Good day everyone and welcome to Sprout Social's Fourth Quarter 2021 Earnings Conference Call. Just a quick reminder, today’s call is being recorded. [Operator Instructions]. Now at this time, I would turn things over to Mr. Jason Rechel, Head of Investor Relations. Mr. Rechel, please go ahead..

Thanks, Operator. Welcome to Sprout Social's fourth quarter 2021 earnings call. We'll be discussing the results announced in our press release issued after market closed today, and we've also released an updated investor presentation, which can be found on our website.

With me are Sprout Social's CEO, Justyn Howard; CFO, Joe Del Preto; and President, Ryan Barretto. Today's call will contain forward-looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements include, among others, statements concerning financial and business trends, our expected future business and financial performance and financial condition, performance against our multi-year financial framework, our market size and opportunity, our plans and objectives for future operations growth initiatives or strategies, our guidance for the first quarter of 2022 and the full year 2022 and can be identified by words such as expect, anticipate, intend, plan, believe, seek or will.

These statements reflect our views as of today only, shouldn't be relied upon as representing our views at any subsequent date, and we don't 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 annual report on Form 10-K for the fiscal year ended December 31, 2021, to be filed with the Securities and Exchange Commission, as well as any future quarterly and current reports that we file with the SEC.

During the call, we'll discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles.

Definitions of these non-GAAP financial measures along with reconciliations to the most directly comparable GAAP financial measures are included in our earnings press release, which has been furnished to the SEC and is available on our website at investors.sproutsocial.com. And with that, let me turn the call over to Justyn..

Thank you, Jason, and good afternoon everyone. Thank you for joining us. We're very pleased to report a fantastic conclusion to our remarkable year for our company. Our teams continue to execute at a high level and our opportunity in 2022 is clear.

As always, we appreciate your ongoing support and partnership as we forge towards leadership in the $100 billion market opportunity ahead.

I plan to outline a few topics that stood out from the quarter and map to our investment priorities for 2022, before turning the call over to Ryan with additional detail and Joe for Financials, We've pleased to have delivered greater than 40% revenue in ARR growth in 2021, with efficiency handily outperforming the rule of 40 benchmark.

Our opportunity is fundamentally driven by the secular emergence of social media management, our unique go-to-market strategy and the differentiation of our technology platform.

We're seeing great progress across all segments of our market with our focused investments in the mid-market and enterprise leading to our strongest quarter as a public company. We shattered many of our own records and growth milestones during Q4, including a new high watermark for net dollar retention, and record net new ARR.

We again added a record number of customers contributing more than 10,000 in ARR, up 56% year-over-year, again added a record number of customers contributing more than 50,000 in ARR, up 91% year over year. And we're very pleased to inform you of our first customer above the 1 million ACV threshold.

Building on the recent free cash flow inflection in our business the straight line from ARR growth to billings growth to RPO growth outlines an acceleration in the growth and commitment and customers are making to social. These fantastic growth numbers and many of the financials that you'll hear from Joe underscore a clear trend.

Customers are investing in Sprout more meaningfully and for longer, because social has emerged as mission critical to successful outcomes in the next evolution of business.

For this reason, our customers large and small are expanding both their investments and use cases for social across their organizations, as social becomes the preferred communication channel for global consumers.

The 2021 Gartner Digital Marketing Survey found social marketing to be the number one most effective channel of the purchase funnel for brand awareness and for conversion to sales. These findings, along with many similar studies reinforced a generational change that requires replatforming of the enterprise tech stack.

When we started as a company social didn't even really have a seat at the table. Now, social media leaders have executive roles, business strategy and social media strategy can't be compartmentalized, and the entire customer journey exists on social.

This means our role in the market has expanded dramatically and our opportunity with customers of all sizes continues to grow as social becomes even more mission critical. It's why we believe our opportunity is growing. As customers harness the power and utility of social across an ever-expanding set of use cases.

We're making investments across the business to capitalize on this opportunity. But to fundamentally extend the foundation of our platform and to double down on our product strategy. We're planning to make our largest ever incremental R&D investment in 2022.

This will represent a step function change from 2021 and we believe it will solidify our product and market leadership at a time when the industry is ours to execute against. We believe the barriers to entry and social have risen substantially, the competitive set is diminishing and our advantages are compounding all at the right time.

From a product perspective, we're expanding our capabilities to democratize social for new stakeholders and building deeper functionality for the most sophisticated users. The core investments in our platform are more critical than ever.

We will make the product even easier to adopt and use while also making meaningful advancements in social listening, premium analytics, social advocacy and social customer care. We will also be making strategic platform and investments in social commerce, messaging, publishing and reporting.

The expansion of these capabilities is designed to create even more value for customers by providing users with the tools they need to excel in their specific workflow, spread horizontally across an organization and empower the teams with the collaboration required to truly harness the power of social.

Building on our product leadership, we're also planning to capitalize on multiple strategic leadership opportunities. The recent addition of WooCommerce to our social commerce ecosystem. The recent addition of Yelp to our views capabilities, and advancements in unified messaging with WhatsApp are a few examples.

We're also deepening the functionality and data sources within our most sophisticated products like listening and analytics that we believe will make Sprout the single source of truth for social data. We expect to hear new partner announcements over the course of the next quarter or two as well.

The technical foundation that we've laid to this point, and the added plan investments to our roadmap in 2022 have never been more compelling.

We believe we have a true and unique opportunity to find our category, both as an overall platform and in each key product area, to become the horizontal social system of record, intelligence and action for businesses of all sizes in all industries. Beyond product and technology, we're also redefining the way we work.

We're in the midst of the largest workplace shift of our generation, and we intend to make Sprout a career destination across disciplines, and an incredible place to be a customer at the same time. Productivity and execution is one of the things I'm most proud of as a leader of our company, rain or shine this team just delivers.

We challenge ourselves with an ever higher bar, we do the work and we constantly seek to get better.

The resulting honors from workplace awards like Glassdoor's, best places to work in 2022, battery ventures 25 highest rated public cloud companies to work for where we ranked number three, and a best workplace for parents by Great Place to Work empowers us to remain thoughtful, deliberate and intentional with the strategy.

We're a different kind of company. And we're excited to create value for our employees, our customers, our communities in you, our stakeholders in 2022 and beyond. With that, I'll turn the call over to Ryan..

Thanks, Justyn. Our collective teams really stepped up during Q4 and delivered a performance I'm incredibly proud of. The strong momentum in the business, the most exciting R&D roadmap we've ever had, and continued acceleration in our go-to-market hiring. We remain confident in our continued success in 2022.

We spent the better part of last year speaking with you about our marketing focus in the mid-market and enterprise for international sales and marketing investments, expanding use cases of our platform and the rising importance of the product lead sales motion.

And these trends carry into this year we expect to see both the value of an expanded platform with enhanced premium capabilities, and the continuation of a social commerce inflection point.

Most importantly, we plan to build on the compounding scale, with now more than 31,000 customers, as well as our product leadership, with industry leading ratings from G2, TrustRadius and others.

Because we're product lead, we know that the incredibly exciting innovation that our R&D teams are working on will create tremendous value for customers and further enhance our competitive advantages. Our marketing team has doubled down on the content, strategies and campaigns that needed to target the most sophisticated buyers.

We're building on our foundation of success here with better Account Based Marketing, the recent beta launch of a dedicated Sprout community for practitioners and our growing our strategic accounts team to bolster outbound sales. Internationally, we continue to migrate high performing content to local languages, and to localize our messaging.

Our EMEA team continues to over deliver. The recent addition of our APAC GM will help scale that business in 2022 and our recently hired LatAm leader will help us execute on our international playbook in that region.

As Justyn highlighted the use cases for Sprout have continued to evolve from social publishing and marketing to social customer care, customer success, business intelligence, advocacy, product intelligence, sales, comms, investor relations and more.

Social is a pillar for how business is done in all these functional areas, and social commerce sits at the intersection of each.

Commerce pulls the entire customer journey into social, demanding a platform like Sprout to make social marketing more measurable, social customer care more effective, and to deliver more accurate customer sales, product and community feedback. Businesses are also being forced to meet the customer at the initial point of product discovery.

So it's no coincidence that a report from Accenture last month estimated that sales made through social commerce will triple by 2025 to more than 1.2 trillion. The investment in our product is designed to meet user demands head on.

The expansion of our platform will enable us to create value for specific subsets of enterprise users within each use case. But because we built a platform with tightly integrated capabilities, we can address any or all of these demands with a unified solution. It's what makes a go-to-market motion so powerful.

And it's why we remain the industry's highest rated technology platform across major categories in each market segment from SMB up through the enterprise according to 1000s of customer reviews from G2 and others.

We're taking the friction out of customer adoption and accelerating our product lead sales motion to deliver an even more efficient go-to-market model, and we're doing it at scale. While our current execution remains incredibly strong, our enterprise and mid-market teams drop the mic during Q4.

Our investments and sales capacity, onboarding and success have been well aligned to the inbound customer demand signals we see. The combination of increasing use cases expanding seat counts, rising premium module attach rates and steady expansion of market or each massive opportunities for us to execute against in our ACV growth strategy.

In this quarter, the large customer growth trends jumped off the page. Social has become a team sport and we believe we're the software best equipped to help these cross functional teams win.

A sample of the amazing brands grew with us this quarter includes Square, Omnicom Media Group, Johnson and Johnson Medical Devices, Alumina, Marsh & McLennan, Archer Daniels Midland, The Container Store, Rackspace, Red Hat, Agrium, the United Nations and the YMCA. Now shifting to a couple of Sprout customer stories.

We have the opportunity to expand our relationship this quarter with Atlassian, Kristin Roth, Social Media Manager of Atlassian shared, “We needed to consolidate point solutions and centralize our social media strategy in a unified platform.

The smart inbox has been game changing to our social customer care team to improve engagement across all social handles. As the number of our Atlassian brands and footprint across markets has continued to grow. We've increasingly leaned on social listening for brand and competitive health.

And consolidating these efforts with Sprout platform will improve collaboration across teams and streamline and up level our reporting capabilities to ensure we're fully optimizing our social strategy.” Another incredible customer highlight from this past quarter was Gong, the leader revenue intelligence.

Udi Ledergor, the Chief Marketing Officer at Gong shared, “Where a power user of Sprout’s publishing and reporting capabilities to track campaign performance and engagement across different types of social content.

Sprout’s premium analytics offering helps us deeply understand our content trends and optimize customer reporting to uncover actionable insights for our business.

Using Sprout, we experienced meaningful growth in engagement and followers over the course of 2021, unlocking even greater opportunities to advance the business impact of our social strategy in 2022.” To bring it all together, we had another great quarter to cap off a fantastic year.

I'm so energized by this special team and the opportunity to deliver value for our customers during a transformational time. New technology advancements in our platform, new stakeholders and social and new strategic partnerships, positioned our company for even more success in 2022.

And with that, I'll turn it over to Joe to run through the financials.

Joe?.

Thanks, Ryan. And I'll walk you through our fourth quarter results in detail before moving on to guidance for the first quarter and full year 2022. We're very pleased to deliver greater than 40% revenue in ARR growth in 2021 with efficiency approaching the rule of 50 benchmark.

Revenue for the fourth quarter was 53.3 million representing 43% year-over-year growth. ARR exiting Q4 was 224.2 million a 42% year-over-year. We are pleased to see very healthy new business as well as strong retention and expansion across our customer base.

We added 1057 net new customers in Q4 to finish the quarter with 31,762 customers up 90% year-over-year. As always, we remained focused on high-quality revenue yield from our new customer cohorts, not the absolute volume of net additions. Our go-to-market efforts increasingly leaned into mid-market and enterprise customers this quarter.

Our inbound demand remains very strong. We believe this gives us the ability to optimize for revenue yield, while also delivering very healthy quarterly customer net additions. Consistent with recent trends for the foreseeable future. The number of customers contributing more than $10,000 in ARR reached 4917, up 56% from a year ago.

The number of customers contributing more than $50,000 in ARR reached 610 up 91% from a year ago.

When combined with our expansion efforts, new use cases and a very strong year end uptick and our premium module sales, our ACB growth was again very strong and 19% year-over-year surpassing $7,000 for the first time and expanding the rapid growth we discussed coming out of Q3.

Discussing the remainder of the income statement, please note that unless otherwise stated all references to expenses, operating results and share count are on a non-GAAP basis to exclude stock-based compensation expense and are reconciled to our GAAP results in an earnings press release that was just issued before this call.

In Q4 gross profit was 40.3 million representing a gross margin of 75.7%. This is up 110 basis points compared to gross margin of 74.6% a year ago. Sales and marketing expenses for Q4 are 21.0 million or 39% of revenue down from 42% a year ago.

We're continuing to accelerate our pace of hiring across both our sales and marketing teams, with an emphasis on content marketing and SEO on the marketing side and our mid-market and enterprise in growth sales teams. We were fortunate to hire aggressively during Q4, which positions our go-to-market teams well entering the year.

But even has total expense growth accelerate for the sixth quarter in a row, we are again able to further improve year-over-year efficiency, Research and development expenses for Q4 is 10.9 million or 20% of revenue consistent with 20% a year ago.

Our R&D headcount and absolute expense again grew substantially this quarter, as we accelerate hiring to be an expanding set of product opportunities. We are planning our largest ever incremental investment in R&D in 2022. And as Justyn said, we expect this will extend our market leadership and further differentiate ourselves in the market.

General and administrative expenses for Q4 were 11.0 million or 21% of revenues down from 22% a year ago. Expected G&A expenses to increase in 2022 as we enter a more normalized spending environment, but to decrease as a percentage of revenue. Non-GAAP operating loss for Q4 was 2.6 million for negative 4.8% operating margins.

This is an improvement of 400 basis points compared with a negative 8.8% operating margin a year ago. We are pleased with the improving efficiency as we scale. We surpassed our expectations due to revenue outperform.

Non-GAAP net loss for Q4 was 2.7 million for net loss of $0.05 per share based on 54.1 million weighted average shares of common stock outstanding, compared to a net loss of 3.4 million and $0.06 per share a year ago.

Turning to the balance sheet and cash flow statement, we ended Q4 with 176.9 million in cash, cash equivalents and marketable securities, up from 175.0 million at the end of Q3 2021. Deferred revenue at the end of the quarter was 69.4 million, a record sequential increase in the fastest year-over-year billings growth rate in our history.

This correlates closely to our strong enterprise momentum, which could lead to greater Q4 seasonality in the years ahead for this metric, Looking both our billed and unbilled contracts, our remaining performance obligations, or RPO was approximately 107.8 million up from 87.2 million as in Q3 2021 and up 67% year-over-year.

We expect to recognize approximately 80% or 88.2 million of total RPO as revenue over the next 12 months. Operating cash flow in Q4 was positive 2.5 million compared to negative 0.2 million a year ago.

Free cash flow was positive 2.2 million in Q4 or a positive 4% free cash flow margin compared to a negative 2.0 million and a negative 5% free cash flow margin a year ago. For the full year 2021. free cash flow was 13.9 million or 7% free cash flow margin compared to negative 12% free cash flow margin in 2020.

In addition to improving efficiency, the ongoing shift to annual and multi-year contract is having a positive impact on our free cash flow as we grow. In 2021, our overall dollar based net retention rate was 112% an improvement of 200 basis points compared with 110% in each of the past two years.

Our dollar based net retention rate excluding SMB customers was 118% in 2021, compared with 117% in 2020. We believe that increasing platform stickiness, shipping a mix of annual contracts and investments we've made in onboarding and customer success are structurally improving our growth retention.

We are accelerating seat expansion, changing segment mix and rising attach rates of our premium modules are each structurally improving our expansion rates. We believe there's a strong multi-year runway to further expand dollar based net retention from current levels. Shifting to formal guidance.

For the first quarter of fiscal 2022, we expect revenue in the range of 56.1 million to 56.2 million or growth rate up 38% at the midpoint. We expect non-GAAP operating loss in a range of 2.2 million to 1.8 million. This represents an anticipated operating margin of negative 3.6% and an improvement of more than 200 basis points year-over-year.

We expect a non-GAAP net loss per share between $0.05 and $0.04 assuming approximately 54.2 million weighted average basic shares of common stock outstanding. For the full year fiscal 2022, we expect total revenue in the range of 249 million to 250 million.

This is an expected overall reported growth rate up 33%, which we believe positions us favorably against our medium-term growth goals. For 2022, we expect non-GAAP operating loss in the range of 7.4 million to 6.0 million.

This implies annual non-GAAP operating margin expansion of between 40 basis points and 100 basis points, paves the way for medium-term goals and highlighting the efficiency of our financial model.

We're pleased to forecast margin expansion after more than 1200 basis points of margin expansion in 2021 as we accelerate the pace of investment across many business units. We expect that we'll be aggressively hiring during the first half of 2022.

We are in a product led business model we believe this positions us well to create even stronger value for our customers. We expect a non-GAAP net loss per share between $0.14 and $0.13, assuming approximately 54.5 million weighted average basic shares of common stock outstanding.

For your GAAP modeling purposes, we expect stock-based compensation to trend in the mid to high teens as a percentage of revenue consistent with SaaS industry benchmarking. In summary, our Q4 financial performance was indicative of a rising strategic emphasis our customers are placing on social.

Our balance sheet and free cash flow strength provide us with future optionality, inbound demand remains strong and our sales execution has been crisp.

These strengths empower us to make meaningful investments in technology and go-to-market which we believe will position Sprout to pull away and forge leadership in the $100 billion market opportunity ahead. With that Justyn, Ryan and I are happy to take your questions.

Operator?.

Thank you. [Operator Instructions] And we'll take our first question is coming from Raimo Lenschow at Barclays. Please go ahead..

Congrats for me on these amazing numbers. Two quick questions. Can you speak to what customers are doing with you -- if I look at like this, the higher end of your market, because this deal sizes you mentioned that we haven't seen before. And so that kind of looks very interesting. And it was some very interesting brands you mentioned here.

Can you talk a little bit about the difference of how they are using it, and then how you were used in the past? And then, the second question goes kind of right in line with that. And it's more about the R&D investments that you talked about this year.

And it looks like there's a kind of broad expansion of the product coming this way? And how is that going to help you in the better product market fit continue to go further up market? Thank you..

Thanks for the question Raimo. I'll go first. On addressing the large brands, yes, we're extremely excited with the momentum and execution we've seen in mid-market and enterprise. And a good portion of this is coming from a few different things. One, we've just seen an evolution in the way that social is being used by the enterprise.

Years ago, what used to be just a marketing use cases evolved into marketing and across marketing, its PR, its content, its brand, its comms into things like social customer care and customer support. Where today's we know as consumers, we're leaning heavily into going directly to social to get support versus picking up the 1-800 or emailing in.

And then, we've added over the last couple of years, some sophisticated products in terms of analytics and social listening, which is providing a tremendous amount of data back to these enterprises that they're leveraging to really make smart business decisions.

Which markets, do they want to go into? How should they evolve their marketing? How should they evolve the way that they're competing? How should they evolve the way that they're building their products? And so what we've been seeing in the enterprise is the explosion in terms of use cases, we're seeing more users than we ever did before.

And we're seeing it really go across the enterprise, you combine that with the fact that our team from a marketing perspective has been investing more upmarket, and enterprise driven marketing strategies. And we've been adding enterprise AES in terms of sales capacity to go execute against the opportunity.

And you're seeing that in the increase in large customer deals. And I think that the one that jumps off the page, the most for me is the 50k being at a 90% growth rate there..

Yes. And this is Justyn. And I'll chime in a little bit on the R&D side, and how we're aligning those investments to kind of match the opportunity that we're seeing in the larger customers, the larger use cases.

To Ryan's point, a lot of that growth that we see, has to do with the way that organizations are operationalizing social and taking it across larger teams with more users. So there's a lot of user growth baked in there.

One of the things that we're doing on the R&D side, to really lean into that is thinking about the kinds of tools and capabilities that larger teams need, the tools that they need to collaborate more effectively to work as large organizations with potentially many, many use cases, large volumes of messages.

So there's a good amount of work that goes into there.

There's a good chunk of the roadmap that is dedicated toward just those more sophisticated use cases, generally, are we building and expanding against the social listening, the more complex customer care needs, things that really speak to those organizations that are a little further in their maturity curve.

But then, of course, also, as early as we feel that we are in this market and given where many customers are in terms of where they are with maturity and adoption, we want to make sure that we're also carving out plenty of time to make sure that the core use cases continue to get expanded and enhanced.

We don't consider those to be solved problems and everything that we're investing in the kind of the bread-and-butter tools. All of that is in the direct path of revenue, meaning the fact that the vast majority of our revenue comes through and actually tries our product before they buy it.

Everything that we do to improve all of those experiences has the opportunity to increase conversion rates, increase user counts, and start to lean into and help customers understand some of the additional use cases that they may want to adopt.

So, the broad way to think about it is all of our R&D investment goes into some aspects some lever of our revenue growth, but certainly biased toward a lot of the more sophisticated use cases, the larger teams, and larger opportunities that we're seeing in the mid-market and enterprise..

Thank you. We'll go next now to Parker Lane and Stifel..

Yes, thanks for taking the question and congrats on the quarter.

Maybe just a sort of a follow up to the last question, wondering if you can give us a little bit more on the profile of a customer that spending a million dollars plus on Sprout Social, is a customer like that fully tapped in terms of what you're offering today? Or are there expansion opportunities even inside of that in the form of new users, new use cases, and even potentially, the expansion of their social footprint to some of the newer channels out there that are emerging? Thanks..

Thanks for the question, Parker. There is plenty of opportunity in that account. We're incredibly excited by their organization. It's a large technology organization. One of the things that I really appreciate about this as our team has been growing at that account for about 24 months.

And so we took that the initial footprint, and we've been doing the seating grow approach that's worked really well for us. And that means that we're able to grow across brands and departments and geographies, as well as use cases.

And as you might imagine, as we've been getting up into the enterprise, and we're working with these types of organizations, as you get that first footprint in the organization, you go through the hard parts of legal and procurement, and then trusted vendor.

And from there, you're able to actually leverage those internal use cases, those internal advocates to move across the organization.

So we certainly see plenty of opportunity in this account, and others like it in terms of going across more divisions and brands, to your point around social networks and other integrations that will add there'll be more opportunity there. And even with the use cases that we've earned the business in, we still see plenty of upside..

Got it. That makes a lot of sense.

And then, Joe, one for you a very nice growth year-over-year and sequentially on the bookings and deferred revenue front, is that purely a reflection of this shift to the enterprise, maybe some longer durations there or other seasonal components that are now entering the business as the share of mid-market and enterprise continues to expand that will sort of repeat on a going forward basis? Thanks..

Yes, perfect. Little bit of both. So definitely, as we've gotten in more of these mid-market and enterprise deals, they come with longer term, they're bigger commitments. These companies realize the importance of social. We talked about this a little bit in our prepared remarks.

We definitely saw a little bit of that seasonality in Q4 with some of these larger enterprise deals. So I think going forward, Parker, you're going to see a combination of us continue to drive more annual deals over month and month. And you can assume more seasonality in Q4 as well..

Thank you. We will go next now to Arjun Bhatia at William Blair..

Awesome. Thank you very much, and congrats on a great quarter guys. I wanted to touch on maybe just the large customer metrics. It clearly seems like there's a step up and a trend that's been playing out over the last couple years, especially when you look at the 10k and 50k customers.

I'm curious how the landing coin of customers has changed over the past year as social has evolved. And it's gotten, I think, maybe higher on the priority list for larger customers. And then as you look at these milestones that you're disclosing, are those typical landing points for you now look like the $10,000 deal, typical landing point or 50.

If you're looking at enterprise deals? Thank you..

Yes. Thanks for question, Arjun. So in terms of the large customers and how it's changed over time, I think you're right, there has been an inflection in that we're into speaking to more senior level executives at these companies today. I think more and more people have realized brands have realized the importance of social to their overall strategy.

And we're seeing more executives pay attention.

So that means oftentimes they're joining demos, oftentimes, the practitioners that we're working within the marketing department or customer care, are producing reports producing data and information that they're surfacing back up to these executives, oftentimes daily or weekly to give them a really good sense of what's happening within social how their brand is being represented, the sentiment on their brand and their competitors.

So I think that's one of the things that I just highlight is that more and more in these conversations, we've got executive interest and in how a brand is executing from their own social strategy, and then what's happening in the marketplace.

And as you might imagine, as you're getting into those conversations, there's more gravity around the solution, there's more gravity around the partner that you're picking and the focusing on innovation and where the technology is going. So that's helped us a tremendous amount.

And if I think about just the typical landing place, that's also meant that the opportunity to close more of these larger deals continues to happen.

So in the mid-market and enterprise, specifically, those companies coming in, they've got bigger problems, they got bigger opportunities in front of them, they've got larger departments that are going to need access to Sprout.

And so with that, it gives us an opportunity to start at a larger user account and start at a larger profile -- social profile level. So those things are all converging and providing a tremendous amount of opportunity for us. And we feel like there's a lot of positive tailwinds there..

Awesome. Thanks, Ryan. And Justyn maybe I want to touch on the product investments.

I'm curious if when you look at the competitive set, is there just where you're focusing these R&D investments? Is there just a gap in the market meaning other players in the space that are just not addressing the problems that you're seeing and that you're trying to solve for is that the competitors are inefficient.

And that your customers are really driving this innovation portion of this R&D push?.

Yes. I mean, I think it's a combination of things, I think it has more to do with just the architecture and the customer experience with the tools versus specific gaps that might exist. And, of course, that's going to vary competitor, what the gaps are, and which ones we really press on.

But I think, a lot of the momentum that we've seen, and we've talked about this over several quarters, is the fact that we're getting customers and we're proving out our value with the product itself in their hands.

Just makes a monumental difference, right? It's one thing to solve the same set of problems on paper as a checkbox, it's a very different thing for the platform to actually solve the problem for the people buying the keyboard and allow them to do their day-to-day work. And we're hands down the best in the business there.

So I think that is aligning more not only with what our customers need, and certainly where they felt pain elsewhere. But I think it also just aligns really well with where the market is going.

You've heard Ryan and I talk about this for a while now, the way that businesses will be evaluating and buying software in the future is shifting and proving that value up front is important because we are product lead, because we are trial lead.

We've had to put investment in focus in those kinds of experiences that really resonate that maybe others haven't spent as much time on..

Thank you. We go next now to Clarke Jeffries at Piper Sandler..

Thank you for taking the question. Just another one here on standout enterprise activity in the quarter.

I'd like to understand the context of the pipeline, was this a progressive build into Q4, even in Q4 with a particularly strong pipeline? Or was this an inflection in interest in mid quarter? And how should we think about the level that you're anchored in 2021 with a pipeline perspective?.

Yes. Thanks for a question, Clarke. So I think one of the things that's been a really big competitive advantage for us and Justyn touched on a little bit is just the inbound motion that still exists for our business today. And a product lead motion, which we apply even in the enterprise.

And so certainly, as you might imagine, with mid-market and enterprise types of organizations, the way their budget cycles work, and the way that they typically procure software tends to be heavier at the end of the year in Q4.

And so we certainly have some deals that were lined up where we've been talking to these customers and working with them through the year.

But the other benefit that we have here is with that inbound model, we still get a significant amount of pipeline in the enterprise every single month, which is setting up our teams to be able to execute and we're still running at sales cycle that runs between 30 to 45 days on average, and we will see deals in the mid-market and enterprise that hit those timelines.

So it's a little bit of a combination exiting the year and going into Q1. We felt like we saw a continued progression and opportunity within the pipeline and with the opportunities in front of us. So a lot of balance, I would say, and a lot of predictability around that pipeline.

And because we're getting people into the product and using the product and using it in a 30-day trial, it creates a nice set of urgency because they're doing a lot of the work. They've built their processes and workflows in place, that they don't want to lose that after the 30-day trial, which creates rapid sales cycles for us..

Great, thank you.

And then maybe one for Joe, would you be able to help quantify the step function increase in R&D and whether we should think about it really being G&A or go to market investments that might be seen that are leveraged here in '22 and absorb that step up in R&D while still driving the year-over-year improvement in margins?.

Yes, Clarke, I think you'd expect that most of the leverage in 2022 will come from the G&A line. I don't think you're going to see right now, the business, you want to make an R&D and event to go-to-market side, you're not going to see significant leverage in either one of those items. But it'll come from G&A, Clarke in 2022..

Thank you. We go next now to Matt VanVliet at BTIG..

Yes. Thanks for taking the question, guys. Nice job on the quarter. I guess looking at the social commerce opportunity. I think you mentioned that by 2025 estimates are, there'll be well over a trillion dollars in total sales out there.

How should we think about your ability to monetize that what it could impact the model from an actual revenue standpoint, if we get anywhere near that, that $1.2 trillion level that you mentioned?.

Yes. So current thinking is that we intend to monetize the software behind it. So our focus is on making sure that our platform is capable of all the things in and around the commerce process, that we're supporting brands that are selling through the social channels, giving all the tools that they need to be successful there.

And I've said this a couple times, it's early days. So we don't want to commit to specifically to what the revenue opportunities are there. Expect to see us initially monetize through just improvements in potentially conversion rates in ACVs in users in use cases and what I would consider more like second order.

I think it's also possible that there's a premium module around commerce that may come. And those are the things that we have our eyes on from a monetization perspective.

And then I think, maybe even a layer deeper than that, this is another example of just more of the things that happen in the world, around commerce and business, moving to social channels.

And so the number of people involved, the number of users involved, the number of workflows and processes and all of those things that our customers need to be running through our platform just increases, our value increases, our stickiness increases, et cetera. So substantial opportunity.

Our focus right now is monetizing the software side of that business..

All right. Very helpful. And then, Ryan, as you look at the international growth, you mentioned EMEA continuing to be just a true standout portion of the organization.

And now you have regional heads in both LatAm and APAC maybe what are some of the learnings or lessons you can accelerate the time to value for those new heads and the other regions that you take from a EMEA and just overall kind of what you've been doing on the international stage so far? And how quickly do you think we should think about those two regions being more significant contributors?.

I think the biggest learning for us has just come from being on the ground in EMEA. I mean, a good portion of our international revenue really came from the foundation and what was built in North America through the inbound model and very western centric, U.S. centric marketing.

And it created a lot of top of funnel that we were executing against from U.S. sales reps. And back in 2019, we opened that EMEA office and we got a great team there that started very small and has continued to grow. And we've been really, really happy with the productivity that we've seen from the team.

We've learned a lot about the hiring profile in the regions. We've learned a lot about, just productivity and ramping outside of the U.S. We've also learned a lot about the localized marketing and the opportunity to think about how we approach those markets. And so with that learning in place, we're taking it across to APAC and LatAm.

So we hired our GM Amrita in the summer, and she's just getting up and running with the team there. And then we've just hired our LatAm leader. So a lot of the same learnings in terms of ramping AEs and adding sales capacity, running the right marketing plays within those regions.

And then that the piece that we're excited about that is still relatively nascent, but a big opportunity is just the indirect approach to how we manage resellers and channel opportunities in the future. So I'd say over the next few years, you'll continue to see that grow. It'll still be led by EMEA.

And we'll see those other two regions really starting to come on later..

We will go next now to DJ Hynes at Canaccord Genuity..

Hey, guys, this is Luke on for DJ, thank you for taking the question. So great to see retention here is holding strong. When we think about what's sort of driving NRR today is that more a function of news? And I know, maybe you can expand on each of those drivers.

And whether sort of the algorithm that is driving NRR today is evolved as the platform is expanded in the chart in the market. Thanks..

So your audio cut out a bit, at least for me. So I'll try and recap the question. And then lean on Ryan, to give you some insights here.

What I caught it sounds like the question is just what are the contributing factors to the NRR numbers between the improvements in growth of existing accounts versus improvements in retention? Is that a good summary of the question there?.

Yes, that's about right..

Okay, perfect..

Thanks, Luke. So there are a few things that go in place there that I think are just massive opportunities for us. One is the mid market and enterprise opportunity that we see in front of us. And we've really started to see acceleration within those businesses over the last 12 to 24 months.

And as we see that we know that those larger customers are going to come in, they're going to land bigger. We also know that they typically are signing on for longer contracts. So moving mid-market and enterprise is going to be a big deal.

Moving into more annual multi-year contracts across all of our segments is going to be really big for us both in terms of contraction, and later on, in terms of growth and expansion. And then a final piece is we've seen healthy success from our attach rates and our premium products.

And so we've got this opportunity to go back to all of these customers and highlight some of the things that we've been doing over the last few years, specifically around premium analytics and listening. So we've got a few different levers that we're putting in place here that we're really excited about.

I mean, we've talked about in the past and on this call, just some, some great examples of customers that have grown with us. Atlassian is one of those great ones where we landed that one years ago from an acquired company in Trello.

And then had the opportunity to really go across the organization and grow footprint across departments and divisions as well as the use cases. And that's a similar approach that we're taking everywhere.

So the last thing, I'll maybe just add in is we've made a really healthy investment in customer success, and specifically in improving the ratios of our customer success teams to the customers we work with as well as investing in onboarding resources to make sure that our customers get a ton of tender loving care at the beginning.

And they get to ensure that their onboarding and their implementation is done really well so that they are driving adoption from the very beginning. So a few different levers that are going to go in place there and that we're really excited about..

Thank you. Next move to Stan Zlotsky at Morgan Stanley..

Hi, this Elizabeth Elliott on for Stan. Congrats on the quarter. I just wanted to dig in a little bit more on that NRR and how you see that expanding as we get into fiscal 22, especially in the context of a lot of more premium modules and horizontal offerings that you guys have going on.

So how should we think about expansion as we get into the next year?.

Yes. So a couple things that we think plays into that it's going to drive those trends over time, a few of which Ryan talked about which is the larger opportunities that were landing, those are more inclined to grow. And so that provides some nice tailwind to those numbers.

There's also a shift just in the overall composition of the customer base right at 30,000 plus customers, the shift today, in terms of the mix of enterprise and mid-market versus SMB, and agency et cetera, just continues to get healthier and healthier.

So when we look at the dynamics, the NRR dynamics, among those cohorts and the way that the shift of the total customer composition is happening over time, that suggests to us that we've got a lot of headroom still. And that's in addition to the work that we're doing to accelerate things like seat expansion, the purchase of add-on modules, et cetera.

So those are the few of the things that play behind the scenes. And we think there's a great opportunity to continue to drive that forward..

Got it. And then on the margin guidance for about 40 to 100 expansion. It sounds like a really big focus areas on R&D.

But just more broadly, what's the philosophy around revenue upside kind of flowing through versus investing? And what are some of the puts and takes to get you to that higher kind of lower end of the range?.

Yes, so on that one, I think for us, when we're looking at the investments we're making, Elizabeth, I understand your question correctly, I still think you're going to see us investing, pretty heavily in sales and marketing.

We've talked about the R&D investments, but I think what you're going to see from us as the year progresses, as we see opportunities to invest more in the business, I think for us, we want to make sure we're not backing off the investment opportunities that are in front of us right now, Justyn talked about this on his prepared remarks.

As we see a pretty big opportunity in this space, we're seeing more and more success up in the mid-market and enterprise. And so as that momentum continues to grow over the year and as we continue to see the success we've recently seen over the last six to 12 months, we're going to keep investing in this business.

And that's why we want to give that little broader range of guidance on operating margin, because we don't want to leave any opportunity on the table right now..

We will go next now to Michael Vidovic with KeyBanc..

Hi, this is Michael Vidovic on from Michael Turits. And just a quick one for me.

I guess, are there any major technical areas or lack of certain feature sets in your offering today that you feel still notable headwinds to, I guess, landing larger customer deals? Or what's the biggest hurdle still?.

Yes. I feel like we are and hopefully this has come through and a lot of the discussions that we've had around our momentum in the market and enterprise.

We think we're well equipped for the deals that are out there, I think there are opportunities still, as the market moves more toward social-centric customer service, we want to do a lot of work there. Where we've got an opportunity to really step into some large user populations and very strategically important initiatives for our customers.

I think the opportunity around listening is still ripe for us, and one that we want to continue to press on, same goes for premium analytics. And then just making sure that we're keeping up with network expansion, right? As there are new places that matter to consumers, those in turn matter to our customers.

And we want to make sure that we're doing things right to be ahead of the curve there and make sure that we're giving our customers the tools that they need to be all the places that they need to be.

So there's not anything that we would look to and put on the board as deficiencies but certainly opportunities where we think we can continue to step into a lot of the progress that we've seen..

We go next now to Scott Berg at Needham..

Hi, everyone. Congrats on the good quarter, metrics are great. I will go with one in the essence of time here. Take things on a slightly different track.

I think when you look at the commentary out of one of the large social platforms, like a Meta recently on their quarter call, right is, I think there's seems to be a lot of shift of changing use cases around social media.

And certainly some of these customers or platforms are maybe trying to struggle or figure out how to work with changes like you the IDFA changes in the Apple ecosystem? How do you all think about that kind of impacting your business over the next, two to four years and how your customers are using your platform because I think the disruption seem to catch some people by surprise, at least on that call..

Yes. So, I think, and we've seen kind of varied results around IDFA, across the varying network partners. And I think how that's going to shake out from a revenue perspective for the network's themselves. I think they're doing a good job discussing that narrative. But for us, what's interesting here is, we don't we don't participate in the ads business.

And so the impact there is not something that is a big factor in terms of our strategy, in terms of roadmap, et cetera.

I think, where it has potential to be a factor for us long-term is that, historically, the organic side of social things that our customers spend all their time doing in our platform, has essentially been seen as a hedge against advertising efforts, right? If the advertising environment becomes tougher than organic and getting organic messages out and building and getting in front of your audience that way become important.

As the shift from maybe advertising to offsite sales starts to move toward onsite transactions with social commerce that'll change things up a bit. But at the end of the day, our involvement kind of stays the same, which is the activity that's happening is happening on social networks, advertising is just not part of our business.

And so as long as the trends continue in the relationship between consumers and brands, and how the various networks respond to that will be different. Then the value that we contribute, is as strong as it's ever been.

We have to make sure that we're continuing to deliver the value that our customers need in the midst of things that might be changing on them, such as where they're putting their ad dollars, et cetera. And that we can help them with all the tools that they need to back up their social strategy as it moves.

But the direct impacts just aren't a factor for this business..

Super helpful. Thanks and congrats again on the wonderful quarter..

Next now to Shrenik Kothari at Baird..

Hey, this is Shrenik on for Rob. Really great quarter. I just have a quick one. So on the enterprise, mid-market go-to-market, you mentioned about Account Based Marketing, growing strategic accounts to bolster like outbound sales.

Can you talk a bit about the land expand pipeline and trial conversion, and especially the largest pipeline, anything changing that you see on the ground? Or maybe like looking out ahead of it, this macro uncertainty, just regarding this larger deals? And maybe for Ryan, since you have seen those macro effects from a time at Salesforce?.

Yes. Thanks for the question. So I think there's a couple of things in there. One, I would highlight just our dedicated focus. So we have dedicated sales teams that are focused in on new business, so learning new logos, and then we have dedicated sales teams that are focused in on growing our footprint within the customer base.

And that expertise and focus has been really helpful for us making sure that we are capitalizing on the full opportunity in front of us. So our growth teams have been that are selling to the customers have been doing a fantastic job building out the pipeline of opportunities for us.

As you might imagine, in those customers, we've got great reputations. We have customers with high adoption. We are able to get around those organizations and identify opportunities pretty quickly versus going outbound and cold calling. And so that opportunity for us continues.

We also know that from a penetration rate, we're still fairly low in the grand scheme of -- the number of customers that we have 30,000. And we're sort of mid-teens in terms of the attach rate with our premium products. So we see quite a bit of a pipeline in front of us.

And then you pile on top of that, just the use cases, right? But a lot of our customers that have come in the initial starting point and typically is in the marketing department, and then it expands from there, oftentimes in the marketing department going across brand and content and PR and comms and sometimes IR but then also in the customer support and customer care.

So the net of it is that no macro headwinds or changes for us in terms of the pipeline that we've seen. We've got a healthy number of customers that are come in that are a perfect target for us to continue to grow. And we feel really great about the year ahead..

And ladies and gentlemen, that will conclude today's question-and-answer session. Gentlemen, I will turn the conference back to you for any closing or concluding remarks..

Great. Thank you. As always, thank you all for your time. Thank you for the great questions and the support. Things that we've been talking about the last couple of quarters have us just incredibly excited. 2022 is set up to be just a fantastic year and we look forward to catching up with you all in various contexts.

And if we don't see you until the next one of these, then we'll talk to you then. But thank you have a great evening..

Thank you. And again, ladies and gentlemen, that will conclude today's Sprout Social’s fourth quarter earnings conference call. We would like to thank you all for joining us. And again, wish you all great evening. Bye-bye..