Q3 2023 Sprout Social Inc Earnings Call
Thank you for standing by and welcome to the Sprout Social third quarter 2023 earnings call I would now like to welcome Jason Racal.
Thank you operator, welcome to sprout, social third quarter 2023 earnings call.
These statements reflect our views as of today, only and 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 could differ materially.
A discussion of the risks and other important factors that could affect our actual results. Please refer to our quarterly report on Form 10-Q for the quarter ended September 32023 to be filed with the SEC as well as our previous 10-Q and most recently filed 10-K 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 third quarter earnings release, which has been furnished to the SEC and is available on our website at investors that scrap social dot com and with that let me turn the call over to Jakob Jonathan.
Thank you Jason and good afternoon, everyone. Thank you as always for joining us.
Our goal is to build an enduring software company centered on amazing products amazing people and over delivering for our customers every day.
The combination of our ongoing breakout upmarket ryzen utility for our software strength any multi product strategy and our entrance and influencer marketing have spot at the starting line of our next great growth chapter.
During Q3, we saw continued record new business, Acs and total ACB growth at a record 40% year over year.
This was driven by 49% year over year growth in our 50, K plus <unk> customers and acceleration in our premium module attach rates and a further acceleration in our enterprise business.
We delivered are our over performance across segments geographies products partnerships and CAGR at RPM growth of 67% Crystal licensed this momentum.
We spent a considerable amount of pilot investor day discussing our product leadership through every stage of market maturity.
And what is today a market that is more quickly maturing that anytime in our history.
This was perhaps most evident at the high end of the enterprise and in our strategic accounts team, which delivered more than 100% year over year growth in net new <unk> powering total ACB growth of more than 40%.
This combination of product leadership and market maturity will stand out in some of the brands that Ryan will share with you.
So any hear stories that you haven't historically heard from customers that this group hasn't historically associated with sprouts.
Another key component of our current and future execution as our platform strategy.
Only 6% of our customer base has adopted to a more premium products and we see massive potential to unify which should be standard social capabilities for all global businesses.
We're also excited to surpass $100 million in premium module <unk> this quarter.
This performance was of course complemented during Q3 with our acquisition of Influencer marketing leader Tegra.
Our acquisition thesis was grounded in our right to win this nascent category by leveraging our incumbent position in social with our ability to create a social suite designed to deliver customer workflow reporting and analytics that is not to this point existed.
One of the more recent validation of our thesis with Snapchat October launch of their creator marketplace API.
<unk> was one of only a handful of companies selected to participate and as further highlights the rising strategic role we play with the networks positioning sprout and taggert to deliver integrated and differentiated functionality that our industry is not previously seen.
Business integration has also progressed smoothly and or the customer reception to CAGR has far exceeded our expectations.
Our teams and our products have felt like cousins from the start and we now have a differentiated value proposition to deliver for an expanding set of new customers and customer excitement inside of our installed base has been headlined by very large enterprise bands and small businesses alike.
With three to Forex current sprout E Cvs and a meaningful opportunity to further differentiate the customer value proposition. We believe <unk> has potential to be a greater than $100 million business by 2028.
Our product product evolution made meaningful progress during Q3 as well most specifically in AI and social customer care.
We saw high velocity of social customer care enhancements during the quarter as we redefined workflow case creation and reporting with differentiated rules engine elegant user experience and our price security governance and a platform that allows our customers to engage every way that their customers are.
Recently, we were named to the 2023 Fortune best workplaces in technology list and recognized by G. Twos 2023 fall reports as Alere across 138 categories.
We are also honored to be rated the number three software company in the entire software industry.
We've proven our success at every stage of the evolution of our market with customers of all sizes and in all market conditions.
We believe social is maturing as a primary communication channel between brands and their customers.
So our market is still early both in terms of age and the maturity of adoption across the fast growing list of use cases, we're all in on social or holistic differentiated approach and consistent focus increasingly standout where.
Early in our multi product strategy early in our international growth and early in our upmarket evolution.
We believe we have the right team at the right approach to fully capitalize on our expanding opportunity and with that I'll turn the call over to Ryan to tell you more about our progress.
Thanks, Justin I'm incredibly proud of the way our teams are delivering for our customers.
Social is a marquee new paths to revenue customer satisfaction and loyalty brand awareness and business growth.
And knowing that we have the technology community and customer validation to lead social into the next phase of growth is beyond exciting.
At Investor Day, I shared several important building blocks that will allow us to execute against our $1 billion revenue milestone and I want to update you on that progress today.
Thinking about platform leadership and culture, it's worth stating again, we were recently recognized as a third highest ranked company on GTO.
And if every software company on <unk>, we are number three.
We're honored to be recognized as the top customer rated platform in our category for every market segment from F&B through the enterprise and in virtually every customer satisfaction dimensions measured by G too.
We're also specifically named US the number one product in social media management, social media analytics, social customer service best results for the enterprise in 68 other categories.
We have a relentless commitment to be the best place to be an employee and the best place to be a customer.
This type of market recognition only comes after exceptional customer success.
<unk> continued to over deliver and during Q3, we had the opportunity to work with many iconic and leading global brands.
These customers included American Honda Motor Company Harman International Samsung Company.
Camping World Hormel Foods, Danaher, Activision Blizzard Welsh foods, NYU laying on health system, Belden and Mercado Libre.
For those keeping track I just mentioned the fourth biggest tech company in the world.
<unk> 20th most valuable brand in the world.
Were fortunate 500 companies the biggest commerce company in Brazil, and these are just a handful of the iconic brands, we have the approval to share publicly.
It's also inspiring to see the scope of how our customers are now leveraging social for those that know the burrito household Papa John's is the.
Pizza ordered for Pizza night, Josh.
Josh Martin Papa John's director of social media and brand engagement said it well.
We strive to be the most engaged pizza brand in the industry as sprout is the right solution to help us achieve that goal.
We focus on high value community engagement to improve our overall customer experience rich social listening data allows us to go deeper into customer sentiment, while making UGC more accessible.
<unk> unified platform allows us to deliver value across content marketing Influencer identification brand management and social customer care.
Longtime customer NBC, Universal who expanded our relationship this quarter echoes similar sentiment.
Justin Carp, the VP of social media, NBC cable entertainment and sports shares.
Social has made many parts of our social business more efficient from content creation project management to analytics spreads tools have made us a smarter and stronger operation.
The product continues to improve and we are pleased that our feedback on several of spreads tools have been taken and put into action.
Expanding our partner ecosystem will also play a pivotal role in our future success, we have a massive opportunity to complement Salesforce service cloud and help brands respond faster than ever to the customers on social.
After a record Q2 on boarding we helped another 154 salesforce customers implement sprout during Q3.
And the scope of deployments increased resulting in record new sales force.
We expect another record air contribution in Q4 as complex deployments begin their migration of style.
Our loyal community is another building block to $1 billion.
We're fortunate thing by many customers to speak in our community and just last week, we had the opportunity to host Mcdonald's customer care program strategy manager early Moody to hear her perspective on enhancing the customer experience with social care and.
Encourage you to listen and learn about the inherent challenges when sending customers from social to the one 800 number or other channels as.
As I shared in my presentation, a dream for US. This is the future state of Omnichannel customer care meeting customers, where they are this is the key to improving customer satisfaction and building customer trust.
This intersection of partner success and community highlights exactly why social studio is only the beginning of our ecosystem opportunity.
We have spent the last 18 months integrating sproat natively in the common data layer of Salesforce. Our main goal has been to provide the most powerful and seamless collaboration across salesforce and to ensure that spread is the best and only choice for salesforce customers seeking to solve for social.
We believe this unique combination of partner and community success has spread well positioned for growth in 2024 and well beyond.
Speaking of 2024, according to social media Dot works recent 2020 for pulse survey more than 75% of enterprise social media leaders expect to maintain or grow their budget for next year and more than 90% expect a stable or growing social media team through 2024.
So top areas of planned investment include Influencer marketing employee advocacy, social listening content creation reporting and analytics.
Social is an increasingly important and necessary part of any business as it expands across many different departments and spread is well positioned to help our customers unify the social capabilities across the enterprise.
I am proud of the way our teams are executing our exceptional team an exceptional product are foundational for how spread create outsized value for our customers and they are the pillars for how we will build a category defining software franchise.
I'll turn it over to Joe to run through the financials.
Joe.
Thanks Ryan.
I'll now walk you through our third quarter results in detail before moving onto guidance for the fourth quarter and full year 2023.
Revenues for the third quarter was $85 9 million, representing 31% year over year growth.
Subscription revenue was $84 8 million up 31% year over year.
Services revenue was $27 million down 5% year over year.
Total error exiting Q3 was $359 5 million up 33% year over year and nicely ahead of our plan.
Very strong <unk> growth was led primarily by a meaningful acceleration in our enterprise business stronger premium module attach rates.
Expected early tag a momentum and roughly $3 million less churn than we had previously anticipated from our noncore business.
The number of customers contributing more than $10000 and <unk> grew 33% from a year ago.
The number of customers contributing more than $50000 and <unk> grew 49% from a year ago.
Q3, ACB growth was a record 40% year over year.
Record new business deal sizes, very strong enterprise momentum earlier turn through Influencer marketing expansion.
And the idea from a number of low value logos, each compounded ongoing healthy seat expansion and much stronger premium module attach rates.
We expect ACD near term to grow similar to Q3 levels, we expect faster than PUC anticipate the ACB growth over the medium term.
In Q3, non-GAAP gross profit was $66 8 million, representing non-GAAP gross margins of 78, 1%.
This is up 50 basis points compared to a non-GAAP gross margin of 77, 6% a year ago.
non-GAAP sales and marketing expenses for Q3 were $35 9 million or 42% of revenue up from 40% a year ago.
We continue to hire aggressively in enterprise sales and success organization and this quarter took on the CAGR team as well.
non-GAAP research and development expenses for Q3 were 15.0 million or 18% of revenue down from 20% a year ago.
We continued to invest in our future and I repeatedly targeted investments in AI and social customer care are delivering strong results.
non-GAAP general and administrative expenses for Q3 were $16 4 million or 19% of revenue contingent, 19% a year ago.
We expect to deliver a consistent G&A leverage as a percent of revenue moving forward.
GAAP operating loss for Q3 was negative <unk> 6 million or a negative <unk>, 7% non-GAAP operating margin.
The improvement of 150 basis points year over year in spite of near term dilution associated with CAGR.
non-GAAP net loss for Q3 was <unk> 6 million for non-GAAP net loss of <unk> <unk> per share based on $55 8 million weighted average shares of common stock outstanding.
Impaired to a non-GAAP net loss of $1 million and <unk> per share a year ago.
Turning to the balance sheet and cash flow statement. We ended Q3 with $121 4 million in cash cash equivalents and marketable securities.
This is down from $192 4 million at the end of Q2 and reflects our acquisition of CAGR in August.
Deferred revenue at the end of the quarter was $123 4 million.
Looking at both our billed and Unbilled contracts, our apio totaled $228 7 million.
$206 4 million exiting Q2, 67% year over year.
We expect to recognize approximately 73% or $167 million of total <unk> revenue over the next 12 months and planning of <unk> growth rate at 51% year over year.
Operating cash flow in Q3 was negative $5 5 million compared to positive 1.0 million a year ago.
Free cash flow was negative $3 4 million down from a year ago.
We absorbed CAGR and integration expenses this quarter, we expect to shift back to positive operating and free cash flow beginning in Q4.
Shifting to formal guidance.
For the fourth quarter of fiscal 2023, we expect revenue in the range of 95 to $90 6 million a growth rate of 30%.
We expect non-GAAP operating income in the range of <unk> 6 million to $7 million.
We expect the non-GAAP net income per share of between <unk> <unk> and <unk>.
This assumes $56 6 million weighted average basic shares of common stock outstanding.
For the full year 2023, we expect total revenue in the range of $330 6 million to $330 7 million.
This is an expected overall reported growth rate more than 30%.
We are raising our implied growth rate exiting 2023 to approximately 30% from our prior view of 28% to 29%.
This continues to assume that our noncore low end <unk> declines to zero exiting the year.
For the full year 2023, we now expect non-GAAP operating income in the range of $3 6 million to $3 7 million.
This implies annual non-GAAP operating margin improvement of 270 basis points commercially with our prior margin expansion forecast of 200 basis points.
We now expect non-GAAP net income per share of between 12 and 13.
Great to our prior guidance of seven.
And assuming $55 9 million weighted average basic shares of common stock outstanding.
Houston during Q3.
And the path to achieving our full potential as we carry strong business momentum and the end of the year.
With that Justin Ryan and I are happy to take any of your questions operator.
Our first question comes from the line of Raimo <unk> with Barclays. Please go ahead.
Hey, this is Frank on for Raimo, Congrats on a strong quarter I wanted to ask one around CAGR.
How's the integration process been going there and as Packer begun to weigh as a factor in those enterprise wins already.
Hey, Thanks for the question this is Ryan.
Integration has been going well so far we've been really excited by what we've seen certainly from the product and as well from the team.
We've got the team now working really well across the go to market organization embedded into our marketing our sales and customer success motions and then certainly on the product side, our R&D organizations have been working really closely together.
Not only on the integration, but as we think about 2024 and some of the opportunities in front of us as.
As it relates to the second part of the question in terms of the value in the enterprise deals we're really early.
Within this so far we've been generating some really nice pipeline and opportunities, but certainly from what we've seen in the short period of time the value prop of having social media management alongside of Influencer marketing has been very compelling for customers and so we are seeing this as a great opportunity to do what we had thought during diligence which is to differentiate ourselves.
<unk> from other social media management providers and also to bring a product that's still pretty nascent to 30000 customers that we get to work with every day. So we see it being a really strong opportunity for us as we move forward here and we certainly saw some some good results already in Q3.
Thanks, Ryan any way to think about the contribution from CAGR specifically.
Yes, so the way we've kind of talked about that historically, Frank as we talked about this coming out of the acquisition. After Q2 is is we modeled out we told you about $3 million of revenue over the last five months and from there you can kind of infer the IRR.
From those numbers, we outperform that.
Q3, a little bit and we're a little bit ahead of that schedule. So you can expect a little bit more upside from an <unk> standpoint based on what we've seen so far in Q3 going into Q4.
Awesome Congrats again.
Our next question comes from the line of Rachel.
With William Blair. Please go ahead.
Yeah. Thanks, Congrats on the quarter and I. Appreciate you taking the question I was curious if you could give any additional color on the acceleration of premium attach rates or is that primarily driven by our CAGR cross sell or was it more.
Other premium Nigel asked.
Yes, Thanks Rachel.
B the other premium modules that we'd highlight these are these are things that we have.
<unk> talked about in the past, we've seen really good acceleration there.
As we get really focused in on this ideal customer profile, which are the sophisticated customers are more and more things like premium analytics, social listening advocacy are really important for the things that they're trying to solve at the enterprise level and so we've continued to see really great success across all of those products.
We certainly believe to the question before that that CAGR is going to be a really nice addition on top of that so this is really driven by the premium modules that we've always had and spoken about in previous calls.
Thank you and then just one follow up to that if I could any thoughts on where you think premium attach rates kick on net the near to medium term.
Yes. Thanks for the question this is Justin.
I think that.
You've heard us talk a lot about where it is today in terms of percentage of customers with multiple other premium products.
We see a lot of utility.
Across a number of the premium offerings now, including Influencer marketing to a pretty wide part of our customer base.
It is truly for us to be directional on where we think that can ultimately be but we certainly think that theres a ton of headroom.
We've seen that acceleration in the attach rates today, we talked about at Investor day.
Amount of companies that are become it's going to be kind of graduating through the maturity curve of where they are with social and as that continues to improve that utility and that readiness for these more sophisticated feature sets is only going to grow from there.
Yes.
Thanks, so much and congrats again.
Thank you very much.
Our next question comes from the line of DJ Hynes with Canaccord Genuity. Please go ahead.
Hey, guys. Thanks for taking the question really impressive roster of large customers here in the quarter. So kudos.
Brian maybe one for you just start I'm curious what kind of trends you're seeing in sales cycles. As you move really up into that kind of large enterprise bucket and that would be I'd be curious like how often are those deals involving multiple department decision makers Atlanta.
Yeah. Thanks P. J, so one of the benefits and we've spoken about this a little bit in the past, but worth mentioning again one of the benefits that we have here is that we have this trial model that we leverage even in the enterprise and so even in enterprise deals that might come from Rfps. We generally have a faster sales cycle than you might see with other.
Software players both in our space and outside of it because customers are in the product by the time, they make a decision and oftentimes they have implemented a lot of the work they've got users and theyre starting to publish through their social profiles are run reports directly in sprout before they ever sign a contract for us. So we've seen really good cycles there.
Still 35% to 41 days on average certainly in the large enterprises.
There'll be longer than that but we have this advantage that they are in the product leveraging it.
And we've seen that being a really big differentiator for us as we move forward.
And then Jonathan maybe I'll follow up for you I'm curious, how you think about more traditional contact center oriented software firms and their ability to compete and social customer care over time.
Yes, it's interesting question.
Spent a lot of time thinking about I think.
Social has proven to be.
Something that requires a lot of focus a lot of energy a lot of R&D expertise a lot of historical buildup of that expertise.
And social as part of the care stack. If you will is really unique in that.
It's not the only thing happening in that channel.
Marketing there is theres community there is product feedback, there's certainly questions there support issues et cetera that really require all of the stakeholders within an organization across business functions to be able to work together.
And for that reason.
Historically, and we believe going forward Theres, a pretty big moat.
Around the care aspects of social.
And we're seeing as more of these large enterprises that we've talked about in many other organizations are starting to make investments more significant investments in social is you care channel.
They are recognizing that as well choosing sprout for the reasons that I mentioned.
Where it's been a bit harder.
And disconnected in some of the other approaches.
Taking kind of legacy systems into account.
P J.
Yes, I also realize they didn't finish the second part of your question, which is departments and it ties to what Justin was talking about but the answer is yes, we are getting into more departments than.
Then a few years ago. So when we go in to Justin's point, there's certainly will be in care, but we're talking to marketing departments were talking to oftentimes sales departments or it could be across the enterprise depending on the potential use cases for social and for US that's a really important part of the new business cycle.
Because we're either landing them larger in these multi departments with different use cases, or receding and growing knowing that we've opened up the opportunity to grow that to expand that account later over time.
So a lot of the logos that you heard from US today, we're selling multi departments from the get go from a new business perspective, and then some of the logos that we talked about today were actually current customers you've heard us talk about them before where we've gone in and sold the different departments. Later on had different use cases, so definitely see that as an important part of our go to market strategy.
That's great. Thank you guys for all the color.
Thanks T J.
Our next question comes from the line of Adam Hotchkiss with Goldman Sachs. Please go ahead.
Great. Thanks for taking my questions I guess I'll start on the on the enterprise side and then the 50 K plus deals category I know you've talked about hiring aggressively here could you just talk a little bit more about the key drivers and what they've been in some of these much larger enterprise deals how youre thinking about contributions from things like sales force.
Some of your other partners.
Being more aggressive on the outbound direct side and anything you've learned as you've grown your team there or any color would be helpful.
Yes, thanks, Thanks, Adam.
Clearly we've seen a lot of success with our enterprise team, we've mentioned them a little bit in prepared remarks, but we just look at the growth rates in the 50 K as you mentioned, but also just enterprise in general growing at over 50%.
We've been very excited about that market opportunity that we have in front of us.
What's really exciting about this is our products are perfectly positioned for these enterprises and as we're going into these enterprises similar to the question that DJ had before because we're going into multi departments.
Getting access to many different users and those users.
Have very different use cases, so the ability to have an elegant and approachable software like sprout makes a difference the idea of being able to get these folks up and running in the platform before they sign a contract makes a difference and so when we think about the profile of the enterprise reps that we have on our team. They clearly they have some some great skills.
Around understanding social and best practices for the enterprise.
Our deals moved faster than most enterprise organization. So we expect those reps.
To have a certain level of speed to them in the way that they execute and to manage more accounts.
And transactions and deals than they might have at another legacy enterprise players, so the speed and velocity of our business as well as the depth and understanding.
Business strategy is really important for our enterprise team and we're seeing really good success as demonstrated in the logos that are teams being able to win.
Great. That's really helpful. And then just on social studio appreciate the update on new logos. There this call.
Just curious if theres any update on the way youre thinking about conversions over the next 12 months and the impact of growth as we think about modeling. Thank you.
I'll start out on the business side and see if any of the others have anything else. They want to add from a salesforce partnership perspective, we continue to see great success there.
We mentioned it before but the social studio piece with obviously, the sunset coming next year.
Certainly the immediate opportunity, where we're seeing good execution, but we go into the full opportunity, which is all salesforce customers and our goal really is to build a partnership and product integrations that ensure that any salesforce customers. That's investing in social six sprout has the very best choice for their business and that's what we're seeing in the marketplace.
I would specifically call out the work that we've been doing with the service cloud and obviously our integration today lives within the service cloud console itself and that native integrations, adding tremendous value for customers, we're getting customers up and running very quickly there and theyre really going from 270 degree view of their customer to the full three.
60, because they now have the social engagement data data from sprout tapped in and so we seem to see success and opportunity. There we'll focus in on both social studio, but outside of that the entire ecosystem of customers that may be on salesforce.
Great really helpful. Thanks, Brian.
Okay.
Our next question comes from the line of Parker Lane with Stifel. Please go ahead.
Your line is open. Please go ahead.
Our next question comes from Robert Michael Moore Rally with Needham and company. Please go ahead.
Hi, This is Ron <unk> on for Scott. Thanks for taking the question I understand that you're focused on hiring recently into the next quarter, how youre looking at your 2020 for us and other investments and overall go to market strategy, particularly the euro will entail more investment or should we expect more leverage in the model.
Yes, I can take that one and then <unk> want to give color on the key investment areas I think overall, we're not going to get too much into 2024 as far as guidance.
What those numbers might exactly but what I can tell you is based on the momentum we're seeing in the business right now, especially upmarket youre going to continue to see us invest in the enterprise in the mid market and integrations and a bunch of other stuff that are be can touch on and so what you will expect to see is a little bit of leverage overall.
<unk> marketing not a lot just given what we're seeing in the business and the opportunity and we will give you more color as we get into.
Q4 guidance or I'm, sorry, 2020 for guidance.
Next year.
Yeah, and I think I'd, just underlying Joes points, there I mean, it's going to be a consistent strategy. We certainly see these opportunities.
Across the mid market and enterprise, but all of our market segments have been performing nicely and so our consistent approach to how we're going to invest going into next year and we feel really good about the motion that we have today, so no major changes to call out.
Got it that's helpful and then regarding AI any insight you can provide on customer feedback and demand trends with your.
So its functionality.
Yes. This is Justin.
So AI I would say.
Continues to be certainly a topic of <unk>.
Across our customers I think.
I would characterize that mostly as starting to get their heads around.
It may improve the tools.
Their day to day workflow and processes, we've gotten quite a few new releases that are powered by AI into our customers' hands over the last couple of quarters, a lot more coming I would say from our perspective the way that we're thinking about this is.
We have a lot of foundational things.
That as I mentioned, we've gotten into our customers' hands. We've built a lot of really powerful back and that's going to start to power some really really cool.
Capabilities for our customers that isn't just going to help them.
Do the things that they were already doing day to day, but unlock some entirely new opportunities and capabilities for our customers.
I'm certain we'll have more to share around some of those specific releases as we get into 2024.
I would say that the.
<unk>.
<unk>.
The impact that our customers that have adopted some of these fairly features have been able to make.
It's certainly improving their social efforts in their social strategy.
The areas, where we're going to start to see.
Really big customer value unlocked.
Our.
Some of the things that are in the works now some of the things that are coming down the road, but tons of excitement tons of interest by the customers a lot of really positive feedback with the customers that we've shared sort of more depth on our AI vision.
Reflecting back to a bit of a strategy that we talked about at Investor day.
Something that's been resonating really really well with our customers.
Across segments, but in particular in the enterprise.
And we'll see a lot of more interest build heading into next year.
And I might just add onto that.
The way that the product team has approached this I think is really impressive.
Clearly similar to everything that we've done in sprout, we want this to be approachable and elegant and fit within the workflow and thats part of the feedback we get from customers as well implementing these AI features just fits within their workflow. They don't have to change to get the benefits from it.
And to just this point the roadmap that's coming is really exciting some of the stuff that we've done on care is a great example of of how we are changing the game for our customers you think about the volume of customer feedback customer care feedback that you get on social the social teams typically are already small.
And Theres a lot of volume and our product is enabling them to prioritize where they should be spending time, because we've given them the ability to see sentiment in their customer care inbox, we've allowed them to respond in a way that's.
We're going to be better for the customer faster for the customer through our AI assist functionality. So all of these things are starting to take shape right now and the initial feedback to Justin's point has been great and we see a lot more in the future here.
Got it appreciate the color congrats on the quarter.
Thank you.
Our next question comes from the line of Rob Oliver with Baird. Please go ahead.
Great. Good evening guys. Thanks for taking my question I wanted to follow up on the question earlier touched on CAGR.
I guess two parts to the question one is what sort of an impact are you seeing.
Having on <unk>.
This large customer win say over 50, K and over 200, K and then the second part of the question is what.
Obviously, there's a strategic element to the acquisition here and just be curious to hear any color around the extension.
It improves your competitive position.
The upper end of mid market and enterprise in some of these larger deals given the sort of depth and breadth that just adds to your product portfolio I appreciate it.
Yes, thanks, Rob.
So I think on the first piece just in terms of large deal execution of opportunity I'd say, we're still early we see a lot of potential and opportunity and we shared a little bit before that.
<unk> performed in that short period of time that they've been part of the company. So we're very excited about what we've seen both in terms of being ahead for the quarter as well as the pipeline that we're developing and certainly we see this in the mid market and enterprise that was a huge part of our thesis when when acquiring the CAGR was that they had great progress and success.
Already in the enterprise place, where we saw them playing really nicely with sprout.
We continue to see that we're seeing in the pipeline that's being developed and I think we'll have more specific stories to share there on the Sac is success that we're seeing from a competitive positioning perspective, absolutely. We do believe that this is going to have really positive impacts on our ability to win again.
Against other competitors within the space to really differentiate and to increase our <unk> in the deals that we're in and when we looked around at the market and looked at the opportunity we didn't see anybody else, who had anything like Tiger and when we think about the combination of Tiger and the core product adds tremendous value for customers. If you just.
Think about it today.
Core sprouts side.
That organic that they were thinking about those customers today.
The publishing and engagement and listening and analytics really important another influencer marketing piece is another investment that they are thinking about and you can have all of that in one place now through one company.
That is that is certainly going to be a major differentiator for us and the teams are doing a great job getting enabled and taking it to market today and we expect to have more stories for you in future quarters on the progress.
Great looking forward to it thanks, Brian Thanks, Tim appreciate it.
Thank you.
Our next question comes from the line of Michael <unk> with Keybanc. Please go ahead.
Hi, This is Michael the debit calling for Michael and Thanks for taking my question here just wanted to follow up on the tire contribution question could you point to the level of a contribution you would expect for fourth quarter and full year 'twenty three.
Alright, and just out at this time.
Yes, Michael not at this time I think the data point like I said earlier the one they will be getting out is the revenue that we expect to generate from that we talked about the $3 million over the last five months and we're ahead of that pace and from there you can kind of probably back into the <unk> number but similar to last quarter, we're not giving out specific guidance.
Guidance on the CAGR.
Okay, and then on the sales force the opportunity.
Are you landing material number of Salesforce customers not on social studio today or is that something you would expect to pick up maybe starting in 2025 here.
We are starting to and we expect to see more and more of those.
That's the long tail of the opportunity that we have in front of US I think what's also been really exciting is some of these deals that we've already closed from a social studio perspective.
In some cases, where we're only using one part of the platform and it might've been more on the marketing side and then as we introduced our integration of the service cloud all of a sudden you have this opportunity that goes beyond marketing into social customer care and theyre starting to use the service cloud integration.
And some of the logos that we talked about this this quarters are great examples of those things happening today. So.
It is growing and we expect to see more of it going into next year and beyond.
Great. Thank you I appreciate it.
Our next question comes from the line of Fiona Heinz with Morgan Stanley. Please go ahead.
Hi, Good afternoon. This is Sarah on for Liz This quarter. Thank you for taking the question I wanted to ask on macro and understanding that you guys just put up a good quarter I'm curious for your perspective on how trends on that.
It did in Q3 relative to Q2 and whether or not like.
Understanding the execution was definitely a part of the performance just curious for any perspectives that you can share there. Thank you.
Yes. Thank you for the question Fiona.
I think that execution as well as getting a little further along with the some of the strategic changes that we made last year. The momentum that we continue to see in the enterprise et cetera is the bulk of the story for Q3.
We've got a lot of tremendous work happening inside the organization and the team is across the board.
Doing a phenomenal job.
We haven't seen.
Some of the same macro impacts that we are aware that others have seen.
We're cautious of it.
Keeping an eye on it we feel like we're factoring it adequately.
Got.
It's something that we talked about at Investor Day, I think continues to be a key trends not only in this environment, but some of the others that we faced over the last couple of years.
Which is that social is still an emerging space it's still.
The space that many companies are very early in their adoption of in their maturity through Soc.
Social teams continue to be.
Generally.
Understaffed, we see.
Marketers from recent survey is expressing that they expect to retain to increase 90% of them expect to maintain our increased head count into 2024, despite the current conditions.
And so social is kind of over the last three years proven to be fairly all weather in that regard.
We want to be mindful, certainly we want to make any adjustments that we need to make.
And as conditions continue to change, but the execution of the team is going to continue to be the main driver of our ability to outperform.
Thank you and then one follow up to that on AI and the monetization strategy there preceding that early.
<unk> for your thoughts on how you expect those to layer into the model over time do you think about some of these AI features that you are rolling out as drivers on more of the customer acquisition side more on like the higher monetization per customer side or potentially both thank you yeah.
Potentially both.
Is the likely answer I think we've talked about this before I think that there are certain things capabilities that we've introduced today and we will continue to introduce that really fit nicely into the core jobs to be done.
Within within its proud it makes the user experience better at least the product stickier. It makes the customers more impactful.
And I think for those that will help us with conversion rates that will help us with competitive advantage it will help us with retention.
But there are opportunities, including some of the things that we're working on now.
Where we expect to deliver pretty outsized value to our customers, particularly when we start thinking about.
Customer specific modeling when we start to think about.
Some of the really powerful.
New capabilities that AI is going to unlock and I think that it's going to make sense. It's too early to put a line in the sand or make predictions here, but I think that it's going to make sense that there is some monetization involved.
Some of the more powerful AI capabilities. They could also be wrapped up into some other monetization opportunities right AI is going to certainly improve listening, it's going to improve customer care capabilities et cetera.
So we're kind of watching.
And starting to form some opinions around.
How that layers in from a monetization perspective across the board, particularly as we get more of these these exciting things in our customers' hands.
Thank you.
Our next question comes from the line of Matthew band Light with BP.
Please go ahead.
Hey, good afternoon, guys. Thanks for taking my questions I.
I guess first on.
In fact, there were almost a year into the new pricing strategy curious on a couple fronts, what you've seen from a realization standpoint with your existing customer base through the renewals.
And potential upsell cross sell how much pricing you've actually realized.
At this point and then on the new customer front.
Any estimates on sort of where you're landing there relative to maybe deals of similar scope and size in the past and how much uplift you're actually realizing there as well please.
Yes.
Sure. Thanks, Matt I'll start this is Ryan I'll start with the second one just in terms of new customers and I think probably the best indication of the opportunity. There is just the ACB growth right. We've had a record ACB growth of 40%.
The customers that were in front of us today with the strategy shift and our focus on.
Sophisticated customers as well as the fact that they have with our premium modules.
Can be seen in the growth of our larger sized deals in the attach rates and so we continue to see great opportunities, we think that theres a lot more opportunities like that as we continue to sell into these sophisticated customers and we continue to grow our attach rates and certainly now as we add in Tiger is another great solution for these customers.
And then on top of that when we go back to the attach rates. When we think about our current customer base. We're still some 7% of our customers have more than the two products and so we have a lot of opportunity to go back to our current customer base now some of that will be making sure that we're educating them on the products that we have and the problems that they solve and some of it is just the maturity.
Thats happening within the marketplace, where theyre going to be ready for these products. So.
Continue to see lots of great ACB opportunities today, and the ACB growth number I think is probably the best indicator of that yes.
And then Matt to follow up on your question around the impact of.
The price increases and we've talked about this over the last couple of quarters I think it's a combination of a couple of things one as we.
Coming out of the first couple of quarters, we talked about the increased churn you saw in the law into the market and part of that was related to moving around the resources. The part of that was the price sensitive customers. When we gave those price increases and then when you think about when we get an upmarket in the Midmarket enterprise deals. When we went to those customers haven't really successful renewal rates, but a lot of the times.
It wasn't about the price increase as it was about entering other conversations around maybe adding listening or maybe adding premium analytics or adding another department in place of a price increase and so net net when you factor all those things in what we've kind of seen year to date, what we expect for this full year, you're probably looking at about a low single digit.
<unk> increased our.
Impact from the price increase and we probably expect the same thing going forward. If you think about the evergreen clause, we now have in our contracts. So we feel like.
That will be very similar impact in 2024.
Okay very helpful. And then when you look at not only the outlook for 'twenty, four, but even beyond that especially as the Salesforce partnership ramps up some new opportunities that maybe weren't on your plate before.
The plan for head count maybe.
Maybe very specifically on the go to market team and sort of what youre expanding there but.
Even if you zoom out from there on the other support roles and maybe more broadly how are you thinking about head count heading into 'twenty four.
I can I can talk more about at a high level, Matt and maybe not go into too much specifics as we're not trying to talk too much about 2024, right now and if RV wants to chime in on where you might see some of that in our go to market side I think what you can expect to see is very similar.
The level of investment from an employee standpoint, as youre going to see in 2023, maybe not as many but very close we feel like we've got a lot of momentum in the business, we want to keep investing especially on the R&D and the go to market side, and so I don't think Youll see a significant change in the level of investment in the business as it relates to that.
Number of employees that were adding.
Next year versus this year.
I would just underline the consistency in our go to market strategy is working and we're going to add in some of these places where we just see outsized return opportunities.
It's happening across all parts of our business, but midmarket and enterprise certainly are the ones that.
Have been growing the fastest and then theres going to be continued opportunities to make sure that we're driving through these premium modules through our customers and thats, probably some combination of just thinking about solution engineers and our customer success managers, but again I'd highlight that these things are all going to be very consistent with what we've done before.
So no surprises for all of you in the way that we grow our business.
All right very helpful. Thank you.
Our next question comes from the line of Clarke Jeffries with Piper Sandler. Please go ahead.
Hello, Thank you for taking the question.
Just one from me Joe you had mentioned a few million dollars.
Better in terms of expectation of churn in that low end cohort.
Just wanted to ask at this point I noted the full year is de risked by that number is still going to zero, but.
Any update on the rhyme or reason for why customers churn or don't in that segment.
Any any change in the last 90 days in terms of the net new funnel there if there if there still is one active.
Just any color on kind of that segment because that does seem like.
Some amount of swing factor in the end result.
When we get to Q4.
Yes Carter thanks for the question there so first of all on the <unk>.
Net new Theres, no new customers coming in into that part of the funnel. So if you looked at the new pricing and the way we set our lowest tier theres no theres no customers.
They're going to come in to that that part of the business and I think that was one of the main reasons, we decided to make the pricing changes we did a year ago as we identified the part of the market and the customers that weren't just as efficient and as strong as the rest of our business and so that's why we kind of made the pricing changes as far as why some of those customers haven't turned out as fast.
I think it can be a combination of things right. Some of these customers.
Might've went out in the market and realize the value that they were getting even though they didn't have as many resources on the accounts. It was still the best product in market right and so okay, maybe it's a little bit more expensive than I thought and maybe I'm not getting the amount of support that I had before but versus what else is in the market, it's probably still a pretty good value for them and so that's probably one of the main drivers there.
We're still sticking around and not <unk> any other color on what <unk> seen.
From from the success team on these customers.
I'd say no change in behavior or actions that we've been taking with those groups I think some of this is also just timing, but we've seen this to be a very tumultuous group, which is why we forecasted at the way we have and why we've moved away from that part of the business.
So some of this is just the timing of it but I think the way that we've set up the model and built the forecast we've done it in a way that can provide predictability for our investors. So.
We feel good about the strategy and the outlook for everybody.
Perfect. Thank you very much.
Our final question comes from the line of Nick Zheng.
<unk> with Stephens Inc. Please go ahead.
Hey, guys. Thanks for getting me on.
Papa John's is the pizza delivery choice in my household as well.
Obviously, some great results here and I just wanted to parse this out but given the guide I think what you are suggesting is that the new <unk> that was generated in three Q that incremental it's actually expected to outpace the level of new wins that you may be expecting in <unk>.
And I think typically <unk> is the strongest quarter for some of these incremental wins. So do I have this right and if so any reason suggests to suggest that you'd see superior strength and <unk> on the new <unk>.
When front versus <unk>.
Yes, So I think I think Nicholas great to have you on the team and really excited.
Talk with you today and going forward I think if you if you were to.
Back out the net new IRR that we added in Q3 from the CAGR acquisition, and we've kind of given you some of the numbers to calculate that.
Then and then you compare that to Q4 Q4 will be bigger than close will be come in larger then.
Q3, I think it is just the CAGR piece that youre seeing in Q3 that is probably throwing off your math.
Got it helpful. And then I do want to hit on the Salesforce partnership just because it's so important here but.
Another 154 accounts shifting over that's right I think you're at $7 80, now of what I would assume is around 4000.
Social studio accounts. So bill suggests there is a ton of room left maybe 3200 incremental targets.
From what I understand these contracts that exist on that side as they expire they are nonrenewable, even though the product doesn't go dark until November of next year. So these hold outs that are left over there they're running out of time, so given that.
Should we actually start to see an acceleration pretty significant acceleration in the pace of these new of these clients migrating over to sprout social over the last over the next 12 months just any reason to suggest otherwise.
Given that assumption for maybe acceleration going forward.
Yes, thanks for the question Nick.
In terms of the opportunity I think youre right in the way that you are framing it here, we've got a better year last.
From what we've seen there not renewable we don't control those contracts, but we have seen the same thing that you mentioned, we are still seeing new accounts and new deals that we had not seen before coming up. So there are still customers that are on it.
In terms of the opportunity we feel great about what's in front of us here today.
And we feel like as we mentioned in the prepared remarks as well, we'll continue to see really good opportunities from those as well as we move forward but.
I don't think I'd take the next step or forecasting any of any of those numbers, but we feel great about the opportunity in front of us in a position to win those accounts.
I appreciate it thanks guys.
Thank you.
I would now like to turn the call over to Justin Howard for closing remarks.
Thank you very much. Thank you all for all the time occupies will be short because I know everyone's got a very busy night.
But we appreciate the time, we appreciate the questions. We're looking forward to follow up conversations.
Spending more time with all of you over the coming weeks.
And just want to close with recognition for our team doing a remarkable job.
And looking forward to sharing lots of more with you next quarter. Thank you all very much.
I'd like to thank our speakers for today's presentation and thank you all for joining US. This now concludes today's call and you may now disconnect.
Please wait the conference will begin shortly.
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