Sprout Social, Inc. 10-Q

Item 1. Financial Statements Sprout Social, Inc. Condensed Consolidated Balance Sheet (Unaudited) (in thousands, except share and per share data) September 30, 2020 December 31, 2019 (Unaudited) Assets Current assets Cash and cash equivalents $ 117,778 $ 135,310 Marketable securities 49,494 — 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 Prepaid expenses and other assets 4,565 5,050 Total current assets 193,699 157,033 Property and equipment, net 14,243 13,529 Deferred commissions, net of current portion 7,199 5,505 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 Current liabilities Accounts payable $ 2,037 $ 2,049 Deferred revenue 37,258 29,566 Operating lease liabilities 1,904 2,331 Accrued wages and payroll related benefits 4,900 4,053 Accrued expenses and other 5,555 5,057 Total current liabilities 51,654 43,056 Deferred revenue, net of current portion 239 209 Operating lease liabilities, net of current portion 23,744 18,196 Total liabilities 75,637 61,461 Commitments and contingencies (Note 6) 4 Sprout Social, Inc. Condensed Consolidated Balance Sheets (Unaudited) (cont’d) (in thousands, except share and per share data) September 30, 2020 December 31, 2019 (Unaudited) Stockholders’ equity Class A common stock, par value $ 0.0001 per share; 1,000,000,000 shares authorized; 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 4 4 Class B common stock, par value $ 0.0001 per share; 25,000,000 shares authorized; 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 1 1 Additional paid-in capital 324,682 263,943 Treasury stock, at cost ( 26,905 ) ( 20,430 ) Accumulated deficit ( 141,167 ) ( 115,388 ) Total stockholders’ equity 156,615 128,130 Total liabilities and stockholders’ equity $ 232,252 $ 189,591 See Notes to Condensed Consolidated Financial Statements. 5 Sprout Social, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (in thousands, except share and per share data) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenue Subscription $ 33,370 $ 26,284 $ 94,889 $ 74,285 Professional services and other 296 137 714 278 Total revenue 33,666 26,421 95,603 74,563 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 Research and development 7,693 6,361 22,686 19,137 Sales and marketing 14,774 11,894 42,852 34,074 General and administrative 9,346 6,056 30,970 23,417 Total operating expenses 31,813 24,311 96,508 76,628 Loss from operations ( 6,921 ) ( 5,119 ) ( 26,207 ) ( 21,353 ) Interest expense ( 94 ) ( 70 ) ( 285 ) ( 199 ) Interest income 50 61 563 256 Other income 19 108 222 388 Loss before income taxes ( 6,946 ) ( 5,020 ) ( 25,707 ) ( 20,908 ) Income tax expense 51 19 72 49 Net loss and comprehensive loss $ ( 6,997 ) $ ( 5,039 ) $ ( 25,779 ) $ ( 20,957 ) 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. 6 Sprout Social, Inc. Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ 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 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 2,560 2,560 Issuance of common stock from equity award settlement 146,701 — — 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 Net loss ( 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 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’ Equity Shares Amount Shares Amount Shares Amount 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 65 65 Net loss ( 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 7 Sprout Social, Inc. Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ 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, 2019 48,844,998 $ 5 $ 263,943 2,673,805 $ ( 20,430 ) $ ( 115,388 ) $ 128,130 Exercise of stock options 950,167 — 362 362 Stock-based compensation expense 8,563 8,563 Issuance of common stock from equity award settlement 826,611 — — 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 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 Net loss ( 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 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’ Equity Shares Amount Shares Amount Shares Amount Balances at December 31, 2018 16,679,109 $ 1 $ 1,844 22,014,263 $ 102,976 1,973,851 $ ( 10,507 ) $ ( 68,581 ) $ 25,733 Exercise of stock options 125,342 — 62 62 Stock-based compensation expense 5,363 5,363 Net issuance of RSA grant 242,155 192,281 ( 2,345 ) ( 2,345 ) Net loss ( 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. 8 Sprout Social, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Nine Months Ended September 30, 2020 2019 Cash flows from operating activities Net loss $ ( 25,779 ) $ ( 20,957 ) Adjustments to reconcile net loss to net cash (used in) operating activities Depreciation of property and equipment 2,120 2,031 Amortization of line of credit issuance costs 171 149 Amortization of premium on investments 228 — Amortization of acquired intangible assets 1,070 1,156 Amortization of deferred commissions 5,412 3,380 Amortization of right-of-use operating lease asset 911 811 Stock-based compensation expense 8,563 5,363 Provision for accounts receivable allowances 1,882 1,175 Changes in operating assets and liabilities Accounts receivable ( 5,190 ) ( 912 ) Prepaid expenses and other current assets 339 ( 840 ) Deferred commissions ( 8,988 ) ( 4,922 ) Accounts payable and accrued expenses 713 ( 333 ) Deferred revenue 7,721 5,097 Lease liabilities ( 351 ) ( 910 ) Net cash (used in) operating activities ( 11,178 ) ( 9,712 ) Cash flows from investing activities Purchases of property and equipment ( 2,216 ) ( 544 ) Purchases of marketable securities ( 49,722 ) — Net cash (used in) investing activities ( 51,938 ) ( 544 ) 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 follow-on offering of common stock, net of underwriters' discounts and commissions 42,127 — Payments for line of credit issuance costs ( 118 ) ( 47 ) Proceeds from exercise of stock options 362 62 Employee taxes paid related to the net share settlement of stock-based awards ( 6,335 ) ( 1,798 ) Payments of deferred offering costs ( 406 ) ( 1,551 ) Net cash provided by (used in) financing activities 45,584 ( 3,334 ) Net (decrease) in cash and cash equivalents ( 17,532 ) ( 13,590 ) Cash and cash equivalents Beginning of period 135,310 26,190 End of period $ 117,778 $ 12,600 Supplemental noncash disclosures Operating lease liability arising from operating ROU asset obtained $ 5,472 $ — Noncash exercise of stock warrants $ 140 $ — Deferred offering costs, accrued but not yet paid $ — $ 1,123 Employee taxes related to the net share settlement of stock-based awards, accrued but not yet paid $ — $ 547 Balance of property and equipment in accounts payable $ 765 $ — See Notes to Condensed Consolidated Financial Statements. 9 Sprout Social, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 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. 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 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, 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 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, filed with the SEC on February 28, 2020. 10 Sprout Social, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 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 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. 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 rate for operating leases, calculation of allowance for doubtful accounts, 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 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 nine months ended September 30, 2020, except as noted below. Marketable Securities Marketable securities consist of corporate bonds, commercial paper, and U.S. Treasury securities. The Company classifies marketable securities as available-for-sale at the time of purchase and reevaluates such classification as of each balance sheet date. All marketable securities are recorded at their estimated fair values. 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 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 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 In June 2016, the FASB issued ASU 2016-13, including subsequent amendments, Measurement 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. This guidance is effective for interim and annual 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. 11 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. 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. 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 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 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. 3. Operating Leases The Company entered into operating lease agreements for offices in Chicago, Illinois, San Francisco, California, and Seattle, Washington. The operating leases require escalating monthly rental payments ranging from $ 17,000 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 lease expires in January 2028 and the Seattle lease expired in July 2020. 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 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. The lease commenced in September 2020 and is expected to expire in January 2031. For accounting purposes under ASC 842, 12 Sprout Social, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 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): Assets Operating lease right-of-use assets $ 10,274 Liabilities Operating lease liabilities 1,904 Operating lease liabilities, non-current 23,744 Total operating lease liabilities $ 25,648 The following table provides information about leases on the condensed consolidated statements of operations and comprehensive loss (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Operating lease expense $ 580 $ 541 $ 1,987 $ 1,743 Variable lease expense 875 926 2,457 2,607 Sublease income 20 108 223 388 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 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, 2020 $ 729 2021 3,768 2022 3,930 2023 4,021 2024 4,112 Thereafter 16,498 Total future minimum lease payments $ 33,058 Less: imputed interest ( 6,670 ) Less: lease incentives (1) ( 740 ) Total operating lease liabilities $ 25,648 _________________ (1) Includes lease incentives that will be realized in 2020. 13 Sprout Social, Inc. 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 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 September 30, 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 September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (in thousands) Cost of revenue $ 153 $ — $ 617 $ — Research and development 509 — 1,443 — Sales and marketing 667 — 1,833 — General and administrative 1,231 65 4,670 5,363 Total stock-based compensation $ 2,560 $ 65 $ 8,563 $ 5,363 14 Sprout Social, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 6. Commitments and Contingencies Contractual Obligations The Company has non-cancellable minimum guaranteed purchase commitments for data and services. Contractual commitments as of September 30, 2020 are as follows (in thousands): Years ending December 31, 2020 $ 3,393 2021 20,486 2022 27,495 2023 15,222 2024 — Thereafter — Total contract commitments $ 66,596 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 September 30, 2020. 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 September 30, 2020. 7. Segment and Geographic Data The Company operates as one 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 one 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 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 15 Sprout Social, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) months ended September 30, 2020 and 2019, respectively. Revenue by geographical region is as follows (in thousands): 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 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, restricted stock awards, preferred stock and warrants. 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 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 ) Weighted average common shares outstanding 51,910,517 16,948,809 50,777,222 16,829,622 Net loss per share, basic and diluted $ ( 0.13 ) $ ( 0.30 ) $ ( 0.51 ) $ ( 1.25 ) 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. The Company’s RSUs included a triggering liquidation performance condition prior to vesting. 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, 2020 2019 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 16 Sprout Social, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 9. Fair Value Measurements The 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 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 derive fair values are classified based on a three-level hierarchy, as follows: • Level 1: Quoted prices in active markets for identical assets or liabilities. • 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 full term of the 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): September 30, 2020 Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 115,222 $ — $ — $ 115,222 Marketable Securities: Corporate bonds — 22,908 — 22,908 Commercial paper — 16,461 — 16,461 U.S. 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. 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, 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 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. 17 Sprout Social, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 10. Subsequent Events 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. 18