spt-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________

FORM 10-Q

_________________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-39156

__________________________________

SPROUT SOCIAL, INC.

(Exact name of registrant as specified in its charter)


Delaware		27-2404165
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

131 South Dearborn St.	,	Suite 700
Chicago	,	Illinois
60603
(Address of principal executive offices and zip code)

(866)	878-3231
(Registrant's telephone number, including area code)

__________________________________


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per share	SPT	The Nasdaq Stock Market LLC

__________________________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): ☐ Yes ☒ No

As of July 31, 2023, there were 48,441,778 shares and 7,292,582 shares of the registrant’s Class A and Class B common stock, respectively, $0.0001 par value per share, outstanding.

TABLE OF CONTENTS


		Page
	Cautionary Note Regarding Forward-Looking Statements	2
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Loss	7
	Condensed Consolidated Statements of Stockholders’ Equity	8
	Condensed Consolidated Statements of Cash Flows	10
	Notes to Condensed Consolidated Financial Statements	11
	1. Nature of Operations and Summary of Significant Accounting Policies	11
	2. Revenue Recognition	12
	3. Operating Leases	13
	4. Income Taxes	14
	5. Incentive Stock Plan	15
	6. Commitments and Contingencies	15
	7. Segment and Geographic Data	16
	8. Net Loss per Share	16
	9. Fair Value Measurements	17
	10. Business Combinations	19
	11. Subsequent Events	20
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	44

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 5.	Other Information	50
Item 6.	Exhibits	51
SIGNATURES		52

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q (“Quarterly Report”) not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements about Sprout Social, Inc.’s (“Sprout Social”) plans, objectives, strategies, financial performance and outlook, trends, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, our actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “explore,” “intend,” “long-term model,” “might,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “strategy,” “target,” “will,” “would,” or the negative of these terms and similar expressions intended to identify forward-looking statements, as they relate to Sprout Social, our business and our management. Forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by Sprout Social and our management based on their knowledge and understanding of the business and industry, are inherently uncertain. These forward-looking statements should not be read as a guarantee of future performance or results, and stockholders should not place undue reliance on forward-looking statements. There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and factors set forth under “Part II—Item IA. Risk Factors” and “Part I—Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our most recent Annual Report on Form 10-K under Part I—Item IA, “Risk Factors” and the risks and uncertainties related to the following:

•our ability to attract, retain, and grow customers;

•our ability to access third-party APIs and data on favorable terms;

•our future financial performance, including our revenue, cost of revenue, gross profit, operating expenses, ability to generate positive cash flow, and ability to achieve and maintain profitability;

•our ability to increase spending of existing customers;

•the evolution of the social media industry, including adapting to new regulations and use cases;

•our ability to innovate and provide a superior customer experience;

•worldwide economic conditions, including the macroeconomic impacts of the ongoing conflict between Russia and Ukraine, current and future potential banking failures, and their impact on information technology spending;

•our ability to securely maintain customer and other third-party data;

•our ability to maintain and enhance our brand;

•the effects of increased competition from our market competitors or new entrants to the market;

•our estimates of the size of our market opportunities;

•our ability to comply with modified or new laws and regulations applying to our business, including data privacy and security regulations;

•our ability to successfully enter new markets, manage our international expansion and comply with any applicable laws and regulations;

•our ability to maintain, protect and enhance our intellectual property;

•our ability to attract and retain qualified employees and key personnel;

•our ability to effectively manage our growth and future expenses;

•our ability to manage our substantial debt in a way that does not adversely affect our business;

•our ability to acquire, invest in, and integrate other businesses or technologies into our business or achieve the expected benefits of such acquisitions and technologies; and

•the other factors set forth under “Part II—Item IA. Risk Factors” in this Quarterly Report and our Quarterly Reports filed with the United States Securities and Exchange Commission (“SEC” ) on May 3, 2023 as well as in our Annual Report on Form 10-K under Part I—Item IA, “Risk Factors.”

These factors are not necessarily all of the important factors that could cause our actual financial results, performance, achievements or prospects to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and we do not undertake or assume any obligation to update forward-looking statements to reflect actual results, changes in assumptions, laws or other factors affecting forward-looking information, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

In addition, statements such as "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this report. While we believe such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements


Sprout Social, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share and per share data)


	June 30, 2023		December 31, 2022

Assets
Current assets
Cash and cash equivalents	$	74,365	$	79,917
Marketable securities	106,072		92,929

Accounts receivable, net of allowances of $1,505 and $1,789 at June 30, 2023 and December 31, 2022, respectively	42,282		35,833
Deferred commissions	23,216		20,369
Prepaid expenses and other assets	13,412		6,418
Total current assets	259,347		235,466
Marketable securities, noncurrent	12,012		12,995
Property and equipment, net	11,125		11,949
Deferred commissions, net of current portion	21,180		19,638
Operating lease, right-of-use assets	8,780		9,503

Goodwill	8,910		2,299
Intangible assets, net	3,068		2,006
Other assets, net	53		64

Total assets	$	324,475	$	293,920
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	9,232	$	4,988
Deferred revenue	115,882		95,740
Operating lease liabilities	3,651		3,499
Accrued wages and payroll related benefits	13,218		14,257
Accrued expenses and other	15,669		14,322
Total current liabilities	157,652		132,806

Deferred revenue, net of current portion	779		490
Operating lease liabilities, net of current portion	16,425		18,287
Other noncurrent liabilities	477		—
Total liabilities	175,333		151,583
Commitments and contingencies (Note 6)


Sprout Social, Inc.
Condensed Consolidated Balance Sheets (Unaudited) (cont’d)
(in thousands, except share and per share data)


	June 30, 2023		December 31, 2022

Stockholders’ equity
Class A common stock, par value $0.0001 per share; 1,000,000,000 shares authorized; 51,293,395 and 48,419,326 shares issued and outstanding, respectively, at June 30, 2023; 50,413,415 and 47,562,911 shares issued and outstanding, respectively, at December 31, 2022	4		4
Class B common stock, par value $0.0001 per share; 25,000,000 shares authorized; 7,517,526 and 7,310,582 shares issued and outstanding, respectively, at June 30, 2023; 7,667,376 and 7,460,432 shares issued and outstanding, respectively, at December 31, 2022	1		1
Additional paid-in capital	432,955		401,419
Treasury stock, at cost	(34,102)		(32,733)
Accumulated other comprehensive loss	(394)		(369)
Accumulated deficit	(249,322)		(225,985)
Total stockholders’ equity	149,142		142,337
Total liabilities and stockholders’ equity	$	324,475	$	293,920

See Notes to Condensed Consolidated Financial Statements.


Sprout Social, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue
Subscription	$	78,690	$	60,732	$	153,432	$	117,512
Professional services and other	625		700		1,095		1,349
Total revenue	79,315		61,432		154,527		118,861
Cost of revenue
Subscription	17,972		14,876		34,605		28,633
Professional services and other	262		264		504		498
Total cost of revenue	18,234		15,140		35,109		29,131
Gross profit	61,081		46,292		119,418		89,730
Operating expenses
Research and development	18,956		15,374		36,832		28,439
Sales and marketing	39,307		30,350		76,212		55,962
General and administrative	17,735		15,101		33,224		29,471
Total operating expenses	75,998		60,825		146,268		113,872
Loss from operations	(14,917)		(14,533)		(26,850)		(24,142)
Interest expense	(35)		(28)		(63)		(99)
Interest income	2,140		321		4,160		444
Other expense, net	(148)		(290)		(357)		(398)
Loss before income taxes	(12,960)		(14,530)		(23,110)		(24,195)
Income tax expense	125		80		227		170
Net loss	$	(13,085)	$	(14,610)	$	(23,337)	$	(24,365)
Net loss per share attributable to common shareholders, basic and diluted	$	(0.24)	$	(0.27)	$	(0.42)	$	(0.45)
Weighted-average shares outstanding used to compute net loss per share, basic and diluted	55,499,399		54,502,809		55,331,151		54,356,817

See Notes to Condensed Consolidated Financial Statements.


Sprout Social, Inc.
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net loss	$	(13,085)	$	(14,610)	$	(23,337)	$	(24,365)
Other comprehensive loss:
Net unrealized loss on available-for-sale securities, net of tax	(103)		(154)		(25)		(314)
Comprehensive loss	$	(13,188)	$	(14,764)	$	(23,362)	$	(24,679)

See Notes to Condensed Consolidated Financial Statements.


Sprout Social, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(in thousands, except share data)


	Voting Common Stock (Class A and B)			Additional Paid-in Capital		Treasury Stock			Accumulated other comprehensive loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount				Shares	Amount
Balances at March 31, 2023	55,376,548	$	5	$	415,123	3,074,749	$	(33,832)	$	(291)	$	(236,237)	$	144,768
Exercise of stock options

SEC Form 10-Q filed by Sprout Social Inc