Sprinklr, Inc. — Q3 FY2024 Form 10-Q
Reporting period: Three and nine months ended October 31, 2023. Sprinklr provides enterprise cloud software for customer experience management (Unified-CXM). Financial statements are unaudited.
Key financial results
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Revenue | $186.3 million | $157.3 million | $538.2 million | $452.9 million |
| Subscription revenue | $170.5 million | $139.9 million | $491.6 million | $400.3 million |
| Professional services revenue | $15.9 million | $17.3 million | $46.6 million | $52.6 million |
| Gross profit / margin | $139.9 million / 75% | $116.7 million / 74% | $406.3 million / 75% | $328.5 million / 73% |
| Operating income (loss) | $13.2 million | $(4.6) million | $15.5 million | $(49.4) million |
| Net income (loss) | $17.0 million | $(5.9) million | $30.3 million | $(55.1) million |
| Diluted EPS | $0.06 | $(0.02) | $0.11 | $(0.21) |
| Operating cash flow | — | — | $54.2 million | $4.6 million |
| Free cash flow (non-GAAP) | — | — | $38.9 million | $(6.1) million |
- Q3 revenue grew 18% year over year; subscription revenue grew 22%, while professional services revenue declined 9%. For the nine-month period, revenue rose 19%, with subscription revenue up 23% and professional services down 11%.
- Subscription gross margin was 82% in Q3 and 83% for nine months, compared with 81% in each prior-year period. Professional services gross margin fell to negative 4% in Q3 and 0% for nine months, versus 18% and 9%, respectively, as the company invested in Sprinklr Service and its CCaaS offering.
- Other income was $6.3 million in Q3 and $18.3 million for nine months, largely reflecting higher interest income on cash and investments. The company attributed its shift to nine-month net income to subscription growth and billings, investment income, and non-cash charges. Stock-based compensation, net of capitalized amounts, was $42.1 million for nine months.
- At October 31, cash and cash equivalents were $172.5 million and marketable securities were $484.0 million. Management said these resources and operating cash were expected to cover working capital, capital expenditures, and financing needs for at least 12 months and over the long term. No funded debt balance is presented; Sprinklr terminated its SVB credit facility in April 2023.
- Current assets were $887.3 million and current liabilities were $398.6 million. Current deferred revenue was $297.1 million, down from $324.1 million at January 31, 2023. Nine-month cash flow included $96.3 million used in investing, primarily net purchases of marketable securities, and $36.3 million provided by financing, mainly stock-option exercises and ESPP purchases.
Material changes and business indicators
- Remaining performance obligations (RPO) were $774.5 million, up from $576.7 million a year earlier; $491.4 million was expected to be recognized over the next 12 months, compared with $412.7 million. The filing notes the prior-year figures were corrected for an immaterial number of contracts.
- Trailing 12-month net dollar expansion rate declined to 117.7% from 124.5%. Sprinklr reported 123 large customers, up from 107; it defines large customers as those with at least $1 million in trailing 12-month subscription revenue.
- Sales and marketing expense declined 5% in Q3 and 3% for nine months, with lower personnel costs associated with reduced headcount. R&D rose 21% in both periods; G&A rose 24% in Q3 and 15% for nine months, including higher bad-debt expense largely related to one customer.
- Accounts receivable was $153.7 million, down from $205.0 million at January 31, 2023; management cited increased collections as a major operating cash-flow source.
Outlook, risks, and unusual items
- The filing provides no specific quarterly or annual revenue or earnings guidance. Management expects gross margin may vary and increase modestly over the long term, and expects continued investment in R&D, sales and marketing, and the platform.
- Management identified macroeconomic uncertainty, customer spending and renewal trends, competition, and reliance on third-party cloud infrastructure and data providers as business risks. The company also highlighted evolving AI, privacy, data-security, and cybersecurity risks.
- Disclosure controls were deemed ineffective as of October 31, 2023 because of a material weakness in controls over commission calculations and recording. Remediation is underway, but management had not yet concluded that the weakness was remediated.
- In February 2023, Sprinklr approved a workforce restructuring of approximately 4%; it recorded $4.4 million of restructuring costs for the nine months, with $0.3 million remaining accrued at period-end.
- Sprinklr signed a 10-year New York headquarters lease in August 2023. It had not commenced by October 31; annual payments are expected to be approximately $2.6 million once commenced. Existing operating lease liabilities totaled $29.7 million.
- Management reported no provision for existing litigation and did not expect resolution of current matters to materially affect results, cash flows, or financial position, while noting an unfavorable ruling could materially affect a particular period. Approximately $6.7 million of restricted cash was associated with letters of credit and collateral.
Important facts for investors to verify
- Whether subscription growth and RPO translate into recognized revenue, and whether the lower net dollar expansion rate signals weaker customer expansion or retention.
- Whether professional services margins recover as the CCaaS business scales, and whether cloud, data, and hosting costs continue to rise.
- How much reported profitability and cash generation depend on interest income, working-capital timing, and stock-based compensation.
- Progress and testing of the commission-control remediation, given the material weakness and ineffective disclosure controls.
- Potential credit exposure to the customer associated with higher bad-debt expense, and the status of the X data agreement that expires February 28, 2025.
- Future lease and contractual cash requirements, including the new headquarters lease and disclosed data and service-provider purchase commitments.