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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
_________________________________
(Mark One)
☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from               to
Commission File Number 001-39156
__________________________________
SPROUT SOCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
27-2404165
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
131 South Dearborn St. ,
Suite 700
Chicago
,
Illinois
60603
(Address of principal executive offices and zip code)
(866)
878-3231
(Registrant's telephone number, including area code)
__________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A Common Stock, $0.0001 par value per share
SPT
The Nasdaq Stock Market LLC
__________________________________
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.
Large accelerated filer  
☒
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 31, 2023, there were 48,441,778 shares and 7,292,582 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 1A.
Item 2.
Item 5.
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,” “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 II—Item IA. Risk Factors” and “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;
•our ability to access third-party APIs and data on favorable terms;
•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 increase spending of existing customers;
•the evolution of the social media industry, including adapting to new regulations and use cases;
•our ability to innovate and provide a superior customer experience;
•worldwide economic conditions, including the macroeconomic impacts of the ongoing conflict between Russia and Ukraine, current and future potential banking failures, and their impact on information technology spending;
•our ability to securely maintain customer and other third-party data;
•our ability to maintain and enhance our brand;
•the effects of increased competition from our market competitors or new entrants to the market;
•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 data privacy and 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;
•our ability to attract and retain qualified employees and key personnel;
•our ability to effectively manage our growth and future expenses;
•our ability to manage our substantial debt in a way that does not adversely affect our business;
2

•our ability to acquire, invest in, and integrate other businesses or technologies into our business or achieve the expected benefits of such acquisitions and technologies; and
•the other factors set forth under “Part II—Item IA. Risk Factors” in this Quarterly Report and our Quarterly Reports filed with the United States Securities and Exchange Commission (“SEC” ) on May 3, 2023 as well as in our Annual Report on Form 10-K under Part I—Item IA, “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.

In addition, statements such as "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this report. While we believe such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these 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)
June 30, 2023December 31, 2022
Assets
Current assets
Cash and cash equivalents$74,365 $79,917 
Marketable securities106,072 92,929 
Accounts receivable, net of allowances of $1,505 and $1,789 at June 30, 2023 and December 31, 2022, respectively
42,282 35,833 
Deferred commissions 23,216 20,369 
Prepaid expenses and other assets13,412 6,418 
Total current assets259,347 235,466 
Marketable securities, noncurrent12,012 12,995 
Property and equipment, net11,125 11,949 
Deferred commissions, net of current portion 21,180 19,638 
Operating lease, right-of-use assets8,780 9,503 
Goodwill8,910 2,299 
Intangible assets, net3,068 2,006 
Other assets, net53 64 
Total assets$324,475 $293,920 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$9,232 $4,988 
Deferred revenue115,882 95,740 
Operating lease liabilities3,651 3,499 
Accrued wages and payroll related benefits13,218 14,257 
Accrued expenses and other15,669 14,322 
Total current liabilities157,652 132,806 
Deferred revenue, net of current portion779 490 
Operating lease liabilities, net of current portion16,425 18,287 
Other noncurrent liabilities477 — 
Total liabilities175,333 151,583 
Commitments and contingencies (Note 6)
4
Sprout Social, Inc.
Condensed Consolidated Balance Sheets (Unaudited) (cont’d)
(in thousands, except share and per share data)
June 30, 2023December 31, 2022
Stockholders’ equity
Class A common stock, par value $0.0001 per share; 1,000,000,000 shares authorized; 51,293,395 and 48,419,326 shares issued and outstanding, respectively, at June 30, 2023; 50,413,415 and 47,562,911 shares issued and outstanding, respectively, at December 31, 2022
4 4 
Class B common stock, par value $0.0001 per share; 25,000,000 shares authorized; 7,517,526 and 7,310,582 shares issued and outstanding, respectively, at June 30, 2023; 7,667,376 and 7,460,432 shares issued and outstanding, respectively, at December 31, 2022
1 1 
Additional paid-in capital432,955 401,419 
Treasury stock, at cost(34,102)(32,733)
Accumulated other comprehensive loss(394)(369)
Accumulated deficit (249,322)(225,985)
Total stockholders’ equity 149,142 142,337 
Total liabilities and stockholders’ equity
$324,475 $293,920 
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,
2023202220232022
Revenue
Subscription$78,690 $60,732 $153,432 $117,512 
Professional services and other625 700 1,095 1,349 
Total revenue79,315 61,432 154,527 118,861 
Cost of revenue
Subscription17,972 14,876 34,605 28,633 
Professional services and other262 264 504 498 
Total cost of revenue18,234 15,140 35,109 29,131 
Gross profit61,081 46,292 119,418 89,730 
Operating expenses
Research and development18,956 15,374 36,832 28,439 
Sales and marketing 39,307 30,350 76,212 55,962 
General and administrative17,735 15,101 33,224 29,471 
Total operating expenses75,998 60,825 146,268 113,872 
Loss from operations (14,917)(14,533)(26,850)(24,142)
Interest expense(35)(28)(63)(99)
Interest income2,140 321 4,160 444 
Other expense, net(148)(290)(357)(398)
Loss before income taxes (12,960)(14,530)(23,110)(24,195)
Income tax expense125 80 227 170 
Net loss$(13,085)$(14,610)$(23,337)$(24,365)
Net loss per share attributable to common shareholders, basic and diluted$(0.24)$(0.27)$(0.42)$(0.45)
Weighted-average shares outstanding used to compute net loss per share, basic and diluted55,499,39954,502,80955,331,15154,356,817
See Notes to Condensed Consolidated Financial Statements.
6
Sprout Social, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(in thousands)
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net loss$(13,085)$(14,610)$(23,337)$(24,365)
Other comprehensive loss:
Net unrealized loss on available-for-sale securities, net of tax(103)(154)(25)(314)
Comprehensive loss$(13,188)$(14,764)$(23,362)$(24,679)
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, 202355,376,548 $5 $415,123 3,074,749 $(33,832)$(291)$(236,237)$144,768 
Exercise of stock options
30,000 — 29 29 
Stock-based compensation16,376 16,376 
Issuance of common stock from equity award settlement
287,000 — — 
Taxes paid related to net share settlement of equity awards
6,264 (270)(270)
Issuance of common stock in connection with employee stock purchase plan36,360 — 1,427 1,427 
Other comprehensive gain, net of tax(103)(103)
Net loss
(13,085)(13,085)
Balances at June 30, 202355,729,908 $5 $432,955 3,081,013 $(34,102)$(394)$(249,322)$149,142 
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, 202254,407,191 $5 $360,172 3,040,265 $(31,763)$(160)$(185,500)$142,754 
Exercise of stock options
25,000 — 8 8 
Stock-based compensation12,664 12,664 
Issuance of common stock from equity award settlement
187,820 — — 
Taxes paid related to net share settlement of equity awards
5,297 (274)(274)
Issuance of common stock in connection with employee stock purchase plan13,669 — 675 675 
Other comprehensive loss, net of tax(154)(154)
Net loss
(14,610)(14,610)
Balances at June 30, 202254,633,680 $5 $373,519 3,045,562 $(32,037)$(314)$(200,110)$141,063 




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, 202255,023,343 $5 $401,419 3,057,448 $(32,733)$(369)$(225,985)$142,337 
Exercise of stock options
30,000 — 29 29 
Stock-based compensation30,080 30,080 
Issuance of common stock from equity award settlement
640,205 — — 
Taxes paid related to net share settlement of equity awards
23,565 (1,369)(1,369)
Issuance of common stock in connection with employee stock purchase plan36,360 — 1,427 1,427 
Other comprehensive loss, net of tax(25)(25)
Net loss
(23,337)(23,337)
Balances at June 30, 202355,729,908 $5 $432,955 3,081,013 $(34,102)$(394)$(249,322)$149,142 
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, 202154,153,771 $5 $351,774 3,026,400 $(30,824)$— $(175,745)$145,210 
Exercise of stock options
38,545 — 14 14 
Stock-based compensation21,056 21,056 
Issuance of common stock from equity award settlement
427,695 — — 
Taxes paid related to net share settlement of equity awards
19,162 (1,213)(1,213)
Issuance of common stock in connection with employee stock purchase plan13,669 — 675 675 
Other comprehensive loss, net of tax(314)(314)
Net loss
(24,365)(24,365)
Balances at June 30, 202254,633,680 $5 $373,519 3,045,562 $(32,037)$(314)$(200,110)$141,063 


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,
20232022
Cash flows from operating activities
Net loss$(23,337)$(24,365)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization of property, equipment and software1,512 1,399 
Amortization of line of credit issuance costs— 30 
Amortization of premium (accretion of discount) on marketable securities(1,889)143 
Amortization of acquired intangible assets738 521 
Amortization of deferred commissions12,171 8,467 
Amortization of right-of-use operating lease asset723 368 
Stock-based compensation expense30,032 21,056 
Provision for accounts receivable allowances860 623 
Changes in operating assets and liabilities, excluding impact from business acquisition
Accounts receivable(7,196)(4)
Prepaid expenses and other current assets(4,133)(2,275)
Deferred commissions(16,560)(12,991)
Accounts payable and accrued expenses3,003 4,128 
Deferred revenue20,364 10,889 
Lease liabilities(1,710)(1,320)
Net cash provided by operating activities14,578 6,669 
Cash flows from investing activities
Expenditures for property and equipment(644)(913)
Payments for business acquisition, net of cash acquired(6,432)— 
Purchases of marketable securities(63,085)(106,832)
Proceeds from maturity of marketable securities47,252 63,070 
Proceeds from sale of marketable securities5,538 — 
Net cash used in investing activities(17,371)(44,675)
Cash flows from financing activities
Payments for line of credit issuance costs— (23)
Proceeds from exercise of stock options29 14 
Proceeds from employee stock purchase plan1,427 675 
Employee taxes paid related to the net share settlement of stock-based awards(1,369)(1,213)
Net cash provided by (used in) financing activities87 (547)
Net decrease in cash, cash equivalents and restricted cash(2,706)(38,553)
Cash, cash equivalents and restricted cash
Beginning of period79,917 107,114 
End of period$77,211 $68,561 
Reconciliation of cash, cash equivalents, and restricted cash
Cash and cash equivalents$74,365 $68,561 
Restricted cash, included in prepaid expenses and other assets2,846 — 
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows$77,211 $68,561 
Supplemental noncash disclosures
Operating lease liability arising from operating ROU asset obtained$— $1,079 
Balance of property and equipment in accounts payable$— $53 
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 and accompanying notes were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable regulations of the United States Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The Company has prepared the unaudited condensed consolidated financial statements on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the year ended December 31, 2022, and these unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair statement of the results of the interim periods presented but are not necessarily indicative of the results of operations to be anticipated for the full year or any future period. The consolidated balance sheet as of December 31, 2022 included herein was derived from the audited consolidated financial statements as of that date but does not include all disclosures including certain disclosures required by GAAP on an annual basis. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
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, 2022, filed with the SEC on February 22, 2023.
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. 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 operating leases, calculation of allowance for credit losses, valuation of assets and liabilities acquired as part of business combinations, useful lives of long-lived assets, stock-based compensation, income taxes, commitments and contingencies and litigation, among others. 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 4, 2023, the date of issuance of this Quarterly Report on Form 10-Q. Actual results could differ from those estimates.
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, 2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 22, 2023. There have been no significant changes to these policies during the six months ended June 30, 2023, except as noted below.
Business Combinations
The Company recognizes and measures the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date. Any excess or deficiency of the purchase consideration when compared to the fair value of the net assets acquired, if any, is recorded as goodwill or gain from a bargain purchase. Such valuations require that management make estimates and assumptions, especially with respect to the identifiable intangible assets. The estimates in valuing intangible assets include, but are not limited to, the time and expense to recreate the assets, future expected cash flows from the asset, useful lives, and discount rates.
The estimates are inherently uncertain and subject to revision as additional information is obtained during the measurement period for an acquisition, which may last up to one year from the acquisition date. During the measurement period the Company may record adjustments to the fair value of tangible and intangible assets acquired and liabilities assumed, with a corresponding offset to Goodwill. After the conclusion of the measurement period or the final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to earnings.
Restricted Cash
As of June 30, 2023 and December 31, 2022, the Company’s restricted cash balance was $2.8 million and nil, respectively. Restricted cash represents cash that is held as collateral in relation to the Company’s letters of credit that are required as security for the Company’s office leases, and is included in prepaid expenses and other current assets within the condensed consolidated balance sheets.
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
Deferred revenue is recorded upon establishment of unconditional right to payment under non-cancellable contracts and is recognized as the revenue recognition criteria are met. The Company generally invoices customers in advance in monthly, quarterly, semi-annual and annual installments. The deferred revenue balance is influenced by several factors, including the compounding effects of renewals, invoice duration, timing and size. The amount of revenue recognized during the three months ended June 30, 2023 and 2022 that was included in deferred revenue at the beginning of each period was $50.2 million and $36.2 million, respectively. The amount of revenue recognized during the six months ended June 30, 2023 and 2022 that was included in deferred revenue at the beginning of each period was $71.1 million and $51.6 million, respectively.
12
Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
As of June 30, 2023, including amounts already invoiced and amounts contracted but not yet invoiced, $206.4 million of revenue is expected to be recognized from remaining performance obligations, of which 74% 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, Seattle, Washington, and Dublin, Ireland. The Chicago lease expires in January 2028, the Seattle lease expires in January 2031, and the Dublin lease expires in June 2024. These operating leases require escalating monthly rental payments ranging from approximately $47,000 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 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 following table provides a summary of operating lease assets and liabilities as of June 30, 2023 (in thousands):
Assets
Operating lease right-of-use assets $8,780 
Liabilities
Operating lease liabilities3,651 
Operating lease liabilities, non-current16,425 
Total operating lease liabilities$20,076 
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,
2023202220232022
Operating lease expense$649 $503 $1,297 $1,006 
Variable lease expense893 866 1,786 1,733 
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, 2023 and 2022 were $4.1 million and $3.7 million, respectively. As of June 30, 2023, the weighted-average remaining lease term is 5.5 years and the weighted-average discount rate is 5.5%.
13
Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Remaining maturities of operating lease liabilities as of June 30, 2023 are as follows (in thousands):
Years ending December 31,
2023$2,311 
20244,405 
20254,205 
20264,298 
20274,392 
Thereafter3,603 
Total future minimum lease payments$23,214 
Less: imputed interest(3,138)
Total operating lease liabilities$20,076 

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 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.
There is no provision for domestic income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets. For the six months ended June 30, 2023, the Company recognized an immaterial provision related to foreign income taxes.
The Company assesses all available positive and negative evidence to evaluate the realizability of its deferred tax assets and whether or not a valuation allowance is necessary. The Company’s three-year cumulative loss position was significant negative evidence in assessing the need for a valuation allowance. The weight given to positive and negative evidence is commensurate with the extent such evidence may be objectively verified. Given the weight of objectively verifiable historical losses from operations, the Company has recorded a full valuation allowance on its deferred tax assets. The Company may be able to reverse the valuation allowance when sufficient positive evidence exists to support the reversal of the valuation allowance.
14
Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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,
2023202220232022
(in thousands)
Cost of revenue$857 $766 $1,358 $1,214 
Research and development4,327 3,060 7,929 4,785 
Sales and marketing7,206 5,959 13,776 10,177 
General and administrative3,986 2,879 6,969 4,880 
Total stock-based compensation$16,376 $12,664 $30,032 $21,056 

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, 2023 that are not disclosed elsewhere are as follows (in thousands):
Years ending December 31,
2023$2,306 
20244,921 
20252,682 
2026539 
2027236 
Thereafter— 
Total contract commitments$10,684 
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, 2023.
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.
15
Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
There were no material obligations under such indemnification agreements as of and for the period ended June 30, 2023.
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, 2023 and December 31, 2022, 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% for the six months ended June 30, 2023 and 2022. Revenue by geographical region is as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Americas$62,312 $48,285 $121,423 $93,515 
EMEA13,054 10,275 25,554 19,729 
Asia Pacific3,949 2,872 7,550 5,617 
Total$79,315 $61,432 $154,527 $118,861 
8.Net Loss per Share
Basic net loss per share is calculated by dividing the net loss by the weighted average number of outstanding shares of common stock for each period. Diluted net loss per share is calculated by giving effect to all potential dilutive common stock equivalents, which includes stock options, restricted stock units, and restricted stock awards. Because the Company incurred net losses each period, the basic and diluted calculations are the same. Basic and diluted net loss per share are the same for each class of common stock, as both Class A and Class B stockholders are entitled to the same liquidation and dividend rights.
16
Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the calculation for basic and diluted net loss per share (in thousands, except share and per share data):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net loss attributable to common shareholders$(13,085)$(14,610)$(23,337)$(24,365)
Weighted average common shares outstanding55,499,399 54,502,809 55,331,151 54,356,817 
Net loss per share, basic and diluted$(0.24)$(0.27)$(0.42)$(0.45)
    
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,
20232022
Stock options outstanding27,010 59,510 
RSUs outstanding3,651,744 2,697,798 
Total potentially dilutive shares3,678,754 2,757,308 

9. Fair Value Measurements
The Company measures certain financial assets at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly 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):
17
Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2023
Level 1Level 2Level 3Total
Marketable Securities:
  Commercial paper$— $34,625 $— $34,625 
  Corporate bonds— 45,741 — 45,741 
  U.S. agency securities— 18,456 — 18,456 
  U.S. Treasury securities— 17,860 — 17,860 
  Asset-backed securities— 1,402 — 1,402 
Total assets$— $118,084 $— $118,084 
December 31, 2022
Level 1Level 2Level 3Total
Marketable Securities:
  Commercial paper$— $43,489 $— $43,489 
  Corporate bonds— 33,183 — 33,183 
  U.S. Treasury securities— 14,145 — 14,145 
U.S. agency securities— 12,950 — 12,950 
  Asset-backed securities— 2,157 — 2,157 
Total assets$— $105,924 $— $105,924 
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, restricted cash, 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, 2023 and December 31, 2022, 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.


The following table classifies our marketable securities by contractual maturity (in thousands):
June 30, 2023December 31, 2022
Due in one year or less106,072 92,929 
Due after one year and within two years12,012 12,995 
Total118,084 105,924 

18
Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
10. Business Combinations
On January 19, 2023, the Company completed the acquisition of all the outstanding equity of Repustate, Inc. The acquisition has increased the Company’s power, breadth and automation of social listening, messaging, and customer care capabilities with added sentiment analysis, natural language processing (NLP) and artificial-intelligence (AI). The total purchase consideration for the acquisition was approximately $8.4 million, consisting of approximately $6.8 million in cash paid at the closing of the acquisition and a holdback of $1.6 million in cash to be paid as purchase consideration after the one-year anniversary of the closing of the acquisition, assuming no claims by the Company against the holdback amount for post-closing purchase price adjustments or indemnification matters.
The purchase price allocation as of the date of acquisition was based on a preliminary valuation and is subject to revision as more detailed analyses are completed, and additional information about the fair value of assets and liabilities acquired become available. The excess of purchase consideration over the fair value of net assets acquired was recorded as goodwill, and is primarily attributable to expected post-acquisition synergies from integrating the technology into Sprout’s platform. The goodwill is not deductible for income tax purposes. The fair values of the tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. These estimates are based on preliminary information and may be subject to further revision as additional information is obtained during the measurement period, which may last up to 12 months from the date of the acquisition. The primary areas that remain preliminary as of June 30, 2023 relate to income taxes and residual goodwill. The Company expects to finalize the fair value measurements as soon as practicable, but not later than 12 months from the date of acquisition.
The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):
January 19, 2023
Cash and cash equivalents$366 
Intangible assets1,800 
Goodwill6,611 
Deferred tax liability(477)
Other net tangible assets and liabilities assumed(4)
Total consideration$8,296 
Deferred consideration related to holdback(1,498)
Cash and cash equivalents acquired(366)
Cash paid for acquisition of business, net of cash acquired$6,432 
During the three months ended June 30, 2023, there were no significant measurement period adjustments.
19
Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The estimated useful lives and fair values of the identifiable intangible assets at acquisition date were as follows (in thousands):
Fair ValueExpected Useful Life
Customer Relationships$200 1 year
Acquired Technology1,600 5 years
$1,800 
The changes in the carrying amount of goodwill during the six months ended June 30, 2023 were as follows (in thousands):
Goodwill balance as of December 31, 2022
$2,299 
Addition - acquisition of Repustate6,611 
Goodwill balance as of June 30, 2023
$8,910 
We have included the financial results of Repustate in our condensed consolidated financial statements from the date of acquisition. Separate financial results and pro forma financial information for Repustate have not been presented as the effect of this acquisition was not material to our financial results.
11. Subsequent Events
Acquisition of Tagger Media
On August 2, 2023, the Company completed its acquisition of all the outstanding equity of Tagger Media, Inc. (“Tagger”), an influencer marketing and social intelligence platform. The Company acquired Tagger in order to expand into the influencer marketing category. Tagger’s platform enables marketers to discover influencers, plan and manage campaigns, analyze competitor strategies, report on trends and measure return on investment. The Company acquired Tagger for a total purchase consideration of $140 million in cash, subject to customary adjustments for working capital, transaction expenses, cash and indebtedness. $0.2 million of the purchase consideration was held back in escrow to secure any post-closing purchase price adjustments. $0.6 million of the purchase consideration was held back in escrow to be paid after the one-year anniversary of the closing of the acquisition, assuming no claims by the Company against such amount for certain indemnification matters. $0.2 million of the purchase consideration was held back in an expense fund for the satisfaction of any losses and expenses of the Securityholder Representative as outlined in the agreement. The Company funded the purchase consideration with cash on hand and borrowings under the Credit Agreement (as defined below). On August 1, 2023, the Company borrowed $75 million under the Credit Agreement in connection with the acquisition.
Credit Agreement
On August 1, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”) by and among the Company, the banks and other financial institutions or entities party thereto as lenders and MUFG Bank, LTD. as administrative agent and collateral agent. The Credit Agreement provides for a $100 million senior secured revolving credit facility (the “Facility”), maturing on August 1, 2028.
20
Sprout Social, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Borrowings under the Facility may be used to finance acquisitions and other investments permitted under the terms of the Credit Agreement, to pay related fees and expenses and for general corporate purposes.
Borrowings under the Facility may be designated as SOFR Loans or ABR Loans, subject to certain terms and conditions under the Credit Agreement, and bear interest at a rate of either (i) SOFR (subject to a 1.0% floor), plus 0.10%, plus a margin ranging from 2.75% to 3.25% based on the Company’s liquidity or (ii) ABR (subject to a 2.0% floor) plus a margin ranging from 1.75% to 2.25% based on the Company’s liquidity. The Facility also includes a quarterly commitment fee on the unused portion of the Facility of 0.30% or 0.35% based on the Company’s liquidity.
The Credit Agreement includes customary conditions to credit extensions, affirmative and negative covenants, and customary events of default. In addition, the Credit Agreement contains financial covenants as to (i) minimum liquidity, requiring the maintenance, at all times and measured at the end of each fiscal quarter, of cash and cash equivalents of not less than the greater of (x) $30 million and (y) 30% of the total revolving commitments, and (ii) minimum recurring revenue growth, requiring recurring revenue growth for the trailing four fiscal quarter period, measured at the end of each fiscal quarter, of not less than 115% of the actual recurring revenue for the same period in the prior fiscal year.
21

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. 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 II—Item 1A of this Quarterly Report and in Part I—Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, 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 $79.3 million and $61.4 million during the three months ended June 30, 2023 and 2022, respectively, representing growth of 29%. We generated revenue of $154.5 million and $118.9 million during the six months ended June 30, 2023 and 2022, respectively, representing growth of 30%. In the six months ended June 30, 2023, software subscriptions contributed 99% of our revenue.
We generated net losses of $13.1 million and $14.6 million during the three months ended June 30, 2023 and 2022, respectively, which included stock-based compensation expense of $16.4 million and $12.7 million, respectively. We generated net losses of $23.3 million and $24.4 million during the six months ended June 30, 2023 and 2022, respectively, which included stock-based compensation expense of $30.0 million and $21.1 million, respectively. We expect to continue investing in the growth of our business and, as a result, generate net losses for the foreseeable future.
22




Macroeconomic Conditions

As a company with a global footprint, we are subject to risks and exposures caused by significant events and their macroeconomic impacts, including, but not limited to, the COVID-19 pandemic, the Russia-Ukraine war, global geopolitical tension and more recently, rising inflation and interest rates, volatility in the capital markets and related market uncertainty. We continuously monitor the direct and indirect impacts, and the potential for future impacts, of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape. Given the importance of our technology platform and heightened market awareness of social media as a strategic communications channel, these factors have not had a material adverse impact on our operational and financial performance to date. However, the potential implications of these macroeconomic events on our business, results of operations and overall financial position, particularly in the long term, introduce additional uncertainty.
Our current and prospective customers are impacted by worsening macroeconomic conditions to varying degrees. We are continuing to monitor for potential future direct and indirect impacts on our business and results of operations.

Acquisition of Repustate, Inc.
On January 19, 2023, the Company completed the acquisition of Repustate, Inc. for a total purchase consideration of approximately $8.4 million, consisting of approximately $6.8 million in cash paid at the closing time of the acquisition and a holdback of $1.6 million in cash to be paid as purchase consideration after the one-year anniversary of the closing of the acquisition, assuming no claims by the Company against the holdback amount for post-closing purchase price adjustments or indemnification matters.
The purchase price allocation as of the date of acquisition was based on a preliminary valuation and is subject to revision as more detailed analyses are completed and additional information about the fair value of assets and liabilities acquired become available. We expect to finalize the allocation of the purchase consideration as soon as practicable, pending any other adjustments to acquired assets or liabilities, but no later than 12 months from the acquisition date. The acquisition has increased the Company’s power, breadth and automation of social listening, messaging, and customer care capabilities with added sentiment analysis, natural language processing (NLP) and artificial-intelligence (AI). We have included the financial results of Repustate in our condensed consolidated financial statements from the date of acquisition. The impact of Repustate’s financial results following the date of acquisition were not significant to Sprout’s condensed consolidated financial statements. Refer to Note 10 — Business Combinations of the Notes to the Financial Statements (Part 1, Item 1 of this Form 10-Q) for further discussion.
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. In November 2022, we announced a price increase. For the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, this price increase contributed to an increase in our average revenue per customer. While our total number of customers decreased over this same period, our number of customers contributing over $10,000 in ARR and
23

$50,000 in ARR increased. We expect this trend to continue as we remain focused on higher-value 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, 2023 was approximately 28% of our total revenue. We have 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.
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 or entity. We believe that the number of customers using our platform is an indicator of our market penetration.
As of June 30,
20232022
Number of customers33,159 33,620 
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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,
20232022
(in thousands)
ARR$326,086 $256,138 
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,
20232022
Number of customers contributing more than $10,000 in ARR
7,391 5,800 
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.
As of June 30,
20232022
Number of customers contributing more than $50,000 in ARR1,119 755 

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.
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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.
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
26

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 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 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 United States and foreign jurisdictions. We have historically reported a taxable loss in our most significant jurisdiction, the United States, and have a full valuation allowance against our deferred tax assets. We expect this trend to continue for the foreseeable future.
27

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,
2023202220232022
(in thousands)
Revenue
Subscription$78,690 $60,732 $153,432 $117,512 
Professional services and other625 700 1,095 1,349 
Total revenue79,315 61,432 154,527 118,861 
Cost of revenue(1)
Subscription17,972 14,876 34,605 28,633 
Professional services and other262 264 504 498 
Total cost of revenue18,234 15,140 35,109 29,131 
Gross profit61,081 46,292 119,418 89,730 
Operating expenses
Research and development(1)
18,956 15,374 36,832 28,439 
Sales and marketing(1)
39,307 30,350 76,212 55,962 
General and administrative(1)
17,735 15,101 33,224 29,471 
Total operating expenses75,998 60,825 146,268 113,872 
Loss from operations(14,917)(14,533)(26,850)(24,142)
Interest expense(35)(28)(63)(99)
Interest income2,140 321 4,160 444 
Other expense, net(148)(290)(357)(398)
Loss before income taxes(12,960)(14,530)(23,110)(24,195)
Income tax expense125 80 227 170 
Net loss$(13,085)$(14,610)$(23,337)$(24,365)
_______________
(1)Includes stock-based compensation expense as follows:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
(in thousands)
Cost of revenue$857 $766 $1,358 $1,214 
Research and development4,327 3,060 7,929 4,785 
Sales and marketing7,206 5,959 13,776 10,177 
General and administrative3,986 2,879 6,969 4,880 
Total stock-based compensation$16,376 $12,664 $30,032 $21,056 

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Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
(as a percentage of total revenue)
Revenue
Subscription99 %99 %99 %99 %
Professional services and other1 %1 %1 %1 %
Total revenue100 %100 %100 %100 %
Cost of revenue
Subscription23 %24 %22 %24 %
Professional services and other— %— %— %— %
Total cost of revenue23 %25 %23 %25 %
Gross profit77 %75 %77 %75 %
Operating expenses
Research and development24 %25 %24 %24 %
Sales and marketing50 %49 %49 %47 %
General and administrative22 %25 %22 %25 %
Total operating expenses96 %99 %95 %96 %
Loss from operations(19)%(24)%(17)%(20)%
Interest expense— %— %— %— %
Interest income3 %1 %3 %— %
Other expense, net— %— %— %— %
Loss before income taxes(16)%(24)%(15)%(20)%
Income tax expense— %— %— %— %
Net loss(16)%(24)%(15)%(20)%
Note: Certain amounts may not sum due to rounding


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Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022
Revenue
Three Months Ended June 30,
Change
20232022
Amount
%
(dollars in thousands)
Revenue
Subscription$78,690 $60,732 $17,958 30 %
Professional services and other625 700 (75)(11)%
Total revenue$79,315 $61,432 $17,883 29 %
Percentage of Total Revenue
Subscription99 %99 %
Professional services and other1 %1 %
The increase in subscription revenue was primarily driven by increased revenue from our highest tier customers. Customers contributing over $10,000 in ARR grew 27% versus the prior year and customers contributing over $50,000 in ARR grew 48% versus the prior year. The increase in new customers within the highest tiers was primarily driven by prioritizing our customer success and growth resources towards these customers and continuing to grow our sales force capacity to meet market demand.
Cost of Revenue and Gross Margin
Three Months Ended June 30,
Change
20232022
Amount
%
(dollars in thousands)
Cost of revenue
Subscription$17,972 $14,876 $3,096 21 %
Professional services and other262 264 (2)(1)%
Total cost of revenue18,234 15,140 3,094 20 %
Gross profit$61,081 $46,292 $14,789 32 %
Gross margin
Total gross margin77 %75 %
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The increase in cost of subscription revenue for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was primarily due to the following:
Change
(in thousands)
Data provider fees$2,475 
Personnel costs365 
Other256 
Subscription cost of revenue$3,096 
Fees paid to our data providers increased due to revenue growth. Personnel costs increased primarily as a result of a 2% increase in headcount as we continue to grow our customer support and customer success teams to support our customer growth.
Operating Expenses
Research and Development
Three Months Ended June 30,Change
20232022Amount%
(dollars in thousands)
Research and development$18,956 $15,374 $3,582 23 %
Percentage of total revenue24 %25 %
The increase in research and development expense for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was primarily due to the following:
Change
(in thousands)
Personnel costs$2,414 
Stock-based compensation expense1,267 
Other(99)
Research and development$3,582 
Personnel costs increased primarily as a result of a 15% increase in headcount to grow our research and development teams to drive our technology innovation through the development and maintenance of our platform. The increase in stock-based compensation expense was primarily due to the increased headcount.
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Sales and Marketing
Three Months Ended June 30,Change
20232022Amount%
(dollars in thousands)
Sales and marketing$39,307 $30,350 $8,957 30 %
Percentage of total revenue50 %49 %
The increase in sales and marketing expense for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was primarily due to the following:
Change
(in thousands)
Personnel costs$7,276 
Stock-based compensation expense1,247 
Other434 
Sales and marketing$8,957 
Personnel costs increased primarily as a result of a 24% 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.
General and Administrative
Three Months Ended June 30,Change
20232022Amount%
(dollars in thousands)
General and administrative$17,735 $15,101 $2,634 17 %
Percentage of total revenue22 %25 %
The increase in general and administrative expense for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was primarily due to the following:
Change
(in thousands)
Personnel costs$1,543 
Stock-based compensation expense1,107 
Other(16)
General and administrative$2,634 
Personnel costs increased primarily as a result of a 14% increase in headcount as we continue to grow our business. The increase in stock-based compensation expense was primarily due to the increased headcount.
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Interest Income, Net
Three Months Ended June 30,Change
20232022Amount%
(dollars in thousands)
Interest income, net$2,105 $293 $1,812 
n/m(1)
Percentage of total revenue3 %— %
_________________
(1)Calculated metric is not meaningful.
The increase in interest income, net was primarily driven by the increased investment in marketable securities and higher interest rates.
Other Expense, Net
Three Months Ended June 30,Change
20232022Amount%
(dollars in thousands)
Other expense, net$(148)$(290)$142 (49)%
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
20232022Amount%
(dollars in thousands)
Income tax expense$125 $80 $45 56 %
Percentage of total revenue— %— %
The increase in income tax expense is due to higher earnings in foreign jurisdictions.
33

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
Revenue
Six Months Ended June 30,
Change
20232022
Amount
%
(dollars in thousands)
Revenue
Subscription$153,432 $117,512 $35,920 31 %
Professional services and other1,095 1,349 (254)(19)%
Total revenue$154,527 $118,861 $35,666 30 %
Percentage of Total Revenue
Subscription99 %99 %
Professional services and other1 %1 %
The increase in subscription revenue was primarily driven by increased revenue from our highest tier customers. Customers contributing over $10,000 in ARR grew 27% versus the prior year and customers contributing over $50,000 in ARR grew 48% versus the prior year. The increase in new customers within the highest tiers was primarily driven by prioritizing our customer success and growth resources towards these customers and continuing to grow our sales force capacity to meet market demand.
Cost of Revenue and Gross Margin
Six Months Ended June 30,
Change
20232022
Amount
%
(dollars in thousands)
Cost of revenue
Subscription$34,605 $28,633 $5,972 21 %
Professional services and other504 498 6 1 %
Total cost of revenue35,109 29,131 5,978 21 %
Gross profit$119,418 $89,730 $29,688 33 %
Gross margin
Total gross margin77 %75 %
The increase in cost of subscription revenue for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to the following:
Change
(in thousands)
Data provider fees$4,963 
Personnel costs517 
Other492 
Subscription cost of revenue$5,972 
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Fees paid to our data providers increased due to revenue growth. Personnel costs increased primarily as a result of a 2% increase in headcount as we continue to grow our customer support and customer success teams to support our customer growth.
Operating Expenses
Research and Development
Six Months Ended June 30,Change
20232022Amount%
(dollars in thousands)
Research and development$36,832 $28,439 $8,393 30 %
Percentage of total revenue24 %24 %
The increase in research and development expense for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to the following:
Change
(in thousands)
Personnel costs$5,264 
Stock-based compensation expense3,144 
Other(15)
Research and development$8,393 
Personnel costs increased primarily as a result of a 15% increase in headcount to grow our research and development teams to drive our technology innovation through the development and maintenance of our platform. The increase in stock-based compensation expense was primarily due to the increased headcount.
Sales and Marketing
Six Months Ended June 30,Change
20232022Amount%
(dollars in thousands)
Sales and marketing$76,212 $55,962 $20,250 36 %
Percentage of total revenue49 %47 %
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The increase in sales and marketing expense for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to the following:
Change
(in thousands)
Personnel costs$16,203 
Stock-based compensation expense3,599 
Other448 
Sales and marketing$20,250 
Personnel costs increased primarily as a result of a 24% 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.
General and Administrative
Six Months Ended June 30,Change
20232022Amount%
(dollars in thousands)
General and administrative$33,224 $29,471 $3,753 13 %
Percentage of total revenue22 %25 %
The increase in general and administrative expense for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to the following:
Change
(in thousands)
Stock-based compensation expense$2,089 
Personnel costs1,381 
Other283 
General and administrative$3,753 
Stock-based compensation expense and personnel costs increased primarily as a result of a 14% increase in headcount.
Interest Income, Net
Six Months Ended June 30,Change
20232022Amount%
(dollars in thousands)
Interest income, net$4,097 $345 $3,752 
n/m(1)
Percentage of total revenue3 %— %
_________________
(1)Calculated metric is not meaningful.
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The increase in interest income, net was primarily driven by the increased investment in marketable securities and higher interest rates.
Other Expense, Net
Six Months Ended June 30,Change
2023