Sprout Social, Inc. earnings

Management highlights

• Trellis is delivering speed to insights, like the example of an entertainment company resolving a reputational issue quickly. • The company is seeing strong value for customers in social intelligence, content creation, and responding to customer issues. • Q1 leverage performance was pleasing with discipline on spend, but Q1 beta upside came from expense timing and spend cadence. • The company has a hybrid monetization model planned for Trellis combining user access and usage-based monetization. • The majority of business is direct through sales teams with integrations into other organizations helping. • Renewal base remains durable with multi-year contracts making up half of the overall contract mix. • The company is early in changes below 30K with Essentials product and self-serve to create more efficient onboarding and support model. • Making progress with Trellis and AI, with adoption scaling and more to be shared at Breaking Ground on May 13th.

Guidance

• Expect modest deceleration in sub-30K segment this year and stabilization next year. • Maintaining flexibility for the balance of the year not assuming Q1 expense benefit repeats. • Raised operating margin for the year and committed to 15% operating margin exiting the year and getting to 30% for Q4 2027. • RPO and CRPO grew ~10% year over year, with 30K and above segment growing 21% year over year and crossing 60% of total subscription revenue.

Segment performance

The 30K Plus customer segment is a clear growth engine, up 21% year over year and representing more than 60% of subscription revenue. The sub-30K segment is expected to have a modest deceleration this year and then stabilize next year.

Risks & headwinds

• Concern that large social networks may develop their own conversational agents for brand users, but Sprout's platform is needed for customers to think holistically across all social networks.

Analyst Q&A

• Q: Speak to conversations with customers about appetite to purchase social marketing products, budget tightness due to AI, and how Trellis helps in deals.

  A: Customers are buying but expect strong ROI and fast speed to value. Opportunities include revenue growth, customer service, and social intelligence.

• Q: How to think about token costs in AI products as they scale?

  A: Engineering team is managing costs, optimizing models, and will factor in costs in monetization model.

• Q: Mix of channel for new logo?

  A: Majority direct through sales teams with integrations into other organizations helping.

• Q: AI in marketing budget, stack rank, and prioritization?

  A: Customers see AI as part of marketing, with opportunities in growth, customer service, and data-driven investment.

• Q: Risk of large social networks developing conversational agents?

  A: Sprout's platform is needed for customers to think holistically across all networks.

• Q: Impact of AI feature set on top of funnel and upsell?

  A: AI features are differentiating, early on but resonating, and Trellis impacts upsell conversations.

• Q: Target of Essentials package?

  A: Targeting net new customers.

• Q: Approach to third-party models and agents accessing data?

  A: Secret sauce is in the proprietary models and insights, with future conversation on handing off insights.

• Q: Usage and resolution rate in customer care with Trellis?

  A: Excited about Trellis driving efficiencies in customer care, with human in the loop important.