Q4 2019 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the social fourth quarter in fiscal year 2019 earnings Conference call. At this time, all participants are no listen only mode. After the speaker presentation. There will be a question and answer session asked a question. During this session do you want me to press Star one on your telephone please be advised that today's conference.

Is there accordingly.

Require any further systems. Please press star Zero I would now I turn the conference over to your Speaker today right fell under Investor Relations. Please go ahead Sir.

Good afternoon, and welcome to Sprouts, <unk> fourth quarter and full year 2019 earnings call.

We will be discussing the results announced in our press release issued after market close today.

With me are sprouts, social CEO Justin Howard.

FFO, Joe del Prado, and senior Vice President Global tail wind Bretaa.

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 statements concerning financial and business right.

Our expected future business and financial performance and financial condition.

In our guidance for the first quarter of 2020, and the full year 2020 <unk>.

It 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.

We do not undertake any duty to update these statements.

Forward looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results could differ materially from expectations.

For a discussion of the material risks and other important factors that could affect our actual results.

Please refer to the risks discussed in today's press release.

Our final prospectus under rule for Q4 be filed with the Securities and Exchange Commission on December 13th 2019.

Our annual report on form 10-K for the year ended December 31st 2019 to be filed with the Securities and Exchange Commission and our other periodic filings with the FCC.

During the call we will also discuss certain non-GAAP financial measures.

Which are not prepared in accordance with generally accepted accounting principles.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures as well as how we define these metrics and other metrics is included in our earnings press release.

I've been furnished to the FCC and is also available on our web site at investors, that's about social Dot com.

With that let me turn the call over to Justin.

Thank you Greg and good afternoon, everyone. Thank you all for joining us on our first earnings call as a public company.

This has been such an exciting time and experience for our team and our business and we really appreciate the time, you've all spent with us so far.

Were particularly excited not only about the results will be sharing but also the undercurrent of energy and focus across the company and what was uniquely busy quarter.

During today's call, Joe and I will provide details on our Q4 and full year 2019 results as well as Q1 in 2020 guidance.

We will also spend a little time covering the business market in an opportunity as many of you may be nor to the scrap story.

But first I'll kick us off with a few of the highlights of our financial results.

Scott had an excellent Q4 with strong performance in momentum across the entire business.

We saw everything we wanted to see this out of strong foundation coming into 2020.

Our total revenue inclusive of simply measured for the fourth quarter was up 26% year over year to 28.1 million and organic revenue grew 37% year over year.

As a quick aside we'll be referring to organic revenue throughout the call, which is defined as all revenue excluding simply measured.

Small acquisition, which we completed in late 2018 also worth noting that organic revenue accounts for 97.7% of our total revenue.

Moving onto the for your total revenue inclusive of simply measured was up 30% to 102.7 million inorganic revenue was up 44% for the year. We ended 2019 with annual recurring revenue or air are of 117.8 million inorganic. They are of 100 in 15.2 million up there.

The 9% year over year.

Importantly, we delivered these results while continuing to drive leverage across the business with nearly 500 basis point improvement to our non-GAAP operating margin and nearly 1000 basis point improvement to our free cash flow for the year.

Out a bit more color to these numbers I want to spend a few minutes on some of the things that we're excited about coming out of the fourth quarter.

First we continue to see strong growth across every segment.

Our ability to serve all segments from a single code base and go to market strategy continues to drive strong unit economics inefficiency in our sales marketing and R&D investments.

We continue to make investments it started the entirety of her addressable market across all segments, which continues to be unique competitive advantage.

Next our multi product strategy continues to deliver strong early results.

We saw our social listening product past 10 million any our our in 2019. Its first full year I believe we're just scratching the surface in that category.

We also introduced our premium analytics offering in Q4, 2019, and while that product is still very new we're seeing strong appetite across our customer base and adoption that looks very similar to our listening product a few months after its introduction.

The legacy simply measured revenue was also become less and less of a headwind to our overall growth rate representing only 3% of our total revenue in Q4 2019 compared to 11% of our total revenue in Q4 2018.

We exit 2020, we expect the difference between our organic revenue growth rate in our total revenue growth rate to be in a low single digits.

We've also seen our investments in selling back into our customer base gain momentum with our dollar based net retention rate increasing to 110% overall at 120% excluding SMB.

Finally at year end, we had 2185 customers contributing over $10000 and they are our which was up 57% compared to December 31st 2018. This is a result of growing MCV is larger initial deal sizes account growth and marquee global brands increasingly seeking us out in the market.

Equally important to the quantitative results is the health of our team in culture.

Sprout continues to be recognized as a great place to work, a leading product and for our strong leadership.

The health of our organization and strong culture is one of our largest advantages. It's also fundamental to our ability to capture the massive opportunity in front of us and to innovate involved with the market.

Given this is our first earnings call I'll spend a few minutes now summarizing our business market opportunity in growth strategy for those of you muted the sprouts social story.

Over the course of the last decade, nearly half of the world population has come to rely on social media as a primary communication channels more than 3.4 billion people across the globe are sharing their lives ideas values and opinions across social channels, posting consuming and sharing billions of messages every day.

They look to social media to find inspiration discover products make buying decisions and engage with millions of businesses around the world.

Following consumer demand more than 90 million businesses are active in social media globally, largely driven by the fact that in order to serve the modern customer effectively they have no choice for the first time consumers dictate when and where are these conversations happening and it's increasingly happening on social media.

Consumers expect businesses to be active compelling engage in available 24, seven across dozens of social networks.

Brands have to be where their customers and potential customers are and this is attic tremendous complexity to a brand strategy and tooling.

We've all worked for decades worth phone email and traditional marketing were enough social is an entirely new channel and it isn't just one additional channel. It's several all at once with every network behaving differently being used differently and with different technical requirements.

In fact, our customers manage an average of 18 social profiles are cross networks every day.

Without a centralized platform. This means 18 different places to monitor engage publish measure in market 24 hours a day.

It also means no centralized record keeping no concept of permission or workflows, no ability to analyze data across channels and no ability to effectively manage social across an organization. It also typically means broken customer experiences.

Sprouts solves this problem for more than 23000 customers around the world by putting everything they need to manage this increasingly complex and important channel in a single elegant and powerful platform.

We have quickly become a mission critical system of record, where a customer spend an average of more than four hours every day building stronger relationships with their customers executing their marketing strategies, making better business decisions and effectively serving the modern customer.

Our customers rely on sprout for all aspects of their social media strategy, all from a single platform, including engagement publishing analytics listening and reputation.

Our engagement tools bring all relevant social media messaging from all profiles and all connected platforms into a single inbox that axis, the social communication hub for our customers.

They rely on these tools to engage with their customers and prospects to provide customer service to acquire new customers and to create stronger relationships with the ones that they have.

Publishing content as another critical part of the modern marketing strategy and social has become the most effective channel to deliberate sprout helps our customers plan create publishing measure their content and campaigns across social channels to reach larger audiences and centrally managed all of their social publishing efforts.

Our customers also rely on us for a robust analytics suite, which allows them to measure the success of their efforts to identify new opportunities benchmark against their peers and make better business decisions.

We have an industry, leading analytic suite and our core offering as well as our recently launched premium analytics offering.

More recently, we've expanded our platform to solve additional customer use cases, beginning with social listening in Q4 2018.

These tools provide an unprecedented opportunity for businesses to better understand their markets in customers at massive scale.

Sprouts listening product allows our customers to analyze billions of data points across social media to derived insight that can help them butter understand their customers competitive dynamics to conduct product research measure brand health and make better strategic decisions.

While traditional customer experience solutions focused not only the people we know social data can tell us what the rest of the world and the customers, we don't have yet our thinking.

We also introduced to be one of our reputation offering in Q3 2019 as a solution for our customers to centralize the measurement and management of customer reviews.

Previously limited to using point solutions, our customers told us that they wanted to integrate those efforts into their day to day work inside of sprouts.

Inside a four months, we built and delivered view one of this offering built organically into our platform and saw more than a thousand paying customers adopt the new offering in the first 30 days.

Now, let me back out a bit to strategy.

It's probably is unique in many ways from our team to our go to market strategy to the product and the technology behind it.

We've been dedicated to being an amazing place to work and an amazing place to be a customer enter building extraordinary software from the very beginning.

10 years later being laser focused on these priorities is created several advantages that position us perfectly to lead this rapidly growing category.

First our commitment to building exceptional products has earned us the top rating in every category in every market segment relative to our primary competitors and according to more than 3000 customer reviews on Gtwo crowd.

Our ability to serve all segments and use cases from a single platform and code base has also created significant competitive advantages.

Our R&D investments go farther and were able to quickly adapt to how rapidly social media has evolved.

This also allows us to bring new products to market fast and more effectively as demonstrated over the past 18 months. When we introduced three substantial new offerings, while also driving R&D leverage.

We also lead with our product while most of our competitors lead but demos long sales cycles customization along deployments. The vast majority of our customers are using our product successfully before we even signed the contract and this is highly disruptive to the sales efforts of our competition.

And this leads to a few of our go to market advantages. We've been successful in every segment with a single platform and go to market strategy virtually every business on the planet is impacted by social media and we've proven our ability to attract and serve customers of all shapes and sizes.

We don't need to hope that we can effectively move into the SMB or enterprise. For example, we've done it effectively at scale and with great results in every part of the market.

This also means all of our sales and marketing investments have maximum efficiency, we have something for everyone who shows up at our door and there is no waste in our process, which leads to great unit economics.

We're also fortunate to have a brand and reputation in the market to drive thousands of prospects to seek us out every month.

More than 90% of our new customer revenue is driven by inbound interest and more than 80% of that comes from unpaid sources.

All of these advantages or why some of the best brands in the world as well as thousands of small and mid market customers are choosing sprout.

We saw several examples of this in Q4 with some of our new customer wins.

Four seasons is one of the world's premier luxury hospitality brands, who continue to place their guests at the center of everything they do by providing a level of unmatched personal service.

It was sprouts, social Fourseasons, we'll provide that same level of world class one to one surface globally by meeting their customers on their preferred social channels across more than 100 of their global properties.

Univision is another Great example, they are the leading multimedia company serving Hispanic America with a mission to inform in power and entertain its community.

Like most broadcasters they have seen their TV audience migrating online in recent years and Univision saw tremendous opportunity to publish its content across its more than 400, social profiles and reach its audience in a timely or in more engaging way and they have chosen sprouts their trusted partner on that journey.

Some other notable new additions in Q4 include Vail resorts, the Los Angeles Lakers and hundreds of other wonderful customers.

Finally, as we look ahead, we're very excited about the fact that we have a number of engines to drive future growth.

First we have a large nascent addressable market millions of businesses require a centralized platform demanded social channels in the coming years, and we expect to capture a growing share of that market over time.

Applying our current average customer value, where HCV to the number of SMB is mid market companies and enterprises in the United States as published by D.C., We estimate the U.S. Tam to be $13 billion. We believe the rest of the world opportunity to be as larger larger.

Second we're still very early in our efforts to grow our existing customer base with organic growth within our accounts larger investments in growing those existing relationships and our ability to monetize additional products, we expect our existing customers to become a large contributor to our growth.

Our expansion opportunities within our existing customer base are still relatively neeson as we've historically been focused on the product and our new business growth.

Third in addition to expanding our relationships with existing customers, we're seeing new customers consistently coming in at higher prices and our additional offerings should continue to increase our acds.

Fourth only 29% of a revenue today comes from outside of the U.S., We see international expansion has a large opportunity as we increase our position in those markets and as those markets continue to mature in social media adoption.

And finally over the long term, we expect to solve more adjacent problems for our customers expanding our platform to tackle it very fragmented category.

Wrapping up I'm extremely proud of the company that we build.

Sprouts, social is driven by exceptional products, a world class culture, and a deep commitment to our customers.

We're still very early in our journey, but we believe we're well positioned to capture a very large and expanding market.

And with that I'd now like to turn the call over to our CFO, Joe del Prado, who will walk you through the financial model than results Joe.

Thanks, Justin Thanks, again, everyone for joining us today.

Today's earnings call will is our first I'll start by many brief overview financial model and then I'll go through a fourth quarter and full year results in detail before moving onto guidance for the first quarter and full year 2020.

Before discussing detail financial results I'd like to point out that in addition, our GAAP results I'll be discussing certain non-GAAP results I'll give financial results along with a reconciliation between GAAP and non-GAAP results can be found in our earnings release.

I just noted earlier, we serve all segments of the market Smbs to global enterprises, all with a single platform and with a very interesting quarter market strategy.

Hi, My sales model, where we get thousands of products every month and quickly convert them to customers.

Our average sales cycle was approximately 35 to 40 days, even in our Midmarket enterprise them.

There's sufficient sales and marketing model has been excellent unit economics enables us to expand our investment in efforts in every market we start.

We segment I still seems like SMB agency Midmarket enterprise is primarily inside sales today.

Further breakdown smelting into both new business and grow threats.

Our growth Russ only work with current customers and extending these relations by increasing adoption of our core platform, introducing our new AD on model.

This is a newer sales motion for us as we only started making significant investments in this team in 2019, we're excited for the opportunity ahead for this group to continue to help our customers some more problems with sprout.

Our pricing model is very simple and scales with our customers growing needs and provides several opportunities to optimize our platform expanse.

She was a plan with you'd probably number of users, which is one of our value lovers.

And then also increases based on the number of social profiles. They manage the encore plans to also monetize our and I'm modules such as listening reputation and analytics is simple model that gives us plenty of opportunity to monetize as we continued to live or more value to our customers.

As it used cases of our customers continue to grow we're seeing great success monetizing our and I'm on.

Great example, this isn't a social listening pot, which launched in Q4 2018, Rds guilt over 1000 paying customers.

We believe that the increase in our dollar based net retention rate from 2018 to 2019 demonstrates increasing value to customers are experiencing from the use of sprout.

Now turning to the quarter. We're pleased with this quarter strong results. Adjusted noted total revenue for the fourth quarter was 28.1 million, representing 26% year over year growth.

Excluding the impact on legacy simply measured products, our organic revenue was up 37% year over year. This growth was driven by increased demand from both new and existing customers and strong sales execution, you maintained a strong financial profile with high margins, 99% recurring subscription revenue.

As a reminder, we bought something that's at the end of 2017 for IP and talent I gave us a great head start to build some of our newer products.

The declining revenue business, which caused a temporary compression and our overall about trades.

As Justin mentioned earlier impacted this legacy revenue overall growth rate is trailing off as expected represent only 3% of our total revenue in Q4 2019.

For the full year 2019 point, a revenue was 102.79 up 30% year over year.

Organic revenue was up 44%.

Total annual recurring revenue or they are at the end up to 19 was 117.8 million up 27% year over year.

Inorganic a our and Im not 2019 was 115.2 million up 39% year over year.

We had 627 net new customers in Q4 to finished the quarter when 23693 customers in total.

A number of customers contributing more than $10000 in here are its 2185.

On 1965 at the end of Q3.

Discussing the remainder of the income statement. Please note that an unless otherwise noted all references to our expenses operating results and share count on an I get pieces are reconciled to GAAP results <unk> earnings press release that was just issued before the call.

In Q4 gross profit was 20.4 million representing a gross margin of 73% just your parents or gross margin of 76% a year ago and 73% last quarter.

We are still in the process or shutting that were done in hosting infrastructure cost from the legacy simply measured product expect gross margins to improve as we fully deprecate the product at the end of 2020.

Turning now to operating expenses operating expenses this quarter, a fight investments in sales and marketing to expand our market reach in research and development to extend our technology lead investments to support being a public company.

She has a marketing expenses for Q4 were 12.9, a 46% of revenue up from 40% year ago.

This concern that we made significant investments in sales and marketing throughout 2019 focused on expanding our market reach and telling more into our existing customer base.

Yeah. That's instead, we made in 2019 in sales and marketing had started be proven out as demonstrated by our strong new customer growth and the increasing our dollar based net retention rate.

Our dollar based net retention rate for the full year 2019 increased 210%.

Yes, it be customers are dollar based net retention rate increased to 120% for 2019.

I'd like to continue to make smart investments as long as we continuously strong returns on our sales and marketing spend.

Research and development expenses for Q4 was 6.6 million or 24% revenue down from 29% year ago.

We are able to drive leverage in this area as our approach to dealing software and our single Codis allowed us to focus our development efforts I'm, bringing new solutions and capabilities to market for customers.

General and administrative expenses for Q4, or 6.99 or 25% of revenue a finally from 23% year ago.

Our basis the growth in Genie is mainly a result.

That's just incurred in anticipation our initial public offering.

We expect general administrative expenses to increase in 2020 decreased as a percentage of revenue as we can you scale our operations overtime.

Non-GAAP operating loss for Q4 was 5.9 million or negative 21% operating margin.

Only from a negative 17% operating margin here, though.

This result was better than expectations. It was driven by restricting go to market strategy and unleveraged, we continue to drive R&D.

For the full year 2019, our non-GAAP operating loss was 21.9 million for negative 21% operating margin compared to an operating margin negative 26% in 2018.

We're pleased with the 500 basis points improvement in operating margins demonstrating the power efficiency of our model.

Non-GAAP net loss for Q4 was 5.99, our net loss of 25 cents per share.

Loss of 4 million or net loss of 24 cents per share a year ago.

Turning to the balance sheet cash flow statement. We ended Q4 in the year with 135.3 million in cash cash equivalents of 122.7 million can end of Q3.

This includes approximately 134.3 million an IPO proceeds.

Deferred revenue would end up the corner neither was 29.9 up 38% for me here, though.

Looking at both our billed and Unbilled contracts are remaining performance obligations or RPL totaled approximately 42.1 million a 55% from 27.1 million last year.

We expect the recognizing approximately 91% or 38.4 million of the total RPL as revenue over the next 12 months.

Operating cash on Q4 was negative 4.7 million compared to negative 4.9 million a year ago.

Free cash flow was negative 4.9 million in Q4 for negative 17% free cash flow margin grant to negative 5.1 million negative, 23% free cash flow margin a year ago.

For the full year 2019 free cash flow was negative 15.2 million or negative, 15% free cash flow margin compared to negative 19.3 million and negative 25% respectively in 2018.

No 1000 basis point improvement and free cash flow Martin was driven by ability to drive more leverage in the business I'm moving to more long term contracts.

Moving onto guidance.

The first quarter fiscal 2020, we expect total revenue in the range of 29.4 million to 29.9 million our growth rate of 26% to 20%.

We expect a legacy simply measure business to continue be a headwind to our total revenue growth rate as our revenue runs off.

Estimate the delta between our total revenue growth rate in organic revenue growth rate to be in high single digits.

We expect non-GAAP operating loss in a range of 11.29 to 10 point you might.

We expect a non-GAAP net loss per share between 22 cents in 20 cents, assuming approximately 50.5 million shares.

For the full fiscal year 2020 based on total revenue range of 131.79 to 133.7 million our growth rate of 20% just 30%.

We expect the legacy simply measured business to continue to be headwind to our total revenue growth rate in 2020 has the revenue runs off.

That's the met the Delta between our total revenue growth rate in our organic revenue growth rate to be in the mid to high single digits.

We expect non-GAAP operating loss in the range of 29.39 to 25.3 million at the midpoint of our revenue guidance, an operating loss guidance does it imply non-GAAP operating margin of 20.6% 2020, and improving our approximately 79 basis points over 2090.

We expect a non-GAAP net loss per share between 57 cents and 50 cents, assuming approximately 51 million shares.

With that Justin Ryan are happy to take any of your questions operator.

Thank you as a reminder to ask the question even easier press star one on your telephone switch on your question. Please press the pound key.

My first question comes from Chris Merwin of Goldman Sachs. Your line is that open.

Okay. Thanks, so much for taking my question and congrats to all on on a great first quarter out of the game here.

So terms my first question I just wanted to ask about some of your newer products. You recently launch reputation and premium analytics can you maybe just talk a bit more about how the initial reception has been from customers. I know you were seeing a significant uplift to easy these from listening, but just curious how we should be thinking about the monetization opportunity for reputation and.

And premium analytics on top of that thanks.

Yeah. This is Justin I'll give you a little more color there I think that.

The.

Monetization opportunity for all of the additional offerings has been very.

Very positive I think.

Listening is obviously the one that we have the most.

Tenure with and.

More recently analytics, which is very similar in the sense that those are two higher price point I'm very kind of robust offerings that we expect to behave relatively similar in terms of the amount of deal size increase when those products are added.

Similar buying cycle, one thing that I will call out I think that the analytics product, which is new.

Is potentially a bit of a.

Closer to the sweet spot for our customers, meaning they're using our product for analytics today, they're looking for more horsepower, we have an opportunity then too.

Very quickly introduce them to that add on and monetize those listening is a little different in that those are completely new capabilities with our platform. So it's a little bit more educational et cetera.

Those as I mentioned behaved very similarly in the in the sales process the price pointed cetera.

Reputation, which is has been fantastic offering and we talked a bit about what the adoption look like for that early on that one's a little bit different in that the activation of that offering is very self serve.

It's real time, the customer can go in and activate that there is.

Certainly some education that happens when we're selling that weather during the trial or in our growth efforts.

But much lower friction adoption, it's simply a function of going in adding additional profiles, which we monetize smaller price points I think on the whole than what you're going to see from listening in analytics.

All three we'd been incredibly happy with the both the early adoption our ability to improve what those sales processes looked like it and I think the one other thing worth noting on all of those is that those are really early in their life in terms of our.

Continuing to build and expand on that the listening increasing the capabilities of analytics, which is very new.

Introduced a new capabilities around reputation so coupled with the early traction that we've seen.

We're very happy with plus the amount of time that they've been in market and the amount of opportunity do you have to continue to improve those offerings is really exciting for us.

Okay, that's great and maybe just one follow up.

But hoping to hear more about your traction with larger enterprise accounts that are you added some sales heads to focus on that segment. You know where are you finding fit so far within that segment and what type of feedback are you getting.

From those customers about even potential new features that you could add over time. Thanks.

Thanks, Chris This is Ryan I'll address that question, we've seen really great success in that enterprise space I think what's been highly disruptive for the market and specifically enterprise software is that we lead with the product so even in the enterprise with these large accounts like the four seasons of the world, we're actually getting their hands on the product immediately right.

Getting them into trial were getting them to test the solution before they actually commit to a contract and that has worked really well for us because we're able to prove the advantage the technology and the benefits of the user interface as well as the depth and strength of a reporting and listening solutions. So we've seen tremendous progress there really across the.

Well with all those opportunities the additional products are really helped on the conversion rate as well to Justin's point. The adoption is telling us that our customers want all these products in one platform listening analytics reputation alongside of of your publishing and engagement and so that's been really helpful.

For enterprise team and our go to market strategy.

Great. Thanks, so much.

Thank you good.

Thank you and then next question comes from stance Blocky of Morgan Stanley. Your line is now open.

Perfect. Thank you so much and congrats on your first quarter as a public entity guys.

Yes.

So from a from my end.

Two questions one the international opportunity right, it's still only only 20% of revenue. This international what do you guys see out there and how are you thinking about this piece of the business heading into 2020, and then to the big sales marketing investments you made through 2019, what are you seeing.

There as far as the ramp and productivity.

And how are you thinking about your sales and marketing organization into 2020, that's it. Thank you.

Right.

This is Ryan I can talk about that I was on the international side, we're really excited about the opportunity that exists there. The total addressable market is as at least as big as we're seeing in the U.S.. It's it's a healthy portion of our business today, but I think it's important to note that historically, that's that's really come with very little investment at side.

In North America.

Traditionally we'd been covering that market with folks here in our headquarters in Chicago, but from a sales and marketing perspective. So we actually just launched for our first real investment within that international community by launching an office in Dublin. This past year with most of those investments coming in the second half of 2019, we're really excited about the progress that we see.

I mean, a ramp from the reps the productivity, which we saw in Q4 with accelerating international growth.

And that ties to the investments that we're making on a go to market from a go to market perspective.

Our international was a big one last year, specifically that Dublin office.

Joe mentioned it before as well we had quite an investment in the growth team. So that's the team specifically focused in on selling to our 23000 plus customers a and then and then in the Midmarket and enterprise space, where we've seen a lot of progress and the end demand.

Perfect and Im just the team specifically the big investments that you made in the U.S. right. The other 80% revenue what kind of productivity improvements have you seen here.

The the productivity has read being really strong year over year led that by the Midmarket enterprise space, but strong improvements across the board.

Perfect. Thank you so much.

Okay.

Thank you.

Income from Alex Kurtz of Keybanc capital markets. Your line is open.

Thanks, guys and thanks for taking a question here on your first earnings call.

Just maybe it would be helpful to go through the competitive landscape and maybe a quick refresh on how you guys differentiate yourself and maybe what you saw in the quarter and how that May have helped a you know the larger the larger customer execution that we saw in the numbers.

Yes, definitely and Ryan may have some color to add to that as well.

So you know the competitive landscape has been and really this has been kind of building momentum I would say over the last 18 months a lot of the.

All called them stubborn commitments, we've made on the product side.

Making sure that we are building something that is.

Very easy to use across the organization very easy to deploy and implement.

I think that that is only become a bigger and bigger headwind, particularly when we think about the midmarket enterprise in the folks that were competing with there.

So the.

There is another shift happening, which is that as you can see by the growth in our ACB is particularly when we've got additional products in their social is something that spreading further across the organization and that means that it's critical that it's incredibly easy to use and deploy if you've got.

Sales teams customer service teams other folks that are not.

I have not been working in social media management tools day in day out that simplicity and ease of use is incredibly important and so what we're seeing a lot in the competitive space is.

Deployments that are a year or two three years old have really struggled to meet those requirements across a large part of the organization difficult deployments in general under utilization in for technical reasons, and we're seeing this kind of second generation a buyers coming.

Back to the market, saying okay.

We set a few years ago, we needed to solve this problem we gave it I've.

A good try but now we need something that our team can actually used to be successful with that's often especially in the the cases where were in competitive takeaway situations, often where we're coming into that cycle and that process that Ryan mentioned earlier of us being able to say great. Let's put your hands on the keyboard, let's make sure it works for everyone.

Let's make sure it does exactly what it supposed to do and then you're going to be off to the races in a matter of days or weeks.

Has been incredibly powerful and what we've seen is.

Those those challenges that I mentioned of along deployments in the customization et cetera, only seem to be increasing.

For the majority or if not all the competitors that are in that those parts of the market.

Additionally, on the on the SMB and lower in the market I think just that.

In bound funnel is incredibly valuable to us the ability for folks to get in.

And have a frictionless sale, but also getting support and one on one attention when they need it those are probably some of the people that needed the most.

Has been a great tailwind for us in that part of the market as well and so backing up kind of like.

So the original part of my response I think.

The decisions that we've made and the things that we've been.

Very committed to making sure that we maintain our platform as well as our sales process and how we engage with customers.

Is really starting to bear fruit and I think gaining momentum as we head toward the end of last year and it's been building frankly, I'd say for the last 12 to 18 month.

Yeah, just to add a couple of quick ones I think case in point for for Justin on the enterprise side four seasons, which you talked about a great example, Q4 deal for US a company, that's already up and running and our software. They were in the trial before that BYD before they bought and when we finished the implementation now our team has out there. This week, which is just a great Testament to.

Such a large deployment being up and running and using our software on a on the SMB side. The other piece that I would just highlight there's more and more we're seeing that even these smaller customers want all of the products right, they're consuming a reputation and are listening in or premium analytics and typically what's been available to them in other.

SMB solutions doesn't have the depth and breadth that spread has to offer.

Right. Thank you.

But.

Thank you next question comes from POZEN theory of William Blair. Your line is open.

Hey, guys.

I'll, just the great quarter coming out there so.

I'm sitting at O'hare, So bear with me I guess I wanted to touch first let me and be our strength.

It's a pretty dramatic increase from 18.

And I know you sort of touched on a variety of factors there, but love to understand a little more color of how much is that sort of cross sell listening.

Some of the new models reputation analytics driving that versus deep broken up so how should we think about what that mix looks like I mean, how does how do you think about 20 trying to progress on the NBR metric.

I have a quick follow up.

Yes.

This is another one where Ryan we certainly have some color to add I think when we think about the improvements there I think we're improving on kind of both components of that being retention as well as growth.

I think certainly with the higher quality customers that are making up a larger population of our of our customer base.

Add ons, the higher deal sizes et cetera growth is gonna be the disproportionate contributor there, but we're also seeing improvements in.

Our the rest of the components of the net dollar retention, so keeping customers longer et cetera, I think a lot of that has to do well there's.

Aspects for both of those one is you know prior to really the end of 2019, we had not been in.

Actively.

Supporting an onboarding customers at low dollar figures as soon as they bought so weve.

Started making that investment in 2019, we've seen that starting to pay off where every customer that buys from US now has an opportunity to work with someone on our team to make sure that they're fully utilizing the product to make sure that are adopting all the things that they can.

Beginning value from and so that's great for that kind of those that early retention and building a strong relationship for a lifelong customer there.

And then on the growth side those investments that we're making in the with the to grow team, specifically and a lot of the not only the folks that we've hired but just developing our muscles and our playbook around what it looks like to Reengage with customers, who may have been spending money with us for years.

But opening up those opportunities and expanding those relationships and pretty dramatic ways.

Yeah, and this is Ryan just the only be set of data on here is on top of the on boarding and expansion and from that new growth seem that you focus growth team as well as the new products coming on board as you might imagine as we add additional products to the portfolio, we're solving more and bigger problems for those customers. It's also having a great impact on retention so.

All those things combined are having having strong improvements for us and we feel really good about upcoming here.

Got it.

And then.

Quick whether it's directionally.

Are you thinking about trying to over 2020.

Joe, but but one quick one.

Have you.

On the sort of on all here.

So from a quarterly basis you're.

Consistent with historical.

I guess.

Think about.

No.

The number of customers.

You make those marketing.

And the sales like how do you think about that thank you.

Yep Yep.

I I would say that.

Certainly we're happy with a consistency there what we're really focused on is the revenue contribution of those ads.

The certainly the absolute value is important and certainly if we wanted to really juice those numbers up there's lower price points et cetera, but we're focused on making sure that the overall revenue contribution of the ads within those quarters. This is.

Continuing to increase.

Also gives us as I referenced a little bit earlier, just an overall health your customer base. The folks that are coming in at higher price points for less volatile there they are more likely to grow et cetera.

So we're thinking about I think the quality of the revenue contribution of those add more so.

And then I'm out of.

Of course, I think that's important for us to keep an eye on but that what we're seeing in billings growth revenue contribution for the quarter air our growth et cetera, as probably the thing that we're more focused on in terms of customer additions.

Got it.

Thank you guys.

Got it.

Thank you [laughter].

And our next question comes from Tom Roderick of Stifel. Your line is now open.

Hi, gentlemen, thanks for taking my questions and congratulation on a great great first quarter of the gates jumped so let me call just want to you and I. Appreciate you guys breaking out the the impact that simply measured on the in the legacy business going away, what I would I'd love for everyone to understand and get a little bit more detail from you is just can you can you talk through how.

Oh, the mechanics, so simply measure sort of coming out of the revenue stream work and by that I I mean.

How are these customers churning off gathering you've turned the products off or at least our sun setting them, but then what are the mechanics of being able to sort of upsell cross sell Tibet installed base, just take us through that and how that can ultimately, perhaps even positively impact the deep in the newer enterprise listening clotting. Thanks.

Yeah, Yeah definitely so.

With in terms of kind of.

How that is unfolding within the organization and the customer base, we made a conscious decision in in Q4.

To really be aggressive about the end of life of that product, we have not turned it off yet.

But when we look at the small dollar amounts which are obvious in the break out there right.

Relative to the cost of overhead of supporting that product the opportunity cost of getting them on a newer more modern product et cetera. We felt like that was the direct trade off to make so both internally in terms of technical resources and also in conversations that we've had with our customers. We've made it pretty clear that product is going away.

And we're looking to not only.

Move them to what we feel is a better product.

Assuming that they are used case matches, but also again to shed a lot of that overhead and infrastructure cost related to that so we're seeing that happen and I think the.

Way that that plays out in terms of customers and our opportunity to get them upper out is largely a function of the you know simply measured how to a portion of their customer base that they serve that is not our target customer. It's it's not necessarily the use cases that we.

Intend to continue to serve so that's where a lot of the expected burn off comes from and the Ryan's team has engaged with all the folks where we feel like we've got an opportunity not only to get them moved over to the new product, but then also getting them adopting the rest of our products.

So we're actively having those conversations we've got a team of folks that are dedicated to having those conversations you may have a little to add on that I'm not sure no you got Ryan shaking his head he said I covered it well.

Perfect, So right and make a chance to chime in on this one but my follow on that and looking at that.

Hey that $10 billion air or number you offered up on on listening that that's a pretty meaty number for that first year out of the gates for a product like that would love to understand when you look at the construct of those customers how much of that.

That customer base with sort of upsell cross sell to that to your installed base versus that new and then how would you encourage us to think about how that business.

And grow.

I had the 2020 off that 10 million base. Thanks.

Yeah I can start this is Ryan.

It's pretty it's pretty well balanced across new business, and then growth within our existing customer base from a new business perspective, what's been really exciting for us and actually this applies to growth as well what's been really exciting is that we're able to sell the product into every segment. So it's traditionally listings being just an enterprise type.

Product, but we're seeing great demand from our SMB or mid market and our agency as well so and Justin alluded to this at the beginning of the call. It's definitely contributed to the growth in or ACVC. So lots of progress there on the new business side, we're landing larger customers, they're buying more products and on the growth side. We've got this growth team now that we.

Really spun up in 2019, that's going back after the 23000 customers that were really just using the core product and there they're able to go in and sell down the value of that social data and listening so seeing great success on both sides and continuing to see really good progress every month across all segments, both on new and on the growth side.

And thinking about kind of the longer opportunity I think.

You know, it's I think too early to pick a number for it or to it but as Ryan mentioned that we talked about earlier, but the demand that we're seeing across all of our segments. The fact that this isn't something for just the largest enterprises.

Makes us think that those those early adoption numbers, you know a thousand customers using those products et cetera.

Have a lot of room to grow within that existing customer base.

And I also think it's really important and as we think about our investments for 2020.

To remember that this is the one of these products essentially right. This is us making a debut this is us getting that be one in the market not to suggest that we don't constantly at a rate on those but we have a lot of headroom a lot of room to grow on those offerings.

And we're pretty excited about across the board for reputation listening in analytics.

Some of what we've gotten store that we think could be meaningful for those for all three those offerings and I'll just quickly just from a sales perspective, just give a shout out to our product team because the way that they've built this product. It's so approachable that the business use or the end users actually able to leverage that listening tool which is.

Been pretty different from what's traditionally exist in the marketplace, where you typically needed someone who is very technical in nature, a consultant to make it work and we have we have marketers using it and using it real time.

Outstanding. Thank you for the details nice job.

Thank you.

Thank you and again, ladies and gentlemen, if you like to ask the question at this time. Please press Star then one I touched on telephone.

Next question comes from Richard Davis with Canaccord Genuity. Your line is now open.

Thanks.

They will do a first a riff on upstairs question.

I'm, just wondering is social media impact and methodology kinda uniform between countries. So in other words.

They are levers are the levers the same or are they you know more effective you know if you're in France. So do you care more about other things and I'm just trying to kind of think about this because I wonder how it affects the feature adoption overseas.

Yeah, you know it's interesting I think it has a lot to do with obviously the maturity of social and some of our other.

Opportunities around the World. We also see that there are different consumer behaviors. For example in some cases, the U.S. is a bit behind in terms of what brands and consumers are doing with each other.

Over social channels, and so it's going to be a bit nuanced by region.

For example, I think Europe tends to look a lot like North America in terms of a adoption rates and how it's used et cetera.

I think when we look into some of the markets in South America.

Adoption, maybe at a lower rate, but reliance on social.

As a primary communication channel becomes a more interesting there are obviously impacts in terms of what the output in and kind of collective revenue of those brands are businesses operating in those local regions might be and their ability to spend.

So we'll continue to kind of feel that out but the good news is that we've seen fantastic adoption with great unit economics in all the markets that we're currently in.

And so we think as we continue to refine that playbook make those investments in market.

And as well as some of those markets just getting more mature that you know, it's it's likely as larger larger today with with even more upside relative to the U.S., we think long term.

Got it that's super helpful and then.

We've asked a bunch of questions on this already in this call, but on the customer success do you have enough data yet to know kind of what the good salespeople have like a killer sales point.

Get people to the greater upside as it hard dollar ROI speed to market have you found like though like it but you know I joined the firm again customer success Rep, what would be my.

Like killer things that would be is.

Yes, Hi, Richard are you looking for like kind of whats the catalyst for that growth conversation, yeah exactly like what's what gets me over the hump.

Yeah from a from a current customer perspective. The good news is we have just so much data right with 23000 customers our customers are living in the application everyday it is truly the place that they come in and they do their work. So we've got a good read on where customers are spending their time in the application today, how much they're publishing how they're engaging.

Their customer base.

And truly especially in the listening any analytic side, it's about the data right the opportunity to show them, how they might be able to better utilized the the day to be analytics that live within the social profiles their own today, but also the opportunity to tap into that huge corpus of social data that exists through listening. So for us it's really looking at the way that there.

Utilizing the tool today, how how engaged they are on social and that gives our customer success team and our growth teams a great indication of where they should be prioritizing their time and we're just tapping into that data side of being able to show them, what that data might be able to shoot that might be able to give them in terms of how they compete against their competition.

How they generate content, how they might want to market. So it's using the data in the application and then and then from there and showing them how that data might help them grow their business and on the customer side all at the catalyst, but what we're seeing often is.

Additional departments.

That are being brought into social it may have historically lived within marketing or a subset of marketing we're seeing expansion there consolidation of tools they want to be able to do these things in one place. They don't want to have separate reputation in publishing and engagement tools.

As well as just the ER.

Sort of internal importance.

Of social and <unk> to a small degree but still an important.

Inflection point anything for customers is there are more networks that the their customers want them to be responsive in involved in.

Everyone you add starts to get incrementally more difficult to do that at scale without sprout.

So I think those are some of the drivers that are happening within our customers organization that are leading.

Productive conversations on the on that front.

Got it Super helpful. Thanks.

Got it.

Thank you and ladies and gentlemen, this does conclude our question answer session I would now like to turn the call back over to trust and Howard CEO and co founder for any closing remarks.

All right yeah. Thank you all so much not only for your time today, but.

All of your time, all along the journey in <unk>.

The time spent with us I understand the story and hear more about Q4 as well as what we want to do in the coming here.

Also certainly want to thank our employees, our customers and our partners for the hard work and support a very busy uniquely busy quarter.

In getting this company out into the public market, but also just fantastic from a momentum perspective.

The market opportunity it continues to be incredibly exciting the momentum that we're building heading into 2020.

And we look forward to talk more about how thats going when we speak jogging next quarter. Thanks a lot.

Only the gentlemen, this concludes today's conference call. Thank you for participating we now disconnect.

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