Sprout Social, Inc. (“Sprout Social”, the “Company”) (Nasdaq: SPT), an industry-leading provider of cloud-based social media management software, today announced financial results for its first quarter ended March 31, 2024.
“As partners in this company’s success to date and strategic direction moving forward, Ryan and I had an opportunity to re-draw our roles to best position us to accelerate beyond our $1B target.” said Justyn Howard, Sprout Social’s CEO and co-founder. “We’ve always embraced change as a catalyst for growth. As a founder, shareholder, board member and soon to be Executive Chairman, I am thrilled to be succeeded by one of the most exceptional leaders I’ve ever worked with.”
“It is an incredible honor and opportunity to succeed Justyn as our next CEO,” said Ryan Barretto, President and incoming CEO. “This will be a winner take most market and I believe Sprout is best positioned to be that winner in a growing market. We intend to drive excellence in everything we do. And we believe that further re-drawing our focus around our best customer cohorts will allow us to scale a durable, efficient upmarket land & expand motion.”
First Quarter 2024 Financial Highlights
Revenue
- Revenue was $96.8 million, up 29% compared to the first quarter of 2023.
- Total remaining performance obligations (RPO) of $290.0 million as of March 31, 2024, up 54% year-over-year.
- Current remaining performance obligations (cRPO) of $210.6 million as of March 31, 2024, up 48% year-over-year.
Operating Income (Loss)
- GAAP operating loss was ($13.3) million, compared to ($11.9) million in the first quarter of 2023.
- Non-GAAP operating income was $6.0 million, compared to $1.7 million in the first quarter of 2023.
- Changed deferred commission amortization accounting from a 3 year average customer life to 5 year average life, resulting in a $4.4M reduction in Q1 sales & marketing expense.
Net Loss
- GAAP net loss was ($13.6) million, compared to ($10.3) million in the first quarter of 2023.
- Non-GAAP net income was $5.7 million, compared to $3.4 million in the first quarter of 2023.
- GAAP net loss per share was ($0.24) based on 56.3 million weighted-average shares of common stock outstanding, compared to ($0.19) based on 55.2 million weighted-average shares of common stock outstanding in the first quarter of 2023.
- Non-GAAP net income per share was $0.10 based on 56.3 million weighted-average shares of common stock outstanding, compared to $0.06 based on 55.2 million weighted-average shares of common stock outstanding in the first quarter of 2023.
Cash
- Cash and equivalents and marketable securities totaled $95.2 million as of March 31, 2024, compared to $98.1 million as of December 31, 2023.
- Net cash generated by operating activities was $11.2 million, compared to $8.3 million in the first quarter of 2023.
- Non-GAAP free cash flow was $11.3 million, compared to $7.9 million in the first quarter of 2023.
See “Customer Metrics” and “Use of Non-GAAP Financial Measures” below for how Sprout Social defines number of customers contributing over $10,000 in ARR, number of customers contributing over $50,000 in ARR, Non-GAAP operating income (loss), Non-GAAP net income (loss), Non-GAAP net income (loss) per share, non-GAAP free cash flow, dollar-based net retention rate, dollar-based net retention rate excluding small-and-medium-sized business customers and the financial tables that accompany this release for reconciliations of our non-GAAP measures to their closest comparable GAAP measures.
Consistent with our communications in previous quarters, we no longer believe that ARR and total number of customers are key performance indicators of Sprout Social’s business due to our evolving customer mix and we will no longer publicly disclose these metrics. We believe that RPO, number of customers contributing over $10,000 in ARR and number of customers contributing over $50,000 in ARR are stronger indicators of Sprout Social’s performance. Net new ARR added in the first quarter of 2024 decreased relative to the first quarter of 2023.
Customer Metrics
- Grew number of customers contributing over $10,000 in ARR to 8,823 customers as of March 31, 2024, up 24% compared to March 31, 2023.
- Grew number of customers contributing over $50,000 in ARR to 1,449 customers as of March 31, 2024, up 44% compared to March 31, 2023.
Recent Customer Highlights
- During the first quarter, we had the opportunity to grow with great new & existing customers like Procter & Gamble, Traeger, Yamaha, Universal Pictures, Panasonic, American Honda Motor Company, Sega of America, Atlassian, Bentley, Wahl, the Leukemia & Lymphoma Society, Southern New Hampshire University, Brown-Forman, and Bloomingdales.
Recent Business Highlights
Sprout Social recently:
- Announced Chief Executive Officer (CEO) succession plan
- Announced its virtual community platform, The Arboretum, a new mentorship network for marketers
- Named Crystal Boysen as Chief People Officer (CPO) to oversee Sprout’s global people function
- Published a new data report, The 2024 Influencer Marketing Report, revealing influencers significantly drive purchase decisions among consumers
Second Quarter and 2024 Financial Outlook
For the second quarter of 2024, the Company currently expects:
- Total revenue between $98.5 million and $98.6 million, or growth of greater than 24%.
- Non-GAAP operating income to be between $4.6 million and $5.0 million, including an estimated benefit from the deferred commission accounting change.
- Non-GAAP net income per share of between $0.07 and $0.08 based on approximately 56.6 million weighted-average shares of common stock outstanding.
“We believe our business has fundamentally changed for the better over the past 18 months and we nicely overperformed our gross retention and margin plans during Q1,” said Joe Del Preto, CFO. “We underestimated the magnitude of enterprise seasonality that now comes with our business mix, while also self-inducing sales execution headwinds during Q1 that we believe were important to position us for future success. We have factored Q1 underperformance and tightened strategic focus into our reduced 2024 revenue forecast, though we believe we’re now positioned for greater long- term success.”
For the full year 2024, the Company currently expects:
- Total revenue lowered to be between $405.0 million and $406.0 million. This assumes >20% organic Sprout revenue growth and accelerated Tagger subscription revenue growth.
- Non-GAAP operating income between $28.0 million and $29.0 million, including an estimated benefit from the deferred commission accounting change which will affect all future periods. Excluding this change, the Company expects Non-GAAP operating income between $15.0 million and $16.0 million.
- This implies year-over-year Non-GAAP operating margin improvement of roughly 560bps. Excluding the accounting change this implies year-over-year non-GAAP operating margin improvement of roughly 240bps.
- Non-GAAP net income per share between $0.45 and $0.46 based on approximately 57.0 million weighted-average shares of common stock outstanding.
The Company’s second quarter and 2024 financial outlook is based on a number of assumptions that are subject to change and many of which are outside the Company’s control. If actual results vary from these assumptions, the Company’s expectations may change. There can be no assurance that the Company will achieve these results.
The Company does not provide guidance for operating loss, the most directly comparable GAAP measure to non-GAAP operating income, net loss per share, the most directly comparable GAAP measure to non-GAAP net income per share, or operating margin, the most directly comparable GAAP measure to Non-GAAP operating margin, and similarly cannot provide a reconciliation between its forecasted non-GAAP operating income, non-GAAP net income per share and non-GAAP operating margin and these comparable GAAP measures without unreasonable effort due to the unavailability of reliable estimates for certain items. These items are not within the Company’s control and may vary greatly between periods and could significantly impact future financial results.
