Sprout Social, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Sprout Social sells cloud-based social media management software, primarily through subscriptions. The filing is unaudited; financial figures below are in millions of dollars unless stated otherwise.
Financial and operating results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $49.1 | $33.7 | $134.6 | $95.6 |
| Revenue growth | 46% | — | 41% | — |
| Gross profit / margin | $36.7 / 75% | $24.9 / 74% | $101.1 / 75% | $70.3 / 74% |
| Operating loss | $(6.8) | $(6.9) | $(18.4) | $(26.2) |
| Net loss | $(7.0) | $(7.0) | $(18.8) | $(25.8) |
| Net loss per share, diluted | $(0.13) | $(0.13) | $(0.35) | $(0.51) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $12.3 | $(11.2) |
| Free cash flow (non-GAAP) | $4.2 | $(4.0) | $11.7 | $(13.4) |
Subscription revenue accounted for 99% of revenue. At September 30, customer count was 30,705, up from 25,556 a year earlier; ARR was $204.6 million versus $141.9 million. Customers above $10,000 ARR increased to 4,380 from 2,790, and those above $50,000 ARR increased to 478 from 242.
Liquidity, debt and obligations
- Cash and cash equivalents were $115.3 million and marketable securities were $59.7 million at September 30, 2021. Net accounts receivable was $16.0 million.
- Cash and cash equivalents rose $0.8 million during the first nine months. Investing activities used $11.5 million, mainly reflecting net purchases of marketable securities; financing activities used $0.05 million.
- No principal was outstanding on the $40 million Silicon Valley Bank revolving credit facility. The facility matures January 31, 2022; the company reported covenant compliance at September 30, 2021.
- Current liabilities were $80.9 million, including $55.9 million of deferred revenue. Total liabilities were $102.7 million; stockholders’ equity was $148.0 million.
- Contractual obligations totaled $77.4 million: $29.5 million of operating lease payments and $47.8 million of minimum purchase commitments for data and services.
Changes, outlook and risks
- Q3 revenue increased 46%, primarily from new customers and expansion within existing accounts. Management attributed customer growth to increased sales capacity and broader use of the platform.
- For the first nine months, operating cash flow improved to $12.3 million from an outflow of $11.2 million. Management cited higher deferred revenue and accrued liabilities among operating cash inflows; increased deferred commissions partially offset them.
- Nine-month GAAP net loss narrowed, while Q3 net loss was essentially unchanged year over year. Stock-based compensation increased to $14.6 million for the nine months from $8.6 million.
- Management expects continued investment and operating losses for the foreseeable future, but believes existing cash and cash equivalents will meet operating and capital needs for at least 12 months. The filing provides no specific revenue or earnings guidance.
- Management said COVID-19 had not materially affected results or liquidity during the periods presented, but its future impact remained uncertain. Disclosed risks include customer growth and retention, competition, dependence on third-party social network APIs and data, privacy and security, international expansion, and the ability to manage expenses and achieve profitability.
- Remaining performance obligations were $87.2 million, with 83% expected to be recognized within 12 months. The company reported no material pending legal proceedings and effective disclosure controls.
Key facts for investors to verify
- Whether revenue growth and customer expansion continue, particularly among larger ARR customers.
- How operating cash flow performs as deferred revenue, commission spending and customer collections change.
- The scale and persistence of stock-based compensation and its effect on GAAP losses and share dilution.
- The status of the credit facility at its January 2022 maturity and any replacement or renewal arrangements.
- Whether data-provider and other contractual commitments, totaling $47.8 million, remain aligned with growth and liquidity needs.