Sprout Social Inc
NASDAQ:SPT
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Sprout Social Inc
Earnings Call Analysis
Q2-2024 Analysis
Sprout Social Inc
Sprout Social, Inc. showcased impressive financial results for Q2 2024, with a revenue of $99.4 million, marking a 25% year-over-year growth. This growth was primarily driven by subscription revenue, which also rose 25% year-over-year, while services revenue increased by 44%. The company noted an increase in key customer categories, such as customers yielding over $10,000 in Annual Recurring Revenue (ARR), which grew by 21%, and those contributing more than $50,000 in ARR, which surged by 38%. These increases illustrate Sprout's ability to attract and retain larger clients in a competitive landscape.
The Active Customer Volume (ACV) for Q2 stood at $13,403, reflecting a 36% increase from the previous year. Additionally, Sprout Social is witnessing robust growth in future revenue potential through their Remaining Performance Obligation (RPO), which rose to $295.1 million, a 43% increase year-over-year. The expectation is that 72% of $212.5 million of total RPO revenue will be recognized over the next 12 months, indicating a strong cRPO growth rate of 38% year-over-year.
Despite the impressive growth, Sprout Social managed to reduce its sales and marketing expenses to 38% of revenue, down from 40% year-over-year, thereby improving efficiency. Non-GAAP gross profit for Q2 was recorded at $78.6 million, translating to a gross margin of 79.1%, which reflects an increase of 100 basis points from the prior year. The company also achieved a non-GAAP operating income of $5.3 million, corresponding to a non-GAAP operating margin of 5.3%.
Looking ahead, Sprout Social anticipates strong performance. For Q3 2024, revenue is forecasted to be between $101.9 million and $102.1 million, representing a growth rate exceeding 19%. Moreover, for the entire fiscal year of 2024, the company expects total revenue in the range of $405.0 million to $406.0 million, signifying a growth rate of more than 20% organically. Non-GAAP operating income is forecasted between $28 million and $29 million, suggesting a significant improvement of approximately 560 basis points in operating margins.
While the company faces a macroeconomic environment characterized by extended sales cycles due to increased evaluations and new approval processes among clients, Sprout Social's pipeline continues to grow. It created the largest pipeline ever recorded in Q2, indicating resilience and strong demand for its products even amidst ongoing challenges. The sales cycle may be longer, but the firm remains confident in capitalizing on the healthy demand landscape.
Sprout Social's relationship with Salesforce is becoming increasingly beneficial, enhancing their go-to-market strategy. The collaborative efforts are expected to yield additional business opportunities as they integrate their products and engage shared customers. Notably, the anticipation of performance at upcoming events like Dreamforce underlines the company's growing market presence and capacity for revenue expansion.
Sprout's Q2 2024 performance reflects its effective strategies in navigating market challenges while capitalizing on growth opportunities. The company appears well-positioned to sustain its momentum, supported by robust revenue growth, improved margins, and promising guidance. Investors should take note of the notable progression in customer acquisition, potential for RPO recognition, and the strategic initiatives steering them towards a successful back half of the fiscal year.
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Thank you for standing by. My name is Meg, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2024 Q2 Sprout Social, Inc. Conference Call. [Operator Instructions]
I would now like to turn the conference over to Mr. Jason Rechel, Vice President of Investor Relations. Please go ahead.
Thank you, operator. Welcome to Sprout Social's Second Quarter 2024 Earnings Call. We'll be discussing the results announced in our press release issued after market closed today and have also released an updated investor presentation, which can be found on our website. With me are Sprout Social's CEO, Justyn Howard; CFO, Joe Del Preto; and President, 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. All statements other than statements of historical fact are forward looking. These include, among others, statements concerning our expected future financial performance 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 quarter ended June 30, 2024, to be filed with the SEC as well as our most recently filed 10-Ks and 10-Qs.
During the call, we'll 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 reconciliation to the most directly comparable GAAP financial measures are included in our second quarter earnings press release, which has been furnished to the SEC and is available on our website at investors.sproutsocial.com.
And with that, let me turn the call over to Justyn.
Thank you, Jason, and thank you to everyone for joining us today. I am honored to kick us off on what will be my last earnings as CEO before stepping into the Executive Chair role.
When we founded Sprout 14 years ago, we believe that social media would change the relationship between brands and their customers in new and profound ways. Today, social has become a primary and mission-critical channel for the entire customer relationship and entire customer journey, from awareness to acquisition to support. I am incredibly proud of this team's dedication and hard work to put us in this position as we strive to win this market in a category that is increasingly becoming a must-have for any brand that aspires to be competitive moving forward.
I'm thrilled to be passing the torch to Ryan and excited for my own transition into a supporting role for this incredible team, while I'll be able to dig into some of our most exciting opportunities. I am grateful to everyone that's been part of our journey so far and the support of our shareholders.
And now the floor is yours, Ryan.
Thank you, Justyn. I'm excited to spend time with all of you today and to share the progress we've been making despite a more challenging environment we're all operating in. Sprout remains focused on leading our industry, which is driven by the success of our customers who rely on our platform as their social command center.
Our ongoing recognition by G2 as the top product in all of software is a testament to their engagement and satisfaction. This success is fueled by the focus and execution of our amazing team who enhance our product and customer value.
As social continues to become more central to how brands market, sell and service their customers and the place where they gather crucial customer and market intelligence, we believe we are well positioned to lead in this critical space. And despite the current headwinds facing the broader software industry, we believe we have the right team to navigate these challenges while continuing to deliver for our customers.
On that note, I'm pleased to share that we're tracking ahead of the plan we outlined for you in May. The buying environment in Q2 mirrored what we observed in Q1. As we identified and adjusted for last quarter, our buyers are managing through new approval processes and an increasing number of steps through the decision-making process, leading to lengthier evaluation cycles.
In this environment, we extended our product leadership, improved our competitive win rates, further improved gross retention and delivered notable Tagger upside. Our team is strengthening, our pipeline is rapidly expanding, and our platform is delivering incredible value.
The 3 areas where we believe we can best deliver value are through: number one, our accelerated pace of product innovation; number two, by getting even closer to our customers; and number three, by accelerating our pace of pipeline and opportunity creation. We have the #1 customer-rated product on G2, and our internal mantra holds true, especially now. We're a joy to do business with.
These focused efforts drove the progress we saw during the quarter. Inside of our installed base, this approach was validated this quarter through improving gross retention rates across each segment of our business and a broader positive change as our mix further shifts to more sophisticated customers with annual and multiyear contracts.
We also saw competitive win rates improve, and we grew this quarter with an incredible list of customers like Salesforce, Honda, Applied Materials, Church and Dwight, Cintas, Porter Airlines, Washington State University, Bausch & Lomb, Alterra Mountain, Oliver Wyman, MasTec, Allianz Partners, Metropolitan Transportation Authority, GreenState Credit Union and Elanco Animal Health. Customers like these and many others contributed to a very strong large deal momentum, with customers spending more than $150,000 ACV with us increasing by 64% year-on-year.
We continue to hear from our customers that they are seeing our competitors investing less in both customer support and innovation. We view this as an opportunity to further differentiate ourselves. Our AI and automation are helping our customers analyze over 1 billion messages a day to identify the best times to post, to create compelling content and to analyze and gain insights.
We're building seamless solutions baked elegantly into existing workflows that allow AI to serve as an assistant to human. We're also accelerating our care offering with AI, unlocking an efficiency for teams with the release of auto-classification of cases by intent, the ability to auto-assign cases and to automatically summarize conversations.
Listening customers can now leverage insights by AI assist, positioning our platform to solve more problems by keeping workflow in Sprout. And our new publishing API endpoints enable enterprise marketing teams to integrate directly with their projects and content management tools and paves the way for future Sprout partnerships.
Part of this competitive differentiation also comes from CAGR, which has further contributed to strengthening premium module attach rates. We've seen strong success after enabling all customer-facing teams to sell Tagger in January. A sample of that progress comes in the form of some incredible new Tagger customers this quarter like Netgear, Cummins and Fareway Stores.
Influencer marketing continues to be a rapidly emerging category that is top mind for nearly every marketing leader we work with, and Tagger continues to be the fastest-growing product at Sprout. This is also a great example of the opportunities we have to solve more problems for our customers while we expand our footprint within our 30,000 customer base.
A year into the acquisition and enablement of our teams has also worked in reverse. The Tagger customer base has brought us a new Sprout customer with GoodRx, who recently shared how to leverage these complementary products on a panel at Salesforce Connections.
Nycole Hampton, the Senior Director of Content and Engagement Marketing at GoodRx, said, "As a team that focuses on content, social, creator and community engagement, as well as a long-time user of Tagger, we are looking for a complementary social platform to help streamline the full scope of our efforts."
With Sprout's intuitive platform and Tagger's influencer insights and workflow, we're excited to leverage these tools hand-in-hand while looking forward to what's to come as the platform start to evolve together. With efficient tools, we're able to focus on interacting and building relationships with our customers, gleaning important insights that help content and creator strategies.
During Q1, we were named as the #1 Best Software Product by G2's 2024 Best Software Awards. And we expanded on the success in G2's 2024 Summer Reports as a leader in 211 categories. We earned the #1 ranking in 88 categories, including social customer service, social media analytics, social media suites, social media listening tools as well as the Enterprise Results Index for social media management.
Meanwhile, our partnership system further strengthened with a new Snapchat partnership in Q2 and as a beta partner for the Threads API. Here's what Meta had to say about our beta partnership. "We're thrilled to partner with Sprout Social, a leader in social media management software, to enable our customers to drive engagement, build brand loyalty and achieve their marketing goals across Meta's family of apps."
As a new member of Meta's adtech partner program, we're excited to work Sprout Social to bring innovative solutions to our customers, including as a beta partner for the Threads API. We believe our product and brand leadership, customer scale and differentiated partnerships with both network and technology partners have Sprout better positioned than ever before to define and lead what is meant for brands to operationalize a sophisticated social media strategy.
April Pence, Head of Communications & Engagement at Kroger is a great example of how Sprout is bringing this to life with our amazing customers. As April shared, at Kroger, we are fresh for everyone. Not only do we sell fresher than fresh foods, our enterprise social team also delivers thousands of pieces of fresh content every year. Tools like Sprout Social allow Kroger and our family of companies to effectively and efficiently publish and analyze numerous pieces of content over multiple platforms to our brand fans, all while creating additional capacity for a world-class marketing team to focus their creativity and talent into creating content that is engaging and impactful.
In addition to our product, customer partner value we delivered this quarter, we are thrilled to add an amazing new leader with our new Chief Product Officer, Erika Troutman. Erika has been a founder and more recently an established product executive who has driven innovation and adoption with some of the most well-respected and successful products both at Google and Atlassian. Her leadership will be invaluable as we look to accelerate our foundation of product innovation, growth and scale, which have been the drivers for our success and recognition.
The hard work of our team is building into what we anticipate will be a stronger second half of the year. Our opportunity is improving after an acceleration in Q2 pipeline creation and strengthening competitive win rates. We're continuing to work hand-in-hand with the product teams at Salesforce and with our broader partnership strategy performing well. I'm excited for our team to have the opportunity and honor to present again at Dreamforce later this quarter.
I'm grateful and energized to officially step into the CEO role a few months from now, and I'm looking forward to all the value we'll collectively create for our customers, partners, employees and shareholders as we scale towards our multiyear goals.
And with that, I'll turn it over to Joe to run through the financials. Joe?
Thanks, Ryan. I'll now run through our financial results and guidance.
We're pleased that we're tracking ahead of the rise plan outlined in May. Revenue for the second quarter was $99.4 million, representing 25% year-over-year growth. Subscription revenue was $98.5 million, up 25% year-over-year. Services revenue was $0.9 million, up 44% year-over-year. The number of customers contributing more than $10,000 in ARR grew 21% from a year ago. The number of customers contributing more than $50,000 in ARR grew 38% from a year ago.
Q2 ACV was $13,403, up 36% year-over-year. We expect strong ACV growth to continue over the medium term, driven by rapidly shifting enterprise mix, strengthening premium module attach rates, influencer marketing and customer care.
In Q2, non-GAAP gross profit was $78.6 million, representing a non-GAAP gross margin of 79.1%, up 100 basis points from a year ago. Non-GAAP sales and marketing expenses for Q2 were $38.0 million or 38% of revenue, down from 40% a year ago. Our change in deferred commission amortization reduced sales and marketing expenses by $3.9 million compared with a year ago.
Non-GAAP research and development expenses for Q2 were $19.1 million or 19% of revenue, up from 18% a year ago. We continue to make targeted multiyear investments in AI and social customer care.
Non-GAAP general and administrative expenses for Q2 were $16.2 million or 16% of revenue, down from 17% a year ago. We expect to deliver consistent G&A leverage as a percent of revenue moving forward.
Non-GAAP operating income for Q2 was $5.3 million or 5.3% non-GAAP operating margin. Non-GAAP net income for Q2 was $4.9 million for a non-GAAP net income of $0.09 per share based on 56.7 million weighted average shares of common stock outstanding compared to a non-GAAP net income of $3.8 million and $0.07 per share a year ago.
Turning to the balance sheet and cash flow statement. We ended Q2 with $93.2 million in cash, cash equivalents and marketable securities. This is down from $95.2 million at the end of Q1. Deferred revenue at the end of the quarter was $149.3 million.
Looking at both our billed and unbilled contracts, RPO totaled $295.1 million, up from $290.0 million as in Q1 and up 43% year-over-year. We expect to recognize 72% of $212.5 million of total RPO revenue over the next 12 months, implying a cRPO growth rate of 38% year-over-year.
We continue to believe that all of our leading indicators are converging towards cRPO over time. Operating cash flow in Q2 was $2.1 million, down from $6.3 million a year ago. Non-GAAP free cash flow was $2.5 million, down from $6.0 million a year ago.
Shifting to formal guidance. For the third quarter of fiscal 2024, we expect revenue in the range of $101.9 million to $102.1 million for a growth rate of more than 19%. We expect non-GAAP operating income in the range of $6.5 million to $7.5 million. This represents a record non-GAAP operating margin of 6.9% at the midpoint. We expect a non-GAAP net income per share between $0.12 and $0.13. This assumes 57.1 million weighted average basic shares of common stock outstanding.
For the full year 2024, we continue to expect revenue in the range of $405.0 million to $406.0 million. The systems are greater than 20% organic Sprout revenue growth and accelerated Tagger subscription revenue growth. For the full year 2024, we expect non-GAAP operating income in the range of $28 million to $29 million. This implies annual non-GAAP operating margin improvement of roughly 560 basis points. We expect non-GAAP net income per share between $0.45 and $0.46, assuming 57.1 million weighted average basic shares of common stock outstanding.
With that, Justyn, Ryan and I are happy to take any of your questions. Operator?
[Operator Instructions] Your first question comes from the line of Raimo Lenschow.
This is Frank on for Raimo. I want to see if we could get an update on some of the macro and how that evolves specifically in regards to the pipeline issues from last quarter. Could you just double-click on those fronts and just what you're seeing in the field now relative to last quarter? And I had a follow-up.
Yes. Thanks, Frank. This is Ryan. I appreciate the question. It's a very similar environment to what we saw in Q1, really does mirror it. It's some of the things that I highlighted in the prepared remarks here.
I think just generally, there's pressures on buyers in terms of some new investments, and those things are manifesting itself in longer sales cycles. So you're seeing for many of these buyers changing processes from what they're used to, new folks that are involved as stakeholders in the decision-making process and longer time periods between steps in decision-making.
Having said that, I think as we -- and you could see it in the data here as we turn to Q2 in terms of the execution, continued progress on the trajectory and the success that we've been having and that showed up in the $10,000 and the $50,000 and the $150,000. And the team has done a really nice job going out and building more pipeline. And so for us, while sales cycles are longer, we're continuing to see a healthy amount of demand for our products and value in the products that we're serving customers with today.
And then maybe for Joe. Just in the past, you guys have talked about larger Social Studio ads potentially being up for grabs as we get closer to that shot clock going off in Q4. I just want to ask if there's anything embedded in the second half guide for that.
As far as, Frank, where we see that business headed or related to the guidance, like specifically, what color are you looking for there?
Right. Specific to the guidance, just what you guys are sort of embedding in the guide for Social Studio.
Yes. So Frank, as you know, historically we haven't called out like a separate kind of fall-out for Social Studio. What I could say is very similar built into the guide that we had coming out of Q1. We're seeing really strong momentum on that side, especially on the Service Cloud side, and I'll let Ryan kind of chime in on what he's seeing on the front line. But Frank, I would say there's not any material change in what we had baked in when we gave the full year guide coming out in Q1.
Yes. I think the only thing I'd add is with a healthy amount of visibility into the Social Studio pipeline in front of us here, even in this last quarter, we're introduced to some newer opportunities and have seen good progress in execution with that partnership and continue to see really good progress and opportunity with the overall Salesforce partnership, specifically around the Service Cloud. Actually this morning, I was on a webinar with the Head of Product for Service Cloud, and we had about 300 customers talking a little bit more about the things that we're working on right now and some of the announcements that we'll work on as we head into Dreamforce.
Your next question comes from the line of David Hynes.
Ryan, I was hoping you could talk a little bit about pipeline coverage ratios heading into the back half of the year and perhaps how that compares to the prior year. I mean, look, this is normally another question I would ask or really expect you to answer. But kind of given the turbulence coming out of Q1, what we can glean about bookings in Q2. I think it's fair in this case. I'd love to get your thoughts.
Yes. No, I appreciate the question. Our pipeline ratios are the highest we've ever had. We actually created more pipeline than we've ever created within the quarter. And I think everybody is seeing this in the environment today with some of the pressure on sales cycle times here, the coverage ratios need to be better, and we've seen some great things.
I give a lot of credit to our folks in the marketing organization and our sales organization. They've done a great job really increasing the amount of customer-facing time and increasing the initiatives that we have to go out and make sure that we're in front of customers building strong demand. And so the best way to think about this is we're heading into the back half with a larger pipeline than we've ever had before, which gives us a lot of confidence around the back half performance that we're expecting from this team.
Yes. Okay. And then maybe as a follow-up. Look, one of the elements of the new pricing model that you introduced in late '22 was the layering in of annual price escalation. I assume you've had the chance to renew a small cohort of customers under those terms. Can you just talk about kind of realized price uplift at renewal? What were the customer feedbacks that have been there? How do you think about that aiding growth going forward? Anything along those lines would be helpful.
Yes. I mean I think I'd probably just point back there to just -- we talked a little bit about it in our prepared remarks, is our performance with gross revenue retention. We continue to see really good trajectory there even in this market, which I think speaks to the strength of our products and the value that our customers are getting from us. We've certainly lapped the annual renewals on many of those customers.
And again, for the majority of those customers that we went through, especially the folks that were on the annual contracts, the actual increase were single digit typically. So there were not material increases in terms of what they are experiencing. So nothing to call out in terms of variation there. As we think about just generally uplift in pricing as we move forward, it's something that we're constantly looking at and making sure that the pricing that we have is well aligned with the value that we're delivering. But certainly in a higher -- in a market like this is where you're contemplating those things when you make those decisions. So nothing else to share there in how we're thinking about it as we move forward.
Your next question comes from the line of Parker Lane.
Ryan, last quarter, I know you guys talked about some changes you made to go to market, one of those being verticalization of the teams. How do you feel that those changes have impacted the business to this point through the year? And specifically on that verticalization piece, is there any particular areas of strength that you're seeing?
Yes. No, I appreciate the question. The changes have been helpful for us. The reps are ramping nicely. I mean you could see it in some of the customers that we talked about today that represent those verticals across health care and financial services and public sector.
The biggest thing I'd highlight for us that's been exciting aside from the logo wins is just the learning in terms of the nuance and the use cases and the nuance in the language and oftentimes, some of the very specific associations and groups that you need to align with to make sure that you're in the best possible position to build pipeline and execute. And so we've seen some really good progress there. And again, similar to our commentary on the pipeline building in the back half, the team has done a really nice job building a bunch of pipeline and opportunity that we're looking forward to executing against.
Got it. That makes sense. And then maybe to circle back to the pipeline and dig a little bit deeper. If you break it down by potential use case, call it, marketing, care, PR, influencer marketing, is there any particular subsegment there that you're seeing pipeline still be the strongest? Or is it pretty level across those different areas?
We've seen a healthy amount of demand across most of those areas. And so much of this is because if you think about the customers that are a perfect fit for us, they're these socially sophisticated customers that are consuming so many of our products, and that came up in our continued success within the premium module attach rate. But if I was to pick one that probably was leading the way, it's the customer care example.
And it's logical when you think about it, in that, customer care is one of those things where it tends to be -- have a lot of intensity around it. When customers are on social and they're looking for support, those first comments that go up on your Reddit or your X or your Facebook or your Instagram are very public in nature, and there's a lot of pressure on brands to be able to respond quickly and to make sure that they're all over these things before others pile on, and it becomes something that's viral.
On top of that, we're just seeing more and more of these customers having a significant amount of volume happening on social. That's where their customers are, and their customers expect to engage with them there. So I'd highlight that as one of the use cases that's been really, really successful for us. The product teams that have been working on that product have just done a fantastic job in terms of the innovation and the value that we're delivering.
Maybe one last point on that, that I think is really important here is, if you think about that product, which is critically important because there's a lot of users that end up being in care, especially social customer care, is that the product needs to be intuitive. It needs to be very easy to learn and ramp on, and you need to be very fast in responding to customers. And that is just perfectly aligned with the DNA at Sprout, and that's why it's been so appealing for customers.
Your next question comes from the line of Arjun Bhatia.
Ryan, one for you, if I can start out with. I'm just curious what you're observing in terms of how the market and your end customers are prioritizing social at this point and whether you've seen any change in terms of whether it's moving up or down their priority list. I know there's certainly CMOs and other buyers have a lot on their plate right now to consider, budgets as well. But I'm curious if the application of social to certain domain is outpacing that of others, whether it's service over core presence and how you think that might kind of play out towards the rest of the year here.
Yes. Thanks, Arjun. I think there's a couple of flavors to that. Flavor one is what we are just touching on in terms of social customer care. And marketing leaders care about this, anybody who's responsible for the customer experience cares about this. But in this environment, if you have a lot of volume and interaction and your customer is on social, which is the case for pretty much everybody, you need to be there. And whether you're there or not, customers are going to be on your social profiles and trying to engage with you.
And you need a platform like Sprout that has the ability to programmatically enable you to capture all those interactions to respond fast. And these customers expect oftentimes responses in minutes. And to be able to leverage it to Reddit and to different places like your CRM, for example. And so that is definitely one thing that's standing out.
From a marketing use case, one of the things that's really stood out over the last little while is just the value of organic, right? In so many of these places, we're seeing a cut on paid spend. And when you think about marketers, when they're having budgets cut in certain areas, i.e., paid, they're looking for better performance in channels like social and social organic. It's really about the staff that you have and the campaigns and the creative that you're executing against. So we're spending certainly from a customer perspective and a new business perspective, really making sure that customers see the true value in the reporting and the data that they get on which campaigns are working.
And then again, even though you might be reducing on paid because we have both paid and organic reporting in Sprout, our platform gives you the ability to see what's working really well so that you can amplify it. That might mean you're doing more organic campaigns or it might mean that you're boosting, you're putting more dollars behind some of your campaigns that have been really performing well. So those are a couple of things that I'd highlight there. And then maybe one last one just on Tagger and influencer marketing.
I think this is another example where we think of -- and it certainly is influencer as a more new area of growth. But if we think about the idea of celebrities and the types of people who for years and years and years been endorsing products, it's a flavor of that. And so what we've seen from a lot of our customers is oftentimes the very expensive influencers don't have perfect overlap with their audience.
They're spending a significant amount of budget and not getting the return that they need. So we've been having a lot of conversations around how do you optimize your campaigns and your spend with a more localized influencer strategy. So I'd highlight it's all about ROI across this group and how can you, in many cases, drive better returns on the investments that you're making.
Perfect. That's super helpful. And then just another one, if I kind of zoom out and think about what's happening in the social landscape. I know your value proposition with Sprout was position us to kind of unify across all the social networks, obviously, right? But when you look at activity from your customers, are you seeing any change in which networks are more active than maybe they were 1 or 2 years ago and whether that activity is getting more concentrated at all? If there's any changes there, I would be curious to hear that.
It is really so dependent on the brand and the business that we're working with. And if you think about it, it's -- we have the benefit of working with 30,000-plus customers across pretty much every industry and vertical globally. And so what that means is so many of these organizations have different social networks that they lean into. B2Bs will be more on LinkedIn. You'll see retailers that tend to be more on Instagram. You'll see folks who are on TikTok. So I'd actually highlight that it tends to be dictated by the type of brand and where their customers are.
Certainly, we continue to see a lot of gravity around things like TikTok. And more recently, with the introduction of Threads, that's been something that's been really interesting for our customers as well. For us, though, the -- you're right. Like the value prop is the unification of all these things, the complexity that comes with it and the ability for customers to know that when they invest in Sprout, they have the opportunity to execute against their individual strategy.
Your next question comes from the line of Adam Hotchkiss.
Great. Ryan, I just want to follow up on an earlier question. And could you just talk a little bit about what you've learned over the last 3 months as you've reevaluated the pipeline on the sales team? I'd just be curious what you view as being in your control on turning growth around versus maybe just some of these more macro-driven issues. I know you've called out some sales team just previously. But when you look at the growth turnaround here and how much needs to come through changes on your side or just ramping of reps versus the macro, how do you think about those factors?
Yes. Thanks, Adam. I mean I think the wrap-up in your question is something that we talk about a lot internally here at Sprout, which is controlling what we can control, right? And controlling -- for us, there's a few things that we think about a lot.
One, we think about just overdelivering for our customers. So we think about showing up faster, showing up more knowledgeable, thinking about the ways in which we differentiate. So this accelerated pace of innovation from our product clearly has been something that has differentiated us and it has helped us with our win rates and put us in a position, especially with these new products that we have to be able to solve new problems for customers.
Getting closer to customers has certainly been a theme for us as well. We know that in today's environment, the pipe coverage ratios need to be larger. So we've been increasing the amount of customer-facing time. We've also been continuing to evolve the initiatives that we have from a pipe gen perspective across marketing and our sales organization. And really getting in front of those opportunities is going to be the biggest difference maker.
And so as we look at these things, we know that the team is continuing to get better every single day, the level of efforts never been higher. And the customers that we're getting a chance to interact with are providing great feedback. And for us, it's not just the feedback. It's been in the products oftentimes before they ever sign a contract with us, and then it's showing up in our gross retention in our $50,000, in our $150,000. So yes, I'd underline, continued pace of innovation on the product, continued increase in terms of customer-facing time and then just making sure that when we show up, we're really differentiating ourselves from everybody else in the market.
Okay. Great. That's really helpful. And then I just would love if you could touch on the broader Salesforce relationship. How helpful are they being on the go-to-market side? And I guess how should we think about the mix of business coming through partner versus direct?
Yes. The partnership continues to be something that we're really grateful for and we're really enjoying. As I mentioned this morning, I was on with Ryan Nichols, the Head of Product at Service Cloud, and we had 300 customers that had joined our webinar today that was very focused in on Sprout and Service Cloud and AI.
We're continuing to find opportunities to integrate and make sure that our products are adding a ton of value across the entire Salesforce customer base. We've been getting a lot of support going in jointly with the Salesforce team. I would still consider these deals very direct in nature.
When we go in with the Salesforce team, we're signing on our own paper. We are helping each other, but individually, we are closing these accounts. And so for us, it's one of those ones where we've got these great product integrations to add more value to customers. When we go in together, it's this combination of it, reinforces oftentimes the Salesforce platform, and it enables the Salesforce person to be able to grow their wallet share through some of their other products where we have integrations like with Tableau and Slack, for example, and certainly Service Cloud.
And it adds more value to the customer in getting that 360-degree view. So it's been really positive. And for those that will be there, you'll see us at Dreamforce as well, sharing more about the progress that we've made with our joint customers and then sharing a little bit more about the continued product innovation that we're going to have together.
Your next question comes from the line of Jackson Ader.
Great. I have 2 questions and they're actually both on the go-to-market changes. The first is, is it possible that actually the slower pace of decision-making just due to the macro environment is actually helping in the sense that it's giving the changes that you made in the first quarter time to settle in, people in new roles, people in new geographies or new verticals rather than maybe needing to make these changes while you're on a full-on sprint?
Jackson. No, I don't think so. I mean I think that's the first thing, and we shared this a little bit with some of the folks coming out of last quarter as well. I mean so many of the changes that we talked about in Q1 really tied to the accountability I talked about before in terms of controlling what we can control and really wanted to be clear on things that we had worked on in Q1 that we felt also probably impacted the quarter. And that was a combination of some investments into our vertical strategy and then some enablement. But those things I would highlight as really important things for us not just this year, but in the long term. And so I don't know that I'd characterize the lower macro environment as helpful to those changes.
Yes. Okay. That makes sense. And then so as a follow-up, just pipeline build, a good thing, but how -- this will be the first kind of the first year where it's time to close that pipeline, right, as we head into the third and fourth quarter. What are some of the changes that you would highlight that you've made that might help you actually start to get ink on the paper as we come to the all-important kind of fourth quarter for the enterprise?
Yes. I mean I think the first thing is, certainly, we have more pipeline than we've had before we created more pipeline this quarter. But we've been selling into these customers for a while, right? If I think about even just a lot of the Fortune 150 logos we've talked about on these calls in the past, the team has executed across some incredible logos. And we've got a bunch of them that we named here today as well.
But in terms of the dynamics of the pipeline and the things that we're constantly looking at and making sure that we're executing well, for us, there's the customer-facing time that I referred to before, really, really focused in on ensuring that we have the right velocity and activity happening in the field across our AEs and our leaders. We're constantly looking at pipe progression in the way that things are changing between stages to make sure that we're seeing enough movement in that pipeline and that it's heading in the right direction.
We think a lot about just executive sponsorship, both on the customer side and our side and making sure that we've got good connectivity inside and outside within those organizations. And then the other piece for us is just making sure that we continue to have velocity, right? The intention for us is to continue to make sure that we're having the right amount of healthy pressure on our team, but more importantly, the right reasons for the customer to close at a certain time period.
And so for us, the backdrop of the trial, for example, and having customers in the product is another helpful thing to help prove the value of the product and that we're a perfect fit. So all those things are ingredients that go into making sure that the team is executing and that we're going to finish the year strong.
Your next question comes from the line of Elizabeth Porter.
Great. I wanted to dig in on the cRPO growth. And another metric that we look at is cRPO-based bookings growth. And when looking at that number, it suggests that cRPO-based bookings has been growing kind of mid-teens year-over-year for both 2Q and Q1. So I was hoping to get a bridge on kind of what drives the confidence to the low 20s growth rate in revenue? And what could be some of those factors making revenue grow faster than what we're seeing on the cRPO-based bookings growth side?
Yes, Elizabeth, this is Joe. Thanks for the question. I think, first, I want to just call out that the RPO and cRPO numbers were kind of -- were consistent with our expectations, in the line of the guidance of just what we made last quarter. And as you know, these balance sheet metrics primarily reflect the seasonality of the amortization of these accounts.
As we become more heavily weighted to enterprise in Q4, you're naturally going to see the most value added in these metrics in Q4, right? And so you saw that last year. And so we haven't seen anything that would change this dynamic in 2024 and continue to expect that you'll see very healthy contributions in the back end. So I think it's just a dynamic of how this amortizes over the first couple of quarters, and then you're going to see this pick up in the back half.
Got it. And then just as a follow-up. I wanted to get a sense for the competitive environment as you're increasingly expanding the portfolio and looking at those larger customers. How much is around competitive displacement versus greenfield? You noted some great logo wins. But just with larger customers, is it still as much of a greenfield opportunity? Or is it switched to a little bit more displacements?
Yes. It's a healthy balance. I mean I would say it's a healthy balance right now. Just generally, we are still so early within this market, and we've talked about it in the past on this call. So many of the logos and things that we've shared are these customers that didn't have a platform like Sprout before they invested.
And then all of a sudden, they get to the level of complexity and needs, and that might be volume coming in because their customers are hitting them on social and they've been trying to do things manually where a platform is needed. Oftentimes, we'll also go in even including into the enterprise, and we'll win a use case or a department division and find that there's a bunch of other opportunities that are like-sized or even bigger that are also not having a solution today. So it's -- we see those as both really big opportunities.
Certainly, displacement from a competitive perspective is something that the team gets excited about. We are strong believers that our product is the best one in the market, and that our team is the #1 team and can better serve customers. So we've seen a lot of opportunity in this quarter, just really proud of the execution that we saw from the team.
Your next question comes from the line of Matt VanVliet.
I guess when you look at some of the newer channels that you're supporting, whether that's Reddit or Threads that you talked about on beta, or TikTok, how should we think about these as net revenue retention drivers? How much of this is then also kind of tying into just more usage, more stickiness rather than monetizing it? Just curious on how you think about that on a balance going forward.
Yes. I appreciate the question. We do very much see this as a real value add in terms of adoption and usage and value for customers. We don't directly monetize the new networks as they come in, but it's really -- it's an indication for us of the complexity that the customer is dealing with.
The more networks that they are seeing their customers on where there's information coming to them, the harder it is for them to manage. And because all of these things are siloed, they need a platform like Sprout to be able to stitch this all together to give them the ability to engage and respond to customers and to be able to do something with the data. And that might be really understanding what people are saying on the platform.
It'd be understanding opportunities that may exist, maybe understanding what their competitors are doing to differentiate. So we very much see it as something that adds more usage and adoption and value. And so for us, the relationships that we've developed over 14-plus years with so many of these networks are really valuable for us. And we've been really proud of the way that our teams, specifically the partnership and the product teams have shown up.
We are typically at the front of the line for any alpha or beta that comes out, and we are typically one of the first companies that actually goes live across our full customer base with these products. And so that is just a massive differentiator and great feedback that we've got from the social networks over time because of our ability to execute for customers at scale.
All right. Very helpful. And then you mentioned Tagger is the fastest-growing product right now. Curious if that's just based on sort of year-over-year percentage growth rates or it's actually on sort of an ARR added basis?
And then maybe more importantly, what's the rate of attach that you're seeing on net new customers buying Tagger versus being sort of the first or second kind of expansionary sale that you're seeing down the road?
Yes. Today, it would be percentage, but it's -- I imagine given just how well that product is growing over time, we'll continue to see that compete pretty strongly as one of our most important modules that's being added in. I would say just in terms of product, if it's the first or second, I think for us, it's interesting.
And we kind of touched on it a little bit in the script. But we are seeing this opportunity to have Tagger customers turn into core Sprout customers and certainly in the reverse as well. And oftentimes, as we're going into these accounts, it might be the first additional product that they've had, not necessarily the third or fourth. So there's a lot of optionality for us in terms of being able to have these conversations around Tagger.
And we are just seeing a ton of interest in this area because it's something that most companies aren't doing today, or if they're doing it, they're doing it very manually. And if you want to execute on an influencer strategy at scale, you need a platform like Sprout that's going to enable you to be able to pull that all together and programmatically execute on and then have the data you need to be able to scale it efficiently.
Your next question comes from the line of Brian Schwartz.
Yes. Ryan, I just wanted to ask you a question about the elongated sales cycles that I guess everyone is seeing these days. But does it vary at all between the sales cycles between what you're seeing with new logos versus the expansion business?
Yes. Yes, it would. I mean the new business tends to generally, at any time, take longer than on the expansion side. And so I would say that it tends to be longer there. And when you dig into it, many of those make sense in that for our current customers from an expansion standpoint, we've typically had a relationship with them for a while.
They've typically seen success, a lot of success from the products that are using it. Sometimes we've got PLG-type approaches within the product. They might, for example, see listening or analytics in the platform every day, but don't have it turned on. So those are opportunities where there's probably less education and awareness and then credibility and trust to build over time. So I would say that it is faster generally on expansion versus new business.
Okay. And then the follow-up question I wanted to ask you is just where the business is today or the company in terms of the go-to-market transition that you've been embarking on. Maybe it's a difficult question to ask because of the macro headwinds that are out there. But where do you feel that the company is today in terms of optimizing those go-to-market changes that you started about a year ago?
And Brian, when you say the changes we made a year ago, just more specific to our focus and execution on sophisticated customers?
Yes, not on the product side, but more just on the distribution side and the sales side and the move up market. I don't know if there's a baseball analogy. I'm just wondering how much more or how much further you think it will be to kind of optimize that initiative moving up, mark up.
Got it. Yes. Yes, got it. One thing I want to make sure I clarify as well. And I mentioned a little bit earlier today, but so many of the changes that we talked about in Q1 are changes we would make on any given year. And there are just things that go into helping scale a business, whether that be verticalization or enabling on new products.
The move into the enterprise is something that we've been doing for quite a few years. Certainly, with each passing year, because of the opportunity we've seen, because of the growth that we've seen within those accounts and the opportunity we still see in front of us, we've been investing behind that with a high degree of certainty of the opportunity that exists and our right to win.
You will always hear me say that we have room to grow and to optimize, and we're continuing to do that. Even if you think about quarter-on-quarter, and I would have told you this through the history of time, we expect to get better every single day. We continue to innovate on our initiatives. We continue to ensure that we're coaching our people up and adding great talent. So I'd say that for us, we've seen great execution from this team over time. We have more capacity behind it, and we fully expect that this team is going to go out and continue to deliver.
Your next question comes from the line of Surinder Thind.
Just following up on the prior set of questions around just the sales force and the go-to-market strategy. How should we think about where we are in terms of a productivity perspective of the sales force? How quickly do you -- should they be able to get to kind of the run rate in terms of performance as we kind of look out? Obviously, you've shifted people into new positions, new responsibilities. When should we expect to see full productivity?
Yes. I mean we expect to be heading into productivity here in the back half. Certainly, the productivity changes by segment. And the reps that are in segments that have faster sales cycles tend to ramp much quicker than the enterprise reps, and that has so much to do with the natural course of how enterprise deals close over time, but very much associated to the investments that we've made and the pipeline that we've built. We anticipate we're going to see increased productivity changes from a positive perspective in the back half year.
Got it. And then I guess what does that mean from a capacity perspective? At what point do you think about head count, accelerating head count, those kinds of changes within the sales force?
Yes. I mean we're constantly looking at the data to make sure that we feel great about the investments that we're making, that we're seeing the right type of rep productivity. When we look at the addressable market that we have in front of us, the pipeline that we have in front of us, the opportunities we see to win in the marketplace, we're constantly looking at that equation to determine if we feel great about capacity.
Our -- typically, this happens from an annual planning perspective. But we're constantly, between myself and Joe and our organizations across finance and the go-to-market organizations, are looking to see how we feel about the productivity metrics and where there might be opportunities to invest more or pause on investment. So these are things that are pretty fluid through our business. And as we think about this year and the capacity that we have, we feel really good about the investments that we've made here and the productivity that we anticipate that we're going to see increase in the back half.
So it sounds like from a planning perspective, it's kind of steady state on a go-forward basis with all the changes you've made and then you'll maybe reevaluate closer to year-end, depending on how the metrics are shaking out in terms of the pipeline and wins and so forth.
Yes, that's a fair assessment of generally how our planning goes and how we'll execute as we go into '25.
Since there are no more questions, I will now turn the conference back over to Mr. Justyn Howard for closing remarks. Please go ahead.
Yes. Thank you so much. I appreciate all of the questions and discussion. We are very grateful to be able to talk through this progress and our perspective on the business moving forward. We have done -- the team has done a tremendous job, and I want to thank our team specifically for continuing to show up and deliver every day for our customers in all conditions and particularly now, and we're seeing that in the progress that we're making. I appreciate everyone's time. I know this is a busy evening for you all. We'll have more time to spend with you in the coming days and weeks. And I hope everyone has a great evening.
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.