Sprinklr, Inc. (CXM) Earnings

Management highlights

- Transformation Progress * The company is in the second phase (Transition and Execution) of its multi-year transformation, which will continue through FY27, leading to the third phase (Acceleration) heading into FY28. * Achieved the highest renewal rates since FY24, reflecting improved go-to-market execution and customer engagement; a majority of renewal dollars are now multi-year deals, increasing average contract length. * Subscription net dollar expansion rate was 104% in Q1, marking the second consecutive quarter of steady improvement; the $1 million+ customer cohort posted a 115% net dollar expansion rate. * The Bear Hug initiative focused on deepening engagement with large enterprise customers has delivered double-digit renewal rate improvements for all cohorts above $250k; the new Cornerstone initiative is now addressing accounts below $250k. - Product and AI Innovation * Closed the largest software deal in Sprinklr's history: a multi-year platform agreement with a leading global consumer electronics company, pushing total Remaining Performance Obligation (RPO) past $1 billion to a record $1.04 billion, up 10% year-over-year and 5% quarter-over-quarter. Current RPO also hit a record $627.1 million, up 5% year-over-year. * The AI-native unified platform is gaining traction across customer-facing use cases: AI agents have achieved up to 90% containment rate for large customers, with deployed co-pilots delivering an average 55% reduction in handling times, and AI-led pre-sales automation delivering 4x higher conversion rates. * An upcoming summer general availability release will add LLM insights for brand tracking across generative AI platforms like ChatGPT, Gemini, and Perplexity, with actionable workflows built directly into the platform. * Acquired the team and assets of Viral Moment, an AI-native video analytics company, to strengthen short-form video analytics capabilities on the platform, paid for with existing cash on hand. - Financial and Operational Highlights * Non-GAAP operating income was $31.7 million (14% margin), with non-GAAP net income of $0.11 per diluted share. * Generated $65.8 million in free cash flow, representing a 30% free cash flow margin, driven by cost discipline and record quarterly cash collections. * Maintains a strong debt-free balance sheet with $442.8 million in cash, cash equivalents, and marketable securities; repurchased 17.1 million shares under the accelerated share repurchase program, with $75 million remaining on the $200 million authorized repurchase program as of May 29.

Guidance

- Q2 FY27 Guidance: * Total revenue expected to be $214 million to $215 million, representing 1% year-over-year growth at the midpoint. * Subscription revenue expected to be $193.5 million to $194.5 million, representing 3% year-over-year growth at the midpoint. * Non-GAAP operating income expected to be $29.5 million to $30.5 million, with non-GAAP net income per diluted share of ~10 cents. * Professional services revenue is expected to be $20.5 million (down 13% year-over-year) with a -10% gross margin, as large legacy projects are completed and the business normalizes. - Full Year FY27 Guidance (updated from prior guidance): * Raised subscription revenue guidance to a range of $779.5 million to $781.5 million, representing 3% year-over-year growth at the midpoint. * Total revenue guidance is set at $866.5 million to $868.5 million, representing 1% year-over-year growth at the midpoint; professional services revenue is expected to normalize to ~10% of total revenue, in line with the 3-year average. * Non-GAAP operating income is expected to be $139 million to $141 million, representing a 16% non-GAAP operating margin, with non-GAAP net income per diluted share between 48 cents and 49 cents. The guidance includes incremental AI investment and the impact of the Viral Moment acquisition. * Full year free cash flow is expected to be $150 million. * Management expects sequential quarterly subscription revenue growth to resume in Q3 FY27, with non-GAAP operating income improving gradually in the second half of the year as efficiency gains are realized.

Segment performance

The company reports two primary revenue segments: 1) Subscription revenue: $194.8 million, up 6% year-over-year, representing 88.7% of total Q1 FY27 revenue. Non-GAAP subscription gross margin was 74%. ARR for AI-native subscription SKUs grew 47% year-over-year, with 180 active AI customer engagements ongoing. 2) Professional Services revenue: $24.7 million, up from expectations, representing 11.3% of total Q1 FY27 revenue. Non-GAAP professional services gross margin was break-even in Q1. Total company Q1 FY27 revenue was $219.5 million, up 7% year-over-year.

Risks & headwinds

- Geopolitical instability in the Middle East created revenue pressure in Q1, with $3-$4 million in deals slipping to future quarters; while the pipeline remains healthy and the security environment has improved, ongoing uncertainty means the situation has not fully resolved. * Growing adoption of AI products has driven higher cloud and data hosting costs, which pressures near-term margins as the company invests to capture long-term AI growth opportunities. The multi-year transformation requires continued execution to deliver the planned acceleration phase, and any delays or underperformance could impact the timeline and revenue growth outlook. Macro economic uncertainty can lead to delayed deal closures across markets, similar to the delays seen in the Middle East this quarter.

Analyst Q&A

• Q: Can you provide more detail on the impact of the Middle East geopolitical situation on Sprinklr's business? What is the update on the Central Europe/UK business?

  A: 3-4 million dollars in expected Q1 deals slipped to future quarters due to the conflict. Sprinklr had to quickly move 54 customers from a damaged local cloud infrastructure to Ireland, and the regional team performed well to maintain customer relationships. The pipeline in the region remains healthy, with several large deals expected over the next 2-3 quarters, though uncertainty remains. Central Europe and the UK have been strong performing regions, with solid uptake in cloud contact center and end-to-end platform solutions. Management reports significant progress improving previously challenged accounts, with strong AI engagement growth, and a robust pipeline of upcoming opportunities in the region's telco and gaming sectors.

• Q: What underpins management confidence that sequential subscription revenue growth will resume in Q3, and what are the key risks to this outlook?

  A: Confidence is based on two key trends: two consecutive quarters of improving net dollar expansion and renewal rates, and record growth in total and current RPO pointing to sustained future revenue. The Bear Hug customer success initiative has delivered double-digit renewal rate improvements for all customer cohorts above $250k, and the new Cornerstone initiative for smaller accounts below $250k is already showing positive early indicators. The business now has a stronger, more predictable foundation to support the transition to the acceleration phase of the transformation, assuming continued execution over the next 2-3 quarters.

• Q: Why is Sprinklr discontinuing disclosure of the $1 million customer cohort metric, given the Bear Hug initiative's focus on large customers? Is this because of poor performance among these accounts?

  A: The change reflects an internal shift to a pod-based go-to-market structure that changed how accounts are owned and measured, and the metric is no longer tied to internal sales incentives or the company's AI growth strategy. This change does not reflect reduced focus on large customers: the $1 million+ cohort posted a strong 115% net dollar expansion rate in Q1, and Bear Hug continues to prioritize expanding share of wallet with these accounts. Management instead directs investors to overall net dollar expansion, total RPO, and company-wide renewal rates as more relevant metrics for the current transformed business model.

• Q: How is Sprinklr approaching AI initiatives both internally and product-wise, and what is the strategic priority?

  A: Internally, all Sprinklr employees are being trained to leverage AI for improved operational efficiency across all roles, including contract creation, support, and software engineering development and testing. Product-wise, Sprinklr's platform was built with AI at its core, and the current focus is on accelerating the 180 ongoing enterprise AI customer engagements. The company is doubling down on leveraging its unique unified contextual customer data to deliver differentiated AI insights and actions across the entire customer experience, which it sees as a multi-decade generational growth opportunity. Priority remains on finishing the multi-year transformation and paying down legacy technical debt to support this AI lead.