Sprout Social Inc (SPT) Q4 2020 Earnings Call Transcript

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Sprout Social Inc (SPT 0.69%)
Q4 2020 Earnings Call
Feb 23, 2021, 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 Fourth quarter earnings conference call. [Operator Instructions]

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

Jason Rechel -- Head of Investor Relations

Thank you, operator, and welcome to Sprout Social's Fourth Quarter and Full Year 2020 earnings call. We will be discussing the results announced in our press release issued after the market closed today and have also released an updated investor presentation, which can be found on our website. With me are Sprout Social's CEO, Justyn Howard; CFO, Joe Del Preto; and President, 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 first quarter of 2021 and the full year 2021 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 important factors that could affect our actual results, please refer to our annual report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission, our quarterly reports on Form 10-Q and our annual report on Form 10-K for the fiscal year ended December 31, 2020, to be filed with the SEC as well as our other filings with the SEC. During the call, we'll discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures along with reconciliations to the most directly comparable GAAP financial measures are 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 we roll into a new year and our second as a public company, I want to express my gratitude to our employees, our partners and our customers. We're in a fortunate position to share amazing results today because of the many people that have contributed to our success. Our teams delivered an emphatic close to 2020, and we expect to deliver a fantastic 2021 as Social take center stage in the digital strategy for millions of businesses around the globe. I want to first briefly touch on our fourth quarter results, then discuss high level trends in our business and market that have occurred over the past year, which will build into our priorities for 2021. Our accelerating growth and strong results across the board give us confidence in our strategy and the investments we're making in our future. Social has never been more mission-critical and our momentum and competitive position have never been stronger. During Q4, we delivered record net new ARR, added a record number of greater than 10,000 customers, drove meaningful improvements in customer retention and growth and saw an acceleration in ACV growth as our product and out market strategies take hold. We also delivered on our commitment to growth with leverage.

Expanding our operating margins by more than 1,200 basis points year-over-year, while nearly doubling the ARR added to our business in Q4 versus a year ago. Looking back over the full year, 2020 made it clear that social media will be a cornerstone in the next evolution of business. Social has dramatically changed the way businesses reach, engage, serve and build relationships with our customers and potential customers. It's not simply a way to market a brand, it's increasingly becoming the brand. And beyond marketing, it's helping companies evolve what they make, who they make it for, how they sell it, how they compete and how they deliver world-class experiences. Sprout has emerged as the platform that makes this possible for thousands of brands across the globe as the social system of record, action and intelligence. We're being pulled into new use cases across our customers' organizations as social is taking on bigger and more diverse roles across business strategy. This is also driving a second order of adoption as brands graduate to more sophisticated social strategies with a bigger footprint and larger levels of investment.

Meanwhile, our platform is getting better every day. It's getting structurally stickier and the barriers to entry are rapidly rising. Our emphasis on world-class user experience uniquely positions us for both greenfield adoption as well as expansion as more stakeholders become involved in social across more of the companies we serve. Further, the wave businesses evaluate, buy, implement and integrate software has evolved slowly over the past several years and then much more rapidly in 2020. We are perfectly positioned for this evolution with the right technology, culture and distribution model to match this new approach to buying software. Buyers expect tools to be easy to use, easy to buy and immediately familiar. We believe the traditional playbook of buying and selling software-based on sales pitches, canned demos or slide decks is fading. Prospects should and will demand to prove value for themselves. For 10 years, we've been leading with the product and the shift and buyer expectations has expanded our advantage.

The growing role in importance of social, the strength of our product and our buyer aligned go-to-market strategy have combined to create an outsized advantage to win an already compelling and growing market. Looking into 2021, we're driving investments in innovation to help our customers fully lean into the power of social media to transform the entirety of their organizations. We continue to invest in our core capabilities that power the top customer rated platform in our industry and build new capabilities to shape what's next. We're investing in the next-generation of messaging experiences, social care, social commerce, engagement, publishing, listening, advocacy, reputation and analytics. We made material improvements to nearly every aspect of our platform in 2020, delivered eight new partner integrations and once again earned recognition from Q2 with top software awards in eight different categories, including highest satisfaction product, best product for marketers, best product for enterprise and best product for customer service. Sprout also continues to be recognized for our standout culture team and our commitment to diversity, equity and inclusion. We were recently recognized by Glassdoor as one of the best places to work in 2021, which is our fourth year of such an honor.

Battery Ventures ranked Sprout number two on a list of 25 highest-rated public cloud companies to work for during the period where COVID had transformed the way we all work. We were also recognized by a Great Place to Work as a Top Workplace for Parents and by Fortune as a Top Workplace for Women. Our commitments to our team and our customers aren't just part of our values. They're also critical to our strategy and are proving to be a key advantage as our team is able to adapt quickly to a rapidly changing market and deliver world-class experiences to our customers. We're especially proud of both our customer and workplace recognition with the backdrop of everything that was happening in 2020. As Ryan and Joe will discuss shortly in 2021, we'll continue to invest aggressively in driving new business, expanding our existing customer relationships, expanding the opportunity and contribution of our add-on products investing in international growth and improving yield across our sales and marketing processes. The foundations we've built in product, culture, customer experience and distribution position us well for an expanding market opportunity. We've told you previously that we have a $25 billion current market opportunity in a greater than $50 billion expanded TAM.

A year after publishing these numbers, our ACVs are up nearly 20%. New use cases have emerged. And according to Facebook, the number of businesses on Facebook properties alone has more than doubled from $90 million to greater than $200 million. Our opportunity is rapidly expanding. The need to address social is rising, and our value proposition is growing disproportionately. We plan to update you with more specific granularity on our TAM and our formal analyst event later this year. Before I turn the call over, I also want to acknowledge Ryan's recent promotion to President. As you've all seen for yourselves, Ryan is a remarkable leader in person. For the past four-plus years, Ryan has made an outsized impact to our people, our customers, our culture and our business. In Ryan's new role, we formally aligned the sales success in marketing organizations to expand on the success we've seen in the fluid relationship across these functions throughout the customer life cycle. I'm looking forward to Ryan's continued contributions and working even more closely with him as we tackle the opportunities in front of us.

Congratulations, Ryan. Now over to you.

Ryan Barretto -- President

Thank you, Justyn, and thanks for the ongoing trust, guidance and support. I'm incredibly proud of our team's fourth quarter performance, which shines a light on the sheer size of our opportunity. Justyn's right, social is more important to more businesses than ever before, and we feel like we're just warming up. Our business and competitive differentiators are becoming more pronounced, which is why this is the perfect time to more closely align our sales, success and marketing efforts in a tightly integrated go-to-market motion. I'm excited to partner even more closely with our talented CMO, Jamie Gilpin, and our entire marketing team who's been building one of the best inbound engines within SaaS. My goal for today is to provide insight into what we're seeing from customers and what it looks like when organizations begin to fully operationalize social. I'll start by sharing some interesting data points about the way buyer behavior is evolving. According to our recent report from TrustRadius, 87% of B2B technology buyers now want a self-service option. TrustRadius found that the top three things that buyers trust and are influenced by our free trials, product demos and user reviews.

As you know well, we lead with the trial and according to G2, which compiled feedback from more than 3,000 customers, Sprout's user reviews lead the industry in every category. We've built a product and a sales motion that matches the modern software buyer with the product they want to buy. It's our mission to get the users' hands on the keyboard empowering them to engage with our technology and our team team well before they need to make a commitment to us, and this is how we win. These preferences are likely to have permanently shifted over the past 12 months. According to a study by McKinsey, more than 3/4 of buyers and sellers say they now prefer digital self-serve and remote human engagement over face-to-face interactions. And that's likely to sustain moving forward because we've not only adapted to this new reality, but we have seen the efficacy of remote engagement improved 1,000 basis points in 2020. Coming out of a year in which social media was a center of gravity for conversations around COVID, racial injustice and a presidential election. We are recently alerted to how conversations on Reddit and other social networks can literally move markets as well.

Brands of all sizes and across all departments, including PR, Comms, Investor Relations and the C-suite are well aware that social's fundamental and mission-critical to their business. To quote McKinsey, "the best companies intimately understand their customers' experience. They use data and analytics to synchronize the e-commerce experience with physical stores, social media and other channels, making it seamless for the customer to shift among them." And this is exactly where we fit in. Sprout is a social system of record, giving brands a central management platform to harness the power of social. Shifting to our quarterly performance, net new listening ARR grew sequentially at the fastest pace in 2020. Premium Analytics had a record quarter on all metrics, and our premium products in aggregate continue to deliver greater than 100% year-over-year growth. Leveraging Sprout, these customers can now unlock significant business insights with the trillions of data points that exist on social today. It was very impressive to see another quarter where all of our segments were strong, especially upmarket. Our customer retention is structurally improving. And customers continue to come to Sprout with acute and urgent needs to address social. A sample of the brands that we grew with this quarter includes Radisson Hotel Group, Ole Miss University, Eddie Bauer, Wipro, Pure Gyms, PagerDuty and Udemy.

A great example of a new customer brand that selected Sprout is RingCentral, a leading provider of global enterprise cloud communications, collaboration and contact center solutions. Through Sprout, RingCentral is now able to more effectively service their customers across all social channels and gather insights to provide better customer support. By utilizing our social listening solutions, they can monitor the health of their brand and actively measure overall brand performance in the market. We also began working with Panera Bread. [Indecipherable], the social media Care and Brand Protection manager said, "we made the decision to go with Sprout this year in an effort to find an intuitive tool for our marketing and customer service teams. In less than two months, we've gotten response times on social from 28 minutes to 10 minutes on average, even despite higher volumes. We gave so much efficiency with the smart inbox and asset library that we've changed our 2021 target from 30 minutes to 15 minutes for customer response times. We're thrilled with the fast tangible return on investment that we've realized and value our partnership with Sprout." We also began a new relationship with WW USA., formerly known as Weight Watchers. Robin Macey, senior social media manager shared, "self-service and ease of use were two of our most important qualities when choosing a partner, and Sprout has been a dream.

Sprout has a robust feature set to enable us to effectively manage our social media marketing efforts but has not compromised seriously user-friendly experience, whether it's seamless collaboration on our social campaigns or the use of social listening to consistently monitor our brand pulse. Sprout's platform allows us to do everything we need in one unified environment." Wrapping up, I continue to be inspired by the performance of our people at Sprout. Our success has raised the bar for an even better 2021. Our strong employer brand, culture, innovative business model and disruptive technology are a unique combination. It has enabled us to build a lead team and to take great care of our customers. We are excited by what lies ahead. And as always, we appreciate your support.

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

Joe Del Preto -- Chief Financial Officer

Thanks, President Barretto. I'll now walk you through our fourth quarter and full year 2020 results in detail before moving on to guidance for the first quarter and full year 2021. Total revenue for the fourth quarter was $37.3 million, representing 33% year-over-year growth. Excluding the impact from legacy simply measured, organic revenue was up 36% year-over-year. For the full year 2020, total revenue was $132.9 million, up 29% year-over-year. Organic revenue was up 36%. Total ARR exiting Q4 was $158.3 million, up 34% year-over-year. Organic ARR was $157.2 million, up 36% year-over-year. We again achieved record net new ARR with held across the entirety of our business and an acceleration in ACV. We had 1,162 net new customers in Q4 to finish the year with 26,718 customers, up 13% year-over-year. This fantastic net adds result is a reflection of very strong performance across all of our segments. As a quarterly reminder, we remain focused on long-term double-digit customer growth with a focus on high-quality unit economics. The number of customers contribute more than $10,000 in ARR reached 3,149, up 44% from a year ago and up from 2,790 in Q3 2020. The attach rates of both listening and premium analytics are rising across that customer base as businesses harness the power of social data. We are leaning into a full platform because our customers are operationalizing social across the entirety of their business.

We expect that this will drive durable ACV expansion with even stronger user economics for many years to come. Our mix of enterprise to mid-market customers is also growing. Within this, our large customers are getting bigger. This resulted in an acceleration in our ACV to 19% growth, even after two quarters in a row of accelerating overall customer growth. 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 are reconciled to our GAAP results in the earnings press release that was just issued before this call. In Q4, gross profit was $27.9 million, repeating a gross margin of 74.6%. This is up 210 basis points compared to gross margin of 72.5% a year ago and compares with 74.4% last quarter. Sales and marketing expenses for Q4 were $15.7 million or 42% of revenue, down from 46% a year ago. We're continuing to accelerate our pace of hiring across both our sales and marketing teams, so we have the right capacity to meet very strong inbound demand. Research and development expenses for Q4 were $7.3 million or 20% of revenue, down from 24% a year ago. We have aggressive R&D growth goals in 2021 as we pull forward our multiyear product engineering investment plans to be an expanding set of use cases.

General and administrative expenses for Q4 were $8.2 million or 22% of revenue, down from 25% a year ago. We expect general and administrative expenses to decrease as a percentage of revenue as we continue to scale our operations. Non-GAAP operating loss for Q4 was $3.3 million for a negative 19% operating margin. This compares with a negative 21% operating margin a year ago. We meaningfully outperformed our expectations due to higher revenue and the timing of many key hires that had start dates in January of 2021. For the full year 2020, our non-GAAP operating loss was $20.9 million or negative 16% operating margin compared to an operating margin of negative 21% in 2019. We are pleased with the 570 basis point annual improvement in our operating margin. Non-GAAP net loss for Q4 was $3.4 million for a net loss of $0.06 per share-based on 53.1 million weighted average shares of common stock outstanding, compared to a net loss of $5.9 million a year ago. Turning to the balance sheet and cash flow statement. We ended Q4 with $163.9 million in cash, cash equivalents and marketable securities, down from $167.3 million at the end of Q3 2020. Deferred revenue at the end of the quarter was $43.8 million. Looking at both our billed and unbilled contracts, our remaining performance obligations, or RPO, total approximately $64.4 million, up from $53.9 million as in Q3 2020 and up approximately 53% year-over-year. We expect to recognize approximately 85% or $54.7 million of total RPO as revenue over the next 12 months. Operating cash flow in Q4 was negative $0.2 million compared to negative $4.7 million a year ago. Free cash flow was negative $1.97 million in Q4 for a negative 5% free cash flow margin compared to a negative $4.9 million and negative 17% free cash flow margin a year ago.

As a reminder, our Q4 2020 free cash flow included approximately $1.8 million of onetime expenses to build out our Seattle office. For the full year 2020, free cash flow was negative $15 million or negative 12% free cash flow margin. It had a negative 15% free cash flow margin in 2019. In addition to leverage in our financial model, I'm going to shift to annual and multiyear contracts has a positive impact on our free cash flow. In 2020, our overall dollar-based net retention rate was 110%, consistent with 110% in 2019. Our dollar-based net retention rate, excluding SMB customers, was 117% in 2020 compared with 120% in 2019. As we have talked about previously, we initially saw headwinds in our business from COVID-19 and they were relatively isolated within Q2. This impact was primarily elevated as a bechard and slower expansion activity in our agency and mid-market segments. However, these factors each reversed in the second half of 2020 and we are very pleased with the current trajectory of net retention. In Q4 of 2020, our overall dollar-based net retention exceeded 110%, and our ex SMB dollar-based net retention exceeded 120%. We believe that increasing platform stickiness, accelerating seed expansion, changing excitement mix and rising attach rates of our premium modules will each positively impact our expansion rates and drive multi-year acceleration in NDR from current levels. Moving on to guidance.

For the first quarter of fiscal 2021, we expect total revenue in the range of $39.6 million to $39.7 million, or a growth rate of 30%. We expect organic growth rate to be low single-digit percentage points faster than our reported growth rate as we lap inorganic revenue from a year ago. This will be the last quarter in which we experienced a material difference in our organic and reported growth rates. We do not expect to discuss the difference beyond the first quarter. We expect non-GAAP operating loss in the range of $5.4 million to $5.0 million. This represents an anticipated operating margin of negative 13.1%, an improvement of more than 1,100 basis points year-over-year. We're making aggressive R&D investments to address an expanding set of opportunities. We are continuing to accelerate the pace of hiring across most of our go-to-market functions, and are continuing to build depth across the rest of the company. We're doing this while delivering improvement in our operating margins, highlighting the efficiencies across our company as we scale. We expect a non-GAAP net loss per share of between $0.11 and $0.10, assuming approximately 53.4 million weighted average basic shares of common stock outstanding. For the full fiscal 2021, we expect total revenue in the range of $172 million to $173 million.

This is an expected overall reported growth rate of 30%. For 2021, we expect non-GAAP operating loss in the range of $22 million to $19 million. This implies a non-GAAP operating margin of negative 11.9% and operating margin improvement of roughly 400 basis points year-over-year. We remain focused on delivering durable multiyear growth with compelling profitability leverage. We expect a non-GAAP net loss per share of between $0.40 and $0.37, assuming approximately 53.6 million weighted basic shares of common stock outstanding. Of note for 2021 planning purposes, we have assumed many employees they return to our offices sometime mid-year and that our annual corporate events and travel expenses will occur throughout the summer compared with Q1 during 2020. In summary, we believe we are uniquely positioned to capitalize on the opportunity for durable multiyear growth as social move to the center of digital strategy. Our compelling financial leverage and strengthening free cash flow trajectory give us confidence to make optimized investments that we believe 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

[Operator Instructions] And your first question comes from the line of Raimo Lenschow from Barclays. Your line is open.

Raimo Lenschow -- Barclays -- Analyst

Thanks for taking my question. Congrats on a great finish to the year. I wanted to go back to the dollar net retention numbers you gave out and the about 120% over in -- that we saw in Q4, if you ex out the SMB part, like, can you talk a little bit about the drivers of that? And what are the -- what -- how do you see this changing going forward or policy going forward? And then I have a follow-up, please.

Justyn Howard -- Chief Executive Officer

Yes. Raimo. How are you? This is Justyn. I'll start with that, and Joe may have something to add here. So generally speaking, the ex SMB bucket does contain our agency segment as well. The SMB and agency were probably disproportionately impacted during the Q2 time frame, which we talked about. And we did see some during that primarily Q2 and maybe part of Q3 time frame. Some slower expansion in some of the existing customer base that may be looking to grow with us and maybe put a pause on things temporarily. So that generally just came back to what we would normally expect of those levels for the remainder of the year, which is where we saw that upward trend and improved performance, frankly, over the last half of the year, but primarily just bill through from the Q2 impact that we saw.

Raimo Lenschow -- Barclays -- Analyst

Okay. Perfect. And then just one follow-up. Like, as we all think about like the world evolving this year with more vaccinations, etc, like, what do you see in terms of early signals in terms of engagement levels with prospects prospecting, etc.

Like, how do you see this year playing out in terms of like, is it like a decent first half, stronger second half? Like, how do you think about it as you kind of look out? Thank you.

Ryan Barretto -- President

Yes. Hey, Raimo, this is Ryan. Thanks for the question. We feel really good about the trajectory of the business right now. We've proven through 2020 that our business can quickly evolve and we're set up for this remote engagement. And all the data that we're seeing, even with vaccines, is really highlighting that this remote engagement, digital interaction is going to be here to stay. And so when we think about the go-to-market motion that our team has, our success in being able to get customers up and running in a remote fashion having them not only implement but drive adoption in a remote fashion has us really well set up on a go-forward. So we feel like when we look at the rest of the year, we're well positioned to keep executing the way that we've been executing through 2020.

Raimo Lenschow -- Barclays -- Analyst

Yes. Okay, perfect. Thank you. Congratulations again.

Ryan Barretto -- President

Thank you.

Operator

Your next question comes from the line of Rob Oliver from Baird. Your line is open.

Rob Oliver -- Baird -- Analyst

Great. Good evening, guys. Thank you for taking my questions. Justyn, one for you. You made a comment in your prepared remarks about being pulled into new use cases within the enterprise. And I know just for following you guys for a while, definitely, it's always interesting to encounter different departments that are using your software, but that sounded like it might be a little bit more to that. So I just was wondering if you could maybe flush out that comment, and then I had a quick follow-up.

Justyn Howard -- Chief Executive Officer

Yes. Sure. Happy to do it here, Rob. So I think what we're seeing really is more volume of adoption across customers, where our most progressive customers previously had been looking at new use cases and have been starting to operationalize social into things like their customer service, the product feedback loops, customer retention strategies, etc.

What we're seeing right now is more than anything, there's just more businesses that have reached that level of maturity. We're certainly seeing some new use cases as well. I think the comps and Investor Relations is something that has come up more specifically and acutely over the last couple of quarters. We're starting to do more of that. So the one that I would flag that I think is going to be more material throughout 2021 is likely on the commerce side.

The others are use cases that we've seen just in small batches in the past, but it's starting to be something that we hear a lot more often and a lot more of the deals that we're in are thinking more holistically across the organization about social than they were in prior quarters or a year ago.

Rob Oliver -- Baird -- Analyst

Great. Okay. That's really helpful. Thanks for that and I don't know if this one's for you or for Ryan or for Joe. But I mean, Joe, I know you mentioned in your prepared remarks that the -- your operating budget includes all of the investments for this year. And Justyn, you gave us some color on what those were in a general sense. But -- so maybe I'll take that as a backdrop to Ryan and say, as you're seeing customers pull right now, clearly, really good demand for premium products with the 100% year-over-year growth, listening. I can't remember your exact words, but it sounds like customers are really scurring to get this stuff. Can you talk maybe a little bit about what some of those investments might be or what you guys are thinking to the extent that you can add color there.

Ryan Barretto -- President

Yes. Thanks for the question, Rob. In terms of investments, one, we feel really great going into this year with the momentum from last year. A few different areas that we see a lot of opportunity. We've continued to see the up market potential continuing to invest there. Our marketing team has been doing a fantastic job. The top of the funnel has been incredibly healthy for us across all segments. We'll continue to invest in some areas there, both in the SEO and SEM side is that's proven to be a really fruitful thing for us. And then from a team perspective, we see a lot of opportunity across all of our segments. And the ones where you could probably see outsized investment will continue to be the mid-market and enterprise space. In terms of products, the product team has been delivering some really great stuff for our customers. You're seeing it in the net dollar retention, but also in the expansion of our new lands. And so you'll continue to see us putting our foot down on the attach rates in those premium products.

Rob Oliver -- Baird -- Analyst

Thanks again.

Ryan Barretto -- President

Thank you.

Operator

Your next question comes from the line of Alex Kurtz from KeyBanc. Your line is open.

Mike McMahon -- KeyBanc -- Analyst

This is Mike on for Alex. Congrats on the quarter. So as you head into 2021, are you making any changes to the sales force compensation around expanding customer spend versus acquiring new customers? And then also on the selling more add on products?

Ryan Barretto -- President

This is Ryan. We are not making any changes to the way that we compensate. We've always had the same model. So one thing that's probably important to note here is we have dedicated sales teams on both the new business side and then on the customer side. And so the same teams that are specialized in working with those customers. So our approach to 2021 look very similar to what it did in 2020 from a -- just from an expense standpoint.

Mike McMahon -- KeyBanc -- Analyst

Okay. Great. And then does that thing have -- sorry.

Justyn Howard -- Chief Executive Officer

No, sorry about that. I was just going to add. I think part of the spirit of the question was just around the mix shift that we're seeing and some of the attach rates. To Ryan's point, we've baked a lot of that into the compensation model to date.

So we're carrying that through. And we think part of the traction that we're seeing is certainly that alignment, but we see much the same opportunity in 2021.

Mike McMahon -- KeyBanc -- Analyst

Okay. Thanks a lot.

Operator

And your next question comes from the line of Matt VanVliet from BTIG. Your line is open.

Matt VanVliet -- BTIG -- Analyst

Hey, guys. Great job on the quarter. And maybe just expanding on those last couple of questions, thinking about a little differently.

You talked about the fourth quarter really recovered and we'll go up market and say the dollar-based revenue retention was 120% plus. As you think about kind of proliferating through your existing customers with modules they're already using versus selling some of the more premium modules as an upsell cross-sell can you help us break it down a little bit in terms of that additional sell? What's contributing more there? And maybe how you think about that heading into '21.

Justyn Howard -- Chief Executive Officer

Yes. This is Justyn. I'll add some color there. So we see the -- both the expansion of ACVs on the core platform as well as the expansion when we've got attachment of the premium products, both of those are growing at a very healthy clip.

We definitely are seeing more customer engagements where there are not just needs for those additional products, but needs for additional seats across the organization, some of those additional use cases that we talked about in other departments that are being -- becoming involved in social.

We also have -- there are some mechanics in the premium add-ons that do have a bit of leverage spend to them whereas even those add-ons are adopted further across the organization. There is bigger investment involved with that in terms of additional data, additional queries and things like that. So we've got a couple of different sort of pricing principles at play there. But we love that we're seeing the core platform just in its intended use without the add-ons. That is growing very nicely as well. So both of those in combination has really been a great win for us.

Matt VanVliet -- BTIG -- Analyst

All right. Very helpful. And then as you look at your international markets, has really been a good driver of growth so far this year. Where are you at? Or where do you feel like you are in terms of your longer-term plan in getting into specific markets, making kind of step function investments of opening local offices and hiring local people, I guess, how long should we think about that, that is kind of a bigger chunk of the investment pie versus getting to a level where you can really start seeing some tremendous efficiency there?

Ryan Barretto -- President

Matt, this is Ryan. Yes, I would say that we're still very early innings here. We opened up our first international office back in 2019 in EMEA and Dublin and have seen really good progress with that group from a productivity standpoint, getting people in the market has been very helpful for us locally, being on the right time zone and the right accent in the right language. We are continuing to invest there. I think it's going to be a big opportunity for us over the next number of years.

Expanding beyond just EMEA into APAC and LATAM, we are going to be increasing our headcount there this year and the next few years. We also see just more localization opportunities getting more marketing efforts within those international locations and then also exploring channel opportunities internationally. So I'd say we're early right now, but we do see it as a big lever in the future state for the company.

Matt VanVliet -- BTIG -- Analyst

Right. Thanks for taking my questions.

Ryan Barretto -- President

Thank you.

Operator

Your next question comes from the line of Tom Roderick from Stifel. Your line is open.

Tom Roderick -- Stifel -- Analyst

Great. Hey, everyone. Thanks for taking my questions. Happy New Year. Justyn, let me throw a product question at you here first. And I'd love to hear a little bit more about how the reputation product is being embraced by customers. But I guess the product question on reputation would be just sort of how ready is the product from a data ingestion, machine learning, analytics framework to be able to take advantage of all of that unstructured data and then how integrated is it with the rest of the portfolio. So a bit of an open-ended question on that front, but would love to hear a little bit more about that.

Justyn Howard -- Chief Executive Officer

Yes. Happy to speak to it. We're -- you had mentioned in the context of reputation, is that correct?

Tom Roderick -- Stifel -- Analyst

Correct.

Justyn Howard -- Chief Executive Officer

Okay. Cool. Yes. So to the first part of that question, so the platform is built in a way, while the data is unstructured and it's a little different than some of the data structures of the other social platforms that we integrate with. There's not a ton of variation, right? There's some commonalities there, and we've built against kind of those common frameworks. So for us to add new data sources on the ingest side, is actually a pretty quick effort at this point. Like, we've done the late work to get there.

Now it's just about getting those relationships where we may not have those are the ones that we do, deciding which capabilities we want to turn on. So it's a pretty quick process. And I do think that the tools that are built are ready for the additional platforms that will add on that side.

The big investments that you'll see from us in the reputation segment have primarily to do with adding those additional data sources, like you mentioned, but also looking into deeper analytics better ability to identify opportunities for improvement and things like that, particularly across the larger organizations. So you're going to see that team within our product or make a ton of advancements, we still consider the reputation product to be very much kind of a V1 with tons of room to grow.

Tom Roderick -- Stifel -- Analyst

Yes. That's great feedback. Thanks for that. And I guess my follow-up question here, I'll direct this one at President Barretto. Ryan, congratulations on the promotion greatly deserved.

And I'd love to hear a little bit more about sort of your view on the upgrade path. I mean, look, you had 1,200 new customer adds last quarter, almost 1,200 again this quarter. That's just a tremendous number relative to what you've been historically doing. And so that flywheel seems like it can spin a little bit faster with respect to the upgrade path. But perhaps you could talk about that a little bit in the context of go to market, how you're arming your reps with the tools they need to successfully upgrade at a faster clip?

Ryan Barretto -- President

Yes. Thanks, Tom. Appreciate it. We are really excited. As you said, the customer adds have been awesome and that's a combination of just great execution from the marketing team and driving awesome top of funnel as well as the sales team really getting after it. You add in there that, for us, obviously, we want to land as big as we can with our premium products. But the team also realizes that part of what's made us so successful here is just the velocity of the sales motion.

And so when we get these customers in the product, we get their hands on not just publishing an engagement, but analytics and listening and if we can't secure the full deal right away, that's OK, we've got a sales team and a great customer success team on the other side that's able to, as you said, kind of go in and increase the velocity of the flywheel.

So we're trying to plan bigger. But even when we don't, we're setting up the team from a customer success and growth perspective to know what opportunities exist there that we're going to be able to grow. And because we have those dedicated sales team on both the new business side and the growth side, we feel like we're well covered as we continue to have these opportunities to grow.

And the last thing I'll just say here, and Justyn touched on it earlier is, for us, it's not just these premium add-on products, which add a tremendous amount of value. We're just seeing the proliferation of use cases and users across the organization. So even if we land in marketing today, our growth teams, our customer success teams know there's a customer care use case on the other side and many others.

And so that's kind of how we're thinking about it right now, making sure that the team knows the full gamut of opportunity that exists when they're looking at the potential of an account.

Tom Roderick -- Stifel -- Analyst

Great detail. That's wonderful. Thanks [indecipherable]. I'll jump back in the queue.

Ryan Barretto -- President

Thanks. Tom.

Operator

Your next question comes from the line of Chris Merwin from Goldman Sachs. Your line is open.

Chris Merwin -- Goldman Sachs -- Analyst

Okay. Thanks so much for taking the question. I think one of the things you all mentioned in the prepared remarks was improving the yield on sales and marketing spend. And I know there's an effort to grow internationally. Of course, you're showing great traction upmarket as well.

So can you talk a bit about how you're balancing the increased investment in sales and marketing with improving that that yield as well? Like, what specifically will be driving that up as we move through 2021? Thank you.

Justyn Howard -- Chief Executive Officer

Yes. So one of -- thanks for the question. One of the things that is kind of a driving force in the new business acquisition in the top of the funnel, really revolves around conversion rates from the demo process, from the free trial, etc, where we're able to continually make improvements across all of that upper funnel part of the business.

So while we're investing heavily and making tremendous progress building out the teams on the acquisition side. There's still an opportunity for improved yields when we think about just what does the funnel look like from our content strategy into the trial or demo flow or from folks that are visiting our website, etc, and getting them fully engaged in the sales cycle.

Chris Merwin -- Goldman Sachs -- Analyst

Okay. Great. Thank you. And maybe just a quick follow-up for Joe. On the billings number, that was really strong, accelerated strongly in the quarter. As you sign larger customers, who I assume are on annual billing, can you talk a bit about to what degree you saw any sort of duration tailwinds in the quarter?

And are you going to sort of say what it was like organically or maybe there wasn't much of a tailwind but just curious about any impact you could call out there? Thanks.

Joe Del Preto -- Chief Financial Officer

Yes. On the billings front there, Chris. I think one thing we're seeing now as we move more to the mid-market enterprise. We're definitely seeing a much stronger, let's say, Q4, than we have historically, right? We're getting more of those enterprise deals that are closing toward the end of the year. And so you saw a little bit of that with the acceleration of billings in the quarter.

We're also -- the sales team is incented now to close annual deals. So there's definitely an incentive on that side when it comes to annual versus monthly. And so you're also going to see a little bit more momentum on that front. Even down market in the SMB agency space because there's more incentive now to kind of sign those annual deals.

Chris Merwin -- Goldman Sachs -- Analyst

Okay. Perfect. Thank you. Congrats on a great year.

Operator

Your next question comes from the line of Arjun Bhatia from William Blair. Your line is open.

Arjun Bhatia -- William Blair -- Analyst

Hey, guys. Thank you for taking my question. I'll add my congrats on the results. Really great quarter. Justyn, maybe I'll start off with you on the first on a product-related question. Y

Ou touched in your prepared remarks on investing more in core capabilities around care and commerce. And I think you emphasized commerce maybe a little bit to an earlier question. But as you're thinking of enhancing these capabilities, I'm just curious how you're thinking of maybe spinning these capabilities out as separate solutions versus incorporating them into the core platform and giving customers access to it that are already subscribed to the engagement side of the platform.

Justyn Howard -- Chief Executive Officer

Yes. Great question. So, from the product side, I think that we -- there are a couple of flavors when we're thinking about the road map and the things that we're going to be building a couple of categories that they fall into.

I think one is what we would consider to be part of the core capabilities, but certainly, our enhancements and improvements for our customers. Where there's an opportunity to drive not only retention and an expansion, but just deal size, seat count, etc, and monetize those improvements, while not on new SKUs, very much in a way that flows through to the unit economics to the ACVs and to the growth opportunities. So that's one flavor.

And then the other typically comes when we've seen enough gravity around a certain set of features. So similar to what you saw from us with reputation or analytics or listening. Once we've built out the capabilities to a point where they are fitting a specific use case where they are above and beyond what the core platform, what the customers need the core platform, there's an opportunity for us to repackage that as an additional SKU. And I think you're going to see some of that from us as well.

Also reputation is an example of where we brought an entirely new capability into the fold and monetize that through the addition of profiles and locations that our customers are managing. So there's a bunch of different ways that, that product development starts to contribute to revenue, whether through a new SKU or the things I mentioned where it's retention, it's expansion, additional seeds, etc.

Arjun Bhatia -- William Blair -- Analyst

Great. That's very helpful color. And then I wanted to touch on your customer additions. We talked about this a little bit, but it looks like over the last two quarters, I think you've added just as many new customers as you did in 2019. So great to see the momentum there.

But as you're looking at this new cohort, I'd be curious to see if you're noticing any differences in how these customers are coming into your funnel, how they're landing, the expansion cadence, anything else that you can point out with this cohort relative to what you've seen historically in new customers that come into the platform?

Ryan Barretto -- President

Yes. Thanks for the question, Arjun. This is Ryan. Most of it actually feels very similar. So we're running a lot of the same places. If I think about the marketing approach and are focusing on content marketing and driving people to our site into our trial. A lot of those plays look the same. We certainly increased the throughput on content and we're having great conversations with those customers, but the approach has been very similar. The -- what I will say -- and you can see it in the ACV increase of 19%. We're landing these customers much bigger, and we're having more growth opportunities with the current customer base.

So I think the major takeaways are, we've seen an evolution of the customers coming in. Justyn mentioned it a little bit before, there's a different sophistication for these customers. There's more use cases, which means typically more users and oftentimes more of the add ons. And I think that's one of the big things.

The other thing and Joe mentioned a few minutes ago is just the opportunity to grow these customers into longer-term contracts as well. So generally, just feel really great about the cohort that we've been seeing this full year and especially in Q3 and Q4.

Justyn Howard -- Chief Executive Officer

And a quick add here. I think another important that we've talked about in the past is somewhat out of the norm, our customers, the larger that they come in, the more likely and to greater magnitude they are to grow. And so it's not a case where there -- while our ACVs are growing, that actually represents a bigger growth opportunity for us, which is counter to what you may see in some other models.

Arjun Bhatia -- William Blair -- Analyst

Perfect. Thank you. Congrats again. And Ryan, congrats on the promotion.

Ryan Barretto -- President

Thank you.

Operator

Your next question comes from the line of Stan Zlotsky from Morgan Stanley. Your line is open.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. Thank you so much, guys. Obviously, I wanted to follow-up on the previous question on net adds, but specifically focused on the much bigger customers you guys are landing. I mean, essentially, the greater than 10,000, the $359 million that you put up net new in Q4, essentially as much as you put up in all of the first half of 2020.

So how much of these larger -- the 10,000 plus net new adds, how much of it is just existing customer is kind of crossing over that threshold versus net new logo lands? And then just a follow-up on that, specifically for the net new logo lands. What's driving those larger lands for those 10-plus -- 10,000 plus customers? And I have a quick follow-up.

Ryan Barretto -- President

Cool. Thanks, Stan. This is Ryan. It's actually a pretty healthy balance when you think about the net ads at 10,000. We've certainly seen our new business acquisition, continue to execute really well. Q4 is historically a really strong quarter for the upmarket customers. So we saw a lot of success there. But we've also seen a lot of growth happening from our current installed base. And then that tends to be both users and add on. So I would say it's a pretty healthy balance right now. And again, this goes back to the fact that we have dedicated teams on both the new business as well as the customer growth side. So pretty healthy 1, two punch there from that perspective. And I think your second question was just about what's driving the larger growth, the larger ads?

Stan Zlotsky -- Morgan Stanley -- Analyst

Yes. The initial lands above the 10,000, what's driving that -- the momentum there?

Ryan Barretto -- President

Yes. So it's kind of a healthy combination again of both the users and the premium add-ons. From a user perspective, what I've seen change over the 4.5 years that I've been here is just the number of users that want access to the platform.

When I first started, what used to be a marketing person that was responsible for social has expanded to social media teams that need access people in the marketing department across PR Comms brand content. And now more and more, we're seeing it go into care, social care, social support as well as just business users who are trying to tap into the business intelligence from social.

So it's this combination of more users lending, but then we've added these premium products over the last couple of years, and they've really started to take hold over the last year from a listening and analytics perspective. So it's been a good combination of both, but I'd say the users is slightly greater than the add-on products at this point.

Stan Zlotsky -- Morgan Stanley -- Analyst

Got it. That's very helpful. Thank you. And maybe just a follow-up for Joe.

Joe, when we look at commentary around you guys getting into new use cases like Investor Relations, communications as well as just a very strong traction with add-ons like listening, premium analytics, reputation, and then we put that in the context of you saying that your net dollar retention rate can really start to accelerate from here, from the current levels, how high can they go, right? As we all sit down and kind of start to calibrate our models, where should -- how high can the net dollar retention rates go as we go into '21, '22 and beyond? Thank you.

Justyn Howard -- Chief Executive Officer

Yes, Stan, I think without giving out a specific number. I think over the next multiple years, we see this number continue to increase. We don't see really a feeling right now as far as like pegging to a number. I will say that our larger customers grow at way more than 120% we have. And so if we look back, for example, Stan, five to seven years ago and look at our top decile customers, and what they were growing at, there's no reason to believe that four, five, six years from now that we can have a large part of our customer base, growing at what our NDR now is now. And then our top decile customers are growing even faster than that. And so we feel pretty good about maintaining growth in those areas for at least the future we can see right now.

Stan Zlotsky -- Morgan Stanley -- Analyst

Got it. Thank you so much, guys.

Operator

Your next question comes from the line of David Hynes from Canaccord Genuity. Your line is open.

David Hynes -- Canaccord Genuity -- Analyst

Hey. Thank you, guys. Congrats on the results. Great to see the acceleration. Justyn, I want to ask a question about how you see the space evolving. So if you take a sort of like Qualtrics, right, and a bunch of us initiate coverage on that stock this morning. So I think it's top of mind for investors.

If we think about what they're doing in experience management, where -- for them, survey is the primary mode of data collection, how do you think the problem they're solving kind of overlaps with your capabilities in listening or reputation. Like do you see the functional Venn diagrams or used cases for the tech converging over time. And look, obviously, these are huge markets. There's plenty of room for both of you guys, but I'd love to get your thoughts on that.

Justyn Howard -- Chief Executive Officer

Yes. Yes, great question. Thank you. So a couple of things I'd say there. I think when we think about the type of data that exists in the listening and the analytics tools that we're providing to our customers, that is data that is immensely valuable specifically because it's not targeted as a survey might be where a focus group might be these are the folks that don't have a specific polar inclination to provide feedback, but they're speaking their mind. They're talking about their preferences and their trends.

And I think that, that's a really important aspect that businesses has been starting to really understand the value there and being able to understand not just the known universe, but what about all of the people that we're not yet working with that we don't yet know what is it that they want? How can we better serve them.

So I think that's an important distinction. I think some of that organizations like Qualtrics can start to get to. So I certainly think that there's a bit of overlap there. But the other thing that I'll say a lot of the value that our platform provides is because it's horizontal in nature. And what I mean by that is the people that can then turn that information into action, whether it's planning campaigns or understanding how to better serve customers through engagement on the platforms, etc, it's all fluid, right? It's all happening in the same place. The marketers the customer service people, the product people, everyone can be working in the same place. And that creates a really interesting dynamic for our customers. So it's kind of like where is the proximity to the action and where can we get real-time information that really kind of have a pulse on the world to drive quicker decisions. And so I think that will be a distinction. But probably the bigger of the two is just the fact that all of those use cases are able to come together and Sprout and able to drive kind of immediate action across the platforms that are really shaking brands today. So I think that's going to continue to be important.

David Hynes -- Canaccord Genuity -- Analyst

Yes, yes. Good color there. And then I want to ask about social commerce. Look, I'm not sure I've heard you talk about in the past, and it's come up now a handful of times in the call. Can you just elaborate maybe on like where specifically you see opportunities there? And how Sprout might participate?

Justyn Howard -- Chief Executive Officer

Yes, yes, totally. So I'll start by saying it's the commitment from the platforms around commerce has really picked up over the last couple of quarters. I think we've heard that on some of their earnings and just seen that in some of the things that they're focused on. For us, the opportunity is in two dimensions.

The first is any time that there is more engagement happening in social channels. That's an area where we can add value to our customers and stand to benefit, right? The more business that's happening through social channels, whether it's private, public, etc, the more need they have for tools like ours that are able to capture that conversation to be able to engage with it, to drive those things, etc. So it's kind of like a rising tide effect. The more things that we do as consumers that are happening in social, the better.

The second dimension is kind of directly around commerce and the capabilities that the platform to introduce. So where are the opportunities for us to, whether to be providing analytics on the efficiency of those efforts, whether it's to actually provide publishing tools around getting those products and those digital storefronts in front of people, whether it's using the listening data to start to kind of tailor those offerings and adjust them in real time. There's a lot of different ways that could play out.

We're working on a handful of things related to commerce. That will evolve a lot through '21, particularly as it becomes clear what the kind of variety of efforts from the various platforms is going to be. I think that's still kind of early days.

David Hynes -- Canaccord Genuity -- Analyst

Yeah. Very helpful. Okay. Thanks, guys. Congrats, again.

Justyn Howard -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Scott Berg from Needham & Company. Your line is open.

Scott Berg -- Needham & Company -- Analyst

Hi, everyone. Congrats on the great quarter. I see we're up against the clock. So I'll make it one question, but what I'm trying to figure out is your platforms obviously had a big big benefit from some of the work-at-home trends and as people are just online more, whether it's from a support or from the marketing kind of front offices that we've spoken about historically.

But how do you start thinking about the usage of the platform moving forward as things reopen a little bit here this year? At least, I hope it's going to reopen this year.

Justyn Howard -- Chief Executive Officer

Yes. Great question. I mean I think the way that we think about it is the events over the last year really behaved as a catalyst for new ways of interaction and engagement. It was the hurdle that allowed people to discover something better. That interacting with brands and buying products in this way, etc, is a great experience, right? Similar to people who maybe haven't made a purchase through Amazon Prime before and now they do, and they're discovering something that can be very beneficial.

So a lot of that is going to be, at least in our opinion, lasting effect, right? That, this was inevitable over a longer period of time, it's been accelerated. But we think that a lot of the trends in terms of just consumer engagement with brands across social is going to stick around. The hours might change as more people go into the office, etc, but that hasn't shifted so dramatically over the last year that there's any reason to believe that there's like some pent-up shift happening. We think it's probably just accelerating on a faster timeline than it might have on its own.

Scott Berg -- Needham & Company -- Analyst

Great. That's all for me. Congrats on the great quarter again.

Justyn Howard -- Chief Executive Officer

Thanks.

Operator

Your next question comes from the line of Brett Knoblauch from Berenberg Capital Markets. Your line is open.

Brett Knoblauch -- Berenberg Capital Markets -- Analyst

Hi, guys. Thanks for taking my question. Just one quick one for me. You mentioned the messaging experience a bit in the prepared remarks. Just wondering if you could elaborate on that and maybe how your product is currently set up or what you'd have to do to get it set up to enable your customers to engage with their customers via messaging channels? Thank you.

Justyn Howard -- Chief Executive Officer

Yes. Yes, great question. So the product is set up to do that today. It does that today. When we think about our investments around messaging, some of it has to do with just expansion of channels, right? There are more options for people who want to communicate that way with brands and the folks they do business with. So we want to make sure that we've got good coverage there.

But we've also seen as those patterns have evolved and as that's become the preferred channel of communication with many brands. There's just additional capabilities that we can be adding there. So it's this dynamic environment where you can introduce new capabilities that just aren't possible over phone or email or others.

And so us thinking about what is the next couple of generations of those messaging interactions look like and then making sure we've got that coverage, and we're everywhere our customers need to be from a messaging perspective. Those are really our priorities on that aspect of the platform this year.

Brett Knoblauch -- Berenberg Capital Markets -- Analyst

Perfect. Thanks so much, guys.

Operator

There are no further questions at this time. Mr. Justyn Howard, I turn the call back over to you for some closing remarks.

Justyn Howard -- Chief Executive Officer

All right. Fantastic. Well, thank you all for joining us today. Thanks for the great questions. I think we did go over a few minutes. So thank you for that. I know there's a busy day today. Thanks always for the support to the team, and we look forward to catching up with you in our conversations throughout the quarter, some of the events we'll be attending. Have a wonderful evening.

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Jason Rechel -- Head of Investor Relations

Justyn Howard -- Chief Executive Officer

Ryan Barretto -- President

Joe Del Preto -- Chief Financial Officer

Raimo Lenschow -- Barclays -- Analyst

Rob Oliver -- Baird -- Analyst

Mike McMahon -- KeyBanc -- Analyst

Matt VanVliet -- BTIG -- Analyst

Tom Roderick -- Stifel -- Analyst

Chris Merwin -- Goldman Sachs -- Analyst

Arjun Bhatia -- William Blair -- Analyst

Stan Zlotsky -- Morgan Stanley -- Analyst

David Hynes -- Canaccord Genuity -- Analyst

Scott Berg -- Needham & Company -- Analyst

Brett Knoblauch -- Berenberg Capital Markets -- Analyst

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