Sprout Social Inc (SPT) 2022 Q2 法說會逐字稿

Hello, and thank you for standing by. My name is Joanne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sprout Social Second Quarter 2022 Earnings Call. (Operator Instructions) Thank you. Jason Rechel, Head of Investor Relations and Corporate Development, please go ahead.

Thank you, operator. welcome to Sprout Social's Second Quarter 2022 Earnings Call. We'll be discussing the results announced in our press release issued after the 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. Forward-looking statements include, among others, statements concerning financial business and customer trends, our expected future business and financial performance and financial condition, performance against our multiyear financial framework, our market size and opportunity, our plans and objectives for future operations, growth, products, investments, initiatives or strategies, and our guidance for the third quarter of 2022 and the full year 2022, and can be identified by words such as expect, anticipate, intend, plan, believe, seek or will.

These statements reflect our views as of today only, 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 annual report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission as well as any future quarterly and current reports that we file with the SEC.

During the call today we will 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 reconciliations to the most directly comparable GAAP financial measures are included in our 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. Justyn?

Thank you, Jason, and good afternoon, everyone. Thank you for joining us. I am pleased to be in a fortunate position today to again raise our annual growth and margin goals coming out of a strong quarter. We surpassed $0.25 billion of ARR during Q2 at a faster year-over-year growth rate than when we surpassed $100 million of ARR. This is the output of strong execution across our teams, particularly against the backdrop of a dynamic world around us.

Our business model and culture are perfectly align to help our customers navigate a changing world. Our fundamental growth drivers are strengthening as business use cases of Social continue to increase in criticality, and our world-class team is leveling up every quarter. We believe we have positioned Sprout to thrive now and for many years into the future.

I'm proud of our execution during Q2. I'm pleased to see the 2-year stacked growth rate of ARR accelerate for the sixth consecutive quarter and to also deliver positive free cash flow for the sixth consecutive quarter. The consistency of this performance and durability of our growth this quarter was driven by outsized contributions from our mid-market and enterprise segments. The number of customers contributing more than $10,000 in ARR grew 47% year-over-year, and our number of customers contributing more than $50,000 in ARR grew 88% year-over-year.

And even those numbers stop short of the full picture. The ACVs of new business lands grew more than 30% year-over-year and we delivered our largest ever new customer land for social customer care. We also delivered more than 25 new logos from our Salesforce partnership, which has begun to build momentum into what we expect will be a strong second half of the year. Given the heightened level of uncertainty throughout the financial markets, I want to now give a more granular view into the linearity of our quarter and what we're expecting for the balance of the year.

Net new ARR in the months of April and May was relatively consistent with our healthy trajectory exiting Q1 across new business, retention and growth. Our month of June, however, was one of our strongest ever. Retention and expansion trend lines stayed consistent with April and May, and we delivered a record new business month including incredibly strong large deal momentum in the enterprise. As we look ahead, we currently see steady trends within customer retention and expansion as we remain mission-critical to our customers' workflow.

As our investments in mid-market enterprise sales capacity lean into strong new business demand, and many of our partner and product initiatives begin to impact ARR, we believe we are well positioned to deliver consistently healthy ARR growth into 2023. Because we have always been thoughtful and deliberate about our hiring and pace of investment, we are also currently in a fortunate position not to backpedal on our growth plans. And given the momentum of our strong pipeline, we plan to continue hiring while also keeping a close eye on market conditions and the efficiency of those investments. We believe this positions us to perform well relative to our near-term margin expansion commitments and to further distance ourselves from our competitors and to find further category leadership.

Shifting quickly to second half priorities. Entering the year, we outlined an ambitious R&D plan that we believe puts Sprout in a position to lead our market. The scope of this investment has both high profile and subtle impacts on our customer value proposition. In late May, we joined the TikTok marketing partner program and introduced a new first-of-its-kind TikTok integration, giving customers the ability to build TikTok into their workflow across publishing, engagement and analytics in Sprout.

Today, we announced that support for Instagram Reels went live across our entire customer base. And recently social listening support for comment moderation on LinkedIn also went live, 2 highly requested features from our customers. Last month, our integration with the Salesforce Marketing Intelligence Cloud went live, and we expect that our enhanced integration with Salesforce Service Cloud will go live later this summer.

Our strategic platform investments in social commerce, messaging, publishing and reporting are making great progress, and our road map in social customer care has been further prioritized. We are working on further integrations with new partners and have multiple opportunities to go deeper at commerce, messaging and listening. Our work here aligns well both to our product road map and to the competitive moats that are strengthening around Sprout as we grow. We believe the combination of our customer scale, our fully unified social media management platform and the breadth and depth of our network and partner integrations are significant and compounding competitive advantages, especially now.

As you'll hear Ryan discuss in greater detail, we believe the market is increasingly shifting in our direction. This comment isn't limited to customers and partners. During Q2, we were fortunate to be recognized as one of the best workplaces in Chicago by Great Places to Work, and we were certified as a great place to work for the fourth consecutive year. The ongoing consistency of our execution and steady demand trend gives us confidence to continue to thoughtfully build our company with amazing people and leaders. I'm incredibly grateful to our people, and we are collectively excited to deliver value to all of our stakeholders in 2022 and beyond.

With that, I'll turn the call over to Ryan.

Thanks, Justyn. This moment provides us with a big opportunity to distance ourselves from our competitors and our peers. I'm incredibly proud of our performance from our teams, and I'm even more excited for what's ahead as we execute and create more momentum from our road map, partnerships and go-to-market strategy. We aren't distracted by the business externalities around us. We're focused on delivering more value to our customers than is expected of us and then being a joy to do business with. We believe this positions Sprout to move ahead as a category-defining company.

Justyn highlighted the great work of our product teams, which has our marketing team excited to generate even greater top of funnel pipeline in the periods ahead. The TikTok partnership launched last quarter was clear validation of our market leadership, the speed at which our product teams work and the reach that our marketing teams can deliver. The reception of the Sprout community, our new network for practitioners, which launched during Q1, has been incredible to witness with thousands of engaged customers now actively sharing ideas and best practices. We plan to expand the Sprout community later this year to all practitioners and brands, Sprout customer or not, which will be even more impactful to those looking to uplevel and refine their skills in this dynamic role.

Speaking of practitioners, we talk with you frequently about the organic growth of our category and the fact that Social is increasingly a team sport. According to the LinkedIn 2022 marketing jobs report, the role of social media marketing specialist is the single most in-demand occupation within North American marketing teams. This is a direct result of the rising complexity and expanding use cases of Social and speaks to how mission-critical it is for brands to meet their customers where they are.

In a world where ad budgets and advertising ROI are increasingly being scrutinized, organic social has become more important and more impactful than ever before. Canva, which is a mission to empower everyone in the world to design anything and publish anywhere, highlights the power of this reality as they expanded with Sprout this quarter. Said Canva, our community is at the heart of everything we do. Given our rapidly growing global community, the use of social listening has been key to engaging and fostering authentic conversations with them across social channels. We've been able to proactively engage with them to collect valuable feedback and strengthen brand love. Sprout's all-in-one platform has helped us scale our community engagement and build strong lasting connections.

Shifting to quarterly performance. What stood out to me the most was our greater than 30% ACV growth in new business lands. Our marketing investments have been targeting more sophisticated buyers and personas in the enterprise. Our sales hiring is focused on mid-market and enterprise and into the explosive expansion of social use cases. We know that the larger our customers land, the faster and the larger they grow with us.

But especially against the backdrop of the current global climate, larger initial deal sizes with Sprout speak to how fundamentally mission-critical it is for brands to get social right. Our product line motion is perfectly suited to feed and grow with customers big and small as they become increasingly sophisticated users of our platform.

As Justyn referenced earlier, more than 25 new logos this quarter came from our Salesforce partnership. As we go deeper with Salesforce Social Studio customers, we've learned several key things. First, these customers are considerably larger than our average customer. Second, pipeline momentum is clearly building for a very strong second half of the year and very strong 2023. And third, we believe our deeper technical integration with Service Cloud will unlock even more opportunity as we create value for our customers and reinforce the value of their existing investments in the Salesforce tech stack. I'm incredibly excited to present at Dreamforce later this quarter where Sprout and Salesforce will build on our partnership together and further articulate our vision for social media management.

One of the first customers we migrated over was Gordon Food Service, the largest privately owned and family managed food service distributor in North America. Sprout's strong team and close partnership with Salesforce made it easy for us to migrate from Social Studio this quarter to Kristin Johnson, Digital Campaign Supervisor at Gordon Food Service. It's incredibly important that we have a centralized social media management platform that is easy to use for different teams across our organization.

Sprout's usability in analytics dashboards foster confidence that we have the right partner to execute our social strategy from publishing to listening. We hope the technology and team behind Sprout will help us elevate our Goodfinds by Gordon program created to find meaningful food solutions that not only taste good but do good, too, and other sustainability initiatives as we lead to choose food that can change our world.

The broader group of brands that grew at Sprout this quarter is a cross-section of leading franchises across all segments of the economy. This speaks to both the magnitude of our opportunity and the importance of organic social and includes BT Group, Hertz, Afterpay, Deckers Footwear, Sunoco, Virgin Red, HP, Duolingo, Douglas Elliman, Athenahealth, H. J. Heinz, Block, Porter Airlines, the University of Virginia and close to the [Scripps] heart, Robert Baird.

I'm proud of what our teams have delivered through the first half of 2022, but I'm even more inspired by what I know we can accomplish in the quarters ahead. Our partnerships are building momentum, our teams are upleveling and new product enhancements are delivering incremental value to our customers. We surpassed $0.25 billion of ARR during Q2 at a faster growth rate than when we surpassed $100 million of ARR. Our powerful and unified platform, disruptive inbound trial model and world-class teams give me confidence we'll continue to scale above our next growth milestones even faster.

And with that, I'll turn it over to Joe to run through the financials. Joe?

Thanks, Ryan. I'll now walk you through our second quarter results in detail before moving on to guidance for the third quarter and full year 2022. We're pleased to again deliver very strong growth, positive free cash flow and to raise our expectations for the year, underscoring the mission-criticality of organic social media management.

Revenue for the second quarter was $61.4 million, representing 37% year-over-year growth. ARR exiting Q2 was $256.1 million, up 35% year-over-year. We're very pleased with the 2-year stack growth rate of ARR accelerated for now sixth consecutive quarter, which we believe underscores the durability of our growth momentum. Our enterprise new business and pipeline further accelerated during the quarter and our inbound volume remains strong, contributing to our expectation to deliver consistently strong ARR growth. We believe this positions us to continue to deliver durable and efficient growth ahead of our medium-term goals.

We added 820 net new customers in Q2 to finish the quarter with 33,620 customers, up 14% year-over-year. Our net additions were below recent trends during Q2, primarily because we experienced larger-than-normal deal size of the mid-market enterprise new business, which resulted in more than 30% year-over-year growth in new business ACV.

We've talked about managing the business to ARR in this outsized new business ACV growth meant that we required fewer logos to achieve our goals that previously have been the case. While this trend could continue, we also believe we have strong visibility into new business momentum and healthy new customer additions for the foreseeable future as our sales capacity continues to increase.

The number of customers contributing more than $10,000 in ARR reached 5,800, up 47% from a year ago. The number of customers contributing more than $50,000 in ARR reached 755, up 88% from a year ago. Q2 ACV growth of 19% year-over-year was driven primarily by larger initial deal sizes. We believe there are several factors that will contribute to sustained medium-term ACV growth.

In discussing the remainder of the income statement, please note that unless otherwise stated, all references to our expenses, operating results and share count on a non-GAAP basis to exclude stock-based compensation expense are reconciled to our GAAP results in the earnings press release that was just issued before this call.

In Q2, gross profit was $47.1 million, representing a gross margin of 76.6%. This is up 100 basis points compared to gross margin of 75.6% a year ago and is again our highest gross margin in 5 years as we scale into our financial model.

Sales and marketing expenses for Q2 were $24.4 million or 40% of revenue, up from 38% a year ago. We're fortunate to hire well throughout the quarter and continue to make meaningful investments in mid-market enterprise sales capacity to master current demand signal that we see.

Research and development expenses for Q2 were $12.3 million or 20% of revenue, up from 18% a year ago. Our headcount and absolute expenses again grew substantially this quarter as we continue that trajectory of transforming R&D investments. We believe we're in the process of expanding our market leadership and positioning Sprout as a category-defining software company.

General and administrative expenses for Q2 were $12.2 million or 20% of revenue, up slightly from 90% a year ago. We continue to expect our G&A expenses to increase in 2022 as we enter a more normalized spending environment, but to decrease as a percentage of revenue on an annual basis.

Non-GAAP operating loss for Q2 was $1.9 million for a negative 3.0% operating margin. We are pleased with the ongoing efficiency improvements as we scale, and we exceeded our expectations this quarter due to revenue outperformance.

Non-GAAP net loss for Q2 was $1.9 million for a net loss of $0.04 per share based on 54.5 million weighted average shares of common stock outstanding compared to net income of $0.0 million and $0.00 per share a year ago.

Turning to the balance sheet and cash flow statement. We ended Q2 with $181.7 million in cash, cash equivalents and market securities, up from $180.8 million at the end of Q1. Deferred revenue at the end of the quarter was $80.2 million, a strong sequential increase. We continue to progress nicely to our high watermark anticipated in Q4. Again, both our billed and unbilled contracts, our remaining performance obligations, or RPO, totaled approximately $127.6 million, up from $115.9 million as in Q1 and up 57% year-over-year. We expect to recognize approximately 80% of $104.2 million of the RPO as revenue over the next 12 months. Operating cash flow in Q2 was positive $1.3 million compared to $4.4 million a year ago. Free cash flow was positive $0.7 million or a positive 1% free cash flow margin ahead of our expectations.

Shifting to formal guidance. For the third quarter of fiscal 2022, we expect revenue in the range of $64.9 million to $65.0 million, a growth rate of greater than 32%. We expect non-GAAP operating loss in the range of $2.4 million to $2.0 million. This represents an anticipated operating margin of negative 3.4%. We expect a non-GAAP net loss per share between $0.04 and $0.03, assuming approximately 54.5 million weighted average basic shares of common stock outstanding.

For the full year of fiscal 2022, we now expect total revenue in the range of $253.9 million to $250.0 million sic [$254.0 million]. This is an expected overall reported growth rate of more than 35%, up roughly 100 basis points from our prior expected growth rate and tracking well against our medium-term goals.

For 2022, we announced a non-GAAP operating loss in the range of $5.9 million to $5.7 million. This implies annual non-GAAP operating margin expansion of roughly 110 basis points to 120 basis points, up from a prior margin expansion range of 90 basis points to 110 basis points. We're pleased to forecast faster revenue growth with improved efficiency even as we continue to make growth investments for our future. We expect a non-GAAP net loss per share between $0.11 and $0.10, assuming approximately 54.5 million weighted average basic shares of common stock outstanding.

In summary, our Q2 financial performance highlights the consistency of our execution and the rising strategic emphasis our customers are placing on social. Our balance sheet and free cash flow strength provide us with future optionality and our pipeline upmarket is robust. Even against the backdrop of a dynamic world around us, we believe we're poised to deliver consistent and efficient growth, which positions Sprout to pull away and forge leadership in the $100 billion market opportunity ahead.

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 Michael Turits with KeyBanc.

Congrats on good results in a tough environment. I guess, sneaking my fundamentals and then one numbers question. On the fundamentals side, maybe you could just talk about -- I mean we've seen some weakness, I would say, in digital marketing demand, including the, say, in paid ads, which I know you're not in. But maybe you're not more -- there more broadly. How do you think that social media management, why does it seem to be holding up better? And then I would just add, maybe just if you could give us a little bit more on those new logos from Salesforce. 25%, great, but what has the trend been there previously?

Yes, sure. Thank you for the question. I'll start with the first half of that question, then Ryan can jump in. In terms of the kind of the dynamic around paid and marketing spend, I think as we've shared before, we don't participate in the advertising space. And so we've got a bit of isolation from the things happening in that part of the market. But in terms of how it flows through to how social media management has remained pretty resilient there, I think it largely comes down to the fact that it's separate functions, right?

On the one hand, you've got direct advertising with a very specific purpose and budget usually team around it. And on the other, you have very organic side of relationships between brands and their customers, whether that is simple evangelism on the customer side, if it's customer support, presales, postsales, or just general support or commentary back and forth between the brand and the customers. And so that side of it, I think, is -- which is largely what this company was built around and where we focus with our customers, is going to remain consistent. It's going to remain important. It is as important as any other form of communication, I think, increasingly so.

On the flip side of that, I think there are some organizations where the organic side of social is very much a hedge against anything that may be less productive on the advertising side. So where those channels might be a little more challenging that we've seen a few different times over the last 3 or 4 years, that organic channel to the extent that brands are earning and cultivating that community as one, that's always going to be available to them with generally very positive returns and results.

So for those 2 reasons, the side of social that we've focused on and that we primarily play in for our customers, I think, continues to be really strong, continues to be growing in importance. And I think that we're at the stage now where the parts of social that are not specific to advertising are very clearly something that is becoming part of workflows across the organization, not just in marketing but through to customer service, sales, support, et cetera. And I expect we'll see that continue for those reasons.

And I'll just try on one last point on that one for you, Michael, and then I'll jump to the Salesforce piece. Agreed with everything Justyn just shared. More and more we're hearing from our customers, especially in this type of environment where they might be scrutinizing some of their paid spend or other more expensive areas of spend, the campaigns that they're running from a marketing perspective on social are very efficient. Their customers are there. They get real-time feedback. The data and the analytics that we provide help them be smarter in the campaigns that they're running. So that ends up being one of those value points for our customers. And again, the inbound model for us, those customers are coming in with these needs that they're looking to solve and identifying Sprout as the right solution to do it. So I think those are all the reasons why we're seeing the resilience within our market.

From a Salesforce perspective, continue to be really excited about the opportunity in front of us. We are still just getting started, as you can see, with the logos we've closed. The trends that we've seen in those deals so far, one, we are getting great participation and interaction from the Salesforce team and intros into many of these customers. As we mentioned before, these customers are larger than our average deal size. They're falling in the 10,000 and 50,000 bucket. And then on top of that, which has been really exciting for the customers, is they're seeing a lot of innovation. They're seeing a lot of features, lots of parts of our product that they had on their wish list that weren't there in Social Studios that are in Sprout.

And so even if I just think about what we've delivered in the last quarter, things like TikTok and Reels, great examples of innovation that have happened within our platform that they didn't have before and wouldn't have now. So we continue to see a lot of opportunity there and are excited about the relationships that we're developing.

Your next question comes from the line of Raimo Lenschow with Barclays.

This is Frank on for Raimo. Maybe more at a high level, how have you seen the resiliency of the product suite in prior recessions? And how has the business since evolved to be better suited for any potential downturn?

This is Justyn. I'll take that and anyone else on the team can add some thoughts. If I heard the question correctly, in terms of how the product itself and maybe indirectly the business had fared during previous challenging times, and I think that the resounding answer there is that we've seen both across the last couple of years and certainly across our history as a company that because we are serving a very fundamental and growing need for our customers, because our platform does an incredible job of tying all of the necessary utility into one place and given that it is a mission-critical mode of communication for brands at this stage, I think we've really navigated just about anything that's thrown at us very well, current environment included.

The product's role in that, I think, is primarily around making sure that we are offering a well-rounded set of solutions that are really horizontal in their function. They're not specific to one very discrete objective within an organization and therefore have a lot of resiliency regardless of what an organization is going through. For example, when COVID took its first kind of really tough path throughout the world, one of the things that we saw was that businesses that were otherwise struggling were using social as pretty much the only or at least the primary way to stay connected with their audience and with their customers.

In other scenarios where things are a little more steady state, they're able to shift their efforts into activities that are focused on growing the business, engaging with their customers in different and new ways, developing larger communities. We're starting to see businesses investing more in some of the more forward-looking functions of social such as care, sales, et cetera.

And so I think because we're providing just these really fundamental set of business needs through social channels, it's been something that, rain or shine, has a ton of value for our customers, is something that remains very important and certainly very high on the list of things that are must-haves for a business at this point.

And so we fared very well through a handful of different conditions. And we expect that this year is not done throwing curveballs at us, that we're very well positioned just as we saw in Q2 to really continue to add a ton of value for our customers in those environments.

Maybe just add one point to that, too. Part of the way that the product has been architected is to ensure that we don't have concentration in any specific point. The diversity that we've seen across verticals and industries and segments and the utility of that product has also been really important during difficult times because we've got such a wide remit of the types of companies and the types of use cases we can support.

Your next question comes from the line of Elizabeth Porter with Morgan Stanley.

Congrats on the strong quarter. A benefit we hear about this platform is just a relatively fast time to implementation and the strong ROI. So just in the context of a potentially more scrutiny on IT spend, how are new customers, in particular, thinking about just the willingness to move over to Sprout at this point? Curious if that's coming up in conversations more as a benefit just given the comments that we're hearing overall in the environment about longer deal cycles and that scrutiny on IT spend.

Thanks, Elizabeth. Yes, it has actually proven to be a really nice strength for us. Again, for our business today, over 90% of our revenue actually touches the product before they ever sign a contract, sign any commercial terms before they become a customer. And we continue to press on the modern way to evaluate and by actually trial the product first to get your hands on the keyboard. And so for us, the conversations we're having with our customers is that we want to mitigate risk for you. We want to ensure that the Sprout solution is going to work perfectly for what you need. And you can actually get into the platform, you can do the sophisticated parts that you need, whether it be analytics or listening or publishing or engaging with your customers and prove that it works.

And the benefit of that for us, one, you start to prove out the use cases that you get a chance to experience the technology. You also get a chance to interact with our incredible team, which is a huge value prop for us. But for us, it also means that you do part of the implementation during that trial. And so that is a huge part of the conversations that we have. Again, our sales cycle times around 35 days for -- to trial 41 days for a lead. They stayed pretty consistent through that. And then the conversations that we're having, again, because of the trial have stayed pretty consistent from what we've historically seen. So we see it as a huge strength that we're leading into.

Yes. One other thing that I'll point to on that question is just the reality of the conversations on the customer side has been for some time pretty close to nonnegotiable, meaning this isn't something when budgets start to get more scrutiny and start to get looked at or they're looking for areas to make cuts. This isn't typically one that's on the list for a company that's -- for a brand that's invested in social, turning the lights out on this channel or introducing disruption into how effectively they're managing their communities on social is pretty detrimental, particularly if the business is facing a challenging time.

And so there are certainly going to be exceptions to this. But given where we come from, the budget that we're coming from, the critical nature of the platform and the function that we serve within the organization, and the price points that we're selling to within the organizations, I think we're pretty well down the list of things that are on the chopping block.

Great. And then just as a follow-up, I wanted to touch on the customer adds. So from a total customer perspective, the net new adds fell below 1,000 for the first time in about 7 quarters, but clearly, we're really seeing that strength in the large customer cohort. So first, just anything to call out with respect to demand trends from those large customers versus the smaller SMB customer segment. Just trying to get a sense if there was any softness in that segment just given some of the more macro sensitivity.

Yes. Yes, yes. Yes. So as you mentioned, we're continuing to see the shift that really started kind of in the middle of last year where our emphasis and investment priorities have really become more focused on the mid-market and enterprise. And we're seeing some mix shift in the customer base, not only in the new lands, but also in the top of the funnel and the people that we're targeting. And swapping out some of the highest volume, lower end of the market opportunities with some of the bigger ones, which you're seeing in the momentum that we've got in the mid-market and the enterprise, that you're seeing in the 10,000 and the 50,000 deals.

And so we'll continue to reinforce the idea that the quality of the revenue yield from our net adds is our primary focus. I do think that at the edges, when we think about the opportunities and logos at the lowest price points in the lowest part of the market, we're definitely seeing some change in composition there toward the mid-market enterprise. Some of that intentional by nature of the areas that we're focusing in our investments. Some of that perhaps a result of some of the things happening in the world right now. But a healthy shift for us nonetheless and one that we're going to continue to focus on the quality of the output of that revenue, and we're feeling really good about that.

Your next question comes from the line of Arjun Bhatia with William Blair.

I want to start off with just maybe the growth composition. It seems that you're seeing strengths both across the expansion front and obviously the new customer lands are coming in at pretty strong value. I'm curious how much the -- how much of your growth currently is coming from these net new customers that are landing versus existing customers that continue to expand with Sprout. And then maybe in relation to that, on the new customer front, where are those customers coming from, particularly those larger customers? Are they switching from competitors? Or is that still largely a greenfield opportunity?

Thanks, Arjun. This is Ryan. Yes. From a growth perspective, it's a pretty healthy balance for us. It's still weighted by new business over expansion, and those trends have continued. You can see it in the new business ACV, number is up 30%, but we feel really good about those lands. You can also see it in the 10,000 and 50,000 growth that we've had. But the new business side from a mid-market enterprise perspective has been really strong and continue down that path, and we're continuing to grow from an expansion standpoint, but more outside of new business than expansion today.

And then in terms of where they're coming from on the enterprise side from a large customer perspective, it's a bit of a mix. So we said this before, but we still believe that we're really early in this market today. Even in large enterprises, you'd be surprised how many organizations that you'll come up across that have not invested within social media management. They might be using native tools or they might have had a small investment somewhere, but it's very siloed and it's not a strategy across the organization.

So it's been a pretty healthy balance of displacing some of the competitors as well as going in and being able to uncover a really big need where they weren't investing and now they get a chance to invest with Sprout.

Got it. That's very helpful. And then one more, if I can. Just in terms of pricing power, I'm curious how you're viewing that lever over the next several quarters and years. Obviously, it seems like you're adding capabilities to the platform, you're adding enterprise requirements, integrations with TikTok. Is there a lever on price that's available? And is that something that you would consider as your product and platform develops?

Yes. So I'll start with that one. I think the answer is most certainly yes. I think you've seen it from us historically where, for example, the entry-level pricing for our platform has steadily increased over time. The landing deal sizes have steadily increased over time. And there is, I think, certainly for at least a good chunk of the customer base that we're focused on today and the top of the funnel that we're focused on today, where there is some of that power. To your point, we're, over the course of a couple of years in a lot of cases, doubling the value of the platform that we're giving to customers through product enhancements, additional networks and things like that.

And so we're constantly iterating, testing, developing ideas around that. I will say that I think the last probably 6 quarters specifically have occurred to us to be maybe not the most opportune time to be super disruptive on the pricing side. We have made some changes. And as you've seen from the ACV growth, obviously made a ton of improvements there. We think that there's more meat on the bone to that point long term.

Now we always expect to be getting a fair value for our platform and deliver more value than we're getting back. But to your point, that continues to grow over time, the investments and what brands are expecting to spend in this channel. And for a platform like Sprout, I think it's steadily ticking up. So we're going to continually iterate and be responsive to that.

Your next question comes from the line of Matt VanVliet with BTIG.

Maybe just wanted to dig in a little deeper on the larger ACV trends for new lands, and maybe Ryan, it's best for you. But are you seeing more of that from just the overall size of the customer being significantly larger and you're still landing with kind of a similar footprint relative to the size of the organization? Or are you actually getting maybe more seats earlier on or the number of modules from analytics or listening or attach rates there are actually the bigger reasons for driving those deal sizes larger?

Yes. Thanks, Matt. So it's definitely getting in front of more enterprise organizations. I'd call it still more of an 80-20 rule in terms of the core -- the majority of the revenue coming from our core products. So think about users versus the add-ons. The add-ons obviously add a lot of value, both in terms of the problems that they solve for customers, but also the ACV opportunity. But the lion's share of the revenue is coming from the core users and licenses.

And so we're in more deals than we've ever been in the past. We've been investing a lot within this mid-market and enterprise space, been doing more from a top of funnel perspective to attract those prospects and customers. We've been investing in sales capacity to ensure that we have a great team in front of them to take care of those customers and investing on the back end to make sure that we're supporting them well.

So it's getting in front of more of those deals. And we are seeing certainly in those deals, as you're in front of bigger customers, even more opportunity from a license perspective, a user seat perspective. Some of these organizations just have really massive marketing departments or customer care departments. So that tends to be what's driving most of the opportunity. And even in the large accounts that we're landing today, we're still seeing a lot of headroom, a lot of opportunity to grow, be it more users, departments, divisions and obviously, the add-on products as well.

All right. Great. And then looking at the TikTok product or even the Instagram Reels product you announced today, are you finding the reception from customers to be strong? Obviously, there's tons of users on those platforms, but are they sort of understanding how they can use those platforms in actual sort of business sense or to monetize those? Or is there an education process from your side of helping them understand and how you can pull analytics to drive more traffic and response there?

Yes. Yes, that's a great question. This is Justyn. I think that it tends to be more of -- so it's a little bit different. First, I'll say that the reception has been fantastic. These are 2 of the things that our customers have been asking for above all else. These are things that as the technology has become available and the networks themselves have done what they needed to do to make these products available for our customers, obviously, we're very excited to get them in their hands and our customers are very excited to have them.

I think the answer to the other part of your question is a little more nuanced network to network, right? So Reels and TikTok being of similar media type, I'll call it, I don't know if it's much education as it is just an evolution within the brands of being prepared to better utilize them. It's a different format. It requires different sets of skills to put together short and engaging videos, for example, there's some different habits and behaviors on the consumer side.

So I think that the awareness and the interest is there. I think that as we've seen with other new media types that have come along, the readiness of brands is going to be a little bit behind the curve, but there's still plenty who are doing a bang-up job who are ready to go and doing really cool things here.

And then with TikTok generally, I think, obviously, a juggernaut and a network that is doing incredibly well and has a lot of really cool new angles on the consumer experience that we haven't seen before. I think that we're still relatively early in brands adoption. Again, when I say early, there's hundreds of thousands that are active and engaged there. But when we think about the maturity of some of the other networks and some of the other media types, those are certainly further along. And we'll just continue to see that tick up as time goes on.

Yes. The other thing that's interesting about this is, to Justyn's point, our customers are super excited about this video, short-form content matters a ton. And those that are doing it, this is a massive win for them. For those that are still learning about how to participate in developing the skill set internally, we see this as a huge opportunity from a success perspective to drive more awareness and education on how they can leverage these tools, leveraging the Sprout platform.

And I can see this internally. Our team has been spending a lot of time just building content and best practices to help those that haven't come on board with it to ensure that they are adopting and they're getting value from it. And then even from a customer community perspective, you can see that a lot of the conversations happening within the communities touch on topics like these. So I think there's a lot of opportunity for the current customers and then more value that we can add along the way.

Your next question comes from the line of Parker Lane with Stifel.

Curious if you could provide some more context on the performance of the agency channel during the quarter. Is the health of that channel on par with what you saw during the first quarter? Are they starting to see any signs of weakness inside of some of those agencies that are leveraging Sprouts for their end users?

Yes. Thanks, Parker. So the agency business for us, I would say in Q2, it was a little bit more challenging. Specifically, I'd call it out on the new business portion of that and those that work mostly within the SMB side. As you might imagine, those customers right now are very focused in on retaining existing clients versus expanding and trying to win these new clients.

Despite that, we're still seeing growth within this segment. That agency segment for us has been one filled with evangelists for our business. We've created a business that not only supports them from a software perspective and a services perspective, but we're there to help them build best practices to build their business.

And we've seen great execution from the people and the teams within the agency at Sprout that are supporting those organizations. So I'd say some headwinds on the new business side. But we feel really confident about this being a point in time for those organizations and us being a great support for their business and vice versa in the future.

Got it. Understood. And then on the Salesforce partnership, I think you alluded to 25 customer wins there during the quarter. Can you give us a sense of what share of those are customers whose contracts would be coming to expiration in the next 90 to 180 days versus those that are looking at the functionality of Sprout relative to social studio and saying, we need this today regardless of when our contract expires?

Yes. Directionally, I'd say that it's more of those customers that have upcoming renewals where they were needing to make a decision, they were getting into the market to figure out what's next. And the majority of these accounts that we're in, they were either partnered sales calls with the Salesforce team, intros from the sales force team or back channel referrals with the Salesforce team.

But they tend to be ones that had upcoming renewals, and there was a catalyst to make a decision. We are doing a lot to continue to partner with Salesforce and prospect into those accounts as they come up for renewal over the next couple of years here. And then this new integration that we're building that we're working on to launch later this quarter, and we'll talk a little bit about more Dreamforce, is something that we're really excited about because I think that a lot of those customers that were on social studio that were deeply integrated with the Service Cloud are going to get tremendous value from what we're building.

Your next question comes from the line of Clarke Jeffries with Piper Sandler.

Ryan, you mentioned the benefit that some of these migration customers were seeing from the innovation. Did any of these migration customers change the fundamental scope of social media management in their organization as part of that migration process?

I mean there's been -- there's certainly been some that have expanded the scope of the utilization. So you'll see some that might have started in marketing and been using mostly a marketing use case where we've won care or vice versa. They're doing care and we've won some marketing. My comment was mostly directed at the idea that there was a lot of features and functionality that were in Sprout and/or were coming quickly on the road map that didn't quite exist yet in Social Studio and was on the wish list for customers. And that was a driver when we were having the initial conversations with Salesforce and Social Studio around the fit that we would have for their customers.

So I mean things like Reddit listening, if we think about Instagram DMs last year, the TikTok, which we obviously released, Reels is another example, there's a bunch of functionality like that, that, as you might imagine, is pretty critical for the practitioners that are counting on these solutions, counting on Sprout every day that they didn't have before.

So yes, a little bit of expansion certainly on use case and more opportunity there for us. But a lot of these features that didn't exist that existed in Sprout has been a big part of the conversation and the driver.

Yes. I will add anecdotally that I think a lot of folks that we're talking to at this stage in the partnership just focused on -- let's get the solution in place. They're excited about some of the things that we're bringing to the table. But let's get that resolved. We see their wheel spinning around what the additional opportunities may look like, additional departments that can now be brought in and things like that. But I think the first order of business for most of them is to get the solution in place and up and running. And as you know, we're relatively early in those sales processes and conversations.

Helpful. And then a follow-up, and it's something -- it seems we've kind of talked around for the call is the presence of short-term video -- short-form video. I wanted to ask specifically on the difference between organic changes and users that prioritize different forms of content versus proactive changes by the social networks to change the algorithm and the prioritization of that content. So generally, just have you seen any distinct algorithm changes at those large networks that are prioritizing these short-form video products that makes it sort of a change in the continuity of social for your customers? And then maybe generally speaking, has that been disruptive or additive to the value of Sprout?

Yes. So we haven't seen that flow through to behavior changes around the things that our customers are spending all of their time and Sprout doing, engaging, publishing content, measuring analytics, listening, et cetera. So -- but there is a distinct difference, right? And if you look at the recent changes to the Facebook feed, for example, where those were prioritized. They were very much prioritizing the short-form videos. And that does change the consumer experience, I think, quite a bit.

But at least from what we've seen in the press, that may be changing back or has changed back to some degree. So I think most of the end user experience as that's shifting and the networks are prioritizing that short-form video in their own algorithms. But we're also seeing there's an opportunity to opt in or out of what the algorithm has suggested versus what their normal engagement patterns would be. So I don't know how disruptive it really is. I think it will take a few more quarters to figure that out.

But two, I think the spirit of the question and how it's changing things for our end customer.

(technical difficulty)

I'm back. I dropped. So one of the networks was listening to my answer and maybe didn't like it. But in terms of changes to behavior to what our customers are doing, the value of the platform, et cetera. We've seen a lot of these algorithm changes over the years, and it really hasn't -- hasn't flowed down to the brands and what they're doing.

I think it probably is increasing the emphasis on them getting internal plans together to be able to tackle short-form video in ways that they haven't in the past. But there again, that's something that we help them out with through our platform and through the tools that we make available to them. Sorry, I don't know how much of that answer cut out, but hopefully, I hit the key points for you.

Absolutely.

Your next question comes from the line of DJ Hynes with Canaccord Genuity.

All right, Justyn. We'll see if your mic can work for one more, and I'll keep it to one this time. Road map prioritization on social care. I'm just curious, like what are you hearing from customers? What are you seeing in the market that kind of reinforces the bet you're making there? And maybe that's a good segue to talk about the record win in social care you touched on in the quarter.

Yes, yes. Sure. So I think that the signals that we're seeing, I mean the most obvious one is just the wins that we're seeing around those use case opportunities. And the large, particularly in the mid-market enterprise opportunities that we're seeing that are oriented around care, typically a high number of users typically land on the higher side of the deal sizes, et cetera. So that's certainly a pulling function and supports why we're prioritizing those things.

The other thing, I think, is just operational maturity within the organization of how they're thinking about care through social channels, where I think for a long time, it was really just kind of this hybrid of community management, and we're going to respond to our community and answer questions there. It's been operationalized in a way that looks a lot more like more typical approaches to customer service, right?

So you've got things like SLAs, you've got things like more complex routing and successful handoffs between agents and things like that. And so there's just a ton of opportunity for us there. I think we do a phenomenal job with this today, as I think is demonstrated in the success that we've seen there. But it's also just a really fascinating part of the road map that has a ton of potential for us where particularly as we're talking with some of our largest customers and the things that they would like to do to further advance their care through social and we can help them support that, there's just a ton of road map there that's really exciting on that front.

Your next question comes from the line of Michael Rackers with Needham.

It's actually Scott Berg here. I guess the question is really more on the macro -- sorry, in regards to your assumptions in the guidance in the back half. I just wanted to gain some clarity in terms of maybe what you're all seeing there. Are the estimates for the back half of the guidance, are they, I don't know, maybe a little bit more cautious than what you've seen historically? I'd love to just maybe a little more color there, that would be great.

Yes, Scott, I think we felt pretty good come out of this quarter, our ability in the macro environment to raise our guidance by more than what we'd be. And so we feel like there's a lot of momentum in the business. And as you know, we're pretty responsible in the way we give guidance. I'd like to give it in a way that we have a high confidence level of hitting. And so I think from that perspective, we feel that we're pretty well positioned to execute on our plan in the back half of the year. And everything that we've given out from a guidance standpoint has taken into consideration kind of the known risks that we have and some of the unknown risks out there. And so I think we factor all that into our guidance for the back half of the year.

Great. Super helpful. That's all I have.

Your next question comes from the line of Brett Knoblauch with Cantor Fitzgerald.

Just 2 for me. First, with e-com being weaker, large (inaudible) to the macro, can you provide what you're seeing in terms of growth of social commerce and how that's doing and what you're investing on there to kind of further drive that growth?

Yes. Yes. So it's interesting in that it may be surprising to hear that we're actually increasing our investment around some of the commerce things that we're building. And a lot of it has to do with, as we've discussed before, this is a multiyear arc for us. We're very early in the social commerce side of things. There are a lot of fundamental things that we've built, a lot of really cool things that we want to be building for our customers as we look out over the long-term role that social commerce is going to be playing.

And so while there may be some volatility, broadly speaking, around online commerce, we're fortunate with the air cover of we're early in this, it hasn't been a material part of our performance or the projections that we're making. We've got the time to be able to make sure that we get this right without having to overreact to anything that's happening from quarter-to-quarter.

So we're still on our fundamental road map. That hasn't changed, and we're putting more effort and investment there. Nothing super disproportionate or anything else, but it is a team that we are ramping up and continuing to push that road map forward because regardless of, I think, quarter-to-quarter performance there, regardless of any COVID lag that some of the companies that are focused there may see, this is going to be a big part of the industry for a long, long time, and we've got the opportunity to get it right. So it's still an area we're super excited about.

Perfect. That's helpful. And then maybe just on the demand environment. I know we've heard from a couple of companies so far talked about it feels like it was lengthening and also maybe EMEA being particularly weak. Have you seen any of those impact your business? I know EMEA is maybe 17%, 18% of your business.

Yes. Thanks, Brett. No, I mean from a just sales cycle perspective, again, because of the trial model, because 90% plus of our revenue touches the product before they buy, we've got a distinct advantage there and that they're coming to us inbound model for reasons. They're in the product. They're starting the implementation. They're investing resources to go through. So it hasn't felt different than what we've had before.

And then from an EMEA perspective, you're right in terms of just the value of that business. The teams performed really well. The growth for them was among the highest that we had this quarter. So we're still feeling really strong about the opportunity there. We also feel like there's a lot of upside, and we're still early within that market. So those 2 areas for us have not been concerns based on performance.

Yes, we can take one more question. And the question comes from Jim Masaga with FactSet.

There are no further questions at this time. I would now like to turn the call back over to the presenters.

All right. Yes, thank you. I'm not sure if we're over time or not, but I'll get us out of here quickly. Thank you, as always, for the support. Thanks for the great questions. We look forward to catching up with everyone over the next couple of days, weeks and quarters here. And we'll let you get on with your day. Thank you so much.

This concludes today's conference call. You may now disconnect.