Sprout Social, Inc. (SPT) Earnings Call Transcript & Summary

Good morning, good afternoon, and welcome to our next session. I'm really happy to have Joe Del Preto and Jason Rechel here from Sprout Social. It's the first time you're at our conference, our European conference. So I'm really happy to have you here. As I mentioned, I was talking earlier, I actually flew back to Germany to give you that European feeling. Hope that it's working.

Since the first time you are with us for this event and since you're not kind of that long on the public market, maybe I thought we'd start with a little bit of more of an overview, like if you think about it -- so you're doing social media management, like Sprout Social. Like what does it mean? And how does it compare to like what we do in kind of like -- maybe let's start with what does social media management mean actually?

Yes. Great question, Raimo. I think it's good to kind of level set. And what is exciting about this space is that the market is constantly evolving. And so what it meant like 8, 9, 10 years ago is -- changed than what it means today. But I think at the core of our platform and the core problem we're trying to solve here, Raimo, is that social media is the new communication channel between brands and consumers, right? If you think about the way folks interact, and we'll kind of get into those details, whether that's through marketing content, whether that's through customer care, whether that's through analytics or whatever it might be, this is the new way that brands and consumers are interacting. And so what our platform does at the core is -- the problem we're trying to solve is a couple of things. One is that initial use case, if you go back 5, 7, 8 years ago, still there today. So how do I get my marketing campaigns? How do I get my message out to consumers? And if you think about it, the traditional ways of maybe online or media advertising, whether that's commercial, whether that's radio, a lot of that has moved over to social, right? And so if you think about, I need to publish my marketing campaign, I need to send that out to my different audiences, that's all happening on social, that's Facebook, that's Twitter, that's Pinterest. What our platform does is it allows you to manage all of that content, allows you to get that out to the people you want to. And so that's kind of the original use case if you go back is like, how do I get my organic content out into the market? And then the second part of that is, what about all the engagement with that content? People are responding back, they're sending me messages, they're setting me feedback. How do I engage back and forth? How do I actually communicate with these various consumers out there, and that's another pillar of our platform. For example, "Hey, by the way, you just put out this content. I've really enjoyed it. I liked it. I want more of that. How do we kind of understand what consumers are thinking about our brand out in the marketplace?" And then the third kind of pillar of our original platform is all the analytics around that. How is my content performing? How are -- how much content am I putting out there? How does that compare to my peers? And so there's this overarching analytics, and we'll kind of dig into that. And that was kind of the original thesis of the problem we're trying to solve. And Raimo, what's interesting, that has kind of evolved, right? As we've kind of moved into the last couple of years, there's a couple of new use cases and new areas that we're kind of focused on. And over the last couple of years, we've kind of released some new modules to kind of address those. One is all the social data that's out there. If you think about it -- you think about all the different networks and all the different data points. Our social listening product allows brands to go out and survey and understand all the customers they don't have. For example, I just released a new product and what are people saying about that product across Instagram, Twitter, Facebook. I want to understand are people liking the product, are they not liking the product. And so social listening has become one of the new use cases that we're using across all these different networks. And then the last thing I'll do -- and I want to keep it high level because I know we want to dig in is, you think about the problems we're trying to solve now have evolved, right? So for example, you've got customer care has moved so much to social, right? No one's calling up 1-800 numbers. No one's e-mailing them. They're hitting up on Twitter. They're hitting up on Facebook. So the customer care use case has become a problem we're trying to solve. Social commerce is another one, right? More transactions are moving over to these different networks. And so now all of a sudden, brands are trying to figure out the new way to sell products out into this -- to their customers. And so what I'd say is the market is constantly evolving. We're still trying to solve for many companies that core use case of just engaging with brands and consumers. But also, there's all these new use cases that are coming out. Well, we can kind of dig into those. And I don't know, Jason, if there's anything else you'd add in there to kind of set the stage.

Yes. I think maybe the only thing I'd add to set the stage is just how nascent this market is. I mean, when we as consumers think about social media, we've all been using social media for, in many cases, a decade as consumers. But from the standpoint of business utility, we're just now beginning to move into how brands and big brands think about social and how they think about social beyond just using it as a microphone to amplify their brand. So we're getting into that journey where companies are now beginning to think really strategically about what social means for their business. And I think as consumers, that may not inherently be intuitive to us.

Yes. And how big is the -- like, you obviously had to write your S-1 not too long ago, et cetera, like and the question is always like what's the TAM? Like how do you kind of even come up with it? And what's the number? And how is that evolving?

Yes. So the way we look at it, Raimo, is we think -- it's a pretty big market. Facebook recently came out and said there's over 200 million businesses on Facebook. And so if you think you take -- you got 200 businesses all in different stages. If you just take -- what we did, if you take a couple of percent, let's say, 2% to 3% of those business, so a very small percentage and you apply our average ACVs, you get about a $25 billion TAM. And that's a really small percentage of that market. And then if you take, for example, the top decile of our customers and what they're spending today, we get closer to a $50 billion TAM. And so for us, like Jason just said, we're just so early in the adoption curve of these. If you think about us and all our competitors probably serve maybe 100,000, to 200,000 businesses today of this $200 million. And so we just think there's a big opportunity. I think the other thing, too, when we think about the market and what's unique about our product versus some of our competitors is we serve all ends of the market. So our product was built to serve SMB, mid-market up into enterprise. And what we're seeing is we're seeing adoption of our platform across all these segments for various different use cases. And so we get pretty excited about the opportunity in front of us, just given the fact that we can serve all ends of the market regardless of the small businesses with less than 10 employees to the massive enterprises that might have thousands and thousands of employees.

Yes. Okay. And then the one thing that comes up and it probably comes up more in Europe than in the U.S. is about like if you look at the social media platforms, like a Facebook, et cetera, I mean, here kind of we call them what -- in the market you call them walled gardens. Like how do you interact -- like interact with them? Like how open are they that you can help there, properly have visibility what's going on there? Just explain the basics a little bit more there.

Yes. So this is probably one of the things that we think is a pretty big moat into the space and a barrier to entry is that over the last 10 years, Raimo, we built relationships with all the major networks. We do quarterly product road map planning with them. We market together. We actually bring them into customer sales cycles. They come to us with beta products. For example, very more recently as Instagram has been doing some beta testing and some of their direct messaging, and they picked us to help beta that product because we have over 28,000 customers, and so we can test it out. And so what we've seen over the years is that a lot of these major networks are investing more and more in their back-end or APIs with companies like Sprout. We have -- at the major networks, we have dedicated product teams that are solely working on products with us. And so I think that's -- that didn't happen overnight, right? That took many, many years to development of those relationships. They also realize, for example, Facebook and Twitter and Pinterest and Instagram, they all realize that their customers, their brands aren't just on one network, and they realize that, "Hey, in order for our customers to be successful, they need to be successful across all these platforms." And so because of that, they realize the value of Sprout that we're adding value to their customers, which are their advertisers. And so we feel like we're in a pretty good spot as far as those relationships go. And the other thing that's important to note here is a lot of these major networks are not looking for more vendors to work with. They've actually been over the last couple of years cutting down the number of folks like Sprout that they want to work with. And so because of that, we feel like we're in a pretty good spot relative to the space and the competition.

Yes. And then last question on -- along those lines that I have was what about like this whole argument of consumer privacy, GDPR, et cetera? Does that impact you guys at all? Or like we go to Facebook, Google has a lot more controversy around them. Does that impact you guys?

It actually impacts us, we think, in a positive way because we take data and privacy very seriously. We're -- our platform is GDPR compliant. The other thing is what Sprout adds and what the networks realize is, we add an extra layer of security in the platform. For example, a lot -- one of the main use cases we have is if you're using the native networks or if you don't have Sprout, you're going in there and logging in, you're sharing passwords, there's no controls on what people are doing. So what Sprout allows you to do it, it allows you, first of all, to say, okay, here are the users that can have access to Twitter, for example. Here are the workflows that we put in. So for example, someone can't just randomly send out a tweet without some kind of approval flow, right? So -- and if I only want people to have certain access to certain part -- certain types of certain networks in certain areas, we can do all of that. And so that's our main use case for us, Raimo, is the security and the fact that we can help them protect data and privacy. And so we actually see that as a benefit. The more securities networks put in place, the more importance, for example, a platform like Sprout becomes.

And you kind of are different -- an overlay of obstruction in a way so that -- yes, it should protect even more, yes.

Yes.

Yes. Okay. Makes sense. Just on a slightly different topic, so I can see how a lot more money will go your way in terms of like because social is where consumers are, that's where you want to spend your money. How do you kind of see this interaction between the classic marketing and what you're offering? And how these 2 -- in a way, you're kind of creating a new industry, which is amazing to see and it's exciting. But then you have the old world as well. Like how do you think this will evolve over time?

Yes. I think the one thing to note here, Raimo, as far as our platform and social media goes is marketing is just one use case of what we believe are -- which are many use cases that we're solving for. And so I think you're still going to always have the marketing use case, of course. And that is something that is probably just our bread and butter as part of our core platform, right? First of all, the organic nature on the marketing side that our platform allows, brands to kind of the content development and getting that organic message out there is really powerful, right? So the marketing is always going to be there. About the way we look at it is, okay, you've got the marketing use case, you want your marketing group in there, you want them developing contact, you want them reviewing the content, you want them publishing that content, and then you want all the analytics around that content which we provide. But then also, you've got the customer care use case, right? You've got people tweeting at you and trying to get information from you. You've got the social listening aspect. You've got product and sales feedback coming into the platform. And so you've got all these other use cases that we can get into. Marketing is just one of them. And so I think they're always going to kind of coexist. We just help companies actually be more effective at marketing than they would if they didn't have it. Because if you think about it, if I'm a brand out there, Raimo, I'm not thinking about my marketing campaign just on Twitter, just on Facebook or just on Pinterest. I'm thinking, okay, I've got this marketing campaign that I need to get out to my entire audience or all these consumers. So I'm not thinking it as a network specific. And so what we help you do is, hey, you c*** that message, and then you can choose where and when you want to send it. Is this something for Pinterest? Maybe this is something I want to post at LinkedIn because I'm trying to recruit. Maybe it's something that I want to put on Twitter. And so like I said earlier, marketing is one use case for our platform, and there's many more besides that. So I think they will coexist for a while.

Yes. And so...

And Raimo, I may add a few things here, just throw a few data points actually from a budget perspective. So in Q1, we actually commissioned a study with the Harris Poll. And there are a couple of interesting statistics here. So 91% of business executives that were -- that participated in this call anticipate that their social media marketing budget will increase over the next 3 years. And more than half of those respondents expected their budget to increase by more than 50%, which speaks to some of the growth within actual budgets that we're seeing. And then when you think about -- when you peel back a couple of layers there, 84% of executives expect that social media will be the primary communication channel for their business. And 85% of business executives anticipate that social data will be their primary source of business intelligence, right? So this becomes really impactful, not just for marketing and not just for your marketing budget, but for your overall business strategy, when you think about the value that's now coming from social data. And just to bring a couple of examples to life from what Joe was talking about, 5 years ago, we might have been selling within the marketing department to the social media manager, right? And that was one person or a couple of people within the marketing department. And now the social media team is not just one person. There are teams with tens of people managing social media at many big companies. And within marketing, it isn't just that, right? It's brand marketing, it's content marketing. It's the communications team, the PR team, all of these other groups within marketing, which it really creates this groundswell for the impact that social has within marketing overall. And then to Joe's point, you start to see that proliferate outside of marketing into sales and strategy and all these other groups.

Yes. And services -- yes, I can see it on the services side as well. Yes. Like, so it's really not -- you're not like a replacement on marketing. You're basically just a completely different path to interacting with consumers basically. Yes. Or like for the customers then? Yes. Yes.

Yes.

And how do you think -- talk a little bit about the competitive landscape for you guys? Like how is this evolving? I assume all of the vendors must be relatively new.

Yes. No, actually, it's interesting. In the competitive side, we haven't seen a new competitor in 4 or 5 years, Raimo, into this space. And the reason for that is, if we think about it, if you were to try to get in the space 7, 8, 9 years ago, you probably had to build out integrations into 1 or 2 networks, right? Maybe it was Facebook and Twitter and whatnot. But now if you think about, if you want to get into this space, first of all, there's 10 or 15 different major networks these days. And each one of them has a different data structure. And so -- and each of them have millions of messages happening every single day. And so to get into the space now, you've got to figure out -- first of all, you have to build the relationships out with 10 or 15 different networks. That means figure out who on their teams in charge of -- like I said, the networks are trying to shrink those -- the number of folks they work with. And then you got to figure out how do I take these 10 or 15 different data structures and get all of those integrations into one kind of unified platform. And so that barrier to entry is pretty high. So because of that, there hasn't been any major new entrants in a while. And so the folks we compete against on the high end of the market, it's Sprinklr out of New York and a company called Khoros. And then on the low end of the market, it's a company called Hootsuite. And so on the high end of the market, one of the main competitors we see is Sprinklr and Khoros. And our -- the reason we win in those deals and why we feel we've had a lot of success as we've moved into that space is -- so one of the key, I mean, advantages that Sprout has is it's on a single code base. So all the different modules, all the different things we talked about are all built in one universal back end. We have no professional services, like 99% subscription revenue. And so our time to value for our enterprise customers is really high. Folks like Sprinklr and Khoros, those are heavy professional services, 3-, 6-, 9-month deployments. They've been built with 12 to 13 different acquisitions. So it's a very disjointed experience. And so what happens is we're going into these enterprise companies, we are getting that into the product right away. I think one thing we haven't touched on yet, Raimo, is our go-to-market strategy, which is all the -- it's all inbound 30-day trial approach. And what that allows us to do is we're going into these enterprise RFPs or major sales cycle, our competitors are doing these PowerPoint presentations. Why -- what we're doing is saying, "Hey, you can -- that's great. But why don't you just use our -- you just use our product. We will get you in the product, add your profiles, add your users, and that becomes extremely powerful." Within the add evaluation phase, they're already using our platform. And we found a really, really high success in winning those deals because of that. And so that's probably the main reason we're winning upmarket. And then downmarket, we compete against Hootsuite. They started out as a consumer-facing product, so they have a lot of free users, and they've kind of moved into the business space. But because of that, their back-end and infrastructure is not set up to scale. So once you get into 2 or 3 different users or a handful of networks, their platform can be very cumbersome. They don't offer a lot of the same -- they partner with a lot of folks. They don't have listening. They don't have a premium analytics. They don't have like reviews. They partner with other folks. And so for them, if you're on the lower end of the market, once you get to any sense of scale, you're probably coming over to Sprout because it's just a more evolved product.

Yes. Okay. Last question for me, and then I want to hit some numbers as well. The -- like if the -- and usually, what you see is the market is very excited -- sorry, excited and exciting. The -- like, usually you see like some big boy go like, oh, should I need to be there? Or this is kind of really interesting. What's the set up -- and in a way you answered it already by explaining how difficult it is to set it up, but like -- set this up like, but what's the thinking around like someone like that is kind of in customer -- around customer like an Adobe or Salesforce kind of coming in and saying, "I've got all the money, kind of I screw you all over, like luck?"

Great question. So I think it's important to understand a little bit of the history. So 10 or 11 years ago, all the major players got into the space. They did a bunch of acquisitions, Adobe, Oracle, Salesforce, right? All the major players got in. And at that time, they thought they were solving for a single-use case at the time. They thought, hey, this is just going to be a marketing tool that we'll just going to integrate back into our existing marketing and CRM stat. But what they realize, what's unique about social -- and I get on this a little earlier, Raimo, is all the existing tools at the time and all the tools that they're used to using were using a unique identifier. They're all based on email, right? So the back-end infrastructure is really simple. It's like, okay, we just integrate an e-mail. And from there, we build all these workflows and we have a very -- we're just going to build that in. What they realize, though, which was different than social, is there's no unique identifier. Every single one of these networks has a different data structure. And so what they realized very quickly was, "Hey, I can't integrate this into the rest of my platform. This has to be a stand-alone system of record, and it's going to require a much bigger investment at the time." And what happened was all the marketing automation tools started, all the e-mail marketing tools started to come around all the marketing automation tools. And so all these folks pivoted and started focusing on this -- in this other area. You fast forward 8, 9, 10 years now, you've got 10 to 15 different networks, all with different back ends, and they've all realized they've all pretty much gotten out of the space. Adobe, for example, is a customer of ours, Oracle is a customer. They're now coming to us and looking to partner because they realize that this isn't something that's just going to be part of their existing system. The other thing they're doing, and what we seen from them is they've decided to -- we announced this on our last call, we've got integrations with Salesforce. We got integrations with Microsoft. We've got integrations with HubSpot and Zendesk. So a lot of these major players, they've realized it's probably in their best interest to be partnering with folks like Sprout. And the reason for that is, if you think about social and the horizontal nature of it, like I talked about earlier, a lot of these folks are trying to solve one use case, like I might just be solving for marketing, but guess what, when you're in social, Raimo, you don't get to choose the problem you want to solve because when a Facebook post comes in or a tweet comes in, it doesn't raise its hand and say I'm a customer service issue or I'm sales feedback or I'm marketing feedback. It's just a tweet. And so in order to solve that, you have to be -- if you're in, your platform has to solve all the use cases. And so these other big players are only trying to solve 1 or 2 of those. And so because of that, we've seen them reaching out to us to kind of integrate, so then we can get into this. We can then send those specific use cases to them if they need to be. But because of that, we haven't seen any of them actually get back into the space over the last 8 to 10 years. And obviously, they have tons of money, unlimited resources. So if they wanted to get back into the space, they could, but they'd have to realize that it's a new communication channel. It's a new system of record, and they'd have to go about it a lot differently than I did 10 years ago.

Yes. And to that point, it would not only have to live as its own stand-alone cloud or its own system of record, right? But it can't easily be integrated back into, say, your marketing automation platform or your CRM platform because of data privacy, right? The networks don't want and consumers don't want my Twitter handle to automatically be correlated to my e-mail address and automatically correlated back to my Facebook account. That's not something that can be automated. And so the economies of scale with moving into this market start to break down both because of the practicality of it and also the back end around e-mail as the unique ID to Joe's point.

Yes. Yes, it's funny, like -- yes. Okay. So it's been -- it's twofold. So it's the e-mail. You can't kind of create like the unique person in the back end. And then you don't know what the guy wants from you. So CRM doing with just sales doesn't help you. Yes. Okay.

Yes. And Raimo, to your point earlier, the increased focus on privacy and GDPR has made, trying to link e-mail to Twitter, they don't want that, right? And more and more folks are trying to make sure that doesn't happen. And so that's another, for us, a great use case for why a platform like Sprout is needed because we help you make sure that, that doesn't happen and we separate those things.

Yes, yes, yes. Okay. Perfect. So let's translate this into numbers now. So Joe, talk a little bit about the evolution of Sprout in terms of revenue, kind of scale, but also revenue growth.

Yes. So if I think about Sprout and how it's evolved, we started out, Raimo, originally on the SMB side of the market, very self-service, product led, right, going there, a 30-day free trial, after 30 days, you start paying, really just trying to build out the platform as these use cases have evolved. And what we've seen and why you've seen the growth rates tick up over the last 3 or 4 years is about 3 to 4 years ago, we made -- we started to see a lot of traction. The market was maturing, and we started really to start to move up market into the mid-market center clients, right? We kind of -- we believe that it's much easier to go from an SMB business up into the enterprise space and trying to go the other way. And we've seen a lot of successful software companies make that transition. And so over the last 2 to 3 years, as we've rolled out some of our add-on modules like social listening, analytics, reputation and some of these integrations, we've been able to get into much -- many more enterprise conversations. We're getting invited to these RFPs, we're seeing tons of traction in the mid-market. Because of that, you've seen the steady rise of our ACVs over the last couple of years. We've seen our growth rates continue to be strong. And I think we feel really good about where we're positioned. We're seeing mid-market enterprise are our fastest-growing segments. That's where we're investing outsized investments right now. And so we feel pretty good about the momentum we see as the market matures and as our product is starting to solve more use cases, we feel pretty confident about where we're at right now.

Yes. And then we -- like maybe Jason can do that, maybe add some numbers in case people haven't checked like -- so where were you like a couple of years ago, what's the scale in terms of dollar and growth that we're seeing at the moment?

Yes. So we -- in 2019, we did right around $100 million of revenue. Our guidance for 2021 here is mid- to high $170s million. And so the organic growth rate last year in 2020 in the midst of COVID was 36%. The guidance for this year in 2021 implies right around 33%. And so we feel good about that cadence. In Q1 of 2021 was our first quarter of generating positive free cash flow in the history of the company. And so to Joe's point about this migration into the mid-market and enterprise customers as we continue to grow that starts to have an outsized impact on our profitability and our ability to generate cash flow as we scale the business. And so that's mathematically a little bit about the journey. And to Joe's point, it's not just the move upmarket, but it's the move upmarket, it's the success we're having with the premium modules, and it's the expansion of use case across mid-market, enterprise and our SMB customers that we think are really healthy drivers of our ability to sustain that type of growth for the foreseeable future.

Yes. And then like this is more U.S. question than a European question. But what -- if you think about the drivers of growth, what's kind of the thing that you can kind of tweak to kind of change the growth rates one way or the other? And I'm sure obviously the flip side of the tweaking is, obviously, you spending more money as part of that as well. But like talk a little bit about that.

Yes. I think a couple of areas where I think that can drive that either slow or fast, I think one is -- one of the opportunities we see, Raimo, is actually in our international area. 29% of our revenue is from outside the U.S., and that was historically very little investment outside the United States. And so if I think about what we did in EMEA, about -- maybe almost 2 years ago, we made a pretty big investment in Ireland and in the U.K. and other parts. And we really decided that this was an area of untapped growth. We haven't invested -- we're managing it all in Chicago, with Chicago sales reps, no one in the time zone. And so what we've done over the last year, 1.5 years is we made a couple of big investments in Europe. For example, we started to translate our app in the local languages. We started putting our local marketing content in our website in the local languages throughout Europe. We have 60 or 70 people now in EMEA. And so we realize there's a big opportunity there, so we made a pretty big investment. And because of that, we've seen increased growth from EMEA. And so if I think about what we did there and the potential, we're now looking at, for example, Asia and LatAm. And so those are 2 areas that we haven't now focused on. We just hired our first APAC GM in Q1. We're looking at hiring LatAm GM. And so the luxury we have, Raimo, is because we're an inbound model, 90% of our revenue comes from inbound trials. We have very good insight into where we're seeing demand. And so we saw a huge increase in demand in Europe, and so we went out and met that demand with that investment. And we're starting to see the same thing in other parts of Europe and Asia and LatAm. And so I think that's one area where you could see increased growth depending on where we invest, how much we invest. The other thing that's overall -- over the year has been that kind of, for us, determines how fast or how slow we grow is all about -- is how mature does the market -- how fast does the market mature. Like I said, there's 200 million businesses out there. And at some stage, over the next 3 to 10 years, almost all of these businesses are going to have to come to Sprout or come to the conclusion that they need a platform to manage this new communication channel. And so as that market matures, I think for us, we get excited because we -- every month, year-over-year, we keep seeing increased demand, we keep meeting that demand. And so we have a pretty long runway. And so I think for us, the biggest driver is how quickly does that market mature. And the other thing is what's been interesting about this market is the use case. Every couple of years, new use cases come along that really drive the need for our platform. For example, 3, 4, 5 years ago, the customer care -- like customer care was still being done over 1-800 numbers or email. Fast forward now, how many times are people calling up 1-800 numbers now? They're not. And so if you think about that, that was a use case that didn't even exist 5 years ago. And now that's become one of the major use cases of platforms like Sprout. I need to be able to -- for example, we have some very large brands like for [indiscernible] that run all of their customer care practically on Sprout, right? Because the only way they can meet these customers in all these different locations, they're hitting on all their local 200 Facebook pages, "How can I manage that -- I can't manage that." So they have -- their customer service teams are in scrap. And then I think about, for example, social commerce, and we can get to that if you want, but it's another new use case that didn't exist 4 or 5 years ago. And so if we think about how do we grow and how do we maintain these growth rates. We feel pretty confident and pretty excited because there's more and more types of transactions or types of interactions with brands and consumers keep moving to social, and that just gives us more and more opportunity.

And maybe I should have asked it earlier, but like I wanted to like squeeze it in now. How do you -- like how do you charge for this? Is this like a -- is it a volume-based charge? Is it per seat based per people you hit based? Like we should have probably talked about that earlier.

Yes. So the way we charge is, it's per user per month. And so there's 3 different plans we have that you can start with, and then we have like an enterprise custom plan. And so either check good, better, best, you pay per month per user. And then the other thing that we monetize on top of that, Raimo, is your social profile. So how many social profiles are you attaching, and you have to pay for as many social profiles you have. And then our add-on modules, our premium analytics, our social listening and our reputation, those are additional charges as well on top of the per user per month. And in order to have access, for example, to listening, you have to be a user of Sprout. And then the last lever that we kind of use there, Raimo, is that depending on how much data you're consuming with our premium modules, like listening and analytics, how many reports you're running, how many queries you're running, then you pay on top of that based on the data consumption. So if you want to go out and run a bunch of queries across a bunch of platforms with our social listening, you're going to pay significantly more because of the amount of data you're consuming.

Can you -- as part of that, like, if you think about like the biggest boys out there and how much are they spending with you, can you talk a little bit about how that evolved over time in terms of like 5 years ago, if someone spends $60,000 like, "Oh, my God, he's so big?" And like where is that now, for example?

Yes. So our largest -- I'll start with today. So our larger customers are spending in the mid- to high 6-figure ACV-type deals and then 7-figure TCVs. And so we've seen a significant increase. One of the interesting stats that we've talked about, if you go back 5 years ago and look at our top decile of customers, that is where our average customer is spending today. And so what gets us excited is if we look at what our -- if we were to look 5 years from now and look what our top decile is trading today, we get pretty excited about the opportunity in front of us. And I talked about this a little earlier, is that the one thing that's been consistent for the last 10 years is the increase in ACVs on a year-over-year basis. We've talked about this before. Our ACVs have been in that -- go up 15% to 20% every quarter. And we've seen that quarter-over-quarter, year after year for a while now. And we keep seeing -- we don't think we're too far away, Raimo, from -- 7-figure ACV deals are not too far away from us right now.

Wow. That's pretty amazing, yes. And one thing I should have -- I don't know, it's always difficult what you think where to squeeze that question in. Like, talk a little bit about COVID, like how that impacted you. I remember like initially, you think like, okay, these guys are initially SMB focused, COVID, everyone goes past, good luck. But I don't think it played out like that. Can you explain a little bit?

No, exactly. And I think people -- one of the things that we've worked on in the last couple of years is branding around, "Hey, we're not strictly focused on SMB." Over 60% of our business is mid-market enterprise now. And so what we saw, Raimo, when COVID first hit at the end of March and April and a little bit of May is we definitely saw some increased churn in the SMB and agency space, right? We saw some customers kind of slow down their expansion. But what happened once we got to the end of May and end of June, we actually saw the trends get back to fairly close to where they were pre COVID, not exactly there, but we realized that a lot of businesses, even the ones that were struggling during the part of COVID, the only way they could interact with consumers was via social. We saw some major hospitality brands, right? All their locations were closed. And the only way they could get the word out on when are we reopening, what's going on with [ BSO ]. And so they realized that they had to get on Twitter and Facebook and Instagram, and they realized that they had to interact with brands somewhere because they weren't coming in the front door anymore. And so even some of the hardest-hit industries during COVID were looking to add platforms like Sprout. And so by the time we got into the end of Q2 and into Q3, we were kind of back to level of pre COVID. And ever since then, we've seen consistent momentum in the business. The top of the funnel continues to expand. And so we haven't -- it's been a nice study -- we haven't seen like a step change. It's just been a nice, steady increase month over month as we're trying to come out of the initial hard-hit parts of COVID.

Yes. And maybe just to build on that point a little bit. I mean when you think about COVID, I think the long tail impact of COVID hits our business in a couple of ways. First, I think there were many businesses out there that either were just dipping their toe into social or maybe had social on their 5- or 10-year road map planning and many of the macro level changes that have occurred throughout the past 12 to 18 months have shine a light on social and forced businesses to reevaluate what social means for their company and reevaluate the urgency with which they build out their social strategy, right? And so I think it, in many ways, has pulled forward or compressed a lot of the adoption that we might see in the market. Because many of the brands that we're talking with today have a sense of urgency that this is something that they need to get addressed. This is something that they need to build out now or in the immediate future here. But the other change, which is maybe longer tail in nature is the way that company is evaluating by software. And we've always led with the product. We've been an inbound content-driven company since the beginning. And we -- to Joe's point earlier, we encourage customers to try our product before they make a contractual commitment to us. And many of the customers out there and many of our competitors out there just can't meet that need or meet that need for customers today. And so particularly in this new distributed way of work where it's going to be increasingly hard to get 10 or 15 decision-makers in a room to evaluate a product or evaluate a demo or look at a PowerPoint presentation together, leading with the product and getting customers in our product to evaluate whether it works and prove the value for themselves before they have to make a contractual commitment to us has become not just a huge competitive differentiator, but it's met software buyers in the way -- in the new way that they want to evaluate it by software. And so I think that will be really impactful for us moving forward as well.

Yes. Okay. Yes, that's really interesting. So the last 5 minutes, I wanted to spend a little bit on more profitability and cash. I mean you're fast-growing, growth in the mid- to high 30s, what we've seen like last year and what you guided for this year. Obviously, you kind of need to invest in it as well and the market opportunity speaks, like just talk us through a little bit how you think about that. And I take Jason's point that you were cash flow positive last quarter. Like how do you think about that like more underlying for several quarters?

Yes, Raimo, we weren't trying to be free cash flow positive in Q1. Right now, given the market opportunity and the increased use cases of social, we're really investing for growth in the business. That's our main focus. We think there's a big opportunity. And so sales and marketing are continuing to be a big investment area. But what we've seen -- what's interesting about how the free cash flow positive side is historically, our business was more month-to-month than it was annual or multiyear deals. But what we've seen is as we move upmarket into the mid-market enterprise space, the business is starting to shift. And so even though we're continuing to invest in growth, and that's going to be our main focus, we're not optimizing, for example, right now for to be free cash flow positive, but it's been a nice benefit of our move upmarket. So we're getting more annual and multiyear deals. And because of that, we're driving more free cash flow in the business, not optimizing for that, optimizing for growth. But we feel like the fact that our business is still probably like 55 annuals, 45 month to month, we still think, as we continue to move market, we can keep investing in this business. And we might see some choppiness in free cash flow, but we feel pretty good that we're making the right trade-off right now, which is for growth and not have to sacrifice tons on the profitability line on free cash flow. And that's kind of what we saw in Q1.

Yes. Okay. And then last question for me is if you think about like your space, it's constantly evolving. Like how do you think about M&A versus organic a little bit? Like that's more towards kind of usage of cash, et cetera. It's like one of the underlying parts of the question.

Yes. I think you'll see a little bit of both, but we have -- historically, one of the big advantages we have is our single code base. We did one acquisition back in 2017 and rebuilt that into our platform. We will definitely have -- we prefer to build. We've had real success. We believe that there's some really unique things we're positioned in right now in the space that can kind of build on our core platform, like social commerce, customer care, some of the messaging capabilities. So I think you'll see us overinvest on the organic side. But if we do see an M&A opportunity, if we see something that might make sense that can integrate directly on our platform that doesn't disrupt the user experience, we won't shy away from M&A. It's just not -- we don't see anything imminently. There's not something we're actively pursuing. But we're keeping our eye open, but you can probably expect for us, at least in the near term to invest heavily more organically into the product.

I think maybe it's a good example, because, if you had a recent acquisition and the one thing -- when I heard, followed you, I was like, your organic growth is better than your reported growth, which kind of doesn't make sense optically in theory because like usually companies buy stuff to juice up their reported growth and make themselves look better. With you, it was the opposite. So I don't know, maybe Jason didn't explain it correctly, but yes. Just talk a little bit about that.

Yes. So that acquisition we did back in 2017, and the company we bought had some really good technicians, and they had built some really interesting things on the back end as it relates to our social listening product that's in market today. And so they had a product in market that was a very professional services-heavy manual product and that we just weren't interested in selling anymore. So as soon as we bought them, Raimo, we shut down their existing product and didn't sell to any new customers and starting to wind down the existing customer base. And so because of that, we had this declining revenue base that was offsetting our growing revenue base. And so that's why you saw that inverse relationship between organic and total reported growth. What that acquisition allowed us to do, though, was accelerate the rollout of our social listening tool. And we were able to take that technology and take those technologists and have them rebuild that technology and back it into our core platform. And because of that, we're able to get our social listening product to market a lot sooner. And that has been a huge success for us. That product is our fastest-growing module, and that was all because of the acquisition we did. And so that's why there's that disconnect between organic and reported. And one thing we've talked about before is as of the end of Q1, it's less than 0.5% of revenue, and we probably won't be reporting organic and total going forward, Raimo. I think we're just going to report total because that business is pretty much mild now.

Yes. But it's a good example of M&A, where it's a tuck-in M&A that you get good technology, but you still build organic, yes.

Yes.

Okay. Perfect. I think we were pretty comprehensive on -- at least on my question list as well. Thanks for joining us. If you have any more questions, contact me or Jason is happy to help directly as well. But Joe, Jason, thanks for being on with us. And hopefully, that was helpful for everyone on the call -- on the meeting. Thank you.

Thanks for having us.

Thank you too much. Thanks, everybody.

Thank you.