Sprout Social, Inc. Q3 FY2024 earnings

Sprout Social's third quarter of fiscal 2024 produced revenue of $102.6 million, up 20% from the prior-year quarter. Gross profit rose to $79.4 million. Gross margin was 77.4%, up 1.0 percentage point from the prior-year quarter. The company still recorded a GAAP operating loss of $16.9 million, but that loss narrowed. Operating margin was negative 16.4%, up 11.9 percentage points. GAAP net loss narrowed to $17.1 million. Diluted EPS improved to negative $0.30.

For the first nine months of fiscal 2024, revenue was $298.8 million, up 24.5% from the prior-year period. Gross profit rose to $230.8 million. The year-to-date picture is more mixed. GAAP operating loss narrowed to $46.7 million. GAAP net loss widened to $47.6 million. Diluted EPS fell to negative $0.84. The quarter's improvement in net loss did not carry into the year-to-date period.

Operationally, remaining performance obligations were $311.5 million as of September 30, 2024, up 36.1% year over year. Current remaining performance obligations were $220.7 million, up 31%. Deferred revenue was $149.2 million, up 21.8%. Customers contributing more than $10,000 in annual recurring revenue grew 12% to 9,119, and customers contributing more than $50,000 in ARR grew 29% to 1,610. The company no longer reports total ARR or total customer count as key metrics. Management said it continues to prioritize the enterprise segment, where average sales cycles are longer and pricing pressure is greater.

Cash generation improved. Operating cash flow was $8.95 million in the quarter, up from a negative figure in the prior-year quarter. Year to date, operating cash flow was $22.18 million, up 144.8% from the prior-year period. Capital expenditures were $0.48 million in the quarter, down 40.4%, but rose to $2.06 million year to date, up 42.8%. Non-GAAP free cash flow, which is not the same as operating cash flow, was $9.3 million in the quarter, compared with negative $3.4 million a year earlier. Non-GAAP operating income was $7.5 million, compared with a non-GAAP operating loss of $0.6 million. Non-GAAP net income was $7.3 million, or $0.13 per share, compared with a non-GAAP net loss of $0.6 million, or negative $0.01 per share.

Guidance points to continued growth. For the fourth quarter of fiscal 2024, Sprout Social expects revenue of $106.3 million to $107.1 million, non-GAAP operating income of $8.7 million to $9.5 million, and non-GAAP net income per share of $0.15 to $0.16 based on approximately 57.6 million weighted-average shares. For the full year 2024, the company expects revenue of $405.1 million to $405.9 million, non-GAAP operating income of $27.5 million to $28.3 million, including an estimated benefit from the deferred commission accounting change, and non-GAAP net income per share of $0.46 to $0.47 based on approximately 57.0 million weighted-average shares. The company does not provide guidance for GAAP operating loss, net loss per share, or operating margin.

Risks remain familiar. Management cited macroeconomic uncertainty, high inflation, high interest rates, overseas conflict, and market volatility. Those conditions can lead to more measured buying behavior, longer sales cycles, and pricing pressure, especially in enterprise deals. The company also flagged potential service interruptions or outages, reliance on social media platforms and API providers, cybersecurity and data breach risks, privacy regulation, international expansion challenges, acquisition integration risk, and covenants under its credit agreement. Sprout Social expects to keep investing in growth and to generate net losses for the foreseeable future.