Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sprout Social First Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Alex Kurtz, VP, Investor Relations and Corporate Development. Please go ahead.

Thank you, operator, and welcome to Sprout Social's first quarter 2025 earnings call. We will be discussing the results announced in our press release issued after market close today and have also released an updated investor presentation, which can be found on our website. With me are Sprout Social's CEO, Ryan Barretto; and CFO, Joe Del Preto. Today's call will contain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking. These include among others, statements concerning our expected future financial performance, including our Q2 and 2025 outlook and business plans and objectives and can be identified by words such as expect, anticipate, intend, plan, believe, seek, opportunity or will. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of the risks and other important factors that could affect our actual results, please refer to our quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2025, to be filed with the SEC as well as our most recently filed 10-K. During the call, we will discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures, along with the reconciliations and the most directly comparable GAAP financial measures are included in our first quarter earnings release. This has been furnished to the SEC and is available on our website at investors.sproutsocial.com. With that, let me turn the call over to Ryan. Ryan?

Thank you, Alex, and welcome to our first quarter earnings call for fiscal 2025. We reported first quarter results with revenue of $109.3 million, representing year-over-year growth of 13%, highlighted by strong revenue execution and operating margin expansion. Our current remaining performance obligations, which reached $255.8 million, represented 21% year-over-year growth. Our go-to-market teams delivered another solid quarter with 22% growth in the $50,000 ARR customer cohort. We also landed strategic wins with global brands like Palo Alto, NASCAR, Interscope Records, Avis Budget Car Rental, and Axos Bank. These customers demonstrate our continued execution and strategic fit with the most socially sophisticated enterprise customers. We are expanding our sales capacity this year and will continue to throughout the first half of the year, which we believe will drive further momentum in our pipeline generation and enterprise coverage as we move into FY2025 and beyond. We're also excited about the continued momentum in our influencer marketing product, which has become increasingly strategic to how we engage with our most socially sophisticated customers. I also wanted to provide a quick update on the macro environment and what we experienced during the quarter. Q1 tracked is expected with spending patterns similar to those seen in 2024. We continue to see elongated procurement and purchasing processes that were very similar to the prior year. While we expect these impacts to persist through the remainder of 2025, we were encouraged by the enterprise pipeline generation during the quarter, and are seeing the early signs of the improved process and discipline that our new GTM leadership is bringing to the company. Building on last quarter's discussion about Sprout's unique position in the social media management market, I want to share how our products are enabling brand discovery in today's rapidly evolving digital landscape. Also provide updates…

Thanks, Ryan. I'll now run through our financial results and guidance. Our first quarter results were highlighted by a record quarterly non-GAAP operating margin of 11.5%, up over 500 basis points from the year ago period. We generated a record $19.5 million in non-GAAP free cash flow during the quarter, up $8.1 million from our non-GAAP free cash flow in 1Q 2024, an increase of 72% on a year-on-year basis. We remain committed to growing operating leverage on a fiscal year basis, and we'll continue to evaluate our ability to drive greater profitability as the year progresses. On to a summary of the quarter. Total revenue for the first quarter was $109.3 million, representing 13% year-over-year growth. Subscription revenue was $108.7 million, up 13% year-over-year. The number of customers contributing more than $10,000 in ARR grew 6% from a year ago. The number of customers contributing more than $50,000 in ARR grew 22% from a year ago. Q1 ACV was 14,961 up 16% year-over-year. As Ryan discussed earlier, our strategy to drive ACV growth remains focused on shifting to a higher enterprise mix and strengthening premium module attach rates such as influencer marketing and customer care. RPO totaled $360.2 million, up from $351.5 million exit in Q4 and up 24% year-over-year. We expect to recognize 71% or $255.8 million of total RPO as revenue over the next 12 months, implying a cRPO growth rate of 21% year-over-year. Non-GAAP operating income totaled $12.5 million, which is well ahead of the high end of our outlook. This was up from $6.0 million a year ago that equates to a non-GAAP operating margin of 11.5%, a quarterly record for operating margin. We're pleased that our progress here demonstrates our focus on continued growth and our margin profile. Before moving on to guidance, a…

[Operator Instructions] Your first question comes from the line of Raimo Lenschow with Barclays. Your line is open.

Perfect. Congrats on a great start. Ryan, you mentioned some interesting enterprise wins. Can you talk a little bit about what you're seeing there more in the early stages of the pipeline? Like obviously, it's volatile out there. But like it still sounds very interesting that enterprises continue to do some work there. Can you just kind of go a little bit deeper in terms of what you're seeing in the field there, especially on the high end of the customer base? Thank you.

Thanks, Raimo. Appreciate the question. Yes, we had some great wins in the quarter across the board. I think 1 of the things that's most interesting to us here is just a wide variety of industry and verticals you see, right, even in the Fortune 500, you've got med device, you've got restaurant chains, you've got food and bev. From a pipeline perspective, we've seen some really healthy things from our enterprise team during the quarter. A lot of credit to the team in terms of just the execution in the market right now and the conversations that we're having. I think this really comes down to where our customers are – and more and more, they're on social, right? We're seeing customers on social two and a half hours a day and there's a ton of gravity for these enterprise customers to manage them there. They need a platform like Sprout to be able to engage with them, and that's from a marketing perspective, a care perspective and analytics perspective. So these are all the types of things that we're solving for customers today. And the team is finding themselves in more opportunities than before at a larger scale. So just really good progress on the pipeline creation.

Your next question comes from the line of Rob Oliver with Baird. Your line is open.

Great. I appreciate it, guys. I will try to squeeze a two parter in, if I can. Ryan, for you. Just, I guess, an extension of Raimo's question, if you can comment a little bit more on the pipeline for enterprise for this year. And I know you've spent some time with Mike trying to make sure you guys identify kind of that ideal customer profile, as you've called it. And I'd be curious what progress you guys are making to make sure you're maximizing your higher touch points at enterprise. Yes, that's two. Thanks guys, appreciate it.

Yes. Thanks, Rob. Yes, Mike and the team have been doing a really nice job there. I mean one of the biggest things that we're really focused in on, and you mentioned it in the question is just ideal customer profile. And so one of the benefits for us is with nearly 30,000 customers across so many industries and verticals, we've got a really good sense of where our opportunities exist. And then on top of that, when our customers are on social, we get really good signal in the things that they're doing, right? We also, as you all know, we lead with the product in a trial. So when prospects come in even before they sign a contract and they're in our trial, we get a really good sense of how they're leveraging social, and we get really good data and analytics that the team can use to make sure that we're engaging in the right places. We're ensuring that they're using the product in the right places and that we're solving their biggest problems. I think from an enterprise perspective, as you might imagine, customer care matters a ton to them. If you're not on social in front of your customers, it's really reputation roulette and these customers care deeply making sure that they're all over it. So those are some of the highlights for the team and where they're spending time with the enterprise.

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

Great. Thank you very much. I wanted to follow up on your comments, just about a really strong pipeline heading into the year. So could you just give us some more context for some of the pipeline coverage ratios that you're including for 2025. Kind of where you may be today versus prior periods? And how that gives you comfort to be able to move through a potentially more difficult macro, although I kind of recognize we're not seeing any of the impact yet today? Thank you.

Yes. I appreciate the question. We feel good about the coverage that we've had here. Similar to some of my comments just before the team is doing a really good job in terms of pipeline hygiene, we're seeing really great effort in terms of creation from the top of the funnel. As you might imagine, we're paying very close attention to all of the metrics with pipe creation and pipe velocity certainly, like all of us paying very close attention to the things that are happening in the macro, currently not seeing anything material in terms of changes but paying a lot of attention there.

Your next question comes from the line of David Hynes with Canaccord Genuity. Your line is open.

Hey guys. Two for Joe. Joe, I'm getting 6% cRPO based bookings growth. Is that a decent proxy for enterprise bookings growth? And if not, what's it missing? And then the second question is, what are you seeing from a gross retention standpoint in that 10,000 to 50,000 cohort?

Yes. Thanks for the question, DJ. When we look at cRPO, I think there's a couple of things that we've talked about before. And I think overall, we were pleased with the growth, the over 21% growth cRPO in the quarter. I think there's two things that I always skew that number, as we talked about before. Number one, is you've got the seasonality, right, from Q4 to Q1. Q4 is always going to be really strong when it comes to cRPO and then that's going to kind of burn off in Q1 and always be a little bit impacted by that seasonality. And then number two is just we still have the month-to-month aspect of our business. And so that kind of – we've talked about this over the longer term, the cRPO growth number is going to be a real good indicator, but we're still at a point where we're still going to converge on that with revenue over time. With the gross retention side, we continue to see really strong gross retention in the quarter. It was up again quarter-over-quarter. And I think for us, it's a really strong indication of how mission-critical our software is to our customers. And so continue to see improvement on the gross retention, not just in the enterprise, I would say, across our customer base, even down the SMB, we're seeing strong gross retention there.

Okay, thank you. Next question, please.

Your next question comes from the line of Adam Hotchkiss with Goldman Sachs. Your line is open.

Hey guys. This is Greyson Sklba on for Adam. Thanks for taking the question. I wanted to touch on profitability quickly. Pretty nice beat in the quarter there as well as a nice raise to the full year guide. If you could just talk a little bit about what drove that beat? And if there's any sort of changes or impacts to the full year investment philosophy following the outperformance in the quarter? Thank you.

Yes. Thanks for the question. As far as what drove the beat a couple of things. One, the revenue overperformance was one of the key areas. The other one is some of the hiring that we had in the quarter was more back-end loaded in the quarter. And so that definitely benefited us. But what I will say overall when you look at the full year guide, we're really trying to make sure we're still maintaining some flexibility to adjust for any kind of unknown risk throughout the year. But what I would say is very similar to Q1, if we continue to outperform on the top line, you'll definitely see more leverage in the business throughout the year.

Okay, thanks. Next question, please.

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

Hi, everyone. This is Rob Morelli on for Scott. Thanks for taking the question and congrats on the quarter. I understand the Agentforce integration was still pretty recent. Any commentary you can provide on how that might have impacted pipeline or deal flow for the quarter? And any thought on the sort of contribution that can happen 2025 pipeline trends? Thanks.

Yes. Thanks, Rob. I appreciate the question. We're really excited about Agentforce and the partnership. This is just another chapter in terms of the partnership we had with Salesforce growing from the Service Cloud. We're really early there. Obviously, we just went GA with that integration, we had a chance to talk about it a little bit at Sydney. We'll have a chance to talk about it as we head into marketing connections and then again, at reinforce at the end of the year. But nothing else to call out this early in the stage. And as we come back, I think we can share a little bit more color around some of the progress that we're making there in the customer stories.

Okay, thank you. Next question, please.

Your next question comes from the line of Allan Verkhovski with Scotiabank. Your line is open.

Hey guys, thanks for taking the question. Good to see numbers for the full year going up. It's up and bottom line. I noticed your Q2 revenue growth rate that was guided to is higher than what you guided for in Q1. I know the comps are easier, but given the Q1 beat here, can you just maybe talk about the biggest puts and takes with respect to the guided Q2 revenue number? And then a quick follow-up. What drove the current deferred revenue in the quarter to fall for the first time on a sequential basis? Thanks.

Yes. Thanks for the question. On the first point, I think when it comes to the Q2 guide and then also on the full year, I think the only thing to call out there is – and I mentioned this in my prepared remarks, is – we're just trying to take a very measured approach in the way we guide. It's also – Ryan called this out as well. We're assuming that the macro is consistent with what we saw in Q1 and most of 2024. And so we feel pretty good about the guidance we set for the year and our ability to achieve those numbers. As it relates to deferred revenue, I think the biggest impact there is just the fact that we signed such large deals in Q4. And I think Q4 last year, was one of the largest increases we've seen when it comes to annual multiyear deals and the impact on deferred revenue – and as that burns off in Q1, that was just a bigger sequential impact because of the size of the deals where we were landing in Q1 – or Q4 and that kind of drove that impact on Q1.

Okay. Thanks, Allan. Next question please?

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

Thank you so much. One for you. It seems like there's certainly going to be a lot of focus this year and beyond on cross-sell platform expansion, right, selling the entire Sprout platform as opposed to just individual products, especially with importer marketing and care. I'm curious how we should think about just penetration with those solutions. And when you're thinking about increasing the role that they play in your growth rate. Is that mostly going to be through existing customer expansions or through more of the larger kind of enterprise deals that you're trying to – that you're starting to sell where we'll see attach rates for those increase?

Yes. Thanks, Arjun. I appreciate the question. You're right. The cross-sell, the multi-products are a really important part of our strategy. We're continuing to see some really healthy trends there. A big part of this and I mentioned this in the prepared remarks, is just making sure that the teams had the right level of training across all the products and then it's built into the commission plans and the compensation models so that's been heading well. We also, from a penetration perspective, and we shared this before, we continue to see good progress on that, but we're still very early in the penetration rates for clearly, our current customers are almost 30,000 and then lots of opportunity as we're landing new logos. So when I think about the growth rate for existing first new business, it's going to be a bit of both. We see opportunities to go and expand our current customers. And then we see a lot of opportunities on the new business side. From an expansion perspective, in my prepared remarks, I shared a great customer example of a restaurant chain that increased by $600,000 and then on the new business side, we continue to see more of those customers showing up, wanting to solve more than one problem, wanting to do more than one specific area. So both of those things are going to be really important for our growth strategy.

Okay, thanks Arjun. Next question please?

Your next question comes from the line of Brian Schwartz with Oppenheimer. Your line is open.

Yes. Hi, thanks for taking my question this afternoon. Ryan, I just wanted to ask about kind of the state of the sales organization. You did say in the introductory comments that you are increasing investments this year in your sales reps, I guess two questions. One is, are you increasing capacity? Or are you just kind of pruning the low performers and then to bring in some new players there? And then along that line, do you feel that you're through the sales transition? Are you happy where the organization is in terms of targeting the upmarket, which is the longer-term strategy for the company? Thank you.

Yes. Thanks, Brian. I appreciate the question. Yes, it is increasing the capacity. And we tend to see this as we head into the back half of the year as well just in terms of combination of hiring reps, but also having those reps being more productive in the back half. So you'll see naturally the quota-carrying capacity increasing as we head into the back. And in terms of the sales transition, yes, we're feeling really good about all the things that we've done. I wouldn't really call out any transitions per se. I think that the biggest thing that Mike and the team have been focused in on as we turn the year was just stability and getting it to fast start. So if we think about making sure territories were in place in Q1, very early compensation plans, making sure that the enablement plans were set and that the teams knew exactly where our focus areas were. Those were all things that were achieved really well in the quarter. So feeling really good about where that sales organization is and our opportunity to execute here.

Great. Thanks. Next question please.

Your next question comes from the line of Jackson Ader with KeyBanc Capital Markets. Your line is open.

Great. Thanks for taking our questions guys. Our question is about the potential for, I think you mentioned in the sales cycles elongating if things were to get worse macro economy. And I'm just curious, like, is that because people are just simply trying to hold on to their cash a little longer? Or is there something that's like where because of the area that the Sprout plays, right, social media management, is there something where there are like advertising or social media budgets that might impact how you guys book your business? Thank you.

Yes, I appreciate the question. Look, one I would just call out, we're not seeing any of those material changes today. So as I think about the Q1 performance that we saw and early in Q2, the dynamics look the same as they did in 2024. So really nothing to call out there. And then I would also just highlight we don't have exposure to traditionally add budgets where we play on the organic side. And again, I'll go back to just the mission-critical nature of the product, right? Our customers are in the app three to four hours a day, they're leveraging it across a variety of use cases. Customer care is one of the biggest ones, our customers need to be where their customers are. And more and more, we're seeing consumer behavior change where those customers are showing up in social from a customer service perspective. They are going there for search and for discovery. The brands that work with us are really needing that data, the analytics and the social listening data to inform their strategy. So we feel really good about the positioning of Sprout and the value that we're adding to our customers. And then if I just think about the gross retention dynamics that we've been seeing and the improvements there, I think it just really shows the resilience of the business.

All right. Thanks for the question.

I will turn the call back over to Ryan Barretto for closing remarks.

Great. Thank you very much, and thank you all for joining us and for your thoughtful questions. I want to end by thanking our incredible team here at Sprout. Their dedication and commitment and hard work drives everything that we're achieving. We're incredibly excited about the road ahead and confident in our strategy to deliver meaningful value to our customers and our shareholders. We appreciate your continued support, and we'll talk to you all soon. Thanks for joining us.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.