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Sprout Social Inc (NASDAQ:SPT)
Q3 2020 Earnings Call
Nov 9, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Sprout Social's Third Quarter 2020 Earnings Conference Call. [Operator Instructions] After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your first speaker today, to Mr. Jason Rechel, Head of Investor Relations. Thank you. Please go ahead, sir.

Jason Rechel -- Head of Investor Relations

Thank you, operator and welcome to Sprout Social's third quarter 2020 earnings conference call. We will be discussing the results announced in our press release issued after the market closed today. With me are Sprout Social's CEO, Justyn Howard; CFO, Joe Del Preto; and Senior Vice President of Global Sales, Ryan Barretto.

Today's call will contain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning financial and business trends, our expected future business and financial performance and financial condition, our guidance for the fourth quarter of 2020 and the full year 2020 and can be identified by words such as expect, anticipate, intend, plan, believe, seek or will. These statements reflect our views as of today only, should not be relied upon as representing our views at any subsequent date and we do not undertake any duty to update these statements.

Forward-looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of the risks and other important factors that could affect our actual results, including potential disruption from COVID-19, please refer to our annual report on Form 10-K filed with the Securities and Exchange Commission, our quarterly report 10-Q to be filed with the SEC and our other periodic filings with the SEC.

During the call, we will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included in our earnings press release, which has been furnished to the SEC and is also available on our website at investors.sproutsocial.com.

And with that, let me turn the call over to Justyn.

Justyn Howard -- Chief Executive Officer

Thank you, Jason and good afternoon, everyone. Thank you for joining us. As difficult as things have been this year, I hope you've all been able to stay healthy and productive. On our side, Sprout Social again, delivered a strong quarter across the board, setting multiple new quarterly records. We're grateful to our team for executing remarkably well and we're excited to share that our plan for 2020 is now well ahead of our prior guidance. Our mission is straightforward. We believe social sits firmly at the center of the brand, customer relationship and is rapidly becoming the most powerful channel to win, serve and connect with audiences.

Our software platform is powerful, elegant and easy to deploy across businesses of all sizes. We give small businesses the ability to punch well above their weight and large enterprises the power agility and efficiency to delight their customers at scale. We have made it increasingly easy to standardize on Sprout as the centralized system of record for social and to help our customers maximize the value of this mission critical channel across the entirety of their organization.

Digital transformation has become the top priority for brands across the globe. Social communication is fundamentally more important than at any time in our company's history and it sits at the center of this new digital technology stack that includes social publishing, engagement, customer service care, commerce and business intelligence. We are perfectly positioned to help our customers thrive in this new reality. This quarter more customers than ever invested in Sprout and we're not slowing down.

I want to spend a moment upfront today on culture, which has been fundamental to our success. With all of the curves 2020 has thrown at us and the rapid pace of evolution our customers are facing, our culture has been our single most powerful advantage. We focus from the very beginning on being an incredible place to work and an incredible place to be a customer and we simply wouldn't be here without our remarkable team. This quarter, we were honored to be named as one of Fortune's 100 Best Medium Workplaces as well as on Fortune's 25 Best Workplaces for Women list. These are a testament to the less quantifiable aspects of this business that allow us to deliver the kind of results we're talking about today.

In August, we made our annual DEI report available to the public for the first time. While we know we have a great deal of work to do, we have a solid foundation in place and are proud of the equitable company we have built-to-date. We hold ourselves accountable to put our resources behind delivering change for traditionally underrepresented groups and we appreciate your support in that effort. We believe the transparency of this report and growing visibility of our healthy employer brand will further strengthen our ability to attract and retain great people as we grow together in the years ahead.

We have quite simply a breakout quarter. Some of the trends that were starting to take shape when we last spoke crystallized during the third quarter and our teams executed with precision. We're pleased to deliver record net new customer additions, record net new ARR, record customer growth metrics and stand out successes in the Enterprise segment. All with improving efficiency in our financial model and while formally sunsetting the legacy Simply Measured platform. The funnel remains very strong and our forward indicators are very healthy. Ryan and Joe will share many of the specifics with you, while I outline several areas of focus to position our company for an even stronger future.

There are three topics I'd like to discuss; up market momentum, integrations that bolster our social ecosystem, and targeted areas of investment that we're making for 2021. Beginning with our accelerating momentum upmarket. During the third quarter, we signed the largest new ACV contract in our company's history on-boarded several Fortune 500 brands, including multiple wins from highly competitive RFPs and delivered 42% growth in our greater than 10-K ARR customers. We have a disruptive platform an innovative sales playbook, the right go-to-market motion and the customer success model in place to build repeatable success on these metrics. We have raised the bar in every aspect of our upmarket business in the third quarter.

The successful wins in large Fortune 500 RFP processes will stand out for two reasons; the notable size of these deals and the implications on our served markets suggest that established companies are beginning to invest considerable resources behind social. This supports our thesis that social media management is becoming a foundational layer in the digital tech stack. And we competed against every competitor in our space through sophisticated technology, security and compliance evaluations. We believe we have many structural competitive advantages and they all have begun to culminate in the success, which we expect to only expand in the coming years.

Turning next to our technology integrations. We build software that is powerful, elegant and easy-to-use, and our integration strategy is no different. We functionally integrated with eight new partners since we last spoke with you, which is an incredible achievement from our technology and partnership teams. These include new integrations with Microsoft Dynamics 365, Salesforce, Dropbox, Slack, a first of its kind of integration with Glassdoor, an enhanced listening relationship with Reddit, a new Pro Media Video integration with Twitter and our more recent work with Facebook to integrate the new messaging API, which supports Instagram messaging.

Our platform allows customers to recognize maximum value from social across an organization. A variety of technology integrations across this ecosystem of new and existing partners enables our flywheel to help social further proliferate across the entire customer and brand journey. With visibility and collaboration more important across a growing number of business functions, we are establishing ourselves as the social system of record, Rich fully integrated solutions offer a better user experience and deliver immediate value to our customers. This broadening ecosystem around our social platform also reduces friction in the enterprise deal cycles, while further strengthening our customer relationships.

Lastly, I want to touch on our priorities for 2021. We have aggressive investment goals that we believe position us well to capture a $50 billion and growing market opportunity. Our listening and premium analytics offerings are early both in terms of market penetration and product road map. In 2021, we intend to continue to evolve these offerings as we further democratize the power of social data and intelligence. We are also making product investments to help bring the value of social further into our customers' organizations. We'll continue to prefect our core experiences and prioritize social customer care, commerce, engagement and additional integrations. We'll also continue to accelerate our investments behind the strong trends we've seen in our sales and marketing efforts.

Looking back to March, we made rapid adjustments to our business. Our strategy and go-to-market model allowed us to do this quickly getting back to essentially full operating capacity within days. Over the next few months, we continue to adjust and help our customers navigate rapid change with our key metrics recovering relatively quickly. Late in the second quarter and throughout the third quarter, we saw the strength of our business and competitive differentiators really taking hold and have seen exactly what we wanted to see across the business. We're an objectively stronger company than we were entering the year and importantly, this has been driven by fundamental strength rather than situational anomalies.

I want to wrap up by reiterating my gratitude to our employees, our partners and our customers. Social is being validated as a mission critical communication channel and our ability to win the market stands out in the new digital environment. Over the course of the past six months to 12 months, we have seen everything that we need to see to maintain confidence that the investments that we're making and we'll continue to make will enable us to maximize our potential. We believe our relentless focus on world-class products and our deep commitment to our people and our customers keep us well positioned to deliver durable growth into 2021 and for many years beyond.

And with that, I'd now like to turn the call over to our Senior Vice President of Global Sales, Ryan Barretto, who will walk you through some of our customer success stories this quarter.

Ryan Barretto -- Senior Vice President, Global Sales

Thanks, Justyn and thanks again to everyone for joining us today. I was blown away by the performance of our team this quarter. We set new records in several key areas and emerging trends like social listening, social care and social commerce have us well positioned to continue delivering in the period ahead. Our opportunity is large and getting larger, and our team is executing incredibly well. Customers continue to turn to Sprout with acute needs and a heightened sense of urgency to transform their organizations. In Q3, we set records across the sales, success, support and services teams. Our success and support teams in particular delivered new records for quarterly CSAT, and that was done with larger volumes and larger projects.

The customer review site TrustRadius recognized us with a Tech Cares award for our outstanding support of marketing teams during this pandemic. As you know, our unique focus on customer success is a point of pride for our company and a compelling differentiator. With in-person events on hold, we shifted marketing efforts to digital and our Sprout Summit in September was a huge success with over 9,000 registered. If you attended the event, you heard speakers emphasize the importance of brand authenticity to remain compelling about importance of listening to the voice of your customers and the structural changes that occurred as marketing, customer care and commerce all went digital. During the Summit, I had the pleasure of interviewing Dara Treseder, the amazing Head of Marketing at Peloton. Dara encouraged our marketing peers to really embrace the power social media and social data, as she saw these insights is critical in building product road maps and business strategy.

Now turning to the sales performance. All segments of our business were very strong this quarter, but I want to call out the enterprise team, which was lights out. A sample of the brands that we grew with this quarter, included Electronic Arts, Sony, Lowe's, Nikon, Cummins, Purdue University, and the Manpower Group. Here are a few specific comments from some of our new customers. Dennis Michel, the SVP of Card Operations at Discover, highlighted that providing exceptional customer service is at the heart of everything they do and they're always looking for tools to better listen and respond to customer needs. As he said, working with Sprout gives us the ability to better understand the voice of our customers and creates new ways for us to engage with them, leading to improved customer experiences.

While restaurants have faced numerous headwinds this year, they've continued to invest heavily in social. Social provides restaurants with a direct connection to customers and fans, which has filled the void of in-person interactions. Our new customer Taco Bell is a great example of this. Erika Prime, who leads digital and social strategy recognized Sprout as a huge help for them in 2020. As she said, with the challenging year and ever-changing social landscape, we decided to double down on community management and leverage even more user-generated content. Our fans took notice and as a result, we've received more UGC than ever before. And thanks to Sprout's tools and working with their incredible team, it's been even easier to track our growth and quickly communicate with our amazing fans.

We also continued to see growth within entertainment. The Cleveland Cavs were a great example of how popular sports brands are leveraging social to engage with their fan base. The behind-the-scenes docuseries, The Road Back has been a huge endeavor for the Cavs, and they've been able to reach an even wider audience and understand their fans' response to it by using Sprout. Brandon Jirousek, the VP of Digital for the Cavs shared that they selected Sprout as their partner because of our industry experience with other NBA teams, and because our team and technology were a great fit for the franchise's growing needs.

I couldn't be more impressed or grateful for the performance of our people at Sprout. Our culture continues to stand out and our strong employer brand is attracting incredibly talented people to our company. As I recently shared with my leadership team, we're putting all stars at every position, which means that Sprout is well positioned to build on our success from here.

With that, I'll turn it over to Joe to run through the financials. Joe?

Joe Del Preto -- Chief Financial Officer

Thanks, Ryan. I'll now walk you through our third quarter results in detail, before moving on to guidance for the fourth quarter and full year 2020. Total revenue for the third quarter was $33.7 million, representing 27% year-over-year growth. Excluding the impact from legacy Simply Measured organic revenue was up 34% year-over-year. Total ARR exiting Q3 was $141.9 million, up 30% year-over-year. Organic ARR was $140.6 million, up 35% year-over-year. We achieved record net new ARR with health in both new business and retention. We added 1,200 net new customers in Q3 to finish the quarter with 25,556 customers, up 11% year-over-year. This quarterly net adds record is a reflection of strength across all market segments.

Further, we saw an improved mix of both total customers and total ARR, landing with us on annual or multi-year subscriptions, which has notably positive implications on our long-term economics and speaks to the quality of this impressive new customer cohort. I do want to reiterate that as you have seen so far this year, net adds historically can be lumpy on a quarterly basis and we remain focused on long-term double-digit customer growth, focus on high-quality unit economics.

The number of customers contributing more than $10,000 in ARR reached 2,790, up 42% from a year ago, and up from 2,544 in Q2 2020. Listening and premium analytics ARR continue to grow over 100% year-over-year. We are pleased in our greater than 10,000 [Phonetic] customers who are now a record 11% of our total customer base. But even more importantly these larger customers are growing even larger. This was evidenced by consistent 17% annual ACV growth, as we onboarded a record number of new customers.

In discussing the remainder of the income statement, please note that unless otherwise stated, all references to our expenses, operating results and share count are on a non-GAAP basis and are reconciled to our GAAP results in the earnings press release that was just issued before this call. In Q3, gross profit was $25.0 million, representing a gross margin of 74.4%. This is up 180 basis points compared to a gross margin of 72.6% a year ago, and compares with 74% last quarter.

Sales and marketing expenses for Q3 were $14.1 million, or 42% of revenue, down from 45%, a year ago. As we move into Q4, we are accelerating our pace of hiring across both our sales and marketing teams that we prepared to fully capture our opportunity in 2021. Research and development expenses for Q3 were $7.2 million, or 21% of revenue, down from 24% a year ago. We are pleased to have completed the migration away from Simply Measured, which gives us the ability to efficiently deploy, design and engineering resources into new opportunities. We're going to grow our R&D teams next year to pull forward a multi-year product engineering investment plan.

General and administrative expenses for Q3 were $8.1 million, or 24% of revenue, up from 23% a year ago. This growth was primarily a function of public company expenses and the one-time fees related to our August follow on offering. We expect general and administrative expenses to decrease as a percentage of revenue, as we scale operations. We have however received an efficiency benefit from our currently distributed workforce, which I would emphasize as non-recurring in nature as we lap these efficiencies in the future.

Non-GAAP operating loss for Q3 was $4.4 million, or a negative 13% operating margin. This compares with a negative 19% operating margin year ago. We outperformed our expectations due to higher revenue, the realization of efficiencies in a distributed working environment and the timing of key hires, which occurred later in the quarter than our plan. Even as we realize efficiencies from distributed work, we accelerated the pace of hiring across the business during Q3, and continue to fully fund our long-term growth priorities. Non-GAAP net loss for Q3 was $4.4 million for a net loss of $0.09 per share based on 51.9 million weighted average shares of common stock outstanding compared to a net loss of $5 million a year ago.

Turning to the balance sheet and cash flow statement. We ended Q3 with $167.3 million in cash, cash equivalents and marketable securities, up from $129.5 million from the end of Q2 2020. We received $42 million in cash from our August follow-on offering. Deferred revenue at the end of the quarter was $37.5 million. Looking, both at our billed and unbilled contracts, our remaining performance obligations, or RPO totaled approximately $53.9 million, up from $50.9 million as exiting Q2 2020 and up approximately 48% year-over-year. We expect to recognize approximately 87% or $46.9 million of total RPO as revenue over the next 12 months.

Operating cash flow in Q3 was negative $2.6 million, compared to negative $3.3 million a year ago. Free cash flow was negative $4 million in Q3 for a negative 12% free cash flow margin compared to negative $3.4 million, and a negative 13% free cash flow margin a year ago. We had previously told you to expect us to spend around $1 million in free cash flow during Q3, for the build-out of our Seattle office. We spent roughly $500,000 during Q3, the remaining $500,000 will be spent during Q4.

Moving on to guidance. For the fourth quarter of fiscal 2020, we expect total revenue in the range of $35.8 million to $35.9 million or a growth rate of 27%. We expect our organic growth rate to be mid-single digit percentage points faster than our reported growth rate as we lap Simply Measured revenue from a year ago. We expect non-GAAP operating loss in the range of $6 million to $5.5 million. In certain areas, we are accelerating the pace of investment with a balance of R&D, people and infrastructure investment to sustain our future, as well as sales and marketing to capture the opportunity immediately in front of us.

Overall, sales and marketing efficiency remain consistent with our medium-term expectations. And as noted earlier $500,000 of our Seattle office expenditures were pushed from Q3 into Q4. As such we expect our Q4 free cash flow to be roughly $1 million better than our anticipated operating loss. We expect the non-GAAP net loss per share between $0.11 and $0.10 assuming approximately $53.1 million weighted average basic shares of common stock outstanding. As a reminder, our August follow-on offering added approximately 1.6 million shares to our fully diluted share count.

For the full year fiscal 2020, we now expect total revenue in the range of $131.4 million to $131.5 million. This is an expected overall reported growth rate of 28%, up from a prior midpoint of 26%. We now expect our 2020 organic growth rate to be approximately 35%, up from a prior estimate of 33%. For 2020, we expect non-GAAP operating loss in the range of $23.6 million to $23.1 million compared with our prior range of $27 million to $25 million. We are continuing to invest for our long-term growth while delivering multi-year profitability leverage. We expect a non-GAAP net loss per share of between $0.45 and $0.44 compared with a prior range of $0.53 and $0.49 and assuming approximately 51.8 million shares.

In summary, the opportunity to help customers manage the social channel has ever been more mission-critical. We are uniquely positioned to capitalize on the opportunity for multi-year growth. Our strong balance sheet and prudently managed cash flow gives a high degree of confidence to continue to make balanced investments that will enable us to achieve our full potential.

With that Justyn, Ryan and I are happy to take any of your questions. Operator?

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] I show our first question comes from the line of Rob Oliver from Baird. Please go ahead.

Rob Oliver -- Baird -- Analyst

Great. Thanks, gentlemen for taking my question. Good evening. Just first one on the -- really strong rebound in net customer adds this quarter. Just curious what you guys saw in there, obviously post-COVID, there was some people who had put some projects on hold, were these customers that had kind of been in the trial motion for a while with you guys, or was this just sort of a continuation of the trends you guys called out last quarter where things were getting progressively better each month and then I had a quick follow-up. Thanks.

Justyn Howard -- Chief Executive Officer

Yeah. Thanks, Rob. This is Justyn. You cut out for a moment when you're addressing the question, so I wasn't sure if you'd address that to me or to Joe. But I'll tell you, it's really consistent with what we had called out last quarter, which was after that period at the end of March and into April, where we saw some compression on the net new adds, we've really started to see it rebound pretty quickly. And it looked healthy really from the tail end of that quarter all the way through the third quarter. And so it doesn't seem to be as much of a factor, if at all, of kind of pent-up demand that's spilled over, more of just a consistent trend line from what we saw in the second half of Q2 through Q3.

Rob Oliver -- Baird -- Analyst

All right. That's really helpful. Thanks. And then Joe, just a very quick follow-up for you on the increase in the ACV growth, obviously, really good to see important metric. I mean aside from the fact that you guys highlighted you're moving up market nicely with these Fortune company wins, what are some of the components within that? Is it just larger lands, or are you guys seeing some of the newer products such as premium analytics and listening start to kick in? Thanks, gentlemen. Appreciate it.

Justyn Howard -- Chief Executive Officer

Yeah. Great question, Rob. I think what you're seeing is a combination of those. As we are landing these new customers at higher ACVs, especially when we're upmarket, they're definitely landing with 1 or 2 of these premium modules. So it's a great combination of not only getting more upmarket but adding these additional modules. And then on top of that, we saw not just on the higher end, but we saw just overall kind of strong ACV improvement across our net adds and then overall customer base. We're just seeing a lot of overall momentum in the business right now.

Operator

Thank you. I show our next question comes from the line of Stan Zlotsky from Morgan Stanley. Please go ahead.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. Thank you so much guys, and thank you for taking our questions. Maybe the first one from us, obviously, when the pandemic first started, we heard a lot of stories of people on the company's having to furlough their people, or straight up fire their people. Are you -- what are you seeing within your customers? How are they doing as far as returning their own spend with you back to their pre-COVID levels, and I have a quick follow-up?

Justyn Howard -- Chief Executive Officer

Yeah. Sure. Thanks, Stan. This is Justyn. I think what we've seen has been interesting. And I think this started kind of immediately is the impacts of COVID started to take hold, which was that social hasn't really been on the chopping block, in terms of the conversations that we've had with our customers. It's felt like an area that was going to be one of the last ones to really take that hit as businesses really needed to maintain that channel to be engaging with their customers and to be positioning themselves for the recovery. And so we didn't see a lot of that happen in our space. I think certainly as things have settled down and people have gotten into kind of the new way of doing things we've seen more engagement around longer term thinking and larger deals and things like that. But from a resource perspective, it hasn't really felt concerning for us.

Stan Zlotsky -- Morgan Stanley -- Analyst

Got it. That's very helpful. And then as far as just, and then I apologize if this is already asked jumping between conference calls here. But can you give us an update on how your add-on products are doing? And especially some of the newer ones like analytics and listening, I'd appreciate that. Thank you so much.

Ryan Barretto -- Senior Vice President, Global Sales

Hi, Stan. Sure. Thanks, Dan. This is Justyn. I think what we've seen has been interesting. And I think this started kind of immediately, is the impacts of COVID started to take hold, which was that social hasn't really been on the chopping block in terms of the conversations that we've had with our customers. It's felt like an area that was going to be one of the last ones to really take that hit as businesses really needed to maintain that channel to be engaging with their customers and to be positioning themselves for the recovery. And so we didn't see a lot of that happen in our space. I think, certainly, as things have settled down and people have gotten into kind of the way of doing things, we've seen more engagement around longer-term thinking and larger deals and things like that. But from a resource perspective, it hasn't really felt concerning for us.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. Thank you so much guys.

Operator

Thank you. Our next question comes from the line of Matt VanVliet from BTIG. Please go ahead.

Matt VanVliet -- BTIG -- Analyst

Yeah. Thanks for taking my question. Wanted to dig in, maybe just a little bit more on what you're seeing, especially from expansion deals. It seemed like coming out of summit that, social is becoming much more of a key component of the overall marketing strategy and no longer just kind of its own entity. But curious how you're doing especially kind of expanding seats along with up-selling, but just kind of what that trend is look like, as more and more commerce has moved on the digital platforms and you're losing that sort of in-person engagement and how companies are approaching that?

Ryan Barretto -- Senior Vice President, Global Sales

Thanks, Matt. This is Ryan. Yeah, I mean we've seen a lot of strength within this area. And it's certainly evolved over time as the market has matured. When I started at Sprout four years ago, you typically be selling to the social media manager and today that's evolved into a team of social media managers. It's evolved into not just social media, but across the entire marketing department, where you see people from PR and comms and brand and content. And with the addition of our premium analytics and listening, we are getting exposure to other parts of the business, which might range from social customer care to our analysts that are looking for data to make business decisions on.

So the expansion has moved beyond just the typical user. And more and more our customers are realizing that this data that exists through social has a ton of potential for them in making business decisions like understanding which markets they could be going into, getting a better handle on how their products are being perceived within the marketplace, identifying what their competitors are doing and helping them differentiate in their go-to-market motion. So all those things have really contributed to the success with the expansion. And now for us, if we think about our go-to-market strategy we really added on to the product suite over the last 24 months with listening analytics and reputation. So really good progress on all of those fronts and continuing to see really good strength from our growth teams.

Matt VanVliet -- BTIG -- Analyst

And a follow up to Joe, you mentioned that you were a little behind in terms of hiring in the quarter. Just wanted to get a little clarification. Did you exit the quarter pretty much on plan? And we should expect a relatively full run rate in the fourth quarter, or did you -- did some of those hiring spillover into -- in October and even the last couple of weeks?

Joe Del Preto -- Chief Financial Officer

Yeah. We had -- once we saw the momentum coming out of Q2 and then early Q3, we're really wanted to increase the investment in the sales and marketing hiring side. And so we didn't get all those hirings in Q3. We had a pretty aggressive plan. So some of that will spill into Q4, and we're definitely going to continue to invest in that area, especially heading into 2021. And so given the momentum in that business you can expect us to keep investing in that area, Matt.

Matt VanVliet -- BTIG -- Analyst

All right. Great. Thank you.

Operator

Thank you. Our next question comes from the line of Chris Merwin from Goldman Sachs. Please go ahead.

Chris Merwin -- Goldman Sachs -- Analyst

Okay. Thanks very much for taking my question. You talked about strike me in the Enterprise segment this quarter and you called out, I think your largest whenever. And I was just wondering if you could talk a bit more about that deal. What it did include in terms of modules that include users outside of the marketing department? You're trying to think through how this large deal could foreshadows some future large wins in the Enterprise segment? Thanks.

Ryan Barretto -- Senior Vice President, Global Sales

Thanks for the question, Chris. This is Ryan. Yeah, that large deal included a few things. So included users from a variety of different departments, similar to the question before with Matt, it's not just the marketing department that we're touching today, we're touching places like social customer care. Oftentimes, it's getting into other departments that are leveraging the data both from a analytics and social listening perspective. So in this circumstance, we're talking about dozens of users, our premium add-ons, including analytics and listening as well.

Chris Merwin -- Goldman Sachs -- Analyst

Okay. Great. Thank you. And just a follow-up about the integrations. You called out a number of new ones this quarter, Dynamics, Zendesk, and Hub Spot. How should we think about the impact of these integrations to the platform. Does this help with data sharing with -- it is other systems and maybe that contributes to the analytics product or does it help with larger customers, you maybe have some of these systems and require them to become a customer. Just want to -- I'm just curious how we should think about the integration is being a tailwind I guess to new logo growth or retention? Thank you.

Justyn Howard -- Chief Executive Officer

Yeah. This is Justyn. So really what we're seeing here is similar to some of the conversation we've already had, Social is really expanding quickly across the organization, expanding well beyond the marketing department. And where we find ourselves and where our customers find themselves is that, it is critical that they've got a centralized system of record for social media management. There are a lot of existing processes that simply can't be replicated in other systems record. And so this primarily allows us to both bring data in and expose data out into some of those other platforms where some of those workflows are taking place.

And from a tailwinds perspective, it gives us the opportunity to start to think about some of those additional use cases, start to get into some more of those sophisticated use cases outside of the marketing organization and really just help our customers solve more of their problems then we'd be able to do in the past. And that's been a recipe for success for us thus far. And we think it's going to be even more so. And not only that, but certainly the more that we're able to help them kind of evolve a lot of their processes at social was upending most of the business, that's an opportunity for us to create a pretty sticky and expanding relationship with those customers.

Chris Merwin -- Goldman Sachs -- Analyst

Okay. Great. Thank you.

Operator

Thank you. I show our next question comes from the line of Raimo Lenschow from Barclays. Please go ahead.

Raimo Lenschow -- Barclays -- Analyst

Hey. Thanks for fitting me in. You talked about the strength in kind of more of the larger customers. Can you just -- and Chris just asked about the largest deal in the quarter. Can you talk a little bit about what's driving it? Historically, you've -- there are other players that were kind of more playing up in the upper part of the market with more handholding, etc. Is the -- I'm just trying to understand what's driving the strength now. Is -- do you think the customer base is kind of understanding your automated offering better? Is it the strength of the add-on modules that are driving it? Just talk to that a little bit, and then I had a follow-up.

Ryan Barretto -- Senior Vice President, Global Sales

Yeah. Hey, Raimo. This is Ryan. There is definitely a few things in play here. One, the additional products that we've added to the platform over the last 24 months in listening and analytics and reputation are perfectly suited for these sophisticated customers. They want to do all of these things in one space with one vendor and we fit the bill for them. So that's definitely a big driver for us. And the value that is not just that you checked the box, but that it's easy to use, it's powerful and scalable.

And that's certainly what we're hearing from our customer base is an element to of educating the marketplace and our brand is certainly doing very well within enterprise. Related to this and we've mentioned this on a few other calls, but the power of the trial is just a huge differentiator for us. And it's very disruptive for the at-market competitors, that we believe in try before you buy. We believe that's the modern way of evaluating and buying software. And we're getting these enterprise customers to leverage the products before they sign a contract.

And conversely when they go back to the other competitors that they're looking at most of them are only set up to do demos. And in this remote environment that we are living in today, I think we're all feeling like we'll at least be in a hybrid state in the future. That means that we have a big competitive advantage in getting customers to get into the product, experience -- Sprout experience not just the technology, but our people. And that's just been highly disruptive for the competitive set.

Raimo Lenschow -- Barclays -- Analyst

Okay. Perfect. And then I have a follow-up for Joe. After you put up now we're kind of in the planning stages for next year and I don't want the guidance from you but like -- how do we think about like this new world that we're living in with kind of less travel, which kind of saves your money, but on the other hand, in theory, it frees up for more kind of lead generation, different types of lead generation activities etc. Like how -- were you guys coming out between like showing kind of leverage faster versus kind of using the opportunity to kind of maybe kind of use different channels to kind of speed up the momentum that you have? Thank you.

Joe Del Preto -- Chief Financial Officer

Yeah. Thanks, Raimo. I think without obviously giving guidance for next year, I think what you'll see from us, as you've seen historically is, when we see things working in our sales and marketing investments are returning, the kind of unit economics that they have. We're going to continue to invest in those areas. But at the same token you've seen for several years now, year-over-year improvement in our operating margins. And so I think you can expect a similar trend you'll continue to see us invest in this business, especially for growth. But at the same token, you can also assume that we will be driving margin down going forward. And we'll be concrete making that decisions and balancing those two things going forward.

Raimo Lenschow -- Barclays -- Analyst

Okay. Perfect. Thank you. Congratulations.

Operator

Thank you. I show our next question comes from the line of David Hynes from Canaccord. Please go ahead.

David Hynes -- Canaccord -- Analyst

Hey. Thanks guys. Congrats on the strong results. Obviously, really high quality wins, right, I think we talked a lot about the large deals. I want to ask a question on the quantity, right, the 1,200 net ads is really impressive. So I'm curious, is it being driven by material improvement in conversion rates on the trial activity, or are you just seeing explosion in kind of top of the funnel trial activity?

Justyn Howard -- Chief Executive Officer

Yeah. David, thanks for the question. This is Justyn. I think it's a handful of things. And I think as a handful of things that have been true, it's coming into this year and certainly in the early part of this year, saw some headwinds in March and April. But the net adds were not that much of an anomaly for us. Absent COVID you would have seen, I think the contrast between Q2 and Q3, net adds would not be -- have been as dramatic as it is. But it's a function of the top of the funnel. It's a function of the sales team just doing a fantastic job converting.

And it's a function of the logo retention and the improvements that we've seen there. And really having a compelling value statement, as Ryan mentioned before in every part of the market. SMB up through enterprise. And it's just consistency across the organization that we've seen in the last three months, four months, with all of those things, operating as we hope that they would be and expected them to be coming into the year.

David Hynes -- Canaccord -- Analyst

Yeah, makes sense. And then maybe one for Ryan, on kind of the new products in the cross-sell up-sell opportunity. I guess I'm curious if you kind of had to rank the three, right; listening, reputation and analytics kind of against your internal expectations, which done -- which has done the best and which has maybe taken a little bit longer than you would've expected?

Ryan Barretto -- Senior Vice President, Global Sales

Yeah. I would say listening continues to be the one that we are seeing just over delivery from. And I think it's a couple of things there. One from an enterprise perspective, so many of those customers that are showing up have that expectation, but traditionally those solutions have been incredibly hard to use. And the marketers that actually one of the data can't usually get it. They're usually reliant on a consultant from the vendor that they bought from or somebody who is highly technical inside the organization. And so the fact that we can actually help them get into the data for them to be able to run their own listening reports is incredibly powerful and the fact that listening sits alongside publishing it means that the insights that they find, they can immediately use within the product. So that's certainly one piece.

I think on the other side, I would say probably reputation and reputation only because it's one of those areas that we're continuing to add to. So we've got some really good stuff in there today with TripAdvisor and Google my business we've added Glassdoor. I think for us we'll continue to contribute to that. And as we continue to contribute that product, I think it's going to be very dangerous. But overall, I would just say we're pretty -- we're pretty excited about all of those things and our growth teams are doing really well, selling all those products to our current customers as well as landing new customers with more than one product.

David Hynes -- Canaccord -- Analyst

Yeah. It makes sense. It's a bit of an unfair question, it's like asking to choose your favorite channels, right. So I appreciate the color. Thanks, guys.

Ryan Barretto -- Senior Vice President, Global Sales

Good. I'd never say that one out loud.

Operator

Thank you. Our next question comes from the line of Arjun Bhatia from William Blair. Please go ahead.

Arjun Bhatia -- William Blair -- Analyst

Hi, guys. Thanks for taking the question. You talked about some of the sales investments you're making. I would just love to maybe dig in on some of the granularity on where you are making those investments on sales and marketing side. Is it expansion, or is it new customers, SMB main market, we just love to hear some of those details?

Ryan Barretto -- Senior Vice President, Global Sales

Yeah, Arjun. It's Ryan. Thanks for the question. There is a two different areas. Maybe from the marketing side, I'll start. We continue to invest a lot in content. If you do any searches out there, but so sure, you're likely going to run into some amazing Sprout content, whether it'd be the Sprout social index or detail that we've been providing around insights that have happened during COVID, whatever it may be, we built content that's fantastic for the practitioner or the executive and that content is working. And we've get this really impressive inbound engine that's driving a tremendous amount of trials and leads and we want keep all the products. So that inbound engine continues to be something that we are investing into content. And we've really increased the throughput on the amount of content that we're delivering.

From a sales perspective that -- the area that highlight there is a bunch of different areas, but the one that, that stands is just within our enterprise team. We mentioned, I think it is coming out of the first quarter. We saw a huge opportunity in enterprise. We shifted some of our resources both from a marketing perspective and an outbound prospecting perspective to focusing on enterprise. We got to the gates really fast was hiring our enterprise reps. And we are just continuing to see the dividends pay off there. There's lots of opportunity in the marketplace that reps within that team are executing incredibly well. And we feel good about all the segments. And all of our teams did really well this quarter, but those would be the two that I'd highlight.

Arjun Bhatia -- William Blair -- Analyst

Perfect. It's very helpful color. And then maybe one for Joe, I just wanted to touch on gross margins a little bit. I know there is a few moving pieces, it seems like Simply Measured has rolled off. At the same time, I think you said you've added maybe eight new integrations. Is there any impact from those on gross margin that we should factor in? And then from the Simply Measured piece, or we had a more kind of steady gross margin rate now when we think about future years?

Justyn Howard -- Chief Executive Officer

Yeah. Good question, Arjun. I think where you can assume with the integrations and then with the Simply Measured impact. You'll continue to see over the next couple of quarters much improvement in our margin. So I don't think that we're at a steady state. I think definitely think you'll see improvement, but I don't think it's going to be anything significant from those two things.

Arjun Bhatia -- William Blair -- Analyst

Got it. Perfect. Thanks for taking my questions and congrats on the quarter guys.

Operator

Thank you. Our next question comes from the line of Tom Roderick from Stifel. Please go ahead.

Tom Roderick -- Stifel -- Analyst

Hey, gentlemen. Great to hear from you. Thanks for taking my questions. Let me say the first one here to both Ryan and Justyn, you guys can tackle it, collectively, I guess. But I think Ryan, you have some comments on the call, just regarding a feeling that there is a heightened sense of market urgency out there. And we've seen some tremendous monetization efforts on social platforms that are sort of non-traditional platforms. If I think about Snapchat and Pinterest more recently, Twitter on the monetization side still doing very well. So a little bit of an odd point in time where the advertising efforts are coming in very strong. But as that happens, I'm wondering, if that sort of drives a little extra demand for social media management platform for the need for something like a spread to manage multiple platforms. And just broadly, I'd love to hear you talk a little bit more about what it is you're seeing in the market that's driving that heightened sense of urgency?

Justyn Howard -- Chief Executive Officer

Yeah. So this is Justyn, I'll start. I think -- and this has been true dating back to when we got started. Every year there is more and more places. Our customers need to be present and engaged and be keeping an eye on and be keeping and communicating with our customers. And to that extent the fact that there are some breakout successes around the edges of kind of the big players in social, definitely compounds in a pretty exponential way, the need for centralized management. I think that's something when you look at our ACV growth historically and how consistent that's been a driving force there, there's more networks to manage. There is some multiple number of additional profile. There's more people involved. And we're starting to see more departments and more use cases involved. And so that is a pretty powerful ingredient.

I think that the demand is -- and I think we've all felt this over a couple of quarters now. But there is just as big shift and there were a lot of folks who felt like this might be coming further into the future or that they had more time to think about how to evolve and what their organizations in their marketing and customer engagement efforts needed to look like five years, 10 years from now. And the reality is that it's upon us. They've got to get it figured out. And I think we're far enough into, we've been working on this problem for 10 years and it's sometimes easy to lose sight. But there's a lot of organizations that are just kind of getting started or just tackling the basics, where they're hitting that next level of investment that next level of prioritization for social, which is going to look very different. And I think that's another big driver for us.

Tom Roderick -- Stifel -- Analyst

Yeah. Definitely, really helpful commentary. That's great. And Joe, follow on just on the financial side, appreciate that the metrics are really accelerating in the right direction. So I look at ARR accelerating your total revenue growth, organic revenue growth accelerating. Can you just unpack the metrics underneath that. Just a little bit more with respect to what you saw in customer or dollar churn net dollar retention understanding that's I want to give those out every single quarter, but directionally, particularly on the churn side is really important to hear that last quarter that was coming back. Where you at -- what do you see on that front now?

Joe Del Preto -- Chief Financial Officer

Yeah. Great question, Tom. Well, obviously, we don't give that data out on a quarterly basis, but we'll give it out at the end of the year. But I think what we're seeing and the kind of is a reflection of what Ryan said earlier about our net adds, maybe it was Justyn. Net adds is a combination of not only the record in a number we start -- not only strength the top of the funnel on new business, but also overall strength in our existing customer base and able to retain those existing customers. And so we're seeing a lot of momentum on that front. The customers that are coming in are coming much larger dollar values and those customers historically have been our biggest growers, our highest retention. On top of that in my remarks I talked about how we had the annual contracts and longer-term contracts are becoming over 50% of our new deals coming in. And so as we look forward into the coming years, we just think we're building it overall kind of stronger customer base and because of that we just feel like we have upside going forward on an overall retention in this business.

Tom Roderick -- Stifel -- Analyst

Perfect detail. Appreciate it. Thank you, guys.

Operator

Thank you. I show our next question comes from the line of Scott Berg from Needham & Company. Please go ahead. Mr. Berg, if you have your on mute, please unmute your line.

Alex Narum -- Needham & Company -- Analyst

Sorry, about that. This is Alex on for Scott. On the platform usage side, what are you seeing in terms of usage or engagement that's now there were a few quarters into COVID compared to what you're seeing pre-COVID?

Justyn Howard -- Chief Executive Officer

Yeah. This is Justyn, I'll take a stab at that. I think we have seen sort of consumer behavior and usage pattern similar with what the networks themselves reported. I think one of the things that's been interesting is kind of a secondary story line. In addition to the increased volume, it's just the types of things that consumers are doing on the networks and what that engagement amounts to. And what I mean by that is, it is -- and this has also been consistent for several years. It is much more likely today than it was nine months ago or three years ago that those users are engaging with brands, engaging with brand content, reaching out sharing opinions on products, etc.

So it's not just the volume, and I think the networks have done a good job kind of sharing what that dynamic is looked like. But it's the types of conversations and the amount of engagement happening for the brands. That's really different. And it's something that we think, particularly as -- we faced an environment where for the last probably year or two a lot of the discourse on the networks has changed and had there's been a lot of focus on political commentary etc. If that starts to subside, I think you're going to see even more of that will be in a communication. And that's going to be something that's very powerful kind of dynamic shift, not only for the brands, but potentially for advertisers as well.

Alex Narum -- Needham & Company -- Analyst

Great. Thanks.

Operator

Thank you. I show our last question comes from the line of Brett Knoblauch from Berenberg Capital Markets. Please go ahead.

Brett Knoblauch -- Berenberg Capital Markets -- Analyst

Hi, guys. Thanks for taking my question. I was just curious, if you trying to update on what you're seeing internationally? And how those dynamics are similar or progressing relative to maybe the domestic markets?

Ryan Barretto -- Senior Vice President, Global Sales

Hey, Brett. This is Ryan. We feel really good about the international markets. As you may remember, we opened up our first international office in EMEA, specifically in Dublin, in 2019. We have seen that team execute incredibly well there. It certainly helps having a team on the ground, building relationships locally during some local marketing. So progress has been really good there. We see the same thing across APAC, ANZ and the Latin America market as well. So our top of funnel has been really healthy there. And we feel really good about that the conversion rates and the customer ads within those markets. We know many of those markets especially in EMEAs, we have started to shut down again. But so far we feel really good about just the progress that we've seen from that team and continue to see that as we ended the quarter.

Brett Knoblauch -- Berenberg Capital Markets -- Analyst

Perfect. Thanks.

Operator

Thank you. This concludes the Q&A session. At this time, I'd like to turn the call back over to Mr. Justyn Howard, CEO and co-Founder for closing remarks.

Justyn Howard -- Chief Executive Officer

Yeah. Great. Thank you so much. And thanks again everyone for your time, we enjoy it's been at some time to do this afternoon. We'll will be doing a bit more of that in the coming months attending a handful events and just always appreciate the engagement and the questions. I want to close just with, and thanks again to our employees and our customers and our partners. The work that's been done in this organization over the last couple of quarters in the face of a lot of curve balls is just been remarkable to watch. And we're so grateful and we look forward to catch up with all of you again soon. Thanks.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Jason Rechel -- Head of Investor Relations

Justyn Howard -- Chief Executive Officer

Ryan Barretto -- Senior Vice President, Global Sales

Joe Del Preto -- Chief Financial Officer

Rob Oliver -- Baird -- Analyst

Stan Zlotsky -- Morgan Stanley -- Analyst

Matt VanVliet -- BTIG -- Analyst

Chris Merwin -- Goldman Sachs -- Analyst

Raimo Lenschow -- Barclays -- Analyst

David Hynes -- Canaccord -- Analyst

Arjun Bhatia -- William Blair -- Analyst

Tom Roderick -- Stifel -- Analyst

Alex Narum -- Needham & Company -- Analyst

Brett Knoblauch -- Berenberg Capital Markets -- Analyst

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