What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-23 · 138 added, 149 removed, 492 unchanged (37% of the section changed)

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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 31,000 customers across more than 100 countries rely on our platform.

Currently, approximately 30,000 customers across more than 100 countries rely on our platform.

Introduced in 2011, our cloud software brings together social messaging, data and workflows in a unified system of record, intelligence and action.

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We offer our customers a centralized, secure and powerful platform to manage this broad, complex channel effectively across their organization.

Since our founding, we have achieved several key milestones:

• 2010 — Founded Company, launched V1 beta and Lightbank became an investor;

• 2011 — Launched our Sprout platform, surpassed 1,000 customers and entities affiliated with NEA became investors;

• 2015/16 — Surpassed 15,000 customers, surpassed 250 employees and Goldman Sachs became an investor;

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

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

• 2019 — Completed our IPO resulting in $134.3 million of net proceeds (excluding $10.0 million of additional net proceeds from the underwriters’ exercise of their over-allotment option in January 2020), surpassed $100 million in ARR and awarded one of Glassdoor’s “Top CEOs, companies under 1,000 employees, 2019”;

• 2020 — Completed our follow-on offering resulting in $42.1 million in net proceeds, awarded one of Glassdoor’s “Best Place to Work” in 2020, 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 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;

• 2021 — Surpassed 31,000 customers and $220 million in Annualized Recurring Revenue (ARR), awarded one of Glassdoor’s “Best Place to Work” in 2022, ranked #3 on Battery Venture’s 25 Highest Rated Public Cloud Computing Companies to Work For, added a new level of transparency to its Environmental, Social and Governance (ESG) commitments, announced a first-of-its kind social commerce solution, and recognized by G2 as one of the 2021 Best Software Companies;

• 2022 — Surpassed 34,000 customers and $296 million in ARR, awarded one of Glassdoor’s “Best Place to Work” in 2023, named to the 2022 PEOPLE Companies that Care list, recognized by G2 as one of the 2022 Best Software Companies, integrated with TikTok and announced a new partnership with Salesforce making it easy for Salesforce customers to manage their social media presence through Sprout Social.

• 2023 — Acquired influencer marketing leader Tagger Media for $140 million, named to the 2023 Fortune Best Workplaces in Technology List, recognized by G2 as a leader across 138 companies and as the 3rd highest rated software by G2, recognized by Great Place to Work as a Best Workplace in Chicago and Best Workplace for Millennials and announced a continued strategic partnership with X (formerly known as Twitter).

We generate revenue primarily from subscriptions to our social media management platform under a software-as-a-service model.

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Subscription revenue is recognized ratably over the contract terms beginning on the date the product is made available to customers, which typically begins on the commencement date of each contract.

We also generate revenue from professional services related to our platform provided to certain customers, which is recognized at the time these services are provided to the customer.

We also generate revenue from professional services related to our platform provided to certain customers, which is generally recognized at the time these services are provided to the customer.

This revenue has historically represented less than 1% of our revenue and is expected to be immaterial for the foreseeable future.

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Macroeconomic Conditions

As a company with a global footprint, we are subject to risks and exposures caused by significant events and their macroeconomic impacts, including, but not limited to, high levels of inflation, high interest rates, ongoing overseas conflict, volatility in the capital markets and related market uncertainty.

As a company with a global footprint, we are subject to risks and exposures caused by significant events and their macroeconomic impacts, including, but not limited to, fluctuations in inflation and interest rates, ongoing overseas conflict, volatility in the capital markets and related market uncertainty.

We continuously monitor the direct and indirect impacts, and the potential for future impacts, of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape.

Given the importance of our technology platform and heightened market awareness of social media as a strategic communications channel, these factors have not had a material

adverse impact on our operational and financial performance to date.

However, the potential implications of these macroeconomic events on our business, results of operations and overall financial position, particularly in the long term, introduce additional uncertainty.

Our current and prospective customers are impacted by worsening macroeconomic conditions to varying degrees.

We are continuing to monitor for potential future direct and indirect impacts on our business and results of operations.

Our current and prospective customers are impacted by these macroeconomic conditions to varying degrees.

Potentially as a result of these various macroeconomic impacts on our current and prospective customers, we periodically have experienced more measured buying behavior by current and prospective customers and lengthening of the average sales cycle for certain types of customers and sales (including sales to prospective customers and expansion sales to current customers), which have contributed to a slowdown in our revenue growth as compared to historical levels.

We believe macroeconomic uncertainty could persist, and as a result, we expect that some or all of these negative trends may emerge or recur during future quarters.

Acquisition of Tagger Media, Inc.

On August 2, 2023, we completed our acquisition of all the outstanding equity of Tagger Media, Inc.

(“Tagger”), for a total preliminary purchase consideration of $144 million.

(“Tagger”), for a total purchase consideration of $144 million.

We acquired Tagger in order to expand into the influencer marketing category.

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We funded the purchase consideration with a combination of cash on hand and $75 million borrowed under the Facility (defined below), which is further described in Note 8 - Revolving Line of Credit of the Notes to the Financial Statements (Part I, Item 8 of this Annual Report).

The purchase price allocation as of the date of acquisition was based on a preliminary valuation and is subject to revision as more detailed analyses are completed and additional information about the fair value of assets and liabilities acquired become available.

We expect to finalize the allocation of the purchase consideration as soon as practicable, pending any other adjustments to acquired assets or liabilities, but no later than 12 months from the acquisition date.

The fair values of the tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions.

The allocation of fair value of purchase consideration was finalized in the second quarter of 2024.

We have included the financial results of Tagger in our consolidated financial statements from the date of acquisition.

The impact of Tagger’s financial results following the date of acquisition were not significant to Sprout’s consolidated financial statements.

The impact of Tagger’s financial results following the date of acquisition were not significant to Sprout Social’s consolidated financial statements.

Refer to Note 4 - Business Combinations of the Notes to the Financial Statements (Part I, Item 8 of this Annual Report) for further discussion.

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On January 19, 2023, we completed the acquisition of Repustate, Inc.

for a total final purchase consideration of approximately $8.3 million, consisting of approximately $6.8 million in cash paid at the closing time of the acquisition and a holdback of $1.5 million in cash to be paid as purchase consideration after the one-year anniversary of the closing of the acquisition, assuming no claims by the Company against the holdback amount for post-closing purchase price adjustments or indemnification matters.

for a total purchase consideration of $8.3 million, consisting of approximately $6.8 million in cash paid at the closing time of the acquisition and a holdback of $1.5 million in cash to be paid as purchase consideration after the one-year anniversary of the closing of the acquisition, assuming no claims by the Company against the holdback amount for post-closing purchase price adjustments or indemnification matters.

The purchase price holdback was paid in full in January 2024.

The fair values of the tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions.

The allocation of fair value of purchase consideration was finalized in the fourth quarter of 2023, and there were no material changes to the fair value of assets acquired and liabilities assumed, as previously reported.

The allocation of fair value of purchase consideration was finalized in the fourth quarter of 2023.

The Repustate acquisition has increased our power, breadth and automation of social listening, messaging, and customer care capabilities with added sentiment analysis, natural language processing (NLP) and artificial intelligence (AI).

We have included the financial results of Repustate in our condensed consolidated financial statements from the date of acquisition.

The impact of Repustate’s financial results following the date of acquisition were not significant to Sprout’s consolidated financial statements.

We have included the financial results of Repustate in our consolidated financial statements from the date of acquisition.

The impact of Repustate’s financial results following the date of acquisition were not significant to Sprout Social’s consolidated financial statements.

Refer to Note 4 - Business Combinations of the Notes to the Financial Statements (Part I, Item 8 of this Annual Report) for further discussion.

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We have invested, and expect to continue to invest, heavily in expanding our sales force and marketing efforts to acquire new customers.

Currently, we have more than 31,000 customers.

In November 2022, we announced a price increase.

For the year ended December 31, 2023, as compared to the year ended December 31, 2022, this price increase contributed to an increase in our average revenue per customer.

While our total number of customers decreased over this same period, our number of customers contributing over $10,000 in ARR and $50,000 in ARR increased.

We expect this trend to continue as we remain focused on our most sophisticated customers.

We calculate the lifetime value of our customers and associated customer acquisition costs for a particular year by comparing (i) gross profit from net new ARR for the year divided by one minus the estimated subscription renewal rate to (ii) total sales and marketing expense incurred in the preceding year.

On this basis, we estimate that for each of 2023 and 2022, the calculated lifetime value of our customers has exceeded six times the associated cost of acquiring them.

This calculation assumes the actual subscription renewal rate for the period will remain consistent in future years.

While we believe this assumption is reasonable based on our historic data and experience, subscription renewal rates may vary year-to-year, and the lifetime value of our customers may decline or fluctuate between periods.

Moreover, our sales and marketing expense reflects the amortization of sales commissions, which are deferred and amortized over a three-year period in accordance with GAAP.

If all sales commissions incurred in the year were expensed and not amortized, the result would not have a material impact on the lifetime value of our customers.

See “—Key Business Metrics—ARR” for more information on how we define and calculate ARR.

Currently, we have approximately 30,000 customers.

For the year ended December 31, 2024, as compared to the year ended December 31, 2023, while our total number of customers decreased, our number of customers contributing over $10,000 in annualized recurring revenue (“ARR”) and $50,000 in ARR increased.

In addition, as we continue to focus on expanding our enterprise customer base, we have experienced and expect to continue to experience longer and more expansive average sale cycles and increased pricing pressure, which may be exacerbated by the macroeconomic factors described above.

We expect these trends to continue as we remain focused on our most sophisticated customers.

Expanding within our current customer base

We believe that there is a substantial and largely untapped opportunity for organic growth within our existing customer base.

We believe that there is a substantial opportunity for organic growth within our existing customer base.

Customers often begin by purchasing a small number of user subscriptions and then expand over time, increasing the number of users or social profiles, as well as purchasing additional product modules.

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This calculation is net of upsells, contraction, cancellation or expansion during the period but excludes ARR from new customers.

See “—Key Business Metrics—ARR” for more information on how we define and calculate ARR.

Sustaining product and technology innovation

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We have teams in Ireland, Canada, the United Kingdom, Singapore, India, Australia, the Philippines and Poland to support our growth internationally.

We believe global demand for our platform and offerings will continue to increase as awareness of our platform in international markets grows.

We believe global demand for our

platform and offerings will continue to increase as awareness of our platform in international markets grows.

We plan to continue adding to our local sales, customer support and customer success teams in select international markets over time.

Key Business Metrics

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

Number of customers

We define a customer as a unique account, multiple accounts containing a common non-personal email domain, or multiple accounts governed by a single agreement.

We believe that the number of customers using our platform is an indicator of our market penetration.

As of December 31,

Number of customers 31,320 34,390

We define ARR as the annualized revenue run-rate of subscription agreements from all customers as of the last date of the specified period.

We believe ARR is an indicator of the scale of our entire platform while mitigating fluctuations due to seasonality and contract term.

As of December 31,

(in thousands)

ARR $ 385,219 $ 296,601

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

As previously disclosed, we no longer believe that ARR and total number of customers are key performance indicators of Sprout Social’s business due to our evolving customer mix and we will no longer publicly disclose these metrics.

While we no longer believe that ARR and total number of customers are key performance indicators of Sprout Social’s business, the definitions of these metrics are necessary for an understanding of how we define number of customers contributing over $10,000 in ARR and number of customers contributing over $50,000 in ARR.

For this purpose, we define ARR as the annualized revenue run-rate of subscription agreements from all customers as of the last date of the specified period and we define a customer as a unique account, multiple accounts containing a common non-personal email domain, or multiple accounts governed by a single agreement or entity.

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

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We view the number of customers that contribute more than $10,000 in ARR as a measure of our ability to scale with our customers and attract larger organizations.

We believe this represents potential

for future growth, including expanding within our current customer base.

We believe this represents potential for future growth, including expanding within our current customer base.

Over time, larger customers have constituted a greater share of our revenue.

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We sell professional services consisting of, but not limited to, implementation fees, specialized training, one-time reporting services and recurring periodic reporting services.

Professional services revenue is recognized at the time these services are provided to the customer.

Professional services revenue is generally recognized at the time these services are provided to the customer.

This revenue has historically represented less than 1% of our revenue and is expected to be immaterial for the foreseeable future.

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These expenses are comprised of fees paid to data providers, hosted data center costs and personnel costs directly associated with cloud infrastructure, customer success and customer support, including salaries, benefits, bonuses and allocated overhead.

These costs also include

depreciation expense and amortization expense related to acquired developed technologies that directly benefit sales.

These costs also include depreciation expense and amortization expense related to acquired developed technologies that directly benefit sales.

Overhead associated with facilities and information technology is allocated to cost of revenue and operating expenses based on headcount.

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Research and development expenses primarily consist of personnel costs, including salaries, benefits and allocated overhead.

Research and development expenses also include depreciation expense and other expenses associated with product development.

Research and development expenses also include depreciation

expense and other expenses associated with product development.

We plan to increase the dollar amount of our investment in research and development for the foreseeable future as we focus on developing new features and enhancements to our plan offerings.

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Sales commissions are earned and recorded at contract commencement for both new customer contracts and expansion of contracts with existing customers.

Sales commissions are deferred and amortized on a straight-line basis over a period of benefit of three years.

Sales commissions are deferred and amortized on a straight-line basis over the expected period of benefit, which we have determined to be five years.

We plan to increase the dollar amount of our investment in sales and marketing for the foreseeable future, primarily for increased headcount for our sales department.

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Interest Income (Expense), Net

Interest income (expense), net consists primarily of interest expense related to the Facility and is offset by interest income earned on our cash and investment balances.

Interest income (expense), net consists primarily of interest expense related to the credit facility and is offset by interest income earned on our cash and investment balances.

Other Expense, Net

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The income tax provision consists of current and deferred taxes for our United States and foreign jurisdictions.

We have historically reported a taxable loss in our most significant jurisdiction, the United States, and have a full valuation allowance against our deferred tax assets.

We have historically reported a taxable loss in our most significant jurisdiction, the United States, and have a full valuation allowance against our deferred tax assets related to domestic operations and certain deferred tax assets related to foreign operations.

We expect this trend to continue for the foreseeable future.

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Personnel costs 1,780

Stock-based compensation expense 733

Amortization of intangible assets 1,645

Stock-based compensation expense 712

Subscription cost of revenue $ 15,229

Fees paid to our data providers increased due to revenue growth.

Personnel costs increased primarily as a result of a 9% increase in headcount as we continue to grow our customer support and customer success teams to support our customer growth.

The increase in stock-based compensation expense was primarily due to the increased headcount.

The increase in the amortization expense of intangible assets was driven by the acquired developed technology recognized as part of the Tagger acquisition.

Fees paid to our data providers increased due to higher costs of third-party data utilized in our platform.

Personnel costs and stock-based compensation expense increased as we continue to invest in our customer support and customer success teams to support our customer growth.

The increase in the amortization expense of intangible assets was driven by the acquired developed technology recognized as part of the Tagger acquisition in August 2023.

The increase in other was primarily driven by hosting fees.

Operating Expenses

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Stock-based compensation expense 7,141

Restructuring costs 2,958

Research and development $ 23,244

Personnel costs increased primarily as a result of increased headcount to grow our research and development teams to drive our technology innovation through the development and maintenance of our platform.

During the year ended December 31, 2023, we increased headcount within our engineering team by 19%.

The increase in stock-based compensation expense was primarily due to the increased headcount.

Personnel costs and stock-based compensation expense increased primarily as a result of higher headcount within our research and development teams throughout the majority of the year.

Restructuring costs were driven by a restructuring plan, which resulted in a reduction of approximately 50 roles, initiated in November 2024 to improve the efficiency and effectiveness of the research and development organization.

Sales and Marketing

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Advertising 1,074

Sales commission expense (10,235)

Sales and marketing $ 16,031

Personnel costs increased primarily as a result of a 15% increase in headcount as we continue to expand our sales teams to grow our customer base, as well as additional sales commission expense due to the year-over-year sales growth, which increased the amortization of contract acquisition costs.

Personnel costs increased primarily as a result of an increase in headcount as we continue to expand our sales teams to grow our customer base.

Headcount in the sales and marketing organization throughout 2024 was on average 14% higher than 2023.

The increase in stock-based compensation expense was primarily due to the increased headcount.

The increase in other expense was driven by internal training costs and other general marketing costs.

The increase in other expense was driven by various marketing events and initiatives.

The decrease in sales commission expense was driven by updating the period of benefit from three to five years which was accounted for as a change in accounting estimate.

See Note 1 - “Nature of Operations and Summary of Significant Accounting Policies” of the Notes to the Financial Statements (Part I, Item 8 of this Annual Report) for additional information on the change in accounting estimate.

General and Administrative

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( in thousands )

Personnel costs $ 5,194

Stock-based compensation expense $ 7,318

Acquisition-related costs 4,272

Personnel costs 5,204

Amortization of intangible assets 965

Credit losses on accounts receivable 1,219

Accounting fees 771

Gain on lease modification (1,570)

Acquisition-related costs (4,272)

General and administrative $ 8,862

Personnel costs and stock-based compensation expense increased primarily as a result of an 18% increase in headcount as we continue to grow our business.

Acquisition-related costs increased due to the acquisition of Tagger on August 2, 2023.

The increase in the amortization expense of intangible assets was primarily driven by the intangible assets recognized as part of the Tagger acquisition.

The increase in credit losses on accounts receivable was primarily driven by higher accounts receivable balances.

Interest Income (Expense), Net

Personnel costs increased primarily as a result of an increase in headcount as we continue to invest in our finance, legal and other administrative functions to support the company’s growth.

Headcount in the general and administrative organizations throughout 2024 was on average 11% higher than 2023.

The increase in stock-based compensation expense was primarily driven by equity grants made to the executive team.

The increase in the amortization expense of intangible assets was primarily driven by the intangible assets recognized as part of the Tagger acquisition in August 2023.

The non-cash gain on lease modification was due to the amendment of our Chicago office lease agreement in November 2024.

See Note 6 - “Operating Leases” of the Notes to the Financial Statements (Part I, Item 8 of this Annual Report) for additional information on the lease amendment.

The decrease in acquisition-related costs was driven by costs associated with the Tagger acquisition in August 2023.

Interest Income, Net

Years Ended December 31,

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( dollars in thousands )

Interest income (expense), net $ 4,267 $ 2,382 $ 1,885 79%

Interest income, net $ 448 $ 4,267 $ (3,819) (90) %

Percentage of total revenue — % 1 %

The increase in interest income (expense), net was primarily driven by higher interest income from the Company’s marketable securities due to higher interest rates, partially offset by higher interest expense from the revolving line of credit.

The decrease in interest income, net was primarily driven by higher interest expense from the credit facility, partially offset by lower interest income attributable to a lower balance of marketable securities.

Other Expense, Net

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Percentage of total revenue — % — %

The change in other expense, net was primarily driven by foreign exchange transaction losses.

Income Tax (Benefit) Expense

The change in other expense, net was primarily driven by higher foreign exchange transaction losses.

Income Tax Expense

Years Ended December 31,

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( dollars in thousands )

Income tax (benefit) expense $ 649 $ 366 $ 283 77 %

Income tax expense $ 670 $ 649 $ 21 3 %

Percentage of total revenue — % — %

The change in income tax (benefit) expense was due to higher earnings in foreign jurisdictions.

The change in income tax expense was due to higher earnings in foreign jurisdictions.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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Professional services and other 1 % 1 %

The increase in subscription revenue was primarily driven by revenue from new customers and expansion within existing customers.

The total number of customers grew from 31,762 as of December 31, 2021 to 34,390 as of December 31, 2022.

The increase in subscription revenue was primarily driven by increased revenue from our highest tier customers.

Customers contributing over $10,000 in ARR grew 31% versus the prior year and customers contributing over $50,000 in ARR grew 44% versus the prior year.

The increase in new customers was primarily driven by our growing sales force capacity to meet market demand.

Expansion within existing customers was driven by our ability to increase the number of users, social profiles and products purchased by customers.

This is in part attributable to the expansion of use-cases across various functions within our existing customers’ organizations.

The increase in new customers within the highest tiers was primarily driven by prioritizing our customer success and growth resources towards these customers and continuing to grow our sales force capacity to meet market demand.

Cost of Revenue and Gross Margin

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Stock-based compensation expense 733

Amortization of intangible assets 1,175

Subscription cost of revenue $ 16,309

Fees paid to our data providers increased due to revenue growth.

Personnel costs increased primarily as a result of a 5% increase in headcount as we continued to grow our customer support and customer success teams to support our customer growth.

The increase in stock-based compensation expense was due to the increased headcount.

Fees paid to our data providers increased due to higher costs of third-party data utilized in our platform.

Personnel costs increased primarily as a result of a 9% increase in headcount as we continue to grow our customer support and customer success teams to support our customer growth.

The increase in stock-based compensation expense was primarily due to the increased headcount.

The increase in the amortization expense of intangible assets was driven by the acquired developed technology recognized as part of the Tagger acquisition.

Operating Expenses

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Research and development $ 18,114

Personnel costs increased as a result of increased headcount to grow our research and development teams to drive our technology innovation through the development of new products and features.

During the year ended December 31, 2023, we increased headcount within our engineering team by 19%.

The increase in stock-based compensation expense was due to the increased headcount.

The increase in stock-based compensation expense was primarily due to the increased headcount.

Sales and Marketing

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Stock-based compensation expense 7,050

Advertising 597

Sales and marketing $ 44,396

Personnel costs increased primarily as a result of a 43% increase in headcount as we continued to expand our sales teams to grow our customer base, as well as additional sales commission expense due to the year over year sales growth, which increased the amortization of contract acquisition costs.

The increase in stock-based compensation expense was due to the increased headcount and awards granted to our President.

The increase in stock-based compensation expense was primarily due to the increased headcount.

The increase in other expense was driven by internal training costs and other general marketing costs.

General and Administrative

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Stock-based compensation expense 4,985

Acquisition-related costs 4,272

Amortization of intangible assets 1,327

Credit losses on accounts receivable 1,219

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General and administrative $ 18,496

Personnel costs increased primarily as a result of a 26% increase in headcount as we continued to grow our business and operate as a publicly traded company.

The increase in stock-based compensation expense was due to the increased headcount.

Personnel costs and stock-based compensation expense increased primarily as a result of an 18% increase in headcount as we continue to invest in our finance, legal and other administrative functions to support the company’s growth.

Acquisition-related costs increased due to the acquisition of Tagger on August 2, 2023.

The increase in the amortization expense of intangible assets was primarily driven by the intangible assets recognized as part of the Tagger acquisition.

The increase in credit losses on accounts receivable was primarily driven by higher accounts receivable balances.

The remaining increase was driven by various expenses related to overhead and operating as a publicly traded company.

Interest Income (Expense), Net

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( dollars in thousands )

Interest income (expense), net $ 2,382 $ (41) $ 2,423 n/m (1)

Interest income (expense), net $ 4,267 $ 2,382 $ 1,885 79 %

Percentage of total revenue 1 % 1 %

_________________

(1) Calculated metric is not meaningful.

The increase in interest income (expense), net was primarily driven by the increased investment in marketable securities and higher interest rates.

Other Expense, Net

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( dollars in thousands )

Other expense, net $ (580) $ (361) $ (219) n/m

Other expense, net $ (768) $ (580) $ (188) 32 %

Percentage of total revenue — % — %

The decrease in other expense, net was primarily driven by foreign exchange transaction losses.

Income Tax Expense

The change in other expense, net was primarily driven by foreign exchange transaction losses.

Income Tax (Benefit) Expense

Years Ended December 31,

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( dollars in thousands )

Income tax expense $ 366 $ 211 $ 155 73 %

Income tax (benefit) expense $ 649 $ 366 $ 283 77 %

Percentage of total revenue — % — %

The increase in income tax expense is due to higher earnings in foreign jurisdictions.

The change in income tax (benefit) expense was due to higher earnings in foreign jurisdictions.

Non-GAAP Financial Measures

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Non-GAAP Gross Profit

We define non-GAAP gross profit as GAAP gross profit, excluding stock-based compensation expense and amortization expense associated with the acquired developed technology from the Tagger acquisition.

We believe non-GAAP gross profit provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this non-GAAP financial measure eliminates the effect of stock-based compensation and amortization expense, which are often unrelated to overall operating performance.

In 2023, we revised our definition of non-GAAP gross profit to exclude amortization expense associated with the acquired developed technology from the Tagger acquisition.

We define non-GAAP gross profit as GAAP gross profit, excluding stock-based compensation expense, amortization expense associated with the acquired developed technology from the Tagger acquisition and restructuring charges.

We believe non-GAAP gross profit provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this non-GAAP financial measure eliminates the effect of stock-based compensation, amortization expense and restructuring charges, which are often unrelated to overall operating performance.

During the fourth quarter of 2024, we revised our definition of non-GAAP gross profit to exclude restructuring charges associated with a workforce reorganization, consisting primarily of severance and other personnel-related costs.

Year Ended December 31,

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Amortization of acquired developed technology 2,820 1,175 —

Restructuring charges 62 — —

Non-GAAP gross profit $ 321,251 $ 261,774 $ 196,461

Non-GAAP Operating Income (Loss)

We define non-GAAP operating income (loss) as GAAP loss from operations, excluding stock-based compensation expense, acquisition-related expenses and amortization expense associated with the acquired intangible assets from the Tagger acquisition.

We believe non-GAAP operating income (loss) provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this non-GAAP financial measure eliminates the effect of stock-based compensation, acquisition-related expenses and amortization expense, which are often unrelated to overall operating performance.

In 2023, we revised our definition of non-GAAP operating income (loss) to exclude acquisition-related expenses in connection with our acquisition of Tagger and amortization expense associated with the acquired intangible assets from the Tagger acquisition.

We believe non-GAAP operating income (loss) provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this non-GAAP financial measure eliminates the effect of stock-based compensation, acquisition-related expenses, amortization expense, restructuring charges and non-cash gains from lease modifications, which are often unrelated to overall operating performance.

During the fourth quarter of 2024, we revised our definition of non-GAAP operating income (loss) to exclude

restructuring charges associated with a workforce reorganization, consisting primarily of severance and other personnel-related costs, and non-cash gain related to an office lease modification.

Year Ended December 31,

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Amortization of acquired intangible assets 4,851 2,022 —

Restructuring charges 3,020 — —

Gain on lease modification (1,570) — —

Non-GAAP operating income (loss) $ 30,248 $ 4,721 $ (3,938)

Non-GAAP Net Income (Loss)

We define non-GAAP net income (loss) as GAAP net loss, excluding stock-based compensation expense, acquisition-related expenses and amortization expense associated with the acquired intangible assets from the Tagger acquisition.

We believe non-GAAP net income (loss) provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this non-GAAP financial measure eliminates the effect of stock-based compensation, acquisition-related expenses and amortization expense, which are often unrelated to overall operating performance.

In 2023, we revised our definition of non-GAAP net income (loss) to exclude acquisition-related expenses in connection with our acquisition of Tagger and amortization expense associated with the acquired intangible assets from the Tagger acquisition.

We believe non-GAAP net income (loss) provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this non-GAAP financial measure eliminates the effect of stock-based compensation, acquisition-related expenses, amortization expense, restructuring charges and non-cash gains from lease modifications, which are often unrelated to overall operating performance.

During the fourth quarter of 2024, we revised our definition of non-GAAP net income (loss) to exclude restructuring charges associated with a workforce reorganization, consisting primarily of severance and other personnel-related costs, and non-cash gain related to an office lease modification.

Year Ended December 31,

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Amortization of acquired intangible assets 4,851 2,022 —

Restructuring charges 3,020 — —

Gain on lease modification (1,570) — —

Non-GAAP net income (loss) $ 28,633 $ 7,571 $ (2,502)

Non-GAAP Net Income (Loss) per Share

We define non-GAAP net income (loss) per share as GAAP net loss per share attributable to common shareholders, basic and diluted, excluding stock-based compensation expense, acquisition-related expenses and amortization expense associated with the acquired intangible assets from the Tagger acquisition.

We believe non-GAAP net income (loss) per share provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this non-GAAP financial measure eliminates the effect of stock-based compensation, acquisition-related expenses and amortization expense, which are often unrelated to overall operating performance.

In 2023, we revised our definition of non-GAAP net income (loss) per share to exclude acquisition-related expenses in connection with our acquisition of Tagger and amortization expense associated with the acquired intangible assets from the Tagger acquisition.

lease modifications, which are often unrelated to overall operating performance.

During the fourth quarter of 2024, we revised our definition of non-GAAP net income (loss) per share to exclude restructuring charges associated with a workforce reorganization, consisting primarily of severance and other personnel-related costs, and non-cash gain related to an office lease modification.

Year Ended December 31,

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Amortization of acquired intangible assets 0.09 0.03 —

Restructuring charges 0.05 — —

Gain on lease modification (0.03) — —

Non-GAAP net income (loss) per share $ 0.50 $ 0.14 $ (0.05)

Non-GAAP Free Cash Flow

Non-GAAP free cash flow is a non-GAAP financial measure that we define as net cash used in operating activities less expenditures for property and equipment, acquisition-related costs and interest.

We believe that non-GAAP free cash flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash used in our core operations that, after the expenditures for property and equipment, acquisition-related costs and interest, is available to be used for strategic initiatives.

Non-GAAP free cash flow is a non-GAAP financial measure that we define as net cash used in operating activities less expenditures for property and equipment, acquisition-related costs, interest and payments related to restructuring charges.

We believe that non-GAAP free cash flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash used in our core operations that, after the expenditures for property and equipment, acquisition-related costs, interest and payments of restructuring charges, is available to be used for strategic initiatives.

For example, if non-GAAP free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives.

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Additionally, non-GAAP free cash flow does not represent the total increase or decrease in our cash balance for a given period.

In 2023, we revised our definition of non-GAAP free cash flow to exclude payments related to acquisition-related costs associated with our acquisition of Tagger and cash paid for interest on our revolving line of credit.

During the fourth quarter of 2024, we revised our definition of non-GAAP free cash flow to exclude payments related to restructuring charges associated with a workforce reorganization.

Year Ended December 31,

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Expenditures for property and equipment (2,950) (2,073) (1,824)

Acquisition-related costs 4,272 — —

Interest paid on credit facility 3,635 1,588 —

Acquisition-related costs — 4,272 —

Payments related to restructuring charges 2,682 — —

Non-GAAP free cash flow $ 29,688 $ 10,243 $ 8,844

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As of December 31, 2024, our principal sources of liquidity were cash and cash equivalents of $86.4 million, marketable securities of $3.7 million, and net accounts receivable of $84.0 million.

Historically, we have generated losses from operations and negative cash flows from operations, as evidenced by our accumulated deficit and statement of cash flows.

Historically, we have generated losses from operations as evidenced by our accumulated deficit and in previous years, we had negative cash flows from operations.

However, during the years ended December 31, 2024, 2023 and 2022, we generated positive cash flows from operations.

We expect to continue to incur operating losses and may have negative operating cash flows for the foreseeable future as we continue to grow the business.

continue to incur operating losses for the foreseeable future as we continue to grow the business.

We may experience greater than anticipated operating losses in the short- and long-term due to macroeconomic, financial and other factors that are beyond our control, such as rising inflation rates and a potential recession.

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Prior to our IPO in December 2019, we financed our operations primarily through private issuance of equity securities and line of credit borrowings.

In our IPO, we received net proceeds of $134.3 million

after deducting underwriting discounts and commissions of $10.5 million and offering expenses of $5.2 million.

In our IPO, we received net proceeds of $134.3 million after deducting underwriting discounts and commissions of $10.5 million and offering expenses of $5.2 million.

We subsequently received an additional $10.0 million of net proceeds after deducting underwriting discounts and commissions in January 2020 as a result of the over-allotment option exercise by the underwriters of our IPO.

In August 2020, we received $42.1 million of net proceeds from our equity follow-on offering after deducting underwriting discounts and commissions.

As described below, in August 2023, we borrowed $75 million under the Facility in connection with the Tagger acquisition.

Our principal uses of cash in recent periods have been to fund operations, pay for acquisitions, and invest in marketable securities and capital expenditures.

As described below, in August 2023, we borrowed $75 million under the Facility (defined below) in connection with the Tagger acquisition.

Our principal uses of cash in recent periods have been to fund operations, pay for acquisitions, invest in marketable securities, pay down the Facility and invest in capital expenditures.

We believe our existing cash and cash equivalents will be sufficient to meet our operating and capital needs for at least the next 12 months.

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The Credit Agreement includes customary conditions to credit extensions, affirmative and negative covenants, and customary events of default.

In addition, the Credit Agreement contains financial covenants as to (i) minimum liquidity, requiring the maintenance, at all times and measured at the end of each fiscal quarter, of cash and cash equivalents of not less than the greater of (x) $30 million and (y) 30% of the total revolving commitments, and (ii) minimum recurring revenue growth, requiring recurring revenue growth for the trailing four fiscal quarter period, measured at the end of each fiscal quarter, of not less than 115% of the actual recurring revenue for the same period in the prior fiscal year.

As of December 31, 2023, we were in compliance with the covenants in the Credit Agreement.

less than 115% of the actual recurring revenue for the same period in the prior fiscal year.

As of December 31, 2024, we were in compliance with the covenants in the Credit Agreement and expect to be in compliance with the covenants for the next 12 months.

On August 1, 2023, we borrowed $75 million under the Credit Agreement in connection with the Tagger acquisition.

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Net cash provided by operating activities $ 26,321 $ 6,456 $ 10,668

Net cash used in investing activities (86,635) (37,672) (22,118)

Net cash provided by (used in) investing activities 40,726 (86,635) (37,672)

Net cash provided by (used in) financing activities (30,324) 53,957 (193)

Net decrease in cash, cash equivalents and restricted cash $ (26,222) $ (27,197) $ (7,401)

Net increase (decrease) in cash, cash equivalents and restricted cash $ 36,723 $ (26,222) $ (27,197)

Operating Activities

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Net cash provided by operating activities during the year ended December 31, 2024 was $26.3 million, which resulted from a net loss of $62.0 million adjusted for non-cash charges of $112.5 million and net cash outflow of $24.2 million from changes in operating assets and liabilities.

Non-cash charges primarily consisted of $84.3 million of stock-based compensation expense, $10.0 million of depreciation and intangible asset amortization expense, $16.3 million for amortization of deferred contract acquisition costs, which were primarily commissions, $1.7 million for credit losses on accounts receivable, $1.8 million of amortization of right-of-use, or ROU, operating lease assets and a $1.6 million gain on lease modification.

The net cash outflow from changes in operating assets and liabilities was primarily the result of a $34.2 million increase in deferred commissions due to the addition of new customers and expansion of the business, a $22.3 million increase in gross accounts receivable, a $5.5 million increase in prepaid expenses and other assets and a $3.6 million decrease in operating lease liabilities.

These outflows were partially offset by a $38.2 million increase in deferred revenue and a $3.1 million increase in accounts payable and accrued expenses .

Net cash provided by operating activities during the year ended December 31, 2023 was $6.5 million, which resulted from a net loss of $66.4 million adjusted for non-cash charges of $101.8 million and net cash outflow of $28.9 million from changes in operating assets and liabilities.

Non-cash charges primarily consisted of $67.7 million of stock-based compensation expense, $6.7 million of depreciation and intangible asset amortization expense, $26.6 million for amortization of deferred contract acquisition costs, which were primarily commissions, $2.4 million for credit losses on accounts receivable and $1.6 million of amortization of right-of-use, or ROU, operating lease assets.

The net cash outflow from changes in operating assets and liabilities was primarily the result of a $40.5 million increase in deferred commissions due to the addition of new customers and expansion of the business, a $27.0 million increase in gross accounts receivable and a $3.5 million decrease in operating lease liabilities.

increase in gross accounts receivable and a $3.5 million decrease in operating lease liabilities.

These outflows were partially offset by a $41.9 million increase in deferred revenue.

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These outflows were partially offset by a $26.9 million increase in deferred revenue and a $7.1 million increase in accounts payable and other accrued liabilities.

Net cash provided by operating activities during the year ended December 31, 2021 was $14.8 million, which resulted from a net loss of $28.7 million adjusted for non-cash charges of $40.2 million and net cash inflow of $3.4 million from changes in operating assets and liabilities.

Non-cash charges primarily consisted of $21.7 million of stock-based compensation expense, $4.0 million of depreciation and intangible asset amortization expense, $12.2 million for amortization of deferred contract acquisition costs, which were primarily commissions, $0.6 million for credit losses on accounts receivable and $0.7 million of amortization of right-of-use, or ROU, operating lease assets.

The net cash inflow from changes in operating assets and liabilities was primarily the result of a $25.6 million increase in deferred revenue,

a $3.5 million decrease in prepaid expenses and an $8.5 million increase in accounts payable and other accrued liabilities.

These inflows were offset by a $23.1 million increase in deferred commissions due to the addition of new customers and expansion of the business, an $8.9 million increase in gross accounts receivable and a $2.2 million decrease in operating lease liabilities.

Investing Activities

Net cash provided by investing activities for the year ended December 31, 2024 was $40.7 million, which was primarily due to $45.1 million in proceeds from the maturities of marketable securities, partially offset by $3.0 million in purchases of computer equipment and hardware and the $1.5 million payout of the Repustate acquisition purchase price holdback.

Net cash used in investing activities for the year ended December 31, 2023 was $86.6 million, which was primarily due to $145.6 million paid for the acquisitions of Tagger and Repustate and $63.1 million in purchases of marketable securities, partially offset by $124.2 million in proceeds from the maturities and sale of marketable securities.

Net cash used in investing activities for the year ended December 31, 2022 was $37.7 million, which was primarily due to $190.0 million in purchases of marketable securities, partially offset by $154.1 million in proceeds from maturities of marketable securities.

Net cash used in investing activities for the year ended December 31, 2021 was $22.1 million, which was primarily due to $109.6 million in purchases of marketable securities, partially offset by $88.4 million in proceeds from maturities of marketable securities.

Financing Activities

Net cash used in financing activities for the year ended December 31, 2024 was $30.3 million, primarily driven by $30.0 million in repayments of the Facility and $2.3 million in payments related to employee withholding taxes as a result of the net settlement of stock-based awards, partially offset by $2.0 million of proceeds under our employee stock purchase plan.

Net cash provided by financing activities for the year ended December 31, 2023 was $54.0 million, primarily driven by $75.0 million in borrowings under the Facility and $2.3 million of proceeds under our employee stock purchase plan, partially offset by $20.0 million in repayments of the Facility, $2.4 million in payments related to employee withholding taxes as a result of the net settlement of stock-based awards and $1.0 million in issuance costs related to the Facility.

Net cash used in financing activities for the year ended December 31, 2022 was $0.2 million, primarily driven by $1.9 million in payments related to employee withholding taxes as a result of the net settlement of stock-based awards, offset by $1.7 million of proceeds under our employee stock purchase plan.

Net cash used in financing activities for the year ended December 31, 2021 was $0.1 million, primarily driven by $1.6 million in payments related to employee withholding taxes as a result of the net settlement of stock-based awards and other financing related costs, offset by $1.7 million in proceeds from the disgorgement of stockholder short-swing profits under Section 16(b) of the Exchange Act.

See Note 16 to our audited consolidated financial statements for more information regarding the disgorgement.

Contractual Obligations

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As of December 31, 2024, our purchase commitment for primarily data and services was $11.7 million, of which $7.4 million is expected in the next twelve months.

Note 6 and Note 11 of the Notes to the Financial Statements (Part I, Item 8 of this Annual Report) for more information regarding these obligations.

See Note 6 and Note 11 of the Notes to the Financial Statements (Part I, Item 8 of this Annual Report) for more information regarding these obligations.

Recent Accounting Pronouncements

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Sales force commissions are considered incremental costs of obtaining a contract with a customer.

Sales commissions earned for initial contracts and for expansion of contracts with existing customers are deferred and amortized on a straight-line basis over a period of benefit of three years.

Sales commissions earned for initial contracts and for expansion of contracts with existing customers are deferred and amortized on a straight-line basis over a period of benefit that we have determined to be five years.

Determining the period of benefit of requires judgment for which we take into consideration products sold, expected customer life, expected contract renewals, technology life cycle and other factors.

The Company assesses the expected period of benefit on an annual basis and whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Based on the assessment performed during the first quarter of 2024, the Company updated the period of benefit from three years to five years.

Refer to Note 1 - Nature of Operations and Summary of Significant Accounting Policies of the Notes to the Financial Statements (Part I, Item 8 of this Annual Report) for further discussion on the impact of the change in estimate.

Revenue Recognition

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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 7. Management’s Discussion and Analysis