Sprout Social Q1 2025 Earnings Report

Sprout Social EPS Results

• Actual EPS: $0.22
• Consensus EPS: $0.15
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: $0.10

Sprout Social Revenue Results

• Actual Revenue: $109.29 million
• Expected Revenue: $107.63 million
• Beat/Miss: Beat by +$1.66 million
• YoY Revenue Growth: +12.90%

Sprout Social Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 5:00PM ET

Sprout Social (NASDAQ:SPT) (NASDAQ:SPT) is a software company that provides social media management and analytics tools for businesses, agencies and other organizations. Its cloud-based platform helps users manage social media activities from a centralized interface, supporting functions such as content publishing, audience engagement, workflow coordination and performance reporting.

The company’s product offerings include social media monitoring and listening, analytics, customer care, employee advocacy and influencer marketing capabilities. These tools are designed to help organizations understand conversations about their brands, engage with customers, measure the effectiveness of social campaigns and coordinate social media operations across multiple networks and teams.

Sprout Social was founded in 2010 and is headquartered in Chicago, Illinois. The company serves customers across a range of industries and geographies through its software-as-a-service model. Ryan Barretto serves as chief executive officer, while co-founder Justyn Howard has held senior leadership roles, including chief executive officer and executive chairman during the company’s development.

Sprout Social Q1 2025 Earnings Call Transcript

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.

Presentation

[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 a music hold. Thank you for your patience. Thank you for standing by. 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 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press Star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press Star one again. Thank you. I would now like to turn the call over to Alex Kurtz, VP, Investor Relations and Corporate Development. Please go ahead.

[Alex Kurtz, VP of Investor Relations and Corporate Development at Sprout Social]

Thank you, Operator, and welcome to Sprout Social's First Quarter 2025 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 Barretto, and CFO, Joe Del Preto. 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 facts are forward-looking. These include, among others, statements concerning our expected future financial performance, including our Q2 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.

[Alex Kurtz, VP of Investor Relations and Corporate Development at Sprout Social]

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 risk 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 quarterly report on Form 10-Q for the fiscal quarter ended March 31st, 2025, to be filed with the SEC, as well as our most recently filed 10-K. 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 and the most directly comparable GAAP financial measures, are included in our first quarter earnings release.

[Alex Kurtz, VP of Investor Relations and Corporate Development at Sprout Social]

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?

[Ryan Barretto, CEO at Sprout Social]

Thank you, Alex, and welcome to our First Quarter Earnings Call for fiscal 2025. We reported first quarter results with revenue of $109.3 million, representing year-over-year growth of 13%, highlighted by strong revenue execution and operating margin expansion. Our current remaining performance obligations, which reached $255.8 million, represented 21% year-over-year growth. Our go-to-market teams delivered another solid quarter with 22% growth in the 50K to ARR customer cohort. We also landed strategic wins with global brands like Palo Alto, NASCAR, Interscope Records, Avis Budget Car Rental, and Axos Bank. 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 FY2025 and beyond.

[Ryan Barretto, CEO at Sprout Social]

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. 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.

[Ryan Barretto, CEO at Sprout Social]

Building on last quarter's discussion about Sprout's 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. I'll 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. Research from Forbes shows 46% of Gen Z now prefer social media over conventional search, a behavior that signals where brand engagement is headed. 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.

[Ryan Barretto, CEO at Sprout Social]

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. 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 Dive. Sprout's research shows just about half of consumers make purchases at least once a month because of influencer posts. This past quarter, we announced the rebrand of our influencer marketing platform, formerly Tagger Media, to Sprout Social Influencer Marketing.

[Ryan Barretto, CEO at Sprout Social]

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.

[Ryan Barretto, CEO at Sprout Social]

We are excited about the opportunity this opens for brands to maximize their impact in today's increasingly social-first ecosystem, 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. Sprout's updates to its customer care solutions empower brands to meet customers where they are, with the goal of boosting satisfaction and retention. As social search grows, integrating robust care strategies is no longer optional. It is 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.

[Ryan Barretto, CEO at Sprout Social]

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. I will take a few minutes to provide some quick updates on each of these key focus areas. To win the enterprise, we intend to expand the pipeline, close more $50K-plus deals, and accelerate adoption with a product roadmap built for enterprise needs. Let's start with key product releases in the quarter.

[Ryan Barretto, CEO at Sprout Social]

For AI, we released Generate Post by AI Assist that enables social media managers to leverage fresh content ideas through Generate's 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. 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 multi-channel case insights, personalized customer responses through consolidated contact summaries, and enhance brand experience with customer insights across case and channels.

[Ryan Barretto, CEO at Sprout Social]

We also released LinkedIn DMs, which allows teams to reply to private messages sent to a LinkedIn business profile from Sprout's 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. We are strengthening enterprise scalability, security, and compliance to help organizations manage complexity with confidence. Large distributed teams need consistency and control, and we are excited about a new release during Q1 called 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.

[Ryan Barretto, CEO at Sprout Social]

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 visual impairments. 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 in 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.

[Ryan Barretto, CEO at Sprout Social]

This quarter, we closed a seven-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 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 siloed tech and multiple vendors, they'll be able to manage their entire social strategy in Sprout, which can enable a 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.

[Ryan Barretto, CEO at Sprout Social]

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. 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. They'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 $600,000 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.

[Ryan Barretto, CEO at Sprout Social]

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. We also continue to strategically scale our customer success team by tailoring our approach based on customer segments.

[Ryan Barretto, CEO at Sprout Social]

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. Expect us to ramp up activity on the partnership front in fiscal 2025, as we believe our social network, technical integrations, and go-to-market partnerships can be a long-term acceleration to our business model.

[Ryan Barretto, CEO at Sprout Social]

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. Our 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 rep's compensation plan. 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.

[Ryan Barretto, CEO at Sprout Social]

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. I'll turn it over to Joe to run through the financials. Joe?

[Joe Del Preto, CFO at Sprout Social]

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 $19.5 million in non-GAAP free cash flow during the quarter, up $8.1 million from our non-GAAP free cash flow in Q1 2024, an increase of 72% on a year-on-year basis.

[Joe Del Preto, CFO at Sprout Social]

We remain committed to growing operating leverage on a fiscal year basis and will continue to evaluate our ability to drive greater profitability as the year progresses. Onto a summary of the quarter. Total revenue for the first quarter was $109.3 million, representing 13% year-over-year growth. Subscription revenue was $108.7 million, 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. Q1 ACV was $14,961, up 16% 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 and customer care. RPO totaled $360.2 million, up from $351.5 million as in Q4, and up 24% year-over-year.

[Joe Del Preto, CFO at Sprout Social]

We expect to recognize 71% or $255.8 million of total RPO as revenue over the next 12 months, implying a CRPO growth rate of 21% year-over-year. Non-GAAP operating income totaled $12.5 million, which is well ahead of the high end of our outlook. This was up from $6.0 million 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 that reflects our current macro environment, expect us to continue to take a measured view on how we look at the business this fiscal year.

[Joe Del Preto, CFO at Sprout Social]

As Ryan mentioned earlier, we do not expect the demand environment to improve in fiscal year 2025 from what we experienced in fiscal year 2024. 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 2025, we expect revenue in the range of $110.4 million-$111.2 million. We expect non-GAAP operating income in the range of $8.4 million-$9.4 million. We expect a non-GAAP net income per share of between $0.14 and $0.16. This assumes approximately 58.8million 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 the range of $448.9 million-$453.9 million.

[Joe Del Preto, CFO at Sprout Social]

We're also raising our non-GAAP operating income guidance and expect it to be in the range of $40.7 million-$45.7 million. We now expect non-GAAP net income per share between $0.69 and $0.77, assuming approximately 59.1 million 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. We appreciate your interest in Sprout Social. With that, Ryan, Alex, and I are happy to take any of your questions. Operator?

[Operator]

At this time, I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad. We request that you limit yourself to one question. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Raimo Lenschow with Barclays.

[Operator]

Your line is open.

[Raimo Lenschow, Managing Director at Barclays]

Perfect. Thank you. Congrats on a great start. Ryan, you mentioned some interesting enterprise wins. Can you talk a little bit about what you're seeing there more in the early stages of the pipeline? Obviously, it's volatile out there, but it still sounds very interesting that enterprises are continuing 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 of the customer base? Thank you.

[Ryan Barretto, CEO at Sprout Social]

Thanks, Raimo. I appreciate the question. Yeah, we had some great wins in the quarter across the board. I think one of the things that's most interesting to us here is just the wide variety of industry and verticals you see. Even in the Fortune 500, you've got med device, you've got restaurant chains, you've got food and bev.

[Ryan Barretto, CEO at Sprout Social]

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. More and more, they're on social. 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 in 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. These are all the types of things that we're solving for customers today. The team is finding themselves in more opportunities than before at a larger scale. 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.

[Rob Oliver, Managing Director and Senior Research Analyst at Baird]

Great. Thanks. I appreciate it, guys. I'll try to squeeze a two-parter in if I can. Ryan, for you, just I guess an extension of Raymond's question. If you can comment a little bit more on the pipeline for enterprise for this year. 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. I'd be curious what progress you guys are making to make sure you're maximizing your higher-touch touchpoints at enterprise. Yeah, that's two. Thanks, guys. Appreciate it.

[Ryan Barretto, CEO at Sprout Social]

Yeah, thanks, Rob. Yeah, Mike and the team have been doing a really nice job there.

[Ryan Barretto, CEO at Sprout Social]

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. One of the benefits for us is with nearly 30,000 customers across so many industries and verticals, we've got a really good sense of where our opportunities exist. On top of that, when our customers are on social, we get really good signal in the things that they're doing. We also, as you all know, we lead with the product in a trial. 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.

[Ryan Barretto, CEO at Sprout Social]

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

[Operator]

Your next question comes from the line of Elizabeth Porter with Morgan Stanley. Your line is open.

[Elizabeth Porter, Executive Director at Morgan Stanley]

Great. Thank you very much. I wanted to follow up on your comments just about a really strong pipeline heading into the year.

[Elizabeth Porter, Executive Director at Morgan Stanley]

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.

[Ryan Barretto, CEO at Sprout Social]

Yeah, I appreciate the question. Yeah, 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 terms of pipeline hygiene. 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.

[Ryan Barretto, CEO at Sprout Social]

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.

[David Hynes, Managing Director of Equity Research at Canaccord Genuity]

Hey, guys. Two for Joe. Joe, I'm getting 6% CRPO-based bookings growth. Is that a decent proxy for enterprise bookings growth? If not, what's it missing? The second question is, what are you seeing from a gross retention standpoint in that 10-50K cohort?

[Joe Del Preto, CFO at Sprout Social]

Yeah, thanks for the questions, DJ. When we look at CRPO, I think there's a couple of things that we've talked about before. I think overall, we were pleased with the growth, the over 21% growth in CRPO in the quarter.

[Joe Del Preto, CFO at Sprout Social]

I think there's two things that always skew that number, as we talked about before. Number one is you've got the seasonality from Q4 to Q1. Q4 is always going to be really strong when it comes to CRPO. That is going to kind of burn off in Q1 and always be a little bit impacted by that seasonality. Number two is just we still have the month-to-month aspect of our business. We have talked about this. Over the longer term, the CRPO 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.

[Joe Del Preto, CFO at Sprout Social]

I think for us, it's a really strong indication of how mission-critical our software is to our customers. You continue to see improvement on the gross retention, not just in the enterprise, but I would say across our customer base. Even down in the SMB, we're seeing strong gross retention there.

[Alex Kurtz, VP of Investor Relations and Corporate Development at Sprout Social]

Okay, thank you. Next question, please.

[Operator]

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

[Greyson Sklba, Equity Research Analyst at Goldman Sachs]

Hey, guys. This is Greyson Sklba on 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. 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.

[Ryan Barretto, CEO at Sprout Social]

Yeah, thanks for the question. As far as what drove the beat, a couple of things. One, the revenue over performance 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. That definitely benefited us. 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 risk throughout the year. 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.

[Alex Kurtz, VP of Investor Relations and Corporate Development at Sprout Social]

Okay, thanks. Next question, please.

[Operator]

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

[Rob Morelli, Equity Research Associate at Needham]

Hi, everyone. This is Rob Morelli. I'm for Scott.

[Rob Morelli, Equity Research Associate at Needham]

Just taking a question from 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? Any thought on the sort of contribution this can have for 2025 pipeline trends? Thanks.

[Ryan Barretto, CEO at Sprout Social]

Yeah, thanks, Rob. Appreciate the question. We're really excited about Agentforce and the partnership. This is just another chapter in terms of the partnership we've had with Salesforce growing from the Service Cloud. 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. Nothing else to call out this early in the stage.

[Ryan Barretto, CEO at Sprout Social]

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

[Alex Kurtz, VP of Investor Relations and Corporate Development at Sprout Social]

Okay, thank you. Next question, please.

[Operator]

Your next question comes from the line of Allan Verkhovski with Scotiabank. Your line is open.

[Allan Verkhovski, Software Equity Research Analyst at Scotiabank]

Hey, guys. Thanks for taking the question. Good to see numbers for the full year going up. That's the 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 Q1 beat here, can you just maybe talk about the biggest puts and takes with respect to the guided Q2 revenue number? 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?

[Allan Verkhovski, Software Equity Research Analyst at Scotiabank]

Thanks.

[Ryan Barretto, CEO at Sprout Social]

Yeah, 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. We feel pretty good about the guidance we set up 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.

[Ryan Barretto, CEO at Sprout Social]

I think Q4 last year was one of the largest increases we've seen when it comes to annual and multi-year deals and the impact on deferred revenue. As that burns off in Q1, there was just a bigger sequential impact because of the size of the deals we were landing in Q4. That kind of drove that impact on Q1.

[Alex Kurtz, VP of Investor Relations and Corporate Development at Sprout Social]

Okay, thanks, Allan. Next question, please.

[Operator]

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

[Arjun Bhatia, Partner and Software Research Analyst at William Blair & Company]

Thank you so much. Everyone, for you, it seems like there's certainly going to be a lot of focus this year and beyond on cross-sell platform expansion, 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.

[Arjun Bhatia, Partner and Software Research Analyst at William Blair & Company]

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 you're trying to maybe you're starting to sell where we'll see attach rates for those increase?

[Ryan Barretto, CEO at Sprout Social]

Yeah, thanks, Arjun. Appreciate the question. You're right. The cross-sell, the multi-products are a really important part of our strategy. 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. Then it's built into the commission plans and the compensation models. That's been heading well.

[Ryan Barretto, CEO at Sprout Social]

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. Clearly, our current customers are almost 30,000. And then lots of opportunity as we're landing new logos. When I think about the growth rate for existing and first new business, it's going to be a bit of both. 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. 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.

[Ryan Barretto, CEO at Sprout Social]

Both of those things are going to be really important for our growth strategy.

[Alex Kurtz, VP of Investor Relations and Corporate Development at Sprout Social]

All right, thanks, Arjun. Next question, please.

[Operator]

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

[Brian Schwartz, Managing Director at Oppenheimer]

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

[Ryan Barretto, CEO at Sprout Social]

Yeah, thanks, Brian.

[Ryan Barretto, CEO at Sprout Social]

Appreciate the question. Yes, it is increasing the capacity. 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. You will see naturally the quota carrying capacity increasing as we head into the back. In terms of the sales transition, yes, we are feeling really good about all the things that we have done. I would not 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 it to a fast start.

[Ryan Barretto, CEO at Sprout Social]

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, those were all things that were achieved really well in the quarter. Feeling really good about where that sales organization is and our opportunity to execute here.

[Alex Kurtz, VP of Investor Relations and Corporate Development at Sprout Social]

Great. Thanks. Next question, please.

[Operator]

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

[Jackson Ader, Managing Director of Software Equity Research at KeyBanc Capital Markets]

Great. Thanks for taking our questions, guys. Our question is about the potential for, I think you mentioned, sales cycles elongating if things were to get worse in the macro economy.

[Jackson Ader, Managing Director of Software Equity Research at KeyBanc Capital Markets]

I'm curious, would that be because people are just simply trying to hold on to their cash a little longer, or is there something that's where because of the area that Sprout plays, social media management, is there something where there are advertising or social media budgets that might impact how you guys book for business? Thank you.

[Ryan Barretto, CEO at Sprout Social]

Yeah, appreciate the question. One, I would just call out we're not seeing any of those material changes today. As I think about the Q1 performance that we saw and early in Q2, the dynamics look the same as they did in 2024. Really nothing to call out there. I would also just highlight we don't have exposure to traditionally ad budgets. We play on the organic side. Again, I'll go back to just the mission-critical nature of the product.

[Ryan Barretto, CEO at Sprout Social]

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. More and more, we're seeing consumer behavior change where those customers are showing up in social from a customer service perspective. They're 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. We feel really good about the positioning of Sprout and the value that we're adding to our customers. 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.

[Alex Kurtz, VP of Investor Relations and Corporate Development at Sprout Social]

All right. Thanks for the question.

[Operator]

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

[Ryan Barretto, CEO at Sprout Social]

Great. Thank you very much. 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 drive everything that we are achieving. We are incredibly excited about the road ahead and confident in our strategy to deliver meaningful value to our customers and our shareholders. We appreciate your continued support, and we will 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.

Participants

Executives

• Ryan Barretto, CEO
• Alex Kurtz, VP of Investor Relations and Corporate Development
• Joe Del Preto, CFO

Analysts

• Elizabeth Porter, Executive Director at Morgan Stanley
• Greyson Sklba, Equity Research Analyst at Goldman Sachs
• Rob Morelli, Equity Research Associate at Needham
• Raimo Lenschow, Managing Director at Barclays
• Allan Verkhovski, Software Equity Research Analyst at Scotiabank
• Arjun Bhatia, Partner and Software Research Analyst at William Blair & Company
• Jackson Ader, Managing Director of Software Equity Research at KeyBanc Capital Markets
• Rob Oliver, Managing Director and Senior Research Analyst at Baird
• David Hynes, Managing Director of Equity Research at Canaccord Genuity
• Brian Schwartz, Managing Director at Oppenheimer