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Thank you for standing by. My name is Christina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sprout Social Q4 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise, and after the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the floor over to Alex Kurtz, VP, IR and Corporate Development. Alex, the floor is now yours.

Thank you, Operator, and welcome to Sprout Social’s fourth quarter 2024 earnings call. We will be discussing the results announced in our press release issued after market close today, and have also released our 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 certain forward-looking statements which were 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. These include, among others, statements concerning our expected future financial performance, including our Q1 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. 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 discussion of the risks and other important factors that could affect our actual results, please refer to our annual report on Form 10-K for the fiscal year ended December 31, 2024, to be filed with the SEC, as well as our most recently filed 10-K and 10-Qs. 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, the most directly comparable GAAP financial measures, are included in our fourth quarter earnings release, which will be 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?

Thank you, Alex, and welcome to our fourth quarter earnings call for fiscal 2024. We reported fourth quarter results with revenue of $107.1 million, representing year-over-year growth of 14%. Our current remaining performance obligations, which reached $249.4 million, represented 26% year-over-year growth. I want to thank the Sprout team for their focused execution to close out 2024. Their hard work in the quarter has allowed us to build a stronger foundation for future growth in 2025 and beyond. We saw steady improvements in gross retention, continued ACV growth and momentum in our enterprise segment. The Q4 demand environment remained consistent with Q3, marked by budget scrutiny, cautious investments and prolonged sales cycles. Given these trends, we’re taking a measured approach to FY 2025, expecting demand to track with FY 2024. In Q4, our go-to-market teams delivered strong results in our 50K ARR customer net adds and in our cRPO growth, both clear indicators of our success in securing annual and multiyear enterprise agreements. We also saw steady pipeline trends with healthy year-over-year growth across both inbound and outbound channels, particularly in our enterprise business. Further underscoring this momentum, revenue from the 50K segment grew over 35% in FY 2024 and continues to represent a larger share of our overall revenue base. These results highlight the ongoing success of our upmarket strategy. We believe the competitive landscape is increasingly favorable for Sprout, creating a unique opportunity to solidify our market position with enterprise-level care, AI functionality and Influencer Marketing capabilities. This momentum was evident in Q4, as we closed the largest new business ACV win in Sprout’s history with a Fortune 500 financial services company. We also won a strategic opportunity with Under Armour, and I’m excited to share a quote from this amazing brand. We chose Sprout for its innovative features, intuitive interface and the ability to seamlessly manage publishing, listening and social engagement all in one platform. With the goal of reaching Gen

Thanks, Ryan. I’ll now run through our financial results and guidance. Our fourth quarter results were highlighted by quarterly non-GAAP operating margin reaching over 10% for the first time in operating history, solid sequential growth in cRPO dollars, and the quality of the larger enterprise wins, a few that were outlined earlier by Ryan. We also exited the year with the highest mix of annual and multiyear contract duration in the company’s history as our sales teams continue to increase our enterprise focus. I would also note that TAGR, recently renamed to Influencer Marketing, had one of the strongest growth rates since the acquisition. We continue to see this product as broadening our market opportunity and allowing our field teams increased cross-selling motion. We generated $6.6 million in non-GAAP free cash flow during the quarter and $29.7 million during fiscal 2024, up $19.4 million from our non-GAAP free cash flow in fiscal 2023, up almost 2.9 times on a year-over-year basis. Remain committed to growing operating leverage on a fiscal year basis, we’ll evaluate our ability to drive greater profitability as the year progresses, but we remain focused on funding key growth initiatives. On to a summary of the quarter. Revenue for the fourth quarter was $107.1 million, representing 14% year-over-year growth. Subscription revenue was $105.9 million, up 15% year-over-year. The number of customers contributing more than $10,000 in ARR grew 7% from a year ago. The number of customers contributing more than $50,000 in ARR grew 23% from a year ago. Q4 ACV was $14,651, up 19% year-over-year against a strong year-over-year comparison. As Ryan discussed earlier, our strategy to drive ACV growth remains focused on shifting to a higher enterprise mix and strengthening premium module tax rates such as Influencer Marketing and customer care. RPO totaled $351.5 million, up from $311.5 million exiting Q3 and up 28% year-over-year. We expect to recognize 71% or $249.4 million of total RPO as revenue over the next 12 months, implying a cRPO growth rate of 26% year-over-year. Non-GAAP operating income totaled $11.4 million, which is well ahead of the high end of our outlook. This was up from $1.7 million a year ago and equates to a non-GAAP operating margin of 10.7%. A quarterly record for operating margins. We’re pleased that our progress here demonstrates our focus on continued growth in our margin profile. As we know in our last call, during Q4, we implemented a restructuring to improve the efficiency and effectiveness of our R&D organization. As a result, we recorded a restructuring expense of approximately $3 million that was excluded from our 4Q non-GAAP results. In 2024, our overall dollar-based net retention rate or NDR was 104%, compared to 107% in 2023. Our dollar-based net retention rate excluding SMB customers was 108% in 2024, compared to 111% in 2023. Before moving on to guidance, a few additional comments. Based on the data we gathered in fiscal 2024 that reflects the current macro environment and traditional enterprise sales cycles, expect us to take a more measured view on how we look at the business. As Ryan mentioned earlier, we do not expect the demand environment to change in fiscal 2025 from what we experienced in fiscal 2024. Please also note that during Q1, we implemented a restructuring with a primary focus on customer success. We expect to record a severance expense of approximately $2.6 million that will be excluded from our 1Q non-GAAP results. During the last quarter, we intend to reallocate resources back into our customer-facing organizations. Now on to guidance. For the first quarter of fiscal 2025, we expect revenue in the range of $107.2 million to $108.0 million. We expect non-GAAP operating income in the range of $8.5 million to $9.5 million. We expect non-GAAP net income per share of between $0.14 and $0.16. This assumes approximately 58.5 million weighted average basic shares of common stock outstanding. For full year 2025, we expect revenue in the range of $448.1 million to $453.1 million. For the full year 2025, we expect non-GAAP operating income in the range of $38.2 million to $43.2 million. We expect non-GAAP net income per share between $0.65 and $0.74, assuming approximately 59.3 million weighted average basic shares of common stock outstanding. A small note about non-GAAP net income per share distribution across the four quarters in fiscal 2025. We expect our second quarter non-GAAP net income per share to have a slight decrease from Q1 due to seasonality in our Q1 to Q2 operating expense trend and then to grow from Q2 to Q4. Looking ahead, we believe the company has the sales capacity to deliver on our outlook for the fiscal year, and we intend to expand free cash flow and operating leverage on an annual basis as we’ve demonstrated over the last two years. We look forward to continuing to innovate and create more opportunities for our customers to grow with us. With that, Ryan, Alex and I are happy to take any of your questions. Operator?

Thank you. [Operator Instructions] Thank you. Your first question comes from the line of David Hynes from Canaccord Genuity. Your line is open.

Hey. Good evening, guys. Ryan, thanks for the call. So look, last year, I think, in retrospect, you would have said you entered 2024 with a little less pipeline than you would have liked. I’m curious kind of what that looks like entering 2025. And then you outlined initiatives that are underway, right, account identification and mapping, refining that international go-to-market playbook. Has that work been done? Is it still in progress? Just help me think about kind of what’s going to get that pipeline growth going.

Hey, DJ, thanks for the call. Yeah. The best way to frame it as we enter this year, our pipeline has grown. I mentioned that in the prepared remarks that we saw some good growth in Q4 year-on-year with pipe creation. That was both through inbound and outbound, and specifically within the enterprise group. We’ve got a bunch of key initiatives that are going in there. Mike Wolff and the team have had a great focus in on really the key parts of our business where we see a tremendous amount of opportunity and growth and then just a lot of accountability on pipeline metrics and a lot of focus in on our ideal customer profile. So there’s a bunch of those things that are in place today and we’re seeing good success as we end the year.

Yeah. Awful. Joe, maybe a follow-up for you. Just curious how we’re thinking about the margin guidance for 2025, right? I think, we’re getting the full year below levels that you delivered on in Q4. You had the small restructuring. I would have thought maybe with a little less growth in 2025, we’d get a little bit more margin expansion. That doesn’t seem to be set up in the numbers. Just kind of talk through the thinking around margins as they should play out for 2025.

Yeah. DJ, thanks for the question. I think similar to what we’ve done in the past, earlier in the year when we’re coming in to the first guy of the year, we want to give ourselves flexibility to invest if we see growth opportunities throughout the year and so very similar approach we’ve taken historically. And then to the extent that we’re over-performing on revenue, DJ, you will see incremental leverage in the business. I think we’ve proven that over the last handful of years that where we kind of start the year from a leverage standpoint, where we end are usually a lot higher and so feel good about our ability to over-perform over the year on that.

Okay. Sounds good. Thank you, guys.

All right. Thanks, DJ. Next question, please.

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

Perfect. Thank you. I’m still trying to stay on the guidance a little bit. Like, what were the assumptions on the economy that you’re putting in there, because of the group comes down further, and everyone is kind of getting excited about maybe things are getting better out there. Like, how did you marry that? Thank you.

Yeah. Thanks for the question, Raimo. On the guidance, to your point, one is, I called this out in my prepared remarks. We’re taking a little bit more measured approach overall on guidance coming into 2025 or so we’ve done in the past. Number two, we called out, we’re assuming that the demand environment in 2025 is unchanged from 2024, so it doesn’t get any better when you look at our guidance. The other thing is, we’ve got a full year now, if you look at 2024 of sales data and our ability to execute in this demand environment. So I will say, coming into this year, we feel a lot more confident about our visibility into our execution in this demand environment. And then the last thing I’ll say is, like, if you think about the way we ended the second half of Q4 and the momentum we saw in cRPO and the big logo wins, we’re really encouraged with the momentum we’re seeing up market. And so feel good about the way we set guidance in 2025.

Okay. Thank you. And then, Ryan, as we start in the new year, any changes to go-to-market, et cetera, obviously, at this time of the year where that kind of happens that we should be aware of? Thank you.

Yeah. Thanks for the question. I think, like, any change to a fiscal and going in the new year, you’re going to have some adjustments on the margin, some fine tuning. I think these are all things that are pretty common course for us through the year, focusing in on revenue operations. We’ve turned the year faster than we’ve ever done before, focusing in on pipeline and then just making sure that the team’s off to the races. So nothing else that I call out here.

Okay. Perfect. Thank you. Good luck.

All right. Thank you. Next question, please.

Your next question comes from the line of Parker Lane from Stifel. Your line is open.

Hi, guys. Thanks for taking the question today. Ryan, you pretty specifically called out more of a platform selling approach and orientation around that going forward. Can you just talk about what goes into mapping out the ideal path for a customer going forward, how that’s going to impact the dollar-based net retention rates we see here as you start to push more towards that selling motion?

Yeah. Thanks for the question. It starts off with making sure that we have the right profile, the customers that we really see a lot of opportunity with. So as I mentioned in the question before, just from a revenue operations perspective, really knowing our ideal customer profile and the accounts there, seen a lot of success from us coming out of Q4 with some of the logos that we’ve talked about and the land-and-expands that we’ve discussed. The product team’s just been doing a phenomenal job as we think about the innovation that we’ve delivered and the cross-section of products that these enterprise customers need. So it really is this combination of knowing your ideal customer profile is making sure that you’ve got the products that support those customers, and then just enablement and the go-to-market organization and making sure that we’re really clear on those opportunities. And that’s what’s gone into the playbook.

Got it. And Ryan, I wanted to ask you about the AI-generated content. Clearly a ton of explosion in use cases around that recently. You’ve seen new video models, updates to those pretty frequently here and a lot of application for social media. How do you think about Sprout’s ability to directly benefit from that content creation explosion here in 2025 and what’s the long-term business model to make sure you’re extracting enough value from that?

Yeah. We’re incredibly excited. As I mentioned in the prepared remarks, you think about this scale that we have with nearly 30,000 customers and we’re processing a 1 billion messages a day. There’s just so much opportunity within all that unstructured data to help our customers get even smarter in the places that they’re investing. And if you think about the work that we do today from a content creation, a campaign management, insights that we’re providing to customers, all these things are just tremendous opportunities. And I think we’ve now had 11 releases on our AI-assist product and you can see the value that our customers are getting in terms of speed and productivity, and just intelligence the way that they’re showing up in front of customers. So I would expect to hear more from us on this as well.

Appreciate the responses. Thanks.

All right. Thanks, Parker. Next question, please.

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

Great. Thank you. Ryan, to start off with you, the platform selling approach is interesting. So when you think about Care and Influencer, do you have a sense for what portion of the base you think can adopt those products, and how you go about finding the right profile that might attract those? Is every customer a candidate for those? Is it a certain size, a certain industry, a certain vertical? How do you think about just going about that go-to-market change that you talked about earlier?

Yeah. Thanks, Arjun. I appreciate the question. I mean, I do think every customer is a good target for these things. But when I think about these products, so much of this has to do with their sophistication within social and where they are on the journey. And because -- more and more upmarket, you’re going to see these customers needing care. If we think about it today from a trend perspective, there’s a lot of volume that happens in social. For many organizations, it’s becoming the number one channel and so when you have a lot of volume, you need to manage through that. From an Influencer perspective, we’re early innings here in terms of the opportunity, but more and more companies are thinking about how organic and paid, and now Influencer impact their opportunity in front of them. So we’re pretty early and we believe that we have a lot of upside and opportunity in front of us.

Okay. Helpful. Thank you. And then if I can touch on the net retention metric, I know that’s one that you typically only disclose once a year, but I know it’s trended down a bit in 2024. I think that was kind of expected. But as you look forward and you drive more cross-sell, maybe more upsell, more expansions. Is that something we should expect to recover in 2025 or is it going to take some time for the go-to-market motion to ramp up and maybe that’s a 2026 story? How do you think about the health of the existing customer base and when net retention might start to inflect higher?

Yeah. Arjun, this is Joe. I’ll take this. We definitely saw pressure on NDR in 2024 and the real area where we saw that was on the expansion within our existing customer base. And that really was a result of the demand environment that we talked about throughout the year. I definitely put pressure on that part of the business. On the flip side, we kind of were able to offset some of that pressure with really strong improvements on the gross retention side. But probably to the point of your question, I’m looking forward. If you look at the customers that we’re bringing in to Sprout in 2024, for example, these are much higher quality customers. They’re on annual multiyear contracts. They’re coming in at higher ACVs. And so we believe this overall shift in the quality of our customers will drive NDR higher going forward. And so very optimistic about the ability to improve upon that metric with our move-up market.

All right. That’s very helpful. Thank you.

All right. Thank you. Next question, please.

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

Hi, everyone. Thanks for taking my questions here. I guess I got a couple of them here. RB, if I looked at the bookings commentary in Q4, while we know it’s a little bit the whole environments behind what you saw last year, I think you sound pretty constructive, especially with the large booking kind of coming out of the quarter with some of the momentum that you have. But if I look at your Q1 guidance, it implies a very de minimis kind of increase on a quarter-over-quarter basis. Is there something maybe unique about, I don’t know how you think about Q1 sales pipelines or maybe those deals in Q4 to try and understand maybe why the Q1 numbers and the guidance is a touch higher?

Yeah. Scott, I’ll jump in here. And if RB wants to add anything, he can. I think I covered this kind of a little bit earlier, Scott. When we looked at our 2025 guidance, this includes Q1, right? We just want to be a little bit more measured with the approach we’re taking to guidance this year. We’re factoring in the fact that the demand environment doesn’t get any better in 2025 versus 2024. And we were very encouraged with the momentum we saw in the second half of Q4, but really wanted to just be a little bit more measured with the way we give guidance out this year. I think that that’s really at the heart of it. There’s nothing else probably to read into the quarter.

Got it. Helpful. And then, how do we think about the seasonality of the business? If we go back, I think it was the Q1 call you all had kind of talked about as you moved up market, you’re expecting the business to be a little bit more back end with typical enterprise sales cycles. I don’t know how much of that you’re truly able to see given the change in market this year. But as we start thinking about 2025, should we see that seasonality be a little bit more pronounced or maybe is that not the case and are you seeing something different in last few quarters? Thanks.

Yeah. Scott, I would assume very similar seasonality in 2025 versus 2024 and that’s what we’ve kind of baked into our guidance that. We’re definitely more back into the weighted, but I don’t think 2025 will be any different than the trends you saw in 2024.

Very helpful. Thanks for taking my questions.

All right. Thank you. Next question, please.

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

Great. Thanks for the question. I wanted to ask a little bit on the Influencer Marketing rebrand. Kind of just if you could put a finer point on, what exactly is changing in the rebrand and what do you think you could unlock in terms of the demand side?

Yeah. Thanks, Elizabeth. From a rebrand perspective, I think the main thing that take away here is we’ve just got a lot of brand equity in Sprout Social and we wanted to make sure that we are leveraging that brand equity. We also want to make it really clear to our customers that this Influencer Marketing solution is by Sprout Social. So that was a big part of it. But as we come back and cover Q1, I’ll be sharing a lot more about the product updates that we’re releasing here going into Q2. But we’re really excited about the environment. We talked a little bit about this on the prepared remarks, but we’re seeing a lot of success across a number of verticals and this is a product that’s in the really early innings and it’s a great opportunity for Sprout to lead in this category.

Great. And then just as a follow up, I wanted to ask on the ACV, the 19% growth in Q4 has slowed a little bit for the last couple quarters. So how should we think about that forward trend? Are we starting to hit a stabilization rate as we start to have the go to market changes benefiting or what’s the upside downside on the ACV growth?

Yeah. We’re pleased with the ACV growth here. Clearly, we’ve seen a lot of great execution in the enterprise with that business being up 35%. We expect to continue to have more opportunities to land and grow bigger with our customers, especially with our multi-product opportunities in front of us. So I think it’ll continue to be one of those pieces that’s an important part of our growth story.

Thank you.

Thank you. Next question, please.

Your next question comes from the line of Patrick Schultz [ph]. Your line is open.

Great. Appreciate you taking my questions. Maybe just first on the partner ecosystem, I know you called that out as a focus area for 2025, just wanted to dig into that a little deeper. Could you provide some color on the Salesforce relationship and how that performs relative to expectations and what type of traction you’re seeing with other partners? I know AWS Marketplace was called out last quarter and is this partner focused more on the technical integration side or the go to market side?

Yeah. Thanks, Patrick. Yeah, the Salesforce partnership continued to be a really strong part of our story here as we were in Q4. Now, we actually just released the integration into Agentforce and are really excited about the work that we’re doing from a Service Cloud perspective with Salesforce. You heard us talk a little bit about the success that we’ve had there with a Fortune 500 retailer, as well as Under Armour. And then on the greater partnership side, it’ll be a combination of technical and go-to-market that we see. Just if you think about where we exist today, there’s such a great fit with so many organizations in the tech stack and the data and the workflows that we provide back into things like CRM or help desk or marketing automation or any of those tools really enable us to be a great partner. So I think you’ll expect to see things on both sides.

Well, thanks. Appreciate the call. And maybe just one quick follow up, too. I know you called out several competitive wins over the past quarter. Here’s on why you think the competitor environment is becoming more favorable for Sprout. Is it certain products that competitors don’t offer? I’m just curious to hear what you guys are seeing there and maybe how your win rates have tried in recent quarters? Thanks, guys.

Yeah. Thank you. Yeah. I mean, I think there’s a few things that have really contributed to our success. We continue to have really great momentum from a competitive perspective. I think one of the things it starts with is just really great products. And if you look at the work that we’ve been doing across Care or Influencer or AI, great examples of where our product is showing up and adding a tremendous amount of value. On a lot of the stories that we shared today, these are large organizations. They’re looking for speed to value, speed to adoption. They’re looking for ensuring that there’s going to be great compliance across a number of users within the platform. These are all things that really weigh heavily in the way that we filter products and the way that we deliver it. So I think those are all just really contributing to the differentiation that we have in the market.

All right. Thanks. Next question, please.

[Operator Instructions] Your next question comes from the line of Jackson Ader from KeyBanc Capital Markets. Your line is open.

Great. Good evening, guys. Thanks for taking our questions. The first is on the larger lens. Like, for example, the financial services company that you landed with, are these deals just social media that your customer is kind of RFPing or looking to purchase or is there some sort of, like, larger marketing stack or larger marketing decisions that the larger brands are making and social is a part of that? Thank you.

Yeah. Thanks for the question, Jackson. These are specifically within the realm of Social Media Management. Now, they might have different vectors underneath the Social Media Management, whether it be a marketing lens or a customer Care lens or an Influencer lens. But these wins are primarily just in Social Media Management.

Okay. Okay. Cool. And then just a housekeeping question. The wind down from Social Studio, I think when we came into 2024, was expected to be like a $10 million benefit. What did that end up being in the last year?

Yeah. Jackson, this is Joe. That’s not a number we’ve talked about in a while. So that’s not a number we’re disclosing publicly at this point.

All right. Okay. Thank you.

Thank you. And with no further questions, Ryan, I’ll turn the floor back over to you.

Great. Thanks, Christina. And I just want to say a huge thank you for everybody joining us tonight for the thoughtful questions. I want to say a huge thank you to our team for their hard work and contributions to the business. And of course, to our customers who have put their trust in us and inspire us to do our very best work. We’re incredibly excited about the opportunities in front of us and look forward to spending more time with all of you in the future. Thanks and have a great night.