Summary
Revenue growth held near 29% in Sprout Social's fiscal 2023 second quarter, and the mix kept shifting toward larger accounts. Total revenue for the quarter ended June 30, 2023 was $79.3 million, up 29.1% from $61.4 million a year earlier. Revenue for the first six months of the fiscal year reached $154.5 million, up 30.0%. Subscriptions accounted for 99% of revenue in the first half, so professional services stay immaterial.
The customer data show where the growth comes from. Customers spending more than $10,000 in annual recurring revenue reached 7,391 as of June 30, 2023, up 27%, and those spending more than $50,000 reached 1,119, up 48%. Total ARR was $326.1 million, up 27% year over year. ARR from customers contributing $2,000 or more grew 33% and represented 96% of total ARR. Total customers slipped 1% to 33,159. The non-core tier is being shrunk on purpose: customers contributing less than $2,000 in ARR fell 50% to 7,387, and their ARR dropped 35%, leaving that group at 4% of total ARR. A record 176 customers came through the Salesforce partnership.
Gross profit for the quarter was $61.1 million, up 31.9%, and gross margin improved to 77.0% from 75.4%. The GAAP operating loss widened to $(14.9) million from $(14.5) million, while operating margin improved to negative 18.8% from negative 23.7%. The net loss narrowed to $(13.1) million from $(14.6) million, and diluted loss per share narrowed to $(0.24) from $(0.27). Non-GAAP results flipped positive: operating income of $1.9 million against a non-GAAP operating loss of $(1.9) million a year earlier, non-GAAP net income of $3.8 million against a non-GAAP net loss of $(1.9) million, and non-GAAP diluted earnings per share of $0.07 against a non-GAAP loss per share of $(0.04). Stock-based compensation explains most of the gap between the two sets of numbers.
Cash generation improved sharply. Operating cash flow for the quarter was $6.3 million, up from $1.3 million a year earlier, and it reached $14.6 million for the first six months. Capital expenditures were $0.26 million for the quarter, down 56.5%. Free cash flow, a non-GAAP measure, was $6.0 million versus $0.7 million. Cash, equivalents and marketable securities totaled $192.4 million as of June 30, 2023, up from $187.2 million as of March 31, 2023. Deferred revenue was $115.9 million, up 44.8% year over year, and remaining performance obligations were $206.4 million, up 61.8% and a record 63% of ARR.
The company kept buying capability. It closed the Repustate acquisition on January 19, 2023 for total purchase consideration of approximately $8.4 million, and it moved on Tagger Media, financing that deal with a new $100 million senior secured revolving credit facility signed August 1, 2023 and maturing August 1, 2028. The company borrowed $75 million under the facility in connection with the Tagger acquisition. Management says Tagger extends Sprout into influencer marketing and accelerates the path toward a $1 billion subscription revenue target.
Guidance for the third quarter of 2023 points to non-GAAP operating loss of $(2.8) million to $(2.7) million and non-GAAP net loss per share of roughly $(0.05) on about 56.5 million weighted-average shares. For the full fiscal year 2023, the company guides to non-GAAP operating income of $1.4 million to $1.5 million and non-GAAP net income per share of approximately $0.07 on about 56.0 million weighted-average shares. That implies roughly 200 basis points of year-over-year non-GAAP operating margin improvement, below the 225 to 235 basis points previously modeled. Services revenue is expected to be lower than 2022 levels, and management expects the second quarter to be the slowest pace of ARR growth this year.
The risk list has not changed much. Price increases may keep pressuring demand, customer acquisition and retention, and the total customer count is already declining. Sprout depends on APIs and platforms it does not control, so interruptions or outages there could hurt service delivery. Management flags unstable market conditions, including recession risk, inflation, labor shortages, supply chain issues, higher interest rates, bank failures and the geopolitical effects of Russia's invasion of Ukraine. Acquisition integration, cybersecurity and data breaches, shifting privacy rules, credit agreement covenants that restrict operations, and the need to service the new debt round out the named risks. The margin improvement this quarter is real, but it rests on a customer base being reshaped on purpose, which leaves less room for execution error.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $79.3M | $75.2M | +5.5% | $61.4M | +29.1% |
| Gross profit | $61.1M | $58.3M | +4.7% | $46.3M | +31.9% |
| Gross margin | 77.0% | 77.6% | -0.5 pp | 75.3% | +1.7 pp |
| Research & development | $19.0M | $17.9M | +6.0% | $15.4M | +23.3% |
| Sales & marketing | $39.3M | $36.9M | +6.5% | $30.4M | +29.5% |
| General & administrative | $17.7M | $15.5M | +14.5% | $15.1M | +17.4% |
| Total operating expenses | $76.0M | $70.3M | +8.2% | $60.8M | +24.9% |
| Operating income (loss) | -$14.9M | -$11.9M | -25.0% | -$14.5M | -2.6% |
| Operating margin | -18.8% | -15.9% | -2.9 pp | -23.7% | +4.9 pp |
| Net income (loss) | -$13.1M | -$10.3M | -27.6% | -$14.6M | +10.4% |
| Net margin | -16.5% | -13.6% | -2.9 pp | -23.8% | +7.3 pp |
| Diluted EPS | -$0.24 | -$0.19 | -$0.05 | -$0.27 | +$0.03 |
Risks
The November 2022 price increase contributed to an increase in average revenue per customer and a decrease in total customers for the quarter ended June 30, 2023 compared with the quarter ended June 30, 2022. The company warns total customers may continue to decrease even as average spend per customer increases, and softening demand or negative customer sentiment from higher pricing could harm its brand and competitiveness.
The platform depends on third-party APIs, especially social media network APIs, and most relationships rely on standard or negotiated terms that providers can change or terminate. Sprout is currently a member of the Twitter Official Partner Program (TOPP), and any change to TOPP or its access terms may negatively impact the business.
In August 2023 the company entered a $100.0 million senior secured credit facility and had $75 million in secured indebtedness outstanding as of August 2, 2023. The Credit Agreement contains restrictive covenants, including minimum liquidity and minimum recurring revenue growth tests, grants lenders a security interest in substantially all assets, and default could allow acceleration of amounts due and foreclosure on collateral.
The company has made recent acquisitions including Repustate in January 2023 and Tagger Media in July 2023, and may pursue more strategic transactions. Integration may divert management attention, fail to achieve expected benefits, expose the company to unknown liabilities or data breaches, and require equity dilution or additional indebtedness.
Worsening macroeconomic conditions, including bank failures, higher borrowing costs, inflation, and global geopolitical tension, may impact customers' spending with the company to varying degrees. MD&A states these factors have not had a material adverse impact to date but introduce additional uncertainty.
SaaS KPIs
All quarters →Total Customers
ARR
Free cash flow
Non-GAAP Operating Income
Total remaining performance obligations (RPO)
Customers contributing over $10,000 in ARR
Customers contributing over $50,000 in ARR
Summary, forecast, risks and KPIs are extracted from Sprout Social, Inc.'s SEC filings for Q2 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.