Sprout Social, Inc. (SPT) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary and Q&A reveal several positive indicators: revenue growth, raised guidance, strong enterprise engagement, and strategic wins with Fortune 500 companies. The NewsWhip acquisition is expected to enhance market positioning, with no negative impact on operating income. While there are some concerns about seasonality and macro environment impacts, the overall sentiment is optimistic, supported by increased shareholder returns and effective market strategies. Given the company's market cap, the stock is likely to see a positive movement in the range of 2% to 8%.

Key Financial Performance

Revenue $111.8 million, representing year-over-year growth of 12%. The growth was driven by strong performance in subscription revenue and strategic customer wins.

Non-GAAP Operating Margin 9.2%, up nearly 400 basis points from the year-ago period. This improvement reflects the company's focus on growing operating leverage and cost efficiency.

Non-GAAP Free Cash Flow $5.2 million, up $2.7 million from the prior year, an increase of 110% year-over-year. This growth was attributed to improved operational efficiency and revenue growth.

Subscription Revenue $111.1 million, up 13% year-over-year. The increase was driven by higher customer adoption and premium module attach rates.

Customers Contributing More Than $10,000 in ARR Grew 6% year-over-year, indicating steady growth in mid-tier customer segments.

Customers Contributing More Than $50,000 in ARR Grew 18% year-over-year, reflecting strong performance in the enterprise segment.

ACV (Annual Contract Value) 15,321, up 14% year-over-year. This growth was driven by a shift to a higher enterprise mix and premium module adoption.

RPO (Remaining Performance Obligations) $347.0 million, up 18% year-over-year. The growth was driven by strong customer commitments and enterprise adoption.

CRPO (Current Remaining Performance Obligations) $251.6 million, representing 18% year-over-year growth. This reflects strong near-term revenue visibility.

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Operating Highlights

Acquisition of NewsWhip: Sprout Social acquired NewsWhip, a leader in AI-powered predictive media intelligence, for $55 million with an additional $10 million in potential cash earn-outs. NewsWhip's capabilities include real-time alerts, predictive analysis, and AI-driven trend detection, which will enhance Sprout's offerings in crisis management and trend detection.

New Product Launches: Sprout introduced Guardian, an AI-driven tool for brand safety and customer data handling, and reimagined its influencer marketing platform with advanced AI capabilities. Enhancements in customer care include proactive engagement tools and AI-driven efficiencies.

Enterprise Customer Growth: 18% growth in customers contributing more than $50,000 in ARR, with strategic wins from global brands like Honda, Cigna, and Kimberly-Clark.

Partnership Expansion: Sprout expanded partnerships with platforms like TikTok, Reddit, and LinkedIn to enhance publishing, reporting, and listening capabilities.

Revenue Growth: Reported Q2 revenue of $111.8 million, a 12% year-over-year increase, and raised full-year revenue guidance to $452.9 million-$455.9 million.

Operational Efficiency: Achieved a non-GAAP operating margin of 9.2%, up nearly 400 basis points year-over-year, and a 110% increase in non-GAAP free cash flow.

Focus on AI and Predictive Analytics: The acquisition of NewsWhip and integration of AI capabilities aim to position Sprout as a leader in real-time data and intelligence for social media and crisis management.

Shift to Enterprise Solutions: Sprout is focusing on higher enterprise mix and premium module attach rates, targeting larger contract sizes and regulated industries.

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Risk or Challenges

Acquisition of NewsWhip: The integration of NewsWhip into Sprout Social's operations may face challenges such as aligning go-to-market strategies, training teams, and supporting customers through expanded offerings. Additionally, there is near-term pressure on sales rep productivity during the integration phase.

Customer Retention and Expansion: While NewsWhip is expected to strengthen gross retention goals among larger enterprise customers, there is minimal customer overlap, which could limit immediate synergies. Expanding into new buyer groups and markets may also present challenges.

Economic and Market Conditions: The company faces potential headwinds from economic uncertainties, including rising paid search costs and declining organic website traffic, which could impact customer acquisition and retention.

Regulatory and Compliance Risks: Sprout Social's expansion into highly regulated industries like healthcare and financial services with products like Guardian may expose the company to increased regulatory scrutiny and compliance risks.

Competitive Pressures: The social media management and analytics space is highly competitive, with risks of losing customers to competitors offering similar or more advanced solutions.

Operational Efficiency: The introduction of new AI-driven tools and expanded product offerings may strain operational resources and require significant investment in training and support to ensure customer satisfaction.

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Guidance & Outlook

Revenue Guidance for Q3 2025: Expected revenue in the range of $114.4 million to $115.2 million.

Revenue Guidance for Full-Year 2025: Expected revenue in the range of $452.9 million to $455.9 million.

Non-GAAP Operating Income for Q3 2025: Expected in the range of $9.3 million to $10.3 million.

Non-GAAP Operating Income for Full-Year 2025: Expected in the range of $43.1 million to $45.1 million.

Non-GAAP Net Income Per Share for Q3 2025: Expected between $0.15 and $0.16.

Non-GAAP Net Income Per Share for Full-Year 2025: Expected between $0.71 and $0.75.

NewsWhip Acquisition Impact: The acquisition is expected to contribute to revenue growth and enhance AI, Listening, and Care capabilities. Early traction with enterprise customers is promising, but near-term pressure on rep productivity is anticipated as teams align and integrate.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:How would you characterize the core business as it stands today?

A:The business is performing well, tracking the plan laid out at the beginning of the year. Key wins include Cigna, Authentic Brands, Honda, Smuckers, and the Department of Transportation. Customer accounts grew, with the 50,000 trailing 12-month revenue cohort growing over 30%. Retention and renewal performance is strong, with steady improvement in gross revenue retention year-over-year. Non-GAAP operating margin is up nearly 400 basis points.

Q:What is the impact of NewsWhip on the guidance?

A:NewsWhip is projected to contribute approximately $2.5 million over the final 5 months of the year. The company is taking a prudent approach due to unknowns around renewal rates, pipeline conversion, and other fundamentals. The acquisition is expected to set the company up to lead in an increasingly important area for customers.

Q:What is the timeline for the integration of NewsWhip teams and products?

A:Integration is progressing, with teams aligning CRMs and go-to-market strategies. Product integration will develop over the next few quarters. Initial customer feedback has been strong, and the teams are excited about the opportunity to share the value of NewsWhip's product.

Q:Have you seen any benefit from the launch of a multiproduct campaign?

A:The multiproduct campaign has created a healthy pipeline, with NewsWhip being a significant contributor. Progress is ongoing, but no additional details were provided.

Q:Are customers shifting their advertising strategies due to the growing cost of advertising?

A:Yes, customers are experiencing significant disruption in search engine optimization and marketing. They are looking for ways to reclaim lost traffic and performance, with social becoming a more important channel. The platform helps customers optimize content and analytics for both paid and organic social strategies.

Q:Why did RPO and CRPO step down sequentially?

A:The decline is attributed to seasonality, with larger renewals and deals typically occurring in Q3 and Q4. The company expects these metrics to improve in the back half of the year.

Q:How has the macro environment impacted the pipeline and renewal conversations?

A:The demand environment remains consistent with previous quarters. The company is focusing on customer value and ROI stories. Renewal rates have improved year-over-year, reflecting the value of the product.

Q:How has Salesforce's emphasis on Agentforce impacted demand in the customer care segment?

A:Care remains an important use case, with customers leveraging integrations like Service Cloud to manage high volumes of customer support requests. Expectations for social as a service channel are high, and the platform supports these needs effectively.

Q:What are the trends in international business?

A:International remains a smaller part of the business but shows potential for growth. The mix of international revenue has not changed materially from Q1 to Q2.

Q:How does NewsWhip complement the current product platform?

A:NewsWhip strengthens the overall approach to the market, differentiating the company from competitors. Sprout Listening focuses on deep analysis and historical trends, while NewsWhip provides real-time monitoring and predictive analytics for crisis communications and high-stakes situations.

Q:What is the impact of NewsWhip on operating income guidance?

A:NewsWhip is expected to be breakeven for the rest of the year, with no incremental expenses anticipated. Over the longer term, the acquisition is expected to drive leverage and margin improvement.

Q:Are there any specific sales plays or incentives to capitalize on the shift from search to social?

A:The company is enabling the team on the value proposition of social search and its impact on AI and traditional search. Efforts focus on educating customers about the benefits of performing well on social platforms.

Q:How is the influencer marketing portion of the business performing?

A:The influencer marketing segment is performing well, with advancements in AI for creator discovery, brand safety, and workflow automation. It serves as a strong entry point for accounts and offers a good return on ad spend.

Q:How is the company balancing product investments, go-to-market efforts, and margin expansion?

A:The company is committed to driving margin improvement year-over-year while managing the business responsibly. Investments in product and go-to-market efforts are balanced with this commitment.

Q:How are pipeline conversations changing with customers due to industry shifts?

A:Pipeline conversations focus on understanding customer problems, such as disruptions in search and increased demand for social care. The company is investing in solutions that address these issues and provide ROI.

Q:Does NewsWhip give access to media sources not captured by the Listening offering?

A:Yes, NewsWhip provides access to a wide range of media sources, offering real-time monitoring and predictive analytics for breaking news and trends.

Q:What is the price point for NewsWhip?

A:NewsWhip is an enterprise product with a price point significantly higher than the average deal size, targeting large enterprises and agencies.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the progress of the multiproduct campaign, stating only that progress is ongoing without elaborating further.

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The earnings call summary and Q&A session indicate strong financial performance with a 13% revenue growth, improved margins, and a positive outlook from the NewsWhip acquisition. The AI product expansion and enterprise growth strategy are promising, despite macroeconomic and competitive pressures. The company's focus on AI and large enterprise deals aligns with market trends, and the sentiment from analysts is generally optimistic. Given the market cap of $1.9 billion, the positive sentiment and strategic initiatives are likely to result in a stock price increase of 2% to 8%.

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