Sprinklr, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended October 31, 2021 (fiscal Q3 and first nine months of fiscal 2022). Sprinklr provides cloud-based Unified Customer Experience Management software and related professional services. Results are unaudited.
Key financial metrics
| Metric | Three months ended Oct. 31, 2021 | Year-over-year change | Nine months ended Oct. 31, 2021 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $127.1 million | +32% | $356.7 million | +26% |
| Subscription revenue | $109.9 million | +29% | $310.0 million | +24% |
| Professional services revenue | $17.1 million | +52% | $46.7 million | +40% |
| Gross profit / gross margin | $88.4 million / 69.5% | Margin up from 68.6% | $249.0 million / 69.8% | Margin up from 68.5% |
| Operating loss | $26.3 million | Compared with $15.3 million loss | $66.3 million | Compared with $18.3 million loss |
| Net loss | $29.2 million | Compared with $19.0 million loss | $77.2 million | Compared with $27.2 million loss |
| Operating cash flow | $(1.1) million | Compared with $(7.7) million | $(17.9) million | Compared with $15.8 million provided |
| Free cash flow | $(4.1) million | Compared with $(9.1) million | $(27.3) million | Compared with $11.2 million provided |
- At October 31, cash and cash equivalents were $522.4 million and marketable securities were $19.1 million. Current assets were $741.9 million versus current liabilities of $311.2 million.
- No long-term debt was outstanding. The company had no borrowings under its $50 million revolving credit facility, which expires June 21, 2022.
- Deferred revenue was $233.8 million in total. Remaining performance obligations were $459.4 million, of which approximately $329.6 million was expected to be recognized over the next 12 months.
- Net dollar expansion rate was 117%, unchanged from the comparable prior-year period. Customers totaled 1,093, up from 966; large customers (at least $1 million in trailing-12-month subscription revenue) totaled 80, up from 62.
Material changes and drivers
- Revenue growth reflected new customer demand and increased purchases of existing products and additional platform solutions by current customers. Professional services growth reflected more enablement and managed services work.
- Operating expenses rose faster than revenue: sales and marketing increased 68% in the quarter and 51% year to date; research and development increased 60% and 67%, respectively. Management attributed the increases mainly to hiring and growth investments. Quarterly general and administrative expense declined 15%, largely because prior-year stock-based compensation was higher; year-to-date expense increased 31%, including higher legal and public-company costs.
- Subscription gross margin improved to 79% for both the quarter and year-to-date period. Professional services gross margin was 7% for the quarter and 11% year to date; management noted that services capacity is sometimes added ahead of revenue and margins may fluctuate.
- Year-to-date cash from operations declined to an outflow, while reported cash increased substantially due primarily to the June 2021 IPO, which generated $276.0 million of net proceeds. The IPO also converted preferred stock and $80.4 million of principal and paid-in-kind note balance into common shares; no debt remained at period-end.
- Stock-based compensation expense, net of capitalized amounts, was $12.4 million in the quarter and $38.0 million year to date. Management states that this expense is a significant factor in results and may vary with award timing and vesting.
Outlook, risks and unusual items
- The filing provides no specific revenue, earnings or margin guidance. Management said existing cash, marketable securities and expected operating cash flows should meet working-capital, capital expenditure and financing needs for at least 12 months. It expects continued investment in research and development and sales and marketing, and anticipates modest long-term gross-margin improvement; free cash flow is expected to fluctuate.
- Management cited subscription renewals and expansion, customer acquisition costs, competition, rapid growth, cybersecurity and data privacy, third-party cloud and data-provider dependencies, international operations, and COVID-19 effects as important risks. It noted that the pandemic’s effects remain uncertain and could affect demand, renewals, sales cycles, hiring and operations.
- In the Opal Labs litigation, a November 2, 2021 advisory jury verdict found certain trade-secret and contract claims proven, hung on some questions, and did not award economic or punitive damages. Further proceedings may include another trial or additional findings by the judge. Sprinklr said it could not predict the outcome or estimate a possible loss range.
- A September 2021 acquisition of certain assets was accounted for as a business combination and was described as not material to the financial statements. The company recorded $1.3 million in reserves for unrecognized tax benefits during the nine-month period.
- Class B shares carry ten votes per share versus one vote for Class A; holders of Class B controlled approximately 97.3% of voting power as of October 31, 2021. The company also disclosed that it had experienced non-material cybersecurity attacks or incidents in the past.
Important facts for investors to verify
- Whether subscription growth, the 117% net dollar expansion rate and large-customer growth continue, and how renewals and customer concentration develop.
- Whether expense growth and stock-based compensation translate into improving operating leverage, and whether cash flow recovers from the year-to-date outflow.
- Developments and any financial exposure in the Opal Labs case, which remained unresolved and not estimable in the filing.
- The effect of continued investment in sales, marketing, research and infrastructure on margins and free cash flow.
- Reliance on third-party cloud infrastructure and data partners, and the potential effects of cybersecurity, privacy regulation and COVID-19-related disruption.