Q2 2022 Sprout Social Inc Earnings Call
Excel framework.
Our market size and opportunity.
Our plans and objectives for future operations growth products investment initiatives, our strategies and our guidance for the third quarter of 2022, and the full year 2022 and.
And can be identified by words, such as expect anticipate intend plan believe seek or will.
These statements reflect our views as of today only should not be relied upon as representing our views at any subsequent date and we do not undertake any duty to update these statements.
Forward looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially for a discussion of the risks and other important factors that could affect our actual results. Please refer to our annual report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission as well as <unk>.
Any future quarterly and current reports that we file with the SEC.
During the call today, we'll discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles definitions of these non-GAAP financial measures along with reconciliations to the most directly comparable GAAP financial measures are included in our earnings press release, which has been furnished to the SEC and is available on our web site.
Right at investors Dot sprout, social dot com and with that let me turn the call over to Justin Justin.
Thank you, Jason and good afternoon, everyone. Thank you for joining us.
I am pleased to be in a fortunate position today to again raise our annual growth and margin goals coming out of a strong quarter with <unk>.
Surpassed the $1 billion of <unk> during Q2 at a faster year over year growth rate and when we surpassed $100 million of IRR.
This is the output of strong execution across our teams, particularly against the backdrop of a dynamic world around us.
Our business model and culture are perfectly aligned to help our customers navigate a changing world.
Our fundamental growth drivers are strengthening as business use cases of social continue to increase your criticality and a world class team is leveling up every quarter.
We believe we position sprouts to thrive now and for many years into the future.
I am proud of our execution during Q2 I am pleased to see the two year stacked growth rate of <unk> accelerate for the sixth consecutive quarter.
And to also deliver positive free cash flow for the sixth consecutive quarter.
Consistency of this performance and durability of our growth. This quarter was driven by outsized contributions from our mid market and enterprise segments. The number of customers contributing more than $10000 and <unk> grew 47% year over year, and our number of customers contributing more than $50000 grew 88% year over year.
And even those numbers stop short of the full picture the Acd's of new business lands grew more than 30% year over year, and we delivered our largest ever new customer land for social customer care.
We also delivered more than 25, new logos from our Salesforce partnership, which has begun to build momentum into what we expect will be a strong second half of the year given the heightened level of uncertainty throughout the financial markets I want to now give a more granular view into the linearity of our quarter and what we're expecting for the balance of the year.
Net new <unk> in the months of April and May was relatively consistent with our healthy trajectory exiting Q1 across new business retention and growth.
Our month of June However, was one of our strongest ever retention and expansion trend line stayed consistent with April and May and we delivered a record new business month, including incredibly strong large deal momentum in the enterprise.
We look ahead, we currently see steady trends within customer retention and expansion as we remain mission critical to our customers' workflow as our investments in mid market enterprise sales capacity lean into strong new business demand and many of our partner and product initiatives begin to impact <unk>.
We believe we are well positioned to deliver consistently healthy <unk> growth into 2023.
Because we have always been thoughtful and deliberate about our hiring and pace of investment. We are also currently in a fortunate position not to back pedal on our growth plans and given the momentum of our strong pipeline. We plan to continue hiring while also keeping a close eye on market conditions and the efficiency of those investments.
We believe this positions us to perform well relative to our near term margin expansion commitments and to further distance ourselves from our competitors and defined for the category leadership shifting quickly to second half priorities.
Entering the year, we outlined an ambitious R&D plan that we believe puts <unk> in a position to lead our market.
The scope of this investment has both high profile and subtle impacts on our customer value proposition.
In late May we joined the tick Tock marketing partner program and introduced a new first of its kind tictoc integration, giving customers the ability to build tick tock into their workflow across publishing engagement and analytics and sprouts today, we announced that support for Instagram Reals went live across our entire customer base and recently.
Social listening support for comment moderation on Linkedin also went live to highly requested features from our customers.
Last month, our integration with the Salesforce marketing intelligence cloud with lives and we expect that our enhanced integration with Salesforce service Cloud will go live later this summer.
Strategic platform investments in social Commerce messaging publishing and reporting are making great progress in our roadmap and social customer care has been further prioritized.
Working on further integrations with new partners and have multiple opportunities to go deeper our commerce messaging and listening.
Our work here aligns well both to our product roadmap and the competitive moats that are strengthening our outside as we grow.
We believe 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 and compounding competitive advantages, especially now.
As Youll hear Brian discuss in greater detail, we believe the market is increasingly shifting in our direction.
This comment isn't limited to customers and partners. During Q2 grew a fortunate to be recognized as one of the best workplaces in Chicago by Great place to work and we were certified as a great place to work for the fourth consecutive year, the ongoing consistency of our execution and steady demand trend gives us confidence to continue to thoughtfully build our company with amazing people and leaders.
<unk>.
I am incredibly grateful to our people and we are collectively excited to deliver value to all of our stakeholders in 2022 and beyond.
With that I'll turn the call over to Ryan.
Thanks, Justin this moment provides us with a big opportunity to distance ourselves from our competitors and our peers.
Incredibly proud of our performance from our teams and I'm, even more excited for what's ahead as we execute and create more momentum from our roadmap partnerships and go to market strategy.
We arent distracted by the business externalities around us we're focused on delivering more value to our customers than is expected of us and then being enjoyed to do business with we.
We believe this position sprout to move ahead as a category defining company.
And highlighted the great work of our product teams, which has our marketing team excited to generate even greater top of funnel pipeline in the periods ahead.
The tick Tock partnership launched last quarter was clear validation of our market leadership, the speed at which our product teams work and the reach that our marketing teams can deliver.
The reception of the spread community, our new network for practitioners, which launched during Q1 has been incredible to witness with thousands of engaged customers now actively sharing ideas and best practices. We plan to expand this broke community later this year to all practitioners and brands, so customer or not which will be even more impactful to those look.
To up level and refine their skills in this dynamic role.
Speaking of practitioners, we talk with you frequently about the organic growth of our category and the fact that social is increasingly a team sport.
According to the linked in 2022 marketing jobs report the role of social media marketing specialist is the single most in demand occupation within North American marketing teams. This is a direct result of the rising complexity and expanding use cases of social and speaks to how mission critical it is for brands to meet their customers.
Where they are.
In a world, where AD budgets and advertising ROI are increasingly being scrutinized organic social has become more important and more impactful than ever before.
Timber, which is on a mission to empower everyone in the world to design anything and published anywhere highlights the power of this reality as they expanded with spread this quarter.
Camber our community is at the heart of everything we do given our rapidly growing global community. The use of social listening has been key to engaging in fostering authentic conversations with them across social channels.
Been able to proactively engage with them to collect valuable feedback and strengthened brand months spread.
All in one platform has helped us scale, our community engagement and build strong lasting connections.
Shifting to quarterly performance what stood out to me. The most was a greater than 30% ACB growth in new business lines, our marketing investments had been targeting a more sophisticated buyers and personas in the enterprise. Our sales hiring is focused on mid market and enterprise and into the explosive expansion of social use cases.
We know that the larger our customers' Lan the faster and the larger they grow with us.
But especially against the backdrop of the current global climate larger initial deal sizes will speak to our fundamentally mission critical it is for brands to get social rights or.
Our product led motion is perfectly suited to seed and grow with customers big and small as they become increasingly sophisticated users of our platform.
As Jeff referenced earlier more than 25, new logos this quarter came from our Salesforce partnership.
As we go deeper with Salesforce social studio customers. We've learned several key things first these customers are considerably larger than our average customer.
Second pipeline momentum is clearly building for a very strong second half of the year and very strong 2023, and third we believe our deeper technical integration with service cloud will unlock even more opportunity as we create value for our customers and reinforce the value of their existing investments and the Salesforce Tech stack.
I'm incredibly excited to present, a dream force later this quarter, we're sprout and Salesforce will build on our partnership together and further articulate our vision for social media management.
One of the first customers will be migrated over was Gordon foodservice the largest privately owned and family managed foodservice distributor in North America.
<unk> strong team in close partnership with Salesforce made it easy for us to migrate from social studio. This quarter. So Kristen Johnson digital campaigns supervisor at Gordon Foodservice is incredibly important that we have a centralized social media management platform that is easy to use for different teams across our organization spread.
Spreads usability and analytics dashboards foster confidence that we have the right partner to execute our social strategy from publishing to listening.
We hope the technology and team behind Sprout will help us elevate our good financed by Gordon program created define meaningful food solutions that not only tastes good but do good too and other sustainability initiatives as we lead to choose food that can change our world.
The broader group of brands that grew with spreads this quarter is a cross section of leading franchises across all segments of the economy.
This speaks to both the magnitude of our opportunity and the importance of organic social and includes BT group Hertz after pay Deckers footwear, Sunoco Virgin Red HP do Lingo Douglas Elliman, Athena Health HJ Heinz Block program.
Airlines, the University of Virginia, and close to the scripts are Robert Baird.
I am proud of what our teams have delivered through the first half of 2022, but I'm, even more inspired by what I know, we can accomplish in the quarters ahead.
Our partnerships are building momentum our teams are up leveling and new product enhancements are delivering incremental value to our customers.
We surpassed the $1 billion of IRR during Q2 at a faster growth rate than when we surpassed $100 million of error.
Our Powerpoint unified platform disruptive inbound trial model and World class teams give me confidence we will continue to scale above our next growth milestones even faster.
And with that I'll turn it over to Joe to run through the financials Joe.
Thanks, Brian I'll now walk you through our second quarter results in detail before moving on to guidance for the third quarter and full year 2022.
Pleased to again deliver very strong growth positive free cash flow and to raise our expectations for the year.
Underscoring the mission criticality of organic social media management.
Revenue for the second quarter was $61 4 million, representing 37% year over year growth.
And our exiting Q2 with $256 1 million up 35% year over year.
We're very pleased that a two year stacked growth rate of <unk> accelerated for now a sixth consecutive quarter.
Which we believe underscores the durability of our growth momentum.
Our enterprise new business and pipeline further accelerated during the quarter and our inbound volume remains strong.
Contributing to our expectation to deliver consistently strong <unk> growth.
We believe this positions us to continue to deliver durable and efficient growth and have our medium term goal.
We added 820 net new customers in Q2 and finished the quarter with 33620 customers up 14% year over year.
Our net additions were below recent trend during Q2, primarily because we experienced larger than normal deal size, the mid market enterprise new business.
Which resulted in more than 30% year over year growth in new business ACB.
We are managing the business to enter our in this outsized new business ACB growth meant that we required fewer logos to achieve our goals.
Obviously been the case.
This trend could continue we also believe we have strong visibility into new business momentum in housing new customer additions for the foreseeable future as our sales capacity continues to increase.
The number of customers contributing more than $10000 and <unk>, 5847% from a year ago.
The number of customers contributing more than $50000 in the <unk> 755 up 88% from a year ago.
Q2, ACB growth of 19% year over year was driven primarily by larger initial deal sizes.
We believe there are several factors that will contribute to sustained medium term ACB growth.
In discussing the remainder of the income statement. Please note.
Unless otherwise stated all references to our expenses operating results and share count.
non-GAAP basis to exclude stock based compensation expense.
Reconciled to our GAAP results and the earnings press release that was issued before this call.
In Q2 gross profit was $47 1 million, representing a gross margin of 76, 6%. This.
This is up 100 basis points compared to gross margin of 75, 6% a year ago.
And as again, our highest gross margin in five years as we scale into our financial model.
Sales and marketing expenses for Q2 were $24 4 million or 40% of revenue up from 38% a year ago.
<unk> fortunate to hire well throughout the quarter and could you make meaningful investments in mid market enterprise sales capacity domestic current demand signals that we see.
Research and development expenses for Q2 were $12 3 million or 20% of revenue up from 18% a year ago.
Head count in absolute expenses again grew substantially this quarter as we continue that trajectory of transforming R&D investments.
We believe we are in the process of extending our market leadership and positioning sprout has a category defining software company.
General and administrative expenses for Q2 were $12 2 million or 20% of revenue up slightly from 19% a year ago.
We continue to 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 on an annual basis.
non-GAAP operating loss for Q2 was $1 9 million for a negative 3.0 operating margin.
We are pleased with the ongoing efficiency improvements as we scale and we exceeded our expectations this quarter due to revenue outperformance.
non-GAAP net loss for Q2 was $1 9 million for a net loss of <unk> <unk> per share based on $54 5 million weighted average shares of common stock outstanding compared to net income of 0.0 and zero cents per share a year ago.
Turning to the balance sheet and cash flow statement. We ended Q2 with $181 7 million in cash cash equivalents and marketable securities.
Up from a $180 8 million at the end of Q1 deferred revenue at the end of the quarter was $80 2 million a strong sequential increase.
We continue to progress nicely to our high watermark anticipated in Q4.
Both our billed and Unbilled contracts, our remaining performance obligations. Our RPM total approximately $127 6 million up from $115 $9 million has been Q1 and up 57% year over year.
We expect to recognize approximately 80% of $104 2 million of the IPO as revenue over the next 12 months.
Operating cash flow in Q2 was positive $1 3 million compared to $4 4 million a year ago pre.
Free cash flow was positive <unk> 7 million for a positive 1% free cash flow margin ahead of our expectations.
Shifting to formal guidance.
For the third quarter of fiscal 2022, we expect revenue in the range of $64 nine to $65 2 million.
Our growth rate of greater than 32%.
We expect non-GAAP operating loss in the range of $2 4 million to two point in Germany. This.
This represents an anticipated operating margin of negative three 4%.
We expect the non-GAAP net loss per share between <unk> and <unk>, assuming approximately $54 9 million weighted average basic shares of common stock outstanding.
For the full year of fiscal 2022, we now expect total revenue in the range of $253 9 million to 250.0 million.
Expected overall reported growth rate of more than 35% up roughly 100 basis points from our prior expecting growth rate and tracking well against our medium term goals.
For 2022 announced like non-GAAP operating loss in the range of $5 9 million or $5 7 million. This implies annual non-GAAP operating margin expansion of roughly 110 basis points to 120 basis points.
From a prior margin expansion range of 90 basis points to 110 basis points.
The forecast faster revenue growth with improved efficiency, even as we continue to make growth investments for our future.
We expect a non-GAAP net loss per share between 11 and 10.
Assuming approximately $54 5 million weighted average basic shares of common stock outstanding.
In summary, our Q2 financial performance highlights the consistency of our execution and the rising strategic emphasis our customers are placing on social.
Our balance sheet and free cash flow strength provide us with future Optionality and a pipeline of market is robust.
Even against the backdrop of a dynamic world around us we believe we're poised to deliver consistent and efficient growth, which position sprouts to pull away and fluids leadership in a $100 billion market opportunity.
With that Justin Ryan and I are happy to take any of your questions operator.
At this time I would like to remind everyone.
So SK Chin Press Star then the number one on your telephone keypad, well pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Michael <unk> with Keybanc, Sir Your line is open hey.
Hey, guys. Congrats on good results in a tough environment.
Yes, we can.
Fundamental and then.
One numbers question on the fundamental side.
Maybe you could just talk about we've seen some weakness I would say in digital marketing.
Demand, including the stay and paid ads, which I know you're not in.
And that more theyre more broadly how do you think that social media management.
Does it seem to be holding up better and then I would just add maybe just if you could give us a little bit more on those those new logos from from Salesforce 25, Greg what is what.
As the trend been there previously.
Yes sure. Thank you for the question.
Start with the.
First.
Half of that question and then Ryan can jump in.
In terms of the kind of the dynamic around paid in marketing spend I think.
As we've shared before we don't participate in the advertising space and so we've got.
A bit of isolation from the things happening in that part of the market, but in terms of how it flows through to.
How social media management has remained pretty resilient there.
It largely comes down to the fact that it's.
Separate functions right on the one hand, you've got <unk>.
Direct advertising with a very specific purpose and budget usually team around it and on the other you have the organic side of relationships between brands and our customers.
Whether that is.
Simple evangelism on the customer side if it's.
Customer support pre sales post sales.
Or just general.
Support the commentary back and forth between the brand and the customers and so that side of it I think is.
Which is largely what this company was built around and where we focus with our customers.
Is going to remain consistent and it's going to remain important is as important as any other form of communication I think increasingly so.
On the flip side of that I think there are some organizations, where the organic side of social is very much a hedge against anything that may be less productive on the advertising side.
So where those channels might be.
A little more challenging that we have.
Peter if at times over the last handful of years.
That organic channel to the extent that brands are earning in cultivating that community is one that's always going to be available to them.
With.
Generally very positive.
Returns and results so for those two reasons the side of social that we've focused on and that we primarily the claim for our customers. I think continues to be really strong continues to be growing in importance.
And I think that we're at the stage now where the.
The parts of social that are not specific to advertising are very clearly.
Something that is becoming part of workflows across the organization not just in marketing, but through to customer service sales support et cetera.
And I expect we'll see that continue for those reasons.
Okay.
I'll just try on.
One last point on that one for you Michael and then I'll jump in the sales force piece.
Agreed with everything Justin just shared more and more we're hearing from our customers, especially in this type of environment, where.
They might be scrutinizing some of their paid spend or other more expensive areas of spend the campaigns have been running from a marketing perspective on social are very efficient there customers are there they get real time feedback the data and analytics that we provide help them be smarter in the campaigns that theyre running so that ends up being.
One of those value points for our customers and again the inbound model for us those customers are coming in with these needs that they're looking to solve and identifying spread is the right solution to do it. So I think those are those are all the reasons why we're seeing the resilience within our market.
Salesforce perspective continue to be really excited about the opportunity in front of US. We are still just getting started as you can see with logos we've closed.
The trends that we've seen in this deal so far one.
We're getting great participation and interaction from the sales force team in intros into many of these customers.
As we mentioned before these customers are.
Larger than our average deal size they are falling in the 10-K and 50 K bucket and then on top of that which has been really exciting for the customers is they're seeing a lot of innovation, they're seeing a lot.
Features market parts of our product that they had on their wish list.
Werent there in social studio that are in sprout and even if I just think about what we've delivered in the last quarter things like tick tock and real great. Examples of innovation that have happened within our platform that they didn't have before and wouldn't have now so.
So we continue to see a lot of opportunity there and are excited about the relationship that we're developing.
Great. Thanks, guys.
Okay.
Okay.
Your next question comes from the line of Raimo <unk> Lynch Chen with Barclays. Sir Your line is open.
Hey, this is Frank on for Raimo. Thanks for taking my question maybe.
Maybe more at a high level, how do you see in the resiliency of the product suite in prior recessions and how is the business since the fall to be better suited for any potential downturn.
This is Justin.
Take that than anyone else on the team can add some thoughts.
If I heard the question correctly.
In terms of how.
The product itself and maybe.
Indirectly the business have fared during previous challenging times.
And I think that the.
Resounding answer there is that we've seen both across the last couple of years.
Across our history as a company that because we are serving a very fundamental and growing need for our customers.
Cause our platform doesn't incredible job of tying all of the necessary utility into one place.
And given that it is.
Mission critical mode of communication for brands at this stage.
I think we've really navigated just about anything that's thrown at us very well.
Current current environment included.
The products roll in that I think is.
Yeah.
Primarily around making sure that we are offering.
A well rounded set of solutions that are really horizontal in their function. They are not specific to one.
Very discrete objective within an organization.
And therefore have a lot of resiliency, regardless of what our organization is going through.
For example, when.
When when Covid took.
First.
Really tough path.
Throughout the world one of the things that we saw with businesses that were otherwise struggling we're using socialists.
Pretty much the only.
Or at least the primary way to stay connected with their audience and with their customers.
In other scenarios, where things are a little more steady state.
They are able to shift to their efforts into activities that are focused on growing the business engaging with their customers and different and new ways.
Developing larger communities.
We're starting to see businesses investing more in some of the more forward looking functions of social such as care sales et cetera.
And so I think because we're providing really fundamental set of business needs through.
Through social channels, it's been something that.
Rain or shine has a ton of value for our customers.
It's something that remains very important and certainly very high on the list of things that are must haves for business at this point.
And so we fared very well through a handful of different conditions.
And we expect.
<unk>.
This year is not done throwing curve balls at us.
But we're very well positioned just as we saw in Q2 to really continue to add a ton of value for our customers in those environments.
Maybe just add one point to that too part of the way that the product has been architected has ensured that we don't have concentration in any specific point the diversity that we've seen across verticals and industries and segments.
And the utility of that product is also being really important during difficult times, because we've got such a wide remit of the types of companies and the types of use cases, we can support.
Great. Thank you.
Your next question comes from the line of Elizabeth Porter with Morgan Stanley . Your line is open.
Great. Thank you so much and congrats on the strong quarter.
What we hear about this.
One is just a relatively fast time to implementation and strong ROI.
Just in the context of a potentially more potentially more scrutiny on it spend how are new customers in particular thinking about the willingness to move over to Scott at this point I'm curious if that's coming up in conversations more as a benefit.
The comment that we're hearing overall environment about longer deal cycles in that scrutiny on it. Thank you.
Thanks Elizabeth.
Yes, it is actually proven to be a really nice strength for us.
Again for our business today over 90% of our revenue actually touches the product before they ever sign a contract signed any commercial terms.
Before they become a customer and we continue to press on the modern way to evaluate and buys to actually trial of the product for us to get your hands on the keyboard and so for us the conversations we're having with our customers is that we want to mitigate risk for you we want to ensure that the spread solution is going to work perfectly for what you need.
And you can actually get into the platform you can do the sophisticated parts that you need whether it be analytics or listening or publishing or engaging with your customers improve then it works and the benefit of that for US one you start to prevent the use cases.
Get a chance to experience. The technology you also get a chance to interact with their incredible team, which is a huge value prop for us.
But for US. It also means that you do part of the implementation during that trial and so that is a huge part of the conversations that we have again, our sales cycle times around 35 days for to trial 41 days for a lead they stayed pretty consistent through that.
And then the conversations we're having again because of the trial has stayed pretty consistent from what we've historically seen.
We see it as a huge strength that we're leaning into.
Yes, one other thing that I'll point to you on that question is just the reality of the conversations on the customer side.
It has been for some time.
Pretty close to non negotiable, meaning.
This isn't something when budgets start to get more scrutiny and start to get looked at.
Or they're looking for areas to make cuts. This isn't typically one that's on the list for a company Thats for our brand is invested in social.
Turning the lights out on this channel or.
Juicing disruption into how effectively they're managing our communities on social.
It's pretty detrimental, particularly if the business is facing a challenging time.
And so.
There are certainly going to be exceptions to this but given where we come from.
<unk>.
The budget that were coming from the.
The critical nature of the platform and the functions that we serve within the organization.
And the price points.
We're selling to within the organizations.
I think where we are.
Pretty well down the list of things that are on the chopping block.
Great and then just as a follow up I wanted to touch on the customer adds so from a total customer perspective net new adds fell below a 1000 for the first time in about seven quarters.
Clearly, we're really seeing that strengthen the large customer cohort.
Anything to call out with respect to demand trends from those large customers versus.
The smaller SMB customer segment, just trying to get a sense. If there was any softness in that segment just given some of the more macro sensitivity.
Yeah, Yeah yeah.
Yes. So as you mentioned, we're continuing to see the shift that really started kind of in the middle of last year, where our emphasis and.
Investment priorities have really become more focused on the mid market enterprise.
And we're seeing some mix shift in our customer base not only in the new lands, but also in the top of the funnel and the people that were targeting and swapping out some of the highest volume lower end of the market opportunities with some of the bigger ones, which youre seeing in the.
The momentum that we've got in the Midmarket and the enterprise that you're seeing in the 10-K in a 50 K deals.
And so we'll.
But continue to reinforce the idea that the quality of the revenue yield.
Our net adds is our primary focus.
I do think that at the edges, when we think about the.
Opportunities and logos at the lowest price points and the lowest parts of the market.
We're definitely seeing some change in composition there towards the mid market enterprise some of that intentional by nature of the areas that we're focusing on our investments.
Some of that perhaps.
A result of some of the things happening in the world right now, but a healthy shift for us Nonetheless.
One day.
We're going to continue to focus on the quality of the output of that revenue and we're feeling really good about that.
Great. Thank you so much.
You got it.
Your next question comes from the line of Arjun Bhatia with William Blair. Your line is open.
Thank you thanks for taking the questions guys.
Want to start off with.
Maybe the growth composition of things that youre seeing strength both crops.
Fashion front, and obviously, the new customer lands are coming in at pretty strong values I'm curious how much the.
How much of your growth currently is coming from net new customers that are landing.
Existing customers that continue to expand with sprouts, and then maybe in relation to that on the new customer front.
There are those customers coming from particular those larger customers are they.
Wishing from competitors or is that still largely a greenfield opportunity.
Thanks Arjun.
This is Ryan.
From a growth perspective, it's a pretty healthy balance for us, it's still weighted by new business over expansion and those trends continued you can see it in the new business ACB number is up 30%, but we feel really good about those lands you can also see it in the 10-K and 50 K.
Growth that we've had but the new business side.
Mid market Enterprise perspective has been has been really strong and continue down that path and we're continuing to grow from an expansion standpoint, but more outsize of new business and expansion today.
And then in terms of where theyre coming from on the enterprise side from a large customer perspective.
It's a bit it's a bit of a mix. So we've said this before but we still believe that we're really early in this market today, even in large enterprises you'd be surprised how many organizations that youll come up across that have not invested within social media management, they might be using native tools.
Are they might've had a small investment somewhere, but it's very siloed and it's not a strategy across the organization. So it's been a pretty healthy balance of displacing some.
Some of the competitors as well as going in and being able to uncover it really big need where they were investing and now they get a chance to investments brown.
Yeah.
Got it.
Very helpful.
One more if I can just in terms of pricing power I'm curious, how you're viewing that lever over the next over the next several quarters and years, obviously, it seems like youre, adding capabilities to the platform.
We're adding enterprise requirements.
Integrations with Tic Toc is there a lever on price that's available.
Is that something that you would consider.
As your product and platform develops.
Yes, so ill.
Start with that one.
I think the answer is most certainly yes, I think you've seen it from us historically.
Where for example, the entry level pricing for our for our platform has steadily increased over time.
Landing deal sizes have steadily increased over time and there is I think certainly for at least a good chunk of the customer base that we're focused on today.
And the top of the funnel that we're focused on today, where there is some of that power to your point.
We're.
Over the course of a couple of years and a lot of cases doubling the value of the platform that we're giving to customers through product enhancements additional networks and things like that.
And so we're constantly iterating.
Testing developing ideas around that I will say that I think the last.
Probably six quarters specifically.
Have occurred to us to be maybe.
Not the most opportune time to be super disruptive on the pricing side.
We have made some changes and as you've seen from the ACB growth, obviously made a ton of improvements there.
We think that there is more.
More meat on the bone to.
To that point long term now we always expect to be getting.
A fair value for our for our platform and deliver more value than we're getting back but to your point that continues to grow over time, the investments and what brands are expecting to spend in this channel.
For a platform like sprout.
It's steadily picking up.
So we're going to continually iterate and be responsive to that.
Got it thank you very much and congrats guys.
Thank you.
Your next question comes from the line of Matt Van Vliet with BT AIG. Your line is open.
Hey, good afternoon, guys. Thanks for taking my question.
Maybe just wanted to dig in a little deeper on the larger HCV trends for new lands.
And maybe this is best for you but.
Are you seeing more of that from just the overall size of the customer being significantly larger than you are still landing with kind of a similar footprint relative to the size of the organization or are you actually getting maybe more seats earlier on or the number of modules from.
Analytics are listening or attach rates there are actually the bigger reasons for driving those deal sizes larger thanks.
Yes, Thanks, Matt.
So it's definitely getting in front of more enterprise organizations I'd call. It still more of an 80 20 rule in terms of the core of the majority of the revenue coming from our core products. So think of the users.
Versus the add ons, the add ons, obviously add a lot of value both in terms of the problems that they solve for customers, but also the ECB opportunity, but the lion's share of the revenues coming from the core users and licenses and so we're in more deals than we've ever been in the past.
We've been investing a lot within this mid market and enterprise space been doing more from the top of funnel perspective to attract those prospects and customers. We've been investing in sales capacity to ensure that we have a great team in front of them to take care of those customers in investing on the back end to make sure that we're supporting them well. So it's getting in front of more of those deals.
And we.
We are seeing certainly in those deals.
As you are in front of bigger customers, even more opportunity from a license perspective, a user C perspective. Some of these organizations just have really massive marketing departments, where customer care departments. So that tends to be what's what's driving most of the opportunity and even in the large accounts that we're landing today, we're still seeing a lot of heads.
<unk> a lot of opportunity to grow be at more users departments divisions, and obviously the add on products as well.
Alright, great and then looking at the tick tock product or even the Instagram reels product announced today.
Are you finding the reception from customers to be strong obviously, there's tons of users on those platforms, but are they sort of understanding how they can use those platforms and actual sort of business sense or to monetize those or is there an education process from your side of helping them understand and how you can pull out.
Political <unk>.
To drive more traffic in response there.
Yes, yes, that's a great question this is Justin.
Hi.
I think that it tends to be more of so.
It's a little bit different first I'll say that the reception has been fantastic.
These are two of the things that our customers have been.
Asking floor above all else.
These are things that as the technology has become available in the networks themselves have.
Done what they needed to do to make these products available for our customers. Obviously, we're very excited to get them in their hands at our customers are very excited to have them I think the answer to the other part of your question.
Is a little more nuanced network to network right. So.
<unk>.
<unk> and Tic Toc being.
<unk>.
Similar media type of I'll call it.
Don't know if its much education as it is just an evolution within the brands is being prepared to better utilize them.
It's a different format. It requires a different set of skills to put together shorten engaging videos for an example.
There is some different habits and behaviors on the consumer side.
So I think that the awareness and the interest is there I think that as we've seen with other new media types that have come along.
The readiness of brands, who is going to be a little bit behind the curve, but theres still plenty or doing a bang up job.
Who are ready to go and doing really cool things here.
And then with kicked off generally I think.
Obviously, a juggernaut and a network that.
Is doing incredibly well and has a lot of really cool.
New angles on.
The consumer experience that we haven't seen before.
I think that we're still relatively early and brands adoption.
Again, when I say earlier, there's hundreds of.
That are active and engaged there, but when we think about the maturity of some of the other networks and some of the other media types. Those are certainly further along and.
And we will just continue to see that tick up.
As time goes on.
Yes.
That's interesting about this is to Justin's point, our customers are super excited about this video short form content matters, a ton and those that are doing it. This is a massive win for them.
Of those that that are still learning about how to participate in developing the skill set internally. We see this as a huge opportunity from a success perspective to drive more awareness and education on how they can leverage. These these tools leveraging the sprint platform and I can see this internally our team has been spending a lot of time just.
Building content and best practices to help those that haven't come on board with it to ensure that they are adopting and they are getting value from it and then even from our customer community perspective, you can see that a lot of the conversations happening within the community touch on topics like these so I think theres a lot of opportunity for the kind of current customers and then more value that we can add.
Along the way.
Alright, Thank you very helpful great job on the quarter.
Thank you.
Your next question comes from the line of Parker Lane with Stifel. Your line is open.
Yeah, Hi, guys. Thanks for taking the questions curious if you could provide some more context on the performance of the agency channel during the quarter as the health of that channel on par with what you saw during the first quarter or they are starting to see any signs of weakness.
If some of those agencies that are leveraging sprouts for their end users.
Yes, thanks Mark.
So the agency business for Us I would say in Q2.
Little bit more challenging and specifically I'd call. It out on the new business portion of that and those that work mostly within the SMB side.
As you might imagine that those customers right now very focused on retaining existing clients versus expanding and trying to win new clients.
Despite that we're still seeing growth within this segment.
Agency segment for US has been one filled with evangelists for our business. We've created a business that not only supports them from a software perspective, and a services perspective, but.
But we're there to help them build best practices to build their business and we've seen great execution from the people and the teams within agency at spreads that are supporting those organizations.
So I'd say some headwinds on the new business side, but we feel really confident about.
That's being a point in time for those organizations and us being a great support for their business and vice versa in the future.
Got it understood and then on the Salesforce partnership I think you alluded to 25 customer wins during the quarter can you give us a sense of what share of those our customers, whose contracts would be coming to exploration in the next 90 to 108 days versus those that are looking at the functionality of sprout relative to social studio and saying we need this.
Regardless of what our contract expires.
Yeah, Directionally I would say that it's more of those customers that have upcoming renewals.
We're needing to make a decision then we're getting into the market to figure out what's next and majority of these accounts that were in they were either partnered sales calls with the sales force team insurance from the sales force team or Backchannel referrals with the Salesforce team.
They tend to be ones that had upcoming renewals and there was a catalyst to make a decision.
We are doing a lot to continue to partner with Salesforce and prospect into those accounts as they come up for renewal over the next couple of years here and then this new integration that we're building that we're working on the launch later this quarter and we will talk a little bit about more dream for us. It's something that we're really excited about because I think that a lot of those customers.
We are on social studio that we're deeply integrated with the service cloud are going to get tremendous value from what we're building.
Okay.
Very helpful. Alright, Thank you.
Tom.
Your next question comes from the line of Clarke Jeffries with Piper Sandler Your line is open.
Hello, Thank you for taking the question Ryan.
Mentioned the benefit that some of these migration customers. We're seeing from the innovation did any of these migration customers change the fundamental scope of social media management and their organization as part of that migration process.
Hum.
I mean, there's been there's certainly been some that have expanded the scope of the utilization. So youll see some that might've started in marketing and been using most of them. Most of the marketing use case, where we've wound care or vice versa, they're doing care and we won some marketing.
My comment was mostly directed at the idea that there was a lot of features and functionality that.
We're in sprout <unk> were coming quickly on the roadmap that didn't quite exist, yet and social studio and was it was on the wish list for customers and that was a driver when you're having the initial conversations with salesforce and social studio around the that we would have for their customers. So I mean things like rent it listening.
If we think about Instagram Dms last year.
<unk>, which we obviously released.
<unk> is another example, there is a bunch of functionality like that.
I'd imagine it's pretty critical for the practitioners that are accounting on these solutions counting on spread everyday that they didn't have before.
So a little bit of expansion certainly unused case, some more opportunity there for us.
A lot of these features that didn't exist that existed in sprout had been a big part of the conversation and the driver.
Yes, I will add.
Anecdotally that I think.
A lot of folks that we're talking to at this stage in the partnership.
Just focused on.
Let's get the solution in place.
They are excited about some of the things that we're bringing to the table, but let's get that resolved.
See there wheel spinning around what the additional opportunities may look like additional departments that can now be brought in and things like that.
But I think the first order of business for most of them is.
Get the solution in place and up and running and as you know.
Relatively early.
In those.
Sales processes and conversations.
Helpful. And then a follow up and then something it seems to be kind.
<unk> talked around for the call.
The presence of short term video short form video.
I wanted to ask specifically on the.
The difference between organic changes in users that prioritize different forms of content versus proactive changes by the social networks to <unk>.
The algorithm and the prioritization that content. So generally just have you seen any distinct algorithm changes that those large networks that are prioritizing the short form video products that makes it sort of a change in the continuity of social for your customers and maybe generally speaking is that been disruptive or additive to the value of sprout.
Yeah. So.
We haven't seen.
That flow through to behavior changes around the things that are that our customers are spending all of their time at sprout doing.
Engaging publishing content measuring analytics listening et cetera.
So, but there is a distinct difference right and if you look at the recent changes too.
<unk>.
The Facebook feed for example, where those were prioritized they were very much prioritizing the short Mark sure short form videos.
And.
That does change the consumer experience I think quite a bit but.
At least from what we've seen in the press.
That may be changing back or has changed back to some degree.
So I think most of the <unk>.
End user experience.
As that shifting and the networks are prioritizing that short form video in their own algorithms.
But we're also seeing there is an opportunity to opt in or out of what the algorithm is suggested versus what their normal engagement patterns would be so I don't know how to disrupt it really is I think it will take a few more quarters to figure that out.
But two I think the spirit of the question.
And how it's changing things.
For our end customers.
Hey, Jonathan.
Back I dropped.
So one of the networks was listening to my answer and maybe didn't like it.
But in terms of changes to behavior to what our customers are doing the value of.
The platform et cetera.
We've seen a lot of these algorithm changes over the years and it really hasnt.
Has it slowed down to the brands and what they're doing.
I think it probably is increasing the emphasis on them getting.
Internal plans together to be able to tackle short form video in ways that they haven't in the past.
But there again, that's something that we help them out with.
Through our platform and through the tools that we make available to them.
I appreciate it sorry, I don't know how much of that answer cut out, but hopefully I hopefully I hit the key points for you absolutely. Thank you.
Yep.
Your next question comes from the line of D. J Hynes with Canaccord Genuity. Your line is open.
Alright, Justin we'll see if you might can work for one more and I'll keep it to one.
No.
Risky alright sounds good.
Road map prioritization.
So care I'm just curious like what are you hearing from customers. What are you seeing in the market that kind of reinforces the bet, you're making there and maybe that's a good segue to talk about the record win.
Social care you touched on in the quarter.
Yeah sure so.
I think that the the signals that we're seeing.
The most obvious one is just the wins that we're seeing.
Around those use case opportunities and the the.
Large, particularly in the mid market enterprise opportunities that we're seeing that are oriented around care typically.
Typically a high number of users typically land on the higher side of the deal sizes et cetera. So that's certainly a pulling function and supports.
We're prioritizing those things.
The other thing I think is just operational maturity within the organizations, how theyre thinking about care through social channels.
Where I think for a long time. It was really just kind of this hybrid of community management.
And we're going to respond to our community and answer questions there.
It's being operationalized in a way that looks a lot more like.
More typical approaches to customer service right. So you've got things like SLA is you've got things like.
More complex routing.
And successful Handoffs between agents and things like that and so there's just a ton of opportunity for US there I think we do a phenomenal job with this today.
As I think as demonstrated in the success that we've seen there.
But it's also just a really fascinating part of the roadmap that has a ton of potential for us.
We're particularly as we're talking with some of our largest customers and the things that they would like to do to further advance their care through social and we can help them support that.
Just a ton of roadmap there thats really exciting on that front.
Yes that makes sense congrats on the results guys. Thanks.
Thank you.
Your next question comes from the line of Michael Rockers with Needham Your line is open.
Hey, everyone, it's actually Scott Berg here.
The question is really more on the macro.
Sorry in regards to your assumptions in the guidance in the back half I just wanted to get some clarity in terms of.
Maybe what youre seeing there.
The estimate for the back half of the guidance. So I don't know, maybe a little bit more cautious with what you've seen historically, just maybe hear a little more color there that would be great. Thank you.
Yes, Scott I think.
We felt pretty good come out of this quarter, our ability in the macro environment to raise our guidance by more than what we would be and so we feel like there's a lot of momentum in the business and as you know we're pretty.
Responsible in the way, we give guidance, we'd like to give it in a way that we have a high confidence level of hitting and.
And so I think from that perspective, we feel that we're pretty well positioned to execute on our plan in the back half of the year and everything that we've given out from a guidance standpoint is taken into consideration kind of unknown risks that we have in some of the unknown risks out there and so I think we factored all that into our into our guidance for the back half of the year.
Great Super helpful. That's all I have today is taking my question.
Yeah.
Okay.
Your next question comes from the line of Brett Knoblauch with Cantor Fitzgerald. Your line is open.
Hi, guys. Thanks for taking my question.
Just two for me first with E com being weaker largely due to the macro.
Probably what youre seeing in terms of growth of social commerce, and how that's doing and what you're investing on their kind of further drive that growth.
Yeah, Yeah. So.
It's interesting.
In that.
It may be surprising to hear that we're actually increasing our investment.
Some of the commerce things that we're building.
And a lot of absolutely with as we've discussed before this is a multiyear arc for us.
We're very early in the social commerce side of things.
There are a lot of fundamental things that we've built a lot of really cool things that we want to be building for our customers as we look out over the long term role that social commerce is going to be playing and so while there.
Maybe some volatility broadly speaking.
Around online commerce.
We're fortunate with the air cover of.
We're early in this.
It hasn't been a material part of.
Our performance or the projections that we're making.
We've got the time.
To be able to make sure that we get this right without having to overreact to anything that's happening.
From quarter to quarter. So we're still on our fundamental road map.
That hasnt changed and we're putting more effort and investment there.
Yeah.
Nothing super disproportionate or anything else, but it is a team that we are ramping up in <unk>.
Continuing to push that roadmap forward.
Regardless of I think quarter to quarter performance, there regardless of any.
Covid lag that some of the.
Companies that are focused there may see.
This is going to be a big part of the industry for a long long time, and we've got the opportunity to get it right.
So it's still an area we're super excited about.
Perfect. Thank you that's helpful and then maybe just on <unk>.
The demand environment that we heard from a couple of companies so far talk about sales cycles lengthening.
And also maybe EMEA being particularly weak have you seen any of those impact your business I know EMEA, maybe 17, 18% of our business.
Yes, Thanks, Brian .
No.
From a sales cycle perspective, again, because of the trial model, because 90% plus of our revenue touches the product before they buy it kind of distinct advantage there and that are coming to us inbound model for a reason in the product. We are starting the implementation they are investing resources to go through.
It hasnt helped different than what we've had before.
And then from an EMEA perspective, you're right in terms of just the value of that business. The teams performed really well the growth for them was among the highest that we had this quarter. So we're still feeling really strong but the opportunity. There. We also feel like there's a lot of upside and we're still early within that market. So those.
Two areas for us have not been.
Concerns based on performance.
Perfect. Thanks for that appreciate it.
I'm from.
Yes, we can take one more question and the question comes from Jim Masako with Factset. Your line is open.
We must have the same internet provider.
I think his question there are no further questions at this time I would now like to turn the call back over to the presenters.
Alright. Thank.
Thank you I am not sure if over time or not but I'll get us out of your quickly.
You as always for the support thanks for the great questions.
We look forward to catching up with everyone over the next couple of days weeks and quarters here.
And we'll let you get on with your day. Thank you so much.
This concludes today's conference call you may now disconnect.
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