Sprout Social Inc

Item 1A. Risk Factors

Other than the risk factors set forth below, there have been no material changes from the risk factors disclosed in our Annual Report (under the heading Risk Factors ) in response to Part 1, Item 1A of the Form 10-K.

Unstable market, economic and political conditions may have serious adverse consequences on our business, financial condition and share price.

The global economy, including credit and financial markets, has experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, intariffs and increasing trade tensions, sudden changes in government spending, fluctuations in inflation, interest rates and uncertainty about economic stability. For example, ongoing overseas conflict a, tariffs and trade tensions have created volatility in the global capital markets, including disruptions of the global supply chain and energy markets. In addition, fluctuations in inflation, economic policy and other macroeconomic pressures in the United States and the global economy could exacerbate extreme volatility in the global capital markets and heighten unstable market conditions. Any such volatility and disruptions may have adverse consequences on us, our customers, partners or other third parties on whom we rely. If the equity and credit markets continue to deteriorate, including as a result of global geopolitical tension, political instability or a global or domestic recession or the fear thereof, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. High levels of inflation can adversely affect us by increasing our costs, including labor and employee benefit costs. In addition, high inflation, trade tensions and reductions in government spending also could increase our customers operating costs and decrease their revenue, which could result in reduced social media budgets for our customers and potentially less demand for our platform and products.

We have incurred a substantial amount of debt, which could adversely affect our business, including by restricting our ability to engage in additional transactions or incur additional indebtedness, and prevent us from meeting our debt obligations.

We entered into a 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 revolving credit facility (the Facility), which was subsequently amended in April 2025 (as amended, the Amended Credit Agreement).

At March 31, 2025June 30, the Company had an outstanding balance of $2015.0 million under the Facility. Subsequent to June 30, 2025, we borrowed from the Facility an incremental $32 million to fund a portion of the upfront consideration payable in connection with our acquisition of NewsWhip. This substantial level of debt could have important consequences to our business, including, but not limited to:

reducing the benefits we expect to receive from our prior and any future acquisition transactions;

making it more difficult for us to satisfy our obligations;
 

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requiring a substantial portion of our cash flows from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flows to fund acquisitions, capital expenditures, RD and future business opportunities;

exposing us to the risk of increased interest rates to the extent of any future borrowings, including borrowings under our Amended Credit Agreement, are at variable rates of interest;

increasing our vulnerability to, and reducing our flexibility to respond to, changes in our business or general adverse economic and industry conditions;

limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions, and general corporate or other purposes and increasing the cost of any such financing;

limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and placing us at a competitive disadvantage as compared to our competitors, to the extent they are not as highly leveraged and who, therefore, may be able to take advantage of opportunities that our leverage may prevent us from exploiting; and

restricting us from pursuing certain business opportunities.

The Amended Credit Agreement contains, and the terms of any future indebtedness may impose, various restrictive covenants, including, among other things, restrictions on the Companys ability to incur liens, incur indebtedness, make or hold investments, execute certain change of control transactions, business combinations or other fundamental changes to theiour business, dispose of assets, make certain types of restricted payments, including dividends and other distributions to shareholders, or enter into certain related party transactions, subject to customary exceptions. In addition, the Amended Credit Agreement contains financial covenants as to (i) maximum consolidated senior net leverage and (ii) minimum consolidated interest coverage. Pursuant to the Amended Credit Agreement, we and certain of our subsidiaries granted the collateral agent a security interest in substantially all of our and their assets. See the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources for additional information.

Our ability to comply with these restrictive and financial covenants can be impacted by events beyond our control and we may be unable to do so. The Amended Credit Agreement provides that our breach or failure to satisfy certain covenants constitutes an event of default. Upon the occurrence of an event of default, the administrative agent, at the direction of the lenders, could elect to declare all amounts outstanding under the Amended Credit Agreement to be immediately due and payable. In addition, the administrative agent would have the right to proceed against the assets provided as collateral in accordance with the Amended Credit Agreement. If the debt under our Amended Credit Agreement were to be accelerated, we may not have sufficient cash on hand or be able to sell sufficient collateral to repay such debts, which would have an immediate adverse effect on our business, liquidity, and financial condition.