Sprout Social(SPT) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q2 was $44.7 million, representing a 42% year-over-year growth [35] - Annual Recurring Revenue (ARR) exiting Q2 was $189.1 million, up 45% year-over-year [35] - Gross profit was $33.8 million, with a gross margin of 75.6%, up 160 basis points from 74.0% a year ago [39] - Non-GAAP operating income for Q2 was $0.1 million, with a positive operating margin of 0.3%, compared to a negative 19% operating margin a year ago [43] - Positive free cash flow of $4.1 million in Q2, with a free cash flow margin of 9% compared to a negative 14% a year ago [46] Business Line Data and Key Metrics Changes - The number of customers consuming more than $10,000 in ARR reached 3,936, up 55% from a year ago [36] - The company added a record 1,490 net new customers in Q2, finishing with 29,612 customers, up 22% year-over-year [36] - The 10K customer cohort grew at 55% year-over-year, contributing to the success with the expansion of use cases [27] Market Data and Key Metrics Changes - 71% of consumers are using social media more than they were a year ago, and 88% of marketers believe their social media strategy positively influences their bottom line [22] - The company is seeing strong demand in mid-market and enterprise segments, with significant customer additions from various industries [28] Company Strategy and Development Direction - The company is focusing on the convergence of social and commerce, launching new capabilities for social commerce and expanding integrations with platforms like Shopify and Facebook [12][13] - The management emphasizes the importance of social media in digital strategy, aiming to create a unified platform for customers to manage their social commerce efforts [18] - The company is committed to a hybrid work model, aiming to attract and retain elite talent as it continues to grow [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth trajectory, highlighting record customer additions and the structural efficiency of the business [10] - The management anticipates continued strong performance in the second half of the year, despite potential impacts from the COVID cycle [85] - The company expects to be sustainably profitable or free cash flow positive in all subsequent quarters [48] Other Important Information - The company is expanding its technology giving program, donating over $1 million in software annually to advance global causes [15] - The management plans to publish its first fully formed ESG disclosures later this year [15] Q&A Session Summary Question: What was the biggest contributor to strong performance and lower costs? - The growth of the customer base was primarily driven by user seats, additional use cases, and premium add-ons like listening and analytics [56] Question: Can you quantify the opportunity in social commerce? - The initial launch is seen as a small part of the total opportunity, with plans for additional integrations and capabilities [57][58] Question: What is the initial customer reaction to the ecommerce opportunity? - Early adoption has been positive, with opportunities to attract new customers from under-penetrated verticals [61][62] Question: Where is the company hiring in the go-to-market strategy? - Hiring is focused on new business for mid-market and enterprise, as well as growth teams and international markets [64] Question: What is the demand environment for advocacy? - There is increased demand for advocacy, with opportunities to unify various social capabilities into one platform [71] Question: How is the enterprise opportunity being pursued? - The company has closed deals with Fortune 500s and is targeting high-potential customers, with plans to grow further [90] Question: What percent of seats are in social teams versus service? - The majority of users still fall within marketing, but there is a trend towards more specialized roles in customer care and sales [97][98] Question: Any one-time items in the billings number? - There are no one-time items; the growth is attributed to longer-term and larger deals in the mid-market and enterprise [92]