All right, thanks everyone for being here. We have with us Sprout Social, Justyn Howard, Co-founder and CEO, Joe Del Preto, CFO. Thank you guys for taking the time. Justyn, since you're here, maybe we'll kick it off. To set the groundwork, we'll start at maybe the beginning. I want to understand how you founded the business. What was the opportunity? This was 2010, so maybe walk us through the early parts of it, what the opportunity was then, when I think Meta was still five, six years old at the time, and what made you want to start this business in social media management?
Yeah. Yeah, and it's interesting and a little nostalgic to go back that far 'cause so much has changed. But when we started the company, the idea was I was coming from the enterprise software space. I had started to spend a decent amount of my time on social platforms, which at the time were LinkedIn, some blogs. Twitter and Meta were still primarily consumer products at the time. But I'd spent some time there being able to connect with and kind of look over the shoulder of some leaders in the industry, some people who were really sharp at whatever it was that they did. And that sort of just led me into starting to think about and utilize social for commercial purposes.
What is this going to look like from a business perspective, to be able to build relationships, to be able to, engage with, and, have, learn from, and have ongoing relationships from folks in my orbit for what I was doing at the time? It made me start to think really kind of deeply around what does social mean for business moving forward? What does it mean to the way that businesses communicate with their consumers? What does it mean to the way that professionals communicate, et cetera? Started getting really excited about the idea, and we could see it happening in the early days. On Twitter, there were a couple really early examples.
Companies like Zappos stand out to me, and there were a few others that were just doing really interesting things for their customers and community on social. But at the time, I would say, you know, less than a handful of companies had anyone dedicated to social media. It wasn't something that folks were spending time on. And I became convinced that this was going to be very important and meaningful in terms of, this is a communication channel, that if it grows the way that we think it's going to grow, is going to become pretty important part of the dynamic for customer relationships. And so started building against this idea. Was fortunate to be working with the co-founders who kind of shared my excitement around this opportunity.
But at the time, our job was, how do we help businesses that are doing absolutely nothing in social media today? How do we help them understand it, understand the potential, make it really easy for them? How do we sort of build around this onboarding into social for brands? Because that's still where 99% of our customer base was. And so we started with that, and the idea was, let's bring all of social under one umbrella, right? At the time, it was Facebook and Twitter, primarily, with others soon to follow. But how do we bring that and all of their profiles, bring it into one place, make it really easy for them to engage with their audience, to publish content, et cetera?
This is the organic side of social-
Yeah.
Not necessarily the advertising piece.
Yeah, the advertising piece was probably where most of the emphasis was initially. For brands, it was not how do we engage with our audience, how do we create compelling content, and things like that. It was, "Oh, this is another place for us to advertise.
Yeah.
Let's put up advertisement. That's what social media is to us." That was not where we felt the long-term and kind of the bigger opportunity was, so we didn't build against that problem space.
Yeah.
So we spent those early days building around this idea that brands need a way to utilize social effectively. And over time, and I would say probably two or three years in, it became very well understood, I think, to brands globally, that, "Okay, we have to be here. Our consumers are here. This is where they want to talk to us. This is where they want to engage with us. We have to figure out how to handle social." And so we started building against a more sophisticated set of problems, building capabilities for larger teams, multiple use cases, multiple departments being active in Sprout, more scaled type of problems, and built against that for the next several years. And when we started, we didn't have a particular audience in mind.
We weren't building for the small business, for the enterprise. We had a bunch of both, you know, right out of the gates. We were just focused on the problem set and this idea that this was going to be an important aspect of tooling within an organization as we move forward, built up our customer base and our reputation and have always been recognized for incredible products, and then have been on this journey over the last, you know, call it five, six years, a lot of it since we've become a public company, of really now starting to get to the more mature problem sets-
Mm-hmm.
of, okay, an organization has adopted social in a big way. They're invested in it. They understand how important it is. There's C-level folks involved. There's budget allocated. This is a big part of the equation for us moving forward. We need a world-class platform to manage that. And that is increasingly Sprout, and that's been a, I think, a really compelling part of our growth story over the last few years.
Maybe to pick up on that point, there was, I think as you, as you had mentioned, you know, you've been on this journey to focus on more complex problems, which has, I think, naturally kind of dragged you upmarket, and you've made some changes in the business to focus on that segment with more emphasis.
Yeah.
I'm curious, as you just think about the market opportunity, is it naturally the problem that you're solving geared more towards larger enterprises? And is the market in SMB just smaller than the enterprise market for social media management? Like, how do you think about maybe the balancing-
Yeah
... act with those two ends of the market?
So from our perspective, I think that, and I say with a lot of confidence, there's no company on the planet, regardless of size, that doesn't need to have an answer for social, that isn't going to need, over the next decade, to centralize on a platform to manage this. You simply cannot be a relevant, competitive organization if you don't have a strong handle on social, both as a marketing platform as well as a place where you're engaging with your customers. But everyone's on a different spot in that journey, and while social, I think, is just important, just as important to a small business, it's strategically and exponentially more important and a bigger investment area for larger companies.
The intention with Sprout all along was we want to build something that is approachable and that customers of all shapes and sizes can be successful with. But for us, in terms of where our priorities lie, when we have a customer base that's five times more profitable, that's, you know, in some cases, 100 s of times higher ACVs, et cetera, as we think about where we're spending our time and investment as an organization, that's clearly where the emphasis needed to be. It's the responsible thing for us to do, to be addressing the part of the market that right now has the greatest gravity, the biggest opportunity.
And what's interesting about that part of the market is that even our largest customers in the large enterprise, based on what we know about their operations and the opportunities that we're still working on with them, are, you know, 10, 15, 20%.
Mm
... sold to, penetrated. And those are the ones that have adopted something.
Yeah.
You take the rest of the market that is still greenfield, and there is just so much importance, not only to our business, but when we think about the business of these companies that we're serving, how strategically important this is going to be to get right for them over the next decade. That's where we're spending our time and seeing a lot of success. You have seen that out, the enterprise growth numbers that we've been putting up over the last several quarters. That's the fastest-growing part of our revenue as well as our investment.
Yeah. And so, when we think about the penetration, which is, you know, as you called out, it's maybe somewhere 10%-20% penetrated even in your larger customers-
Yeah
... that incremental 80%, what needs to happen before you can capture that? Is it something at Sprout that you need to change from an execution perspective? Is it waiting for those customers and their social strategies to mature?
Yeah.
What are the big kind of X factors?
Yeah
... before you can get that balance?
Yeah, so a lot of that has to do with where they are in their journey and their readiness to operationalize social across different parts of the organization. So I would say for the majority of our customer base, for brands that have adopted a platform, they are still somewhat focused on sort of the nuts and bolts marketing aspects of social. And that might mean a small team within the marketing department, it might mean big teams across several marketing departments, but that's where a lot of the emphasis has been.
When we look at a lot of the larger opportunities, larger deals that we've talked about over the last several years, where a lot of the opportunity in front of us lies, the companies that have reached a level of maturity where they're saying, "Okay, now how do we operationalize social for customer service, or for sales, or for hiring, or other business functions?" Because if you think about it, the way that we think about social, it's very horizontal in the sense that just like email or phone, it's a communication channel. It's increasingly the preferred communication channel, but it's just a communication channel, which is going to cut across every aspect of business, from HR to product feedback, to customer service, to sales, influencer marketing and acquisition that we made last year, typical marketing, PR, et cetera.
A lot of that, that penetration opportunity, has to do with where are they on that, on that maturity curve. What I think is maybe not fully understood, we have this perspective, I think most people don't have this, have this perspective, is that while we've all, as consumers, been using social for a long time, and it seems pretty, straightforward to turn that into something that we can operationalize in an enterprise organization with potentially thousands of users in our platform, to make it, usable and effective across all the departments I mentioned, that takes a lot of time.
Yeah.
There's an evolution and a maturity cycle there that we're still very, very early in.
And, so now if we think about maybe what's been happening in the near term, the last couple of quarters, and I think if, if we look at kind of your outlook for this year, there's a deceleration in growth implied. Is this kind of pause in spending as businesses kind of evaluate their social strategies? Is it macro weakness? Like, what, what are some of the factors?
Yeah.
-that, you know, as you're working through this transition, that you're waiting for before growth kind of picks up-
Yeah.
From here?
Yeah. So we haven't seen anything to suggest that demand is any different, that the, that the importance of the strategic importance of having this solved is any different, that the, that the market opportunity has changed. If anything, we expect that, you know, looking back a year from now, the market opportunity just continued to grow the, the same way that it has. I think Q1 was a challenging environment across the board from a software spending perspective. We made, and we referenced in our earnings call, some fairly routine adjustments within our go-to-market strategy early in the year that took some of our sales folks off the floor, et cetera.
I think had we sort of fully understood, us and others kind of fully understood what the buying environment was going to be like in Q1, we would have had much more emphasis on pipeline, getting those deals closed, et cetera, because largely what we're seeing is that deal cycles have elongated a bit. We're not seeing things fall out of the funnel. We're not seeing things being chopped for budget, et cetera. It's just slower, right? We're also, as a company, to Sprout specifically, we've got a pipeline now that is much more biased toward mid-market enterprise. It's much more biased toward end of quarter, end of year buying cycles.
And so the composition of our business in a, in a very good way in terms of the long-term growth prospects of the business, the composition of our business just continues to evolve. And so we're going to be. Macro is going to touch our business a little differently than it would have three, four years ago. And many of the cycles like this that you've seen since we became public, you've seen our performance consistent across the board, while others were dealing with some of these similar kind of trends and cycles. Our business being and becoming more enterprise-heavy has changed that dynamic slightly. I would still say that this is a category of spend and a problem that businesses are still prioritizing highly.
If you look at the research out there, this is still an area that's getting increased budget, increased priority. It's top of the list. So we're not as affected in the same way by macro, but at the margins, I think we certainly felt, you know, a decent amount of that in Q1.
Okay. And the internal, the go-to-market changes that you're making, you mentioned they're maybe tactical or, on the smaller side of things. What are the big changes that you're making and that you're working through them?
Yeah.
Yeah.
Yeah. So, you know, the transition that we've been making with this increased investment in mid-market enterprise specifically and up into the strategic enterprise, this is something that's been ongoing for a couple of years. It's producing great results. The overall health of the revenue base is significantly better than it was a year ago, two years ago, et cetera. The changes that we make on an annual basis, and one that was kind of unique to this quarter, coming into the new year, we'll redraw territories in some cases for the sales reps as we add more, particularly the enterprise, the books change a little bit, et cetera. We cut all of that, and we do that either December or January in any given year.
This year, we also saw a ton of success with some piloting that we did in verticalized sales teams. In 2023, we made a more concerted effort in that area and standing up a few new vertical teams in January. And the other thing that we did was for an acquisition that we made second half of last year, a company called Tagger, which has been very successful so far. It's something that we're very excited about. We went from a dedicated sales team that came along with that acquisition to now training, and we did this in January, to training the entire sales organization on that product, so that we can take it into every deal because we're seeing interest across the board.
All of those things were, again, fairly routine changes, but in a tougher environment, like we saw in Q1, had a little bit more pronounced impact.
From just from an operational perspective, as you're thinking of all right, even a collection of kind of small, routine, tactical changes, is the sales team now kind of on like stable footing to operate from here going forward? Are they still digesting some of these changes? Are we towards the end of it? Are we towards the middle of it, the beginning of it?
Yeah.
Where are we in implementing the changes?
No, I think from an operational perspective and the things that I spoke to, that's something that's digested within the first, you know, six to eight weeks of Q1. There's some ramp time for vertical teams and things like that, but these are not large kind of wholesale changes that require a lot of ramping or adjustment. I think the continuous change that you'll see from us, and again, this is something that's been going on for the last several years, is we continue to become more sophisticated on our sales force, building out the solutions engineering team that is contributing to those deal cycles. But I think that's an area where we are very helpful, very healthy and have shown a lot of success, right?
When you think about the growth that we saw last year, some of the logos that we've talked about, and the deals that we've talked about over the last half of last year, like, that part of the business is operating incredibly well and seeing a ton of success, but we're going to continue to refine it, right? Redraw those territories, stand up the vertical teams, et cetera, and continue to get better and better at our execution in that part of the market because the opportunity is so big.
One of the big growth areas you've certainly called out is care.
Yeah.
Maybe I just want to dig into that a little bit. If you can kind of walk through what's so unique about the social care space, and why is Sprout well positioned to capitalize on it? Because if we look at the ecosystem, we see a lot of, I think, different software vendors trying to go after the customer care market-
Yep
... whether it's CCaaS or, you know, more digitally native customer service solutions.
Yeah.
Where, where are you positioned, and talk about the growth opportunity there?
Yeah. So I'll start with kind of what we've seen and why that's an exciting space for us. So, you know, from the very early days, I think we were helping our customers with social care. They didn't necessarily consider it to be a distinct thing, right? To them, it was just social media management. We're talking to our customers, we're solving their problems, we're doing this in social. But as time went on, particularly in larger organizations, it became clear that this was very much a care channel. Similar to phone, email, web chat, et cetera, this was a channel that was increasingly becoming the predominant place where customer care was happening. And so we've, over the years, built up our capabilities there. We have a great toolset around that.
It's easily the best solution in the market to be able to address care at scale in social channels. And so many of the opportunities or the deals that we've been talking about over the last, you know, six, 12, 18 months, when we go from 200 users to 1,000+, when we see deals that are growing, you know, from six-figure deals to seven-figure deals and continuously growing, a lot of that is companies getting to that point that I mentioned earlier, where they're now ready to operationalize social across this new use case. So it's a very exciting aspect of the market and an interesting opportunity for us. What's interesting about social care, relative to everything else, is that it is a completely different set of technology required to solve.
And when we think about the idea that many of the large CRM providers, all of the CCaaS providers, all of the help desk software providers, have tried to figure out how to make social work as part of that stack and have not been able to, there's two distinct reasons for that. One is the idea that an individual is no longer someone that's identified by their email or their customer number, but now it's some very random handle on a social network somewhere, and it could be five different handles on five different social networks. And that the record keeping, the audit trail, the workflow, et cetera, involved in responding to social is very, very different than any of these other channels. So it's oil and water.
That's why we have not seen this be something that can just be plugged into other types of care solutions or other built around other communication channels. The other is that unlike any of those other channels, you cannot isolate social as just a care function, meaning that these messages that are happening on Facebook posts—sorry, Meta posts, that are happening on Twitter, Instagram, et cetera, these messages that are coming into the corporate Twitter handle or a regional social profile, et cetera, these things are not routed to say, "Hey, I am a help ticket. I need you to give me customer service." These are thousands, millions of messages that are kind of floating through the ether, right?
In order to bring all of that into one place and then be able to work with those messages in a way that the customer service team, the marketing team, any other organizations that are involved in that channel, have visibility into what's happening with that message, is this really unique moat that exists specifically around social, that exists nowhere else. Messages come in, and it's not routed to the marketing team or the customer service team, et cetera. They have to be able to triage that. They have to be able to have visibility that, okay, the support team has already handled this message; therefore, the marketing team doesn't need to, or perhaps this message needs to be addressed by both the support team, but it's also a new sales opportunity, and we need to be able to triage that message.
And so the platform answer to this has to be horizontal in nature, and all of these departments have to be working in the same space to make this all work. I could geek out on this for a long time. I've probably already gone a little bit too in the weeds on it, but there is a very real moat around social when it comes to care, that we've done a really good job solving for our customers.
I have one more question on it, and I have a couple questions for Joe, and so we'll get you in.
Yeah, let's get to it.
I think you're filling this gap for Salesforce in the care ecosystem 'cause they had a competitive product that they shut down.
Yep.
What are you seeing from that Salesforce partnership? What is the contribution or the impact to your business been thus far, and what is the pipeline-
Yeah
... of Salesforce deals look like for you?
Yeah. So, over the last 12-18 months, Salesforce had acquired, back in, I want to say 2012, 2013, acquired a product in the social space, had been selling it in their customer base for a long time, but was something that, due to other competing priorities internally, et cetera, wasn't kind of getting built up and maintaining the attention that it needed. But social was a very real problem still for their customers. And so, they engaged with Sprout, said, "This is a problem that we need to solve for our customers. You all have done a great job in this part of the market.
What can we do together to be able to solve this?" And that relationship started with the opportunity around their Social Studio product hitting end of life. This was a need that they have. But something else that has been sort of unintended benefit, outcome, opportunity of that is that the rest of the Salesforce stack, Service Cloud, Marketing Cloud, et cetera, all came back to the table and said, "Our customers need social, too. Let's figure out how to work with Sprout to make that happen." And so the immediate opportunity, I think we discussed on the last earnings call, you know, was a nice contribution to our growth in 2023. We think it'll be the same in 2024.
But probably the bigger opportunity, and the thing that we're most focused on, is that long-term opportunity with the rest of the Salesforce customers, Service Cloud customers, CRM customers, et cetera, where, to one of the earlier points I made, there's no brand on the planet that doesn't need to solve for social, and if you're using any part of the Salesforce stack, then Sprout should be your default answer. We're early in that opportunity. There's a ton of headroom there, but has already been a fantastic and productive relationship with us.
All right, helpful. And then, Joe, maybe turning to you. I think, you know, one thing that's on a lot of people's minds, after last quarter is, you know, you had brought down your full year guidance a little bit. What did you see kind of changes in the business, in the market, that caused you to cut that outlook? And from here, like, what should we view that as a, as a, you know, kinda down the middle, outlook that you have, as a conservative? What have you kind of accounted for now in the, in the revised guidance?
Yeah. So when we looked at how Q1 ended and how that rolled through the year, we also... So we wanted to make that adjustment, obviously, for the year, but we also wanted to make sure that we adjusted in a way that we didn't have to come back to all of you and say, "Oh, by the way, there's this other thing, or there's something else going on." And so we cut it to a level where we assume that, for example, some of the macro pressures and some of these other things don't get any better, and, you know, we execute, you know, as we normally have. And so from our perspective, we think it's pretty conservative, and we wanted to make sure that we, you know, didn't have to, you know, over the next couple of quarters, revise it again.
Wanted to make sure we took a pretty conservative approach-
And as-
to that, to that guidance.
Okay. As we're kind of in this, maybe they're seasonally more back half-weighted, maybe things are just a little bit slower, because of Q1, how do you think about now balancing your profitability with your growth? Is it time to, you know, step on the gas, or is it maybe time for more margins in the near term, at least?
No, I think the way we look at it is, hey, if we are gonna deliver less growth, then we're gonna deliver more operating margin in the business. I think, you know, we've always been managing the business from a very financially responsible way, and so we're gonna keep doing that. And we understand, like, hey, by the way, if the business isn't performing at the levels that we want, then we need to figure out how to get more efficient and make sure we're managing it by the unit economics of the business, and we always have. And so usually that's what that means.
Now, on the flip side, if things start to pick up and we see really good, for example, a really strong second half that's ahead of what we've told everybody, then we will look to make sure we probably invest those marginal dollars. So that's kinda how we've always approached it, is, hey, when we see upside, we see the business overperforming, we wanna balance driving increased leverage, but also investing in the business. But if on the flip side of that, if it's not going the way we want, then you'll definitely see more margin out of the business.
Okay. Is that largely sales and marketing, where you see leverage? Like, what are the main points of leverage in the business if you're trying to drive margin higher?
Yeah. So sales and marketing is probably the biggest one, just given, you know, how we can manage that and how we manage that group right now. You know, every single segment, you know, we have a monthly meeting with the sales leaders and understand the unit economics of each of those groups, and the ones that are doing well will get more investment, the ones that aren't, you know, get less investment. So that's probably the biggest lever that we have when it comes to, like, how we look out over the next 12-18 months.
Okay. All right, well, we are up on time. Justyn, Joe, thank you so much for joining us. Thanks, everyone, for listening in. We do have a breakout upstairs in Adler in about 10 minutes, so if you have any more questions, feel free to join us.
All right.
Thank you, guys.
Thank you.