Q4 2023 Sprout Social Inc Earnings Call

Operator: Good day, and welcome to Sprout Social Incorporated's conference call. All participants will be able to listen only to the question and answer portion of this call. Please note that today's call is being recorded. If you'd like to ask a question during the Q&A, simply press the star followed by the number one on your telephone keypad.

Good day, and welcome to Sprouts, Social incorporated conference call.

Participants will be able to listen only until the question and answer question of this call. Please note that today's call is being recorded if you'd like to ask a question during the Q&A simply press the star followed by the number one on your telephone keypad, if you'd like to withdraw your question Press Star and number one again.

Operator: If you'd like to withdraw your question, press star and number one again. I'd now like to introduce the call to Jason Rechel, Vice President of Investor Relations. You may now proceed. Thank you, Operator. Welcome to Sprout Social's fourth quarter 2023 earnings call. We'll be discussing the results announced in our press release issued after the market closed today and have also released an updated investor presentation, which can be found on our website. With me on the call are Sprout Social CEO Justin Howard, CFO Joe Del Preto, and President Ryan Barretto. Today's call will contain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Security Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking.

I'd now like to introduce the call to Jason <unk>, Vice President of Investor Relations you May now proceed.

Thank you operator, welcome to sprout, social its fourth quarter 2023 earnings call, we'll be discussing the results announced in our press release issued after market closed today and I've also released an updated investor presentation, which can be found on our website.

With me are sprout, social CEO, Jeff and Howard CFO, Joe del Preto, and President Ryan Barretto.

Today's call will contain forward looking statements, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

All statements other than statements of historical fact are forward looking.

Jason Rechel: These include, among others, statements concerning our expected future financial performance and business plans and objectives, and can be identified by words such as expect, anticipate, intend, plan, believe, seek, opportunity, or will. These statements reflect our views as of today only, and should not be relied upon as representing our views at any subsequent date. We do not undertake any duty to update these statements.

These include among others statements concerning our expected future financial performance and business plans and objectives and can be identified by words, such as expect anticipate intend plan believe seek opportunity or well.

These statements reflect our views as of today, only and should not be relied upon as representing our views at any subsequent date we.

We do not undertake any duty to update these statements.

Jason Rechel: 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, 2023, to be filed with the SEC, as well as our most recently filed 10-K and 10-Q. During the call, we'll discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles.

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, 2023 or to be filed with the SEC as well as our most recently filed 10-K and 10-Qs.

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 a reconciliation to the most directly comparable GAAP financial measures are included in our fourth quarter earnings release, which has been furnished to the SEC and is available on our website at <unk>.

Jason Rechel: Definitions of these non-GAAP financial measures, along with the reconciliation to the most directly comparable GAAP financial measures, are included in our fourth quarter earnings release, which has been furnished to the SEC and is available on our website at investors.sproutsocial.com. And with that, I will turn the call over to Jeff. Thank you, Jason, and good afternoon, everyone. Thank you, as always, for joining us. We are proud to deliver a fantastic fourth quarter. We're entering 2024 with notable momentum and an expanding scope of growth. Earlier this month, we were rated as the number one best software product by G2 across the entire software industry, adding to leadership across all of the major categories in which we compete. We believe our product leadership and outstanding execution have Sprout positioned for a breakout year as we define category leadership. During Q4, we saw continued record new business ACVs and total ACV growth of 43% year-over-year.

<unk> dot sprout, social dot com and with that let me turn the call over to Justin.

Thank you Jason and good afternoon, everyone. Thank you as always for joining US we are proud to deliver a fantastic fourth quarter results were.

We're entering 2024 with notable momentum and an expanding scope of growth opportunities earlier.

Earlier. This month, we were rated as the number one best software product baidu to across the entire software industry, adding.

Adding to leadership across all of the major categories in which we compete.

We believe our product leadership and outstanding execution have sprout positioned for a breakout year as we defined category leadership.

During Q4, we saw continued record new business <unk> and total ACB growth of 43% year over year.

Jeff: We added record net new organic 10K and 50K cost, and our premium product attach rate is now 30%, with premium product ARR growing greater than 50% year over year. We added record net new ARR, a record increase in deferred revenue, and a step change increase in RPO and CRP. New RPO, or Total Contract Value Bookings, was nearly 80% higher than any quarter in our history.

We added record net new organic 10-K, and 50 K customers and our premium product attach rate is now 30% with premium product <unk> growing greater than 50% year over year.

We added record net new IRR, a record increase in deferred revenue and step change increase in <unk> and <unk>.

New IPO or total contract value bookings was nearly 80% higher than any quarter in our history.

Jeff: New CRPO bookings increased nearly 3x year over year. Our focus strategy is yielding powerful results. Our customers are making increasingly large and long-term investments in social, which we believe will converge reported leading indicators upwards towards CRPO over time. We believe this will have the compounding effect of accelerating the durability and efficiency of our future. Our industry is maturing, and new research from Deloitte Digital says it far better than we do. Social first brands are repositioning social media at the core of the entire brand and customer experience as a key strategic priority.

New <unk> bookings increased nearly three X year over year.

Our focused strategy is yielding powerful results our customers are making increasingly large and long duration investments in social which we believe will converge reported leading indicators upwards towards <unk> over time.

We believe this will have the compounding effect of accelerating the durability and efficiency of our future growth.

Our industry is maturing and new research from Deloitte digital says it far better than we could Soc.

Social first brands are repositioning social media at the core of the entire brand and customer experience as a key strategic priority.

Jeff: Our goal is to make Sprout the industry-standard publishing and engagement platform and to make social listening, social advocacy, influencer marketing, and sophisticated reporting core to the workflow of the world's most innovative brands. We see massive potential to unify what should be standard social capabilities for all global brands and accelerate premium product attach rates and ACVs. Exiting 2023, our premium product attach rate increased to 30%, and Total Premium Module ARR is now growing greater than 50% year over year. Taggert will play an important role in our platform strategy, and the growth potential entering 2024 is proving to be greater than we had expected. It is increasingly clear that social media management and influencer marketing demand to live together for both workflow and reporting. We continue to execute on our differentiated value position, with inbound interest coming from a diverse set of current customers and geographies, with more than three X current Sprout ACVs and a meaningful opportunity to further differentiate Sprout while cross-selling into our customer base. We believe Tiger is on track to achieve our $100 million ARR target.

Our goal is to make sprout industry standard publishing and engagement platform and to make social listening social advocacy influencer marketing and sophisticated reporting core to the workflow of the world's most innovative brands.

We see massive potential to unify what should be standard social capabilities for all global businesses and to accelerate premium product attach rates and ACB growth.

Exiting 2023, our premium product attach rate increased to 30% and total premium module <unk> now growing greater than 50% year over year.

Tiger will play an important role in our platform strategy and the growth potential entering 2024 is proving to be greater than we had planned.

It is increasingly clear that social media management, and Influencer marketing demand to live together for both workflow and reporting.

We continue to execute on our differentiated value position with inbound interest coming from a diverse set of customers and geographies.

With more than three X current sprout, <unk> and a meaningful opportunity to further differentiate sprouts, while cross selling into our customer base. We believe <unk> on track to achieve our $100 million are on our target.

Jeff: Stepping back to our broader product strategy, our customer-driven rankings on G2 are an outcome of our aggressive product investments over the past 24 months. We've accelerated our platform investments in AI, social customer care, listening, advocacy, and industry-defining integration. We believe differentiated product integrations with amazing partners like Salesforce, product enhancement acquisitions of Tiger and Rebus, and rapidly expanding enterprise capabilities have positioned Sprout to lead our category. Last week's announcement of Social Customer Care by Sprout is a notable output of this innovation as we seek to establish ourselves as the clear choice for social customer care.

Stepping back to our broader product strategy, our customer led rankings on GTR and outcome of our aggressive product investments over the past 24 months.

We've accelerated our platform investments in AI, social customer care listening advocacy and industry defining integrations.

We believe differentiated product integrations with amazing partners like Salesforce.

Product enhancing acquisitions of Tiger and Rep state and rapidly expanding enterprise capabilities have position sprouts to lead our category.

Last week's announcement of social customer care by Sprout has a notable output of this innovation as we seek to establish ourselves as the clear choice for social customer care.

Jeff: We're now delivering faster, more personalized, and more complete customer support with AI-powered case management, intuitive reporting, and out-of-the-box integrations with leading customer care platforms like Salesforce, Zendesk, and Microsoft. Social care is the fastest growing market in our SAM, and we believe we are well positioned to lead that. We delivered more than 150 material new product enhancements in total during 2020, more than 25% greater than each of the prior three. And we believe our pace of innovation is only getting started. This pace of change also aligns to the pace of change in the market, which is evolving faster than ever.

We're now delivering faster more personalized and more complete customer support with AI powered case management intuitive reporting and out of the box integrations with leading customer care platforms like Salesforce Zen desk and Microsoft.

Social care is the fastest growing market in our Sam and we believe we are well positioned to lead that market.

We delivered more than 150 material new product enhancements in total during 2023 more than 25% greater than each of the prior three years.

We believe our pace of innovation is only getting started.

This pace of change also aligns to the pace of change in a market, which is evolving faster than ever.

Jeff: We are proud to have elevated our relationship with Reddit earlier this month, for Tagger to lead the new Creator API with Snapchat, to join Meta's AdTech Partner Program, and to currently be working as an alpha partner for Meta's Threads API. We're deepening our relationships across our partner ecosystem and are proud to be core to many other key 2024 partner priorities that will deliver utility to our shared cost. We believe our single code base, coupled with strong and dynamic partner relationships, are key competitive differentiators for Sprout, and we are extending our moat as we scale. Sprout's recognition as the number one best software product ranked by G2 highlights the incredible success our customers are having.

We are proud to elevate our relationship with <unk> earlier this month for CAGR to lead the new creator API with Snapchat to join <unk> AD Tech partner program and to currently be working as an alpha partner for <unk> threats API.

We're deepening our relationships across our partner ecosystem and are proud to be core to many other key 2024 partner priorities that will deliver utility to our shared customers.

We believe our single code base, coupled with strong and dynamic partner relationships are key competitive differentiators for sprout and are extending our mode as we scale.

Sprouts recognition as the number one best software product ranked Baidu two highlights the incredible success of our customers are having.

Jeff: In fact, during 2023, our customers cumulatively spent more than 6 million hours of time on Sprout, and we processed over 1.5 trillion messages and actions for them. We've doubled down on our thesis that social is maturing as the primary communication channel between brands and their customers. The continuing maturity of the market is solidifying Sprout as a social system of record, intelligence, and action. We aspire to set the bar for innovation in our industry and to emerge as a market leader. The logos you'll hear Ryan talk about shortly are equal parts humbling and indicative of where we are as an organization.

In fact during 2023, our customers cumulatively spent more than 6 million hours of time, and sprout and we processed over one five trillion messages and actions for them.

We've doubled down on our thesis that social is maturing as a primary communication channel between brands and their customers.

The continuing maturity of the market is solidifying sprouts as the social system of record intelligence in action.

We aspire to set the bar for innovation in our industry and to emerge as the market leader the.

The logos Youll hear Ryan talk about shortly are equal parts humbling and indicative of where we are as an organization.

Jeff: We outlined our next great growth chapter last fall at Investor Day, and we're executing well as we progress toward our goal of one billion in annual revenue. Going into 2024, we believe we have the right team, platform, and approach to realize our full potential. And with that, I will turn the call over to Justin.

We outlined our next great growth chapter last fall at Investor Day, and we're executing well as we progress toward our goal of $1 billion in annual revenue.

Going into 2024, we believe we have the right team platform and approach to realize our full potential and with that I will turn the call over to Ryan.

Thanks, Justin 2023 was a year filled with great progress milestones and success, we evolved our long term strategy, while proving that we are perfectly positioned to make the largest and most complex customers successful.

Ryan Barretto: 2023 was a year filled with great progress, milestones, and success. We evolved our long-term strategy while proving that we are perfectly positioned to make the largest and most complex customers successful. I have so much gratitude for our team who operate with relentless focus, a strong work ethic, and excellent execution, and deep appreciation for our customers who put their trust in us every day and are seeing the increasing value of social delivered through our platform. Our customer success is clearly driving our, so I think it's fitting that I kick off by highlighting the iconic brands that we were fortunate to grow with during Q4, which included X, formerly known as Twitter, and DHL Brown Forman Corporation and you, PG&E Corporation. BCW Network, Arthur Daniels Midland, U.S. Chamber of Commerce, American Honda Motor Company, Whirlpool, Avis Budget Group, Panasonic, Nationwide Children's Hospital, Sega of America. Brad Paxson, Sexton Dickinson, and Coe Stargrey

So much gratitude for our team to operate with relentless focus work ethic and excellent execution and deep appreciation for our customers who put their trust in US every day and are seeing the increasing value of social delivered through our platform.

Our customer success is clearly driving our success. So I think it's fitting that I kick off by highlighting the iconic brands that we are fortunate to grow with during Q4, which included <unk>, formerly known as Twitter DHL International Brown.

Brown Forman Corporation can view.

PGN E Corporation.

The CW network Archer Daniels Midland.

U S Chamber of Commerce American Honda Motor Company Whirlpool.

This budget group.

Sonic nation.

Nationwide Children's Hospital Tiger of America.

Grab taxis Becton Dickinson and Costar group.

Ryan Barretto: Our most sophisticated customers are social first organizations that rely on Sprout to drive efficiency and innovation, and our new customer, Advanced Micro Devices, is a perfect example of what this looks like. Chris Downey, Director of Social Media and the Chair We are a data-driven organization, and our goal is to empower our teams with intuitive software that can improve efficiency across the organization. With Sprout, we now have the ability to improve our publishing collaboration, streamline social customer care, and make impactful decisions with sophisticated reporting capabilities. Focus matters, and we're focused on being the social platform powering the world's most innovative brands. But at the same time, customers are telling us that they're seeing our competitors investing less in their teams, in their customers, and in their products.

Our most sophisticated customers are social first organizations rely on <unk> to drive efficiency and innovation and our new customer advanced micro devices is a perfect example of what this looks like.

Chris Downey director of social media AMD shared.

We're excited to enhance our social strategy with spreads social.

We are a data driven organization and our goal is to empower our teams with intuitive software that can improve efficiency across the organization.

This growth, we now have the ability to improve our publishing collaboration.

<unk>, social customer care, and making tactical decisions with sophisticated reporting capabilities.

So this matters and we're focused on being the social platform powering the world's most innovative brands.

At the same time customers are highlighting to us that they're seeing our competitors investing less in new teams and their customers and their products. This is reinforcing the strength of our strategy and our differentiation.

Ryan Barretto: This is reinforcing the strength of our strategy and our differentiation. You can see this in the usability of our platform and how leading with the product has become the primary driver in our strengthening win rates in the enterprise. Our recognition as the number one best software product on G2 is a reflection of all of it. G2 is the world's largest and most trusted software marketplace, where 90 million software buyers seek out advice and where rankings are based exclusively on user reviews. Sprout was the best software product overall.

You can see this in the usability of our platform and how leading with the product has become the primary driver and our strengthening win rates in the enterprise.

Our recognition as the number one that software product and <unk> is a reflection of all of this.

<unk> is the worlds largest and most trusted software marketplace, where 90 million software buyers seek advice and where rankings are based exclusively on user reviews.

<unk> was the best software product overall.

Ryan Barretto: This is a reflection of the differentiation of our software and the strategic value our customers derive from our platform and products. Building from this position of product leadership, it was just over a year ago that we honed in on our strategic focus. We've moved away from the inefficient growth anchor at the low end of our category and accelerated our momentum into the fastest growing tiers of our TAM, where the unit economics are strongest and where we believe our competitive differentiation increasingly stands out. Digging deeper into the research from Deloitte Digital that Justin just referenced, Social first brands are 4.7 times as likely to use social platforms extensively for customer care, and 3.1 times as likely to manage paid and organic budgets together.

This is a reflection of the differentiation of our software and the strategic value our customers derive from our platform and products.

From this position of product leadership. It was just over a year ago that we dialed in our strategic focus we've moved away from the inefficient growth anchor at the low end of our category and accelerated our momentum into the fastest growing tiers of our Tam where the unit economics are strongest and where we believe our competitive differentiation increasingly stands out.

Deeper into the research from Deloitte digital that Justin just reference social first brands or four seven times as likely to use social platforms extensively for customer care three one times as likely to manage paid organic budgets together 10, seven times as likely to report their influencer marketing strategy is effective.

Ryan Barretto: 10.7 times as likely to report that their influencer marketing strategy is effective. And, my favorite, these brands are eight times as likely to have exceeded revenue goals by 25% or more. We have to remember that all of this is driven by consumer behavior and expectations, and social first brands are beginning to not only see measurable business results but are prioritizing social across the entire organization. And because of this, the deeper we go into the enterprise, the more we're able to unlock new greenfield growth opportunities, either because legacy and often siloed technologies couldn't meet the need, or because businesses are at the right point in their maturity to adopt The Sinclair Broadcast Group is a great example.

And my favorite these brands are eight times as likely to exceeded revenue growth by 25% or more.

Have to remember that all of this is driven by consumer behavior and expectations and social first brands are beginning to not only see measurable business results, but are prioritizing social across the entire organization.

Because of this the deeper we go into the enterprise.

We were able to unlock new greenfields growth opportunities are there because legacy and often siloed technologies couldnt meet the need or because businesses are at the right point in their maturity to adopt social first strategy.

Sinclair broadcast group is a great example of this they were a new Q4 customer that moved from managing social natively to standardizing on sprout.

Ryan Barretto: They were a new Q4 customer that moved from managing social natively to standardizing on Sprout. News never stops, and social is the first place people look for information and updates, said Nicholas James, VP of Social Media at Sinclair Broadcast Group. Without a social media management tool in place, it would be impossible for us to coordinate efforts across nearly 500. The usability of Sprout's platform creates operational efficiencies that allow our teams to focus on the important work they're doing and to deliver even more impactful stories to their Andy Pape, Head of Content and Social Strategy, Shares: Sprout allows our team to punch above their weight. The comprehensive platform provides a user experience that makes it painless to engage your audience, build your brand, and manage your reputation at scale. Sprout's powerful analytics makes it easy to report on our successful outcomes and get alignment on our strategy. The user experience is intuitive, which has made our team happier and more efficient since making the switch.

News never stops and social is the first place people look for information and updates said Nicholas James VP of social media at Sinclair broadcast group.

Without a social media management tool in place it would be impossible for us to coordinate efforts across nearly 500 accounts.

The usability of spreads platform creates operational efficiencies that allow our teams to focus on important work they are doing and to deliver even more impactful stories to their communities.

Unlocking more value, making our customers' lives easier and helping them get value quickly as all part of our value proposition.

Memorial Hermann Health system is a great example of this dynamic.

Andy <unk> head of content and social strategy shared.

Sprout allows our team to punch above our weight.

Our comprehensive platform provides the user experience that makes it painless to engage our audience build our brand and manage our reputation at scale spreads.

<unk> powerful analytics makes it easy to report on our successful outcomes and get alignment on our strategies the user experiences intuitive, which has made our team happier and more efficient since making this switch.

Ryan Barretto: We continue to focus on expanding our partner ecosystem to further build out our future flywheel. Our partnership with Salesforce continues to set an amazing precedent for future success with other partners. During Q4, we delivered another very strong performance with new logos similar to Q4 of last year, but with 40% more new ARR than Q4 2022. This is not only due to working with more complex social studio deployments as they near the end of life, but because of our unique integration into Salesforce, which is enabling brands to do more with social than ever before.

We continue to focus on expanding our partner ecosystem to further build out our future flywheel. Our partnership with Salesforce continues to set an amazing precedent for future success with other partners. During Q4, we delivered another very strong performance with new logos similar to Q4 of last year, but with 40% more new.

<unk> Q4 2022.

This is not only due to working with more complex social studio deployments as they near end of life.

Because of our unique integration into Salesforce, which is enabling brands to do more of a social than ever before.

Ryan Barretto: We have a massive opportunity to execute with Salesforce in 2024. And as we've shared before, we also see an even larger opportunity in the years ahead as we work to make Sprout the standard social platform for any Salesforce customer. We believe our social customer care platform, together with Salesforce Service Cloud, in particular, is the future of omni-channel. As we reflect back on the progress we've made over the past year, I've never been more excited by the differentiation of our platform, the strength of our team, and our focused investment strategy to deliver outsized value to all social first brands. We're excited for 2024 as we continue building a category-defining soccer. And with that, I'll turn it over to Joe to run through the. Ciao.

We have a massive opportunity to execute with Salesforce in 2024 and as we've shared before we also see an even larger opportunity in the years ahead as we work to make sprout the standard social platform for any salesforce customer.

We believe our social customer care platform together with Salesforce service cloud in particular is the future of Omnichannel care.

As we reflect back on the progress we've made over the past year I've never been more excited by the differentiation of our platform the strength of our team and our focused investment strategy to deliver outsized value to all social first brands.

Excited for 2024, as we continue building a category defining software franchise and with that I'll turn it over to Joe to run through the financials Joe.

Joe Del Preto: Thanks, Ryan. I'll now walk you through our fourth quarter fiscal 2023 results in detail before moving on to guidance for the first quarter and full year 2020. Revenue for the fourth quarter was $93.6 million, representing 34% year-over-year growth and well ahead of... Subscription revenue was $92.2 million, up 33% year-over-year. Services revenue was $1.4 million, up 175% year-over-year.

Thanks, Brian.

I'll now walk you through our fourth quarter fiscal 2023 results in detail.

So moving on to guidance for the first quarter and full year 2024.

Revenue for the fourth quarter was $93 6 million, representing 34% year over year growth and well ahead of plan.

Subscription revenue was $92 2 million up 33% year over year.

Services revenue was $1 4 million up 175% year over year.

Joe Del Preto: Total ARR as of Q4 was 385.2 million, up 30% year over year and ahead of our expectations. Rekinu ARR was led primarily by Rapid Enterprise New Business Growth, Accelerating Premium Module Catch Rates, and Continued Early Tag OMEM.

Total AR exiting Q4 was $385 2 million up 30% year over year and ahead of our expectations.

<unk> was led primarily by rapid enterprise new business growth.

Accelerating premium module attach rates and continued early CAGR momentum.

Joe Del Preto: Importantly, we also entered 2024 without low-end ARR that has been an anchor for our performance; non-core customers further declined in Q4 and now represent less than 800K in ARR. This business will no longer be a headwind to growth in 2025. The number of customers contributing more than $10,000 in ARR grew 31% from a year ago. The number of customers contributing more than $50,000 in ARR grew 44% from a year ago. Q4ACP growth with a record 43% year-over-year, record new business deal sizes, and early returns from influencer marketing. Each compounded ongoing healthy seed expansion and premium module attachment. We expect rapid ACV growth, similar to the second half 2023 ACV growth rate, to continue over the medium term through my strength in enterprise, influence of marketing, and customers. In Q4, non-GAAP gross profit was $74.2 million, representing a non-GAAP gross margin of 79.3%.

Currently we also entered 2024 without low end <unk> has been an anchored on our performance.

Noncore customers further decline in Q4, and now represent less than 800 K in <unk>.

This business will no longer be a headwind to growth in 2024.

The number of customers contributing more than $10000 in IRR grew 31% from a year ago.

The number of customers contributing more than $50000 and grew 44% from a year ago.

Q4, ACP growth was a record 43% year over year.

Record new business deal sizes, and early returns from Influencer marketing each compounded ongoing healthy seat expansion and premium module attach rates.

We expect rapid ACB growth.

Second half, 2023% ACB growth rates.

To continue over the medium term driven by strength in enterprise Influencer marketing and customer care.

In Q4, non-GAAP gross profit was $74 2 million, representing a non-GAAP gross margin of 79, 3%.

Joe Del Preto: There's 60 basis points compared to a non-gap gross margin of 78.7% a year ago. Non-gap sales and marketing expenses per Q4 were $39.6 million or 42% of revenue, up from 41% a year ago. We continue to hire aggressively in our enterprise sales and growth organization. Non-GET research and development expenses for Q4 were $17.1 million, or 18% of revenue, down from 90% a year ago.

This is up 60 basis points compared to a non-GAAP gross margin of 78, 7% a year ago.

non-GAAP sales and marketing expenses for Q4 were $38 6 million or 42% of revenue up from 41% a year ago.

We continue to hire aggressively in our enterprise sales and growth organization.

non-GAAP research and development expenses for Q4 were $17 1 million or 18% of revenue down from 19% a year ago.

Joe Del Preto: We continue to invest in our future, and our increasingly targeted investments in AI and social customer care are developing strongly. Non-gap general and administrative expenses for Q4 were $15.8 million, or 17% of revenue, down from 18% a year ago. We expect to deliver consistent G&A leverage as a percent of revenue moving forward. Non-GAAP operating income for Q4 was $1.7 million, for a 1.8% non-GAAP operating margin, an improvement of 100 basis points year-over-year. Non-GAAP net income for Q4 was 1.0 million for a non-GAAP net income of two cents per share based on 56.1 million weighted average shares of Common Stock outstanding, compared to a non-GET net income of $1.8 million and $0.03 per share a year ago.

We continue to invest in our future and our increasingly targeted investments in AI and social customer care are delivering strong returns.

non-GAAP general and administrative expenses for Q4 were $15 8 million or 17% of revenue.

Down from 80% a year ago.

We expect to deliver consistent G&A leverage as a percent of revenue moving forward.

non-GAAP operating income for Q4 was $1 7 million for one 8% non-GAAP operating margin.

Improvement of 100 basis points year over year.

non-GAAP net income for Q4 was 1.0 million for non-GAAP net income of <unk> <unk> per share based on $56 1 million weighted average shares of common stock outstanding.

Compared to a non-GAAP net income of $1 8 million and <unk> <unk> per share a year ago.

Joe Del Preto: Turning to the balance sheet and cash flow statement, we had a Q4 with 98.1 million in cash, cash equivalents, and marketable security. This is down from $121.4 million at the end of Q3 and reflects earlier payment on a revolving credit facility. Deferred revenue at the end of the quarter was $141.5 million, a record sequential increase.

Turning to the balance sheet and cash flow statement. We ended Q4 with $90 1 million in cash cash equivalents and marketable securities.

This is down from $121 4 million at the end of Q3 reflects earlier payment on our revolving credit facility.

Deferred revenue at the end of the quarter was $141 5 million a record sequential increase.

Joe Del Preto: Again, both are billed and unbilled contracts. RPO totaled $275.0 million, up from $228.7 million in Q3, and up 69% year-over-year. We expect to recognize 72% or $198 million of total RPO as revenue over the next 12 months, and apply a CPR growth rate of 62% year over year. The acceleration of these metrics reflects our underlying momentum in the enterprise, highlights the rapidly improving quality of our business, and represents our highest ever quarterly total contract value bookings by nearly 80%. The mix of our businesses is changing materially. We have increasingly fewer month-to-month customers, which has been a drag on reported ARR as we've shifted resources to support higher-value customers.

Looking at both our billed and Unbilled contracts, our PL totaled 275.0 million.

From $228 $7 million exiting Q3, and up 69% year over year.

We expect to recognize 72% a $198 million of total <unk> as revenue over the next 12 months.

On a CPR growth rate of 62% year over year.

The acceleration in these metrics reflects our underlying momentum in the enterprise highlight the rapidly improving quality of our business.

This is our highest ever quarterly total contract value bookings by nearly 80%.

The mix of our business has changed materially.

Increasingly fewer month to month customers, which has been a drag on reported <unk>.

As we have shifted resources to support higher value customers billings and <unk> are likely to be increasingly informative leading indicators.

Joe Del Preto: Billings and RPO are likely to be increasingly informative leading indicators. We believe that our sustained high-growth momentum into mid-market enterprise is likely to converge our reported metrics towards CRPO over the next 12 to 18 months. Operating cash flow in Q4 was negative $2.6 million compared to positive $3.0 million a year ago. Non-GAP-free cash flow was negative $0.3 million, down from a year ago.

We believe that our sustained high growth momentum into mid market enterprise is likely to converge our reported metrics towards <unk> over the next 12 months to 18 months.

Operating cash flow in Q4 was negative $2 6 million compared to positive $3 3 million a year ago.

non-GAAP free cash flow was negative <unk> 3 million down from a year ago.

Joe Del Preto: While working through the final stages of TAGR integration, accounts received will also increase by nearly double the amount of Q4 2022, reflecting an expanding enterprise renewal base, which we believe will make our cash flow more seasonally weighted towards Q1. For the full year 2023, non-GAAP-free cash flow was $10.2 million, or 3.1% free cash flow margin. We expect pre-cash flow margins to continue to trend above our non-GAAP operating margins in 2025. In 2023, our overall dollar-based net retention rate was 107%, down from 109% in 2022. A dollar-based net retention rate excluding S&B customers was 111% in 2023, compared with 116% in 2022.

While working through the final stages of CAGR integration accounts receivable also increased by nearly double the amount of Q4 2022, reflecting expanding enterprise renewal base, which we believe will make our cash flow more seasonally weighted towards Q1 over time.

For the full year 2023, non-GAAP free cash flow was $10 2 million or three 1% free cash flow margin.

We expect free cash flow margins to continue to trend above our non-GAAP operating margins in 2024.

In 2023, our overall dollar based net retention rate was 107% down from 109% in 2022.

Our dollar based net retention rate, excluding SMB customers was 111% in 2023 compared with 116% in 2022.

Joe Del Preto: Our strategic changes in 2023 and the emphasis on low-value, low-potential customers accelerated turn on our S&B and agency set, which caused substantial drag and reported NDR. We leave this exit set spread out for very strong NDR in 2024 as we continue to shift our business towards total net retention north of 120% over a medium-term forecast horizon. Shifting the Formal Guide.

Our strategic changes in 2023, and the emphasis on low value low potential customers accelerated churn in our SMB and agencies headwinds, which was a substantial drag on reported MBR.

I believe this exits that's brought up for very strong MTR in 2024, as we continue to shift our business towards total net retention north of a 120% of our medium term forecast horizon.

Shifting the formal guidance.

Joe Del Preto: For the first quarter of fiscal 2024, we expect revenue in the range of $97.2 to $97.3 million, or a growth rate of more than 29%. We expect non-GAAP operating income in the range of $0.6 million to $0.7 million. This represents a non-GAAP operating margin of 0.7% at the mid-term. We expect a non-GAAP net income per share of between 0 cents and 1 cent. This assumes 56.4 million weighted average basic shares of common stock outstanding.

For the first quarter of fiscal 2024, we expect revenue in a range of 97, two to $97 3 million a growth rate of more than 29%.

We expect non-GAAP operating income in the range of <unk> 6 million to zero point $7 million the server to the non-GAAP operating margin of <unk>, 7% at the midpoint.

We expect the non-GAAP net income per share of between <unk> <unk> and <unk>.

This assumes $56 4 million weighted average basic shares of common stock outstanding.

Joe Del Preto: For the full year 2024, we expect total revenue in the range of $425.3 million to $425.5 million and an expected overall reported growth rate of approximately $28 billion. For the full year 2024, we expect non-GAAP operating income in the range of $15 million to $60 million. This implies an annual non-gap operating margin improvement of roughly 220 basis points. Reflect on getting an income per share between 22 cents and 23 cents, assuming 57.0 million weighted average basic shares of common stock out.

For the full year 2024, we expect total revenue in the range of $425 3 million to $425 5 million an expected overall reported growth rate of approximately 28%.

For the full year 2024, we expect non-GAAP operating income in the range of 50 million to $60 million.

This implies annual non-GAAP operating margin improvement of roughly 220 basis points.

We expect non-GAAP net income per share between 'twenty, two and 'twenty three.

I mean 57.0 million weighted average basic shares of common stock outstanding.

Joe Del Preto: Over the course of 2023, we've aligned our business and our investments around the most productive and fastest growing segments of our market. We believe we have transformed our business model to position us to deliver increasingly durable and increasingly efficient growth. With that, Justin, Ryan, and I are happy to take any of your questions. Operator?

Over the course of 2023, we have aligned our business and our investments on the most productive and fastest growing segments of our market.

We believe we transformed our business model to position us to deliver increasingly durable and increasingly efficient growth with that Justin Ryan and I are happy to take any of your questions operator.

Operator: www.sproutsocial.org End. Our line is now open for Q&A. If you'd like to ask a question, please press star and number one on your telephone keypad. That's star and number one on your telephone keypad.

Our line is now open for Q&A, if you'd like to ask a question. Please press star and number one on your telephone keypad.

Star and number one on your telephone keypad. Our first question comes from Rama <unk> from Barclays. Your line is now open.

Raulmo Lencho: Our first question comes from Raulmo Lencho from Barclays. Your line is now open. Thank you. My first question is on customer momentum. You named some really interesting names that you won this quarter.

Thank you congrats from me.

First question is on.

Customer momentum you saw some you named some really interesting names that you won this quarter could you talk a little bit about where they're coming from and as part of the answer could be kind of double click a little bit on social studio will be Chris.

Ryan Barretto: Can you talk a little bit about where they are coming from? And as part of the answer, could we kind of double-click a little bit on Social Studio? Because we probably would have expected a little bit more new logos coming from that site. But talk a little bit broadly, where are you getting from, and how much is Social Studio contributing there? And then I have one follow-up question for Joe. Thanks very much. I'll start. This is Ryan.

Probably would have expected a little bit more new logos coming from that side talk a little bit broadly, whether youre getting from and how much of a focus to you.

Contributing to Euro and then I had one follow up for Joe.

Thanks, Raimo I'll start this is Ryan.

Ryan Barretto: From a pipeline perspective, where their customers are coming from, it tends to be a bunch of different areas that we're excited about. On the call, you heard a lot from some of the competitors that we typically see up market. So there are some trades happening within the market. Typically, we're hearing from our customers that they're challenged with a few things, be it the most complex parts of the platform that they're trying to get access to, like listening and reporting, where they're finding great value in Sprout.

From a pipeline perspective, where their customers are coming from it tends to be a bunch of different areas that we're excited about on the call and you heard a lot from some of the competitors that you would typically see upmarket. So theres. Some some swaps happening within the market typically we're hearing from our customers that they're challenged with a few things.

Be it the most complex parts of the platform that they are trying to get access to access tools like listening and reporting where they are finding great value in sprout. When youre also seeing customers moving away from using just the no tools. It also that the directly X or meta where there we called this native in the past.

Ryan Barretto: But you're also seeing customers moving away from using just no tools at all, so directly X or meta, which we called this native in the past. But we've seen customers like Sinclair, a great example, where the needs for social have risen so much that they need a platform like Sprout to be able to manage the engagement with so many different customers, as well as being able to manage some of the data. So it's a combination of these greenfield opportunities that we're seeing, as well as takeaways, and then growth, obviously, on our current accounts. From a Salesforce Social Studio perspective, yeah, I'd call out the 40% gain in revenue from those customers. We continue to see a lot of good opportunities with that Salesforce pipeline. We're very excited about the opportunity in front of us in 24.

But we've seen customers like Sinclair, a great example, where the needs for social have risen so much that they need a platform widespread to be able to manage through engagement with so many different customers as well as being able to manage some of the data.

So it's a combination of these greenfield opportunities that we're seeing as well as takeaways and then the growth obviously on our current accounts.

From a salesforce social studio perspective.

Yes, I would call out the 40% gain in the IRR from those customers. We continue to see a lot of good opportunity with that sales force pipeline. We're very excited about the opportunity in front of us in 'twenty four.

Ryan Barretto: Beyond just Social Studio, the Salesforce Service Cloud has become a really big opportunity for us within the ecosystem, given the integrations we've built into that Service Cloud. So I think just the headline for you there is we'll continue to see some of those Social Studio swaps this year, as well as more opportunities within the rest of the Salesforce ecosystem. Okay, perfect. And then, Joe, for you, if I think about it, like, the nature of the business is changing, and with that, the numbers are changing, and you mentioned CRPO is probably a better way, like, but we're kind of on a journey. Like, how should we think about judging you this year?

Beyond just the social studio.

The Salesforce service cloud has become a really big opportunity for us within the ecosystem given the integrations, we've built into that service cloud so.

The headline for you. There is we will continue to see some of those social studio swaps this year as well as more opportunity within the rest of the Salesforce ecosystem.

Okay, Perfect and then Joe for you.

If I think about it.

<unk>.

The business is changing and with it the numbers are changing and you mentioned <unk> is probably better we like what kind of on a journey like how should we think about judging you this year and at what point do you feel comfortable kind of swapping some of the metrics numbers over thank you.

Joe Del Preto: And at what point do you feel comfortable kind of swapping some of the metrics numbers over? Thank you. Yeah, so it's a good question, Raimo.

Yes. So good question Ryan I think we.

Joe Del Preto: I think, you know, we call this out in my remarks. I think the next 12 to 18 months is kind of that time horizon where we believe RPO, CRPO, and billings will be better leading indicators for our business. And so our plan every quarter is just kind of give you an update on how those are trending and what that time horizon looks like. But we think, you know, it'll be out in the next couple of years. Okay, thank you. Our next question comes from Arjun Bhatia of William Blair. Your line is now open.

I call. This out in my remarks, I think over the next 12 to 18 months.

It's kind of that time horizon, where we believe our <unk> billings will be better leading indicators for our business and so our plan every quarter just kind of give you an update on how those are trending and what that time horizon looks like but we think out over the next couple of years.

Okay. Thank you.

Yeah.

Our next question comes from Arjun Bhatia from William Blair. Your line is now open.

Arjun Bhatia: Perfect. Thanks, guys. And I'll add my kudos on a nice Q4. Maybe one for Justin on the product side. You launched this new social care solution. Sounds very interesting.

Perfect. Thanks, guys and I'll add my kudos on a nice Q4.

Maybe one for Justin on the product side, you launched those new social care solution. It sounds very interesting I think.

Justin Howard: I think it's one of the areas where you've been getting good traction already. Can you just maybe expand on the incremental capabilities that are a part of the care product, how it differentiates from what you've had in the market already? And then when we think about the kind of monetization lever, is this going to be a separate SKU or is it a part of the core platform? Yeah, great question. Thanks.

One of the areas, where you've been getting good traction already can you just maybe expand on the incremental capabilities that are a part of the care product how it differentiates from what you've had in market already and then when we think about the kind of a monetization lever is this going to be a separate SKU or is this.

Part of the core platform.

Yes, great question. Thanks.

Justin Howard: So, you know, as you mentioned, I think we've been incredibly strong in the care use case for some time. You've heard a lot of the large wins that we've been talking about in that area. And we've also talked about wanting to lean in and accelerate our investment there. And for us, that was recognition that this is going to continue to be a driving force for our customers and future customers. It's going to be one of the bigger opportunities that we have over the next couple of years, and we didn't want to rely on the way that those capabilities are kind of evolving organically.

So.

As you mentioned I think we've been incredibly strong and the <unk> use case for some time, you've heard a lot of the large wins that we've been talking about in that area.

And we've also talked about us wanting to lean in and accelerated our investment there.

And for US that was recognition that this is going to continue to be.

Driving force for our customers and future customers, it's going to be one of the bigger opportunities that we've got over the next couple of years and.

We didn't want to.

Rely on the way that that that those capabilities.

Sure.

Justin Howard: We wanted to put more horsepower behind that, and we wanted to reimagine what that looked like. And so what that looks like from a product perspective, reimagining what case management looks like, incorporating AI into those capabilities, building more robust routing and automation around larger care teams. And it is a combination of things that we have released over the last couple of quarters, things that were existing in our product, but built and reoriented from what was historically something that was kind of you're doing customer care in social to something that was care first capabilities and organized And we know that it's still a small portion of the market at this point that has fully adopted, embraced, and kind of operationalized social as a care channel in the way that we're building for.

Inorganically, we wanted to put more horsepower behind that we wanted to re imagine what that looks like.

And so what that looks like from a product perspective.

Re imagining.

Case management looks like incorporating AI into those capabilities.

Building more robust routing and automation around larger care teams.

And it is a combination of things that.

We have released over the last couple of quarters things that were existing in our product.

But built in Reoriented from what was historically something that was kind of youre doing customer care and social to something that was care first capabilities.

<unk> organized and Architected that way for the customers that.

We're ready to.

Make that part of their charter and make that part of the way that they work operationally and we know that.

It's still a small portion of the market.

At this point that has fully adopted embraced and kind of operationalized social care channel and the way that we're building for but we fully expect that down the road and in the coming years thats going to be more and more and we wanted to build ahead and be ready for that so it's a combination of a lot of things.

Justin Howard: But we fully expect that down the road and in the coming years, that number is going to be more and more. And we wanted to build ahead and be ready for that. So it's a combination of a lot of things that our customers have enjoyed, a lot of new things that we've been building, and a lot of things that we have planned on our roadmap moving forward. From a monetization perspective, we're still thinking through exactly how that looks. The biggest monetization lever around care is obviously that those tend to be very large deployments from a cost perspective. They tend to be on our more expensive plans over longer durations, et cetera.

Our customers have enjoyed a lot of new things that we've been building and a lot of things that we have planned on our roadmap moving forward.

From a monetization perspective.

Still thinking through exactly how that looks.

The biggest monetization lever around carriers, obviously those tend to be very large deployments from a seat perspective, they tend to be on our more expensive plans.

Over longer durations et cetera, So we feel really good about how that's being monetized indirectly.

Justin Howard: So we feel really good about how that's being monetized indirectly. How that looks from a packaging perspective is something that will continue to evolve our thinking on. Okay, perfect. That's very helpful.

How that looks from a packaging perspective is something that will continue to evolve our thinking on.

Okay, perfect Thats very helpful.

Joe Del Preto: And then maybe one for Joe, the net retention rate for large customers, I think it was 111 at the end of the year. I was wondering if you could just walk through some of the puts and takes on that, because I think the commentary that we're hearing that your premium module attach rates are increasing. And I would have expected that maybe to show up in that net retention rate, but perhaps some of the business transition is having an impact there. Can you just walk us through it now that you're a year out from the transition? How should we expect that trend to continue in 2024, especially as you continue to move up the market here? Yeah, for sure.

And then maybe one for Joe.

Net retention rate for large customers I think it was 111.

And the year.

Wondering if you could just walk through some of the some of the puts and takes on that because I think the commentary that we're hearing that.

Our premium module attach rates are increasing I would've expected that maybe to show up in that net retention rate.

But perhaps the some of the.

Business transition is having an impact there can you maybe just walk us through now that you're a year out from the transition and how we should expect that.

The trend in 2024 are especially as you continue to move upmarket here.

Joe Del Preto: So, Arjun, one thing to call out there, that number is XSMB, and so it includes our agency business, and especially on the low-end agency side, we had a lot of non-core customers. So, if you think about the ARR that we turned in 2023 related to the non-core, there was a chunk of that was in the agency, especially on the smaller side of the agency business that's dragging that number You actually look at the net dollar retention up in the mid-market enterprise, you actually saw really consistent, if not better, net dollar retention in 2023 versus 2022. And so, now if we think about, you know, now that we're moving past that non-core kind of part of our customer base, you're going to see in our minds, you're going to see this number that's going to be more majority mid-market enterprise We just have a much healthier kind of starting point, and so we're really good about how that number looks. Okay, perfect.

Yeah for sure. So origin, one thing to call out there that number is ex SMB and so it includes our agency business and especially on the low end. The agency side, we had a lot of non core customers. So if you think about the IRR that we turned in 2023 related to non core there was a chunk of that was that was in the agency, especially on the smaller side of the agents.

The business Thats dragging that number down if you actually look at the net dollar retention up in the mid market enterprise you actually saw really consistent if not better net dollar retention in 2023 versus 2022, and so now if we think about now that we that we're moving past that noncore kind of part of our customer base.

To see in our mind Youre going to see this number that is going to be more majority of mid market enterprise going forward, you'll see acceleration in that net dollar retention as we go into 2024 and beyond that we just have a much healthier kind of starting point and so feel really good about how that number will trend.

Okay perfect. Thank you.

David E. Hynes: Thank you. Our next question comes from D.J. Hynes from Canterbury Junior High School.

Our next question comes from DJ Hynes from Canaccord Genuity. Your line is now open.

Ryan Barretto: Your line is now open. Hey guys, congrats on the G2 award. Pretty impressive. Ryan, I want to build on the topic that came up in your answer to Ramos' question around the broader Salesforce ecosystem opportunity. So we've heard lots about your efforts to get more deeply integrated from a product perspective, right, whether that's Service Cloud or Marketing Cloud. I'd love to get more color on the go-to-market strategy and that opportunity. So I guess there are kind of two questions there.

Hey, guys Congrats on the <unk> Award.

Pretty impressive.

Ryan I wanted to build on.

The topic that came up in your answer to <unk> question around the broader salesforce ecosystem opportunity. So we've heard lots about your efforts to get more deeply integrated from a product perspective, right, whether that's service cloud our marketing cloud I'd love to get more color on the go to market strategy and that opportunity. So I guess, there's kind of two questions there.

Ryan Barretto: Well, one question is, how aware are Service Cloud customers of the changes that are coming to their integrated social support when Social Studio reaches end of life? And then two, what's the go-to-market strategy to get in front of those folks? Is it happening in tandem with the Salesforce rep, or is it entirely dependent on, you know, direct outreach from Sprout?

One like how aware are service cloud customers of the changes that are coming to their integrated social support when social studio reaches end of life.

And two what's the go to market strategy to get in front of those folks is it happening in tandem with the Salesforce rep or is it entirely dependent on direct outreach from sprouts.

Ryan Barretto: Yeah, thanks, Dede. In terms of awareness, especially for Social Studio customers, I think there's decent awareness. There's still opportunity within the marketplace. We've been working very closely with that Salesforce team for the last couple years to get in front of those customers, be it in hand-to-hand combat with the AEs and the SEs on accounts. You've seen us at most of the shows that Salesforce does, including the big ones like Connections and Dreamforce, where we've often had keynote speaking opportunities.

Yes. Thanks.

In terms of awareness, especially for social studio customers.

I think there's decent awareness theres still opportunity within the marketplace. We've been working very closely with that Salesforce team for the last couple of years to get in front of those customers be it hand to hand combat with the Aes and the SCE is on accounts you've seen us.

Most of the shows that Salesforce does including the big ones like connections and Dream Force, where we've we've often had.

<unk> opportunities.

Ryan Barretto: And then we've just been doing a lot of marketing to them. I still think that there's just a lot of opportunity there, given just how big the Salesforce ecosystem is. So even things like the recent customer care launch that we had here, I think it's another great opportunity for us to continue highlighting the best place to do omnichannel care with Salesforce is in combination with Sprout. So I think it's going well today.

And then we've just been doing a lot of marketing to them I still think that Theres just a lot of opportunity there given just how big that salesforce ecosystem is so even things like the recent customer care launch that we've had here I think is another great opportunity for us to continue highlighting.

The best place to do Omnichannel care with Salesforce is in.

With sprouts so.

Ryan Barretto: There's still opportunity for us that we're pressing on as we move forward. So the second part of the question is the go-to-market. The majority of the deals that we're in involve some combination of a partnership approach to how we're presenting those customers. So sometimes they'll actually highlight it to us through a Slack channel that we have, but sometimes we'll be in the market, and we'll identify the opportunity and go back and connect with the Salesforce account team, and they've been excellent in partnering with us there.

Today, there is still opportunity for us that we're pressing on as we move forward.

So the second part of the question is the go to market. The majority of the deals that were in and some combination.

Our partnership approach to how we are presenting are those customers. So sometimes though actually highlighted to us through a slack channel that we have but sometimes we will be in the market and will identify the opportunity to go back and connect with the Salesforce account team and they've been excellent in partnering with us there.

Ryan Barretto: And oftentimes, we go in together and present that omnichannel solution between Service Cloud and Sprout. So I think it's a good combination of partnership that we have. And even if they don't bring it to us directly, the number one play for us is to actually go back to that Salesforce team and bring them into the account.

And then oftentimes for Boeing and together and presenting that Omnichannel solution between service cloud and sales force and sprouts. So.

It's a good combination of a partnership that we have and even if they don't bring it to us directly not the number one player for US is to actually go back to that Salesforce team and bring them into the account.

Ryan Barretto: Yeah, okay. And this may be for you as well, Ryan, but I'm curious about the Unlock that comes with the de-emphasis of the SMB business. Like, how material has that been?

Yes, okay.

And this may be for you as well Ryan Im curious just on.

Doors unlock that comes with the de emphasis of the F&B business like how material is that Ben how are those folks being kind of repurposed or utilize inside the organization is there any like quantifiable way to think about incremental capacity. That's now available for what I guess I would call your focused efforts.

Ryan Barretto: How are those folks being kind of repurposed or utilized inside the organization? Is there any quantifiable way to think about incremental capacity, you know, that's now available for what I guess I would call your focus efforts? Yeah, I mean, a lot of that transition was happening through 23. I think it hits in a few different spots, right?

Yeah.

A lot of that transition was happening through 'twenty three I think.

It hits on a few different spots and hits in the way in which you are filling capacity from an AE perspective.

Ryan Barretto: It hits the way in which you are building capacity from an AE perspective. So, you know, for us, if I think about that, like there's more investment happening in the mid-market and enterprise, and we're able to do that because of the emphasis that we have there. So just from an AE capacity perspective, that helps from a marketing perspective; you give a lot more focus to the marketing team on the places that we really want to drive inbound pipeline and opportunity and even the marketing strategies, up-marketing the mid-market enterprise, and the approaches that we can take so we can be more focused on the dollars that we spend and what we're hoping to get out of it. And then from a customer perspective, that's one of the biggest opportunities for us as well as if you're not handing over really small customers that may not truly understand social, who, by the way, end up taking up as much resources oftentimes as the enterprise, you're able to redeploy your resources to focus in on those more socially sophisticated first customers. So we're seeing it across the board. And I think the best way to think about it is the redeployment of our resources towards those sophisticated customers in the core. I got it.

So for us if I think about that like there's more investment happening in the Midmarket and enterprise and we're able to do that because of the emphasis that we have there. So just wanted to AE capacity perspective that helps from a marketing per.

Perspective, you gave a lot more focus to the marketing team on the places that we really want to drive.

Inbound pipeline and opportunity to even the marketing strategies upmarket in the Midmarket and enterprise and the approaches we could take so we can be more focused on the dollars that we spend and what we're hoping to get out of it and then from a customer perspective, that's one of the biggest opportunities for us as well as.

If youre not handholding really small customers that may not truly understand social who by the way end up taking up as much resources oftentimes with the enterprise you are able to redeploy our resources to focusing on those more social for sophisticated customers. So we're seeing it across the board and I think the best way to think.

About it is the redeployment of our resources towards those sophisticated customers in the core.

Parker: Okay. Thank you guys. Thank you. Our next question comes from Parker. Folks, your line is now open. Thank you.

Got it okay. Thank you guys.

Thank you.

Our next question comes from Parker Lane from Stifel. Your line is now open.

Okay. Thank you.

Joe Del Preto: Joe, with the addition of TAGR, I was wondering if you could break down the components of the ACV growth that you saw in the fourth quarter and what you're anticipating for 2024. I think you mentioned that you expected that to grow at similar rates to what you saw in the second half of the year. So any visibility there would be great.

Joe I was wondering with the addition of Tiger if you could break down the components of HCV growth that you saw.

So in the fourth quarter, and what you're anticipating for 2024.

I think you mentioned that you expected that to grow at similar rates to what you saw in the second half of the year, so any visibility there that'd be great.

Justin Howard: Yeah, so if I think about the ACV growth in Q4, I think I would stack rank, like, you know, we had record new business. ACVs are probably the leading indicator, followed by, like, the acceleration that we saw in the pre-module attach rates. And then the TAGR piece, like, TAGR still in Q4, although we saw some nice deals, wasn't a significant driver in the quarter overall. And so I would put that probably at the bottom of the list as to what we saw, what was driving the ACVs in Q4.

Yes, so if I think about the ACB growth in Q4, I think I would stack rank like we had record new business ACD is probably the leading indicator followed by like the acceleration that we saw in the <unk> module attach rates and then the CAGR Pizza CAGR still in Q4, although we saw some nice deals wasn't a significant driver.

In the quarter overall, and so I would put that probably at the bottom of the list is as what we saw what was driving the ACD.

Justin Howard: And then, Parker, going into next year, you know, what I was talking about is, like, we expect to see very similar ACV growth in the first couple of quarters of 2024 that you saw in the back half of 2023. And then we expect that in the back half of 2024 to start to decline, but still be higher than the historical kind of ACV growth that you saw from us. And so that's kind of how we see it playing out next year. Got it.

In Q4, and then partner going into next year, what I was talking about it's like we expect to see very similar ACB growth in the first couple of quarters of 2024 that you saw in the back half of 2023, and then we expect that in the back half of <unk>.

'twenty 'twenty four to start to decline, but still be higher than the historical kind of ACB growth that you saw from us and so that's kind of how we see it playing out next year.

Justin Howard: Very helpful. And then, Justin, I know you guys expanded your relationship with Reddit earlier this month in an announcement. Can you just talk about the relative importance of that channel to your customer base today and future customers? And what sort of differences you see in the quality of data that comes out of that channel from others?

Got it very helpful. And then Jonathan I know you guys expanded your relationship with Red It earlier.

Earlier. This month. Another announcement can you just talk about the relative importance of that channel to your customer base today and future customers and.

What sort of differences you see in the quality of data that comes out of that channel from others.

Justin Howard: Yeah, yeah, it's a great question. You know, I think Reddit is really unique in the sense that there's a lot of long form, kind of in-depth and multi-threaded conversation happening around brands, around products, around market sentiment, etc. And with the channels that our customers have typically relied on for listening, engagement, etc., we tend to get kind of the, you know, the short-form reactions, the messages that lack context, et cetera. And for us to be able to bring both from a listening perspective now and more in the future Reddit data into the fold, particularly in some industries, larger brands, where there's a lot of conversation happening there, that So that's a phenomenal addition for us, and we're really glad to be working at a higher level with them and deepening that relationship. Got it. Thanks for the feedback here. You got it. Our next question comes from Adam Hotkiss from Goldman Sachs. Your line is now open.

Yes, yes, it's a great question I think Brett it is really unique in the sense that.

There is a lot of long form kind of in depth and multi threaded conversation happening around brands around products around market sentiment et cetera.

And with the channels that our customers have typically relied on for listening engagement et cetera.

We tend to get kind of the.

Hi.

<unk>.

<unk>.

Short term reactions.

Messages, but lack context et cetera.

And for us to be able to bring both from a listening perspective, now and more in the future.

Read it data into the fold, particularly in some industries larger brands, where there's a lot of conversation happening there.

That's just unlocks a whole new level of insight a whole new level of understanding and the customer voice et cetera.

So thats a phenomenal addition for us and we are now.

Really glad to be working at a higher level with them and deepening that relationship.

Got it thanks for the feedback here.

You got it.

Our next question comes from Adam Hotchkiss from Goldman Sachs. Your line is now open.

Adam Hotkiss: Hey guys, thanks for taking my questions. I guess I wanted to follow up on the go to market side to start. How are you guys thinking about the partner opportunity here beyond Salesforce, especially now that you're building your brand in the market and moving quicker into the enterprise and mid market space? Do you guys see an opportunity to more significantly build out practices with larger partners to accelerate the push here? Yeah, thanks, Adam. We do.

Hey, guys. Thanks for taking my questions I guess I wanted to follow up on the go to market side to start how are you guys thinking about the partner opportunity here beyond sales force, especially now that you are building your brand up market in.

Moving quicker in the enterprise and mid market space do you guys see an opportunity to more significantly build out practices with larger partners to accelerate the push here.

Yes, Thanks Adam.

Ryan Barretto: And we have been, you know, certainly been highlighting the Salesforce one, given the opportunity to really take care of a ton of customers together. But we've historically had a lot of partners within the ecosystem. And the way we've always thought about it is, what are the things that we can do to best serve our customers when we think about the rest of their tech stack and the things that are in the background of the way that they actually work? What are the things that we need to integrate into to make sure that our workflows are connecting to the workflows that they have internally, that the data is flowing to the right places, and that they're more easily able to do their work?

We do and we have been we've certainly been highlighting the salesforce one.

Given the opportunity to really take care of a ton of customers together, but we've historically had a lot of partners within the ecosystem and the way we've always thought about it as one of the things that we can do to best serve our customers. When we think about the rest of their tech stack and the things that are in the background of the way that they do work what are the things that we need to.

Great into to make sure that our workflows are connecting to the workflows that they have internally that the data is flowing to the right places and that there are more easily able to do their work. So you've seen us do things within marketing automation with the likes of Mercado <unk>.

Ryan Barretto: So, you know, you've seen us do things within marketing automation with the likes of Marketo, same with HubSpot. We've got integrations into things like Canva, and we've got integrations into other BI tools to allow people to be able to leverage the data and make better overall business decisions. So we'll continue to look into that opportunity. We've got a bunch today that are actually turned on for our customers and getting great value, but there'll certainly be more as we think about how to solve for these customers and their tech stacks. Okay, that's really helpful.

Same with hotspot.

We've got integrations into things like <unk>, you've got integrations into other bi tools to allow people to be able to leverage the data and make better holistic business decisions. So we will continue to look into that opportunity. We've got a bunch today that are actually turned on for our customers and getting great value, but there'll certainly be more as we think about.

How to solve for these customers in their tech stacks.

Okay. That's really helpful. And then just one for Joe on the bigger picture I think in the past you've effectively got it us to 25% or so organic compound annual growth to get to your 2028 subscription revenue targets. So I'm just curious how youre thinking about the 27, 5% or so you've got it to next year within the context of that expectation.

Joe Del Preto: And then just one for Joe on the bigger picture. I think in the past, you've effectively guided us to 25% or so organic compound annual growth to get to your 2028 subscription revenue target. So I'm just curious how you're thinking about the 27 and a half percent or so you've got to do next year within the context of that expectation. PAGGR will obviously help a bit; it will be a bit of a tailwind.

Given tiger will obviously, but that will be a bit of a tailwind.

Joe Del Preto: How are you contemplating things like macro and some of these other things as offset to some of those benefits? Yeah, so I think, you know, Adam, every time we give guidance, we give it with all those things in consideration, and we haven't historically broken out those pieces, but we also give it with a high level of confidence. And to your point earlier, the fact that it's a, you know, a 25% compounded growth rate, we talked about this, it's gonna be a little bit higher in the early years, like now, and then it'll, it'll, that rate will get closer or decline as we get closer to that billion dollars. And so an update on, for example, any change and how we see that playing out to the billion dollars. Okay.

Are you contemplating things like macro in some of these other things I was offset to some of those benefits.

Yes, So I think Adam every time, we give guidance, we give it with all of those things in consideration and we don't historically havent broken out those pieces, but we also get it with a with a high level.

Confidence and to your point earlier, the fact that it's 25% compounded growth rate, we talked about this as being a little bit higher.

In the earlier years like now and then it'll that rate will get closer or decline as we get closer to $1 billion and so no update on for example, any change in how we see that playing out to the $1 billion.

Nicholas Todd Zangler: Thanks, Joe. Our next question comes from Nicholas Zangler from Stephens Inc. Your line is now open.

Okay. Thanks, Joe.

Our next question from <unk> comes.

Comes from Nicolas Ziegler from Stephens, Inc. Your line is now open.

Ryan Barretto: Yeah, hey guys, congrats on the quarter. You know, I'm curious if you could provide any details on whether the go-to-market strategy has been modified at TAGR, or if there's been any change to the monetization strategy, the expected ACR contribution, or alternatively, are there changes being contemplated now that you've become a little bit more familiar as you've integrated? Yeah, thanks, Nicholas.

Yeah, Hey, guys congrats on the quarter.

I'm curious if you could provide any details on whether the go to market strategy has been.

Modified at CAGR, or if theres been any change to the monetization strategy.

The expected ACR contribution or alternatively are there changes being contemplated now.

Become a little bit more familiar.

<unk> integrated.

Yes, Thanks Nicholas.

Ryan Barretto: From a go-to-market perspective, part of it for us as we've been integrating the team and getting up to speed is really cross-training all of the folks on our team from an AE and solution engineering and customer success perspective so that we're fully up to speed with all the things in influencer marketing. So the beginning parts of this journey have been really having that TAGR team do a lot of enablement for our team, attend a lot of calls for us, and that's continued into this year. What we're seeing right now from our team, which has been really exciting, is how quickly our internal team is picking up just understanding influencer marketing and being able to present the solution and do great discovery and present the value of the influencer product. So I think we're starting to see some really good economies of scale and just having those teams working together, and we're seeing a lot of opportunity within our installed base as well as new logos to be able to present influencer marketing as an opportunity. From a monetization perspective, there's nothing that I'd really call out in terms of major changes there.

From a go to market perspective, and then part of that for US as we've been integrating the teams and getting up to speed as being really cross training all of the folks on our.

Team from an AE and our solution engineering and our customer success perspective, so that we're fully up to speed with all of the things and Influencer marketing. So at the beginning parts of this journey has been really.

Having that that CAGR team do a lot of enablement for our team joining a lot of calls for us.

And that's continued into this year, what we're seeing right now from our team which has been really exciting is how quickly our internal team is picking up just understanding influencer marketing and being able to present the solution and do great discovery and present the value of.

The Influencer product. So I think we're starting to see some really good economies of scale and just having those teams working together.

We're seeing a lot of opportunity within our installed base as well as new logos to be able to present influencer marketing as an opportunity from a monetization perspective, nothing that I'd really call out in terms of major changes there.

Ryan Barretto: Their model is very similar to ours in terms of just thinking about the per user seat approach to how we're doing things, but we'll continue to pay attention and make sure that we feel like it's fully optimized for the opportunity in front of us. But I think the main headline for you is that the main goal from a go-to-market perspective is to make sure that all of our team, from AEs to SEs to CSMs, have a great handle on influencer marketing and are able to present it to our customers. And this is really going back to the thesis of why Tiger made so much sense for us, which is that these customers today want all this managed by one organization, and they want us to be thinking holistically about their social strategy, including influencer marketing. I got it.

Model is very similar to ours in terms of just thinking about the per user seat approach to how we're doing things, but we'll continue to pay attention and make sure that that we feel like it's fully optimized for the opportunity in front of us, but I think the main headline for you is that the.

The main goal from a go to market perspective is to make sure that all of our team from Aes to Sce's <unk> have a great handle on Influencer marketing and are able to present it to our customers and this is really going back to the thesis of why Tiger made so much sense for us which was these customers today want all of this managed by one organization and they want.

Us to be thinking holistically about their social strategy, including Influencer marketing.

Got it thank you for that and then.

Justin Howard: Thank you for that. And then I have one other question here. You know, ending the year, a competitor of yours recently noted what they called a heightened level of downsell in the fourth quarter, and they talked about customers renewing at lower seat counts. You know, obviously, there's been plenty of layoffs across tech and various industries lately. I'm curious if Sprout has seen any sort of notable pressure here as well, or if that was just isolated.

One other question here.

During the year a competitor of yours recently noted.

What they called a heightened level of down so in the fourth quarter.

They talked about customers renewing at lower seat counts.

Obviously, there's been plenty of layoffs across tech and various industries escalate I am curious if sprout has seen any sort of notable pressure here as well.

Or that was just isolated.

Justin Howard: Thanks. Yeah, thanks for the question. This is Justin.

Yes. Thanks for the question this is Justin.

Justin Howard: From our perspective, it is something that seems to be isolated there and maybe unrelated to kind of the broader industry trends. But what we're seeing and, you know, we talked about some of the deals that we're getting to, we talked about how the size and duration of contracts continues to climb, the seat continues to climb. We're just not feeling that.

It.

Our perspective is.

Something that seems to be isolated there and maybe unrelated to kind of the broader industry trends, but.

What we're seeing.

And we've talked about.

Some of the deals that we did in Q4, we talked about.

How the <unk>.

Size and duration of contracts continues to climb the seat counts continue to climb.

We're just not feeling that.

Justin Howard: We think that as we continue to do a good job in the parts of the market that we've always been successful in and go upmarket into the large enterprise logos that we've been talking about in the last couple of quarters, we see this as a growing opportunity and one that is probably as healthy as it's ever been, both in terms of pipeline and our outlook, correct? And, you know, I think that the confidence that we have in where we're guiding revenue for the year is indicative of that. I think that we see taggers upside, we see continued acceleration with the care use cases, and a bunch of other things. So that that does not reflect our experience or outlook on the market. That's great to hear!

We think that.

As we continue to do a good job in.

The parts of the market that we've always been successful in an upmarket into the large enterprise logos that we've been talking about the last couple of quarters.

We see this as a growing opportunity.

And one that is probably as healthy as it's ever been and both in terms of pipeline.

And our.

In our outlook right and I think that.

<unk>.

The confidence that we have and where we're guiding.

<unk> revenue for the year.

Is.

Indicative of that I think that we see.

The Tigers upside we see continued acceleration.

With the current use cases as upside.

And a bunch of other things so that does not reflect our experience our outlook on the market.

That's great to hear thanks, guys much appreciate it good luck.

Nicholas Todd Zangler: Thanks, guys. Much appreciated. Good luck. Our next question comes from Elizabeth Porter from Morgan Stanley. Your line is now open. Hey guys, this is Matt Saltzman on for Elizabeth tonight.

You bet.

Our next question comes from Elizabeth points here from Morgan Stanley. Your line is now open.

Hey, guys. This is Matt on for Elizabeth Tonight.

Matthew David VanVliet: So you've highlighted that Tagger's ACVs are three to four times larger than the Sprout average. I'm just curious when you look into cross-selling Tagger across the existing install base, where does that incremental budget come from? I guess to ask another way, are MarTech budgets expanding to absorb the new influencer category, or is this coming at the expense of other areas of the marketing budget? Thanks, Matt. You know, the thing that I'd highlight that we're seeing right now is that as those customers think about this, oftentimes they're thinking about it in the context of how they're thinking about the rest of their paid spend. And so, you know, for us, historically, most of the work being done in Sprout, from an execution standpoint, is organic.

So you've highlighted <unk> three to four times larger than the sprout average I'm just curious when you look into cross selling CAGR across the existing installed base, where does that incremental budget come from.

I guess to ask another way, our marketing our martech budgets expanding to absorb the new Influencer category or is this coming at the expense of other areas of the marketing budget.

Thanks Pat.

<unk>.

The other thing that I'd highlight that we're seeing right now is that customers think about this oftentimes they are thinking about it in the context of how they're thinking about the rest of their paid spend and so for US. We've historically most of the work being done in sprout from an execution standpoint has been organic base, we obviously have great analytics between.

Ryan Barretto: We obviously have great analytics between organic and paid, and we can help customers figure out where to really optimize their spend and what's really working. As it relates to influencer marketing, oftentimes, what you're seeing from these customers is they're thinking about ways to get a better return on investment from their influencer marketing, from their marketing spend, and their paid spend. And so often, they'll be carving out from there.

Organic and paid and we can help customers to figure out where to really optimize our spend and what's really working as it relates to the influencer marketing oftentimes what youre seeing from these customers as they are thinking about ways to get a better return on investment from their influencer marketing from there from their marketing spend and they're paid spend and so often there'll be carving out from there. We've also seen.

Ryan Barretto: We've also seen customers already in the market building budgets for influencer marketing today and attempting things. And the exciting part for us about that is this market feels very similar to the early days of social media management in that they're still testing and learning, and they're looking to us for not just the technology but also the best practices within the industry. And so that return on paid spend, I think the industry stats right now are for every dollar invested in influencer marketing, it's about a $4 return. And so they're finding these opportunities to really dig in. And our platform actually shows them really clearly which creators are driving the most opportunity and earned media value. And what opportunities across the social networks are places that they want to invest?

Customers already in the market building budget or Influencer marketing today, and attempting things and the exciting part for us about that as this market feels very similar to the early days of social media management in that.

Still testing and learning and they're looking to us for not just the technology, but also the best practices within the industry and so that return on paid spend I think the industry SaaS right. Now is for every dollar invested in Influencer marketing, it's about a four dollar return and so theyre finding these opportunities to really dig in and our platform actually shows and really key.

Nearly which creators are driving the most opportunity in earned media value.

What opportunities across social networks are places that they want to invest what are their competitors doing so.

Ryan Barretto: What are their competitors doing? So the biggest thing I'd highlight here is this combination of we're either getting it from other spend categories, or they have a spend category, and we're able to actually help them get a better return using Tagger. Got it. It's a helpful context.

The biggest thing I would highlight here is that this combination of.

Either getting it from other spend categories are this how to spend category and were able to actually help them get a better return using tiger.

Got it that's helpful context. Thank you.

Matthew David VanVliet: Thank you. Our next question comes from Matthew VanVliet from BTIG. Your line is now open. Yeah, good afternoon.

Yeah.

Our next question comes from Matthew.

<unk>.

B E.

Your line is now open.

Yes. Good afternoon, thanks for taking the question.

Joe Del Preto: Thanks for taking the question. I'm wondering if you could help us with either the revenue contribution or maybe ARR contribution of Tiger in the quarter and then ultimately kind of what's baked into growth rates for 24 coming from. Yes, so Matt, I'll take that one. A couple of things here. We didn't explicitly call out the TAG Heuer contribution in Q4.

I Wonder if you could help us with.

Either the revenue contribution or maybe contribution of Tiger.

In the quarter, and then ultimately kind of what's baked into growth rates for 2004 coming from Tiger.

Yes, so Matt I'll take that one a couple of things here, we didn't explicitly call out the CAGR contribution in Q4, I think what we talked about.

Joe Del Preto: I think what we talked about, you know, coming out of the acquisition, that you can kind of model out, you know, $3 million over the final five months of the year. And we talked about how we were a little ahead of that in Q3. And we slightly outperformed that in Q4. So that'll kind of give you the rhythm of the revenue contribution that we had in the quarter. And then ARR, we talked about, you know; it was a small contribution, not a huge number.

Coming out of the acquisition that you can kind of model out.

$3 million over the final five months of the year and we talked about we're a little ahead of that in Q3, and we slightly outperformed that in Q4, so that will kind of give you the cadence of the revenue contribution that we had in the <unk>.

In the quarter and then <unk>, we talked about it was a small contribution was not a huge number like I said, just given that we're just ramping up the team.

Joe Del Preto: Like I said, just given that we're just ramping up the team. If we think about 2024, as of now, the entire sales team is now trained up on TAG Heuer. And so it's now in the bag. And Ryan talked about this. And they're going to sell it just like premium, you know, analytics or social listening. And so it's not like we have a separate, you know, target for TAG Heuer

Think about 2024 as of now the entire sales team is now trained up on CAGR.

So it's now in the bag and Ryan talked about this and Theyre going to solid just like premium analytics, social listening and so it's not like we have a separate.

Target for CAGR. It is just going to be part of the overall kind of go to market motion and so because of that we're not specifically calling out whats the CAGR number because we're not managing that as like a separate product as we get into 2024.

Joe Del Preto: It's just going to be part of the overall kind of go-to-market motion. And so because of that, we're not specifically kind of calling out what the TAG Heuer number is because we're not managing that as like a separate product as we get into 2024. Okay, very helpful. And then as you look at kind of where you think that the premium products attach rate can go, whether it's by 28 at the billion dollar mark, or even just over the next couple of years, how much more attach rate is out there? What does the pipeline look like relative to just sort of the core subscription growth rate? Thanks, Matt.

Okay very helpful and then as you look at.

Kind of where ultimately you think the premium products attach rate can go to.

Whether it's by 28 $1 billion, Mark or even just over the next couple of years, how much more attach rate is out there what does the pipeline look like.

Relative to just sort of the core subscription growth rate.

Ryan Barretto: Yeah, um, I don't know that we've categorized the direction of those numbers, but I'll give you the high level and how we're thinking about it today. You know, about 30% of our customers have attached one of the modules, and about 7% have two products. And I would say that we have a lot of upside within this entire market, especially as we start thinking about the opportunities that exist, even with adding something like tagger and the influencer side on top of the opportunities that just exist across our entire base. We're seeing better attach rates, certainly from a new business perspective, as we'd be more focused on these social first, sophisticated customers in the mid market and the enterprise. And as more of our base looks like that, I think that they are great targets for all these premium modules. And as those customers continue to mature, the opportunity for us to expand the footprint across all of our products, I think, is greater. So the trajectory is really good.

Thanks, Matt.

I don't know that we've categorized the direction of those numbers. So I'll give you the high level and how we're thinking about it today about 30%.

Our customers are attached.

One of the modules and about 7%.

Two products and I would say that we have a lot of upside within this entire market, especially as we start thinking about the opportunities that exist, even with adding something like CAGR in the influencer side on top of the opportunities that exist across our entire base, we're seeing better attach rates certainly from a new business perspective, as we've been more focused in on these.

So first sophisticated customers in the Midmarket and the enterprise.

And as more of our base looks like that I think that there are great targets for all of this premium modules and as those customers continue to mature the opportunity for us to expand the footprint across all of our products I think it gets greater so the trajectory is really good and we see a lot of opportunity in front of us with all of our products.

Matthew David VanVliet: And we see a lot of opportunity in front of us with all the products. Great, thank you. Thank you. Our next question comes from Clarke Jeffries on behalf of Piper Sandler. Your line is now open. Hello, thanks for taking the question. Joe, I was wondering if you could help maybe with some precision around the ARR movement in the non-core segment. It was helpful that it was 800k at the end of the quarter. But wondering if you could help with maybe, was it a double-digit million move in ARR during the quarter or was organic ARR growth above a certain threshold, say 30% or not? Any kind of precision there would be helpful.

Great. Thank you.

Thank you.

Our next question comes from Clarke Jeffries from Piper Sandler Your line is now open.

Hello, Thanks for taking the question.

Joe I was wondering if you could help maybe with some precision around the IRR movement in the noncore segment helpful that it was 800 kids into the quarter, but wondering if you could help with may be.

Was it a double digit million move.

Move in during the quarter or was organic <unk> growth above a certain threshold to say, 30% or not any kind of precision there would be helpful. And then one follow up.

Joe Del Preto: And then one follow-up. Yeah, Clarke, what we talked about coming out of Q3 was that there was about $10 million left in that non-core ARR. And by the end of the quarter, it is now down to less than 800K. So that can kind of give you the sense of the churn that we saw there. And if you kind of layer that into the success we saw in the quarter, you can just show that it just really reflects the strength that we've seen in the mid-market enterprise business. So for us, you know, we overperformed in the quarter once you back out that kind of low-end churn, and so we felt really good about the momentum in the business. Perfect.

Yes, so Clark, what we talked about coming out of Q3 that there was about $10 million left of that noncore IRR and by the end of the quarter and is now down to less than 800, K. So that can kind of give you the sense of the churn that we saw there and if you kind of layer that into the success. We saw in the quarter you can just show it just really reflects.

The strength that we've seen in the mid market enterprise business so for us.

We over performed in the quarter once you back out that kind of low end churn.

And so felt really good about the momentum in the business.

Clarke Jeffries: And then just to follow up, you know, what are your expectations for the progression of operating expenses through the year? Or, anyway, you can help us with maybe a margin exit rate in Q4, obviously kind of putting the pieces in place to get to the 28 targets. You're going to start to see a lot more leverage on operating expenses going forward, you know, maybe a rank order of how you expect the growth of those op-ecs items through the year or any kind of exit. Yeah, so, Clarke, the way to think about it is, you know, for the year right now, our guidance is about 220 basis points of improvement and operating leverage or operating margin in the business. And I think similar to what you saw in 2023, you know, throughout the year, we overperformed on that number.

Perfect and then just a follow up.

What are your expectations for the progression of operating expenses through the year or any way you could help us with maybe a margin exit rate in Q4.

Obviously kind of putting the pieces in place to get to the 28 targets. It would seem that you're going to start to see a lot more leverage on operating expenses going forward.

Maybe a rank order of how you expect the growth of those opex.

Items through the year or any kind of exit rate would also be very helpful. Thank you.

Yes, so Clark the way to think about it as you know for the year right now our guidance is about 220 basis points of improvement in operating leverage our operating margin in the business and I think similar to what you saw.

In 2023 throughout the year, we over performed on that number and so as long as we keep executing we believe theres a lot of upside to that and then the way that kind of plays out through the year, you'll definitely see for example, lower operating margin in the beginning of the year as we kind of like we've been very aggressively hiring on the go to market side. If you just look at the <unk>.

Joe Del Preto: And so, as long as we keep executing, we believe there's a lot of upside to that. And then the way that kind of plays out through the year is you'll definitely see, for example, lower operating margin in the beginning of the year as we kind of, like, we've been very aggressively hiring on the go-to-market side. If you just look at the demand we're seeing and the size of the deals we're seeing, we will definitely drive lower operating margins in the first couple of quarters, and then you'll see us get scale over that as those folks ramp up. As they start to get to full capacity, you'll see more operating leverage in the back half of the year. All right.

And we're seeing the size of the deals we're seeing we will definitely drive lower operating margin in the first couple of quarters, and then youll see us get scale over that as those folks ramp as they start to get to full capacity you will see more operating leverage in the back half of the year.

Alright.

Joe Del Preto: All right, our next question comes from Rob Oliver from Baird. From Baird, your line is now open. Great, thanks. Good evening.

Alright, our next question comes from Rob Oliver from.

From Baird. Your line is now open.

Great. Thanks, Good evening, thanks for taking my questions.

Rob Oliver: Thanks for taking my questions. But my first one is on Service Cloud. There's rightfully been a lot of focus on Social Studio, but the Service Cloud opportunity is an exciting one. I just wanted to get a sense from you guys about what you're thinking about expectations for 2024 for Service Cloud, and how that might look from a kind of linearity perspective. And certainly, I would expect it to be Q4 heavy, but how are you guys thinking about that as a contribution? Yeah, thanks Rob. We continue to be really excited about it.

My first one is on on service cloud there is rightfully been a lot of focus on.

Social studio, but the service cloud opportunity is an exciting one I just wanted to get a sense from you guys about how you're thinking about expectations for 2024 for service cloud how that might look from a linearity perspective.

Certainly I would expect it to be Q4 heavy but.

You guys are thinking about that as a contribution.

Yes, thanks Ralph.

We continue to be really excited about it we believe that there is more opportunity in 'twenty four than even last year with the salesforce ecosystem and specifically the Soc the service cloud opportunity itself, we're continuing to build against the care opportunity that we have connected to the product that integrates into the service cloud console I think.

Ryan Barretto: We believe that there's more opportunity in 24 than there was last year with the Salesforce ecosystem and specifically the service cloud opportunity itself. We're continuing to build against the care opportunity that we have connected to the product that integrates into the service cloud console. I think it'll take a very similar shape to what we had in 23.

I'll take a very similar shape to what we had in 'twenty three.

Ryan Barretto: With the back half of the year being stronger, especially with the typical buying cycles within the bin market and enterprise. But I think the main thing for you to take away is that we continue to see really good pipeline in it. And we feel really good about just the value that customers are getting from it. We believe that this is the best place if you want to do omni-channel and you're on Salesforce as a CRM.

Certainly in the back half of the year being stronger, especially with the typical buying cycles within mid market and enterprise.

The main thing for you to take away is that we continue to see really good pipeline on it and we feel really good about the value that customers are getting from that we believe that this is the best place. If you want to do Omnichannel and euro on Salesforce as a CRM.

Ryan Barretto: Got it, that's helpful. Thanks, Ryan. And then, Joe, just a follow-up to the last question just on, you know, sales headcount. It sounds like almost all the salespeople are Sprout salespeople, and Tiger is going to be ported into the bag of Sprout completely.

Okay.

Got it that's helpful. Thanks, Brian and then Joe just a follow up.

Last question just on <unk>.

Sales head count.

It sounds like almost all the salespeople are sprouts salespeople on CAGR is going to be imported into the bag of sprouts completely.

Joe Del Preto: That said, you said you're hiring a lot of salespeople. So, you know, how can we expect that ramp this year? Are you entering this year with, you know, a higher degree of, you know, immature salespeople that won't be a quota? You know, how should we think about that efficiency gain for the salesforce throughout this year? Thank you. Yeah, a good question, Rob. So you know, we've been hiring over the last couple of months going into this year pretty aggressively, like I said, pretty aggressively and on the go-to market side. And so obviously, those folks need a ramp.

You said youre hiring a lot of salespeople so.

How can we expect that ramp this year are you entering this year with.

A higher degree of immature salespeople that won't be a quarter, how should we think about that efficiency gain so the sales force throughout this year. Thank you.

Yes. Good question, Rob So we've been hiring over the last couple of months going into this year pretty like I said pretty aggressively on the go to market side and so obviously those folks need a ramp so we're definitely not at full capacity. When you think about the rats and the way the ramp throughout the year and the first couple of quarters of the year and then what Youll see is youll see those folks.

Joe Del Preto: So we're definitely not at full capacity when you think about the reps and the way they ramp throughout the year in the first couple of quarters of the year. And then what you'll see is you'll see those folks at more full capacity by the end of the year, Rob. Great. Okay.

BMO for full capacity by the end of the year Rob.

Great. Okay. Thanks, Joe Thanks, guys appreciate it.

Brett: Thanks, Joe. Thanks, guys. Appreciate it. Our next question comes from Brett from Cantor Fitzgerald. Your line is now open.

Our next question comes from Brett <unk> from Cantor Fitzgerald. Your line is now open.

Joe Del Preto: Alright, thanks for taking my question. I just want to touch on, I think, something said in the prepared remarks. You said non-core customers would no longer act as a headwind to growth. I'm curious what that means from a customer account perspective.

Alright, Thanks for taking my question I just wanted to touch on I think somebody said in the prepared remarks.

You said non core customers, who no longer act as a headwind.

<unk> growth I'm curious.

What that means from a customer count perspective have we reached the bottom in terms of customer declines and should we start to expect customer growth to return.

Joe Del Preto: Have we reached the bottom in terms of customer declines, and should we start to expect customer growth to return? Yeah, so by this Joe, the year over year growth rate of our total customer base will likely still decline and probably trough in Q1. And then we're likely to see an improving trend in the total customer base over the course of 2024. And then I think you'd expect to see accelerating total customer base growth, you know, into 2025. That's kind of how we're seeing it play out.

Yes, so Matt this is Joe the year over year growth rate of our total customer base, we'll likely still decline and probably trough in Q1.

And then we're likely to see an improving trend in the total customer base over the course of 2024, and then I think you would expect it to accelerating total customer base growth into 2025, Thats kind of how we're seeing it play out.

Joe Del Preto: Perfect. Thanks, guys. Really appreciate it. We don't have any pending questions at the moment. I'd now like to hand over to Justin for closing remarks. All right, thank you.

Perfect. Thanks, guys I appreciate it.

We don't have any pending questions at the moment I'd now like to hand back over it.

Hey, Justin quick closing remarks.

Alright. Thank you. Thank you all for your questions.

Justin Howard: Thank you all for your questions. We appreciate the opportunity to share kind of this continued evolution with you, the excitement that we've got around a lot of the indicators for the growth of the business, the exciting things that we're working on. We'll look forward to talking to you more about all those in the coming weeks and months.

I appreciate the.

The.

Opportunity to share kind of this continued evolution with you the excitement that we've got around a lot of the indicators.

At the growth of the business.

The exciting things that we're working on we'll look forward to talking to you more about all of those in the coming weeks and months.

Operator: I want to thank our team. I want to thank all of our customers, and we'll look forward to talking to you all soon. Thank you so much for attending today's session. We hope you have a wonderful day.

I want to thank our team want to thank all of our customers and we'll look forward to talking to you all soon.

Thank you so much for attending today's session. We hope you have.

Have a wonderful.

Session. We hope you have a wonderful.