Sprout Social (SPT) risk factors, FY2024 10-K

Risks Related to our Business Model and Other Operations Risks

1. 01If we fail to attract new customers and retain and increase the spending of existing customers, our revenue, business, results of operations, financial condition and growth prospects would be harmed
2. 02We have a number of federal government customers that may be impacted by any budget cuts implemented by the incoming administration. We cannot predict the impact any budget cuts will have on our existing or prospective customers and how that may impact their spending with us
3. 03Our historical revenue growth rates may not be indicative of our future growth
4. 04Our platform and products are dependent on APIs built and owned by third parties, including social media networks, and if we lose access to data provided by such APIs or the terms and conditions on which we obtain such access become less favorable, our business could suffer
5. 05If we are unable to attract potential customers through unpaid channels, convert this traffic to free trials and other leads or convert free trials and other leads to paid subscriptions, our business and results of operations may be adversely affected
6. 06If we fail to adapt and respond effectively to rapidly changing technology, new social media platforms, evolving industry standards or changing customer needs, requirements, tastes or preferences, our products may become less competitive
7. 07emerge or our competitors are able to deliver solutions at lower prices or more efficiently, conveniently or securely, such technologies or solutions could adversely affect our ability to compete
8. 08As more of our sales efforts target larger enterprise customers, our sales cycle has and may continue to become longer and more expensive and we may encounter increased pricing pressure and compliance challenges
9. 09We recognize subscription revenue ratably over the term of our customer contracts. Consequently, downturns or upturns in new sales may not be immediately reflected in our operating results and may be difficult to discern
10. 10If we do not adequately fund our research and development efforts, or use research and development teams effectively, we may not be able to compete effectively, and our business and operating results may be harmed
11. 11If we fail to offer high-quality customer support, or if the cost of such support is not consistent with corresponding levels of revenue, our business and reputation may be harmed
12. 12Technological advances in AI may in the future disrupt the social media industry, which could significantly reduce the demand for our services or otherwise adversely impact our business or reputation if we are unable to successfully keep pace and navigate this evolving environment
13. 13business to run more efficiently than Sprout Social, placing us at a competitive disadvantage, and they may better incorporate AI into their product offerings, negatively impacting demand for our products
14. 14If we are unable to develop and maintain successful relationships with channel partners, our business, results of operations and financial condition could be harmed
15. 15Our international sales and operations subject us to additional risks and costs, including exposure to foreign currency exchange rate fluctuations, that can adversely affect our business, operating results and financial condition
16. 16We have a history of losses and may not achieve profitability in the future

Risks Related to the Use of Technology

1. 17Any cybersecurity-related attack, significant data breach or disruption of the information technology systems or networks on which we rely could negatively affect our business
2. 18We rely upon third parties to operate our platform and any disruption of or interference with our use of such third party providers would adversely affect our business, results of operations and financial condition
3. 19We are subject to subscription and payment processing risk from our third-party vendors and any disruption to such processing systems could adversely affect our business and results of operations
4. 20Real or perceived errors, failures or bugs in our platform or products could materially and adversely affect our operating results and growth prospects

Market and Competition Risk

1. 21Our business depends on a strong brand, and if we are not able to maintain, develop, and enhance our brand, our business and operating results may be negatively impacted. Moreover, our brand and reputation could be harmed if we were to experience significant negative publicity
2. 22Our estimates of market opportunity, forecasts of market growth and our operating metrics may prove to be inaccurate
3. 23The market in which we operate is competitive, and if we do not compete effectively, our operating results could be harmed

Legal and Regulatory Risks

1. 24Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses
2. 25Our use of “open source” software could negatively affect our ability to offer and sell access to our platform and products and subject us to possible litigation
3. 26We are currently subject to, and may become in the future, subject to litigation, disputes or regulatory inquiries for a variety of claims, which could adversely affect our results of operations, harm our reputation or otherwise negatively affect our business
4. 27We are subject to U.S. economic sanctions and export control and anti-corruption laws and regulations that could impair our ability to compete in international markets or subject us to liability if we violate such laws and regulations

Risks Related to Ownership of Our Class A Common Stock

1. 28Our actual operating results may fluctuate from period to period and may differ significantly from any guidance provided
2. 29Our share price has been and may continue to be volatile, and you could lose all or part of your investment
3. 30The dual class structure of our common stock and the existing ownership of capital stock by our Co-Founders have the effect of concentrating voting control with our Co-Founders for the foreseeable future, which limits the ability of our other investors to influence corporate matters
4. 31Future sales of our common stock in the public market could cause our share price to fall
5. 32We have never paid dividends on our capital stock and we do not intend to pay dividends for the foreseeable future
6. 33Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock
7. 34These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management
8. 35If securities or industry analysts do not continue to publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline

Risks Related to Tax and Accounting Matters

1. 36Failure to maintain effective internal control over financial reporting could result in our failure to accurately or timely report our financial condition or results of operations, which could have a material adverse effect on our business and stock price
2. 37Our ability to utilize our net operating loss carryforwards may be limited

Risks Related to Intellectual Property Matters

1. 38Inability or failure to protect our intellectual property rights could impair our business
2. 39Third party intellectual property infringement claims could impair our business
3. 40Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and share price
4. 41We depend largely on the continued service of our senior management and other key employees, the loss of any of whom could adversely affect our business, results of operations and financial condition
5. 42If we cannot attract and retain qualified personnel or maintain our culture as we grow, we may be unable to execute our business strategy
6. 43Our recent growth and any future growth in headcount may be difficult to manage effectively
7. 44We may not be able to generate sufficient cash to service our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful
8. 45We entered into the Credit Agreement with the lenders named therein and MUFG Bank, LTD. as administrative agent and collateral agent, in August 2023, which provides for a $100 million senior secured credit facility
9. 46We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs
10. 47There are risks associated with potential future indebtedness that may adversely affect our financial condition and future financing agreements may contain restrictive operating and financial covenants that could limit our operating flexibility