Sprout Social, Inc 10-Q for FY2022 Q2
Sprout Social, Inc. (SPT)
10-Q
2022-08-03
For: 2022-06-30
View Original
Added on
April 10, 2026
About this 10-Q
Sprout Social, Inc filed this 10-Q on August 3, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $61.43M
- up 37.5% from $44.69M a year earlier
- Net loss
- $14.61M
- compared with a net loss of $5.44M a year earlier
- Diluted EPS
- -$0.27
- compared with -$0.10 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
_________________________________
(Mark One)
For the quarterly period ended June 30, 2022
For transition period from to
Commission File Number 001-39156
__________________________________
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| , | ||||||||
| , | ||||||||
(Address of principal executive offices and zip code) | ||||||||
(Registrant's telephone number, including area code) | ||||||||
__________________________________
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
__________________________________
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | |||||||||
Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): ☐ Yes ☒ No
As of July 29, 2022, there were 46,880,569 shares and 7,780,268 shares of the registrant’s Class A and Class B common stock, respectively, $0.0001 par value per share, outstanding.
TABLE OF CONTENTS
| Page | ||||||||
| PART I - FINANCIAL INFORMATION | ||||||||
Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II - OTHER INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 6. | ||||||||
1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q (“Quarterly Report”) not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements about Sprout Social, Inc.’s (“Sprout Social”) plans, objectives, strategies, financial performance and outlook, trends, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, our actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “explore,” “intend,” “long-term model,” “may,” “might” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “strategy,” “target,” “will,” “would,” or the negative of these terms and similar expressions intended to identify forward-looking statements, as they relate to Sprout Social, our business and our management. Forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by Sprout Social and our management based on their knowledge and understanding of the business and industry, are inherently uncertain. These forward-looking statements should not be read as a guarantee of future performance or results, and stockholders should not place undue reliance on forward-looking statements. There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and factors set forth under “Part I—Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our most recent Annual Report on Form 10-K under Part I—Item IA, “Risk Factors” and the risks and uncertainties related to the following:
•our ability to attract, retain and grow customers to use our platform and products;
•our future financial performance, including our revenue, cost of revenue, gross profit, operating expenses, ability to generate positive cash flow, and ability to achieve and maintain profitability;
•our ability to access third-party APIs and data on favorable terms;
•our ability to increase spending of existing customers;
•the evolution of the social media industry, including adapting to new regulations and use cases;
•worldwide economic conditions, including the macroeconomic impacts of the COVID-19 pandemic and the ongoing conflict between Russia and Ukraine, and their impact on information technology spending;
•our ability to innovate and provide a superior customer experience;
•our ability to securely maintain customer and other third-party data;
•the effects of increased competition from our market competitors or new entrants to the market;
•our ability to maintain and enhance our brand;
•our estimates of the size of our market opportunities;
•our ability to comply with modified or new laws and regulations applying to our business, including privacy and data security regulations;
•our ability to successfully enter new markets, manage our international expansion and comply with any applicable laws and regulations;
•our ability to maintain, protect and enhance our intellectual property;
2
•the attraction and retention of qualified employees and key personnel;
•our ability to effectively manage our growth and future expenses;
•the sufficiency of our cash to meet our liquidity needs and our ability to raise additional capital on favorable terms or at all; and
•the other factors set forth under “Risk Factors.”
These factors are not necessarily all of the important factors that could cause our actual financial results, performance, achievements or prospects to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and we do not undertake or assume any obligation to update forward-looking statements to reflect actual results, changes in assumptions, laws or other factors affecting forward-looking information, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
| Sprout Social, Inc. | |||||||||||
| Condensed Consolidated Balance Sheets (Unaudited) | |||||||||||
| (in thousands, except share and per share data) | |||||||||||
| December 31, 2021 | |||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities | |||||||||||
Accounts receivable, net of allowances of $ | |||||||||||
| Deferred commissions | |||||||||||
| Prepaid expenses and other assets | |||||||||||
| Total current assets | |||||||||||
| Marketable securities, noncurrent | |||||||||||
| Property and equipment, net | |||||||||||
| Deferred commissions, net of current portion | |||||||||||
| Operating lease, right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets, net | |||||||||||
| Total assets | $ | $ | |||||||||
Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Deferred revenue | |||||||||||
| Operating lease liabilities | |||||||||||
| Accrued wages and payroll related benefits | |||||||||||
| Accrued expenses and other | |||||||||||
| Total current liabilities | |||||||||||
| Deferred revenue, net of current portion | |||||||||||
| Operating lease liabilities, net of current portion | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 6) | |||||||||||
4
| Sprout Social, Inc. | ||
| Condensed Consolidated Balance Sheets (Unaudited) (cont’d) | ||
| (in thousands, except share and per share data) | ||
| December 31, 2021 | |||||||||||
| Stockholders’ equity | |||||||||||
Class A common stock, par value $ | |||||||||||
Class B common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Treasury stock, at cost | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
Total liabilities and stockholders’ equity | $ | $ | |||||||||
See Notes to Condensed Consolidated Financial Statements.
5
| Sprout Social, Inc. | ||
| Condensed Consolidated Statements of Operations (Unaudited) | ||
| (in thousands, except share and per share data) | ||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription | $ | $ | $ | $ | |||||||||||||||||||
| Professional services and other | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription | |||||||||||||||||||||||
| Professional services and other | |||||||||||||||||||||||
| Total cost of revenue | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Loss from operations | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Other expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Loss before income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss per share attributable to common shareholders, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted-average shares outstanding used to compute net loss per share, basic and diluted | |||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
6
| Sprout Social, Inc. | ||
| Condensed Consolidated Statements of Comprehensive Loss (Unaudited) | ||
| (in thousands) | ||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||
| Net unrealized loss on available-for-sale securities, net of tax | ( | ( | |||||||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
7
| Sprout Social, Inc. | ||
| Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) | ||
| (in thousands, except share data) | ||
Voting Common Stock (Class A and B) | Additional Paid-in Capital | Treasury Stock | Accumulated other comprehensive loss | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2022 | $ | $ | $ | ( | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | ||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock from equity award settlement | — | ||||||||||||||||||||||||||||||||||||||||||||||
Taxes paid related to net share settlement of equity awards | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with employee stock purchase plan | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Net loss | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balances at | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
Voting Common Stock (Class A and B) | Additional Paid-in Capital | Treasury Stock | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
Exercise of stock options | — | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||
Issuance of common stock from equity award settlement | — | ||||||||||||||||||||||||||||||||||||||||
Taxes paid related to net share settlement of equity awards | ( | ( | |||||||||||||||||||||||||||||||||||||||
Net loss | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
8
| Sprout Social, Inc. | ||
| Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) | ||
| (in thousands, except share data) | ||
Voting Common Stock (Class A and B) | Additional Paid-in Capital | Treasury Stock | Accumulated other comprehensive loss | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | $ | $ | $ | ( | $ | — | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | ||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock from equity award settlement | — | ||||||||||||||||||||||||||||||||||||||||||||||
Taxes paid related to net share settlement of equity awards | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with employee stock purchase plan | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Net loss | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balances at | $ | $ | $ | ( | $ | (314) | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
Voting Common Stock (Class A and B) | Additional Paid-in Capital | Treasury Stock | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
Exercise of stock options | — | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||
Issuance of common stock from equity award settlement | — | ||||||||||||||||||||||||||||||||||||||||
Taxes paid related to net share settlement of equity awards | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Proceeds from disgorgement of stockholder short-swing profits | |||||||||||||||||||||||||||||||||||||||||
Net loss | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
9
| Sprout Social, Inc. | ||
| Condensed Consolidated Statements of Cash Flows (Unaudited) | ||
| (in thousands) | ||
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash provided by operating activities | |||||||||||
| Depreciation of property and equipment | |||||||||||
| Amortization of line of credit issuance costs | |||||||||||
| Amortization of premium on marketable securities | |||||||||||
| Amortization of acquired intangible assets | |||||||||||
| Amortization of deferred commissions | |||||||||||
| Amortization of right-of-use operating lease asset | |||||||||||
| Stock-based compensation expense | |||||||||||
| Provision for accounts receivable allowances | |||||||||||
| Changes in operating assets and liabilities | |||||||||||
| Accounts receivable | ( | ||||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Deferred commissions | ( | ( | |||||||||
| Accounts payable and accrued expenses | ( | ||||||||||
| Deferred revenue | |||||||||||
| Lease liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Purchases of marketable securities | ( | ( | |||||||||
| Proceeds from maturity of marketable securities | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities | |||||||||||
| Payments for line of credit issuance costs | ( | ( | |||||||||
| Proceeds from exercise of stock options | |||||||||||
| Proceeds from employee stock purchase plan | |||||||||||
| Proceeds from disgorgement of stockholders short-swing profits | |||||||||||
| Employee taxes paid related to the net share settlement of stock-based awards | ( | ( | |||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Net decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents | |||||||||||
| Beginning of period | |||||||||||
| End of period | $ | $ | |||||||||
| Supplemental noncash disclosures | |||||||||||
| Operating lease liability arising from operating ROU asset obtained | $ | $ | |||||||||
| Balance of property and equipment in accounts payable | $ | $ | |||||||||
See Notes to Condensed Consolidated Financial Statements.
10
| Sprout Social, Inc. | ||
| Notes to Condensed Consolidated Financial Statements (Unaudited) | ||
1.Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Sprout Social, Inc. (“Sprout Social” or the “Company”), a Delaware corporation, began operating on April 21, 2010 to design, develop and operate a web-based comprehensive social media management tool enabling companies to manage and measure their online presence. Customers access their accounts online via a web-based interface or a mobile application. Some customers also purchase the Company’s professional services, which primarily consist of consulting and training services. The Company’s fiscal year end is December 31. The Company’s customers are primarily located throughout the United States, and a portion of customers are located in foreign countries. The Company is headquartered in Chicago, Illinois.
Principles of Consolidation and Basis of Presentation
The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 23, 2022.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company bases its estimates on historical experience and on other assumptions that its management believes are reasonable under the circumstances, including but not limited to the potential impacts arising from the COVID-19 pandemic. As the extent and duration of the impact of the COVID-19 pandemic remains uncertain, the Company’s estimates and judgments may evolve as conditions change. The Company is not aware of any events or circumstances that would require an update to its estimates and judgments or a revision of the carrying value of its assets or liabilities as of August 3, 2022, the date of issuance of this Quarterly Report on Form 10-Q. Actual results could differ from those estimates.
The Company’s estimates and judgments include, but are not limited to, the estimated period of benefit for incremental costs of obtaining a contract with a customer, the incremental borrowing rate for
11
| Sprout Social, Inc. | ||
| Notes to Condensed Consolidated Financial Statements (Unaudited) | ||
Summary of Significant Accounting Policies
The Company’s significant accounting policies are discussed in Note 1, “Nature of Operations and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements as of and for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 23, 2022. There have been no significant changes to these policies during the six months ended June 30, 2022 .
2.Revenue Recognition
Disaggregation of Revenue
The Company provides disaggregation of revenue based on geographic region in Note 7 and based on the subscription versus professional services and other classification on the condensed consolidated statements of operations, 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
As of June 30, 2022 , including amounts already invoiced and amounts contracted but not yet invoiced, $127.6 million of revenue is expected to be recognized from remaining performance obligations, of which 82 % is expected to be recognized in the next 12 months, with the remainder thereafter.
3.Operating Leases
The Company has operating lease agreements for offices in Chicago, Illinois, and Seattle, Washington. The Chicago lease expires in January 2028 and the Seattle lease expires in January 2031. The Company’s existing operating leases require escalating monthly rental payments ranging from $72,000 to $280,000 . Under the terms of the lease agreements, the Company is also responsible for its proportionate share of taxes and operating costs, which are treated as variable lease costs. The Company’s operating leases typically contain options to extend or terminate the term of the lease. The Company currently does not include any options to extend leases in its v c lease terms as it is not reasonably certain to exercise them. As such, it has recorded lease obligations only through the initial optional termination dates above.
The Company entered into a new lease agreement for an office in Dublin, Ireland, with an expected total future commitment of $1.1 million and lease commencement date of July 2022. The lease has an expected expiration date of June 2024. For accounting purposes under ASC 842, the lease
12
| Sprout Social, Inc. | ||
| Notes to Condensed Consolidated Financial Statements (Unaudited) | ||
commenced on June 30, 2022, resulting in the recording of a $1.1
The following table provides a summary of operating lease assets and liabilities as of June 30, 2022 (in thousands):
| Assets | |||||
| Operating lease right-of-use assets | $ | ||||
| Liabilities | |||||
| Operating lease liabilities | |||||
| Operating lease liabilities, non-current | |||||
| Total operating lease liabilities | $ | ||||
The following table provides information about leases on the condensed consolidated statements of operations (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Operating lease expense | $ | $ | $ | $ | |||||||||||||||||||
| Variable lease expense | |||||||||||||||||||||||
Within the condensed consolidated statements of operations, operating and variable lease expense are recorded in General and administrative expenses. Cash payments related to operating leases for the six months ended June 30, 2022 and June 30, 2021 were $3.7 million and $3.2 million, respectively. As of June 30, 2022 , the weighted-average remaining lease term is 6.3 years and the weighted-average discount rate is 5.5 %.
Remaining maturities of operating lease liabilities as of June 30, 2022 are as follows (in thousands):
| Years ending December 31, | |||||
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total future minimum lease payments | $ | ||||
| Less: imputed interest | ( | ||||
| Total operating lease liabilities | $ | ||||
13
| Sprout Social, Inc. | ||
| Notes to Condensed Consolidated Financial Statements (Unaudited) | ||
4.Income Taxes
The provision for income taxes for interim periods is generally determined using an estimate of the Company’s annual effective tax rate, excluding jurisdictions for which no tax benefit can be recognized due to valuation allowances. The Company’s effective tax rate generally differs from the U.S. federal statutory rate primarily due to a valuation allowance related to the Company’s federal and state deferred tax assets.
The Company accounts for Global Intangible Low–Taxed Income (“GILTI”) as a current-period expense when incurred. Therefore, the Company has not recorded deferred taxes for basis differences expected to reverse in the future periods.
There has historically been no federal or state provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets. For the six months ended June 30, 2022 , the Company recognized an immaterial provision related to foreign income taxes.
5.Incentive Stock Plan
Stock-based compensation expense is included in the unaudited condensed consolidated statements of operations as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | |||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | |||||||||||||||||||
14
| Sprout Social, Inc. | ||
| Notes to Condensed Consolidated Financial Statements (Unaudited) | ||
6.Commitments and Contingencies
Contractual Obligations
The Company has non-cancellable minimum guaranteed purchase commitments for primarily data and services. Material contractual commitments as of June 30, 2022 that are not disclosed elsewhere are as follows (in thousands):
| Years ending December 31, | |||||
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total contract commitments | $ | ||||
Legal Matters
From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings. There were no material such matters as of and for the period ended June 30, 2022 .
Indemnification
In the ordinary course of business, the Company often includes standard indemnification provisions in its arrangements with third parties, including vendors, customers, investors and the Company’s directors and officers. Pursuant to these provisions, the Company may be obligated to indemnify such parties for losses or claims suffered or incurred. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. There were no material obligations under such indemnification agreements as of and for the period ended June 30, 2022 .
7.Segment and Geographic Data
The Company operates as one operating segment. The Company’s chief operating decision maker (“CODM”) is its chief executive officer, who reviews financial information for purposes of making operating decisions, assessing financial performance and allocating resources. The Company’s CODM evaluates financial information on a consolidated basis. As the Company operates as one operating segment, all required segment financial information is found in the condensed consolidated financial statements.
Long-lived assets by geographical region are based on the location of the legal entity that owns the assets. As of June 30, 2022 and December 31, 2021, there were no significant long-lived assets held by entities outside of the United States.
Revenue by geographical region is determined by location of the Company’s customers. Revenue from customers outside of the United States was approximately 28 % and 29 % for the six
15
| Sprout Social, Inc. | ||
| Notes to Condensed Consolidated Financial Statements (Unaudited) | ||
months ended June 30, 2022 and 2021, respectively. Revenue by geographical region is as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Americas | $ | $ | $ | $ | |||||||||||||||||||
| EMEA | |||||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
8.Net Loss per Share
Basic net loss per share is calculated by dividing the net loss by the weighted average number of outstanding shares of common stock for each period. Diluted net loss per share is calculated by giving effect to all potential dilutive common stock equivalents, which includes stock options, restricted stock units, and restricted stock awards. Because the Company incurred net losses each period, the basic and diluted calculations are the same. Basic and diluted net loss per share are the same for each class of common stock, as both Class A and Class B stockholders are entitled to the same liquidation and dividend rights.
The following table presents the calculation for basic and diluted net loss per share (in thousands, except share and per share data):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net loss attributable to common shareholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||
| Net loss per share, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The following outstanding shares of common stock equivalents were excluded from the calculation of diluted net loss per share for each period, as the impact of including them would have been anti-dilutive.
| June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Stock options outstanding | |||||||||||
| RSUs | |||||||||||
| Total potentially dilutive shares | |||||||||||
9. Fair Value Measurements
16
| Sprout Social, Inc. | ||
| Notes to Condensed Consolidated Financial Statements (Unaudited) | ||
transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:
•Level 1: Quoted prices in active markets for identical assets or liabilities.
•Level 2: Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3: Unobservable inputs that are supported by little or no market activity.
The following tables present information about the Company’s financial assets that are measured at fair value and indicate the fair value hierarchy of the valuation inputs used (in thousands):
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Marketable Securities: | |||||||||||||||||||||||
| Corporate bonds | $ | $ | $ | $ | |||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| U.S. Treasury securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Marketable Securities: | |||||||||||||||||||||||
| Corporate bonds | $ | $ | $ | $ | |||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| Asset-backed securities | $ | $ | |||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
Marketable securities are classified within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market.
The carrying amounts of certain financial instruments, including cash held in banks, cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their short-term maturities and are excluded from the fair value tables above.
For the periods presented, the Company held investment-grade marketable securities which were accounted for as available-for-sale securities. As of June 30, 2022 and December 31, 2021, there was not a 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.
17
| Sprout Social, Inc. | ||
| Notes to Condensed Consolidated Financial Statements (Unaudited) | ||
The following table classifies our marketable securities by contractual maturity (in thousands):
| December 31, 2021 | |||||||||||
| Due in one year or less | |||||||||||
| Due after one year and within two years | |||||||||||
| Total | |||||||||||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties, including the potential impact of the COVID-19 pandemic on our business. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in Part I—Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, and in other parts of this Quarterly Report. See "Cautionary Note Regarding Forward-Looking Statements."
Overview
Sprout Social is a powerful, centralized platform that provides the critical business layer to unlock the massive commercial value of social media. 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 33,000 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. Operating across major networks, including Twitter, Facebook, Instagram, TikTok, Pinterest, LinkedIn, Google, Reddit, Glassdoor and YouTube, and commerce platforms Facebook Shops, Shopify and WooCommerce, we provide organizations with a centralized platform to manage their social media efforts across stakeholders and business functions. Virtually every aspect of business has been impacted by social media, from marketing, sales, commerce and public relations to customer service, product and strategy, creating a need for an entirely new category of software. We offer our customers a centralized, secure and powerful platform to manage this broad, complex channel effectively across their organization.
We generate revenue primarily from subscriptions to our social media management platform under a software-as-a-service model. Our subscriptions can range from monthly to one-year or multi-year arrangements and are generally non-cancellable during the contractual subscription term. 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. This revenue has historically represented less than 1% of our revenue and is expected to be immaterial for the foreseeable future.
Our tiered subscription-based model allows our customers to choose among three core plans to meet their needs. Each plan is licensed on a per user per month basis at prices dependent on the level of features offered. Additional product modules, which offer increased functionality depending on a customer’s needs, can be purchased by the customer on a per user per month basis.
We generated revenue of $61.4 million and $44.7 million during the three months ended June 30, 2022 and 2021, respectively, representing growth of 37%. We generated revenue of $118.9 million and $85.5 million during the six months ended June 30, 2022 and 2021, respectively, representing growth of 39%. In the six months ended June 30, 2022, software subscriptions contributed 99% of our revenue.
We generated net losses of $14.6 million and $5.4 million during the three months ended June 30, 2022 and 2021, respectively, which included stock-based compensation expense of $12.7 million and $5.4 million, respectively. We generated net losses of $24.4 million and $11.8 million during the six months ended June 30, 2022 and 2021, respectively, which included stock-based compensation expense of $21.1 million and $9.4 million, respectively. We expect to continue investing in the growth of our business and, as a result, generate net losses for the foreseeable future.
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COVID-19
We continue to monitor the actual and potential effects of the COVID-19 pandemic across our business. The extent of the pandemic’s impact on our operational and financial performance and financial position will depend on certain developments, including the duration and spread of the outbreak and the governmental responses to address the pandemic and any re-emergence of COVID-19, impact on our customers and sales cycles and impact on our employees, all of which are uncertain and cannot be predicted.
Given the importance of our technology platform and heightened market awareness of social media as a strategic communications channel, the pandemic has not had a material adverse impact on our operational and financial performance to date. We will continue to monitor the potential impact of COVID-19; however, at this time, the extent to which the pandemic may impact our financial condition or results of operations is uncertain.
Key Factors Affecting Our Performance
Acquiring new customers
We are focused on continuing to organically grow our customer base by increasing demand for our platform and penetrating our addressable market. 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 33,000 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. 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. Customers may then expand use-cases between various departments to drive collaboration across their organizations. Our sales and customer success efforts include encouraging organizations to expand use-cases to more fully realize the value from the broader adoption of our platform throughout an organization. We will continue to invest in enhancing awareness of our brand, creating additional uses for our products and developing more products, features and functionality of existing products, which we believe are vital to achieving increased adoption of our platform. We have a history of attracting new customers and we have increased our focus on expanding their use of our platform over time.
Sustaining product and technology innovation
Our success is dependent on our ability to sustain product and technology innovation and maintain the competitive advantage of our proprietary technology. We continue to invest resources to enhance the capabilities of our platform by introducing new products, features and functionality of existing products.
International expansion
We see international expansion as a meaningful opportunity to grow our platform. Revenue generated from non-U.S. customers during the six months ended June 30, 2022 was approximately 28% of our total revenue. We have built local teams in Ireland, Canada, the United Kingdom, Singapore, India, Australia and the Philippines 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 plan to continue adding to our local sales, customer support and customer success teams in select international markets over time.
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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 not only of our market penetration, but also of our potential for future growth as our customers often expand their adoption of our platform over time based on an increased awareness of the value of our platform and products.
| As of June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Number of customers | 33,620 | 29,612 | |||||||||
ARR
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 June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (in thousands) | |||||||||||
| ARR | $ | 256,138 | $ | 189,109 | |||||||
Number of customers contributing more than $10,000 in ARR
We define customers contributing more than $10,000 in ARR as those on a paid subscription plan that had more than $10,000 in ARR as of a period end.
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. Over time, larger customers have constituted a greater share of our revenue.
| As of June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
Number of customers contributing more than $10,000 in ARR | 5,800 | 3,936 | |||||||||
Number of customers contributing more than $50,000 in ARR
We define customers contributing more than $50,000 in ARR as those on a paid subscription plan that had more than $50,000 in ARR as of a period end.
We view the number of customers that contribute more than $50,000 in ARR as a measure of our ability to scale with our largest customers and attract more sophisticated organizations. We believe this represents potential for future growth, including expanding within our current customer base. Over time, our largest customers have constituted a greater share of our revenue.
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| As of June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Number of customers contributing more than $50,000 in ARR | 755 | 401 | |||||||||
Components of our Results of Operations
Revenue
Subscription
We generate revenue primarily from subscriptions to our social media management platform under a software-as-a-service model. Our subscriptions can range from monthly to one-year or multi-year arrangements and are generally non-cancellable during the contractual subscription term. Subscription revenue is recognized ratably over the contract terms beginning on the date our product is made available to customers, which typically begins on the commencement date of each contract. Our customers do not have the right to take possession of the online software solution. We also generate a small portion of our subscription revenue from third-party resellers.
Professional Services
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. This revenue has historically represented less than 1% of our revenue and is expected to be immaterial for the foreseeable future.
Cost of Revenue
Subscription
Cost of revenue primarily consists of expenses related to hosting our platform and providing support to our customers. 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. Overhead associated with facilities and information technology is allocated to cost of revenue and operating expenses based on headcount. Although we expect our cost of revenue to increase in absolute dollars as our business and revenue grows, we expect our cost of revenue to decrease as a percentage of our revenue over time.
Professional Services and Other
Cost of professional services primarily consists of expenses related to our professional services organization and are comprised of personnel costs, including salaries, benefits, bonuses and allocated overhead.
Gross Profit and Gross Margin
Gross margin is calculated as gross profit as a percentage of total revenue. Our gross margin may fluctuate from period to period based on revenue earned, the timing and amount of investments made to expand our hosting capacity, our customer support and professional services teams and in hiring additional personnel, and the impact of acquisitions. We expect our gross profit and gross margin to increase as our business grows over time.
22
Operating Expenses
Research and Development
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. 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.
Sales and Marketing
Sales and marketing expenses primarily consist of personnel costs directly associated with our sales and marketing department, online advertising expenses, as well as allocated overhead, including depreciation expense and amortization related to acquired developed technologies. Sales force commissions and bonuses are considered incremental costs of obtaining a contract with a customer. 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. 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.
General and Administrative
General and administrative expenses primarily consist of personnel expenses associated with our finance, legal, human resources and other administrative employees. Our general and administrative expenses also include professional fees for external legal, accounting and other consulting services, depreciation and amortization expense, as well as allocated overhead. We expect to increase the size of our general and administrative functions to support the growth of our business. We also recognized certain non-recurring professional fees and other expenses as part of our transition to becoming a public company and expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with rules and regulations applicable to companies listed on a U.S. securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, investor relations and professional services. We expect the dollar amount of our general and administrative expenses to increase for the foreseeable future. However, we expect our general and administrative expenses to decrease as a percentage of revenue over time.
Interest Income (Expense), Net
Interest income (expense), net consists primarily of interest expense related to our line of credit, which expired in January 2022, and is offset by interest income earned on our cash and investment balances.
Other Expense, Net
Other expense, net primarily consists of foreign currency transaction gains and losses.
Income Tax Provision
The income tax provision consists of current and deferred taxes for our 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 expect this trend to continue for the foreseeable future.
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Results of Operations
The following tables set forth information comparing the components of our results of operations in dollars and as a percentage of total revenue for the periods presented.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription | $ | 60,732 | $ | 44,180 | $ | 117,512 | $ | 84,535 | |||||||||||||||
| Professional services and other | 700 | 505 | 1,349 | 968 | |||||||||||||||||||
| Total revenue | 61,432 | 44,685 | 118,861 | 85,503 | |||||||||||||||||||
Cost of revenue(1) | |||||||||||||||||||||||
| Subscription | 14,876 | 10,930 | 28,633 | 20,635 | |||||||||||||||||||
| Professional services and other | 264 | 225 | 498 | 517 | |||||||||||||||||||
| Total cost of revenue | 15,140 | 11,155 | 29,131 | 21,152 | |||||||||||||||||||
| Gross profit | 46,292 | 33,530 | 89,730 | 64,351 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
Research and development(1) | 15,374 | 9,008 | 28,439 | 17,280 | |||||||||||||||||||
Sales and marketing(1) | 30,350 | 19,822 | 55,962 | 37,975 | |||||||||||||||||||
General and administrative(1) | 15,101 | 10,012 | 29,471 | 20,627 | |||||||||||||||||||
| Total operating expenses | 60,825 | 38,842 | 113,872 | 75,882 | |||||||||||||||||||
| Loss from operations | (14,533) | (5,312) | (24,142) | (11,531) | |||||||||||||||||||
| Interest expense | (28) | (77) | (99) | (149) | |||||||||||||||||||
| Interest income | 321 | 65 | 444 | 117 | |||||||||||||||||||
| Other expense, net | (290) | (55) | (398) | (174) | |||||||||||||||||||
| Loss before income taxes | (14,530) | (5,379) | (24,195) | (11,737) | |||||||||||||||||||
| Income tax expense | 80 | 63 | 170 | 72 | |||||||||||||||||||
| Net loss | $ | (14,610) | $ | (5,442) | $ | (24,365) | $ | (11,809) | |||||||||||||||
_______________
(1)Includes stock-based compensation expense as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cost of revenue | $ | 766 | $ | 234 | $ | 1,214 | $ | 418 | |||||||||||||||
| Research and development | 3,060 | 937 | 4,785 | 1,654 | |||||||||||||||||||
| Sales and marketing | 5,959 | 2,725 | 10,177 | 4,477 | |||||||||||||||||||
| General and administrative | 2,879 | 1,548 | 4,880 | 2,804 | |||||||||||||||||||
| Total stock-based compensation | $ | 12,664 | $ | 5,444 | $ | 21,056 | $ | 9,353 | |||||||||||||||
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| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (as a percentage of total revenue) | |||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription | 99 | % | 99 | % | 99 | % | 99 | % | |||||||||||||||
| Professional services and other | 1 | % | 1 | % | 1 | % | 1 | % | |||||||||||||||
| Total revenue | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription | 24 | % | 24 | % | 24 | % | 24 | % | |||||||||||||||
| Professional services and other | — | % | 1 | % | — | % | 1 | % | |||||||||||||||
| Total cost of revenue | 25 | % | 25 | % | 25 | % | 25 | % | |||||||||||||||
| Gross profit | 75 | % | 75 | % | 75 | % | 75 | % | |||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Research and development | 25 | % | 20 | % | 24 | % | 20 | % | |||||||||||||||
| Sales and marketing | 49 | % | 44 | % | 47 | % | 44 | % | |||||||||||||||
| General and administrative | 25 | % | 22 | % | 25 | % | 24 | % | |||||||||||||||
| Total operating expenses | 99 | % | 87 | % | 96 | % | 89 | % | |||||||||||||||
| Loss from operations | (24) | % | (12) | % | (20) | % | (13) | % | |||||||||||||||
| Interest expense | — | % | — | % | — | % | — | % | |||||||||||||||
| Interest income | 1 | % | — | % | — | % | — | % | |||||||||||||||
| Other expense, net | — | % | — | % | — | % | — | % | |||||||||||||||
| Loss before income taxes | (24) | % | (12) | % | (20) | % | (14) | % | |||||||||||||||
| Income tax expense | — | % | — | % | — | % | — | % | |||||||||||||||
| Net loss | (24) | % | (12) | % | (20) | % | (14) | % | |||||||||||||||
Note: Certain amounts may not sum due to rounding
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Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Revenue
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription | $ | 60,732 | $ | 44,180 | $ | 16,552 | 37 | % | |||||||||||||||
| Professional services and other | 700 | 505 | 195 | 39 | % | ||||||||||||||||||
| Total revenue | $ | 61,432 | $ | 44,685 | $ | 16,747 | 37 | % | |||||||||||||||
| Percentage of Total Revenue | |||||||||||||||||||||||
| Subscription | 99 | % | 99 | % | |||||||||||||||||||
| 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 29,612 as of June 30, 2021 to 33,620 as of June 30, 2022. Customers contributing over $10,000 in ARR grew 47% versus the prior year and customers contributing over $50,000 in ARR grew 88% 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.
Cost of Revenue and Gross Margin
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription | $ | 14,876 | $ | 10,930 | $ | 3,946 | 36 | % | |||||||||||||||
| Professional services and other | 264 | 225 | 39 | 17 | % | ||||||||||||||||||
| Total cost of revenue | 15,140 | 11,155 | 3,985 | 36 | % | ||||||||||||||||||
| Gross profit | $ | 46,292 | $ | 33,530 | $ | 12,762 | 38 | % | |||||||||||||||
| Gross margin | |||||||||||||||||||||||
| Total gross margin | 75 | % | 75 | % | |||||||||||||||||||
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The increase in cost of subscription revenue for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to the following:
| Change | |||||
(in thousands) | |||||
| Data provider fees | $ | 2,169 | |||
| Personnel costs | 1,069 | ||||
| Stock-based compensation expense | 532 | ||||
| Other | 176 | ||||
| Subscription cost of revenue | $ | 3,946 | |||
Fees paid to our data providers increased due to revenue growth. Personnel costs increased primarily as a result of a 40% 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.
Operating Expenses
Research and Development
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| Research and development | $ | 15,374 | $ | 9,008 | $ | 6,366 | 71 | % | |||||||||||||||
| Percentage of total revenue | 25 | % | 20 | % | |||||||||||||||||||
The increase in research and development expense for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to the following:
| Change | |||||
(in thousands) | |||||
| Personnel costs | $ | 4,026 | |||
| Stock-based compensation expense | 2,123 | ||||
| Other | 217 | ||||
| Research and development | $ | 6,366 | |||
Personnel costs increased primarily as a result of a 49% increase in headcount to grow our research and development teams to drive our technology innovation through the development of new features on our platform. The increase in stock-based compensation expense was primarily due to the increased headcount.
27
Sales and Marketing
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| Sales and marketing | $ | 30,350 | $ | 19,822 | $ | 10,528 | 53 | % | |||||||||||||||
| Percentage of total revenue | 49 | % | 44 | % | |||||||||||||||||||
The increase in sales and marketing expense for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to the following:
| Change | |||||
(in thousands) | |||||
| Personnel costs | $ | 7,132 | |||
| Stock-based compensation expense | 3,234 | ||||
| Other | 162 | ||||
| Sales and marketing | $ | 10,528 | |||
Personnel costs increased primarily as a result of a 39% 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. The increase in stock-based compensation expense was primarily due to the increased headcount and awards granted to our President.
General and Administrative
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| General and administrative | $ | 15,101 | $ | 10,012 | $ | 5,089 | 51 | % | |||||||||||||||
| Percentage of total revenue | 25 | % | 22 | % | |||||||||||||||||||
The increase in general and administrative expense for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to the following:
| Change | |||||
(in thousands) | |||||
| Personnel costs | $ | 1,768 | |||
| Stock-based compensation expense | 1,331 | ||||
| Credit losses on accounts receivable | 589 | ||||
| Other | 1,401 | ||||
| General and administrative | $ | 5,089 | |||
Personnel costs increased primarily as a result of a 47% increase in headcount as we continue to grow our business and operate as a publicly traded company. The increase in stock-based
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compensation expense was primarily due to the increased headcount. The increase in credit losses on accounts receivable was primarily driven by higher accounts receivable balances. The increase in other was driven by various expenses related to overhead.
Interest Income (Expense), Net
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| Interest income (expense), net | $ | 293 | $ | (12) | $ | 305 | n/m(1) | ||||||||||||||||
| Percentage of total revenue | — | % | — | % | |||||||||||||||||||
_________________
(1)Calculated metric is not meaningful.
The increase in interest income (expense), net was primarily driven by the increased investment in marketable securities.
Other Expense, Net
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| Other expense net | $ | (290) | $ | (55) | $ | (235) | 427 | % | |||||||||||||||
| Percentage of total revenue | — | % | — | % | |||||||||||||||||||
The change in other expense, net was primarily driven by foreign exchange transaction losses.
Income Tax Expense
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| Income tax expense | $ | 80 | $ | 63 | $ | 17 | 27 | % | |||||||||||||||
| Percentage of total revenue | — | % | — | % | |||||||||||||||||||
The increase in income tax expense is due to higher earnings in foreign jurisdictions.
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Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Revenue
| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription | $ | 117,512 | $ | 84,535 | $ | 32,977 | 39 | % | |||||||||||||||
| Professional services and other | 1,349 | 968 | 381 | 39 | % | ||||||||||||||||||
| Total revenue | $ | 118,861 | $ | 85,503 | $ | 33,358 | 39 | % | |||||||||||||||
| Percentage of Total Revenue | |||||||||||||||||||||||
| Subscription | 99 | % | 99 | % | |||||||||||||||||||
| 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 29,612 as of June 30, 2021 to 33,620 as of June 30, 2022. Customers contributing over $10,000 in ARR grew 47% versus the prior year and customers contributing over $50,000 in ARR grew 88% 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.
Cost of Revenue and Gross Margin
| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription | $ | 28,633 | $ | 20,635 | $ | 7,998 | 39 | % | |||||||||||||||
| Professional services and other | 498 | 517 | (19) | (4) | % | ||||||||||||||||||
| Total cost of revenue | 29,131 | 21,152 | 7,979 | 38 | % | ||||||||||||||||||
| Gross profit | $ | 89,730 | $ | 64,351 | $ | 25,379 | 39 | % | |||||||||||||||
| Gross margin | |||||||||||||||||||||||
| Total gross margin | 75 | % | 75 | % | |||||||||||||||||||
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The increase in cost of subscription revenue for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to the following:
| Change | |||||
(in thousands) | |||||
| Data provider fees | $ | 4,410 | |||
| Personnel costs | 2,475 | ||||
| Stock-based compensation expense | 796 | ||||
| Other | 298 | ||||
| Subscription cost of revenue | $ | 7,979 | |||
Fees paid to our data providers increased due to revenue growth. Personnel costs increased primarily as a result of a 40% 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.
Operating Expenses
Research and Development
| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| Research and development | $ | 28,439 | $ | 17,280 | $ | 11,159 | 65 | % | |||||||||||||||
| Percentage of total revenue | 24 | % | 20 | % | |||||||||||||||||||
The increase in research and development expense for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to the following:
| Change | |||||
(in thousands) | |||||
| Personnel costs | $ | 7,744 | |||
| Stock-based compensation expense | 3,131 | ||||
| Other | 284 | ||||
| Research and development | $ | 11,159 | |||
Personnel costs increased primarily as a result of a 49% increase in headcount to grow our research and development teams to drive our technology innovation through the development of new features on our platform. The increase in stock-based compensation expense was primarily due to the increased headcount.
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Sales and Marketing
| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| Sales and marketing | $ | 55,962 | $ | 37,975 | $ | 17,987 | 47 | % | |||||||||||||||
| Percentage of total revenue | 47 | % | 44 | % | |||||||||||||||||||
The increase in sales and marketing expense for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to the following:
| Change | |||||
(in thousands) | |||||
| Personnel costs | $ | 11,781 | |||
| Stock-based compensation expense | 5,700 | ||||
| Other | 506 | ||||
| Sales and marketing | $ | 17,987 | |||
Personnel costs increased primarily as a result of a 39% 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. The increase in stock-based compensation expense was primarily due to the increased headcount and awards granted to our President.
General and Administrative
| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| General and administrative | $ | 29,471 | $ | 20,627 | $ | 8,844 | 43 | % | |||||||||||||||
| Percentage of total revenue | 25 | % | 24 | % | |||||||||||||||||||
The increase in general and administrative expense for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to the following:
| Change | |||||
(in thousands) | |||||
| Personnel costs | $ | 4,187 | |||
| Stock-based compensation expense | 2,076 | ||||
| Credit losses on accounts receivable | 536 | ||||
| Other | 2,045 | ||||
| General and administrative | $ | 8,844 | |||
Personnel costs increased primarily as a result of a 47% increase in headcount as we continue to grow our business and operate as a publicly traded company. The increase in stock-based
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compensation expense was primarily due to the increased headcount. The increase in credit losses on accounts receivable was primarily driven by higher accounts receivable balances. The increase in other was driven by $0.5 million in higher indirect tax expense and various other expenses related to overhead.
Interest Income (Expense), Net
| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| Interest income (expense), net | $ | 345 | $ | (32) | $ | 377 | n/m(1) | ||||||||||||||||
| Percentage of total revenue | — | % | — | % | |||||||||||||||||||
_________________
(1)Calculated metric is not meaningful.
The increase in interest income (expense), net was primarily driven by the increased investment in marketable securities.
Other Expense, Net
| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| Other expense net | $ | (398) | $ | (174) | $ | (224) | 129 | % | |||||||||||||||
| Percentage of total revenue | — | % | — | % | |||||||||||||||||||
The change in other expense, net was primarily driven by foreign exchange transaction losses.
Income Tax Expense
| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | Amount | % | ||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
| Income tax expense | $ | 170 | $ | 72 | $ | 98 | 136 | % | |||||||||||||||
| Percentage of total revenue | — | % | — | % | |||||||||||||||||||
The increase in income tax expense is due to higher earnings in foreign jurisdictions.
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the below non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance by excluding certain items that may not be indicative of our business, operating results or future outlook.
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However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
(dollars in thousands, except per share data) | |||||||||||||||||||||||
| Non-GAAP gross profit | $ | 47,058 | $ | 33,764 | $ | 90,944 | $ | 64,769 | |||||||||||||||
| Non-GAAP operating (loss) income | (1,869) | 132 | (3,086) | (2,178) | |||||||||||||||||||
| Non-GAAP net (loss) income | (1,946) | 2 | (3,309) | (2,456) | |||||||||||||||||||
| Non-GAAP net (loss) income per share | (0.04) | — | (0.06) | (0.05) | |||||||||||||||||||
| Free cash flow | $ | 667 | $ | 4,062 | $ | 5,756 | $ | 7,509 | |||||||||||||||
Non-GAAP Gross Profit
We define non-GAAP gross profit as GAAP gross profit, excluding stock-based compensation expense. 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, which is often unrelated to overall operating performance.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Reconciliation of Non-GAAP gross profit | (dollars in thousands) | ||||||||||||||||||||||
| Gross profit | $ | 46,292 | $ | 33,530 | $ | 89,730 | $ | 64,351 | |||||||||||||||
| Stock-based compensation expense | 766 | 234 | 1,214 | 418 | |||||||||||||||||||
| Non-GAAP gross profit | $ | 47,058 | $ | 33,764 | $ | 90,944 | $ | 64,769 | |||||||||||||||
Non-GAAP Operating (Loss) Income
We define non-GAAP operating (loss) income as GAAP loss from operations, excluding stock-based compensation expense. We believe non-GAAP operating (loss) income provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-
34
period comparisons of operations, as this non-GAAP financial measure eliminates the effect of stock-based compensation, which is often unrelated to overall operating performance.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Reconciliation of Non-GAAP operating (loss) income | (dollars in thousands) | ||||||||||||||||||||||
| Loss from operations | $ | (14,533) | $ | (5,312) | $ | (24,142) | $ | (11,531) | |||||||||||||||
| Stock-based compensation expense | 12,664 | 5,444 | 21,056 | 9,353 | |||||||||||||||||||
| Non-GAAP operating (loss) income | $ | (1,869) | $ | 132 | $ | (3,086) | $ | (2,178) | |||||||||||||||
Non-GAAP Net (Loss) Income
We define non-GAAP net (loss) income as GAAP net loss, excluding stock-based compensation expense. We believe non-GAAP net (loss) income 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, which is often unrelated to overall operating performance.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Reconciliation of Non-GAAP net (loss) income | (dollars in thousands) | ||||||||||||||||||||||
| Net loss | $ | (14,610) | $ | (5,442) | $ | (24,365) | $ | (11,809) | |||||||||||||||
| Stock-based compensation expense | 12,664 | 5,444 | 21,056 | 9,353 | |||||||||||||||||||
| Non-GAAP net (loss) income | $ | (1,946) | $ | 2 | $ | (3,309) | $ | (2,456) | |||||||||||||||
Non-GAAP Net (Loss) Income per Share
We define non-GAAP net (loss) income per share as GAAP net loss per share attributable to common shareholders, basic and diluted, excluding stock-based compensation expense. We believe non-GAAP net (loss) income 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, which is often unrelated to overall operating performance.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Reconciliation of Non-GAAP net (loss) income per share | |||||||||||||||||||||||
| Net loss per share attributable to common shareholders, basic and diluted | $ | (0.27) | $ | (0.10) | $ | (0.45) | $ | (0.22) | |||||||||||||||
| Stock-based compensation expense per share | 0.23 | 0.10 | 0.39 | 0.17 | |||||||||||||||||||
Non-GAAP net (loss) income per share(1) | $ | (0.04) | $ | — | $ | (0.06) | $ | (0.05) | |||||||||||||||
_________________
(1)For the three months ended June 30, 2021, non-GAAP basic and diluted net income per share were both $0.00. Non-GAAP diluted net income per share for the three months ended June 30, 2021 was calculated using 54,834,301 weighted-average
35
shares of common stock outstanding, which includes the impact of dilutive shares related to options and restricted stock units. All other GAAP and non-GAAP net loss per share calculations excluded these common stock equivalents as their effect is anti-dilutive.
Free Cash Flow
Free cash flow is a non-GAAP financial measure that we define as net cash provided by operating activities less purchases of property and equipment. We believe that free cash flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash provided by our core operations that, after the purchases of property and equipment, is available to be used for strategic initiatives. For example, if free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. One limitation of free cash flow is that it does not reflect our future contractual obligations. Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Reconciliation of Free cash flow | (dollars in thousands) | ||||||||||||||||||||||
| Net cash provided by operating activities | $ | 1,267 | $ | 4,355 | $ | 6,669 | $ | 7,975 | |||||||||||||||
| Purchases of property and equipment | (600) | (293) | (913) | (466) | |||||||||||||||||||
| Free cash flow | $ | 667 | $ | 4,062 | $ | 5,756 | $ | 7,509 | |||||||||||||||
Liquidity and Capital Resources
Our liquidity and capital resources were not materially impacted by the COVID-19 pandemic and the governmental responses to address the pandemic and the related economic impact during the six months ended June 30, 2022. For further discussion regarding the future potential impacts of COVID-19 and the related economic impacts on our liquidity and capital resources, see “Risk Factors” in Part I—Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.
As of June 30, 2022, our principal sources of liquidity were cash and cash equivalents of $68.6 million, marketable securities of $113.1 million and net accounts receivable of $24.9 million. Historically, we have generated losses from operations and negative cash flows from operations, as evidenced by our accumulated deficit and historical statement of cash flows. However, for the six months ended June 30, 2022 and 2021, we generated positive cash flows from operations. We expect to continue to incur operating losses for the foreseeable future due to the investments in our business we intend to make as described above. We may experience greater than anticipated operating losses in the short- and long-term if the COVID-19 pandemic and the governmental responses to address the pandemic and any re-emergence of COVID-19 persist for a prolonged period of time. The impact of the COVID-19 pandemic on our customers and our operations going forward remains uncertain, and we continue to proactively monitor our liquidity position.
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. 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. Our principal uses of cash in recent periods have been to fund operations and invest in capital expenditures.
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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. Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, billing frequency, the impact of the COVID-19 pandemic on our customers and our operations, the timing and extent of spending to support our research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings, and the continuing market acceptance of our product. In the future, we may enter into arrangements to acquire or invest in complementary businesses, products and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations, our business, results of operations and financial condition could be adversely affected.
SVB Credit Facility
In December 2017, we entered into a Loan and Security Agreement with Silicon Valley Bank, or SVB, which comprised a $15.0 million line of credit, or the Revolver, and a $5.0 million incremental revolving line commitment, or the Incremental Revolver, and, together with the Revolver, the SVB Credit Facility.
In November 2019, we amended the SVB Credit Facility to increase the Revolver (including the exercise of the Incremental Revolver, as amended) to $40.0 million and amended, among other terms, levels for the minimum adjusted EBITDA and minimum liquidity covenants, the advance rate and the interest rate.
The SVB Credit Facility expired by its terms on January 31, 2022.
The following table summarizes our cash flows for the periods presented:
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 6,669 | $ | 7,975 | |||||||
| Net cash used in investing activities | (44,675) | (14,628) | |||||||||
| Net cash (used in) provided by financing activities | (547) | 395 | |||||||||
| Net decrease in cash and cash equivalents | $ | (38,553) | $ | (6,258) | |||||||
Operating Activities
Our largest source of operating cash is cash collections from our customers for subscription services. Our primary uses of cash from operating activities are for personnel costs across the sales and marketing and research and development departments and hosting costs. Historically, we have generated negative cash flows from operating activities. However, for the six months ended June 30, 2022 and 2021, we generated positive cash flows from operating activities.
Net cash provided by operating activities during the six months ended June 30, 2022 was $6.7 million, which resulted from a net loss of $24.4 million adjusted for non-cash charges of $32.6 million and net cash outflow of $1.6 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $21.1 million of stock-based compensation expense, $1.9 million of depreciation
37
and intangible asset amortization expense, $8.5 million for amortization of deferred contract acquisition costs, which were primarily commissions, and $0.4 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 $13.0 million increase in deferred commissions due to the addition of new customers and expansion of the business, a $2.3 million increase in prepaid expenses and other assets, as well as a $1.3 million decrease in operating lease liabilities. These outflows were primarily offset by a $10.9 million increase in deferred revenue and a $4.1 million increase in accounts payable and accrued expenses.
Net cash provided by operating activities during the six months ended June 30, 2021 was $8.0 million, which resulted from a net loss of $11.8 million adjusted for non-cash charges of $17.6 million and net cash inflow of $2.2 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $9.4 million of stock-based compensation expense, $2.0 million of depreciation and intangible asset amortization expense, $5.4 million for amortization of deferred contract acquisition costs, which were primarily commissions, and $0.3 million of amortization of ROU operating lease assets. The net cash inflow from changes in operating assets and liabilities was primarily the result of a $10.8 million increase in deferred revenue, a $1.0 million decrease in gross accounts receivable, and a $2.9 million decrease in prepaid expenses. These inflows were primarily offset by a $9.5 million increase in deferred commissions due to the addition of new customers and expansion of the business, a $2.0 million decrease in accounts payable and other accrued liabilities, and a $0.9 million decrease in operating lease liabilities.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2022 was $44.7 million, which was primarily due to $106.8 million in purchases of marketable securities, partially offset by $63.1 million in proceeds from maturities of marketable securities.
Net cash used in investing activities for the six months ended June 30, 2021 was $14.6 million, which was primarily due to $63.2 million in purchases of marketable securities, partially offset by $49.0 million in proceeds from the maturities of marketable securities.
Financing Activities
Net cash used in financing activities for the six months ended June 30, 2022 was $0.5 million, primarily driven by $1.2 million in payments related to employee withholding taxes as a result of the net settlement of stock-based awards, partially offset by $0.7 million in proceeds from purchases under our employee stock purchase plan.
Net cash provided by financing activities for the six months ended June 30, 2021 was $0.4 million, which was primarily the result of $1.7 million from the disgorgement of stockholder short-swing profits under Section 16(b) of the Exchange Act, offset by $1.2 million in payments related to the employee withholding taxes as a result of the net settlement of stock-based awards.
Contractual Obligations
As of June 30, 2022, we have non-cancellable contractual obligations related primarily to operating leases and minimum guaranteed purchase commitments for data and services. As of June 30, 2022, the total obligation for operating leases was $27.7 million of which $4.5 million is expected in the next twelve months. As of June 30, 2022, our purchase commitment for primarily data and services was $33.1 million, of which $30.7 million is expected in the next twelve months. See Note 3 and Note 6 of the
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notes to our condensed consolidated financial statements for more information regarding these obligations.
Recent Accounting Pronouncements
Refer to section titled “Recently Adopted Accounting Pronouncements” in Note 1 of the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report for more information.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates.
Our significant accounting policies are discussed in Note 1, “Nature of Operations and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements as of and for the year ended December 31, 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 23, 2022. There have been no significant changes to these policies during the six months ended June 30, 2022.
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Item 3. Quantitative and Qualitative Disclosures of Market Risk
Interest Rate Risk
We had cash and cash equivalents totaling $68.6 million as of June 30, 2022, the majority of which was invested in money market accounts and money market funds. We also had marketable securities of $113.1 million which were invested in investment-grade corporate bonds, commercial paper, treasury securities and asset-backed securities. Such interest-earning instruments carry a degree of interest rate risk with respect to the interest income generated. Additionally, certain of these cash investments are maintained at balances beyond Federal Deposit Insurance Corporation, or FDIC, coverage limits or are not insured by the FDIC. Accordingly, there may be a risk that we will not recover the full principal of our cash investments and marketable securities. To date, fluctuations in interest income have not been significant. Because these accounts are highly liquid, we do not have material exposure to market risk. Our cash is held for working capital purposes. We do not enter into investments for trading or speculative purposes.
We did not have any outstanding debt during the period under our $40.0 million revolving credit line which expired on January 31, 2022.
We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements.
Foreign Currency Exchange Risk
We are not currently subject to significant foreign currency exchange risk as our U.S. and international sales are predominantly denominated in U.S. dollars. However, we have some foreign currency risk related to a small amount of sales denominated in Canadian dollars. Sales denominated in Canadian dollars reflect the prevailing U.S. dollar exchange rate on the date of invoice for such sales. Decreases in the relative value of the U.S. dollar to the Canadian dollar may negatively affect revenue and other operating results as expressed in U.S. dollars. We do not believe that an immediate ten percent increase or decrease in the relative value of the U.S. dollar to the Canadian dollars would have a material effect on operating results.
We have not engaged in the hedging of foreign currency transactions to date. However, as our international operations expand, our foreign currency exchange risk may increase. If our foreign currency exchange risk increases in the future, we may evaluate the costs and benefits of initiating a foreign currency hedge program in connection with non-U.S. dollar denominated transactions.
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Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of June 30, 2022 . Based on such evaluation, our CEO and CFO have concluded that as of June 30, 2022 , our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal controls
There have been no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.
Inherent Limitations of Internal Controls
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will have been detected.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in various legal proceedings arising from the normal course of business. We are not currently a party to any material pending legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Use of Proceeds from Initial Public Offering of Class A Common Stock
On December 17, 2019, we closed our IPO at a price to the public of $17.00 per share. The offer and sale of the shares in our IPO were registered under the Securities Act pursuant to our Registration Statement on Form S-1 (Registration No. 333-234316), which was declared effective on December 12, 2019.
There has been no material change in the planned use of IPO proceeds from that described in the final prospectus filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act on December 13, 2019.
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Item 6. Exhibits
INDEX TO EXHIBITS
| 3.1 | |||||
| 3.2 | |||||
| 10.1 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1* | |||||
| 32.2* | |||||
| 101 | The following information from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements | ||||
| 104 | The cover page from the Quarterly Report on Form 10-Q, formatted as Inline XBRL. | ||||
________________
* Furnished, not filed.
***
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized.
| Sprout Social, Inc. | ||||||||
| August 3, 2022 | By: | /s/ Joe Del Preto | ||||||
| Joe Del Preto | ||||||||
| Chief Financial Officer and Treasurer (Principal Financial and Principal Accounting Officer) | ||||||||
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SPROUT SOCIAL, INC.
2019 INCENTIVE AWARD PLAN
RESTRICTED STOCK UNIT AWARD GRANT NOTICE AND RESTRICTED STOCK UNIT AGREEMENT
Sprout Social, Inc., a Delaware corporation (the “Company”), pursuant to its 2019 Incentive Award Plan, as amended from time to time (the “Plan”), hereby grants to the holder listed below (“Participant”) the number of Restricted Stock Units set forth below (the “RSUs”). The RSUs are subject to the terms and conditions set forth in this Restricted Stock Unit Grant Notice (the “Grant Notice”), the Restricted Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”), the special provisions for the Participant’s country of residence if such Participant resides or provides services outside the United States, if applicable, attached hereto as Exhibit B (the “Foreign Appendix”) and the Plan, each of which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in the Grant Notice and the Agreement.
Participant:
Grant Date:
Vesting Start Date:
Number of RSUs:
Type of Shares Issuable: Class A Common Stock
Vesting Schedule: Except as otherwise provided in the Agreement, the RSUs shall vest as
to 25% of the total number of RSUs on the first anniversary of the Vesting Start Date and as to an additional 1/16th of the total number of RSUs on each quarterly anniversary of the Vesting Start Date thereafter (and if there is no corresponding day, the last day of the quarter) such that the RSUs shall be fully vested on the fourth anniversary of the Vesting Start Date, subject to Participant’s continued status as an Employee through the applicable vesting date.
Withholding Tax Acknowledgement: By accepting this Award electronically through the Plan service provider’s online grant acceptance policy, the Participant understands and agrees that they shall be subject to, and consents to the application of, the Company’s sell to cover policy, which requires that, as a condition of the grant of the RSUs hereunder, the Participant (1) sell that number of Shares determined in accordance with Section 2.5 of the Agreement as may be necessary to satisfy all applicable withholding obligations with respect to any taxable event arising in connection with the RSUs and similarly sell such number of Shares as may be necessary to satisfy all applicable withholding obligations with respect to any other awards of restricted stock units granted to the Participant under the Plan, the Company’s 2016 Stock Plan, or any other equity incentive plans of the Company or its predecessor, and (2) to allow the Agent (as defined in the Agreement) to remit the cash proceeds of such sale(s) to the Company. Furthermore, the Participant directs the Company to make a cash payment equal to the required tax withholding from the cash proceeds of such sale(s) directly to the appropriate taxing authorities. The Participant has carefully reviewed Section 2.5 of the Agreement.
By accepting this Award electronically through the Plan service provider’s online grant acceptance policy, Participant agrees to be bound by the terms and conditions of the Plan, the Foreign Appendix, if applicable, the Agreement and the Grant Notice. Participant has reviewed the Agreement, the Foreign Appendix, if applicable, the Plan and the Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing the Grant Notice and fully understands all provisions of the Grant Notice, the Agreement, the Foreign Appendix, if applicable, and the Plan. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, the Grant Notice or the Agreement.
SPROUT SOCIAL, INC. PARTICIPANT
By: By: Print Name: Joe Del Preto Print Name:
Title: Chief Financial Officer
EXHIBIT A
TO RESTRICTED STOCK UNIT AWARD GRANT NOTICE
RESTRICTED STOCK UNIT AWARD AGREEMENT
Pursuant to the Grant Notice to which this Agreement is attached, the Company has granted to Participant the number of RSUs set forth in the Grant Notice.
ARTICLE I.
GENERAL
Section 1.1 Defined Terms. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan or the Grant Notice. For purposes of this Agreement,
(a)“Cause” shall mean, unless such term or an equivalent term is otherwise defined by any employment agreement or offer letter between a Participant and a Participating Company, any of the following: (i) the Participant’s theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any Participating Company documents or records; (ii) the Participant’s material failure to abide by a Participating Company’s code of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct); (iii) the Participant’s unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of a Participating Company (including, without limitation, the Participant’s improper use or disclosure of a Participating Company’s confidential or proprietary information); (iv) any intentional act by the Participant which has a material detrimental effect on a Participating Company’s reputation or business or which brings the Participant into widespread public disrepute; (v) the Participant’s repeated failure or inability to perform any reasonable assigned duties after written notice from a Participating Company of, and a reasonable opportunity to cure, such failure or inability; (vi) any material breach by the Participant of any employment or service agreement between the Participant and a Participating Company, which breach is not cured pursuant to the terms of such agreement; or (vii) the Participant’s commission or conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs the Participant’s ability to perform his or her duties with a Participating Company. For purposes of this Agreement, whether or not an event giving rise to “Cause” occurs will be determined by the Board in its sole discretion.
(b)“Cessation Date” shall mean the date of Participant’s Termination of Service (regardless of the reason for such termination).
(c)“Participating Company” shall mean the Company or any of its parents or
Subsidiaries.
Section 1.2 Incorporation of Terms of Plan. The RSUs and the shares of Class A Common Stock issued to Participant hereunder (“Shares”) are subject to the terms and conditions set forth in this Agreement, the Foreign Appendix, if applicable, and the Plan, which is incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control. In the event of any inconsistency between the Plan and/or this Agreement with the Foreign Appendix, the terms of the Foreign Appendix shall control.
ARTICLE II.
AWARD OF RESTRICTED STOCK UNITS AND DIVIDEND EQUIVALENTS
Section 2.1 Award of RSUs and Dividend Equivalents
(a)In consideration of Participant’s past and/or continued employment with or service to a Participating Company and for other good and valuable consideration, effective as of the grant date set forth in the Grant Notice (the “Grant Date”), the Company has granted to Participant the number of RSUs set forth in the Grant Notice, upon the terms and conditions set forth in the Grant Notice, the Plan and this Agreement, subject to adjustment as provided in Section 12.2 of the Plan. Each RSU represents the right to receive one Share at the times and subject to the conditions set forth herein. However, unless and until the RSUs have vested, Participant will have no right to the payment of any Shares subject thereto. Prior to the actual delivery of any Shares, the RSUs will represent an unsecured obligation of the Company, payable only from the general assets of the Company.
(b)The Company hereby grants to Participant an Award of Dividend Equivalents with respect to each RSU granted pursuant to the Grant Notice for all ordinary cash dividends that are paid to all or substantially all holders of the outstanding Shares between the Grant Date and the date when the applicable RSU is distributed or paid to Participant or is forfeited or expires. The Dividend Equivalents for each RSU shall be equal to the amount of cash that is paid as a dividend on one Share. All such Dividend Equivalents shall be credited to Participant and be deemed to be reinvested in additional RSUs as of the date of payment of any such dividend based on the Fair Market Value of a Share on such date. Each additional RSU that results from such deemed reinvestment of Dividend Equivalents granted hereunder shall be subject to the same vesting, distribution or payment, adjustment and other provisions that apply to the underlying RSU to which such additional RSU relates.
Section 2.2 Vesting of RSUs and Dividend Equivalents.
(a)Subject to Participant’s continued employment with or service to a Participating Company on each applicable vesting date and subject to the terms of this Agreement, including, without limitation, Section 2.2(d), the RSUs shall vest in such amounts and at such times as are set forth in the Grant Notice. Each additional RSU that results from deemed reinvestments of Dividend Equivalents pursuant to Section 2.1(b) shall vest whenever the underlying RSU to which such additional RSU relates vests.
(b)In the event Participant incurs a Termination of Service, except as may be otherwise provided by the Administrator or as set forth in a written agreement between Participant and the Company, Participant shall immediately forfeit any and all RSUs and Dividend Equivalents granted under this Agreement that have not vested or do not vest on or prior to the date on which such Termination of Service occurs, and Participant’s rights in any such RSUs and Dividend Equivalents that are not so vested shall lapse and expire.
(c)In the event Participant incurs a Termination of Service for Cause, except as may be otherwise provided by the Administrator or as set forth in a written agreement between Participant and the Company, Participant shall immediately forfeit any and all RSUs and Dividend Equivalents granted under this Agreement (whether or not vested), and Participant’s rights in any such RSUs and Dividend Equivalents shall lapse and expire.
Section 2.3
(a)Distribution or Payment of RSUs. Participant’s RSUs shall be distributed in Shares (either in book-entry form or otherwise) as soon as administratively practicable following the vesting of the applicable RSU pursuant to Section 2.2, and, in any event, no later than March 15th of the calendar year following the year in which such vesting occurred (for the avoidance of doubt, this deadline is intended to comply with the “short-term deferral” exemption from Section 409A). Notwithstanding the foregoing, the Company may delay a distribution or payment in settlement of RSUs if it reasonably determines that such payment or distribution will violate federal securities laws or any other Applicable Law, provided that such distribution or payment shall be made at the earliest date at which the Company reasonably determines that the making of such distribution or payment will not cause such violation, as required by Treasury Regulation Section 1.409A-2(b)(7)(ii), and provided further that no payment or distribution shall be delayed under this Section 2.3(a) if such delay will result in a violation of Section 409A.
(b)All distributions shall be made by the Company in the form of whole Shares, and any fractional share shall be distributed in cash in an amount equal to the value of such fractional share determined based on the Fair Market Value as of the date immediately preceding the date of such distribution.
Section 2.4 Conditions to Issuance of Certificates. The Company shall not be required to issue or deliver any certificate or certificates for any Shares or to cause any Shares to be held in book-entry form prior to the fulfillment of all of the following conditions: (a) the admission of the Shares to listing on all stock exchanges on which such Shares are then listed, (b) the completion of any registration or other qualification of the Shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable, (c) the obtaining of any approval or other clearance from any state or federal governmental agency that the Administrator shall, in its absolute discretion, determine to be necessary or advisable, (d) the receipt by the Company of full payment for such Shares, which may be in one or more of the forms of consideration permitted under Section 2.5, and (e) the receipt of full payment of any applicable withholding tax in accordance with Section 2.5 by the Participating Company with respect to which the applicable withholding obligation arises.
Section 2.5 Tax Withholding. Notwithstanding any other provision of this Agreement:
(a)As set forth in Section 10.2 of the Plan, the Company shall have the authority and the right to deduct or withhold, or to require the Participant to remit to the Company, an amount sufficient to satisfy all applicable federal, state and local taxes required by law to be withheld with respect to any taxable event arising in connection with the Restricted Stock Units. In satisfaction of such tax withholding obligations, the Participant hereby agrees that they are subject to the Company’s sell to cover policy, which requires that the Participant sell the portion of the Shares to be delivered under the Restricted Stock Units necessary so as to satisfy the tax withholding obligations and shall execute any letter of instruction or agreement required by the Company’s transfer agent (together with any other party the Company determines necessary in connection with the sell to cover policy, the “Agent”) to cause the Agent to irrevocably commit to forward the proceeds necessary to satisfy the tax withholding obligations directly to the Company and/or its Affiliates. Notwithstanding any other provision of this Agreement, the Company shall not be obligated to deliver any new certificate representing Shares to the Participant or the Participant’s legal representative or enter such Shares in book entry form unless and until the Participant or the Participant’s legal representative shall have paid or otherwise satisfied in full the amount of all federal, state and local taxes applicable to the taxable income of the Participant resulting from the grant or vesting of the Restricted Stock Units or the issuance of Shares. In accordance with the Company’s sell to cover policy, the Participant hereby acknowledges and agrees:
(i)The Participant hereby appoints the Agent as the Participant’s agent and authorizes the Agent to (1) sell on the open market at the then prevailing market price(s), on the Participant’s behalf, as soon as practicable on or after the Shares are issued upon the vesting of the Restricted Stock Units, that number (rounded up to the next whole number) of the Shares so issued necessary to generate proceeds to cover (x) any tax withholding obligations incurred with respect to such vesting or issuance and (y) all applicable fees and commissions due to, or required to be collected by, the Agent with respect thereto and (2) apply any remaining funds to the Participant’s federal tax withholding.
(ii)The Participant hereby authorizes the Company and the Agent to cooperate and communicate with one another to determine the number of Shares that must be sold pursuant to subsection (i) above.
(iii)The Participant understands that the Agent may effect sales as provided in subsection (i) above in one or more sales and that the average price for executions resulting from bunched orders will be assigned to the Participant’s account. In addition, the Participant acknowledges that it may not be possible to sell Shares as provided by subsection (i) above due to
(1) a legal or contractual restriction applicable to the Participant or the Agent, (2) a market disruption, or (3) rules governing order execution priority on the national exchange where the Shares may be traded. The Participant further agrees and acknowledges that in the event the sale of Shares would result in material adverse harm to the Company, as determined by the Company in its sole discretion, the Company may instruct the Agent not to sell Shares as provided by subsection
(i)above. In the event of the Agent’s inability to sell Shares, the Participant will continue to be responsible for the timely payment to the Company and/or its Affiliates of all federal, state, local and foreign taxes that are required by applicable laws and regulations to be withheld, including but not limited to those amounts specified in subsection (i) above.
(i)The Participant acknowledges that regardless of any other term or condition of this Section 2.5(a), the Agent will not be liable to the Participant for (1) special, indirect, punitive, exemplary, or consequential damages, or incidental losses or damages of any kind, or (2) any failure to perform or for any delay in performance that results from a cause or circumstance that is beyond its reasonable control.
(ii)The Participant hereby agrees to execute and deliver to the Agent any other agreements or documents as the Agent reasonably deems necessary or appropriate to carry out the purposes and intent of this Section 2.5(a). The Agent is a third-party beneficiary of this Section 2.5(a).
(iii)This Section 2.5(a) shall terminate not later than the date on which all tax withholding obligations arising in connection with the vesting of the Award have been satisfied.
(a)The Company shall not be obligated to deliver any certificate representing Shares issuable with respect to the RSUs to, or to cause any such Shares to be held in book-entry form by, Participant or his or her legal representative unless and until Participant or his or her legal representative shall have paid or otherwise satisfied in full the amount of all federal, state, local and foreign taxes applicable with respect to the taxable income of Participant resulting from the vesting or settlement of the RSUs or any other taxable event related to the RSUs.
(b)Participant is ultimately liable and responsible for all taxes owed in connection with the RSUs, regardless of any action the Company or any other Participating Company takes with respect
to any tax withholding obligations that arise in connection with the RSUs. No Participating Company makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or payment of the RSUs or the subsequent sale of Shares. The Participating Companies do not commit and are under no obligation to structure the RSUs to reduce or eliminate Participant’s tax liability.
Section 2.6 Rights as Stockholder. Neither Participant nor any Person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book-entry form) will have been issued and recorded on the records of the Company or its transfer agents or registrars and delivered to Participant (including through electronic delivery to a brokerage account). Except as otherwise provided herein, after such issuance, recordation and delivery, Participant will have all the rights of a stockholder of the Company with respect to such Shares, including, without limitation, the right to receipt of dividends and distributions on such Shares.
ARTICLE III.
OTHER PROVISIONS
Section 3.1 Administration. The Administrator shall have the power to interpret the Plan, the Grant Notice and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan, the Grant Notice and this Agreement as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator will be final and binding upon Participant, the Company and all other interested Persons. To the extent allowable pursuant to Applicable Law, no member of the Committee or the Board will be personally liable for any action, determination or interpretation made with respect to the Plan, the Grant Notice or this Agreement.
Section 3.2 RSUs Not Transferable. The RSUs may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the Shares underlying the RSUs have been issued, and all restrictions applicable to such Shares have lapsed. No RSUs or any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence. Notwithstanding the foregoing, with the consent of the Administrator, the RSUs may be transferred to Permitted Transferees, pursuant to any such conditions and procedures the Administrator may require.
Section 3.3 Adjustments. The Administrator may accelerate the vesting of all or a portion of the RSUs in such circumstances as it, in its sole discretion, may determine. Participant acknowledges that the RSUs and the Shares subject to the RSUs are subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan, including Section 12.2 of the Plan.
Section 3.4 Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the Company’s principal office, and any notice to be given to Participant shall be addressed to Participant at Participant’s last address reflected on the Company’s records. By a notice given pursuant to this Section 3.4, either party may hereafter designate a different address for notices to be given to that party. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with
postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service or similar foreign entity.
Section 3.5 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
Section 3.6 Governing Law. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.
Section 3.7 Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice, this Agreement, and the Foreign Appendix, if applicable, are intended to conform to the extent necessary with all Applicable Laws, including, without limitation, the provisions of the Securities Act and the Exchange Act, and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission, and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the RSUs are granted, only in such a manner as to conform to Applicable Law. To the extent permitted by Applicable Law, the Plan, the Grant Notice, this Agreement, and the Foreign Appendix, if applicable, shall be deemed amended to the extent necessary to conform to Applicable Law.
Section 3.8 Amendment, Suspension and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board, provided that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the RSUs in any material way without the prior written consent of Participant.
Section 3.9 Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in Section 3.2 and the Plan, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
Section 3.10 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the RSUs (including RSUs that result from the deemed reinvestment of Dividend Equivalents), the Dividend Equivalents, the Grant Notice and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by Applicable Law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
Section 3.11 Not a Contract of Employment. Nothing in this Agreement, the Foreign Appendix, if applicable, or in the Plan shall confer upon Participant any right to continue to serve as an employee or other service provider of any Participating Company or shall interfere with or restrict in any way the rights of any Participating Company, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without cause, except to the extent
(i)expressly provided otherwise in a written agreement between a Participating Company and Participant or (ii) where such provisions are not consistent with applicable foreign or local laws, in which case such applicable foreign or local laws shall control.
Section 3.12 Entire Agreement. The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.
Section 3.13 Section 409A. This Award is not intended to constitute “nonqualified deferred compensation” within the meaning of Section 409A. However, notwithstanding any other provision of the Plan, the Grant Notice or this Agreement, if at any time the Administrator determines that this Award (or any portion thereof) may be subject to Section 409A, the Administrator shall have the right in its sole discretion (without any obligation to do so or to indemnify Participant or any other Person for failure to do so) to adopt such amendments to the Plan, the Grant Notice or this Agreement, or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Administrator determines are necessary or appropriate for this Award either to be exempt from the application of Section 409A or to comply with the requirements of Section 409A.
Section 3.14 Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.
Section 3.15 Limitation on Participant’s Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant shall have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the RSUs and Dividend Equivalents.
Section 3.16 Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which shall be deemed an original and all of which together shall constitute one instrument.
Section 3.17 Special Provisions for Restricted Stock Units Granted to Participants Outside the United States. If the Participant performs services for the Company outside of the United States, this Agreement shall be subject to the special provisions, if any, for the Participant’s country of residence, as set forth in the Foreign Appendix.
(a)If the Participant relocates to one of the countries included in the Foreign Appendix during the life of this Agreement, the special provisions for such country shall apply to the Participant, to the extent the Company determines that the application of such provisions is necessary or advisable in order to comply with applicable foreign and local law or facilitate the administration of the Plan.
(b)The Company reserves the right to impose other requirements on this Agreement, the RSUs and the Shares issued upon settlement of the RSUs, to the extent the Company determines it is necessary or advisable in order to comply with applicable foreign or local laws or facilitate the administration of the Plan, and to require the Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
* * * * *
EXHIBIT B
TO RESTRICTED STOCK UNIT AWARD AGREEMENT
SPECIAL PROVISIONS FOR RESTRICTED STOCK UNITS GRANTED TO PARTICIPANTS OUTSIDE THE U.S.
This Exhibit B includes additional terms applicable to Participants who reside or provide services to a Participating Company in the countries identified below. These terms and conditions are in addition to those set forth in the Agreement to which this Exhibit B is attached and the Plan and to the extent there are any inconsistencies between these terms and conditions and those set forth in the Agreement, these terms and conditions shall prevail. Any capitalized term used in this Exhibit B without definition shall have the meaning ascribed to such term in the Plan or the Agreement, as applicable.
This Foreign Appendix also includes information relating to exchange control and other issues of which the Participant should be aware with respect to his or her participation in the Plan. The information is based on the exchange control, securities and other laws in effect in the respective countries as of December 2019. Such laws are often complex and change frequently. As a result, the Company strongly recommends that the Participant does not rely on the information herein as the only source of information relating to the consequences of participation in the Plan because the information may be out of date at the time the RSUs are settled or Shares acquired under the Plan are sold.
In addition, the information is general in nature and may not apply to the particular situation of the Participant, and the Company is not in a position to assure the Participant of any particular result. Accordingly, the Participant is advised to seek appropriate professional advice as to how the relevant laws in his or her country may apply to his or her situation. Finally, if the Participant is a citizen or resident of a country other than the one in which they are currently working, the information contained herein may not be applicable to the Participant.
ARTICLE I.
AUSTRALIA
The following provision shall be added as Section 1.3 of the Agreement: A copy of the Plan is attached to the Grant Notice.
The following provision shall be added as Section 2.1(c) of the Agreement:
(a)No acquisition price is payable by the Participant for the Company to grant the Participant the number of RSUs set forth in the Grant Notice.
The following provision shall be added to Section 2.5 of the Agreement:
(e) The parties acknowledge that Subdivision 83A-C of the Income Tax Assessment Act 1997 (Cth) applies to the RSUs (subject to the requirements of that Act). The Participant acknowledges and confirms that the Participant is required to declare and pay any income tax in relation to RSUs as required under Australian tax law and the Participant will do so on a timely basis.
The following provision shall be added as Section 2.8 of the Agreement:
Section 2.8 Acknowledgment of Nature of Plan and RSUs. In accepting this Agreement, the Participant acknowledges that:
(a)for labor law purposes, RSUs and Shares issued upon vesting thereof are an extraordinary item that do not constitute wages of any kind for services of any kind rendered to the Company or to the Participant’s employer, and the grant of RSUs is outside the scope of the Participant’s employment contract, if any;
(b)for labor law purposes, the grant of RSUs and the Shares issued upon vesting thereof are not part of normal or expected wages or salary for any purposes, including, but not limited to, calculation of any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, holiday pay, long-service awards, pension or retirement benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company, the employer, or any Participating Company;
(c)RSUs and the Shares issued upon vesting thereof are not intended to replace any pension rights or compensation;
(d)neither the grant of RSUs nor any provision of this Agreement, the Plan or the policies adopted pursuant to the Plan confer upon the Participant any right with respect to employment or continuation of current employment and shall not be interpreted to form an employment contract or relationship with the Company or any Participating Company;
(e)in consideration of the grant of RSUs hereunder, no claim or entitlement to compensation or damages arises from termination of RSUs, and no claim or entitlement to compensation or damages shall arise from forfeiture of the RSUs resulting from termination of the Participant’s employment by the Company or any Participating Company (for any reason whatsoever and whether or not in breach of local labor laws) and the Participant irrevocably releases the Company and the Participant’s employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, the Participant shall be deemed irrevocably to have waived the Participant’s entitlement to pursue such claim; and
(f)in the event of termination of the Participant’s employment (whether or not in breach of local labor laws), the Participant’s rights to vest in the RSUs under the Plan, if any, will terminate effective as of the date that the Participant is no longer actively employed and will not be extended by any notice period mandated under applicable local laws (e.g., active employment would not include a period of “garden leave” or similar period pursuant to applicable local laws); the Administrator shall have the exclusive discretion to determine when the Participant is no longer actively employed for purposes of Participant’s RSUs; and
(g)the Administrator has reserved the right to terminate the Plan.
The following provisions shall be added as Sections 4.19 and 4.20 of the Agreement:
Section 4.19 Securities Law Information. If the Participant acquires Shares pursuant to the RSUs and the Participant offers the Shares for sale to a person or entity resident in Australia, the offer may be subject to disclosure requirements under Australian law. The Participant should obtain legal advice on disclosure obligations prior to making any such offer.
Section 4.20 Exchange Control Information. Exchange control reporting is required for cash transactions exceeding A$10,000 and international fund transfers coming into or going out of Australia. The Australian bank assisting with the transaction will file the report. If there is no Australian bank involved in the transfer, the Participant will be required to file the report.
Section 4.21 Acknowledgement. The Plan, the Agreement, the Grant Notice and the Foreign Appendix do not constitute financial advice. Any advice given by the Company or any of its associated bodies corporate, in relation to the RSUs, the Agreement, the Grant Notice, the Plan and the Foreign Appendix does not constitute financial advice and does not take into account the Participant’s objectives, financial situation and needs.
In considering the RSUs and the Shares that the Participant will hold on vesting of the RSUs, the Participant should consider the risk factors that could affect the performance of the Company. The Participant should be aware that there are risks associated with any stock market investment. It is important to recognize that stock prices and dividends might fall or rise. Factors affecting the market price include domestic and international economic conditions and outlook, changes in government fiscal, monetary and regulatory policies, changes in interest rates and inflation rates, the announcement of new technologies and variations in general market conditions and/or market conditions that are specific to a particular industry. In addition, share prices of many companies are affected by factors that might be unrelated to the operating performance of the relevant company. Such factors might adversely affect the market price of the Shares in the Company. Further, there is no guarantee that the Company’s Shares will trade at a particular volume or that there will be an ongoing liquid market for the Shares, accordingly there is a risk that, should the market for the Shares become illiquid, the Participant will be unable to realize their investment.
The Participant should carefully consider these risks in light of their investment objectives, financial situation and particular needs (including financial and tax issues) and seek professional guidance from a stock broker, solicitor, accountant, financial adviser or other independent professional adviser before deciding whether to acquire the RSUs.
Section 4.22 Vesting and calculating values in Australian dollars. The RSUs vest in accordance with the terms of the Plan (which requires certain conditions to be met) and are subject to the vesting schedule outlined in the Agreement. The Participant will not be required to pay any amount for the Class A common stock that will be issued to the Participant upon vesting.
The Participant can ascertain the market price of a share of Class A common stock in the Company in USD from time to time by visiting the NASDAQ website and completing a price search.
To determine the par value or the market value of a share of Class A common stock in Australian Dollars (“AUD”), the Participant will need to apply the prevailing USD: AUD exchange rate. For example, if the exchange rate is 1 USD: 1.5 AUD, and one share of Class A common stock has a value of USD $1 on NASDAQ its equivalent value will be AUD $1.50. The Participant should contact their bank for the prevailing USD: AUD exchange rate or for an approximate exchange rate published by the Reserve Bank of Australia the Participant can follow this link: http://www.rba.gov.au/statistics/frequency/exchange- rates.html.
ARTICLE II.
IRELAND
The following provision shall replace Section 4.11 of the Agreement:
Section 4.11 Not a Contract of Employment. Nothing in this Agreement, the Foreign Appendix, if applicable, or in the Plan shall confer upon Participant any right to continue to serve as an employee or other service provider of any Participating Company or shall interfere with or restrict in any way the rights that any Participating Company may have, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between a Participating Company and Participant and subject to Applicable Law.
The following provision shall be added as Section 4.19 of the Agreement:
Section 4.19 Director Reporting Obligation. If the Participant is a director, shadow director or secretary of a parent or subsidiary in Ireland, and the Participant’s interests in the Shares exceeds 1% of the share capital of the Company, the Participant must notify the Irish parent or subsidiary in writing within five business days of receiving or disposing of an interest in the Company (e.g., Restricted Share Units, Ordinary Shares), or within five business days of becoming aware of the event giving rise to the notification requirement or within five days of becoming a director or secretary if such an interest exists at the time. This notification requirement also applies with respect to the interests of the Participant’s spouse or children under the age of 18 (whose interests will be attributed to the Participant if the Participant is a director, shadow director or secretary).
Section 10.9 of the Plan shall not apply in Ireland and instead the following provision shall apply:
Data Privacy. A data privacy notice is available from the employer in relation to data in connection with the operation of the Plan.
ARTICLE III.
PHILIPPINES
The following provision shall replace Section 1.1(a) of the Agreement:
(a) “Just Cause” shall mean, unless such term or an equivalent term is otherwise defined by any employment agreement or offer letter between a Participant and a Participating Company, any of the following: (i) the just causes for termination provided for under the labor laws of the Philippines, including its implementing rules; (ii) the Participant’s theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any Participating Company documents or records; (iii) the Participant’s material failure to abide by a Participating Company’s code of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct); (iv) the Participant’s unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of a Participating Company (including, without limitation, the Participant’s improper use or disclosure of a Participating Company’s confidential or proprietary information); (v) any intentional act by the Participant which has a material detrimental effect on a Participating Company’s
reputation or business or which brings the Participant into widespread public disrepute; (vi) the Participant’s repeated failure or inability to perform any reasonable assigned duties after written notice from a Participating Company of, and a reasonable opportunity to cure, such failure or inability; (vii) any material breach by the Participant of any employment or service agreement between the Participant and a Participating Company, which breach is not cured pursuant to the terms of such agreement; or (viii) the Participant’s commission or conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs the Participant’s ability to perform his or her duties with a Participating Company. For purposes of this Agreement, whether or not an event giving rise to “Just Cause” occurs will be determined by the Board in its sole discretion.
All references to “Cause” shall be replaced with references to “Just Cause”. The following provision shall replace Section 2.5(a) of the Agreement:
Section 2.5 Tax Withholding.
(a) The Company or any other Participating Company, as applicable, have the authority to deduct or withhold, or require Participant to remit to the applicable Participating Company, an amount sufficient to satisfy any applicable federal, state, local and foreign taxes (including the employee portion of any FICA obligation) required by Applicable Law to be withheld with respect to any taxable event arising pursuant to this Agreement. A Participating Company may withhold by the deduction of such amount from other compensation payable to Participant.
Subject to any tax withholding obligation: (i) Participant is ultimately liable and responsible for all taxes owed in connection with the RSUs, regardless of any action the Company or any other Participating Company takes with respect to any tax withholding obligations that arise in connection with the RSUs.; (ii) No Participating Company makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or payment of the RSUs or the subsequent sale of the Shares; and (iii) the Participating Companies do not commit and are under no obligation to structure the RSUs to reduce or eliminate the Participant’s tax liability.
The following provision shall be added as Section 2.8 of the Agreement:
Section 2.8 Acknowledgment of Nature of Plan and RSUs. In accepting this Agreement, the Participant acknowledges that:
(a)for labor law purposes, RSUs and Shares issued upon vesting thereof are an extraordinary item that do not constitute wages of any kind for services of any kind rendered to the Company or to the Participant’s employer, and the grant of RSUs is outside the scope of the Participant’s employment contract, if any;
(b)for labor law purposes, the grant of RSUs and the Shares issued upon vesting thereof are not part of normal or expected wages or salary for any purposes, including, but not limited to, calculation of any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, holiday pay, long-service awards, pension or retirement benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company, the employer, its parent, or any Participating Company;
(c)RSUs and the Shares issued upon vesting thereof are not intended to replace any pension rights or compensation;
(d)neither the grant of RSUs nor any provision of this Agreement, the Plan or the policies adopted pursuant to the Plan confer upon the Participant any right with respect to employment or continuation of current employment and shall not be interpreted to form an employment contract or relationship with the Company or any Participating Company;
(e)in consideration of the grant of RSUs hereunder, no claim or entitlement to compensation or damages arises from termination of RSUs, and no claim or entitlement to compensation or damages shall arise from forfeiture of the RSUs resulting from termination of the Participant’s employment by the Company or any Participating Company (for any reason whatsoever and whether or not in breach of local labor laws) and the Participant irrevocably releases the Company and the Participant’s employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, the Participant shall be deemed irrevocably to have waived the Participant’s entitlement to pursue such claim; and
(f)in the event of termination of the Participant’s employment (whether or not in breach of local labor laws), the Participant’s rights to vest in the RSUs under the Plan, if any, will terminate effective as of the date that the Participant is no longer actively employed and will not be extended by any notice period mandated under applicable local laws (e.g., active employment would not include a period of “garden leave” or similar period pursuant to applicable local laws); the Administrator shall have the exclusive discretion to determine when the Participant is no longer actively employed for purposes of Participant’s RSUs; and
(g)the Administrator has reserved the right to terminate the Plan.
The following provision shall be added as Section 4.19 of the Agreement:
Section 3.18 Securities Law Notification. This offering is subject to an exemption from the requirements of securities registration with the Philippines Securities and Exchange Commission under Section 10.2 of the Philippine Securities Regulation Code. THE SHARES SUBJECT TO THE RSUs BEING OFFERED OR SOLD HAVE NOT BEEN REGISTERED WITH THE PHILIPPINES SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES REGULATION CODE. ANY FURTHER OFFER OR SALE THEREOF IS SUBJECT TO REGISTRATION REQUIREMENTS IN THE PHILIPPINES UNDER THE CODE UNLESS SUCH OFFER OR SALE QUALIFIES AS AN
EXEMPT TRANSACTION. For further information on risk factors impacting the Company’s business that may affect the value of the Shares, the Participant may refer to the risk factors discussion in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which are filed with the U.S. Securities and Exchange Commission and are available online at www.sec.gov, as well as on the Company’s website at sproutsocial.com. In addition, Participant may receive, free of charge, a copy of the Company’s Annual Report, Quarterly Reports or any other reports, proxy statements or communications distributed to the Company’s stockholders by contacting the Company’s Corporate Secretary at Sprout Social, Inc., Attn: Corporate Secretary, 131 S. Dearborn St. Suite 700, Chicago, IL 60603. The Participant may sell or dispose of Shares acquired under the Plan, if any, through Morgan Stanley Smith Barney LLC (or any other broker designated by the Company or to which the Shares have been transferred by Participant), provided that such sale takes place outside of the Philippines through the facilities of the stock exchange on which the Shares are listed (i.e., the Nasdaq Global Select Market).
The following provision shall be added as Section 4.20 of the Agreement:
Section 3.19 Data Protection. The Participant acknowledges and agrees that the Company and any Participating Company are permitted to hold and process personal (and sensitive personal) information and data about the Participant, held, used or disclosed in any medium, as part of their personnel and other business records, and may use such information in the course of its business. Further, the Company and any Participating Company may disclose such information to third parties, including where they are situated outside Philippines, in the event that such disclosure is in their view required for the proper conduct of their business. The Participant gives his/her full consent and authority for the collection, processing, retention and/or sharing of his/her personal and sensitive personal information and further accept that they be transferred and/or processed outside the Philippines. The Participant waives all rights to privacy of information or confidentiality that may exist by law, implementing regulations or by contract.
The following provision shall be added as Section 4.21 of the Agreement:
Section 4.21 Access to Information. Employees in the Philippines who are granted RSUs and issued Shares pursuant to the Plan certify that: (i) they have been furnished with all relevant information and materials on the issuer’s operations and financial condition; (ii) they have read and understood all such information and materials; and (iii) such information and materials were sufficient and have enabled them to make an informed decision to accept the RSUs offered.
The following provision shall be added as Section 4.22 of the Agreement:
Section 4.22 Labor Law Disclaimer. Please note that the offering is provided to the Participant by Sprout Social, Inc. and not by the Participant’s local employer. The decision to include a beneficiary in this or any future offering is taken by Sprout Social, Inc. in its sole discretion. The offering does not form part of the Participant’s employment agreement and does not amend or supplement such agreement. Participation in the offering does not entitle the Participant to future benefits or payments of a similar nature or value, and does not entitle the Participant to any compensation in the event that the Participant loses their rights under the Offering as a result of the termination of the Participant’s employment. Benefits or payments that the Participant may receive or be eligible for under the offering will not be taken into consideration in determining the amount of any future benefits, payments or other entitlements that may be due to the Participant (including in cases of termination of employment).
ARTICLE IV.
SINGAPORE
The following provision shall be added as Section 2.8 of the Agreement:
Section 2.8 Acknowledgment of Nature of Plan and RSUs. In accepting this Agreement, the Participant acknowledges that:
(a)for labor law purposes, RSUs and Shares issued upon vesting thereof are an extraordinary item that do not constitute wages of any kind for services of any kind rendered to the Company or to the Participant’s employer, and the grant of RSUs is outside the scope of the Participant’s employment contract, if any;
(b)for labor law purposes, the grant of RSUs and the Shares issued upon vesting thereof are not part of normal or expected wages or salary for any purposes, including, but not limited to,
calculation of any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, holiday pay, long-service awards, pension or retirement benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company, the employer, its parent, or any Participating Company;
(c)RSUs and the Shares issued upon vesting thereof are not intended to replace any pension rights or compensation;
(d)neither the grant of RSUs nor any provision of this Agreement, the Plan or the policies adopted pursuant to the Plan confer upon the Participant any right with respect to employment or continuation of current employment and shall not be interpreted to form an employment contract or relationship with the Company or any Participating Company;
(e)in consideration of the grant of RSUs hereunder, no claim or entitlement to compensation or damages arises from termination of RSUs, and no claim or entitlement to compensation or damages shall arise from forfeiture of the RSUs resulting from termination of the Participant’s employment by the Company or Participating Company (for any reason whatsoever and whether or not in breach of local labor laws) and the Participant irrevocably releases the Company and the Participant’s employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, the Participant shall be deemed irrevocably to have waived the Participant’s entitlement to pursue such claim; and
(f)in the event of termination of the Participant’s employment (whether or not in breach of local labor laws), the Participant’s rights to vest in the RSUs under the Plan, if any, will terminate effective as of the date that the Participant is no longer actively employed and will not be extended by any notice period mandated under applicable local laws (e.g., active employment would not include a period of “garden leave” or similar period pursuant to applicable local laws); the Administrator shall have the exclusive discretion to determine when the Participant is no longer actively employed for purposes of Participant’s RSUs; and
(g)the Administrator has reserved the right to terminate the Plan.
The following provision shall be added as Section 3.2 of the Agreement:
Section 3.2 Director or CEO Notification Obligation. If Participant is a director (including an associate director or shadow director) or chief executive officer of a Singapore Participating Company, Participant is subject to certain notification requirements under the Companies Act (Cap. 50 of Singapore). Among these requirements is an obligation to notify the relevant Singapore Participating Company in writing when Participant receives or acquires an interest (such as shares, debentures, participatory interests, rights, options and contracts) in the Company or a Participating Company (e.g., the RSUs, the Shares or any other Award). In addition, Participant must notify the relevant Singapore Participating Company when Participant sells or otherwise disposes of Shares or shares of any Participating Company or such other abovementioned interest in any Participating Company (including when Participant sells or otherwise disposes of Shares issued upon vesting and settlement of the RSUs or any other Award). These notifications must be made within two business days of acquiring or disposing
of any interest in the Company or any Participating Company. In addition, a notification of Participant’s interests in the
Company or any Participating Company must be made within two business days of Participant becoming a director or chief executive officer (as applicable).
For the purposes of this Section 3.2:
(a)A “director” includes any person occupying the position of a director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the directors or the majority of the directors of a corporation are accustomed to act and an alternate or substitute director.
(b)A “chief executive officer”, in relation to a company, means any one or more persons, by whatever name described, who:
(i)is in direct employment of, or acting for or by arrangement with, the company; and
(ii)is principally responsible for the management and conduct of the business of the company, or part of the business of the company, as the case may be.
(c)A “business day” means any day other than a Saturday, Sunday or public holiday in Singapore.
The following provision shall be added as Section 4.19 of the Agreement:
Section 4.19 Securities Law Information. The award of the RSUs or any other Award and the issuance and delivery of the Shares pursuant to the Plan is being made in reliance of section 273(1)(i) of the Securities and Futures Act (Cap. 289 of Singapore) (“SFA”) for which it is exempt from the prospectus registration requirements under the SFA.
The following provision shall be added as Section 4.20 of the Agreement:
Section 4.20 Insider Trading. The Participant should be aware of the Singapore insider trading regulations, which may impact the Participant’s acquisition or disposal of Shares or rights to Shares under the Plan. Under Division 3 of Part XII of the SFA, a Participant is prohibited from subscribing for, acquiring or selling Shares or rights to Shares (e.g. RSUs or other Awards) when (a) the Participant possess information that is not generally available but, if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of the Shares, and (b) the Participant knows or ought reasonably to know that the information is not generally available and, if it were generally available, it might have a material effect on the price or value of those Shares.
The following provision shall be added as Section 4.21 of the Agreement:
Section 4.21 Data Protection. The Participant acknowledges and agrees that the Company and any Participating Company are permitted to collect, hold and process personal (and sensitive) information and data about the Participant (“Data”), held, used or disclosed in any medium, as part of their personnel and other business records, and may use such Data in the course of its business. Further, the Company and any Participating Company may disclose such Data to third parties, whether they are situated within or outside Singapore, in the event that such disclosure is in their view required for the proper conduct of their business. The Participant hereby consents to the collection, use and disclosure of his Data as
described in this Section 4.21. The Participant also hereby consents to the disclosure of his Data to the Company, any Participating Company and/or any third parties (whether situated within or outside Singapore), and to the collection, use and further disclosure by such parties, as described in this Section 4.21.
ARTICLE V.
CANADA
The following provision shall be added as Section 2.2(a)(i) of the Agreement:
Section 2.2(a)(i) In addition to the above, and unless otherwise approved by the Board and set forth in the Grant Notice, the RSUs awarded to Participants residing in Canada, or providing services to a Participating Company in Canada, shall vest as follows:
a)as to 33⅓% of the RSUs with respect to such award, on the first anniversary of the date of the Grant Date;
b)as to 33⅓% of the RSUs with respect to such award, on the second anniversary of the Grant Date;
c)as to 33⅓% of the RSUs with respect to such award, on the third anniversary of the Grant Date;
provided; however, that all RSUs granted under a particular award shall vest on or before the December 31 of the calendar year which is three (3) years after the calendar year in which the service was performed in respect of which the particular award was made.
Section 2.8 Acknowledgment of Nature of Plan and RSUs. In accepting this Agreement, the Participant acknowledges that, except as specifically required in order to comply with the minimum statutory requirements of applicable employment standards legislation:
(a)for employment law purposes, RSUs and Shares issued upon vesting thereof are an extraordinary item that do not constitute wages of any kind for services of any kind rendered to the Company or to the Participant’s employer, and the grant of RSUs is outside the scope of the Participant’s employment contract, if any;
(b)neither the grant of RSUs nor any provision of this Agreement, the Plan or the policies adopted pursuant to the Plan confer upon the Participant any right with respect to employment or continuation of current employment and shall not be interpreted to form an employment contract or relationship with the Company or any Participating Company;
(c)in consideration of the grant of RSUs hereunder, no claim or entitlement to compensation or damages arises from termination of RSUs, and no claim or entitlement to compensation or damages shall arise from forfeiture of the RSUs resulting from termination of the Participant’s employment by the Company or any Participating Company (for any reason whatsoever) and the Participant irrevocably releases the Company and the Participant’s employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen,
the Participant shall be deemed irrevocably to have waived the Participant’s entitlement to pursue such claim at common law; and
(d)in the event of termination of the Participant’s employment the Participant’s rights to vest in the RSUs under the Plan, if any, will terminate effective as of the date that the Participant is no longer actively employed and shall not include any period of reasonable notice at common law; and
(e)the Administrator has reserved the right to terminate the Plan.
The following provision shall be added as Section 3.7(a) of the Agreement:
Section 3.7(a) Participants residing in Canada, or providing services to a Participating Company in Canada, acknowledge that grants of RSUs are exempt from the obligation under applicable securities laws to file a prospectus or other registration document qualifying the distribution of the Shares to be distributed thereunder under any applicable securities laws and that any Shares issued under the Plan or an award may contain required restrictive legends.
In sections 2.5(a), 2.5(a)(iii), 2.5(a)(iv), and 2.5(b) where “federal, state, local and foreign” is referenced, such statements shall be amended to include “provincial”.
For the purposes of Section 2.5
a)“Applicable Law” shall include without limitation, all applicable securities, corporate, tax and other laws, rules, regulations, instruments, notices, blanket orders, decision documents, statements, circulars, procedures and policies.
b)“withholding taxes” shall include any and all taxes and other source deductions, including but not limited to contributions under the Canada Pension Plan, Quebec Pension Plan and premiums under the Employment Insurance Act, as applicable, or other amounts which the Participating Company is required by Applicable Law to withhold from any amounts paid or credited to a Participant under the Plan.
CERTIFICATION
I, Justyn Howard, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Sprout Social, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
SPROUT SOCIAL, INC. | |||||
By: | /s/ Justyn Howard | ||||
Name: | Justyn Howard | ||||
Title: | Chairman of the Board of Directors and Chief Executive Officer | ||||
Date: August 3, 2022
CERTIFICATION
I, Joe Del Preto, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Sprout Social, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
SPROUT SOCIAL, INC. | |||||
By: | /s/ Joe Del Preto | ||||
Name: | Joe Del Preto | ||||
Title: | Chief Financial Officer and Treasurer | ||||
Date: August 3, 2022
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Sprout Social, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Justyn Howard, Chairman of the Board of Directors and Chief Executive Officer, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
SPROUT SOCIAL, INC. | |||||
By: | /s/ Justyn Howard | ||||
Name: | Justyn Howard | ||||
Title: | Chairman of the Board of Directors and Chief Executive Officer | ||||
Date: August 3, 2022
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Sprout Social, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Sprout Social, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joe Del Preto, Chief Financial Officer and Treasurer, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
SPROUT SOCIAL, INC. | |||||
By: | /s/ Joe Del Preto | ||||
Name: | Joe Del Preto | ||||
Title: | Chief Financial Officer and Treasurer | ||||
Date: August 3, 2022
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Sprout Social, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.