Q3 2020 Sprout Social Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Sprouts Socials third quarter 2020 earnings conference call at.
At this time all participants are in the listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you would need to press star one on your telephone.
Please be advised that todays conference is being recorded.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your first speaker today Mr., Jason WRECO head of Investor Relations. Thank you. Please go ahead Sir.
Thank you operator, and welcome to Sprouts, social <unk> third quarter 2020 earnings conference call we.
We will be discussing the results announced in our press release issued after the market close today.
With me, our sprouts, social CEO Justin Howard.
Hello, Joe del Prado, and senior Vice President of Global sales Ryan Beretta.
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 995.
Forward looking statements include statements concerning financial and business trends are.
Our expected future business and financial performance and financial condition.
Our guidance for the fourth quarter of 2020, and the full year 2020.
It can be identified by words, such as expect anticipate intend plan believe seek orwell.
These statements reflect our views as of today only should not be relied upon as representing our views at any subsequent date and we do not undertake any duty to update these statements.
Forward looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially.
For a discussion of the risks and other important factors that could affect our actual results, including potential disruption from cold at 19.
Please refer to our annual report on form 10-K filed with the Securities and Exchange Commission, our quarterly report 10-Q to be filed with the FCC and our other periodic filings with the assay sales.
During the call. We will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles a.
A reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included in our earnings press release, which has been furnished to the FCC and is also available on our website at investors Dot sprouts, social dot com.
With that let me turn the call over to Justin.
Thank you Jason and good afternoon, everyone. Thank you for joining us as difficult as things have been this year I hope, you've all been able to stay healthy and productive.
On our side sprouts, social again delivered a strong quarter across the board setting multiple new quarterly records.
Were grateful to our team for executing remarkably well and we're excited to share that our plan for 2020 is now well ahead of our prior guidance.
Our mission is straightforward, we believe social sits firmly at the center of the brand to customer relationship and is rapidly becoming the most powerful channel to win serve and connect with audiences.
Our software platform is powerful elegant and easy to deploy across businesses of all sizes.
We get small businesses, the ability to punch well above their weight and large enterprises, the power agility and efficiency to delight our customers at scale.
We have made it increasingly easy to standardize on sprouted centralized system of record for social and to help our customers maximize the value of this mission critical channel across the entirety of their organization.
Digital transformation has become the top priority for brands across the globe.
Social communication is fundamentally more important than at any time in our company's history and.
And it sits at the center of this new digital technology stack that includes social publishing engagement customer service care Commerce and business intelligence.
We are perfectly positioned to help our customers thrive in this new reality this quarter more customers than ever invested in sprout and we're not slowing down.
I want to spend a moment up front today, our culture, which has been fundamental to our success.
With all of the curves 2020 is thrown at us and the rapid pace of evolution and our customers are facing our culture has been our single most powerful advantage.
We focused from the very beginning on doing an incredible place to work and an incredible place to be a customer.
We simply wouldn't be here without a remarkable team.
This quarter, we were honored to be named as one of Fortune's 100, best medium workplaces as well as on Fortune's 25, best workplaces for women list.
These are a testament to the less quantifiable aspects of this business that allow us to deliver the kind of results we're talking about today.
In August we meet our annual D. I report available to the public for the first time.
While we know we have a great deal of work to do we have a solid foundation in place and are proud of the equitable company, we have built to date.
We hold ourselves accountable to put our resources behind delivering change for traditionally underrepresented groups.
And we appreciate your support in that effort.
We believe the transparency of this report and growing visibility of our healthy employer Brant will further strengthen our ability to attract and retain great people as we grow together in the years ahead.
We had quite simply a breakout quarter.
Several trends that we are starting to take shape. When we last spoke crystallized during the third quarter and our teams executed with precision.
We're pleased to deliver record net new customer additions record net new air our record customer growth metrics and standout successes in the enterprise segment.
Paul with improving efficiency in our financial model and while formally sun setting the legacy simply measured platform.
The funnel remains very strong and our forward indicators are very healthy.
Right and Joe will share many of the specifics with you why outlined several areas of focus to position our company for an even stronger future.
There are three topics I'd like to discuss up market momentum.
Integrations that bolster our social ecosystem and targeted areas of investment that we're making for 2021.
Beginning with our accelerating momentum up market.
During the third quarter, we signed the largest new HCV contract in our company's history Onboarded, several fortune 500 brands, including multiple wins from highly competitive RFP and delivered 42% growth in our greater than 10 K. our customers.
We have a disruptive platform an innovative sales playbook the right go to market motion and the customer success model in place to build repeatable success on these metrics we.
We raised the bar in every aspect of our up market business in the third quarter.
The successful wins in large fortune 500, RFP processes stand out for two reasons.
The notable size of these deals and the implications on our serve market suggests that established companies are beginning to invest considerable resources behind social.
Supports our thesis that social media management is becoming a foundational layer in the digital tech stack.
And we competed against every competitor in our space through sophisticated technology security and compliance evaluations.
We believe we have many structural competitive advantages and they all have begun to culminate into success, which we expect to only expand in the coming years.
Turning next to our technology integrations.
We build software that is powerful elegant and easy to use and our integration strategy is no different.
We functionally integrated with eight new partners since we last spoke with you which is an incredible achievement from our technology in partnership teams.
These include new integrations with Microsoft Dynamics, 365 sales force Dropbox Slack, a first of its kind integration with glass door and enhance listening relationship with red It a new promedia video of integration with Twitter and our more recent work with Facebook to integrate the new messaging, a pie which supports Instagram messaging.
Our platform allows customers to recognize maximum value from social across an organization.
A variety of technology integrations across this ecosystem of new and existing partners enables our flywheel to help social further proliferate across the entire customer and brand journey.
With visibility and collaboration more important across a growing number of business functions, we're establishing ourselves as the social system of record.
Rich fully integrated solutions offer a better user experience and deliver immediate value to our customers.
This broadening ecosystem around our social platform also reduces friction in the enterprise deal cycles, while further strengthening our customer relationships.
Lastly, I want to touch on our priorities for 2021.
We have aggressive investment goals that we believe position us well to capture a $50 billion and growing market opportunity.
Our listening and premium analytics offerings or early both in terms of market penetration and product roadmap.
In 2021, we intend to continue to evolve these offerings as we further democratize the power of social data and intelligence.
We're also making product investments to help bring the value of social further into our customers' organizations will continue to perfect our core experiences and prioritize social customer care commerce engagement and additional integrations.
We'll also continue to accelerate our investments behind the strong trends, we've seen in our sales and marketing efforts.
Looking back to March we made rapid adjustments to our business.
Our strategy and go to market model allowed us to do this quickly getting back to essentially full operating capacity within days or.
Over the next few months, we continue to adjust and help our customers navigate rapid change with our key metrics recovering relatively quickly.
Late in the second quarter and throughout the third quarter, we saw the strength of our business and competitive differentiators really taking hold and have seen exactly what we wanted to see across the business.
Where an objective we stronger company than we were entering the year and importantly, this has been driven by fundamental strength rather than situational anomalies.
I want to wrap up by reiterating my gratitude to our employees our partners and our customers social is being validated as a mission critical communication channel and our ability to win the market stands out in the new digital environment.
Over the course of the past six to 12 months, we have seen everything that we need to see to maintain confidence that the investments that we're making and will continue to make will enable us to maximize our potential.
We believe our relentless focus on world class products, and our deep commitment to our people and our customers keep us well positioned to deliver durable growth into 2021 and for many years beyond.
And with that I'd now like to turn the call over to our senior Vice President of Global sales, Ryan Barretto, who will walk you through some of our customer success stories this quarter.
Thanks, Justin and thanks, again to everyone for joining us today I was blown away by the performance of our team. This quarter, we set new records in several key areas and emerging trends like social listening social care and social commerce have us well positioned to continue delivering in the period ahead.
Our opportunity is large and getting larger and our team is executing incredibly well.
Customers continue to turn to spread with acute needs and a heightened sense of urgency to transform their organizations in Q3, we set records across the sales success support and services teams.
Our success and support teams in particular delivered new records for quarterly side and that was done with larger volumes and larger projects.
The customer review site Trustradius recognized us with a tech cares award for outstanding support marketing teams during this pandemic.
As you know our unique focus on customer success is a point of pride for our company and a compelling differentiator.
We've been posting events on hold we shifted marketing efforts to digital and our sprouts summit in September was a huge success with over 9000 registered if.
If you attended the event you heard speakers emphasized the importance of bran authenticity, turning compelling I thought the importance of listening to the voice of your customers and the structural changes that occurred as marketing customer care and commerce all went digital.
During the summer I had the pleasure of interviewing dark SEDAR, the amazing head of marketing at Palestine.
Alright encouraged her marketing tiers to really embrace that Howard social media and social data. She saw these insights is critical and building product roadmaps and business strategy.
Now turning to the sales performance all segments of our business were very strong this quarter, but I want to call. It the enterprise team, which was light so.
Sample the brands that we agree with this quarter included electronic arts only lows.
Hi, Con Cummins Purdue University and the Manpowergroup.
Here are a few specific comments from some of our new customers.
Dennis Michelle the SVP of card operations at discover highlighted that providing exceptional customer service is at the heart of everything they do and they are always looking for tools to better listen and respond to customer needs. As he said working with sproat gives us the ability to better understand the voice of our customers and creates new ways for us to engage with them.
Leading to improved customer experiences.
Well restaurants have faced numerous headwinds this year, they've continued to invest heavily in social.
Also provides restaurants as a direct connection to customers and fans, which has filled the void of in person interactions are.
Our new customer Taco Bell is a great example of this Erica.
Erika Prime leads digital and social strategy recognized as a huge help for them in 2020.
She said that the challenging year and ever changing social landscape, we decided to double down on community management and leverage even more user generated content.
Our fans take notice and as a result, we've received more UGC than ever before and thanks to spreads tools and working with their incredible team, it's even easier to track our growth and quickly communicate with their amazing fans.
We also continued to see growth within entertainment the.
The Cleveland comps were a great example of how popular sports brands, leveraging social to engage with their fan base the.
The behind the scenes Talkie series the road back has been a huge endeavor for the cast and they've been able to reach an even wider audience and understand their fans response to it by using sprout.
Brent in general SEC, the VP of digital for the cash share that they selected spread as their partner because of our industry experience with other anti eighteens because our team and technology. We are great fit for the franchise is growing things.
I couldn't be more impressed are grateful for the performance of our people at sprout, our culture continues to stand out and our strong employer brand is attracting incredibly talented people to our company.
Recently shared with my leadership team, we're putting all stars at every position, which means that spread is well positioned to build on our success from here.
That I will turn it over to Joe to run through the financials Joe.
Thanks Ryan.
I'll now walk you through our third quarter results in detail before moving on to guidance for the fourth quarter and full year 2020.
Total revenue for the third quarter was 33.7 million, representing 27% year over year growth.
Excluding the impact from legacy simply measure organic revenue was up 34% year over year.
Total are exiting Q3 was 141.9 million up 30% year over year.
Eric.
There was 140.6 million up 35% year over year.
We achieved record net new air are held in both new business and retention.
We had a 1200 net new customers in Q3 to finish the quarter with 25556 customers up 11% year over year.
This quarterly net adds record is a reflection of strength across all market segments.
Further we saw an improved mix of both total customers in total our lending with us an annual or multi year subscriptions, which was notably positive implications on our long term economics and speaks to the quality of this impressive new customer cohort.
I do want to reiterate that as you have seen so far this year.
Thats historically can be lumpy on a quarterly basis, and we remain focused on long term double digit customer growth the focus on high quality unit economics.
The number of customers country more than $10000 and they are rich 2790, a 42% from a year ago and up from 2544 in Q2 2020.
Listening in premium analytics are continued to grow over 100% year over year.
We are pleased that are greater than 10-K customers you know a record 11% of our total customer base, but even more importantly, these larger customers are growing even larger.
This was evidenced by consistent 17% annual SCP growth as we onboard a record number of new customers.
In discussing the remainder of the income statement. Please note that unless otherwise stated all references to our expenses operating results and share count on a non-GAAP basis, no reconciled to our GAAP results in the earnings press release that was just issued before this call.
In Q3 gross profit was 25.0 million, representing a gross margin of 74.4%.
It is up 180 basis points compared to gross margin of 72.6% a year ago and compared to 74.0% last quarter.
Sales and marketing expenses for Q3 were 14.1 million or 42% of revenue down from 45% year ago.
As we move into Q4, we are accelerating our pace of hiring across both our sales and marketing teams. So we prepared to fully capture opportunity in 2021.
Research and development expenses for Q3 were 7.2 million or 21% of revenue down from 24% year ago, Yes.
We are pleased to have completed the migration away from simply measure, which gives us the ability to efficiently deploy design and engineering resources into new opportunities.
Trying to grow our R&D teams next year to pull forward, a multiyear project engineering investment plan.
General and administrative expenses for Q3 were 8.1 million or 24% of revenue.
Up from 23% year ago.
This growth was primarily a function of public company expenses and a one time fees related to our August follow on offering.
We expect general and administrative expenses to decrease as a percentage of revenue as we scale operations.
We have however received an efficiency benefit from are currently distributed workforce, which I would emphasize is non recurring in nature as we lap these efficiencies in the future.
Non-GAAP operating loss for Q3 was 4.1 million or negative 13% operating margin.
This compares with a negative 19% operating margin a year ago.
We outperformed our expectations due to higher revenue realization of efficiencies in a distributed working environment and the timing of key hires which occurred later in the quarter and our plan.
Even as you realize efficiencies from distributed work, we accelerated the pace of hiring across the business. During Q3, we continue to fully fund our long term growth priorities.
Non-GAAP net loss for Q3 was $4.4 million for a net loss of nine cents per share based on 51.9 million weighted average shares of common stock outstanding.
Compared to a net loss of $5 million a year ago.
Turning to the balance sheet and cash flows we.
We ended Q3 with 167.3 million in cash cash equivalents and marketable securities.
From $129.5 million the end of Q2 2020.
I see 22 million in cash from our August follow on offering.
Deferred revenue at the end of the quarter was 37.5 million.
Looking both at our billed and Unbilled contracts are many performance obligations or RPL put approximately 53.9 million and $50.9 million as in Q2, 2020, now up approximately 40% year over year.
I think recognize approximately 87%.
46.9 million of total RPL as revenue over the next 12 months.
Operating cash flow in Q3 was negative $2.6 million compared to negative 3.3 million a year ago.
Free cash flow was negative $4 million in Q3 were negative 12% free cash flow margin.
I had a negative 3.4 million negative, 13% free cash flow margin a year ago.
We had previously told you to expect us to spend around $1 million in free cash flow during Q3, the build out of our Seattle office.
We spent roughly $500000 during Q3, the remaining $500000 will be spent during Q4.
Moving on to guidance for the.
Fourth quarter of fiscal 2020, we expect total revenue in the range of $35.8 million to $35.9 million or growth rate of 27%.
We expect our organic growth rate to be mid single digit percentage points faster and a reported growth rate as we lap simply measured revenue from a year ago.
We expect non-GAAP operating loss range of six nine to 5.5 million.
In certain areas, we are accelerating the pace of investment with a bounce R&D people and infrastructure investment to sustain or future as.
As well as sales and marketing to capture the opportunity immediately in front of us.
Overall sales and marketing efficiency remain consistent with or medium term expectation.
And as noted earlier $500000 of our Seattle office expenditures were pushed from Q3 into Q4.
As such we expect our Q4 free cash flow be roughly $1 million better than anticipated operating loss.
We expect a non-GAAP net loss per share of between 11 cents and 10 cents.
I mean, approximately 53.1 million weighted average basic shares of common stock outstanding.
As a reminder, our August on offering added approximately 1.6 million shares to our fully diluted share count.
For the full year fiscal 2020, we now expect total revenue in the range of 131.4 million to 131.5 million.
This unexpected overall reported growth rate of 20% up from a prior midpoint of 26%.
We now expect our twentyth when your organic growth rate to be approximately 35% up.
From a prior estimate of 33%.
For 2020, we expect non-GAAP operating loss in the range of 23.6 million to $23.1 million.
Paired with our prior range of 27 million to 25 million.
We are continuing to invest for long term growth, while delivering multi year profitability leverage.
The non-GAAP net loss per share of between 49 cents and 44 cents compared with our prior range of 53 cents and 49 cents, assuming approximately 51.8 million shares.
In summary, the opportunity to help customers manage the social channel has never been more mission critical we.
We are uniquely positioned to capitalize on the opportunity for multiyear growth are.
Our strong balance sheet appropriately managed Cashcall kiss a high degree of confidence to continue to make bouncing advances that will enable us to achieve our full potential.
But that just a minor happy to take any of your questions operator.
Thank you Sir.
As a reminder to ask a question do we need to press star one on your telephone to withdraw your question. Please press the pound key.
Due to the absence of time, we ask that you. Please limit yourselves to one question and one follow up please.
Please stand by while we compile the kewaunee roster.
I show our first question comes from the line of Rob Oliver from Baird. Please go ahead.
Great. Thanks, gentlemen for taking my question and good evening.
Just first one on the really strong rebound in net customer.
This quarter just curious what you guys saw in their obvious.
Obviously post Cove. It there was some people would put some some some projects on hold.
Where are these customers that had kind of been in the trial motion for a while with you guys or was this just sort of a continuation of the trends you guys called out last quarter, where things were getting progressively better each month, and then I had a quick follow up thanks.
Yes. Thanks, Rob This is Justin you cut out for a moment when youre addressing questions on this trip could address that.
Or to Joe but.
I'll tell you is.
Really consistent with what we have called out last quarter, which was after that.
That.
Period at the end of March and April where we saw some compression.
On the net new adds.
We started to see a rebound pretty quickly and it looks healthy.
Really from the tail end of that quarter, all the way through the third quarter and so it doesnt seem.
To be as much of a factor.
If at all of kind of pent up demand that spilled over more of just a consistent trend line from what we saw the second half of Q2 through Q3.
Alright, that's that's really helpful. Thanks, and then.
Joe just a very quick follow up for you on the increase in the ACB growth, obviously really good to see important metric.
What.
Aside from the fact that you guys highlighted you're moving up market nicely with these.
Fortune company with.
What are some of the components within that is it just larger land or are you guys seeing some of the newer products such as premium analytics and and listening start to kick in thanks, gentlemen, appreciate it.
Yes, Great question Rod I think what you're seeing is a combination of those as we are landing these new customers and high rate Cds, especially when we're up market, they're definitely land.
Planning with one or two of these premium module. So it's a great combination.
Not only getting more marked but adding the these additional modules and then on top of that we saw not just on the higher end, but we saw just overall kind of strong ACB improvement across our net adds and then overall customer base. We're just seeing a lot of overall momentum in the business right now.
Thank you.
I sure next question comes from the line of Stan Zlotsky from Morgan Stanley. Please go ahead.
Perfect. Thank you so much guys and thank you for taking my questions. Maybe the first one from US obviously, you know that when when the pandemic first started.
We heard a lot of stories of people other companies having to follow their people are you know straight up fire. The there are there are there are people.
You are use what are you seeing within your customers, how what are they doing as far as returning their own spend with you back to their pre koby levels, then I have a quick follow up.
Yes sure. Thanks, Dan This is Justin I think.
What we've seen has been interesting and I think yes.
It started kind of immediately is the impact of Covance started to take hold which was that social hasn't really been on the chopping block.
In terms of the conversations that we've asked our customers it's.
It's not like an area that was going to be one of the.
Last ones.
Let me kick that hit is as businesses really needed to maintain that channel to be engaging with our customers.
And to be positioning themselves or the.
The recovery and so we didn't see a lot of that happen in our space I think certainly as.
Thanks, and settle down and people have gotten into kind of the way of doing things.
We've seen.
Hi.
More.
More engagement around longer term thinking and larger deals and things like that but from a from a resource perspective, it hasn't really concerning for us.
Got it got it that's very helpful and then as far as just and I apologize. If this is already asked what I'm jumping between Oh conference calls here, but.
Can you give us an update on how your add on products are doing.
Especially some of the U.S. and some of the newer ones like analytics and listening.
I appreciate that thank you so much.
Hi, Scott its Mike.
Thanks for the question the add on products continue to be a really strong part of our sales motion today, both from a new perspective as well as the CD growth perspective from our customers.
On the new business side, the lands, especially with the sophisticated customers, which tend to be in Midmarket enterprise not limited as we see this in SMB and agency as well they are coming in with needs around data they want to understand their own data, which deans are working and how they're responding to customers, but they are also trying to tap into the voice of the customer and the.
But they don't have social listening data set continued to see strength in both those products and then the reputation products been really great for us as well you heard it during our presentation. The beginning of last store, we're seeing more and more of that customers want to do all these things together not just what you think of as traditional social but things like.
A review sites and brand player review sites as well so all of those things are contributing to the wild suits are great.
Perfect. Thank you so much guys.
Thank you.
Our next question comes from the line of Matt.
Matt Van village with from BTG. Please go ahead.
Yeah. Thanks for taking my question.
Wanted to dig in maybe just a little bit more on what you're seeing especially from expansion deals it seems like coming out of summit.
Social is becoming much more of a a key component of the overall marketing strategy and no longer just kind of its own own entity, but I'm curious how you're doing your specialty kind of expanding seats, along with up selling but just kind of what the trend is look like.
As more and more commerce has moved on on the digital platforms, and you're losing that sort of in person engagement how companies are approaching that.
Thanks. This is Ryan yes, I mean, we've seen a lot of strength within this area and it's certainly evolved over time as the market has matured when I. When I started about four years ago, you typically be selling to the social media manager and today, that's evolved into a team a social media managers it's about.
All into not just social media, but across the entire marketing department and where you see people from PR in Coms and brand and content and with the addition of our premium analytics and listening we are getting exposure to other parts of the business, which might range from social customer care to.
To our analysts that are looking for data to make business decisions on so the expansion has moved beyond just the typical user and more and more our customers are realizing that this data that exists through social.
A ton of potential for them and making business decisions right understanding which markets that could be going into getting a better handle on how their products are being received within the marketplace.
Identifying what the competitors are doing and helping them differentiate and their go to market motion. So all those things that really contributed to add to the success with the expansion for us. If we think about our go to market strategy, we really added onto the product suite over the last 24 months with listening and analytics and reputation. So we made good progress on all those fronts.
We continue to see really good strength from from our growth teams.
As a follow up Joe you may.
Mentioned that you were a little behind in terms of hiring in the quarter just wanted to get a little clarification did did you exit the quarter pretty much on plan.
And we should expect a relatively full run rate in the fourth quarter.
Or did you did some of those hiring spillover into into October and even the last couple of weeks.
Yes, we are not you know once we saw the momentum coming out of Q2 and in early Q3 really wanted to increase the investment in the in the sales and marketing hiring side and so we didn't get all those hirings in Q3, we had a pretty aggressive platts. So some of that will spill into Q4 and were definitely I'm going to continue.
The vast in that area, especially heading into 2021, and so given the momentum in that business.
Can expect us to keep investing in that area Matt.
All right great. Thank you.
Thank you.
Our next question comes from the line of Chris Merwin from Goldman Sachs. Please go ahead.
Okay. Thanks, very much for taking my question.
You talked about strength in the enterprise segment this quarter and you called out I think your largest when ever and I was wondering if you could talk a bit more about that deal. What it did include in terms of modules that include users outside of the marketing Department just trying to think through how this large deal could foreshadow some future large wins in the enterprise segment. Thanks.
Thanks for the question Chris This is Ryan yes that large deal included a few things. So included users from a variety of different departments similar to the question before with Matt. It's it's not just the marketing department that we're touching today, we're touching places like social customer care often.
Times, it's getting into other departments that are leveraging the data both from a analytics and social listening perspective. So we're in this circumstance and circumstance with hundreds of thousands of users our premium add ons, including analytics and listening as well.
Okay, great. Thank you and just a follow up about the integrations you called out a number of new ones. This quarter dynamics Endesa Hubspot, how should we think about the impact of these integrations to the platform does help with data sharing with.
These other systems and maybe that contributes to the analytics product or does it help with larger customers, who maybe have some of these systems and require them.
It does become a customer just want to just curious how we should think about the integration is being a tailwind I guess to the logo growth or retention. Thank you.
Yes. This is this adjusted so you know really.
Really what we're seeing here is.
Similar to some of the conversations we've already had social is really expanding quickly across the organization.
Expanding lumpy on the marketing Department and.
Where we find ourselves and where our customers find themselves is that.
It is critical that they've got a centralized system of record for social media management.
There are a lot of existing processes that simply can't be replicated in other systems record and so.
Yes, primarily allows us to.
Both bring data in and expose data out into some of those other platforms, where some of those workflows are taking place and from a tailwind perspective, it gives us the opportunity to.
Start think about some of those additional use cases start get into some more of those sophisticated usage cases outside of the marketing organization.
And really just help our customer solve more of their problems.
We've been able to do in the past and that's been a recipe for success for us thus far and we think it's going to be.
Even more so and not only that but.
Certainly the more that we're able to help them.
Kind of evolved a lot of their processes and socialism spending most of the business.
Hey, that's an opportunity for us to create a pretty sticky and expanding relationship with those customers.
Okay, great. Thank you.
Thank you got it.
I show. Our next question comes from the line of Raimo Lenschow from Barclays. Please go ahead.
Hey.
Thanks for fitting me in.
You talked about the strength in kind of more to launch the customers can you just.
And Chris just asked about that launch just given the quarter can you talk a little bit about what's driving it and historically you can you are there.
Our players that were kind of more playing up in the upper part of the market with more hand, holding et cetera. If the you know I'm just just trying to understand.
What's what's driving the strength now if you think customer by customer basis kind of understanding what youre automated offering better is the strength of the add on modules that are driving it just talk to them to that but I know how to follow up.
Yes, Hi. This is Ryan there is definitely a few things in play here.
One the additional products that we've added to the platform over the last 24 months and listening in analytics and reputation are are perfectly suited for these sophisticated customers. They want to do all these things in one space with one vendor and we fit the bill for them. So that's definitely a big driver for us and.
The value that is not just that you check the box, but that it's easy to use its powerful and scalable and that's certainly what we're hearing from our customer base is an element to of educating the marketplace.
And our brand is certainly doing very well within enterprise related to this and we've mentioned this on a few other calls but the power of the trial is just a huge differentiator for us and it's very disruptive for the up market competitors.
We believe and try before you buy we believe Thats, a modern wave evaluating and buying software and were getting these enterprise customers to leverage the products before they sign a contract and Conversely, when they go back to the other competitors that they're looking at most of them are only set up to do demos and this remote environment that we're living in today.
I think we're all feeling like will at least be in a hybrid sales in the future that means that we have a big competitive advantage in getting customers to get into the product experienced spread experience not just the technology better people and that's just been highly disruptive for the competitive set.
Okay, Perfect and then a follow up for Joe.
Asking kind of now we're kind of in the planning stages for next year and by the end of the guidance from there, but how do we think about like the this new world that we're living in with kind of less travel, which kind of fits your money, but on the other hand, you know got in theory. It frees up for more a kind of lead generation.
Different types of lead generation activities et cetera, like like how were you guys coming out between like showing some leverage foster versus kind of using the opportunity to kind of maybe a kind of use different channels to kind of speed up the momentum that you have thank you.
Yes, Thanks, Raimo I think without obviously, giving guidance for next year I think what you'll see from US as you say you've seen historically is when we see things working in our sales and marketing investments and returning the kind of the unit economics that they have we're going to continue to invest in those areas but.
But at the same token you've seen for several years now year over year improvement in operating margin and so I think you can expect a similar trend you'll continue to see us invest in this business, especially for growth, but at the same token you can also assume that we will be driving margins down going forward and we'll be constantly making that.
Decisions and balancing those two things going forward.
Okay perfect. Thank you congratulations.
Thank you I'm sure I'm next question comes from the line of David Hynes from Canaccord. Please go ahead.
Hey, Thanks, guys congrats on the strong results.
Obviously really high quality wins right as we talked a lot about the large deals I want to ask a question on the quantity right. At 1200 net adds is really impressive. So I'm curious is that is being driven by material improvement in conversion rates on the trial activity or are you just seeing an explosion in kind of top of the fun.
Ill trial activity.
Yeah.
Thanks for the question this is Justin.
I think it's a handful of things and I think it's a handful of things that.
I have been true you know.
Coming into this year and certainly in the early part of this year.
Saw some headwinds in may.
In March and April, but the net adds were not that much of an anomaly for us.
No.
Absent co that you would have seen.
I think.
The contrast between Q2 and Q3 net adds would not have been as dramatic as it is.
But it's a function of the top of the funnel, it's a function of.
The sales team is doing a fantastic job converting.
And it's a function of the logo retention and the improvements that we've seen there.
And really having a compelling value statement as Brian mentioned before in every part of the market.
SMB it up through enterprise and it's just.
Consistency across the organization that we've seen in the last three or four months.
With with all of those things operating as we hope that they would be and expected them to be coming into the year.
Yeah, Yeah makes sense.
And then maybe one for Ryan on kind of the new products and the cross sell upsell opportunity I guess I'm curious if you kind of had to rank the three right listening reputation analytics kind of against your internal expectations.
Which done which has done the best in which is maybe taking a little bit longer than you would have expected.
Yes, I would say listening continues to be the one that we are.
Seeing just over delivery from and I think it's a couple of things there one from an enterprise perspective. So many of those customers that are showing up have that expectation, but traditionally those solutions have been incredibly hard to use and that marketers that actually want the data can usually get it they are usually release.
On a consultant.
From the vendor that they bought from or somebody who is highly technical inside the organization and so the fact that we can actually help them get into the data for them to be able to run their own listening reports is incredibly powerful and the fact that listening sits alongside of publishing it means that the insights that they find that can you.
Within that within the product.
So that's certainly one piece I think on the other side I would say probably reputation and reputation only because it's it's one of those areas that we're continuing to add too is we've got some really good stuff in there today with Tripadvisor and Google My business we've added.
Last or I think for us will continue to contribute to that and.
As we continue to contribute to that product I think it's going to be very dangerous, but overall I would say, we're pretty we're pretty excited about all those things and our growth teams are doing really well song all those products to our current customers as well as many new customers with more than one product.
Yeah, no that makes sense as a bit of an unfair question, it's like asking to choose your favorite child right. So I appreciate the color. Thanks guys.
I would never say that one out loud.
[laughter].
Thank you.
Our next question comes from the line of Arjun Bhatia from William Blair. Please go ahead.
Hi, guys. Thanks for taking the question.
You talked about some of the sales investments, you're making I would just love to maybe dig in on some of the granularity on where you're making those those investments on sales and marketing side is it is that expansion is it new customers ask them be big market would just love to hear some of those details.
Yeah, Eric It's Ryan Thanks for the question there is a few different ariad, maybe from the marketing side I'll start.
We continue to invest a lot in content.
If you do any searches at their best social you, you're likely going to run into some amazing spare content, whether it be this front so for index or detailed that we've been providing around insights that have happened drinkable and whatever it may be we built content that's fantastic for the practitioner or the executive and that content is working and we've got this really impressive in.
Engine, that's driving a tremendous amount of trials and leads and we want people and the products. So that inbound engine continues to be something that we are investing in through content and we've really increased the throughput on the amount of content that we're delivering.
From a sales perspective that the area that highlight theres, a bunch of different areas, but the one that stands as just within our enterprise team. We mentioned I think it was coming into the first quarter, we saw huge opportunity in enterprise, we shifted some of our resources both from a marketing perspective, and an outbound perspective FM prospect.
In perspective to focusing on enterprise got mitigates really fast was hiring our enterprise rats, and we're just continuing to see the dividends pay off there.
There's lots of opportunity in the marketplace that the reps within that team are executing incredibly well and we feel good about all the segments and all.
All of our teams did really well this quarter, but those those would be to do that I'd highlight.
Perfect very helpful color and then maybe one for Joe I, just wanted to touch on gross margins a little bit I know there was a few moving pieces. It seems like simply measure has.
Rolled off at the same time I think you said you've added maybe eight new integrations is there any impact from those on gross margin that we should factor in.
And then from the simply measure piece or are we at a more kind of steady gross margin rate now when we think about future years.
Yes. Good question Arjun I think what you can assume with the integration and then with the with the simply measured impact you'll continue to see over the next couple of quarters modest improvement on margin. So I don't think.
That were at a steady state I definitely think you'll see improvement.
But but I don't think its going to be anything significant from from those two from those two things.
Got it perfect. Thanks for taking my questions and congrats on the quarter.
Thank you next question comes from the line of Tom Roderick from Stifel. Please go ahead.
Hi, gentlemen, great to hear from you. Thanks for taking my questions.
Let me answer the first one here to both Ryan and just you guys can tackle it collectively I guess, but I think Ryan you had some comments on the call just regarding feeling that there is a heightened sense of market urgency out there and.
We've seen some tremendous monetization efforts on social platforms that are sort of non traditional platforms. If I think about snap chat and interest more recently at Twitter on the monetization side still doing very well, so a little bit of an odd point in time, where the advertising efforts are coming in pretty strong, but as that happens I'm wondering if that sort of draw.
Lives a little extra demand for.
Social media management platform for the for the need for something like a sprouts.
To manage multiple platforms and maybe just broadly I'd love to hear you talk little bit more about what it is you're seeing in the market, that's driving that heightened sense of urgency.
Yes. So this is Justin I'll start.
You know I think and this has been true dating back to when we got started.
Every year, there's more and more places our customers need to be president and engaged and be keeping an eye on and be keeping and communicating with their customers and.
And to that extent the fact that there are some breakout success is around the edges of kind of the biggest.
The big players and social.
Definitely compounds.
In a pretty exponential way the need for centralized management I think that's something you know when you look at our ACB growth historically and how consistent that's been.
A driving force there there's more networks.
To manage there's there's some multiple number of additional profile there's more people involved.
And we're starting to see more departments in more use cases involved and so.
That is a pretty powerful.
Ingredient I think that.
The demand is you know what I think we've all felt this over a couple of quarters now, but there is just as big shift and there were a lot of.
Folks who felt like this might be coming further into the future or that they have more time to.
To think about how to evolve.
And what their organizations and their marketing and customer engagement efforts needed to look like you know 510 years from now.
And the reality is that it's upon us they've got to get it figured out.
And I think we're far enough into you know we've been working on this problem for 10 years and.
It's sometimes easy to lose sight, but there's a lot of organizations that are just kind of getting started or just tackling the basics, where they're hitting that next level of investment that next level of prioritization for social.
Which is going to look very different and I.
I think that's another big driver for us.
Yes that really really helpful commentary, that's great and Joe follow on just on the financial side appreciate that the metrics are really accelerating in the right directions I look at air ours, accelerating or total revenue growth organic revenue growth accelerating can you just unpack the metrics underneath that just a little bit more with respect to what you saw.
Customer dollar churn net dollar retention underway.
Understanding that so I want to give goes out every single quarter, but directionally, particularly on the churn side is really important to hear that last quarter that was coming back where are you at what do you see on that front now.
Yeah great.
Great question, Thomas well, obviously, we don't give that data out on a quarterly basis, but we'll give it out if you ended the year, but I think what you were seeing any kind of is a reflection of what Ryan said earlier about our net adds maybe with Justin no net adds the combination of not only the record number we saw not only strength at the top of the fund on new business, but also overall.
Our strength in our existing customer base and able to retain those existing customers and so we're seeing a lot of momentum on that front. The customers that are coming in are becoming a much larger dollar values and those customers. Historically have been you know are our biggest growers are highest retention on top of that.
In my remarks, I talked about how we had you know the annual contracts are longer term contracts are becoming over 50% of our new deals coming in and so as we look forward and then into the coming years. We just think we're building an overall kind of stronger customer base.
And because of that we just feel like you know we have we have upside going forward on an overall retention in this business.
Perfect. Appreciate it thank you guys.
Thank you.
Your next question comes from the line of Scott Berg from Needham and company. Please go ahead.
Mr. Berg if you have your phone on mute please UN mute your line.
Oh, sorry about that this is Alex on for Scott on the platform usage side. What are you seeing in terms of usage or engagement. That's now there were a few quarters and to covert compared to what you're seeing pre cobot.
Okay.
Yes. This is Justin I'll take a stab at that I think.
We've.
Scene.
Sort of consumer behavior and usage patterns similar with what the the networks themselves reported I think.
One of the things that's been interesting is.
Kind of a secondary story line in addition to the increased volume.
It's just the types of things that consumers are doing on the networks and what that engagement someone else too.
And what I mean by that is.
It is and this is also been consistent for several years.
It is much more likely today than it was.
Nine months ago, or three years ago that.
Users are engaging with brands engaging with brand content.
Reaching out sharing opinions on on products et cetera. So it's not just the volume and I think the networks have done a good job kind of sharing what that dynamic has looked like.
But it's the types of conversations and the amount of engagement happening for the brand.
But that's really different and.
Something that we think.
Particularly as.
Yeah.
We face an environment, where for the last probably year to a lot of the discourse on the networks has changed and had theres been a lot of focus on on political commentary et cetera.
If that starts to subside I think you're going to see even more of that organic communication and that's going to be something that's very powerful kind of dynamic shift not only for the brands, but potentially for advertisers as well.
Great. Thanks.
Thank you.
I show our last question comes from the line of Brett No Blouch from Berenberg TARP capital markets. Please go ahead.
Hi, guys. Thanks for taking my question I was just curious are you trying to update on what you're seeing internationally and how those dynamics are are similar or progressing relative to maybe the domestic markets.
Hey, Brett this is Ryan.
We feel really good about the international markets.
You May remember, we opened up our first international office in EMEA, specifically in Doubleline in 2019, we've seen that team execute incredibly well there. It certainly helps having a team on the ground building relationships locally doing some local marketing some progress has been really good there we see the same.
Thing across Asia, Pac NZ, and and the Latin America market as well so our top of funnel is being really healthy there we feel really good about the conversion rates and a customer adds within those markets.
We know many of those markets, especially in EMEA the have started to shutdown again.
But so far we feel really good about just the progress that we've seen from that team and continue to see that as we ended the quarter.
Perfect. Thanks.
Thank you.
This concludes the county session at this time I would like to turn the call back over to Mr., Justin Howard CEO and co founder for closing remarks.
Yes, great. Thank you so much.
And thanks again, everyone for your time, we enjoy spending some time with you this afternoon.
We'll be doing a bit more of that in the coming months attending a handful events and just always appreciate the engagement the questions I.
I want to close just with.
Thanks, again to our employees and our customers and our partners.
The work that's been done in this organization over the last couple of quarters in the face of a lot of Kurt.
Curveballs has just been remarkable to watch and where we are so grateful.
And we look forward to catching up with all of you again soon thanks.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].