Q1 2021 Sprout Social Inc Earnings Call
Yeah.
[music].
Ladies and gentlemen, thank you for standing by and welcome to Sprout, Social first quarter earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press Star then the number one on gets off.
Oh it is.
Any further assistance. Please press star Zero I would now like to hand, the call over to your speaker today, Mr. Jason Rebecca. Please go ahead.
Thank you operator, and welcome to sprout, social as first quarter 2021 earnings call.
We'll be discussing the results announced in our press release issued after market closed today and we've also released an updated investor presentation, which can be found on our website.
With me are sprout, social CEO jumping Howard.
CFO, Joe del Preto, and President Ryan Barretto.
Today's call will contain forward looking statements, which are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
Forward looking statements include statements concerning financial and business trends.
Our expected future business and financial performance and financial condition.
Our guidance for the second quarter of 2021 on a full year 2021.
And can be identified by words, such as expect anticipate intend plan believe seek or will.
These statements reflect our views as of today only should not be relied upon as representing our views at any subsequent date and we do not undertake any duty to update these statements.
Forward looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially.
For a discussion of the risks and other important factors that could affect our actual results. Please refer to our annual report on form 10-K for the fiscal year ended December 31, 2020, which was filed with the Securities and Exchange Commission on February 24th 2021.
As well as any future quarterly and current reports that we file with the SEC.
During the call, we'll discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles debt.
<unk> of these non-GAAP financial measures along with reconciliation for the most directly comparable GAAP financial measures are included in our earnings press release, which has been furnished to the SEC and is also available on our website at investors <unk> sprout social dotcom.
And with that let me turn the call over to Justin.
Thank you, Jason and good afternoon, everyone and thank you for joining us.
We are off to a fast start in 2021, thanks to our focus on delivering world class experiences to our customers and ongoing execution and resiliency of our team.
More businesses than ever invested in sprout during the first quarter as social take center stage and the digital strategy for what comes next.
I wanted to touch on a few first quarter highlights before turning the call over to Ryan and Joe to cover the details.
Our growth rate is shifting into an even higher per year, which reinforces confidence on our strategy our opportunity and the investments, we're making on our future.
During Q1, we added a record number of net new customers added a record number of customers contributing more than 10-K, an IRR and delivered further acceleration in <unk> growth.
We also achieved positive free cash flow and inflicted above the rule of 40 benchmark each for the first time and much sooner than forecasted.
These points underscore the value, we're delivering to our customers and our compelling unit economics of our business. We're focused on building a durable company for the long term, but our current growth and momentum has never been stronger.
We're well equipped to capitalize on the convergence of multiple tail winds in our market and we're continuing to prioritize our investments in these areas.
In the early stages of 2021, the expansion of use cases for our platform has continued to accelerate take.
Stakeholders across nearly all functions of business are using sprout to harness the power of social unlock business intelligence and broadly operationalized social across the organization.
These expanded use cases have three distinct implications on our market on our company.
More businesses need to adopt a social media management platform because there are challenges at both broadened it would become more acute.
For a more opportunities for seat expansion into new departments within our existing customer base and the opportunities and values for our data driven social listening and premium analytics capabilities are compounded by these first two factors.
We expect this flywheel to remain in motion for many years to come and potentially be further strengthened by the looming convergence of social and E Commerce.
Further the proliferation of social across an organization placed for natural competitive strength. Our platform was built for the end user the ease of use rapid time to value collaboration security permission ing and workflow management capabilities that are embedded in sprout had advantages to become even more powerful as more to partners.
Here's come on line.
We're working hard to build on top of these core advantages introduce new functionality that can drive even more use cases and to develop new capabilities for what comes next or single codebase and strategic scale allow us to execute against our strategy faster and more efficiently than anyone else on our market.
To reiterate something I said last quarter, the multitude of global events over the past 12 months have made it clear that social media will be a cornerstone for the next evolution of business.
We're seeing this in the inbound volume and quality of customers coming into our opportunity funnel.
The growing importance from social was crystallized on a recent study by the Harris poll that was commissioned by sprout.
I'd encourage you to dig into the data for yourselves, but I want to call out a few of the most compelling data points that stood out to us.
First 91% of executives anticipate that their companies social media marketing budget will increase over the next three years and more than half expected to grow by more than 50 per cent.
Second 84% of business executives expect our company's use of social media for external communication to increase over the next three years and 90% agreed that social media will soon become the primary communication channel for companies to connect with existing and potential customers.
At $3 85 per cent of business executives agreed that social data will be a primary source of business intelligence for their company going forward.
These plans on the business side also align with consumers' needs. The data from the Harris poll also shows that 80% of consumers expect brands and companies that have a social media presence to interact with our customers in meaningful ways.
78 per cent of consumers will buy from a brand after a positive experience on social media.
These trends for even more pronounced in the younger generations that will soon represent the majority of both the work force and consumer spend creating a second order tailwind for the industry for many years to come.
Social has become a mission critical communication channel and organizations of all sizes must lean into the shift to thrive.
<unk> platform is perfectly aligned as the social system of record action and intelligence.
It empowers our customers to not only capitalize on social isn't engagement channel, but to deliver sophisticated intelligence that informs nearly every aspect of their digital strategy.
Our emphasis on world class user experience uniquely positions us for both Greenfield adoption as well as expansion as more of these stakeholders become involved in social across more of the companies we serve.
Another significant shift in our industry as the rapid emergence of social is a true commerce platform.
We shared with you last quarter that this is an area of focus for us and we've been hard at work.
We're excited to introduce our first partner on technology integrations with you over the course of this current quarter and will further expand our investment in this area is product discovery purchases and support all begin to emerge and compelling new ways on social media.
Our scalable platform and extensive ecosystem on network integration partners positions, our company to play a valuable role as this market develops.
Before I wrap up I want to talk about the team that makes us all possible.
Over the past quarter. Our team has continued to raise the bar on the way, we build market and sell our products.
They brought increased focus on vision for our strategy during an uncertain time for our world.
We're committed for fortifying, our culture and supporting not just our team, but our customers partners and our communities.
We're humbled on that commitment is recognized with awards such as for <unk> 2021 best places to work in Tech and we are constantly investing in new ways to make a positive impact.
As our people potentially return to offices later this year, we will continue to prioritize wellbeing and reshape the way we work and communicate.
Central to our work at sprout and I'm thankful for the opportunity to lead such a talented dedicated and diverse team.
With that I will turn it over to Ryan.
Thank you Justin you said, we're off to a fast start and you are right. The momentum is building and we're set for an even bigger 2021 than we had planned our teams are delivering across the board and we're seeing incredible brands continue to invest in spreads platform.
In this new era of work changes to the way the company is fine evaluate and by software have never been more pronounced which is only strengthening our technology and go to market Differentiators.
Social has become the central fabric of society, forcing businesses to rapidly adopt and adapt and sprout is optimized to help brands leaned into social as a centerpiece of digital transformation that will ultimately shape their new future.
The recent results from the Harris poll validated this consumers are choosing social as their preferred communication channel and brands simply don't have a choice they must embrace social for customer marketing engagement and intelligence.
Now I typically highlight one specific team that exceeded my expectations, but I won't be able to do that because during Q1 every team delivered in a meaningful way our product and partnership organization is on fire. They are continuing to find ways to innovate for our customers make our platform stickier and add tremendous value.
Our marketing team delivered on our top of funnel on goals with insightful content strong inbound travel volume and improvement in overall quality and in conversion rate with even more room to grow.
Each of our new business segments were very strong this quarter led by our mid market teams. Our customer success teams also executed remarkably well and a critical renewal period on <unk>.
Investments and customer on boarding and success are paying off as we move into a phase of growth with higher overall customer retention and customer growth.
A record number of new customer additions is not accomplished without outsized contributions by each of these teams.
The success that I am seeing with some of the world's largest and most beloved brands makes me even more excited about our opportunity within the enterprise space net.
Only did we have record overall customer additions, but we also set new records in the greater than 10-K, net additions as well underscoring our momentum up market and our success in selling our premium modules.
To that point assemble the brands that we grew with this quarter is a fantastic list that includes Mckesson Danaher Oliver Wyman Heidrick <unk> struggles for other international Cole Haan to me Hanesbrands Solar tab, Granularly and the Academy Museum on motion Pictures.
Before I highlight customer stories I want to expand on Justin's message about the growth of social use cases.
Investor Relations is a perfect example is they're all acutely aware social has recently burst into the mainstream a central platform for investors to discuss and disseminate investment ideas.
This quarter, we hosted a panel several investor relations leaders, Mike coffee, the VP and head of global partnerships and alliances that Q4 set.
More retail investors are investing in the market than ever before and they are choosing to discuss their ideas and tactics very publicly on red at Twitter and other platforms.
Investor Relations officers have taken though.
Whether it's to gauge social sentiment engage with shareholders like coinbase did through its IPO process monitor for potential volatility on risks our improved strategic messaging on.
It has become increasingly clear that social is a channel that can no longer be ignored.
This is amazing insight on a growing use case.
Now shifting to a couple of new sprout customer stories.
Fred Cinelli Senior Vice President of marketing brand and sales development at performance Food Group said, we turned a sprout after rethinking what social would it could mean to our business, we realized that we need transparent real time visibility across our operations and social listening helps us stay ahead of the curve not just for our brand and products, but also our.
Performance within the industry.
We're able to actively surface these social trends to our executive team, creating actionable insights for our company, we chose for us because of its powerful intuitive and industry leading platform.
And a leading CPG company was looking to better understand social conversations that were happening around specific brand campaigns, both to understand the competitive positioning and to gain visibility into how their content was performing on social media.
They determined that our social listening and premium analytics products when empowered their team to capture critical insights that would enhance their strategy and deliver a compelling ROI.
Wrapping up our continue to be proud and grateful for the performance of our people at sprout.
We've raised the bar for 2021, while also laying the foundation for our success well into the future for.
We're excited by the multitude of opportunities ahead of us and as always we appreciate your support.
With that I'll turn it over to Joe to run through the financials Joe.
Thanks, Brian.
I'll now walk you through our first quarter results in detail before moving on to guidance for the second quarter and full year 2021.
Total revenue for the first quarter was $40 8 million, representing 34% year over year growth.
Excluding the impact from legacy simply measured organic revenue was up 35% year over year.
We expect the impact from legacy simply measured to be immaterial to revenue and <unk> going forward.
Total <unk> in Q1 was $172 million up 38% year over year.
Organic <unk> was $171 million up 39% year over year.
We're pleased to see record quarterly customer additions healthy retention and very healthy expansion.
We added a record 1400 for net new customers in Q1 and finished the quarter with 28122 customers up 17% year over year.
This is a reflection of very strong performance in each of our segments.
We continue to be focused on high quality revenue yield from our new customer cohorts.
The number of customers contributing more than $10000 an error on our HB 514 for.
86% from a year ago.
And up from 3149 in Q4 2020.
Our ACB surpassed $6000 and was up 18% year over year.
Broadening use cases as customers operationalize social housing attach rates of our premium modules and our momentum upmarket remained three sustainable growth for us for our $10000 customer cohort for durable medium term ACB growth.
In discussing the remainder of the income statement. Please note debt unless otherwise stated all references to our expenses operating results and share count on a non-GAAP basis.
And are reconciled to our GAAP results in the earnings press release that was issued just before this call.
In Q1 gross profit was $31 1 million, representing a gross margin of 76%.
190 basis points compared to gross margin of 74, 1% a year ago and compares with 74, 6% last quarter.
We've seen a positive impact on gross margin as we eliminate duplicate infrastructure hosting costs did see simply measure.
And from the natural efficiencies of scale in our business.
Sales and marketing expenses for Q1 were $60 4 million or 40% of revenue.
Non from 44% a year ago.
We are pleased with the quality of people that are choosing to join sprout.
Can you and to accelerate our pace of hiring across both our sales and marketing team.
Even as our total sales and marketing expense growth accelerated for the third quarter in a row.
Indicating a healthy trend line of investment, we're able to drive leverage indicative of efficient growth.
Research and development expenses for Q1 for $7 6 million or <unk> 19 per cent of revenue down from 22% a year ago.
We continue to have aggressive R&D growth goals in 2021 day.
Yes, the expanding set of opportunities.
The timing on many key R&D hires will be weighted in Q2 and Q3 of 2021.
General and administrative expenses for Q1 for $9 four per million 23% of revenue.
Down from 32% a year ago.
G&A expenses were lower on a year over year basis, and had a significant impact on our overall margin expansion due in part to the timing of annual corporate training employee Offsite, which occurred during Q1 of 2020 did not occur this quarter.
We continue to expense a portion of these annual expenses may occur later this year will be reinvested elsewhere in the business.
This timing impacts the magnitude of quarter to quarter margin gains.
We do expect general and administrative expenses to continue to decrease as a percentage of revenue as we scale.
Non-GAAP operating loss for Q1 was $2 3 million for negative 6% operating margin.
As compared to a negative 24% operating margin ear, though.
We significantly outperformed our expectations due to higher revenue.
Other than anticipated gross margin and timing of many key hires which in April start dates.
Non-GAAP net loss for Q1 was $2 5 million for a net loss of $5 per share based on $53 4 million weighted average shares of common stock outstanding compared to a net loss of $7.0 million 14, a year ago.
Turning to the balance sheet and cash flow statements. We ended Q1 with $167 8 million in cash cash equivalents and marketable securities up from $163 9 million at the end of Q4 2020.
Deferred revenue at the end of the quarter was 51.0 million.
Looking at both our billed and Unbilled contracts, our remaining performance obligations or <unk> total approximately $74 9 million up from $64 4 million in Q4, 2020 net of approximately 58% year over year.
We expect to recognize approximately 85% or $63 7 million of total <unk> as revenue over the next 12 months.
Operating cash flow in Q1 on just $3 6 million compared to negative $4 $5 million a year ago.
Free cash flow was positive $3 4 million in Q1 for 8% free cash flow margin compared to a negative for $8 million and a negative 16% free cash flow margin a year ago.
Ongoing momentum into the Midmarket and enterprise.
Efficiencies in our billing process and mix shift towards annual and multi year contracts are each having a positive impact on free cash flow as we grow.
We are pleased to report positive free cash for the first time much.
Much sooner than our prior forecast.
The combination of accelerating free cash flow margin accelerating revenue growth puts us above the rule of 40 benchmark this quarter.
We believe this milestone is an important validation of the unit economics in our business and the <unk>.
Selling efficiencies intermodal.
I do want to stress that we mean optimized for future growth and we do not expect to be sustainably free cash flow positive and all subsequent quarters.
Generally expense free cash flow margins to be several hundred basis points better in operating margin throughout the remainder of 2021.
Shifting to our formal guidance.
For the second quarter of fiscal 2021, we expect total revenue in the range of 43.0 to $43 1 million a growth rate of 37%.
We expect non-GAAP operating loss in the range of $5 4 million to $5 1 million.
This represents an anticipated operating margin of negative 12, 1% improvement on more than 600 basis points year over year.
We are making aggressive growth investments across our company.
We are doing this while delivering improvement in our margin any efficiencies in our business as we scale.
We expect the non-GAAP net loss per share between 10 cents to nine.
Assuming approximately $53 6 million weighted average basic shares of common stock outstanding.
For the full year fiscal 2021 announced by total revenue in the range of $176 million to $177 million.
It's an expected overall reported growth rate of 32% to 33% and compares with on a prior annual expected growth rate of 30%.
For 2021, we now expect non-GAAP operating loss in the range of $18 5 million to $18 zero margin.
The non-GAAP operating margin of negative 10, 3% with a 150 basis points better than our prior annual guidance and an improvement of more than 500 basis points year over year.
We are pleased to see faster growth with greater efficiency.
We now expect non-GAAP net loss per share between <unk> 35 and 34.
Assuming approximately $53 8 million weighted average basic shares of common stock outstanding.
10 year expense models. We currently expect a portion of our employees may return to our offices during the second half of this year.
The timing and number of employees that returned in 2021 is at this point unknown.
We have accounted for a full return in our annual expense forecast.
Although we did not incur expenses for our annual corporate training events and travel on Q1 of 2021.
At this stage, we expect to incur these expenses again in Q1 of 2022, most likely the following Q1 of 2023.
In summary, we believe we are uniquely positioned to capitalize on the opportunity for durable multiyear growth.
Social moves to the center of digital strategy.
For a compelling financial leverage and breakthrough free cash flow performance gives us confidence to make optimized investment that we believe will enable us to achieve our full potential in the quarters and years ahead.
But that just didn't write on are happy to take any of your questions operator.
Thank you as a reminder to ask a question you will need your breath for then the number one telephone keypad again that is star then the number one on your telephone keypad. Please standby will compile the Q&A roster.
Yeah.
Your first question comes from the line of Raimo <unk> from Barclays. Your line is open.
Hey, this is Frank on for Raimo Congrats on another very strong quarter here I was wondering if we could touch on your customer conversations at a high level just given the striking net adds so what are you seeing as we start to move past. The pandemic has there been any momentum in any particular verticals or is the strength really been more broad based in nature.
Hey, Frank This is Ryan thanks for the question.
We've seen a lot of positive trends here. This is a lot of the stuff that we saw coming off of Q3 and Q4 into the year. Our marketing teams continued to deliver a really strong top of funnel and we're seeing a lot of progress I would say that it's across a variety of verticals. One of the advantages that we have here is you're hard pressed to.
Think of our business our brand that isn't thinking about social right now and so we've got a long tail of really successful customers in a variety of industries.
Given the number of customers that we have today.
Most verticals and industries have hundreds of different examples that are using sprout. So it's been pretty much across the board that we've seen success.
Some of the ones that probably we'd mentioned in the past that I think has been surprising.
But what's really interesting for us are things like higher education in terms of trying to connect with the community our retail travel and hospitality restaurants. Many of these organizations that had more challenging times last year are continuing to need to find ways to build there.
Brand and their connection with customers. So it's been a nice long tail for us and we're seeing success across a variety of verticals.
Okay perfect. That's great color and then just with the ACB growth looking strong again I wanted to ask about the momentum in the listening and predictive analytics products I think those doubled last quarter in aggregate I was wondering if there's any more color you can provide there for this quarter.
Yes, we continue to see very similar success to last quarter for both both the premium modules.
One other things Thats really stood out is just the importance and value of data. Both the data that you have within your own four walls or your own organization, we think about our premium analytics and the data that exists across all of social outside of your four walls. When we think about our listening product and so we've seen tremendous success.
Yes on both of those.
Both of those premium products one of the things that we've highlighted in the past that I think is important to note is it's not just in the Midmarket and enterprise were seeing the same success with these modules in our SMB segment in our mid market segment and.
And in our agency segment as well.
Great. Thank you.
No problem.
And on your next question comes from the line of Rob Oliver from Baird. Your line is open Sir.
Great. Thanks, very much guys for taking my question.
Ryan one for you as well so.
I was looking at the expansion deals that you guys talked about this quarter I mean, some of those are our big companies that I think traditionally would've bought software the old way.
Monolithic kind of larger deals and so I'm curious as you.
Expand with customers like that.
But from <unk> perspective, the department's new use cases.
The conversations with those buyers, particularly if you get up towards that more of a managerial level any change in and is there are you seeing some eureka moments from from buyers about kind of the power of your model relative to maybe some of your competitors and then I just had a quick follow up for for Joe.
Yeah. Thanks, Rob, Yes, we definitely the Eureka moment is going on for a lot of companies and customers, we'd love the seed and grow.
Landing in places and to your point being able to get in front of different departments or divisions or brands or geographies for.
For that matter and the conversation for US is very similar to the new business side.
We still get customers if they if they land it in for example, they came in maybe on a marketing use case, they're thinking about us for campaigns and content, but they didnt necessarily leverage us for listening or premium analytics, we're leveraging that trial model is while even for our current customers. So were getting their hands on the product, we're giving them a chance to experience the technology.
Now they have the advantage in that they have been leveraging our product for a little bit of time. So it's even quicker for them to ramp up on some of these premium products and get value right away because we've already gone through procurement and legal it's easier for us to grow those add on on so just tremendous examples on use cases and really excited about that we've seen for.
From our customer growth for use on our customer success teams that are supporting those customers.
Okay, Great. That's really helpful. Thank you and then Joe just for you I know.
Thinking about some of your investment areas mid market, obviously enterprise reps you are still hiring I know you've in the past you've talked a little bit about international with APAC and Latin America, maybe could you just drill down and give us a little bit of color on on where.
Where we are on some of those investment cycles, and where you feel like Youre getting a really good return right now thanks guys.
Yeah.
Yeah. Thanks, Rob So a couple of things there and I just want to make sure that we're investing in the sales and marketing side and I'll hit that real quickly first of all we're also making some significant investments on the R&D side, we're seeing a lot of.
Areas, where we can continue to build on the product. We're seeing these use case expansion and so it's more than just on net sales and marketing side, Robyn we can dig into those product things if you'd like as well then on the sales and marketing side. A couple of areas. One is the geographic expansion right. We're investing in APAC Latam EMEA on you definitely see on ramp up ramping up in those areas.
We hired a GM of APAC in the quarter and so youre going to see some increased investment there I know you are going to continue to see on.
On the Midmarket and enterprise, we're definitely seeing outsized returns on that area.
We're seeing a strong top of funnel, but then we're also seeing on the outbound side a lot of success with some of the opportunities large enterprise clients and so I think youre going to those would be the main areas of focus but at the same token.
We're always going to be focused on SP and agencies as well, that's really driven by the marketing side of the house and Ryan mentioned earlier is we saw really good success in each of those segments in Q1 as well on the inbound side and so those are probably the main the main areas of focus for us.
Great. Thanks again.
Yeah.
Thank you. Your next question comes from the line of Matt Van Vliet from BP IV. Your line is open.
Yeah. Thanks for taking my question, guys and nice job on the quarter I guess I'm thinking about some of the answers for those last couple of questions maybe from a different angle a little bit you know the the growth in the 10-K for our customer was pretty significant again.
Are you are you seeing some new customers when you win new logos come in at all at a larger scale are they buying more modules at a time.
Maybe just help us think about kind of what that new land looks like as you know maybe you have customers coming that that didn't see the white before but now are force to be a little more relying on social in the current environment.
Yes, Thanks, Matt.
Yes, we are seeing that and we've seen really good progress again across the board I would highlight certainly that mid market enterprise continue to prove great execution, but we're seeing growth in deals even in the SMB in the agency space as well I think it's a combination of things one certainly for the customer.
Is that a little further in the journey more sophisticated it's the it's the analytics and the listening and the need to have more data at formulate their strategy.
We're also seeing for many organizations just for the expansion of seats and use cases and.
For us what used to be years ago, maybe just one person in marketing on social today Youre seeing teams of marketers that are in that.
Net area in the solution that are not just there from a social perspective, theyre thinking about content and brand and PR on comms and thats expanding out into things like customer care and customer support and sales and so it's kind of a combination of things between use cases and users and then our premium modules.
Got it got it and then Joe on the gross margin side. It was pretty good improvement measure you mentioned scaling the business and sort of finally weaning off the simply measured but is that something that you expect to continue to scale forward are there any meaningful kind of step function investments that.
Youre going to make over the next couple of quarters.
Maybe pulled that back in the short term.
Just thinking about kind of the overall operating structure there.
Yeah, Matt so so for the rest of this year, we feel pretty good about where we're at where we ended Q1 and be able to maintain that for the rest of this year, we don't see any pull back on that front and then I think when we get into 2022, you'll start to see a little bit more increase a little bit more leverage on the gross margin as we move into 2020.
Two.
Wonderful thank you.
Thank you. Your next question comes from the line of Chris Merwin from Goldman Sachs. Your line is open.
Okay, great. Thanks, very much for taking my question.
As you move more up market what are your customers asking you for that isn't part of the suite. Today. So obviously you showed very strong traction up market already and clearly the products you have or are resonating, but as you continue to grow in this customer segment can you just talk a bit more about what's the feedback you're getting and how that perhaps is influencing the product roadmap.
Yeah. Thanks, Chris This is Brian.
Probably a few things that we've seen and.
I think many other things that you've just seen from us over the last little while are a very big part of this narrative when I think about premium analytics and listening to great. Examples of products that have a ton of utility and value for our up market customers, we're continuing to develop within those product lines today and add value.
<unk> is another area, where we've we've had some requests from customers for for integrations, we've actually this past quarter.
Delivered some integrations from our help desk perspective across Microsoft and Salesforce on hub spot and ask.
The thing that I'd highlight here is we've tackled all of these opportunities is how do you build the sophisticated features in a way that's going to bring value to your customer right away and utility right away on adoption right away.
So those are the things that we're thinking about net the product team is thinking about as they deliver and I'm really excited about.
Some of the evolution that we've seen on listening and analytics and on the integration side and you'll continue to see more evolution from us there over the next quarters and years.
Okay, Great and then maybe one just quick follow up is that also with this debt market shift.
There'd be more of a shift towards annual billing.
And.
Could that portend, a widening gap between the cash flow margin and EBIT margin in a positive way or is there anything you can share there about the directional progression of cash flow margins relative to EBIT. Thanks.
Yeah, Chris This is Joe Great question, I think what Youre going to see is we are definitely you know over the last.
A couple of quarters, we're definitely seeing more like we've talked about enterprise and mid market. We're also seeing you know as we get into these larger deals where the product becomes more sticky customers are willing to sign up for longer term contracts right. They realize that hey, if we're going to deploy this across not just the marketing team, but the support team for the sales team, we want to make sure that were debt.
A little bit longer than we used to in the past and so we're definitely seeing a shift I think it's still a little early just given the mix we talked about this but we still have.
But on.
Almost like a 50 50 split between month to month on annual contracts and so I do see that widening over the longer term I think it is going in the short term, it's probably not going to be.
<unk> consistent it still could be a little lumpy, but we're definitely moving in that direction.
Okay, great. Thank you.
Thank you. Your next question comes from the line of Arjun Bhatia from William Blair. Your line is open.
Perfect. Thank you for taking my questions on.
Late quarter.
For the team.
If I can go back to maybe the customer die.
Dynamics a little bit.
It's obviously very interesting to hear the Harris resolved and hear about social taking center stage I'd be curious what youre seeing from maybe legacy brands or tech ladder. So to speak that were previously not willing to dive head first into us into the social pool.
<unk>.
Are those customers starting to really adapt how they're approaching social and realize the volume or do you think we're still early.
On that front and that's something to come in greater volumes in the future.
Yes. Thanks for the question this is Justin.
So.
I think there's a combination of things happening there I think one to your point, we're definitely seeing brands that have been a little more reluctant or just slow to get their strategy together on the social front.
Coming to the table I think maybe the more pronounced difference that we're seeing is.
Organizations that had.
Kind of dip their toes in and maybe made some investments now realizing.
How important this is going to be in really starting to take a more strategic position on social on how to operationalize it across the organization and so.
There is.
There are I mean, even the most reluctant brand.
Really been kind of smacked in the face over the past year and realizes this is something that we've got to get a handle on.
But I think maybe the larger.
Maybe opportunity initially is for.
For that graduation from the very early stages of social adoption.
For those organizations that are now realizing that there's there's a much bigger play to be made here.
And that's where we start to see jumping up from small investments, maybe initial investments or <unk>.
Departmental level investments too.
So much bigger opportunities for for our expansion efforts within those accounts and then landing them certainly on the new business side.
On another related trend that we see there is folks that had made an initial investment when it was maybe less of a priority starting to realize that the tools that they invested in are really just not cutting it.
So that's a great scenario for us to be stepping in as well.
Selling them what.
What the platform can do from them.
For them relative to what they've been doing.
That's a conversation that goes very very well for our for our sales organization as well.
I might just also add in there from a.
From an individual buyer perspective.
Conversations I've got a lot more interesting in that we are seeing more senior executives get involved in conversations.
Especially around the topics of data analytics and listening and what they could be leveraging that social data for to inform their strategy. So I know our teams across sales and success.
Really been energized by the customer interactions and any opportunities because those buyers just have a more zoomed out view of their organizations and understand how social might be leveraged.
And the fact that we've also got a champion with the practitioner who is already on the product.
Alright.
Helpful Color and then maybe another higher level question, if I can.
We're seeing a lot of changes in the advertising ecosystem with the deprecation on third party cookies and changes to <unk>.
I'm curious if this is something that your customers are talking about as they think about their approach to organic social and.
I mean, what do you think.
The impacts are if any to your business on a directly or derivative where you're from some other changes that are going on.
Yes, yes.
Yes.
It's a great question I think.
That conversation in our world tends to be more.
<unk> derivatives or indirect and it's it's typically.
Kind of uncertainty around the advertising landscape.
What.
<unk>.
On some of these new platform changes on regulation might introduce and really just not understanding what how the networks are going to be able to continue delivering net efficiency, though I think they have spoken that pretty well.
So I would say for the most part it's uncertainty, but where we're sprout comes into the picture as these organizations are thinking about and I think rightfully recognized over the past.
12 to 18 months debt the organic side of social as a hedge against advertising is a pretty important aspect here.
And certainly when it comes to customer relationships maybe.
The most important aspect and so starting to see.
On organization that May have been thinking primarily on the advertising I think about social from an advertising lens.
Really thinking about what the bigger picture is on how organic plays in which is obviously, where we play.
And where we can help them think through that.
Great. Thanks for thanks for taking the questions and great quarter guys. Congrats.
Thank you for your next question comes from the line of Tom Roderick from Stifel. Your line is open.
Hi, It's actually Parker Lane in for Tom Thanks for taking my question.
Ryan maybe on the go to market opportunity I mean, you've had a tremendous success with the top of the funnel and the trial motion that you have in place, but as we think about more of the enterprise opportunities, particularly around verticals could you remind us once you get a handful of customers from a particular vertical in the funnel. How are you approaching that from a go to market perspective are you building teams.
These opportunities yet or is it still.
<unk>, where it's a very horizontal approach.
Thanks for yes today, it's still more of a horizontal approach.
Horizontal from an AE sales perspective, but we have got vertical wise in terms of our support from a marketing perspective.
We're really lucky in that we have such a long tail across the market.
In terms of opportunity and for the most part most of these organizations that are coming to US are very similar use cases that are horizontal in nature and it tends to be more along the lines of the verbiage of the language that needs to be customized for those for those customers in some cases, if its sensor for healthcare maybe more related.
Regulation, but our marketing team has done a phenomenal job in creating content that is focused in on those verticals and making sure that we have relevant use cases that we're leveraging the relevant language, but today. The AE team is going at it horizontal I think in the.
Future Theres opportunities for us to continue to think about how we specialize in segment.
But the execution so far across the board has been really strong we feel good about the way the teams are operating today.
That's helpful and then Joe maybe a model question for you I think there was some one time capex items on the second half of last year related to headquarters build.
Low capex this quarter, how should we expect that to trend here for the remainder of the year and maybe going forward.
Yes, Parker I wouldn't see any outsized capex, there might be a little bit related to coming back in the office on the back half of the year, if we decided to come back getting the office ready, but nothing that I would say is material.
Expect pretty consistent capex spend going forward.
Alright, thanks for the color nice quarter.
Thank you. Your next question comes from the line of Scott Berg from Needham Your line is open.
Yes.
Everyone. This is Jonathan on for Scott. Thanks for taking my question.
Just as you think about the economy company what.
What are you expecting as far as kind of on social media trends from usage is there any additional use cases, particularly with some of these verticals that have been more heavily impacted.
Interesting.
I see some acceleration over the coming quarters.
Okay.
Hey, John.
This is Ryan.
I mean, I think we are already starting to see some of those organizations reinvest it I mentioned a few at the beginning in terms of retail and restaurant and hospitality.
I think many of them are feeling it.
Change of wins coming Theyre investing many of them had been investing even in 2020 in an effort to maintain community in relationship in brand, but I'm sure that there is going to be increased investment as things start opening up.
Generally I think all of 2000 22020, and the pandemic really just encourage brands and organizations to rethink the way that they are building relationships from a digital perspective with their communities and their consumers and so I think for many of those organizations. They started the work theyre going to continue to.
<unk> in those places and I think that we're all on this place where the behaviors and habits, we created over the last year aren't going to change very much even as the world changes. So I think a lot of these things that we've got used to will be to go forward and I think social is just going to continue to be a really important part of the way that organizations.
Engage and communicate with their with their customers.
Awesome, Thanks, guys and congrats.
Great.
Thank you and your next question comes from from the line of Stanislawski from Morgan Stanley. Your line is open.
Hey, this is Chris on for <unk>, Thanks for taking the question.
I mean, it seems like all the headline metrics you guys had we're super positive, especially you're looking at your large customer add stronger than traditional enterprise Q4.
Are there any.
Lingering COVID-19 uncertainties, when youre still going to market today or would you say that all of that is behind us now.
Yeah.
Yes.
Certainly we don't want to.
In.
Invite.
Something different here, but.
We've really seen steady trends really Q3 Q for Q1.
We think that the.
Next shift is likely around.
For the future of work return to office.
Which which we think bode well for us.
We don't anticipate.
COVID-19 related impacts other than just probably some continued acceleration around adoption.
The understanding it's taken some time for some organizations to really activate on the understanding that social is a much bigger part of the picture than they may have anticipated coming into 2020.
And I think we'll continue to see debt, but no real pent up.
Impact that we believe is coming.
Got it Super helpful and if I could touch on a follow up.
I mean, if we're thinking about E Commerce E Commerce in general it's been something that you guys have been talking about for a while now and it feels like it's we're pretty much like there how would you think about the opportunity set if you were to compare the commerce use case versus a premium modules that had been really from successful so far how would you kind of rank order them.
Two opportunity sets.
Yeah. So.
I think it depends on the time series, we're talking about I think with the momentum we have on the premium modules the attach rate and success, we've seen selling those.
We continue to be excited and are investing in those and I think that those will continue to have.
Sizeable impact for us throughout the year while.
The social Commerce discussion has has been with us for a while now.
I would say that there is still some unknowns there right I think we're all talking about a day networks for all talking about at the specifics.
Have been.
Somewhat sparse and I think we're starting to get clarity around that.
Sure.
Have been at work and we'll have more to say on that front soon.
So it's starting to come to life.
I think the unknown there is.
At which speed and how big is this opportunity what are the roles that the different parties are going to play I would say from a strategic perspective, we consider this as probably the largest.
Area of potential.
For the business, but over what period of time that looks like.
And and and the overall size and scope relative to the to some of the other parts of our business.
Still unclear.
Got it Super helpful. Thank you.
Thank you next on behalf Clarke Jeffries from Piper Sandler Your line is open.
Hello, and thank you for taking the question.
And then slightly addressed by some questions but.
I ask it directly impressive to see another quarter of record customer ads on my question is really around the sustainability of that pace of customer acquisition I would say you know Ryan you touched on the improvement of top of funnel, but I mean should we think about this as sort of a revelation for the organization that could really drive that cadence go forward.
Yes. This is Justin I'll take the first pass at that and certainly Brian or Joe can jump in for.
The first couple of quarters, when we saw customer adds that looked like this we cautioned let's let's see a couple more.
Data points before we call this a trend.
It feels like we're there.
What we're seeing in the funnel and what we've been able to deliver over the past three quarters.
Tells us that the ability to add.
I will again focus more on the revenue yield from those customers than the absolute number.
But it feels like we're in good shape.
<unk> debt.
It wasn't.
Something that was <unk>.
<unk>, but something that the team is really set up in our sales model was set up.
To deliver on a go forward.
Want to continue to advise debt.
The revenue is going to be the focus for us and if we think about things like.
The just the ACB growth that we've seen any changes that we may want to make on our conversion funnel et cetera.
You may intentionally.
Drive those numbers on one direction or another with the.
Intent to make sure that the yield coming out is as healthy as possible.
Got it and it just seems like overall the go to market. It is more effective.
The place throughout last year I guess.
In relation to that question what is the limiter for additional investment right now and why not get more aggressive at this stage.
<unk>.
And not drive positive free cash flow growth based on the traction you're seeing.
Yeah, I mean, I think that that's something that we're constantly evaluating and I think some of what Joe talked about in terms of the increased investments that we're making now that we've made through Q1.
It really set us up to be able to answer that exact question.
Which is.
Where what what's the return on these investments relative to the opportunity and where do we want to be optimizing.
Obviously, we delivered a free cash flow positive.
Sooner than we had forecasted and that's great.
But we want to make sure that we're focused on the opportunity on the investments we need to make there. So it's not something that we're prioritizing.
Expect to see us to continue to be aggressive and ambitious for the opportunity.
Alright, perfect. Thank you very much.
Thank you on your last question for today is from DJ Hynes from CGS. Your line is open.
Hey, guys. This is Luke on for D. J. So I'm curious about some of the more nascent social platforms out there that you don't currently integrate with Tic Toc being one of the more prominent how do you think about that particular platform.
As well as other social channels Opportunistically and as you add more channels like a red at.
Recently or tick tock potentially do you see those being meaningful incremental adoption or monetization catalysts down the line.
Yeah, Yeah. Good question so on.
I'll start with the second part I think.
There are some second order effects to anytime the scope of what we help our customer with expense and so.
On one end of that is the more networks to manage the more places that our customers need to be present and have a solid strategy.
That that makes our value proposition that much stronger.
For people involved and permissions and nuances across the networks.
<unk> strong we also monetize the profiles themselves.
So the addition of.
Additional networks.
Has the impact there.
In terms of what we kind of look for and what we've seen.
So specific to Tictoc is a fantastic platform.
And I think that they are thinking about all the right things.
I think we've mentioned on this call maybe sometime last year. The typical trajectory there is.
The networks, we will see.
On a critical mass of adoption.
Start to think about monetization then they'll start to invest in the API from business tools, and that's where we get involved in the conversation and so theres a pretty natural progression debt. These networks go through.
We kind of know what to look for and when to get involved and have those conversations with them ahead of time.
Figure out how we can help them as they are thinking to those programs.
So it's.
<unk>.
The.
Two primary things that we look for our customer demand and the network readiness.
They have the resources, the API et cetera for us to give our customers a world class experience.
And then we look to make those investments.
In the case of uptick talk and others.
We're leaning into those at a time and we'll be ready to go on there.
Awesome that's helpful. Thanks.
Thank you that's all the questions that we have for today I will turn the call over back to Justin Hayward for any closing remarks.
Wonderful alright, well. Thank you everyone. So much for your time as always thanks for the great questions.
Really appreciate the support as always we'll look forward to connecting with you all throughout the quarter.
And back again a quarter from now.
For the rest of your day, but thank you as always.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you all for joining you may now disconnect.
Okay.
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Yes.
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