What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-26 compared with 2024-02-23 · 210 added, 187 removed, 800 unchanged (33% of the section changed)

31 unchanged sentences

We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded Tagger Media, Inc., from its assessment of internal control over financial reporting as of December 31, 2023, because it was acquired by the Company in a purchase business combination

We have also excluded Tagger Media, Inc.

from our audit of internal control over financial reporting.

Tagger Media, Inc.

is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 2% and 2%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2023.

Definition and Limitations of Internal Control over Financial Reporting

5 unchanged sentences

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Subscription Revenue

6 unchanged sentences

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the subscription revenue recognition process, including controls

over the recording of subscription revenue when control is transferred to the customer.

These procedures included testing the effectiveness of controls relating to the subscription revenue recognition process, including controls over the recording of subscription revenue when control is transferred to the customer.

These procedures also included, among others, (i) testing, on a sample basis, the completeness, accuracy and occurrence of subscription revenue recognized by obtaining and inspecting source documents, such as invoices, customer agreements, and cash receipts from customers, where applicable;

and (ii) testing a sample of outstanding customer invoice balances as of December 31, 2024 by obtaining and inspecting source documents, such as invoices, customer agreements, and subsequent cash receipts from customers, where applicable.

Acquisition of Tagger Media, Inc.

– Valuation of Acquired Technology and Customer Relationships

As described in Note 4 to the consolidated financial statements, on August 2, 2023, the Company completed the acquisition of Tagger Media, Inc.

for net consideration of $144 million.

Of the acquired intangible assets, $14.1 million of acquired technology and $12.4 million of customer relationships were recorded.

Fair value is estimated by management using a multi-period excess-earnings method for customer relationships and a relief from royalty method for acquired technology.

When determining the fair value of the intangible assets, management makes significant estimates and assumptions.

Management applied judgment which involved the use of the assumptions with respect to revenue growth rates, customer attrition rate, royalty rate, obsolescence rate and total operating expenses.

The principal considerations for our determination that performing procedures relating to the valuation of acquired technology and customer relationships acquired in the acquisition of Tagger Media, Inc.

is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the acquired technology and customer relationships acquired;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the royalty rate, total operating expenses, and customer attrition rate for customer relationships and revenue growth rates, royalty rate, and obsolescence rate for acquired technology;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the acquired technology and customer relationships acquired.

These procedures also included, among others (i) reading the purchase agreement;

(ii) testing management’s process for developing the fair value estimate of the acquired technology and customer relationships acquired;

(iii) evaluating the appropriateness of the relief from royalty and multi-period excess earnings methods used by management;

(iv) testing the completeness and accuracy of the underlying data used in the relief from royalty and multi-period excess earnings methods;

and (v) evaluating the reasonableness of the significant assumptions used by management related to the royalty rate, total operating expenses, and customer attrition rate for customer relationships and revenue growth rates, royalty rate, and obsolescence rate for acquired technology.

Evaluating management's assumptions related to revenue growth rates for acquired technology and total operating expenses for customer relationships involved considering (i) the current and past performance of Tagger Media, Inc.;

(ii) the consistency with external market and industry data;

and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the relief from royalty and multi-period excess earnings methods and (ii) the reasonableness of the royalty rate and obsolescence rate used in the valuation of the acquired technology and the royalty rate and customer attrition rate used in the valuation of the customer relationships.

/s/ PricewaterhouseCoopers LLP

103 unchanged sentences

Taxes paid related to net share settlement of equity awards 31,048 ( 1,909 ) ( 1,909 )

Proceeds from disgorgement of stockholder short-swing profits 1,664 1,664

Issuance of common stock in connection with employee stock purchase plan 35,504 1,723 1,723

Other comprehensive loss, net of tax ( 369 ) ( 369 )

Net loss ( 50,240 ) ( 50,240 )

6 unchanged sentences

Issuance of common stock in connection with employee stock purchase plan 59,514 2,339 2,339

Other comprehensive loss, net of tax ( 369 ) ( 369 )

Other comprehensive gain, net of tax 292 292

Net loss ( 66,427 ) ( 66,427 )

17 unchanged sentences

Net loss $ ( 61,971 ) $ ( 66,427 ) $ ( 50,240 )

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

Depreciation of property and equipment 3,137 2,859 2,991

Adjustments to reconcile net loss to net cash provided by operating activities

Depreciation and amortization of property, equipment and software 3,890 3,137 2,859

Amortization of line of credit issuance costs 206 86 30

Amortization of premium (accretion of discount) on marketable securities ( 3,203 ) ( 625 ) 736

Accretion of discount on marketable securities ( 406 ) ( 3,203 ) ( 625 )

Amortization of acquired intangible assets 6,151 3,541 1,039

3 unchanged sentences

Provision for accounts receivable allowances 1,709 2,418 1,199

Changes in operating assets and liabilities

Gain on lease modification ( 1,570 ) — —

Changes in operating assets and liabilities, excluding impact from business acquisition

Accounts receivable ( 22,253 ) ( 26,982 ) ( 11,549 )

11 unchanged sentences

Proceeds from sale of marketable securities — 5,538 —

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 )

Cash flows from financing activities

4 unchanged sentences

Proceeds from employee stock purchase plan 1,956 2,339 1,723

Proceeds from disgorgement of stockholders short-swing profits — — 1,664

Employee taxes paid related to the net share settlement of stock-based awards ( 2,309 ) ( 2,380 ) ( 1,909 )

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

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

Cash, cash equivalents, and restricted cash

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

Sprout Social, Inc.

1 unchanged sentence

(in thousands)

Cash, cash equivalents, and restricted cash

Beginning of year 53,695 79,917 107,114

9 unchanged sentences

ROU asset obtained in exchange for operating lease liability $ 629 $ 795 $ 1,079

Non-cash adjustment to operating lease right-of-use assets from lease modifications $ 3,795 $ — $ —

Capital expenditures incurred but not yet paid $ 375 $ 137 $ —

23 unchanged sentences

The Company’s chief operating decision maker (“CODM”) is its chief executive officer, who reviews financial information for purposes of making operating decisions, assessing financial performance and allocating resources.

The Company’s CODM evaluates financial information on a consolidated basis.

The Company’s CODM evaluates financial information on a consolidated basis and considers Net Loss within the consolidated statements of operations to be a key measurement of profitability in evaluating financial performance, comparing budget to actuals, and making resource allocation decisions.

Further, the CODM reviews and utilizes functional expenses (cost of revenues, sales and marketing, research and development, and general and administrative) at the consolidated level to manage the Company’s operations.

Other segment items included in consolidated net loss are interest expense, interest income, other expense, net, and the provision for (benefit from) income taxes, which are reflected in the consolidated statements of operations.

As the Company operates as one operating segment, all required segment financial information is found in the consolidated financial statements.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Fair Value of Financial Instruments

4 unchanged sentences

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Cash and cash equivalents are recorded at cost, which approximates fair

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Interest earned on cash and cash equivalents is recorded as interest income in the consolidated statement of operations.

Cash and cash equivalents are recorded at cost, which approximates fair value.

Interest earned on cash and cash equivalents is recorded as interest income in the consolidated statements of operations.

Restricted Cash

As of December 31, 2023 and 2022, the Company’s restricted cash balance was $3.9 million and nil, respectively.

As of December 31, 2024 and 2023, the Company’s restricted cash balance was $4.0 million and $3.9 million, respectively.

Restricted cash represents cash that is held as collateral in relation to the Company’s letters of credit that are required as security for the Company’s office leases and reserves held by the Company’s credit card processor.

7 unchanged sentences

As of December 31, 2024 and 2023, the Company’s AOCI balance was insignificant.

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

As of December 31, 2024 and 2023, the gross unrealized gains and losses on available-for-sale debt securities were immaterial and there were no expected credit losses related to the Company's available-for-sale debt securities.

7 unchanged sentences

If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Amounts are charged against the allowance for credit losses once collection efforts are unsuccessful.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

charged against the allowance for credit losses once collection efforts are unsuccessful.

Credit losses on accounts receivable were $ 1.7 million, $ 2.4 million and $ 1.2 million for the years ended December 31, 2024, 2023 and 2022, respectively.

1 unchanged sentence

The activity related to the allowance for credit losses for the years ended December 31, 2024, 2023 and 2022 was as follows (in thousands):

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Balance at December 31, 2021 $ 1,298

25 unchanged sentences

Leasehold improvements Lesser of useful life or remaining lease term

Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred.

Upon retirement or sale, the cost of assets disposed and the related accumulated depreciation are written off, and any resulting gain or loss is credited or charged to income.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred.

Upon retirement or sale, the cost of assets disposed and the related accumulated depreciation are written off, and any resulting gain or loss is credited or charged to income.

Goodwill consists of the excess purchase price over the fair value of net assets acquired in purchase business combinations.

49 unchanged sentences

Notes to Consolidated Financial Statements

Professional services are typically provided for a fixed fee, and revenues are recognized over time for these contracts as services are provided to the customer.

Professional services are typically provided for a fixed fee, and revenue is generally recognized for these contracts at the time these services are provided to the customer.

Professional services revenue represents less than 1% of revenue for the periods presented.

Sales Commissions

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

Sales commissions earned by our sales force are considered incremental costs of obtaining a contract with a customer.

Sales commissions are paid on initial contracts with new customers and for expansion of contracts with existing customers.

Commissions are not paid on customer renewals.

Sales commissions are deferred and amortized on a straight-line basis over a period of benefit of three years , as determined by the Company.

The Company determined the three-year period by taking into consideration the products sold, expected customer life, expected contract renewals, technology life cycle and other factors.

Amortization expense is included as a component of sales and marketing expense.

Sales commissions are deferred and amortized on a straight-line basis over a period of benefit that the Company has determined to be five years.

On an annual basis and whenever events or changes in circumstances occur that could impact the recoverability of these assets, the Company assesses the expected period of benefit by taking into consideration the products sold, mix of customers, expected customer life, expected contract renewals, technology life cycle and other factors.

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

This change in accounting estimate was effective January 1, 2024 and is being accounted for prospectively in the consolidated financial statements.

For the year ended December 31, 2024, the change in amortization period resulted in a $ 14.3 million reduction to sales and marketing expense, or an increase of $ 0.25 per share, basic and diluted.

The effects of this change in estimate were calculated based on the carrying value of deferred commissions as of December 31, 2023.

Deferred commissions during the year ended December 31, 2024 increased $ 17.9 million as a result of deferring incremental costs of obtaining contracts with customers of $ 34.2 million, which was offset by $ 16.3 million of amortization.

11 unchanged sentences

Research and development expenses include payroll, employee benefits and other expenses associated with product development.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Capitalized Internal-Use Software Costs

2 unchanged sentences

Once software has reached the development stage, direct and incremental costs are capitalized until the software is substantially complete and ready for its intended use.

Capitalized internal-use software costs are included within property and equipment, net on the

Sprout Social, Inc.

Notes to Consolidated Financial Statements

consolidated balance sheets, and are amortized over the estimated useful life of the software, which is typically three years.

Capitalized internal-use software costs are included within property and equipment, net on the consolidated balance sheets, and are amortized over the estimated useful life of the software, which is typically three years.

Stock-Based Compensation

13 unchanged sentences

For short-term leases of 12 months or less, no ROU asset or lease liability is recorded.

The Company records rent expense in its consolidated statement of operations and comprehensive loss on a straight-line basis over the term of the lease and records variable lease payments as incurred.

The Company records rent expense in its consolidated statements of operations on a straight-line basis over the term of the lease and records variable lease payments as incurred.

Additionally, the Company has elected to combine lease and non-lease components and account for them as a single component.

4 unchanged sentences

The Company does not have any finance leases.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Commitments and Contingencies

1 unchanged sentence

The Company assesses the probability of an adverse outcome and records a provision for a liability when management believes that it is probable that a liability has been incurred and the amount can be reasonably estimated.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

9 unchanged sentences

Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheets, as applicable.

The Company files income tax returns in the U.S.

federal jurisdiction, Illinois and other state jurisdictions.

It is difficult to predict the final timing and resolution of any particular uncertain tax position.

Based on the Company’s assessment of many factors, including past experience and complex judgments about future events, the Company does not currently anticipate significant changes in its uncertain tax positions over the next 12 months.

Net Loss per Share

7 unchanged sentences

The Company recognizes and measures the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date.

Any excess or deficiency of the purchase consideration when compared to the fair value of the net assets acquired, if

Any excess or

Sprout Social, Inc.

Notes to Consolidated Financial Statements

any, is recorded as goodwill or gain from a bargain purchase.

deficiency of the purchase consideration when compared to the fair value of the net assets acquired, if any, is recorded as goodwill or gain from a bargain purchase.

Such valuations require that management make estimates and assumptions, especially with respect to the identifiable intangible assets.

3 unchanged sentences

After the conclusion of the measurement period or the final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to earnings.

Restructuring

Restructuring charges consist primarily of employee severance, one-time termination benefits related to the reduction of the Company’s workforce, and other costs.

The Company accounts for one-time employment benefit arrangements in accordance with ASC Topic 420, Exit or Disposal Cost Obligations .

One-time termination benefits and other costs are generally recognized in the period in which the liability is incurred.

In November 2024, the Company initiated a restructuring plan to improve the efficiency and effectiveness of the research and development organization, which resulted in a reduction of approximately 50 roles.

The Company recorded $3.0 million of restructuring charges for the year ended December 31, 2024.

Cash payments totaling $2.7 million were made related to the restructuring during 2024.

The Company expects that it will pay all remaining restructuring costs during the first quarter of 2025.

Recently Adopted Accounting Pronouncements

6 unchanged sentences

The Company adopted the ASU as of January 1, 2023, and the adoption did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU No.

4 unchanged sentences

Early adoption is permitted.

The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material impact on its consolidated financial statements.

The Company adopted the ASU in the fourth quarter of 2024 and the adoption did not have a material impact on the Company’s consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements

Sprout Social, Inc.

Notes to Consolidated Financial Statements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

3 unchanged sentences

The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.

The ASU requires the disclosure of more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, amortization, and depletion) included in certain expense captions presented on the face of the statement of operations.

The ASU is effective on a prospective basis, with the option for retrospective application, for annual periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The Company is currently evaluating the impact that this standard may have on its consolidated financial statements and related disclosures.

Revenue Recognition

Disaggregation of Revenue

The Company provides disaggregation of revenue based on geographic region in Note 12 of the Notes to the Financial Statements (Part I, Item 8 of this Annual Report) and based on the subscription versus professional services and other classification on the consolidated statements of operations and comprehensive loss, as it believes these best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

The Company provides disaggregation of revenue based on geographic region in Note 12 and based on the subscription versus professional services and other classification on the consolidated statements of operations, as it believes these best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Deferred Revenue

3 unchanged sentences

The balance of deferred revenue, including current and non-current balances, as of December 31, 2024 and 2023 were $179.7 million and $141.5 million, respectively.

For the year ended December 31, 2023, the additions to our deferred revenue balance were due to $ 375.6 million of additional invoicing and $ 3.2 million and $ 0.1 million of deferred revenue acquired from the Tagger and Repustate acquisitions, respectively, which was offset by $ 333.6 million of revenue recognized during the same period.

Deferred revenue during the year ended December 31, 2022, increased $ 26.9 million as a result of $ 280.7 million of additional invoicing which was offset by $ 253.8 million of revenue recognized during the same period.

For the year ended December 31, 2024, the additions to our deferred revenue balance were due to $ 444.1 million of additional invoicing, which was offset by $ 405.9 million of revenue recognized during the same period.

Deferred revenue during the year ended December 31, 2023, increased $ 45.2 million as a result of $ 375.6 million of additional invoicing and $ 3.2 million and $ 0.1 million of deferred revenue acquired from the Tagger and Repustate acquisitions, respectively, which was offset by $ 333.6 million of revenue recognized during the same period.

The amount of revenue recognized during the years ended December 31, 2024 and 2023 that was included in deferred revenue at the beginning of each period was $ 137.9 million and $ 94.4 million, respectively.

As of December 31, 2024, including amounts already invoiced and amounts contracted but not yet invoiced, $ 351.5 million of revenue is expected to be recognized from remaining performance obligations, of which 71 % is expected to be recognized in the next 12 months, 22 % is expected to be recognized in the subsequent 12 months and the remainder thereafter.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Property and Equipment

14 unchanged sentences

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

Tagger’s platform enables marketers to

Sprout Social, Inc.

Notes to Consolidated Financial Statements

discover influencers, plan and manage campaigns, analyze competitor strategies, report on trends and measure return on investment.

The Company acquired Tagger for a total preliminary purchase consideration of $ 144 million in cash, which incorporates the impact of various customary adjustments such as working capital, cash and indebtedness.

The Company funded the purchase consideration with a combination of cash on hand and $ 75 million borrowed under the revolving credit facility further described in Note 8 of the Notes to the Financial Statements (Part I, Item 8 of this Annual Report).

Tagger’s platform enables marketers to discover influencers, plan and manage campaigns, analyze competitor strategies, report on trends and measure return on investment.

The Company acquired Tagger for a total final purchase consideration of $ 144 million in cash, which incorporates the impact of various customary adjustments such as working capital, cash and indebtedness.

The Company funded the purchase consideration with a combination of cash on hand and $ 75 million borrowed under the revolving credit facility further described in Note 8.

For the year ended December 31, 2023, the Company incurred $ 4.3 million acquisition-related costs which primarily related to advisory and legal costs, and were recorded within General and administrative expense in the consolidated statements of operations.

The excess of purchase consideration over the fair value of net assets acquired was recorded as goodwill, and is primarily attributable to expanded market opportunities from integrating the acquired developed technologies with the Company’s offerings.

Goodwill is not deductible for income tax purposes.

The goodwill is not deductible for income tax purposes.

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

These estimates are based on preliminary information and may be subject to further revision as additional information is obtained during the measurement period, which may last up to 12 months from the date of the acquisition.

The primary area that remains preliminary as of December 31, 2023 relates to income taxes.

The Company expects to finalize the fair value measurements as soon as practicable, but not later than 12 months from the date of acquisition.

The following table summarizes the preliminary fair values of assets acq uired and liabilities assumed as of the date of acquisition (in thousands):

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

Sprout Social, Inc.

Notes to Consolidated Financial Statements

The following table summarizes the fair values of assets acq uired and liabilities assumed as of the date of acquisition (in thousands):

August 2, 2023

10 unchanged sentences

Cash paid for acquisition of business, net of cash acquired $ 139,115

There have been no significant measurement period adjustments following the date of acquisition.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

The Company engaged a third-party valuation expert to aid its analysis of the acquired identifiable intangible assets.

5 unchanged sentences

Acquired intangible assets are being amortized over the estimated useful lives on a straight-line basis.

The following table summarizes the estimated preliminary fair values (in thousands) and estimated useful lives for the identifiable intangible assets acquired as of the acquisition date:

The following table summarizes the estimated fair values (in thousands) and estimated useful lives for the identifiable intangible assets acquired as of the acquisition date:

Fair Value Expected Useful Life

5 unchanged sentences

Repustate, Inc.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

On January 19, 2023, the Company completed the acquisition of all the outstanding equity of Repustate, Inc.

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

The total final purchase consideration for the acquisition was approximately $ 8.3 million, consisting of approximately $ 6.8 million in cash paid at the closing 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 total final purchase consideration for the acquisition was $ 8.3 million, consisting of approximately $ 6.8 million in cash paid at the closing 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 excess of purchase consideration over the fair value of net assets acquired was recorded as goodwill, and is primarily attributable to expected post-acquisition synergies from integrating the technology into Sprout’s platform.

The goodwill is not deductible for income tax purposes.

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.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

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

The following table summarizes the fair values of assets acq uired and liabilities assumed as of the date of acquisition (in thousands):

10 unchanged sentences

Cash paid for acquisition of business, net of cash acquired $ 6,432

Sprout Social, Inc.

Notes to Consolidated Financial Statements

The following table summarizes the estimated fair values (in thousands) and estimated useful lives for the identifiable intangible assets acquired as of the acquisition date:

6 unchanged sentences

Goodwill balance as of December 31, 2023

Addition - acquisition of Tagger 112,494

Addition - acquisition of Repustate 6,611

Purchase price allocation adjustment (Tagger) ( 89 )

Goodwill balance as of December 31, 2024

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Intangible Assets

4 unchanged sentences

Trademark 1,300 1,300

36,900 36,900

Accumulated amortization

4 unchanged sentences

Intangible assets, net $ 21,914 $ 28,065

The change in the gross carrying amount of intangible assets for the year ended December 31, 2023 is related to the acquisitions of Tagger and Repustate.

Refer to Note 4 of the Notes to the Financial Statements (Part I, Item 8 of this Annual Report).

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Intangible assets are all finite-lived and are being amortized on a straight-line basis over their expected useful lives.

3 unchanged sentences

Thereafter 1,035

Sprout Social, Inc.

Notes to Consolidated Financial Statements

The following table sets forth the weighted-average amortization period, in total and by major intangible asset class:

2 unchanged sentences

Acquired Technology 5.0

Trademark 5.0

All Intangible Assets 5.9

Operating Leases

The Company has operating lease agreements for offices in Chicago, Illinois, Seattle, Washington, Santa Monica, California, and Dublin, Ireland.

The Chicago lease expires in January 2028, the Seattle lease expires in January 2031, the Santa Monica lease expires in January 2025, and the Dublin lease expires in June 2025.

These operating leases require escalating monthly rental payments ranging from approximately $ 14,000 to $ 280,000 .

The Company has operating lease agreements for offices in Chicago, Illinois;

Seattle, Washington;

Santa Monica, California;

Dublin, Ireland;

and Kraków, Poland.

The Chicago lease expires in December 2032, the Seattle lease expires in January 2031, the Santa Monica lease expires in January 2025, the Dublin lease expires in June 2027, and the Kraków lease expires in December 2029.

These operating leases require monthly rental payments ranging from approximately $ 14,000 to $ 270,000 .

Under the terms of the lease agreements, the Company is also responsible for its proportionate share of taxes and operating costs, which are treated as variable lease costs.

2 unchanged sentences

As such, it has recorded lease obligations only through the initial optional termination dates above.

On August 2, 2023, upon completion of the acquisition of Tagger, the Company assumed an operating lease for an office suite located in Santa Monica, California.

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

The right-of-use assets and operating lease liabilities that the Company assumed with the Santa Monica lease were not significant.

During the fourth quarter of 2023, the Company reassessed the term of the Dublin office lease and determined it was reasonably certain to not exercise its option to early terminate the lease.

As a result of this determination, the Company remeasured the operating lease liability and associated right-of-use asset based on an expected expiration date of June 2025.

In August 2024, the Company entered into a new lease agreement for an office in Kraków, Poland.

For accounting purposes under ASC 842, the lease commenced on August 30, 2024, resulting in the recording of a $0.6 million right-of-use operating lease asset and operating lease liability.

The lease has an expected expiration date of December 2029.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

In November 2024, the Company entered into an amendment to its Chicago office lease agreement, which will result in an early termination to one floor of the leased space effective December 31, 2025 and also extended the term for the remaining floor to December 31, 2032.

Following the early termination to one floor of leased space on December 31, 2025, the Company’s office space in Chicago will be reduced from approximately 128,000 square feet down to approximately 64,000 square feet.

The Company determined that the amendment would be treated as a lease modification.

The modification resulted in a remeasurement of the operating lease ROU asset and lease liability, with a net effect of an increase to the ROU asset and lease liability of $ 2.8 million and $ 1.2 million, respectively.

In addition, the Company recorded a non-cash gain on the lease modification of $ 1.6 million, which was included in general and administrative expenses in the consolidated statements of operations.

In November 2024, the Company entered into an agreement to extend the Dublin office lease through June 30, 2027.

This resulted in a remeasurement of the operating lease ROU asset and lease liability.

The impact of the remeasurement was a $1.0 million increase to both the operating lease ROU asset and lease liability.

The following table provides a summary of operating lease assets and liabilities as of December 31, 2024 (in thousands):

4 unchanged sentences

Operating lease expense for the year ended December 31, 2024, 2023, and 2022 was $ 2.8 million, $ 2.7 million and $ 2.3 million, respectively.

Variable lease costs for the year ended December 31,

Sprout Social, Inc.

Notes to Consolidated Financial Statements

2023, 2022 and 2021 was $ 3.6 million, $ 3.5 million and $ 3.3 million, respectively.

Variable lease costs for the year ended December 31, 2024, 2023 and 2022 was $ 3.5 million, $ 3.6 million and $ 3.5 million, respectively.

Cash payments related to operating leases for the year ended December 31, 2024, 2023 and 2022 were $ 8.3 million, $ 8.2 million and $ 7.7 million, respectively.

2 unchanged sentences

Remaining maturities of operating lease liabilities as of December 31, 2024 are as follows (in thousands):

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Years ending December 31,

9 unchanged sentences

Loss before income taxes $ ( 61,301 ) $ ( 65,778 ) $ ( 49,874 )

The components of income tax expense (benefit) are as follows (in thousands):

Year Ended December 31,

2024 2023 2022

Current taxes

Current tax expense (benefit)

Deferred taxes

( 86 ) ( 171 ) —

Deferred tax expense (benefit)

Income tax expense (benefit)

$ 670 $ 649 $ 366

Sprout Social, Inc.

Notes to Consolidated Financial Statements

There is no provision for domestic income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets.

In 2023, 2022, and 2021, the Company recognized an immaterial provision related to foreign income taxes.

A reconciliation of the difference between the federal statutory rate and the effective income tax rate as a percentage of income before taxes for the years ended December 31, 2024, 2023, and 2022 is as follows (in thousands):

27 unchanged sentences

Deferred tax liabilities

Depreciation and amortization ( 7,727 ) ( 1,986 )

( 1,747 ) ( 1,671 )

Intangible assets

( 4,939 ) ( 6,056 )

Deferred commissions and bonus ( 18,634 ) ( 13,261 )

7 unchanged sentences

The weight given to positive and negative evidence is commensurate with the extent such evidence may be objectively verified.

Given the weight of objectively verifiable historical losses from operations, the Company has recorded a full valuation allowance on its deferred tax assets.

Given the weight of objectively verifiable historical losses from operations, the Company has recorded a full valuation allowance on its deferred tax assets related to domestic operations and certain deferred tax assets related to foreign operations.

The Company may be able to reverse the valuation allowance when sufficient positive evidence exists to support the reversal of the valuation allowance.

The increase in the valuation allowance for deferred tax assets was approximately $ 19.4 million for the year ended December 31, 2023, $ 12.1 million for the year ended December 31, 2022, and $ 16.5 million for the year ended December 31, 2021.

The increase in the valuation allowance was primarily due to the increase in the net operating loss deferred tax asset, the establishment of a deferred tax asset for research and development (R&D) credits, and the increase in the deferred tax asset for capitalized R&D costs.

The Company commissioned a multi-year R&D credit study in 2023, which was completed during the fourth quarter of 2023, and resulted in a favorable adjustment to the Company’s effective tax rate.

None of the R&D credits have been utilized as of December 31, 2023.

The recorded net carryover R&D credit as of December 31, 2023 expected to be utilized in future periods is $7.4 million (net of any reserves).

The Tax Cuts and Jobs Act (TCJA) of 2017 proposed changes to the Internal Revenue Code (IRC) section 174, which governs the treatment of R&D costs for tax purposes.

The changes require

Sprout Social, Inc.

Notes to Consolidated Financial Statements

companies to capitalize R&D costs incurred after December 31, 2021.

Under new IRC Section 174(c)(3), software development costs are treated as R&D expenditures.

The Company has capitalized and amortized relevant software development costs under IRC section 174 and recorded a resulting deferred tax asset of $ 15.0 million as of December 31, 2023.

The net change in the valuation allowance for deferred tax assets was approximately $ 5.4 million increase for the year ended December 31, 2024, $ 19.4 million increase for the year ended December 31, 2023, and $ 12.1 million increase for the year ended December 31, 2022.

The net change in the valuation allowance was primarily due to an increase in capitalized research and development (R&D) costs and tax credits and an increase in the net operating loss deferred tax asset, offset by an increase in the deferred tax liabilities with known reversal periods that will generate future sources of taxable income.

The Company elected to account for Global Intangible Low-Taxed Income (“GILTI”) as a current-period expense when incurred.

Therefore, the Company has not recorded deferred taxes for basis differences expected to reverse in the future periods.

The Company has total tax effected net operating loss carryforwards for U.S.

federal income tax purposes of approximately $ 64.8 million as of December 31, 2023, which begin to expire in 2031.

The Company has total tax effected net operating loss carryforwards for U.S.

state income tax purposes of approximately $ 12.5 million as of December 31, 2023, which begin to expire in 2031.

Unremitted earnings of foreign subsidiaries were immaterial at December 31, 2024.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

As of December 31, 2024, the Company has gross federal net operating losses of $ 308.5 million which begin to expire in 2034, state net operating losses of $ 215.8 million which begin to expire in 2031, and foreign net operating losses of $2.1 million which begin to expire in 2026.

The operating loss carryforwards may be limited due to a change in control in the Company’s ownership as defined by the Internal Revenue Code Sections 382.

2 unchanged sentences

If a tax position meets the more-likely-than-not threshold, the Company measures the tax position as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement.

The total amount of uncertain tax positions as of December 31, 2023 and 2022 was $ 2.5 million and nil , respectively.

The reconciliation of uncertain tax positions at the beginning and end of the years below is as follows (in thousands):

14 unchanged sentences

The resolutions of any examinations are not expected to be material to these financial statements.

The Company does not provide for U.S.

income taxes on unremitted earnings of foreign subsidiaries.

Unremitted earnings of foreign subsidiaries were immaterial at December 31, 2023.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Revolving Line of Credit

4 unchanged sentences

At December 31, 2024, the Company had an outstanding balance of $ 25 million under the Facility.

Borrowings under the Facility may be designated as SOFR Loans or ABR Loans (each as defined in the Credit Agreement), subject to certain terms and conditions under the Credit Agreement, and bear interest at a rate of either (i) SOFR (subject to a 1.0 % floor), plus 0.10 %, plus a margin ranging from 2.75 % to 3.25 % based on the Company’s liquidity or (ii) ABR (subject to a 2.0 % floor) plus a margin ranging from 1.75 % to 2.25 % based on the Company’s liquidity.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

ranging from 1.75 % to 2.25 % based on the Company’s liquidity.

The Facility also includes a quarterly commitment fee on the unused portion of the Facility of 0.30 % or 0.35 % based on the Company’s liquidity.

As of December 31, 2023, the borrowings under the Facility were designated as SOFR Loans and the interest rate in effect for the outstanding balance was approximately 8.23 %.

For the twelve months ended December 31, 2024, the borrowings under the Facility were designated as SOFR Loans and the interest rate in effect for the outstanding balance was approximately 8.08 %.

Debt issuance costs associated with the Facility were recorded to Other assets, net within the consolidated balance sheets and are being amortized as interest expense on a straight-line basis over the term of the Facility.

3 unchanged sentences

As of December 31, 2024, the Company was in compliance with the covenants in the Credit Agreement.

The Company is contingently liable under two standby letters of credit which are required as security for the Company’s current office leases (Note 6).

At December 31, 2023, the Company had $ 2.7 million in secured letters of credit outstanding.

At December 31, 2022, the Company had $2.7 million in unsecured letters of credit outstanding.

The Company is contingently liable under two standby letters of credit which are required as security for the Company’s current office leases (refer to Note 6).

At December 31, 2024 and 2023, the Company had $ 2.7 million in secured letters of credit outstanding.

Stockholders’ Equity

1 unchanged sentence

Each holder of Class A and Class B common stock shall be entitled to one and ten votes, respectively, for each share held as of the record date and shall be entitled to receive dividends, when, as and if declared by the Board of Directors.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

outstanding shares of Class B common stock represents less than 10 % of the combined voting power of all then outstanding shares of Class A common stock and Class B common stock, (ii) the date that is seven ( 7 ) years from the closing of the IPO on December 17, 2019 and (iii) the date specified by a vote of the holders of a majority of the then outstanding shares of Class B common stock, voting as a separate class.

Each share of Class B common stock is convertible into one share of Class A common stock at any time and will convert automatically upon certain transfers and upon the earlier of (i) the first date on which the voting power of all then outstanding shares of Class B common stock represents less than 10 % of the combined voting power of all then outstanding shares of Class A common stock and Class B common stock, (ii) the date that is seven ( 7 ) years from the closing of the IPO on December 17, 2019 and (iii) the date specified by a vote of the holders of a majority of the then outstanding shares of Class B common stock, voting as a separate class.

Following such conversion, each share of Class A common stock will have one vote per share and the rights of the holders of all outstanding shares of common stock will be identical.

3 unchanged sentences

2016 Stock Plan (the “2016 Plan”) as an amendment and restatement of the Sprout Social, Inc.

2010 Amended and Restated Stock Incentive Plan, under which awards, including options, restricted stock purchases rights, restricted stock bonus or restricted stock unit awards, for up to 5,467,862 shares of common stock may, at the discretion of the Board of Directors, be issued to employees, consultants, and directors of the Company.

2010 Amended and Restated Stock Incentive Plan, under which awards, including options, restricted stock purchases rights, restricted stock

Sprout Social, Inc.

Notes to Consolidated Financial Statements

bonus or restricted stock unit awards, for up to 5,467,862 shares of common stock may, at the discretion of the Board of Directors, be issued to employees, consultants, and directors of the Company.

Under the 2016 Plan, any shares withheld upon settlement of RSUs, as elected by the employee to cover withholding taxes, will again be available for future grants under the plan.

8 unchanged sentences

There are no further grants authorized under the Class B Plan.

The only awards granted as of December 31, 2023 are stock options and restricted stock units.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

The only awards granted as of December 31, 2024 are restricted stock units.

Stock-based Compensation Expense

Stock-based compensation expense is included in the consolidated statement of operations and comprehensive loss as follows (in thousands):

Stock-based compensation expense is included in the consolidated statements of operations as follows (in thousands):

Years Ended December 31,

11 unchanged sentences

The general terms of the restricted stock units issued under the 2016 Plan require both a service and performance condition to be satisfied prior to vesting.

The service condition is satisfied upon the participant’s completion of a required period of continuous service from the vesting start date.

The service condition is satisfied upon the participant’s completion of a required

Sprout Social, Inc.

Notes to Consolidated Financial Statements

period of continuous service from the vesting start date.

The performance condition was satisfied upon the completion of the IPO.

11 unchanged sentences

The total unrecognized stock-based compensation expense relating to these awards as of December 31, 2024 was $ 191.4 million, which is expected to be recognized over a weighted-average period of 2.8 years.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Stock Options

11 unchanged sentences

At the end of 2015, the Company ceased issuing stock options.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

The table below summarizes the stock option activity for the year ended December 31, 2024:

8 unchanged sentences

The intrinsic value of options exercised for the years ended December 31, 2024, 2023 and 2022 was $ 0.8 million, $ 1.8 million and $ 2.3 million, respectively.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

The following summarizes information about the Company’s options outstanding as of December 31, 2023:

Options Outstanding Options Exercisable

Exercise Price Shares Weighted-

Shares Weighted-

(in years) (in years)

$ 0.70 - $ 1.08

27,010 1.05 27,010 1.05

27,010 27,010

There were no options outstanding as of December 31, 2024.

Commitments and Contingencies

6 unchanged sentences

From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings.

There were no material such matters as of and for the year ended December 31, 2023.

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Beginning on May 13, 2024, the Company and certain of its executives were named in two putative securities fraud class action cases filed in the United States District Court for the Northern District of Illinois asserting claims under Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5.

The first action, captioned Munch v.

Sprout Social, Inc., et al.

was filed on May 13, 2024 and alleges that the defendants made false or misleading statements and omissions of fact relating to the Company’s business, operations and prospects, including (i) purported integration challenges arising from the Company’s August 2023 acquisition of Tagger, (ii) the Company’s ability to service (and the viability of its strategic plan to focus on) the enterprise market, and (iii) as a result, the Company’s 2024 financial guidance was required to be adjusted downward.

The Munch complaint seeks damages and costs on behalf of a putative class of Company stockholders from November 3, 2023 through and including May 2, 2024.

The second case, captioned City of Hollywood Police Officers’ Retirement System v.

Sprout Social, Inc., et al (the “City of Hollywood Action”), was filed in the United States District Court for the Northern District of Illinois on July 2, 2024.

It asserts claims under the same statutory provisions based on substantially similar allegations of misconduct as its predecessor, but alleges a class period beginning on November 3, 2021 and ending on May 2, 2024.

On November 12, 2024, the court appointed the Employees’ Retirement System for the City of Baltimore (the “City of Baltimore”), who had been substituted as the named plaintiff in the City of Hollywood action, as the Lead Plaintiff under the Private Securities Litigation Reform Act of 1995 (“PSLRA”).

The court subsequently consolidated the two cases (the “Consolidated Securities Action”) on December 13, 2024.

On January 24, 2025, the City of Baltimore filed a Consolidated Amended Complaint (the “CAC”).

The CAC retains the original defendants, but adds Jason Rechel, Sprout Social’s former head of Investor Relations, as an individual defendant.

The CAC makes similar allegations to those asserted in the City of Hollywood Action and adds additional allegations, including purported statements attributed to 15 anonymous confidential witnesses.

Most of these individuals are described in the CAC as former Sprout Social sales representatives.

It claims that the defendants failed to disclose that the Company lacked the infrastructure to successfully implement its strategic shift to the enterprise business market, which purportedly rendered positive statements about enterprise business generation and prospects, and Sprout Social’s financials, misleading.

More specifically, the CAC alleges that (1) Sprout Social’s “inbound” sales strategy model, which it also applied to enterprise sales efforts, was not effective for generating enterprise business;

(2) Sprout Social’s platform lacked certain features valued by large clients;

(3) Sprout Social’s partnership with Salesforce would not necessarily increase Sprout Social’s enterprise business;

and (4) Sprout Social’s emphasis on ARR as a key metric for financial performance was misleading, given Sprout Social’s own abandonment of the metric as a viable performance indicator.

The CAC alleges a slightly longer class period than that alleged in the City of Hollywood Action, beginning on September 22, 2021, and ending on May 2, 2024 (the City of Hollywood Action alleged class period that began on November 3, 2021 and ended on May 2, 2024).

Defendants’ response to the CAC is due by March 25, 2025.

Under the PSLRA, discovery and other proceedings in the Consolidated Securities Action are automatically stayed pending the resolution of any motion to dismiss filed by defendants.

On September 3, 2024, a putative stockholder derivative lawsuit captioned Hannaway v.

Sprout Social, Inc.

(the “Hannaway Derivative Action”) was filed in the United States District Court for the Northern District of Illinois against the Company’s directors and certain officers.

The complaint alleges that the defendants failed to disclose (or misrepresented) facts about the Company’s business, operations

Sprout Social, Inc.

Notes to Consolidated Financial Statements

and prospects, including that (i) the Company’s sales and revenue results were not indicative of its growth as it transitioned to an enterprise sales cycle, (ii) the Company was unable to sell to enterprise customers and thus overpaid for, and faced integration challenges with respect to, Tagger, and (iii) as a result, the Company faced longer sales cycles and a slowing pipeline, requiring a downward revision of its 2024 guidance.

Based on these allegations, the complaint asserts federal claims under Sections 10(b), 14(a) and 21D of the Exchange Act and Rules 10b-5 and 14a-9, and state law claims for breach of fiduciary duties, unjust enrichment, corporate waste, aiding and abetting and insider selling, and seeks damages in an unspecified amount on the Company’s behalf.

On October 23, 2024, the court entered a stipulation and order staying the action until the earliest of (i) entry of a final, non-appealable order on any summary judgment motions in the Consolidated Securities Action;

(ii) a settlement or other mediated resolution in the Consolidated Securities Action;

or (iii) as otherwise agreed to by the Parties (the “Stay Order”).

Under the Stay Order, any supplemental derivative action filed in the same court will be consolidated with the Hannaway Derivative Action and subject to the terms of the Stay Order.

On December 17, 2024, a second putative derivative action captioned Munch v.

Sprout Social, Inc.

was filed in the United States District Court for the Northern District of Illinois against the same defendants.

This complaint alleges that, beginning in November of 2021, the defendants failed to disclose (or misrepresented) facts about the Company’s business, operations and prospects, including that (i) the Company was neither well-equipped to grow enterprise sales nor executing on its go to market strategy to grow enterprise business;

(ii) marketing to enterprise customers would elongate the Company’s sales cycles, and (iii) as a result, the Company was required to adjust its 2024 financial guidance downward.

Based on these allegations, plaintiff asserts federal claims under Section 14(a) of the Exchange Act and a state law claim for breach of fiduciary duty, and seeks damages in an unspecified amount on the Company’s behalf.

In accordance with the Stay Order, this case should be consolidated with the Hannaway Derivative Action and subject to the same terms.

The Company intends to vigorously defend against the claims asserted in the foregoing actions.

The outcomes of these actions are subject to inherent uncertainties, and the actual defense and disposition costs will depend upon many unknown factors.

The Company could be forced to expend significant resources in the defense of these actions and may not prevail.

The Company currently is not able to estimate the possible cost from these matters, which are at an early stage, and the Company cannot be certain how long it may take to resolve these actions or the possible amount of any damages that the Company may be required to pay.

Such amounts could be material to the Company’s financial statements.

The Company has not established any reserve for any potential liability relating to these actions.

It is possible that the Company could, in the future, incur a judgment for monetary damages and/or enter into a settlement(s) in connection therewith, which could be material to the Company’s results of operations, financial position and cash flows.

Indemnification

2 unchanged sentences

It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision.

There were no material obligations under such indemnification agreements as of and for the year ended December 31, 2023.

Historically, the Company has not incurred any significant costs as a result of such indemnification.

Sprout Social, Inc.

5 unchanged sentences

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

Revenue from customers outside of the United States was approximately 28 % for each of the years ended December 31, 2023, 2022 and 2021.

Revenue from customers outside of the United States was approximately 27 %, 28 % and 28 % for each of the years ended December 31, 2024, 2023 and 2022, respectively.

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

37 unchanged sentences

Marketable Securities:

Commercial paper $ — $ 33,287 $ — $ 33,287

Corporate bonds — 3,745 — 3,745

Treasury securities — 495 — 495

agency securities — 4,289 — 4,289

Asset-backed securities — 367 — 367

Total assets $ — $ 3,745 $ — $ 3,745

8 unchanged sentences

Total assets $ — $ 48,344 $ — $ 48,344

Sprout Social, Inc.

Notes to Consolidated Financial Statements

Marketable securities are classified within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market.

1 unchanged sentence

As of December 31, 2024 and December 31, 2023, the Company held investment-grade marketable securities which were accounted for as available-for-sale securities.

There was not a significant difference between the amortized cost and fair value of these securities.

There was not a

Sprout Social, Inc.

Notes to Consolidated Financial Statements

significant difference between the amortized cost and fair value of these securities.

The gross unrealized gains and losses associated with these securities were immaterial in the periods presented

7 unchanged sentences

The Company made matching contributions to the plan totaling $ 4.2 million, $ 3.7 million and $ 2.8 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Related Party Transactions

During the year ended December 31, 2021, the Company received $ 1.7 million in cash for the disgorgement of stockholder short-swing profits under Section 16(b) of the Exchange Act.

The amount was recorded as an increase to additional paid-in capital on the consolidated balance sheet.

There were no related party transactions for the years ended December 31, 2023 and 2022.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data