Sprinklr Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 5, 2023

There are 11 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Sprinklr's First Quarter Fiscal 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' remarks, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Eric Skrow, Vice President of Finance, for introductory remarks.

Operator

Please go ahead, Eric.

Speaker 1

Thank you, Doug, and welcome, everyone, to Sprinklr's 1st quarter fiscal year 2024 financial results call. Joining us today are Raji Thomas, Sprinklr's Founder and CEO and Manish Serene, 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 the financial information presented in accordance with GAAP, you are directed to our press release and supplementary investor With that, let me please turn it over to Roger Thomas.

Speaker 2

Thank you, Thank you, Rick, and hello, everyone. Thank you for joining us today. Before we jump to our quarterly results, there are a few things I'd like to share. First is that On July 12, we will be hosting our 1st ever Investor Day at the New York Stock Exchange. We look forward to seeing many of you in person and sharing more details about Sprinklr's vision and business strategy.

Speaker 2

The second, you saw the 8 ks we filed on May 15 about John Chambers resigning from our Board as of June 14, but remaining as an advisor. We want to take a moment to publicly thank John for his contributions as a Board member since joining our Board in 2017. John is one of the most caring and hardest working executives I know and if anyone deserves a little time back in his life, it would be him. While John will no longer have Board commitments, we are grateful that he will stay on as an advisor and continue to be a coach, a mentor and a friend to all of us. Next, we are excited to welcome Trac Pham to our Board of Directors.

Speaker 2

His appointment will become effective on June 15 and Track will also be a member of our audit committee. Track most recently served as the CFO at Synopsys With a broad remit across finance, business development strategy and IT, Track is a great culture fit for Sprinklr And given its vast experience scaling a multi $1,000,000,000 business, a great addition to our boat. The management team and I are looking forward to working with him And tapping into his product expertise. So let's jump into the results of our Q1. We are very, very pleased that Q1 was another strong quarter that exceeded guidance across all key metrics.

Speaker 2

Q1 total revenue grew 20% year over year to $173,400,000 and subscription revenue grew 24% year over year to $157,700,000 With our continued focus on operational efficiency, I'm also delighted to I report that we generated $11,000,000 in non GAAP operating income for the quarter. These results are driven by a few key things that are top of mind for all of us. First, we believe we are creating a new category of enterprise software for the front office. We call it Unified Customer Experience Management. As we hear constantly from some of the best brands in the world, There's a clear need for the front office platform to eliminate siloed technology teams' data And to create seamless customer experiences, as simple as it might appear, these seamless experiences are impossible to create across The multitude of channels, functions, business units and markets that most large companies have and operate in today.

Speaker 2

Unified CXM Is differentiated at its core by a unified AI powered architecture that spans all of these Different silos and it's fueled by publicly available and mostly unstructured data and conversation. And that just cannot be supported by the current CRM and CDP relational database package. This approach Unifying the front office benefits both customers and brands. Customer experiences improve and brands can reduce costs, mitigate risk and increased productivity for growth. We recently hosted our 1st Analyst Summit in Dubai, Where approximately 20 well respected industry analysts joined us and our customers.

Speaker 2

It was very encouraging to see them speak to our customers and validate our vision. We have made some of their quotes and references available for you in the presentation on our IR website. But one Quote worth mentioning came from an IDC analyst who said, built on an already robust architectural framework, Sprinklr appears to be set up well to address its ambitious growth plan. The second point for us We are very, very excited to see AI finally become mainstream. As all of you who've been tracking us from the beginning and at our IPO, You know that AI has been foundational to our platform from the very, very beginning.

Speaker 2

It's woven into the every fabric of our unified platform. And if you read our IPO prospectus, it should be very clear that it was And always has been a key differentiator for us. Sprinklr is the system of record for unstructured And conversational data for some of the best brands in the world. And we've been training Over 2,000 AI models with over 100,000,000 training data points in over 100 languages Across over 70 industries and sub industries for 5 years. And that accuracy that we are able to A recent announcement regarding Sprinklr AI Plus is the next evolution of our AI.

Speaker 2

Sprinklr AI Even more powerful, we delivered over 30 features, AI features in our last release. We have another 25 planned for our next. Some of these features include smarter responses, generated recommendations, content summarizations, which help 1 of our streaming customers improved the agents acceptance of Sprinklr smart responses, which are the suggested responses that we provide for agents By 300% after we enabled AI Plus. Every company will embrace AI sooner or later. What I believe what separate winners from losers is whether AI is a feature for you or is it at the core Everything you do.

Speaker 2

So despite the macro environment, we are very pleased with how we're managing what's in our control with our Go to market strategy, productivity and execution. Specifically, we are excited about the progress we are making it To make it easier to sell, which has been a top priority for the company. This past quarter, we made several key hires in the service overlay team To add expertise and depth to our CCaaS offering go to market and we continue to verticalize to enable quicker time value and faster deployments. We are now up and running for CCaaS with a couple of more key industries, including financial services and airlines. We're also doubling down on our partner ecosystem and we've recently partnered with some amazing companies like Intelisys and Foundever, which are beginning to result in deals that we've won together in the field.

Speaker 2

As you all know, partners are critical, Especially in the contact center space and we remain committed to training and onboarding them as rapidly as we can. And finally, last quarter we discussed our self serve offering Sprinklr Social Advance. Feedback has been incredibly In terms of how easy it is to use and the product is opening the door as we anticipate for larger deals. This past quarter, a very large media company actually started with Social Advance and now in conversation with our sales team to expand to multiple geographies and product suite. I'd love to provide a brief update on Sprinklr service and our continued momentum as a disruptor in the CCaaS space.

Speaker 2

Our vision is to help customers transform the contact center from a voice focused call center to a more IT buyers find Sprinklr to be a great fit for their needs as they consolidate point solution in the solutions in the contact center stack To a platform that's built on a single code base with a very extendable architecture. During the Q1, we saw meaningful CCAS deals close across all three of our primary theaters. During the Q1, we continued to add new Puma, Spirit Airlines and Wilton, let me give you a few examples of how customers are currently using Sprinklr. Starting with service And showcasing the power of the Unified CXM platform is an expansion win in Q1 with a top 5 global technology company, which Renewed and expanded their business to over $15,000,000 in ARR with Sprinklr. They are now using 40 Sprinklr products across all of our product suites in over 13 languages.

Speaker 2

Sprinklr service is now a critical part of the deployment at this client, enabling guided workflows, knowledge bases for agents, customers, Video chat, co browsing and AI powered agent assist capability like smart comprehension, pairing and responses. Through Sprinklr, this client can now detect issues within 5 minutes as opposed to the 30 to Another service story is with Americana, one of the largest restaurant companies in the Middle East and Africa. Americana originally began partnering with Sprinklr to build out an actionable voice of the customer and customer service program. This program gathers live actionable voice of customer insights across all digital and voice sources To provide enhanced resolution, this our platform and the implementation of it has helped Americana Reduce response time now to minutes. With the expansion last quarter, Americana now has implemented Sprinklr across 10 brands in multiple countries across several 1,000 restaurants.

Speaker 2

Another example is a new logo, Hilti, Leading multinational manufacturing company with over 30,000 employees who signed Interestingly, a 7 year deal with Sprinklr as a new customer using to use our inside social and marketing solutions. This is an amazing example and a testament to how strategic Unified CXM is for large enterprises. Another example is the expansion of a strategic partnership with Roche, one of the largest pharma companies in the world. Using Sprinklr, they have now laid the foundation for global intelligence teams to provide holistic insights across social, digital And traditional media, including print and broadcasting stations. The consolidation and analytics based on real time data display It plays a key role in Roche's vision to become 1 Roche as it enables diverse siloed stakeholders across the pharma and Diagnostic divisions in over 100 countries to make informed decisions and proactively respond in crisis situations and obviously is driving growth and optimizing strategies.

Speaker 2

Before wrapping up, I'd like to take a moment to celebrate our incredible engineering team, who as always make all of this Possible, their speed of innovation and dedication continue to differentiate Sprinklriffs in the marketplace. In closing, we are very pleased with our start to FY 2024. We are encouraged by the engagement and momentum we're seeing from customers, Industry analyst influences around 3 things. 1st, a new category of front office software. We call it Unified CXM, But the simple idea that teams in data and technology and customer journeys have to be unified at the architecture level And that a disconnected set of point solutions won't work.

Speaker 2

2, AI is well on its way to being mainstream and Customers are super excited with our AI first approach and generative AI plus integrations that give them I think it's customer facing superpowers. And our focus lastly, third, our focus on efficient execution, which is helping us drive strong momentum across our product suite. We remain committed to our vision of becoming the world's most loved Enterprise Software Company innovating for our customers, succeeding with our partners and delivering shareholder value and in the long term executing for growth and continued profitability. Thanks to our customers, partners and our employees for hard work and results and thanks to our investors for believing in our vision. Me hand the call over to Manish.

Speaker 3

Thank you, Raji, and good afternoon, everyone. As you heard from Raji, We're pleased with our start to FY 'twenty four. For the Q1, total revenue was $173,400,000 up 20% year over year and above the high end of our guidance range. This was driven by subscription revenue of $157,700,000 which grew 24% year over year, also above the high end of our guidance range. 1 of the key drivers of subscription revenue outperformance Was the timing of new bookings, which was front loaded in Q1 and the commensurate benefit to Q1 subscription revenue was approximately 2,000,000 Services revenue for the quarter came in at $15,700,000 Our subscription revenue based Net dollar expansion rate in the Q1 was 122%.

Speaker 3

As we have discussed in the past, As macroeconomic conditions moderate renewal rates and customer upsells and new logo acquisition continues to increase, We expect NDE to moderate in the coming quarters. Our current expectation is for NDE to settle in the mid to high teens percentage range over the next As of the end of the Q1, we had 115 customers contributing $1,000,000 or more In subscription revenue over the preceding 12 months, an increase of 7 sequentially, which is a 28% increase year over year. Turning to gross margins for the Q1. On a non GAAP basis, our subscription gross margin was 82.8% As we continue to drive efficiencies in our cloud operations, leading to a total non GAAP gross margin of 76.2%. We continue to generate efficiencies in sales and marketing and have shown consistent improvement in S and M spend over the last Sales and marketing expense in the Q1 is now 48% of revenues compared to 56% in Q1 of last year.

Speaker 3

This is an 800 basis point decrease year over year. The sequential increase in S and M spend in Q1 compared to Q4 of FY 'twenty three is largely attributed to sales activities slated for the start of the year, such as sales kick off, as well as costs related to the Q1 restructuring we had discussed on the Q4 earnings call. We also realized operating leverage from G and A, which decreased by 100 basis points year over year. Turning to profitability for the quarter, non GAAP operating income was $11,000,000 equating to a non GAAP net income of $0.06 per share. This 6% operating margin for the quarter was a result of revenue over performance, improved gross margins, coupled with operating expense discipline across every department and is the 3rd consecutive quarter of non GAAP profitability.

Speaker 3

It is also worth noting that in Q1, we had approximately $3,000,000 in tax credits related to the release of valuation allowances In our Brazil and Japan entities, had we not realized these credits, the tax provision in Q1 would have been approximately $2,200,000 in line with our prior guidance. Lastly, on the topic of profitability. For the first time ever as a publicly traded company, We posted positive GAAP net income for the quarter totaling $2,800,000 or $0.01 per share. While we were the beneficiary of one time tax credits allowing us to achieve GAAP net income profitability faster than expected, We remain committed to achieving GAAP net income profitability on a full year basis for FY 2024. In terms of free cash flow, we generated $14,300,000 during the Q1 and 8% margin compared to an adjusted free cash flow of $6,200,000 in the same period last year.

Speaker 3

This cash flow generation contributed to our very healthy balance sheet, which now stands at $604,400,000 in cash and equivalents with no debt outstanding. Calculated billings for the Q1 were $170,500,000 an increase of 23% year over year. As of the end of Q1, total remaining performance obligations or RPO, which represents revenue from committed customer contracts that has Not yet been recognized was $708,100,000 up 23% compared to the same period last year And CRPO was $478,800,000 up 19% year over year. The sequential decrease in RPO and CRPO can be attributed to a handful of large multiyear deals that are up for renewal in Q2 and therefore not included in both RPO and CRPO. Moving now to Q2 and full year FY 'twenty four non GAAP guidance and business outlook.

Speaker 3

As you heard today, Long term demand trends and engagement for Sprinklr remains strong. However, we recognize that the macroeconomic environment continues to be uncertain For Q2 FY 'twenty four, we expect total revenue to be in the range of $172,000,000 to $174,000,000 representing 15% growth year over year at the midpoint. Within this, we expect subscription revenue to be in the range of $158,000,000 to $160,000,000 representing 20% growth year over year at the midpoint. As we had mentioned on the Q4 earnings call, we expect approximately $30,000,000 in services revenue in the first half, equating to approximately $14,000,000 of services revenue here in Q2. Concurrently, we Services margins to dip here in Q2 driven by our ongoing investments in CCaaS service delivery And managed services such that our overall services margins for the first half of FY 'twenty four are effectively breakeven Consistent with our commentary on the Q4 earnings call, we expect non GAAP operating income to be in the range of $11,000,000 to $13,000,000 and non GAAP net income per share of $0.04 to $0.05 per share, assuming 270,000,000 weighted average shares outstanding.

Speaker 3

For the full year FY 2024, We are raising both our subscription and total revenue outlook for the year. We now expect subscription revenue to be in the range of $649,000,000 to $653,000,000 representing 19% growth year over year at the midpoint. This is an increase of $5,000,000 which represents the full magnitude of the Q1 beat and the subscription revenue guidance raised for Q2. As we alluded to on prior earnings calls, we have been investing in making our products easier to implement and therefore Such that we expect our service delivery partners to take on a larger proportion of the services revenue attached in delivering our product. In light of these dynamics, we are reducing the FY 2024 services revenue guide from $66,000,000 to 62,000,000 With this change, services revenue for FY 2024 will be approximately 9% of total revenues.

Speaker 3

We expect total revenue to be in the range of $711,000,000 to $715,000,000 representing 15% growth year over year at the midpoint. For the full year FY 'twenty four, we are raising Our non GAAP operating income estimate to now be in the range of $51,000,000 to $55,000,000 Equating to a non GAAP net income per share of $0.19 to $0.21 assuming 273,000,000 weighted average shares This implies an approximately 7% non GAAP operating margin at the midpoint. Note the increase of $10,000,000 at the midpoint represents the full beat for Q1 and the accompanying raise for Q2. In deriving the net income per share for modeling purposes, we estimate $13,000,000 in interest income for the full year, with $4,000,000 of that to be earned here in Q2. Furthermore, a $6,000,000 total cash provision for the full year FY 2024 needs to be added to the non GAAP operating income range just provided.

Speaker 3

We estimate a tax provision of $2,500,000 here in Q2. We are tracking to be GAAP net income positive for the full year FY 'twenty four consistent with our comments on the Q4 earnings call. Billings in Q2 are expected to grow in the high teens, growing slightly slower than subscription revenue, but faster than total revenue. We expect the Q1 beat and any Q2 upside in billings to flow through for the full year FY 'twenty four. For With respect to free cash flow, in Q2, we have a large annual payment due to one of our public cloud partners.

Speaker 3

As such, q2 free cash flow is expected to be negative and coming around negative $15,000,000 Consistent with our prior commentary, We expect to be solidly free cash flow positive on a full year basis. As a quick reminder, Raji, the broader Sprinklr management team and I are eager to share more details about our business and financial profile with you at our upcoming Investor Day on Wednesday, July 12, and look forward to seeing many of you there. Lastly, I would like to thank all our employees And for what we are building at Sprinklr. During an uncertain macro environment, I'm also grateful for the confidence that our customers have placed in us. We remain focused on building a track record of successful execution and operating discipline across the business.

Speaker 3

And with that, let's open it up for questions. Operator?

Operator

Thank you. Ladies and gentlemen, at this time, we'll be conducting a question and answer session. Our first question comes from the line of Raimo Lenschow with Barclays. Please proceed with your question.

Speaker 4

Perfect. Thank you. I have 2, if I may. First one and congrats on a great quarter. First one is on the services This push that you're kind of doing now and thanks for the updated guidance there that kind of explains a lot.

Speaker 4

If you think about What's the nature of the relationship with the service partners like? Are they kind of building it as a bigger Digital transformation in the front office, as a bigger practice there or is it kind of more Sprinklr specific, what you're seeing there in terms of how big you're thinking about building and working with you? And then I had one follow-up.

Speaker 2

Yes. So Raimo, this is Rajiv. Good to connect always. So there are 2 things I would point out. First is our broader Ecosystem that we've been developing with the systems integrators like Deloitte and Accenture are more On the digital transformation and the broader ecosystem, as you've outlined, What is interesting now is we're developing a second category of partnership and more specifically in the customer service space.

Speaker 2

And there's a pretty interesting ecosystem there of referral partners, implementation partners, consulting partners. They're very focused on the contact center industry. So we're rapidly expanding that aspect of our partnership ecosystem, which was something that in the past we hadn't done.

Speaker 4

Yes. Okay, perfect. And then the other big debate that happens in the market at the moment is like, was that front office first Maybe kind of over invested a little bit in 2021 and now we had like a digestion period And now we can slowly start looking forward again. In your customer conversations, where do you see in terms of like Thinking about ongoing investments, do you see a change in the nature of the conversation that you have there? And I'll leave it with that.

Speaker 4

And congrats again from me,

Speaker 2

We are seeing a palpable change from our biggest and best customers. Let's say the 20 or 30 customers I spoke to that are large, I'd say a large customer for us is over 1,000,000 And as you probably know, we actually have several that are over $10,000,000 now and increasingly more over $15,000,000 What we're finding is the platform is sticking. What we're finding is What we're finding is companies are expanding across business units. What we're finding is that companies are expanding across channels and they are Expanding across market. So you know we have 2 vectors of growth.

Speaker 2

1 is more products and more cross sell capabilities across Products and product suites. The other one is expanding across business units and markets. That's a less understood part of our expansion strategy Because you have a single instance architecture where the new business unit that comes along or the new market that gets added, it suddenly has global collaboration And visibility.

Speaker 4

Okay, perfect. Thank you. Congrats again.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Pinjalim Bora with JPMorgan. Please proceed with your question.

Speaker 5

Hey, guys. This is Noah on for Pangilong. Thanks for taking our questions. Just for the first one, you launched the self-service Product at the end of March, which should really help with the top of the funnel dynamics. Can you just maybe provide some more additional Around the new self-service product and just the uptake there?

Speaker 5

Thanks.

Speaker 2

So we are it's been like we said last time, it's been a heavily controlled rollout because what we wanted to do is get the product and the dynamics of someone using the product right, Which I'm very happy to report that the feedback is very, very strong. We are now in the process of increasing the reach Using traditional and digital marketing capabilities to get more people to that top of the funnel to try. It's working really well as Companies in our target market who are smaller teams going on there trying testing out and giving us great feedback. And I'd say over the next 2 to 3 quarters, we'll be putting more resources and more focus on that to build that out as a very Hopefully, potentially big, lead generation and try before you buy channel.

Speaker 5

Great. And then just a quick follow-up. Related to the macro, it sounds like That the environment has been relatively consistent. You did call out some moderation in the retention Going forward, could you maybe just unpack that a little bit for us? Thank you.

Speaker 2

Yes. So we've always said that, I think for the last now three quarters, we've Consistently said that the environment is steady. So what we're seeing is more scrutiny, careful spend, measured And more people approving deals and that continues. We're not seeing a change. What I'd point out As we get into CCaaS, get into the partner, unlocking the partners, as you probably know already, CCaaS deals take longer.

Speaker 2

There are very And change management is a huge deal in that space. So as we lean more, you're going to see sales cycles increase a little bit, but That we don't think it's a macro thing, but we're seeing strong, very strong reception. We're running several proof of concepts and we're able to show agent productivity average Case handling time reduced by 20%, agent productivity go up by 30% in many cases. So It's very promising. Now we got to get scale and get a few deals through the sales cycle.

Speaker 5

Thank you and congrats on the quarter.

Speaker 4

Thank you.

Operator

Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed with your question.

Speaker 6

Great. Thank you so much. I wanted to ask on generative AI, just given how topical it is. We've seen a lot of interesting press releases across the broader landscape specifically for generative AI, including Sprinkler Zone AI Plus. So how do you view what generative AI capabilities really become table stakes versus real incremental monetizable solutions?

Speaker 6

How should we think about the roadmap for new Gen AI features and what forms of monetization make the most sense for Sprinklr?

Speaker 2

I'm glad you asked the question. Look, you know that if you read the prospectus, We've been saying this for 5 years and we are thrilled that generative.ai is adding wings to our own AI and raising broader awareness. I think as we said in the prepared remarks, there'll be 2 kinds of companies. 1 that is adding a feature on the AI and got 5 things going And others that deeply go back to their core architecture and embed AI. And I think over time, the latter will Clearly be the winners.

Speaker 2

They will be the AI companies not people who use AI. Having said that for us, AI is a Fundamental differentiator across the front office. As you know, we have several 100 features In every product suite, in most, I can just rattle off maybe in the call back, I'll show you a slide. You take any product that we have, any feature MTSR more than 60%, 70% of that is enhanced using AI. Now how do we monetize AI is very, very interesting.

Speaker 2

Awareness helps us and I think there are additional monetization opportunities that are not obvious right now. For companies that are completely and just seed based, this is going to be a deflationary situation for them. For us and companies like us, We can fluidly transition between agent based cases, community based cases, knowledge based self resolution And who can charge for licensing and enterprise licensing that includes AI regardless of The agent hours, I think it's a good thing and we are exploring different pricing models like case based pricing, Insight based pricing and you know our Insight product is completely based on AI and price on the licensing basis based on the value we create. So we see this as a net positive for us. In the short term, we're going to use this to differentiate massively Everyone's talking a big game, but we can prove it.

Speaker 2

We're showing 90% accuracy in actionability When you look at the random message and ask yourself, should I act on it, is it engageable? We're showing 30% better sentiment accuracy. We're 25% to 30% better routing with our smart routing agent productivity. So we're doing proof of concepts where we're showing You know, in some cases, twice as better accuracy and AI capabilities. I'll give you a specific example because everyone's talking generically.

Speaker 2

We've always had the concept of smart responses. So if you're using Sprinklr in a contact center, the agent is guided to, hey, why don't you You say this or offer that. That's a smart response that the system is nudging the agent to do. I mean that had a good usage, but when we added the generative AI integration and expanded it, Now the agent is getting a full script and so he can just read off without having to process and rephrase and the adoption As we called out, it's gone up 300%. So that's the kind of quantum leap that suddenly makes AI a lot more accessible and visible from an external user synthesizable way as opposed to in the back end.

Speaker 2

So I think it's going to just Really help us differentiate in a big way.

Speaker 6

Great. Thank you. And as a follow-up, I was wondering if you could talk about Success you've seen on new customers since launching new initiatives like that new logo team or focusing partners to source deals. Understand you don't report the customer account number, but any color on how those initiatives are taking hold would be helpful. And historically, about 2 thirds of the business has been driven by existing accounts.

Speaker 6

Can we expect that to change over time?

Speaker 2

Look, I think there is precedent For very sustained long term growth without having to just keep adding logos and As a very high end enterprise company, I think we are very well placed with the likes of companies like ServiceNow, Where we're seeing our top customers buy more and more and more growth. And I think that's a very sustainable long term growth driver for us. Now we want to continue adding more customers And we have identified as we said last time with the focus on go to market, we've identified a target customer base of 43,000 companies. So through everything we do, we're only trying to reach those companies and We're not chasing anybody else. So the focus continues to be on growth and not logo count.

Speaker 2

We've Put dedicated teams and I think that's one of 10 things we're doing. And I think almost all those things are first Principal space and we it's a multi quarter thing. So we don't have any early results to report, but it looks very promising.

Speaker 6

Great. Thank you.

Speaker 4

Thank you.

Operator

Our next question comes from the line of Matt VanVliet with BTIG. Please proceed with your question.

Speaker 7

Yes, good evening. Thanks for taking the question. I was maybe curious on all the success around Dan, or any of these sort of net new contact center type of engagements that you're seeing?

Speaker 2

Matt, we're seeing 2 distinct patterns. Well, one is we're finding that companies with 50 agents to let's say 500, maybe even 1,000 agents have all the problems that large 5,000 Agent contact centers have in terms of workforce optimization, routing needs and ticket volume and a whole bunch of things. And we're finding that that market specifically is craving for a unified solution because they can't afford to buy 6 or 7 and then integrate it together. So that's Well, we think of it as a right to win segment for us and we're seeing success in that market. 2nd is the large enterprise deployments.

Speaker 2

Now we're seeing success But these are larger drawn out protracted proof of concept to RFPs to replacements where we are Encountering traditional vendors like Avaya and Genesis a lot. And essentially what's going on there is we have opportunities where It's long term and we're going after the whole thing. And we have a lot of like lower hanging fruit in terms of just augmenting the core Voice Infrastructure that is working with about 7 of our AI based products. So that suite is our contact center, CCAI product suite For the service industry, so you can just deploy that as a pack on top of your current Traditional voice infrastructure and in many cases because they've already been using those capabilities for digital or social with Sprinklr It's a much easier lift. Does that make sense?

Speaker 7

Yes. No, that's very helpful. Thank you. And then maybe just a quick follow-up on The services gross margins and just kind of thinking about that more long term, if you can push more of that work to some of the partners, Maybe ignoring the potential business development side or kind of top of the funnel, but as you just look at kind of how that could impact gross margins over the longer term, Maybe just help us think about how framing that out is also a cost benefit analysis here for the model?

Speaker 3

It's Manish. I think that's a great question because We've been spending a lot of time evaluating the kind of services opportunities we take on board. And I think this is consistent with the comments we've delivery capabilities around us, whereby we could transition some of the, let's just say, less attractive margin business to them. So our view once we are through with this transition and the investments that we are making in CCaaS delivery, managed services, which is a lot more higher margin, That we should be in the circa 20%, give or take over the long term. Now these can obviously go up depending on any quarter that we might be in.

Speaker 3

But given where we are right now, that's what we feel comfortable looking out over the next year or so. So that sort of margin profile probably is achievable. Does that make sense?

Operator

Right.

Speaker 7

Yes, that's great. Thanks for taking the question.

Operator

Our next question comes from the line of Michael Berg with Wells Fargo. Please proceed with your question.

Speaker 8

Hi, thanks for taking the question and congrats on the quarter. I want to touch on the shape of the quarter. You noted that it was front end loaded. I was curious if there was just looking at some of the Q4 statistics, If there was some larger deals that fell out of Q4 into Q1 and that's what drove part of the upside and shape of the quarter? And then secondarily to that, is there anything meaningfully different that you're seeing in the demand environment more broadly?

Speaker 8

Thank you.

Speaker 3

Yes, that's a great question. So there weren't any deals that flopped over from Q4 into Q1. Now we like any other enterprise software company do believe that a lot of our new business is back end loaded and we've been fairly consistent in how we then model it For a variety of reasons, the customers have a desire to purchase one of our product suites and that was the case here in Q1. And consistent with our prior commentary, we're fairly transparent in pointing out when that happens and the additional benefit that accrued to us here in which as I pointed out in the prepared remarks was approximately $2,000,000 So if you sort of factor that into both the guide as well as what Q1 results look like you would see a more normalized sort of revenue pattern.

Speaker 8

Helpful. And then going back to the services piece, do you have a long term target goal in terms of the mix there? Like how can we See that shaping up over time.

Speaker 3

And with that in particular you're referring to as a percentage of overall revenue?

Speaker 8

Correct.

Speaker 3

Or the mix within services?

Speaker 8

Services is the mix of overall.

Speaker 3

Yes. So if you go back a couple of years, services for us was almost 12% of overall revenues. And we did feel as a management team, we wanted to And so I think where we are right now, just under, call it, 9 odd percent It's probably at a respectable level. So as I look out over the longer term, somewhere between 8% 10% seems to be the right spot for us. The mix within services obviously will migrate more towards managed services or CCaaS service delivery, sort of more Higher up the value chain, if you will, versus just your plain vanilla implementation.

Speaker 3

And that might obviously lead to a better margin profile in the longer As I said earlier, so I think where we are probably is what you should expect more as a steady state level. I will, however, admit that We're in a fast evolving industry, and we're trying our level best to adjust our economic model to what the customers demand. And should things change, we would be transparent with The Street on future earnings calls.

Speaker 8

Helpful. Thank you.

Operator

Our next question comes from the line of Patrick Walravens with JMP. Please proceed with

Speaker 5

Raji, how do you expect your competitive environment to evolve over the next 3 years. And maybe in particular, it seems like Amazon is making a lot of progress in the contact center space. And I know you have a partnership with them. So if you could touch on that element of it too, that would be great.

Speaker 2

Absolutely. So Patrick, as you know, we started out in the social He's right. Our legacy with a lot of little companies that we're competing with, we evolved from that to the digital space where we were competing with bigger companies, but still endpoint solution world or companies who have bought some of these But still endpoint solution world or companies have bought some of these and been selling these together using invoice engineering, if you will. Where we have evolved to is we've mainstreamed and we are mainstreaming every one of our product So that's very important for the market to understand. So we've got 4 product suites, the service product suite, the inside product The marketing product suite and our social product suite.

Speaker 2

And each one of those are evolving to a mainstream category. And the easiest way to understand is what we're doing and have done with frankly with the service space, right? We started with social service, now we have digital, now we're in the CCaaS space. So now we're obviously competing with the likes of the Avayas and the Genesys and a lot of Zendesk And other companies who are in the enterprise space, that's a very large TAM. The contact center market, as you know, is about $800,000,000,000 and that's including tech and labor.

Speaker 2

And as you know, the tech is only a small single digit percentage of it. What's super exciting is now the a good chunk of the $800,000,000,000 is at play because AI will actually And the tech market into and eat into the labor cost mitigation opportunity. So we know that's a major market. We know We're doing a replacement sale. We know we have a better product.

Speaker 2

We know we are AI based. So it's become easier. So a competitive set has evolved to

Speaker 3

a very different group of companies.

Speaker 2

That's the same thing we're going to do in marketing. That's the same thing we're doing in insights where We're going to be adding more Voice of the Customer capabilities. As I outlined in the prepared remarks, we have increasingly we're doing deals where The customer is using us as a voice of the customer platform in addition to their survey based platform. So at some point, it should be obvious that we add surveys and we are Incredibly competitive there. So that's the strategy and our competitive set will evolve.

Speaker 2

You know very clearly, I've mentioned many, many times that our goal is to become the 3rd The 4th platform in the enterprise, you go by Salesforce such as CRM Suite, you go by Adobe, it takes care of your website and analytics. Microsoft can and should be used, I can then you have Sprinklr and that's a platform that unifies it and connects a lot of those other replaces a Tonopoint solution somewhere between 525 and Let me now switch gears and talk about how we see the cloud provider. Now it's very interesting the way the market is moving. The Infrastructure providers are going to keep coming up the stack. And so you'll see the market with With the past players, the communication service providers and all of that, I think that's stable of data into each other.

Speaker 2

We're coming from the very top of the app stack. We're a pure play application player Operating system play. That's it's all code, it's all software. We have no data aspirations. It's all license based and it's all part of the architecture.

Speaker 2

And we're agnostic across channels and we provide a unified way to communicate across channels and business So I think they will eventually connect, but right now it's great complement to each So we see ourselves as great partners to Amazon, great partners to Microsoft, great partners To Google and we actually do several deals together every quarter. Now obviously do they bleed into each other a little bit? Yes, possibly. But In the front office, you're going to see everybody breathe into each other. And I think what I would bet on if I were you is truly platform architecture.

Speaker 2

Invoice engineering is pretty tough to pull off over the long run.

Speaker 5

That's super helpful. Thank you.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Tyler Radke with Citi. Please proceed with your question.

Speaker 5

Yes. Thank you. Good evening. I wanted to just ask you about how you're seeing some of the large renewals Shape up, I think you talked about some large renewals expected here in Q2. Some of the Other larger front office players have talked about some renewal pressure.

Speaker 5

We've heard anecdotes of shelfware and seats that have gone Floyd, how are you expecting your renewal rates to trend? And if you could just remind us on the composition of your revenue base that's Seats based or versus usage or interactions based? Thank you.

Speaker 2

Okay. So there were 2 questions there. The first one is what are we seeing in our larger deals in terms of renewal. And I'll tell you, Once you buy into the Sprinklr approach, we keep growing. And to story now, we have customers who call us first Before they go put out an RFP or open it up to a point solution and say, hey, do you guys

Speaker 3

do this?

Speaker 2

Because they've bought into the They've got the analytics. I'll give you an example of a very, very large, I'd say top 5, probably top 3 tech company That expanded their marketing services with us. And the idea was that there was an agency breach that happened And issue that resulted in ad spend that was not governed and approved. So they just All spending till everybody got on Sprinklr so that they can be compliant, right? And so they can have governance and visibility and they can have a global editorial calendar.

Speaker 2

So I can confirm to you and you know we had one customer that paid us over 15. And If you count the number of customers are paying over 10, that's going up as well. And so we'll share more details on our Investor Dave, but we love what we're seeing at the very top of the market. We love it. We love that.

Speaker 2

It's just cementing a position as the 3rd or 4th platform. Now you also know we've been obsessed unlike many other companies about value delivery in our aspiration to try and build a company that people are going to love. So Value delivery is super, super important for us. Everything is backed up by business case. And so we're not seeing the shelf wear We're seeing it as well from for our customers are telling us they're seeing shelf wear compression from other vendors.

Speaker 2

Thankfully and fortunately, that's not us.

Speaker 5

Thanks. That's helpful. And then are you able to talk about the mix of revenue versus interactions or usage?

Speaker 2

Yes. So we don't really have any usage based pricing at the moment. So we'll have flat enterprise products that you buy like some AI SKUs or you have seat based high sensitivity buy or You have tier based, like for example, our insights product is based on how much what tier of data are you Right. So I don't know whether that qualifies as usage. We think of it as you're buying a license.

Speaker 2

So it's not like you we don't use all of that. You get money back, but you just burst into a different tier if you go. So they're committing to a license always. And I think it's a pretty good mix. Our insights products all based on AI and quantity Of data that they interest in process, our CCaaS is again we have community products Knowledge based products and other things that are license based and then you have the contact center that's seat based and we're very open to other Pricing models there as well like flat fee and enterprise license models.

Speaker 2

So it's a healthy mix. I couldn't tell you exactly how that is split.

Speaker 5

Okay. That's helpful color. So then I wanted to just follow-up again on the contact center wins. It sounded like you saw some large ones in the quarter, talked about some airlines and financial services. Did I hear you correctly that Are you in those larger deals, are you kind of complementing them initially?

Speaker 5

In other words, you're not displacing One of these large incumbents in terms of the seats you're kind of complementing with the potential roadmap or optionality to Displays them longer term or we're just curious on those two examples, kind of your role. Thank you.

Speaker 2

Both, both, both, Tyler. So we have our typical route is we're the digital care solution. We start with The time to respond to all of that gets better very quickly. And I can also confirm that we have several early Pilots, conversations, proof of concepts with large wall to wall plays And we're very invested in it, which will be a drag on short term bookings, right, because these are larger Longer term plays and there's significant people and resources being committed to moving that long. Our hope and aspiration is We publicly stated is to become a pretty serious, material CCaaS player.

Speaker 2

And so that requires us to kind of overinvest early on. So the The fruits of that labor will probably take a few quarters, but we're able to show remarkable business results, Tyler. So that's That we know that's the right strategy and it allows us to put our head down and not think about this quarter or next quarter, but think about the next 3 to 5 years.

Operator

Our next question comes from the line of Michael Turits with KeyBanc. Please proceed with your question.

Speaker 9

Hi. This is Michael Dudovik on for Michael Turits. And thanks for taking my question. You talked about the early traction you're seeing with the self-service offerings, but Is there any indication at this point that it will help you move down market, call it longer term? Or are you really just seeing these products help you land the 43 customer count you talked about earlier?

Speaker 9

Thanks.

Speaker 2

Michael, more of the latter. We are not looking to go down market. Let me be very, very clear. So If you are coming to a website, we're actually not contacting anybody who's not in our target list of 43,000 companies. So It's not that people wake up and go find us, right?

Speaker 2

And someday we'll be ranked very high in SEO, but that day is not today. So we're very intentional in terms of driving the audience to our self serve product and that is only in our target segment. So it's not a volume game for us. And our intention, at least I can say in the medium term, is to stay very focused. There is a lot of upside to them in the market we play.

Speaker 2

So it's not going down market at all.

Speaker 9

Got it. Thanks. And then just now that we're past May here, any trends or changes between now and Q1 that you'd call out? Thanks.

Speaker 2

Al and you mean in just in the last month or so?

Speaker 9

Right.

Speaker 2

Look, I think everyone's talking about generating AI. That is super exciting. And I think the awareness of AI broadly is helping us differentiate and people are paying more attention to performance metrics. Look, I think the noise is going to subside and the winners will be declared over the next few years. I love what I'm seeing in terms of Clients thinking of us as a strategic partner.

Speaker 2

Company is thinking of us as the system Company is thinking of us as, hey, you are the company well, I had a customer that I was speaking to who said to us that they're paying Sprinklr more than they're paying Adobe And was very surprised and I'm sure it's just a value base. I'm not saying all companies, all industries. So That's something that I'm personally very excited about being a strategic partner in the C suite. And I can also tell you that Increasingly, we're talking to the C suite and we're having a lot less difficulty getting And holding a conversation and demonstrating a value to a CIO and CMO than we ever did before. Because I think the point solution versus platform, that game is up and people want to consolidate point

Operator

Our next question comes from the line of Arjun Bhatia with William Blair. Please proceed with your question.

Speaker 10

Hey, guys. Thanks for taking the question. Raji, for you just on the contact center opportunity, Can you just help me understand how you're delineating what's a contact center deal versus a service deal? Is it Where it's sitting, whether it's the marketing team or the service team, because you've had this product in market For some time and then just to follow-up on that. The growth strategy there, does that focus Do you see that focusing more on existing sprinkler customers or is this a way to kind of get maybe some of the holdouts onto your platform?

Speaker 2

So, Arjun, the good news is everything that we were referring to in our service Bucket is a seat that's assigned to the somebody in the customer service department. Okay. So it's almost always in the contact center, But it's real customer service. If you are a marketing user engaging with our customer, you're probably That revenue goes under the social bucket or the marketing bucket. So everything we're talking about is service, which is Very interesting for us.

Speaker 2

It's a customer service seat. The second thing I want to point out is for us, A customer service seat is a customer service seat. So you may choose to activate 5 channels and call it social. You may choose to activate 30 Just do only digital or you may activate voice and go entire contact center. It's all the same for us.

Speaker 2

And I'll give you a real story with 1 of the largest of the 15,000 seat contact center we implemented with the bank that we talked about before. In the contact center before Sprinklr, there were a bunch of people with the email customer service capability. So if you e mail them, hey, I want to increase my credit card limit, they literally would e mail you back because that's all they could do. They were e mail agents. And so you would send an email Sunday night, you go to work Monday, that case wouldn't get closed till Friday when you come back and send an email to respond.

Speaker 2

With Sprinklr, this was just they came to this Analyst Summit and said the story. It was amazing because now the email agent gets that request, Hit the call button, talks to the guy and say, hey, can you submit your proof of income, blah, blah, blah, and that case resolution went from weeks and days to hours and minutes. So you just turn things on and off and you just you'll get behind the exact same capability, which is what we mean by true omnichannel.

Speaker 10

Understood. All right. That makes sense. And then one for Manish. You talked about just some Maybe some downward pressure on net retention rate coming up in the next few quarters here.

Speaker 10

Is that are you anticipating Some renewal headwinds from customers. Let me just walk us through some of the assumptions that you're baking in there, because you did raise the Subscription revenue guidance, I'm just trying to square the 2.

Speaker 3

Yes. So we raised the subscription revenue guide for the full year by the Full beat of Q1 and the raise for Q2. So I don't think the issue is, are we expected expecting any churn. But look, we live in a fairly uncertain macro environment, and I just didn't want investors to start feeling that the 120% was Set in stone for the rest of the year. So just trying to be cautious there.

Speaker 3

And the commentary that I've provided in the prepared remarks We'll square with the 19% subscription growth rate for the full year. So I think this is us in the spirit of as we look out over the next 3 quarters, what we are expecting in terms of new business renewals, all of that captured together is what I was trying to give commentary on.

Operator

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Speaker 2

Thank you, operator, and thank you all for joining us today. I'd like to first thank our employees and then our partners and most importantly, journey of creating a new category and aspiring to create the world's most loved enterprise software company. Thank you very much And have a great evening. Thank you.

Operator

Ladies and gentlemen, this does conclude today's teleconference.

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Earnings Conference Call
Sprinklr Q1 2024
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