Q3 2025 Sprout Social Inc Earnings Call
Speaker #3: Hello , and thank you for standing by . My name is Tiffany , and I will be your conference operator today . At this time , I would like to welcome everyone to the Sprout Social, Inc. third quarter 2025 Earnings call .
Speaker #3: All lines have been placed on mute to prevent any background noise . After the speakers remarks , there will be a question and answer session .
Speaker #3: If you would like to ask a question during that time , simply press star . Then the number one on your telephone keypad .
Speaker #3: I would now like to turn the call over to Alex Kurtz vice President of Investor Relations and Corporate Development . Alex , please go ahead .
Speaker #4: Thank you , and welcome to Sprout Social, Inc. third quarter 2020 Earnings Call . We will be discussing the results announced in our press release issued after market close today .
Speaker #4: And have also released an updated investor presentation , which can be found on our website . With me are Sprout Social, Inc. CEO , Ryan Barretto and CFO Joe Del Prado .
Speaker #4: 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 .
Speaker #4: All statements , other than statements of historical fact , are forward looking . These include , among others , statements concerning our expected future financial performance , including our Q4 and 2025 outlook and business plans , and objectives , and can be identified by words such as expect , anticipate , intend , plan , believe , seek , opportunity or will .
Speaker #4: These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date . And we do not undertake any duty to update these statements .
Speaker #4: Forward looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially . For 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 year ended December 31st , 2024 , as well as our quarterly Report on Form 10-q for fiscal quarter ended September 30th , 2025 , to be filed with the SEC .
Speaker #4: During the call , we will 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 the reconciliations to the most directly comparable GAAP financial measures , are included in our third quarter earnings release , which has been furnished to the SEC and is available on our website at investors Sprout Social, Inc. .
Speaker #4: With that , let me turn the call over to Ryan . Ryan .
Speaker #5: Thank you . Alex , and welcome to our third quarter earnings call for fiscal 2025 . Sprout delivered another strong quarter with revenue of $115.6 million , representing 13% year over year growth and non-GAAP operating margin expansion of almost 460 basis points , a record high for sprout at nearly 12% .
Speaker #5: Our current remaining performance obligations grew 17% year over year to 258.5 million , reflecting consistent demand .
Speaker #5: Strong the enterprise execution and the addition of Newsweb . And we continue to see improvements in gross retention across all customer segments with multiyear contracts now representing nearly half of our contract mix .
Speaker #5: This is a strong signal of customer commitment to the sprout platform , our go to market team continued to perform well , delivering 21% growth in our 50 plus RR customer count .
Speaker #5: This progress was fueled by a strong net additions and the inclusion of Newswhip customers , which has added several of the largest global brands to our customer base .
Speaker #5: We're incredibly excited about the go to market progress we've made with Newswhip , which has brought our strongest new product pipeline to date .
Speaker #5: During the quarter , we landed strategic wins with amazing global brands like Xerox , Bentley Motors , Valvoline , NYU , Becton , Dickinson , hallmark and the Royal Family .
Speaker #5: These customers demonstrate our continued success , serving the most socially sophisticated enterprise customers . We're pleased with our performance , particularly as demand trends have remained consistent with the first half of the year .
Speaker #5: Even more encouraging , despite the macro environment remaining unchanged , Q3 was sprout's strongest Q4 quarter for large deals , driven by customer commitments above 200 K in Ar-r and excluding any news with contribution .
Speaker #5: We also saw sustained pipeline strength with year over year growth that underscores continued enterprise demand . Our 50 K plus R cohort continues to be our fastest growing customer segment and is now approaching 2000 customers , an increase of nearly 700 over the past two years .
Speaker #5: This cohort now accounts for nearly half of our revenue and revenue grew in the high 20s . On a year over year , trailing 12 month basis .
Speaker #5: We'll continue with focused investments that enhance our capabilities to serve larger customers and refine our approach to our smaller accounts within our enterprise .
Speaker #5: Success . Two trends stood out . Number one , our platform's breadth , simplicity , scale , and ease of use continue to resonate with large enterprise accounts .
Speaker #5: Our offering is truly differentiated and our strategy is well aligned with sophisticated customer needs . Number two , Newswhip has energized our sales organization , broadened our conversations with customers , and highlighted the differentiated value of social intelligence , a key area of competitive advantage for sprout .
Speaker #5: We also saw steady customer expansion driven by seat growth and continued adoption of influencer marketing . Premium analytics , care Guardian and now Newswhip .
Speaker #5: We're carrying this momentum into what we believe will be a pivotal fourth quarter for sprout as we begin rolling out the foundation of our long term AI strategy , we anticipate Q4 will be our most significant quarter yet for AI product expansion , and we'll set the tone for how our products are crafted , designed , and positioned moving forward and how we can unlock an entirely new layer of value for our customers .
Speaker #5: Before digging into these upcoming releases , I want to provide some context on how Sprout's products and platform were built and what that foundation means in a rapidly evolving landscape .
Speaker #5: Specifically , I want to share why we believe our advancements in AI strengthen Sprout's moat rather than diminish it , and why we believe we're uniquely positioned to thrive in the next era of business software .
Speaker #5: At sprout , our founding ethos centers on the extraordinary value of the authentic digital conversations and interactions that shape brands , communities , and societies .
Speaker #5: As AI reshapes software , we're thinking deeply about how our platform and products will evolve and deliver , increasing value to customers . When we look ahead , we return to our founding belief in social as a cornerstone of business to customer relationships .
Speaker #5: That throughline has guided our strategy to this day, and we believe it will propel our value well into the next era of software.
Speaker #5: Sprout's advantage in the AI era starts with the data we serve and the trust we've earned . Social data is among the most human protected and context rich sources of digital information created by people governed by a few major networks and largely walled off from broad LM access with deep license partnerships and a neutral position across AI ecosystems .
Speaker #5: We believe sprout is uniquely positioned to access , interpret and operationalize this data responsibly , and scale our platform transforms that data into scalable conversations , actions , and intelligence .
Speaker #5: Customers rely on sprout as their operating system for social connecting people , processes , and workflows across the enterprise . As AI accelerates , they're looking to us not just for efficiency , but for orchestration .
Speaker #5: Using intelligence to automate decisions , engagement , insight , content , and collaboration . If social data is the world's sensory input , sprout is the nervous system , and we believe our trusted access domain expertise and enterprise ready infrastructure make our moat durable and allow us to move faster with greater precision and impact than ever before .
Speaker #5: We believe that our leadership position model flexibility , purpose built infrastructure and UI and network access mean that AI stands to be a tremendous tailwind for sprout and our customers , rather than a headwind .
Speaker #5: As our AI learns , each brand's unique voice and workflows , it becomes more attuned and impactful over time , deepening adoption , strengthening retention , and serving as a long term driver of growth for sprout in the coming weeks , we'll begin to unveil capabilities that set the foundation for sprouts , strategic bets , and AI transformation .
Speaker #5: We believe these releases , over time will have drive improved expansion and retention motions across our entire customer base . First , our flagship release is a proprietary AI agent for conversational data exploration , automated insights , and recommended actions .
Speaker #5: It's designed to identify emerging trends , detect risks and suggest next steps . Empowering brands to manage reputation , unlock strategic capacity , and deliver content with optimal timing and precision .
Speaker #5: It does all of this out of the box , which drives incredibly fast time to value early feedback from beta customers using our agent has been overwhelmingly positive .
Speaker #5: One shared . I'm a huge fan of this already . I just used the agent to break down positive and negative sentiment for a listening query , and report it to a stakeholder .
Speaker #5: This feedback came just hours after gaining access , underscoring how intuitive and immediately valuable this experience is . Our approach also extends into Newswhip , where agents are continuously monitoring global news and online conversation to identify brand relevant signals .
Speaker #5: Early , providing automated vigilance and clear insights with fewer false positives . Second , we're bringing social insights into more tools where teams already work by adopting the model Context protocol .
Speaker #5: MCP , which provides a universal open standard for connecting data to AI systems . We've our remote MCP server to connect to widely adopted ChatGPT first , which positions Sprouts Intelligence as a foundational input layer for AI driven decision making across the enterprise .
Speaker #5: In addition , we've embedded specialized models throughout our platform from advanced spam detection to AI powered influencer matching , illustrating our broader approach , intelligence seamlessly integrated into every workflow for a better understanding of all of this , we encourage investors to join us at Breaking Ground on November 18th , where we'll unveil these capabilities in full .
Speaker #5: If you'd like to join , please reach out to Alex for an invite . This is a defining moment for sprout . While AI will reshape software , the need for trusted systems that connect brands and customers will only grow .
Speaker #5: We believe sprout is building the next generation orchestration layer from a position of unique strength , rooted in our data partnerships and platform architecture .
Speaker #5: Turning to Newswhip , we're very encouraged by the early results since closing acquisition in late July . We've seen exceptional go to market momentum from Newswhip , generating more pipeline than any new product in their history .
Speaker #5: With initial acvs at or above traditional enterprise levels . Nearly two X or company wide average . The integration has gone smoothly , and we're thrilled to have the Newswhip team fully on board .
Speaker #5: Key wins in the quarter included a tourism board , a major crypto exchange , a digital security alliance , and several strategic renewals .
Speaker #5: Two trends were emerging . Number one , Newswhip is creating net new pipeline within larger spread accounts . And number two , Newswhip is increasing deal size when bundled into existing sprout opportunities .
Speaker #5: For example , a global online delivery platform that has nearly 400 K in RR expanded their annual spend by over 10% after adding Newswhip to their suite .
Speaker #5: And earlier this month, we completed a competitive displacement combining our core platform and NewsWhip that increased the customer's IRR by almost 50%.
Speaker #5: We're thrilled with the early momentum as we integrate Newswhip real time intelligence with our industry leading listing capabilities . We're seeing clear validation of our social intelligence strategy and a strong foundation for continued differentiation .
Speaker #5: Similar to the last few quarters , I want to provide a quick update on our four key growth drivers for sprout that include winning the enterprise , driving customer health and adoption , expanding our partnership and ecosystem , and driving improved account penetration to win the enterprise .
Speaker #5: We intend to expand the pipeline , close more 50 plus deals , and accelerate adoption with a product roadmap built for enterprise needs .
Speaker #5: Let's start with key product releases in the third quarter , we launched AI powered translation for nearly 180 languages . Now our customers can communicate with a global audience effortlessly .
Speaker #5: Our AI assist translates and generates content for social posts , incoming messages and replies . Empowering our customers to connect with a wider , more diverse audience we rolled out listening for TikTok , a highly requested new feature our customers can now tap into this massive platform to gain valuable insights , monitor brand health , and make more informed marketing decisions .
Speaker #5: We also launched our new integration with Canva , making it faster and easier for brands to create and share content . As the only social media management platform to offer .
Speaker #5: This comprehensive integration , we're giving brands a decisive advantage in a highly competitive digital landscape . This partnership streamlines the entire workflow from design to publishing , allowing users to push finalized visuals , including images and videos directly from Canva into Sprout as ready to schedule posts .
Speaker #5: Brands like Fedex noted that the Canva integration has been a huge win for efficiency . Finally , we launched a similar one click workflow this quarter with a new Adobe Express add on content created in Adobe Express can now be sent directly to sprout as well .
Speaker #5: We're also pleased to share several strategic enterprise wins this quarter . We closed an almost $2 million expansion deal in the quarter with a new division of an existing fortune 500 pharmaceutical customer .
Speaker #5: This major expansion proves the effectiveness of our land and expand model as we . Successfully transition from a pilot to a full scale enterprise solution with sprout , this customer can now unify their global marketing workflows for over 350 users , creating a single source of truth for their social strategy .
Speaker #5: Our enterprise grade platform enables them to confidently scale globally , consolidate their tech stack , and empower their large distributed teams with a single user friendly solution .
Speaker #5: Another exciting deal from this quarter was a $1.2 million new business win , with a national convenience store chain . They chose sprout to consolidate their marketing and customer care , leveraging our listening premium analytics .
Speaker #5: Premier success and influencer marketing products . This partnership is a prime example of how sprout delivers a comprehensive solution , a unifying your social media and influencer marketing efforts on a single platform .
Speaker #5: We've helped them eliminate fragmented workflows and significantly reduce their high cost of ownership from managing multiple vendors . They can now make data driven decisions using our advanced analytics and our AI powered social listening , creating a single , reliable source for reporting and strategic insights .
Speaker #5: We establish a trusted , long term partnership with a dedicated success team directly addressing the previous struggles with high vendor turnover and inconsistent support .
Speaker #5: The last win I'd like to highlight is an expansion deal for over 800 K , with a leading food and beverage company . This company is leveraging our platform to manage their marketing and customer care with a comprehensive suite of products , including listening , premium analytics , Premier Success , influencer marketing , Guardian and our Service Cloud Integration .
Speaker #5: This partnership showcases how sprout helps companies consolidate their technology and streamline workflows by integrating sprout with Salesforce , we've created a more efficient system where teams can share data across departments , leading to significant efficiency gains .
Speaker #5: The client now has real-time visibility into their data, empowering both users and management to make quick decisions. Our second growth driver is driving customer health.
Speaker #5: We launched our new AI support agent , an AI powered help center , in late August and are already seeing improved efficiency . We've achieved a 19% automated resolution rate and a 65% reduction in time spent in the help center , demonstrating that we are delivering faster and smarter customer support experiences .
Speaker #5: Our third driver is our investment in partnerships , sprout continues to expand our ecosystem . In August , we launched a new suite of integrations across TikTok , blue Sky , Instagram , Snapchat , Canva , Adobe Express and LinkedIn , helping brands turn every interaction into actionable intelligence .
Speaker #5: As customers increasingly rely on platforms like TikTok and Blue Sky for discovery and real-time conversation, the ability to capture sentiment early and act fast is now essential.
Speaker #5: And we're seeing that in the data . Social is now the first stop for many consumers , especially Gen Z , and our job is to help brands show up across social search , SEO and SEO with content that performs built around shared keywords , captions , hashtags and alt text , and proven and analytics .
Speaker #5: This quarter , we announced new and upcoming capabilities , including Instagram partnership ads and influencer marketing workspaces , expanding our Snapchat integration for influencer marketing .
Speaker #5: Adobe Express and Canva Publishing integrations and LinkedIn personal profile metrics and document publishing . These capabilities are all built to turn every social interaction into insight , action , and measurable business impact .
Speaker #5: On October 23rd , sprout was named a Preferred partner in Reddit's Official Data Partner Program , a recognition of cutting edge platforms that use Reddit's enterprise API to tap into real conversations and connect brands with key consumers .
Speaker #5: This partnership highlights Sprout's standing among the most trusted , forward thinking platforms in social technology as a preferred partner , we gain unique access to Reddit and the opportunity to collaborate on product roadmaps , innovation and strategic growth .
Speaker #5: Our fourth growth driver focuses on deepening customer engagement . As I mentioned earlier this quarter marked a new record for sprout , with our largest ever non Q4 performance for large deals .
Speaker #5: Our flexible platform continues to win in the marketplace , and our integration of Newswhip alongside new network partnerships demonstrates our commitment to innovation and our ability to deliver for customers today , while investing in their future success to provide greater visibility into these dynamics , we've added new slides to our investor presentation that highlight these growth drivers in more detail .
Speaker #5: The future of our category will be defined by real time intelligence , extensible platforms , and trusted AI . That's the foundation we're building at sprout with differentiated data , a proven platform , and deep enterprise relationships .
Speaker #5: We believe we're positioned to lead in this next era of social intelligence . And with that , I'll turn it over to Joe to walk through the financials .
Speaker #5: Joe .
Speaker #6: Thanks , Ryan . I'll now run through our financial results and guidance . Our third quarter results were highlighted by quarterly non-GAAP operating margin of 11.9% , up nearly 460 basis points from the year ago period .
Speaker #6: This quarter marks Sprout's most profitable non-GAAP quarter in our history , result of our consistent focus on strategic targeted investments and our revenue outperformance .
Speaker #6: I want to thank our employees for their focus and commitment to how we collectively invest in the business and responsible manner . We generated 10.3 million in non-GAAP free cash flow during the quarter , and on a trailing 12 month basis , free cash flow is up over 80% .
Speaker #6: As we have commented before , expect our free cash flow margin for the fiscal year to closely track our non-GAAP operating margin . We remain committed to growing operating leverage on a fiscal year basis .
Speaker #6: Onto a summary of the quarter , total revenue was 115.6 million , representing 13% year over year growth . Subscription revenue was 114.7 million , up 13% year over year .
Speaker #6: The number of customers contributing more than $10,000 in RR grew 7% from a year ago . The number of customers contributing more than $50,000 in RR grew 21% from a year ago .
Speaker #6: Q3 ACV was up 15% year over year , as Ryan discussed earlier , our strategy to drive ACV growth remains focused on shifting to a higher enterprise mix and strengthening premium module attach rates such as influencer marketing , customer care , premium analytics , and now Newswhip .
Speaker #6: RPO totaled 357.1 million , up from 347.0 million exiting Q2 , representing growth of 15% year over year . We expect to recognize 72% , or 258.5 million of total RPO as revenue over the next 12 months , representing Crpo growth of 17% year over year .
Speaker #6: non-GAAP operating income totaled 13.7 million , which was ahead of the high end of our outlook . This was up from 7.5 million a year ago and equates to a non-GAAP operating margin of 11.9% .
Speaker #6: A quarterly record . Looking ahead , we're increasing our full year guidance to reflect our three key results . We want to provide some additional context about the fourth quarter outlook .
Speaker #6: As mentioned earlier , sprout delivered strong non-GAAP profitability in the quarter . This was driven in part by our continued focus on targeted investments in the business , but also in part by hiring cadence in the quarter .
Speaker #6: With that , now on to guidance for the fourth quarter of fiscal 2025 , we expect revenue in the range of 118.2 to 119.0 million .
Speaker #6: We expect non-GAAP operating income in the range of 9.5 to 10.5 million . We expect a non-GAAP net income per share of between 15 and $0.17 .
Speaker #6: This assumes approximately 59.3 million , weighted average basic shares of common stock outstanding for the full year 2025 . We are raising our guidance and now expect revenue in the range of 454.9 to 455.7 million , we are also raising our non-GAAP operating income guidance and inspect it to be in the range of 46.1 to 47.1 million .
Speaker #6: We expect non-GAAP net income per share between 77 and $0.79 . Assuming approximately 58.6 million weighted average basic shares of common stock outstanding .
Speaker #6: We look forward to continuing to innovate and create more opportunities for our customers to grow with us . We appreciate your interest in Sprout Social, Inc. , and with that , Ryan , Alex and I are happy to take any of your questions .
Speaker #6: Operator .
Speaker #3: This time , if you would like to ask a question , press star . Then the number one on your telephone keypad . To withdraw your question , simply press star one again .
Speaker #3: We kindly ask that you limit your questions to one and one . Follow up for today's call , we will pause for just a moment to compile the Q&A roster .
Speaker #3: Your first question comes from the line of Raimo Lenschow with Barclays . Please go ahead .
Speaker #5: Perfect .
Speaker #7: Thank you . And congrats on the number of solid quarter . If I look at Ryan , if I , if I listen to your launch product , it's really shows the momentum upmarket .
Speaker #7: I'm just trying to kind of marry that now like you've been stable on the revenue growth side , which is kind of really good to see .
Speaker #7: Like how do you think about inflections or the next step from here ? Because on the one hand , you know , it does look like in the overall market , you're doing a lot better and you're moving nicely upmarket .
Speaker #7: But we haven't really fully seen it in the numbers yet . Like how do I marry these two ? Thank you .
Speaker #5: Hey , thanks for the question . I appreciate it . And yeah , to your point , we are we're really excited about the progress that we've been making up .
Speaker #5: And you can see that in the 50 K growth . And just the execution , whether it's the the big deals and logos , we had a chance to talk about or just the acceleration within the number of customers within that segment , we've certainly got a lot of conviction in the size of the market and the value that we're adding to customers as we continue to see social becoming the primary place for things like product discovery and brand awareness and customer care and commerce .
Speaker #5: And at the same time , we do have two distinct businesses with different dynamics . You know , as we've talked about that , this enterprise , large business where we've seen a lot of success in higher ACV and great net dollar retention continues to grow .
Speaker #5: And then we have another side of the business where on the smaller side , continued pressure that we've seen with SMB and agency , again , mostly on the new business side .
Speaker #5: But as we know, that part of the business tends to have less growth rate than the other pieces, and that's been a drag on our overall growth rate.
Speaker #5: Having said that , as we look at that opportunity , we know that the market size is large and we do see opportunities with pricing and packaging .
Speaker #5: And now with AI to be able to evolve the way that we're serving that part of the market . So feeling good about the up market and the growth and to your point , see opportunities here to continue pressing on that other side of the business to to push on the growth rate .
Speaker #7: Okay , perfect . Thank you . And then Jewel , like for you like profitability was a main highlight this quarter . Can you talk a little bit about the past year in terms of like was that timing .
Speaker #7: Was that like you know like good underlying levels . Can you speak to that ? Thank you and congrats for me .
Speaker #6: Yeah . Thank you . Yeah . You're pretty happy about the performance there . You know 460 basis points year over year . I think there's a couple of things that drove that one , the overperformance on revenue definitely helped .
Speaker #6: And contributed to that to the bottom line . We're definitely getting , you know , more efficient . And parts of the business .
Speaker #6: You know , we're using AI internally as well . And that's helping drive margin in the business . And also we just had a little bit of push on the margin on the hiring side .
Speaker #6: You know , into Q4 . And so we got a little bit of benefit in Q3 , which is probably going to , you know , pick itself up in Q4 .
Speaker #6: But overall feel really good about the momentum that we're seeing in the business . On the margin side .
Speaker #7: Yeah. Okay. Perfect. Thank you.
Speaker #3: That concludes our question and answer session . I will now turn the call back over to Ryan Barretto for closing remarks .
Speaker #5: Okay . Thank you . Tiffany , I appreciate it . I know tonight is a very busy night in software . So thanks for those joining us .
Speaker #5: And I know we're catching up with a bunch of others later tonight . I want to I want to also just ask folks to join us on November 18th for Breaking Ground , where we will be doing our customer webinar , and we'll have a chance to show off our new agents .
Speaker #5: So really excited to see a bunch of you there . And then I want to end by thanking our team for their continued dedication and effort .
Speaker #5: I am incredibly grateful for all the work that you're doing for our customers and our business , and we look forward to spending time with all of you later .
Speaker #5: Have a great night . Thank you . .
Speaker #3: Ladies and gentlemen , this concludes today's call . Thank you all for joining . You may now disconnect .