Sprout Social Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2025

There are 12 speakers on the call.

Operator

Ladies and gentlemen, this is the operator. Today's call is scheduled to begin momentarily. Until that time, your lines will be placed on music hold. Thank you for your patience. Thank you for standing by.

Operator

My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sprout Social First Quarter twenty twenty five Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you.

Operator

I would now like to turn the call over to Alex Kirks, VP, Investor Relations and Corporate Development. Please go ahead.

Speaker 1

Thank you, operator, and welcome to Sprout Social's first quarter twenty twenty five earnings call. We will be discussing the results announced in our press release issued after market close today and have also released an updated investor presentation, which can be found on our website. With me are Sprout Social's CEO, Ryan Baretto and CFO, Joe DelPretto. 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.

Speaker 1

These include, among others, statements concerning our expected future financial performance, including our Q2 and twenty twenty five outlook 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, and we do not undertake any duty to update these statements. Forward looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of the risks and other important factors that could affect our actual results, please refer to our quarterly report on Form 10 Q for the fiscal quarter ended 03/31/2025, to be filed with the SEC as well as our most recently filed 10 ks. During the call, we will discuss non GAAP financial measures, which are not prepared in accordance with Generally Accepted Accounting Principles.

Speaker 1

Definitions of these non GAAP financial measures, along with the reconciliations and the most directly comparable GAAP financial measures, are included in our first quarter earnings release. This has been furnished to the SEC and is available on our website at investors.sproutsocial.com. With that, let me turn the call over to Ryan. Ryan?

Speaker 2

Thank you, Alex, and welcome to our first quarter earnings call for fiscal twenty twenty five. We reported first quarter results with revenue of $109,300,000 representing year over year growth of 13%, highlighted by strong revenue execution and operating margin expansion. Our current remaining performance obligations, reached $255,800,000 represented 21 year over year growth. Our go to market teams delivered another solid quarter with 22% growth in the 50 ks ARR customer cohort. We also landed strategic wins with global brands like Palo Alto, NASCAR, Interscope Records, Avis Budget Car Rental and Axos Bank.

Speaker 2

These customers demonstrate our continued execution and strategic fit with the most socially sophisticated enterprise customers. We are expanding our sales capacity this year and will continue to throughout the first half of the year, which we believe will drive further momentum in our pipeline generation and enterprise coverage as we move into FY 2025 and beyond. We're also excited about the continued momentum in our influencer marketing product, which has become increasingly strategic to how we engage with our most socially sophisticated customers. I also wanted to provide a quick update on the macro environment and what we experienced during the quarter. Q1 tracked as expected with spending patterns similar to those seen in 2024.

Speaker 2

We continue to see elongated procurement and purchasing processes that were very similar to the prior year. While we expect these impacts to persist through the remainder of 2025, we were encouraged by the enterprise pipeline generation during the quarter and are seeing the early signs of the improved process and discipline that our new GTM leadership is bringing to the company. Building on last quarter's discussion about Sprouts unique position in the social media management market, I want to share how our products are enabling brand discovery in today's rapidly evolving digital landscape. Also provide updates on our four key growth drivers before handing the call over to Joe. A growing trend we're seeing and hearing from our customers is the ongoing shift from traditional search engines to social platforms for discovery.

Speaker 2

Research from Forbes shows 46% of Gen Z now prefer social media over conventional search, a behavior that signals where brand engagement is headed. And we believe this isn't a passing trend, but a fundamental rewiring of online behavior that will play out over the next several years. As the majority of search is now zero click with AI, traditional content strategies face headwinds as their traffic is changing in real time. Social media's authenticity, immediacy and community driven nature fill the gap, offering businesses strong ROI outcomes. Social platforms enable real time discovery and customer connections, fostering trust and driving conversions.

Speaker 2

Gen Z's preference for social search provides critical directional data, pointing to a future where brands must view their social presence as a top business priority. This shift amplifies the role of influencer marketing, which is central to social search dynamics. Creators and influencers shape discovery by delivering relatable content that resonates in algorithm driven feeds, guiding consumers from curiosity to purchase. Nearly 70% of consumers trust influencer recommendations over information from brands according to Marketing Drive. And Sprouts research shows just about half of consumers make purchases at least once a month because of influencer posts.

Speaker 2

This past quarter, we announced the rebrand of our influencer marketing platform, formerly Hagger Media to Sprout Social Influencer Marketing. This product is designed to enable brands to turn creator strategies into a top driver and multiplier of ROI, which is crucial given the role influencer marketing plays in the current digital landscape. In mid April, we launched significant enhancements to the product, including AI powered natural language discovery to enable marketers to identify creators through topic led search, a customizable brand safety solution to better align creator partnerships with a brand's value, and new creator vetting features that reduce the time spent in discovery so marketers can refocus on strategic creative tasks. Our reimagined influencer marketing product is grounded in AI and is designed to help brands find and vet the most valuable creators that fit their unique strategy faster and safer than ever before. We are excited about the opportunity this opens for brands to maximize their impact in today's increasingly social first ecosystem.

Speaker 2

And we look forward to expanding on the success our customers are seeing from these updates next quarter. Equally critical is social customer care as the rise of social search heightens the need for seamless integration of care strategies. Consumers turning to social platforms for discovery expect immediate personalized responses. Sprouts updates to its customer care solutions and our brands to meet customers where they are with the goal boosting satisfaction and retention. As social search grows, integrating robust care strategies is no longer optional.

Speaker 2

It's essential for building trust and loyalty. These innovations allow us to capitalize on the changes of an increasingly social driven world and empower brands to reshape the future of the business, delivering measurable value. As we dive into our growth drivers, you'll see how these advancements paired with our vision are fueling enterprise business and helping solidify our leadership in the market. Similar to the last few quarters, I want to provide a quick update on our four key growth drivers for Sprout that include number one, win the enterprise number two, customer health and adoption number three, expand our partnership and ecosystem and number four, drive improved account penetration. Then I'll take a few minutes to provide some quick updates on each of these key focus areas.

Speaker 2

To win the enterprise, we intend to expand the pipeline, close more 50 ks plus deals and accelerate adoption with a product roadmap built for enterprise needs. Let's start with key product releases in the quarter. For AI, we released generate post by AI assist that enables social media managers to leverage fresh content ideas through generates recommendations. With a few clicks, users can create a range of concepts to captivate their audience. With convenient access from either the publishing calendar or compose window, users are able to generate creative written content in their unique brand voice to help drive productivity and inspiration for their social strategy.

Speaker 2

For Care, our latest innovations are built for brands managing high volume engagement at scale. During the quarter, we released our AgentForce integration to be generally available for Service Cloud and Sprout customers. With Sprout and Salesforce's AgentForce, brands can accelerate case resolution time with faster access to multichannel case insights, personalized customer responses through consolidated contact summaries and enhanced brand experience with customer insights across case and channels. We also released LinkedIn DMs, which allows teams to reply to private messages sent to a LinkedIn business profile from Sprouts' smart inbox or cases. By consolidating these messages in one place, care and community management teams can more efficiently engage with private inbound messages that could be sales leads, customer support issues or job candidates.

Speaker 2

We're strengthening enterprise scalability, security and compliance to help organizations manage complexity with confidence. Large distributed teams need consistency and control, and we're excited about a new release during Q1 called the Dynamic Role Sync, which is designed to provide customers with greater oversight of user permissions and access security. As teams grow to meet the demands of social, brand safety continues to be top of mind for businesses, and this release is designed to offer customers further confidence in ensuring the right team members have the proper access. Finally, we are one of the first to market with a key accessibility feature where customers can now add or edit alt text on image posts on Instagram and Pinterest in Sprout, including using AI assist to generate image description in one click. Alt text is a simple but powerful way to make social content more accessible to those globally with the visual impairments.

Speaker 2

It brings images to life for those using screen readers or other assistive tech and helps brands prioritize inclusivity while reaching a broader audience. This is especially impactful for our customers and state and local government that will need to comply with the updated digital accessibility requirements from the ADA by April 2026. I also want to spend a few minutes discussing some additional strategic enterprise wins in the quarter that you'll find in our earnings presentation. This quarter we closed a 7 figure new business deal with a Fortune 500 medical device manufacturer looking to take an enterprise approach to social and to consolidate their tech stack for publishing, engagement, analytics, listening and influencer marketing. They chose Sprout for our ability to deploy quickly.

Speaker 2

And because of the access they get to our team of expert professional services who can help enable a true enterprise strategy with stronger operations and increased visibility. Now instead of managing silo tech and multiple vendors, they'll be able to manage their entire social strategy in Sprout, which can enable faster time to value and a stronger ROI. Another new business customer that closed in the quarter was with a Fortune 500 food and beverage manufacturer. This was another example of a company using multiple tools and seeking consolidation into one easy to use platform. They ultimately wanted a solution where they could understand current customer trends, pair them with their historical great products, and amplify that content while receiving immediate feedback on its performance.

Speaker 2

With Sprout, they're able to centralize marketing and customer support in one intuitive platform to monitor feedback, track campaign success and engage with consumers in real time. We're also now going to be able to generate real time reports to identify trends, leveraging that data to align with a product strategy and ultimately drive loyalty and repeat purchases. The next customer story we want to highlight is a 600 ks expansion win, which highlights the growth opportunities within our existing customer base. This Fortune 500 restaurant chain was already managing their marketing care and experience through our platform and service cloud integration. Our expanded relationship was driven by their acute need to significantly increase their coverage of social profiles across 15,000 locations.

Speaker 2

Now they can easily manage guest interactions and reviews across thousands of locations, helping ensure that messages aren't missed and that complaints are efficiently addressed. This is a great example of how critical social is for the health of our customers' brand and reputation and our ability to meet the needs of a large scale complex enterprise organization globally. Our second growth driver is a sharper focus on customer health, onboarding and adoption to maximize long term value. This quarter we successfully implemented a new customer success platform that enhances our ability to score and assess customer health. With this improved visibility, we're better equipped to proactively identify both renewal risks and expansion opportunities.

Speaker 2

We also continue to strategically scale our customer success team by tailoring our approach based on customer segments. SMB and mid market customers now benefit from stronger community resources and enhanced technical support, while our enterprise clients receive a higher touch experience through professional services, AI driven insights and product usage signals. Moving on to our third driver, we will continue to invest in our partnerships with strong global partners that bring Sprout into strategic accounts and expand our reach into some of the largest digital marketing budgets. In the first quarter, we added new leaders and product partnerships and channels to lead and expand our efforts across Salesforce, AWS and beyond. We also deepened our Salesforce alliance with a strong presence at the Sydney World Tour in February, the flagship event for APAC customers.

Speaker 2

Expect us to ramp up activity on the partnership front in fiscal twenty twenty five as we believe our social network, technical integrations and go to market partnerships can be a long term acceleration to our business model. A key focus in the next few quarters will be working to build out our network of international resellers that can increase our access to more European based customers and over time to replicate this in APAC. A fourth growth driver is deepening customer engagement through use case expansion and premium modules with our field team seeking to drive greater value across both new and existing customers. We built on our momentum from Q4 by launching a multi product campaign in Q1 across our go to market teams. Multi product selling is now a core component of every sales reps compensation plan.

Speaker 2

To support this shift, we're equipping our reps with a robust set of account based intent signals to help them identify high potential expansion opportunities and uncover untapped markets. Looking forward, we believe the strategic investments we are making in robust customer care, integrated AI powered solutions and influencer marketing will help define this product category in a world where social is not just important, but essential. I'm excited about what's ahead and look forward to sharing more progress along the way. And with that, I'll turn it over to Joe to run through the financials. Joe?

Speaker 3

Thanks, Ryan. I'll now run through our financial results and guidance. Our first quarter results were highlighted by a record quarterly non GAAP operating margin of 11.5%, up over 500 basis points from the year ago period. We generated a record $19,500,000 in non GAAP free cash flow during the quarter, up $8,100,000 from our non GAAP free cash flow in 1Q twenty twenty four, an increase of 72% on a year on year basis. We remain committed to growing operating leverage on a fiscal year basis and we'll continue to evaluate our ability to drive greater profitability as the year progresses.

Speaker 3

On to a summary of the quarter. Total revenue for the first quarter was $109,300,000 representing 13% year over year growth. Subscription revenue was $108,700,000 up 13% year over year. The number of customers contributing more than $10,000 in ARR grew 6% from a year ago. The number of customers contributing more than $50,000 in ARR grew 22% from a year ago.

Speaker 3

Q1 ACV was $14,961 up 16 percent year over year. As Ryan discussed earlier, our strategy to drive ACV growth remains focused on shifting to higher enterprise mix and strengthening premium module attach rates such as influencer marketing and customer care. RPO totaled $360,200,000 up from $351,500,000 exiting Q4 and up 24% year over year. We expect to recognize 71% or $255,800,000 of total RPO as revenue over the next twelve months, implying a CRPO growth rate of 21 year over year. Non GAAP operating income totaled $12,500,000 which is well ahead of the high end of our outlook.

Speaker 3

This was up from $6,000,000 a year ago and equates to a non GAAP operating margin of 11.5, a quarterly record for operating margin. We're pleased that our progress here demonstrates our focus on continued growth and our margin profile. Before moving on to guidance, a few additional comments. Based on the latest data we gathered during Q1, it reflects our current macro environment, expect us to continue to take a measured view on how we look at the business this fiscal year. As Ryan mentioned earlier, we do not expect the demand environment to improve in fiscal year twenty twenty five from what we experienced in fiscal year twenty twenty four.

Speaker 3

We are closely monitoring this dynamic spending environment impacted by tariffs and federal spending cuts. Now on to guidance. For the second quarter of fiscal twenty twenty five, we expect revenue in the range of $110,400,000 to 111,200,000.0 We expect non GAAP operating income in the range of $8,400,000 to $9,400,000 We expect a non GAAP net income per share of between $0.14 and $0.16 This assumes approximately 58,800,000.0 weighted average basic shares of common stock outstanding. For the full year 2025, we're raising our guidance from the prior quarter and now expect revenue in a range of $448,900,000 to $453,900,000 We're also raising our non GAAP operating income guidance expected to be in the range of $40,700,000 to $45,700,000 We now expect non GAAP net income per share between $0.69 and $0.77 assuming approximately 59,100,000.0 weighted average basic shares of common stock outstanding. We look forward to continuing to innovate and create more opportunities for our customers to grow with us.

Speaker 3

We appreciate your interest in Sprout Social. And with that, Ryan, Alex and I are happy to take any of your questions. Operator?

Operator

Your first question comes from the line of Raimo Lenschow with Barclays. Your line is open.

Speaker 2

Perfect. Thank you. Congrats on a great start.

Speaker 4

Raimo, you mentioned some interesting enterprise wins. Can you talk a little bit about what you're

Speaker 2

seeing there more in the

Speaker 4

early stages of the pipeline? Like obviously, it's volatile out there, but like it still sounds very interesting that enterprises continue to do some work there. Can you just kind of go a little bit deeper in terms of what you're seeing in the field there, especially on the high end

Speaker 2

of the customer base? Thank you. Thanks, Raimo. Appreciate the question. Yes, we had some great wins in the quarter across the board.

Speaker 2

I think one of the things that's most interesting to us here is just the wide variety of industry and verticals you see, right? Even in the Fortune 500, you've got med device, you've got restaurant chains, you've got food and dev. From a pipeline perspective, we've seen some really healthy things from our enterprise team during the quarter. A lot of credit to the team in terms of just the execution in the market right now and the conversations that we're having. I think this really comes down to where our customers' customers are.

Speaker 2

And more and more, they're on social. Right? We're seeing customers on social two and a half hours a day, and there's a ton of gravity for these enterprise customers to manage them there. They need a platform like Sprout to be able to engage with them, and that's from a marketing perspective, a care perspective, an analytics perspective. So these are all the types of things that we're solving for customers today.

Speaker 2

And the team is finding themselves in more opportunities than before at a larger scale. So just really good progress on the pipeline creation.

Operator

Your next question comes from the line of Rob Oliver with Baird. Your line is open.

Speaker 5

Great. Thanks. I appreciate it, guys. I will try to squeeze a two parter in if I can. Brian, for you, just, I guess, extension of Raimo's question.

Speaker 6

If you can comment a little

Speaker 5

bit more on the pipeline for enterprise for this year. And I know you've spent some time with Mike trying to make sure you guys identify kind of that ideal customer profile as you've called it. And I'd be curious what progress you guys are making to make sure you're maximizing your higher touch points at enterprise? Yeah. That's two.

Speaker 5

Thanks, guys. Appreciate it.

Speaker 2

Yeah. Thanks, Rob. Yeah. Mike and the team have been doing a really nice job there. I mean, one of the biggest things that we're really focused in on, and you mentioned it in the question, is just ideal customer profile.

Speaker 2

And so one of the benefits for us is, you know, with nearly 30,000 customers across so many industries and verticals, we've got a really good sense of where our opportunities exist. And then on top of that, you know, when our our customers are on social, we get really good signal on the things that they're doing. Right? We also as you all know, we we lead with the product in a trial. So when prospects come in, even before they sign a contract and they're in our trial, we get a really good sense of how they're leveraging social.

Speaker 2

We get really good data and analytics that the team can use to make sure that we're we're engaging in the right places. We're ensuring that they're using the product in the right places and that that we're we're solving the their biggest problems. I think from an enterprise perspective, as you might imagine, customer care matters a ton to them. You know, if you're not on social in front of your customers, it's really reputation roulette. And and these customers care deeply about making sure that they're they're all over it.

Speaker 2

So those are some of the highlights, for the team and and where they're spending time with the enterprise.

Operator

Next question your next question comes from the line of Elizabeth Porter with Morgan Stanley. Your line is open. Great. Thank you very much. I wanted to follow-up on your comments just about a really strong pipeline heading into the year.

Operator

So, could you just give us some more context for some of the pipeline coverage ratios that you're including for 2025, kind of where you may be today versus prior periods, and how that gives you comfort to be able to move through a potentially more difficult macro, although I kind of recognize we're not seeing any of the impacts yet today? Thank you.

Speaker 2

Yeah. Appreciate the question. Yeah. We we feel we feel good about the coverage that we've had here. Similar to some of my comments just before, the team's doing a really good job in in terms of pipeline hygiene.

Speaker 2

We're seeing really great effort in terms of creation from the top of the funnel. As you might imagine, we're paying very close attention to all of the metrics with pipe creation and pipe velocity. Certainly, like all of us, paying very close attention to the things that are happening in the macro. Currently not seeing anything material in terms of changes, but paying a lot of attention there.

Operator

Your next question comes from the line of David Hynes with Canaccord Genuity. Your line is open.

Speaker 7

Hey, guys. Two for Joe. Joe, I'm getting 6% CRPO based bookings growth. Is that a decent proxy for enterprise bookings growth? And if not, what's it missing?

Speaker 7

And then the second question is, what are you seeing from a gross retention standpoint in that 10,000 to 50,000 cohort?

Speaker 8

Yes. Thanks for the questions, DJ.

Speaker 3

When we look at CRPO, think there's a couple of

Speaker 8

things that we've talked about before. And I think overall, we were pleased with the growth, the over 21% growth in CRPO in the quarter. I think there's two things that always skew that number as we talked about before. Number one is you've got the seasonality, right, from Q4 to Q1. Q4 is always going to be really strong when it comes to CRPO and then that's going to kind of burn off in Q1 and always be a little bit impacted by that seasonality.

Speaker 8

And then number two is just we still have the month to month aspect of our business. And so that kind of we've talked about this over the longer term, the CRP growth number is going to be a real good indicator, but we're still at a point where we're still going to converge on that with revenue over time. With the gross retention side, we continue to see really strong gross retention in the quarter. It was up again quarter over quarter. And I think for us, it's a really strong indication of how mission critical our software is to our customers.

Speaker 8

And so continue to see improvement on the gross retention, not just in the enterprise, I would say across our customer base. Even down in the SMB, we're seeing strong gross retention there.

Speaker 1

Okay. Thank you. Next question please.

Operator

Your next question comes from the line of Adam Hodges with Goldman Sachs. Your line is open.

Speaker 9

Hey, guys. This is Grayson Skalban for Adam. Thanks for taking the question. I wanted to touch on profitability quickly. Pretty nice beat in the quarter there as well as a nice raise to the full year guide.

Speaker 9

If you could just talk a little bit about what drove that beat and if there's any sort of changes or impacts to the full year investment philosophy following the outperformance in the quarter? Thank you.

Speaker 8

Yes. Thanks for the question. As far as what drove the beat, a couple of things. One, the revenue overperformance was one of the key areas. The other one is some of the hiring that we had in the quarter was more back end loaded in the quarter.

Speaker 8

And so that definitely benefited us. But what I will say overall, when you look at the full year guide, we're really trying to make sure we're still maintaining some flexibility to adjust for any kind of unknown risks throughout the year. But what I would say is very similar to Q1, if we continue to outperform on the top line, you'll definitely see more leverage in the business throughout the year.

Speaker 1

Okay, thanks. Next question please.

Operator

Your next question comes from the line of Scott Berg with Needham. Your line is open.

Speaker 10

Hi, everyone. This is Rob Marilli on for Scott. Thanks for taking the question and congrats on the quarter. I understand the AgentForce integration was still pretty recent. Any commentary you can provide on how that may have impacted pipeline or deal flow for the quarter?

Speaker 10

And any thought on the sort of contribution this can have for 2025 pipeline trends? Thanks.

Speaker 2

Yes. Thanks, Rob. Appreciate the question. We're really excited about Agent Force and the partnership. This is just another chapter in terms of the partnership we've had with Salesforce growing from the Service Cloud.

Speaker 2

We're really early there. Obviously, we just went GA with that integration. We had a chance to talk about it a little bit at Sydney. We'll have a chance to talk about it as we head into marketing connections and then again at Dreamforce at the end of the year. But nothing else to call out this early in this stage.

Speaker 2

As we come back, I think we can share a little bit more color around some of the progress that we're making there and the customer stories.

Speaker 1

Okay. Thank you. Next question please.

Operator

Your next question comes from the line of Alan Verhoski with Scotiabank. Your line is open.

Speaker 6

Hey, guys. Thanks for taking the question. Good to see numbers for the full year going up, on top and bottom line. I noticed your Q2 revenue growth rate that was guided to is higher than what you guided for in Q1. I know the comps are easier, but given the q one beat here, can you just maybe talk about the biggest puts and takes, with respect to the guided q two revenue number?

Speaker 6

And then as a quick follow-up, what drove the current deferred revenue in the quarter to fall for the first time on a sequential basis? Thanks.

Speaker 8

Yes. Thanks for the question. On the first point, I think when it comes to the Q2 guide and then also on the full year, I think the only thing to call out there is and I mentioned this in my prepared remarks is we're just trying to take a very measured approach in the way we guide. It's also Ryan called this out as well. We're assuming that the macro is consistent with what we saw in Q1 and most of 2024.

Speaker 8

And so we feel pretty good about the guidance we set out for the year and our ability to achieve those numbers. As it relates to deferred revenue, I think the biggest impact there is just the fact that we signed such large deals in Q4 and I think Q4 last year was one of the largest increases we've seen when it comes to annual multiyear deals and the impact on deferred revenue. And as that burns off in Q1, there was just a bigger sequential impact because of the size of the deals we were landing in Q1 or Q4 that kind of drove that impact on Q1.

Speaker 1

Okay. Thanks, Alan. Next question please.

Operator

Your next question comes from the line of Arjun Basia with William Blair and Company. Your line is open.

Speaker 7

Thank you so much. Harvey, one for you. It seems like there's certainly going to be a lot of focus this year and beyond on cross sell platform expansion, like, selling selling the entire Sprout platform as opposed to just the individual products, especially with influencer marketing and care. I'm curious how we should think about just penetration with those solutions. And when you're thinking about increasing the role that they play in your growth rate, is that mostly going to be through existing customer expansions or through more of the larger kind of enterprise deals that that you're that you're trying to that you're starting to sell where we'll see attach rates for those increase?

Speaker 2

Yes. Thanks, Arjun. Appreciate the question. You're right. The cross sell, the multiproducts are really important part of our strategy.

Speaker 2

We're continuing to see some really healthy trends there. A big part of this, and I mentioned this in the prepared remarks, is just making sure that the teams had the right level of training across all the products, and then it's built into the commission plans and the compensation models. So that's been heading well. We also, from a penetration perspective, and we shared this before, we continue to see good progress on that, but we're still very early in the penetration rates for clearly our current customers are almost 30,000 and then lots of opportunity as we're landing new logos. So when I think about the growth rate for existing First new business, it's going to be a bit of both.

Speaker 2

We see opportunities to go and expand our current customers, and then we see a lot of opportunities on the new business side. From an expansion perspective, in my prepared remarks, I shared a great customer example of a restaurant chain that increased by $600,000 And then on the new business side, we continue to see more of those customers showing up, wanting to solve more than one problem, wanting to do more than one specific area. So both of those things are going to be really important for our growth strategy.

Speaker 1

All right. Thanks, Arjun. Next question please.

Operator

Your next question comes from the line of Brian Skorz with Oppenheimer. Your line is open.

Speaker 11

Yes. Hi. Thanks for taking my question this afternoon. Ryan, I just wanted to ask about kind of state of the sales organization. You did say in the introductory comments that you are increasing investments this year in your sales reps.

Speaker 11

I guess two questions. One is, are you increasing capacity, or are you just kind of pruning the low performers and then to bring in some new players there? And then along that line, do you feel that you're through the sales transition? Are you happy where the organization is in terms of targeting, the upmarket, which is the longer term strategy for the company? Thank you.

Speaker 2

Yeah. Thanks, Brian. Appreciate the question. Yes, it increasing the capacity. And we tend to see this as we head into the back half of the year as well just in terms of combination of hiring reps but also having those reps being more productive in the back half.

Speaker 2

So you'll see naturally the quota carrying capacity increasing as we head into the back. And in terms of the sales transition, yes, we're feeling really good about all the things that we've done. I wouldn't really call out any transitions per se. I think that the biggest thing that Mike and the team have been focused in on as we turn the year was just stability and getting out to a fast start. So if we think about making sure territories were in place in Q1 very early, compensation plans, making sure that the enablement plans were set and that the teams knew exactly where our focus areas were.

Speaker 2

Those were all things that were achieved really well in the quarter. So feeling really good about where that sales organization is and our opportunity to execute here.

Speaker 1

Great. Thanks. Next question please.

Operator

Your next question comes from the line of Jackson Ader with KeyBanc Capital Markets. Your line is open.

Speaker 5

Great. Thanks for taking our questions, guys.

Speaker 2

Our question is about the potential for, I think you mentioned sales cycles elongating if things were to get worse in the macro economy. And I'm curious, like, is that would that be because people are just simply trying to hold on to their cash a little longer? Or is there something that's like where because of the area that the Sprout plays, like social media management, is there something where there are, like, advertising or social media budgets that might impact how you guys book for

Speaker 8

business? Thank you.

Speaker 2

Yes. I appreciate the question. One, I would just call out we're not seeing any of those material changes today. So as I think about the Q1 performance that we saw and early in Q2, the dynamics look the same as they did in 2024. So really nothing to call out there.

Speaker 2

And then I would also just highlight, we don't have exposure to traditionally ad budgets. Right? We we play on the organic side. And, again, I'll I'll go back to just the mission critical nature of the product. Right?

Speaker 2

Our customers are in the app three to four hours a day. They're leveraging it across a variety of use cases. Customer care is one of the biggest ones. Our customers need to be where their customers are. And more and more, we're seeing consumer behavior change where those customers are showing up in social from a customer service perspective.

Speaker 2

They are going there for search and for discovery. The brands that work with us are really needing that data, the analytics and the social listening data to inform their strategy. So we feel really good about the positioning of Sprout and the value that we're adding to our customers. And then if I just think about the gross retention dynamics that we've been seeing and the improvements there, I think it just really shows the resilience of the business.

Speaker 1

All right. Thanks for the question.

Operator

I will turn the call back over to Ryan Barreto for closing remarks.

Speaker 2

Great. Thank you very much, and thank you all for joining us and for your thoughtful questions. I want to end by thanking our incredible team here at Sprout. Their dedication and commitment and hard work drives everything that we're achieving. We're incredibly excited about the road ahead and confident in our strategy to deliver meaningful value to our customers and our shareholders.

Speaker 2

We appreciate your continued support, and we'll talk to you all soon. Thanks for joining us.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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Key Takeaways

  • Sprout Social delivered Q1 revenue of $109.3 million, up 13% year-over-year, achieved a record non-GAAP operating margin of 11.5%, and saw remaining performance obligations grow 21% YoY to $255.8 million.
  • The go-to-market team drove a 22% increase in the $50K-plus ARR customer cohort and secured strategic enterprise wins with brands like Palo Alto, NASCAR and Avis Budget, while expanding sales capacity to further boost pipeline.
  • Sprout rebranded and enhanced its Influencer Marketing platform with AI-powered creator discovery, brand safety controls and streamlined vetting, positioning influencer campaigns as a key ROI driver in a social-first landscape.
  • Major updates to social customer care include the AgentForce integration with Salesforce Service Cloud, LinkedIn DM support in Sprout’s Smart Inbox, and AI-enabled accessibility features to serve enterprise and government compliance needs.
  • For Q2 FY25, Sprout raised guidance to $110.4–111.2 million in revenue and affirmed its outlook for full-year revenue of $448.9–453.9 million and expanded non-GAAP operating income of $40.7–45.7 million, reflecting confidence amid persistent macro headwinds.
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Earnings Conference Call
Sprout Social Q1 2025
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