Q3 2022 Sprout Social Inc Earnings Call

November 3, 2022

'twenty two earnings conference call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during that time simply press. The star followed by the number one on your telephone keypad. If he would like to withdraw your question again press Star one.

And Jason Russell you may begin.

Okay.

Thank you operator, and welcome to Sprout, social third quarter 2022 earnings call.

We'll be discussing the results announced in our press release issued after market closed today and have also released an updated investor presentation, which can be found on our website.

With me are sprout, social CEO Justin Howard.

So Joe del Preto, and President Ryan Barretto.

Today's call will contain forward looking statements, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.

Forward looking statements include among others statements concerning financial business and customer trends.

Our expected future business financial performance and financial condition.

<unk> against our multiyear financial framework, our market size and opportunity are.

Our plans objectives and expected results for future operations growth products investments initiatives pricing or strategies.

And our guidance for the fourth quarter of 2022, and full year 2022, 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 any future quarterly and current reports that we file with the SEC.

During the call, we'll discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles definitions of these non-GAAP financial measures along with reconciliations to the most directly comparable GAAP financial measures are included in our earnings press release, which has been furnished to the SEC and is available on our website at investors <unk>.

Sprout social dot com.

And with that let me turn the call over to Jonathan Johnson.

Thank you Jason and good afternoon, everyone. Thank you for joining US I know this is a busy day and we appreciate you all being here.

To get right into it we're in a fortunate position today to raise our annual growth and margin guidance for the third time this year.

The business environment has changed and we're mindful of the risks that remain however, we're in a position today to guide to record net new <unk> in Q4, greater than 30% Q4 revenue growth and greater than 300 basis points of year over year margin expansion in Q4.

We believe this is a testament to the power of our model execution of our teams and mission criticality of our software.

We also have some exciting go forward updates to share today that we believe positioned sprout to accelerate both growth and efficiency heading into 2023.

Some of the highlights from the third quarter include 40% year over year growth in customer spending 10000 or more in IRR.

76% year over year growth in customer spending 50000, or more an IRR and our seventh consecutive quarter of positive free cash flow.

Very strong enterprise new business growth also underscores accelerating growth momentum in billings and <unk> as social continues to cement its strategic importance to the world's largest organizations.

We also have a growing pipeline and business stemming from our salesforce partnership including sequentially more than doubling the number of new customers joining sprout this quarter from Salesforce and an exciting new integration with service cloud.

Conversely, we did experienced sensitivity at the low end of our market.

Like many software companies, we've seen those customers most effected by an adverse business environment behave differently in Q3.

As the economy weakened the low end of our customer base experienced slower expansion activity and we converted these customers at a slower than typical pace.

This reality ultimately capped a portion of our upside and net additions this quarter door overall performance remains strong.

Yeah.

As you all know we've been increasingly focused upmarket with our recent successes. We've also learned a great deal.

The underlying shift of our resources and focus has been unfolding for several years and we entered our annual planning period. This summer compelled to sharpen our focus on priorities even further.

As we now look ahead into 2023, we see an exciting opportunity to move faster in service of the fastest growing parts of our business to fully align our team around that opportunity and to further accelerate our growth.

Over the past 12 years, we've developed a duality in our customer base with significant investment and strategic focus going towards two dramatically different audiences.

At one end of the spectrum, we see approximately 80% of our current revenue and more than 90% of our new revenue growth coming from customers with an average IRR of more than 10 times the rest of the customer base.

These customers land with similar cost and similar sales cycles as the rest of our customer base bearing an LTV many multiples higher than net dollar retention north of 120%.

At the opposite end of the spectrum, we have a large population of customers contributing a small amount of revenue that are increasingly expensive to acquire hard to retain and are not mature enough yet to get the full value from sprout.

Our ability to serve all parts of the market has worked in our favor for more than a decade, but as the market our platform budgets and the strategic value of social media have continued to climb our efforts at the low end of the market have slowly produced lower quality revenue as we've become very affordable to customers that were previously priced out of our offer.

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This has come at a high opportunity cost with significant budget and resources applied to an unproductive part of our business and it's created a posing tension to the healthiest parts of our business.

As a result, we've seen an underlying anchor on our growth margins and our strategic focus.

We've also been disproportionately undervaluing, what we deliver to our target buyers.

Plainly, we have been under monetizing our platform by trying to serve the low end of the market and our core customers with a pricing model that works for everyone.

The last time, we made meaningful pricing changes was in 2017, which creates more than 500 material new product enhancements, including the vast majority of features workflow networks and integrations of course proud today.

As we look to realign the entry price to sprout to match the most productive parts of our business. We have made two changes.

First effective this week, we've changed the pricing that new customers see including meaningful price increases across all of our subscription tiers and the addition of an enterprise plan, which includes our premium offerings.

Second starting in Q4, we will begin making modest price increases for existing customers for the first time.

Many of which are paying the same price they were paying a decade ago.

By aligning our pricing product go to market and customer success strategies around the most productive customers and potential customers. We believe we have the opportunity to accelerate our brand competitive and category leadership as well as our growth.

We have social media have continued to climb our efforts at the low end of the market have slowly produced lower quality revenue as we've become very affordable to customers that were previously priced out of our offerings.

Importantly, this evolution in our strategy does not require us to limit our tam or scale back growing investments in our team, we're simply fully aligning our strategy and team with the customers at the right stage in their journey and maturity with social.

This has come at a high opportunity cost with significant budget and resources applied to an unproductive part of our business and its created opposing tension to the healthiest parts of our business.

And we're still going to leave it the same inbound product led motion that's made us so successful.

These changes properly reflect the growth and maturity of our industry and the value, we're providing to our customers.

As a result, we've seen an underlying anchor on our growth margins and our strategic focus.

Our software is more valuable than ever before our market is rapidly maturing as companies harness the full power and potential of social.

Yeah.

We've also been disproportionately undervaluing, what we delivered to our target buyers.

Said plainly we've been under monetizing our platform by trying to serve the low end of the market and our core customers with a pricing model that works for everyone.

We're seeking to maximize the value of the most productive parts of our market, which currently contribute the vast majority of our growth.

By eliminating these strategic tension on our business optimizing our monetization strategy and pressing on our competitive advantages. We believe we are positioning sprout to accelerate growth and accelerate efficiency on a multiyear basis.

The last time, we made meaningful pricing changes was in 2017, which predates more than 500 material new product enhancements, including the vast majority of futures workflow networks and integrations of course proud today.

Energized and excited to unleash our full potential into 2023 and beyond and with that I'll turn the call over to Ryan.

As we look to realign the entry price to sprout to match the most productive parts of our business. We have made two changes.

Thanks, Justin I'm incredibly grateful for our customers, who are continuing to see more value in our platform and by our teams who continue to execute.

The global business environment and technology industry are clearly undergoing change this impacts every team differently and then our market our competitors are distracted back pedaling or both.

Second starting in Q4, we will begin making modest price increases for existing customers for the first time.

While we're continuing to invest in the most productive areas of the business and our hiring incredible talent.

Many of which are paying the same price they were paying a decade ago.

We've been on the offensive with the most compelling and innovative product roadmap that we've ever delivered very strong momentum from our strategic partnerships and now new monetization and alignment around our healthiest customers. We're working relentlessly to establish <unk> as a category defining company.

This preceded leadership against with Great teams during Q3, great place to work and people magazine named spread to their top 100 companies that care list.

Which gathered feedback from thousands of verified sales professionals ranked social as the number one best public company to work for.

And we're still going to leave it the same inbound product led motion that's made us so successful.

You also named <unk> on the top 20 best companies for diversity inclusion the 20 best companies for professional development and then 'twenty best companies for culture and leadership.

These changes properly reflect the growth and maturity of our industry and the value, we're providing to our customers.

Our software is more valuable than ever before our market is rapidly maturing as companies harness the full power and potential of social.

We have a truly special team.

Recent progress survey, our internal engagement score increased 200 basis points from last year.

We're seeking to maximize the value of the most productive parts of our market, which currently contribute the vast majority of our growth.

It's amazing to see was that 96% of our team would recommend as a great place to work. These are the type of teammates that show up every day to take amazing care of our customers. Great teams are also the foundation of product leadership and our product teams have been on fire.

By eliminating the strategic tension on our business optimizing our monetization strategy and pressing on our competitive advantages. We believe we are positioning sprout to accelerate growth and accelerate efficiency on a multiyear basis.

During Q3, we enhanced our video management functionality with the integration of <unk>. We expanded listening to include Linkedin comment operation and we expanded our global partnership with Salesforce and launched our service cloud integration.

Energized and excited to unleash our full potential into 2023 and beyond and with that I'll turn the call over to Ryan.

Thanks, Justin I'm incredibly grateful for our customers, who are continuing to see more value in our platform and by our teams who continue to execute.

We also launched our more integrated employee advocacy solution, which enables brands to manage their employee driven amplification efforts within the industry's most natively integrated suite.

The global business environment and technology industry are clearly undergoing change this impacts every team differently and then our market our competitors are distracted backpedaling or both.

For a product that remains the industry's highest rated platform across most dimensions on review sites like <unk> and trust radius, we're continuing to raise the bar and deliver more value to our customers.

While we're continuing to invest in the most productive areas of the business and our hiring incredible talent.

Coming back to the service cloud integration, we have been working directly with the Salesforce service cloud product team since March to build spoke natively into the service cloud console offering a truly unique approach to how salesforce CRM can now connect with social.

This empowers salesforce customers to manage all of their social customer character <unk> from service cloud without changing the workflow.

This preceded leadership against with Great teams during Q3, great place to work and people magazine named spread to their top 100 companies that care list rescue, which gathered feedback from thousands of verified sales professionals ranked sprout social as the number one best public company to work for.

We changed the game for social customer care with a highly differentiated approach as we continue to go deeper into social customer care, we're unlocking increasingly very large customer deployments with an intuitive frictionless approach.

He will also names on the top 20 best companies for diversity inclusion the 20 best companies for professional development and then 'twenty best companies for culture and leadership.

Already seen our first customers go live in early Q4.

Even prior to our integration with service cloud our partnership with Salesforce built momentum in Q3, as the number of customers coming to spread it more than doubled sequentially from Q2. In addition, it was an honor to present, a dream force and an incredible opportunity to meet with many of our largest prospects and customers.

We have a truly special team.

Recent progress survey, our internal engagement score increased 200 basis points from last year, what was amazing to see was that 96% of our team would recommend sprout as a great place to work. These are the type of teammates that show up every day to take amazing care of our customers. Great teams are also the foundation of product leadership and our product teams have been on fire.

I had a dream force and on the heels of our service cloud integration September represented our strongest ever month for enterprise pipeline creation, and we're excited to share new business execution coming out of what we expect will be a strong Q4.

Staying on the topic of Salesforce as we transition our customer stores for Q3, we were fortunate enough to win the business of the largest Ias player and this is what they had to share about their experience.

We are working to lead our industry towards delivering on the business value of social sudden Richard <unk>, Vice President and global head of social media sales force.

Also launched our more integrated employee advocacy solution, which enables brands to manage their employee driven amplification efforts within the industry's most natively integrated suite.

Intuitiveness and ease of use of the product is made for rapid adoption across our teams the minimal onboarding time as.

As a result of the completeness of spreads product regulatory new feature enhancements and exceptional customer success efforts, we've accelerated our implementation timeline and we feel well positioned to be industry leaders for many years to come.

Coming back to the service cloud integration, we have been working directly with the Salesforce service cloud product team since March to build natively into the service cloud console offering a truly unique approach to how salesforce CRM can now connect with social distance.

The broader group of brands that we grew it this quarter is a cross section of leading franchises across all segments of the economy.

This success was clearly felt in our Midmarket and enterprise segments. It is also clear in EMEA, which continues to be our fastest growing geography.

This empowers salesforce customers to manage all of their social customer character record from service cloud without changing their workflow.

This speaks to both the magnitude of our opportunity and the critical nature of social and includes peloton Jcpenney Bausch and Lomb carrier on AG Sunrun Clayton homes Compass, Canada, Shutterstock talented <unk> Monday Dot Com vineyard vines, Duke health system, and the department of health and human.

Services.

While I'm proud of the way we are delivering through an uncertain time I've never been more certain that we're on the path to unlock our full potential.

Our partnerships are building momentum our teams are up leveling and new product enhancements are delivering tremendous incremental value to our customers as we align around the healthiest and most impactful areas of our business with an incredible team focused on the biggest opportunities. We believe <unk> is well positioned for success in the near and long term.

Staying on the topic of Salesforce as we transition our customer stores for Q3, we were fortunate enough to win the business of our largest SaaS player and this is what they had to share about their experience.

At work and excited about what we're building and with that I'll turn it over to Joe to run through the financials Joe. Thanks.

Thanks, Brian I'll now walk you through our third quarter results in detail before moving onto guidance for the fourth quarter and full year 2022.

We are working to lead our industry towards delivering on the business value of social <unk>, Vice President and global head of social media sales force.

We're pleased to deliver durable growth positive free cash flow for the seventh consecutive quarter to raise our expectations for the year underscoring the mission criticality of organic social media management.

<unk> business and ease of use of the product is made for rapid adoption across our teams the minimal onboarding time as.

Revenue for the third quarter was $65 3 million, representing 32% year over year growth.

<unk> exiting Q3 was $271 3 million up 33% year over year.

The broader group of brands that we grew it this quarter is a cross section of leading franchises across all segments of the economy.

With the global business environment, showing stream, we did see slower Q3 customer activity for both new business and expansion with our lowest touch least sophisticated customers.

This success was clearly felt in our Midmarket and enterprise segments. It is also clear in EMEA, which continues to be our fastest growing geography.

Our mid market and enterprise segments continue to outperform our expectations.

This speaks to both the magnitude of our opportunity and the critical nature of social and includes peloton JC Penney Bausch and Lomb carrier on AG Sunrun Clayton homes Compass, Canada, Shutterstock Volunteer Monday Dot Com vineyard vines, Duke health system, and the department of health and human.

Bring a disproportionate amount of our net new <unk>.

Driven by healthy momentum in our enterprise business, our ramping partnerships and previously unanticipated pricing changes, we expect to have a record net new <unk> in Q4.

We added 638 net new customers in Q3 to finish the quarter with 34000.

Services.

258 customers up 12% year over year.

While I'm proud of the way we are delivering through an uncertain time I've never been more certain that we're on the path to unlock our full potential.

The number of customers contribute more than $10000 in the <unk>.

<unk> 6111 up 40% from a year ago.

The number of customers contributing more than $50000 and <unk> reached 843 up 76% from a year ago and our strongest ever 50, K. Net addition quarter outside of the Q4 <unk>.

Q3, ACB growth of 19% year over year was again, driven primarily by larger initial deal sizes.

At work and excited about what we're building and with that I'll turn it over to Joe to run through the financials Joe. Thanks.

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 the earnings press release that was just issued before this call.

Thanks, Brian I'll now walk you through our third quarter results in detail before moving onto guidance for the fourth quarter and full year 2022.

In Q3 gross profit was $50 7 million, representing a gross margin of 77, 6%.

Revenue for the third quarter was $65 3 million, representing 32% year over year growth.

This is up 220 basis points compared to gross margin of 75, 4% a year ago and again represents our highest gross margin in five years.

<unk> exiting Q3 was $271 3 million up 33% year over year.

Sales and marketing expenses for Q3 were $26 2 million or 40% of revenue up from 39% a year ago.

With the global business environment, showing stream, we did see slower Q3 customer activity for both new business and expansion with our lowest touch least sophisticated customers.

We're fortunate to hire well throughout the quarter, we continue to make meaningful investments in our future.

Our mid market and enterprise segments continue to outperform our expectations and are powering a disproportionate amount of our net new <unk>.

Research and development expenses for Q3 were $13 2 million or 20% of revenue up from 19% a year ago.

Driven by healthy momentum in our enterprise business, our ramping partnerships and previously unanticipated pricing changes, we expect to have a record net new <unk> in Q4.

Head count in absolute expense growth continues to match the trajectory of transport of R&D investments General Administrate expenses for Q3 were $12 7 million or 19% of revenue down from 21% a year ago.

We added 638 net new customers in Q3 to finish the quarter with 34258 customers up 12% year over year.

Our G&A spending and expect deliver consistent leverage as a percentage of revenue going forward.

The number of customers completing more than $10000.

non-GAAP operating expense loss for Q3 was $1 4 million for negative two 2% operating margin.

<unk> 6111 up 40% from a year ago.

The number of customers contributing more than $50000 now reached 843 up 76% from a year ago and our strongest ever 50, K. Net addition quarter outside of a Q4 Q.

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 Q3 was 1.0 million for a net loss of <unk> <unk> per share based on $54 7 million weighted average shares of common stock outstanding compared to a net loss of $1 8 million and <unk> <unk> per share a year ago.

Q3, ACB growth of 19% year over year was again, driven primarily by larger initial deal sizes.

Turning to the balance sheet and cash flow statement. We ended Q3 with $181 9 million in cash cash equivalents and marketable securities up from $181 7 million at the end of Q2.

Deferred revenue at the end of the quarter was $85 1 million a strong sequential increase.

In Q3 gross profit was $50 7 million, representing a gross margin of 77, 6%.

We continue to progress nicely to a high water mark anticipated in Q4.

This is up 220 basis points compared to gross margin of 75, 4% a year ago.

Looking at both our billed and Unbilled contracts, our remaining performance obligations or <unk> totaled approximately $136 9 million up from $127 $6 million exiting Q2 and up 50.

And again represents our highest gross margin in five years.

Sales and marketing expenses for Q3 were $26 2 million or 40% of revenue up from 39% a year ago.

57% year over year.

We expect to recognize approximately 81% or $110 3 million of total <unk> revenue over the next 12 months.

We're fortunate to hire well throughout the quarter, we continue to make meaningful investments in our future.

Research and development expenses for Q3 were $13 2 million or 20% of revenue up from 19% a year ago.

Operating cash flow in Q3 was positive 1.0 million compared to $4 4 million a year ago pre.

In absolute expense growth continues to match the trajectory of transformative R&D investments General Administrate expenses for Q3 were $12 7 million or 19% of revenue down from 21% a year ago.

Free cash flow was positive $5 million for positive, 1% free cash flow margin ahead of our expectations shifting to formal guidance for the fourth quarter of fiscal 2022, we expect revenue in the range of $69 eight to $69 9 million a growth rate of 31%, we expect non-GAAP operating loss in the range of 1.0 million to 0.9.

We have normalized our G&A spending and expect deliver consistent leverage as a percentage of revenue going forward.

non-GAAP operating expense loss for Q3 was $1 4 million for negative two 2% operating margin.

Yeah.

This represents an anticipated operating margin of negative 1%.

The non-GAAP net loss per share of roughly <unk> <unk>, assuming approximately $54 8 million weighted average basic shares of common stock outstanding for the full year fiscal 2022 announcement total revenue in the range of 254.0 million to $254 1 million.

We are pleased with the ongoing efficiency improvements as we scale and we exceeded our expectations this quarter due to revenue outperformance.

This is an expected overall reported growth rate of greater than 35%. We're pleased to have our third consecutive quarter increased to 2020 to annual guidance.

Turning to the balance sheet and cash flow statement. We ended Q3 with $181 9 million in cash cash equivalents and marketable securities.

For 2022, we expect non-GAAP operating loss in the range of $5 5 million to $5 4 million.

This implies annual non-GAAP operating margin expansion of roughly 130 basis points up from our prior margin expansion range of 110 basis points to 120 basis points. We're.

We're pleased to 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 of roughly 10.

Assuming approximately $54 6 million weighted average basic shares of common stock outstanding shifting to the financial considerations for the focus we've outlined today.

As Jeff and Ryan have discussed if tighten our strategic focus around the healthiest customers in our market.

Believe this path will unleash our full growth potential.

While we're early I do want to lay out a framework for how we're thinking about this focus.

Our lowest tier standard plan has been increased in price by more than two X, we've shifted pricing higher across our plans as we begin to appropriately monetize the value we deliver to our customers.

We've also begun to implement price increases on existing customers for the first time.

In the immediate term we expect these changes to drive an acceleration in the rate of ACD growth.

The intermediate term, we would expect these changes to drive a step function change in ACB growth no.

The long term, we expect continued durable ACB growth as the market matures into our sweet spot.

Blind to much higher <unk> and a more sophisticated customer base. We also expect to work towards world class and Dr at or above 120% on a multiyear basis.

We now expect total revenue in the range of 254 point, Joe million to $254 1 million.

This is an expected overall reported growth rate of greater than 35%. We're pleased to have our third consecutive quarter increased to 2020 to annual guidance.

We're also improving our unit economics.

This strategy may price out those customers that are not ready yet to invest in sprout.

2022, we announced like non-GAAP operating loss in the range of $5 5 million to $5 4 million.

A smaller number of net new customer additions each quarter.

Alright, keeping prices low to cater to the low end of our market.

This implies annual non-GAAP operating margin expansion of roughly 130 basis points.

Anchoring our growth everywhere else, especially where our customer value proposition increases exponentially and demand is more inelastic.

Our prior margin expansion range of 110 basis points to 120 basis points.

We're pleased to forecast faster revenue growth with improved efficiency, even as we continue to make growth investments for our future.

We expect the impact on margins will be net positive will not be shy about investing in new sales capacity behind strong enterprise demand signals.

We expect a non-GAAP net loss per share of roughly 10.

All else being equal we expect to see improvement in our rule of 40 calculation through a combination of faster revenue growth and stronger margins.

Approximately $54 6 million weighted average basic shares of common stock outstanding shifting to the financial considerations for the focus we've outlined today.

In summary, our Q3 financial performance highlights the underlying resiliency of our business model.

As Jeff and Ryan have discussed to tighten our strategic focus around the healthiest customers in our market.

Driven by a very strong enterprise new business ramping contribution from our Salesforce partnership and a powerful pricing evolution, we expect our momentum to strengthen through Q4 as.

We believe this path will unleash our full growth potential.

While we're early I do want to lay out a framework for how we are thinking about this focus.

Our lowest tier standard plan has been increased in price by more than two X, we've shifted pricing higher across our plants as we begin to appropriately monetize the value we deliver to our customers.

As we look forward, we remain confident in our ability to outperform our medium term goal is to deliver greater than 30% annual revenue growth and 100 to 300 basis points of annual operating margin improvement.

We've also begun to implement price increases on existing customers for the first time.

Even against the backdrop of this business environment. We believe we are positioned to pull away and define category leadership in the 100 billion market opportunity ahead.

In the immediate term we expect these changes to drive an acceleration in the rate of ACB growth.

With that Justin Ryan and I are happy to take any of your questions operator.

In the intermediate term, we would expect these changes to drive a step function change in ACB growth.

The long term, we expect continued durable ACB growth as the market matures into our sweet spot.

Thank you and again, everyone to ask a question that is star one on your telephone keypad and we'll pause for just a moment to compile the Q&A roster.

Aligned to much higher <unk> and a more sophisticated customer base. We also expect to work towards world class MBR at or above 120% on a multiyear basis.

Yeah.

And our first question will come from P. J <unk> of Canaccord.

We're also structure improving our unit economics.

Hey, guys nice to see the strong results and exciting updates as we look forward.

This strategy may price out those customers that are not ready yet to invest in sprout.

Joe maybe I'll start with you just on the pricing stuff. So I think I heard you quantify whats happening at the low end right. You said two X increase at the lowest tier.

A smaller number of net new customer additions each quarter.

Alright, keeping prices low to cater to the low end of our market been anchoring our growth everywhere else, especially where our customer value proposition increases exponentially and demand is more inelastic.

Justin said earlier that 90% of our growth is coming from customers that are kind of 10 X. The size of the rest of the base what's happening to pricing.

We expect the impact on margins will be net positive will not be shy about investing in new sales capacity behind strong enterprise demand signals.

For that majority of customers that are contributing to growth I'm not sure I heard you quantify it there and that would be helpful. As we think about the model going forward.

All else being equal we expect to see improvement in our rule of 40 calculation through a combination of faster revenue growth and stronger margins.

Yes, So I think if you look at the other plans that we have like on the professionally in the advance you're probably seeing about close.

Close to up 50% to 100% increase on the initial.

In summary, our Q3 financial performance highlights the underlying resiliency of our business model.

Entry price and then when you get into the enterprise.

Driven by a very strong enterprise new business ramping contribution from our Salesforce partnership and a powerful pricing evolution, we expect our momentum to strengthen through Q4 as.

Module, there and the higher end C. J, that's where we don't have the pricing on the website. So we think.

There's a lot of opportunity up there.

Yes. This is Ryan ill, maybe add in there.

As we look forward, we remain confident in our ability to outperform our medium term goal to deliver greater than 30% annual revenue growth and 100 to 300 basis points of annual operating margin improvement.

All of our plans went up.

A very healthy way from two to two five X where they were before or we've added an enterprise plan at the top end.

Even against the backdrop of this business environment. We believe we are positioned to pull away and defined category leadership in the 100 billion market opportunity ahead.

Where where it's a bit more of a custom build and a big driver. There was that we know that those customers want to consume a lot more of our products and our previous pricing strategy.

With that Justin Ryan and I are happy to take any of your questions operator.

Thank you and again, everyone to ask a question that is star one on your telephone keypad and we'll pause for just a moment to compile the Q&A roster.

I think we were anchor ourselves too low with some of the plans and we know that those enterprise customers do prefer the opportunity to customize the plans for themselves. So our enterprise team is really excited about having the ability to bundle a bunch of our premium products together. So we expect significant increases in the ACB opportunity for them as well.

Yeah.

And our first question will come from P. J <unk> of Canaccord.

Hey, guys nice to see the strong results and exciting updates.

Yes, that's helpful color.

And just one clarification. So you expect to have by the end of Q4 that rolled out to your entire customer base is that right.

As we look forward.

Joe maybe I'll start with you just on the pricing stuff. So I think I heard you quantify whats happening at the low end right. You said, a two X increase at the lowest tier.

This adjustment so I'll clarify that the pricing for new business.

Justin said earlier that 90% of your growth is coming from customers that are kind of 10 X. The size of the rest of the base whats happening to pricing.

Went live earlier this week you can find that on our website.

That is for all new customers, who are coming to join sprouts starting to.

That majority of customers are contributing to growth I'm not sure I heard you quantify it there and that would be helpful. As we think about the model going forward.

Tuesday, leaving the answers that we rolled out.

Yes, So I think if you look at the other plans that we have like on the professionally in the advance you're probably seeing about.

For existing customers.

We are looking at.

A different approach there so I just want to make that clear.

Close to up 50% to 100% increase on the initial.

We're looking at nominal increases to existing customers.

Entry price and then when you get into the enterprise.

Pricing thats going to rollout over the next 12 months.

Module, there and the higher end C. J, that's where we don't have the pricing on the website. So we think.

To varying degrees depending on.

Yeah.

The agreements that they have with us their tenure et cetera, yes.

There's a lot of opportunity up there.

Yes. This is Ryan.

Okay perfect.

Add in there.

And then just shifting gears I'd love to ask about the sales force adds.

All of our plans went up.

A very healthy way from two to two five X where they were before or we've added an enterprise plan at the top end.

Obviously, we saw a meaningful acceleration there I think you had talked about that being more of a renewal dynamics are happening at renewals. So maybe it's just timing.

Where where it's a bit more of a custom build and a big driver. There was that we know that those customers want to consume a lot more of our products and our previous pricing strategy I think.

Double versus Q2 feels like it might be something market. So can you just talk about what's happening with that relationship.

Yes happy to.

We are continuing to see really great success in growth there coming off a dream for US we saw one of our best pipeline months ever specifically with the Enterprise group. The service cloud integration that we've been working on that has been in beta where we've got our first set of customers going live.

We were anchor ourselves too low with some of the plans and we know that those enterprise customers do prefer the opportunity to customize the plans for themselves. So our enterprise team is really excited about having the ability to bundle a bunch of our premium products together. So we expect significant increases in the ACB opportunity for them as well.

Now in early Q4 is a great example of that partnership.

Yes.

For color.

And just one clarification. So you expect to have by the end of Q4 that rolled out to your entire customer base is that right.

We continued to see a lot of progress co selling with the Salesforce team, so having them and show us into accounts. Many of those certainly are customers that are coming off of the social studio product, but we're also starting to see some customers that are examples of just salesforce.

This is Justin so I'll clarify that.

Pricing for new business.

<unk> went live earlier this week you can find that on our website.

That is for all new customers, who are coming to join sprouts store.

Customers not necessarily using the social product, where they do need social and spreads being introduced as their preferred partner.

Turning.

Tuesday late into the ounces that we rolled out.

Awesome Alright. Thank you guys appreciate all the color.

For existing customers.

Thank you.

We are looking at.

Yeah.

A different approach there so I just want to make that clear.

And our next question will come from Ian.

We're looking at nominal increases to existing customers.

Blair.

Perfect. Thank you guys for taking the question.

Pricing thats going to rollout over the next 12 months.

I wanted to touch on some of the comments I think that you made around the Q4 pipeline and with it being expected to be the best I think.

To varying degrees depending on.

The agreement that they have with us they are 10 year et cetera.

Okay perfect.

And then just shifting gears I'd love to ask about the sales force adds.

Our incremental <unk> quarter.

History is that when you think about the composition of that pipeline is that going to be mostly existing customer expansions or do you hope you do see quite a bit of new business in there whether that's whether that's organic.

Obviously, we saw a meaningful acceleration there I think you had talked about that being more of a renewal dynamic happening at renewal. So maybe it's just timing.

Double versus Q2 feels like it might be something market. So can you just talk about what's happening with that relationship.

Your pricing plans or with.

With with the Salesforce partnership, but just love to understand the dynamics there a little bit.

Yes happy to.

We are continuing to see really great success in growth there coming off a dream for US we saw one of our best pipeline months ever specifically with the Enterprise group. The service call integration that we've been working on that has been in beta where we've got our first set of customers going live.

Yes. Thanks.

It's really a combination about so we've continued to see really healthy new business and in our expansion as well, especially in our up market customers in Midmarket and enterprise. So it is a combination of those really good balance between new business and growth at <unk>.

Is it more to new business in Q4, just given the dynamic of the business and the ending of the year and certainly will include some of the Salesforce pipeline that we've been creating sort of in the last couple of quarters here.

Now in early Q4 is a great example of that partnership.

Okay got it and then if we just take a step back and if I had to think.

Higher level about what's happening in the.

In the market and the macro.

Where our customers just in terms of prioritizing their social investments today on the on the organic side, particularly where you play is that increasing relative to last quarter of the quarter before are you seeing it taper off a little bit just as folks are a little bit more cost conscious or.

Customers not necessarily using the social product, where they do need social and spreads being introduced as the preferred partner.

Awesome Alright. Thank you guys I appreciate all the color.

Thank you.

Yeah.

And our next question will come from Aaron of will.

I am Blair.

But from a secular tailwind, but youre not seeing.

Perfect. Thank you guys for taking the question.

Youre not seeing as big of an impact.

I wanted to touch on some of the comments I think that you made around the Q4.

From a macro relative to.

Are there other areas of the market.

Pipeline and with it being expected to be the best I think.

Yeah.

There's a couple different.

Our incremental <unk> quarter.

Examples of what we're seeing in the market here adjusted mentioned in the prepared remarks.

Lower end of the market I think thats, where youre going to see the most.

Compression from a new business perspective, and then a little bit from an expansion perspective as you go upmarket, we're continuing to see really really healthy demand and that flows through when you look at just the 10-K and 50, K and our pipeline creation and success in our Midmarket and enterprise does come.

Pricing plans or with.

With the Salesforce partnership, but just love to understand the dynamics, there a little bit.

Yes. Thanks.

It's really a combination about so we've continued to see really healthy new business and our expansion as well, especially in our up market customers in mid market and enterprise. So it is a combination of those really good balance between new business and growth.

Customers continue to have the same needs if not more the continuing to need social as a primary channel to market and in times like this I think there's also an opportunity to continue to look at that organic is a massive opportunity and when you may be cutting paid spend.

At weighted more to new business in Q4, just given the dynamic of the business and the ending of the year and certainly will include some of the Salesforce pipeline that we've been creating sort of in the last couple of quarters here.

From a customer care engagement perspective, where we have a lot of our roadmap dedicated customers are increasingly coming in wanting to ensure that they've got a better answer for how they're solving for customers on social so really good demand upmarket.

Okay.

Got it and then if we just take a step back and if I had to think.

Higher level about what's happening in the.

And the market and the macro.

And the low end of the market, where most of the compression coming but.

Where our customers just in terms of prioritizing their social investments today on the on the organic side, particularly where you play is that increasing relative to last quarter to quarter. Before are you seeing it taper off a little bit just as folks are a little bit more cost conscious or.

But it's been offset by what we've been dealing with our larger customers.

Okay got it that's very helpful. Thank you for taking the questions.

Thank you.

And next we'll go to the ammo Mitchell of Barclays.

Okay. Thank you.

But from a secular tailwind that you are not seeing.

I just wanted to go back to the pricing a little bit obviously, you must have done all the math around price elasticity et cetera.

Youre not seeing as big of an impact.

From macro relative to.

If you think about it and just to kind of prepare us for the fall modeling like.

Are there other areas of the market.

Yeah.

What should we think in terms of assumptions, obviously, you might have lower customer, but you might not get more churn as well, but then you get higher pricing from the guide 15 with you okay.

There's a couple different.

Examples of what we're seeing in the market here adjusted mentioned in the prepared remarks and the <unk>.

Lower end of the market I think thats, where youre going to see the most.

Any way you can help us how to think about how this will play out or should we just wait until it kind of hits.

Yes, Ryan I think the way, we're thinking about and we've talked about this before we really haven't focused on the number of customers that are coming in so the way we've been talking about this price increase and what we think on the website I think it's just going to drive higher acd's going forward, obviously, the price theyre coming in at just mean much higher for our current cut.

So if you think about how do you how do you monitor to that model. This out I think.

Consistent of what we've talked about over the last three years, which is we're optimizing for the AAR per customer. So as you continue to look at what our IRR growth as is and then what our ACB growth. There I just think youre going to see as you can imagine going forward and I talked about this a little bit in my prepared remarks, Youre, just going to see a much faster ACB growth in the near term and then.

Probably over the next intermediate term youre going to see a probably a step function change and our ACB growth. So that's how I would think about it from a modeling standpoint.

And the low end of the market, where most of the compression is coming but.

Yes, Okay perfect and then second question for me.

But it's been offset by what we've been dealing with our larger customers.

I mean, it's a it's the.

Okay got it that's very helpful. Thank you for taking my questions.

Correct step, but it's good to see.

Obviously, you're doing it in a time when the market is a little bit volatile macro is a little bit volatile and what drove that decision to make the call now versus.

Thank you.

And next we'll go to Raimo <unk> of Barclays.

Okay. Thank you.

Do it earlier I'll wait a little bit longer.

I just wanted to go back to pricing a little bit obviously, you must have done all the math around price elasticity et cetera.

Yes.

This is Justin Remo.

Good question.

So this is something that's been brewing for a while we've talked in the prepared remarks about how are you.

If you think about it and then just to kind of prepare assets with our modeling like what.

What should we be thinking in terms of assumptions.

Enterprise, having not seen in a long time.

See you might have lower customers, but you might not get more churn as well, but then you get higher pricing from the guide 15 with you is there any way you can help us how to think about how this will play out or should we just wait until it kind of hits.

With really over time kind of changing the dynamic of a long tail at the low end of the market for us and.

And those customers behave very differently have different needs.

And this was something that we saw as well.

Limiting in the sense that we Werent mom.

Yes, Ryan I think the way, we're thinking about and we've talked about this before we really haven't focused on the number of customers that are coming in so the way we've been talking about this price increase and what we think on the website I think it's just going to drive higher acd's going forward, obviously, the price deck coming in has been much higher for our current customers.

Monetizing the core part of our customer base.

I felt like there was certainly appetite for them relative to value that we are giving our customers.

But also just in terms of attention and resources and opportunity cost.

So this is something that.

We felt like was maybe a bit overdue something thats been brewing for a while.

So if you think about how do you how do you model that fit that model. This out I think it's very consistent of what we've talked about over the last three years, which is we're optimizing for the AAR per customer. So as you continue to look at what our IRR growth.

What was important to us to make.

Mick.

Right decisions.

The data tells us are the right decisions.

And then what our ACB growth there I, just think youre going to see as you can imagine going forward and I talked about this a little bit in my prepared remarks, Youre, just going to see a much faster ACB growth in the near term and then probably over the next.

To really align around the front of the customer base that we can best serve.

And the one that is.

Contributing most to the success of the business, obviously and.

Intermediate term youre going to see probably a step function change and our ACB growth. So that's how I would think about it from a modeling standpoint.

Another factor for some of the specific timing, making sure that we were able to get as much data and have this is fully baked as possible as we head into 'twenty three.

Okay, perfect and then.

Second question for me.

Andrew I mean, it's it's.

It's the correct step and it's good to see.

As we figure out what the.

Priorities and roadmap and planning look like.

Can you just do it in a time when the market is a little bit volatile macro is a little bit volatile what drove that decision to make the call now versus.

Wanted to make sure that we didn't carry this decision with us into 'twenty three.

The time was right.

Delta between those two groups of customers was big enough that we felt like we just really wanted to take action here in <unk>.

Do it earlier I'll wait a little bit longer.

Yes.

This is Justin Remo I appreciate the question.

At ourselves on the right foot.

Going into the next year.

So this is something that's been brewing for a while right we've talked in the prepared remarks about how are you.

Thank you good luck.

Yeah.

And our next question will come from Matt Parker Lane.

Entry price, having not seen in a long time.

It was really over time kind of changing the dynamic of a long tail at the low end of the market for us and.

Yes, hi, guys. Thanks for taking the question I was curious in light of the more uncertain macro are you seeing any meaningful change in the number of channels that customers are looking to support Ed or the size of social media management.

And those customers behave very differently have different needs.

And this was something that we saw as full.

Limiting in the sense that we werent.

Teams inside of the customer base are surfing. Thanks.

Monetizing the core part of our customer base.

Yeah.

It felt like there was certainly appetite for <unk> relative to the value that we are giving our customers.

So if I'm understanding the question, we're really just and this is the question Paul I'll answer so come.

But also just in terms of attention and resources and opportunity cost.

Come back on and correct me, if I had it wrong, but.

So this is something that.

We're not seeing a change in terms of the number of networks and profiles of our customers are looking to serve and the communities that they are looking to support.

We felt like the was maybe a bit overdue something thats been brewing for a while.

What was important to us to make.

Mick.

If anything with the addition of tick talk over the last couple of quarters, I think we've seen that tick up a bit.

Right decisions.

The data tells us are the right decisions.

And there is nothing in the macro that really changes that dynamic.

To really align around the part of the customer base that we can best serve.

In our from our perspective.

And one that is.

And I think the singles with social teams right the size of the team.

Contributing most to the success of the business, obviously and.

In large part a function of the number of channels to manage the size of the audience.

Another factor for some of the specific timing, making sure that we were able to get as much data and have this is fully baked as possible as we head into 'twenty three.

Volume of messaging and policies et cetera.

And that Hasnt changed materially it's not I mean that in any of the data that we have.

As we figure out what the.

And so.

That coupled with the fact that we're bringing in additional use cases additional departments et cetera. It can start on an upward trajectory.

Our priority is and roadmap and planning look like.

I wanted to make sure that we didn't carry this decision with us into 'twenty three.

I think to Ryan's earlier point to some of the prepared remarks I think at the.

The time was right.

Delta between those two groups of customers was big enough that we felt like we just really wanted to take action here in <unk>.

Lower end of the market and less sophisticated teams they may not ramp up as quickly as they would have in the past.

Got ourselves on the right foot.

Going into the next year.

But once they're kind of entrenched in.

Thank you good luck.

Committed to social strategically.

Yeah.

And our next question will come from Matt Parker Lane.

Not seeing anything there.

Got it I appreciate that and then there is a lot of stuff in the news, obviously about tick tock and Twitter curious to hear from some of your top customers, how they're thinking about the prioritization of spend across each of those channels through the remainder of 2022 and I was just wondering.

Yeah.

Teams inside of the customer base or survey. Thanks.

So we're probably not going to have the best perspective on the spend side just given that we're not involved in the advertising conversations that's just not part of the ecosystem that we plan I can tell you anecdotally from our customers I don't think that the prioritization has.

Yeah.

So if I'm understanding the question, we're really just and this is the question Paul I'll answer so come.

Come back on and correct me, if I had it wrong, but.

Changed much I think we've seen a change over the last two years.

We're not seeing a change in terms of the number of networks and profiles of our customers are looking to serve and the communities that they are looking to support.

Particularly as they think about the mix between Twitter, tictoc et cetera, but from the events in the last quarter or so.

If anything with the addition of talk over the last couple of quarters, I think we've seen that tick up a bit.

That they are thinking about.

And there is nothing in the macro that really changes that dynamic.

They haven't expressed a material shift in that I think in both of those cases are kind of weak.

In our from our perspective.

And I think the thing goes with social teams right the size of the team.

Waiting to understand what happens.

In large part a function of the number of channels to manage the size of the audience.

Right. Those are two very different situations that don't really have any kind of outcome at this point.

Volume of messaging and policies et cetera.

And that Hasnt changed materially at least not in any of the data that we have.

So I think we're there are some conversations happening in the background, but I don't know within any of it come through in the spend yet.

And so.

Understood. Thanks, again for taking the questions congrats on the quota.

That coupled with the fact that we're bringing in additional use cases additional departments et cetera, Keystone an upward trajectory.

Thank you.

Okay.

I think to Ryan's earlier point to some of the prepared remarks I think at the.

And next we will go to Matthew.

BPI.

Lower end of the market and less sophisticated teams they may not ramp up as quickly as they would have in the past.

Hey, good afternoon, guys. Thanks for taking the questions.

Yes, first maybe Joe or.

But once they're kind of entrenched in.

And you can help us out on kind of what youre buildup in thinking that.

Committed to social strategically.

Not seeing anything there.

Dollar retention remains very strong and sort of industry, leading as you mentioned.

Got it appreciate that and then there's a lot of stuff in the news, obviously about tick tock and Twitter curious to hear from some of your top customers, how they're thinking about the prioritization of spend across each of those channels through the remainder of 2022 and I'm just wondering.

How much price are you, including in that number of 140, plus given that sort of mentioned that nominal price increases will be rolling out over time through the existing customer base any expectations of what churn might look like especially at the low end of the market factoring in that number and then ultimately kind of what the upsell cross.

Yes.

So.

It comes in if you could just stack rank those or give us a little more color. Thanks.

Yes ma'am.

To clarify the comment I think when you were talking about the 120% endear, we believe that thats kind of like the progression that we'll get to by our mid term model of 2025 and the reason we have conviction around that as we look at our current customer base. When we look at that that the higher mid market enterprise customers. When we look at the <unk>.

Changed much I think we've seen a change over the last two years.

Particularly as they think about the mix between meta Twitter tictoc et cetera, but from the events in the last quarter or so I don't think.

That they are thinking about.

In those customers that were really starting to focus on the ones that Justin talked about that our tenex. The low end of the market Theyre already they're already close to that 120 or above that one place. So thats why we think we can get the overall customer base.

Were they haven't expressed a material shift in that I think in both of those cases are kind of weak.

Waiting to understand what happens.

Those are two very different situations that don't really have any kind of outcome at this point.

To that level by 2025, and so from that perspective.

So I think there are some conversations happening in the background, but I don't know if we've seen any of it come through in the spend yet.

We feel really confident based on our current existing customer base, even before we kind of put these price at these price increases and so we do think that's going to be a combination to get to that point the combination of.

Understood. Thanks, again for taking the questions congrats on the quota.

Thank you.

Yes.

The cross sell.

And next we will go to Matthew.

To upgrade our current customer base and also the fact that we know historically that the largest customers that come in are our fastest growing and so when you think about the fact that going to be focusing on.

BPI.

Hey, good afternoon, guys. Thanks for taking the questions.

I guess first maybe Joe or.

On these higher quality customers and we know historically those are fastest growing we believe that over time that will just shift the overall quality of our customer base and thus bring in what we believe is that 120% MTR in 2025.

And you could help us out on kind of what youre buildup and thinking about the net dollar retention remains very strong and sort of industry, leading as you mentioned.

Just how much price are you, including in that number of 140, plus given that sort of mentioned that nominal price increases will be rolling out over time through the existing customer base any expectations of what churn might look like especially at the low end of the market factoring in that number and then ultimately kind of what the <unk>.

Okay helpful. And then as you look at social Commerce It seems like.

There is a lot of kind of early early excitement in the broader market, but maybe getting to a point, where that's a higher mix of ecommerce sales the retail sales ever you want to think about that.

Cross sell.

It comes in if you could just stack rank those or give us a little more color. Thanks.

Just taking more time and curious.

Are you still seeing a lot of interest from your customers trying to be kind of poised and ready for when that takes off a little more or is there a pushback from how the social networks are going to allow that to happen.

Yes, Matt just just to clarify the comment I think when you were talking about the 120% endear, we believe that thats kind of like the progression that we'll get to by our mid term model of 2025 and the reason we have conviction around that as we look at our current customer base and we look at that the higher mid market enterprise customers.

Just any update around how you guys are thinking about social commerce in and sort of how that maybe is going to evolve into a pricing or a separate SKU potentially.

When we look at the MTR in those customers that were really starting to focus on the ones that Justin talked about that our tenex. The low end of the market. There are already they're already close to that 120 or above that one place. So that's why we think we can get the overall customer base.

Yes. This is Justin so I think in terms of the first part of the question interest and excitement from the market around this opportunity I certainly don't think that has slowed down but I think the.

The characterization that you made it right I think.

To that level by 2025, and so from that perspective.

Businesses are.

Eager and excited and ready to gear up in those conversations.

Largely.

Needing to get a better understanding of where the networks are taking these opportunities what they are really going to look like as a shakeout.

The cross sell.

And we've seen a lot of success, we've talked about the work that we've done in the in the social commerce space still an area that we're very excited about still an area that we think have a lot of long term potential.

Ability to upgrade our current customer base and also the fact that we know historically that the largest customers that come in are our fastest growing and so when you think about the fact that we can be focusing on.

These higher quality customers and we know historically those are fastest growing we believe that over time that will just shift the overall quality of our customer base and thus bring in what we believe is that 120% MTR in 2025.

But I've always thought of it as a long term bet.

And when that's going to take a little while it's still too.

Get flushed out for us to be able to size and things like that so I think we're.

We continue to build against that roadmap I think we've got a nice.

Okay helpful. And then as you look at social Commerce It seems like.

Collection of capabilities within our platform around that to support our customers, we're not quite at the level, where we would typically want to see before we would break that into a different SKU.

There's a lot of kind of early early excitement in the broader market, but maybe getting to a point, where that's a higher mix of ecommerce sales retail sales everyone to think about that.

So there is some interdependency on some of the work that the networks are doing and that will be doing in conjunction with them that will influence the timing on it.

On operating a SKU like that to market and when we do that.

It's just taking more time and curious.

The thing I'll quickly, maybe just add there thats not exactly social commerce, Matt and the way you asked the question, but even if the transactions are happening directly on the social networking sites. Our customers are still thinking about revenue and revenue growth and social as a channel to get there and whenever theyre doing that they are driving the marketing campaigns through <unk>.

Just any update around how you guys are thinking about social commerce in and sort of how that maybe is going to evolve into a pricing or a separate SKU potentially.

The feedback that's coming from those marketing campaigns are happening through our inbox and in customer care through the data that they are gathering on the effectiveness on those marketing campaigns in the pipeline that they are generating is also coming through spread as well. So I think thats another piece that even if we're not in the transaction yet for all the.

Yes. This is Justin so I think in terms of the first part of the question interest and excitement from the market around this opportunity I certainly don't think that has slowed down but I think the.

The characterization that you made is right I think.

Businesses are.

Platforms, they're still warming up towards that and we're participating in those conversations with them.

Eager and excited and ready to gear up for those conversations but.

Largely.

Needing to get a better understanding of where the networks are taking these opportunities what they're really going to look like as they shake out.

Alright very helpful. Thank you.

Thank you.

And now we will go to Michael <unk> with Keybanc.

And we've seen a lot of success, we've talked about the work that we've done in the in the social commerce space still an area that we're very excited about its still an area that we think has a lot of long term potential.

Hey, this is Michael the Diavik on for Michael and Thanks for taking my question as far as that refocusing on the enterprise.

Customer mix are you going to make any changes around the go to market with a sales motion either with or alpine sales hires or enterprise focused sales individuals just any changes outside of pricing that you are looking to do would be helpful. Thanks.

But I've always thought of it as a long term.

And one that's going to take a little while still too.

Get flushed out for us to be able to size and things like that so I think we're.

We continue to build against that roadmap I think we've got a nice.

Yes, Thanks, Michael.

We're already doing a lot of those things today, it's probably just continuing to invest there. So if I think about just the teams themselves. We have some great enterprise leadership and sellers that are already in the marketplace. Today that are that are closing a lot of these accounts are growing these accounts that we've spoken about.

Collection of capabilities within our platform around that to support our customers, we're not quite at the level of where we would typically want to see before we would break that into a different SKU.

So there is some interdependency on some of the work that the networks are doing and that will be doing in conjunction with them that will that will influence timing on if we bring on offering a SKU like that to market and when we do that.

We're continuing to invest on those teams, we see a tremendous opportunity in front of us from a marketing perspective, you'll.

The thing I'll quickly, maybe just add there thats not exactly social commerce, Matt and the way you are.

Youll see a lot of our focus and investment going into marketing to those large sophisticated customers.

The question, but even if the transactions are happening directly on the social networking sites. Our customers are still thinking about revenue and revenue growth and social as a channel to get there and whenever theyre doing that they are driving their marketing campaigns through sprout feedback that's coming from those marketing campaigns are happening through our.

Forms are things like account based marketing.

We also have continued to grow our bound BTR teams that are building pipeline within those accounts.

And I also underlying even though we're doing all those traditional enterprise.

In box and in customer care through the data that they are gathering on the effectiveness on those marketing campaigns in the pipeline that they are generating is also coming through spread as well. So I think thats another piece that even if we're not in the transaction yet for all the platforms, they're still warming up towards that and we're participating in those conversations.

Strategies, we also still leverage the product like we always have so our customers continue to come in and trial. The product. It continues to be a major differentiator for us even in the enterprise and it's one of our number one plays get their hands on the keyboard and so for US we love that in the enterprise massive differentiator and so we'll continue.

With them.

To be working on that as well.

Alright very helpful. Thank you.

Got it thank you.

Thank you.

Yes.

And now we will go to Michael <unk> of Keybanc.

Okay.

And now we will go to Brett Knoblauch of Cantor Fitzgerald.

Hey, this is Michael of Adobe gone from Michael and Thanks for taking my question as far as that refocusing on the enterprise.

Hi, guys. Thanks for taking my question have you guys are doing well.

Customer mix.

In regards to your I guess Q4 being a record net new <unk> quarter I think your previous record was.

Are you going to make any changes around the go to market with a sales motion either with or alpine sales hires or enterprise focused sales individuals' just any changes outside of pricing that youre looking to do it would be helpful. Thanks.

Just shy under $20 million.

How much of a record or are we expecting.

Yes, Thanks, Michael.

Then going forward should we expect kind of net new <unk>.

We're already doing a lot of lot of those things today, it's probably just continuing to invest there. So if I think about just the teams themselves. We have some great enterprise leadership and sellers that are already in the marketplace. Today that are that are closing a lot of these accounts are growing these accounts that we've spoken about.

In 2003 to be.

And a return to your growth cadence I guess, so far year to date. This year you guys are about flat in terms of what you added in any way or versus last year.

Yes.

We're continuing to invest on those teams, we see a tremendous opportunity in front of us from a marketing perspective youll.

I'll take that one I think I think just to clarify I think we talked about is one of a record Q4 <unk> were not going to give much more guidance past that and then as it relates to 2023, we're probably not in a position to talk about what our guidance will look like and what <unk> will look like in 2023, we'll probably do that.

Youll see a lot of our focus and investment going into marketing to those large sophisticated customers.

Farms Ah things like account based marketing.

We also have continued to grow our bound BTR teams that are building pipeline within those accounts.

In our February in February when we release year end and give guidance for next year.

Okay.

And I also underlying even though we're doing all those traditional enterprise.

Understood and then kind of a medium term framework can you just help break down what you guys were assuming the mix would be between customer growth and ACB growth.

And maybe within ACB, how much of that was due to pricing or just.

Seat expansion.

Which I guess was most of the mix versus now between.

And to be working on that as well.

Customer growth seat expansion and now pricing.

Got it thank you.

Yes.

Yeah.

And now we will go to Brett Knoblauch of Cantor Fitzgerald.

I can start with this is Justin I think the <unk>.

Really the best way to characterize how we're thinking about that as the price.

Hi, guys. Thanks for taking my question have you guys are doing well.

Increases for existing customers are very nominal.

In regards to your I guess Q4 being a record net new <unk> quarter I think your previous record was.

Relative to what you are seeing in the increases on the new business side.

And so as we think about the framework to grow.

Just shy under $20 million.

ECB is growing expansion.

How much of a record or are we expecting.

Majority of that relates to.

Getting closer to alignment on pricing the new business.

Then going forward should we expect kind of net new <unk> in 'twenty three to be.

Winning more deals, particularly in our mid market enterprise.

A return to your growth cadence I guess, so far year to date. This year you guys are about flat in terms of what you added in any way or versus last year.

Doing a better job with the expansion of our existing customers.

And not a material.

Cereal amount coming from the changes themselves.

Yes.

That was.

I'll take that one I think I think just to clarify I think we talked about as one of the record Q4, <unk> were not going to give much more guidance past that and then as it relates to 2023, we're probably not in a position to talk about what our guidance will look like and what <unk> will look like in 2023, well probably do that.

The framing of the question, but let me know how to get that right.

No I think you got it I guess maybe.

Same question I asked differently, if I look at the number of customers added this quarter is that a decent run rate in terms of net adds on the quarter on a go forward basis, given maybe this new prioritization of that market.

In our February in February when we release year end and give guidance for next year.

Yes, we talked about this a little bit earlier in the call I think as far as the number of customers that we're going to add that's not something we're focused on internally I think the best way to think about it Brad is to focus on the IRR that we are getting from those customers in the ACB growth. So I think what you can expect is an acceleration in our <unk> and then if you.

Understood and then.

Kind of a medium term framework can you just help break down what you guys were assuming the mix would be between customer growth and ACB growth.

And maybe within the ACB, how much of that was due to pricing or just.

Think about the IRR that we talked about our record Q.

Seat expansion.

I guess was most of the mix versus now between.

Q4, and you can kind of get to what those that customer count might look like but it's not I think it's not something that we historically have guided to it's not a number that we focus on internally so for us it's more about the IRR and the ACB growth.

Customer growth seat expansion and now pricing.

I can start with Arthur this is Justin I think the <unk>.

Understood I appreciate it thank you guys.

Really the best way to characterize how we're thinking about that as the price.

Okay.

And now we will go to Fiona Haines of Morgan Stanley .

Increases for existing customers are very nominal.

Relative to what Youre seeing in the increases on the new business side.

Hello, everyone and thank you for taking the question Fiona on from Elizabeth Partners team.

And so as we think about the framework the growing ECB growing expansion.

So wanted to follow up on the line of questioning on the 2025 framework previously you had talked to a 30% revenue year over year growth rate and Thats, a reasonable way to think about it or is it more like a 30% CAGR basis expecting a near term acceleration from the pricing increases and somewhat relatedly. How are you factoring in the risks.

Majority of that relates to.

Getting closer to alignment on pricing the new business.

Winning more deals, particularly in our mid market enterprise doing.

Doing a better job with.

Expansion of our existing customers.

And not a material.

Or any macro impact to that is there any risk that some.

Cereal amount coming from the changes themselves.

Some of the softening in the economy take us below that original framework. Thank you.

That was.

The framing of the question, but let me know if I think at that rate.

Yes, no we don't see any change in just to be clear, it's not a CAGR. It's 30% every year between now and 2025 and we don't think.

No I think you got it I guess, maybe just.

Same question I asked differently, if I look at the number of customers added this quarter is that a decent run rate in terms of net adds on a quarter on a go forward basis, given maybe this new prioritization of markets.

Either the macroeconomic conditions or any of the other things we've talked about recently, whether it's the price increases have a material impact on that we actually feel really good about where the business is going we've talked about some of the highlights and the momentum we are seeing what we consider our like our core customer base and so at this point.

Yes, we talked about this a little bit earlier in the call I think as far as the number of customers that we're going to add that in.

Not something we're focused on internally I think the best way to think about it Brad is to focus on the IRR that we're getting from those customers in the ACB growth. So I think what you can expect is an acceleration in our <unk> and then if you think about the IRR that we talked about our record.

We don't see us.

Getting off of that plan right now and some I talked about in my prepared remarks, as well, we feel really confident about our ability to continue to hit that 30% every year through 2025.

Got it thank you.

Yeah.

And now we'll take the next question from Rob Oliver from Baird.

Great. Thank you guys for taking my question.

Once FERC for adjusted here for Ryan.

Understood I appreciate it thank you guys.

You guys talked a little bit about the macro and stuff and I kind of wanted to ask because it's a question we've been getting.

Yeah.

Specifically about Twitter.

And now we will go to Fiona Haines of Morgan Stanley .

Obviously, historically, a very important relationship for you guys and recognizing that you guys are agnostic and indeed, adding value across a whole host of social media platforms such as the.

Hello, everyone and thank you for taking my question on mute Fiona on Elizabeth partners team.

So wanted to follow up on the line of questioning on the 2025 framework previously you had talked to a 30% revenue year over year growth rate and that's a reasonable way to think about it or is it more like a 30% CAGR basis expecting a near term acceleration from the pricing increases and somewhat relatedly. How are you factoring in the risks.

<unk> to deliver but theres just a lot of practical things going on there right now I mean, you don't have the staff being let go potential change in the business model.

And some advertisers walking away at least temporarily so just curious what you guys are hearing I don't think you guys have posted I think on your blogs, yet just to how customers should be thinking about that and you guys are always real active about that we follow that so just curious to hear your thoughts and any implications potentially from that and then I just had a.

If any macro impact to that is there any risk that some.

Some of the softening in the economy take us below that original framework. Thank you.

Yes, no we don't see any change in just to be clear, it's not a CAGR. It's 30% every year between now and 2025 and we don't think.

A quick follow up for Joe.

The macroeconomic conditions or any of the other things we've talked about recently, whether it's the price increases have a material impact on that we actually feel really good about where the business is done we've talked about some of the highlights and the momentum we're seeing what we consider our like our core customer base and so at this point.

Justin I think youre on mute.

Hello.

No I'm not.

Thanks for the question I'll get us started here.

So I mean, I think obviously, we're we're a couple of days in.

The leadership changes, there and so I'm going to be really thoughtful and patient warming.

We don't see us.

Getting off of that plan right now and something I talked about in my prepared remarks, as well, we feel really confident about our ability to continue to hit that 30% every year through 2025.

Kind of longer term views here I think.

Obviously, there is a desire to.

Make some changes to make them most.

Most of the ones that were hearing about being related to monetizing.

Got it thank you.

<unk> I think is fairly benign in this context.

Yeah.

And now we'll take the next question from Rob Oliver from Baird.

And some of that I think they may look to do I don't think we have a lot of information on.

We haven't seen.

Great. Thank you guys for taking my question this one's for for center for Ryan.

From from our customers' perspective in terms of the organic work that they're doing on social the importance of connecting with their audience et cetera.

Guys talked a little bit about the macro and stuff and I kind of wanted to ask because it's a question we've been getting.

Haven't seen anything.

Bubbling up there they're really changes.

Specifically about Twitter.

Obviously, historically, a very important relationship for you guys and recognizing that you guys are agnostic and indeed, adding value across a whole host of social media platforms, such as the <unk>.

The value proposition for their system in the near term.

I think that advertising is one area that maybe.

A little Shakier at the moment.

<unk> deliver but theres just a lot of practical things going on there right now I mean, you don't have the staff being let go potential change in the business model.

Again, just on an area that we plan.

And then it's.

For us.

And some advertisers walking away at least temporarily so just curious what you guys are hearing I don't think you guys opposed to anything on your blogs, yet just to how customers should be thinking about that and you guys are always real active about that we follow that so just curious to hear your thoughts and any implications potentially from that.

And where we want to continue to provide our support.

And to build alongside Twitter is any anything that they're doing to increase the trust and safety and vibrant.

And growth of that community, we think is going to be positive.

We just don't know enough about which of the.

The idea has been floated are going to be priorities.

I just had a quick follow up for Joe.

How those are going to shake out et cetera. So we may have more to say and certainly we'll guide our customers. The best we can.

Justin I think youre on mute.

As.

Hello.

The approach is and some of the different.

No I'm not.

Models that they've been talking about come to life for our customers, but a lot of and obviously related to the consumer and the advertising side.

Thanks for the question I'll get us started.

So I mean, I think obviously, we're we're a couple of days in.

The leadership changes, there and so I'm going to be.

Got it Okay. That's really helpful. Appreciate that it's early and I appreciate that.

Really thoughtful and patient warming.

Kind of longer term views here I think.

And then Joe one for you I think this was partially answered.

Obviously, there is a desire to.

Would the would come to the last question, but it sounds as if the majority of these price increases are going to be on new customers not existing customers. So just I guess from your thought perspective, any additional churn that you would expect or think about.

It makes some changes to make them fast most of the ones that were hearing about being related to monetizing.

<unk> I think is fairly benign in this context.

And some of that I think they may look to do I don't think we have a lot of information on.

As you think about maybe Q4 as these.

We haven't seen.

Some of these renewals start to roll in into next year or is it too.

From from our customers' perspective in terms of the organic work that they're doing on social the importance of connecting with their audience et cetera.

Minimal relative to the value routing for you guys to anticipate any additional churn on that price increase thank you.

Haven't seen anything.

Bubbling up there they're.

Yes, Ralph Thanks for the question, if we think about the fact that we talked about doing a record.

It really changes the.

The value proposition for them in the near term.

Our record net IRR in Q4, we factored in any potential churn with the price increases and adjustments to add the way we are rolling out the price increases for existing customers is just going to be more methodical over the next 12 12 months or so so I don't think theres any like major impact in any one quarter right now from what we can see in our plan to roll these out and like it.

I think that advertising is one area that maybe.

A little Shakier at the moment.

Again, just on an area that we plan.

And then it's.

<unk>.

For us.

And where we want to continue to provide our support.

That can be to every single customer it's going to depend on tenure.

And to build alongside Twitter is.

Anything that they're doing to increase the trust and safety and Vibrance.

This point they are at.

We don't see any major impact in Q4 and that was all factored into our commentary around it being.

And growth of that community, we think is going to be positive.

We just don't know enough about which of the the idea has been floated are going to be priorities exact.

Our record Q4, and a net <unk> basis.

Got it helpful. Thank you guys very much I appreciate it.

Exactly how those are going to shake out et cetera. So we may have more to say and certainly we'll guide our customers. The best we can.

Yes.

Okay.

And with that that does conclude today's question and answer session I would like to turn things back to you Justin Howe for any additional or closing comments.

As.

The approach is and some of the different.

Models that <unk> been talking about come to life for our customers, but a.

Yes.

A quick thank you.

Ill get back to you and all the other things going on.

A lot of and obviously related to the consumer and the advertising side.

We are appreciative to.

Got it Okay. That's really helpful. Appreciate that it's early and I appreciate that.

The team as always.

All of our <unk>.

<unk> investors will be.

And then Joe one for you I think this was partially answered.

Chatting with you all over the next couple of weeks.

But would the would come to the last question, but it sounds as if the majority of these price increases are going to be on new customers not existing customers. So just I guess from your thought perspective.

Looking forward to that.

And we will catch up with you all soon and thanks again for your time today.

Okay.

And with that everyone that does conclude today's conference call, we'd like to thank you again for your participation you may now disconnect.

Any additional churn that you would expect.

Or think about.

As you think about maybe Q4 is.

Okay.

Some of these renewals start to roll in into next year or is it too.

Minimal relative to the value routing for you guys to anticipate any additional churn on that price increase thank you.

Yes, Ralph Thanks for the question, if we think about the fact that we talked about doing a record new a record net IRR in Q4, we factored in any potential churn with the price increases in like Justin said the way we are rolling out the price increases for existing customers is just going to be more methodical over the next 12 12 months or so.

I don't think theres any like major impact in any one quarter right now from what we can see in our plan to roll these out and it's like it's not going to be to every single customer it's going to depend on tenure the price point they are at so.

We don't see any major churn impact in Q4 and that was all factored into our commentary around it being a <unk>.

Record Q4, and a net <unk> basis.

Got it helpful. Thank you guys very much I appreciate it.

Yes.

Yeah.

And with that that does conclude today's question and answer session I would like to turn things back to you, Jeff Jim Hallett for any additional or closing comments.

Yes.

A quick thank you.

I'll get back to your day and all the other things going on.

We are appreciative to the.

The team as always.

All of our <unk>.

<unk> investors will be.

Chatting with you all over the next couple of weeks looking forward to that.

And we will catch up with you all soon and thanks again for your time today.

Okay.

And with that everyone that does conclude today's conference call, we'd like to thank you again for your participation you may now disconnect.

Okay.

[music].

Q3 2022 Sprout Social Inc Earnings Call

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