Sprinklr, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended July 31, 2021. The company provides cloud-based Unified Customer Experience Management software and related professional services. This was its first quarter as a public company following its June 2021 IPO.
Financial performance
| Metric | Three months ended July 31, 2021 | Three months ended July 31, 2020 | Six months ended July 31, 2021 | Six months ended July 31, 2020 |
|---|---|---|---|---|
| Revenue | $118.7 million | $93.5 million | $229.7 million | $186.5 million |
| Subscription revenue | $103.3 million | $82.8 million | $200.1 million | $164.5 million |
| Professional services revenue | $15.4 million | $10.7 million | $29.6 million | $22.0 million |
| Gross profit / gross margin | $81.4 million / 68.5% | $66.2 million / 70.8% | $160.6 million / 69.9% | $127.7 million / 68.5% |
| Operating loss | $29.3 million | Operating income $4.9 million | $40.0 million | $3.0 million |
| Net loss | $33.2 million | Net income $3.0 million | $47.9 million | $8.2 million |
| Operating cash flow | Cash used: $6.5 million | Cash used: $4.1 million | Cash used: $16.9 million | Cash provided: $23.4 million |
| Free cash flow | Cash used: $10.6 million | Cash used: $5.8 million | Cash used: $23.2 million | Cash provided: $20.3 million |
Quarterly revenue increased 27% year over year; subscription revenue rose 25% and professional services revenue rose 44%. For the six-month period, revenue increased 23%. Subscription gross margin was 78% in both six-month periods, but declined to 78% from 80% in the quarter. Professional services gross margin improved to 3% from negative 3% in the quarter, and to 13% from negative 2% for the six-month period.
Operating expenses rose substantially: quarterly sales and marketing increased 66%, research and development 85%, and general and administrative 132%. Management attributed increases chiefly to hiring and growth investment; G&A also included IPO-related public-company costs and increased stock compensation. Total stock-based compensation expense was $16.9 million for the quarter and $25.8 million for the six months. The quarterly GAAP net loss included $5.8 million of cumulative compensation expense related to the CEO’s IPO-triggered option vesting.
Financial position, liquidity and capital structure
- At July 31, 2021, cash and cash equivalents were $434.0 million and marketable securities were $114.8 million, versus $68.0 million and $212.7 million, respectively, at January 31, 2021. Current assets were $747.9 million and current liabilities $301.6 million.
- No long-term debt was outstanding at July 31. The $75 million principal convertible notes, plus accrued paid-in-kind interest, converted into 9.7 million Class B shares upon the IPO. A $50 million revolving facility remained available, with no balance outstanding; it expires June 2022 and includes financial covenants.
- The IPO and overallotment generated $276.0 million in net proceeds. The company reported that none of the IPO proceeds had been used as of July 31, 2021.
- Six-month investing cash flow was $90.4 million provided, primarily reflecting maturities and sales of marketable securities. Financing cash flow was $292.7 million provided, primarily from the IPO and stock-option exercises.
- Management stated that cash, cash equivalents, marketable securities and cash from operations should be sufficient for working capital, capital expenditures and financing needs for at least the next 12 months.
Business trends, outlook and risks
- As of July 31, 2021, Sprinklr reported 1,062 customers, up from 950 a year earlier, including 74 customers with at least $1 million of trailing-12-month subscription revenue, versus 60. More than half of the Fortune 100 were customers.
- Trailing-12-month net dollar expansion was 114%, down from 118% for the comparable prior-year period. Remaining performance obligations were $457.4 million, of which approximately $332.1 million was expected to be recognized within 12 months.
- No quantified forward revenue, earnings or cash-flow guidance was provided. Management expects continued investment in R&D and sales and marketing, and expects gross margin to vary by period but increase modestly over the long term. It expects free cash flow to fluctuate with investment and operating expenses.
- Management cited demand from new customers and expansion within existing customers as revenue drivers. Increased hosting and data costs weighed on quarterly subscription gross margin. The company also cautioned that COVID-19 may affect customer demand, renewals, sales cycles, collections, hiring and operations; impacts remain uncertain.
- Key risks include sustained losses and negative free cash flow, competition and execution risks in a developing market, customer retention and expansion, dependence on third-party cloud infrastructure and data providers, cybersecurity and privacy regulation, and international and foreign-currency exposure.
- An Oregon trade-secrets and contract lawsuit brought by Opal seeks damages it claims exceed $50 million. Sprinklr disputes the allegations; the company said it could not predict the outcome or estimate a possible loss range. Management did not expect current matters overall to materially adversely affect results, cash flows or financial position.
- After quarter-end, on September 3, 2021, Sprinklr agreed to acquire certain Voicezen India intellectual property and trademarks for $3.7 million.
- The dual-class structure gives Class B shares ten votes per share versus one vote for Class A. As of July 31, Class B holders controlled approximately 99.3% of voting power, concentrating control and limiting public shareholders’ influence.
Important facts for investors to verify
- Whether customer growth and subscription expansion can sustain revenue growth, particularly given net dollar expansion’s decline to 114%.
- Whether infrastructure costs and operating-expense growth can be managed as the company invests for growth, and whether losses and negative free cash flow narrow.
- The scale and timing of stock-based compensation and potential dilution from options, performance awards, RSUs and equity-plan share authorizations.
- Developments in the Opal litigation, including any change in the currently unestimable potential loss.
- Liquidity and covenant terms of the revolving facility, and the timing and use of IPO proceeds and the Voicezen acquisition payment.
- Exposure to third-party hosting and data-provider disruptions, cybersecurity and privacy compliance, COVID-19 effects, and the governance implications of concentrated Class B voting control.