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Item 9A. Controls and Procedures

2021-02-24 compared with 2020-02-28 · 49 added, 56 removed, 130 unchanged (45% of the section changed)

2 unchanged sentences

Our management, with the participation of our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of December 31, 2020.

Because of the material weakness in our internal control over financial reporting, as discussed below, our CEO and CFO have concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this Annual Report.

In light of this, our management, including the CEO and CFO, has performed additional analyses, reconciliations and other post-closing procedures and has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the consolidated financial statements for the periods covered by and included in this Annual Report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S.

Previously reported material weakness

Based on such evaluation, our CEO and CFO have concluded that as of December 31, 2020, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Remediation of material weakness

In connection with the audit of our financial statements for the year ended December 31, 2018, we identified a material weakness in our internal controls over financial reporting, as defined by the standards established by the Sarbanes-Oxley Act of 2002.

1 unchanged sentence

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis.

During 2019, management continued to implement remediation initiatives in response to the previously identified material weakness, including but not limited to, hiring additional qualified accounting and financial reporting personnel and further evolving our accounting processes, including those designed to strengthen our review process related to accounting for non-recurring transactions and transactions requiring more complex accounting judgment.

While we believe that these efforts have improved and will continue to improve our internal control over financial reporting, remediation of the material weakness will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.

Therefore, this material weakness has not been remediated as of December 31, 2019.

This deficiency could result in additional misstatements to our consolidated financial statements that would be material and would not be prevented or detected in a timely manner.

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

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

During 2019 and 2020, management implemented remediation initiatives in response to the previously identified material weakness.

Specific remedial actions undertaken by management include:

• Hiring additional qualified accounting and financial reporting personnel who possess public company accounting and reporting technical expertise;

• Implementing new controls and enhancing existing processes to strengthen our review process relating to accounting for non-recurring transactions and transactions requiring more complex accounting judgment.

These controls and processes are designed around identification, documentation and application of GAAP technical accounting guidance for such transactions and also include additional supervision and review activities by qualified personnel.

During the quarter ended December 31, 2020, we completed the testing and evaluation of the operating effectiveness of the controls, and concluded that the previously reported material weakness has been remediated as of December 31, 2020.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020.

In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013).

Based on this evaluation, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2020.

Changes in internal controls

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Other than implementation of the initiatives to remediate the material weakness noted above, there were no changes in our internal controls over financial reporting during the period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

Management’s report and attestation of the registered public accounting firm

This Annual Report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm as permitted in this transition period under the rules of the SEC for newly public companies.

A report of management’s assessment regarding internal control over financial reporting will be required to be included in our Annual Report on the Form 10-K for the year ended December 31, 2020.

Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the SEC following the later of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the Exchange Act, or the date we are no longer an emerging growth company, as defined in the JOBS Act.

We could be an emerging growth company for up to five years.

Inherent Limitations of Internal Controls

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will have been detected.

There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Attestation of the registered public accounting firm

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting.

Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

Other Information

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Directors, Executive Officers and Corporate Governance

3 unchanged sentences

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be incorporated by reference to our Proxy Statement for the 2020 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the year ended December 31, 2019 .

The information required by this item, including the “securities authorized for issuance under equity compensation plans” table, will be incorporated by reference to our Proxy Statement for the 2021 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the year ended December 31, 2020.

Certain Relationships and Related Transactions, and Director Independence

10 unchanged sentences

333-23416) filed on December 2, 2019).

Warrant to Purchase Stock, by and between Silicon Valley Bank and the Registrant, dated as of November 24, 2014 (Incorporated by reference to Exhibit 4.2 to Amendment No.

1 to the Registrant’s Registration Statement on Form S-1 (File No.

333-23416) filed on December 2, 2019).

Warrant to Purchase Stock, by and between Silicon Valley Bank and the Registrant, dated as of November 6, 2015 (Incorporated by reference to Exhibit 4.3 to Amendment No.

1 to the Registrant’s Registration Statement on Form S-1 (File No.

333-23416) filed on December 2, 2019).

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

4.2 Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (Incorporated by reference to Exhibit 4.4 to Sprout Social’s Annual Report on Form 10-K for the year ended December 31, 2019).

10.1 Loan and Security Agreement, dated as of December 1, 2017, by and between the Registrant and Silicon Valley Bank (Incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 (File No.

10 unchanged sentences

333-23416) filed on December 2, 2019).

Letter Amendment to Loan and Security Agreement, dated as of February 5, 2020, by and between the Registrant and Silicon Valley Bank.

10.6 Letter Amendment to Loan and Security Agreement, dated as of February 5, 2020, by and between the Registrant and Silicon Valley Bank (Incorporated by reference to Exhibit 10.6 to Sprout Social’s Annual Report on Form 10-K for the year ended December 31, 2019).

10.7† Sprout Social, Inc.

35 unchanged sentences

10.18† Form of Notice of Grant of Restricted Stock Units and Restricted Stock Unit Agreement pursuant to the Sprout Social, Inc.

2019 Incentive Award Plan, approved February 19, 2020 ( Incorporated by reference to Exhibit 10.18 to Sprout Social’s Annual Report on Form 10-K for the year ended December 31, 2019).

10.19† Form of Non- Employ ee Director Notice of Grant of Restricted Stock Units and Restricted Stock Unit Agreement pursuant to the Sprout Social, Inc.

2019 Incentive Award Plan, approved February 19, 2020 .

10.20† Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Agreement pursuant to the Sprout Social, Inc.

2019 Class B Incentive Award Plan.

2019 Class B Incentive Award Plan (Incorporated by reference to Exhibit 10.19 to Sprout Social’s Annual Report on Form 10-K for the year ended December 31, 2019).

10.21† Sprout Social, Inc.

Non-Employee Director Compensation Policy (Incorporated by reference to Exhibit 10.16 to Amendment No.

1 to the Registrant’s Registration Statement on Form S-1 (File No.

333-23416) filed on December 2, 2019).

Non-Employee Director Compensation Policy (Incorporated by reference to Exhibit 10.2 to Sprout Social’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020).

10.22† Amended and Restated Executive Employment Agreement, dated as of November 29, 2019, by and between the Registrant and Justyn Howard (Incorporated by reference to Exhibit 10.17 to Amendment No.

4 unchanged sentences

333-23416) filed on December 2, 2019).

10.24† Side Letter, dated December 28, 2020, between the Registrant and Ryan Barretto (Incorporated by reference to Exhibit 10.1 to Sprout Social’s Current Report on Form 8-K filed on December 28, 2020).

10.25† Amended and Restated Executive Employment Agreement, dated as of February 20, 2020, by and between the Registrant and Joe Del Preto (Incorporated by reference to Exhibit 10.1 to Sprout Social’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020).

10.26† Amended and Restated Executive Employment Agreement, dated November 29, 2019, by and between the Registrant and Jamie Gilpin (Incorporated by reference to Exhibit 10.19 to Amendment No.

23 unchanged sentences

333-23416) filed on December 2, 2019).

Form of Exchange Agreement (Incorporated by reference to Exhibit 10.27 to Amendment No.

1 to the Registrant’s Registration Statement on Form S-1 (File No.

333-23416) filed on December 2, 2019).

21.1 List of Subsidiaries of the Registrant (Incorporated by reference to Exhibit 21.1 to the Registrant’s Registration Statement on Form S-1 (File No.

7 unchanged sentences

Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document.

101.SCH Inline XBRL Taxonomy Extension Schema Document.

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104 The cover page from the Annual Report on Form 10-K, formatted as Inline XBRL (included in Exhibits 101).

________________

4 unchanged sentences

Justyn Howard

President, Chief Executive Officer and Director

Chairman of the Board of Directors and Chief Executive Officer

February 24, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities set forth opposite their names and on the dates indicated.

Signature Title Date

/s/ Justyn Howard

Justyn Howard

President, Chief Executive Officer and Director (Principal Executive Officer)

February 27, 2020

/s/ Joe Del Preto

Joe Del Preto

Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)

February 27, 2020

/s/ Aaron Rankin

Chief Technology Officer and Director

February 27, 2020

Justyn Howard Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) February 24, 2021

/s/ Peter Barris

February 27, 2020

Peter Barris Director February 24, 2021

/s/ Steven Collins

Steven Collins

February 27, 2020

Steven Collins Director February 24, 2021

/s/ Joe Del Preto

Joe Del Preto Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) February 24, 2021

/s/ Jason Kreuziger

Jason Kreuziger

February 27, 2020

Jason Kreuziger Director February 24, 2021

/s/ Raina Moskowitz

Raina Moskowitz Director February 24, 2021

/s/ Aaron Rankin

Aaron Rankin Chief Technology Officer and Director February 24, 2021

/s/ Karen Walker

February 27, 2020

Karen Walker Director February 24, 2021

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 9A. Controls and Procedures