Business context and reporting period
Sprinklr, Inc. provides enterprise cloud software for customer experience management (Unified-CXM), with revenue primarily from subscriptions and related professional services. This unaudited Form 10-Q covers the three months ended April 30, 2022, the first quarter of fiscal 2023; comparisons are with the three months ended April 30, 2021 unless noted.
Key financial metrics
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Subscription revenue | $127.3 million | $96.8 million |
| Professional services revenue | $17.7 million | $14.2 million |
| Total revenue | $145.0 million | $111.0 million |
| Gross profit / gross margin | $103.3 million / 71% | $79.3 million / 71% |
| Operating loss | $(23.1) million | $(10.5) million |
| Net loss | $(25.3) million | $(14.5) million |
| Net loss per share, basic and diluted | $(0.10) | $(0.15) |
| Cash used in operating activities | $(2.9) million | $(10.4) million |
| Free cash flow, non-GAAP | $(5.8) million | $(12.6) million |
At April 30, 2022, cash and cash equivalents were $131.8 million and marketable securities were $399.0 million, totaling $530.9 million. Total assets were $900.2 million, total liabilities $393.8 million, and stockholders’ equity $506.4 million. The company reported no borrowings under its $50.0 million revolving credit facility. Accumulated deficit was $466.9 million.
Material changes versus prior comparable period
- Revenue grew 31%; subscriptions rose 32% and professional services rose 24%. Management attributed subscription growth to new customers and expansion of existing customer subscriptions.
- Gross margin was broadly stable at 71%. Subscription gross margin improved to 80% from 78%, while professional services gross margin declined to 6% from 25%, reflecting personnel and subcontractor investments made ahead of expected growth.
- Operating expenses rose 41% to $126.4 million. Sales and marketing increased 44% to $86.9 million, primarily from higher personnel costs, commissions, travel, recruiting, and marketing. Operating loss more than doubled.
- Net loss widened despite positive other income of $0.3 million, compared with other expense of $2.2 million a year earlier; the prior-year period included greater foreign currency transaction losses.
- Operating cash use improved year over year, supported by customer collections and working-capital movements. Investing cash outflow was $192.1 million, mainly reflecting $192.6 million of marketable-security purchases. The company reported adjusted free cash flow of $6.2 million after adding back the $12.0 million litigation settlement payment; this is a non-GAAP measure.
- Business indicators strengthened: trailing-12-month net dollar expansion rate was 123% versus 114%, and large customers numbered 90 versus 69. Remaining performance obligations were $585.8 million; $412.5 million was expected to be recognized in the next 12 months.
Outlook, risks, contingencies and unusual items
- The filing gives no specific revenue or earnings guidance. Management expects continued investment in research and development, sales and marketing, and customer capacity; it expects professional-services margin to fluctuate and improve modestly over the long term. Management stated that available cash, securities, and operating cash flows should cover needs for at least the next 12 months.
- The $50.0 million SVB revolving facility was scheduled to expire June 21, 2022, shortly after quarter-end; it had no amount outstanding at April 30 and included financial covenants. The filing does not establish the facility’s status after the stated expiry date.
- Contractual commitments included $156.3 million of minimum purchases from data and service providers through fiscal 2026 and $18.5 million of future minimum operating lease payments through fiscal 2027.
- A material weakness in internal controls over accounting for capitalized customer-contract acquisition costs remained unremediated as of April 30. New controls had been designed and implemented but had not operated long enough to demonstrate remediation; management concluded disclosure controls were not effective at a reasonable assurance level.
- Prior-period financial statements were revised for immaterial corrections to capitalized customer-contract costs. The company also prospectively changed the estimated amortization period for these costs from three to five years; the quarter’s impact was described as immaterial.
- The company settled the Opal Labs litigation for $12.0 million, accrued at January 31, 2022 and paid March 30, 2022; all claims were dismissed with prejudice. Management said resolution of current legal matters was not expected to materially affect results, cash flows, or financial position, while noting an unfavorable ruling could materially affect a period.
- Other stated risks include continued losses and uncertain profitability, customer renewals and expansion, competition, cybersecurity and third-party cloud-provider dependence, data privacy regulation, economic and geopolitical uncertainty, and foreign-exchange exposure. COVID-19 effects remained uncertain.
- Class B shares carried ten votes per share versus one vote for Class A; Class B holders controlled approximately 93% of voting power as of April 30, 2022. Stock-based compensation expense was $12.5 million for the quarter.
Investor verification priorities
- Track subscription growth, renewal and expansion metrics, RPO conversion, and whether the 123% net dollar expansion rate is sustained.
- Assess operating-expense growth against revenue growth, especially sales and marketing, and monitor progress toward profitability and sustainable free cash flow.
- Verify remediation and testing of the material weakness, and review future disclosures for any additional accounting corrections.
- Confirm the post-expiry status and terms of the SVB facility, and evaluate provider purchase commitments alongside liquidity and cash needs.
- Review professional-services margin trends, cloud-hosting costs, customer concentration, litigation developments, and data-security and privacy exposures.