026. Sprout delivered another strong quarter with revenue of $123.8 million.

representing 10.8% year-over-year growth, and we closed out the quarter with a non-GAAP operating margin at 12.9%, up 370 basis points year-over-year. I'm pleased that both CRPO and RPO accelerated this quarter. Current remaining performance obligations grew 12.4% year-over-year to 202.7 million, and total remaining performance obligations grew 15.5%. We continue to see customers making longer-term commitments to Sprout, with multi-year contracts representing almost half of our contract mix, up from about one-third two years ago. This reflects the growing confidence in Sprout as a strategic platform and supports our broader go-to-market motion with larger, more sophisticated customers. Sprout also delivered strong non-gap free cash flow in the second quarter at $8.3 million, an improvement of approximately 60% year-over-year. On a trailing 12-month basis, the company has generated approximately $54 million in non-GAAP-free cash flow. We believe this improvement underscores our ability to drive leverage in our model. Q2 was an important quarter for AI at Sprout. We expanded the capabilities of Trellis, our proprietary agentic offering, announcing these updates at our Breaking Ground event in May. Alongside listening, Trellis can now deliver insights on demand. Users can query their social data in plain language and receive analyst-quality answers in seconds without configuring complex reports or dashboards. We introduced Trellis Studio, a no-code interface for building and customizing skills that proactively surfaces what matters most so teams can move from insight to action faster. Every Sprout customer receives a base allotment of Trellis usage at no additional cost. For customers with higher usage needs, we introduced Trellis Plus, a paid tier that increases their limits and just went live in July. We've seen healthy growth and adoption trends with monthly active Trellis users. In Q2, those customers retained at a higher rate than customers without active Trellis users. And that held true across all segments. Customer feedback has also been very encouraging. One of the nation's top-ranked health systems asked Trellis for a summary of their listening dashboard and described the output as perfect, vastly better than what I would have done. Reporting an analysis that once took hours now takes seconds. Within Newswhip, we extended intelligence capabilities, adding predictive scoring across community platforms like Reddit to help identify emerging narratives earlier. We also launched an AI dashboard builder that generates a real-time monitoring dashboard from a plain language prompt. As it relates to integrations, we also expanded network coverage, adding Snapchat scheduling and publishing, direct creator payments with automated tax documentation through PayPal and Lamano, and consolidated management of TikTok ad comments within engagement. On the partnership side, we launched an expanded integration with Canva to bring design workflows into the Spread platform, and were represented at the Cannes Lions Festival last month alongside partners like Canva and Snapchat. Across R&D, AI has become the center of gravity for our product investments this year. In addition to strengthening our core platform and delivering on the integrations our most sophisticated customers depend on. Co-founder Aaron Rankin's recent return as CTO reflects the priority we're placing here. He'll partner closely with our CPO, Srinivas Somayajula, to lead this next chapter of AI investment and enterprise capabilities that we're building into our products. As we announced on July 15th, we made the very difficult but important decision to reduce the size of our team by approximately 20%. We're incredibly grateful for the contributions of our departing colleagues who helped shape Sprout into the company it is today. Our industry and software more broadly is changing quickly and the way companies need to operate and invest has changed with it. As we step back to examine our own operating model, we saw too many layers and an org structure that was slowing down decision-making and saw an opportunity to really streamline our work in areas of focus. Thank you so much for joining us today. as we look around our market it's clear that major brands are trying to solve the same problem right now how do they manage an explosion of social activity across more platforms than ever at the speed customers expect with finite resources Social is where products get discovered and purchase decisions get made. Customer service has moved there. News breaks there first. Brands are built and destroyed on social media and hours. The most trusted voices talking about a brand are creators and communities, not people on your payroll or under your control. Most companies can't keep up with what that requires. We believe we have built the infrastructure to help brands do exactly that in a way that is differentiated and drives clear ROI. Every day, Sprout ingests more than 2 billion real-time social interactions from hundreds of APIs across more than a dozen networks. That access took 16 years of legal agreements, security certifications, and a track record of delivering customer value. We believe this has built a level of trust and credibility that creates a strong competitive moat defined by high barriers to entry that are difficult to replicate. As we've been discussing with you for the past few quarters, our strategy is increasingly focused on larger, more sophisticated customers where our platform breadth, product roadmap, and go-to-market investments are most aligned with their needs. Thank you. This 30k plus customer segment has stronger unit economics and a better retention and expansion profile, and they tend to adopt more of our strategic products than our smaller customers do. In fact, this cohort carries an average ACV multiples higher than our total average ACV with higher attach rates of products like Influencer Marketing and NewsWeb. As we look to the remainder of 2026, we continue to expect to see this segment represent an increasing percentage of our subscription revenue. Our logo count for customers contributing 30,000 or more in ARR continues to compound as we added 51 net new customers in the segment during the second quarter and 388 over the trailing 12 months. Looking at the largest of our net ads, we had over 10 customers in Q2 that contributed 150K or more in ARR, demonstrating our market progress. As we dig into some of our customer wins from the quarter, the trends become more clear as to why we see so much opportunity with our larger customer cohort. I will start with a seven-figure new business deal with a multinational manufacturer and distributor that is establishing our enterprise suite as the foundational backbone of their global social strategy. By adopting a comprehensive portfolio of Sprout solutions, including premium analytics, social listening, employee advocacy, influencer marketing, news whip, and premier success, they consolidated their highly distributed social operations into a single ecosystem. Thank you for joining us. In addition, Sprout streamlines their creator discovery, influencer campaign logistics, and ROI measurement, while Newswhip empowers them to proactively detect crises and monitor breaking news signals to help protect their brand equity. Following a $1.65 million new business deal last quarter, this Fortune 50 financial services company expanded their footprint in Q2 by an additional $893K, adding our Service Cloud integration and Guardian product. The deep Salesforce integration optimizes their marketing and care workflows, enabling them to deliver a sophisticated omni-channel social customer care, but automatically routing social inquiries directly into their existing environment. Our automated routing is designed to reduce customer response times and eliminate the risk of missed client messages, all while scaling support operations to accommodate 100 Service Cloud users with high volume agent productivity. This customer further ensures brand safety and financial services regulatory compliance by utilizing Guardian, which monitors channels for compliance risks, regulatory concerns, and real-time brand mentions. Service Cloud is designed to enrich client profiles with high fidelity social data, connecting social interactions directly to Salesforce to provide a holistic, unified view of client sentiment and engagement. We believe the story highlights Sprout's unique capability to streamline enterprise customer care while upholding the highest standards of security and compliance for one of the world's largest financial institutions. This quarter, we also secured a 250K new customer win with a leading North American audio and media publisher, underscoring Sprout's ability to drive intuitive enterprise platform consolidation for massive content ecosystems. By adopting a comprehensive suite including Listening, Premium Analytics, Guardian, Newswhip, Influencer Marketing, and Premier Success, this customer is consolidating more than three point solutions into a single enterprise platform. This transition unifies their editorial, social, and events team, streamlining multi-department workflows, improving collaboration, and reducing overall technology complexity. By establishing high-performance enterprise reporting and executive-aligned ROI modeling, Sprout enables them to standardize and scale social operations across 850-plus brand channels, supporting high-volume editorial publishing with rigorous enterprise governance. Sprout is driving business value by unlocking deep social intelligence and predictive media insights to assist this customer's editorial team through the real-time analysis of emerging conversations, trends and fan sentiment. In addition to enriching content strategy, this deployment creates new monetization opportunities by equipping sales and marketing teams with deeper audience, creator, and content insights. These data assets allowed the publisher to build more valuable advertising sponsorships and branded partnership offerings while providing unified creator and artist management and reporting. This story highlights Spread's capacity to handle marketing, creator management, and real-time trend monitoring on a single scalable infrastructure. Next, I'd like to turn to our strategy for customers below $30,000 in approximated subscription revenue. This cohort represented 39% of approximated subscription revenue in the trailing 12 months ended June 30, 2026, compared to 59% in the trailing 12 months ended June 30, 2022. This 20-point shift reflects our multi-year move towards larger, more strategic customers, while also highlighting the opportunity we have to serve this part of the market with a more efficient product and go-to-market motion. As you may recall, last quarter we outlined two pillars of our strategy for this segment, evolving our self-service motion through automation and AI, and reworking the lower end of the market around a simpler, purpose-built product. In April, our Essentials product moved from limited release to general availability, following positive signals from our initial testing. While it's still early, initial cohorts are seeing positive demand trends. Looking ahead, we're also refining our top of funnel motion for Essentials, sharpening how we reach and acquire target customers. Additionally, we believe the product simplicity and price point will be well-suited for expansion into non-US markets. The Essentials product is one component of our broader self-serve strategy for the sub-30K customer cohort, a fully digital, no-sales touch experience. In this segment, we're extending the self-serve model across the full customer lifecycle from acquisition through onboarding, support, and expansion with the goal of improving unit economics across the entire lower segment, not just at the point of initial purchase. I'll now run through our quarterly financial results and then discuss our outlook for Q3 and fiscal 2026. Our second quarter results were highlighted by a quarterly non-GAAP operating margin of 12.9%, up 370 basis points year-over-year, and ongoing expansion of our 30K and above customer segment. Thank you for joining us. Since the fourth quarter of 2022, we have added over 1,900 customers contributing 30,000 or more in ARR and over 1,100 customers contributing 50,000 or more in ARR. Growing these more socially sophisticated customers remains a central part of our longer-term strategy. Turning to cash flow, we generated $8.3 million in non-GAAP free cash flow during the quarter, an increase of approximately 60% from the prior year. As we've communicated previously, we expect our non-GAAP free cash flow margin to closely track our non-GAAP operating margin on an annual basis, and we remain committed to growing non-GAAP operating leverage on a fiscal year basis. Q2 ACV increased 14.8% year over year, reflecting the continued mix shift toward large, more sophisticated customers and broader adoption of our higher value products across the platform. Expanding ACV remains a core part of our strategy, and we see continued opportunity to grow customer value through products like influencer marketing, customer care, premium analytics, and NewsWhip. RPO totaled 400.8 million, representing growth of 15.5% year-over-year. We expect to recognize 70.5% or 282.7 million of total RPO as revenue over the next 12 months, representing CRPO growth of 12.4% year-over-year. Note that during Q2, CRRPO benefited due to longer contract durations as well as a higher mix from renewals. We ended the quarter with $119.9 million in cash and cash equivalents, up from $101.5 million a year ago. As a reminder, last quarter we initiated a $50 million share repurchase authorization. Although our restructuring and blackout periods restricted our ability to buy back stock during Q2, we plan to be in the market opportunistically this quarter. Thank you so much for joining us. Before I discuss guidance, I want to review the recent restructuring and its impact on our financials. We believe the reorganization we announced on July 15th will enable us to deliver faster product innovation for customers in the future while also enabling us to invest in our business. As part of this headcount reduction, we expect to incur pre-tax restructuring charges of approximately $18 to $20 million. Substantially, all of these changes will impact Q3. As a result of our restructuring, we expect to reduce our overall non-GAAP cost structure by at least $50 million on an annualized go-forward run rate. Due to the timing of employee departures and other initiatives related to the reorganization, we expect the annualized run rate will not be fully realized until 2027. With this reduction in cost structure combined with the continued investments we plan to make, we are increasing our guidance for both non-GAAP operating income and non-GAAP EPS. We will continue our disciplined approach to our spend while maintaining flexibility to invest behind Trellis and AI-driven product expansion. Moving on to guidance. For the third quarter of fiscal 2026, we expect revenue in the range of $123.3 to $124.1 million. Non-GAAP operating income in the range of $17.5 to $18.3 million. Non-GAAP net income per share of between 29 and 30 cents. This assumes approximately 60.7 million weighted average basic shares of common stock outstanding. For fiscal year 2026, we expect revenue in the range of 493 to 495.6 million. Non-GAAP operating income in the range of 68.3 to 70.3 million. This is an increase of 20% over the midpoint of our prior outlook. For modeling purposes, we expect to exit Q426 with a non-GAAP operating margin close to 17%. A non-GAAP net income per share between $1.11 to $1.15, assuming approximately 60.6 million weighted average basic shares of common stock outstanding. This represents non-GAAP net income per share growth of approximately 22% over our prior outlook. Finally, we are reaffirming our target of reaching 30% under our Rule of 40 framework by the fourth quarter of fiscal 2027. We expect continued growth in our 30K and above customer segment with continued headwind from customers below 30K. Our focus is improving the quality and durability of growth while continuing to expand non-GAAP profitability. And as a reminder, we are lapping the acquisition of Newswhip beginning in Q3 26, which will carry an associated headwind on both revenue and RPO growth moving forward. In addition, we are not anticipating an improvement in the demand environment. We expect the backdrop to remain consistent with what we have experienced the last few quarters. Note that our guidance excludes the impact of any potential share repurchases for purposes of our earnings per share outlook, given the timing and amount of repurchases is inherently uncertain and subject to a number of restrictions and other requirements. In conclusion, I'm pleased with the progress we made in Q2. Looking ahead, we believe that our current structure puts us in a fundamentally stronger operational and financial position with the ability to deliver higher operating margins and stronger cash flow leverage while at the same time enhancing our ability to invest in what will drive the business forward. And with that, Aaron and I are happy to open up the call for questions. Operator?

We will now begin the question and answer session. Please limit yourself to one question and one follow up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Rob Oliver with Baird. Your line is open. Please go ahead.

Great. Good afternoon, guys. Thanks. Ryan, a couple questions for you. Appreciate it. First is, just on Trellis, obviously a lot of AI action happening in the departments that you guys sell to, and would love to hear how early indications of Trellis are playing out for you and how we should think about Trellis potentially contributing or translating to that confidence you have in driving that 30K plus ARR cohort trajectory. And then I had a quick follow up as well.

Yeah, thanks, Rob. Appreciate it. We've been really pleased with Trellis so far. Again, we're early here. As we started the year, we started Trellis within listening, and then we expanded it across the rest of the platform. And then we just went live in July with our paid tier. The early trends have been encouraging. We've seen healthy growth in the monthly active users in Trellis. and we've seen that in Q2 those customers were retaining at a higher rate than customers without active Trellis usage and that held true across all segments. So we've been feeling pretty good about just the progress that we've been making there. You heard it on the prepared remarks but really good feedback from customers on the value that they're seeing. This is really the driver behind our social intelligence and our platform and with the access to the data that we have for our customers Having something like Trellis enabling our customers to get to these insights faster than ever before is really a game changer for them. So really good early progress so far from our customers and good feedback.

Great, helpful. And then just quickly, just the implied Q4 guide for you guys on the new Q3 guidance is 3% to 4% of the top line. And just understand there are a lot of moving parts and there's no reason to be aggressive. Just wanted to get a sense of whether that's indicative of, say, More assumed pressure on that sub-30K customer cohort. I know you're doing a lot to shore that up and re-engage growth there, but should we expect that pressure to continue and how to think about that put and take versus, say, more of a Q4 back-end loaded enterprise buying cycle? Thanks very much.

Yeah, I appreciate it, Rob. Consistent with our approach to guidance, we're taking a measured view on the year to ensure that we're set up for success. Some of the inputs that are considered here, one, obviously with the restructuring we made, we're going through some important change in management and executing well there over Q3 and Q4 will be important. We're halfway through the year. We're not assuming a material improvement in the demand environment. We're lapping the acquisition of News Whip. And then as you shared in the question as well, the headwinds from the sub-30K as well in the low end of the market were remains some pressure in that market that we've been focusing in on. At the same time, we're continuing to see strength in the areas most aligned to our strategy. That's the larger customers in that 30K segment. We expect to be leaning in on things like Trellis and AI adoption, and we're seeing good interest in our new products like NewsWeb and Influencer Marketing. So I just summarize it by the, you know, the guide reflects a thoughtful approach to how we're going to execute the rest of the year, and it takes into account the demand environment and our areas of strength in some of those headwinds.

Thanks for the question. Thanks, Ryan. Appreciate it.

Your next question comes from the line of Arjun Bhatia with William Blair & Company. Your line is open. Please go ahead.

Hey, team. I'm Willow. I'm for Arjun Bhatia. Thanks for taking your question. Ryan, I'm curious to hear more details about the customer feedback of the new Trellis capabilities launched this summer after the Breaking Ground event. And with Trellis Studio, what are you seeing customers build?

Yeah, thanks Will. Yeah, the feedback has been really strong. I mean, I think that the standard, obviously, we started on the listening side of things. And so if we think about listening itself, you just have access to so much data. But historically, you know, it was done through dashboards and reports. And then you really relied on having your internal data. Thank you for joining us. Thank you for joining us. And, you know, for our customers today, again, there's just so much information that's coming to them. And most of the time, the folks that we're working with, our practitioners, are understaffed. So being able to have Trellis as a partner to their work really, really does increase their efficiency and the intelligence that they have in their social execution.

Okay, this is helpful. And one more question, if I may. Are you already seeing customers either buy new credit or more credits, excuse me, or upgrade? Plus. I realize this is early on, but any color there would be super helpful.

Yeah, I appreciate it. We're pretty early on. It's a few weeks after, but yes, we're seeing customers who are moving up to the paid plus tier. For us, again, I'll go back to it's early, but we've been in A beta period for a period of time here. We're really driving towards adoption and usage. That's why Trellis is available across all of our products. We want our customers consuming this. And then we know that we're going to have a number of paid users that are going to be upgrading to get more access to Trellis. So expect as we come back in Q3, we'll have some more color and context for all of you.

Great. Thank you.

Thanks for the question.

Your next question comes from the line of Scott Berg with Needham & Company. Your line is open. Please go ahead.

Hi, everyone. This is Lucas on for Scott. Thank you guys for taking the questions. On CRPO growth and revenue growth, those are getting pretty close to converging. I guess given kind of where contract links stand today, how should we kind of think of CRPO as a good indicator of revenue growth over the next few quarters here? Or I guess, is it less reliable kind of as Contracts potentially get shorter and you move more down market. Thanks.

Yeah, thanks, Lucas. Appreciate the question. Yeah, I mean, we're pleased with the progress that we've seen there. You know, this has a lot to do with the 30K and above customers that we have. That's now 61% of our business growing at 20%. We also saw just the 50K continue to grow faster than our overall business, and ACVs have increased, you know, 14.8%. The work for us here is about execution, and that's going to be scaling those higher-value customers, driving the multi-product adoption and the multi-year contracts. And I'll have Erin maybe jump in with some of the mechanics behind this.

Yeah, thanks, R.B. I think in addition to what R.B. said, the CRPO metric accelerated for a couple of reasons in Q2. So renewals were a big piece of this. Not only did we see improved renewal rates in the quarter, but we did benefit from the timing of some renewals as well. Additionally, Q2 carried a mix of longer contract durations and fewer monthly deals, which aren't seen in RPO. So this reflects continued strong execution on larger and more strategic deals to RB's point. That said, we do expect CRPO will moderate in Q3.

Got it. Thank you, guys. I appreciate the color. But then just as a quick follow-up for you, Ryan, kind of on the workforce reductions announced last month, I guess generally were those fairly broad-based across the organization or really kind of any certain areas that were impacted more heavily than others?

Yeah, I appreciate it. First off, I want to acknowledge that these decisions are incredibly difficult because it impacts our people and team. And we said goodbye to some amazing people who contributed a lot to building this company. which I'm grateful for. The change is really about creating the org structure and focus on financial strength that we believe is going to make Sprout a stronger, more successful company. Of course, alongside of that, we know that there's significant change management, the need to execute as we move forward. If I think about just where this was focused, it certainly was different parts of the organization, but it was really about Removing layers, streamlining decision-making, and making sure that we are getting our leaders and our people closer to the work and ensuring that we have the right investments in our most productive areas of the business. So it touched a variety of different spots, but that was a little bit more about the strategy in terms of the decision.

Understood. Thank you. Thanks for the question.

Your next question comes from the line of Matt Van Vliet with Cantor. Your line is open. Please go ahead.

Good afternoon. Thanks for taking the questions. Maybe following up on a couple of the other comments on Trellis, but from a little different angle, like, I guess, how are you thinking about Trellis Plus, sort of the paid tier impacting results, but on the flip side, How should we think about this just being natively integrated in the platform and giving those AI insights around the consumption of so much data to be the biggest value driver of the platform itself, rather than just sort of the publishing and basic listening? I guess how are you envisioning AI impacting the business from a value-delivered standpoint long-term?

Yeah, thanks Matt. I appreciate it. I think there's a few different vectors in which it's going to make an impact and where we think it can help. Certainly from a new business perspective, we think that it really helps us from a competitive standpoint. It should ultimately impact win rates. We know that because it's available to all of our customers today, we see it as an upsell opportunity for customers that will go from the free tiers to paid as they become power users in it. And then from a retention standpoint, from a gross retention standpoint, we believe that it makes the product that much more valuable to our customers today. And we're seeing and hearing that type of feedback from our customers. To the second part of the point as well, this was certainly a quarter where we were very excited to get it beyond listening. We know that the intelligence that we can deliver goes beyond just the listening part of the platform. We've got marketers that are working within our publishing capabilities every day and they're trying to figure out Thank you for joining us. and to even be able to take that intelligence and share it back into places in their organization like the product org are all things that really end up adding a tremendous amount of value to the overall product. So the way that we think about this today is that it should have a lot of impact across the business. Our focus right now is making sure that we're driving a lot of awareness usage and adoption and we expect to see these things getting pulled through in our metrics in the future.

Very helpful. And then I guess just as you think about the state of the headcount organization today, are there areas where you feel like you could use some additional heads? and sort of reallocating resources here, understanding it was a difficult decision to cut a pretty significant part of the business. But where should we think about heads being added incrementally going forward? And I guess, how are you feeling about capacity on the go-to-market team?

Yeah, I appreciate it. I mean, as you might imagine, as we went into such a big decision, there was a ton of thought and modeling and intentionality and making sure that we were going to have a go-forward team where we expect to see improvements in the efficiency of the way that we're working, to see the right capacity in the areas where we think we have the biggest opportunity, to ensure that we were creating enough space in terms of being able to reinvest in parts of our business where we think that there's upside. So from where we are today, we feel good about the capacity that we have from a GTM perspective. We've got it focused in and on the right places. And I think as we're going through the change management here through this quarter in Q4 and have more visibility into the opportunities in front of us, we'll probably be coming back to all of you with more context and color on where future investments might go. Thank you.

Thanks for the question. Your next question comes from the line of Nate Roos with KeyBank. Your line is open. Please go ahead.

Great. Hey, this is Nate Roos on for Jacksonator. Thanks for taking our questions. So it seems like increasingly incremental data points relevant for companies that we cover pop up on social media. I can think of platforms like Twitter and Reddit. Ryan, you talked about Sprout helping customers identify real-time social signals. Are you noticing customers starting to operationalize this Yeah, thanks for the question, Nate.

It is certainly one of the most exciting things and very much baked into everything that we do. More and more, we're seeing more of the signals show up. We've historically thought about this as a marketing-type function, and certainly our customers think about how to perform better from an organic and paid perspective on their marketing campaigns. From a customer care perspective, it's becoming one of the biggest channels where customers are going to engage with brands. And these customers expect a higher level of service on social than many other channels. and for our customers, they also know that these conversations that are happening are very public in nature. And so response time and the way that you respond matters a lot. There's also just a ton of signal in the type of volume that's coming in. So yes, the answer is we are seeing a lot of our customers pushing in here. We're seeing a lot of our customers having their executive teams asking for more insights on what's happening on social, especially when things are trending. We're seeing more of our customers being asked by their executives for more insights in terms of demand and opportunity. And if we go back to Trellis, that social intelligence layer that we've built into Sprout, it is intentionally designed to be able to help these customers get those answers faster than they ever could before.

Great, helpful color there. And then if I may, one more. Operating margin and guidance was strong in the quarter. Can you talk about where upside specifically came from?

Thank you. Yes, I'll be happy to take this question. So we're very pleased with the Q2 EBIT performance and the discipline that the team showed on spend. The incremental leverage was driven by diligent efforts around spending as well as the timing of hiring during the quarter. We expect meaningful operating leverage for the year as we are guiding to a Q4 exit margin near 17%, and we remain committed to the Rule of 30 framework we laid out for Q4 of 2027. Awesome. Thanks for the question, Sam.

Your next question comes from the line of Raimo Linshow with Barclays. Your line is open. Please go ahead.

Hi, this is Becky Sun on for Raimo. Thanks for taking the question. I kind of have a more broad question. that there has been conflicting results in software this quarter due to AI uncertainty. So what are you seeing in terms of customer behavior for both below 30K and above 30K in general and sales cycles and pipeline in terms of those AI uncertainty?

Yeah, thanks, Becky. Appreciate it. I think for all customers, and we certainly see this as we're out there buying software as well, it comes down to a few things, I think, when you're looking at this. One, is the solution truly going to make a big difference in the workflows and the jobs to be done that you need? Two, do you trust the organizations that you're working with and the data that you're getting? and then three, is the cost predictable? Certainly I'm playing the CFO as well in the current state. From a financial and budget perspective, are these predictable costs? And so we see this in all the conversations that we're having with our customers. For us, The strategy behind Trellis has been from the very get-go here is drive usage and adoption from a freemium tier. So we're allowing our customers to actually touch and feel Trellis and get exposed to it before they ever pay for it. So they're getting a chance to ensure that it's actually delivering the value that they need. We've also had the benefit, we've been doing this for 16 years plus now, You've got tens of thousands of customers that trust us every single day. So there's an inherent trust and credibility that we have with our customers to be able to deliver this type of AI and social intelligence for them. And then from a cost perspective, even the approach that we've taken with our plus tier is at a predictable rate. And so I think all of those things make a material difference for customers when they're making decisions. Obviously, we're still early in this journey of being able to monetize and sell Trellis, but we've been seeing good progress thus far, and I expect that we'll be coming back and giving you all more color as we go through the quarter.

Got it. Helpful color there. Thank you.

Thank you, Becky.

Your next question comes from the line of Parker Lane with Stiefel. Your line is open. Please go ahead.

Yeah, hi, this is Jack McShane on for Parker. Thanks for taking the questions today. I wanted to ask about during the Q&A, you called out improved renewal rates during the quarter. Do you have anything particular to call out, whether it be the product resonating better, improvements in the environment, or maybe it's just, yeah, maybe it's a better upsell environment as it stands today?

Yeah, thanks, Jackson. I appreciate it. And then the color commentary there is we've seen our retention improve again in Q2, both on quarter and quarter and year on year, which we're really proud of. I think this speaks to a few things. One, it is certainly just the quality of the product and the value that we're delivering to customers every single day. And a lot of credit to our teams here that are out there building those products and ensuring that we are continuing to ship innovation to our customers and they're feeling that on a weekly basis in terms of the innovation that those customers are seeing. I also want to give a lot of credit to our go-to-market teams and our customer experience teams who are spending a lot of time with our customers to ensure that we're diving deep into the workflows and making sure that they're getting exposure to the many parts of the product. We've really over time become a multi-product company Thank you for joining us. These are organizations that came in and that they are buying News Whip and they're buying influencer marketing and they're using us for marketing and customer care. So it's all those things that are really contributing to the work that we're doing here.

Yeah, I think the only thing I'd add to this is something we were really pleased with in the quarter is that our gross retention moved in the right direction for both our less than 30K customers and our greater than 30K customers. So while we generally see a benefit from them moving towards larger customers for this quarter, We benefited from both that and improved renewal rates across the cohort.

Yeah, great. Thanks. And then follow up for me, I wanted to ask about the essentials package and how we could expect it to impact the financial model here, particularly on timing. It'd be great to hear like how soon essentials can A, reduce churn, B, open the door to new customers that may be less sophisticated and looking for a lower price point. and whether or not it's factored in the guidance at all. Thanks.

Yeah, appreciate it, Jackson. Yeah, just a reminder, Essentials moved to GA in April, so it's still pretty early, but the initial cohorts are showing some positive demand trends. Right now, we're really focused in on sharpening our top of funnel on how we reach and acquire the right customers for this product. And we think that the price point and the purpose-built nature of the product is well-suited for expansion, not just in the U.S., but in global markets over time. And this is, you know, the essentials is a part of a broader self-service motion strategy for our sub-30Ks. and this is going to be fully digital, no sales touch across the entire lifecycle from acquisition to onboarding to support and expansion. And our goal really is to serve these customers, reducing the cost to acquire and cost to serve and to have better economics across the board. So, you know, I think the other piece I'll maybe just say is as we've shared with the sub 30K, we expect deceleration going slightly negative this year with the plan to stabilize it in 2027. So we'll continue to come back and provide more context and color there, but good early signals and more work to do. Thanks for your question.

There are no further questions at this time. I will now turn the call back to Ryan Barretto for closing remarks.

Perfect. Thanks very much. And thanks again, everyone, for joining us this evening. Before we close, I wanted to highlight a few takeaways. First, our second quarter financial metrics performed well. We beat across all the outlook across the metrics. Both CRPO and RPO accelerated this quarter. Our Q2 non-gap free cash flow surged nearly 60% year over year, bringing our trailing 12-month total to approximately $54 million and demonstrating the expanding leverage in our model. Reflecting our confidence in spreads, durability, and cash flow generation, we expect to begin executing against our $50 million share repurchase program this quarter. We believe that there's a disconnect between our current market valuation and our long-term potential, making this a compelling allocation of capital. Every major brand in the world is trying to solve the same problem right now, managing an explosion of social activity across fragmented platforms at the speed customers expect with limited resources. Social is now the primary battleground for discovery, commerce, customer service, and brand reputation, where trust is shaped by creators and communities. Most companies can't keep up with what that requires. And we've built the infrastructure to help them do exactly that in a way that we believe creates a strong competitive moat. Every day, Sprout ingests more than 2 billion real-time social interactions from hundreds of APIs across more than a dozen networks. That level of access took 16 years of legal agreements, security certifications, and a track record of delivering customer value. This critical foundation has embedded trust and credibility that comes from years of proven success, and we believe this has us incredibly well positioned for the future. And on that note, I want to end by thanking our customers for their continued trust and partnership, and the Sprout team for their focus, discipline, and dedication. We appreciate your time tonight and your continued interest in Sprout. Have a great evening. Thanks, everybody. This concludes today's call.

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