What changed in this filing

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Item 1. Business

2021-02-24 compared with 2020-02-28 · 129 added, 90 removed, 371 unchanged (37% of the section changed)

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Sprout Social is a powerful, centralized platform that provides the critical business layer to unlock the massive commercial value of social media.

Currently, more than 23,000 customers across 100 countries rely on our platform to reach larger audiences, create stronger relationships with their customers and make better business decisions.

Sprout Social empowers businesses around the globe to tap into the power and opportunity presented by the shift to social communication.

Social media reaches almost half of the world’s population, significantly influences buying behaviors and has changed the way the world communicates.

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 26,000 customers across 100 countries rely on our platform.

Sprout Social empowers businesses to tap into the power and opportunity presented by the shift to social communication.

Social media reaches almost half of the world’s population, influences buying behaviors and has changed the way the world communicates.

Billions of users are sharing their interests, opinions and values with their social networks every day and are using social media to communicate with and about businesses, organizations and causes on an unprecedented scale.

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.

We offer our customers a centralized, secure and powerful platform that can scale horizontally across an organization to drive maximum business value.

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 and YouTube, we provide organizations with a centralized platform to effectively manage their social media efforts across stakeholders and business functions.

Operating across major networks, including Twitter, Facebook, Instagram, Pinterest, LinkedIn, Google, Reddit, Glassdoor and YouTube, we provide organizations with a centralized platform to manage their social media efforts across stakeholders and business functions.

Our platform is easy-to-use and can be deployed rapidly by new customers without direct engagement from our sales or services teams.

In 2019 , more than 90% of our new customer revenue resulted from our trials and other inbound sources.

Our trial allows prospective customers to set up and use our software within minutes and without assistance.

In 2020, the majority of our new customer revenue resulted from our trials and other inbound sources.

Our 30-day free trial model allows prospective customers to set up and use our software within minutes and without assistance.

We operate a single code-base without the need for customizations or professional services, allowing us to efficiently scale our platform and quickly react to changes in the market.

Relative to our primary competitors, our platform is the top user-rated social media management software across all categories and customer segments according to G2 Crowd, reinforcing our leading market position and brand.

We have proven success in the SMB, Mid-market and Enterprise segments, with balanced revenue and substantial growth in each.

We estimate that less than 5% of the 90 million businesses on social media have adopted software solutions to centrally manage their social media efforts, providing a large, nascent opportunity to drive significantly increased market adoption of our solution and continued growth across all customer segments.

Relative to our primary competitors, our platform is the top user-rated social media management software across all categories and customer segments according to G2, reinforcing our leading market position and brand.

We have proven success in the SMB, Mid-market and Enterprise segments, a healthy agency business and have balanced revenue and growth in each.

We estimate that less than 5% of the more than 200 million businesses on social media have adopted software solutions to centrally manage their social media efforts, providing a large, nascent opportunity to drive significantly increased market adoption of our solution and continued growth across all customer segments.

We have a highly efficient, product-driven go-to-market strategy that has enabled us to scale rapidly, attracting more than 26,000 current customers from small businesses to global brands as well as marketing agencies and government, non-profit and educational institutions.

The strength of our brand and content marketing resulted in more than 9,000 new trials of our software per month on average over the last two years, with more than 95% of those generated through unpaid marketing.

The scale of these trials allows us to rapidly test, adapt and optimize our go-to-market approach for sustained growth.

The strength of our brand and content marketing resulted in the majority of our inbound trials generated through unpaid marketing.

The scale of these trials allows us to rapidly test, adapt and optimize our go-to-market approach for sustained, capital-efficient growth.

Increased adoption of our platform across functions within an organization also represents a large growth opportunity within our existing customer base.

Our platform is licensed on a per-user basis with numerous upsell opportunities through additional users and product modules.

As social becomes a critical channel for all aspects of the customer experience, including brand awareness, customer acquisition, retention and reputation management, we expect that our customers will increase adoption of our platform across departments.

As social becomes a critical channel for all aspects of the customer experience, including brand awareness, customer acquisition, social customer care, commerce and reputation management, we expect that our customers will increase adoption of our platform across departments.

With our efficient go-to-market model and over 99% of our revenue in 2020 from software subscriptions, we have experienced strong unit economics across all customer segments as we continue to grow and refine our sales and marketing efforts.

Our single code-base also creates a highly scalable and capital-efficient model that enables us to add new customers at little incremental cost.

We believe that the single code-base and scalability of our technology are also substantial technology differentiators.

Our success and innovation are driven by an experienced leadership team and award-winning culture with a reputation for caring deeply about the success of our customers and employees.

This strong employer brand allows us to attract and retain high-quality talent and deliver a premium experience for our customers.

Glassdoor has recognized us as one of the “Top Places to Work” in 2017, 2018 and 2020 and as having a “Highest Rated CEO” in 2017, 2018 and 2019.

Glassdoor has recognized us as one of the “Best Places to Work” in 2017, 2018, 2020 and 2021 and as having a “Highest Rated CEO” in 2017, 2018 and 2019.

Our strong culture, world-class management team, leading platform and efficient go-to market strategy have led to revenue of $132.9 million, $102.7 million and $78.8 million during the years ended December 31, 2020, 2019 and 2018, respectively, representing growth of 29% and organic growth of 36% from 2019 to 2020 and representing growth of 30% and organic growth of 44% from 2018 to 2019.

Additionally, we have generated over $117 million in total ARR as of December 31, 2019 .

Additionally, we generated over $158 million in total annualized recurring revenue, or ARR, as of December 31, 2020.

For more information on how we define and calculate our organic growth rate and total ARR, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics—Total ARR.” We generated net losses of $31.7 million, $46.8 million and $20.9 million during the years ended December 31, 2020, 2019 and 2018, respectively.

Social media began as a way for individuals to connect and share experiences.

Networks like Twitter, Facebook, LinkedIn and their predecessors allowed individuals to more easily communicate with friends, family, colleagues and those who shared common interests.

Networks like Twitter, Facebook, LinkedIn and subsequent major networks allowed individuals to more easily communicate with friends, family, colleagues and those who shared common interests.

As social media grew, savvy businesses recognized its power as a channel to market to consumers at scale.

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Social Media’s Impact on Business

Businesses must face the reality that social media is not simply a place to advertise and post marketing content.

Social media has evolved to impact aspects of marketing, public relations, sales, customer relationships, customer service, product feedback, business intelligence and strategy.

Social media is not just a new marketing channel, it is a new layer on top of existing business functions and processes:

Businesses must face the reality that social media is not simply a place to advertise.

Social media has evolved to impact aspects of marketing, public relations, sales, customer relationships, customer service, product feedback, commerce, business intelligence and strategy.

Social media is not just a new marketing channel, it is a new layer that will embed in the digital technology stack across an organization:

• Consumer influence has expanded .

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Brands determined how and when to communicate with their audience, giving them significant control over their reputation.

With the rapid rise of social media, the balance of power has shifted to the consumer.

Nearly half of the world’s population is sharing its opinions and values across social media daily, shaping public perception and influencing purchasing decisions at enormous scale.

With the rise of social media, the balance of power has shifted to the consumer.

Nearly half of the world’s population is sharing opinions across social media daily, shaping public perception and influencing purchasing decisions at enormous scale.

• Social media is driving trends and purchasing decisions .

A significant number of purchasing decisions are originating from, influenced by or transacted through social media.

According to the Sprout Social Index:

Empower & Elevate, 77% of consumers will buy from a brand they follow on social media over another.

According to Creating Connection, 76% of consumers are more likely to buy from a brand that they are connected with on social media.

Additionally, Lyfe Marketing states that consumers report spending 20% to 40% more on brands that have interacted with them on social media.

• Consumer expectations are high .

Consumers demand brands be present and responsive across social networks, with more than 80% anticipating a response to a social media message within 24 hours according to Altitude.

Author Jay Baer found that 39% of consumers who complain on social media expect a response within one hour and, according to The Sprout Social Index:

Social Personality, 23% of consumers have indicated they would boycott a brand after a negative social interaction.

Consumers demand that brands be present and responsive across social networks, with more than 80% anticipating a response to a social media message within 24 hours according to Altitude.

Author Jay Baer found that 39% of consumers who complain on social media expect a response within one hour and, according to The Sprout Social Index, 23% of consumers have indicated they would boycott a brand after a negative social interaction.

• All aspects of business communication are shifting to social .

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Customers are turning to social for customer service, sales inquiries, product feedback and virtually all aspects of the customer experience.

Business systems that were built around telephone and email communication cannot adequately address this shift, requiring a new system of record, intelligence and action as well as adjustments to existing technologies and business processes.

Business systems that were built around telephone and email communication cannot adequately address this shift, requiring a new system of record.

• Unprecedented business intelligence .

We believe social media provides the largest source of business intelligence that has ever existed.

This represents a real time pulse of consumer sentiment that is unbiased and includes a broad universe not only of current customers, but of potential future customers.

Real-time consumer opinions, market trends, competitive insights, product performance and market research can be measured and analyzed using social data.

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Challenges Facing Our Target Market

The rapid, global adoption of social media requires a significant shift in business processes and practices across an organization.

It requires recalibrating and retooling on the same scale as were mandated by the historical shifts to email and telephone.

The global adoption of social media requires a fundamental shift in business processes and practices across an organization.

It requires recalibration and retooling on the same scale as were mandated by the historical shifts to email and telephone.

There are several challenges facing businesses trying to adapt to this new reality:

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Security and privacy issues have dominated the discussion around social media in recent years, leading to increased complexity, risk and regulation.

Conforming to these requirements and maintaining security across dozens to hundreds of social profiles on multiple social networks reinforces the need for centralized management.

Conforming to these requirements and maintaining security

across dozens to hundreds of social profiles on multiple social networks reinforces the need for centralized management.

• Brands need a centralized solution .

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Our relationships with Twitter, Facebook, Instagram, Pinterest, LinkedIn and Google, among others, allow us to build robust solutions that meet today’s business needs while maintaining our focus on innovation as the market evolves.

Our relentless focus on customer relationships and building the highest-quality products have made our platform the highest customer-rated product in every category and customer segment relative to our primary competitors according to G2 Crowd.

The key benefits of our solution include:

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From engagement, publishing, and reporting and analytics to reputation management, business intelligence, advocacy, and workflow and collaboration, our customers can manage their entire social experience seamlessly and more effectively through a single pane of glass.

As a result, our customers currently spend an average of more than four hours every day on our platform.

• Single platform for the entire organization .

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• Proven scale, reliability and security .

With over 23,000 current customers, more than 420,000 social profiles managed, 450 million messages sent per day and hundreds of millions of pieces of content ingested daily, our platform and architecture have the massive scale needed to deliver exceptional performance and reliability, as well as visibility into trends that can indicate where our market is headed.

We have the robust security and compliance tools needed to be successful in a rapidly changing market.

Our customers also enjoy 99.98% uptime and we have the highest security rating among our primary competitors, according to SecurityScorecard.

With over 26,000 current customers, our platform and architecture have the massive scale needed to deliver exceptional performance and reliability, as well as visibility into trends that can indicate where our market is headed.

We have the robust security and compliance tools needed to be successful.

Our Competitive Strengths

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• Massive and growing dataset .

With an average of more than 9,000 new trials per month over the last two years, and over 23,000 current customers and billions of data points, we are able to harness massive amounts of feedback to optimize our products rapidly and in real-time, benefiting our platform by enabling us to understand the key features and products that are important to our customers and create compelling user experiences.

With over 26,000 current customers and billions of data points, we are able to harness massive amounts of feedback to optimize our products rapidly and in real-time, benefiting our platform by enabling us to understand the key features and products that are important to our customers and create compelling user experiences.

• Network relationships.

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We offer live customer support to each customer regardless of spend and customer success has always been deeply rooted in our DNA.

As a result, we have the highest-rated customer support of any platform in the industry according to G2 Crowd when compared to our primary competitors.

World-class leadership team and culture .

As a result, we have the highest-rated customer support of any platform in the industry according to G2 when compared to our primary competitors.

• Large and growing barriers to entry.

Due to the technical complexities on the back end of social media, required network relationships and rising customer emphasis on security, compliance & data privacy, we believe the barriers to entry in our market have risen materially over the past several years.

• World-class culture .

Our success is possible because of our award-winning culture, which allows us to attract and retain top talent.

We have a deep commitment

to our people and our customers that compounds our competitive advantages as we continue to grow.

A company is only as good as its people.

At Sprout, culture is not a buzzword, it is a business strategy.

We do not view it as a set of perks but rather an intentional approach to our employees, customers and communities.

We believe our culture serves as a strong competitive advantage, allowing us to build the kind of company that can truly lead a market, adapt and continue to innovate for our customers.

We believe our ability to execute on our growth strategy is directly related to our award-winning culture with a reputation for caring deeply about our customers and our employees, as evidenced by our top user rating on G2 Crowd and 4.8 rating and 99% CEO approval rating on Glassdoor.

Glassdoor has recognized us as one of the “Top Places to Work” in 2017, 2018 and 2020 and as having a “Highest Rated CEO” in 2017, 2018 and 2019.

We have a deep commitment to our people and our customers that compounds our competitive advantages as we continue to grow.

At Sprout, culture is a business strategy.

We do not view culture as a set of perks but rather an intentional approach to our employees, customers and communities.

We believe our culture serves as a strong competitive advantage, allowing us to build the kind of company that can lead a market, adapt and continue to innovate for our customers.

We believe our ability to execute on our growth strategy is directly related to our award-winning culture with a reputation for caring deeply about our customers and our employees.

This is evidenced by our top user rating on G2 and 4.9 rating and 99% CEO approval rating on Glassdoor.

Glassdoor has recognized us as one of the “Best Places to Work” in 2017, 2018, 2020 and 2021 and as having a “Highest Rated CEO” in 2017, 2018 and 2019.

In 2020, we were also recognized as one of Fortune’s 100 Best Small and Medium Workplaces, one of Fortune’s 25 Best Small and Medium Workplaces for Women, and we were selected as a recipient of the 2020 Tech Cares Award from TrustRadius, awarded to tech companies that went above and beyond to support their clients and communities during the COVID-19 pandemic.

We were also recently ranked #2 on Battery Venture's 25 highest rated public cloud computing companies to work for during the COVID crisis.

This strong employer brand allows us to continue to attract high-quality talent and deliver a premium experience for our customers.

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Our Market Opportunity

Due to social media’s rapidly growing and strategic importance, we believe all organizations of adequate scale around the globe would benefit from using a social media management solution to engage with their consumers and drive insights from social data.

Due to social media’s rapidly growing strategic importance, we believe all organizations of adequate scale around the globe would benefit from using a social media management solution to

engage with their consumers and drive insights from social data.

We also believe our platform addresses this significant capability gap, serving what we refer to as the social media management market.

We estimate that, based on our current average customer spending levels, the annual potential market opportunity for our solution is currently $13 billion in the United States and, with approximately 29% of our revenue coming from customers outside of the United States in 2019 , we believe the opportunity internationally is at least as large.

We also believe there is a significant opportunity to expand

the use of our platform across our customers’ organizations and increase our average customer spending levels.

If we assume spending levels reach the average for the top 10% of our current customers in each segment, our annual potential market opportunity increases to an estimated $51 billion in the United States.

We calculated these estimates using the number of SMBs, Mid-market companies and Enterprises in the United States, based on information published by IDC.

We then multiplied the total number of companies in each segment by, as applicable, our average annualized contract value per customer or the top 10% of our average annualized contract value per customer for companies, in each case, in the applicable segment.

The average annualized contract value per customer for each segment is calculated using internal company data of actual customer spend.

We estimate that, based on our current average customer spending levels, the annual served available market (SAM) for our solution is in excess of $25 billion.

We also believe there is a significant opportunity to expand the use of our platform across our customers’ organizations and increase our average customer spending levels.

If we assume spending levels reach the average for the top 10% of our current customers in each segment, we believe our expanded total available market (TAM) opportunity is greater than $50 billion.

We calculated these estimates by multiplying our current annualized contract value (ACV) (calculated as ending 2020 annualized revenue run-rate, or ARR, divided by ending 2020 total customer count) and the ACV of our top 10% customers by half of the businesses that are currently actively engaged on Facebook, according to public statements made by Facebook.

Our SAM and TAM estimates are what we view as addressable as of today.

Our Growth Strategies

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We intend to aggressively pursue new customers with increasing efficiency in our go-to-market approach while expanding our sales capacity.

Although many new customers adopt our solution during their first engagement with us, we intend to drive higher conversion of our more than 9,000 new trials per month on average through various sales, marketing and product initiatives as one component of our customer acquisition strategy.

Although many new customers adopt our solution during their first engagement with us, we intend to drive higher conversion of new trials through various sales, marketing and product initiatives as one component of our customer acquisition strategy.

• Further penetrate our existing customer base .

We believe we can achieve significant organic growth by expanding penetration of our existing customer base with the addition of new users, new add-on products and new use-cases for our platform.

For example, annual contract values have grown 187% over the past four years through December 31, 2019 , and increased on average more than six times for customers who have adopted our new Listening product, which was introduced in October 2018 and represents over $10 million of total ARR as of December 31, 2019 .

As social media drives businesses to evolve their strategies holistically across customer service and support, corporate communications, product development and recruiting and training, we believe that we have a significant opportunity to increase our sales further into, and outside of, the marketing business unit.

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We are focused on investing in research and development to continue to enhance our platform and release new features and we have one of the largest independent datasets of consumer social media presence.

As we make this investment, we expect to develop new products leveraging our valuable dataset and broadening our offerings, while expanding into adjacent markets within our customer base, as evidenced by the recent launch of our Reputation Management product that reached over 1,000 customers in its first month.

As we make this investment, we expect to develop new products leveraging our valuable dataset and broadening our offerings, while expanding into adjacent markets.

• Expand into international markets .

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As we invest in acquiring new customers, we expect to continue to develop our presence in international markets, such as Europe, Australia and New Zealand, to address this large opportunity.

For example, we recently opened an office in Dublin, Ireland to better serve the EMEA market, and we have sales representatives in Canada, the United Kingdom, Singapore, India and Australia.

For example, we opened an office in Dublin, Ireland to better serve the EMEA market, and we have sales representatives in Canada, the United Kingdom, Singapore, India and Australia.

Social media has created significant opportunities for businesses to reach, acquire, retain and connect with their customers.

It has also introduced a high level of complexity and the need for a centralized platform to manage these efforts across the organization.

It has also introduced a high level of complexity and the need for a

centralized platform to manage these efforts across the organization.

Our platform brings all of the necessary tools together for organizations to expertly and efficiently manage this new channel and create compelling experiences for their audience.

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• Social Engagement / Response;

• Publishing;

• Reporting and Analytics;

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• Public Relations;

Customer Service;

• Customer Service and Care;

• Sales and Customer Acquisition;

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Keeping pace with the evolution of social networks alongside our customers’ usage is a prerequisite for our success.

We believe our competitive advantage is partly due to the relationships we

have built with the social networks over the past nine years.

We believe our competitive advantage is partly due to the relationships we have built with the social networks over the past nine years.

These relationships have enabled us to actively collaborate in lockstep with their respective product and engineering teams to roll out new features for our customers.

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Our engagement tools allow our customers to efficiently and effectively receive and respond to messages across social platforms and provide the collaboration and visibility necessary to create seamless customer experiences across the organization.

• Smart inbox.

We bring public and private messages from across social networks and profiles into a single, unified inbox.

This allows our customers to centralize interactions with their audiences and customers and provides the necessary tools and workflows to deliver seamless customer experiences.

• Social CRM.

When interacting across social channels, context is important.

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We provide tools to route and assign messages, and to measure the performance of our customer’s customer service efforts through social media.

• Automation.

We provide our customers the ability to automate alerts and categorization of messages, as well as a bot-builder technology that can automate high-volume customer conversations in private social channels.

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Our product is effective for nearly every part of an organization and the adoption of our platform spreads across departments through word of mouth.

Our marketing team is focused on generating awareness of our social media management platform and on inbound marketing, attracting an average of over 9,000 new trials per month over the last two years through our industry leading blog and other social content, including our own large social media following.

Of these trials, more than 95% are generated from unpaid marketing, allowing us to rapidly test, adapt and optimize our go-to-market approach for sustained growth.

Our marketing team is focused on generating awareness of our social media management platform and on inbound marketing through our industry leading blog and other social content, including our own large social media following.

The majority of inbound trials are generated from unpaid marketing, allowing us to rapidly test, adapt and optimize our go-to-market for sustained growth.

As of December 31, 2020, our sales and marketing department had 396 employees.

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Customer success has always been deeply rooted in our DNA and we have been intentional with our focus on delivering an exceptional level of quality service to our customers.

As a result, we have the highest-rated customer support according to G2 Crowd when compared to our primary competitors.

As a result, we have the highest-rated customer support according to G2 when compared to our primary competitors.

We provide 24/7 support through email, telephone, chat and social media and weekend support through email and social.

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As of December 31, 2020, our customer service department had 44 employees.

Customer service costs are included in Cost of revenue within the Consolidated Statement of Operations and Comprehensive Loss.

Research and Development

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There are a number of established and emerging competitors in the social media management software market.

The market is highly fragmented, rapidly evolving and highly competitive, with relatively low barriers to entry.

The market is highly fragmented, rapidly evolving and highly competitive with rising barriers to entry.

We consider the competitive differentiators in our market to be:

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We believe we compete favorably on all of these factors.

We primarily face competition from other social media management companies such as Sprinklr, Spredfast and Hootsuite, as well as a range of independent point solutions.

We primarily face competition from other social media management companies such as Sprinklr, Khoros and Hootsuite, as well as a range of independent point solutions.

In order to compete, we work tirelessly to innovate and improve our products, while at the same time, preserving our unique culture.

Simply Measured Acquisition

On December 5, 2017, we entered into a stock purchase agreement to acquire all the shares of Simply Measured, for a total purchase price of $12.6 million.

Simply Measured provided a web-based social media analytics platform.

We acquired Simply Measured to expand our footprint within the consumer insights market by integrating certain aspects of Simply Measured’s technology into our existing platform, which contributed to a purchase price in excess of net tangible and intangible assets acquired.

Legacy Simply Measured products were not integrated into our platform following the acquisition.

However, a small number of legacy Simply Measured customers have continued to access these legacy products and may continue to do so for a limited period in the future as we continue to transition those customers to other Sprout products.

Intellectual Property

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See “Risk Factors—Risks Related to our Business and Industry—Any failure to protect our intellectual property rights could impair our business.”

Regulatory Considerations

Government Regulation

The legal environment of Internet-based businesses is evolving rapidly in the United States and elsewhere.

The manner in which existing laws and regulations are applied in this environment, and how they will relate to our business in particular, both in the United States and internationally, is often unclear.

For example, we sometimes cannot be certain which laws will be deemed applicable to us given the global nature of our business, including with respect to such topics as data privacy and security, pricing, credit card fraud, advertising, taxation, content regulation and intellectual property ownership and infringement.

For example, we sometimes cannot be certain which laws will be deemed applicable to us given the

global nature of our business, including with respect to such topics as data privacy and security, pricing, credit card fraud, advertising, taxation, content regulation and intellectual property ownership and infringement.

Our customers, and those with whom they communicate using our platform, upload and store data onto our platform, generally without any restrictions imposed by us.

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Data privacy, data protection and information security with respect to the collection, storage, use, retention and deletion of personally identifiable information continues to be the focus of worldwide legislation and regulation.

We are subject to data privacy and security regulation by data protection authorities in countries throughout the world, by the U.S.

We are subject to data privacy and security regulations by data protection authorities in countries throughout the world, by the U.S.

federal government and by the states in which we conduct our business.

In the EU, the General Data Protection Regulation, or GDPR, which came into effect in May 2018, imposes stringent privacy, data protection and information security requirements, which include expanded requirements to disclose to data subjects how their personal data is used and increased rights for data subjects to access, control and delete their personal data.

In the EU, the General Data Protection Regulation, or GDPR, which came into effect in May 2018, imposes stringent privacy, data protection, data transfer, and information security requirements, which include expanded requirements to disclose to data subjects how their personal data is used and increased rights for data subjects to access, control and delete their personal data.

In addition, there are mandatory data breach notification requirements and significantly increased penalties of the greater of €20 million or 4% of global turnover for the preceding financial year.

Following a referendum and enactment of legislation by the government of the United Kingdom, the United Kingdom formally withdrew from the European Union on January 31, 2020, known as Brexit, and entered into a transition period during which it will continue its ongoing and complex negotiations with European Union.

Brexit has created uncertainty with regard to the regulation of data protection in the

United Kingdom.

In particular, although the United Kingdom enacted a Data Protection Act in May 2018 that is designed to be consistent with the GDPR, uncertainty remains regarding how data transfers to and from the United Kingdom will be regulated.

We rely on certain frameworks to transfer data.

We are self-certified under the U.S.-EU and U.S.-Swiss Privacy Shield Frameworks with regard to our transfer of certain personal data from the EU and Switzerland to the United States, and some regulatory uncertainty remains surrounding the future of data transfers from the EU and Switzerland to the United States pursuant to this Framework.

GDPR also has requirements regarding the cross border transfer of personal data.

In the past, we have self-certified adherence to the U.S.

Department of Commerce’s EU-U.S.

Privacy Shield Framework (the “Privacy Shield”), which established a means for legitimizing the transfer of personal data from the European Economic Area (“EEA”) to the United States in compliance with GDPR.

On July 16, 2020, the Court of Justice of the European Union invalidated the Privacy Shield as a valid mechanism for the legal transfer of personal data outside of the EEA.

As a result, we have adopted the European Commission-approved Standard Contractual Clauses (“SCCs”) as a transfer mechanism to cover data transfers from an EU controller to a non-EU or EEA processor.

We are continuing to monitor changes in the applicable regulations and guidance and we may need to implement additional measures deemed necessary by applicable law, regulation, or data protection authorities.

Following a referendum and enactment of legislation by the government of the United Kingdom, the United Kingdom formally withdrew from the European Union on January 31, 2020, known as Brexit, and the parties finalized a trade agreement prior to the end of the transition period on December 31, 2020.

As part of the trade agreement, the United Kingdom and the European Union have agreed to a bridging mechanism to ensure data flows freely between the EEA and UK for a period of six months from January 1, 2021 until the European Union issues an adequacy decision for the UK.

Although it is expected that the EU will confer an adequacy decision for the UK, there still remains uncertainty as to the timing of when the adequacy decision will be issued, how the UK version of the GDPR will be implemented alongside its existing UK data protection regulations, and how data transfers to and from the United Kingdom will generally be regulated.

We are self-certified under the U.S.-Swiss Privacy Shield Frameworks with regard to our transfer of certain personal data from the EU and Switzerland to the United States, and some regulatory uncertainty remains surrounding the future of data transfers from the EU and Switzerland to the United States pursuant to this Framework.

In the United States, we are subject to Federal and state laws and regulations regarding privacy and information security.

California also recently enacted legislation, the California Consumer Privacy Act of 2018, or CCPA, that affords consumers expanded privacy protections.

The CCPA went into effect on January 1, 2020.

The CCPA final regulations have not been issued, but the legislation became operative as of the effective date and required modification of our data processing practices and policies in order to address the expanded rights the CCPA provides to California residents, including rights to access and deletion of their personal information, and the right to opt out of certain personal information sharing and receive detailed information about how their personal information is used.

The CCPA went into effect on

January 1, 2020 and the final regulations were approved on August 20, 2020.

The CCPA required modification of our data processing practices and policies in order to address the expanded rights the CCPA provides to California residents, including rights to access and deletion of their personal information, and the right to opt out of certain personal information sharing and receive detailed information about how their personal information is used.

The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation.

The California Privacy Rights Act, or CPRA, which expands on the provisions of the CCPA, will become operative on January 23, 2023, and will introduce additional compliance requirements, such as enhanced opt out and deletion rights, categorization of sensitive personal information, and principles of purpose limitation and data minimization.

There are also a number of other pending U.S.

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In addition, certain laws and regulations that protect the collection, use and disclosure of particular types of data may hinder our ability to provide services to customers and potential customers subjected to such laws.

For example, rules under the Health Insurance Portability and Accountability Act of 1996 governing the collection, use and disclosure of certain health information impose specific data protection obligations on any organization providing services covered organizations.

As another example, the Gramm-Leach-Bliley Act of 1999 imposes specific obligations on companies that process certain financial data on behalf of covered entities.

We do not currently certify that our platform complies with these regulations.

In order to compete in such highly regulated markets, we will have to invest in additional resources, establish processes and introduce additional measures to satisfy regulatory requirements applicable to companies serving such covered entities.

In order to compete in such highly regulated markets, we may have to invest in additional resources, establish processes and introduce additional measures to satisfy regulatory requirements applicable to companies serving such covered entities.

and international copyright and trademark laws protect the rights of third parties from infringement of their intellectual property.

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The copyright infringement policies that we have implemented for our platform are intended to satisfy the DMCA safe harbor.

Human Capital

As of December 31, 2020, we had a total of 700 full-time employees, including 92 employees located outside the United States.

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We have not experienced any work stoppages, and we consider our relations with our employees to be good.

We were incorporated under the laws of the State of Delaware in April 2010.

We completed our initial public offering of our Class A common stock on December 17, 2019.

Our commitment to our employees is to foster a culture that enables every member of the Sprout team to do their best work in the most fulfilling way possible.

We strive to honor this commitment by prioritizing employee engagement and development, diversity equity and inclusion, and employee benefits and wellness.

Employee Engagement & Development:

• To ensure an active feedback loop, we field employee inclusion and engagement surveys.

In 2020, topics included the remote work environment, talent development needs, and our culture of feedback.

The feedback we received regarding remote work directly shaped our strategy for a more distributed work environment and performance-focused culture.

• We have developed programs to ensure Sprout is a career accelerator for employees of all backgrounds, including our New Leader Training and Emerging Leaders Mentor Program (with focus on underrepresented talent seeking to move into leadership).

Both programs consistently experience strong employee participation.

Our Grow@ digital and on-demand platform provides education and development opportunities through internal programs and third party vendors.

Diversity, Equity and Inclusion:

• As a step towards establishing future workforce goals, we released our first demographic report to provide transparency into where we stand, where we’ve progressed and where we need to improve in the areas of diversity, equity and inclusion.

We intend to report our progress against the initiatives identified on an ongoing basis.

• We focused our sourcing efforts on underrepresented backgrounds and held our Recruitment Team accountable to prospecting diverse talent.

• We launched a program to encourage our hiring managers to proactively build diverse networks, adding hundreds of diverse prospects to our candidate pipelines.

• To ensure our employees support and help drive our Diversity, Equity, and Inclusion efforts, all new hires complete a two-part unconscious bias training as part of their onboarding.

• We encourage our employees to attend our monthly, employee-led DEI Guild meetings to discuss relevant topics such as the criminal justice system and voter suppression.

We avoid scheduling any other meetings during this time so employees can prioritize DEI education.

• Our Business Resource Groups (BRGs), such as Black@, LGBTQ@, Women@, and Accessibility (A11y), provide space for team members to connect with those who share a common identity.

BRGs support business initiatives through four lenses:

culture, colleagues, commercial interests and community.

Each group works with an executive sponsor and presents their strategic plans to our Executive Team.

• Our Always Be Growing Enrichment Program is a leadership-sponsored program focused on investing additional instruction, education, and support to our Black, Indigenous, and People of Color employees who are individual contributors.

• We partner with community organizations like re:work, Chicago Scholars, and Black Girls Code to improve hiring, retention and promotion of underrepresented talent.

• We actively recruit from Historically Black Colleges and Universities, and Hispanic Serving Institutions, partnering with student organizations that serve traditionally underrepresented groups in tech.

Compensation, Benefits, and Employee Wellness:

To recruit and retain the best talent in the marketplace, we routinely refresh our total rewards program:

• In addition to competitive salaries, stock based compensation awards, and flexible healthcare and insurance benefits, we offer the following programs, which vary by country/region:

paid time off, family leave, flexible work schedules and 401(k) matching.

• Amidst the COVID-19 pandemic, we increased our confidential and comprehensive health and wellness offerings.

• In March 2020, we suspended office operations for all of our offices, following local and state-level recommendations, CDC and WHO guidance.

We provided a stipend to assist employees with covering costs for internet and home office equipment.

• In addition to providing employees tools through platforms like Modern Health and our Employee Assistance Program, in December 2020, our DEI Guild meeting topic was “How Mental Health Affects Us All,” providing a resource deck, reading and listening materials, community support, and points of contact for employees looking for education or additional support on mental health.

Our Website and Availability of SEC Reports and Other Information

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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-K

Item 1. Business