Ladies and gentlemen, thank you for standing by and welcome to the Sprout Social Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your speaker today, Greg McDowell, of Investor Relations. Please go ahead sir.

Good afternoon and welcome to Sprout Social’s fourth quarter and full year 2019 earnings call. We will be discussing the results announced in our press release issued after market close today. With me are Sprout Social CEO, Justyn Howard, CFO Joe Del Preto and Senior Vice President of Global Sales 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 statements concerning financial and business trends, our expected future business and financial performance and financial condition and our guidance for the first quarter of 2020 and the full year 2020 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 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 by their nature address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For discussion of the material risks and other important factors that could affect our actual results please refer to the risks discussed in today's press release, our final prospectus under Rule 424B filed with the Securities and Exchange Commission on December 13, 2019, our annual report on Form 10-K for the year ended December 31, 2019 to be filed with the Securities and Exchange Commission and our other periodic filings with the SEC. During the call, we will also discuss certain non-GAAP financial measures which are not prepared in accordance with generally accepted accounting principles. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures as well as how we define these metrics and other metrics is included in our earnings press release which has been furnished to the SEC and is also available on our website at investor.sproutsocial.com. With that let me turn the call over to Justyn.

Thank you Greg and good afternoon everyone. Thank you all for joining us on our first earnings call as a public company. This has been such an exciting time and experience for our team in our business and we really appreciate the time you've all spent with us so far. We're particularly excited not only about the results we will be sharing but also the undercurrent of energy and focus across the company and what was a uniquely busy quarter. During today's call, Joe and I will provide details on our Q4 and full year 2019 results as well as Q1 and 2020 guidance. We will also spend a little time covering the business, market and opportunity as many of you may be newer to the Sprout story. But first of all kick us off with a few of the highlights of our financial results. Sprout had an excellent Q4 with strong performance and momentum across the entire business. We saw everything we wanted to see to set a strong foundation coming into 2020. Our total revenue inclusive of simply measured for the fourth quarter was up 26% year-over-year to $28.1 million and organic revenue grew 37% year-over-year. As a quick aside we'll be referring to organic revenue throughout the call which is defined as all revenue excluding simply measured small acquisition which we completed in late 2018. Also worth noting that organic revenue accounts for 97.7% of our total revenue. Now moving on to the full-year, total revenue inclusive of Simply Measured was up 30% to $102.7 million and organic revenue was up 44% for the year. We ended 2019 with annual recurring revenue or ARR of $117.8 million and organic ARR of $115.2 million, up 39% year-over-year. Importantly, we delivered these results while continuing to drive leverage across…

Thanks Justyn and thanks again to everyone for joining us today. Since today's earnings call is our first I'll start by running a brief overview of our financial model and then I'll go through a fourth quarter and full year results in detail before moving on to guidance for the first quarter and full year 2020. We will discuss in detail financial results, I like to point out that in addition our GAAP results I'll be discussing certain non-GAAP results. Our GAAP financial results along with the reconciliation between GAAP and non-GAAP results can be found in our earnings release. As Justyn noted earlier we serve all segments of the market from SMBs to global enterprises all with a single platform and with a very efficient quarter market strategy. [We applied] by sales model where we engage thousands of prospects every month and quickly convert them to customers. Our average sales cycle is approximately 35 to 40 days even our mid market enterprise segment. This efficient sales and marketing model has led to excellent unit economics and enabled us to expand our investment and efforts in every market we serve. We segment our sales teams by SMB, agency, mid market, enterprise, as primarily inside sales today. We further break down our sales teams into both new business and growth reps. Our growth reps only work with current customers and are expanding these relationships by increasing adoption of our core platform and introducing our new add-on modules. This is the newer sales motion for us as we only started making significant investments in this team in 2019. We're excited for the opportunity ahead for this group to continue to help our customers solve more problems with Sprout. Our pricing model is very simple and scales with our customers growing needs and…

Thank you. [Operator Instructions] Our first question comes from Chris Merwin of Goldman Sachs. Your line is now open.

Okay. Thanks so much for taking my question and congrats you all on a great first quarter out of the gate here. In terms of my first question, I just want to ask about some of your newer products. You recently launched reputation and premium analytics. Can you maybe just talk a bit more about how the initial reception has been from customers? I know you were seeing a significant uplift to ACVs from listening but just curious how we should be thinking about the monetization opportunity for reputation and premium analytics on top of that? Thanks.

Yes. This is Justyn. I'll give you a little more color there. I think that the monetization opportunity for all of the additional offerings has been very positive. I think listening is obviously the one that we have the most tenure with and more recently analytics which is very similar in the sense that those are two higher price point, very kind of robust offerings that we expect to behave relatively similar in terms of the amount of deal size increase when those products are added similar buying cycle. One thing that I will call out I think that the analytics product which is new it is potentially a bit of a closer to the suit spot for our customers meaning they're using our product for analytics today. They are looking from a horsepower and we have an opportunity then to very quickly introduce them to that add-on and monetize those. Listening is a little different in that. Those are completely new capabilities within our platform, so it's a little bit more educational, et cetera. Those as I mentioned behave very similarly in the sales process, the price point et cetera. Reputation which is has been a fantastic offering and we talked a bit about what the adoption look like for that early on. That was a little bit different in that the activation of that offering is very self-serve. It's real-time the customer can go in and activate that. There is certainly some education that happens when we're selling that whether during the trial or in our growth efforts. But a much lower friction adoption, it's simply a function of going and adding additional profiles which we monetize. Smaller price point, I think on the whole than what you're going to see from listening in analytics. But all three would have been incredibly happy with the both the early adoption, our ability to improve what those sales processes look like. And I think the one other thing worth noting on all of those is that those are really early in their life in terms of our continuing to build and expand on the listening increasing the capabilities of analytics which is very new. Introducing new capabilities around reputation. So, coupled with the early traction that we've seen which we're very happy with plus the amount of time that they've been in market and the amount of opportunity we have to continue to improve those offerings is really exciting for us.

Okay, that's great. And then maybe just one follow-up. I was just hoping to hear more about your traction with larger enterprise accounts. I know you added some sales heads to focus on that segment. That you know where are you finding fit so far within that segment and what type of feedback are you getting from this customers about even potential new features that you can add over time. Thanks.

Thanks, Chris. This is Ryan. I'll -- just that question. We've seen really great success in that enterprise space. I think what's been highly disruptive for the market and specifically enterprise software is that we lead with the product. So, even in the enterprise, with these large accounts like the Four Seasons of the World, we're actually getting their hands on the product immediately. We're getting them into trial, we're getting them to test it the solution before they actually commit to a contract. And that has worked really well for us because we're able to prove the advantage of the technology and the benefits of the user interface as well as the depth and strength of the reporting and listening solutions. So, we're seeing tremendous progress there really across the globe with all those opportunities. The additional products have really helped on the conversion rate as well. To Justyn's point, the adoption is telling us that our customers want all these products in one platform. Listening, analytics, reputational alongside of your publishing and engagement. And so, that's been really helpful for our enterprise team and our go-to market strategy. Okay, thanks so much.

Thank you, guys.

Thank you. And our next question comes from Stan Zlotsky of Morgan Stanley. Your line is now open.

Perfect, thank you so much. And congrats on your first quarter as a proper event, event.

Yes, Stan.

So, from my end, two questions. 1) The international opportunity, right. It's still only 20% of revenues international. What are you guys seeing out there and how are you thinking about this piece of the business heading into 2020? And then, 2) the big sales and marketing investments that you made through 2019, what are you seeing there as far as the ramp in productivity and how are you thinking about your sales and marketing organization into 2020? That's it, thank you.

This is Ryan, I can talk about that. On the international side, we are really excited about the opportunity that exist there. The total addressable market is as least as big as we're seeing in the U.S. it's a healthy portion of our business today but I think it's important to note that historically that's really come with very little investment at side in North America. Traditionally we've been covering that market with folks here in our headquarters in Chicago both in our sales and marketing perspective. So, we actually just launched our first real investment within that international community by launching an office in Dublin this past year with most of those investments coming in the second half of 2019. We're really excited about the progress that we see in the ramp from the reps, the productivity which we saw in Q4 with accelerating international growth. And that ties to the investments that we're making on a go-to market from a go-to market perspective. So, international was a big one last year specifically at that Dublin office. Joe mentioned it before as well. We had quite an investment in the growth team, so that's the team specifically focused in on selling to our 23,000 plus customers. And then in the mid-market and enterprise space where we're seeing a lot of progress and demand.

All right. And just the team specifically, the big investments that you made in the U.S., right the other 80% revenue. What kind of productivity improvements have you seen here?

The productivity has been really strong year-over-year led by the mid-market enterprise base but strong improvements across the board.

Perfect, thank you so much.

Welcome.

Thank you. And our next question comes from Alex Kurtz of KeyBanc Capital Markets. Your line is now open.

Thanks guys, and thanks for taking the question here on your first earnings call. Justyn, maybe it would be helpful to go through the competitive landscape and maybe a quick refresh on how you guys differentiate yourself and maybe what you saw in the quarter and how that may have helped the larger customer execution that we saw in the numbers?

Yes, definitely. And Ryan may have some color to that as well. So, the competitive landscape has been and really this has been kind of building momentum I would say over the last 18 months. A lot of the I'll call them stubborn commitments we made on the product side, making sure that we are building something that is very easy to use across the organization, very easy to deploy, and implement. I think that that is only become a bigger and bigger headwind, particularly when we think about the mid-market enterprise and the folks that were competing with there. So, there is another ship happening which is that as you can see by the growth in our ECB is particularly when we've got additional products in there. Social was something that's spreading further across the organization. And I think that it's critical that it's incredibly easy to use and deploy. If you've got sales team, customer service teams, other folks that are not have not been working in social media management tools day in and day out, that simplicity and use of use is incredibly important. And so, what we're seeing a lot in the competitive space is deploying instead our year or two, three years old have really struggled to meet those requirements across the larger part of the organization, difficult deployments in general underutilization and for technical reasons. And we're seeing this kind of second generation of buyers coming back to the market saying okay we set a few years ago we need to solve this problem. We gave it a good try but not when it's something that our team can actually be use and be successful with. That's opting especially in the cases where we're in competitive takeaway situations. Often where we're coming into that…

Yes. Just to add a couple of quick points. I think case in point for Justyn on the enterprise side. Four Seasons which we talked about, a great example Q4 deal for us. A company that's already up and running in our software. They were in the trial before they bought and we finished the implementation. Now our team is out there this week which is just a great testament to such a large deployment being up and running and using our software. On the SMB side, the other piece that I would just highlight there is more and more we're seeing that even these smaller customers want all of the products. Right, they're consuming our reputation and are listening in our premium analytics and typically what's been available to them in other SMB solutions doesn't have the depth and breadth that Sprout has to offer.

Okay, thank you.

Okay.

Thank you. And the next question comes from Bhavan Suri of William Blair. Your line is now open.

Hey guys, let me now get my comment. As to great quarter coming on the gate there. So, and that be done and I apologize for the background noise, sitting out here, so just bear with me. I guess, I wanted to touch first on the in NDRR strength. The Net Dollar Retention Rate Strength. It's a pretty dramatic increase from '18. And I know you sort of touched in a variety of factors there, I love them scanned a little more color of how much is it sort of cross on listening and some of the new models reputation analytics driving it versus steep growth in upsell. How should we think about what that mix looks like? And then how does how do you think about 2020 progress, on the NDRR metric. And then I have a quick follow-up.

Yes. This is an another one where Ryan may certainly have some color to add. I think when we think about the improvements there I think we're improving on kind of both components of that being retention as well as growth. I think certainly with the higher quality customers that are making up a larger population of our customer base, the add-ons that add deal sizes et cetera, growth is going to be a disproportionate contributor there. But we're also seeing improvements in our the rest of the components of the net dollar retention. So, keeping customers longer et cetera. I think a lot of that has to do well there is aspects for both of those. One is prior to really the end of 2019, we had not been in actively supporting and onboarding customers at low-dollar figures estimate they bought. So, we've started making that investment in 2019. We've seen that starting to pay up where every customer that buys from us now has an opportunity to work with someone on our team to make sure that they're fully utilizing the product, to make sure that they're adopting all of the things that they can be getting value from. And so that's great for that kind of those that early retention and building a strong relationship for a lifelong customer there. And then, on the growth side, those investments that we're making in the with the group team specifically and a lot of the not only the folks that we've hired but just developing our muscles in our playbook around what it looks like to be engaged with customers who may have been spending money with us for years but opening up those opportunities and expanding those relationships in pretty dramatic ways.

And this is Ryan. Just in the -- the only piece that I'd add on here is on top of the onboarding and the expansion from that new growth team and your focus growth team as well as the new products coming onboard. As you might imagine as we add additional products to the portfolio, we're solving more and bigger problems for those customers. It's also having a great impact on retention. So, all of those things combined are or having strong improvements for us and we feel really good about the upcoming year.

Got it. And then, just that there was a quick one and that's direction of how NDRR wants to go, how do you think about NDRR trending over 2020. I think that's for Joe but one quick one for you Ryan. What have you is on the sort of funnel here. You've had about by 700 customers quarterly basis this year very consistent with the historical add. I guess and you're looking at 2020, how do you think about opening the top of that funnel as an increase in the number of customer ads as you make those marketing investments a very effective and the sale. Like, how do you think we should think about that? Thank you.

Well, yes. I would say that certainly we're happy with the consistency there. What we're really focused on is the revenue contribution of those ads. The certainly the absolute value is important and certainly if we wanted to really juice those number up, there is lower price points et cetera. But we're focused on making sure that the overall revenue contribution of the ads within those quarters is continuing to increase. That also gives us as I referenced a little bit earlier, just an overall healthier customer base. And folks that are coming in at a higher price points for less volatile, they are more likely to grow et cetera. So, we're thinking about I think the quality in the revenue contribution of those add more so in the net amount. Of course, I think that's important for us to keep an eye on but what we're seeing in billings growth, revenue contribution to the quarter ARR growth et cetera is probably to think that we're more focused on in terms of customer editions.

Got it. Thank you, guys. Thanks for taking my questions.

You got it.

Thank you. And our next question comes from Tom Roderick of Stifel. Your line is now open.

So gentlemen, thanks for taking my questions and congratulations on a great first quarter at the gates. Justyn, let me throw this one at you and I appreciate you guys breaking out the impact of Simply Measured on the with the legacy business going away. What I'd love for everyone to understand and get a little bit more detail from you is just can you talk through how the mechanics of Simply Measured sort of coming out of the revenue stream work. And by that I mean how are these customers churning off gathering you've turned the products off or at least or Sun Setting them but then what are the mechanics of being able to sort of upsell cross-sell to that install base. Just take us through that and how that can ultimately perhaps even positively impact the newer enterprise listening product. Thanks.

Yes, definitely. So, with in terms of kind of how that is unfolding within the organization and the customer base, we made a conscious decision in Q4 to really be aggressive about the end-of-life of that product. We have not turned it off yet but when we look at the small dollar amounts which are obvious in the breakout there relative to the cost of overhead of supporting that product, the opportunity cost of getting them on a new or more modern product, et cetera. We felt like that was the right trade-off to make. So, both internally in terms of technical resources and also in conversations that we've had with our customers we've made it pretty clear that that product is going away and we're looking to not only move them to what we feel is a better product assuming that their use case matches but also again to shed a lot of that overhead and infrastructure costs related to that. So, we're seeing that happen and I think the way that that plays out in terms of customers and our opportunity to get them up or out is largely a function of Simply Measured had a portion of their customer base that they serve that is not our target customer. It's not necessarily the use case that we intend to continue to serve. So, that's where a lot of the expected burn-off comes from. And then Ryan's team is engaged with all the folks where we feel like we've got an opportunity not only to get them moved over to the new product but then also get them adopting the rest of our products. So, we're actively having those conversations. We've got a team of folks that are dedicated to having those conversations. You may have a little to add on that. I'm not sure. Nope, Ryan shaking his head he said I covered it well.

Perfect. So, Ryan may get a chance to chime in on this one but my follow-on on that and looking at that $10 million ARR number you offered up on listening that's a pretty needy number for that first year out of the gates for a product like that. WOULD love to understand when you look at the construct of those customers, how much of that’s of that customer base was sort of upsell cross-sell to your install base versus net new. And then how would you encourage us to think about how that business can grow as we look ahead to 2020 of that $10 million base? Thanks.

Yes. I can start. This is Ryan. It's pretty well balanced across new business and then growth within our existing customer base. From our new business perspective, what's been really exciting for us and actually this applies to growth as well, what's been really exciting is that we're able to sell the product into every segment. So, it's traditionally listening has been just an enterprise type product but we're seeing great demand from our SMB or mid-market and in our agency as well. So, and Justyn alluded to this at the beginning of the call. It's definitely contributed to the growth and our ACVs, so lots of progress there on the new business side. We're landing larger customers. They're buying more products. And on the growth side, we've got this growth team now that we really spun up in 2019 that's going back to after the 23,000 customers that were really just using the core product and they're able to go in and sell the value of that social data on listening. So, seeing great success on both sides and continuing to see really good progress every month across all segments both on new and on the growth side.

And thinking about kind of the longer opportunity, I think it's I think too early to pick a number for it or to it but as Ryan mentioned and we talked about earlier, the demand that we're seeing across all of our segments the fact that this isn't something for just the largest enterprises makes us think that those early adoption numbers a 1000 customers using those products, et cetera have a lot of room to grow within that existing customer base. And I also think it's really important and as we think about our investments for 2020, to remember that these this is VI of these products essentially, right. This is us making a debut. This is us getting that V1 in the market not to suggest that we don't constantly iterate on those but we have a lot of headroom, a lot of room to grow on those offerings. And we're pretty excited about across the board for reputation, listening, and analytics, some of what we've got in store that we think it could be meaningful for those for all three of those offerings.

And I'll just quickly just from a sales perspective'ish, give a shout out to our product team because the way that they've built this product it's so approachable that the business user the end user is actually able to leverage that listening tool which is been pretty different from what's traditionally existed in the marketplace where you typically needed someone who is very technical in nature or consultant to make it work and we have marketers using it and using it real-time.

Outstanding. Thank you for the details, nice job.

Thank you.

Thank you [Operator Instructions] Our next question comes from Richard Davis with Canaccord Genuity. Your line is now open.

Thanks. Maybe we'll do a first a raise on Stan's question. I'm just wondering is social media impact and methodology kind of uniform between countries? In other words are there levers, are the levers the same or are they more effective if you're in France or do you care more about other things and I'm just trying to kind of think about this because I wonder how it affects the feature adoption overseas.

Yes. It's interesting. I think it has a lot to do with obviously the maturity of social and some of our other opportunities around the world. We also see that there are different consumer behaviors. For example, in some cases the U.S. is a bit behind in terms of what brands and consumers are doing with each other over social channels. And so it's going to be a bit nuanced by region. For example, I think Europe tends to look a lot like North America in terms of adoption rates and how it's used, et cetera. I think when we look into some of the markets in South America, adoption maybe at a lower rate but reliance on social as a primary communication channel becomes more interesting. There are obviously impacts in terms of what the output in kind of collective revenue of those brands or businesses operating in those local regions might be and their ability to spend. So, we'll continue to kind of fill that out but the good news is that we've seen fantastic adoption with great unit economics in all of the markets that we're currently in. And so, we think as we continue to refine that playbook, make those investments in market and as well as some of those markets just getting more mature that it's likely as large or larger today with even more upside relative to the U.S., we think long-term.

Got it, that's super helpful. And then what does, we've asked a bunch of questions on this already in this call but on the customer success do you have enough data yet to know kind of what the good salespeople have like a killer sales point to get people to upgrade or upsell? Is it hard dollar ROI, speed the market we found like that I could say I joined the firm as a customer success rep what would be my like killer thing that I would use?

Yes Richard, are you looking for like kind of what's the catalyst for that growth conversation?

Yes, exactly. Yes, like what's gets me over the hump.

Yes. From our current customer perspective and the good news is we have just so much data with 23,000 customers. Our customers are living in the application every day. It is truly the place that they come in and they do their work. So, we've got a good read on where customers are spending their time in the application today, how much they're publishing, how they're engaging with their customer base. And truly, especially in the listening in the analytics side it's about the data like the opportunity to show them how they might be able to better utilize the data and the analytics that live within the social profiles they own today but also the opportunity to tap in to that huge corpus of social data that exists through listening. So, for us it's really looking at the way that they're utilizing the tool today and how engaged they are on social and that gives our customer success team and our growth teams a great indication of where they should be prioritizing their time and we're just tapping into the data side of being able to show them what that data might be able to give them in terms of how they compete against their competition and how they generate content, how they might want to market. So, it's using the data in the application and then from there showing them how that data might help them grow their business.

And on the customer side I'll add the catalyst what we're seeing often is additional departments that are being brought into social. It may have historically lived within marketing or a subset of marketing. We're seeing expansion there. Consolidation of tools, they want to be able to do these things in one place. They don't want to have separate reputation in publishing and engagement tools as well as just the sort of internal importance of social. And to a smaller degree but still an important inflection point I think for customers is there are more networks that their customers want them to be responsive and involved in. Everyone you add, starts to get incrementally more difficult to do that at scale without Sprout. So, I think those are some of the drivers that are happening within our customer's organization that are leading to productive conversations on that front.

Got it, super helpful. Thanks.

Got it.

Thank you. And ladies and gentlemen, this does conclude our question and answer session. I would now like to turn the call back over to Justyn Howard, the CEO and Co-Founder for any closing remarks.

All right, yes. Thank you all so much not only for your time today but all of your time along the journey and the time spent with us to understand the story and few more about Q4 as well as what we want to do in the coming year. Also certainly I want to thank our employees, our customers and our partners for the hard work and support. Very busy uniquely busy quarter in getting this company out into the public market but also just fantastic from a momentum perspective. The market opportunity continues to be incredibly exciting. The momentum that we're building heading into 2020 and we look forward to talking more about how that's going when we speak to you all of you next quarter. Thanks a lot.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, you may now disconnect.