Q1 2022 Sprout Social Inc Earnings Call
In two.
2022 is off to a great start and is shaping up to be a transformative year for our company. Our teams continue to execute at a high level our product roadmap is unlocking new ways for our customers to realize the full potential of social and our new partnerships or accelerating our path towards industry leadership.
We appreciate your ongoing support and guidance as we capitalize on this massive opportunity in front of us.
Since we recently spoke with you in February I'm planning will be a piece of our highlights today before turning the call over to Ryan to gel.
We're pleased to again deliver greater than 40% year over year revenue growth with efficiency again, hitting the rule of 50 benchmark.
Our opportunity continues to be fundamentally driven by the mission critical importance of social media management are disruptive efficient go to market strategy and the differentiation of our platform.
Our execution this quarter was strong our product pipeline partnership momentum and go to market execution continued to be highlights.
With further Q1 momentum in the number of customers contributing more than 10000 in IRR up 52% year over year and an acceleration in a number of customers contributing more than 50000, IRR up 97% year over year. We believe we have the opportunity to elevate this performance in the quarters to come.
This is particularly encouraging because it nearly 700 customers are 50000 customer cohort is already growing at a faster pace than our $10000 customer cohort had been growing at a similar scale.
We feel this underscores the magnitude of our ACD opportunity and the upside impact that partnerships have in the opportunity to contribute.
We believe our strategy and execution are allowing us to pull away from the market and we plan to further accelerate our industry leadership of social system of record intelligence that action.
The free cash flow inflection in our business as validation of this as customers are making increasingly strategic commitments to sprout and we are able to deliver incrementally capital efficient returns on our investments.
While we remain prudent and acknowledging that many geopolitical and external factors facing the world today, the underlying fundamental strength of our business puts us in a fortunate position to raise both our growth and margin expectations for the year.
Last quarter, we outlined an aggressive R&D plan for 2022 with an ambitious product roadmap that we believe position sprouts to define our category.
Our announced partnership with Salesforce in March was an incredible validation of our technology, our market leadership and our approach to customer success.
It also represents a multiyear revenue opportunity.
But it's our technology roadmap that we believe will deliver value to our customers and position our company to maximize our long term potential.
The innovation, we are building for customers today, and the roadmap, we expect to deliver has never been more exciting.
Our strategic platform investments in social Commerce messaging publishing and reporting are foundational to the ways our customers execute their social strategy, our roadmap and social customer care has been prioritized and we're on track for significant advancements this year and social listening analytics and advocacy.
Building on our product leadership, our partner momentum has also never been greater and you should expect new announcements from us in Q2 to further expand our footprint.
We are working on powerful elegant integrations with new partners and have multiple opportunities to go deeper in commerce messaging and listening with both new and existing partners.
Our work here aligns well to both our product roadmap and the competitive moats that are strengthening around sprout as we grow the combination of our customer scale are fully unified social media management platform and the breadth and depth of our network and partner integrations are significant compounding competitive advantages.
We believe we have extreme and unique opportunity to find in this category is an overall platform and each key product area.
This is not made possible without the incredible work and commitment from our teams.
Thirdly, working to mix product career destination across disciplines and to redefine the way that we work.
I've never been more excited about our team, including elite talent and leadership. We've on boarded recently that we expect will help us achieve our ambitious growth goals over the many years to come.
Through the midst of the largest workplace shift of our generation our commitment to people development and an inclusive culture positions us to remain thoughtful and intentional with our growth strategy.
We're still just getting warmed up and we're excited to create value for all of our stakeholders in 2022 and beyond.
With that I'll turn the call over to Ryan.
Thanks, Jeff and I agree 2022 is shaping up to be a transformative year for our company.
Product roadmap as both accelerating and delivering new opportunities for growth. Our international expansion is building momentum or pace of hiring has shifted into a higher gear and we have more upside on our mid market and enterprise pipeline stemming from our partner announcements I've never been this excited about our opportunity as our efforts across the company are converging at the right time.
With a market that is quickly shifting in our direction, we expect to capitalize and we aspire to emerge from this year as a category defining company.
Our marketing team got off to a fast start with strong top of funnel growth setting our sales team up for success. We continue to target. The most sophisticated buyers building on our foundation with better account based marketing and new co marketing and co selling motions with Salesforce and other partners.
We launched our spec community to customers this quarter, which establishes the first of its kind community for social practitioners to build relationships and share ideas and best practices, we already have thousands of customers engaging.
Agency owner entry Jude SSE describe it this way.
Community that sprout, social has created for agencies and freelancers alike. As one of the most price list things I've found in my 10, plus years as a social media manager.
I encounter a problem I've never seen and can't find the answers I'm looking for I know that I can always reach out to spreads community and crowdsource solutions from people all over the world.
In addition to other social media professionals. The team at Spirit is always there to try and find the resource or an answer as well.
Because of our market and customer use cases are dynamic and evolving rapidly. There is an enormous opportunity with community and an enormous opportunity for our software to solve increasingly strategic problems for customers.
The emergence of new innovative social media platforms also creates complexity for brands across use cases, driving further urgency to consolidate social media management into a platform like sprout.
<unk> is a new use case, we've been talking about and our customer Hashi Corp covered it well.
Realized a lot of value with social listening and wanted to expand our usage of sprout, Social said Martin Bergman public relations manager at <unk> Corp, a leader in multi cloud infrastructure automation software.
Added a broader set of listening topics and expanded the company industry and partner insights, we monitor which helps teams across the company understand the conversations happening on social media as.
As Martin alluded to social has become a team sport and we believe we're the software best equipped to help these teams win.
Against the ease of use of our step one our collaboration permission ing and workflow capabilities for step two.
A new customer this quarter L. L Bean really put this thesis to work.
We're excited to streamline social efficiency and improved collaboration across our team by partnering with sprout Sudbury Brooks the manager of social media and Influencer marketing.
<unk> and researching social platforms, we found that outperformed others by offering a comprehensive suite of solutions within one platform.
The usability of the platform collaboration capabilities and sophisticated reporting ensure that our teams are able to maximize and grow our investment in social and share successes with our leadership team.
This quarter, we also had the opportunity to partner with Plaid financial technology platform powering the largest names in fintech.
<unk> been managing social natively and manually monitoring all social profiles, which was becoming cumbersome for their comps marketing and support teams.
<unk> chose to work with sprout to improve social listening incorporate better analytics into their program and to increase the speed and engagement with their customers.
The investments, we're making in product and customer success are designed to meet all of these business needs head on and provide customers with a holistic social strategy.
Our partnership with Salesforce means, we're going deeper, enabling enhanced integrations and workflows with service cloud and sales cloud to deliver more value to our share customers.
It's become clear that both salesforce and its customers need and want and industry, leading social platform and we're working closely together to ensure that sprout reinforces the value of the entire Salesforce tech stack, while offering even more differentiated functionality.
And you can see delivering immense value when you look at the brands that we grew it this quarter a few notable brands on this list included IBM Watson Health U S Department of Labor.
<unk> LLC, a subsidiary of General Motors, Radisson hospitality, Danaher, Servicemaster pure storage, Denver, Palo Alto networks extra space storage and longtime customer trek bikes.
Even as our F&B and agency teams executed well this quarter, our Midmarket and enterprise teams continued to deliver outstanding new business performance in what is typically a seasonally slower enterprise quarter.
This is evidenced by the fact that we accelerated the growth rate of greater than 50, K customer cohort.
The combination of increasing use cases, expanding seat counts rising premium module attach rates and the steady drumbeat of up market expansion and now with the exciting addition of our Salesforce partnership are all combining to put a sizeable ACB growth opportunity in front of us.
We're off to a strong start and we're only getting stronger as 2022 unfolds. Our market is dynamic and quickly growing our product roadmap positions customers to unlock tremendous potential our team continues to up level of every position as we scale and we believe our partnership momentum will be additive to our future success.
Building spread to be a world class place to build and grow your career and a world class place to be a customer and.
And we believe the foundation is in place for a defining year on our journey with the right team the right products and a huge market to capitalize on the opportunity.
With that I will turn it over to Joe to run through the financials Joe.
Thanks, Brian .
I'll now walk you through our first quarter results in detail before moving onto guidance for the second quarter and full year 2022.
Again delivered greater than 40% year over year revenue growth with efficiency hitting a rule of 50 benchmark.
Revenue for the first quarter was $57 4 million, representing 41% year over year growth.
Our exiting Q1 was $239 1 million up 39% year over year.
We're pleased to see very healthy new business strong retention and expansion activity.
We're particularly pleased that the two year stacked growth rate of our accelerated for the fifth consecutive quarter we.
We expect this trend will continue as we go faster at scale underscoring the durability of our multiyear growth expectations.
We added 1038 net new customers in Q1 and finished the quarter with 32800 customers up 17% year over year.
As always we remain focused on high quality revenue yield from a new customer cohorts not the volume of net additions.
Our inbound demand has continued to strengthen in 2022 now complemented with an increase in enterprise pipeline from our recent partner announcements.
We plan to continue optimizing for revenue yield while also deal very healthy quarterly customer net additions for the foreseeable future.
The number of customers contributing more than $10000 in <unk>.
<unk> thousand 349 up 52% from a year ago.
The number of customers contribute more than $50000.
Our <unk> 690, 297% from a year ago.
I want to emphasize a point Justin made our 50 K customer cohort is currently growing faster than our 10-K customer cohort that a similar volume of customers.
Underscoring the significance of our future ACD opportunity.
Q1, ACB growth of 19% year over year built on a rapid growth that we delivered in 2021 with many factors that we expect will allow us to sustain durable medium term 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 and are reconciled to our GAAP results in earnings press release that was just issued before this call in Q1 gross profit was $43 nine.
Representing a gross margin of 76, 4%.
This is up 40 basis points compared to gross margin of 76.0% year ago and is our highest gross margin in five years as we scale into meaningful investments we have made in customer onboarding.
Sales and marketing expenses for Q1 were $21 4 million or 37% of revenue down from 40% a year ago.
We further accelerate our pace of hiring across both our sales and marketing team.
With an emphasis on content.
And international expansion on the marketing side, and our mid market enterprise and growth sales teams.
We were fortunate to hire aggressively throughout the quarter.
Research and development expenses for Q1 were $11 3 million or 20% of revenue up from 19% a year ago.
Our head count in absolute expenses again grew substantially this quarter as we continue the trajectory of our largest incremental dollar investment in R&D.
We believe this will extend our market leadership further differentiate ourselves in the market and position sprouts as a category defining software company.
General and administrative expenses for Q1 were $12 4 million or 22% of revenue down from 23% a year ago.
We expect our G&A expenses to increase in 2022, as we enter a more normalized spending environment, but to decrease as a percentage of revenue.
non-GAAP operating loss for Q1 was $1 2 million for a negative two 1% operating margin.
This is an improvement of 360 basis points compared with a negative five 7% operating margin a year ago.
We are pleased with improving efficiency as we scale and we exceeded our expectations due to revenue outperformance.
non-GAAP net loss for Q1 was $1 4 million for a net loss of <unk> <unk> per share based on $54 3 million weighted average shares of common stock outstanding.
To a net loss of $2 5 million and <unk> <unk> per share a year ago.
Turning to the balance sheet and cash flow statement, we ended Q1 with $188 million in cash cash equivalents and marketable securities up from $176 9 million at the end of Q4 2021.
Deferred revenue at the end of the quarter was $76 7 million a strong sequential increase even after the record sequential increase we delivered the seasonally strong Q4 as.
As we noted last quarter, we do think that our business is becoming more seasonal over time as our mix of enterprise changes the high watermark expected each Q4 <unk>.
By a low watermark in Q1 of each year.
Again, both our billed and Unbilled contracts, our remaining performance obligations, our RPM for approximately $115 9 million.
$107 8 million exiting Q4, 2021, 55% year over year.
We expect to recognize approximately 83% from $96 8 million of total <unk> revenue over the next 12 months.
Operating cash flow in Q1 with positive $5 4 million compared to $3 6 million a year ago.
Free cash flow was positive $5 1 million or 48% year over year, a positive 9% free cash flow margin here with an 8% free cash flow margin a year ago.
Before getting to formal guidance I do want to clarify the quarterly cadence to operating expense and profitability as we tighten our plan this year.
Based on the timing of annual corporate expenses and the timing of hiring we anticipate that Q2 will represent the low watermark for margins operating profitability and free cash flow as indicated.
The increase in our 2022 margin goals. We're pleased that annual efficiency is progressing ahead of our prior plan.
Shifting of formal guidance.
For the second quarter of fiscal 2022, we expect revenue in the range of $62 million to $60 3 million a growth rate of 35%.
We expect non-GAAP operating loss in the range of $3 2 million to three point Joe million. This represents an anticipated operating margin of negative five 1%.
We expect a non-GAAP net loss per share approximately <unk> assuming.
Assuming approximately $54 4 million weighted average basic shares of common stock outstanding.
For the full fiscal 2022, we now expect total revenue in the range of $252 million $253 million.
This is an expected overall reported growth rate of 34% to 35% up from our prior expected growth rate of 33% and tracking well against our medium term goals.
Our 2022, we now expect non-GAAP operating loss in the range of $6 4 million to $5 8 million.
<unk> annual non-GAAP operating margin expansion of roughly 90 basis points to 110 basis points up from our prior margin expansion range of 40 basis points to 100 basis.
We're pleased to forecast faster revenue growth with improved efficiency, even as we make growth investments across the company.
We expect a non-GAAP net loss per share between 13 and 12.
Assuming approximately 55 million weighted average basic shares of common stock outstanding.
In summary, our Q1 financial performance highlights the rising strategic emphasis our customers are placing on social.
Our balance sheet and free cash flow strength by us with future Optionality.
Inbound demand is robust and our pipeline upmarket is unlike anything we previously experienced.
These strengths empower us to make investments in technology and go to market, which we believe positions start to define our category enforced leadership in a $100 billion market opportunity ahead.
With that Justin Ryan are happy to take any of your questions operator.
Thank you ladies and gentlemen at this time do you have any questions or comments simply press star one and if you do find that your question has been answered you can withdraw your question by pressing star one a subsequent time.
I'll go first this afternoon to Raimo Lynn's shop at Barclays.
Hey, congrats.
For me two quick questions one.
The the partnership or the announcement with shields for stood out to me you'd be crude.
Thats something Thats, just kind of seems kind of all of that have been in that space, it's kind of all kind of.
Announcing that with you can you speak to that please in terms of how that came together.
What the opportunity is here.
Question, one question two would be.
Large last quarter, we talked a lot about Nike success, you have upmarket any more updates on that one thank you.
Hey, Raimo. Thanks for the question, it's Ryan here, Yeah on the first part with with sales force when we've had a longstanding partnership with them from an integration standpoint.
Worked with Salesforce customers for years and years.
And as the market has progressed over time I think they've taken note of just the work that <unk> been doing in the marketplace and seeing a lot of their CRM customers leveraging the <unk> platform and as I think as they started to think about their investments and their strategy going forward realize that we are also just a great resource for them and their.
<unk> base as it relates to just best of breed social solutions and so this is something that you don't typically see in the market, but we are adding tremendous value together to these customers and so we've had these integrations that existed today with sales cloud and slack and service cloud and we see additional opportunities to go deeper.
Her into those integrations to add even more value to salesforce customers reinforcing just the value of the CRM stack on top of the work that they're doing in social and we announced the partnership.
In early March so not that much time in the quarter, but have seen some really great progress in terms of the interactions across our teams as well as the co selling thats happening with customers today and great feedback from those customers that that have interacted with both of our teams and transitioned over.
More to follow up from US there I think in future quarters, but feeling pretty good about that partnership and the opportunity in front of us from a large customer perspective.
We continue to see a lot of growth I think the number hopefully that jumped off the page for everybody is just the 50 K growth being at a 97% growth rate.
We continue to see just a great fit for customers that are in that mid market and enterprise space, they're consuming a number of our products and seeing tremendous value I think they are finding real differentiation in our go to market strategy with the way that we're getting into the product before they sign a contract or pass any money.
And the speed.
Implementation of the speed to Roy has been tremendous for them as well in terms of the value that they're getting right away. So continued execution happening there and as just mentioned in the prepared remarks, our innovation coming on the roadmap and some of the more sophisticated things that we're going to continue to build and we will just continue to increase our differentiation out market.
Okay, perfect, Thanks and congratulations.
Thank you.
Thank you we'll go next now to Elizabeth quarter at Morgan Stanley .
Hi, Thanks, so much and congrats on the quarter I wanted to touch on what Youre seeing in the broader demand environment the upside in the quarter and the full year suggests good momentum.
Appreciate any incremental color you have on any changes in top of funnel engagement sales cycles or demand trend by Geo.
Okay.
Okay. I appreciate the question, it's been pretty consistent for us and I think thats being just one of the hallmarks of our business with the inbound motion that we're running now complemented with the outbound motion we've seen great consistency and we have a lot of data to tell us where that business is and our top of funnel has been really healthy we continue to be running.
<unk> a lot of campaigns and focused ABM efforts and outbound strategies against our mid market enterprise space.
I think for US also what this comes down to is just the social is mission critical for the companies that we work with and for them. They know that they need to participate within this arena.
And the sprint platform has just proven to be something that is compelling for them and they are in their own go to market strategies in the way that they are interacting with customers. So we certainly like everybody else are reading the headlines and seeing what's happening in the macro environment, but we're seeing a lot of progress and success in our own business and a lot of consistency coming into Q1 and going into Q2.
That's great to hear and then just as a follow up I was hoping to get an update on the premium module attach rates and more specifically I'm curious if that just macro uncertainty in environment does that drive customers to look for tools like listening that much more just to get a pulse on that on the customer.
Thanks.
Yes. This is Justin sorry, I'll touch on the second half of that question.
Maybe Joe can jump in on the first.
I definitely think that there is.
Some strategic drivers as things, whether it's macro conditions or.
<unk>.
Refocusing efforts across various platforms are shifting advertising focus wherever it might be.
Where.
The value of just.
Making.
Better business decisions, having greater visibility across the business, having greater visibility across the landscape et cetera becomes another lever that these folks can pull right and being able to drive.
That kind of progress within their own businesses through the efficiency of social.
Ends up being a really compelling aspect of that so I think that there is some.
Okay.
Opportunistic investment year happening, where other avenues may not be as successful at the moment. So let's lean further into social but then as Brian mentioned there is just the tailwind of more and more organizations just hitting a level of maturity, where social is such an important part of.
Theyre strategic governance across the board, so we see kind of a mix of that.
Kind of.
All weather scenario right when.
Things are booming social as the place to be when there is uncertainty as long as the place to be and we're there for the customers in either environment.
Yes, then on the attach rates of Elizabeth So we don't disclose the actual number each quarter. What I can tell you is we saw solid momentum in this area in Q2 and they continue to rise.
On a quarter over quarter basis and were in that mid to high teens kind of range as it relates to attach rates.
Great. Thank you so much.
Thank you we'll go next to Scott Berg Needham.
Great. Thank you.
John Godin on for Scott Berg and I appreciate you taking my questions.
First.
At a high level when considering the Salesforce partnership and their history in the state.
As long as your commentary around your deal with Plaid managing natively previously I was wondering if you guys aren't really seeing an inflection inflection point and the broader realization.
Complex nature and requirement of managing that social strategy.
In addition.
Thanks <unk>.
With the breadth of functionality.
The customers are really placing more value on your guys quick time to value.
Relative to some of the other competitors and that's great. Thank you.
Yes, I appreciate the question.
So a couple of things one when I think about the <unk> example, what a great organization doing some pretty amazing things and I think we are still seeing this across the board and we've mentioned this previously but we think that we're really early in this space. When we look at the number of businesses that are in social and the amount that have adopted a solution like sprout pods are great.
Example.
Forward thinking company doing more and more on social realizing that it needs to be the tip of the spear in terms of their strategy.
And needing to invest in a solution that was going to allow them to be able to do this in a more efficient manner in a way that they can collaborate with their entire organization and get more sophisticated data back and so we see this quite often in our business were fantastic brands really developed organizations are still earlier days in terms of their investment.
Strategy and this really ties to the second part of your question, which is.
And the value ease of use elegance within the product on top of great sophistication matters, a lot and so when we walk into every account and say we want you to get into the product we want your hands on the keyboard. We want you in the trial, making sure that this is going to work perfectly for you you start to see as a customer right.
Weigh the value you start to implement some of your business processes in the trial and then from there it's really easy to turn you on and go live and so.
Still today over 90% of our revenue comes from customers that have actually been in the products before they purchase so I think both of those things are just really important for us here in the market and very differentiated.
And I'll quickly add to that.
Second point that you made around the time to value and ease of use.
<unk>.
It's logical when we think about how rapidly.
Social is expanding across the organization both in terms of the number of people who are participating on behalf of the organization. The number of departments involved a number of use cases involved.
That debt.
Use of use that time to value that that.
Rapid learning curve those are all huge advantages right because we've got large pockets of people across the organization that you would be up and running and successful.
With this platform and the approach that we've taken to how we build and the emphasis that we've put on user experience is really critical in those scenarios.
Because we have to ultimately have the people behind the keyboard be successful.
And that plays right into the strategy that we've had from day one so.
So I do think that that's a powerful advantage there to your point.
Okay Awesome and then second you touched on it briefly but just curious if you can dig into.
A little bit more how you are seeing any of your customers broader data strategy.
Data strategy Paul.
So you are seeing.
Morning.
Tighter integration I guess with kind of the broader overall customer engagement.
Thank you.
Yes.
Yes, I would say that we're definitely at a time now.
We're at least.
Some of the more.
Some of the customers that are further along in the social journey that are more mature in <unk>.
Operational items social across the organization are definitely starting to lean more into those areas and look for how can we develop a tighter picture of our customers how can we get visibility.
Visibility into all of the intelligence coming through listening et cetera.
Into.
A broader set of the things that we care about as an organization and Thats driving.
A.
Okay.
It's powering the adoption within those organizations.
To a degree and getting additional use cases involved to a degree that don't.
I don't think was probably as president two years ago as it is today and the integrations are powering.
<unk>.
We're opening the doors for those types of conversations and strategic decisions with inside the organization. So we're hitting a point now where more and more organizations are thinking about it.
And taking advantage of it and starting to really think holistically about their data stack as it relates to social and what social role is in that.
I would also just quickly add on there not specific to integration, but specific to the data strategy.
We're hearing more and more from our sales team and our customer success team and directly from customers.
The practitioners.
Folks that live in the solution are now more and more being asked by their executive team to surface data and insights.
Sometimes its on a weekly basis on a quarterly basis, but more and more executives are looking to understand the data that exists within social today. The themes the trends the sentiment and then leveraging that as another really critical data point as they inform their own strategy.
That is definitely continued to increase over time.
Very helpful. Thanks, everyone.
Thank you we'll go next now to Parker Lane at Stifel.
Yes, hi, Thanks for taking the question wanted to circle back on the 50 K are our customer cohorts very strong quarter. There I think the second highest you've had in the data that we have but looking at the last few years, but look for the fourth quarter was actually the high watermark, what's the best way to think about seasonality in terms of those 50 K are our customers.
This year should we expect that trend that we've seen in recent years to continue or is there something that we should be aware of as far as.
<unk> can sir thank you.
Yeah, I mean, I think and just in kind of covered this a little bit I think Joe did a little bit in the prepared remarks.
Our business has continued to shift increasingly into the mid market and enterprise.
With just the buying cycles of those organizations as well as the size of deals that we're seeing I think we will continue to see more seasonality pushed into the fourth quarter.
Cited about obviously the results that we've seen in 97% growth rate going into Q1 with a 50 K isn't really strong start to the year for us.
We expect to have a lot of consistent growth through the year with just 50, K customers and one of the data points that I found fascinating.
<unk> and exciting for our business is that if you look at the 50 K today, they are actually growing faster than the 10-K at a similar scale. So we continue to see a lot of headroom and opportunity for US. There. We will have some consistency through the year, but I do think that Q4 would be a bigger bigger increase in terms of the volume of customer.
And our closing it out at that size and scale.
It's right in terms of the cohort again is there any industry.
We're represented in there today, maybe more receptive to the message of sprout and social media management than others.
One of the.
Distinct advantages of our business and it speaks to that total addressable market is just that we see customers from all industries and verticals that end up in this area and so certainly as you might imagine organizations that might fall into retail or more b to C are going to be there, but we see things.
And in Tech, we see government, we see higher Ed.
So I wouldn't say that there is any concentration within that area, which is just another opportunity that our entire enterprise and mid market team sees for the future of this company.
I appreciate the feedback thank you.
From.
Thank you we'll go next now to Rob Oliver at Baird.
Great. Thanks, Good afternoon, guys Hi, two.
Two questions.
Justin one for you to start.
Obviously Twitter is in play right now you guys have traditionally had a very strong relationship with Twitter.
Theres, just chatter about turnover, there and advertisers pausing so.
Obviously too early to tell.
In terms of direct impact for your business, but just love to hear your take to the extent that you can share on.
What's happening there and what we might expect and then I had a quick follow up for Brian .
Yeah, Yeah sure so yeah.
Yes, its been interesting and rebuilt.
Many many relationships over the years and have had long standing relationships across product and engineering and go to market.
And the leadership in parts of the organization so.
The last couple of weeks have been a little busy for them I think to your point.
We're not anticipating any changes in our relationship but more broadly I think that there is.
Still some questions right past the initial headlines on what are some of the directions.
We're going to see Twitter take and I think baked into that or some really potentially positive and exciting things.
Around just better health from a spam perspective validation users openness of the platform et cetera.
But I think my read is that.
Just want to better understand what the plan is.
And what are going to be the most important things for that organization.
And I think theres going to be a lot of people that are empowered by that.
And.
Hi.
Something thats been fascinating that we've seen with Twitter over the many many years and leadership changes that they've had those people just love the mission.
I agree with them Twitter is such a powerful powerful.
Part of the.
Of society at this point.
And they're going to.
I think by and large want to continue doing that work, but we need to figure out what.
What the go forward plan is and what the priorities are going to be.
And as that deal closes.
Got it Okay got it that's helpful. Thanks, a lot and then Ryan I had one for you you guys called out to how did you win this quarter on the PR side.
That struck me you guys have been talking for some time about.
And use cases.
And the success you've had there but.
I think traditionally that debt.
Has it been a different budget for marketing and so.
Just love to hear about about that win is that.
A representative of <unk>.
Perhaps another another pool of dollars that you guys are able to go after as perhaps some of the PR guys start to SaaS and maybe some of the legacy tools they are using for <unk>.
We're monitoring what's out there. Thank you.
Yes, Thanks, Robert Yeah, I mean, we've been winning business within this area I think more and more we're just seeing a lot of what was traditionally just happening in PR happening directly on social and so.
There are things happening in our product today that I think could address a good amount of what those customers need I think about a lot of the listening components that we have today as well as some of the functionality.
Building in to just better understand your.
Your audience I think it puts us in a really great spot to continue to help organization specifically within the <unk> World.
And today, we have a lot of those customers. So I think that there is an opportunity to continue to expand our footprint within that area I'd look at it as an opportunity where we will have a chance to grow.
Our market as we grow our product and our roadmap.
It's certainly just one of those use cases that has continued to evolve over time that we're getting excited about.
Great. Thanks, guys I appreciate it guys.
Yes.
Thank you. We'll go next now to DJ Hynes at Canaccord Genuity.
Hey, guys nice quarter here and thanks for taking the questions. So I wanted to ask just back to the Salesforce partnership, but based on what Youre seeing in terms of the opportunity build there how would you characterize the average size of opportunity coming through that partnership versus maybe what you typically see in your direct channels just trying to think about.
And how they might help contribute to the model.
Yes.
Most of the business that we have seen I think most of the business today is midmarket and enterprise.
So it fits really nicely into our go to market strategy, our capacity, where we're already executing.
That's the biggest part of our business today and the fastest growing so it's continuing to align with within that realm, it's still pretty early for us given that the announcement was in March.
And the Sunset of of Salesforce. This product is going to happen over time, but we're seeing some really positive things in terms of the enablement, that's happening with our teams and the Salesforce marketing cloud teams as well as the co selling thats been happening so far so we get really excited about it we see these opportunities in these deals looking.
Like our mid market and enterprise with ideally some upside in front of them as well.
Yeah, Okay, perfect and then Joe I wanted to ask about billings right I, obviously picked up your comments on seasonality and it makes perfect sense can you just remind me the mix of annual quarterly monthly invoicing that you have and maybe how that's changed over the last year or two as you see more traction in the enterprise.
Yes for sure so right now it's around $55, 60% annual invoicing and then the rest is pretty much monthly we do very little is some quarterly but not a lot and so that's that's kind of the mix rate right now dji. When I can say is that continues to move more to annual deals right and as Ryan mentioned earlier the <unk>.
Mid market enterprise are have been the strongest in Q4, we're seeing a little bit more seasonality and so I think what youre going to see is youre going to see more of.
That increased billings in Q4, you saw that the outcome of that was just really strong free cash flow in Q1, and so I think you can expect.
A similar type trend.
Year over year, and we've talked about this before because of that mix between the quarters, it's going to bounce around a little bit and it's not something that.
Obviously want to move more to use the annual but it's not going to be something that's going to be consistent just given the mix. Yes of course, okay. Thank you guys.
Thank you we'll go next now to Michael <unk> Keybanc.
Hey, guys.
One macro question and then.
The financials and seasonality. So so on the macro are you able to discern any difference between potential impact or not.
On your different segments SMB versus mid market versus enterprise.
Potentially challenged Banco might worry more about SMB.
Yes. This is Justin so the answer is no at this point in terms of discernible difference in behavior I think.
Some of the things that we were dealing with in 2020 for an example over more distinct in the SMB.
We're not seeing that.
Effect.
Today in those parts of the market are performing very well.
It stands to reason.
The S&P would likely be first impacted we're just not seeing it show up in the data to the pipeline.
And then just same question.
D J as I think.
On seasonality, but relative to <unk>, which was strong.
In the high Thirty's, but a little little less sequential growth in <unk> than <unk> been seeing so is that a matter of seasonality as well.
Yes, that's exactly right Michael I think we've seen this Q1 is typically the smallest quarter from an error or suspected if you. If you look at it over the last couple of years and so I think youre going to continue to see Q4 being the high watermark, probably from an air net IRR standpoint, and then have the Q1, probably be more of a low watermark as we build.
Throughout the year so.
This was as we expected.
As you can tell by our guidance, we increased our annual guidance more by our beat though this was right in line with what we were expecting so we feel pretty good about the quarter.
Great. Thanks, everybody.
Thank you. We'll go next now to Arjun Bhatia at William Blair.
Perfect. Thank you.
Maybe you can go back to the large deal flows I think it was very impressive, especially considering it's just Q1, but as you get into these $10000 deals in 2000. They are all deals and beyond are you noticing any change in the buyer profile or in sales cycles as customers are investing more and more.
Sure.
And sprouts and I'm curious when you when you go to market motion upmarket.
Does the Salesforce partnership.
Impact how much you're investing in your direct.
Go to market motion at all.
Thanks Arjun.
Brian I'll jump in here first.
Yes, I think I have just the 10-K in the 50, K and the dynamics behind them and what's maybe changed.
I would say that we're just we're seeing.
Wider audiences in the conversations that we are in one it's going deeper in the organization from an executive level its more common that youre going to see VP level or in some cases.
<unk>, our Cdos ctrip deserted officers in the conversations.
Certainly they want to see.
The data that they're going to be getting out of our platform like sprout, but theres more gravity around the solutions and that's been a great opportunity for us it's great conversations.
For us it's outside of just the features and the functionality that maybe somebody that a petitioner level would care about most but its getting into what's the impact on the business. How is this going to help generate growth or improve customer experience and reduce costs. So all of those things have materialized really nicely for us in terms of the opportunities in the larger.
Counts.
Were getting multi threaded across the organization there is more stakeholders and more departments that are that are involved which means more use cases more users.
So that's been a really nice trend for us and then if I think about the salesforce piece in the partnership.
One certainly going into any of these accounts from a partnership perspective and selling together is just great validation of sprout as an organization and as a platform. So that's been tremendous for US we are still selling direct on those deals. So we feel really good about our capacity plan.
The hiring that we're doing across our teams and we feel really good that we're going to have the right amount of our folks to be able to manage the opportunity and as we've always done if we see more opportunity.
Where we think we can we can generate even bigger returns will make the investments in those spots, but right now I'm feeling really good about our team and our capacity and the partnership that we have.
Perfect. That's very helpful and actually I wanted to ask about the partnership strategy as well I think you called that out a couple of times in the prepared remarks of your attention to it.
First further and additional partnerships and I'm curious.
Yes.
Yes.
Where we are prioritizing on the partnership front, if we go to market partnerships with.
Whether its resellers or agencies or are we talking about.
Technology partnerships, whether it'd be for product integrations for maybe e-commerce or customer care, just trying to get a better sense of where those partnership priorities are.
As you can imagine the answer is all of the above.
The.
Hi.
Increasing our footprint with new what we call network partners, which are the networks themselves and the relationships and the things that we're building together.
The technology partnerships around integrations and.
Some of that comes with some some go to market motion that investment alongside it but.
But really thinking about those just from a technology perspective, and trying to be where our customers need us to be.
In terms of integrations, and then just a ton of progress and emphasis across the organization and within Brian's organization, particularly.
Round the revenue partnership opportunities.
What those look like where we can add value to.
Two pockets of customers for organizations like Salesforce and others.
So we've got all three of those strategies in constant motion.
Perfect very helpful and congrats on a good start to the year guys.
Thank you.
Yeah.
Thank you well go next now to Matt <unk>.
<unk>.
Okay.
Hey, good afternoon, guys. Thanks for taking my question.
Wanted to look at some of the 50 K customers or maybe even the 10-K in gist.
Ask a question or two around what total market or a wallet share is looking like now.
When you go into this 50 K opportunities and are you still landing relatively small compared to what the ultimate opportunity is.
Or should we think about some of these customers a little more ready and willing to take on a bigger part of the platform.
And that's sort of a differentiation point between <unk> and <unk> in some cases.
Hey, Matt. Thanks for the question, Yes, I mean I would tell you just generally the customers that we're closing in both the 10-K and 50 K.
Feel like they're early stage in terms of the opportunity, it's pretty rare for us to close a customer.
Any of those segments, where we feel like it's totally sold through.
The big the Big difference certainly between the 10-K in a 50 K is going to be the number of users and.
Some of those might just be just how penetrated are we in the organization across departments. So a good 10-K deal might just be marketing that we're in and it might even just be a part of the marketing department on the entire marketing department that may be consuming and add on products like our are listening or analytics.
Same thing with the 50 K oftentimes in the 50 K it might just be one department decided depending on the size of the organization and we've talked in the past, but some of the organizations that have come in at over 50, K and it's just marketing today, where we've got a huge opportunity that sits behind.
From a from a care perspective or going deeper in an organization. So that users tend to be the biggest leverage point for us in terms of being able to grow those accounts and then we think about the premium add ons as the icing on top in terms of the opportunity.
So I would say just the main headline or takeaway for us is that we're seeing.
Certainly more gravity around social right up to the executive level as we've shared a little bit on this call.
But even when we're landing at that rate I still im seeing a tremendous amount of.
Headroom in and in the last call, we talked about our first million dollar account and it was a great example over two year period of landing pretty small on something that began really with the trial and then winning.
Many different departments across the organization and significantly growing and we feel like we've got a lot of those potential accounts in our base today.
And maybe just quickly to underlying that I think one of the things that we've seen is.
Social is just a bigger piece than it was two years ago five years ago, and the starting investment for an organization of.
Scale within the mid market enterprise specifically.
Even just that first step with maturity in bringing social into the organization is a broader projected in Baltimore people than it used to.
And so those customers that we're landing and 50 K are probably at a similar stage of their journey as the customers that came into our funnel with 10, but to Ryan's point just tons of upside and typically for us.
The larger the starting investment is actually a better signal of more upside rather than last or the idea that that account might be penetrated.
Alright very helpful.
I know theres only so much time on each call, but would love to get.
Any kind of update on social commerce.
How are some of the initial tech partnerships with shopify or Facebook going.
And some of the early adopter customers where are they at in terms of usage and just sort of.
Building out that product for the long long tail here.
Yes, yes, so consistent with.
The way that we spoke about at the last couple of quarters is.
Social Congress is going to be a long journey and where.
Gladly out in front of it and working with customers and partners on how this shape space is going to shape up.
Seeing fantastic traction with the.
Integration and the capabilities that we built today.
We've got a team that's.
More than one that's running hard at like future sets of capabilities, but I think we're still the networks us our customers.
Still feeling out what the ultimate strategy is going to be what the investments are going to look like what the nuance of the different networks and different social commerce opportunities youre going to be so that the state right now it feels like we're kind of in the trenches learning with our partners learning with our customers.
They're planning great success at the things we have in.
We're really happy with the uptake that you've seen there.
As we get further along.
And there is more product releases to talk about we may add some more color there but.
For today's date, we're off to a great start.
Alright, great. Thank you.
Got it.
Thank you. We'll go next now to Brett Knoblock at can't work Fitzgerald.
Okay.
Alright, Thanks for taking the question maybe one for the competitive landscape dynamic as Youre looking at are moving upmarket to mid and enterprise can you talk about what's kind of the main difference between the decisions or what's driving decisions or is it pricing functionality.
Speed to.
Value.
Are the competitive dynamics changing at all in any favor towards you guys. Thank you.
Hey, Bryan Thanks for the question.
I would say that the biggest driver in the in the enterprise in the large organizations.
A couple of things one for sure it's the ability to get that.
Return on investment and speed value and so we're seeing this time and time again organizations now and Justin just highlighted it in your <unk>.
Heard it a little bit in our prepared remarks.
Social is a team sport and Theres a lot more people involved today than ever before and some of the products and the platforms that customers want to use need to be intuitive they need to be elegant they need to be powerful and we're hearing this time and time again that that is a big driver for customers today, because the business user needs to be empowered to do the things they need to do in real time and.
The product and that might be social listening it might be running reports for analytics. It certainly in the way that they're engaging with customers from a customer care perspective, and so if you have more people in the platform. It just needs to work that.
That has been a huge differentiator for us.
You'll hear me say this a lot in our hands on the keyboard and getting people in the product before they buy as a massive differentiator for us.
We're continuing to get feedback just about our customer success and customer support we talked a little bit today about the fact that we've introduced new customer community and that customer community I'm really excited about we've got thousands of customers engaging in the community today, they are providing best practices to each other they are getting moderation.
From our team in there they are getting access to additional resources, but that matters a lot within this space. We're still so early in this industry, where even the practitioners that are in it have not been in it for that long and so we see our role being driving great education and awareness.
And best practices for all the things that they could be doing so that that community that customer successes and a huge differentiator.
And then innovation beat the innovation will be the third point that I'd give you.
We have built organically on one code base, we move incredibly quickly when we introduce new functionality to our customers and that matters a lot for our customers because they're counting on us to be able to do all of their social work. They don't log into these individual platforms with logging into sprout to engage with their customers.
Now think about Instagram can ourselves with maybe a good example from the quarter. We introduce this new functionality with Instagram care cells Youre one of the first companies to put it in the market.
Many of our competitors still don't have it and so thats just its a tactical example, but a very important one for our customers because theyre relying on us to do their work.
Yeah.
Perfect. Thanks, so much maybe just one follow up if you have time any update on maybe adding support for Tictoc is that a 2022.
Catalysts.
No no proper update today and stay tuned.
Thank you.
Yes.
And we will take our last question. This afternoon from Clarke Jeffries at Piper Sandler.
Hello, Thank you for taking the question.
Joe just I think we've touched on seasonality a couple of times on the call, but I wanted to briefly touch on linearity.
Are you seeing even in a Q1 <unk>.
Due to these kind of higher volume of larger deals deals get closed later in the quarter situations, where revenue linearity might be more backend loaded than it was historically.
Yes, I think of like the revenue guidance that we gave I definitely think it's going to be more back towards the end of the year to year to your point clock I think thats a fair assumption.
Alright perfect.
A follow up question of Ryan you mentioned hiring shifting into a higher gear. Just generally how is the hiring plan played out year to date do you find yourself, having any difficulty in either R&D or sales hiring in the regions that you are looking at.
I'll start and then just and if you want to talk about the R&D, yes.
Yes.
Sales perspective, and a hiring perspective, we really started to.
Craig I'm feeling very good about our approach to the market I think one of the things just in the hybrid workforce that we're running today.
In the past few years ago, we really only pulling from Chicago talent, and then later with Seattle, and Chicago, Dublin, and now in our hybrid approach.
Got folks that are located all over the world and so that's giving us access to bigger talent pools, greater talent and we've got really good over the last couple of years plus at Onboarding people in this way and getting them up and running and ramped really quickly. So feeling very good about that and the last point before I hand, it to just and there is just culture.
<unk> to be a huge differentiator for us and that's why people end up coming to sprout and what drives them over here on top of the mission that we have and being an employer of choice is something that we are really focused in on and so that's been a nice differentiator for us in a nice tailwind.
Yeah, I'll just add.
Cross the organization the point, Brian mentioned have mattered a lot I think.
There is.
As a as an industry.
Thank you.
The current dialogue is that it's.
Maybe been a more challenging labor market over the past 12 months.
The commitments that we made so we werent sitting on the sidelines, we decided a year and a half ago.
We're committed to hybrid work and.
We got a head start on that and Thats just been phenomenal in terms of my hiring in front all the talented people that we're bringing into the organization.
And it is exciting.
<unk>.
To Ryan's point, just the pool of the opportunity to work.
With people who are in places that might not historically have a lot of opportunity like theres, just so many positive benefits.
It puts us in a really because we've got.
A great platform, great reputation, great closer et cetera, and we've really made clear our go forward plan around what work is going to look like.
That's just been a.
<unk>.
Something thats, attracting phenomenal people in.
I do onboarding with our new customer cohorts, and they're only getting bigger and bigger.
They don't they don't fit in our assumed great anymore.
Alright, thanks very much.
Yeah.
Thank you and at this time I'd like to turn the call back over to Mr. Howard for any closing comments.
Yes. Thank you.
Thank you for all the questions I know, we're maybe a little over on time. So I'll keep this quick thanks for your time, thanks to the support of the conversations throughout the quarter, we look forward to having more of those with you.
And thanks as always to our team.
Just doing a knockout job and really proud of the results. We've delivered this quarter. Thanks, everyone.
Thank you Mr. Howard, ladies and gentlemen that will conclude sprout, social first quarter 2022 earnings conference call I would like to thank you all so much for joining us and wish you all a great remainder of your day Goodbye.
[music].