Sprout Social, Inc Class A Common Stock 2026 Q2 Earnings Call

Lexi, please go ahead. Thank you, and welcome to Sprout Social's second quarter 2026 earnings call.

We will be discussing the results announced in our press release issued after market close today and have also released an updated investor presentation, which can be found on our website. With me are Sprout Social CEO, Ryan Barretto, and Vice President of FP&A, Aaron Grotman. Today's call will contain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking.

These include, among others, statements concerning our expected future financial performance, including our Q3 and 2026 outlook and business plans and objectives, and can be identified by words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "opportunity," "target," or "will." These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of the risks and other important factors that could affect our actual results, please refer to our annual report on Form 10-K for the year ended December 31st, 2025, as well as our quarterly report on Form 10-Q for the quarter ended June 30th, 2026, to be filed with the SEC.

During the call, 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 second quarter earnings release, which has been furnished to the SEC and is available on our website at investors.sproutsocial.com. As a reminder, we will be referring to the metric approximated subscription revenue contribution for customers contributing $30,000 and above in ARR. This metric is intended to approximate the subscription revenue of a subset of customers over a historical period by using their average ARR as a proxy and annualizing this quarterly estimate on a trailing 12-month basis. For brevity, we'll refer to this metric through the rest of this call as 30K and above subscription revenue. Let me turn the call over to Ryan.

Ryan? Thank you, Lexi, and welcome to our second quarter earnings call for fiscal 2026.

Sprout delivered another strong quarter with revenue of $123.8 million, representing 10.8% year-over-year growth, and we closed out the quarter with a non-GAAP operating margin at 12.9%, up 370 basis points year-over-year. I'm pleased that both CRPO and RPO accelerated this quarter. Current Remaining Performance Obligations grew 12.4% year-over-year to $202.7 million, and total remaining performance obligations grew 15.5%. We continue to see customers making longer-term commitments to Sprout, with multi-year contracts representing almost half of our contract mix, up from about one-third two years ago. This reflects the growing confidence in Sprout as a strategic platform and supports our broader go-to-market motion with larger, more sophisticated customers. Sprout also delivered strong non-GAAP free cash flow in the second quarter at $8.3 million, an improvement of approximately 60% year-over-year.

On a trailing 12-month basis, the company has generated approximately $54 million in non-GAAP free cash flow. We believe this improvement underscores our ability to drive leverage in our model. Q2 was an important quarter for AI at Sprout. We expanded the capabilities of Trellis, our proprietary agentic offering, announcing these updates at our Breaking Ground event in May. Alongside listening, Trellis can now deliver insights on demand. Users can query their social data in plain language and receive analyst-quality answers in seconds without configuring complex reports or dashboards. We introduced Trellis Studio, a no-code interface for building and customizing skills that proactively surfaces what matters most so teams can move from insight to action faster. Every Sprout customer receives a base allotment of Trellis usage at no additional cost.

For customers with higher usage needs, we introduced Trellis Plus, a paid tier that increases their limits and just went live in July. We've seen healthy growth and adoption trends with monthly active Trellis users. In Q2, those customers retained at a higher rate than customers without active Trellis users, and that held true across all segments. Customer feedback has also been very encouraging. One of the nation's top-ranked health systems asked Trellis for a summary of their listening dashboard and described the output as "Perfect. Vastly better than what I would have done. Reporting and analysis that once took hours now takes seconds." Within NewsWhip, we extended intelligence capabilities, adding predictive scoring across community platforms like Reddit to help identify emerging narratives earlier. We also launched an AI dashboard builder that generates a real-time monitoring dashboard from a plain language prompt.

As it relates to integrations, we also expanded network coverage, adding Snapchat scheduling and publishing, direct creator payments with automated tax documentation through PayPal and Lumanu, and consolidated management of TikTok ad comments within Engagement. On the partnership side, we launched an expanded integration with Canva to bring design workflows into the Sprout platform and were represented at the Cannes Lions Festival last month alongside partners like Canva and Snapchat. Across R&D, AI has become the center of gravity for our product investments this year, in addition to strengthening our core platform and delivering on the integrations our most sophisticated customers depend on. Co-founder Aaron Rankin's recent return as CTO reflects the priority we're placing here. He'll partner closely with our CPO, Srinivas Somayajula, to lead this next chapter of AI investment and enterprise capabilities that we're building into our products.

As we announced on July 15th, we made the very difficult but important decision to reduce the size of our team by approximately 20%. We're incredibly grateful for the contributions of our departing colleagues who helped shape Sprout into the company it is today. Our industry and software more broadly is changing quickly, and the way companies need to operate and invest has changed with it. As we step back to examine our own operating model, we saw too many layers and an org structure that was slowing down decision-making, and saw an opportunity to really streamline our work and areas of focus. We believe this reorganization positions us to build a more focused and durable company, and we believe this will deliver improved operating margins, stronger cash flow, a stronger foundation for growth, and greater capacity to invest in the areas of the business with the highest return.

I'll outline the expected financial impact of the reduction later when I discuss our financials and outlook. As we look around our market, it's clear that major brands are trying to solve the same problem right now. How do they manage an explosion of social activity across more platforms than ever at the speed customers expect with finite resources? Social is where products get discovered and purchase decisions get made. Customer service has moved there. News breaks there first. Brands are built and destroyed on social media in hours. The most trusted voices talking about a brand are creators and communities, not people on your payroll or under your control. Most companies can't keep up with what that requires. We believe we have built the infrastructure to help brands do exactly that in a way that is differentiated and drives clear ROI.

Every day, Sprout ingests more than 2 billion real-time social interactions from hundreds of APIs across more than a dozen networks. That access took 16 years of legal agreements, security certifications, and a track record of delivering customer value. We believe this has built a level of trust and credibility that creates a strong competitive moat, defined by high barriers to entry that are difficult to replicate. As we've been discussing with you for the past few quarters, our strategy is increasingly focused on larger, more sophisticated customers, where our platform breadth, product roadmap, and go-to-market investments are most aligned with their needs. Our progress is visible in the changing mix of our business. This quarter, approximated trailing 12-month subscription revenue for customers contributing 30,000 or more in ARR grew 20% year-over-year and now contributes over 61% of total subscription revenue.

This 30K-plus customer segment has stronger unit economics and a better retention and expansion profile, and they tend to adopt more of our strategic products than our smaller customers do. In fact, this cohort carries an average ACV multiples higher than our total average ACV with higher attach rates of products like influencer marketing and NewsWhip. As we look to the remainder of 2026, we continue to expect to see this segment represent an increasing percentage of our subscription revenue. Our logo count for customers contributing 30,000 or more in ARR continues to compound as we added 51 net new customers in this segment during the second quarter and 388 over the trailing 12 months. Looking at the largest of our net adds, we had over 10 customers in Q2 that contributed 150K or more in ARR, demonstrating our up-market progress.