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 March 31, ~~2020~~2021

☐ 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

~~Chicago~~

~~Illinois~~

60603

~~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 May ~~4, 2020,~~3, 2021, there were ~~40,411,824~~44,510,545 shares and ~~9,945,952~~9,081,622 shares of the registrant’s Class A and Class B common stock, respectively, $0.0001 par value per share, outstanding.

~~TABLE OF CONTENTS~~

TABLE OF CONTENTS

		~~Page~~
				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 and Comprehensive Loss	6
			Condensed Consolidated Statements of ~~Convertible Preferred Stock and~~ Stockholders’ ~~(Deficit)/~~Equity	7
			Condensed Consolidated Statements of Cash Flows	8
			Notes to Condensed Consolidated Financial Statements	9
			1. Nature of Operations and Summary of Significant Accounting Policies	9
			2. Revenue Recognition	10
			3. Operating Leases	1110
			4. Income Taxes	12
			5. Incentive Stock Plan	12
			6. Commitments and Contingencies	13
			7. Segment and Geographic Data	1413
			8. Net Loss per Share	14
			9. ~~Subsequent Events~~Fair Value Measurements	1514
			10. Related Party Transactions	15
			11. Subsequent Events	16
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	1617
Item 3.			Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.			Controls and Procedures	36

PART II - OTHER INFORMATION

Item 1.			Legal Proceedings	3837
Item ~~1A.~~6.			~~Risk Factors~~Exhibits	38
~~Item 6.~~	~~Exhibits~~	40
SIGNATURES				4139

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 ~~any~~these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “outlook,” “intend,” “expect,” “predict,” “plan,” “strategy,” “potential” and similar expressions, or the negative of these terms and similar expressions, 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 ~~for~~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:

• ~~the effects of the COVID-19 pandemic,~~our ability to attract, retain and ~~the governmental responses~~grow customers to ~~address the pandemic~~use our platform and any re-emergence of COVID-19, may materially affect our customers and how we operate our business, and the duration and extent to which the COVID-19 pandemic threatens our future results of operations, financial position, liquidity and overall financial performance remains uncertain;products;

•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;

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

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

•our ability to access third-party application programming interfaces, or APIs, and data on favorable terms;

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

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

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

•our estimates of the size of our market opportunities;

•the attraction and retention of qualified employees and key personnel;

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

•the sufficiency of our cash to meet our liquidity needs and our ability to raise additional capital on favorable terms or at all;

• ~~our ability to attract, retain and grow customers to use our platform and products;~~

~~• our ability to increase the spending of existing customers on our products;~~

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

~~• the evolution of the social media industry, including as a result of the COVID-19 pandemic, impacting our platform, products, services, markets and data;~~

~~• our ability to access third-party application programming interface, or APIs, and data on favorable terms;~~

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

~~• the attraction and retention of qualified employees and key personnel;~~

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

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

~~• our ability to maintain and enhance our brand;~~

~~• our estimates of the size of our market opportunities;~~

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

•worldwide economic conditions, including the macroeconomic impacts of the COVID-19 pandemic, and their impact on information technology spending; and

• ~~our use of the net proceeds from our initial public offering completed on December 17, 2019 (the “IPO”); and~~

• the other factors set forth ~~under “Part II—Item IA. Risk Factors” and~~ in our most recent Annual Report on Form 10-K under Part I—Item IA, “Risk Factors,” which risks may be heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic.

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 or changes laws or in 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.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements



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


	March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
	(Unaudited)
Assets					Assets
Current assets					Current assets
Cash and cash equivalents	$	137,376	$	135,310	Cash and cash equivalents	$	102,303	$	114,515
Accounts receivable, net of allowances of $1,456 and $706 at March 31, 2020 and December 31, 2019, respectively	12,311		11,099
Marketable securities					Marketable securities	65,490		49,364

Accounts receivable, net of allowances of $1,252 and $1,428 at March 31, 2021 and December 31, 2020, respectively					Accounts receivable, net of allowances of $1,252 and $1,428 at March 31, 2021 and December 31, 2020, respectively	15,928		17,178
Deferred commissions	6,116		5,574		Deferred commissions	9,551		8,622
Prepaid expenses and other assets	5,337		5,050		Prepaid expenses and other assets	7,596		9,651
Total current assets	161,140		157,033		Total current assets	200,868		199,330
Property and equipment, net	13,116		13,529		Property and equipment, net	14,352		14,925
Deferred commissions, net of current portion	5,836		5,505		Deferred commissions, net of current portion	9,775		8,757
Operating lease, right-of-use assets	10,884		5,618		Operating lease, right-of-use assets	9,942		10,132

Goodwill	2,299		2,299		Goodwill	2,299		2,299
Intangible assets, net	5,126		5,482		Intangible assets, net	3,827		4,088
Other assets, net	125		125		Other assets, net	130		138

Total assets	$	198,526	$	189,591	Total assets	$	241,193	$	239,669
Liabilities and Stockholders’ (Deficit)/Equity
Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities					Current liabilities
Accounts payable	$	2,534	$	2,049	Accounts payable	$	705	$	1,543
Deferred revenue	33,794		29,566		Deferred revenue	50,800		43,407
Operating lease liabilities	2,139		2,331		Operating lease liabilities	2,513		2,155
Accrued wages and payroll related benefits	3,335		4,053		Accrued wages and payroll related benefits	6,370		9,885
Accrued expenses and other	5,201		5,057		Accrued expenses and other	7,202		6,587
Total current liabilities	47,003		43,056		Total current liabilities	67,590		63,577

Deferred revenue, net of current portion	281		209		Deferred revenue, net of current portion	207		355
Operating lease liabilities, net of current portion	23,272		18,196		Operating lease liabilities, net of current portion	22,987		23,638

Total liabilities	70,556		61,461		Total liabilities	90,784		87,570
Commitments and contingencies (Note 6)					Commitments and contingencies (Note 6)	0		0
Stockholders’ (deficit)/equity
Class A common stock, par value $0.0001 per share; 1,000,000,000 shares authorized; 43,146,159 and 40,404,012 shares issued and outstanding at March 31, 2020, respectively; 41,714,870 and 39,041,065 shares issued and outstanding, at December 31, 2019, respectively	4		4



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


								March 31, 2021		December 31, 2020
	March 31, 2020			December 31, 2019
	(Unaudited)
Class B common stock, par value $0.0001 per share; 25,000,000 shares authorized; 10,045,764 and 9,945,952 shares issued and outstanding at March 31, 2020, respectively; 9,803,933 shares issued and outstanding at December 31, 2019	1			1
Stockholders’ equity							Stockholders’ equity
Class A common stock, par value $0.0001 per share; 1,000,000,000 shares authorized; 47,199,895 and 44,387,761 shares issued and outstanding at March 31, 2021, respectively; 46,698,354 and 43,898,850 shares issued and outstanding, at December 31, 2020, respectively							Class A common stock, par value $0.0001 per share; 1,000,000,000 shares authorized; 47,199,895 and 44,387,761 shares issued and outstanding at March 31, 2021, respectively; 46,698,354 and 43,898,850 shares issued and outstanding, at December 31, 2020, respectively	4		4
Class B common stock, par value $0.0001 per share; 25,000,000 shares authorized; 9,362,566 and 9,155,622 shares issued and outstanding at March 31, 2021, respectively; 9,574,566 and 9,367,622 shares issued and outstanding at December 31, 2020, respectively							Class B common stock, par value $0.0001 per share; 25,000,000 shares authorized; 9,362,566 and 9,155,622 shares issued and outstanding at March 31, 2021, respectively; 9,574,566 and 9,367,622 shares issued and outstanding at December 31, 2020, respectively	1		1
Additional paid-in capital	277,485			263,943			Additional paid-in capital	333,939		328,343
Treasury stock, at cost	(23,652		)	(20,430		)	Treasury stock, at cost	(30,125)		(29,206)
Accumulated deficit	(125,868		)	(115,388		)	Accumulated deficit	(153,410)		(147,043)
Total stockholders’ equity	127,970			128,130			Total stockholders’ equity	150,409		152,099
Total liabilities and stockholders’ equity	$	198,526		$	189,591		Total liabilities and stockholders’ equity	$	241,193	$	239,669

See Notes to Condensed Consolidated Financial Statements.



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


	Three Months Ended March 31,							Three Months Ended March 31,
	2020			2019					2021		2020
Revenue							Revenue
Subscription	$	30,329		$	23,332		Subscription		$	40,355	$	30,329
Professional services and other	206			47			Professional services and other		463		206
Total revenue	30,535			23,379			Total revenue		40,818		30,535
Cost of revenue							Cost of revenue
Subscription	8,086			5,815			Subscription		9,705		8,086
Professional services and other	122			30			Professional services and other		292		122
Total cost of revenue	8,208			5,845			Total cost of revenue		9,997		8,208
Gross profit	22,327			17,534			Gross profit		30,821		22,327
Operating expenses							Operating expenses
Research and development	7,281			6,352			Research and development		8,272		7,281
Sales and marketing	13,894			10,452			Sales and marketing		18,153		13,894
General and administrative	12,096			6,084			General and administrative		10,615		12,096
Total operating expenses	33,271			22,888			Total operating expenses		37,040		33,271
Loss from operations	(10,944		)	(5,354		)	Loss from operations		(6,219)		(10,944)
Interest expense	(95		)	(52		)	Interest expense		(72)		(95)
Interest income	460			105			Interest income		52		460
Other income	102			149
Other income (expense), net							Other income (expense), net		(119)		102
Loss before income taxes	(10,477		)	(5,152		)	Loss before income taxes		(6,358)		(10,477)
Income tax expense	3			11			Income tax expense		9		3
Net loss and comprehensive loss	$	(10,480	)	$	(5,163	)	Net loss and comprehensive loss		$	(6,367)	$	(10,480)
Net loss per share attributable to common shareholders, basic and diluted	$	(0.21	)	$	(0.31	)	Net loss per share attributable to common shareholders, basic and diluted		$	(0.12)	$	(0.21)
Weighted-average shares outstanding used to compute net loss per share, basic and diluted	50,143,971			16,684,041			Weighted-average shares outstanding used to compute net loss per share, basic and diluted		53,432,658		50,143,971

See Notes to Condensed Consolidated Financial Statements.



Sprout Social, Inc.
Condensed Consolidated Statements of ~~Convertible Preferred Stock and~~ Stockholders’ ~~(Deficit)/~~Equity (Unaudited)
(in thousands, except share data)


	Voting Common Stock (Class A and B)			Additional Paid-in Capital		Treasury Stock			Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount				Shares	Amount
Balances at December 31, 2020	53,266,472	$	5	$	328,343	3,006,448	$	(29,206)	$	(147,043)	$	152,099
Exercise of stock options	35,500	—		23							23
Stock-based compensation expense				3,909							3,909
Issuance of common stock from equity award settlement	241,411	—									0
Taxes paid related to net share settlement of equity awards						12,630	(919)				(919)
Proceeds from disgorgement of stockholder short-swing profits				1,664							1,664



Net loss									(6,367)		(6,367)
Balances at March 31, 2021	53,543,383	$	5	$	333,939	3,019,078	$	(30,125)	$	(153,410)	$	150,409


																								Voting Common Stock (Class A and B)								Additional Paid-in Capital				Treasury Stock							Accumulated Deficit				Total Stockholders’ Equity
	Voting Common Stock			Additional Paid-in Capital			Series A, A-1, B, B-1, C and D Convertible Preferred Stock (in equity)				Treasury Stock					Accumulated Deficit				Total Stockholders’ (Deficit)/Equity				Shares				Amount							Shares		Amount
Balances at December 31, 2019														Balances at December 31, 2019					48,844,998							$	5			$	263,943				2,673,805		$	(20,430)			$	(115,388)			$	128,130
Exercise of stock options																							Exercise of stock options	343,682				—						142															142
Stock-based compensation expense																							Stock-based compensation expense									3,522															3,522
Issuance of common stock from equity award settlement																							Issuance of common stock from equity award settlement	504,721				—																			0
Taxes paid related to net share settlement of equity awards																							Taxes paid related to net share settlement of equity awards													159,809			(3,082)								(3,082)
Issuance of common stock in connection with underwriters' purchase of over-allotment shares, related to initial public offering, net of underwriters' discounts, commissions and offering costs																							Issuance of common stock in connection with underwriters' purchase of over-allotment shares, related to initial public offering, net of underwriters' discounts, commissions and offering costs	629,603				—				9,738															9,738
Exercise of warrants																							Exercise of warrants	26,960				—				140				8,345			(140)								0
	Shares	Amount				Additional Paid-in Capital		Shares		Amount		Shares			Amount				Accumulated Deficit				Total Stockholders’ (Deficit)/Equity
Balances at December 31, 2018	16,679,109	$	1		22,014,263			$	102,976		1,973,851	$	(10,507	)
Exercise of stock options	7,395	—		6																					6
Net loss																(5,163		)		(5,163		)	Net loss																				(10,480)				(10,480)
Balances at March 31, 2019	16,686,504	$	1	$	1,850		22,014,263	$	102,976		1,973,851	$	(10,507	)		$	(73,744	)		$	20,576
Balances at March 31, 2020																							Balances at March 31, 2020	50,349,964				$	5			$	277,485			2,841,959			$	(23,652)			$	(125,868)			$	127,970

Voting Common Stock (Class A and B)
Additional
Paid-in
Capital
Treasury Stock
Accumulated
Deficit

Total
Stockholders’
(Deficit)/Equity
Shares Amount Shares Amount
Balances at December 31, 2019 48,844,998
$ 5
$ 263,943
2,673,805
$ (20,430 ) $ (115,388 ) $ 128,130
Exercise of stock options 343,682
—
142
142
Stock-based compensation expense 3,522
3,522
Issuance of common stock from equity award settlement 504,721
—
—
Taxes paid related to net share settlement of equity awards 159,809
(3,082 ) (3,082 )
Issuance of common stock in connection with underwriters' purchase of over-allotment shares, related to initial public offering, net of underwriters' discounts, commissions and offering costs 629,603
—
9,738
9,738
Exercise of warrants 26,960
—
140
8,345
(140 ) —
Net loss (10,480 ) (10,480 )
Balances at March 31, 2020 50,349,964
$ 5
$ 277,485
2,841,959
$ (23,652 ) $ (125,868 ) $ 127,970

See Notes to Condensed Consolidated Financial Statements.



Sprout Social, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)


	Three Months Ended March 31,							Three Months Ended March 31,
	2020			2019				2021		2020
Cash flows from operating activities							Cash flows from operating activities
Net loss	$	(10,480	)	$	(5,163	)	Net loss	$	(6,367)	$	(10,480)
Adjustments to reconcile net loss to net cash (used in) operating activities
Adjustments to reconcile net loss to net cash provided by (used in) operating activities							Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation of property and equipment	725			669			Depreciation of property and equipment	737		725
Amortization of line of credit issuance costs	65			47			Amortization of line of credit issuance costs	43		65
Amortization of premium on marketable securities							Amortization of premium on marketable securities	177		0
Amortization of acquired intangible assets	357			385			Amortization of acquired intangible assets	261		357
Amortization of deferred commissions	1,627			1,020			Amortization of deferred commissions	2,583		1,627
Amortization of right-of-use operating lease asset	309			317			Amortization of right-of-use operating lease asset	190		309
Stock-based compensation expense	3,522			0			Stock-based compensation expense	3,909		3,522
Provision for accounts receivable allowances	910			222			Provision for accounts receivable allowances	144		910
Changes in operating assets and liabilities							Changes in operating assets and liabilities
Accounts receivable	(2,122		)	(768		)	Accounts receivable	1,106		(2,122)
Prepaid expenses and other current assets	(313		)	(102		)	Prepaid expenses and other current assets	2,152		(313)
Deferred commissions	(2,500		)	(1,228		)	Deferred commissions	(4,529)		(2,500)
Accounts payable and accrued expenses	(305		)	(1,518		)	Accounts payable and accrued expenses	(3,738)		(305)
Deferred revenue	4,299			2,565			Deferred revenue	7,245		4,299
Lease liabilities	(597		)	(319		)	Lease liabilities	(293)		(597)
Net cash (used in) operating activities	(4,503		)	(3,873		)
Net cash provided by (used in) operating activities							Net cash provided by (used in) operating activities	3,620		(4,503)
Cash flows from investing activities							Cash flows from investing activities
Purchases of property and equipment	(313		)	(156		)	Purchases of property and equipment	(173)		(313)
Purchases of marketable securities							Purchases of marketable securities	(25,903)		0
Proceeds from maturity of marketable securities							Proceeds from maturity of marketable securities	9,600		0
Net cash (used in) investing activities	(313		)	(156		)	Net cash (used in) investing activities	(16,476)		(313)
Cash flows from financing activities							Cash flows from financing activities
Proceeds from underwriters' purchase of over-allotment shares, related to the Company's initial public offering, net of underwriters’ discounts and commissions	9,954			—			Proceeds from underwriters' purchase of over-allotment shares, related to the Company's initial public offering, net of underwriters’ discounts and commissions	0		9,954

Payments for line of credit issuance costs	(132		)	(47		)	Payments for line of credit issuance costs	(124)		(132)
Proceeds from exercise of stock options	142			6			Proceeds from exercise of stock options	23		142
Proceeds from disgorgement of stockholders short-swing profits							Proceeds from disgorgement of stockholders short-swing profits	1,664		0
Employee taxes paid related to the net share settlement of stock-based awards	(3,082		)	—			Employee taxes paid related to the net share settlement of stock-based awards	(919)		(3,082)
Payments of deferred offering costs	—			(202		)
Net cash provided by (used in) financing activities	6,882			(243		)

Net cash provided by financing activities							Net cash provided by financing activities	644		6,882
Net increase (decrease) in cash and cash equivalents	2,066			(4,272		)	Net increase (decrease) in cash and cash equivalents	(12,212)		2,066
Cash and cash equivalents							Cash and cash equivalents
Beginning of period	135,310			26,190			Beginning of period	114,515		135,310
End of period	$	137,376		$	21,918		End of period	$	102,303	$	137,376

Supplemental noncash disclosures							Supplemental noncash disclosures
Operating lease liability arising from operating ROU asset obtained	$	5,481		$	—		Operating lease liability arising from operating ROU asset obtained	$	0	$	5,481

Noncash exercise of stock warrants	$	140					Noncash exercise of stock warrants	$	0	$	140
Deferred offering costs, accrued but not yet paid	$	216		$	37		Deferred offering costs, accrued but not yet paid	$	0	$	216

See Notes to Condensed Consolidated Financial Statements.



Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

1.Nature of Operations and Summary of Significant Accounting Policies


1.	~~Nature of Operations and Summary of Significant Accounting Policies~~

Nature of Operations

Sprout Social, Inc. (“Sprout Social” or the “Company”), a Delaware corporation, began operating on April 21, 2010 to design, develop and operate a web-based comprehensive social media management tool enabling companies to manage and measure their online presence. Customers access their accounts online via a web-based interface or a mobile application. Some customers also purchase the Company’s professional services, which primarily consist of consulting and training services. The Company’s fiscal year end is December 31. The Company’s customers are primarily located throughout the United States, and a portion of customers are located in foreign countries. The Company is headquartered in Chicago, Illinois.

~~Over-allotment Offering~~

On January 15, 2020, the Company completed an equity offering in which it issued and sold 629,603 shares of Class A common stock for total net proceeds of $10.0 million after deducting underwriting discounts and commissions, as a result of the over-allotment option exercise by the underwriters of the Company’s initial public offering.

Principles of Consolidation and Basis of Presentation

The unaudited condensed consolidated financial statements and accompanying notes were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable regulations of the United States Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The Company has prepared the unaudited condensed consolidated financial statements on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the year ended December 31, ~~2019,~~2020, and these unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair statement of the results of the interim periods presented but are not necessarily indicative of the results of operations to be anticipated for the full year or any future period. The consolidated balance sheet as of December 31, ~~2019~~2020 included herein was derived from the audited consolidated financial statements as of that date but does not include all disclosures including certain disclosures required by GAAP on an annual basis. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC on February ~~28, 2020.~~24, 2021.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company bases its estimates on historical experience and on other assumptions that its management believes are reasonable under the circumstances, including but not limited to the potential impacts arising from the COVID-19 pandemic. As the extent and duration of the impact of the COVID-19 pandemic remains uncertain, the Company’s estimates and judgments may evolve as conditions change. The Company is not aware of any events or

~~Sprout Social, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

circumstances that would require an update to its estimates and judgments or a revision of the carrying value of its assets or liabilities as of May ~~7, 2020,~~5, 2021, the date of issuance of this Quarterly Report on Form 10-Q. Actual results could differ from those estimates.

The Company’s most significant estimates and judgments are those related to the estimated period of benefit for incremental costs of obtaining a contract with a customer, the incremental borrowing


Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

rate for operating leases, calculation of allowance for ~~doubtful accounts,~~credit losses, useful lives of long-lived assets, stock-based compensation, income taxes, commitments and contingencies and litigation, among others.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are discussed in Note 1, “Nature of Operations and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements as of and for the year ended December 31, ~~2019~~2020 included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC on February ~~28, 2020.~~24, 2021. There have been no significant changes to these policies during the three months ended March 31, ~~2020.~~2021.

Recently Adopted Accounting Pronouncements

In ~~June 2016,~~December 2019, the FASB issued ASU ~~2016-13, including subsequent amendments,~~2019-12, ~~Measurement~~Simplifying the Accounting for Income Taxes, which simplifies certain aspects of ~~Credit Losses on Financial Instruments (Topic 326) (“ASU 2016-13”),~~ ~~which modifies the~~ accounting ~~methodology~~ for most financial instruments by establishing a new “expected loss model” that requires entities to estimate current expected credit losses on financial instruments, including trade accounts receivable, by using all practical and relevant information. Thisincome taxes. The guidance is effective for interim and annual reporting periods beginning after December 15, ~~2019.~~2020, and early adoption is permitted. The Company adopted the ASU as of January 1, ~~2020,~~2021, and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.

~~In August 2018, the FASB issued ASU 2018-15,~~ 2.~~Intangibles - Goodwill and Other-Internal-Use Software~~ (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance is effective for interim and annual reporting periods beginning after December 15, 2019. The Company adopted the ASU as of January 1, 2020, and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.Revenue Recognition


2.	~~Revenue Recognition~~

Disaggregation of Revenue

The Company provides disaggregation of revenue based on geographic region in Note 7 and based on the subscription versus professional services and other classification on the condensed consolidated statements of operations and comprehensive loss, as it believes these best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Deferred Revenue

Deferred revenue is recorded upon establishment of unconditional right to payment under non-cancelable contracts and is recognized as the revenue recognition criteria are met. The Company generally invoices customers in advance in monthly, quarterly, semi-annual and annual installments. The deferred revenue balance is influenced by several factors, including the compounding effects of renewals, invoice duration, timing and size. The amount of revenue recognized during the three months ended

~~Sprout Social, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

March 31, ~~2020~~2021 and ~~2019~~2020 that was included in deferred revenue at the beginning of each period was ~~$14.4~~$18.2 million and ~~$10.6~~$14.4 million, respectively.

As of ~~December~~March 31, ~~2019,~~2021, including amounts already invoiced and amounts contracted but not yet invoiced, $42.1 million of revenue was expected to be recognized from remaining performance obligations, of which 91% is expected to be recognized in the next 12 months, with the remainder expected to be recognized the following year. As of March 31, 2020, including amounts already invoiced and amounts contracted but not yet invoiced, $47.5$74.9 million of revenue is expected to be recognized from remaining performance obligations, of which ~~88%~~85% is expected to be recognized in the next 12 months, with the remainder ~~expected to be recognized the following year.~~thereafter.


3.	~~Operating Leases~~

3.Operating Leases

The Company ~~entered into~~has operating lease agreements for offices in Chicago, Illinois, ~~San Francisco, California,~~ and Seattle, Washington. The Chicago lease expires in January 2028 and the Seattle lease expired in July 2020. In January 2020, the Company entered a new lease agreement for an office in Seattle and this lease commenced in September 2020 and expires in January 2031. The Company’s existing operating leases require escalating monthly rental payments ranging from ~~$17,000~~$72,000 to $280,000. Under the terms of the lease agreements, the Company is also responsible for its proportionate share of taxes and operating costs, which are treated as variable lease costs. The ~~Chicago and Seattle leases expire in January 2028 and July 2020, respectively. The San Francisco lease expired in June 2019. The~~ Company’s operating leases typically contain options to extend or terminate the term of the lease. The Company currently does not include any options


Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

to extend leases in its lease terms as it is not reasonably certain to exercise them. As such, it has recorded lease obligations only through the initial optional termination dates above.

On January 21, 2020, the Company entered into a new lease agreement for an office in Seattle, Washington with an expected total future commitment of $7.9 million, expected lease commencement date in August 2020 and is expected to expire in November 2030. For accounting purposes under ASC 842, the lease commenced on January 23, 2020, resulting in the recording of a $5.5 million right-of-use operating lease asset and operating lease liability.

The following table provides a summary of operating lease assets and liabilities as of March 31, ~~2020~~2021 (in thousands):

Assets
Operating lease right-of-use assets $ 10,884
Liabilities
Operating lease liabilities 2,139
Operating lease liabilities, non-current 23,272
Total operating lease liabilities $ 25,411


Assets
Operating lease right-of-use assets	$	9,942
Liabilities
Operating lease liabilities	2,513
Operating lease liabilities, non-current	22,987
Total operating lease liabilities	$	25,500

~~Operating~~The following table provides information about leases on the condensed consolidated statements of operations and comprehensive loss (in thousands):


	Three Months Ended March 31,
		2021		2020

Operating lease expense		$	499	$	674
Variable lease expense		839		776
Sublease income		0		102

Within the condensed consolidated statements of operations and comprehensive loss, operating and variable lease expense ~~for the three months ended March 31, 2020~~are recorded in General and ~~March 31, 2019 was $0.7 million~~administrative expenses and ~~$0.6 million, respectively. Variable lease costs for the three months ended March 31, 2020 and March 31, 2019 was $0.8 million each.~~sublease income is recorded in Other income (expense), net. Cash payments related to operating leases for the three months ended March 31, ~~2020~~2021 and March 31, ~~2019~~2020 were $1.4 million and $1.6 million, ~~and $1.3 million,~~ respectively. ~~The Company recognized $0.1 million of sublease rental income in other income on the consolidated statement of operations for each of the three months ended March 31, 2020 and March 31, 2019.~~

As of March 31, ~~2020,~~2021, the weighted-average remaining lease term is ~~8.4~~7.7 years and the weighted-average discount rate is ~~5.7%~~5.6%.

~~Sprout Social, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

Remaining maturities of operating lease liabilities as of March 31, ~~2020~~2021 are as follows (in thousands):


Years ending December 31,
2021	$	2,888
2022	3,930
2023	4,021
2024	4,112
2025	4,205
Thereafter	12,292
Total future minimum lease payments	$	31,448
Less: imputed interest	(5,948)

Total operating lease liabilities	$	25,500

Years ending December 31,
2020 $ 484
2021 3,840
2022 3,930
2023 4,021
2024 4,117
Thereafter 16,353
Total future minimum lease payments $ 32,745
Less: imputed interest (7,334 )
Total operating lease liabilities $ 25,411


4.Sprout Social, Inc.
~~Income Taxes~~Notes to Condensed Consolidated Financial Statements (Unaudited)

4.Income Taxes

The provision for income taxes for interim periods is generally determined using an estimate of the Company’s annual effective tax rate, excluding jurisdictions for which no tax benefit can be recognized due to valuation allowances. The Company’s effective tax rate generally differs from the U.S. federal statutory rate primarily due to a valuation allowance related to the Company’s federal and state deferred tax assets.

The Company accounts for Global Intangible Low–Taxed Income (“GILTI”) as a current-period expense when incurred. Therefore, the Company has not recorded deferred taxes for basis differences expected to reverse in the future periods.

There has historically been no federal or state provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets. For the three months ended March 31, ~~2020,~~2021, the Company recognized an immaterial provision related to foreign income taxes.

5.Incentive Stock Plan

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 by the United States. We are continuing to analyze the CARES Act, but it did not have a material impact on our provision for income taxes for the quarter ended March 31, 2020.


5.	~~Incentive Stock Plan~~

Stock-based compensation expense is included in the unaudited condensed consolidated statements of operations and comprehensive loss as follows:


	Three Months Ended March 31,
		2021		2020

		(in thousands)
Cost of revenue		$	184	$	295
Research and development		717		484
Sales and marketing		1,752		469
General and administrative		1,256		2,274
Total stock-based compensation		$	3,909	$	3,522



Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

Three Months Ended March 31,
2020 2019

(in thousands)
Cost of revenue $ 295
$ —
Research and development 484
—
Sales and marketing 469
—
General and administrative 2,274
—
Total stock-based compensation $ 3,522
$ —

6.Commitments and Contingencies


6.	~~Commitments and Contingencies~~

Contractual Obligations

The Company has non-cancellable minimum guaranteed purchase commitments for data and services. Contractual commitments as of March 31, ~~2020~~2021 are as follows (in thousands):

Years ending December 31,
2020 $ 10,179
2021 20,486
2022 27,495
2023 15,222
2024 —
Thereafter —
Total contract commitments $ 73,382


Years ending December 31,
2021	$	15,365
2022	27,495
2023	15,222
2024	0
2025	0
Thereafter	0
Total contract commitments	$	58,082

Legal Matters

From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings. There were no material such matters as of and for the period ended March 31, ~~2020~~.2021.

Indemnification

In the ordinary course of business, the Company often includes standard indemnification provisions in its arrangements with third parties, including vendors, customers, investors and the Company’s directors and officers. Pursuant to these provisions, the Company may be obligated to indemnify such parties for losses or claims suffered or incurred. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. There were no material obligations under such indemnification agreements as of and for the period ended March 31, ~~2020~~2021.

7..Segment and Geographic Data

~~Sprout Social, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~


7.	~~Segment and Geographic Data~~

The Company operates as 1 operating segment. The Company’s chief operating decision maker (“CODM”) is its chief executive officer, who reviews financial information for purposes of making operating decisions, assessing financial performance and allocating resources. The Company’s CODM evaluates financial information on a consolidated basis. As the Company operates as 1 operating segment, all required segment financial information is found in the condensed consolidated financial statements.

Long-lived assets by geographical region are based on the location of the legal entity that owns the assets. As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, there were no significant long-lived assets held by entities outside of the United States.

Revenue by geographical region is determined by location of the Company’s customers. Revenue from customers outside of the United States was approximately 29% for each of the three


Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. Revenue by geographical region is as follows (in thousands):


	Three Months Ended March 31,
		2021		2020
Americas		$	32,078	$	23,800
EMEA		6,600		5,011
Asia Pacific		2,140		1,724
Total		$	40,818	$	30,535

8.Net Loss per Share

Three Months Ended March 31,
2020 2019
Americas $ 23,800
$ 18,239
EMEA 5,011
3,733
Asia Pacific 1,724
1,407
Total $ 30,535
$ 23,379


8.	~~Net Loss per Share~~

Basic net loss per share is calculated by dividing the net loss by the weighted average number of outstanding shares of common stock each period. Diluted net loss per share is calculated by giving effect to all potential dilutive common stock equivalents, which includes stock options, restricted stock units, and restricted stock ~~awards, preferred stock and warrants.~~awards. Because the Company incurred net losses each period, the basic and diluted calculations are the same. Basic and diluted net loss per share are the same for each class of common stock, as both Class A and Class B stockholders are entitled to the same liquidation and dividend rights.

The following table presents the calculation for basic and diluted net loss per share (in thousands, except share and per share data):

Three Months Ended March 31,
2020 2019
Net loss attributable to common shareholders $ (10,480 ) $ (5,163 )
Weighted average common shares outstanding 50,143,971
16,684,041
Net loss per share, basic and diluted $ (0.21 ) $ (0.31 )


	Three Months Ended March 31,
		2021		2020
Net loss attributable to common shareholders		$	(6,367)	$	(10,480)
Weighted average common shares outstanding		53,432,658		50,143,971
Net loss per share, basic and diluted		$	(0.12)	$	(0.21)

The following outstanding shares of common stock equivalents were excluded from the calculation of diluted net loss per share for each period, as the impact of including them would have been anti-dilutive.


	March 31,
	2021	2020
Stock options outstanding	125,510	833,241
RSUs	2,146,001	2,152,165
Total potentially dilutive shares	2,271,511	2,985,406

9. Fair Value Measurements

The ~~Company’s RSUs included~~Company measures certain financial assets at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a ~~triggering liquidation performance condition prior~~liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to ~~vesting. As such, these~~derive fair values are ~~treated~~classified based on a three-level hierarchy, as ~~contingently issuable shares and were excluded from potential dilutive~~follows:



Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

•Level 1: Quoted prices in active markets for identical assets or liabilities.

~~impact until~~•Level 2: Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the ~~triggering liquidation performance condition was satisfied upon completion~~full term of the ~~IPO~~assets or liabilities.

•Level 3: Unobservable inputs that are supported by little or no market activity.

The following tables present information about the Company’s financial assets that are measured at fair value and indicate the fair value hierarchy of the valuation inputs used (in thousands):


	March 31, 2021
	Level 1		Level 2		Level 3		Total
Marketable Securities:
Corporate bonds	$	0	$	19,383	$	0	$	19,383
Commercial paper	0		36,075		0		36,075
U.S. Treasury securities	0		10,032		0		10,032
Total assets	$	0	$	65,490	$	0	$	65,490


	December 31, 2020
	Level 1		Level 2		Level 3		Total
Marketable Securities:
Corporate bonds	$	0	$	22,810	$	0	$	22,810
Commercial paper	0		16,477		0		16,477
U.S. Treasury securities	0		10,077		0		10,077
Total assets	$	0	$	49,364	$	0	$	49,364

Marketable securities are classified within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market.

The carrying amounts of certain financial instruments, including cash held in banks, cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their short-term maturities and are excluded from the fair value tables above.

As of March 31, 2021 and December 31, 2020, the Company held investment-grade marketable securities that had maturities within one year and were accounted for as available-for-sale securities. There was not a significant difference between the amortized cost and fair value of these securities. The gross unrealized gains and losses associated with these securities were immaterial for the periods presented.

10.Related Party Transactions

During the quarter ended March 31, 2021, the Company received $1.7 million in cash for the disgorgement of stockholder short-swing profits under Section 16(b) of the Exchange Act. The amount was recorded as an increase to additional paid-in capital on ~~December 17, 2019.~~the condensed consolidated balance sheet.

March 31,
2020 2019
Stock options outstanding 833,241 1,293,725
RSUs 2,152,165 —
Convertible preferred stock —
22,014,263
Warrants —
35,305
Total potentially dilutive shares 2,985,406
23,343,293


9.Sprout Social, Inc.
~~Subsequent Events~~Notes to Condensed Consolidated Financial Statements (Unaudited)

11.Subsequent Events

The Company has evaluated subsequent events after the balance sheet date through May ~~7, 2020,~~5, 2021, the date the financial statements were issued. Management has determined that no events or transactions have occurred subsequent to the balance sheet date that require disclosure in the financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties, including the potential impact of the COVID-19 pandemic on our business. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in Part ~~II—Item 1A of this Quarterly Report and Part~~ I—Item 1A of our Annual Report on Form 10-K and in other parts of this Quarterly Report.

Overview

Sprout Social is a powerful, centralized platform that provides the critical business layer to unlock the massive commercial value of social media. We have made it increasingly easy to standardize on Sprout Social as the centralized system of record for social and to help customers maximize the value of this mission critical channel. Currently, more than ~~24,000~~28,000 customers across 100 countries rely on our ~~platform to reach larger audiences, create stronger relationships with their customers and make better business decisions.~~platform.

Introduced in 2011, our cloud software brings together social messaging, data and workflows in a unified system of record, intelligence and action. Operating across major ~~social media~~ networks, including Twitter, Facebook, Instagram, Pinterest, LinkedIn, Google, Reddit, Glassdoor and YouTube, we provide organizations with a centralized platform to ~~effectively~~ manage their social media efforts across stakeholders and business functions. Virtually every aspect of business has been impacted by social media, from marketing, sales and public relations to customer service, product and strategy, creating a need for an entirely new category of software. We offer our customers a centralized, secure and powerful platform to manage this broad, complex channel effectively across their organization.

~~Since our founding, we have achieved several key milestones:~~

•~~2010 — Founded Company, launched V1 beta and entities affiliated with Lightbank, LLC became investors;~~

•~~2011 — Launched our Sprout platform, surpassed 1,000 customers and entities affiliated with New Enterprise Associates, Inc. became investors;~~

•~~2013 — Reached 100 employees;~~

•~~2015 — Surpassed 15,000 customers;~~

•~~2016 — Reached 250 employees and Goldman Sachs became an investor;~~

•2017 — Completed first business acquisition and awarded one of Glassdoor’s “Best Places to Work, companies under 1,000 employees, 2017” and one of the “Top CEOs, companies under 1,000 employees, 2017”;

•2018 — Surpassed 20,000 customers, opened EMEA office, reached 500 employees, launched first add-on module (Listening), Future Fund became an investor and awarded one of Glassdoor’s “Best Places to Work, companies under 1,000 employees, 2018” and one of the “Top CEOs, companies under 1,000 employees, 2018”; and

•~~2019 — Completed our IPO resulting in $134.3 million of net proceeds, surpassed $100 million in total ARR and awarded one of Glassdoor’s “Top CEOs, companies under 1,000 employees, 2019”.~~

We generate revenue primarily from subscriptions to our social media management platform under a software-as-a-service model. Our subscriptions can range from monthly to one-year or multi-year

arrangements and are generally non-cancellable during the contractual subscription term. Subscription revenue is recognized ratably over the contract terms beginning on the date the product is made available to customers, which typically begins on the commencement date of each contract. We also generate revenue from professional services related to our platform provided to certain customers, which is recognized at the time these services are provided to the customer. This revenue has historically represented less than 1% of our revenue and is expected to be immaterial for the foreseeable future.

Our tiered subscription-based model allows our customers to choose among three core plans to meet their needs. Each plan is licensed on a per user per month basis at prices dependent on the level of features offered. Additional product modules, which offer increased functionality depending on a customer’s needs, can be purchased by the customer on a per user per month basis.

We generated revenue of ~~$30.5~~$40.8 million and ~~$23.4~~$30.5 million during the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, representing growth of ~~31%~~34%. Excluding the impact of the 2017 acquisition of Simply Measured, Inc., or Simply Measured, our organic growth rate during the three months ended March 31, ~~2020~~2021 compared to the three months ended March 31, ~~2019~~2020 was ~~41%~~35%. This organic growth rate excludes the impact of revenue generated from legacy Simply Measured products as well as revenue from the transition of legacy customers to our platform up to an amount equal to such customers’ prior spend on legacy Simply Measured products. This organic growth rate includes all incremental revenue generated above such prior spend from the sale of additional or higher-priced products and users and profiles to legacy customers of Simply Measured. In the three months ended March 31, ~~2020,~~2021, software subscriptions contributed 99% of our revenue.

We generated net losses of ~~$10.5~~$6.4 million and ~~$5.2~~$10.5 million during the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, which included stock-based compensation expense of $3.9

million and $3.5 million during the three months ended March 31, ~~2020.~~2021 and 2020, respectively. We expect to continue investing in the growth of our business and, as a result, generate net losses for the foreseeable future.

COVID-19

In December 2019, a novel coronavirus disease (“COVID-19”) was identified. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. The extent of the impact of COVID-19 on our operational and financial performance and financial position will depend on certain developments, including the duration and spread of the outbreak and the governmental responses to address the pandemic and any re-emergence of COVID-19, impact on our customers and sales cycles and impact on our employees, all of which are uncertain and cannot be predicted.

Given the importance of our technology platform and heightened market awareness of social media as a strategic communications channel, our operational and financial performance were not materially impacted by COVID-19 during the three months ended March 31, 2021 and 2020. Our recent IPO in December 2019 resulted in $134.3 million net proceeds, as well as an additional $10.0 million of net proceeds received in January 2020 as a result of our sale of over-allotment shares to the underwriters of ~~the Company’s~~our IPO, all of which strengthened our liquidity position prior to the pandemic. The $42.1 million in net proceeds from our equity follow-on offering in August 2020 has further strengthened our liquidity position.

We believe that over the long-term, we will continue to see strong demand for our technology platform; however, the duration and spread of the pandemic could impact our customers’ marketing or social media budgets or ability to pay for existing subscriptions, particularly in the industries most impacted by COVID-19. We will continue to monitor the potential impact of COVID-19; however, at this time, the extent to which the pandemic may impact our financial condition or results of operations is uncertain.

Key Factors Affecting Our Performance

Acquiring new customers

We are focused on continuing to organically grow our customer base by increasing demand for our platform and penetrating our addressable market. We have invested, and expect to continue to invest, heavily in expanding our sales force and marketing efforts to acquire new customers. Currently, we have more than ~~24,000~~28,000 customers.

Expanding within our current customer base

We believe that there is a substantial and largely untapped opportunity for organic growth within our existing customer base. Customers often begin by purchasing a small number of user subscriptions and then expand over time, increasing the number of users or social profiles, as well as purchasing additional product modules. Customers may then expand use-cases between various departments to drive collaboration across their organizations. Our sales and customer success efforts include encouraging organizations to expand use-cases to more fully realize the value from the broader adoption of our platform throughout an organization. We will continue to invest in enhancing awareness of our brand, creating additional uses for our products and developing more products, features and functionality of existing products, which we believe are vital to achieving increased adoption of our platform. We have a history of attracting new customers and we have recently increased our focus on expanding their use of our platform over time.

Sustaining product and technology innovation

Our success is dependent on our ability to sustain product and technology innovation and maintain the competitive advantage of our proprietary technology. We continue to invest resources to

enhance the capabilities of our platform by introducing new products, features and functionality of existing products.

International expansion

We see international expansion as a meaningful opportunity to grow our platform. Revenue generated from non-U.S. customers during the three months ended March 31, ~~2020~~2021 was approximately 29% of our total revenue. We have built local teams in Ireland, Canada, the United Kingdom, Singapore, India, Australia and ~~Australia~~the Philippines to support our growth internationally. We believe global demand for our platform and offerings will continue to increase as awareness of our platform in international markets grows. We plan to continue adding to our local sales, customer support and customer success teams in select international markets over time.

Key Business Metrics

We review the following key business metrics to evaluate our business, measure our performance, identify trends, formulate financial projections and make strategic decisions.

Number of customers

We define a customer as a unique account, multiple accounts containing a common non-personal email domain, or multiple accounts governed by a single agreement. Number of customers excludes customers exclusively using legacy products obtained through the acquisition of Simply Measured. We believe that the number of customers using our platform is an indicator not only of our market penetration, but also of our potential for future growth as our customers often expand their adoption of our platform over time based on an increased awareness of the value of our platform and products.

As of March 31,
2020 2019
Number of customers 24,083
21,718


	As of March 31,
	2021	2020
Number of customers	28,122	24,083

Total ARR

Total ARR is ARR from all of our products. We define ARR as the annualized revenue run-rate of subscription agreements from all customers as of the last date of the specified period. Total ARR includes the impact of recurring revenue generated from legacy Simply Measured products, which a small number of legacy Simply Measured customers have continued to access. These customers may continue to do so for a limited period in the future as we continue to transition those customers to other Sprout products. We believe total ARR is an indicator of the scale of our entire platform while mitigating fluctuations due to seasonality and contract term.


	As of March 31,
	2021		2020
	(in thousands)
Total ARR	$	172,013	$	124,630

As of March 31,
2020 2019
(in thousands)
Total ARR $ 124,630
$ 96,060

Organic ARR

Organic ARR is ARR excluding the impact of recurring revenue generated from legacy Simply Measured products. We believe organic ARR is an indicator of the scale and visibility of our core platform while mitigating fluctuations due to seasonality and contract term.

As of March 31,
2020 2019
(in thousands)
Organic ARR $ 123,068
$ 88,416


	As of March 31,
	2021		2020
	(in thousands)
Organic ARR	$	170,961	$	123,068

Number of customers contributing more than $10,000 in ARR

We view the number of customers that contribute more than $10,000 in ARR as a measure of our ability to scale with our customers and attract larger organizations. We believe this represents potential for future growth, including expanding within our current customer base. Over time, larger customers have constituted a greater share of our revenue.

We define customers contributing more than $10,000 in ARR as those on a paid subscription plan that had more than $10,000 in ARR as of a period end.

As of March 31,
2020 2019
Number of customers contributing more than $10,000 in ARR 2,404
1,525


	As of March 31,
	2021	2020
Number of customers contributing more than $10,000 in ARR	3,514	2,404

Components of our Results of Operations

Revenue

Subscription

We generate revenue primarily from subscriptions to our social media management platform under a software-as-a-service model. Our subscriptions can range from monthly to one-year or multi-year arrangements and are generally non-cancellable during the contractual subscription term. Subscription revenue is recognized ratably over the contract terms beginning on the date our product is made available to customers, which typically begins on the commencement date of each contract. Our customers do not have the right to take possession of the online software solution. We also generate a small portion of our subscription revenue from third-party resellers.

Professional Services

We sell professional services consisting of, but not limited to, implementation fees, specialized training, one-time reporting services and recurring periodic reporting services. Professional services revenue is recognized at the time these services are provided to the customer. This revenue has historically represented less than 1% of our revenue and is expected to be immaterial for the foreseeable future.

Cost of Revenue

Subscription

Cost of revenue primarily consists of expenses related to hosting our platform and providing support to our customers. These expenses are comprised of fees paid to data providers, hosted data center costs and personnel costs directly associated with cloud infrastructure, customer success and

customer support, including salaries, benefits, bonuses and allocated overhead. These costs also include depreciation expense and amortization expense related to acquired developed technologies. Overhead associated with facilities and information technology is allocated to cost of revenue and operating expenses based on headcount. Although we expect our cost of revenue to increase in absolute dollars as our business and revenue grows, we expect our cost of revenue to decrease as a percentage of our revenue over time.

Professional Services and Other

Cost of professional services primarily consists of expenses related to our professional services organization and are comprised of personnel costs, including salaries, benefits, bonuses and allocated overhead.

Gross Profit and Gross Margin

Gross margin is calculated as gross profit as a percentage of total revenue. Our gross margin may fluctuate from period to period based on revenue earned, the timing and amount of investments made to expand our hosting capacity, our customer support and professional services teams and in hiring

additional personnel, and the impact of acquisitions. We expect our gross profit and gross margin to increase as our business grows over time.

Operating Expenses

Research and Development

Research and development expenses primarily consist of personnel costs, including salaries, benefits and allocated overhead. Research and development expenses also include depreciation expense and other expenses associated with product development. We plan to increase the dollar amount of our investment in research and development for the foreseeable future as we focus on developing new features and enhancements to our plan offerings. However, we expect our research and development expenses to decrease as a percentage of our revenue over time.

Sales and Marketing

Sales and marketing expenses primarily consist of personnel costs directly associated with our sales and marketing department, online advertising expenses, as well as allocated overhead, including depreciation expense and amortization related to acquired developed technologies. Sales force commissions and bonuses are considered incremental costs of obtaining a contract with a customer. Sales commissions are earned and recorded at contract commencement for both new customer contracts and expansion of contracts with existing customers. Sales commissions are deferred and amortized on a straight-line basis over a period of benefit of three years. We plan to increase the dollar amount of our investment in sales and marketing for the foreseeable future, primarily for increased headcount for our sales department.

General and Administrative

General and administrative expenses primarily consist of personnel expenses associated with our finance, legal, human resources and other administrative employees. Our general and administrative expenses also include professional fees for external legal, accounting and other consulting services, depreciation and amortization expense, as well as allocated overhead. We expect to increase the size of our general and administrative functions to support the growth of our business. We also recognized certain non-recurring professional fees and other expenses as part of our transition to becoming a public company and expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with rules and regulations applicable to companies listed on a U.S. securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, investor relations and professional services. We expect the dollar amount of our

general and administrative expenses to increase for the foreseeable future. However, we expect our general and administrative expenses to decrease as a percentage of revenue over time.

Interest Income (Expense), Net

Interest income (expense), net consists primarily of interest ~~expenses~~expense on outstanding line of credit balances and is offset by interest income earned on our cash and investment balances.

Other Income (Expense), Net

Other income (expense), net consists of sublease rental income from our Seattle, Washington office and ~~San Francisco, California offices.~~foreign currency transaction gains and losses.

Income Tax Provision

The income tax provision consists of current and deferred taxes for our U.S. and foreign jurisdictions. We have historically reported a taxable loss in our most significant jurisdiction, the U.S., and

have a full valuation allowance against our deferred tax assets. We expect this trend to continue for the foreseeable future.

Results of Operations

The following tables set forth information comparing the components of our results of operations in dollars and as a percentage of total revenue for the periods presented.


	Three Months Ended March 31,							Three Months Ended March 31,
	2020			2019					2021		2020

	(in thousands)								(in thousands)
Revenue							Revenue
Subscription	$	30,329		$	23,332		Subscription		$	40,355	$	30,329
Professional services and other	206			47			Professional services and other		463		206
Total revenue	30,535			23,379			Total revenue		40,818		30,535
Cost of revenue⁽¹⁾							Cost of revenue(1)
Subscription	8,086			5,815			Subscription		9,705		8,086
Professional services and other	122			30			Professional services and other		292		122
Total cost of revenue	8,208			5,845			Total cost of revenue		9,997		8,208
Gross profit	22,327			17,534			Gross profit		30,821		22,327
Operating expenses							Operating expenses
Research and development⁽¹⁾	7,281			6,352			Research and development(1)		8,272		7,281
Sales and marketing⁽¹⁾	13,894			10,452			Sales and marketing(1)		18,153		13,894
General and administrative⁽¹⁾	12,096			6,084			General and administrative(1)		10,615		12,096
Total operating expenses	33,271			22,888			Total operating expenses		37,040		33,271
Loss from operations	(10,944		)	(5,354		)	Loss from operations		(6,219)		(10,944)
Interest expense	(95		)	(52		)	Interest expense		(72)		(95)
Interest income	460			105			Interest income		52		460
Other income	102			149
Other income (expense), net							Other income (expense), net		(119)		102
Loss before income taxes	(10,477		)	(5,152		)	Loss before income taxes		(6,358)		(10,477)
Income tax expense	3			11			Income tax expense		9		3
Net loss and comprehensive loss	$	(10,480	)	$	(5,163	)	Net loss and comprehensive loss		$	(6,367)	$	(10,480)

_______________


~~(1)~~	~~Includes stock-based compensation expense as follows:~~

(1)Includes stock-based compensation expense as follows:


	Three Months Ended March 31,
		2021		2020

		(in thousands)
Cost of revenue		$	184	$	295
Research and development		717		484
Sales and marketing		1,752		469
General and administrative		1,256		2,274
Total stock-based compensation		$	3,909	$	3,522


						Three Months Ended March 31,
	Three Months Ended March 31,						2021		2020
	2020		2019
							(as a percentage of total revenue)
	(in thousands)
Revenue					Revenue
Subscription					Subscription		99	%	99	%
Professional services and other					Professional services and other		1	%	1	%
Total revenue					Total revenue		100	%	100	%
Cost of revenue	$	295	$	—	Cost of revenue
Subscription					Subscription		24	%	26	%
Professional services and other					Professional services and other		—	%	—	%
Total cost of revenue					Total cost of revenue		24	%	26	%
Gross profit					Gross profit		76	%	74	%
Operating expenses					Operating expenses
Research and development	484		—		Research and development		20	%	24	%
Sales and marketing	469		—		Sales and marketing		44	%	46	%
General and administrative	2,274		—		General and administrative		26	%	40	%
Total stock-based compensation	$	3,522	$	—
Total operating expenses					Total operating expenses		91	%	110	%
Loss from operations					Loss from operations		(15)	%	(36)	%
Interest expense					Interest expense		—	%	—	%
Interest income					Interest income		—	%	2	%
Other income (expense), net					Other income (expense), net		—	%	—	%
Loss before income taxes					Loss before income taxes		(16)	%	(34)	%
Income tax expense					Income tax expense		—	%	—	%
Net loss and comprehensive loss					Net loss and comprehensive loss		(16)	%	(34)	%

Three Months Ended March 31,
2020 2019

(as a percentage of total revenue)
Revenue
Subscription 99 % 100 %
Professional services and other 1 % — %
Total revenue 100 % 100 %
Cost of revenue
Subscription 26 % 25 %
Professional services and other — % — %
Total cost of revenue 26 % 25 %
Gross profit 74 % 75 %
Operating expenses
Research and development 24 % 27 %
Sales and marketing 46 % 45 %
General and administrative 40 % 26 %
Total operating expenses 110 % 98 %
Loss from operations (36 )% (23 )%
Interest expense — % — %
Interest income 2 % — %
Other income — % — %
Loss before income taxes (34 )% (23 )%
Income tax expense — % — %
Net loss and comprehensive loss (34 )% (23 )%
Note: Certain amounts may not sum due to rounding

Three Months Ended March 31, ~~2020~~2021 Compared to Three Months Ended March 31, ~~2019~~2020

Revenue


	Three Months Ended March 31,						Change
	2021			2020			Amount		%

	(dollars in thousands)
Revenue
Subscription	$	40,355		$	30,329		$	10,026	33	%
Professional services and other	463			206			257		125	%
Total revenue	$	40,818		$	30,535		$	10,283	34	%
Percentage of Total Revenue
Subscription	99		%	99		%
Professional services and other	1		%	1		%

Three Months Ended March 31, Change
2020 2019 Amount %

(dollars in thousands)
Revenue
Subscription $ 30,329
$ 23,332
$ 6,997
30 %
Professional services and other 206
47
159
338 %
Total revenue $ 30,535
$ 23,379
$ 7,156
31 %
Percentage of Total Revenue
Subscription 99 % 100 %
Professional services and other 1 % — %

The increase in subscription revenue was primarily driven by revenue from new customers and expansion within existing customers. The total number of customers grew from ~~21,718 as of March 31, 2019 to~~ 24,083 as of March 31, ~~2020.~~2020 to 28,122 as of March 31, 2021. The increase in new customers was primarily driven by our growing

sales force capacity to meet market demand. Expansion within existing customers was driven by our ability to increase the number of users, social profiles and products purchased by customers. This is in part attributable to the expansion of use-cases across various functions within our existing customers’ organizations.

Cost of Revenue and Gross Margin


	Three Months Ended March 31,						Change					Three Months Ended March 31,						Change
	2020			2019			Amount		%			2021			2020			Amount		%

	(dollars in thousands)											(dollars in thousands)
Cost of revenue											Cost of revenue
Subscription	$	8,086		$	5,815		$	2,271	39	%	Subscription	$	9,705		$	8,086		$	1,619	20	%
Professional services and other	122			30			92		307	%	Professional services and other	292			122			170		139	%
Total cost of revenue	8,208			5,845			$	2,363	40	%	Total cost of revenue	9,997			8,208			$	1,789	22	%
Gross profit	$	22,327		$	17,534		$	4,793	27	%	Gross profit	$	30,821		$	22,327		$	8,494	38	%
Gross margin											Gross margin
Total gross margin	74		%	75		%					Total gross margin	76		%	74		%

The increase in cost of subscription revenue for the three months ended March 31, ~~2020~~2021 compared to the three months ended March 31, ~~2019~~2020 was primarily due to the following:

Change

(in thousands)
Data provider fees $ 973
Personnel costs 799
Stock-based compensation expense 295
Other 204
Subscription cost of revenue $ 2,271


	Change
	(in thousands)
Data provider fees	$	2,147
Stock-based compensation expense	(111)
Other	(417)
Subscription cost of revenue	$	1,619

Fees paid to our data providers increased due to revenue growth. Personnel costs increased primarily as a result of a 25% increase in headcount as we continue to grow our customer support and customer success teams to support our customer growth. The increase in stock-based compensation was due to the expense related to employee restricted stock units (“RSUs”) vesting since the completion of our IPO on December 17, 2019.

Operating Expenses

Research and Development


	Three Months Ended March 31,						Change
	2021			2020			Amount		%

	(dollars in thousands)
Research and development	$	8,272		$	7,281		$	991	14	%
Percentage of total revenue	20		%	24		%

Three Months Ended March 31, Change
2020 2019 Amount %

(dollars in thousands)
Research and development $ 7,281
$ 6,352
$ 929
15 %
Percentage of total revenue 24 % 27 %

The increase in research and development expense for the three months ended March 31, ~~2020~~2021 compared to the three months ended March 31, ~~2019~~2020 was primarily due to the following:


	Change
	(in thousands)
Personnel costs	$	748
Stock-based compensation expense	233
Other	10
Research and development	$	991

Change

(in thousands)
Stock-based compensation expense $ 484
Other 445
Research and development $ 929

Personnel costs increased primarily as a result of a 6% increase in headcount to grow our research and development teams to drive our technology innovation through the development of new products and features. The increase in stock-based compensation expense was due to the ~~expense related to employee RSUs vesting since the completion of our IPO on December 17, 2019.~~increased headcount.

Sales and Marketing


	Three Months Ended March 31,						Change					Three Months Ended March 31,						Change
	2020			2019			Amount		%			2021			2020			Amount		%

	(dollars in thousands)											(dollars in thousands)
Sales and marketing	$	13,894		$	10,452		$	3,442	33	%	Sales and marketing	$	18,153		$	13,894		$	4,259	31	%
Percentage of total revenue	46		%	45		%					Percentage of total revenue	44		%	46		%

The increase in sales and marketing expense for the three months ended March 31, ~~2020~~2021 compared to the three months ended March 31, ~~2019~~2020 was primarily due to the following:

Change

(in thousands)
Personnel costs $ 2,564
Stock-based compensation expense 469
Other 409
Sales and marketing $ 3,442


	Change
	(in thousands)
Personnel costs	$	2,729
Stock-based compensation expense	1,283
Other	247
Sales and marketing	$	4,259

Personnel costs increased primarily as a result of a ~~35%~~16% increase in headcount as we continue to expand our sales teams to grow our customer base, as well as additional sales commission expense due to the year over year sales growth, which increased the amortization of contract acquisition costs. The increase in stock-based compensation expense was due to the ~~expense related~~increased headcount and awards granted to ~~employee RSUs vesting since~~our newly appointed President in connection with his promotion at the ~~completion~~end of ~~our IPO on December 17, 2019.~~2020.

General and Administrative

Three Months Ended March 31, Change
2020 2019 Amount %

(dollars in thousands)
General and administrative $ 12,096
$ 6,084
$ 6,012
99 %
Percentage of total revenue 40 % 26 %


	Three Months Ended March 31,						Change
	2021			2020			Amount		%

	(dollars in thousands)
General and administrative	$	10,615		$	12,096		$	(1,481)	(12)	%
Percentage of total revenue	26		%	40		%

The ~~increase~~decrease in general and administrative expense for the three months ended March 31, ~~2020~~2021 compared to the three months ended March 31, ~~2019~~2020 was primarily due to the following:

Change

(in thousands)
Stock-based compensation expense $ 2,274
Personnel costs 2,494
Bad debt expense 688
Other 556
General and administrative $ 6,012


	Change
	(in thousands)
Stock-based compensation expense	$	(1,018)
Credit losses on accounts receivable	(766)
Personnel costs	694
Other	(391)
General and administrative	$	(1,481)

The ~~increase~~decrease in stock-based compensation was due to ~~the~~ expense ~~related to employee RSUs vesting since the completion of our IPO on December 17, 2019, of which the largest component~~recognized in prior year related to the vesting of a RSU award granted to our ~~President and~~ Chief Executive Officer in ~~the~~ connection with the achievement of a market capitalization threshold that ~~immediately vested~~was reached in February 2020. Credit losses on accounts receivable decreased due to our reserve in the prior year for our consideration of the potential impact of COVID-19 on our customers’ ability to pay. Personnel costs increased primarily as a result of a ~~45%~~20% increase in headcount as we continue to grow our ~~business. Bad debt expense increased due to higher accounts receivable balances~~business and ~~the Company’s consideration of potential COVID-19 impact on its customers’ ability to pay.~~operate as a publicly traded company.

Interest Income (Expense), Net


	Three Months Ended March 31,						Change				Three Months Ended March 31,						Change
	2020			2019			Amount		%		2021			2020			Amount		%

	(dollars in thousands)										(dollars in thousands)
Interest income (expense), net	$	365		$	53		$	312	n/m⁽¹⁾	Interest income (expense), net	$	(20)		$	365		$	(385)	n/m(1)
Percentage of total revenue	1		%	—		%				Percentage of total revenue	—		%	1		%

_________________


~~(1)~~	~~Calculated metric is not meaningful.~~

(1)Calculated metric is not meaningful.

The ~~increase~~decrease in net interest income was primarily driven by higher interest rates earned in the prior year on cash deposits related to our IPO ~~Proceeds.~~proceeds.

Other Income (Expense), Net


													Three Months Ended March 31,						Change
	Three Months Ended March 31,						Change						2021			2020			Amount		%
	2020			2019			Amount			%
													(dollars in thousands)
	(dollars in thousands)
Other income	$	102		$	149		$	(47	)	(32	)%
Other income (expense), net												Other income (expense), net	$	(119)		$	102		$	(221)	(217)	%
Percentage of total revenue	—		%	—		%						Percentage of total revenue	—		%	—		%

The decrease in other income (expense), net is due to sublease rental income ~~from~~as our Seattle, Washington ~~and San Francisco, California offices, with the San Francisco office~~ lease ~~expiring~~expired in ~~June 2019.~~

July 2020 as well as foreign exchange transaction losses.

Income Tax Expense


	Three Months Ended March 31,						Change
	2021			2020			Amount		%

	(dollars in thousands)
Income tax expense	$	9		$	3		$	6	n/m
Percentage of total revenue	—		%	—		%

Three Months Ended March 31, Change
2020 2019 Amount %

(dollars in thousands)
Income tax expense $ 3
$ 11
$ (8 ) n/m
Percentage of total revenue — % — %

The ~~decrease~~increase in income tax expense is due to the provision related to foreign income taxes.

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the below non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance by excluding certain items that may not be indicative of our business, operating results or future outlook.

However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

Three Months Ended March 31,
2020 2019

(dollars in thousands, except per share data)
Non-GAAP operating loss $ (7,422 ) $ (5,354 )
Non-GAAP net loss (6,958 ) (5,163 )
Non-GAAP net loss per share (0.14 ) (0.31 )
Free cash flow $ (4,816 ) $ (4,029 )


	Three Months Ended March 31,
		2021		2020
		(dollars in thousands, except per share data)
Non-GAAP operating loss		$	(2,310)	$	(7,422)
Non-GAAP net loss		(2,458)		(6,958)
Non-GAAP net loss per share		(0.05)		(0.14)
Free cash flow		$	3,447	$	(4,816)

Non-GAAP Operating Loss

We define non-GAAP operating loss as GAAP loss from operations, excluding stock-based compensation expense. We believe non-GAAP operating loss provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this non-GAAP financial measure eliminates the effect of stock-based compensation, which is often unrelated to overall operating ~~performance, particularly given the impact of stock-based compensation expense recognized in the three months ended March 31, 2020 after the completion of our December 2019 IPO.~~performance.


	Three Months Ended March 31,							Three Months Ended March 31,
	2020			2019					2021		2020
Reconciliation of Non-GAAP operating loss	(dollars in thousands)						Reconciliation of Non-GAAP operating loss		(dollars in thousands)
Loss from operations	$	(10,944	)	$	(5,354	)	Loss from operations		$	(6,219)	$	(10,944)
Stock-based compensation expense	3,522			—			Stock-based compensation expense		3,909		3,522
Non-GAAP operating loss	$	(7,422	)	$	(5,354	)	Non-GAAP operating loss		$	(2,310)	$	(7,422)

Non-GAAP Net Loss

We define non-GAAP net loss as GAAP net loss and comprehensive loss, excluding stock-based compensation expense. We believe non-GAAP net loss provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this non-GAAP financial measure eliminates the effect of stock-based compensation, which is often unrelated to overall operating ~~performance, particularly given the impact of stock-based compensation expense recognized in the three months ended March 31, 2020 after the completion of our December 2019 IPO.~~performance.

Three Months Ended March 31,
2020 2019
Reconciliation of Non-GAAP net loss
(dollars in thousands)
Net loss and comprehensive loss $ (10,480 ) $ (5,163 )
Stock-based compensation expense 3,522
—
Non-GAAP net loss $ (6,958 ) $ (5,163 )


	Three Months Ended March 31,
		2021		2020
Reconciliation of Non-GAAP net loss		(dollars in thousands)
Net loss and comprehensive loss		$	(6,367)	$	(10,480)
Stock-based compensation expense		3,909		3,522
Non-GAAP net loss		$	(2,458)	$	(6,958)

Non-GAAP Net Loss per Share

We define non-GAAP net loss per share as GAAP net loss per share attributable to common shareholders, basic and diluted, excluding stock-based compensation expense. We believe non-GAAP net loss per share provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this non-GAAP

financial measure eliminates the effect of stock-based compensation, which is often unrelated to overall operating ~~performance, particularly given the impact of stock-based compensation expense recognized in the three months ended March 31, 2020 after the completion of our December 2019 IPO.~~performance.


	Three Months Ended March 31,							Three Months Ended March 31,
	2020			2019					2021		2020
Reconciliation of Non-GAAP net loss per share							Reconciliation of Non-GAAP net loss per share
Net loss per share attributable to common shareholders, basic and diluted	$	(0.21	)	$	(0.31	)	Net loss per share attributable to common shareholders, basic and diluted		$	(0.12)	$	(0.21)
Stock-based compensation expense per share	0.07			—			Stock-based compensation expense per share		0.07		0.07
Non-GAAP net loss per share	$	(0.14	)	$	(0.31	)	Non-GAAP net loss per share		$	(0.05)	$	(0.14)

Free Cash Flow

Free cash flow is a non-GAAP financial measure that we define as net cash used in operating activities less purchases of property and equipment. We believe that free cash flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash used in our core operations that, after the purchases of property and equipment, is not available to be used for strategic initiatives. For example, if free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. One limitation of free cash flow is that it does not reflect our future contractual obligations. Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period.


	Three Months Ended March 31,
		2021		2020
Reconciliation of Free cash flow		(dollars in thousands)
Net cash provided by (used in) operating activities		$	3,620	$	(4,503)
Purchases of property and equipment		(173)		(313)
Free cash flow		$	3,447	$	(4,816)

Three Months Ended March 31,
2020 2019
Reconciliation of Free cash flow
(dollars in thousands)
Net cash (used in) operating activities $ (4,503 ) $ (3,873 )
Purchases of property and equipment (313 ) (156 )
Free cash flow $ (4,816 ) $ (4,029 )

Liquidity and Capital Resources

Our liquidity and capital resources were not materially impacted by the COVID-19 pandemic and the governmental responses to address the pandemic and the related economic impact during the ~~first quarter of 2020.~~three months ended March 31, 2021. For further discussion regarding the future potential impacts of COVID-19 and the related economic impacts on our liquidity and capital resources, see ~~“Outlook” and “Part II -~~ “Risk Factors” in Part I—Item 1A ~~- Risk Factors”.~~of our Annual Report on Form 10-K.

As of March 31, ~~2020,~~2021, our principal sources of liquidity were cash and cash equivalents of ~~$137.4~~$102.3 million, marketable securities of $65.5 million and net accounts receivable of ~~$12.3~~$15.9 million. WeHistorically, we have generated losses from operations and negative cash flows from operations, as evidenced by our accumulated deficit and statement of cash flows. However, for the three months ended March 31, 2021, we generated positive cash flows from operations. We expect to continue to incur operating losses ~~and negative operating cash flows~~ for the foreseeable future due to the investments in our business we intend to make as described above. We may experience greater than anticipated operating losses in the short- and long-term if the COVID-19

pandemic and the governmental responses to address the pandemic and any re-emergence of COVID-19 persist for a prolonged period of time. The impact of the COVID-19 pandemic on our customers and our operations going forward remains uncertain, and we continue to proactively monitor our liquidity position.

Prior to our IPO in December 2019, we financed our operations primarily through private issuance of equity securities and line of credit borrowings. In our IPO, we received net proceeds of $134.3 million after deducting underwriting discounts and commissions of $10.5 million and offering expenses of $5.2

million. We subsequently received an additional $10.0 million of net proceeds after deducting underwriting discounts and commissions in January 2020 as a result of the over-allotment option exercise by the underwriters of our IPO. In August 2020, we received $42.1 million of net proceeds from our equity follow-on offering after deducting underwriting discounts and commissions. Our principal uses of cash in recent periods have been to fund operations and invest in capital expenditures.

We believe our existing cash and cash equivalents will be sufficient to meet our operating and capital needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, billing frequency, the impact of the COVID-19 pandemic on our customers and our operations, the timing and extent of spending to support our research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings, and the continuing market acceptance of our product. In the future, we may enter into arrangements to acquire or invest in complementary businesses, products and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations, our business, results of operations and financial condition could be adversely affected.

SVB Credit Facility

In December 2017, we entered into a Loan and Security Agreement with Silicon Valley Bank, or SVB, which comprised a $15.0 million line of credit, or the Revolver, and a $5.0 million incremental revolving line commitment, or the Incremental Revolver, and, together with the Revolver, the SVB Credit Facility.

In November 2019, we amended the SVB Credit Facility to increase the Revolver (including the exercise of the Incremental Revolver, as amended) to $40.0 million and ~~amend,~~amended, among ~~others~~other terms, levels for the minimum adjusted EBITDA and minimum liquidity covenants, the advance rate and the interest rate. The November 2019 amendment includes a “streamline period”, or Streamline Period, concept, which occurs when we maintain, for every consecutive day in the immediately preceding fiscal quarter, the sum of (i) unrestricted cash at SVB plus (ii) unused availability under the Revolver in an amount equal to or greater than $75.0 million (the Streamline Balance). Any Streamline Period terminates on the earlier of the occurrence of an event of default and failure to maintain the Streamline Balance. The minimum adjusted EBITDA and minimum liquidity covenants do not apply during any Streamline Period. As of March 31, ~~2020,~~2021, we did not have any outstanding principal balance under the SVB Credit Facility.

In connection with the November 2019 amendment, the Revolver now has a floating interest rate equal to the greater of (i) 4.75% and (ii) (x) at any time when the Streamline Period is not in effect, one and one-half of one percent (1.50%) above the prime rate and (y) at any time when the Streamline Period is in effect, the prime rate, which interest is payable monthly. The SVB Credit Facility matures on January 31, 2022.

The SVB Credit Facility contains customary negative covenants that limit our ability to, or require mandatory prepayment in the event that we, among other things, incur additional indebtedness or liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, add new offices or business locations, make certain investments, pay dividends, transfer or dispose of certain assets, liquidate or dissolve and enter into various specified transactions. The SVB Credit Facility also contains affirmative covenants, including certain financial covenants such as

minimum adjusted EBITDA and minimum liquidity covenants and financial reporting requirements. With limited exceptions, our obligations under the SVB Credit Facility are secured by all of our property other than intellectual property (which is subject to a negative pledge). As of March 31, ~~2020,~~2021, we were in compliance with the covenants in the SVB Credit Facility.

The following table summarizes our cash flows for the periods presented:


								Three Months Ended March 31,
	Three Months Ended March 31,							2021		2020
	2020			2019
								(in thousands)
	(in thousands)
Net cash (used in) operating activities	$	(4,503	)	$	(3,873	)
Net cash provided by (used in) operating activities							Net cash provided by (used in) operating activities	$	3,620	$	(4,503)
Net cash (used in) investing activities	(313		)	(156		)	Net cash (used in) investing activities	(16,476)		(313)
Net cash provided by (used in) financing activities	6,882			(243		)
Net cash provided by financing activities							Net cash provided by financing activities	644		6,882
Net increase (decrease) in cash	$	2,066		$	(4,272	)	Net increase (decrease) in cash	$	(12,212)	$	2,066

Operating Activities

Our largest source of operating cash is cash collections from our customers for subscription services. Our primary uses of cash from operating activities are for personnel costs across the sales and marketing and research and development departments and hosting costs. Historically, we have generated negative cash flows from operating activities. However, for the three months ended March 31, 2021, we generated positive cash flows from operating activities.

Net cash provided by operating activities during the three months ended March 31, 2021 was $3.6 million, which resulted from a net loss of $6.4 million adjusted for non-cash charges of $8.0 million and net cash inflow of $1.9 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $3.9 million of stock-based compensation expense, $1.0 million of depreciation and intangible asset amortization expense, $2.6 million for amortization of deferred contract acquisition costs, which were primarily commissions, $0.1 million for bad debt expense and $0.2 million of amortization of right-of-use, or ROU, operating lease assets. The net cash inflow from changes in operating assets and liabilities was primarily the result of a $7.2 million increase in deferred revenue, a $1.1 million decrease in gross accounts receivable, and a $2.2 million decrease in prepaid expenses. These inflows were primarily offset by a $4.5 million increase in deferred commissions due to the addition of new customers and expansion of the business, a $3.7 million increase in accounts payable and other accrued liabilities, and a $0.3 million decrease in operating lease liabilities.

Net cash used in operating activities during the three months ended March 31, 2020 was $4.5 million, which resulted from a net loss of $10.5 million adjusted for non-cash charges of $7.5 million and net cash outflow of $1.5 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $3.5 million of stock-based compensation expense, $1.1 million of depreciation and intangible asset amortization expense, $1.6 million for amortization of deferred contract acquisition costs, which were primarily commissions, $0.9 million for bad debt expense and $0.3 million of amortization of right-of-use, or ROU, operating lease assets. The net cash outflow from changes in operating assets and liabilities was primarily the result of a $2.5 million increase in deferred commissions due to the addition of new customers and expansion of the business, a $2.1 million increase in gross accounts receivable, a $0.3 million increase in prepaid expenses and a $0.6 million decrease in operating lease liabilities. These outflows were offset by a $4.3 million increase in deferred revenue.

Investing Activities

Net cash used in ~~operating~~investing activities ~~during~~for the three months ended March 31, ~~2019~~2021 was ~~$3.9~~$16.5 million, which ~~resulted from a net loss of $5.2 million adjusted for non-cash charges of $2.7 million and net cash outflow of $1.4 million from changes in operating assets and liabilities. Non-cash charges~~was primarily consisted of $1.1 million of depreciation and intangible asset amortization expense, $1.0 million for amortization of deferred contract acquisition costs, which were primarily commissions, $0.3 million of amortization of right-of-use, or ROU, operating lease assets and $0.2 million for bad debt expense. The net cash outflow from changes in operating assets and liabilities was the result of a $1.5 million decrease in accounts payable and other accrued liabilities due to ~~the timing~~$25.9 million in purchases of payments, a $1.2 million increase in deferred commissions due to the addition of new customers and expansion of the business and a $0.8 million increase in accounts receivable due to the growth of our business. These outflows weremarketable securities, partially offset by ~~a $2.6~~$9.6 million ~~increase~~ in ~~deferred revenue.~~

~~Investing Activities~~proceeds from maturities of marketable securities.

Net cash used in investing activities for the three months ended March 31, 2020 was $0.3 million, which was primarily due to purchases of computer equipment and hardware.

Financing Activities

Net cash ~~used in investing~~provided by financing activities for the three months ended March 31, ~~2019~~2021 was ~~$0.2~~$0.6 million, which was primarily ~~due~~the result of $1.7 million from the disgorgement of stockholder short-swing profits under Section 16(b) of the Exchange Act, offset by $0.9 million in payments related to ~~purchases~~the employee withholding taxes as a result of ~~computer equipment and hardware.~~

~~Financing Activities~~the net settlement of stock-based awards.

Net cash provided by financing activities for the three months ended March 31, 2020 was $6.9 million, which was the result of $10.0 million of net proceeds from our sale of over-allotment shares to the underwriters of our IPO, offset by $3.1 million in payments related to the employee withholding taxes as a result of the net settlement of stock-based awards.

~~Net cash used in financing activities for the three months ended March 31, 2019 was $0.2 million, which was primarily driven by payments of deferred costs associated with our IPO.~~

Contractual Obligations

The following table summarizes our non-cancellable contractual obligations as of March 31, ~~2020.~~2021.


	Payments Due by Period
	Total		Less Than One Year			1-3 Years		3-5 Years		More Than Five Years
					(in thousands)
Operating lease obligations	$	31,448	$	3,862		$	7,997	$	8,363	$	11,226
Other purchase obligations(1)	58,082		22,239			35,843		—		—
Total	$	89,530	$	26,101		$	43,840	$	8,363	$	11,226

Payments Due by Period
Total
Less Than
One Year
1-3 Years 3-5 Years
More Than
Five Years

(in thousands)

Operating lease obligations $ 32,745
$ 1,436
$ 7,816
$ 8,184
$ 15,309
Other purchase obligations⁽¹⁾
73,382
15,300
50,471
7,611
—
Total $ 106,127
$ 16,736
$ 58,287
$ 15,795
$ 15,309
_________________

~~_________________~~(1)Consists of minimum guaranteed purchase commitments for data and services.


~~(1)~~	~~Consists of minimum guaranteed purchase commitments for data and services.~~

Off-Balance Sheet Arrangements

As of March 31, ~~2020,~~2021, we did not have any relationships with any entities or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other purposes.

Recent Accounting Pronouncements

Refer to section titled “Recently Adopted Accounting Pronouncements” in Note 1 of the notes to our unaudited condensed consolidated financial statements for more information.

Critical Accounting Policies and Estimates

Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates.

~~The Company’s~~Our significant accounting policies are discussed in Note 1, “Nature of Operations and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements as of and for the year ended December 31, ~~2019~~2020 included in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC on February ~~28, 2020.~~24, 2021. There have been no significant changes to these policies during the three months ended March 31, ~~2020, other than those described below.~~2021.

~~Stock-Based Compensation~~

~~We recognize compensation expense for equity awards based on the grant‐date fair value on a straight-line basis over the remaining requisite service period for the award.~~

~~Restricted Stock Units~~

Pursuant to his employment agreement, our President and CEO is eligible to receive awards of fully vested restricted stock units with respect to shares of our Class B common stock under our 2019 Class B Incentive Plan, or the Class B Plan, covering up to 1.0% of our fully diluted common equity determined as of the date of our IPO, or 483,663 shares, following the consummation of our IPO, depending on the valuation of the Company in connection with our IPO and the achievement of market capitalization thresholds thereafter, which we refer to as the Howard IPO Award. The initial grant under the Howard IPO Award was based on the valuation of the Company (calculated based on the closing price of the Company’s Class A common stock on its first trading day on The Nasdaq Capital Market on December 13, 2019) and calculated as follows: (i) a valuation between $750,000,000 and $999,999,999, would result in an initial grant under the Howard IPO Award equal to 0.5% of our outstanding fully diluted common equity; (ii) a valuation at least $1,000,000,000 but less than $2,000,000,000, would result in an initial grant under the Howard IPO Award equal to 0.75% of our fully diluted common equity; and (iii) a valuation at least $2,000,000,000, would result in an initial grant under the Howard IPO Award equal to 1.0% of our outstanding fully diluted common equity. No initial grant under the Howard IPO Award would be made as a result of our IPO if the valuation of the Company calculated as described above was below $750,000,000. The initial Howard IPO Award resulted in a grant equal to 0.5% of our fully diluted common equity, or 241,831 shares on December 17, 2019, which settled in March 2020.

If during the twenty-four month period immediately following the effectiveness of our IPO, the Company achieves a “market cap threshold” (calculated based on the 30-day average of the product of the closing price per share of our Class A common stock on a trading day and the number of shares outstanding on such trading day using the treasury stock method) of $1,000,000,000 or greater, Mr. Howard is eligible to receive RSU awards under our Class B Plan equal to: (i) 0.25% of our fully diluted common equity as of the date of our IPO, or 120,916 shares, upon the Company’s achievement of a market cap threshold of $1,000,000,000; and (ii) 0.25% of our fully diluted common equity as of the date of our IPO, or 120,916 shares, upon the Company’s achievement of a market cap threshold of $2,000,000,000, in each case, to the extent the applicable market cap threshold value was not previously achieved in connection with any previous grant made under the Howard IPO Award, and subject to Mr. Howard’s continued service to the Company through each applicable award date. All such RSUs granted pursuant to the Howard IPO Award will be fully vested and the maximum number of Class B common stock issuable upon settlement of such RSUs will not exceed 1.0% of our fully diluted common equity (as described above). In February 2020, Mr. Howard received 120,916 RSUs upon the Company’s achievement of a market cap threshold of $1,000,000,000 which have not yet settled as of March 31, 2020.

In connection with RSUs granted to Mr. Howard pursuant to the Howard IPO Award that immediately vested in February 2020, we recognized $1.4 million of stock-based compensation expense in the first quarter of 2020. Because the maximum company valuation was not achieved as of March 31, 2020, Mr. Howard will remain eligible to receive an additional grant up to the maximum award contemplated by the Howard IPO Award if a certain market capitalization threshold is achieved during the first twenty-four months following the completion of our IPO (as described above). We expect that the remaining compensation expense to be recognized in connection with the Howard IPO Award will be $0.6 million.

JOBS Act Accounting Election

We are an “emerging growth company” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that have not made this election. While we have elected to use this extended transition period, to date we have not delayed the adoption of any applicable accounting standards.

Item 3. Quantitative and Qualitative Disclosures of Market Risk

Interest Rate Risk

We had cash and cash equivalents totaling ~~$137.4~~$102.3 million as of March 31, ~~2020, all~~2021, the majority of which was invested in money market ~~accounts.~~accounts and money market funds. We also had marketable securities of $65.5 million which were invested in investment-grade corporate bonds, commercial paper and U.S. Treasury securities. Such interest-earning instruments carry a degree of interest rate risk with respect to the interest income generated. Additionally, certain of these cash investments are maintained at balances beyond Federal Deposit Insurance Corporation, or FDIC, coverage limits or are not insured by the FDIC. Accordingly, there may be a risk that we will not recover the full principal of our cash ~~investments.~~investments and marketable securities. To date, fluctuations in interest income have not been significant. Because these accounts are highly liquid, we do not have material exposure to market risk. Our cash is held for working capital purposes. We do not enter into investments for trading or speculative purposes.

We did not have any outstanding debt under our $40.0 million revolving credit line as of March 31, ~~2020.~~2021. The line of credit carries a variable interest rate equal to the greater of (i) 4.75% and (ii) (x) at any time when the Streamline Period is not in effect, one and one-half of one percent (1.50%) above the prime rate and (y) at any time when the Streamline Period is in effect, the prime rate and is available through January 31, 2022. See “Item 2 - Management’s Discussion and Analysis of of Financial Condition and Results of Operations—Liquidity and Capital Resources—SVB Credit Facility.”

We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements.

Foreign Currency Exchange Risk

We are not currently subject to significant foreign currency exchange risk as our U.S. and international sales are predominantly denominated in U.S. dollars. However, we have some foreign currency risk related to a small amount of sales denominated in Canadian dollars. Sales denominated in Canadian dollars reflect the prevailing U.S. dollar exchange rate on the date of invoice for such sales. Decreases in the relative value of the U.S. dollar to the Canadian dollar may negatively affect revenue and other operating results as expressed in U.S. dollars. We do not believe that an immediate ten percent increase or decrease in the relative value of the U.S. dollar to the Canadian dollars would have a material effect on operating results.

We have not engaged in the hedging of foreign currency transactions to date. However, as our international operations expand, our foreign currency exchange risk may increase. If our foreign currency exchange risk increases in the future, we may evaluate the costs and benefits of initiating a foreign currency hedge program in connection with non-U.S. dollar denominated transactions.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of March 31, ~~2020. Because of the material weakness in our internal control over financial reporting, as discussed below,~~2021. Based on such evaluation, our CEO and CFO have concluded that ~~the Company’s~~as of March 31, 2021, our disclosure controls and procedures ~~were not~~are effective asto provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the ~~end of the period covered by this Quarterly Report. In light of this,~~SEC, and that such information is accumulated and communicated to our management, including ~~the~~our CEO and CFO, has performed additional analyses, reconciliations and other post-closing procedures and has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the condensed consolidated financial statements for the periods covered by and included in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

~~Previously reported material weakness~~

~~In connection with the audit of our financial statements for the year ended December 31, 2018, we identified a material weakness in our internal controls over financial reporting,~~ as ~~defined by the standards established by the Sarbanes-Oxley Act of 2002. We did not maintain effective internal control over financial reporting related~~appropriate, to the control environment component of Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO framework, due to an insufficient complement of personnel possessing the appropriate accounting and financial reporting knowledge and experience during the year ended December 31, 2018 in order to determine the appropriate accounting for non-recurring transactions and transactions requiring more complex accounting judgment. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on aallow timely ~~basis.~~

During 2019 and the three months ended March 31, 2020, management continued to implement remediation initiatives in response to the previously identified material weakness, including but not limited to, hiring additional qualified accounting and financial reporting personnel and further evolving our accounting processes, including those designed to strengthen our review process related to accounting for non-recurring transactions and transactions requiring more complex accounting judgment. While we believe that these efforts have improved and will continue to improve our internal control over financial reporting, remediation of the material weakness will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. Therefore, this material weakness has not been remediated as of March 31, 2020. This deficiency could result in additional misstatements to our consolidated financial statements that would be material and would not be prevented or detected in a timely manner.

~~Our remediation efforts are ongoing and subject to continued management review supported by ongoing design and testing of our framework of internal controls over financial reporting.~~

Notwithstanding the material weakness, our management has concluded the condensed consolidated financial statements included elsewhere in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with U.S. GAAP.decisions regarding required disclosure.

Changes in internal controls

~~Other than implementation of the initiatives to remediate the material weakness noted above, there were~~There have been no changes in our internal ~~controls~~control over financial reporting during the period covered by this

Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

Inherent Limitations of Internal Controls

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will have been detected.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in various legal proceedings arising from the normal course of business. We are not currently a party to any material pending legal proceedings.

~~Item 1A. Risk Factors~~

Other than the risk factors set forth below, there have been no material changes from the risk factors disclosed in our Annual Report (under the heading “Risk Factors” ) in response to Part 1, Item 1A of the Form 10-K.

The effects of the COVID-19 pandemic are unpredictable and may materially affect our customers and how we operate our business, and the duration and extent to which the pandemic continues to threaten our future results of operations and overall financial performance remains uncertain
.

In December 2019, a novel coronavirus disease (“COVID-19”) was identified. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. The pandemic has resulted in a widespread health crisis that has adversely affected businesses, economies and financial markets worldwide and has caused significant volatility in U.S. and international debt and equity markets.

~~Examples of how COVID-19 may impact our business, results of operations and Class A common stock price include, but are not limited to:~~

COVID-19 may cause companies to decrease marketing and social media spending, making it more difficult for us to acquire new customers, as well as retain and upsell existing customers. A key factor in our ability to acquire a new customer and retain and increase the spending of an existing customer is the customer’s marketing or social media budget. The economic stress of COVID-19 may cause companies to decrease or freeze their marketing and social media budget. This may prevent prospective customers from converting to paying customers and prevent existing customers from renewing an existing subscription or increasing their spending with us or cause our existing customers to terminate their subscriptions. We may experience longer sales cycles and greater uncertainty regarding our sales pipeline for a given quarter. In addition, the impact of COVID-19 could reduce interest in our webinars, blogs, thought leadership and social media engagement, thereby reducing traffic to our web properties and free trials. A reduction in volume or quality of our inbound marketing funnel could have an adverse impact on our business and results of operations.

Customers may be less likely to pay us on-time or at all. For the fiscal year ended December 31, 2019 and the quarter ended March 31, 2020, 99% of our revenue was from subscriptions. Customers under economic stress from COVID-19 may be less willing or may be unable to pay our invoices as they become due. This could, in-turn, cause a decrease in our revenue, an increase in our account receivables and the aging of our accounts receivables.

COVID-19 and related government responses to address the COVID-19 pandemic may cause sudden and extreme changes in our Class A common stock price. Since COVID-19 was first reported, the volatility of U.S. equity markets increased to historic levels. This has caused extreme fluctuations in the market price of our Class A common stock. We cannot predict if and when these fluctuations will decrease or increase. In addition to general market conditions, the market price of our Class A common stock could be volatile or decline due to actual or anticipated impact of COVID-19 on our financial condition and results of operations or if our results of operations do not meet the expectations of the investor community or one or more of the analysts who cover our company change their recommendations regarding our company.

The duration and extent of the impact on our business from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time (e.g., the severity and transmission rate of the virus, the extent and effectiveness of containment measures, and the impact of these and other factors on our employees, customers, vendors and partners, including their respective productivity). Furthermore, our limited operating history combined with the uncertainty created by the COVID-19 pandemic significantly increases the difficulty of forecasting operating results and of strategic planning. If we are unable to effectively predict and manage the impact of the COVID-19 pandemic on our business, our results of operations and financial condition may be negatively impacted.

INDEX TO EXHIBITS




~~3.1~~31.1	Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to Sprout Social’s Current Report on form 8-K (File No. 001-39156) filed on December 17, 2019).
~~3.2~~	~~Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to Sprout Social’s Current Report on form 8-K (File No. 001-39156) filed on December 17, 2019).~~
~~10.1~~†	~~Amended and Restated Executive Employment Agreement, dated as of February 20, 2020, by and between the Registrant and Joe Del Preto.~~
~~10.2~~†	~~Sprout Social, Inc. Non-Employee Director Compensation Policy (as amended and effective as of April 23, 2020).~~
~~31.1~~	Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following information from our Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2020,~~2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii) Condensed Consolidated Statements of ~~Convertible Preferred Stock and~~ Stockholders’ ~~(Deficit)/~~Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements
104		The cover page from the Quarterly Report on Form 10-Q, formatted as Inline XBRL.

________________


†	~~Indicates a management contract or compensatory plan or arrangement.~~


*	~~Furnished, not filed.~~

* Furnished, not filed.

***

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized.



	Sprout Social, Inc.
May ~~7, 2020~~5, 2021		By:	/s/ Joe Del Preto
			Joe Del Preto
			Chief Financial Officer and Treasurer (Principal Financial and Principal Accounting Officer)



Years ending December 31,
2020	$	10,179
2021	20,486
2022	27,495
2023	15,222
2024	—
Thereafter	—
Total contract commitments	$	73,382