Adam Hotchkiss: Okay, that’s really helpful. And then just one for Joe on the bigger picture, I think in the past you effectively guided us to 25% or so organic compound annual growth to get to your 2028 subscription revenue targets. So I’m just curious how you’re thinking about the 27.5% or so you’ve got it to next year within the context of that expectation given. Tagger will obviously be a bit of a tailwind. How are you contemplating things like macro and some of these other things as offset to some of those benefits?
Joe Del Preto: Yeah, so I think, Adam, every time we give guidance, we give it with all those things in consideration and we don’t hit sort of having broken out those pieces, but we also give it with a high level of confidence. And to your point earlier, the fact that it’s a 25% compounded growth rate, we talked about this, it’s a little bit higher in the earlier years like now and then that rate will get closer or decline as we get closer to that billion dollars. And so, no update on, for example, any change in how we see that playing out to the billion dollars.
Adam Hotchkiss: Okay. Thanks, Joe.
Operator: Our next question comes from Nicholas Zangler from Stephens Inc. Your line is now open.
Nicholas Zangler: Yeah. Hey, guys. Congrats on the quarter. I’m curious if you could provide any details on whether the go-to-market strategy has been modified at Tagger, or if there’s been any change to the monetization strategy, the expected ACR contribution. Or alternatively, are there changes being contemplated now that you’ve become a little bit more familiar as you’ve integrated?
Ryan Barretto: Yeah, thanks, Nicholas. From a go-to-market perspective, I mean part of it for us as we’ve been integrating the teams and getting up to speed is being really cross-training all of the folks on our team from an AE and a solution engineering and a customer success perspective so that we’re fully up to speed with all the things in influencer marketing. So the beginning parts of this journey have been really having that Tagger team do a lot of enablement for our team, joining a lot of calls for us, and that’s continued into this year. What we’re seeing right now from our team, which has been really exciting, is how quickly our internal team is picking up just understanding influencer marketing and being able to present the solution and do great discovery and present the value of the influencer product.
So, I think, we’re starting to see some really good economies of scale and just having those teams working together. And we’re seeing a lot of opportunity within our installed base as well as new logos to be able to present influencer marketing as an opportunity. From a monetization perspective, nothing that I’d really call out in terms of major changes there. Their model is very similar to ours in terms of just thinking about the per user seat approach to how we’re doing things, but we’ll continue to pay attention and make sure that we feel like it’s fully optimized for the opportunity in front of us. But I think the main headline for you is that the main goal from a go-to-market perspective is to make sure that all of our team from AEs to SEs to CSMs have a great handle on influencer marketing and are able to present it to our customers.
And this is really going back to the thesis of why Tagger made so much sense for us, which was these customers today want all this managed by one organization and they want us to be thinking holistically about their social strategy, including influencer marketing.
Nicholas Zangler: Got it. Thank you for that. And then one other question here. Ending the year, a competitor of yours recently noted what they called a heightened level of down-sell in the fourth quarter. And they talked about customers renewing at lower seat counts, obviously, there’s been plenty of layoffs across tech and various industries as late. I’m curious if Sprout has seen any sort of notable pressure here as well or that was just isolated. Thanks.
Justyn Howard: Yeah, thanks for the question. This is Justyn. From our perspective is something that seems to be isolated there and maybe unrelated to kind of the broader industry trends. But what we’re seeing, and we talked about some of the deals that we did in Q4. We talked about how the size and duration of contracts continues to climb. The seat counts continue to climb. We’re just not feeling that. We think that as we continue to do a good job in the parts of the market that we’ve always been successful in and upmarket into the large enterprise logos that we’ve been talking about the last couple of quarters. We see this as a growing opportunity and one that is probably as healthy as it’s ever been both in terms of pipeline and our outlook, right?
And, I think that the confidence that we have in where we’re guiding the revenue for the year is indicative of that. I think that we see Tagger’s upside. We see continued acceleration with the Care use cases is upside and a bunch of other things. So that does not reflect our experience or outlook on the market.
Nicholas Zangler: That’s great to hear. Thanks, guys. Much appreciated. Good luck.
Justyn Howard: You bet.
Operator: Our next question comes from Elizabeth Porter from Morgan Stanley. Your line is now open.
Unidentified Analyst: Hey, guys, this is [Matt Salton] [ph] on for Elizabeth tonight. So you’ve highlighted Tagger’s ACVs are 3 to 4 times larger than the Sprout average. I’m just curious, when you look into cross-selling Tagger across the existing installed base, where does that incremental budget come from? I guess to ask another way, are marketing or MarTech budgets expanding to absorb the new influencer category or is this coming at the expense of other areas of the marketing budget?
Ryan Barretto: Thanks, Matt. The thing that I’d highlight that we’re seeing right now is, as those customers think about this, oftentimes they’re thinking about it in the context of how they’re thinking about the rest of their paid spend. And so for us, historically, most of the work being done in Sprout, for my execution standpoint, is being organic-based. We obviously have great analytics between organic and paid, and we can help customers figure out where to really optimize their spend and what’s really working. As it relates to the influencer marketing, oftentimes what you’re seeing from these customers is they’re thinking about ways to get a better return on investment from their influencer market – from their marketing spend and their paid spend, and so often they’ll be carving out from there.
We’ve also seen customers already in the market building budget for influencer marketing today and attempting things. The exciting part for us about that is this market feels very similar to the early days of social media management in that they’re still testing and learning and they’re looking to us for not just the technology but also the best practices within the industry. And so that return on paid spend, I think the industry stats right now is for every dollar invested in influencer marketing, it’s about a $4 return. And so they’re finding these opportunities to really dig in and our platform actually shows them really clearly which creators are driving the most opportunity and earn media value, what opportunities across the social network are places that they want to invest.
What are their competitors doing? So the biggest thing I’d highlight here is, this combination of we’re either getting it from other spend categories or they’ve had a spend category and we’re able to actually help them get a better return using Tagger.
Unidentified Analyst: Got it. That’s helpful context. Thank you.
Operator: Our next question comes from Matthew VanVliet from BTIG. Your line is now open.
Matthew VanVliet: Yeah, good afternoon, thanks for taking the question. I wonder if you could help us with either the revenue contribution or maybe ARR contribution of Tagger in the quarter and then ultimately kind of what’s baked into growth rates for 2024 coming from Tagger?
Joe Del Preto: Yeah, so Matt, I’ll take that one. A couple of things here, we didn’t explicitly call out the Tagger contribution in Q4, I think what we talked about coming out of the acquisition that you can kind of model out $3 million over the final 5 months of the year. And we talked about, we were a little ahead of that in Q3, and we swung outperform that in Q4. So that’ll kind of give you the cadence of the revenue contribution that we had in the quarter. And then ARR, we talked about, it was a small contribution. It was not a huge number, like I said, just given that we’re just ramping up the team. If we think about 2024, as of now, the entire sales team is now trained up on Tagger. And so it’s now in the bag, and Ryan talked about this, and they’re going to sell it just like premium analytics or social listening.
And so it’s not like we have a separate target for Tagger. It’s just going to be part of the overall kind of go-to-market motion. And so because of that, we’re not specifically kind of calling out what’s the Tagger number, because we’re not managing that as like a separate product as we get into 2024.
Matthew VanVliet: Okay. Very helpful. And then as you look at kind of where ultimately you think that the premium products attach rate can go to whether it’s by 2028, the $1 billion mark or even just over the next couple of years, how much more attach rate is out there? What does the pipeline look like relative to just sort of the core subscription growth rate?
Ryan Barretto: Thanks, Matt. Yeah, I don’t know that we’ve categorized the direction of those numbers, but I’ll give you the high level and how we’re thinking about it today. You know, it’s about 30% of our customers have attached one of the modules and about 7% have two products. And I would say that we have a lot of upside within this entire market, especially as we start thinking about the opportunities that exist, even with adding something like Tagger and the influencer side on top of the opportunities just that exist across our entire base. We’re seeing better attach rates certainly from a new business perspective as we’ve been more focusing on these social first sophisticated customers in the mid-market and the enterprise.
And as more of our base looks like that, I think that they are great targets for all of these premium modules. And as those customers continue to mature, the opportunity for us to expand the footprint across all of our products, I think gets greater. So the trajectory is really good. We see a lot of opportunity in front of us with all the products.
Matthew VanVliet: Great. Thank you.
Ryan Barretto: Thank you.
Operator: Our next question comes from Clarke Jeffries from Piper Sandler. Your line is now open.
Clarke Jeffries: Hello. Thanks for taking the question. Joe, I was wondering if you could help maybe with some precision around the ARR movement in the non-core segment, helpful, that it was 800K at the end of the quarter, but wondering if you could help with maybe was it a double-digit million move in ARR during the quarter or was organic ARR growth above a certain threshold, say, 30% or not, any kind of precision there would be helpful and then one follow-up.
Joe Del Preto: Yeah, so Clarke, what we talked about coming out of Q3, that there was about $10 million left of that non-core ARR, and by the end of the quarter it is now down to less than 800K, so that kind of kind of give you the sense of the churn that we saw there. And if you kind of layer that into the success we saw in the quarter, you can just show it just really reflects the strength that we’ve seen in the mid-market and enterprise business. So for us, we over-performed in the quarter once you back out that kind of low-end churn and so felt really good about the momentum in the business.
Clarke Jeffries: Perfect. And then just a follow-up. What are your expectations for the progression of operating expenses through the year or any way you can help us with maybe a margin exit rate in Q4, obviously, kind of putting the pieces in place to get to the 2028 targets? It would seem that you’re going to start to see a lot more leverage on operating expenses going forward. Maybe a rank order of how you expect the growth of those OpEx items through the year or any kind of exit rate would also be very helpful? Thank you.
Joe Del Preto: Yeah, so Clarke, the way to think about is, for the year right now, our guidance is about 220 basis points of improvement in operating margin in the business. And I think similar to what you saw in 2023 throughout the year we over-performed on that number. And so as long as we keep executing, we believe there’s a lot of upside to that. And then the way that kind of plays out through the year, you’ll definitely see, for example, lower operating margin in the beginning of the year as we kind of like we’ve been very aggressively hiring on the go-to-market side. If you just look at the demand we’re seeing the size of the deals we’re seeing, we will definitely drive lower operating margin in the first couple of quarters. And then you’ll see us get scale over that as those folks ramp as they start to get to full capacity. You’ll see more operating leverage in the back half the year.
Clarke Jeffries: Perfect.
Operator: All right. Our next question comes from Rob Oliver from Baird. Your line is now open.
Rob Oliver: Great. Thanks. Good evening. Thanks for taking my questions. My first one’s on Service Cloud. There’s rightfully been a lot of focus on Social Studio, but the Service Cloud opportunity is an exciting one. And just wanted to get a sense from you guys about how you’re thinking about expectations for 2024 for Service Cloud? How that might look from a kind of linearity perspective? And certainly, what would expect it to be Q4 heavy? But how you guys are thinking about that as a contribution?
Ryan Barretto: Yeah, thanks, Rob. We continue to be really excited about it. We believe that there’s more opportunity in 2024 than even last year with the Salesforce ecosystem, and specifically the Service Cloud opportunity itself. We’re continuing to build against the Care opportunity that we have connected to the product that integrates into the Service Cloud console. I think it’ll take a very similar shape to what we had in 2023, certainly the back half of the year being stronger, especially with the typical buying cycles within mid-market and enterprise. But, I think the main thing for you to takeaway is that we continue to see really good pipeline on it. And we feel really good about just the value that customers are getting from it. We believe that this is the best place if you want to do omnichannel and you’re on Salesforce as a CRM.
Rob Oliver: Got it. That’s helpful. Thanks, Ryan. And then, Joe, just a follow-up to the last question just on sales headcount. It sounds like almost all the salespeople or Sprout salespeople on Tagger is going to be ported into the bag of Sprout completely. That’s how you said you’re hiring a lot of salespeople. So, how can we expect that ramp this year? Are you entering this year with a higher degree of immature salespeople that won’t be a quota? How should we think about that efficiency gain for the Salesforce throughout this year? Thank you.
Joe Del Preto: Yeah. Good question, Rob. So, we’ve been hiring over the last couple of months going into this year, like I said, pretty aggressively on the go-to-market side. And so, obviously, those folks need a ramp. So we’re definitely not at full capacity when you think about the reps and the way the ramp throughout the year in the first couple of quarters of the year. And then what you’ll see is you’ll see those folks be a more full capacity by the end of the year, Rob.
Rob Oliver: Great. Okay. Thanks, Joe. Thanks, guys. I appreciate it.
Operator: Our next question comes from Brett from Cantor Fitzgerald. Your line is now open.
Brett Knoblauch: All right. Thanks for taking my question. I just want to touch on, I think something you said in the prepare remarks. You think you said non-core customers will no longer act as a headwind to growth. I’m curious what that means from a customer account perspective. We reached the bottom in terms of customer declines and should we start to expect customer growth to return?
Joe Del Preto: Yeah, Brett, it’s Joe. The year-over-year growth rate of our total customer base will likely still decline and probably trough in Q1. And then we’re likely to see an improving trend in the total customer base over the course of 2024. And then, I think you would expect it to accelerating total customer base growth into 2025. That’s kind of how we’re seeing it play out.
Brett Knoblauch: Perfect. Thanks, guys. Really appreciate it.
Operator: We don’t have any pending questions as of the moment. I’d now like to hand back over to Justyn, for closing remarks.
Justyn Howard: All right. Thank you. Thank you all for your questions. We appreciate the opportunity to share kind of this continued evolution with you. The excitement that we’ve got around a lot of the indicators at the growth of the business, the exciting things that we’re working on. We look forward to talking to you more about all of those in the coming weeks and months. I want to thank our team. I want to thank all of our customers and we look forward to talking to you all soon.
Operator: Thank you so much for attending today’s session. We hope you have a wonderful day.
