管理層發言
Hello, everyone. Thank you for joining us, and welcome to the Sprout Social second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Lexi Johnson, Investor Relations Manager. Lexi, please go ahead.
Thank you, and welcome to Sprout Social's second quarter 2026 earnings call. We will be discussing the results announced in our press release issued after market close today and have also released an updated investor presentation, which can be found on our website. With me are Sprout Social CEO, Ryan Barretto, and Vice President of FP&A, Erin Graupmann. 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. All statements other than statements of historical fact are forward-looking. These include, among others, statements concerning our expected future financial performance, including our Q3 and 2026 outlook and business plans and objectives, and can be identified by words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "opportunity," "target," or "will." These statements reflect our views as of today only and 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, please refer to our annual report on Form 10-K for the year ended December 31st, 2025, as well as our quarterly report on Form 10-Q for the quarter ended June 30th, 2026, to be filed with the SEC. During the call, we will discuss 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 second quarter earnings release, which has been furnished to the SEC and is available on our website at investors.sproutsocial.com. As a reminder, we will be referring to the metric approximated subscription revenue contribution for customers contributing $30,000 and above in ARR. This metric is intended to approximate the subscription revenue of a subset of customers over a historical period by using their average ARR as a proxy and annualizing this quarterly estimate on a trailing 12-month basis. For brevity, we'll refer to this metric through the rest of this call as $30,000 and above subscription revenue. Let me turn the call over to Ryan. Ryan?
Thank you, Lexi, and welcome to our second quarter earnings call for fiscal 2026. Sprout delivered another strong quarter with revenue of $123.8 million, representing 10.8% year-over-year growth, and we closed out the quarter with a non-GAAP operating margin at 12.9%, up 370 basis points year-over-year. I'm pleased that both CRPO and RPO accelerated this quarter. Current Remaining Performance Obligations grew 12.4% year-over-year to $202.7 million, and total remaining performance obligations grew 15.5%. We continue to see customers making longer-term commitments to Sprout, with multi-year contracts representing almost half of our contract mix, up from about one-third two years ago. This reflects the growing confidence in Sprout as a strategic platform and supports our broader go-to-market motion with larger, more sophisticated customers. Sprout also delivered strong non-GAAP free cash flow in the second quarter at $8.3 million, an improvement of approximately 60% year-over-year. On a trailing 12-month basis, the company has generated approximately $54 million in non-GAAP free cash flow. We believe this improvement underscores our ability to drive leverage in our model. Q2 was an important quarter for AI at Sprout. We expanded the capabilities of Trellis, our proprietary agentic offering, announcing these updates at our Breaking Ground event in May. Alongside listening, Trellis can now deliver insights on demand. Users can query their social data in plain language and receive analyst-quality answers in seconds without configuring complex reports or dashboards. We introduced Trellis Studio, a no-code interface for building and customizing skills that proactively surfaces what matters most so teams can move from insight to action faster. Every Sprout customer receives a base allotment of Trellis usage at no additional cost. For customers with higher usage needs, we introduced Trellis Plus, a paid tier that increases their limits and just went live in July. We've seen healthy growth and adoption trends with monthly active Trellis users. In Q2, those customers retained at a higher rate than customers without active Trellis users, and that held true across all segments. Customer feedback has also been very encouraging. One of the nation's top-ranked health systems asked Trellis for a summary of their listening dashboard and described the output as "Perfect. Vastly better than what I would have done. Reporting and analysis that once took hours now takes seconds." Within NewsWhip, we extended intelligence capabilities, adding predictive scoring across community platforms like Reddit to help identify emerging narratives earlier. We also launched an AI dashboard builder that generates a real-time monitoring dashboard from a plain language prompt. As it relates to integrations, we also expanded network coverage, adding Snapchat scheduling and publishing, direct creator payments with automated tax documentation through PayPal and Lumanu, and consolidated management of TikTok ad comments within Engagement. On the partnership side, we launched an expanded integration with Canva to bring design workflows into the Sprout platform and were represented at the Cannes Lions Festival last month alongside partners like Canva and Snapchat. Across R&D, AI has become the center of gravity for our product investments this year, in addition to strengthening our core platform and delivering on the integrations our most sophisticated customers depend on. Co-Founder Aaron Rankin's recent return as CTO reflects the priority we're placing here. He'll partner closely with our CPO, Srinivas Somayajula, to lead this next chapter of AI investment and enterprise capabilities that we're building into our products. As we announced on July 15th, we made the very difficult but important decision to reduce the size of our team by approximately 20%. We're incredibly grateful for the contributions of our departing colleagues who helped shape Sprout into the company it is today. Our industry and software more broadly is changing quickly, and the way companies need to operate and invest has changed with it. As we step back to examine our own operating model, we saw too many layers and an organization structure that was slowing down decision-making, and saw an opportunity to really streamline our work and areas of focus. We believe this reorganization positions us to build a more focused and durable company, and we believe this will deliver improved operating margins, stronger cash flow, a stronger foundation for growth, and greater capacity to invest in the areas of the business with the highest return. I'll outline the expected financial impact of the reduction later when I discuss our financials and outlook. As we look around our market, it's clear that major brands are trying to solve the same problem right now. How do they manage an explosion of social activity across more platforms than ever at the speed customers expect with finite resources? Social is where products get discovered and purchase decisions get made. Customer service has moved there. News breaks there first. Brands are built and destroyed on social media in hours. The most trusted voices talking about a brand are creators and communities, not people on your payroll or under your control. Most companies can't keep up with what that requires. We believe we have built the infrastructure to help brands do exactly that in a way that is differentiated and drives clear ROI. Every day, Sprout ingests more than 2 billion real-time social interactions from hundreds of APIs across more than a dozen networks. That access took 16 years of legal agreements, security certifications, and a track record of delivering customer value. We believe this has built a level of trust and credibility that creates a strong competitive moat, defined by high barriers to entry that are difficult to replicate. As we've been discussing with you for the past few quarters, our strategy is increasingly focused on larger, more sophisticated customers, where our platform breadth, product roadmap, and go-to-market investments are most aligned with their needs. Our progress is visible in the changing mix of our business. This quarter, approximated trailing 12-month subscription revenue for customers contributing $30,000 or more in ARR grew 20% year-over-year and now contributes over 61% of total subscription revenue. This $30,000+ customer segment has stronger unit economics and a better retention and expansion profile, and they tend to adopt more of our strategic products than our smaller customers do. In fact, this cohort carries an average ACV multiples higher than our total average ACV with higher attach rates of products like influencer marketing and NewsWhip. As we look to the remainder of 2026, we continue to expect to see this segment represent an increasing percentage of our subscription revenue. Our logo count for customers contributing $30,000 or more in ARR continues to compound as we added 51 net new customers in this segment during the second quarter and 388 over the trailing 12 months. Looking at the largest of our net adds, we had over 10 customers in Q2 that contributed $150,000 or more in ARR, demonstrating our up-market progress. As we dig into some of our customer wins from the quarter, the trends become more clear as to why we see so much opportunity with our larger customer cohort. I'll start with a seven-figure new business deal with a multinational manufacturer and distributor that is establishing our enterprise suite as the foundational backbone of their global social strategy. By adopting a comprehensive portfolio of Sprout solutions, including premium analytics, social listening, employee advocacy, influencer marketing, NewsWhip, and Premier Success, they consolidated their highly distributed social operations into a single ecosystem. This transition empowers over 125 global users to orchestrate brand conversations across international markets through automated workflows and unified case management. By listening at scale, this customer is shifting away from lagging data to track real-time brand sentiment, critical product launches, and competitive dynamics as they unfold. Sprout streamlines their creator discovery, influencer campaign logistics, and ROI measurement, while NewsWhip empowers them to proactively detect crises and monitor breaking news signals to help protect their brand equity. Following a $1.65 million new business deal last quarter, this Fortune 50 financial services company expanded their footprint in Q2 by an additional $893,000, adding our Service Cloud integration and Guardian product. The deep Salesforce integration optimizes their marketing and care workflows, enabling them to deliver a sophisticated omni-channel social customer care by automatically routing social inquiries directly into their existing environment. Our automated routing is designed to reduce customer response times and eliminate the risk of missed client messages, all while scaling support operations to accommodate 100 Service Cloud users with high-volume agent productivity. This customer further ensures brand safety and financial services regulatory compliance by utilizing Guardian, which monitors channels for compliance risks, regulatory concerns, and real-time brand mentions. Service Cloud is designed to enrich client profiles with high-fidelity social data, connecting social interactions directly to Salesforce to provide a holistic, unified view of client sentiment and engagement. We believe this story highlights Sprout's unique capability to streamline enterprise customer care while upholding the highest standards of security and compliance for one of the world's largest financial institutions. This quarter, we also secured a $250,000 new customer win with a leading North American audio and media publisher, underscoring Sprout's ability to drive intuitive enterprise platform consolidation for massive content ecosystems. By adopting a comprehensive suite including Listening, Premium Analytics, Guardian, NewsWhip, Influencer Marketing, and Premier Success, this customer is consolidating more than three point solutions into a single enterprise platform. This transition unifies their editorial, social, and events team, streamlining multi-department workflows, improving collaboration, and reducing overall technology complexity. By establishing high-performance enterprise reporting and executive-aligned ROI modeling, Sprout enables them to standardize and scale social operations across 850+ brand channels, supporting high-volume editorial publishing with rigorous enterprise governance. Sprout is driving business value by unlocking deep social intelligence and predictive media insights to assist this customer's editorial team through the real-time analysis of emerging conversations, trends, and fan sentiment. In addition to enriching content strategy, this deployment creates new monetization opportunities by equipping sales and marketing teams with deeper audience, creator, and content insights. These data assets allow the publisher to build more valuable advertising sponsorships and branded partnership offerings while providing unified creator and artist management and reporting. This story highlights Sprout's capacity to handle marketing, creator management, and real-time trend monitoring on a single scalable infrastructure. Next, I'd like to turn to our strategy for customers below $30,000 in approximated subscription revenue. This cohort represented 39% of our approximated subscription revenue in the trailing 12 months ended June 30th, 2026, compared to 59% in the trailing 12 months ended June 30th, 2022. This 20-point shift reflects our multi-year move towards larger, more strategic customers, while also highlighting the opportunity we have to serve this part of the market with a more efficient product and go-to-market motion. As you may recall, last quarter, we outlined two pillars of our strategy for this segment: evolving our self-service motion through automation and AI, and reworking the lower end of the market around a simpler purpose-built product. In April, our Essentials product moved from limited release to general availability, following positive signals from our initial testing. While it's still early, initial cohorts are seeing positive demand trends. Looking ahead, we're also refining our top-of-funnel motion for Essentials, sharpening how we reach and acquire target customers. Additionally, we believe the product simplicity and price point will be well-suited for expansion into non-U.S. markets. The Essentials product is one component of our broader self-serve strategy for the sub $30,000 customer cohort, a fully digital, no sales touch experience. In this segment, we're extending the self-serve model across the full customer lifecycle, from acquisition through onboarding, support, and expansion, with the goal of improving unit economics across the entire lower segment, not just at the point of initial purchase. I'll now run through our quarterly financial results and then discuss our outlook for Q3 in fiscal 2026. Our second quarter results were highlighted by a quarterly non-GAAP operating margin of 12.9%, up 370 basis points year-over-year, an ongoing expansion of our $30,000 above customer segment. Total revenue was $123.8 million, representing 10.8% year-over-year growth. Subscription revenue was $121.9 million, up 9.7% year-over-year. We ended the quarter with 3,926 customers contributing $30,000 or more in ARR, and 2,127 customers over $50,000 in ARR, up 11% and 16% respectively on an annual basis. Since the fourth quarter of 2022, we have added over 1,900 customers contributing $30,000 or more in ARR and over 1,100 customers contributing $50,000 or more in ARR. Growing these more socially sophisticated customers remains a central part of our longer-term strategy. Turning to cash flow, we generated $8.3 million in non-GAAP free cash flow during the quarter, an increase of approximately 60% from the prior year. As we have communicated previously, we expect our non-GAAP free cash flow margin to closely track our non-GAAP operating margin on an annual basis, and we remain committed to growing non-GAAP operating leverage on a fiscal year basis. Q2 ACV increased 14.8% year-over-year, reflecting the continued mix shift toward large, more sophisticated customers, and broader adoption of our higher value products across the platform. Expanding ACV remains a core part of our strategy, and we see continued opportunity to grow customer value through products like Influencer Marketing, Customer Care, Premium Analytics, and NewsWhip. RPO totaled $400.8 million, representing growth of 15.5% year-over-year. We expect to recognize 70.5% or $282.7 million of total RPO as revenue over the next 12 months, representing CRPO growth of 12.4% year-over-year. Note that during Q2, CRPO benefited due to longer contract durations as well as a higher mix from renewals. We ended the quarter with $119.9 million in cash and cash equivalents, up from $101.5 million a year ago. As a reminder, last quarter, we initiated a $50 million share repurchase authorization. Although our restructuring and blackout periods restricted our ability to buy back stock during Q2, we plan to be in the market opportunistically this quarter. We believe that there's a meaningful disconnect between current valuation levels and the long-term value we expect to create. The buyback reflects our confidence in the durability of our business, our ability to generate free cash flow, and the long-term opportunity we see ahead. We believe it represents a disciplined capital allocation strategy that will allow us to return value to shareholders and offset dilution. Before I discuss guidance, I want to review the recent restructuring and its impact on our financials. We believe the reorganization we announced on July 15th will enable us to deliver faster product innovation for customers in the future, while also enabling us to invest in our business. As part of this headcount reduction, we expect to incur pre-tax restructuring charges of approximately $18 million-$20 million. Substantially all of these changes will impact Q3. As a result of our restructuring, we expect to reduce our overall non-GAAP cost structure by at least $50 million on an annualized go-forward run rate. Due to the timing of employee departures and other initiatives related to the reorganization, we expect the annualized run rate will not be fully realized until 2027. With this reduction in cost structure, combined with the continued investments we plan to make, we are increasing our guidance for both non-GAAP operating income and non-GAAP EPS. We will continue our disciplined approach to our spend while maintaining flexibility to invest behind Trellis and AI-driven product expansion. Moving on to guidance. For the third quarter of fiscal 2026, we expect revenue in the range of $123.3 million-$124.1 million, non-GAAP operating income in the range of $17.5 million-$18.3 million, non-GAAP net income per share of between $0.29 and $0.30. This assumes approximately 60.7 million weighted average basic shares of common stock outstanding. For fiscal year 2026, we expect revenue in the range of $493 million-$495.6 million, non-GAAP operating income in the range of $68.3 million-$70.3 million. This is an increase of 20% over the midpoint of our prior outlook. For modeling purposes, we expect to exit Q4 2026 with a non-GAAP operating margin close to 17%, and non-GAAP net income per share between $1.11-$1.15, assuming approximately 60.6 million weighted average basic shares of common stock outstanding. This represents non-GAAP net income per share growth of approximately 22% over our prior outlook. Finally, we are reaffirming our target of reaching 30% under our Rule of 40 framework by the fourth quarter of fiscal 2027. We expect continued growth in our $30,000 and above customer segment, with continued headwind from customers below $30,000. Our focus is improving the quality and durability of growth while continuing to expand non-GAAP profitability. As a reminder, we are lapping the acquisition of NewsWhip beginning in Q3 2026, which will carry an associated headwind on both revenue and RPO growth moving forward. In addition, we are not anticipating an improvement in the demand environment. We expect the backdrop to remain consistent with what we have experienced the last few quarters. Note that our guidance excludes the impact of any potential share repurchases for purposes of our earnings per share outlook, given the timing and amount of repurchases is inherently uncertain and subject to a number of restrictions and other requirements. In conclusion, I'm pleased with the progress we made in Q2. Looking ahead, we believe that our current structure puts us in a fundamentally stronger operational and financial position, with the ability to deliver higher operating margins and stronger cash flow leverage, while at the same time enhancing our ability to invest in what will drive the business forward. With that, Erin and I are happy to open up the call for questions. Operator?
分析師問答
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q and A roster. Your first question comes from the line of Rob Oliver with Baird. Your line is open. Please go ahead.
Great. Good afternoon, guys. Thanks. Ryan, a couple questions for you. Appreciate it. First is just on Trellis. Obviously, a lot of AI action happening in the departments that you guys sell to, and would love to hear how early indications of Trellis are playing out for you, and how we should think about Trellis potentially contributing or translating to that confidence you have in driving that $30,000+ ARR cohort trajectory. Then I had a quick follow-up as well.
Thanks, Rob. We are pleased with Trellis so far. We're early in the product rollout. As we started the year, we launched Trellis within listening and then expanded it across the rest of the platform. We just went live in July with our paid tier. The early trends have been encouraging. We've seen healthy growth in the monthly active users in Trellis, and in Q2 those customers were retaining at a higher rate than customers without active Trellis usage, and that held true across all segments. We've received very positive feedback from customers on the value they're seeing. With the access to the data we have for our customers, Trellis enables them to get to insights faster than ever before and that can be a game changer. We're seeing good early progress and strong customer feedback.
Great, helpful. Just quickly, just the implied Q4 guide for you guys on the new Q3 guidance is 3%-4% of the top line. I understand there are a lot of moving parts and there's no reason to be aggressive. Just wanted to get a sense of whether that's indicative of, say, a more assumed pressure on that sub-$30,000 customer cohort. I know you're doing a lot to shore that up and reengage growth there, should we expect that pressure to continue? How to think about that put and take versus, say, more of a Q4 backend loaded enterprise buying cycle. Thanks very much.
Appreciate it, Rob. Consistent with our approach to guidance, we're taking a measured view on the year to ensure that we're set up for success. Some of the inputs considered here include: with the restructuring we made, we're going through important change management and executing well there over Q3 and Q4 will be important. We're halfway through the year and we're not assuming a material improvement in the demand environment. We're lapping the acquisition of NewsWhip, which creates headwinds, and we continue to see pressure in the low end of the market below $30,000 ARR. At the same time, we continue to see strength in areas aligned to our strategy, particularly the larger customers in that $30,000 segment. We expect to lean in on Trellis and AI adoption and are seeing good interest in NewsWhip and influencer marketing. The guide reflects a thoughtful approach that takes into account the demand environment, our strengths, and headwinds.
Your next question comes from the line of Arjun Bhatia with William Blair & Company. Your line is open. Please go ahead.
Hey, team, I'm Willow on for Arjun Bhatia. Thanks for taking our question. Ryan, I'm curious to hear more details about the customer feedback of the new Trellis capabilities launched this summer after the Breaking Ground event. Then with Trellis Studio, what are you seeing customers build?
Thanks, Willow. The feedback has been really strong. We started Trellis on the listening side of things. Listening gives you access to massive amounts of data but historically that was navigated through dashboards and reports and relied on internal analysts to make sense of it. With Trellis, customers can ask questions of the data in natural language and get immediate responses back, which accelerates insight to action. Customers have told us this speeds their work significantly. On Trellis Studio, customers can build skills. We provide templated skills for tasks like creating marketing campaigns, identifying content gaps, and understanding sentiment for customer care. Customers can create prompts and schedule them so insights are delivered on a regular cadence. Many of our customers are practitioners who are understaffed; Trellis acts as a partner to increase their efficiency and improve the intelligence behind their social execution.
Okay, this is helpful. One more question, if I may. Are you already seeing customers either buy new or more credits, excuse me, or upgrade to Plus? I realize this is early on, but any color there would be super helpful.
We are still early, but yes, we're seeing customers move up to the paid Plus tier. We've been in a beta period for some time and are focused on driving adoption and usage. Trellis is available across all our products and we expect customers who become power users to upgrade for more access. We will provide more color on this in Q3.
Your next question comes from the line of Scott Berg with Needham & Company. Your line is open. Please go ahead.
Hi, everyone. This is Lucas on for Scott. Thank you guys for taking the questions. On CRPO growth and revenue growth, those are getting pretty close to converging. I guess given where contract length stand today, how should we think of CRPO as a good indicator of revenue growth over the next few quarters here? I guess, is it less reliable as contracts potentially get shorter and you move more down market? Thanks.
Thanks, Lucas. We're pleased with the progress here. Much of this relates to our $30,000 and above customers, which are now 61% of our business and growing at about 20%. Our $50,000+ cohort continues to grow faster than the overall business, and ACVs increased 14.8%. The work for us is execution: scaling higher-value customers, driving multi-product adoption, and securing multi-year contracts.
Thanks. In addition to what Ryan said, CRPO accelerated in Q2 for a couple of reasons. Renewals were a significant contributor; not only did renewal rates improve, but we also benefited from the timing of some renewals. Additionally, Q2 carried a mix of longer contract durations and fewer monthly deals, which aren't reflected in RPO. This reflects continued strong execution on larger and more strategic deals. That said, we do expect CRPO to moderate in Q3.
Got it. Thank you, guys. Appreciate the color. Then just as a quick follow-up for you, Ryan, on the workforce reductions announced last month. I guess generally, were those fairly broad-based across the organization, or really kind of any certain areas that were impacted more heavily than others?
I appreciate the question. These decisions are incredibly difficult because they impact our people and team. We said goodbye to many talented colleagues who contributed a lot to building this company, and I'm grateful for their work. The change is about creating an organizational structure and financial strength that will make Sprout stronger going forward. The focus was on removing layers, streamlining decision-making, and getting leaders and teams closer to the work. It touched various parts of the organization but was primarily aimed at improving clarity, speed, and alignment with our most productive areas of investment.
Understood. Thank you.
Your next question comes from the line of Matt VanVliet with Cantor. Your line is open. Please go ahead.
Hey, good afternoon. Thanks for taking the questions. Maybe following up on a couple of the other comments on Trellis, from a little different angle. I guess, how are you thinking about Trellis Plus, sort of the paid tier impacting results? On the flip side, how should we think about this just being natively integrated in the platform and giving those AI insights around the consumption of so much data to be the biggest value driver of the platform itself, rather than just sort of the publishing and basic listening capabilities. I guess, how are you envisioning AI impacting the business from a value delivered standpoint long term?
Thanks, Matt. There are a few vectors of impact for AI and Trellis. From new business, it should improve competitiveness and win rates. Because Trellis is available to all customers, it creates an upsell path for power users to move from the free allotment to the paid Plus tier. From retention, we expect Trellis to increase product value and reduce churn; we are hearing that from customers already. Beyond listening, Trellis helps marketers optimize organic and paid campaigns and helps customer care teams manage large volumes of social interactions by surfacing sentiment and important signals. Trellis insights can also be shared with other teams, like product, which increases cross-organizational value. Our immediate focus is driving awareness, usage, and adoption; over time we expect these things to be reflected in our metrics.
Very helpful. I guess just as you think about the state of the headcount organization today, are there areas where you feel like you could use some additional heads, and sort of reallocating resources here, understanding it was a difficult decision to cut a pretty significant part of the business. Where should we think about heads being added incrementally going forward, and I guess how are you feeling about capacity on the go-to-market team?
As we made these changes, we did a lot of modeling and intentional planning to ensure the go-forward team has the capacity to execute and to improve efficiency. We are focused on keeping capacity in the areas with the biggest opportunity and creating space to reinvest where we expect upside. From where we are today, we feel good about GTM capacity, and it's focused on the right places. As change management progresses through Q3 and Q4 and we gain clarity on opportunities, we'll provide more context on where future investments may be deployed.
Your next question comes from the line of Nate Ruoss with KeyBanc. Your line is open. Please go ahead.
Great. Hey, this is Nate Ruoss on for Jackson Ader. Thanks for taking our questions. It seems like increasingly incremental data points relevant for companies that we cover pop up on social media. I can think of platforms like X and Reddit. Ryan, you talked about Sprout helping customers identify real-time social signals. Are you noticing customers starting to operationalize this capability and fundamentally changing the way they use Sprout?
Thanks, Nate. Yes, we're seeing that trend. Social has historically been seen as a marketing channel, but it's increasingly a primary channel for customer care and executive-level insights. Conversations on social are public and fast-moving, so response time and how you respond matters. Customers are asking for more real-time insights, especially when conversations start trending. Trellis, as a social intelligence layer, is designed to help customers get answers faster and operationalize social signals into actions across marketing, care, and product teams. We are seeing customers push in this direction and ask for more executive-level reporting on social signals and trends.
Great. Helpful color there. If I may, one more. Operating margin and guidance was strong in the quarter. Can you talk about where upside specifically came from? Thank you.
I'll take that. We're very pleased with the Q2 operating performance and the discipline across the organization. The incremental leverage was driven by careful spending discipline and the timing of hiring during the quarter. We expect meaningful operating leverage for the year as we're guiding to a Q4 exit margin near 17%, and we remain committed to the Rule of 40 framework we laid out for Q4 of 2027.
Thanks for the question, Nate.
Your next question comes from the line of Raimo Lenschow with Barclays. Your line is open. Please go ahead.
Hi, this is Becky Sun on for Raimo. Thanks for taking the question. Kind of have a more broad question that there have been conflicting results in software this quarter due to AI uncertainty. What are you seeing in terms of customer behavior for both below $30,000 and above $30,000 in general and sales cycles and pipeline in terms of those AI uncertainties?
Thanks, Becky. When customers evaluate software today, the key considerations are: will the solution improve workflows and job outcomes, do they trust the vendor and the data, and are costs predictable. We're addressing all three. Our Trellis strategy emphasizes usage and adoption through a freemium approach so customers can try it before they pay. Sprout also benefits from long-standing trust and credibility with tens of thousands of customers, which helps when customers consider AI-driven capabilities. On cost, the Plus tier is priced predictably. These factors make a material difference in decision-making. We're still early on Trellis monetization, but we're seeing good progress and will continue to provide updates.
Got it. Helpful color there. Thank you.
Your next question comes from the line of Parker Lane with Stifel. Your line is open. Please go ahead.
Yeah. Hi, this is Jack McShane on for Parker. Thanks for taking the questions today. I wanted to ask about during the Q and A, you called out improved renewal rates during the quarter. Do you have anything particular to call out, whether it be the product resonating better, improvements in the environment, or maybe it's a better upsell environment as it stands today?
Thanks, Jack. We saw retention improve both quarter-over-quarter and year-over-year in Q2. This speaks to the quality of the product and the value customers receive, as well as the work of our go-to-market and customer experience teams who engage deeply with customers. Over time we've become a multi-product organization and customers that adopt more of our solutions become stickier. Examples in the prepared remarks showed how customers expanded across multiple products and use cases, and that multi-product adoption contributes materially to retention.
I'd add that we were pleased gross retention moved in the right direction for both our sub-$30,000 customers and our $30,000-plus customers. While the mix shift toward larger customers helps, this quarter benefited from both improved renewal rates and the mix shift.
Yeah, great. Thanks. Follow-up from me, I wanted to ask about the Essentials package and how we could expect it to impact the financial model here, particularly on timing. It'd be great to hear how soon Essentials can, A, reduce churn, B, open the door to new customers that may be less sophisticated and looking for a lower price point and whether or not it's factored into the guidance at all. Thanks.
Essentials moved to general availability in April, so it's still early, but initial cohorts show positive demand trends. We're sharpening our top-of-funnel for how we reach and acquire the right customers. We view Essentials as part of a broader self-serve motion for the sub-$30,000 cohort: a fully digital experience across acquisition, onboarding, support, and expansion with no sales touch. The goal is to reduce cost to acquire and cost to serve and improve unit economics across the lower segment. We expect sub-$30,000 ARR to decelerate slightly this year and stabilize in 2027 as we execute on this strategy. We'll provide more context over time.
Great. Thanks, Ryan.
There are no further questions at this time. I will now turn the call back to Ryan Barretto for closing remarks.
Perfect. Thanks very much. Thanks again, everyone, for joining us this evening. Before we close, I wanted to highlight a few takeaways. First, our second quarter financial metrics performed well. We beat across all the outlook across the metrics. Both CRPO and RPO accelerated this quarter. Our Q2 non-GAAP free cash flow surged nearly 60% year-over-year, bringing our trailing 12-month total to approximately $54 million and demonstrating the expanding leverage in our model. Reflecting our confidence in Sprout's durability and cash flow generation, we expect to begin executing against our $50 million share repurchase program this quarter. We believe that there's a disconnect between our current market valuation and our long-term potential, making this a compelling allocation of capital. Every major brand in the world is trying to solve the same problem right now, managing an explosion of social activity across fragmented platforms at the speed customers expect with limited resources. Social is now the primary battleground for discovery, commerce, customer service, and brand reputation, where trust is shaped by creators and communities. We've built the infrastructure to help them do exactly that in a way that we believe creates a strong competitive moat. Every day, Sprout ingests more than 2 billion real-time social interactions from hundreds of APIs across more than a dozen networks. That level of access took 16 years of legal agreements, security certifications, and a track record of delivering customer value. This critical foundation has embedded trust and credibility that comes from years of proven success. We believe this has us incredibly well-positioned for the future. On that note, I want to end by thanking our customers for their continued trust and partnership and the Sprout team for their focus, discipline, and dedication. We appreciate your time tonight and your continued interest in Sprout. Have a great evening. Thanks, everybody.
This concludes today's call. Thank you for attending. You may now disconnect.