Sprout Social, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Sprout Social sells subscription-based social media management software, with a small professional-services component. It reported 32,800 customers and operates as one segment.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $57.4 million | $40.8 million; up 41% |
| Subscription revenue | $56.8 million | $40.4 million; up 41%, representing 99% of revenue |
| Gross profit / margin | $43.4 million / 76% | $30.8 million / 76% |
| Operating loss | $9.6 million | $6.2 million |
| Net loss / diluted loss per share | $9.8 million / $0.18 | $6.4 million / $0.12 |
| Operating cash flow | $5.4 million provided | $3.6 million provided |
| Free cash flow (non-GAAP) | $5.1 million | $3.4 million |
Operating expenses rose 43% to $53.0 million, including research and development up 58%, sales and marketing up 41%, and general and administrative up 35%. Stock-based compensation was $8.4 million, versus $3.9 million. Gross margin was unchanged, while operating and net losses widened. Management’s non-GAAP operating loss was $1.2 million versus $2.3 million; this measure excludes stock-based compensation and is not a substitute for GAAP results.
At March 31, 2022, cash and cash equivalents were $81.7 million and marketable securities totaled $99.1 million; net accounts receivable was $23.1 million. Current assets were $226.8 million, current liabilities $107.3 million, and total liabilities $127.7 million. The company had no debt outstanding; its $40 million revolving credit facility expired January 31, 2022. Cash and cash equivalents declined $25.5 million in the quarter, largely reflecting investment purchases; investing cash outflow was $29.9 million.
Material changes and business indicators
- Revenue growth was attributed to new customers and expansion within existing accounts. Customer count increased 17% to 32,800.
- ARR increased to $239.1 million from $172.0 million, up 39%. Customers above $10,000 ARR rose to 5,349 from 3,514; those above $50,000 ARR rose to 692 from 351.
- International customers generated approximately 28% of revenue in both periods.
- Deferred revenue was $76.5 million current and $0.2 million noncurrent. Remaining performance obligations were $115.9 million, with 83% expected to be recognized within 12 months.
Outlook, risks and contingencies
The filing provides no formal quarterly or full-year revenue or earnings guidance. Management expects to continue investing in research and development, sales and marketing, and support functions, and expects operating losses for the foreseeable future. It believes cash and cash equivalents will cover operating and capital needs for at least the next 12 months.
Key risks identified include customer acquisition, retention and expansion; competition and product innovation; access to third-party social-network APIs and data; privacy, security and regulatory compliance; macroeconomic conditions and customer spending; and the ability to manage growth and fund operations. Management said COVID-19 had not materially affected Q1 performance but that future effects remain uncertain. The company reported no material pending legal proceedings.
Contractual commitments included $42.0 million of minimum purchase commitments, primarily for data and services, with $30.7 million expected within 12 months. Operating lease liabilities were $23.0 million; undiscounted future minimum lease payments were $27.6 million. Investment-grade available-for-sale securities recorded an unrealized loss of $0.2 million in other comprehensive loss. The company noted possible uninsured cash and investment balances, but said it had no material interest-rate exposure.
Investor verification priorities
- Track whether 41% revenue growth and ARR growth translate into sustained customer expansion and renewals.
- Assess the widening GAAP loss alongside rising operating expenses and stock-based compensation.
- Monitor cash conversion and cash balances, including deferred commission investment and marketable-security purchases.
- Review execution against the stated expectation of continued losses and the sufficiency of liquidity after the credit facility expired.
- Evaluate the cash and operating impact of purchase commitments, leases, and reliance on third-party platform APIs and data.