What changed in this filing

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Item 1. Financial Statements

2020-11-10 compared with 2020-08-06 · 103 added, 63 removed, 296 unchanged (36% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

June 30, 2020

December 31, 2019

September 30, 2020 December 31, 2019

Current assets

1 unchanged sentence

Marketable securities 49,494 —

Accounts receivable, net of allowances of $1,691 and $706 at June 30, 2020 and December 31, 2019, respectively

Accounts receivable, net of allowances of $ 1,687 and $ 706 at September 30, 2020 and December 31, 2019, respectively

14,406 11,099

Deferred commissions 7,456 5,574

4 unchanged sentences

Operating lease, right-of-use assets 10,274 5,618

Goodwill 2,299 2,299

Intangible assets, net 4,413 5,482

Other assets, net 125 125

Total assets $ 232,252 $ 189,591

Liabilities and Stockholders’ Equity

10 unchanged sentences

Commitments and contingencies (Note 6)

Sprout Social, Inc.

Condensed Consolidated Balance Sheets (Unaudited) (cont’d)

(in thousands, except share and per share data)

September 30, 2020 December 31, 2019

Stockholders’ equity

1 unchanged sentence

1,000,000,000 shares authorized;

43,761,312 and 40,961,808 shares issued and outstanding at June 30, 2020, respectively;

46,122,094 and 43,322,590 shares issued and outstanding at September 30, 2020, respectively;

41,714,870 and 39,041,065 shares issued and outstanding, at December 31, 2019, respectively

Sprout Social, Inc.

Condensed Consolidated Balance Sheets (Unaudited) (cont’d)

(in thousands, except share data)

June 30, 2020

December 31, 2019

Class B common stock, par value $ 0.0001 per share;

25,000,000 shares authorized;

10,081,127 and 9,927,749 shares issued and outstanding at June 30, 2020, respectively;

9,721,627 and 9,568,249 shares issued and outstanding at September 30, 2020, respectively;

9,803,933 shares issued and outstanding at December 31, 2019

4 unchanged sentences

Total liabilities and stockholders’ equity

$ 232,252 $ 189,591

See Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands, except share and per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Subscription $ 33,370 $ 26,284 $ 94,889 $ 74,285

Professional services and other 296 137 714 278

1 unchanged sentence

Cost of revenue

Subscription 8,588 7,144 24,852 19,113

Professional services and other 186 85 450 175

Total cost of revenue 8,774 7,229 25,302 19,288

Gross profit 24,892 19,192 70,301 55,275

Operating expenses

6 unchanged sentences

Interest income 50 61 563 256

Other income 19 108 222 388

Loss before income taxes ( 6,946 ) ( 5,020 ) ( 25,707 ) ( 20,908 )

2 unchanged sentences

Net loss per share attributable to common shareholders, basic and diluted

$ ( 0.13 ) $ ( 0.30 ) $ ( 0.51 ) $ ( 1.25 )

Weighted-average shares outstanding used to compute net loss per share, basic and diluted

51,910,517 16,948,809 50,777,222 16,829,622

See Notes to Condensed Consolidated Financial Statements.

5 unchanged sentences

Stockholders’ Equity

Balances at March 31, 2020

Balances at June 30, 2020 50,889,557 $ 5 $ 280,104 2,952,882 $ ( 26,905 ) $ ( 134,170 ) $ 119,034

Exercise of stock options

242,081 — 82 82

Stock-based compensation expense

Issuance of common stock from equity award settlement

Taxes paid related to net share settlement of equity awards

Balances at June 30, 2020

Issuance of common stock in connection with follow-on public offering, net of underwriters' discounts, commissions and offering costs 1,612,500 — 41,936 41,936

( 6,997 ) ( 6,997 )

Balances at September 30, 2020 52,890,839 $ 5 $ 324,682 2,952,882 $ ( 26,905 ) $ ( 141,167 ) $ 156,615

Voting Common Stock

2 unchanged sentences

Stockholders’ Equity

Balances at March 31, 2019

Balances at June 30, 2019 17,016,607 $ 1 $ 7,187 22,014,263 $ 102,976 2,166,132 $ ( 12,852 ) $ ( 84,499 ) $ 12,813

Exercise of stock options

29,999 — 17 17

Stock-based compensation expense

Net issuance of RSA grant

Balances at June 30, 2019

( 5,039 ) ( 5,039 )

Balances at September 30, 2019 17,046,606 $ 1 $ 7,269 22,014,263 $ 102,976 2,166,132 $ ( 12,852 ) $ ( 89,538 ) $ 7,856

Sprout Social, Inc.

6 unchanged sentences

Exercise of stock options

950,167 — 362 362

Stock-based compensation expense

1 unchanged sentence

Taxes paid related to net share settlement of equity awards

270,732 ( 6,335 ) ( 6,335 )

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

Balances at June 30, 2020

26,960 — 140 8,345 ( 140 ) —

Issuance of common stock in connection with follow-on public offering, net of underwriters' discounts, commissions and offering costs 1,612,500 — 41,936 41,936

( 25,779 ) ( 25,779 )

Balances at September 30, 2020 52,890,839 $ 5 $ 324,682 2,952,882 $ ( 26,905 ) $ ( 141,167 ) $ 156,615

Voting Common Stock

4 unchanged sentences

Exercise of stock options

125,342 — 62 62

Stock-based compensation expense

Net issuance of RSA grant

Balances at June 30, 2019

242,155 192,281 ( 2,345 ) ( 2,345 )

( 20,957 ) ( 20,957 )

Balances at September 30, 2019 17,046,606 $ 1 $ 7,269 22,014,263 $ 102,976 2,166,132 $ ( 12,852 ) $ ( 89,538 ) $ 7,856

See Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities

Net loss $ ( 25,779 ) $ ( 20,957 )

Adjustments to reconcile net loss to net cash (used in) operating activities

21 unchanged sentences

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 follow-on offering of common stock, net of underwriters' discounts and commissions 42,127 —

Payments for line of credit issuance costs ( 118 ) ( 47 )

3 unchanged sentences

Net cash provided by (used in) financing activities 45,584 ( 3,334 )

Net increase (decrease) in cash and cash equivalents

Net (decrease) in cash and cash equivalents ( 17,532 ) ( 13,590 )

Cash and cash equivalents

3 unchanged sentences

Operating lease liability arising from operating ROU asset obtained $ 5,472 $ —

Property and equipment acquired under lease incentives

Noncash exercise of stock warrants $ 140 $ —

14 unchanged sentences

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.

Follow-on Offering

On August 17, 2020, the Company completed an equity offering in which it issued and sold 1,612,500 shares of Class A common stock, inclusive of the exercised over-allotment option, at a public offering price of $ 27.50 per share.

In addition, 5,287,500 shares of the Company’s common stock were sold by selling shareholders of the Company, inclusive of the over-allotment, as part of this offering.

The Company received net proceeds of $ 42.1 million after deducting underwriting discounts and commissions.

The Company did not receive any proceeds from the sale of common stock by selling shareholders.

Initial Public Offering Over-allotment

On January 15, 2020, the Company 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

5 unchanged sentences

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, filed with the SEC on February 28, 2020.

Sprout Social, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Use of Estimates

2 unchanged sentences

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 August 6, 2020, the date of issuance of this Quarterly Report on Form 10-Q.

The Company is not aware of any events or 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 November 10, 2020, the date of issuance of this Quarterly Report on Form 10-Q.

Actual results could differ from those estimates.

2 unchanged sentences

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 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 28, 2020.

There have been no significant changes to these policies during the six months ended June 30, 2020 , except as noted below.

There have been no significant changes to these policies during the nine months ended September 30, 2020, except as noted below.

Marketable Securities

4 unchanged sentences

Unrealized gains and losses for the available-for-sale debt securities that are unrelated to credit loss factors are recorded in accumulated other comprehensive income (loss), or AOCI.

As of June 30, 2020 and December 31, 2019, the Company’s AOCI bal ance was insignificant.

As of September 30, 2020 and December 31, 2019, the Company’s AOCI balance was insignificant.

Unrealized losses determined to be credit-related are recorded as Other income in the consolidated statements of operations and comprehensive loss and as an allowance for credit losses on Marketable securities on the consolidated balance sheet.

As of June 30, 2020, the gross unrealized loss on available-for-sale debt securities was immaterial and there were no expected credit losses related to the Company's available-for-sale debt securities.

As of September 30, 2020, the gross unrealized loss on available-for-sale debt securities was immaterial and there were no expected credit losses related to the Company's available-for-sale debt securities.

Recently Adopted Accounting Pronouncements

2 unchanged sentences

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.

Sprout Social, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

In August 2018, the FASB issued ASU 2018-15, 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.

1 unchanged sentence

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.

Sprout Social, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Revenue Recognition

5 unchanged sentences

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 June 30, 2020 and 2019 that was included in deferred revenue at the beginning of each period was $ 16.4 million and $ 11.4 million , respectively.

The amount of revenue recognized during the six months ended June 30, 2020 and 2019 that was included in deferred revenue at the beginning of each period was $ 22.3 million and $ 16.6 million , respectively.

The amount of revenue recognized during the three months ended September 30, 2020 and 2019 that was included in deferred revenue at the beginning of each period was $ 17.5 million and $ 11.3 million, respectively.

The amount of revenue recognized during the nine months ended September 30, 2020 and 2019 that was included in deferred revenue at the beginning of each period was $ 27.0 million and $ 19.7 million, respectively.

As of December 31, 2019, 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 June 30, 2020 , including amounts already invoiced and amounts contracted but not yet invoiced, $ 50.9 million of revenue is expected to be recognized from remaining performance obligations, of which 86 % is expected to be recognized in the next 12 months , with the remainder expected to be recognized the following year.

As of September 30, 2020, including amounts already invoiced and amounts contracted but not yet invoiced, $ 53.9 million of revenue is expected to be recognized from remaining performance obligations, of which 87 % is expected to be recognized in the next 12 months, with the remainder expected to be recognized the following year.

Operating Leases

7 unchanged sentences

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 $ 5.4 million right-of-use operating lease asset and operating lease liability.

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.

The lease commenced in September 2020 and is expected to expire in January 2031.

For accounting purposes under ASC 842,

Sprout Social, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table provides a summary of operating lease assets and liabilities as of June 30, 2020 (in thousands):

the lease commenced on January 23, 2020, resulting in the recording of a $ 5.4 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 September 30, 2020 (in thousands):

Operating lease right-of-use assets $ 10,274

3 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Operating lease expense $ 580 $ 541 $ 1,987 $ 1,743

2 unchanged sentences

Within the condensed consolidated statements of operations and comprehensive loss, operating and variable lease expense are recorded in General and administrative expenses and sublease income is recorded in Other income.

Cash payments related to operating leases for the six months ended June 30, 2020 and June 30, 2019 were $ 3.2 million and $ 2.7 million , respectively.

A s of June 30, 2020 , the weighted-average remaining lease term is 8.2 years and the weighted-average discount rate is 5.7 % .

R emaining maturities of operating lease liabilities as of June 30, 2020 are as follows (in thousands):

Cash payments related to operating leases for the nine months ended September 30, 2020 and September 30, 2019 were $ 3.5 million and $ 4.0 million, respectively.

As of September 30, 2020, the weighted-average remaining lease term is 8.2 years and the weighted-average discount rate is 5.6 %.

Remaining maturities of operating lease liabilities as of September 30, 2020 are as follows (in thousands):

Years ending December 31,

Thereafter 16,498

Total future minimum lease payments $ 33,058

12 unchanged sentences

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 six months ended June 30, 2020 , the Company recognized an immaterial provision related to foreign income taxes.

For the nine months ended September 30, 2020, the Company recognized an immaterial provision related to foreign income taxes.

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 June 30, 2020 .

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 September 30, 2020.

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

(in thousands)

9 unchanged sentences

The Company has non-cancellable minimum guaranteed purchase commitments for data and services.

Contractual commitments as of June 30, 2020 are as follows (in thousands):

Contractual commitments as of September 30, 2020 are as follows (in thousands):

Years ending December 31,

2 unchanged sentences

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 June 30, 2020 .

There were no material such matters as of and for the period ended September 30, 2020.

Indemnification

2 unchanged sentences

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 June 30, 2020 .

There were no material obligations under such indemnification agreements as of and for the period ended September 30, 2020.

Segment and Geographic Data

4 unchanged sentences

Long-lived assets by geographical region are based on the location of the legal entity that owns the assets.

As of June 30, 2020 and December 31, 2019 , there were no significant long-lived assets held by entities outside of the United States.

As of September 30, 2020 and December 31, 2019, 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 28 % for each of the nine

Sprout Social, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Revenue by geographical region is determined by location of the Company’s customers.

Revenue from customers outside of the United States was approximately 28 % for each of the six months ended June 30, 2020 and 2019 , respectively.

months ended September 30, 2020 and 2019, respectively.

Revenue by geographical region is as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Americas $ 26,455 $ 20,780 $ 74,847 $ 58,561

EMEA 5,304 4,075 15,363 11,690

Asia Pacific 1,907 1,566 5,393 4,312

Total $ 33,666 $ 26,421 $ 95,603 $ 74,563

Net Loss per Share

4 unchanged sentences

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net loss attributable to common shareholders $ ( 6,997 ) $ ( 5,039 ) $ ( 25,779 ) $ ( 20,957 )

4 unchanged sentences

As such, these are treated as contingently issuable shares and were excluded from potential dilutive impact until the triggering liquidation performance condition was satisfied upon completion of the IPO on December 17, 2019.

September 30,

Stock options outstanding 174,000 1,178,705

RSUs 2,142,801 —

Convertible preferred stock — 22,014,263

Warrants — 35,305

Total potentially dilutive shares 2,316,801 23,228,273

9 unchanged sentences

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):

June 30, 2020

September 30, 2020

Level 1 Level 2 Level 3 Total

Cash equivalents:

4 unchanged sentences

Treasury securities — 10,125 — 10,125

Total assets $ 115,222 $ 49,494 $ — $ 164,716

December 31, 2019

Level 1 Level 2 Level 3 Total

Cash equivalents:

Money market funds $ 129,280 $ — $ — $ 129,280

Total assets $ 129,280 $ — $ — $ 129,280

The Company classifies its money market funds within Level 1 of the fair value hierarchy because they are valued based on quoted prices on active markets.

1 unchanged sentence

The carrying amounts of certain financial instruments, including cash held in banks, 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 June 30, 2020, the Company held investment-grade marketable securities that had maturities within one year and were accounted for as available-for-sale securities.

As of September 30, 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.

2 unchanged sentences

Subsequent Events

The Company has evaluated subsequent events after the balance sheet date through August 6, 2020, 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.

On October 8, 2020, the Company's President and CEO became eligible to receive 120,916 RSUs pursuant to his employment agreement as the Company achieved a market capitalization threshold of $ 2 billion.

Stock-based compensation expense of $ 0.2 million was recognized in relation to this award.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements