All righty. Welcome to one of the final sessions here at 2024 CSI. I'm Parker Lane, Software analyst here at Stifel, and with me today is Sprout Social CFO, Joe Del Preto, and Jason Rechel, who's VP of IR and Corp Dev. Thanks for joining us today. Yeah, glad to be here. Appreciate it. Well, there's a lot of ground to cover and not a lot of time, so why don't we just jump into it? 1 Q was a little more choppy than we're accustomed to seeing from Sprout. You guys have been a top performer, fundamentally- Yeah Since you went public. Let's just unpack what happened in 1Q and start with the macro. Yeah. I know there's a few different factors there, but what really went on in the macro, and how is it different or the same as what other software companies are saying out there? Yeah, I think, you know, coming out of Q3 and Q4, which were really strong kind of quarters, we didn't have any indication coming into Q1 that we're gonna see some of the pressures we saw on the macro side, you know, coming into the quarter. So there was no. I think a lot of other software companies saw very similar trends, which was, hey, really ended to a really strong 2023, and then started to see some things happen in the back half of Q1. And so what we saw on our end was a couple areas. One is we started to see pressure around, like, just elongated sales cycles, right? We didn't see people walking away from deals. We didn't see people saying, "Hey, we're not interested." We're just saying, "Hey, we've got, you know, we've got IT involvement, we've got procurement involvement." We just saw just an elongation of sales cycles, and it was all on the new business side. I think one thing that we've been talking to investors about subsequently is when we look at gross retention, for example, we were ahead of plan. NDR was ahead of plan. So on the gross retention expansion side, we actually had a really strong Q1, and so all the macro pressure that we were seeing was more on the new business side and mostly focused on the elongated sales cycle, and mostly because, you know, as we move more up into mid-market enterprise over the last couple of years, that's definitely had a bigger impact versus more of that inbound, like, highly transactional, you know, maybe SMB, lower mid-market business that didn't have as much macro pressure, generally speaking. And so that was probably the biggest impact we saw in the quarter. Now, on the positive side, I would say, though, excuse me, is from a top-of-funnel and the number of customers coming to us, and then overall, like, hey, the number of leads and the pipeline we generated, that was actually really strong. The problem is it just didn't close, right? And so the good news from our standpoint was we didn't see all of a sudden this massive amount of, like, decrease in that high-level demand, which would've gotten me a little bit more concerned if, for example, like, hey, not only are we not executing on the deals in front of us, but we actually just have less deals to work against. We actually had, you know, plenty of opportunity. It was just a matter of closing those deals in the quarter. Yeah. When we look at the outlook for the year coming from the high 20s now down to the low 20s, I think naturally people are wondering- Yeah What are the signals you're seeing there? Yeah. You may have just touched on a few of them that give you confidence that we're not up for a choppy 2Q or a remainder of the year. Yeah, so when we addressed the guidance, we wanted to build into that assumptions around, like, hey, the guidance we gave, the updated guidance we gave assumes the macro doesn't get any better, right? Mm-hmm. The same pressures we saw in Q1 doesn't exist. And all the, some of the, the changes we made on the go-to-market side, you know, that we talked about as well, those are all behind us. And it goes back to what I talked about earlier, like the, the opportunities we're seeing and, and the customers we're getting in front of, that has, that momentum hasn't declined, and so that's why we have a, you know, a high level of confidence in the revised guidance because, you know, definitely took it down by a lot, just given the factors, that it's not assuming that we get this big improvement in macro. It doesn't assume there's some huge change in the way we're doing things, and so we feel that that sets us up for success for the rest of the year. Also, because we've talked about this with some of our investors as well, which is because even though we're moving more upmarket, we still have shorter sales cycles than most, and so I think from our perspective, we got a much quicker indication of where the macro was headed earlier than maybe some other folks might have seen it, that maybe came after us, reported later than us. So I think we were able to adjust our guidance in a much more conservative way that factors in more of that macro throughout the year. Mm-hmm. I wanted to circle back to a point you were making before- Yeah about pipeline being pretty strong. Yeah. Everyone defines it differently. Yeah. What does pipeline mean to- Yeah Sprout Yeah, and you know, generally as a finance side, when the sales team talks about pipeline, I don't get super excited about it, generally speaking, historically. But the way we define it, it's got to be a sales qualified, right? So it has to have gone through someone on the sales team saying, "Hey, this is an actual prospect that's interested in Sprout." It can't just be someone that went through our website or someone that downloaded or requested a demo. Like, there has to be actual engagement with that for us to qualify that as, okay, this is something that we actually want to put resources against. Mm-hmm. And so it's anything that internally we're gonna put some resources against to figure out, hey, is this someone that we want to work with? Yeah. And if you think about the composition of that funnel, Parker, I think this is an important point because if you go back, even around the time of our IPO, we were 90% + inbound, and so there, you know, you had all of our leads coming inbound. It was primarily self-serve through our 30-day free trial motion, and so our average sales cycle against inbound was 31 days, right? At the end of the trial, you either converted or you didn't. We've, over the last number of years, been supplementing the inbound funnel with a more traditional outbound enterprise marketing motion. So, you know, field events, you know, marketing, account-based marketing, international strategies, and those things just naturally carry a slightly longer sales cycle to them. But we know what the conversion of those opportunities look like. We know, generally speaking, what the ACVs and the new business land opportunities look like within that. And so I think we have this now dual track of inbound, outbound, which is a pretty balanced marketing strategy, go-to-market strategy, that we think can best support scale into mid-market enterprise over time. Mm-hmm. Sticking on that topic of go-to-market, you did make the changes early on in the year. You said most of them are behind you now. You know, you've been working on moving upmarket for a couple years now- Yeah. pricing actions have factored- Yeah into that, et cetera. But what made earlier this year the right time to do it? It's a choppier macro right now. Is this just something you had to do to set yourself up for future growth? Yeah, a couple things. One is, I wouldn't consider them actual major changes. These are things that in a typical year, a couple of these things we would do anyways, I think, and I think coming into the quarter, we didn't think there was going to be a challenging macro when we made those decisions. If we would have known, and we've talked about this, if we would have known that the macro was going to be much tougher in the back half of the quarter, we might have staggered a couple of these changes just because it's not anything from our perspective that had, you know, necessarily had to be done. Now, maybe makes the rest of the year, from an execution standpoint, you know, gives us a lot more confidence that we've made them. Mm-hmm. And so we made about three different changes. One is, and we do this every December, January, we redraw the sales territories, right? Because you get new AEs come in, you have new customers, and you've got to redraw the lines on what people working, which is a very typical thing in software. So that's not unique to Sprout. Number two is, we started to build out some additional vertical sales teams. So we piloted this in 2023. We stood up a higher ed, like, verticalized sales team. Mm-hmm. What we noticed as a pilot there, that we saw higher conversion rates, larger deal sizes, like just better quality by having experts, for example, that really could speak to the different universities that we deal with and that kind of stuff. So we also broke out a couple additional vertical sales teams in the quarter, because generally, our sales team, especially up in the mid-market enterprise, are more generalist. There are certain areas like hospitality, the public sector, where having some very, you know, the use cases amongst those customers are very similar. Mm-hmm. And so the ability for these folks to kind of talk in their language, understand the challenges they're having, we've seen a lot of like, like, like I said, we tested last year, we saw a lot of value. So we do think that'll actually benefit us going forward over not just 2024, but into 2025 and 2026. And then the last thing we did is we, you know, we trained everyone on the sales team on Tagger. Mm-hmm. And so, which was another thing that, you know, we believe over the long term is going to be much better. So from our perspective, if there wasn't the tough macro, you probably would not have noticed, like, would not have, you know, a huge impact on the business. But the combination of that, then with the macro pressure we saw in the back half of the quarter, really kind of led to the underperformance that we saw. Yeah. Okay. I wanted to ask you two questions about your market in particular that I get from investors Mm-hmm. and they're a little harder questions to answer. But if you look at yourself, and you look at your primary competitor in the public markets, the growth outlook has come down a little bit. So, one, what do you guys view the market as growing in 2024 and maybe longer term? And then, two, what gives you confidence that this is not just a, you know, feature, and it is a true category- Yeah out there of software? Yeah. So from my perspective, a couple things. One is, like, our view on the overall market hasn't changed at all just because of, like, one choppy quarter. Like, for us, like, that's not anything we worry about. And the main reason for that is we are very big believers in that over the next 10 years, that there's not a reason why every business out there is not going to have to have a solution for social, right? Like we are. And if you believe that social is going to be the most popular communication channel between brands and consumers, then you also can come to the conclusion that they're going to need some way to solve that. And so we're still big believers, and we see that. Like, we talk about this all the time. We'll go into the and we've talked about folks in the crowd about this, which is, in Q1 was another great example of this. We landed Procter & Gamble in Q1, a huge company that was still using Excel spreadsheets, logging into the individual networks, using agencies to help them do some of their marketing content and respond to customers. And so it gives us this confidence that this market is still very large and still very underpenetrated. We'll run across these situations all the time. And the amount of greenfield that we come into, yes, are we competing against, like, Sprinklr and Khoros in the upper end of the enterprise? But most of the deals and the most of the funnel and the things we're closing are greenfield opportunities. And so that's why we have a high level of confidence of, like, where the business is headed. On top of the fact that, and we've talked about this before, every, you know, three, four, five years, there's been a new use case that comes along on social, right? Like, three or four years ago, no one was talking about social customer care as a major use case for social. Now, if we think of the fact that we've deployed, you know, we have a couple instances in the last quarter, we've deployed thousands of users at organizations on social customer care, which wasn't something four years ago we were talking about. And so if I think about, is the market growing? Not only is it growing in just the core use cases, but you have something like social customer care that just expands that market opportunity. And then you think about influencer marketing, right? If you think about that market, that didn't exist two or three years ago, and we think that's another huge opportunity, another market. So the thing about social, back to my original point, is that it's become and it continues to become what we believe is this main communication channel, and that continues to prove out, right? It's expanding outside of marketing into these other parts of the organization that I don't think seven, eight years ago you know, most people even anticipated was going to happen. Mm-hmm. Maybe it's a good opportunity then to jump to Jason and ask about Tagger. That's a deal you guys did in last August, I believe. As Joe mentioned, this wasn't something people were doing a few years ago. So what signals did you guys see out there that said, "We need to either build something or acquire an asset in this space," and how would you assess the success- Yeah of it so far? Yeah, so I think we were getting pretty strong signal from both new and existing customers. I mean, part of the job of any corp dev team is to be consistently getting the pulse of customers and understanding customer pain points around things that we aren't building or don't have on the roadmap. And from a customer feedback perspective, influencer marketing was pretty consistently at the top of the list in terms of things that we should be thinking about. And then really through the back half of 2022 and into 2023, we started to see an increase in terms of influencer marketing representation on RFPs, especially in the enterprise. And so we saw a pretty discernible increase in the number of customers outright asking for influencer marketing within formal RFP processes. So we kind of took all of that signal and started to formulate a thesis on the space, and we talked with, you know, Tagger and most of their competitors in the market. And really, a couple of the things that stood out to us, not just does Tagger fill a gap in terms of being able to solve for influencer marketing, but they architected their platform in a very different way than most companies in that space. So the influencer marketing space, generally speaking, being very, very early, most companies in, you know, Tagger's competitive set, took the approach of solving the space much like an agency might, where they, they approached customer service, customer deployment, with a services-first model and then deployed their own technology behind it. Whereas Tagger architected software in the way that we have architected software historically, which is intuitive, easy to use, easy to deploy. And so from that perspective, they had solved the market, and they also fit with the way that we build and like to sell software. And so from each of those perspectives, I think in the first, you know, six to nine months here, we've seen great product market fit in terms of receptivity of Tagger to our new and existing customers. We've seen really great alignment from new and existing customers in terms of where the roadmap is and where the roadmap is going to solve even more pain points for customers. Because if you think about influencer marketing, it's not just a kind of siloed solution anymore. What we can deliver to customers now is really this integration of what a lot of our customers might call the holy grail of social, which is kind of the integration of influencer marketing data and analytics and benchmarking with organic social, with paid social. And so to unify all of those three things in one platform is something that no other company in the market can offer. So we've seen. You know, we saw really good performance from Tagger through the back half of last year. That was really just, you know, the small Tagger sales team selling the leads that our customers were passing to them. And then in Q1, Tagger added more net new ARR than they had added in the 12 months prior. And so we saw a pretty compelling inflection point in terms of the performance of Tagger in Q1. And they're, you know, it's big brands, it's companies like Atlassian and Kroger and Ford and a lot of the big brands that, that you all know, that both in our minds, prove out, you know, the applicability or the addressability of Tagger to the most sophisticated companies in the world, but also non-obvious use cases, right? A company like Atlassian and B2B software might not be the most obvious company to scale an influencer marketing strategy, but gets compelling as we think about the future opportunity and, and where we can take that product across new and existing customers over time. Yeah, that's really interesting. Okay. Joe, I wanted to ask you about something that both Justyn and Ryan talked a lot about on the last call, which is this identification of ideal customer profiles. Obviously, you've done a lot from a product perspective to make yourself more enterprise, go-to-market, pricing and packaging, but what is an ideal customer profile to you guys, and how are you executing on that opportunity? Yeah, so what they were hinting at is some. And we're always doing this because, you know, we have so many, not only customers trying our product, we have so many existing customers that we get all sorts of signals and data. We're adding new networks all the time to understand, like, what types of customers or what types of leads or what type of potential customers make the most sense for Sprout on the things that we know that our most successful customers are doing. And so what they're talking about is some of it's pretty obvious stuff around, okay, what's the, how big is your audience size? How much messaging do you have? Like, what's the size and scale of your marketing campaigns? How many networks are you using? So it's stuff like that, starting to use a lot of the data and information that's probably a layer, like, below what you might think is like, oh, just historically, it's, okay, you're a big company, so you're enterprise, and so that means you're going to buy a lot of, for example, like, you're going to be very big into social media. Well, not necessarily, like, we, you can be a very large enterprise that's very low on the sophistication scale. So, yeah, maybe we want to engage with you, but if you're not at a certain level of sophistication, like for example, if you're not on multiple networks, if you don't have a large audience, if you're not doing a lot of messaging on social, then you're probably not a good fit for Sprout. And so I think there was this idea, or the way, you know, a lot of companies go to market is like, "Hey, the size of the company," and that's a big driver of, like. And sometimes that's the case, but actually, what we've been focusing more on now is, like, okay, there could be really small businesses that have a high level of sophistication. And what are those signals that we want to gain from that? And so that's really what they were talking about is like, hey, the size of the organization isn't necessarily the main proxy for what a good customer for us would look like. Yeah. On the topic of those two, a couple of weeks before the quarter- Yeah. you guys announced that Justyn, your co-founder and longtime CEO, will be, you know, stepping away this fall. Ryan, who's been with the company since 2016, a lot of people are familiar with him, will be stepping in. Spent 10 years at Salesforce, so I think we understand what he brings to the table, but is there any potential for disruption when you turn over a leader like that, or you guys feel extremely confident in this transition? No, we feel extremely confident, and, you know, I think most people at the organization, when Ryan got named president a couple of years ago, I think everyone was under the impression, and Justyn had been talking about this with Ryan and on the board for a couple of years now, that he was going to be the natural successor of the organization. And if you think about the things that Ryan's really good at, he's really good about being out in front of the employees- Mm-hmm. He's really good in front of the customers. He's really, you know, good in front of investors and, and our partners. And so, like, internally, like, I think folks are very familiar with Ryan, obviously, and so, like, no one internally was surprised at all. So from an internal disruption standpoint, no, like, no change at all. Actually, I think most folks were like: "Like, yes, we were expecting this to happen at one point." Ryan was already managing half the business anyways, and so it's just been a natural progression, and I think it'll also allow Justyn to kind of focus on the things that he really cares about the most. Product strategy, where are we going on the product side? Data, he's big into data, spends a lot of time on the data side, and so I think it's a, it's going to be a really good balance. Like, I don't think Justyn's going to just go away. He really wants to, you know, and he, and Ryan wanted reassurance from him that he wasn't just going to, like, you know, start doing something else. And Justyn's very bought into making sure that not only does this transition go smooth, but that Justyn's still adding a lot of value into the business. So, you know, the company is super excited about the opportunity for Ryan to kind of run the organization. Good to hear. I have a bunch more questions, but I want to see if there's any in the audience here that people are dying to ask. Got one up here. Yeah, so Premium Analytics actually continues to be probably even though Tagger had a lot of success, you know, has had a lot of success, as far as, like, the number of customers adopting, Premium Analytics is still the largest one. I think our overall attach rates were up, you know, 200 basis points-250 basis points in the quarter, and a lot of that was analytics and listening. Like, Tagger is doing really well, but on really small numbers. When it comes to the budget, what we've noticed with Tagger is because you're getting into a different part of the marketing organization, a lot of the time it's usually coming from the paid advertising side, and that budget and the folks managing that, it doesn't conflict with, for example, the social media management and kind of the organic side of the marketing budget side of the house. So we haven't seen a lot of, like, budget trade-offs when we're going into those conversations. I think one of the interesting things for us on the Premium Analytics side that kind of relates to Tagger, Jason mentioned this kind of integration of, you know, Tagger into Sprout from an analytics and data, understand your organic and your paid versus your, you know, your social influencer strategy. You can only do all of that, and that's going to be coming out too, in Premium Analytics. So one of the things that these things kind of work together, which is like, hey, you can buy influencer marketing, and if you want to bring all of that into, for example, Sprout, and you want to analyze it all, you also need Premium Analytics to do that. So we actually think there's going to be a nice trade-off between, or a way to kind of generate incremental business on the Premium Analytics side. One in the back. The guy with the tie. So hopefully, maybe you've got a part you want a little bit more from you guys, like you mentioned earlier, you're kind of, kind of first to not wave the flag, first to set up smoke signals. So then, you know, software guys, which we have here, right? So there's definitely a narrative out there today that the economy is slowing, and we, we kind of don't know, we don't know. But within the narrative of your discussion, you might have definitely also highlighted, this is where we need to change our execution, this is where we make some changes. So can you parse apart, I know it's difficult, but I, well, 35 minutes, maybe 39, can you parse apart how much you think is versus people in the macro maybe? Yeah. So, obviously, it's tough to exactly understand what that trade-off would've been, Tom, if we didn't make some of those changes on the execution side. I definitely think we felt more. Once we understood the overall environment, we understood that, hey, this buyer environment was a lot harder than we thought. We thought, at the time, we thought we were one of the only companies that were experiencing that type of pressure. So definitely more on the macro side than we probably, than on the execution side. The amazing, and, and like I said earlier, if we didn't have the tougher macro, you probably would have not noticed the impact of, of some of those execution things, because those are things that a lot of companies do, and we've done them before, that we would probably not have to call it out. I think the fact that we coupled all of that with some of the macro pressures is really what drove that impact, but it's definitely been more on the macro side and also. From our standpoint, because, and we talked about this a little bit earlier, too, is because we have these a lot quicker sales cycles than a lot of other folks, we had a better understanding, for example, like, what's going to be the impact on us, because, okay, wait a second, let's make sure we're adjusting for some of the things we're seeing when we give our updated guidance to accommodate the fact that the macro looks like it might be a lot worse. So once we reported and we saw a couple companies that maybe had very similar results, we knew, for example, based on the data we had, that there was going to be a rough run in the software market just because we get signals a lot sooner than some other folks might. Do you buy the narrative that, Yeah, I don't know that we don't hear a lot of customers talking, like, about investing in AI, because a lot of our customers, like, what are they spending on AI? Are they going out and buying, you know, like, servers and like, they're most of our customers are not doing that. And so I think if it's anything related to AI, it could be, hey, there might be products or other things we want to invest in across our company that are AI-powered, so maybe we need to wait and see if those things exist. Like, are there other softwares or other types of solutions that might be out there? That's the only thing I think loosely tied to AI. I think it's more of just overall, okay, budget pressure, more people involved in buying decisions. I also think people are taking a look across their company, like we do this at Sprout, making sure we have. Like, do we how many software are we using? Is there overlap? What, what's going- You know, like, generally speaking, like, a little bit more scrutiny around software purchases than there probably was in 2023. Just kind of thinking the, something- Yeah. So can you talk a little bit more about, like, is this like in sales, more of that market, or this all about, like, sure. Yeah, so we didn't, we didn't, like, tweak quotas. We didn't, like, shift people between segments. Really, what the big changes were is the verticalization of a couple of these groups. So we took generalists, and we moved them into these verticals, and they had to ramp in those verticals, right? They went from selling to a bunch of customers to trying to get up to speed, for example, on hospitality. What does that mean? What does that look like? You know, and that just takes time and effort, and they're not hitting quota on day one because they're out there trying to, they get a new list of customers that they have to go after. And then, when we redraw the territories, the same, you know, happens, but every company deals with this. When you redraw the territories, you get a new set of accounts. Sometimes you keep some of your old accounts, sometimes you don't, depending on, you know, how we're redrawing the group on the new sales team. And so those are the sales changes we made. They weren't wholesale, like, "Oh, by the way, we are resetting our comp plans." We're not resetting the way we do quotas. We're not, for example, saying, "Hey, we're moving a bunch of people from mid-market into enterprise." We're not making, like, big strategic changes, for example, that were going to be, like, something that we had to keep worrying about after Q1. Like, by the end of the quarter, they were all done. Now, people still have to ramp, don't get me wrong, but in general, it's not something that was persisting past March. Jason, wanted to ask you about Salesforce. That's something we spent a lot of time talking with investors about. You gave some new metrics on the last quarter- Yeah some new disclosures around contribution from last year. We've gotten customer counts, but we really haven't talked about just the core value proposition of the integrations that you've built there. Yeah. Do you feel like those are ready for prime time? As we get beyond this Social Studio end of life in November, are we seeing compelling value out there, enough so- Yeah that, Salesforce customers are ready to adopt you guys? Yeah, I think there's a lot of headroom with Salesforce, and I'll give a couple of examples of things that we're excited about. But the way that we've built Sprout to this point has been native integrations across the entire Salesforce tech stack. And so Sprout is, at this point, natively embedded in things like Tableau and Slack and Salesforce Marketing Cloud and Salesforce Service Cloud. And so Sprout looks, feels, operates as an extension of that Salesforce ecosystem, and we've built it in a way such that if you're a Salesforce customer today and you care about social or you care about social data, Sprout should be the de facto standard for you to adopt over time. And so we've gone to market pretty aggressively with Salesforce on a few of these things. Our CMO and the Salesforce CMO co-presented on a panel at Connections last week about actually influencer marketing and the value of influencer data. Ryan, our incoming CEO, is going to be presenting with the GM of Service Cloud later this summer and presenting at Dreamforce later this year. But as we think about the largest of those opportunities, it's probably Service Cloud. You saw us go live in the back half of last year with companies like McDonald's and Honda. We deployed 6,000 seats with one of the biggest software companies in the world that had deployed Sprout and Service Cloud together in Q4 of last year. That particular company had been working on solving for social inside of their Service Cloud instance for 6 years and couldn't figure it out and saw a path to doing that with Sprout. And so I think as we move forward here, right, I mean, every company that is today on Service Cloud, which is 100,000 or so Salesforce Service Cloud customers, is going to need to solve for social as it relates to omni-channel customer care. And so that, I think, is the biggest opportunity. I mean, we've seen obviously the big logos that we've talked about, and there's a ton of marketing momentum to ensure that we go really deep into that install base over the next couple of years, not just 2024. Yeah. Got it. Well, I'd love to keep talking, but it looks like we've run out of time, so I think that's a good place to stop. Joe, Jason, Joe, Jason, thanks for being here today. Thanks, Parker. Thanks, Parker.