spt-20240630

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, 2024

☐ 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 26, 2024, there were 50,419,689 shares and 6,660,638 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. Revolving Line of Credit	14
	6. Incentive Stock Plan	15
	7. Commitments and Contingencies	16
	8. Segment and Geographic Data	17
	9. Net Loss per Share	17
	10. Fair Value Measurements	18
	11. Business Combinations	20


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	46

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 5.	Other Information	47
Item 6.	Exhibits	48
SIGNATURES		49

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,” “may,” “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 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 1A. “Risk Factors” and the risks and uncertainties related to the following:

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

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

•our ability to increase spending of existing customers;

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

•the introduction of artificial intelligence technologies into our products, which may lead to increased governmental or regulatory scrutiny;

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

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

•our ability to successfully adapt our sales, success, and compliance efforts to the demands of sophisticated enterprise customers;

•our ability to maintain and enhance our brand;

•our estimates of the size of our market opportunities;

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

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

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

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

•worldwide economic conditions, including the macroeconomic impacts of high levels of inflation, high interest rates and ongoing overseas conflict, and their impact on demand for our platform and products;

•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;

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

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

•the other factors set forth in our Annual Report filed with the United States Securities and Exchange Commission (“SEC”) on Form 10-K under Part I—Item 1A, “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, 2024		December 31, 2023

Assets
Current assets
Cash and cash equivalents	$	80,873	$	49,760
Marketable securities	12,333		44,645

Accounts receivable, net of allowances of $2,232 and $2,177 at June 30, 2024 and December 31, 2023, respectively	58,614		63,489
Deferred commissions	16,196		27,725
Prepaid expenses and other assets	15,067		10,324
Total current assets	183,083		195,943
Marketable securities, noncurrent	—		3,699
Property and equipment, net	11,236		11,407
Deferred commissions, net of current portion	44,190		26,240
Operating lease, right-of-use assets	7,844		8,729

Goodwill	121,315		121,404
Intangible assets, net	24,941		28,065
Other assets, net	992		1,098

Total assets	$	393,601	$	396,585
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	9,799	$	6,933
Deferred revenue	148,323		140,536
Operating lease liabilities	4,003		3,948
Accrued wages and payroll related benefits	15,407		18,362
Accrued expenses and other	9,584		11,260
Total current liabilities	187,116		181,039

Revolving credit facility	40,000		55,000
Deferred revenue, net of current portion	940		920
Operating lease liabilities, net of current portion	13,071		15,083
Other noncurrent liabilities	351		351
Total liabilities	241,478		252,393


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


	June 30, 2024		December 31, 2023

Commitments and contingencies (Note 7)
Stockholders’ equity
Class A common stock, par value $0.0001 per share; 1,000,000,000 shares authorized; 53,322,896 and 50,399,375 shares issued and outstanding, respectively, at June 30, 2024; 52,133,594 and 49,241,563 shares issued and outstanding, respectively, at December 31, 2023	4		4
Class B common stock, par value $0.0001 per share; 25,000,000 shares authorized; 6,887,582 and 6,680,638 shares issued and outstanding, respectively, at June 30, 2024; 7,201,140 and 6,994,196 shares issued and outstanding, respectively, at December 31, 2023	1		1
Additional paid-in capital	511,887		471,789
Treasury stock, at cost	(36,861)		(35,113)
Accumulated other comprehensive loss	(29)		(77)
Accumulated deficit	(322,879)		(292,412)
Total stockholders’ equity	152,123		144,192
Total liabilities and stockholders’ equity	$	393,601	$	396,585

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,
	2024		2023		2024		2023
Revenue
Subscription	$	98,498	$	78,690	$	194,287	$	153,432
Professional services and other	898		625		1,893		1,095
Total revenue	99,396		79,315		196,180		154,527
Cost of revenue
Subscription	22,078		17,972		44,283		34,605
Professional services and other	324		262		547		504
Total cost of revenue	22,402		18,234		44,830		35,109
Gross profit	76,994		61,081		151,350		119,418
Operating expenses
Research and development	25,126		18,956		48,895		36,832
Sales and marketing	46,194		39,307		90,734		76,212
General and administrative	22,187		17,735		41,521		33,224
Total operating expenses	93,507		75,998		181,150		146,268
Loss from operations	(16,513)		(14,917)		(29,800)		(26,850)
Interest expense	(972)		(35)		(2,018)		(63)
Interest income	1,053		2,140		2,088		4,160
Other expense, net	(257)		(148)		(663)		(357)
Loss before income taxes	(16,689)		(12,960)		(30,393)		(23,110)
Income tax expense	203		125		74		227
Net loss	$	(16,892)	$	(13,085)	$	(30,467)	$	(23,337)
Net loss per share attributable to common shareholders, basic and diluted	$	(0.30)	$	(0.24)	$	(0.54)	$	(0.42)
Weighted-average shares outstanding used to compute net loss per share, basic and diluted	56,699,148		55,499,399		56,521,490		55,331,151

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,
	2024		2023		2024		2023
Net loss	$	(16,892)	$	(13,085)	$	(30,467)	$	(23,337)
Other comprehensive loss:
Net unrealized gain (loss) on available-for-sale securities, net of tax	19		(103)		48		(25)
Comprehensive loss	$	(16,873)	$

SEC Form 10-Q filed by Sprout Social Inc