Sprout Social, Inc. Q1 FY2022 earnings

Sprout Social reported first quarter fiscal 2022 revenue of $57.4 million, up 40.7% from $40.8 million in the prior-year quarter. Gross profit rose 40.9% to $43.4 million, and gross margin edged up to 75.6% from 75.5%. Annual recurring revenue reached $239.1 million, up 39% year over year. Customer totals grew to 32,800 as of March 31, 2022, an increase of 17%, and the higher-spend cohorts grew much faster: 5,349 customers contributing more than $10,000 in ARR, up 52%, and 692 customers above $50,000 in ARR, up 97%. That mix shift toward larger accounts sits at the center of the expansion story, and management ties the gains to a broader sales force meeting market demand.

Bottom-line results moved the other way. GAAP operating loss widened to $9.6 million from $6.2 million, and GAAP net loss widened to $9.8 million from $6.4 million. Diluted loss per share was $0.18 versus $0.12. Operating margin came in at -16.7% versus -15.2%. The non-GAAP picture is far better: non-GAAP operating loss was $1.2 million, compared with $2.3 million a year earlier, and non-GAAP net loss per share was $0.03 against $0.05. Stock-based compensation accounts for nearly all of that difference, and hiring drives the compensation. Headcount rose 48% in research and development and 40% in general and administrative, alongside 23% increases in both cost of revenue and sales and marketing. Management expects to keep investing at this pace, so GAAP losses should continue for the foreseeable future.

Cash generation held up. Operating cash flow was $5.4 million for the quarter, up 49.2% from $3.6 million a year earlier. Free cash flow was $5.1 million versus $3.4 million, and capital expenditures were $0.3 million, up from $0.2 million. Cash, cash equivalents and marketable securities totaled $180.8 million as of March 31, 2022, up from $176.9 million as of December 31, 2021. Deferred revenue, current portion only, was $76.5 million, up 50.7% from $50.8 million. Remaining performance obligations were $115.9 million, up 54.7% from $74.9 million. Contracted backlog is growing faster than reported revenue, which is a useful signal for the next several quarters.

For the second quarter of fiscal 2022, the company guided to year-over-year total revenue growth of 35%, with a non-GAAP operating loss of $3.2 million to $3.0 million and non-GAAP net loss per share of approximately $0.06 on roughly 54.4 million weighted-average shares. For the full fiscal year 2022, management raised its outlook to year-over-year revenue growth of 34% to 35%, with a non-GAAP operating loss between $6.4 million and $5.8 million, which implies roughly 100 basis points of year-over-year operating margin improvement, and a non-GAAP net loss per share of $0.13 to $0.12 on approximately 55 million weighted-average shares. The company does not guide to GAAP operating loss or GAAP net loss per share because it cannot estimate the reconciling items without unreasonable effort.

Risks are the familiar set for a high-growth software vendor: the duration of the COVID-19 pandemic and its effect on customer budgets, a cybersecurity attack or data breach, shifting privacy and data protection rules, and reliance on API providers and social media platforms. Converting unpaid traffic into paid subscriptions is another stated challenge, as is the company's limited history with newer platform features. Fixed commitments add cost pressure. Operating lease obligations total $27.6 million, of which $4.0 million falls in the next twelve months, and purchase commitments for data and services total $42.0 million, of which $30.7 million is due within twelve months. International revenue was about 28% of the total, so overseas execution and currency both matter.