Q2 2021 Sprout Social Inc Earnings Call
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Good day and thank you for standing by you walk in to the sprout social thing.
Quarter, 2021earnings call.
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Thank you operator, and welcome to Sprout, social second quarter 2021 earnings call.
We will be discussing the results announced in our press release issued after market closed today and have also released an updated investor presentation, which can be found on our website.
With me are sprout, social CBO adjusted Howard.
So Joe del Prado, and President Ryan Barretto.
Today's call will contain forward looking statements, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Forward looking statements include statements concerning financial and business trends.
Our expected future business and financial performance and financial condition.
Our guidance for the third quarter of 2021, and the full year 2021.
And 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. Please refer to our annual report on form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission on February 24, 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.
Definitions of these non-GAAP financial measures along with reconciliations to the most directly comparable GAAP financial measures are included in our earnings press release, which has been furnished to the SEC and is available on our website at investors <unk> sprout social dot com.
And with that let me turn the call over to Justin Justin.
Thank you, Jason and good afternoon, everyone and thank you for joining us.
Our company is executing exceptionally high level and we're pleased to report our best quarterly metrics, yet as a public company.
I want to hit our second quarter highlights before turning the call over to Ryan and Joe to cover the details.
Social continues to cement itself as the center piece of digital strategy.
As new secular tailwind to our market begin to emerge our momentum has never been stronger and our opportunity never greater.
Our growth rate has shifted into an even higher gear, which reinforces confidence in our opportunity our strategy and the aggressive investments we continue to make in our future.
Yet again, we managed to break a series of our own records this quarter.
We added a record number of net new customers added a record number of customers contributing more than $10000, an IRR and further accelerated our <unk> growth to 45% year over year.
We reported our first ever non-GAAP quarterly profit, we achieved positive free cash flow for a second consecutive quarter and we eclipsed the rule of 50.
Simply put our business is rapidly accelerating volume growth simultaneously, becoming structurally more efficient.
All of this underscores the nascency of our market and the attractiveness of our unit economics, we're pleased to raise our guidance forecast across the board.
During the quarter in which our sales momentum was exceptional our product and development teams were hard at work shaping the foundation for our future growth.
Brought to market multiple new capabilities, including a first of its kind social commerce solution.
Expanded access to Instagram messaging and expanded case functionality to our integrations with Microsoft sales forces on desk can help spot.
We continue to innovate quickly to create new and differentiated value for our customers.
Focus enables us to fundamentally drive retention and growth higher overtime, while unlocking new pockets of addressable opportunity.
And 1 of the biggest opportunities we now have in front of US is the rapid convergence of social and commerce.
We've been speaking with you recently about the proliferation of use cases for our platform.
This trend continues but we've seen a new use case emerge and begin to crystallize.
<unk> is becoming a true commerce platform.
We were able to move quickly and in June announced new and expanded integrations with shopify and Facebook shops to enable brands to seamlessly manage their social commerce efforts within sprouts unified platform.
Being first to market with this type of disruptive social commerce solution was exciting for our team and for our customers, but it is only the beginning because of this use cases continuing to expand.
According to a study by the Harris poll earlier this year, 93% of executives at Greif businesses are increasingly moving their e-commerce strategies to social media and social becomes more ingrained in the buyer journey.
And about 8 in 10 businesses anticipate selling products via social commerce platforms in the next 3 years.
Consumer preferences and expectations are shifting.
We will now enable the extension of digital storefronts to social where our customers can deliver engaging content world class customer care and personalized interactions throughout the entire purchasing journey.
Full buyer cycle from marketing to service will live within sprout platform and allow our customers to unite their commerce, and social workflows and reduce friction in the buying process.
The functionality and partner integrations transform how our customers think about publishing and engagement.
And we've made the solution easily accessible for customers to adapt and leverage these capabilities are powerful elegant and timely to the market, but we expect to deliver even greater value to our customers in the years ahead.
Not to be overshadowed by the Commerce launch was our expanded rollout of the messenger API support for Instagram.
This was 1 of our most requested features from our customers and we will empower businesses to more efficiently utilize messaging at scale.
This also aligns well with what our network partners term conversational commerce.
We have worked for more than 6 months with the Instagram team on this release and we're heavily involved in early beta programs highlighting the depth of our partnership together and our ability to move quickly to deliver value for our customers.
Behind the scenes. Our teams are also doing some incredible things.
We continue to prioritize our DDI work and during the quarter expanded our technology, giving program in which we donate more than $1 million in software annually to advance more than 75 global causes as part of our effort to broaden the social impact of our software.
We're working hard to provide more transparency to our ESG efforts overall and anticipate that we will publish our first fully formed ESG disclosures later this year.
We've also used the past year to rethink the future of how our T millwork, our offices in Chicago and Seattle officially reopened in a phase the voluntary approach last month.
We know that the future is hybrid.
Our goal is to empower our people to work wherever and however, they thrive and to adapt quickly to changing demands and habits.
Committed to giving our employees the resources support and freedom to grow and succeed at sprout and we believe this approach will enable us to attract and retain elite talent because we continue to grow.
To close I want to revisit our core investment thesis.
Social media has fundamentally transformed the way consumers connect with brands, which has changed the entire customer experience across virtually every part of an organization.
Social cannot be compartmentalised.
Billions of consumers, who are driving businesses to adopt new use cases as the market becomes consistently more complex and more challenging to manage.
We've built organically and on a single code base, the social system of record intelligence in action and a platform to be horizontally leveraged across the business of any size.
From publishing and engagement to reputation reporting and advocacy to listening analytics and now commerce. There is no business on the planet they can't benefit from either a more sophisticated social strategy or a business strategy that has sharpened by social data.
The industry's highest rated technology platform across every segment of the market According to <unk> and others and while we're incredibly proud of the company. We've built to date. We've also build a company that inspired by and prepared to thrive in the future.
Look forward to meeting with many of you this quarter and digging deeper into this investment thesis at our first Investor day in September.
With that I will turn the call over to Ryan.
Thanks, Jeff and I couldnt be more impressed by the work of our teams this quarter.
Delivering for our customers today, while strengthening the foundation for our future success.
The barriers to entry in our market are rising our platform is becoming more differentiated and we're adding value to a growing list of stakeholders.
Our annual Sprout, Social index, which we released this quarter really brought the current state of the market to light.
The report found that 71% of consumers are using social more than they were a year ago and 88% of marketers believe their social media strategy positively influences their bottom line.
It's clear.
Social is more mission critical today than ever before.
Sprouts already efficient go to market motion is well aligned to software buyers that want to prove value for themselves before committing.
We've continued to hire aggressively across the company and I remain incredibly impressed by the caliber of people that are choosing to join sprout.
Recruiting efforts have been propelled by recent awards like fortunes best workplaces in technology.
Fortunately best workplaces for millennials and great place to work best workplaces in Chicago.
Because of all that we feel well positioned to capitalize on the many opportunities in front of us.
Justin mentioned, how our product teams, which along with our partner teams are moving at a fast pace to take advantage of emerging new opportunities.
Our marketing efforts, we're seeing accelerating customer demand, resulting in an increase in the number of qualified trials and an improvement in our trial conversion rate.
Our new business and customer growth sales teams were on fire during Q2, while our increased investments in customer success in on boarding continue to pay off with structural improvements to retention.
A new record in customer additions combined with our rising acb's underscores the incredible market opportunity we are seeing.
The metric that jumped out to me most of this quarter was our 10-K net additions, which set another record and our accelerated.
<unk> growth of the 10-K customer cohort, which grew at 55% year over year.
Contributing to the success of the expansion of use cases or momentum that market, especially in mid market and enterprise and our success in selling our premium modules across the entire customer base.
That point, a sample and the brands that grew with US. This quarter is a fantastic list that includes Kraft Heinz the department of Energy Independence Blue Cross Agrium Franklin Electric Levis Whataburger.
Bark.
RP and Kaplan test prep.
Now shifting to a few customer stories.
We are incredibly proud to partner this quarter with Penn National gaming.
Jennifer Weissman Senior Vice President and Chief Marketing Officer said, we picked sprout to unify our various unique social media accounts under 1 manage the platform that will enable us to cultivate the most engaging conversations and content per our guests start with a natural choice to help us grow the social presence of our many locations because of its power.
Full intuitive capabilities at our casinos will quickly harvest the benefits from.
Penn shares our commitment to diversity and inclusion with sprout. We are pleased that spreads capabilities helped us amplify recently launched efforts like pence diversity scholarship program as well as the introduction of the my choice might heroes program and exclusive set of benefits offered to members in the military veterans and first responders.
We also executed an exciting addition to new tax already expense of enterprise package with sprout.
<unk> a leader in hybrid multi cloud computing recently expanded their social listening relationship with sprout and during Q2 added a number of new users to help scale and better manage their global secondary handles on social media.
By broadening their publishing and engagement requirements, there, we're able to level up the reporting systems and processes to build a more strategic and focused social strategy at scale.
How does their next fiscal year <unk> is also leveraging our professional services per reported.
We are grateful to continue our work with your tenants as they are.
Mark insights from social data that will drive our strategy forward.
We also recently partnered on the case study with New Jersey Transit, which had 50 million Twitter impressions last year and served nearly 1 million daily riders across its trains buses and light rail.
Mark Herron experience are at the heart of the New Jersey Transit brand.
Leveraging with smart inbox, they were able to deliver 142% year over year increase and a reply rate and also reduced the average customer response times of social media to just 30 minutes.
Central Mass, New Jersey transit director of events and social media.
When people think of transit, we don't want them to think of just equipment and stations. So we use social to give our employees a voice and to humanize them to the public.
We're sprout came out on top with understanding us and treating us as individuals every time you reach out sprout gives us the same customer care that we are a promise from the first time, we spoke to them.
Our 100% there for us incredible.
Incredible stuff.
To bring it altogether, we had another record breaking quarter, where our teams delivered and our customers saw a tremendous value.
I'm really proud of the way our people are showing up for each other and our customers and because of that we're heading into our third quarter with a tremendous amount of energy and momentum.
With that I'll turn it over to Joe to run through the financials.
Thanks, Brian.
I will now walk you through our second quarter results in detail before moving on to guidance for the third quarter and full year 2021.
Revenue for the second quarter was $44.7 million, representing 42% year over year growth.
Exiting Q2, the $189.1 million up 45% year over year.
So we're pleased to see record quarterly customer additions healthy retention and very healthy expansion.
We added a record 1490 net new customers in Q2 and finished the quarter with 29612 customers up 22% year over year.
This is a reflection of balanced and very strong performance in each of our segments.
We continue to be focused on high quality revenue yield from our new customer cohort.
The number of customers contributing more than $10000.
Our 2936.
35% from a year ago net from 3514 in Q1.2021.
Our ACB was up 19% year over year.
Rising strategic importance of social broadening the use cases as customers operationalize social rising attach rates of our premium model and a momentum upmarket remained several sustainable growth driver for our 10000 customer cohort are durable medium term ACB growth.
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 reconciles our GAAP results in the earnings press release that was issued just before this call.
In Q2 gross profit was $33.8 million, representing a gross margin of 75, 6%.
This is up 160 basis points compared to gross margin of 74.0% a year ago.
We've seen a positive impact on gross margins as we lapped the elimination of duplicate.
Infrastructure hosting costs.
Simply measured.
And from the natural efficiencies of scale in our business.
Sales and marketing expenses for Q2, or $17.1 million or 38% of revenue down from 43% a year ago.
We are pleased with the quality of people that are choosing to join sprout and we are continuing to accelerate our pace of hiring across both our sales and marketing team.
It is our total sales and marketing expense growth accelerated for the fourth quarter in a row.
A healthy trend line of investment, we're able to further improve efficiency.
Research and development expenses for Q2 were $8.1 million or 18% of revenue.
23% a year ago.
We continue to have aggressive R&D growth growth in 2021 at the address an expanding set of opportunities.
Many key R&D higher start in June and many that are planned to begin throughout Q3 of 2021.
General and administrative expenses for Q2 were $8.5 million or 19% of revenue down from 27% a year ago.
While we continue to expect G&A expenses to further decrease as a percentage of revenue as we scale. We do expect these annual margin gains to come at a much lower pace over the coming 12 to 18 months.
Have been realized over the past 12 to 18 months.
Non-GAAP operating income for Q2 was $1 million positive, 3% and operating margin.
This compares with a negative 19% operating margin a year ago.
Pleased with improving efficiencies as we scale the company and outperformed our expectations due to higher revenue and the timing of many key items.
Non-GAAP net income for Q2 was disappointing several million for net income of <unk> <unk> per share based on $54.8 million weighted average shares of common stock outstanding.
Compared to a net loss of $5.8 million and 11 a year ago.
Turning to the balance sheet and cash flow statement. We ended Q2 with $171.5 million in cash cash equivalence and marketable securities.
$167.8 million at the end of Q1.2021.
Third revenue at the end of the quarter was $54.5 million.
Thinking about our billed and unbilled contracts, our remaining performance obligations or our appeal totaled approximately $81.2 million up from $74.9 million exiting Q1.2021 net.
From approximately 59% year over year.
We expect to recognize approximately 84% or $68.2 million of total <unk> as revenue over the next 12 months.
Operating cash flow in Q2, a positive $4.4 million compared to negative $4.1 million a year ago.
Free cash flow was $4.1 million in Q2 for a positive 9% free cash flow margin compared to negative $4.5 million and negative 14% free cash flow margin a year ago.
Ongoing momentum into the mid market enterprise and mix shift towards annual and multiyear contracts are having a positive impact on free cash flow Sp growth.
We are pleased to report positive non-GAAP operating income for the first time in our history and positive free cash flow for the second consecutive quarter.
The combination of accelerating free cash flow margins and accelerating revenue growth.
That's above the rule of 50 benchmark this quarter.
Underscoring the attractiveness of our unit economics.
I do want to reiterate that we continue to optimize our future growth.
That can be sustainably profitable, our free cash flow positive or subsequent quarters.
Generally continue to expect free cash flow margins to be several hundred basis points better than operating margins throughout the remainder of 2021.
Shifting to formal guidance.
In the third quarter of fiscal 2021, we expect total revenue in the range of $47.3 million to $47.4 million a growth rate of 41%.
We expect non-GAAP operating loss in the range of $4.3 million to $3.9 months.
This represented an anticipated operating margin of negative 8.7% an improvement of more than 400 basis points year over year.
We're making aggressive growth investments across our company.
We're doing it while delivering improving our margins highlighting efficiencies in our business as we scale.
We expect the non-GAAP net loss per share of between <unk> and <unk>.
Assuming approximately $53.9 million weighted average basic shares of common stock outstanding.
For the full year fiscal 2021, we now expect total revenue in the range of $182 million to $182.6 million. This unexpected overall reported growth rate of roughly 37% compared with our prior annual expected growth rate of 32% to 33 per cent.
For 2021 we now expect non-GAAP operating loss in the range of 11.0 to $10.6 million.
This implies a non-GAAP operating margin of negative 5.9% more than 400 basis points better than our prior annual guidance, an improvement of roughly 1000 basis points year over year.
We're pleased to see faster growth with greater efficiency.
We now expect a non-GAAP net loss per share between 'twenty, 1 and 'twenty 2.
Approximately $53.8 million weighted average basic shares of common stock outstanding.
Of note our offices in Chicago, and Seattle in reopening mid July and will continue to hire aggressively across the organization.
Counted for this office reopening and our expense forecast for the remainder of the year, which we expect will likely lead the moderation in the pace of G&A margin expansion over the next 12 to 18 months.
To the prior 12 to 18 month period.
In summary, we believe we are strongly positioned to capitalize on the opportunity for durable multiyear growth.
And social move to the center of digital strategy.
Accelerating growth rate compelling financial leverage and strong free cash flow performance gives us confidence to make optimized investments that we believe will enable us to achieve our full potential in the quarters and years ahead.
The debt adjusted 9 are happy to take any of your questions operator.
Thank you Sir.
Mind, you to ask a question you will need to press star 1 on your telephone keypad.
Hello Guy a question you May press the pound key.
Then by while we compile the Q&A roster.
And speakers our first question from Raimo <unk> channel.
Of Barclays. Please go ahead your line is open.
Hey, this is Frank on for Raimo, Congrats on another really great quarter here.
It's showing performance large customers what was the biggest contributor there was the most of the premium products like listening and analytics or was it more by growing seats and extending across the departments.
Dan Thanks for the question.
Those are really important to the growth of our customer base, but if I had to prioritize them. It continues to be that user seats additional use cases and individuals from different departments being involved followed by the premium add ons like listening and analytics.
Yes, depending on the specific company and they're the maturity within the market.
But definitely we're prioritizing users and use cases of the add on modules.
Okay very helpful and it was great to see you guys moving to social Commerce I know that's on the horizon for a while could you help to quantify the opportunity here and.
How do you see this as a potential area for further partnerships or M&A in the future.
Yeah, Great question so.
This initial.
Launch back in June really.
As we've indicated.
Small part of the total what we think is a total opportunity and certainly the totality of our plans there I think a lot of it is still developing.
We expect that day.
Work that we do there.
Sure.
The combination of certainly additional integrations are on the table there.
Wanted to start with.
The platforms that we felt would.
Get the most reach in kind of early traction in the market, we favorite some existing relationships there.
But extending into additional integrations there.
But also a lot more on the capability side right. We started with what we thought were.
The applicable very powerful capabilities to be bringing to a broad range of customers. We've got a long roadmap to expand there could be something that becomes an additional monetize the SKU et cetera, as we build those out but we're really taking our time with it.
While the opportunity is still unfolding not only for us, but I think for the broader network partners in general what this is going to look like what the ultimate opportunity is the important thing for us there.
Was forming a thesis getting any market, making sure that we've got those relationships pegged in that we've got.
The opportunity to learn and build from there so expect to see a lot more from us on the commerce side.
Great. Thanks again.
Okay.
And our next question from Arjun <unk> of William Blair. Please ask your question.
Perfect. Thank you and congrats on a great quarter.
Maybe wanted to touch a little bit more on the e-commerce opportunity, it's great to see.
Out of the market.
Is there anything that you can say just in terms of initial customer reaction or adoption usage et cetera that youre seeing from that.
It's relatively early but any color there would be great and then just as youre thinking of customer adoption trends should we think of this as primary primarily being adopted by existing customers or is there an opportunity here so maybe.
Attract new customers.
From verticals that are maybe under penetrated.
And ticket.
At this price platform.
Yeah, Yeah, great question, so to the first half of that certainly it's early for us to.
Probably share much in terms of deal contribution and how thats shaping up in terms of adoption I would say that we've been excited to see many fantastic brands.
And that.
We will have a better idea of what we want to share.
Specifically in terms of metrics as we get a little further ahead.
Certainly I think the initial release.
The number of customers that we have.
Great opportunity in the existing customer base, but part of our thesis here was to the last point that you made which is.
We want to make sure that for businesses that are.
Sure.
Either doing the.
All of our significant part of their sales through ecommerce.
And now social commerce specifically.
That is an obvious choice.
We can go out to market.
To any brand if it is using the platforms that were integrated with.
And B are very obvious solution for them to be able to make all of this.
Our strategy worked together cohesively and so we definitely see this as an opportunity to expand.
Our.
Cam overall book more specifically just take that to market and make some.
Significant progress in the installed base of our partners.
And then just also add in there quickly I think the exciting or due to your question about new customers versus existing.
We've already seen some impact in helping new customers understand the benefit of strength because of our early entry within this market and the ability to make their workflow much easier leveraging social commerce have been spent with the integration. So I think thats the piece, you'll hear from us in future quarters as well in terms of the <unk>.
<unk> per customers, but we see it as both the existing customer and new customer benefit.
Got it that's very helpful.
Yes.
With Mexico, I'm actually probably for you, but you are clearly seeing great momentum in the business and I think I heard.
Joe mentioned that Youre accelerating hiring across both sales and marketing can you maybe just help us.
Flush out a little bit.
We're hiring in the go to market or is it inside sales.
You see more opportunity in the enterprise expansion reps, just how should we think about the <unk>.
Marketing investments Youre, making.
Yeah, absolutely when everybody sort of inside sales right now.
But theres data things.
Across a variety of our segments.
Continuing the trends in terms of the Midmarket and enterprise growth and success there youll see that from a carrier perspective in roles that were hiring for but I would say, it's new business for Midmarket and enterprise and then our growth teams as well are getting a lot of investment and then we started to hire some more.
Our international markets as well.
It's kind of across the board.
But we're seeing this opportunity right now and we just want to make sure that we have the right level of capacity and distribution in these areas, where we're seeing it.
Alright, Thank you very much and congrats again on the quarter.
Thank you.
And our next question from Barclays You May ask.
Stifel. Sir Please go ahead.
Hey, guys. Thanks for taking my question a lot of talk about social Commerce. I was wondering if you can talk a little bit about advocacy for a second and something we haven't heard about for a while maybe give us an update on the demand environment for that particular use case use case excuse me and how some of your customers are thinking about the ROI in that area.
Sorry, I was muted there for a moment.
Yeah. So advocacy is is.
An interesting space for us this is a.
An area of impact for businesses that we recognized several years ago, maybe even a bit ahead of demand in the market, but had been building against this idea.
Net social is not just an opportunity for <unk>.
External voices, but also for the ability for internal and related voices to be amplifying the message of brands.
Further.
Create relationships between the brands.
Their employees with their audiences externally and Brian shared a couple of examples of how that's taking shape in some of our existing customers.
Yeah.
That is an area that we have seen increased demand, it's an area, where we see an opportunity to bring our same approach toward.
<unk> unified platform that brings many capabilities related to social into 1 place.
And something that you'll probably hear us talking more about over the next couple of quarters.
Got it and then maybe on the 10000 plus customer cohort would it be fair to say that the majority of those.
Solid net adds that you've had recently have been from enterprise customers are you really starting to see traction in SMB and mid market customers as well that have leaned into the platform very heavily for social and that's sort of a quick 10000.
Barry.
Yes, it definitely is a pretty healthy balance for us.
Certainly in the Midmarket and enterprise they expect deals coming in at that rate, but we've seen the same sort of success and opportunity within our SMB and agency and you think about some of these organizations, especially in F&B. Many of them go up digital growth social.
It's 1 of their most important.
The communication with customers it drives their marketing campaigns and oftentimes that an outsized amount of their budget spent within this area. So we continue to see success across mid market and enterprise, but we think that there is plenty of opportunity in our F&B and agency segments, there as well and they are certainly making up a big portion of.
The 10-K ads, yes.
Great. Thanks.
Thanks, again for taking my question and good quarter.
Thanks, a lot.
And our next question from Matt Vanvliet of <unk>, Sir you May go ahead.
Yes, Thanks for taking my question great job on the quarter guys. I guess first on the international side, you've really started to put in some some management over the last couple of quarters to invest there and Ryan you mentioned hiring really picking up on the go to market side, but curious kind of where you feel like you're at in terms of the team building and their ability.
To be.
<unk> as their U S counterparts, right now and just kind of what what level of growth.
Our contribution to the overall growth are you seeing so far in the first half.
Yes, I think we're still really early on what the opportunity is going to ultimately look like for us.
We started that first office in Europe in 2019 and has been building there and we're starting to see some amazing productivity from that group is starting to mature, but it's still relatively new and you think about where we are today and then we've gone in and added some more resources and great people and the APAC region in Latam as well.
And just worked on hiring a leader for APAC leader for Latam and.
So we're seeing really good productivity from that entire group, we get the benefit in that because of our inbound model, we get to see where the demand is before we make bets and so for US we understand where we're seeing potential opportunity within the market and then we can go and make the right investments from a distribution per.
So I would say that it contributed nicely to the business right now we think that we are.
Pretty early in terms of what the ultimate opportunity will look like and we're complementing that opportunity right now with distribution from both an 80 perspective as well as some localized marketing support and we'll be looking at more distribution channel opportunities in the future.
Very helpful. And then as you look at the customer care opportunity longer term.
Obviously with zoom, writing a nice big check for $5.9 it's pretty clear that that area of the market is gaining a ton of spend and a ton of attention.
Is that something that youre going to come out with a very fully product ties type of relief all of the social commerce.
Or does it have to take on a very different kind of.
Morpheus form for each customer and maybe you are gaining more traction. There then we're going to see with kind of 1 big press release.
Yes.
<unk>.
So the majority of the building blocks are there and as we've talked about in the past.
A large number of our customers are leaning on sprout for the customer use case.
We do think that there is some roadmap opportunity.
As well as some integration opportunity to beef up those capabilities and possibly even put it.
Kind of tie a bow on it in terms of our specific offering but the benefit that we've got there 1.
Been serving the customer care use case for a decade.
The tools are there where an exceptionally good at it.
So the exercise of product tied to that.
Adding some things that are more context specific.
Something that.
We've done many times before and we're very good at so the ability to bring a product like that or a specific product like that to market is certainly possible and on the table.
A lot of it will just depend on our roadmap momentum towards that specific use case and relative to some of the others that we're working on.
Alright, great. Thank you great job on the quarter.
Thank you.
And our next question from Clarke Jeffries.
Piper Sandler. Please go ahead.
Hello equivalent interest taking the question really encouraging is the IRR growth accelerated over 40%.
Net new <unk> reached a record even for Q2 and I think overall as we look at it.
Year to date <unk> already at 75% a level with that.
Added in 2020 so.
When you look at where the execution has been strong and where the pipeline is building.
I think it's possible for us to see the same seasonal first half second half split in terms of net new <unk> or how should we think about the back half execution.
Yes.
I think COVID-19 has kind of.
Probably up and a bit of a typical seasonality that we would have seen.
I think as you've seen from us in the past.
The tail end of the year has been strong.
We don't see that letting up in the back half of this year.
Hopefully as indicative or as indicated in the guidance we've provided.
It probably.
It may look slightly different.
Just based on where we are kind of in the Covid cycle, but we're more focused on the sequential performance and just kind of a record setting performances. So.
Thinking so much of the comparable periods.
Q2, this year versus last year, even but looking more at the sequential growth and the fact that we've been able to deliver a record quarter relative to every other quarter.
Those are the kind of milestones that we're going to continue to look at.
And kind of measure the team back.
Alright, perfect and then I know, it's been some discussion on the capacity investments, but I was wondering.
What are the top product led growth initiatives for the rest of the year.
Imagine hiring.
It's certainly top of mind, but as you think about developing inbound growth what are the top investment there for this year.
Yes so.
A lot of the areas that we're looking at there from a product led growth standpoint have to do with.
Making the <unk>.
Onboarding process accessibility and visibility of some of our existing more advanced capabilities.
More readily apparent to the customers who are either coming into the trial funnel or who are existing customers. So making sure that the product is doing as good of a job as our as our go to market teams are exposing those capabilities and making onboarding into those capabilities really seamless.
For our customers. So we're continuing to spend a lot of time there.
And then also just thinking about what does the.
The product plays a big role in our sales process given the amount of revenue that is driven through our trial funnel.
Just thinking of cohesively, what does that Onboarding and first use experience look like how.
How are we optimizing net funnel.
How are we adapting depending on.
Where we're seeing that funnel developing what what sources what regions of the world et cetera. So that's kind of a constant process of optimization, it's continuing to get more and more investment from us as well.
Got it I appreciate the color.
EBIT.
And our next question from Stan South ski of Morgan Stanley. Please ask your question.
Perfect. Thank you so much guys and congratulations on the very strong quarter.
From my end I wanted to dig into the enterprise opportunity.
Obviously youre hiring.
Seasoned sales reps to really go after that.
How high how high up in the enterprise do you see yourself being able to go and really compete effectively right now with the product portfolio.
That you have and how aggressively are you pursuing the enterprise opportunity more broadly.
Thanks, Dan.
Ryan.
There really isn't any ceiling on what we can do here.
Close.
Deals with Fortune 500, Fortune 10, with our current product set and are getting great feedback from those customers as we built at the enterprise organization in our outbound motion.
Certainly being targeting a lot of customers that we think are just a great fit for what we have to offer and have been seeing really nice success across all of our products.
I think that there is plenty of headroom for us to continue to grow and as we're adding more folks to the team. We've seen really good productivity. So you can definitely expect to see more from us there.
Our roadmap continues to evolve as it remaining those customers will be able to continue to grow the footprint there as well.
Yeah.
Got it got it and then on a quick question for Joe on Billings very strong billings and I apologize. If this was addressed in the prior question, but anything onetime in the billings number that we need to mindful of.
No no no 1 times there that's just the natural progression as we get into these more mid market enterprise deals, we're just seeing longer term and bigger bigger size deals, but nothing 1 time initiatives.
Okay awesome. Thanks.
And our next questions on DJ hints of GAAP.
<unk>.
Please ask your question.
Hey, guys I'll Echo the congrats.
Great set of numbers here.
If we tried to unpack the record customer adds you are putting up and I'm sure. It's a combination of both but if you had the ranking like does it feel like it's been more a function of.
Apple funnel, increasing right. So just a lot more shots on goal.
Or is it improving conversion and maybe theres a comment on win rates in there somewhere.
Yes.
Dennis a book.
Yes.
It's a great question I mean, I want to give some credit.
2 our folks across success in our product organization, we certainly seen.
Structural improvements to our retention adjusted mentioned a little bit again, just the investments we've made in onboarding, but just the.
The innovation that's coming in the roadmap means that we are adding more value than ever to our customers. So I think there's just a huge lift there and then we haven't seen really great quality coming from the top of funnel.
And the conversion rates have.
We have been improving as well so from a new logo perspective and felt really good across every segment about the execution and the customers that we're seeing.
Globally.
Its definitely above but still over weighted on the new business side, but both are really nice levers for us yes.
Yes, that's helpful and then.
Brian I'll ask you another 1 will be talking about jumping feel free to chime in but any way to give us a ballpark feel for what percent of pizza and social teams what percent are in service and then what sits outside of those functions like I know there is a huge opportunity in terms of.
Cross functional use of social data. So just trying to think about where you are in terms of monetizing that interest.
Yes.
Really difficult to answer and difficult because organizations are really evolving right now where.
They may have a part of the social team that is dedicated service versus having the actual service team. There is usually an evolution and depending on how sophisticated they are.
When they move from sort of the center of excellence to hub and spoke many organizations are taking a different approach.
Current approaches there.
And so it does get pretty difficult to suss out I will tell you that.
Fair to say that the majority of the users still fall generally into marketing, while they may be handling.
Customer service use cases or others.
But that's an area where not just those specific use cases like customer service, where now maybe the folks responsible for commerce.
But the additional departments and stakeholders.
That may be second order related to what's happening in social where they've got skin in the game in a very vested interest in keeping an eye on it.
And being involved in it so.
Yes, it's difficult to quantify exactly I would say, we're moving toward definitely more.
Seats in the specialized roles and particularly in the mid market and enterprise were seeing more and more of those deals inclusive of.
Customer care is a good example, but even sales other parts of the marketing work that may not have been involved before et.
Et cetera, so it's trending in that direction for sure yes, yes, no. That's helpful color. Thank you guys congrats.
Thank you.
And our next question from Rob Oliver of Baird. Please ask your question.
Great Hey, good evening guys. Thanks for squeezing me in a lot of talk about social commerce. So I'll add a couple on that front just.
On the new Commerce integration product this quarter.
It seems like you guys have taken a accretive approach to how you're integrating that with the suite of products.
Maybe to kind of drive some some some upsell considerations within some some of your customers. So just would be curious for the early reads on that and whether customers are feeling the need to step up their plans in order to avail themselves of that and then since no one's asked about it yet I figured just ask about Twitter because we also got announced.
But this quarter about Twitter.
Piloting social commerce.
And.
Clearly you guys have a very strong historic relationship with them. So I just would be curious to hear about both those things. Thank you.
Yes, sure. So all kind of work in reverse order per year I think.
Yes, exciting news out of the Twitter team.
And it's something that we're looking forward to collaborating on and figuring out where.
We can add the most value I think they've got a pretty compelling proposition.
Certainly something that we're well positioned.
Be materially involved with but TBD I think too.
Specific to mention on that front.
But exciting right because we've got all of the networks now are coming.
Coming to the table with a little more clarity around their plans.
And I think that that.
But the indicators are there this is going to be a massive opportunity across the board.
And what all of our rules are.
We're sorting that out and making those.
Making those bets in.
Building toward that road map now.
I think day to the question around.
Yeah.
Potentially stepping up plans.
Round with commerce capabilities, I think what we're going to see early on is mostly additional user seats.
To fill those needs because we're not monetizing it as a separate SKU and we haven't held it back to any particular plan.
So the capabilities that we have today are available to any customer of sprout.
And we did that very intentionally as those capabilities to get more sophisticated.
You've seen us take a different approach in the past with feature sets that have become more robust.
So that's certainly an option for us on the commerce side as well.
Great. Thanks, Justin and then Ryan I was just going to ask 1.
Follow up for you just about kind of.
The nature of enterprise buying that Youre seeing here, because I think clearly the.
<unk> expansion numbers, you guys are seeing in enterprise and <unk> customers.
Customer metrics are pretty staggering.
They speak to maybe.
Real new appetite here for for solutions like yours within the marketing Department and since it seems like marketing is still predominantly where the land is.
Could you maybe touch on what Youre seeing there.
In terms of.
Changing and maybe that kind of bottoms up buying model and the acceptance of that within even multinational tech companies. Thanks again guys.
Yes, thanks, Rob.
I think theres a couple of things that are exciting for us 1 that trial model continues to be really important.
So many of the logos that we talked about today came in from a trial leveraged the product before they sign the contract prove to themselves that so it was a perfect fit.
We allowed us to differentiate it from everybody else in the market that was trying to sell on a demo that continues to be really important in more and more we're hearing customers.
Set time aside to do this realizing that this is a great way for them to mitigate risks as they make a decision. So that's working really well. The other thing I would say is that even in these large organizations, we're getting access to more executive decision makers.
With these companies, where social has become a bigger priority for them.
There are more interest in understanding the strategy and the technologies and platforms that they're going to have to support them. They want to understand the best practices within the industry, they want to understand and benchmarking data and so youre, having more of them involved in the conversation with yields as well.
<unk>, which has provided a nice tailwind in keeping sales cycles moving quickly. So we feel like we've got a couple of benefits than when they're using the product to virtually implemented is not the entire way before they buy and then we've got more decision makers getting involved in the process to really understand how to help them.
Thanks again guys.
Sure.
And our next question from Scott Berg.
<unk> company. Please ask your question.
Hi, everyone. Congrats on a great quarter, thanks for taking my questions.
Q when they can breathe.
On the first 1 it's kind of a serious question, although it may not sound like it again, it's actually interesting enough right now given what the.
Business metrics about in the last 2 to 3 quarters have been fantastic just didn't know if there is an opportunity maybe to accelerate sales growth even faster.
Yes.
A fair question and 1 that we take seriously as well I think 1 of the things that we're hyper focused on.
And where Joe and Ryan.
And really most of the executive team are thinking about on a constant basis is just where where should we be ramping up investments and you've heard us talk before about you've got great visibility into where the opportunities are.
Particularly given the volume.
The.
Inbound funnel.
Our free trial model, where we can understand what demand is going to look like in other markets et cetera.
And so I think we've done a good job there, but certainly something that we're always pressure testing with ourselves is just where are we going to make.
Increased investments and a theme from us that you've heard from us hopefully over the last couple of quarters is.
We're continuing to apply pressure so the pressure that we're applying to join those investments now.
More than the pressure that we talked about a quarter ago, and we want to make sure that we're fully capitalizing on these opportunities.
We're always going to be thoughtful right.
That's been the way that we've operated as a company.
But do not hesitate when we find those opportunities to make sure that we're applying enough pressure so.
As Joe said kind of in the.
The prepared remarks.
We've got a lot planned there we're accelerating hiring we're accelerating investment in key parts of the org, you'll continue to see us doing that so but we share. Your question. It's 1 that we're asking every time, we get together and continually finding new ways and new places that we're excited about growing that investment.
Also non I guess from a follow up perspective is if you look at your customers using the platform today and the different ways are there any like I don't know usage.
Data or metrics that you can share for us maybe how much more engaged some customers are in using the platform today than maybe I don't know 12 or 18 months ago I'm, just trying to see if theres any influence at the time, Debbie just having outside of just the customer growth on your business.
Yeah.
From a metrics perspective, not anything that we've.
Shared or made available externally, but what I will say directionally is that 1 consistent theme.
That we're seeing and we've talked about this dating back to what we started to see at the tail end of Q2 last year, which was the realisation by organizations that social is the future. This is an investment that they cannot kick the can on and what that means is that we're starting to see more and more.
Or it's taken them some time to maybe figure out how to operationalize that internally, but more and more where additional use cases additional departments additional seats are being involved.
And so.
When we think about the.
Hi.
The number of people involved in the organization and the amount of spend per customer all of those kind of apparent within the metrics that we do share and those are the ones that I would point to is we're just seeing greater involvement across the organization additional departments additional use cases.
And more and more need for the premium offerings that we brought to market.
Great. Thanks for taking my questions.
But.
And again as a reminder, if you would like to ask a question you need to press star 1 on your telephone keypad.
And our next question from Mike growth Alright of.
Of Keybanc. Please ask your question.
Hi, This is actually rich calling on for Michael Thanks for taking my question and congrats on another strong quarter.
So in some of our conversations with the channel we're hearing some indications of that.
Some softness as we move into the summer in SMB and mid market for front office software relative to the.
Really strong post COVID-19 demand that we saw in 2 <unk> last year and 1.8 true this year as people start to kind of return to office and take some vacation time.
So that doesn't seem to be the case for sprout and just wanted to see if you could provide some color. What you guys are seeing from <unk> perspective in <unk>, so far and kind of how you expect this to trend for the remainder of the year.
Yeah appreciate the question rich.
Have not really seen that I can certainly understand with certainly people know some having the opportunity to get back out and take some vacation, we'll see some of it hasn't shown up yet in our funnel and we feel pretty confident about the trend lines that were seeing per.
Our quality is actually being really great and the execution from the team has been really great.
And we're seeing it across all segments in our SMB team and our mid market team to continue to perform.
We continue to have the benefit from that inbound model, we know where to invest time, and we're not necessarily chasing deals or accounts because so much of our revenue comes in from an inbound perspective.
And that's where we dedicate a good portion of our energy.
So I'm sure that there will be some seasonality versus the market, but we haven't seen any of those trend lines today.
And I'll just quickly add I think.
Anecdotally or as an observer on some of the other categories.
Where we saw some of that influx as COVID-19 settle down a little bit tended to be.
I think the parts of the market that add a longer trough right.
When we talked about in Q2 and into Q3 of last year.
The interruption to the funnel and to the revenue pipeline and performance really was fairly short.
And so I think just from a.
Trend line perspective, I think we've kind of been 1 of the counter examples throughout COVID-19 and that seems to be.
To be the case.
Got it thank you for that and then.
I just wanted to follow up.
You guys have continued to have success moving up market and you see that in the ACB growth then.
I think I think glass referenced you guys said some of your larger customers were in the mid to high 6 figures in terms of <unk>.
Just wanted to get an update on that Safra was kind of <unk>.
Crossed over into that 7 figure ACB range, yet and any color on that would be helpful.
Yes, our answer at this point will be similar to the 1 we gave last time.
Sure.
We're seeing a lot of momentum in the 10-K, plus an up into the 6 figure deals.
We don't have any new high watermarks to share at the moment, but the gravity around.
Those large deals are definitely picking up and something we're excited about.
Thank you.
Okay.
And speakers that would be our question for this call I will turn the call over to Mr. Ingestion, Hawaii frequency.
Yeah, Greg.
Thanks, everyone for the questions.
We are over time now so I'll keep it quick.
Thank you thanks for the continued support.
And.
Certainly always thinking of the team for continuing to do a phenomenal job.
We're going to get back to work.
This concludes today's conference call. Thank you all for participating you may now disconnect.
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