Sprinklr Inc. reported its third-quarter earnings, surpassing Wall Street expectations with an earnings per share (EPS) of $0.10, compared to the forecasted $0.08. The company's revenue also exceeded projections, reaching $200.7 million against the expected $196.48 million. Following these results, Sprinklr's stock rose by 4.73% in regular trading and an additional 2.91% in after-hours trading.
Key Takeaways
- Sprinklr's EPS of $0.10 beat the forecast of $0.08.
- Revenue for Q3 was $200.7 million, surpassing expectations.
- Stock price increased by 4.73% during regular trading and 2.91% after hours.
- The company maintains a strong cash position with $477 million and no debt.
- Guidance for Q4 indicates continued growth with revenue projected at $200-$201 million.
Company Performance
Sprinklr reported an 8% year-over-year increase in total revenue for the third quarter, driven by a 6% rise in subscription revenue. The company continues to focus on enhancing its AI-powered customer experience platform, which has contributed to its competitive positioning in the market. With over 1,800 customers, including nearly 150 spending more than $1 million annually, Sprinklr is solidifying its presence across various industries.
Financial Highlights
- Total (EPA:TTEF) Revenue: $200.7 million, up 8% YoY
- Subscription Revenue: $180.6 million, up 6% YoY
- Non-GAAP Operating Income: $23.3 million (12% margin)
- Free Cash Flow: $4.9 million in Q3
- Cash and Marketable Securities: $477 million, no debt
- Current RPO: $545.6 million, up 11% YoY
Earnings vs. Forecast
Sprinklr's actual EPS of $0.10 exceeded the forecast by 25%, while the actual revenue of $200.7 million was 2.15% above the expected $196.48 million. This marks a positive deviation from market expectations, reflecting the company's ability to outperform its guidance in recent quarters.
Market Reaction
Sprinklr's stock closed at $8.25, representing a 4.73% increase, and continued to climb by 2.91% in after-hours trading, reaching $8.49. This upward movement reflects investor confidence following the earnings beat. The stock remains within its 52-week range of $6.91 to $17.14, indicating room for potential growth.
Company Outlook
Sprinklr has provided guidance for Q4, projecting revenue between $200 million and $201 million, representing a 3% year-over-year increase. The company is focusing on profitable growth and margin expansion, aiming to achieve Rule of 40 status. Plans include simplifying its pricing model and introducing new product features in fiscal year 2026.
Executive Commentary
CEO Rory Reid stated, "Our objective is to deliver durable, profitable, and efficient growth," emphasizing the company's focus on improving operating margins and growth rates. Reid also highlighted the strategic importance of creating time and patch, which he believes will yield long-term benefits.
Q&A
During the earnings call, analysts inquired about the reasons for customer churn, which were attributed to post-COVID overbuying and shifts in product focus. The sales reorganization strategy was also discussed, with plans to implement a dual pod sales structure and enhance sales rep productivity.
Risks and Challenges
- Market Saturation: As Sprinklr continues to grow, it faces the challenge of expanding its customer base without saturating the market.
- Macroeconomic Pressures: Economic uncertainties could impact customer spending and IT budgets.
- Competition: The company must maintain its competitive edge in a rapidly evolving market.
- Churn Rates: Addressing customer retention and churn will be crucial for sustained growth.
- Product Innovation: Continued investment in product development is necessary to meet evolving customer needs and stay ahead of competitors.
Full transcript - Sprinklr Inc (CXM) Q3 2025:
Conference Operator: presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Eric Skrow, VP Finance.
Thank you, Eric. You may begin.
Eric Skrow, VP Finance, Sprinklr: Thank you, Alicia, and welcome everyone to Sprinklr's Q3 fiscal year 2025 financial results call. Joining us today are Rory Reid, Sprinklr's President and CEO and Manish Sarin, Chief Financial Officer. We issued our earnings release a short time ago, filed the related Form 8 ks with the SEC, and we've made them available on the Investor Relations section of our website along with the supplementary investor presentation. Please note that on today's call, management will refer to certain non GAAP financial measures. While the company believes these non GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP.
You are directed to our press release and supplementary investor presentation for a reconciliation of such measures to GAAP. In addition, during today's call, we'll be making some forward looking statements about the business and about the financial results of Sprinklr that may involve many assumptions, risks and uncertainties, including our guidance for the 4th fiscal quarter and full fiscal year of 2020 5, the impact of our corporate strategies and changes to our leadership, the benefits of our platform and our market opportunity. Our actual results might differ materially from such forward looking statements. Any forward looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them. For more details on the risks associated with these forward looking statements, please refer to our filings with the SEC, also posted on our website, including Sprinklr's quarterly report on Form 10 Q for the quarter ended October 31, 2024.
With that, I'll now turn it over to Rory.
Rory Reid, President and CEO, Sprinklr: Thank you, Eric, and hello, everyone. It's nice to be with you today. I'd like to start by providing a few 3Q financial highlights before covering some of my thoughts on the business. 3Q total revenue grew 8% year over year to $200,700,000 and subscription revenue grew 6% year over year to $180,600,000 We generated $23,300,000 in non GAAP operating income, which resulted in a 12% non GAAP operating margin for the quarter. I wanted to thank Sprinklr team members around the globe and our customers and partners for trusting us to help them solve some of their most important business needs.
Manish will provide further financial details in his remarks a little bit later. Given that this is our first earnings call following my appointment as President and CEO, I would like to share some observations based on my initial 30 days here at Sprinklr. First, I'm delighted to join the Sprinklr team at this important time in our journey. I'd also like to thank Raji and the Board for this opportunity. I have long admired what Sprinklr has built, and I chose to join the Sprinklr team because of the powerful combination of industry leading technology, an incredible roster of customers and partners and a passionate team focused on helping those customers to win.
We also operate in very attractive markets with a large TAM and a strong product market fit. I have spent 4 decades building and transforming global technology companies to improve operational efficiency, accelerate innovation and drive durable profitable growth. I intend to do the same together with our team here at Sprinklr. Since joining Sprinklr last month, I've spent a lot of time listening and learning about where we are today and what we need to do differently moving forward. I have spoken to hundreds of team members around the world, along with dozens of customers and business partners.
What I know for certain is that we have significant strengths to build upon. We also have challenges to address, and we intend to address them. Sprinklr was built from the ground up as a unified AI powered platform to help brands access insights to strengthen their customer relationships, improve operational efficiency and achieve their business objectives. We believe the attributes of our platform allow us to uniquely empower our customers to better understand, engage and serve their customers by delivering unified experiences. Our customers are leveraging our platform to solve some of their most important business challenges.
We believe the next generation of unified customer experience management leads to a 3 60 degree immersive customer engagement across multiple vectors of experiences, including discovery, conversational commerce, support and service. We have grown our customer base to well over 1800 customers today, of which nearly 150 are $1,000,000 plus customers. This demonstrates that when we execute well, our customers find true value in using our platform across all our product suites. This gives us confidence that Sprinklr can be the ultimate disruptor in changing the way customer experience is delivered within every industry across the globe. Our objective is to deliver durable, profitable and efficient growth.
However, as we have discussed on previous calls, the transformation we are navigating will take some time. We are confident in our ambidextrous strategy to reenergize and grow our sprinkler core, while hardening and expanding sprinkler service, thus enabling our customers to realize the full value of our platform. As I have acknowledged, there are still challenges ahead as we strengthen our teams, refine our processes and tackle the operational debt that has hindered us over the past year. Challenges we are working to address include reenergizing our growth engine, while reducing churn, simplifying and focusing our offerings, so we can consistently implement and deliver outstanding customer experiences to more customers around the world tailoring and streamlining our go to market structure to focus on expanding our roster of world leading organizations. Financially, our overarching goal is to become a rule of 40 company.
Today, we're operating below 20% on the rule of 40. This is simply not acceptable. We intend to reach this goal through a combination of faster top line growth and substantial operating margin expansion. We intend to drive material progress on margins by improving our efficiency, reducing our cost base and strategically investing for growth. Our sales and marketing efficiency needs to improve.
We intend to be more targeted with our R and D projects, and we'll continue to work to tighten on the G and A side as well. We will aim to rebalance investments and resources to areas where we have a competitive advantage
Eric Skrow, VP Finance, Sprinklr: and where
Rory Reid, President and CEO, Sprinklr: we have a disproportional ability to win. We will cover the details of these actions when we provide a more comprehensive operational plan and our official financial guidance for FY 'twenty six on our 4Q earnings call, which is expected to be scheduled in late March. In closing, I'm excited about the opportunity ahead for Sprinklr. We are a leader in a large and growing market that is helping to define how enterprises engage with their customers in an AI digital first world. Our unified AI powered platform provides a differentiated value proposition for the world's most iconic and leading brands.
I believe we can support faster, long term durable growth with improved margin expansion. Of course, it will take some time to develop and execute our go forward strategy, but we are committed to being open and transparent, so you can understand the progress we are making before it is realized in our financials. I look forward to meeting and speaking with many of you in the weeks months ahead. Now I'd like to turn the call over to Manish, so he can go through the numbers in more detail. Manish?
Manish Sarin, Chief Financial Officer, Sprinklr: Thank you, Rory, and good afternoon, everyone. For the Q3, total revenue was $200,700,000 up 8% year over year. Subscription revenue came in at 180,600,000 up 6% year over year. The outperformance in subscription revenue was partly driven by an approximately $1,000,000 benefit from better linearity with new business booked earlier in the quarter. Professional services revenue for the Q3 came in at $20,100,000 and was driven by more projects completed in the quarter for Sprinkler service coupled with a higher renewal rate for recurring services.
Our subscription revenue based net dollar expansion rate in the 3rd quarter was 107%. We expect this number to come down over the next few quarters as the lower quantum of new business and elevated churn from the past year rolls through the revenue waterfall and works its way through the calculation. At the end of the Q3, we had 147 customers contributing $1,000,000 or more in subscription revenue over the preceding 12 months, which is a 20% increase year over year. We believe our continued success in winning and growing 7 figure customers is a testament to the value of the platform we deliver for our customers. These are some of the leading enterprises in the world and will be a targeted focus of ours with the changes we are making in our go to market efforts.
Regarding gross margins for the Q3, on a non GAAP basis, our subscription gross margin was 80% and professional services gross margin was negative 8%, resulting in a total non GAAP gross margin of 72%. As noted on previous calls, we are experiencing higher data and hosting costs as we launch new cloud environments in response to new business opportunities. We acknowledge professional services margins are not acceptable at this level and we are working to address this as part of our overall work on becoming more efficient. We will share more details on gross margins on our Q4 call in March of next year. Turning to profitability for the quarter.
Non GAAP operating income was $23,300,000 or a 12% margin, which drove non GAAP net income of $0.10 per diluted share. Included in this non GAAP operating income is a $1,300,000 credit loss charge. Like the charge we booked in Q2, this charge was booked to the G and A expense line and is composed of both a specific reserve against specific accounts and a general credit loss reserve. Excluding this charge would have resulted in non GAAP operating income of $24,600,000 This charge had no effect on free cash flow for the quarter. With respect to free cash flow, we generated $4,900,000 during the Q3 such that free cash flow generation for the 3 quarters of FY 2025 now stands at 57,600,000 dollars This cash flow generation contributed to our healthy balance sheet, which now stands at $477,000,000 in cash and marketable securities with no debt outstanding.
Calculated billings for the Q3 were $147,900,000 a decrease of 8% year over year. As you may recall from previous years, Q3 is our smallest billings quarter of the year. As of October 31, 2024, total remaining performance obligations or RPO, which represents revenue from committed customer contracts that has not yet been recognized was $906,300,000 up 17% compared to the same period last year. And current RPO or CRPO was $545,600,000 up 11% year over year. Q3 typically has a seasonal sequential decline in CRPO, which we had called out in the Q2 earnings call, we expect CRPO to grow again in Q4 as is our typical seasonal trend.
Moving now to Q4 and full year FY 'twenty five non GAAP guidance and business outlook. For Q4, we expect total revenue to be in the range of $200,000,000 to $201,000,000 representing 3% growth year over year at the midpoint. Within this, we expect subscription revenue to be in the range of $180,000,000 to $181,000,000 representing 2% growth year over year at the midpoint. The Q4 guide also implies $20,000,000 $1,000,000 in professional services revenue, essentially flat with Q3 professional services revenue. As we have signaled on prior earnings calls, we continue to invest in sprinkler service delivery capabilities given the growth opportunities available to us in that market.
As such, we expect professional services gross margins to remain in the negative low single digits for Q4. We expect non GAAP operating income to be in the range of $17,500,000 to $18,500,000 resulting in non GAAP net income per diluted share of approximately $0.07 assuming 265,000,000 diluted weighted average shares outstanding. The decline in non GAAP operating income from the previously implied Q4 guide can be attributed to an increase in total revenue of $4,000,000 netted against an increase in cost of $12,000,000 comprising the following items. 1st, approximately $4,000,000 in signing bonus and recruiting fees related to the hiring of our new CEO second, approximately $4,500,000 in additional consulting fees and partner delivery costs 3rd, approximately $2,000,000 in targeted retention bonuses. And lastly, 4th, approximately $1,500,000 in incremental data cost, mainly driven by the successful renewal of our current agreement with X, formerly known as Twitter.
For the full year FY 2025, we are raising both our subscription revenue and total revenue estimates. We now expect subscription revenue of $715,900,000 to $716,900,000 representing 7% growth year over year at the midpoint. And we expect total revenue to be in the range of $793,900,000 to $794,900,000 representing 8% growth year over year at the midpoint. Note that we have also increased our estimate for full year professional services revenue from $74,500,000 to $78,000,000 For the full year FY 2025, we estimate our non GAAP operating income to be in the range of $76,400,000 to $77,400,000 equating to non GAAP net income per diluted share of $0.31 to $0.32 assuming 275,000,000 diluted weighted average shares outstanding. This implies a 10% non GAAP operating margin at the midpoint without adjusting for the credit loss charges taken in Q1, Q2 and Q3.
As a reminder, on our Q2 earnings call, we had bridged from the prior FY 'twenty five non GAAP operating income guide at the midpoint of $104,500,000 to a midpoint of 81,000,000 dollars The current FY 2025 guided the midpoint of $76,900,000 can be bridged to the prior $81,000,000 largely through an increase of $8,400,000 in total revenue for the year, netted against an increase of $12,000,000 in cost as outlined earlier. In deriving the non GAAP net income per share for modeling purposes, we estimate $24,000,000 in other income for the full year with $4,500,000 of that to be earned here in Q4. This other income line primarily consists of interest income. Furthermore, a $14,000,000 total tax provision for the full year FY 2025 needs to be added to the non GAAP operating income ranges provided. We estimate a tax provision of $4,000,000 here in Q4.
We expect to be GAAP net income positive for the full year FY 2025 consistent with our comments on the past few earnings calls. With respect to billings and consistent with the trends from the last few years, we expect the billings reacceleration in the 4th quarter with total billings of approximately $294,000,000 in Q4. This would imply a billings growth rate of 9% year over year. With this as the Q4 billings estimate, FY 'twenty five billings are estimated to be approximately $826,500,000 implying a 6% growth rate year over year and slightly shy of the subscription growth rate for the full year. We have generated $57,600,000 of free cash flow in the 1st 3 quarters of the year.
Given the level of billings in Q3, we estimate free cash flow to range from negative $5,000,000 to breakeven for Q4. Given the recent leadership changes, we will not be commenting on FY 'twenty six today. But as Rory noted, we will provide a more detailed financial outlook and operating plan on our Q4 earnings call, which we expect to schedule in late March. Lastly, I would like to thank all our employees for their dedication and passion for what we are building at Sprinklr, and I'm grateful for the confidence that our customers have placed in us. And with that, let's open it up for questions.
Operator?
Conference Operator: Thank you. We will now be conducting a Q and A session. Thank you. Our first question comes from the line of Arjun Bhatia with William Blair. Please proceed.
Arjun Bhatia, Analyst, William Blair: Yes, perfect. Thank you and welcome, Rory. Maybe first one, I want to kick it off with you. I think before you came in, there was this debate on Sprinklr about whether you go down further into the CCaaS realm or you go and double down into the core social and customer experience solution that is kind of the roots of Sprinklr. So I appreciate it's still early and you're still maybe formulating your views, but what is your perspective thus far on kind of on the future of the business and the direction that Sprinkler should go weighing these 2 kind of priorities both from a product market and a go to market perspective between CCaaS and Core Social?
Rory Reid, President and CEO, Sprinklr: Yes. Thank you, Arjun. That's a great question. I think in the prepared remarks, I shared kind of my view on this one. I think when I look at our amazing customer roster and the results that we put up with them, We have a large number of customers, almost 150 that are over $1,000,000 of revenue each.
And then we have another group that are over between $10,000,000 $20,000,000 They see this amazing opportunity to take advantage of this AI based customer unified customer experience platform across all suites of the offering. You're going to see our strategy is 1 where we're going to improve our rule of 40 results. The 20% is just not acceptable. Under 20%, that's nowhere to be. We're going to address that by driving long term durable profitable growth.
We're going to get it on the bottom through a better efficiency and by lower cost and making sure we're targeting the areas that make the most sense. And then on the top line, it's really this ambidextrous strategy, being able to reenergize and grow our core. It's our bread and butter. This has been a bit neglected over the past couple of years. You're going to see a refocus here.
We have new products that you're going to see be introduced in early FY 'twenty six. You're going to see incentives driven into our go to market. You're going to see a rebalancing of our product skills to make sure that we're leading and winning in this space. Because it's also an excellent way to enter into many of these customers as we grow them from 100 of 1,000 to $1,000,000 and then to $10,000,000 account. Then on the other hand, on the other part of this ambidextrous strategy is to harden and expand our services offering.
In this care space, it's really this kind of idea that you can knit this offering across the platform and create almost a 3 60 degree relationship with your customer. And when we see that in its full force and these are some of the toughest, most iconic brands in the world. And I've been selling and supporting those customers for over 40 years in the tech space. These are not easy customers, but they like what we have to offer in that complete offering across all suites. So it's clearly an ambidextrous strategy, reenergize and grow the core, harden and expand the service offering.
And just look at our customer results, you'll see that when we get it right, we win.
Arjun Bhatia, Analyst, William Blair: Perfect. Thank you. That's helpful color. And maybe a follow-up for Manish on the financials. I'm trying to triangulate the growth rate and kind of how we should think about the business fully appreciating, maybe there's some changes to strategy and execution coming.
But if I look at kind of the 3 key metrics between subscription revenue, billings and CRPO, they're all at various different growth rates. Can you maybe just help us understand the differences in those metrics for thinking about the business going forward here over the next couple of quarters, what should we look at as a kind of a leading indicator of what growth might be here?
Manish Sarin, Chief Financial Officer, Sprinklr: Yes. Thanks, Arjun. So you're really looking at outside of the FY 'twenty five guide because for FY 'twenty five, you've said subscription ought to grow give or take 7% for the year. You are trying to triangulate between that and billings growth and CRPO growth? That's what you're trying to get at, right?
Arjun Bhatia, Analyst, William Blair: Yes, right. From a more forward looking perspective beyond fiscal 2025. Exactly.
Manish Sarin, Chief Financial Officer, Sprinklr: Yes. And I think we've said clearly in the past that billings is not a good metric for us. As you recall, we have a lot of customers that are either on quarterly or semi annual billings. That isn't a very good leading indicator for us. RPO and CRPO tend to be much stronger indicators, which is I think part of the reason we sort of go down the route of giving growth rates for each one of them.
And I think I would just maybe look at those for the time being. And quite honestly, I think we will do a much thorough look at what the plan looks like for next year and be a lot more transparent in the March call.
Arjun Bhatia, Analyst, William Blair: Okay, perfect. Appreciate it. Thank you both.
Rory Reid, President and CEO, Sprinklr: Thanks, Howard, June.
Conference Operator: Thank you. Our next question comes from the line of P. J. Limbura with JPMorgan (NYSE:JPM). Please proceed.
P.J. Limbura, Analyst, JPMorgan: Great. Thank you for taking the questions, Rory. Good to meet you virtually. Obviously, Sprinklr has put in motion a lot of change on the sales side and the renewal side. Could you maybe talk about what portion of the changes are that already rolled out in the last couple of quarters are kind of starting to take hold?
And as, Rory, as you walk in, are there specific areas that you think might need incremental changes? Just trying to understand how long it might take for the kind of turnaround store to play out?
Rory Reid, President and CEO, Sprinklr: Yes. Thanks, JP. That's a great question. These having gone through many of these transformations and many of my other roles that I've taken on over the years, they generally take that 18 month kind of time period for it to really take hold across it, 12, 18, 24 months, you're going to start to see real material progress across it. But you're going to see it starting when we discuss that plan and the actual actions we'll take between now and then in the earnings call in March.
I think it's a really, really important component that we really look at that whole picture. So I think that's a key component to what we're doing. I think that transition and the acceleration that we've seen over the past couple of months, I'm really thankful that a lot of the work that's been done on the analytics is complete and that we have the basis to move forward. You're going to see us focus on creating a robust coverage model as we launch FY 2026 in February. We're going to make sure that we have a pod structure in place across all our key accounts.
There will be a dual pod structure with a go to market structure that includes technical success managers, which we know are fundamentally required to drive long term adoption of our platform. You're going to see it in terms of RAMs, renewal account managers that will manage the account relationship and renewal activity on a 12 month period. We're not going to be in the case where we're looking at a renewal in the last month of the contract. That's just foolish. You're going to see us build out that offering.
And then on the service pod, you're going to see us implement those specific changes so that our implementation teams are well structured and that we have the right technical teams in place to implement and support that customer moving forward. You're also going to see a reenergized effort around our partner ecosystem. As you know in my 40 year career, I have been a partner channel player. I believe it's a multiplier of every company's ability to execute. There's no question having that partner ecosystem is something our customers want.
It gives us reach, it multiplies our capabilities and it just makes sense. You're going to see those actions as well as our focus on efficiency and cost all covered in detail in the March call. I think those will really give you an indication how we make our march on improving our Rule of 40 results, both on the top line and the bottom line. Being a Rule of 40 company under 20%, again, no place to be. And you're going to see us work to get this growth rate, both in the core and through hardening and expanding our service offering.
But then on the bottom through better efficiency, cost management and streamlining our go to market. I hope that helps JP.
P.J. Limbura, Analyst, JPMorgan: Thank you. Yes, that's good detail. Manish, one for you. Any way to kind of help us understand the dollar churn that you were seeing, the down sells and the renewal pressure? Has that eased the big bit?
What are you seeing there?
Manish Sarin, Chief Financial Officer, Sprinklr: I would say it's sort of largely in line with what we have shared in the past. There is I would say there is marginal improvement, but nothing that I would say sort of makes us feel we're sort of out of the woods yet. And I think as Rody was saying, given the changes we are looking to make in the broader sort of BOD model, including the renewal account managers, that is going to really come into play at the beginning of next year. And so we're going to try we're going to see a lot more evolution of our renewal base at that time. So slight improvement, but again, more work to be done.
P.J. Limbura, Analyst, JPMorgan: Got it. Thank you so much.
Rory Reid, President and CEO, Sprinklr: Thanks, JP.
Conference Operator: Thank you. Our next question comes from the line of Elizabeth Porter with Morgan Stanley (NYSE:MS). Please proceed. Great. Thank you so much for the question.
Elizabeth Porter, Analyst, Morgan Stanley: I wanted to hit on another part of the go to market effort, which was around the pricing and packaging. Curious if there's any updates or early learnings of what you're seeing as you're doing the pricing and packaging analysis, and what we could imagine going forward?
Rory Reid, President and CEO, Sprinklr: Yes, that's a great question, Elizabeth. I've actually spent quite a bit of time, as you know, speaking to customers and our partners. There's no question that there's a lot of feedback that we can simplify this space. What you should clearly expect in FY 'twenty six is a simplified pricing model and a simplified packaging model. I think we're going to move away from this massive number of SKUs and you're going to see us move to a concept of an idea around essential sprinkler and professional sprinkler with a series of modules that we could add to it.
I think this would dramatically simplify. It would build a platform concept and I think would be very well received by our customers And it would be much more easy to run our billing and other analysis, but I think it positions us well. And the feedback I got from customers so far is that that's something they're definitely looking for. You'll you should expect to see that in FY 2026.
Elizabeth Porter, Analyst, Morgan Stanley: Great. Thank you so much. And just as a quick follow-up, maybe for Mahesh, really appreciate all the incremental color around the operating income guidance in Q4. I was curious about the, granted it's only $1,000,000 but the incremental costs with X, any sort of color that you could provide around maybe how long the contract lasts or just any sort of risks around seeing incremental data costs come up more frequently or how should we just think about that potential?
Manish Sarin, Chief Financial Officer, Sprinklr: Yes. So thank you for the question, Elizabeth. So we had a multi year agreement in place before and we're very excited. We renewed it very successfully at terms that we thought were great, again for multiple years. So from our perspective, this is a fantastic outcome.
They are a great partner of ours and we do intend to sort of continue this partnership. In terms of what it means for data costs going forward, In terms of what it means for data costs going forward, again, not to sound like a broken record, but we can give more detail what it means for data costs for FY 'twenty six on the March call.
Rory Reid, President and CEO, Sprinklr: Yes. And Elizabeth, I'd like to add just a little bit of color on this one, because I looked at this one. This is really important. I think also as we look at data costs, we're going to expand our channel capabilities also in that core space as well. As you know, it's fundamental for our long term success that we reenergize and grow that core business.
I think you'll see us introduce additional channels and additional capabilities and some new functionality that's going to be very significant in early FY 'twenty six. All indications that we can effectively manage the data cost and give the right kinds of data analytics to our customers that they see so valuable as they build out this unified customer engagement platform across all vectors of engagement, both discovery across discovery, conversational commerce, support and service. So I've looked at this and I think we did a good job on the X contract.
Elizabeth Porter, Analyst, Morgan Stanley: Great. Thank you so much.
Conference Operator: Thank you. Our next question comes from the line of Patrick Walravens with Citizens JMP. Please proceed.
Eric Skrow, VP Finance, Sprinklr: Great. Thank you. So Rory, excited to have you here. Two questions. The first one is, in your prepared remarks, you talked about tackling operational debt, reducing churn.
And I'm wondering, have you figured out the root cause of the churn? So one other company we cover used to cost the price of the core product that they sell dropped by like 50% over 3 years. And so you got to deal with that. Another one is now competing with Microsoft (NASDAQ:MSFT) head to head and they're competing against bundled products where they didn't before. So is there anything like that that you've discovered which helps sort of explain the underlying reasons for the churn?
Rory Reid, President and CEO, Sprinklr: Yes. I appreciate that Pat. That was kind of you to welcome me. I do appreciate that. A couple of things I think as I looked into churn because this is a key item.
We have no business being at the renewal rates we are at. That's something we fundamentally have to address. As I look at, I think there's a couple of things that have driven that over the past year plus. There's no question that as the people move past the COVID period, there was some overbuying. I think that's the case.
We've seen it in a number of areas. I think the company over rotated toward the service space, particularly in the go to market area. And I think we also said the same thing in the product area. So we shifted additional product skills away from the core. I think both of those were tactical errors.
I think also the understanding of the technical skills required in our service pod is very well understood. With Scott and his team coming on, we've had a lot of talent in this space in order to really streamline that efficiency. I think you're going to see us also address the kind of incentives we're going to put in place around our quota carriers. We're going to see a very focused set of initiatives to manage the customer relationship 12 months of the year. We're not going to go in, in the last month and talk about a renewal.
That's just not the way to run an enterprise software company. So I think partially it's some of the macro environment, partially it's some of our own self infliction in terms of some of our execution. I think we have we're building clarity for our launch in February of FY 'twenty six. We have a sales kickoff that month that we're going to bring all our sales leaders together and we're going to make it very clear with our incentives and how we build our coverage model and how we build our relationships to make sure that we're managing this renewal structure much more effectively. Do I think there's some kind of inherent competitive event that's going on?
Actually, I don't. I don't. I think the demand for our products and our capability is demonstrated by some of these amazingly difficult tech companies that trust us with $10,000,000 $20,000,000 relationships across all four product suites. And when I see that work and I've gone and visited these customers, I've spoken to them in the last month plus, I actually did some of my pre work before I took this job to make sure I understood that. And I think that's one of the most important point about it.
But again, I think it's really this focus on the core. And you're going to see every discussion, I'm going to talk about how to be ambidextrous to reenergize and grow that core and at the same time harden and get ready for prime time that services space because we've won some amazing customers there, but we have to make that highly repeatable so that we can do it consistently and very much consistent with the profitability of what we see in that industry. I hope that helps, Pat.
Eric Skrow, VP Finance, Sprinklr: Yes, it helps a lot. If I can ask a follow-up, you think you guys mentioned better linearity in your script. So I don't think we've really discussed the macro. Are you seeing an improvement in the macro? Is any of it post the election?
I had one VC comment now that Trump is in its all systems go. Do you agree with that? I'd love to hear your thoughts on the macro.
Raimo Lenschow, Analyst, Barclays (LON:BARC): Yes. I'll give you a couple
Rory Reid, President and CEO, Sprinklr: of thoughts on the macro. I think couple of things. There are definitely clearer signs. And when we get clarity and answers on difficult questions like who is going to be the President in the United States, I think that gets clarity and it gives customers and consumers the confidence to spend. But this is a global company.
A lot of our revenue comes across the planet. What I'm seeing is a demand and an interest in creating a competitive advantage around unified customer experiences. I don't think this is a question of if, I think it's a question of when. And when I see the nameplates that are making the kinds of investments in this space, I think that reflects on that they see an opportunity to create a durable competitive advantage by linking these disparate activities together. And that's where our platform comes in.
So yes, I'm optimistic that we have some stability in the macro, and that can change on a dime, so that doesn't change. You never know what's going to happen. But the IT spend should be in that mid single digit. But in our space, I think there's a lot of interest and a lot of demand. And I think there's an opportunity over the next 3 years that we should be able to take advantage of if we execute better and we will.
Manish Sarin, Chief Financial Officer, Sprinklr: Awesome. Thank you.
Conference Operator: Thank you. Our next question comes from the line of Raimo Lenschow with Barclays. Please proceed.
Raimo Lenschow, Analyst, Barclays: And good luck Rory from my end as well. A lot of the changes seem like it's standard changes like how you should run a company. Can you talk a little bit about the setup you think in terms of management structure that was kind of one of the moving parts in the past? Like how do you how do we have to think about the team and maybe Manish can comment as well in terms of investment in the team, broadening the team, changes to kind of the focus on the team that might move and mean some changes. Can you speak to that please?
Thank you.
Rory Reid, President and CEO, Sprinklr: Yes. Thank you, Raimo. And I appreciate the wish of good luck. I think you're right. I think these are basic concepts of a mature enterprise SaaS company.
We have the nameplates. We have iconic and amazing customers, almost 150 that spend over $1,000,000 a year with us. We have success, but we've got to execute better. And by the way, I've been through many of these transformations. If you want to know what I'm going to do, go look at what I did.
I mean, I've done this play and this transformation several times. We have to be more efficient. We have to be good at execution. We have to build trust. We need to do what we say and own what we do.
And we have to do that with our shareholders, our customers, our partners and our team members. Yes, is it rocket science or brain surgery? No, this is basic blocking and tackling. That's why I'm confident with a bit of time, we can execute better. Now from a team perspective, we're going to look at where do we need to expand and invest to capture disproportional share opportunities for us and where our product fits better.
And we'll make the changes in the structure of the team and the leadership of the team to grow. We should be targeting to be a much bigger software company over the next 3 to 5 years. You build a team that has the capability to make that happen. And if you again, if you want to see generally what I'm going to talk about in March, go look at the previous companies that I've worked at. It's a very straightforward, it's not complicated.
We have a good product set. We have great customers. Our execution has been choppy. Raji's vision is spot on. There's no question about it.
But what we can do and that's why I came here is I think some of the things that I have experienced at doing and where I could help actually line up to better operational efficiency and better execution. And we're going to create an operational engine over the next 1, 2, 3 years to honor March to being a rule of 40 company.
Raimo Lenschow, Analyst, Barclays: Makes sense. Perfect. Thank you. And good luck, as I said. Manish,
Eric Skrow, VP Finance, Sprinklr: if
Raimo Lenschow, Analyst, Barclays: you think about you mentioned the billings, the better billings in Q4. And look, I totally agree like billings might not be the best number, but like people are still looking at it. Can you talk a little bit about what gives you the confidence on that reacceleration? And then how do you think about that linkage of billings growth 1 year versus subscription growth the other year? Is there kind of still that correlation that used to happen in SaaS in the past?
Or how should we think about that? Thank you.
Manish Sarin, Chief Financial Officer, Sprinklr: Yes. Thanks, Raimo. So first thing, if you go and look at Q3 to Q4 transitions for the last 2 years, you will see a very similar billings reacceleration for the last couple of years. So Q3 to Q4 sequentially sort of up call it 70% to 80% both years. It's a little bit more pronounced this year partly because Q3 was more subdued and we did call this effect out in the Q2 earnings call, so people weren't surprised and we've sort of come in exactly where we said we would.
We said we'd be around 145 or sort of at 147 very similar to what we had said and same for the Q4 numbers that we're saying very similar to what we had previewed in the Q2 earnings call. So I'm not terribly concerned. It's the same pattern that has repeated over the last couple of years. Does that make sense, Raimo?
Raimo Lenschow, Analyst, Barclays: Yes, makes sense. Yes. Okay, perfect. Thank you.
Manish Sarin, Chief Financial Officer, Sprinklr: Thank you. Thank you, Raimo.
Conference Operator: Our next question comes from the line of Catharine Trebnick with Rosenblatt Securities. Please proceed. Yes. Thank you for taking
Rory Reid, President and CEO, Sprinklr: my
Conference Operator: question. During last quarter's earnings call, you talked about your sales reorganization and a focus more on several reps maybe focused on renewals and others looking at new logos. So can you unpeel where you are on that sales organization? Thank you. Appreciate it.
Rory Reid, President and CEO, Sprinklr: Yes. Thank you, Karen and Catherine. And it's great to talk to you again. I think you're spot on, on probing on this. The go to market changes that we're implementing, we want to have all in place and complete with Scott Harvey's team for the launch of FY 'twenty six, which is in February 1.
We want we have a sales kickoff that month. We're going to bring our key sales leaders and sales makers together to get focused. And what you should think about in this model is a very mature enterprise coverage model that we're going to build at the account level. I don't want to say this, but we've had account reps that have a customer in San Diego and another customer in Maine and a customer in Florida. That makes no sense and they might be in 3 different industries.
We want to create time and patch because we know time and patch creates the best long term yield in terms of attainment to the objective. So you're going to see a mature enterprise coverage model. In that, you're going to see a dual pod structure, one where you're going to have the AE, the solution, consultant, that's kind of the SE, you're going to see the ramp, the renewal account manager. And you're going to see the services pod be able to support with architecture, implementation and follow on adoption. And that dual focus has ratios that are created for the right kind of coverage.
And that coverage model, like I said, will be implemented at the start of FY 'twenty six and we'll enforce that with sales enablement training, new product training, new marketing messages in our sales kickoff that month. So I think that's where we're going to put the line in the sand and we'll give you an update on that implementation. Oh, and the last thing again, we're going to address and make sure that our incentives really drive the behavior we want. We want a dual selling motion. We want to grow core.
It's a great business and it can grow substantially for many years to come. And we have a great product and we want to grow services, especially after we harden it a bit and make it highly repeatable. That's the platform play and we're going to create the incentives to do that. Catherine, does that help? Yes, it does.
Thank you and good luck. Thank you. Great to talk to you again.
Conference Operator: Our next question comes from the line of Jackson Ader with KeyBanc Capital Markets.
Arjun Bhatia, Analyst, William Blair: Rory, which of the required changes that you've
Jackson Ader, Analyst, KeyBanc Capital Markets: pretty explicitly kind of pointed to tonight, like which of them would require net new dollars or net new investments rather than maybe shifting resources
Eric Skrow, VP Finance, Sprinklr: from
Jackson Ader, Analyst, KeyBanc Capital Markets: one thing or one area to another?
Rory Reid, President and CEO, Sprinklr: Yes. So Jackson, I want to be really clear on this. I expect our cost structure to become more efficient. And the areas that we need to invest in, we'll make the investment. But our net position should be to get lower cost and better efficiency.
We have to improve our operating margins and we have to improve our growth rate. If we want to be a rule of 40 company as we march on that over the next year or 2, 3 years. There's no question that that's the case. So if you think I don't want you to leave this call thinking I don't have any significant increases in costs, quite the opposite. I'll rebalance, we'll restructure and make sure that we're in the right areas that give us the best structure.
And in some areas, we're going
Eric Skrow, VP Finance, Sprinklr: to grow. We're going to
Rory Reid, President and CEO, Sprinklr: add some we'll add capacity in ramps. We're going to add capacity in technical success managers. I'll add more bags, more quota carriers. I'll add some definite technical skills in product areas where we know we need to enhance that. But other areas, we have too many people and we shouldn't we should be making sure that we have it properly balanced and we're efficiently structured.
Our team, our people are very passionate about what we're building here. And we tell them the right structure, they're going to tackle that with passion and energy. So that's how I'd answer that, Jackson. I hope it's pretty clear.
Jackson Ader, Analyst, KeyBanc Capital Markets: Yes. Thank you. Got it. Okay. 2nd question and
Raimo Lenschow, Analyst, Barclays: I
Jackson Ader, Analyst, KeyBanc Capital Markets: guess this one might be for Manish or for you, Rory. The $2,000,000 in retention bonuses here in the 4th quarter, My cynical side tells me that that might indicate some unwanted rep churn, and you're looking to kind of bridge the gap between now and maybe when things shake out in February. So just curious, where is your rep churn currently either wanted or unwanted? Thank you.
Rory Reid, President and CEO, Sprinklr: Yes. So, hey, Jackson, I'll take that in 2 pieces. First on the 2,000,000 dollars that was really focused. When you're doing a transformation like this, you want to look at key skills and you're trying to keep that kind of key focus skills in that 90 percent retention rate over the 1st 24 months. Whether it was at some of the previous companies, it's always been a focus.
I think that was a prudent investment. We did it in areas across all functional areas that were critical. We did it in support. We did it in functional areas that were critical. We did it in support.
We did it in sales. We did it in the product areas. And we may do some more of that as we go through this transformation. It's just keeping the key skills. I need to make sure that I have the field generals and the field captains of all functions in place that can execute the plan.
Now let's talk about reps. One of the things as we move to this structure around a mature a mature coverage model. We need a rep coverage model that's sustained. One of the things in my career that I've seen at every single company is the number one driver of rep productivity is time and patch and length of relationship. It's knowledge of the product.
So what you're going to see is we're going to consistently invest our ahead of the curve to make sure we have the quota carrying go to market sales maker in place. It takes them 6 to 9 months to become fully productive. So when I know for FY 'twenty seven, a year plus from now, I'm going to start hiring those in the second half of FY twenty twenty six, so that they're in place and ready to go. We want to make sure and again, it is not a net add. I'm going to be more efficient across the board.
And our go to market structure is not in line with some of our industry competitors. So there's room for us to do these activities. I believe you'll see more quota carrying reps in place. And I know as we get this structure in the right place that we'll continue to add that. I don't want to run that at 99%.
I want to run that at 103, because I want to be able to then grow. If I get that execution engine growing, then you just basically add more pods to the model as you move forward in the future. But don't be cynical about that $2,000,000 That was not around reps. That was around keeping key skills around the entire portfolio that I need in place to help us do this transformation for the next 12 months, 24 months.
Jackson Ader, Analyst, KeyBanc Capital Markets: Got it. All right, great. Thank you very much.
Conference Operator: Thank you. Our next question comes from the line of Parker Lane with Stifel. Please proceed.
Parker Lane, Analyst, Stifel: Hey, guys. Thanks for taking the question. Rory, if you look at the history of Sprinklr, very acquisitive prior to IPO, not so much post IPO. When you think about optimizing the solution set and building a bigger company here, What is your personal philosophy on the buy build decision here? And is that something you'd entertain on the M and A side?
Rory Reid, President and CEO, Sprinklr: Yes. Thank you, Parker. It's interesting in my career, I've been on multiple sides of the M and A structure. Having worked with Michael Dell (NYSE:DELL) and his team and running the integration to Dell EMC (NYSE:EMC_old), that was the biggest tech integration ever. And obviously, that was a I'm biased, but it was a huge success and created value.
I've seen other acquisitions through my career that had very mixed results. So it's not a panacea. It's not everything works in that space. I think we have a lot of the assets that we need right here and with better execution, better blocking and tackling and just becoming a more mature enterprise SaaS company, you'll see better execution and better result. Now having said that, if we found a small tuck in with some skills that we want that we needed to add, excuse me, to build out capability or some specific technology, would I entertain it?
Absolutely, I would. But I wouldn't say that I'm looking for any kind of major action in that space. I think we have plenty of work and plenty of upside with the basic work that we have to do here. Does that help, Parker?
Parker Lane, Analyst, Stifel: It does. Appreciate the feedback. Thanks, Rory. That's all for me.
Raimo Lenschow, Analyst, Barclays: Yes.
Conference Operator: Great. Thank you. Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed.
Eric Skrow, VP Finance, Sprinklr: Yes. Hi. Welcome to the call, Rory, and I too will wish you good luck. I just have one question just in terms of the timing of the kind of the optimization strategy. In terms of driving profitable growth, in the beginning, where do you plan to lean more into, changes around the product or in the go to market structure?
Rory Reid, President and CEO, Sprinklr: Thanks. Yes, that's a great question, Brian, actually. In my experience, the best way to change the trajectory of a company really comes from 2 areas. The number one area is introducing new products and functionality that can bend the curve of a company. If you add a new feature, a new product offering, a differentiated capability.
The 2nd largest is by changing the go to market, adding new partners through an ecosystem where I believe we're better together or being able to create this new coverage model, are introducing a new segment or area that we're going to attack. So both have the biggest impacts on the trajectory change of a company. But your question is really timing. Timing wise, you're going to see the impact of the go to market changes more quickly because they're easier to implement and they're faster to put in place. So I've already suggested as I talked to Catherine that you're going to see a lot of that coverage work get put in place for the beginning of FY 'twenty six in February and it will kind of burn in, in the first half of FY 'twenty six.
But the product work, I'm pretty fortunate because there's some really good work for Mamataud and the team that they're actually doing around creating some new functionality. And you're going to see it in our core space. So I'm not just saying our strategy is reenergize the core and grow it and harden and expand services. You've got to actually see some of that deliverable. But for having more of that function, product deliveries tend to take a little bit longer.
So you're going to see the beginning of that because there's been a pipeline of products and I'm very lucky that they're in place and we'll see them at the beginning of the first half of next year, but you'll see more of that flow. So timing wise, you'll see it first and go to market and then you'll see product kind of flow through the year. And that's generally how you would see it manifest itself going forward. Makes sense?
Eric Skrow, VP Finance, Sprinklr: Yes, it does. Thank you.
Rory Reid, President and CEO, Sprinklr: Thanks, Brian. I think that's it for the time today. So operator? Oh, no, it's for you, Eric.
Eric Skrow, VP Finance, Sprinklr: Yes. I'll take it. I just want to thank everybody for joining us today. Just some housekeeping. For our Q4 FY 'twenty five earnings call and moving forward, we're going to be issuing our earnings release before market open and hosting our call at 8 am Eastern Time.
We'll issue a press release that includes the date and time of that call sometime in March. Rory, back to you.
Rory Reid, President and CEO, Sprinklr: I like that, Eric. That's a good decision. I'd like to thank all of our Sprinklr team members around the globe and especially our customers and partners. It's because of all of you that we have the opportunity to really build an interesting mature enterprise software company on our march to the rule of 40. We can do this through profitable growth and we can durable profitable growth and by expanding margins.
We have a lot of work to do. You need to give us time and we'll be very transparent on all the actions that we do going forward. I want to thank all of the interested parties tonight and I appreciate you taking time to join us on this earnings call. Thanks everyone. Have a great evening, day and the rest of the year.
Happy holidays.
Conference Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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