Yahoo Finance Sprinklr, Inc. (NYSE:CXM) Q4 2024 Earnings Call Transcript
Sprinklr, Inc. (NYSE:CXM) Q4 2024 Earnings Call Transcript March 27, 2024
Sprinklr, Inc. beats earnings expectations. Reported EPS is $0.12, expectations were $0.08. Sprinklr, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to Sprinklr Fourth Quarter Fiscal Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Scro, Vice President of Finance. Thank you. You may begin.
Eric Scro: Thank you, Camilla, and welcome, everyone, to Sprinklr’s fourth quarter and full year fiscal 2024 results financial call. Joining us today are Ragy Thomas, Sprinklr’s Founder and CEO, and Manish Sarin, Chief Financial Officer. We issued our earnings release a short time ago, filed the related Form 8-K with the SEC, and we've made them available on the Investor Relations section of our website, along with the supplementary investor presentation. 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 involve many assumptions, risks and uncertainties, including our guidance for the first fiscal quarter and full fiscal year of 2025, actual results might differ materially. With that, let me turn it over to Ragy.
Ragy Thomas: Thank you, Eric, and hello, everyone. Thank you for joining us today. We're pleased that Q4 was another strong quarter that exceeded guidance across all key metrics. Q4 total revenue grew 17% year-over-year to $194.2 million and subscription revenue grew 19% year-over-year to $177 million. We generated a record $32.4 million in non-GAAP operating income, which resulted in a 17% non-GAAP operating margin for the quarter. The end of the fiscal year is often a good time to reflect on how far we've come and where we are going. The opportunity we saw when we founded Sprinklr is coming to fruition in an accelerated fashion because of generative AI, after investing 14 years of unifying the back end of customer facing functions with our AI-powered platform, we're beginning to see customers bring our vision of unifying to life with generative AI and conversational AI.
Generative AI has accelerated conversations, happening at the brand's digital edge, where the customer buys, gives feedback and engages for support and service. Anyone can use GenAI to build a chatbot but under the engine or the foundation behind it is unified to sell, to serve and to gain actionable insights. Siloed chatbots can't manifest significant value for the brand. In today's hyper-connected world, customers must experience a unified approach across all touch points with the brand. As you know, we're on a journey to create a new category of enterprise software that we call unified customer experience management. And we believe that will revolutionize the front-office and after continuous building and iteration across our core portfolio, CCaaS and AI, we have even more conviction today for our long-term vision and success and our platform strategy than we have ever had before.
As many of you know, we've been committed to this vision for quite some time now. But to make this vision a reality, we must deliver consistent and repeatable results. As we shared in our prepared remarks on our Q3 call in December, we anticipated that the decline in our FY 2025 revenue growth rate will be driven by a combination of execution that needed to be improved, particularly on the go-to-market front as we over rotated to CCaaS and a difficult macro and economic condition that drove elevated churn. We believe, we now have the clarity on how to best position this company for our next phase of growth and has made several substantive changes across the organization. This includes investment in our leadership team and enhancements to our operational rigor.
Let's begin with the investments in our executive leadership. We've recently brought on experienced leaders from high growth companies that are known for their execution. They have expertise in helping companies scale revenue and profitability, significantly beyond our current levels. As we have shared, Trac Pham, a member of our Board of Directors since June of 2023 has been appointed as the interim COO, where he is focused on organizational structure, getting our teams to better collaborate cross-functionally and bringing operational rigor to Sprinklr. Scott Harvey was promoted to the role of Chief Customer Officer, a role that did not exist where he needs a unified global customer facing organization including all sales and delivery and service teams to accelerate go-to-market efficiencies and better serve customers.
Scott has been actively onboarding several new leaders across the Americas, Europe and APJI as well as our partner team. And today, we are very, very pleased to announce that Amitabh Misra has been appointed as our new Chief Technology Officer effective April 1. Amitabh joins us from Adobe where he led a global R&D organization that was responsible for their experience cloud platform. Prior to that, he was the Founder and CEO of GoPro.com and the CTO Chief Architect and Head of Engineering at Snapdeal.com. He has invaluable industry experience, extensive experience in scaling businesses and a deep understanding of AI. We are excited to have him onboard soon. We will continue working towards recruiting top-tier talent with proven track records of success and operational excellence, as we built out of bench strength to help us drive this company and growth forward.
In terms of a go to market strategy, progress is underway. We have established a more structured cross-functional and disciplined approach for fiscal year 2025 under this new leadership. We're now focused on emphasizing a more balanced strategy to pursue growth opportunities in both our core as well as service suites. There is work in process with renewals, customer engagement and solution selling pretty much across the board. The result of this work will take some time to manifest through the P&L, but we feel very good that we have a clear plan and we've brought in the right people with the right experience and we are heads down focused on executing. As of January 31, 2024, we had 1,735 customers which is up 21% compared to the previous year.
While we are pleased with this growth, it's important to note that we're only at a 4% penetration of our target market of 43,000 named companies, as we shared during our Investor Day last July. This indicate significant untapped potential for sprinkler. Turning our focus to our technology platform, we are known for a blazing pace of innovation and this year was no different. Our product and engineering teams unwavering commitment to customers set Sprinklr apart in the marketplace. In FY 2024 alone, we released over 2,000 features platform enhancements to further advance our vision, a vision, we believe that has the potential to dramatically transform a brand front office with AI. Here are a few highlights from Q4. For Sprinklr Social, we launched auto imagine video optimization that reduces publishing failure and optimizes usability.
For Sprinklr Insights, we have extensively deployed AI to reduce time to insight. For example, something that would normally take an average of more than four hours to read and understand in graphs and charts and data form now is just simplified with a click of a button to generate insight in human readable form. In marketing and advertising, we have deepened our integrations with leading platforms such as Meta, Snap and Reddit to enable advertisers to diversify media coverage and access these platforms latest capabilities. And lastly, with Sprinklr Service, we've expanded our channel offerings for Microsoft Teams and Slack and deployed AI in our conversational analytics module to do root cause analysis for top call drivers faster. These enhancements within our architecture especially our Gen AI solutions are helping customers improve productivity in their front office across the board dramatically in some cases, a large electronics retailer that recently implemented our contact center solution.
We reported a whopping 45% increase in customer service productivity because of our conversational self-service AI capability. During the fourth quarter, we continue to add new customers and expand with existing customers. This includes world-class brands like BT, British Telecom where we were selected to be the strategic customer service technology partner. We also added and expanded with brands like AT&T, Canada Goose, IKEA, Sephora and UBS across all our product suite. Major global enterprises are seeking tangible evidence of AI’s efficacy and its potential to drive measurable productivity gains. There's plenty of hype around AI and plenty of conversations around the theory in infrastructure and it's time now to make it real and customer facing functions.
We like to share a few use cases where customers are making it real by leveraging our platform. Our recent partnership with a major European telco company underscores our commitment to delivering next-generation CCaaS solutions. This telecommunications leader aims to be the number one telco in their market and wants to replace more than 10 existing point solutions in the contact center with our comprehensive unified service suite that's enhanced by our AI. This includes over 30 plus integrations with their existing customer service support systems. The timing of this collaboration is pretty strategic as it aligns with the new cloud strategy to optimize the CCaaS environment. This customer is now running Sprinklr to support 2,500 agents in eight countries across social, digital and voice channels.
This is all geared to improved efficiency, cost effectiveness and overall customer experience for this telco leader. Next, we have a leading pharmaceutical company that recently had their weight loss drug approved for sale in the market. They are anticipating an obvious increase in customer interactions and needed a partner to scale their front office technology with AI, discussions on updating display technology, quickly expanded to comprehensive migration to our social suite where we displaced an company legacy solution. They also invested in understanding millions of public data mentions across social, competitive and digital conversations without adding additional people or resources. Our innovative approach, commitment to collaboration and expertise in navigating complex legal requirements required for regulated industries to mitigate brand risk were key factors in the decision.
By choosing Sprinklr, they gain a trusted partner committed to improving their customer experiences and generating ROI, better ROI for their business. Our third example is about one of the world's leading health care companies that embarked on a transformative journey with Sprinklr many years ago. Their continued expansion in leveraging – mansion to get competitive and product insights and to measure the effectiveness of their brand. This most recent expansion last quarter was to execute against their new marketing strategy that included better content orchestration and strategic collaboration, Sprinklr is now a strategic partner for this company across three of their key businesses. Through a definition partnership agreement, we are also collaborating with them to significantly enhance our marketing suite.
We're introducing critical capabilities like budget and resource management in our marketing suite. I also want to remind all of you that we'll be hosting our first flagship customer event as a public company on May 7th through 9. CX unifies the edge of AI will be in New Orleans. And we will have some of the world's most forward-thinking brands like Amazon, like L'Oréal, like RDA, like Google, like Microsoft and Deutsche Telekom, talking about how AI is transforming their front office. We look forward to sharing these customer stories and their tangible results along with practical usable advice with you. In closing we delivered a strong year marked by an 18% growth in revenue, record profitability and strong free cash flow. As we look to the future, we're strengthening our foundation this year with top-tier leadership by fostering innovation and by enhancing our execution capabilities, critical elements that would fuel our sustained success and drive value for customers and shareholders.
Our confidence is grounded in the conviction that we have for our long-term vision total grounded and the AI powered unified the CXM platform we've developed, the global customers we serve and with the substantial market opportunity that lies ahead of us. Thank you to our customers, partners, our employees for the hard work and their results. And thank you to all of you our investors for believing in our vision. Let me now hand over the call to Manish.
Manish Sarin: Thank you, Ragy and good afternoon, everyone. As you heard from Ragy, FY 2024 was a solid year for Sprinklr punctuated by strong financial results with noted opportunities for operational improvement. Starting with our Q4 financial results, total revenue was $194.2 million up 17% year-over-year. This was driven by subscription revenue of $177 million, which grew 19% year-over-year. Services revenue for the quarter came in at $17.2 million as we completed several key project implementations during the quarter. As noted on our Q3 earnings call, we began to see incremental pressure on renewals in Q3 as certain customers adjusted their spending levels with us. This renewal pressure lingered into Q4 and our current expectation is that we will continue to see some renewal pressure in the first half of FY 2025.
Our subscription revenue base net dollar expansion rate in the fourth quarter held steady at 118%. As a reminder, we calculate NDE on a trailing 12 month subscription revenue basis, which makes it a lagging indicator. While we do not forecast NDE, we estimate this number to keep coming down over the next few quarters as the renewal pressure rolls through the revenue waterfall and work its way through the calculation. As of the end of the fourth quarter, we had 126 customers contributing $1 million or more than subscription revenue over the preceding 12 months which is a 17% increase year-over-year. And as Ragy stated, we ended the year with 1,735 total customers which is a 21% increase in new customers for the year. Turning to gross margins for the quarter.
On a non-GAAP basis our subscription gross margins came in at 83% with total non-GAAP gross margins of 76%. Non-GAAP gross margins for professional services were better than expected coming in at 5%. Turning to profitability for the quarter, non-GAAP operating income was a record $32.4 million resulting in non-GAAP net income of $0.13 per basic share. A 17% non-GAAP operating margin for the quarter was a result of revenue overperformance, strong subscription gross margins coupled with broad-based expense discipline and is the sixth consecutive quarter of non-GAAP profitability. Lastly on the topic of profitability for the fourth consecutive quarter, we posted positive GAAP net income totaling $21.1 million or $0.08 per basic share. In terms of free cash flow, we generated $12.3 million during the fourth quarter.
Our balance sheet has become stronger each quarter now standing at $662.6 million in cash and marketable securities with no debt outstanding. Calculated billings for the fourth quarter were $271 million, an increase of 17% year-over-year. And just as a quick reminder, our fourth quarter billings have historically been the largest for us given the timing of our renewals and the quantum of new business booked in the quarter. As of the end of Q4, total remaining performance obligations or RPO which represents revenue from committed customer contracts that has not yet been recognized was $966.6 million up 34% compared to the same period last year and CRPO was $587 million, up 21% year-over-year. During the fourth quarter, pursuant to the company's stock buyback program, we purchased 2.4 million shares of our Class A common stock for a total cost of $29.6 million.
All the shares repurchased have been retired. Furthermore, between February 1, 2024 and March 26, 2024, we purchased an additional 2.1 million shares for a total cost of 27.1 million. And as disclosed in our earnings release, I'm happy to report that Sprinklr’s Board has authorized a $100 million expansion of the existing stock buyback program. As such, as of March 26, 2024, we now have 143.3 million remaining in our share buyback authorization, and we intend to complete the full buyback here in FY 2025. Turning to a quick summary of financial results for the full year FY 2024. Total revenue was $732.4 million, up 18% year-over-year, with subscription revenue of $668.5 million, up 22% versus the prior year. Calculated billings for the full year were $781.9 million, up 19% year-over-year.
We reported non-GAAP operating income for the full year of $92 million, equating to a non-GAAP net income per basic share of $0.41 and a non-GAAP operating margin of 13%. In terms of free cash flow, we generated $51.1 million in free cash flow for the year, equating to a free cash flow margin of 7%. This is an increase of over 500 basis points from FY 2023. Before moving on to guidance, I would like to provide additional details on the go-to-market initiatives Ragy mentioned. Starting with renewals, we are implementing a more systematic approach to renewals with a dedicated renewals team. In terms of our customer engagement models, we're creating PODs of customer-facing teams and investing deeper in sales and skills enablement training to best equip our people in the field.
And with regards to solution selling, we're developing solution packages that best align to customers' priorities and their strategic technology road map. Moving now to our Q1 and full year FY 2025 guidance and business outlook. We recognize that the macroeconomic environment continues to be cautious. And our current assumption is that the broader macro trends from last year are likely to continue throughout FY 2025. Before we walk through FY 2025 guidance, I would like to point out that our guidance range for next year is deliberately a tighter range than what we have done in the past. For Q1, FY 2025, we expect total revenue to be in the range of $194 million to $195 million, representing 12% growth year-over-year at the midpoint. Within this, we expect subscription revenue to be in the range of $177.5 million to $178.5 million, representing 13% growth year-over-year at the midpoint.
This implies a professional services revenue of $16.5 million for the quarter. We expect non-GAAP operating income to be in the range of $19.5 million to $20.5 million and non-GAAP net income per diluted share of approximately $0.07, assuming 289 million weighted average shares outstanding. We are now guiding on a diluted share basis, given our expectation to remain profitable for the full year FY 2025. The change from basic to diluted shares represents about half of a penny in Q1 EPS calculations. Note that the sequential decrease in Q1 non-GAAP operating income is typical for us, as we have larger expenses at the start of the year for sales kickoff, marketing campaigns and selective hiring. For the full year FY 2025, we expect subscription revenue to be in the range of $740.5 million to $741.5 million, representing 11% growth year-over-year at the midpoint.
We expect total revenue to be in the range of $804.5 million to $805.5 million, representing 10% growth year-over-year at the midpoint. For modeling purposes, assume the quarterly revenue distribution follows the same trend as FY 2024. These guidance ranges imply a FY 2025 professional services revenue of $64 million, flat with the numbers that we posted for FY24. As we grow our partner ecosystem and work closely with implementation partners, we expect growth in our professional services to remain range bound. In addition, as we have stated in the past, we will continue to invest in vertical CCaaS delivery capabilities, and as such, we estimate our professional services gross margin to be largely breakeven throughout the course of FY 2025. I would now like to touch on the billings topic for FY 2025.
We have been working diligently to improve billings duration for new deals such that we no longer estimate billings growth to lag revenue, lag subscription revenue growth. For FY 2025, we estimate billings to grow in line with subscription revenue. Given this new dynamic, we estimate total billings for FY 2025 of approximately $868 million and $193 million for Q1. For modeling purposes, this total billings number can be spread across the arc of the four quarters, largely following the same trend as FY 2024. For full year FY 2025, for non-GAAP operating income, we are forecasting a 13% non-GAAP operating margin, similar to what we posted for full year FY 2024. This equates to a range of $104 million to $105 million or a non-GAAP net income per diluted share of $0.38 to $0.39 assuming $291 million weighted average shares outstanding.
The change from basic to diluted shares represents about $0.02 per share in the full year FY 2025 EPS calculation. Note that we expect subscription gross margins to come down by approximately 2-percentage points in FY 2025 driven by one-time set-up costs associated with new cloud environments to serve new CCaaS customers. These costs are baked into the 13% non-GAAP operating margin highlighted earlier. In deriving the net income per share for modeling purposes, we estimate $20 million in other income for the full year with $5 million of that to be earned here in Q1. This other income line primarily consists of interest income. Furthermore, a $14 million 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 $3.5 million here in Q1. Regarding free cash flow, we believe we can achieve a 10% free cash flow margin in FY 2025, which would equate to a free cash flow metric of $80 million for the full year. This will be a 300 basis point improvement over FY 2024. We will not be updating our free cash flow guidance quarterly, but will provide an update as needed throughout the year. And for the second consecutive year, we expect to be net income positive for the full year on a GAAP basis. We are also reiterating our long-term financial targets for FY 2027 as highlighted during our Investor Day in July 2023. Before we open it up for questions, I would also like to thank all our employees for their dedication. 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. And with that, let's open it up for questions. Operator?
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