Sprout Social (NASDAQ:SPT) reported second-quarter revenue of $123.8 million, up 10.8% from a year earlier, as the social media management software provider continued to shift its business toward larger customers and expanded its artificial intelligence offerings.
Chief Executive Officer Ryan Barretto said the company posted a 12.9% non-GAAP operating margin, an increase of 370 basis points year over year, while non-GAAP free cash flow rose about 60% to $8.3 million. On a trailing 12-month basis, Sprout generated approximately $54 million in non-GAAP free cash flow, he said.
Focus on Larger Customers
The company’s strategy remains centered on customers contributing at least $30,000 in annual recurring revenue. Approximated trailing 12-month subscription revenue from that group grew 20% year over year and represented more than 61% of total subscription revenue, according to Barretto.
Sprout ended the quarter with 3,926 customers contributing $30,000 or more in ARR, up 11% from a year earlier, and 2,127 customers contributing more than $50,000 in ARR, up 16%. The company added 51 net new customers in the $30,000-and-above segment during the quarter and 388 over the trailing 12 months. More than 10 net new customers in the quarter contributed at least $150,000 in ARR.
Barretto said the larger-customer cohort has stronger unit economics, retention and expansion characteristics than smaller customers, while also showing higher adoption of products including influencer marketing and NewsWhip.
Among the enterprise customer examples discussed on the call, Sprout cited a seven-figure new-business deal with a multinational manufacturer and distributor using products including Premium Analytics, Social Listening, Employee Advocacy, Influencer Marketing and NewsWhip. The company also said a Fortune 50 financial services client expanded a prior $1.65 million deal by $893,000, adding Sprout’s Service Cloud integration and Guardian compliance product.
Meanwhile, Sprout said customers below the $30,000 ARR threshold represented 39% of approximated subscription revenue in the trailing 12 months ended June 30, down from 59% four years earlier. The company expects continued pressure in that lower-end segment this year, with Barretto saying it expects the segment to decelerate to slightly negative growth before stabilizing in 2027.
AI Product Expansion
Sprout expanded its Trellis AI offering during the quarter. Trellis enables users to query social data in natural language and receive insights without building reports or dashboards, according to the company. Sprout also introduced Trellis Studio, a no-code interface through which customers can create customized skills designed to surface relevant insights on a recurring basis.
All customers receive a base allotment of Trellis usage, while the paid Trellis Plus tier, which offers higher usage limits, launched in July. Barretto said the company has seen healthy growth in monthly active Trellis users and that customers with active Trellis usage retained at a higher rate during the second quarter than those without active users across all customer segments.
During the question-and-answer session, Barretto said the company has begun seeing customers upgrade to the paid Trellis Plus tier, though he emphasized that the offering remains early in its commercialization. He said Sprout views AI as a potential driver of new-business win rates, paid upsells and retention as customers use the technology across social listening, publishing and customer-care workflows.
The company also added predictive scoring for community platforms such as Reddit through NewsWhip, launched an AI dashboard builder, expanded Canva integration, added Snapchat scheduling and publishing, and introduced direct creator payments through PayPal and Lumanu.
Restructuring and Outlook
On July 15, Sprout announced plans to reduce its workforce by about 20%. Barretto said the restructuring is intended to remove organizational layers, accelerate decision-making and focus spending on higher-return areas. The company expects to incur $18 million to $20 million in pretax restructuring charges, substantially all of which are expected in the third quarter.
Sprout expects the move to reduce its annualized non-GAAP cost structure by at least $50 million, although it does not expect to realize the full annualized savings until 2027. Barretto said the company believes it has adequate go-to-market capacity following the reductions and will evaluate future investments as it progresses through the organizational changes.
For the third quarter, Sprout forecast revenue of $123.3 million to $124.1 million, non-GAAP operating income of $17.5 million to $18.3 million, and non-GAAP earnings per share of $0.29 to $0.30.
For full-year 2026, the company projected revenue of $493 million to $495.6 million and non-GAAP operating income of $68.3 million to $70.3 million. The operating-income outlook represents a 20% increase at the midpoint from its prior forecast. Sprout forecast non-GAAP EPS of $1.11 to $1.15 for the year and said it expects to exit the fourth quarter with a non-GAAP operating margin near 17%.
The company reiterated its goal of reaching a Rule of 40 metric above 30% by the fourth quarter of 2027. It also said it plans to begin opportunistically repurchasing shares during the current quarter under its previously announced $50 million authorization, after restructuring and blackout periods limited repurchases in the second quarter.
Barretto said Sprout is not assuming an improvement in the demand environment and expects the acquisition anniversary of NewsWhip to create headwinds for revenue and RPO growth beginning in the third quarter.
About Sprout Social (NASDAQ:SPT)
Sprout Social (NASDAQ: SPT) is a Chicago-based software company specializing in social media management solutions for businesses of all sizes. The company provides a cloud-based platform designed to help organizations improve their social media presence through a suite of tools for content scheduling, community engagement, social listening and analytics. Sprout Social’s platform is built to streamline the workflows of marketing, customer care and public relations teams by providing a centralized hub for managing multiple social channels.
The company’s product offerings include publishing and scheduling capabilities that allow users to plan and automate social content across networks such as Facebook, Instagram, Twitter, LinkedIn and Pinterest.
