Sprinklr, Inc. — Q2 FY2024 Form 10-Q
Business context and period: Sprinklr provides cloud software for unified customer experience management. This unaudited filing covers the quarter and six months ended July 31, 2023; the company’s fiscal year ends January 31.
Financial performance
| Metric | Three months ended July 31 | Six months ended July 31 |
|---|---|---|
| Revenue | $178.5 million, up 18% year over year | $351.8 million, up 19% |
| Subscription revenue | $163.5 million, up 23% | $321.1 million, up 23% |
| Professional services revenue | $15.0 million, down 14% | $30.7 million, down 13% |
| Gross margin | 76%, versus 72% | 76%, versus 72% |
| Operating income (loss) | $5.5 million, versus $(21.7) million | $2.3 million, versus $(44.8) million |
| Net income (loss) | $10.5 million, versus $(23.9) million | $13.3 million, versus $(49.2) million |
| Operating cash flow | $33.1 million for the six months, versus $3.0 million | |
| Free cash flow (non-GAAP) | $23.0 million for the six months, versus $(4.4) million |
Subscription gross margin was 83% in both periods, up from 81%. Professional services gross margin was negative 4% for the quarter and 2% for the half-year, compared with 5% in each prior-year period. GAAP diluted EPS was $0.04 for the quarter and $0.05 for the half-year; the comparable prior-year periods had losses of $0.09 and $0.19 per share.
Financial position and material changes
- At July 31, cash and cash equivalents were $147.7 million and marketable securities were $480.7 million, totaling $628.4 million in those two categories. Total assets were $1.07 billion; total liabilities were $455.4 million.
- No borrowings are reported on the balance sheet. Sprinklr terminated its Silicon Valley Bank credit facility in April 2023 and collateralized letters of credit with restricted cash. It also reported approximately $3.7 million outstanding under cash collateral agreements with J.P. Morgan.
- Compared with January 31, cash and cash equivalents decreased by $40.7 million, marketable securities increased by $90.5 million, and stockholders’ equity rose by $68.0 million.
- RPO was $806.4 million, including $510.4 million expected to be recognized over the next 12 months. Large customers numbered 120, compared with 98 a year earlier. Trailing 12-month net dollar expansion rate declined to 120.0% from 124.6%.
Outlook, commentary and notable risks
- Management said existing cash, marketable securities and operating cash flow should fund working capital, capital expenditures and financing needs for at least the next 12 months and over the long term. The filing provides no specific revenue or earnings guidance.
- Management attributed subscription growth to expansion within existing accounts and new-customer demand. Sales and marketing expense declined, while research and development expense increased as product investment continued. Professional services margin was pressured by investment in Sprinklr Service and CCaaS.
- Other income included higher interest income from cash and short-term investments. The six-month tax provision benefited from a $3.3 million release of valuation allowances in certain foreign subsidiaries. The company also incurred $4.4 million of restructuring costs in the first half, following a plan to reduce its global workforce by approximately 4%.
- Sprinklr identified a material weakness in controls over commission calculations and related data inputs. Disclosure controls were deemed ineffective as of July 31, 2023; remediation was in progress but had not yet been validated as effective.
- Key disclosed risks include macroeconomic uncertainty and customer spending, competition and renewals, dependence on third-party cloud infrastructure and data providers, privacy and cybersecurity obligations, and risks related to AI features. The company’s agreement with X (formerly Twitter), a source of platform data, expires February 28, 2025.
- After quarter-end, Sprinklr signed a 10-year lease for a new New York headquarters, with annual payments of approximately $2.6 million once the lease commences; possession is not expected until fiscal 2025. The company also disclosed pending legal matters but had no litigation liability provision at July 31, 2023, and said current matters were not expected to materially affect its financial position or results.
Important facts for investors to verify
- Whether operating profitability and positive free cash flow persist, particularly after adjusting for stock-based compensation and interest income.
- Whether the lower net dollar expansion rate signals a sustained slowdown in existing-customer growth or renewals.
- Progress and independent validation of remediation of the commission-control material weakness.
- Subscription growth, professional services economics, and the costs and results of CCaaS and product investments.
- Exposure to third-party data access, including renewal terms for the X agreement, and to cloud-service, privacy, cybersecurity and AI-related risks.
- Future cash requirements, including data and service-provider purchase commitments and the new headquarters lease.