Q4 2021 Sprout Social Inc Earnings Call
Please standby were about to begin.
Good day, everyone and welcome to sprout, social as fourth quarter of 2021 earnings Conference call. Just a quick reminder, today's call is being recorded after today's prepared remarks, we will have a question and answer session to ask a question. Please press star one at this time.
And at this time I'll turn things over to Mr. Jason record head of Investor Relations. Mr. <unk>. Please go ahead.
Thank you operator, welcome to sprout, social <unk> fourth quarter 2020, 'twenty one earnings call.
We'll be discussing the results announced in our press release issued after market closed today.
We 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 1995.
Forward looking statements include among others statements concerning financial and business trends, our expected future business and financial performance and financial condition performance against our multiyear financial framework, our market size and opportunity or plans and objectives for future operations growth initiatives.
Our strategies.
Our guidance for the first quarter of 2022, and the full year 2022 and can be identified by words, such as expect anticipate intend plan believe seek orwell.
These statements reflect our views as of today only shouldnt be relied upon as representing our views at any subsequent date and we don't undertake any duty to update these statements.
Forward looking.
<unk> 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, 2021 to be filed with the Securities and Exchange Commission 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 arent prepared in accordance with generally accepted accounting principles.
<unk> of these non-GAAP financial measures along with reconciliations to the most directly comparable GAAP financial measures.
Rooted in our earnings press release, which has been furnished to the SEC and is available on our website at investors got sprout social Dot com.
And with that let me turn the call over to Justin.
Thank you, Jason and good afternoon, everyone and thank you for joining us.
Very pleased to report a fantastic conclusion to a remarkable year for our company.
Our teams continue to execute at a high level and our opportunity in 2022 is clear.
As always we appreciate your ongoing support and partnership as we forge towards leadership in the 100 billion dollar market opportunity ahead.
We plan to outline a few topics that stood out from the quarter and mapped to our investment priorities for 2022 before turning the call over to Ryan with additional detail in jail for financials.
We're pleased to have delivered greater than 40% revenue and <unk> growth in 2021 with efficiency handily outperforming the rule of 40 benchmark.
Our opportunity is fundamentally driven by the secular emergence of social media management, our unique go to market strategy and the differentiation of our technology platform.
We're seeing great progress across all segments of our market with our focused investments in the mid market enterprise, leading to our strongest quarter as a public company.
We shattered many of our own records in growth milestones during Q4, including a new high watermark for net dollar retention and record net new <unk>.
We again added a record number of customers contributing more than 10000, IRR up 56% year over year.
Again added a record number of customers contributing more than 50000, an IRR up 91% year over year.
And we're very pleased to inform you of our first customer above a $1 million ACP threshold.
Building on the recent free cash flow inflection in our business. The straight line from air growth billings growth to RPM growth outlines an acceleration in the growth and commitment customers are making a social.
These fantastic growth numbers and many of the financials that you'll hear from Joe underscore a clear trend customer.
Customers are investing in sprout more meaningfully and for longer because social has emerged as mission critical to successful outcomes in the next evolution of business.
For this reason our customers large and small are expanding both their investments and use cases for social across their organizations and social becomes the preferred communication channel for global consumers.
The 2021, Gartner digital marketing survey found social marketing to be the number one most effective channel of the purchase funnel for brand awareness and for conversion to sales.
These findings along with many similar studies reinforce a generational change that requires re platforming of the enterprise Tech stack.
When we started as a company social didn't even really at a seat at the table.
Now social media leaders have executive roles business strategy, and social media strategy can't be compartmentalized, and the entire customer journey exists on social.
This means our role in the market has expanded dramatically and our opportunity with customers of all sizes continues to grow and social becomes even more mission critical.
It's why we believe our opportunity is growing as customers harness the power and utility of social across an ever expanding set of use cases.
We're making investments across the business to capitalize on this opportunity.
Fundamentally extend the foundation of our platform and to double down on our product strategy, we're planning to make our largest ever incremental R&D investment in 2022.
This will represent a step function change from 2021, and we believe it will solidify our product and market leadership at a time when the industry is ours to execute against.
We believe the barriers to entry and social that business substantially the competitive set is diminishing in our advantages are compounding all at the right time.
From a product perspective, we're expanding our capabilities to democratize social for new stakeholders in building deeper functionality for the most sophisticated users.
The core investments in our platform are more critical than ever.
We will make the product even easier to adopt and use while also making meaningful advancements in social listening premium analytics, social advocacy and social customer care.
We will also be making strategic platform investments in social commerce messaging publishing and reporting.
The expansion of these capabilities is designed to create even more value for customers by providing users with the tools they need to excel in their specific workflow spread horizontally across the organization and empower the teams with collaboration required to truly harness the power of social.
Building on our product leadership, we're also planning to capitalize on multiple strategic leadership opportunities.
The recent addition of <unk> commerce to our social Commerce ecosystem. The recent addition of yelp to our views capabilities and advancements in unified messaging with Whatsapp are a few examples.
We're also deepening our functionality and data sources within our most sophisticated products like listening and analytics that we believe will make sprout the single source of truth for social data.
We expect to hear new partner announcements over the course of the next quarter or two as well.
Okay.
The technical foundation that we've laid to this point and the added a planned investments to our roadmap in 2022 have never been more compelling.
We believe we have a true and unique opportunity to refine our category both as an overall platform and in each key product area to become the horizontal social system of record intelligence in action for businesses of all sizes and all industries.
Beyond product and technology, we're also redefining the way we work.
We're in the midst of the largest workplace shift of our generation and we intend to make sprout a career destination across disciplines.
And an incredible place to be a customer at the same time.
Productivity and execution is one of the things I'm. Most proud of is the leader of our company rain or shine. This team just delivers.
We challenge ourselves with an ever higher bar, we do the work and we constantly seek to get better.
The resulting honors from workplace awards like Glassdoor as best places to work in 2022 battery ventures, 25 highest rated public cloud companies to work for where we ranked number three in a best workplace for parents by great place to work and powers us to remain thoughtful deliberate and intentional with this strategy.
We're a different kind of company and we're excited to create value for our employees our customers our communities and you our stakeholders in 2022 and beyond.
With that I'll turn the call over to Ryan.
Thanks, Justin our collective team has really stepped up during Q4 and deliver the performance I'm incredibly proud of.
With strong momentum in the business. The most exciting R&D roadmap, we've ever had and continued acceleration in our go to market hiring we remain confident in our continued success in 2022.
We spent the better part of last year speaking with you about our marketing focus in the mid market and enterprise, our international sales and marketing investments expanding use cases of our platform and the rising importance of the product led sales motion.
As these trends carry into this year, we expect to see both the value of an expanded platform with enhanced premium capabilities and the continuation of a social commerce inflection point.
Most importantly, we plan to build on the compounding scale with now more than 31000 customers as well as our product leadership with industry, leading ratings from <unk> trust radius and others.
Does the product led we know that the incredibly exciting innovation that our R&D teams are working on will create tremendous value for customers and further enhance our competitive advantages.
Our marketing team has doubled down on the content strategies and campaigns that needed to target the most sophisticated buyers.
We're building on a foundation of success here with better account based marketing the recent beta launch of a dedicated spread community for practitioners and are growing our strategic accounts team to bolster outbound sales.
Internationally, we continue to migrate high performing content to local languages and to localize our messaging.
Our EMEA team continues to over deliver the recent edition of our APAC GM will help scale that business in 2022, and our recently hired Latam leader will help us execute on our international playbook in that region.
As Justin highlighted the use cases for <unk> has continued to evolve from social publishing and marketing to social customer care customer success business intelligence advocacy product intelligence sales com's Investor relations and more so.
Social is a pillar for how business is done in all of these functional areas and social commerce sits at the intersection of each commerce pulls the entire customer journey into social demanding a platform like spread to make social marketing more measurable social customer care more effective and to deliver more accurate customer sales product and community feed.
Back.
Businesses are also being forced to meet the customer at the initial point of product discovery.
So it's no coincidence that our report from Accenture last month estimated that sales made through social commerce will triple by 2025 to more than one two trillion.
The investment in our product is designed to meet user demand head on.
The expansion of our platform will enable us to create value for specific subsets of enterprise users within each use case, but because we built a platform with tightly integrated capabilities, we can address any or all of these demands with a unified solution.
What makes our go to market motion, so powerful and that's why we remain the industry's highest rated technology platform across major categories in each market segment from F&B up through the enterprise. According to thousands of customer reviews from <unk> and others.
We're taking the friction out of customer adoption and accelerating our product led sales motion to deliver an even more efficient go to market model and we're doing it at scale.
While our current execution remains incredibly strong our enterprise and mid market teams drop the mic during Q4, our investments in sales capacity Onboarding and success has been well aligned to the inbound customer demand signals we see.
The combination of increasing use cases, expanding seat counts rising premium module attach rates and steady expansion up market are each massive opportunities for us to execute against and our ACP grew up strategy.
This quarter, the large customer growth trends jumped off the page.
<unk> has become a team sport and we believe we're the software best equipped to help these cross functional teams win.
All of the amazing brands like reassess this quarter includes square Omnicom Media Group Johnson <unk> Johnson medical devices alumina Marsh Mcclennan Archer Daniels Midland the container store Rackspace Red hat Agrium, the United Nations and the YMCA.
Now shifting to a couple of customer stories, we have the opportunity to expand our relationship this quarter with Atlassian.
Mr. Roth Social media manager of Atlassian shares, we needed to consolidate point solutions and centralize, our social media strategy and a unified platform for smart Inbox has been game changing to our social customer care team to improve engagement across all social handles.
The number of Atlassian brands and footprint across markets has continued to grow we are increasingly leaned on social listening for branding competitive house and.
And consolidating these efforts with spreads platform will improve collaboration across teams and streamline and up level, our reporting capabilities to ensure we are fully optimizing our social strategy.
Another incredible customer highlights from this past quarter was Dom the leader revenue intelligence Moody letter Gore, the Chief marketing Officer, Don shared where a power user of spreads publishing and reporting capabilities subtract campaign performance and engagement across different types of social content.
Premium analytics offering helps us deeply understand our content trends and optimize customer reporting to uncover actionable insights for our business using sprout, we experienced meaningful growth in engagement and followers.
A 2021, unlocking even greater opportunities to advance the business impact of our social strategy in 2022.
To bring it all together, we had another great quarter to cap off a fantastic year.
Energized by the special team and the opportunity to deliver value for our customers during a transformational time.
New technology advancements in our platform these stakeholders and social and new strategic partnerships position our company for even more success in 2022.
That I will turn it over to Joe to run through the financials Joe.
Thanks, Brian I'll now walk you through our fourth quarter results in detail before moving onto guidance for the first quarter and full year 2022.
We're very pleased to deliver greater than 40% revenue and <unk> growth in 2021 with efficiency approaching a rule of 50 benchmark.
Revenue for the fourth quarter was $53 3 million, representing 43% year over year growth.
Exiting Q4 was $224 2 million or 42% year over year.
We're pleased to see very healthy new business as well as strong retention and expansion across our customer base.
We added 1057 net new customers in Q4 to finish the quarter with 31762 customers up 19% year over year.
As always we remain focused on high quality revenue yield from our new customer cohorts not the absolute volume of net additions our go to market efforts increasingly leaned into mid market and enterprise customers this quarter.
Our inbound demand remains very strong.
We believe this gives us the ability to optimize for revenue yield.
Also delivering very healthy quarterly customer net additions.
Consistent with recent trends for the foreseeable future.
The number of customers contributing more than $10000 in our <unk> thousand 917 up 56% from a year ago. The.
The number of customers contributing more than $50000 in <unk> 610 up 91% from a year ago.
When combined with our expansion efforts, we use cases in a very strong year and uptick in our premium module sales.
ACB growth was again very strong at 19% year over year, surpassing $7000 for the first time, extending our rapid growth, we discussed coming out of Q3.
In discussing the remainder of the income statement. Please note that unless otherwise stated all references to our expenses operating results and share count are on a non-GAAP basis to exclude stock based compensation expense.
Reconciled to our GAAP results in the earnings press release that was just issued before this call.
In Q4 <unk>.
Gross profit was $40 3 million, representing a gross margin of 75, 7%.
Is it up a 110 basis points compared to gross margin of 74, 6% a year ago.
Sales and marketing expenses for Q4 were 21.0 million or 39% of revenue down from 42% a year ago.
We are continuing to accelerate our pace of hiring across both our sales and marketing teams with an emphasis on content marketing and SCO on the marketing side and our mid market enterprise and growth sales teams.
We were fortunate to hire aggressively during Q4.
Additionally, our go to market teams well entering the year.
But even as total expense growth accelerated for the sixth quarter in a row.
We were again able to further improve year over year efficiency.
Research and development expenses for Q4 were $10 9 million or 20% of revenue consistent with 20% a year ago.
Our R&D head count and absolute expenses again grew substantially this quarter as we accelerated hiring to be an expanding set of product opportunities were.
We're planning our largest ever incremental investment in R&D in 2022, and as Justin said, we expect this will extend our market leadership and further differentiate ourselves in the market.
General and administrative expenses for Q4 were 11.0 million or 21% of revenue down from 22% a year ago.
We expect SG&A expenses to increase in 2022, as we enter a more normalized spending environment.
The decrease as a percentage of revenue.
non-GAAP operating loss for Q4 was $2 6 million or a negative four 8% operating margin.
This is an improvement of 400 basis points compared with a negative eight 8% operating margin a year ago.
We're pleased with the improving efficiency as we scale, we surpassed our expectations due to revenue outperformance.
non-GAAP net loss for Q4 was $2 7 million for a net loss of <unk> <unk> per share based on $54 1 million weighted average shares of common stock outstanding.
Radio net loss of $3 4 million and <unk> <unk> per share a year ago.
Turning to the balance sheet and cash flow statement. We ended Q4 with $176 9 million in cash cash equivalents and marketable securities up from 175 point Joe.
At the end of Q3 2021.
Deferred revenue at the end of the quarter was $69 4 million a record sequential increase and the fastest year over year billings growth rate in our history.
This correlates closely to our strong enterprise momentum, which could lead to greater Q4 seasonality in years ahead for this metric.
Looking at both our billed and Unbilled contracts, our remaining performance obligations or <unk> put approximately $107 8 million up from $87 2 million exiting Q3 2021.
67% year over year.
We expect to recognize approximately 82% or $88 2 million of total <unk> as revenue over the next 12 months.
Operating cash flow in Q4 was positive $2 5 million compared to negative 0.2 million a year ago.
Free cash flow was positive $2 2 million in Q4 were a positive 4% free cash flow margin compared to a negative 2.0, a million and a negative 5% free cash flow margin a year ago.
For the full year 2021 free cash flow was $13 9 million or 7% free cash flow margin turning to negative 12% free cash flow margin in 2020 at.
In addition to improving efficiency ongoing shift to annual and multiyear contracts is having a positive impact on our free cash flow as we grow.
In 2021, our overall dollar based net retention rate was 112% an improvement of 200 basis points compared with 110% each of the past two years.
Our dollar based net retention rate, excluding SMB customers was 118% in 2021 compared with 117% in 2020.
We believe that increasing platform stickiness shifting our mix of annual contracts and investments, we've made and onboarding and customer success are structurally improving our gross retention.
The accelerating seat expansion changing mix rising attach rates of our Permian module is on each structurally improving our expansion rates.
We believe there is a strong multiyear runway to further expand dollar based net retention from current levels.
Shifting the formal guidance.
For the first quarter of fiscal 2022, we expect revenue in the range of $56, one to $56 2 million or growth rate of 38% at the midpoint.
We expect non-GAAP operating loss in the range of $2 2 million to $1 8 million.
Represents an anticipated operating margin of negative three 6% improvement of more than 200 basis points year over year.
We expect a non-GAAP net loss per share between <unk> and <unk>.
Assuming approximately $54 2 million weighted average basic shares of common stock outstanding.
For the full year fiscal 2022, we expect total revenue in the range of $249 million to $250 million.
As expected overall reported growth rate of 33%, which we believe positions us favorably against our medium term growth.
For 2022, we expect non-GAAP operating loss in the range of $7 4 million to $6 zero million.
This implies annual non-GAAP operating margin expansion of between 40 basis points, and 100 basis points Pedro what our medium term goals and highlighting the efficiency of our financial model.
We're pleased to forecast margin expansion after more than 200 basis points of margin expansion in 2021, and as we accelerate the pace of investment across many business units.
We expect that we'll be aggressively hiring during the first half of 2022.
It's been a product led business model, we believe this positions us well to create even stronger value for our customers.
We expect a non-GAAP net loss per share between 14 and 13.
So I mean, approximately $54 5 million weighted average basic shares of common stock outstanding.
Well Youre GAAP modeling purposes, we expect stock based compensation could trend in the mid to high teens as a percentage of revenue consistent with SaaS industry benchmarking.
In summary, our Q4 financial performance was indicative of a rising strategic emphasis our customers are placing on social or <unk>.
Balance sheet and free cash flow strength provide us with future optionality.
Inbound demand remains strong and our sales execution has been Chris.
These strengths empower us to make meaningful investments in technology and go to market, which we believe will position sprouts Holloway and forge leadership and 100 billion dollar market opportunity ahead.
With that Justin Ryan and I are happy to take your questions operator.
Thank you, ladies and gentlemen, again at this time to give any questions or comments simply press star one and you start Julien joining us today using a speaker phone. Please pick up your handset before pressing the star one and we'll take our first question. This afternoon from Raimo <unk> at Barclays. Please go ahead.
Thank you Congress for me on these amazing numbers.
Two quick questions.
Can you speak to what customers are doing with you.
If I look at like the higher end of your market because the deal sizes to you you mentioned that we haven't seen before and so that kind of looks looks very interesting and there was some very interesting brands. You mentioned here can you talk a little bit about the difference of how they're using it and then how you were used in the past and then the second question go was kind of right.
In line with that and it's more about your R&D investments that you talked about this year.
It looks like there is a kind of broad expansion of the product coming this way.
How much how is that going to help you better product market fit if you will continue to go further up market. Thank you.
Thanks for the question Raimo I'll go first on addressing the large brands, yes, we're extremely excited with the momentum and execution, we've seen in Midmarket and enterprise and a good portion of this is coming from a few different things one we've just seen an evolution.
And the way that social is being used by the enterprise years ago, what used to be just a marketing use cases involved into marketing and cross marketing PR. Its content. Its brand is comms into things like social customer care and customer support.
Today, as we know as consumers, we're leaning heavily into going directly to social to get support versus picking up. The one 800 are E. Mailing in and then we've added over the last couple of years, some sophisticated products in terms of analytics and social listening, which is providing a tremendous amount of data back to these enterprises, but they are leveraging to really make.
Smart business decisions, which which markets do they want to go into how should they evolve their marketing how should they evolve with the way that they're competing how should they evolve the way that they are building their products and so what we've been seeing in the enterprises.
Explosion in terms of use cases, we're seeing more users than we ever did before and we're seeing it really go across the enterprise you combine that with the fact that our team from a marketing perspective has been investing more upmarket and enterprise driven marketing strategies, and we've been adding enterprise Aes <unk>.
Terms of sales capacity to go execute against the opportunity and Youre seeing that in the the increase in large customer deals in.
The one that jumps off the page most for me is the 50 K being at a 90% growth rate there.
Yes. This is Justin I'll chime in a little bit on the R&D side.
And how we're aligning those investments to kind of match the opportunity that we're seeing in the.
The larger customers the larger use cases.
To Ryan's point a lot of that.
Growth that we see has to do with the way that organizations are operationalized in social and taking it across larger teams with more users. So theres a lot of user growth baked in there.
One of the things that we're doing on the R&D side to really lean into that is thinking about the kinds of tools and capabilities that larger teams need the tools that they need to collaborate more effectively to work.
Large organizations with potentially many many use cases in large volumes of messages.
So there's a good amount of work that goes into there.
There is a good chunk of that roadmap that is dedicated toward just.
More sophisticated use cases generally are we building and expanding against the social listening.
The more complex customer care needs.
Things that really speak to those organizations that are a little further in their maturity curve.
But then of course also as early as we feel that we are in this market and <unk>.
Given where many customers are in terms of where they are with maturity and adoption. We want to make sure that we're also also carving out plenty of time to make sure that the core use cases continue to get it.
<unk> and enhanced.
Don't consider those to be solved problems and everything that we're investing in in.
Kind of the bread and butter tools all of that is in the direct path of revenue meaning.
The fact that the vast majority of our revenue comes through and actually tries our product before they buy it everything that we do to improve all of those experiences has the opportunity to increase conversion rates.
<unk> user.
User counts.
And start to lean into and help customers understand understand some of the additional use cases that they want to adopt so.
The broad way to think about it is all of our R&D.
Investment goes into some aspect some lever of our revenue growth.
Certainly biased toward a lot of the more sophisticated use cases the larger teams.
And larger opportunities that we're seeing in the mid market and enterprise.
Thank you congrats.
Thank you we'll go next Nancy Parker Lane at Stifel.
Yes, Thanks for taking my question and congrats on the quarter, maybe just sort of a follow up to the last question I'm wondering if you can give us a little bit more on the profile of a customer spending $1 million plus on an sprout social.
As a customer like that fully tapped in terms of what you're offering today or are there expansion opportunities even inside of that in the form of new users new use cases.
Potentially the expansion of their social footprint to some of the newer channels out there that are emerging.
Yes, thanks for the question Parker.
There is plenty of opportunity in that count we're incredibly excited by that organization into large technology organization.
One of the things that I really appreciate it but this is our team has been growing at that accounts for about 24 months and so we took that the initial footprint and we've been doing the seed and grow approach. That's worked really well for us and that means that we're able to grow across brands and departments and geographies.
As well as use cases, and as you might imagine as we've been getting up into the enterprise and we're working with these types of organizations as you get that first footprint and the organization you go through the hard parts of legal and procurement and then trusted vendor and from there youre able to actually leverage those internal use cases those in internal advocates.
To move across the organization. So we certainly see plenty of opportunity in this account and others like it in terms of going across more divisions and brands to your point around social networks and other integrations that will add there'll be more opportunity there and even with the use cases that we have on the business and we still see.
Plenty of upside.
Got it that makes a lot of sense and then Joe one for you a very nice growth year over year and sequentially on the bookings and deferred revenue front is that purely a reflection of this shift to the enterprise maybe some longer duration there or are there seasonal components that are now entering the business as the sheriff mid market enterprise continues to expand that will.
Repeat on a going forward basis. Thanks.
Yes, perfect little bit above so definitely as we've gotten into more of these mid market enterprise deals they come with longer terms. There are bigger commitments. These companies realize the importance of social we talked about this.
Our prepared remarks, we definitely saw a little bit of that seasonality in Q4 with some of these larger enterprise deals. So I think going forward part of that Youre going to see a combination of us.
<unk> continue to drive more annual deals over month to month and you you can assume more seasonality in Q4 as well.
I appreciate it and congrats again on the quarter.
Thank you the next now to our jump up yet at William Blair.
Awesome. Thank you very much and congrats on a great quarter guys.
I wanted to touch on maybe just the large customer metrics. It clearly seems like there is a step up in a trend thats been playing out over the last couple of years, especially when you look at the 10-K and sophisticated customers I'm curious.
Now the landing point of customers has changed over the past year as.
Social has evolved in its Scott I think maybe higher on the priority list for.
For larger customers and then as you look at these milestones that Youre disclosing are those typical landing points for you now look at the 10000 dollar deal typical landing point or 50, if youre looking at enterprise deals. Thank you.
Yes, thanks for the question Arjun.
So in terms of the large customers and how it's changed over time.
I think youre right. There has been an inflection in that we're into speaking a more senior level executives at these companies today I think more and more people have realized brands have realized the importance of social to their overall strategy and we're seeing more executives pay attention. So that means oftentimes they're joining demos.
Oftentimes the practitioners that were working with within the marketing department or customer care are producing reports producing.
Data and information that Theyre surfacing backup to these executives oftentimes daily or weekly to give them a really good sense of what's happening within social how their brand is being represented the sentiment on their brand and their competitors.
I think thats one of the things that I'll just highlight is that more and more in these conversations we've got executive interest and in how our brand is executing from their own social strategy and what's happening in the marketplace and as you might imagine as youre getting into those conversations.
Theres more gravity around the solution, there's more gravity around the partner that you are picking and the focusing on innovation and where the technology is going so that's helped us a tremendous amount.
And if I think about just the typical landing place, but its also meant that the opportunity to close more of these larger deals continues to happen. So in the mid market and enterprise specifically.
Those companies coming in they've got bigger problems.
Our bigger opportunities in front of them they've got larger departments that are going to need access to sprout and so with that it gives us an opportunity to start at a larger user count and start at a larger profile social profile level. So those things are all converging and providing a tremendous amount of opportunity for us.
And we feel like Theres, a lot of positive tailwind there.
Thanks, Brian .
Just maybe I wanted to touch on the product investments I am curious if when.
When you look at the competitive set is there just where youre focusing these R&D investments are there just a gap in the market meaning.
Hey, other other players in the space are just not addressing.
The problems that youre seeing and what youre trying to solve for is that.
The competitors are inefficient.
Your customers are really driving this.
Innovation portion of its R&D push.
Yes.
I mean, I think it's a combination of things.
<unk>.
I think it has more to do with just the.
The architecture and the customer experience with the tools versus specific.
Gaps that might exist and of course, that's going to vary competitor to competitor, what the gaps are and which ones we really press on.
But I think.
A lot of the momentum that we've seen and we've talked about this over several quarters is the fact that we're getting customers in and we are.
Proving out our value with the product itself in their hands.
Just make some monumental difference right. It's one thing to solve the same set of problems on paper as a check box, it's a very different thing.
For the platform to actually solve the problem for the people buying the keyboard and allow them to do their day to day work.
And we're hands down the best in the business. There. So I think that that is aligning more not only with what our customers need and certainly where they felt pain elsewhere.
But I think I'd also just aligns really well with where the market is going you've heard Ryan and I talk about this for a while now the way that businesses will be evaluating in buying software.
In the future is shifting and proving that value upfront is important.
Because we are a product led because we are trial led.
<unk> had to put investment and focus in.
And those kinds of experiences that really resonate that maybe others haven't spent as much time on.
Got it very helpful. Thank you and congrats again.
Okay.
Thank you we'll go next now to cause Jefferies Piper Sandler.
Hello. Thank you for taking the question just another one here on standout enterprise activity in the quarter.
I'd like to understand the context of the pipeline was this a progressive build into Q4 and even into Q4 with a particularly strong pipeline or was this an inflection in interest in mid quarter and how should we think about the level that you are exiting 2021 2021 with <unk>.
Pipeline perspective.
Yes, thanks for the question Clark.
So I think one of the things that's been a really big competitive advantage for us and Justin touched on a little bit is just the inbound motion that's still exist for our business today, and our product led motion, which we apply even in the enterprise and so certainly as you might imagine with mid market and enterprise types organize type of organizations.
They are budget cycles work and the way that they typically procure software tends to be heavier at the end of the year in Q4, and so we certainly had some deals that were lined up where we had been talking to these customers and working with them through the year, but the other benefit that we have here is with that inbound model, we still get a significant amount of pipeline in the enterprise every.
Single months, which is setting up our teams to be able to execute and we're still running at a sales cycle that runs between 30% to 45 days on average and we will see deals in the Midmarket and enterprise that hit those timelines.
Little bit of a combination.
Exiting the year and going into Q1.
We felt like we saw continued.
Progression and opportunity within the pipeline and with the opportunities in front of us.
So.
Lot of balance I would say and a lot of predictability around that pipeline and because we are getting people into the product and using the product and using it in a 30 day trial. It creates a nice set of urgency because they are doing a lot of the work they built their processes and workflows in place.
They don't want to lose that after the 30 day trial, which creates rapid sales cycles for us.
Great. Thank you and then maybe one for Joe.
Would you be able to help quantify the step function increase in R&D and whether we should think about it really be in G&A or go to market investments that might be seeing better leverage here in 'twenty two.
Absorb that step up in R&D, while still driving the year over year improvement in margins.
Yes, Mark I think you would expect that most of that leverage in 2022 will come from the G&A line I don't think youre going to see right now the vessels, we want to make in R&D and even on a go to market side.
Youre not going to see significant leverage in either one of those items, but it will come from G&A clockwork.
In 2022.
Thank you very much.
Yes.
Thank you well go next to Matt van delay at <unk>.
Yes, thanks for taking the question guys nice job on the quarter I guess looking at the social commerce opportunity.
I think you mentioned that by 2025 estimates are there'll be well over a trillion dollars in total sales out there how should we think about your ability to monetize that what it could impact the model from an actual revenue standpoint, if we get anywhere near that $1 two trillion.
<unk> level that you mentioned.
Yes.
Current thinking is that we intend to monetize the software behind it. So our focus is on making sure that our platform is capable of all of the things in and around.
The Congress process that we're supporting brands that are selling through the social channels.
Given all of the tools they need.
To be successful there.
And I've said this a couple of times.
It's early days, so we don't want to commit to specifically to what the revenue opportunities are there.
Spec to see us initially monetize through just.
Improvements in potentially conversion rates in ACB in users and use cases, and what I would consider more like second order.
I think it's also <unk>.
Hospital that there is a premium module around commerce that may come.
And those are the things that we have our eyes on from a monetization perspective.
And then I think maybe even a layer deeper than that.
This is another example of just more of the things that happened in the world around commerce and business moving to social channels and so the number of people involved a number of users involved a number of <unk>.
Workflows and processes and all of those things that our customers need to be.
Running through our platform just increases our value increases our stickiness increases et cetera.
So substantial opportunity.
Our focus right now is is monetizing the software side of that business.
Alright, very helpful. And then Brian as you look at the International growth you mentioned EMEA continuing to be just a true standout.
Portion of the organization and now you have.
The original heads in both Latam and APAC.
Maybe what what are some of the learnings are.
<unk> you can accelerate the time to value for those new heads in the other regions that you take from EMEA and just overall kind of what you've been doing on the international stage so far.
And how quickly do you think we should think about those two regions being more significant contributors.
But yes, I think the biggest learning for US is just come from being on the ground in EMEA.
Portion of our international revenue really came from the foundation of what was built in North America through the inbound model and know very.
Western centric U S centric marketing and it created a lot of top of funnel that we're executing against from from U S sales reps and back in 2019, we opened that EMEA office and we've got a great team. There that started very small and has continued to grow and we've been really really happy with the productivity that we've seen from the team we've learned a lot about.
The hiring profile in the regions, we've learned a lot about just productivity and ramping outside of the U S. We've also learned a lot about the localized marketing and the opportunity to.
To think about how we approach those markets and so with that learning in place, we're taking it across to APAC and Latam and so when we hired our GM Amrita in.
In the summer and she is just getting up and running with the team. There and then we've just hired our Latam leader. So a lot of the same learnings in terms of ramping aes and adding sales capacity.
Running the right marketing plays within those regions and then the piece that we're excited about that it's still relatively nascent but the big opportunity is just the indirect approach to how we manage.
Resellers and channel opportunities in the future.
I'd say over the next few years, you'll continue to see that grow it'll still be led by EMEA and we'll see those other two regions really starting to come on later.
Alright, great. Thank you.
Youre welcome.
We'll go next to DJ Hynes of Canaccord Genuity.
Hey, guys. This is Luke on for DJ. Thank you for taking the question.
Great to see retention here is holding strong when we think about what's sort of driving NR today is that more a function of news.
I know.
But maybe you can expand on each of those drivers and whether sort of the algorithm that is driving an IRR today has evolved as the platform has expanded in the chart in the market. Thanks.
So your audio cut out a bit.
For me.
So I'll try and recap the question.
And then.
Lean on Ryan to give you some insight here.
What I caught it sounds like the question is just what are the contributing factors.
To the NRI numbers between.
The improvements in growth of existing accounts versus.
Improvements in retention is that is that a good summary of the question there.
Yes, that's about right.
Okay perfect.
Yeah. Thanks, Mike. So is there a few things that go in place there that I think are just massive opportunities for us one is the.
Mid market and enterprise opportunity that we see in front of us and we really started to see acceleration within those businesses over the last 12 months to 24 months and as we see that we know that those larger customers are going to come in theyre going to land bigger. We also know that they typically are signing on for longer contracts. So moving mid market enterprise is going to be a bit.
Deal moving into more annual multiyear contracts across all of our segments is going to be really big for us. Both in terms of contraction and later on in terms of growth and expansion and then a final pieces we've seen.
<unk> success from our attach rates in our premium products and so we've got this opportunity to go back to all of these customers and highlight some of the things that we've been doing over the last few years, specifically around premium analytics and listening.
We've got a few different levers that we're putting in place here that we're really excited about I mean, we've talked about in the past and on this call. Just some some great. Examples of customers that have grown with US Atlassian is one of those great ones, where we landed that one years ago from an acquired company and shallow and then had the opportunity to really go across the organization and grow footprint across.
<unk> departments and divisions as well as the use cases and that's a similar approach that we're taking everywhere. So the last thing I'll, maybe just add in as we've made a really healthy investment in customer success and specifically in improving the ratios of our customers' customer success teams to the customers, we work with as well as investing in <unk>.
<unk> resources to make sure that our customers get a ton of tender loving care at the beginning and they get to ensure that their onboarding and their implementation is done really well so that they are driving adoption from the very beginning so a few different levers that are going to go in place there that we're really excited about.
Helpful. Thank you.
You're welcome.
Thank you the next now to stand Lockheed at Morgan Stanley .
Hi, This is Elizabeth Elliott on for Stan Congrats on the quarter I, just wanted to dig in a little bit more on that NRI.
How you see that expanding as we get into fiscal 'twenty, two especially in the context of a lot of more premium module of <unk> horizontal offering that you guys have going on so how do we think about expansion as we get into the next year.
Yes, so a couple of things that.
That we think plays into that and it's going to drive those trends over time, a few of we're trying to talk about which is.
The larger opportunities that we're landing those are more inclined to grow.
And so that provides some nice tailwind to those numbers.
There is also a shift just in the overall composition of the customer base right at 30000, plus customers the shift today.
In terms of the mix of enterprise and mid market versus SMB and agency et cetera, just continues to get healthier and healthier. So when we look at the dynamics.
And our our dynamics among those those cohorts and the.
The way that the shift of the total customer composition is happening over time.
That suggests to us that we've got a lot of.
Headroom still.
And that's in addition to the work that we're doing to accelerate things like seat expansion.
The.
Purchase of add on modules et cetera.
So those are the few of the things at play behind the scenes and we think Theres a great opportunity to continue to drive that forward.
Okay.
Got it and then the <unk>.
Margin guidance for about 40 to 100 its expansion.
It sounds like really the focus areas on R&D, but just more broadly whats the philosophy around revenue upside kind of flowing through versus investing and what are some of the puts and takes to get you to that higher kind of lower end of the range.
Yes, so on that one I think for us.
When we're looking at the investments, we're making Elizabeth I understand your question correctly, I still think you're going to see us investing pretty heavily in sales and marketing we've talked about the R&D investment, but I think what youre going to see from US is as the year progresses.
As we see opportunities to.
To invest more in the business I think for US we want to make sure we're not.
Backing off the investment opportunities that are in front of US right now just talked about this in his prepared remarks, as we see a pretty big opportunity in this space, we're seeing more and more success up in the mid market enterprise and so as that momentum continues to grow over the year and if we continue to see the success. We've recently seen over the last six to 12 months, we're going to.
Keep investing in this business and that's why we wanted to give that with a broader range of guidance on operating margin because we don't want to leave any opportunity on the table right now.
Got it very helpful. Thank you.
Well go next to Michael <unk> Keybanc.
Hi, This is Michael Vick on for Michael and just a quick one from me I guess are there any major technical areas or lack of certain feature sets and you're offering today that you feel still notable headwinds.
I guess larger lending larger customer deals or what's the biggest hurdle still.
Yeah.
I feel like we are.
And hopefully this will come through in a lot of the discussions that we've had around our momentum in the mid market enterprise.
We think we're well equipped for the deals that are out there I think there are opportunities still as the market moves more toward.
Social centric customer service, we want to do a lot of work there.
Where we've got an opportunity to really step into.
Some some large.
User populations and very strategically important initiatives for our customers.
I think the opportunity around <unk>.
Listening is still.
Right for us.
One that we want to continue to press on same goes for premium analytics.
And then just making sure that we're keeping up with with network expansion rate as there are new places that matter to consumers those in turn matter to our customers and we want to make sure that we're doing things right too.
Be ahead of the curve, there and make sure that we're giving our customers which was that they need to be all of the places that they need to be.
So.
There's not anything that we would look to and put on the board as deficiencies, but certainly opportunities where we think we can continue to step into a lot of the progress that we see.
Great. Thank you.
Got it.
We'll go next to Scott Berg with Needham.
Yeah.
Hi, everyone. Congrats on a good quarter metrics, great I'll go with one in the essence of time here tick tick things on a slightly different track.
I think when you look at the commentary out of one of the largest social social platforms like like a meta recently on their quarter call right is I think there seems to be a lot of shift of changing use cases around social media and certainly some of these customers or platforms or maybe trying to struggle or figure out how to work with changes like.
The changes in the Apple ecosystem, how do you all think about that kind of impacting your business over the next two to four years and how your customers are using your platform because I think the disruption.
The catch some people by surprise at least on that call.
Yes, yes, so I think.
And we've seen kind of varied.
<unk>.
Results around FAA across the various network partners.
And.
I think how thats going to shake out from a revenue perspective for the networks themselves.
They are doing a good job discussing that narrative.
For us what's interesting here is we don't we don't participate in the <unk> business.
And so the impact there.
It is not something that.
Is a big factor in terms of our strategy in terms of our road map et cetera.
Where it has potential to be.
A factor for us long term is that.
Historically, the the organic side of social and the things that our customers spend all of their time doing in our platform.
Has essentially been seen as a hedge against the advertising efforts right.
If.
The advertising environment becomes tougher than organic.
And getting organic messages out and building and getting in front of your audience that will become important.
The shift from maybe advertising to off site sales starts to move toward onsite transactions with social commerce that'll change things up a bit but at the end of the day, our involvement kind of stays the same which is the activity. That's happening is happening on social networks advertising is just not part of <unk>.
Business and so as long as the trends continue and the relationship between consumers and brands.
And how the various networks respond to that will be different.
Then the value that we contribute.
Is as strong as it's ever been we have to make sure that we're.
Continuing to deliver the value that our customers' needs in the midst of things that might be changing on them, such as where theyre, putting their AD dollars et cetera.
And if we can help them with all the tools that they need to backup their social strategy as it moves.
But the direct impact just just aren't a factor for this business.
Super helpful. Thanks, and congrats again on the wonderful quarter.
Yes. Thank you.
Okay.
The next now to shrink Qatari at Baird.
Hey, Frank <unk> on for Rob really great quarter, I guess is kind of a quick one on the <unk>.
Enterprise mid market go to market your managed care about.
Account based marketing growing strategic accounts to bolster like outbound sales.
Can you talk a bit about the land and expand pipeline on crowd conversion, especially the larger pipeline anything changing that you see on the ground or maybe like looking out ahead of this macro uncertainty.
I guess regarding these larger deals and maybe for Ryan essentially outsource in those macro effects from my time at Salesforce.
Does that.
Yes, thanks for the question.
So I think there's a couple of things in there one I would highlight just sort of dedicated focus. So we have dedicated sales teams that are focused in on new business. So landing new logos and then we have dedicated sales teams that are focused in on growing their footprint within the customer base.
And that has that expertise and focus has been really helpful for us making sure that we are capitalizing on the full opportunity in front of us. So our growth teams have been that are selling to the customers has been doing a fantastic job building out the pipeline of opportunities for us as you might imagine in those customers. We've got great reputations, we have customers.
Hi adoption, we are able to get around those organizations and identify opportunities pretty quickly versus going outbound and cold, calling and so that opportunity for US continues we also know that from a penetration rate.
We're still fairly low in the Grand scheme of the number of customers that we have 30000, and we're sort of mid teens in terms of the attach rate with our premium products. So we see quite a bit of a pipeline in front of US and then you pile on top of that just the use cases right a lot of our customers that have come in.
Initial starting point and typically is in the marketing Department and then it expands from there oftentimes in the marketing Department, garnering cross brand and content and PR in comms and sometimes IRR, but then also in our customer support and customer care.
So the net of it is that.
No macro headwinds or changes for us in terms of the pipeline that we've seen.
We've got a healthy number of customers that are come in that are a perfect target for us to continue to grow and we feel really great about the year ahead.
Got it that's really helpful. Thanks, a lot.
Okay.
And ladies and gentlemen that will conclude today's question and answer session gentlemen, I'll turn the conference back to you for any closing the concluding remarks.
Great. Thank you.
As always thank you all for your time thank.
Thank you for the great questions and the support.
Hi.
B.
Things that we've been talking about the last couple of quarters have is just incredibly excited.
2022 is is set up to be.
Just a fantastic year, and we look forward to catching up with you all in various context and if we don't see it until the next one of these.
And then we'll talk to you then but thank you have a great evening.
Thank you and again, ladies and gentlemen that will conclude today's sprout social fourth quarter earnings conference call I would like to thank you all for joining us and again wish you all agreed evening Goodbye.
Please wait the conference will begin shortly.
[music].
Yes.
Okay.
[music].
Yes.
Yes.
Okay.
Yes.
Yes.
[music].
Yes.
Yeah.
Okay.
[music].
Yes.
No.
Yes.
Yes.
Yes.
Sure.
Yes.
Sure.
Sure.
Okay.
[music].
Sure.
Okay.
[music].
Yes.
Yes.
Yes.
And.
Okay.
Sure.
[music].
Okay.
Thanks.
Yes.
Okay.
[music].
No.
Yes.
Yes.
Hum.
Great.
Yes.
Okay.
Okay.
[music].