Q3 2021 Sprout Social Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to Sprout social in third quarter from the tiny one earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question answer session and instructions will follow at that time. The final one should require assistance during the conference. Please.
<unk> zero on your Touchtone telephone.
As a reminder, this conference call is being recorded I would now like to turn the conference over to your house, Mr. Jason <unk> head of Investor Relations. Please go ahead.
Thanks, operator, and welcome to Sprout, social <unk> third quarter 2021 earnings call.
We will be discussing the results announced in our press release issued after market close today and we've also released an updated investor presentation, which can be found on our website.
With me are sprout, social CEO, Justin 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 1095.
Forward looking statements include among others statements concerning financial and business trends, our expected future business and financial performance and financial condition are.
Our guidance for the fourth quarter of 2021, and the 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 shouldnt be relied upon as representing our views at any subsequent date.
We don't 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.
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 got sprout social dotcom.
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 team continues to execute at a high level and we're pleased to report, 46% quarterly revenue growth our fastest growth rate yet as a public company.
Following our first Investor day, where we outlined our multiyear goals and as we prepare to lap the two year anniversary of our IPO, we've simply never been more excited about our business momentum.
We believe we are well positioned to capitalize on the $100 billion opportunity in front of us and as always we're grateful for your partnership and support.
We covered a lot of ground at our Investor day in September So I'll keep my comments on the shorter side today.
I'll cover a few highlights before turning the call over to Ryan and Joe to cover the details.
On the heels of about 46% revenue growth quarter, we're pleased to raise our 2021 revenue growth forecast of 40%.
This milestone reinforces the secular tailwind to social media management, our unique go to market strategy and the differentiation of our technology platform.
Yet again, we managed to break a series of our own records this quarter driven by outsized momentum in the mid market and enterprise segments, which are now collectively approaching 70% of our IRR.
During Q3, we added a record number of customers contributing more than 10000 in IRR and added a record number of customers contributing more than 50000.
We again achieved positive free cash flow and we eclipsed the rule of 50 for a second consecutive quarter.
Our large customer growth momentum has further accelerated as we head into the end of the year underscoring the quality durability and increasing efficiency of our growth as our customers operationalized social.
While we continue to rapidly improve our core platform impress on our Differentiators, We're also making foundational investments in strategic long term opportunities.
Our investments in social Commerce listening care and advocacy are examples of how we're positioning ourselves ahead of the rapid shifts in tooling and the expanded use cases of social media and modern business.
We have the unique opportunity to work with more than 30000 customers across segments verticals and varied levels of social sophistication to help shape and inform our strategy to align with evolving customer needs and emerging opportunities.
This gain is point, coupled with the speed of our development model provide a critical competitive advantage of our industry grows rapidly.
The way we build our software also allows us to constantly improve our core capabilities in a market that we estimate has single digit penetration of more than 200 million businesses that will rely on social media for nearly every aspect of their customer lifecycle.
We're deliberately balancing these core improvements with innovation and adjacent opportunities because most of the addressable market is still on step one.
Our team is well into 2022 planning and we're thinking hard about the growing footprint and utility of social media across the organization and across the emerging use cases that we've spent this year speaking with you about it.
We're thinking about what specific capabilities those use cases would need and what opportunities that creates for us to empower our customers.
We're going to expand on the foundation for the shift to social Commerce, and we're planning to expand our premium module strategy.
We will also continue to expand our reach across the social channels that matter most to our customers and to their customers.
Earlier today, we announced we're bringing whatsapp business messaging into the Spa platform. Following other integrations, we've announced in the past several quarters.
Whatsapp is the messaging platform of choice for more than 2 billion people globally, and we're excited to allow our customers to seamlessly integrate this channel and this perhaps unified platform.
This is only the latest example of our key constantly delivering more value to our customers and you'll continue to see new technology and partner integration from us in the coming quarters.
From a go to market perspective, we're going to further double down on the success, we've seen in the mid market enterprise, while still positioning ourselves to be the only company able to address the full spectrum of an estimated 100 billion Tam that's growing very quickly.
We're heading into the end of the year with significant momentum and we will approach 2022 with the same focus ambition and values that have all we shaped our company.
A recent analysis by fast company reduce data over the past 18 months on glass door down sprouts could be the third highest rated company in the U S for work life balance.
Considering the Covid backdrop and performance of this team during that time. This recognition is something that we're really proud of.
While putting our people first we will continue to aspire to build the best software in the industry take amazing care of our customers and build value for our shareholders.
We're a different kind of company and we're excited to build on our success in the years ahead.
With that I will turn the call over to Brian.
Thanks, Justin once again, our teams rose to the occasion and over delivered this quarter.
Areas to entry in our markets are rising our platform is becoming more differentiated and our market opportunity is growing rapidly.
Delivered 46% quarterly revenue growth, our fastest as a public company.
This success is increasing our ability to attract retain and lead an incredible group of people. There. The team that will help us capitalize on what we believe to be $100 billion opportunity in front of us.
During the summer of 2020, we shared that our competitive win rates had strengthened against each of our primary competitors.
We are now more than a year into a new era with a full year of compelling data.
Buying behavior has changed distributed work as the new standard and customers expect to evaluate and try software for themselves before making a contractual commitment.
As we shared at Investor Day, we believe that the way that we've constructed our platform enables us to effectively and efficiently deliver industry, leading software to all segments of the market while meeting customers in a way that they want to buy.
I'm happy to share that through Q3, our year over year competitive win rates. Both in terms of percentages in dollars increased again against each of our primary competitors.
We've always taken the long view and we believe that our unique approach to building software and democratizing access to it has positioned us to lead the market.
The impact of our recent marketing focus on executive strategic decision makers and mid market and enterprise organizations could really be seen this quarter and both are inbound and outbound sales efforts continue to prioritize the significant growth opportunities. We're seeing in these segments. These efforts helped drive the record net additions.
An acceleration in growth of our 10-K, and 50 K customer cohorts as well as our acceleration in ATV.
We continue to make big investments and Onboarding and customer success to ensure that we're maximizing our opportunity to add value to these customers and I am proud of the way. Our teams are executing as Justin said, we're doubling down in each of these areas as we move into 2022 planning.
Our success in capitalizing on a growing number of use cases, and creating value with our premium offerings like social listening and analytics are compelling drivers of our growth.
The seamless integration of our platform is a massive differentiator for teams of users at large organizations that need to collaborate and built insights from different parts of sprout.
Social has become a team sport and we believe we're the software best equipped to help these cross functional teams win.
A sample of the brands that grew with US. This quarter includes Tesco plc, Truecar instant brands Atlassian Zee scalar Blue Cross Blue Shield of Michigan.
Northland properties Park in LHC group.
Now shifting to a few customer stories, we had the opportunity to begin working with the Zee scalar this quarter.
So Richie Sharma director of digital marketing.
We needed to consolidate and up level, our social media publishing content curation engagement listening and reporting in one platform.
<unk> has helped US manage these efforts with a unified approach and has delivered valuable insights to help us understand the social sentiment across the Zee scalar brand also sprout has given us the ability to uncover emerging trends and as are we.
One stop shop for everything social.
Digital marketing is a critical business area for a new partner Harris Blitzer sports and entertainment.
They are highly focused on identifying digital partners, who will transform how they engage fans and partners.
Vice President of growth marketing Tucker Taylor said.
Socials all in one platform was a natural fit given the dynamic and fast paced needs and managing our sports and entertainment and social channels.
In particular, the tagging feature has been a game changer. Our teams can now quickly aggregate measure partner campaign performance, while also gaining insights into proof of concepts that drive new deals.
I'm also really pleased with the early uptake of social commerce and the customer feedback on these new capabilities.
Even more remarkable with this early adoption is that we didn't begin marketing social commerce to new customers until the very end of the quarter.
Here's some direct insight from Newton Baby and amazing digital native business.
We began using sprout social commerce functionality. This quarter said Kelly Johnson, social media manager of New Baby. Our overall message volume is 5000 messages per months the integration to our product catalog saves nearly five minutes per message, while empowering our entire customer service team to generate sales and upsell products with the click of a button without leaving spreads Soc.
This platform the <unk>.
From June to July our average response time decreased by 60% or action rate increased by 62%.
Using the smart inbox to reply directly to customers, but significantly upgraded our customer service is absolutely a capability we plan to use more.
Can you also just shared a new case study for <unk>, which offers buy now pay later services and an all in one shopping app for frictionless retail experience social has been instrumental in helping the company build brand awareness provide customer service and engaged followers. While also acting as a key source of business intelligence.
Rickard Bergrin foreigners marketing manager and global content creative shared one of our primary goals is to grow our user base, but first we must understand our customers' needs and how using a smooth shopping service can improve their daily lives.
Social is a huge asset for getting the message to customers and giving us the insights we need to effectively engage them.
So bringing it all together we had another record breaking quarter. Our teams are delivering for one another and for our customers and our momentum and pipelines heading into the fourth quarter has us very excited about the opportunity to closer to your strongly while positioning us for faster in 2022.
With that I'll turn it over to Joe to run through the financials Joe.
Thanks, Brian I'll now walk you through our third quarter results in detail before moving onto guidance for the fourth quarter and full year 2021.
Revenue for the third quarter was $49 1 million, representing 26% year over year growth.
Exiting Q3 was $204 6 million or 44% year over year.
We're pleased to see how the new business, our best ever quarter for new business mix on annual contracts, our best ever quarter for percentage logo retention and housing expansion activity.
We added 1093 net new customers in Q3 and finished the quarter with 30705 customers up 20% year over year.
As always we remain focused on high quality revenue yield tomorrow, new customer cohorts and mainly to quality during Q3.
We direct our teams against leads that we forecast will have the best revenue opportunity. We're very pleased as our marketing efforts continue to deliver high value mid market and enterprise customers.
Our healthy top of funnel continues to give us the opportunity to optimize for revenue yield.
Also the ovarian greater than 1000, net new quarterly customer additions for the foreseeable future.
A number of customers contributing more than $10000 and <unk> <unk> 4385, 7% from a year ago.
The number of customers contributing more than $50000 and.
Reached 478 up 98% from a year ago.
As a direct result of record net customer additions each of these cohorts the growth rates of our large customers accelerated once again.
When combined with our expansion efforts and new capabilities, our ACP growth accelerated to 20% year over year.
It's the fastest rate of ACP growth and at least five years.
As I shared at Investor Day, we have a number of growth drivers to support durable ACD 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 to exclude stock based compensation expense are reconciled to our GAAP results in the earnings press release that was just issued before this call.
In Q3 gross profit was 37 point Joe.
Representing a gross margin of 75, 4%.
Is that 100 basis points compared to gross margin of 74, 4% a year ago.
You can have a positive impact on gross margins as we lapped legacy hosting cost and simply measured.
Also has appointed us the ability to invest even more in customer support and success with.
Benefits to retention and growth.
Sales and marketing expenses for Q3 were $19 1 million or 39% of revenue down from 42% a year ago.
Continuing to accelerate our pace of hiring across both our sales and marketing teams.
Even as our total sales and marketing expense growth accelerated for the fifth quarter in a row.
Indicating active investments into the durability of our growth, we're able to further improve efficiency.
Research and development expenses for Q3 over $9 5 million or 19% of revenue down from 21% a year ago.
R&D head count and after the expenses grew substantially this quarter as we accelerated hiring to meet an expanding set of product opportunities.
And as our CTO, Aaron ranking shared at Investor Day.
Can you prove the scalability and efficiency of our technology as we grow.
General and administrative expenses for Q3 were $10 1 million or 21% of revenue down from 24% a year ago.
G&A expenses increased sequentially as returned to a more normalized spending environment.
We expect G&A expenses to further decline as a percentage of revenue as we scale from here.
Non-GAAP operating loss for Q3 was $1 6 million for negative three 3% operating margin.
This is a program nearly 1000 basis points compared with a negative 13% operating margin a year ago.
We are pleased with improving efficiency as we scale on your surpassing our expectations, primarily due to revenue outperformance.
Non-GAAP net loss for Q3 was $1 8 million for net loss of <unk> <unk> per share based on $53 9 million weighted average shares of common stock outstanding.
To a net loss of $4 4 million and <unk> <unk> per share a year ago.
Turning to the balance sheet and cash flow statement, we ended Q3 with $175 million in cash cash equivalents and marketable securities up from $171 5 million at the end of Q2 2021.
Deferred revenue at the end of the quarter was $56 million.
Looking at both our billed and Unbilled contracts, our remaining performance obligations or RPM total approximately $87 2 million up from $81 $2 million exiting Q2 2021.
Approximately 62% year over year.
We expect to recognize approximately 83% or $72 4 million of total RPM as revenue over the next 12 months.
Operating cash flow in Q3 was positive $4 4 million compared to negative $2 6 million a year ago.
Free cash flow was positive $4 2 million in Q3 for a positive 8% free cash flow margin.
To a negative $4 zero million and now you have 12% free cash flow margin a year ago.
Our ongoing momentum into the mid market enterprise and mix shift towards annual and multiyear contracts are each having a positive impact on free cash flow as we grow.
We are pleased with the ongoing free cash flow generation of the business.
Combination of strong free cash flow margins and accelerating revenue growth.
It's above the rule of 50 benchmark again this quarter.
Underscoring the attractiveness of our unit economics.
To reiterate that we remain optimized for future growth.
Keep in mind prior to your models you have historically seen many large enterprise customers signed in Q4 with invoicing terms beginning in Q1, which.
It just created some modest seasonal headwinds and cash flow for Q4 was a positive offset in Q1.
Shifting to formal guidance.
For the fourth quarter of fiscal 2021, we expect total revenue in the range of 51 to $51 3 million or a growth rate of 37%.
We expect non-GAAP operating loss in the range of 4.0 million to $3 $5 million.
This represents an anticipated operating margin of negative seven 3% an improvement of 150 basis points year over year.
We're making aggressive growth investments across our company improving efficiency as we grow how long the compelling economics of our business model.
We expect a non-GAAP net loss per share of between <unk> <unk>, assuming approximately $54 1 million weighted average basic shares of common stock outstanding.
For the full fiscal year 2021, we now expect total revenue in the range of $185 8 million to $185 9 million.
This is an expected overall reported growth rate of 40%.
As with our prior annual compounded growth rate of 37%.
For 2021, we now expect non-GAAP operating loss in the range of $7 8 million to seven 3 million.
This implies a non-GAAP operating margin of negative 1% more than a 180 basis points better than our prior annual guidance and an improvement of nearly 200 basis points year over year.
We are pleased to see even faster growth with greater efficiency.
We now expect a non-GAAP net loss per share of between 15 and 14.
Assuming approximately $53 8 million weighted average basic shares of common stock outstanding.
In summary, we believe we are strongly positioned to deliver on our multi year growth goals.
Accelerated 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.
With that Justin Ryan and I are happy to take any of your questions operator.
Thank you ladies and gentlemen, if you have a question at this time press Star then the number one key on your thoughts on the telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
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 great quarter. So large customer adds came in very strong again can you speak to exactly what drove that.
Strength, particularly was that more average users that are premium attach rates better enterprise traction anything would be helpful.
Thanks for the question this is Brian.
I can handle that one for you.
Most of our answers there.
A combination of a lot of those things as we continue to sell into the Midmarket and enterprise, there's certainly more user opportunities in front of us, we're seeing folks from various departments across marketing and customer care and across an organization, having a need for social so thats definitely continuing.
To be one of the major drivers of the expansion opportunity that exists.
And then as we've added over the last couple of years, it's more of a sophisticated functionality with things like premium analytics and listening.
That data the insights from those products have been really compelling and important for organizations. So I'd definitely say, it's those two things there so great execution from those mid market and enterprise teams and then our marketing team has just done a wonderful job and really focusing in on going after these sophisticated buyers there are.
Seo and content strategy and so it's provided us with a really healthy pipeline of big opportunities.
Great to hear thanks, Ryan Congrats again.
Thank you.
Thank you next we have Rob Oliver from Baird. Your line is open.
Great. Thanks, guys I appreciate you taking my question and.
I apologize for that productivity hopefully you guys can hear me okay.
Ryan My question is also for you and I wanted to dig in a little bit on some of the <unk>.
Social commerce related activities, obviously, the Whatsapp deal you guys put on the tape that comes on the heels of some of the summer announcements you guys made around.
Instagram and Facebook, So I'd love to get an update on how those are ramping and if they were a contributor to.
Just some of the cross selling upsell that we saw this quarter and the momentum you guys had and then also there was a mention of a buy now pay later on the call as well.
It strikes us that that's also a significant driver of social commerce. So would just love to hear your thoughts on that.
Yes.
Yes, thanks, Rob.
So I'll take the first question first here in terms of social commerce and the impact I think generally there is a lot of headroom there and most of the opportunity we see in front of US I think if we just think about the social networks innovation within social commerce and what they are at least from a product perspective, there's still a lot of.
<unk> to come most of these organizations have been talking about the roadmaps not that many have in the market today, but first noticed that view on where we're playing just Facebook shops and shopify. We saw some really good success, especially from a company that already had e-commerce functionality and we're immediately see the benefits there and so we had an exam.
Ample new baby, a digital first company Theres a number of companies that came on board within the quarter. Our Leverages functionality, we see it today is more of a differentiator for us.
We're obviously not monetizing that opportunity today, but it's adding value to customers from the standpoint that it's making them faster to respond to their customers and enabling them to provide a much better customer experience because folks on the other side a better data on who those customers are coming through cycle and in many cases, we're seeing.
Organization.
Bank customer.
Customer care customer support in the vein of a revenue generation operation versus a cost center, because they're able to average that social commerce functionality.
<unk> revenue.
Again, we've seen it does a nice differentiator, but I'd say, it's still pretty early on within the journey and then the comment around the buy now pay later was a new customer example.
That came on board and just did a case study with us, but I certainly see that as a as another good opportunity for organizations and driving revenues for their social commerce functionality.
That's great color appreciate.
Appreciate it thanks for all that and then just one very quick follow up.
And I know these can bounce around a little bit you guys had phenomenal enterprise traction here, but in terms of the overall customer adds sequentially was down a little bit and just curious if there's anything to call out.
Terms of the growth that is I'm just curious if there's anything to call out there. Thanks.
Yes. This is Jonathan.
Nothing to call out there I think.
We're going to continue and we've talked about in the past.
See some fluctuation in there, particularly as we're focused.
In applying resources, both through marketing and sales towards the mid market enterprise and those larger deals.
As you saw on the shift of the mix shift around the large deal volume as we saw this quarter so nothing to call out.
The.
Opportunity for us to continue to refine that and focus on the <unk>.
Revenue yield from the net ads kind of remains the priority for us and we'll continue to see.
Progress on both fronts, both on the adds and the revenue yield from them.
Got it thanks, guys. Thanks, a lot guys I appreciate it.
Got it.
Thank you next up we have Parker Lane from Stifel. Your line is open.
Alright, Thanks for taking my question, just maybe just to pick up on your last answer there.
With more and more of the base shifting to mid market and enterprise what are some of the measures and investments you're putting in place to make sure that that SMB.
<unk> cohort field below from sprout and make sure that theyre seeing the same level of care and innovation that those higher level customers are going to receive thanks, yeah. Yeah. It's a great question and it's something that's really important to our strategy.
We've talked about this a bit in the past, but just to recap.
We think about.
The capabilities that our customers need the real difference between the mid market enterprise versus the SMB kind of do with scale in collaboration and team capabilities and some maybe some more sophisticated features around data and workflows.
The core needs are not small in our opinion there is a ton of work still to do there and a ton of things that the average customer needs the SMB customer needs.
Enterprises also need so when we think about the way that we are balancing our roadmap.
Making sure that we've got that balance there and that we're driving continuous value.
Across all of our segments a lot of them go hand in hand, right and so.
We're able to deliver value in the SMB, that's realized up through the enterprise as well.
And then from a from a go to market perspective, making sure we're continuing to invest in the F&B that we've got the marketing focus that we've always had.
In the F&B and agency segments that were continuing to identify new pockets of growth and opportunity there and that all of those segments.
Are performing quite nicely.
Is it going to be something that.
The progress that we're making in the mid market enterprise is going to be additive there and not a given take relative to the other parts of our business at least that's our strategy intention with the way that we're that we're building and go into market.
Yeah makes sense and then in terms of.
The premium for module than add ons. It sounds like there is going to be some incremental investment there going forward is that something you're comfortable sharing today, maybe some inputs on what customers are looking for.
Areas of improvement into 2022 or is it something that youre going to share maybe in future quarters with us.
Yes.
It's something that we'll share in future quarters, as we've got kind of more firm plans. There I think I can reiterate some of the things that we've talked about in the past which is.
The primary capabilities that our customers come to us looking for.
The more sophisticated customers just need.
<unk>.
Another layer of.
<unk>.
Horsepower and sophistication in those and rather than trying to plug those into the core platform.
And give them a way across all of our our entire customer base will often lean on carving those out into these premium modules and so things like customer care publishing advocacy and others. Some of those that we've talked about we'll get more specific.
We're nearing the time to bring those to market.
And I'll, maybe just quickly for you there as well.
Customers are seeing that every day in terms of innovation and so just picking on a couple of those things in the past quarter costing perspective, we pulled a lot of them are listening reporting functionality into our premium analytics product. So for customers that have both of those products now there was a lot of strength in that overlap and having the ability to test.
Holiday across those products from a from a reporting perspective, we had an amazing engagement report already for customer care, we've enhanced that reporting to make it even more powerful for our customer care customers to be able to see activity happening by agents, but the volume that's coming in how their agents are responding how quickly.
So we're continuing to evolve some of those things I know I always make the headlines, but our customers are seeing and feeling it.
Yes.
And all the color and congrats on the quarter.
Thank you.
Thank you next up we have DJ Hynes from Canaccord. Your line is open.
Hey, guys. This is Luke on for DJ.
So we're curious with holiday shopping around the corner or their kpis are milestones youre watching to measure early days success with your social commerce product.
Understanding obviously that it's not a material revenue driver in the near term.
Yes so.
<unk> for the foreseeable future, we're really focused on adoption and completeness of the feature set.
Our primary metrics and objectives internally.
The holiday volume is is.
It certainly can be a catalyst for some of that adoption.
Bringing more customers into the fold there, but the specific volume related to the to the holidays is not something that.
We're terribly focused on we're going to be.
Hi.
Bringing those capabilities to customers, who are going to participate in that holiday cycle, and that's a great learning opportunity and feedback opportunity an opportunity for us to get further embedded with those customers.
But our focus is on getting as much learning and adoption as we can as we're still.
Sort of crystallizing, our roadmap and the things that we want to bring to market over the next year there.
Maybe I'd just add in there.
Despite that we think about certainly on the sales side in terms of the value prop and you've heard it from Newton, maybe theres been a number of customers adopting social commerce that are seeing this.
So response for customers, we know there's going to be up and is going to be on social and so enabling our customers to be able to be faster and responding to their customers is going to be huge and so that's leaning into how we hope to help customers be even more effective in the fourth quarter during the holiday season.
Very helpful. Thanks, guys.
Thank you next we have Clarke Jeffries from Piper Sandler Your line is open.
Hi, Anthony.
For taking the question.
Allison I think.
Some of my time on the two topical question.
Just on the commentary from Shopify, obviously very bullish.
Commentary around the growth of of GMP over social channels.
I just wanted to maybe unpack, what you're seeing from a commerce perspective in each channel I think in relation to this what's that been announcements theyre very different trends emerging across the platforms like Facebook versus the platform like Whatsapp and so I was just wondering if you could give some examples of how social commerce is being deployed for different use cases.
And sort of how.
You think there are some interesting developments happening depending on platform.
Yes so.
I think kind of the spirit of the question is it's consistent with what we see in the market which is.
Everyone's taking a little bit of a different approach and some of those approaches are further along in further fleshed out and others.
<unk>.
Where we see our role there is really two.
Sort of normalize and standardized the commerce efforts for our customers across any platform that they are participating in and so our goal is at the end of the day.
The.
The exact channel.
Or.
Strategy around social commerce in those channels becomes less relevant because our customers are able to.
Participate in any and all of that they choose to.
A centralized place and that's one of them.
The primary objectives that we're building toward is.
Businesses are going to have a lot of nuance and a lot of difference.
Requirements and formats and specifications across the different networks to the extent that we can take that sort of market confusion out of the equation and allow them to.
Bring both their product and the presale wholesale conversations happening around those.
Across the various networks, we think that's a win.
The thinking about the precise.
Approach the different platforms you are taking some of them are integrated with each other in the case of the examples that you mentioned.
<unk>.
Our strategy right now is pretty agnostic to that.
And really build toward the common denominators and so that's the approach that we're taking now is what we are hearing from our customers as well at the end of the day, they want to be able to get.
Their products in front of the customers that matter in a timely fashion and even in the right context.
The specifics of who's got relationships with who and exactly what.
Market approach restructure they are taking is less relevant to the customers. So we think that's the right approach today.
Continue to have our ears to the ground and see how that evolves and where businesses are really.
At the end of the day trying to solve the same objective, which is selling more products.
And less concerned about the nuance from channel to channel.
Got it.
And then just as sort of the indication of of the Whatsapp.
Business announcements made it seem like there was definitely a global angle.
Two.
So that kind of product integration.
Just thinking about where social commerce is happening today.
Do you think that.
So.
Situations like this integrations like this can really help capture a lot of the global social commerce opportunity, where a lot of the growth is happening and maybe the early stages of the domestic social commerce.
Investment, it's still early but there could be an opportunity to kind of.
Perhaps yourself to the rest of world Social Commerce growth.
Yeah Yeah.
I think it is it's kind of a two sided opportunity for us as it relates to global global growth rate. When you think about the social commerce.
Activity, that's taking place globally.
And our ability to broaden our lens path.
<unk> side of things and specifically around the channels that we have historically supported that's definitely a positive we want to have as wide of a view as possible.
On where the market is and where it's going.
But the other thing too is this is kind of pulling us into <unk>.
More global opportunities just generally right. So whatsapp is the channel that we had not previously supported.
<unk> global user ship there.
And.
And kind of solve two objectives once both leading into the commerce side, but also just some of the channels that are more globally used as we think about.
We're expanding our core business across the global markets.
Appreciate it thank you.
Got it.
Thank you. Our next question comes from the line of Matt Van <unk> from BP IV. Your line is open.
Yes, Thanks for taking my question guys and congrats on the quarter I guess as we look at more of a focus on spending around enterprise and mid market go to market team more broadly.
More you're thinking about in establishing direct sales teams that are going to be a whole lot more outbound focus and going after accounts, maybe you haven't.
Seen any free users.
Thinking about that as you widened the aperture here.
Yes, Thanks, Matt.
I think so.
A positive news for US here is not a lot changes with our motion.
Joe kind of touch on that as we continue to make a lot of great investments in sales and marketing the marketing organization is really focused in on going after these sophisticated buyers from both a content charging in SCS strategy.
We're adding more capacity in our Midmarket and enterprise organizations as well as our outbound efforts with <unk>, but our product is still continues to be a huge part.
Our sales motion and we see that is very differentiated and so many of the deals that we're closing every single quarter, even in the enterprise start with these customers in the product and so for US we really like this motion. We now it's highly disruptive to our competitive set that typically sell on demo there's a much longer sales cycles.
And when we get the customer and the product leveraging our most sophisticated products like premium analytics and listening and starting to build in their workflow and create data and starting to rely on it before they even signed a contract it sets us up for really great execution.
Youll continue to see us invest in the mid market the marketing approach as well as in capacity, but not a lot has to change in our current motion. We're doing a lot of those things that you mentioned at the beginning of your question already today, and it's really just doubling down on those.
Alright very helpful.
As you look and get a little more maturity in the social Commerce platform. Obviously, it's still very early but have you thought more about how that's going to be priced or how the monetization is going to happen over time and are you expecting it to eventually morph into a bit of a volume based model.
How should we think about that as it scales.
Yes.
This is Justin our immediate thinking it's more around.
Both the increase in seats potentially as soon as the feature set becomes more robust there is an opportunity to monetize that as an add on.
And.
The.
Additional opportunities.
It can bring to the top of funnel et cetera.
Or all our immediate focus from a revenue contribution standpoint, we're not taking volume based off the table, but it is not part of the immediate plans.
Alright wonderful thank you.
Thank you next we have Scott Berg from Needham Your line is open Sir.
Hey, guys. This is John on for Scott I appreciate you taking my questions.
Just kind of curious if you could peel the onion, a little bit more on what youre seeing as far as how the nature of the buyer has been changing over the past few quarters.
It really still trending towards that end user and <unk>.
You look to expand across different departments, where are you really seeing the most kind of natural expansion.
Whether it'd be marketing or customer success any color there would be helpful. Thank you.
Yes, thanks for the question John.
In terms of the nature of the buyer, yes, we've certainly seen an increase in the amount of.
The leaders getting involved in those leaders are across departments you see it certainly on the marketing side, but you see it with folks that are responsible for customer care customer experience oftentimes, you'll see some executives that are just really focused in on social and specifically the insights through social data to more and more our team has been involved with not just selling.
To the practitioner social media manager on the folks that are responsible for that but people further up the decision making chain.
So I think that's been really promising for us tells us a lot of under gravity of the.
The opportunity in front of us today, and where companies are thinking about this and thinking about it in terms of just how do we go to market.
And.
If I think about just the.
The future growth of how this is going to evolve and where we're going to spend time theres going to be more and more of that for us and I think one of the advantages of our go to market strategy is we've done really well meeting with the product and getting the end users and the practitioners involved in getting their hands on the keyboard improving for themselves that the products work really well.
But with things like social listening and data analytics, we have a great opportunity to also come back and provide some amazing insights to executives before their teams by contract to show them. How this is going to be highly differentiated in the way that they think about this data and their go to market strategy.
Great. Thank you guys.
Bob.
Next up we have Michael <unk> from Keybanc capital markets. Your line is open.
Hey, guys quick question for you. Thanks for the analyst day, given the range as well.
One to three points of margin expansion for the year as you look.
Into next year can you talk about some of the puts and takes on the one hand, you are investing somewhat at least in direct.
As well as in product and to some extent less knows you could have some return to the office impact on the other hand, if youre getting more efficient so how do those things play out does that drive you to the high end or the low end of that range next year.
Yes, Michael Thanks for the question I don't think were.
Changing the range right now I think as we get to the end of this year and we think about what investments are working I think the reason why we can keep investing in the business and still show leverage is a couple of things one is and we've talked about this before on the R&D front the single codebase and the way we build our software allows us to make significant investments.
You saw that we made in this quarter for example, and continue to make those investments next year, but still drive operating leverage in the business and then I think while we want to keep that debt range open is because I think sales and marketing is where we always want to have flexibility right. If we see really good opportunities you'll halfway through the year. After the first quarter, we see pockets that are really working for us.
To maintain FX related to invest in those and this is something that Ryan I spent a lot of time on our teams work very closely together every month to reviewing hey, what's working F&B, what the agency how mid market enterprise are doing and so we want to always maintain that flexibility Michael and so we'll probably keep that range like that opened for a while and as we progress through the year, we'll have more.
More to talk about as those investments play out.
Thanks, Joe and then Ryan this is a follow up.
Have you seen.
Competitive more persona is what is the marketing partner sales department or seemingly customer care could you in that direction similar to United together.
One of them, we got a lot of interest from from from from customer care centers as well. So do you target those persona is more directly at some point.
Thanks, Paul.
We're doing that today and were actually seeing it because of where our product is today and also just where the market is going in and what businesses need to take care of their customers. So if I think about it from a customer care for spectrum of our customer experience the customers that our customers want to get in front of her on social and so more and more.
Or is that volume is coming in in the current solutions that they have arent quite as to help them there and so there.
Many of the customers, we talked about on the call in the prepared remarks earlier and just our customer base in general have a high reliance on some form of engagement or customer care with their customers today and we built products that specifically support within this area. We've also done things like we built the integration.
And then to products like <unk>, and Salesforce service cloud and Microsoft Omnichannel to ensure that the work that's happening on social suddenly social agents is actually getting back to things like the CRM and the help desk to ensure that these businesses are best positioned to create amazing customer experiences.
We're seeing it today, we're targeting us today internationally being involved in our sales cycles and Youll continue to see us develop our road map to make sure that we're taking great care of them.
Thanks, guys.
I think.
Thank you once again in order to ask a question. Please press Star then the number one on your telephone keypad again, that's what we started then the number one on your telephone keypad. Your next question comes from the line of Arjun Bhatia from William Blair. Your line is open.
Perfect. Thank you.
I was just hoping just some maybe you could give us a little bit more background on the whatsapp announcement and kind of what drove.
That latest edition or was it something that customers were asking for and when you think about the future is there room for you to.
Others in the messaging space, whether it's Apple business chat online or wechat or.
Or others as we develop the strategy further.
Yeah. Good question. So it's a combination of both.
Customer requests and.
Our objective is to capture as much of our customers.
Audience Etsy.
Can and introducing the integrations over time so.
Certainly a highly requested feature set something that we're excited.
<unk> excited for our customers to be able to manage that channel alongside all the others would sprout and Thats just consistent with our our efforts to always be expanding that footprint.
And it is.
To your point I think a lot of the work that we've done around.
Messaging, specifically around the private channels with Facebook and Instagram and Twitter before it.
An area that we're going to continue to develop and add additional channels like the ones you mentioned.
Our thesis there and our messaging there has always been that the.
The consumers are deciding where they are and where theyre going to be participating in active in the business, we have to be there to respond.
And to capture that part of the market opportunity for their own customers and we just want to be building.
<unk>.
Our footprint there as we can.
That's increasingly in private channels, both the ones that we support today and some of the others that will be building in the future. So consistent with our strategy there and certainly a channel that we're excited to add given its size.
Utility as well as the global footprint behind what's that.
That's very helpful and then.
I wanted to touch on maybe the 2020 cohort of customers that you added it's been it's been a year now since your net new customer count accelerated.
Is there anything you can share in terms of how that 2020 cohort has performed in terms of expansion or retention or utilization versus historical cohorts now that we have a full year of data for <unk>.
For those customers.
Yeah. So maybe just some generalities that might be helpful, which is the cohorts as our years have gone on have been at higher price points more seats on average more products purchased on average just generally speaking across the cohorts and all of our data and we've talked about this in the past.
Supports the idea that the larger they are we may we may land with sprout.
Certainly the stickier they are but also the more that they tend to grow.
And so comfortable saying that those characteristics have been true with our newer cohorts versus the more tenured, particularly.
If you look further back into when you have much lower price points and things like that.
Nothing specific about that cohort that we're sharing but those are some of the general behavior patterns that we see.
Perfect. Thank you very much and congrats on the quarter.
Thank you.
Thank you presenters.
Having no further question at this time I would now like to turn the conference back to Mr. Justin Hayward for any closing remarks, Sir.
Alright awesome. Thank you.
So as always thank you all for your time for your support we've appreciated not just the timing today, but we'll have an investor day in conversations.
Conversations that we've had we look forward to staying in touch with you all and answer any questions reach out if there are any.
Thank you great job to the team.
Really a fantastic quarter, we're excited with the momentum that we're carrying into the end of the year and we will look forward to chatting with you all again soon.
Thank you ladies and gentlemen that concludes today's conference call. Thank you all for joining you may now disconnect.
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