0001569345FALSE2025Q11/31196183350Manish Sarin,Chief Financial Officer221,877Arunkumar Pattabhiraman,Chief Marketing Officer171,035Diane K. Adams,Chief Culture and Talent 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 2024
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-40528
Sprinklr, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or other Jurisdiction of
Incorporation or organization)
441 9th Avenue, 12th Floor
New York, NY
(Address of principal executive offices)
45-4771485
(IRS Employer
Identification No.)
10001
(Zip Code)
Registrant’s telephone number, including area code: (917) 933-7800
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Class A common stock, par value $0.00003 per share | | CXM | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
Emerging growth company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 31, 2024, the registrant had 148,652,353 shares of Class A common stock and 116,574,592 shares of Class B common stock, each with a par value of $0.00003 per share, outstanding.
TABLE OF CONTENTS | | | | | | | | |
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PART I. | FINANCIAL INFORMATION | |
Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
PART II. | OTHER INFORMATION | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 5. | | |
Item 6. | | |
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WHERE YOU CAN FIND MORE INFORMATION
Investors and others should note that we announce material financial information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. We also use Sprinklr’s blog and the following social media channels as a means of disclosing information about the Company, our products, our planned financials and other announcements and attendance at upcoming investor and industry conferences, and other matters. This is in compliance with our disclosure obligations under Regulation FD:
•Sprinklr Company Blog (http://sprinklr.com/blog)
•Sprinklr LinkedIn Page (http://www.linkedin.com/company/sprinklr)
•Sprinklr X (formerly known as Twitter) Account (https:/x.com/sprinklr)
•Sprinklr Facebook Page (https://www.facebook.com/sprinklr/)
•Sprinklr Instagram Page (https://www.instagram.com/sprinklr)
In addition, investors and others can view Sprinklr videos on YouTube (https://www.YouTube.com/c/sprinklr).
Information posted through these social media channels may be deemed material. Accordingly, in addition to reviewing our press releases, SEC filings, public conference calls and webcasts, investors should monitor Sprinklr’s blog and its other social media channels. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q. The channel list on how to connect with us may be updated from time to time and is available on https://www.sprinklr.com and our investor relations website.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements contained in this Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.
These forward-looking statements include, but are not limited to, statements concerning the following:
•our expectations regarding our revenue, expenses and other operating results;
•our ability to acquire new customers and successfully engage new and existing customers;
•our ability to achieve and maintain our profitability;
•future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;
•the costs and success of our marketing efforts and our ability to promote our brand;
•our growth strategies for our Unified Customer Experience Management (“Unified-CXM”) platform;
•our reliance on key personnel and our ability to identify, recruit and retain skilled personnel;
•our ability to effectively manage our growth, including any international expansion;
•our ability to obtain, maintain, protect, defend or enforce our intellectual property or other proprietary rights and any costs associated therewith;
•the effects of global economic uncertainty, including as a result of increases in inflation rates, higher interest rates, recent bank closures, and the Russia-Ukraine and Israel-Hamas wars (including an escalation or geographical expansion of these conflicts) on our business, financial condition and share price;
•our ability to compete effectively with existing competitors and new market entrants; and
•the growth rates of the markets in which we compete.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Form 10-Q. And, while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.
Unless the context otherwise requires, the terms “Sprinklr,” “the Company,” “we,” “our,” “us” or similar references in this Form 10-Q refer to Sprinklr, Inc. and its subsidiaries.
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
SPRINKLR, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | | | |
| April 30, 2024 | | January 31, 2024 | | |
Assets | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 126,815 | | | $ | 164,024 | | | |
Marketable securities | 483,264 | | | 498,531 | | | |
Accounts receivable, net of allowance of $6.2 million and $5.3 million, respectively | 187,772 | | | 267,731 | | | |
Prepaid expenses and other current assets | 85,969 | | | 70,690 | | | |
Total current assets | 883,820 | | | 1,000,976 | | | |
Property and equipment, net | 32,758 | | | 32,176 | | | |
Goodwill and other intangible assets | 50,086 | | | 50,145 | | | |
Operating lease right-of-use assets | 48,604 | | | 31,058 | | | |
Other non-current assets | 108,840 | | | 108,755 | | | |
Total assets | $ | 1,124,108 | | | $ | 1,223,110 | | | |
| | | | | |
Liabilities and stockholders’ equity | | | | | |
Liabilities | | | | | |
Current liabilities: | | | | | |
Accounts payable | $ | 19,163 | | | $ | 34,691 | | | |
Accrued expenses and other current liabilities | 64,271 | | | 93,187 | | | |
Operating lease liabilities, current | 6,661 | | | 5,730 | | | |
Deferred revenue | 370,229 | | | 374,552 | | | |
Total current liabilities | 460,324 | | | 508,160 | | | |
Deferred revenue, non-current | 710 | | | 506 | | | |
Deferred tax liability, non-current | 1,474 | | | 1,474 | | | |
Operating lease liabilities, non-current | 44,932 | | | 27,562 | | | |
Other liabilities, non-current | 5,737 | | | 5,704 | | | |
Total liabilities | 513,177 | | | 543,406 | | | |
Commitments and contingencies (Note 8) | | | | | |
Stockholders’ equity: | | | | | |
Class A common stock, $0.00003 par value, 2,000,000,000 shares authorized; 151,438,417 and 151,136,870 shares issued and outstanding as of April 30, 2024 and January 31, 2024, respectively | 4 | | | 4 | | | |
Class B common stock, $0.00003 par value, 310,000,000 shares authorized; 116,675,616 and 122,128,581 shares issued and outstanding as of April 30, 2024 and January 31, 2024, respectively | 4 | | | 4 | | | |
Treasury stock, at cost, 14,130,784 and 14,130,784 shares as of April 30, 2024 and January 31, 2024, respectively | (23,831) | | | (23,831) | | | |
Additional paid-in capital | 1,205,948 | | | 1,182,150 | | | |
Accumulated other comprehensive loss | (5,224) | | | (3,836) | | | |
Accumulated deficit | (565,970) | | | (474,787) | | | |
Total stockholders’ equity | 610,931 | | | 679,704 | | | |
Total liabilities and stockholders’ equity | $ | 1,124,108 | | | $ | 1,223,110 | | | |
See accompanying notes to the unaudited condensed consolidated financial statements
SPRINKLR, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
| | | | | | | | | | | | | | | |
| | | Three Months Ended April 30, |
| | | | | 2024 | | 2023 |
Revenue: | | | | | | | |
Subscription | | | | | $ | 177,363 | | $ | 157,665 |
Professional services | | | | | 18,595 | | 15,698 |
Total revenue | | | | | 195,958 | | | 173,363 |
Costs of revenue: | | | | | | | |
Costs of subscription | | | | | 32,570 | | | 27,476 |
Costs of professional services | | | | | 18,555 | | | 14,461 |
Total costs of revenue | | | | | 51,125 | | | 41,937 |
Gross profit | | | | | 144,833 | | | 131,426 |
Operating expense: | | | | | | | |
Research and development | | | | | 22,539 | | | 20,761 |
Sales and marketing | | | | | 87,484 | | | 89,202 |
General and administrative | | | | | 29,101 | | | 24,656 |
| | | | | | | |
Total operating expense | | | | | 139,124 | | | 134,619 | |
Operating income (loss) | | | | | 5,709 | | | (3,193) | |
Other income, net | | | | | 7,500 | | | 4,759 |
Income before provision (benefit) for income taxes | | | | | 13,209 | | | 1,566 | |
Provision (benefit) for income taxes | | | | | 2,575 | | | (1,242) | |
Net income | | | | | $ | 10,634 | | | $ | 2,808 | |
Net income per share, basic | | | | | $ | 0.04 | | | $ | 0.01 | |
Weighted average shares used in computing net income per share, basic | | | | | 271,664 | | 265,584 |
Net income per share, diluted | | | | | $ | 0.04 | | | $ | 0.01 | |
Weighted average shares used in computing net income per share, diluted | | | | | 284,032 | | | 281,344 |
See accompanying notes to the unaudited condensed consolidated financial statements
SPRINKLR, INC.
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | |
| | | Three Months Ended April 30, |
| | | | | 2024 | | 2023 |
Net income | | | | | $ | 10,634 | | | $ | 2,808 | |
Foreign currency translation adjustments | | | | | (594) | | | 195 | |
Unrealized (losses) gains on investments, net of tax | | | | | (794) | | | 95 | |
Total comprehensive income, net of tax | | | | | $ | 9,246 | | | $ | 3,098 | |
See accompanying notes to the unaudited condensed consolidated financial statements
SPRINKLR, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A and Class B Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Stockholders’ Equity |
| Shares | | Amount | | | Shares | | Amount | | | |
Balance at January 31, 2024 | 273,265 | | | $ | 8 | | | $ | 1,182,150 | | | 14,131 | | | $ | (23,831) | | | $ | (3,836) | | | $ | (474,787) | | | $ | 679,704 | |
Stock-based compensation - equity classified awards | — | | | — | | | 14,156 | | | — | | | — | | | — | | | — | | | 14,156 | |
Exercise of stock options and vesting of restricted stock units | 3,189 | | | — | | | 9,642 | | | — | | | — | | | — | | | — | | | 9,642 | |
| | | | | | | | | | | | | | | |
Common stock repurchased and retired, including accrued excise tax | (8,340) | | | — | | | — | | | — | | | — | | | — | | | (101,817) | | | (101,817) | |
| | | | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (1,388) | | | — | | | (1,388) | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | 10,634 | | | 10,634 | |
Balance at April 30, 2024 | 268,114 | | | $ | 8 | | | $ | 1,205,948 | | | 14,131 | | | $ | (23,831) | | | $ | (5,224) | | | $ | (565,970) | | | $ | 610,931 | |
| | | | | | | | | | | | | | | |
Balance at January 31, 2023 | 263,741 | | | $ | 9 | | | $ | 1,074,149 | | | 14,131 | | | $ | (23,831) | | | $ | (4,384) | | | $ | (496,611) | | | $ | 549,332 | |
Stock-based compensation - equity classified awards | — | | | — | | | 13,730 | | | — | | | — | | | — | | | — | | | 13,730 | |
Exercise of stock options and vesting of restricted stock units | 3,790 | | | — | | | 12,692 | | | — | | | — | | | — | | | — | | | 12,692 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 290 | | | — | | | 290 | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | 2,808 | | | 2,808 | |
Balance at April 30, 2023 | 267,531 | | | $ | 9 | | | $ | 1,100,571 | | | 14,131 | | | $ | (23,831) | | | $ | (4,094) | | | $ | (493,803) | | | $ | 578,852 | |
See accompanying notes to the unaudited condensed consolidated financial statements
SPRINKLR, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | | | | | | | | | | |
| Three Months Ended April 30, |
| 2024 | | 2023 |
Cash flow from operating activities: | | | |
Net income | $ | 10,634 | | | $ | 2,808 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization expense | 4,508 | | | 3,519 | |
Bad debt expense | 1,038 | | | 159 | |
Stock-based compensation, net of amounts capitalized | 13,855 | | | 13,310 | |
Non-cash lease expense | 1,949 | | | 907 | |
Deferred income taxes | (339) | | | (3,323) | |
Net amortization/accretion on marketable securities | (4,452) | | | (3,592) | |
Other non-cash items, net | 79 | | | — | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 78,646 | | | 28,138 | |
Prepaid expenses and other current assets | (15,824) | | | 8,379 | |
Other non-current assets | 1,011 | | | (171) | |
Accounts payable | (15,103) | | | (8,199) | |
Operating lease liabilities | (1,557) | | | (884) | |
Accrued expenses and other current liabilities | (29,125) | | | (20,149) | |
Deferred revenue | (3,665) | | | (2,729) | |
Other liabilities | 57 | | | 387 | |
Net cash provided by operating activities | 41,712 | | | 18,560 | |
Cash flow from Investing activities: | | | |
Purchases of marketable securities | (134,172) | | | (102,468) | |
Proceeds from sales and maturities of marketable securities
| 153,097 | | | 78,199 | |
Purchases of property and equipment | (2,545) | | | (1,625) | |
Capitalized internal-use software | (2,977) | | | (2,683) | |
Net cash provided by (used in) investing activities | 13,403 | | | (28,577) | |
Cash flow from financing activities: | | | |
Proceeds from issuance of common stock upon exercise of stock options | 9,642 | | | 12,692 | |
| | | |
Payments for repurchase of Class A common shares | (99,984) | | | — | |
Net cash (used in) provided by financing activities | (90,342) | | | 12,692 | |
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash | (1,231) | | | (196) | |
Net change in cash, cash equivalents and restricted cash | (36,458) | | | 2,479 | |
Cash, cash equivalents and restricted cash at beginning of period | 172,429 | | | 188,387 | |
Cash, cash equivalents and restricted cash at end of period | $ | 135,971 | | | $ | 190,866 | |
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for income taxes, net of refunds | $ | 1,656 | | | $ | 1,225 | |
| | | |
Supplemental disclosure for non-cash investing and financing: | | | |
Right-of-use assets obtained in exchange for operating lease liabilities | $ | 19,676 | | | $ | 781 | |
Accrued purchases of property and equipment | $ | 1,046 | | | $ | 613 | |
Stock-based compensation expense capitalized in internal-use software | $ | 551 | | | $ | 670 | |
| | | |
Accrued for share repurchases, including excise tax | $ | 4,728 | | | $ | — | |
See accompanying notes to the unaudited condensed consolidated financial statements
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1.Organization and Description of Business
Description of Business
Founded in 2009, Sprinklr, Inc. (“Sprinklr” or the “Company”) provides enterprise cloud software products that enable organizations to do marketing, advertising, research, care, sales and engagement across modern channels including social, messaging, chat and text through its Unified Customer Experience Management (“ Unified CXM”) software platform.
The Company was incorporated in Delaware in 2011 and is headquartered in New York, New York, USA with 20 operating subsidiaries globally.
2.Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, (“U.S. GAAP”), and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”), regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the balance sheet as of January 31, 2024, and related disclosures, have been derived from the audited consolidated financial statements at that date but do not include all of the information required by U.S. GAAP for complete consolidated financial statements. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair presentation of the Company’s condensed consolidated financial information. The results of operations for the three months ended April 30, 2024 are not necessarily indicative of the results to be expected for the year ending January 31, 2025 or for any other interim period or for any other future year.
The accompanying interim unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended January 31, 2024 in the Company’s Annual Report on Form 10-K (the “2024 10-K”) filed with the SEC on March 29, 2024.
There have been no material changes in the significant accounting policies as described in the Company’s consolidated financial statements for the fiscal year ended January 31, 2024 included in the 2024 10-K.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include, but are not limited to, revenue recognition, fair value assumptions for stock-based compensation, software costs eligible for capitalization and the allowance on the Company’s accounts receivable. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and on assumptions that it believes are reasonable and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates and assumptions.
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Segments
The Company operates in one operating segment because the Company’s offerings operate on its single Customer Experience Management Platform, the Company’s products are deployed in a similar way, and the Company’s chief operating decision maker (“CODM”), the chief executive officer, evaluates the Company’s financial information and assesses the performance of the Company on a consolidated basis. The CODM does not receive discrete financial information about asset allocation, expense allocation, or profitability by product or geography. Because the Company operates in one operating segment, all required financial segment information can be found in the condensed consolidated financial statements.
Cash, Cash Equivalents and Restricted Cash
The following table reconciles cash, cash equivalents and restricted cash from the condensed consolidated balance sheets to amounts reported in the condensed consolidated statements of cash flows:
| | | | | | | | | | | |
(in thousands) | April 30, 2024 | | January 31, 2024 |
Cash and cash equivalents | $ | 126,815 | | | $ | 164,024 | |
Restricted cash included in prepaid expenses and other current assets(1) | 1,330 | | | 1,494 | |
Restricted cash included in other non-current assets(2) | 7,826 | | | 6,911 | |
Total cash, cash equivalents and restricted cash | $ | 135,971 | | | $ | 172,429 | |
(1)Consists primarily of cash that is restricted and is associated with certain credit card programs.
(2)Consists primarily of collateral for letters of credit issued in lieu of deposits on certain leases and customer contracts, as well as security deposits in lieu of letters of credit for customer contracts.
Accounts Receivable and Allowance
Changes in the allowance account for the periods presented were as follows:
| | | | | | | | | | | | | |
| Three Months Ended April 30, | | |
(in thousands) | 2024 | | 2023 | | |
Allowance, beginning of period | $ | 5,267 | | | $ | 3,156 | | | |
(Write-offs) recovery of uncollectible accounts | (73) | | | 137 | | | |
Provision for (recovery of) expected credit losses | 1,044 | | | (155) | | | |
Allowance, end of period | $ | 6,238 | | | $ | 3,138 | | | |
Concentration of Risk and Significant Customers
The Company’s financial instruments that are potentially subject to credit risk consist primarily of cash and cash equivalents and accounts receivable. Although the Company deposits its cash with multiple financial institutions, its deposits generally exceed federally insured limits.
To manage credit risk related to accounts receivable, the Company maintains an allowance for credit losses. The allowance is determined by applying a loss-rate method based on an aging schedule using the Company’s historical loss rate. The Company also considers reasonable and supportable current and forecasted information in determining its estimated loss rates, such as external forecasts, macroeconomic trends, or other factors, including customers’ credit risk and historical loss experience. The Company’s accounts receivable at April 30, 2024 are derived from invoiced customers located primarily in North America and Asia.
No single customer accounted for more than 10% of total revenue during the three months ended April 30, 2024 and 2023.
In addition, the Company relies upon third-party hosted infrastructure partners globally to serve customers and operate certain aspects of its services, such as environments for development testing, training, sales demonstrations, and production usage. Given this, any disruption of or interference at the Company’s hosted infrastructure partners would impact the Company’s operations and could adversely impact its business.
Recently Issued Accounting Pronouncements Pending Adoption
In November 2023, the FASB issued Accounting Standards Update 2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures (“ASU 2023-07”) requiring an enhanced disclosure of significant segment expenses on an annual and interim basis. ASU 2023-07 is effective for the Company’s annual periods beginning fiscal year 2025 and interim periods beginning in the first quarter of fiscal year 2026 on a retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact ASU 2023-07 will have on its disclosures within its consolidated financial statements.
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
In December 2023, the FASB issued ASU 2023-09, Income Taxes - Improvements to Income Tax Disclosures (“ASU 2023-09”) requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company’s annual periods beginning fiscal year 2026, on a prospective basis and retrospective application is permitted. The Company is currently evaluating the impact ASU 2023-09 will have on its disclosures within its consolidated financial statements.
3. Revenue Recognition
The Company derives its revenues primarily from (i) subscription revenue, which consists of subscription fees from customers accessing the Company’s cloud-based software platform and applications, as well as related customer support services; and (ii) professional services revenue, which consists of fees associated with providing services that educate and assist the Company’s customers with the configuration and optimization of the Company’s software platform and applications. Professional services revenue also includes managed services fees where the Company’s consultants work as part of its customers’ teams to help leverage the subscription service to execute on their customer experience management goals.
Costs to Obtain Customer Contracts
Costs to obtain customer contracts, including commissions earned, that are considered incremental and recoverable are capitalized and amortized on a straight-line basis over the anticipated period of benefit. The Company determines the period of benefit by taking into consideration the length of its customer contracts, customer relationship period, technology lifecycle, and other factors. The Company currently estimates the period of benefit for which costs are amortized over to be five years. Sales commissions paid for renewals are not commensurate with commissions paid on the initial contract given the substantive difference in commission rates in proportion to their respective contract values. Amortization expense is recorded in sales and marketing expense within the Company’s condensed consolidated statement of operations.
Capitalized costs to obtain customer contracts as of April 30, 2024 were $132.2 million, of which $39.5 million is included in prepaid expenses and other current assets and $92.7 million within other non-current assets. Capitalized costs to obtain customer contracts as of January 31, 2024 were $135.8 million, of which $42.5 million is included in prepaid expenses and other current assets and $93.4 million within other non-current assets.
During the three months ended April 30, 2024 and 2023, the Company amortized $12.1 million and $12.0 million, respectively, of costs to obtain customer contracts, included in sales and marketing expense.
Deferred Revenue
Deferred revenue consists primarily of customer billings made in advance of performance obligations being satisfied and revenue being recognized. The Company recognized revenue of $161.7 million and $140.9 million for the three months ended April 30, 2024, and 2023, respectively, that was included in the deferred revenue balances at the beginning of the respective periods.
The Company receives payments from customers based on billing schedules as established in its contracts. Contract assets represent amounts for which the Company has recognized revenue in excess of billings pursuant to the revenue recognition guidance. At April 30, 2024 and January 31, 2024, contract assets were $4.0 million and $4.3 million, respectively, and were included in prepaid expenses and other current assets.
Remaining Performance Obligation
Remaining Performance Obligation (“RPO”) represents contracted revenues that had not yet been recognized and includes deferred revenues and amounts that will be invoiced and recognized in future periods. As of April 30, 2024, the Company’s RPO was $922.5 million, approximately $570.4 million of which the Company expects to recognize as revenue over the next 12 months and the remaining balance will be recognized thereafter.
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Disaggregation of Revenues
The Company disaggregates its revenue from contracts with customers by geographic region, as it believes that it best depicts how the nature, amount, timing, and uncertainty of its revenues and cash flows are affected by economic factors.
The following table summarizes the revenue by region based on the shipping address of customers who have contracted to use the cloud-based software platform:
| | | | | | | | | | | | | | | |
| | | Three Months Ended April 30, |
(in thousands) | | | | | 2024 | | 2023 |
Americas | | | | | $ | 115,268 | | | $ | 105,642 | |
EMEA | | | | | 65,911 | | | 54,220 | |
Other | | | | | 14,779 | | | 13,501 | |
Total revenue | | | | | $ | 195,958 | | | $ | 173,363 | |
The United States was the only country that represented more than 10% of the Company’s revenues, comprising $107.0 million and $98.1 million during the three months ended April 30, 2024 and 2023, respectively.
4. Marketable Securities
The following is a summary of available-for-sale marketable securities, excluding those securities classified within cash and cash equivalents on the condensed consolidated balance sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
| April 30, 2024 |
(in thousands) | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair value |
Corporate bonds | $ | 95,301 | | | $ | 14 | | | $ | (72) | | | $ | 95,243 | |
Municipal bonds | 995 | | | — | | | (1) | | | 994 | |
U.S. government and agency securities | 158,542 | | | — | | | (254) | | | 158,288 | |
Certificates of deposit | 64,129 | | | 18 | | | (35) | | | 64,112 | |
Commercial paper | 164,739 | | | 19 | | | (131) | | | 164,627 | |
Marketable securities | $ | 483,706 | | | $ | 51 | | | $ | (493) | | | $ | 483,264 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| January 31, 2024 |
(in thousands) | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair value |
Corporate bonds | $ | 98,642 | | | $ | 71 | | | $ | (10) | | | $ | 98,703 | |
Municipal bonds | 982 | | | 3 | | | — | | | 985 | |
U.S. government and agency securities | 185,464 | | | 140 | | | (33) | | | 185,571 | |
Certificates of deposit | 46,496 | | | 48 | | | (1) | | | 46,543 | |
Commercial paper | 166,595 | | | 155 | | | (21) | | | 166,729 | |
Marketable securities | $ | 498,179 | | | $ | 417 | | | $ | (65) | | | $ | 498,531 | |
As of April 30, 2024 and January 31, 2024, the maturities of available-for-sale marketable securities did not exceed 12 months. Interest income from cash and cash equivalents and marketable securities was $8.3 million and $6.0 million for the three months ended April 30, 2024 and 2023, respectively.
There were 137 and 64 debt securities in an unrealized loss position as of April 30, 2024 and January 31, 2024, respectively. The estimated fair value of these debt securities, for which an allowance for credit losses has not been recorded, was $357.6 million and $178.7 million as of April 30, 2024 and January 31, 2024, respectively. There were no expected credit losses recorded against the Company’s investment securities as of April 30, 2024 and January 31, 2024.
Unrealized losses on the Company’s debt securities are not considered to be credit-related based upon an analysis that considered the extent to which the fair value is less than the amortized basis of a security, adverse conditions specifically related to the security, changes to credit rating of the instrument subsequent to Company purchase, and the strength of the underlying collateral, if any.
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Refer to Note 5, Fair Value Measurements, for information about the fair value of the Company’s fair value hierarchy for short-term marketable securities.
5. Fair Value Measurements
The following table presents information about the Company’s financial assets and liabilities that have been measured at fair value on a recurring basis as of April 30, 2024 and January 31, 2024, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| April 30, 2024 | | January 31, 2024 |
(in thousands) | Level 1 | | Level 2 | | | | Total | | Level 1 | | Level 2 | | | | Total |
Financial Assets: | | | | | | | | | | | | | | | |
Cash Equivalents: | | | | | | | | | | | | | | | |
Money market funds | $ | 41,634 | | | $ | — | | | | | $ | 41,634 | | | $ | 52,647 | | | $ | — | | | | | $ | 52,647 | |
U.S. government and agency securities | — | | | 2,632 | | | | | 2,632 | | | — | | | — | | | | | — | |
Marketable Securities: | | | | | | | | | | | | | | | |
Corporate bonds | — | | | 95,243 | | | | | 95,243 | | | — | | | 98,703 | | | | | 98,703 | |
Municipal bonds | — | | | 994 | | | | | 994 | | | — | | | 985 | | | | | 985 | |
U.S. government and agency securities | — | | | 158,288 | | | | | 158,288 | | | — | | | 185,571 | | | | | 185,571 | |
Certificates of deposit | — | | | 64,112 | | | | | 64,112 | | | — | | | 46,543 | | | | | 46,543 | |
Commercial paper | — | | | 164,627 | | | | | 164,627 | | | — | | | 166,729 | | | | | 166,729 | |
Total financial assets | $ | 41,634 | | | $ | 485,896 | | | | | $ | 527,530 | | | $ | 52,647 | | | $ | 498,531 | | | | | $ | 551,178 | |
The Company classifies its highly liquid money market funds within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its commercial paper, corporate and municipal debt securities, U.S. government and agency securities and certificates of deposit within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded.
The Company’s primary objective when investing excess cash is preservation of capital, hence the Company’s marketable securities consist primarily of U.S. government and agency securities, high credit quality corporate debt securities and commercial paper. The Company has classified and accounted for its marketable securities as available-for-sale securities, as it may sell these securities at any time for use in the Company’s current operations or for other purposes, even prior to maturity. As of April 30, 2024 and January 31, 2024, for fixed income securities that were in unrealized loss positions, the Company has determined that (i) it does not have the intent to sell any of these investments and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of April 30, 2024, the Company anticipates that it will recover the entire amortized cost basis of such fixed income securities before maturity.
The Company regularly reviews the changes to the rating of its debt securities by rating agencies as well as reasonably monitors the surrounding economic conditions to assess the risk of expected credit losses. As discussed in Note 4, Marketable Securities, as of April 30, 2024 and January 31, 2024, there were no securities that were in an unrealized loss position for more than 12 months. The Company has not recorded any impairments in the periods presented.
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
6. Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
| | | | | | | | | | | |
(in thousands) | April 30, 2024 | | January 31, 2024 |
Prepaid hosting and data costs | $ | 20,912 | | | $ | 1,673 | |
Prepaid software costs | 6,564 | | | 4,854 | |
Prepaid marketing | 1,444 | | | 1,208 | |
Capitalized commissions costs, current portion | 39,476 | | | 42,486 | |
Contract assets | 4,007 | | | 4,326 | |
Security deposits, short-term | 1,858 | | | 1,923 | |
Taxes recoverable | 3,409 | | | 3,561 | |
Restricted cash | 1,330 | | | 1,494 | |
Employee advances | 1,511 | | | 2,614 | |
Other | 5,458 | | | 6,551 | |
Prepaid expenses and other current assets | $ | 85,969 | | | $ | 70,690 | |
Depreciation and Amortization Expense
Depreciation and amortization expense consisted of the following:
| | | | | | | | | | | | | | | |
| | | Three Months Ended April 30, |
(in thousands) | | | | | 2024 | | 2023 |
Depreciation and amortization expense | | | | | $ | 1,605 | | | $ | 1,491 | |
Amortization expense for capitalized internal-use software | | | | | $ | 2,903 | | | $ | 2,028 | |
The Company capitalized internal-use software costs, including stock-based compensation, of $3.5 million and $3.4 million for the three months ended April 30, 2024 and 2023, respectively.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
| | | | | | | | | | | |
(in thousands) | April 30, 2024 | | January 31, 2024 |
Bonuses | $ | 7,604 | | | $ | 23,314 | |
Commissions | 5,106 | | | 18,502 | |
Employee liabilities (1) | 18,974 | | | 19,019 | |
Purchased media costs (2) | 1,193 | | | 1,683 | |
| | | |
Accrued sales and use tax liability | 8,706 | | | 8,522 | |
Accrued income taxes | 5,675 | | | 4,529 | |
Accrued deferred contract credits | 1,821 | | | 2,204 | |
Vendor and travel costs payable | 2,509 | | | 4,160 | |
Professional services | 1,282 | | | 1,142 | |
Asset retirement obligation | 395 | | | 400 | |
Withholding taxes payable | 1,168 | | | 944 | |
Other | 9,838 | | | 8,768 | |
Accrued expenses and other current liabilities | $ | 64,271 | | | $ | 93,187 | |
(1) Includes $3.2 million and $1.4 million of accrued employee contributions under the Company’s 2021 Employee Stock Purchase Plan (“ESPP”) at April 30, 2024 and January 31, 2024, respectively.
(2) Purchased media costs consist of amounts owed to the Company’s vendors for the purchase of advertising space on behalf of its customers.
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
7. Leases
The Company has leases for corporate offices under non-cancelable operating leases with various expiration dates. The Company did not have any finance leases during the three months ended April 30, 2024 and 2023.
On August 2, 2023, the Company entered into a 10-year operating lease agreement for a new corporate headquarters located in New York, NY. The Company has the option to extend the term for 60 months, which is not included in our right-of-use (“ROU”) assets and lease liabilities as the lease renewal is not reasonably certain to be exercised. The lease commenced on April 29, 2024 with payments beginning in December 2024.
The components of lease expense were as follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended April 30, |
(in thousands) | | | | | 2024 | | 2023 |
Operating lease cost | | | | | $ | 2,862 | | | $ | 2,395 | |
Variable lease cost | | | | | 329 | | | 302 | |
Short-term lease cost | | | | | 142 | | | 207 | |
Total lease cost | | | | | $ | 3,333 | | | $ | 2,904 | |
The weighted average remaining lease term and discount rate were as follows:
| | | | | | | | | | | | | | |
| | April 30, 2024 | | January 31, 2024 |
Weighted average remaining lease term (years) | | 7.67 | | 6.20 |
Weighted average discount rate | | 8.99 | % | | 10.11 | % |
The maturities of lease liabilities under non-cancelable operating leases, net of lease incentives, were as follows:
| | | | | | | | |
(in thousands) | | April 30, 2024 |
Fiscal year ended January 31, 2025 (remaining nine months) | | $ | 7,951 | |
2026 | | 10,205 | |
2027 | | 9,657 | |
2028 | | 8,191 | |
2029 | | 7,263 | |
2030 | | 1,540 | |
Thereafter | | 27,769 | |
Total minimum lease payments | | 72,576 | |
Less: imputed interest | | (20,983) | |
Total | | $ | 51,593 | |
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
8. Commitments and Contingencies
Letters of Credit
In April 2023, the Company terminated its credit facility with Silicon Valley Bank (“SVB”), while keeping its existing letters of credit in lieu of deposits on certain leases. As the Company no longer has a credit facility with SVB, it was required to collateralize these letters of credit with cash, totaling approximately $1.3 million outstanding as of April 30, 2024 and January 31, 2024, which the Company has therefore classified within restricted cash. Due to its long-term nature, this restricted cash is recorded within other non-current assets on the condensed consolidated balance sheets.
During 2023, the Company entered into cash collateral agreements with J.P. Morgan Bank in lieu of a letter of credit facility, through which approximately $6.4 million and $5.4 million is outstanding as of April 30, 2024 and January 31, 2024, respectively. Due to its long-term nature, this restricted cash is recorded within other non-current assets on the condensed consolidated balance sheets.
Legal Matters
From time to time, the Company, various subsidiaries, and certain current and former officers may be named as defendants in various lawsuits, claims, investigations and proceedings arising from the normal course of business. The Company also may become involved with contract issues and disputes with customers. With respect to litigation in general, based on the Company’s experience, management believes that the amount of damages claimed in a case are not a meaningful indicator of the potential liability. Claims, suits, investigations and proceedings are inherently uncertain and it is not possible to predict the ultimate outcome of cases. The Company believes that it has valid defenses with respect to the legal matters pending against the Company and intends to vigorously contest each of them.
The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. In management’s opinion, resolution of all current matters is not expected to have a material adverse impact on the Company’s condensed consolidated results of operations, cash flows or financial position. However, if an unfavorable ruling were to occur in any specific period, there exists the possibility of a material adverse impact on the results of operations for that period. At April 30, 2024, the Company had no provision for liability under existing litigation.
Other Contractual Commitments
Other contractual commitments consist primarily of non-cancelable minimum guaranteed purchase commitments for various data, hosting and software services. During the three months ended April 30, 2024, the lease for the new corporate headquarters located in New York, NY commenced, which impacts the Company’s cash requirements. See Note 7 Leases for additional information. There were no other significant changes in the Company’s material cash requirements as compared to the material cash requirements from known contractual and other obligations described in the 2024 10-K.
9. Stockholders’ Equity
On January 4, 2024, the Company announced that its board of directors authorized and approved a share repurchase plan (the “2024 Share Repurchase Program”), which authorizes the Company to periodically repurchase up to $100 million of its Class A common stock through December 31, 2024. On March 26, 2024, the Company’s board of directors approved an additional $100 million of repurchases under the 2024 Share Repurchase Program. Repurchases are executed from time to time, subject to general business and market conditions and other investment opportunities, through open market or negotiated off market purchases effected pursuant to a written trading plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.
During the three months ended April 30, 2024 the Company repurchased 8,340,641 shares of its Class A common stock for a cost of $101.2 million including commissions. All of the Company’s repurchases are subject to a one percent excise tax enacted by the Inflation Reduction Act of 2022 (the “IRA”). The Company also accrued excise taxes of $0.6 million as part of the cost basis of shares acquired in its consolidated statement of stockholders’ equity during the three months ended April 30, 2024. All of the shares repurchased have been retired. As of April 30, 2024, the remaining amount authorized for share repurchase under the 2024 Share Repurchase Program was $69.4 million. Between May 1, 2024 and May 31, 2024, the Company purchased an additional 3,290,257 shares of its Class A common stock for a cost of $40.1 million including commissions.
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
10. Stock-Based Compensation
Equity Award Plans
The Company has two equity incentive plans, the Sprinklr, Inc. 2021 Equity Incentive Plan (the “2021 Plan”) and the Sprinklr, Inc. 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan was terminated as to future awards in June 2021 upon the adoption of the 2021 Plan, although it continues to govern the terms of any equity grants that remain outstanding under the 2011 Plan.
The 2021 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), performance-based stock units (“PSUs”), and other forms of awards to employees, directors and consultants, including employees and consultants of the Company’s affiliates, as permitted by law.
In June 2021, the Company also adopted its ESPP, under which employees can purchase common stock through payroll deductions at a price equal to 85% of the lower of the fair market value of the Class A common stock on (i) the first trading day of each offering period and (ii) the last trading day of each related offering period.
Summary of Stock Option Activity
A summary of the Company’s stock option activity for the three months ended April 30, 2024 is as follows:
| | | | | | | | | | | | | | | | | |
| Number of Stock Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life |
| (in thousands) | | | | (in years) |
Outstanding as of January 31, 2024 | 23,267 | | | $ | 6.66 | | | 5.9 |
| | | | | |
Exercised | (1,772) | | | 5.46 | | | |
Forfeited | (274) | | | 10.61 | | | |
| | | | | |
Outstanding as of April 30, 2024 | 21,221 | | | $ | 6.71 | | | 5.7 |
| | | | | |
Exercisable as of April 30, 2024 | 18,635 | | | $ | 6.08 | | | 5.5 |
Vested and expected to vest as of April 30, 2024 | 20,994 | | | $ | 6.68 | | | 5.7 |
Summary of Restricted Stock Unit Activity
A summary of the Company’s RSU activity for the three months ended April 30, 2024 is as follows:
| | | | | | | | | | | |
| Number of Restricted Stock Units | | Weighted Average Grant Date Fair Value |
| (in thousands) | | |
Outstanding as of January 31, 2024 | 9,259 | | | $ | 12.61 | |
Granted | 4,872 | | | 12.34 | |
Released | (1,417) | | | 12.66 | |
Forfeited | (1,236) | | | 11.99 | |
Outstanding as of April 30, 2024 | 11,478 | | | $ | 12.55 | |
Performance-Based Stock Units
As of April 30, 2024, the Company had 780,000 PSUs outstanding. These awards vest over a five-year period if certain performance and market conditions are met. The performance condition was met in June 2021 and the market conditions have not yet been met as of April 30, 2024. If the market conditions are not met on or prior to January 28, 2026, the associated awards will not vest and will be subsequently cancelled.
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Stock-Based Compensation Expense
Stock-based compensation expense included in operating results was allocated as follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended April 30, |
(in thousands) | | | | | 2024 | | 2023 |
Costs of subscription | | | | | $ | 283 | | | $ | 300 | |
Costs of professional services | | | | | 317 | | | 403 | |
Research and development | | | | | 2,574 | | | 3,067 | |
Sales and marketing | | | | | 5,604 | | | 5,955 | |
General and administrative | | | | | 5,077 | | | 3,585 | |
Stock-based compensation, net of amounts capitalized | | | | | 13,855 | | | 13,310 | |
Capitalized stock-based compensation | | | | | 551 | | | 670 | |
Total stock-based compensation | | | | | $ | 14,406 | | | $ | 13,980 | |
11. Net Income Per Share
The Company has two classes of common stock: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting, conversion and transfer rights. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis to each class of common stock and the resulting basic and diluted net income per share attributable to common stockholders are, therefore, the same for both Class A and Class B common stock on both an individual and combined basis.
Basic net income per share is computed by dividing net income attributable to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. Diluted net income per share is calculated by giving effect to all potential dilutive common stock equivalents, which includes stock options, restricted stock units and other awards.
The following table sets forth the computation of basic and diluted net income per share:
| | | | | | | | | | | | | | | |
| | | Three Months Ended April 30, |
(in thousands, except per share data) | | | | | 2024 | | 2023 |
Net income per share – basic: | | | | | | | |
Numerator: | | | | | | | |
Net income | | | | | $ | 10,634 | | | $ | 2,808 | |
Denominator: | | | | | | | |
Weighted-average shares outstanding used in computing net income per share, basic | | | | | 271,664 | | 265,584 | |
Net income per common share, basic | | | | | $ | 0.04 | | | $ | 0.01 | |
Net income per share – diluted: | | | | | | | |
Numerator: | | | | | | | |
Net income | | | | | $ | 10,634 | | | $ | 2,808 | |
Denominator: | | | | | | | |
Weighted-average shares outstanding used in computing net income per share, basic | | | | | 271,664 | | | 265,584 | |
Weighted-average effect of diluted securities: | | | | | | | |
Stock options | | | | | 8,523 | | | 12,339 | |
RSUs | | | | | 3,334 | | | 3,115 | |
Common stock warrants | | | | | 511 | | | 306 | |
| | | | | | | |
Weighted-average shares outstanding used in computing net income per share, diluted | | | | | 284,032 | | | 281,344 | |
Net income per common share, diluted | | | | | $ | 0.04 | | | $ | 0.01 | |
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended April 30, |
(in thousands) | | | | | 2024 | | 2023 |
Stock options | | | | | 2,436 | | | 7,467 | |
PSUs | | | | | 780 | | | 3,649 | |
RSUs | | | | | 1,003 | | | 769 | |
ESPP | | | | | 24 | | | 298 | |
| | | | | | | |
Total shares excluded from net income per share | | | | | 4,243 | | | 12,183 | |
12. Income Taxes
The Company computes its year-to-date provision for income taxes by applying the estimated annual effective tax rate to year-to-date pretax income or loss and adjusts the provision for discrete tax items recorded in the period. During the three months ended April 30, 2024 and 2023, the Company recorded an income tax provision of $2.6 million and benefit of $1.2 million, respectively.
The Company’s effective tax rate generally differs from the U.S. federal statutory tax rate primarily due to a full valuation allowance related to the Company’s U.S. deferred tax assets, partially offset by state taxes and the foreign tax rate differential on non-U.S. income. Additionally, following an assessment of the realizability of our deferred tax assets in Brazil and Japan, the Company released its previously established valuation allowances on these assets, resulting in a $3.3 million tax benefit being recorded during the three months ended April 30, 2023.
The Company regularly evaluates the realizability of its deferred tax assets and establishes a valuation allowance if it is more likely than not that some or all the deferred tax assets will not be realized. In making such a determination, the Company considers all available positive and negative evidence. As of April 30, 2024, the Company continues to maintain a full valuation allowance against the deferred tax assets of the U.S. entity only.
The IRA was signed into law on August 16, 2022. The bill was meant to address the high inflation rate in the U.S. through various climate, energy, healthcare, and other incentives. These incentives are meant to be paid for by the tax provisions included in the IRA, such as a new 15 percent corporate minimum tax, a new one percent excise tax on stock buybacks, additional IRS funding to improve taxpayer compliance, and other items. At this time, none of the IRA tax provisions are expected to have a material impact to the Company’s fiscal year 2025 tax provision. The Company will continue to monitor for updates to the Company’s business along with guidance issued with respect to the IRA to determine whether any adjustments are needed to the Company’s tax provision in future periods.
13. Restructuring Charges
In February 2023, the Company implemented an approved plan for restructuring its global workforce by approximately 4% to reduce operating costs and better align its workforce with the needs of its business. The majority of the associated costs, including severance and benefits, were incurred in the first half of fiscal year 2024. For the three months ended April 30, 2023, the Company incurred a total of $5.2 million in restructuring costs of which $5.0 million and $0.2 million are recorded within sales and marketing expense and general and administrative expense, respectively, on the Company’s condensed consolidated statement of operations. As of January 31, 2024, all restructuring costs had been paid.
SPRINKLR, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
14. Related Party Transactions
The Company engaged Lyearn Inc. (“Lyearn”), a learning management system company that is wholly owned by Ragy Thomas, our Founder, Chairman and Chief Executive Officer, in connection with the provision of digital training services to the Company’s employees and certain Sprinklr customers. The Company paid approximately $0.1 million and $0.2 million to Lyearn in connection with the digital training services provided to employees during the three months ended April 30, 2024 and 2023, respectively. The Company made no payments to Lyearn in connection with the digital training services provided to a customer during each of the three months ended April 30, 2024 and 2023.
The Company recognized immaterial expenses during each of the three months ended April 30, 2024 and 2023. As of April 30, 2024 and January 31, 2024, the Company had outstanding payables of $0.2 million and $0.2 million, respectively, related to the arrangements.
With regard to the development of certain human productivity features for the Company, the Company is leveraging its collaborative relationship with Lyearn to serve Company imperatives in the areas of employee assessment, goal-setting, and activity measurement against goals, and other employee feedback and assessment, to assist and accelerate the Company’s efforts to identify the optimal tools and processes that will be deployed long-term to meet these business imperatives. These collaborative services are provided to the Company by Lyearn at no cost.
This related party transaction has been reviewed and approved by the audit committee of the Company’s board of directors.
15. Subsequent Events
On June 3, 2024, the Company’s board of directors approved an additional $100 million of repurchases under the 2024 Share Repurchase Program.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”), and our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024 (the “2024 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2024. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Form 10-Q. You should review the disclosure under the heading “Risk Factors” in this Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
Sprinklr empowers the world’s largest and most loved brands to make their customers happier.
We do this with a new category of enterprise software – Unified Customer Experience Management (“Unified-CXM”) – that enables every customer-facing function across the front office, from Customer Service to Marketing, to collaborate across internal silos, communicate across digital channels, and leverage a complete suite of capabilities to deliver better, more human customer experiences at scale – all on one unified, AI-powered platform.
Our Unified-CXM platform utilizes an architecture purpose-built for managing Customer Experience Management (“CXM”) data and is powered by proprietary AI, collaborative workflow, seamless automation, broad-based listening and customer-led governance to help enterprises analyze massive amounts of unstructured and structured data.
We generate revenue from the sale of subscriptions to our Unified-CXM platform and related professional services. Our platform includes products that are licensed on a per-user basis as well as products that are licensed based on different tiers of volume.
We believe that our Unified-CXM platform is highly effective for organizations of all sizes, and we have a highly diverse group of customers across a broad array of industries and geographies. We focus primarily on selling our platform to large global enterprises, as we believe that we have significant competitive advantages attracting and serving such organizations given their complex needs and the broad capabilities our platform offers.
Our customers include global enterprises across a broad array of industries and geographies, as well as marketing agencies and government departments along with non-profit and educational institutions. Our customers are located in over 80 countries, and our AI powered CXM platform recognizes over 150 languages. We define our large customers as customers with greater than or equal to $1.0 million in subscription revenue on a trailing 12-month basis, as of the period presented. As of April 30, 2024, we had 138 large customers, compared to 115 as of April 30, 2023.
Key Business Metrics
We review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
RPO and cRPO
Remaining Performance Obligation (“RPO”) represents contracted revenue that has not yet been recognized and includes deferred revenue and amounts that will be invoiced and recognized in future periods. Current RPO (“cRPO”) represents contracted revenue that has not yet been recognized and includes deferred revenue and amounts that will be invoiced and recognized in the next 12 months. As of April 30, 2024, our RPO expected to be recognized as revenue was $922.5 million and our cRPO was $570.4 million.
Net Dollar Expansion Rate
We believe that net dollar expansion rate (“NDE”) is an indicator of the value that our platform delivers to customers. We calculate NDE to measure our ability to retain and expand subscription revenue from our existing customers. NDE compares our subscription revenue from the same set of customers across comparable periods and reflects customer renewals, expansion, contraction and churn. We calculate NDE by dividing (i) subscription revenue in the trailing 12-month period from those customers who were on our platform during the most recent prior 12-month period by (ii) subscription revenue from the same customers in the preceding prior 12-month period. This calculation is net of upsells, contraction, cancellation or expansion during the period but excludes subscription revenue from new customers. Our NDE, on a trailing 12-month basis, was 114.6% and 122.2% for the 12-month periods ending April 30, 2024 and 2023, respectively. The decrease year-over-year was driven by a combination of elevated churn exacerbated by the current macroeconomic environment.
Macroeconomic Considerations
Unfavorable conditions in the economy both in the United States and abroad may negatively affect the growth of our business and our results of operations. For example, macroeconomic events, including rising inflation, the U.S. Federal Reserve raising interest rates, recent bank closures, and the Russia-Ukraine and Israel-Hamas wars (including an escalation or geographical expansion of these conflicts), have led to economic uncertainty globally. Historically, during periods of economic uncertainty and downturns, businesses may slow spending on information technology, which may impact our business and our customers’ businesses. While we have experienced growing inflationary pressures on the cost of wages, rent and data, the net result of inflationary impacts and our efforts to mitigate these impacts have not been material to us during the periods included in this report.
The effect of macroeconomic conditions may not be fully reflected in our results of operations until future periods. If, however, economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed. For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see the section titled “Risk Factors” included in Part II, Item 1A of this Form 10-Q and Part I, Item 1A of the 2024 10-K.
Components of Results of Operations
Revenue
We generate revenue from the sale of subscriptions to our Unified-CXM cloud-based software platform and related professional services.
Subscription revenue consists primarily of fees from customers accessing our proprietary Unified-CXM platform, as well as related support services. Subscription revenue is generally recognized ratably over the related contract term beginning on the commencement date of each contract, which is generally the date our service is made available to customers. Our subscriptions typically have a term of one to three years. Historically, we have experienced seasonality in our sales cycle, as a large percentage of our customers make their purchases in the fourth quarter of a given fiscal year and pay us in the first quarter of the subsequent year. This seasonality may be reflected to a much lesser extent, and sometimes may not be immediately apparent, in our revenue, due to the fact that we recognize subscription revenue over the term of the applicable subscription agreement.
Professional services revenue consists of fees associated with providing services that assist our customers with the configuration and optimization of our Unified-CXM software. These fees also include managed services fees where our consultants work as part of our customers’ teams to help leverage the subscription services to execute on their customer experience management goals and enablement services which consist of initial design, configuration and education services.
Costs of Revenue
Costs of Subscription Revenue
Costs of subscription revenue consists primarily of costs to host our software platform, data costs, including cost of third-party data utilized in our platform, personnel-related expenses for our subscription and support operations personnel, including salaries, benefits, bonuses, stock-based compensation, professional fees, software costs, travel expenses, the amortization of our capitalized internal-use software and allocated overhead expenses, including facilities costs for our subscription and support operations. We expect that costs of subscription revenue will increase in absolute dollars as we expand our customer base and make continued investments in our cloud infrastructure and support organization.
Costs of Professional Services Revenue
Costs of professional services revenue consists primarily of personnel-related expenses for our professional services personnel, professional fees, software costs, subcontractor costs, travel expenses and allocated overhead expenses, including facilities costs, for our professional services organization. We expect that our costs of professional services revenue will increase in absolute dollars as we expand our customer base.
Gross Profit and Gross Margin
Gross profit is total revenue less total costs of revenue. Gross margin is gross profit expressed as a percentage of total revenue. We expect that gross profit and gross margin will continue to be affected by various factors, including our pricing, our mix of revenues and the costs required to deliver those revenues.
Our gross margin on subscription revenue is significantly higher than our gross margin on professional services revenue, and as a result our gross margin may vary from period to period if our mix of revenue or costs of revenue fluctuates. In addition, because personnel-related expenses represent the largest component in costs of professional services revenue, we may experience changes in our professional services gross margin due to the timing of delivery of those services. We expect that our gross margin may vary from period to period.
Operating Expenses
Our operating expenses consist of research and development, sales and marketing and general and administrative expenses.
Research and Development Expense
Research and development expense consists primarily of costs relating to the maintenance, continued development and enhancement of our cloud-based software platform and includes personnel-related expense for our research and development organization, professional fees, travel expenses and allocated overhead expenses, including facilities costs. Research and development expenses are expensed as incurred, except for internal-use software development costs that qualify for capitalization. We expect research and development expense to increase in absolute dollars as we continue to invest in enhancing and expanding the capabilities of our Unified-CXM platform.
Sales and Marketing Expense
Sales and marketing expense consists primarily of personnel-related expenses for our sales and marketing organization, professional fees, software costs, advertising, marketing, promotional and brand awareness activities, travel expenses and allocated overhead expense, including facilities costs. Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer and are deferred and amortized on a straight-line basis over the expected period of benefit. We expect sales and marketing expense to generally increase in absolute dollars as we continue to drive the growth of our business. We continue to optimize our sales and marketing expense and seek efficiencies in our investments.
General and Administrative Expense
General and administrative expense includes personnel costs associated with administrative services, such as legal, human resources, information technology, accounting, and finance functions, as well as professional fees, software costs, travel expenses and allocated overhead expense, including facilities costs and any corporate overhead expenses not allocated to other expense categories.
We expect our general and administrative expense to increase in absolute dollars as we continue to grow our business. We also anticipate that we will incur additional costs for employees and third-party consulting services, which may cause our general and administrative expense to fluctuate as a percentage of revenue from period to period.
Other Income (Expense), Net
Other income (expense), net, consists of interest income on invested cash and cash equivalents and marketable securities, interest expense, foreign currency transaction gains and losses and other expenses and gains.
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes related to foreign and U.S. jurisdictions in which we conduct business. Our annual estimated effective tax rate differed from the U.S. federal statutory rate primarily due to a full valuation allowance related to our U.S. deferred tax assets, partially offset by U.S. current state taxes and foreign tax rate differential on non-U.S. income and discrete items relating to releases of valuation allowances in certain foreign jurisdictions.
Results of Operations
The following table sets forth our condensed consolidated statements of operations data for the periods indicated:
| | | | | | | | | | | | | | | |
| | | Three Months Ended April 30, |
(in thousands) | | | | | 2024 | | 2023 |
Revenue: | | | | | | | |
Subscription | | | | | $ | 177,363 | | | $ | 157,665 | |
Professional services | | | | | 18,595 | | | 15,698 | |
Total revenue | | | | | 195,958 | | | 173,363 | |
Costs of revenue: | | | | | | | |
Costs of subscription (1) | | | | | 32,570 | | | 27,476 | |
Costs of professional services (1) | | | | | 18,555 | | | 14,461 | |
Total costs of revenue | | | | | 51,125 | | | 41,937 | |
Gross profit | | | | | 144,833 | | | 131,426 | |
Operating expense: | | | | | | | |
Research and development (1) | | | | | 22,539 | | | 20,761 | |
Sales and marketing (1) | | | | | 87,484 | | | 89,202 | |
General and administrative (1) | | | | | 29,101 | | | 24,656 | |
| | | | | | | |
Total operating expense | | | | | 139,124 | | | 134,619 | |
Operating income (loss) | | | | | 5,709 | | | (3,193) | |
Other income, net | | | | | 7,500 | | | 4,759 | |
Income before provision (benefit) for income taxes | | | | | 13,209 | | | 1,566 | |
Provision (benefit) for income taxes | | | | | 2,575 | | | (1,242) | |
Net income | | | | | $ | 10,634 | | | $ | 2,808 | |
(1) Includes stock-based compensation expense, net of amounts capitalized, as follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended April 30, |
(in thousands) | | | | | 2024 | | 2023 |
Costs of subscription | | | | | $ | 283 | | | $ | 300 | |
Costs of professional services | | | | | 317 | | | 403 | |
Research and development | | | | | 2,574 | | | 3,067 | |
Sales and marketing | | | | | 5,604 | | | 5,955 | |
General and administrative | | | | | 5,077 | | | 3,585 | |
Stock-based compensation expense, net of amounts capitalized | | | | | $ | 13,855 | | | $ | 13,310 | |
The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of total revenue (1):
| | | | | | | | | | | | | | | |
| | | Three Months Ended April 30, |
| | | | | 2024 | | 2023 |
Revenue: | | | | | | | |
Subscription | | | | | 91 | % | | 91 | % |
Professional services | | | | | 9 | % | | 9 | % |
Total revenue | | | | | 100 | % | | 100 | % |
Costs of revenue: | | | | | | | |
Costs of subscription | | | | | 17 | % | | 16 | % |
Costs of professional services | | | | | 9 | % | | 8 | % |
Total costs of revenue | | | | | 26 | % | | 24 | % |
Operating expense: | | | | | | | |
Research and development | | | | | 12 | % | | 12 | % |
Sales and marketing | | | | | 45 | % | | 51 | % |
General and administrative | | | | | 15 | % | | 14 | % |
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Total operating expense | | | | | 71 | % | | 78 | % |
Operating income (loss) | | | | | 3 | % | | (2) | % |
Other income, net | | | | | 4 | % | | 3 | % |
Income before provision (benefit) for income taxes | | | | | 7 | % | | 1 | % |
Provision (benefit) for income taxes | | | | | 1 | % | | (1) | % |
Net income | | | | | 5 | % | | 2 | % |
(1) Totals may not foot due to rounding
Comparison of the Three Months Ended April 30, 2024 and 2023
Revenue
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| Three Months Ended April 30, | | | | |
(in thousands) | 2024 | | 2023 | | $ Change | | % Change |
Subscription | $ | 177,363 | | | $ | 157,665 | | | $ | 19,698 | | | 12 | % |
Professional services | 18,595 | | | 15,698 | | | 2,897 | | | 18 | % |
Total revenue | $ | 195,958 | | | $ | 173,363 | | | $ | 22,595 | | | 13 | % |
The increase in subscription revenue was primarily due to (i) an increase in revenue from existing customers driven by the purchase of additional quantities of current subscription solutions and additional add-on solutions within our platform and (ii) an increase in demand for our solutions from new customers.
The increase in professional services revenue was primarily due to increased managed services and implementations performed in the three months ended April 30, 2024 compared to the prior year period.
Costs of Revenue and Gross Margin
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| Three Months Ended April 30, | | | | |
(in thousands) | 2024 | | 2023 | | $ Change | | % Change |
Costs of subscription revenue | $ | 32,570 | | | $ | 27,476 | | | $ | 5,094 | | | 19 | % |
Costs of professional services revenue | 18,555 | | | 14,461 | | | 4,094 | | | 28 | % |
Total costs of revenue | $ | 51,125 | | | $ | 41,937 | | | $ | 9,188 | | | 22 | % |
Gross margin - subscription | 82 | % | | 83 | % | | | | |
Gross margin - professional services | 0 | % | | 8 | % | | | | |
The increase in costs of subscription revenue was primarily due to (i) higher costs related to third-party cloud infrastructure necessary to meet our increased customer demand, which included a $3.6 million increase in our data and hosting costs and (ii) a $0.9 million increase in the amortization of capitalized research and development costs.
The increase in costs of professional services revenue was partially due to (i) a $2.3 million increase in subcontractor costs and (ii) higher personnel-related costs of $1.6 million as a result of increased headcount.
Gross margin for subscription decreased by 1 percentage point, primarily driven by increased costs associated with third-party cloud infrastructure and data. Gross margin for professional services decreased by 8 percentage points as we increased our investment in Contact Center as a Service (“CCaaS”) service delivery personnel in the first quarter of fiscal year 2025 to support future growth in our CCaaS solution.
Research and Development Expense
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| Three Months Ended April 30, | | | | |
(in thousands) | 2024 | | 2023 | | $ Change | | % Change |
Research and development | $ | 22,539 | | | $ | 20,761 | | | $ | 1,778 | | | 9 | % |
% of revenue | 12 | % | | 12 | % | | | | |
The increase in research and development expense was primarily due to (i) a $0.7 million increase in research and development personnel costs resulting from an increase in headcount of research and development employees as we continue to add to and enhance our product, (ii) a $0.5 million increase in rent and facilities-related costs and (iii) an increase in recruiting costs of $0.3 million.
Sales and Marketing Expense
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| Three Months Ended April 30, | | | | |
(in thousands) | 2024 | | 2023 | | $ Change | | % Change |
Sales and marketing | $ | 87,484 | | | $ | 89,202 | | | $ | (1,718) | | | (2) | % |
% of revenue | 45 | % | | 51 | % | | | | |
The decrease in sales and marketing expense was primarily due to the net impact of (i) a $5.0 million decrease in restructuring costs as we restructured our global workforce during the three months ended April 30, 2023, (ii) an increase in personnel costs of $1.9 million as a result of higher headcount and (iii) an increase of $0.8 million as a result of higher marketing related expenses.
General and Administrative Expense
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| Three Months Ended April 30, | | | | |
(in thousands) | 2024 | | 2023 | | $ Change | | % Change |
General and administrative | $ | 29,101 | | | $ | 24,656 | | | $ | 4,445 | | | 18 | % |
% of revenue | 15 | % | | 14 | % | | | | |
The increase in general and administrative expense was primarily due to a $3.1 million increase associated with personnel-related costs driven by higher general and administrative headcount as well as increased stock compensation expense, primarily related to new grants during fiscal year 2025.
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| Three Months Ended April 30, | | | | |
(in thousands) | 2024 | | 2023 | | $ Change | | % Change |
Other income, net | $ | 7,500 | | | $ | 4,759 | | | $ | 2,741 | | | 58 | % |
% of revenue | 4 | % | | 3 | % | | | | |
The increase in other income, net was primarily attributable to a $2.3 million increase in interest income from our money market and short-term investment accounts as a result of higher interest rates and higher average balances in our money market and short-term investment accounts.
Provision (Benefit) for Income Taxes
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| Three Months Ended April 30, | | | | |
(in thousands) | 2024 | | 2023 | | $ Change | | % Change |
Provision (benefit) for income taxes | $ | 2,575 | | | $ | (1,242) | | | $ | 3,817 | | | (307) | % |
% of revenue | 1 | % | | (1) | % | | | | |
The change in the tax provision (benefit) for the three months ended April 30, 2024 compared to the three months ended April 30, 2023 was primarily related to a $3.3 million release of valuation allowance in certain foreign subsidiaries during the three months ended April 30, 2023.
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. GAAP, we believe that the following non-GAAP financial measures associated with our condensed consolidated statements of operations are useful in evaluating our operating performance:
•Non-GAAP gross profit and non-GAAP gross margin;
•Non-GAAP operating income and non-GAAP operating margin; and
•Non-GAAP net income and non-GAAP net income per share.
We define these non-GAAP financial measures as the respective U.S. GAAP measures, excluding, as applicable, stock-based compensation expense and related charges and amortization of acquired intangible assets. We believe that it is useful to exclude stock-based compensation expense-related charges and amortization of acquired intangible assets in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies over multiple periods.
In addition, we believe that free cash flow is also a useful non-GAAP financial measure. Free cash flow is defined as net cash provided by operating activities less cash used for purchases of property and equipment and capitalized internal-use software. We believe that free cash flow is a useful indicator of liquidity as it measures our ability to generate cash, or our need to access additional sources of cash, to fund operations and investments. We expect our free cash flow to fluctuate in future periods with changes in our operating expenses and as we continue to invest in our growth. We typically experience higher billings in the fourth quarter compared to other quarters and experience higher collections of accounts receivable in the first half of the year, which results in a decrease in accounts receivable in the first half of the year.
However, non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning prescribed by U.S. GAAP and are not prepared under any comprehensive set of accounting rules or principles. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. As a result, our non-GAAP financial measures are presented for supplemental informational purposes only and should not be considered in isolation or as a substitute for our consolidated financial statements presented in accordance with U.S. GAAP.
A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S. GAAP:
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| | | Three Months Ended April 30, |
(in thousands) | | | | | 2024 | | 2023 |
Non-GAAP gross profit and non-GAAP gross margin: | | | | | | | |
U.S. GAAP gross profit | | | | | $ | 144,833 | | | $ | 131,426 | |
Stock-based compensation expense and related charges (1) | | | | | 607 | | | 712 | |
Non-GAAP gross profit | | | | | $ | 145,440 | | | $ | 132,138 | |
Gross margin | | | | | 74 | % | | 76 | % |
Non-GAAP gross margin | | | | | 74 | % | | 76 | % |
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Non-GAAP operating income: | | | | | | | |
U.S. GAAP operating income (loss) | | | | | $ | 5,709 | | | $ | (3,193) | |
Stock-based compensation expense and related charges (2) | | | | | 14,624 | | | 14,115 | |
Amortization of acquired intangible assets | | | | | 50 | | | 50 | |
Non-GAAP operating income | | | | | $ | 20,383 | | | $ | 10,972 | |
Operating margin | | | | | 3 | % | | (2) | % |
Non-GAAP operating margin | | | | | 10 | % | | 6 | % |
(1) Employer payroll tax related to stock-based compensation for the periods ended April 30, 2024 and 2023 was immaterial as it relates to the impact to gross profit.
(2) Includes $0.8 million and $0.8 million of employer payroll tax related to stock-based compensation expense for the three months ended April 30, 2024 and 2023, respectively.
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| Three Months Ended April 30, |
| 2024 | | 2023 |
| (in thousands) | | Per Share-Basic | | Per Share-Diluted | | (in thousands) | | Per Share-Basic | | Per Share-Diluted |
Non-GAAP net income reconciliation to net income | | | | | | | | | | | |
Net income | $ | 10,634 | | | $ | 0.04 | | | $ | 0.04 | | | $ | 2,808 | | | $ | 0.01 | | | $ | 0.01 | |
Add: | | | | | | | | | | | |
Stock-based compensation expense and related charges | 14,624 | | | 0.05 | | 0.05 | | 14,115 | | | 0.05 | | 0.05 |
Amortization of acquired intangible assets | 50 | | | 0.00 | | 0.00 | | 50 | | | 0.00 | | 0.00 |
Total additions, net | 14,674 | | | 0.05 | | 0.05 | | 14,165 | | | 0.05 | | 0.05 |
Non-GAAP net income | $ | 25,308 | | | $ | 0.09 | | | $ | 0.09 | | | $ | 16,973 | | | $ | 0.06 | | | $ | 0.06 | |
Weighted-average shares outstanding used in computing net income per share, basic | 271,664 | | | | | | 265,584 | | | | |
Weighted average shares outstanding used in computing net income per share, diluted | 284,032 | | | | | | | 281,344 | | | | |
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(in thousands) | | Three Months Ended April 30, |
Free cash flow: | | 2024 | | 2023 |
Net cash provided by operating activities | | $ | 41,712 | | | $ | 18,560 | |
Purchase of property and equipment | | (2,545) | | | (1,625) | |
Capitalized internal-use software | | (2,977) | | | (2,683) | |
Free cash flow | | $ | 36,190 | | | $ | 14,252 | |
06.03.24 - CXM - Board UWC (Stock Repurchase Updates June 2024)(executed)Liquidity and Capital Resources
Overview
As of April 30, 2024, our principal sources of liquidity were $126.8 million of cash and cash equivalents and $483.3 million of highly liquid marketable securities. We believe that our existing cash and cash equivalents, marketable securities and cash from operations will be sufficient to meet our working capital needs, capital expenditures and financing obligations for at least the next 12 months and over the long-term. The majority of our cash is held in the United States and we do not anticipate a need to repatriate cash held outside of the United States. Further, it is our intent to indefinitely reinvest these funds outside the United States, and, therefore, we have not provided for any United States income taxes.
Letters of Credit and Restricted Cash
In April 2023, we terminated our credit facility with Silicon Valley Bank (“SVB”), while keeping our existing letters of credit in lieu of deposits on certain leases. As we no longer have a credit facility with SVB, we were required to collateralize these letters of credit with cash, totaling approximately $1.3 million, which we therefore have classified within restricted cash. Due to its long-term nature, this restricted cash is recorded within other non-current assets on the condensed consolidated balance sheets.
During 2023, we entered into cash collateral agreements with J.P. Morgan Bank in lieu of a credit facility, through which approximately $6.4 million is outstanding as of April 30, 2024. Due to its long-term nature, this restricted cash is recorded within other non-current assets on the condensed consolidated balance sheets.
Material Cash Requirements
Our expected material cash requirements consist of contractually obligated expenditures. We have agreements in place with data and service providers that require us to make certain minimum guaranteed purchase commitments through fiscal year 2028, which totaled $131.1 million as of January 31, 2024, of which $69.5 million is due within twelve months. We had no material changes to these purchase commitments as of April 30, 2024. In addition, we lease certain office facilities under operating lease arrangements that expire on various dates through fiscal year 2029. In August 2023, we signed a 10-year lease for a new corporate headquarters in New York, NY, which commenced on April 29, 2024 with payments beginning in December 2024. Refer to Note 7, Leases, included in Part I, Item 1 of this Form 10-Q for a discussion of our leases.
On January 8, 2024, we entered into a share repurchase plan (the “2024 Share Repurchase Program”), whereby we may repurchase up to $100 million of our Class A common stock. On March 26, 2024, the Board approved an additional $100 million of repurchases under the 2024 Share Repurchase Program. During the three months ended April 30, 2024, we repurchased approximately 8.3 million shares of our Class A common stock for a cost of $101.2 million including commissions. As of April 30, 2024, the remaining amount available for repurchase under the 2024 Share Repurchase Program was $69.4 million. Between May 1, 2024 and May 31, 2024, we purchased an additional 3,290,257 shares of our Class A common stock for a cost of $40.1 million including commissions. On June 3, 2024, the Board approved an additional $100 million of repurchases under the 2024 Share Repurchase Program. For additional information regarding the 2024 Share Repurchase Program, see “ Issuer Purchases of Equity Securities” included in Part II, Item 2 of this Form 10-Q and Notes 9, Stockholders’ Equity and 15, Subsequent Events included in Part I, Item 1 of this Form 10-Q.
Future Funding Requirements
Our future capital requirements will depend on many factors, including our growth rate, the expansion of our direct sales force, strategic relationships and international operations, the timing and extent of spending to support research and development efforts and the continuing market acceptance of our solutions. We historically have expanded our business in part by investing in strategic growth initiatives, including acquisitions of products, technologies and businesses. We may finance such acquisitions using cash, debt, stock or a combination of the foregoing; however, we have used cash and stock as consideration for substantially all of our historical business acquisitions. We continually examine our options with respect to terms and sources of existing and future short-term and long-term capital resources to enhance our operating results and to ensure that we retain financial flexibility, and may from time to time elect to raise capital through the issuance of additional equity or the incurrence of debt. Sales of additional equity could result in dilution to our stockholders. If we raise funds by borrowing from third parties, the terms of those financing arrangements would require us to incur interest expense and may include negative covenants or other restrictions on our business that could impair our operating flexibility. We can provide no assurance that financing will be available at all or, if available, that we would be able to obtain financing on terms favorable to us. If we are unable to raise additional capital when needed, we would be required to curtail our operating activities and capital expenditures, and our business operating results and financial condition would be adversely affected.
Cash Flows
The following table shows a summary of our cash flows for the periods indicated: | | | | | | | | | | | |
| Three Months Ended April 30, |
(in thousands) | 2024 | | 2023 |
Net cash provided by operating activities | $ | 41,712 | | | $ | 18,560 | |
Net cash provided by (used in) investing activities | $ | 13,403 | | | $ | (28,577) | |
Net cash (used in) provided by financing activities | $ | (90,342) | | | $ | 12,692 | |
Our net income and cash flows provided by operating activities are influenced significantly by our investments in headcount to support growth and in costs of revenue to deliver our services. In fiscal year 2024, our shift into net income was the result of our increased subscription revenue and related billings, and increased interest income from our marketable securities, as well as the amount of non-cash charges that we incur. Non-cash charges primarily include depreciation and amortization, amortization/accretion on marketable securities, stock-based compensation, and non-cash lease expense. Our largest source of operating cash is cash collections from customers using our Unified-CXM platform and related services. Our primary uses of cash from operating activities are for employee-related costs, costs to deliver our revenue and marketing expenses.
We expect our free cash flow to fluctuate in future periods with changes in our operating expenses and as we continue to invest in our growth. We typically experience higher billings in the fourth quarter compared to other quarters, primarily due to higher renewal activity, and experience higher collections of accounts receivable in the first half of the year, which results in a decrease in accounts receivable in the first half of the year.
Operating Activities
For the three months ended April 30, 2024, cash provided by operating activities was $41.7 million, which consisted of net income of $10.6 million, adjusted for non-cash expenses of $16.6 million and $14.5 million of net cash flows provided as a result of changes in operating assets and liabilities. The $14.5 million of net cash flows provided as a result of changes in our operating assets and liabilities reflected a $78.6 million decrease in accounts receivable due to reduced billings and increased collections. This increase to cash flow from operations was partially offset by (i) a $29.1 million decrease in accrued expenses and other current liabilities primarily due to the timing of bonus and commission payments, (ii) a $15.8 million increase in prepaid expenses and other current assets due to higher prepaid hosting and data costs, (iii) a $15.1 million decrease in accounts payable due to timing of vendor payments, and (iv) a $3.7 million decrease in deferred revenue as a result of recognized revenue exceeding billings.
For the three months ended April 30, 2023, cash provided by operating activities was $18.6 million, which consisted of net income of $2.8 million, adjusted for non-cash expenses of $11.0 million, and $4.8 million of net cash flows provided as a result of changes in operating assets and liabilities. The $4.8 million of net cash flows provided as a result of changes in our operating assets and liabilities reflected (i) a $28.1 million decrease in accounts receivable due to increased collections and (ii) a $8.4 million decrease in prepaid expenses and other current assets due to decrease in prepaid hosting and data costs. These increases to cash flows from operations were partially offset by (i) a $20.1 million decrease in accrued expenses and other current liabilities primarily due to the timing of bonus and commission payments, (ii) an $8.2 million decrease in accounts payable due to timing of vendor payments, and (iii) a $2.7 million decrease in deferred revenue as a result of revenue recognized on the deferred revenue balances at the beginning of the fiscal year.
Investing Activities
For the three months ended April 30, 2024, cash provided by investing activities was $13.4 million and primarily consisted of $153.1 million of sales and maturities of marketable securities, partially offset by $134.2 million of purchases of marketable securities.
For the three months ended April 30, 2023, cash used in investing activities was $28.6 million and primarily consisted of $102.5 million of purchases of marketable securities, partially offset by $78.2 million of sales and maturities of marketable securities.
Financing Activities
For the three months ended April 30, 2024, cash used in financing activities was $90.3 million, which consisted of payments for the 2024 Share Repurchase Program of $100.0 million, offset by $9.6 million of proceeds from the exercise of stock options.
For the three months ended April 30, 2023, cash provided by financing activities was $12.7 million, which consisted solely of proceeds from the exercise of stock options.
Critical Accounting Estimates
Our interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Critical accounting estimates are those estimates that, in accordance with U.S. GAAP, involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our consolidated financial statements. Management has determined that our most critical accounting estimates are those relating to revenue recognition and stock-based compensation expense, including historical common stock valuations and performance-based award valuations. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors and adjust those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates and assumptions.
Refer to Note 2, Basis of Presentation and Summary of Significant Accounting Policies, included in Part I, Item 1 of this Form 10-Q for a discussion of our significant accounting policies. There have been no material changes to our critical accounting policies and accounting estimates as compared to those disclosed in the 2024 10-K.
Recent Accounting Pronouncements
Refer to Note 2, Basis of Presentation and Summary of Significant Accounting Policies, included in Part I, Item 1 of this Form 10-Q for more information regarding recently issued accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk to earnings or asset and liability values resulting from movements in market prices. Our market risk exposures include (i) foreign exchange risk related to transactions and earnings in currencies other than the U.S. dollar; and (ii) interest rate risk due to changes in the relationship between the interest rates on our assets. There were no material changes in these market risks since January 31, 2024, as disclosed in the 2024 10-K.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer (the “CEO”), and Chief Financial Officer (the “CFO”), as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act, our management, with the participation of our CEO and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures as of April 30, 2024. Based on such evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) that occurred during the three months ended April 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
Refer to Note 8, Commitments and Contingencies - Legal Matters, included in Part I, Item 1 of this Form 10-Q for a description of current legal proceedings.
Item 1A. Risk Factors.
Our operations and financial results are subject to various risks and uncertainties, including those described below. You should consider and read carefully all of the risks and uncertainties described below, together with all of the other information contained in this Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and the related notes. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition or results of operations. In such case, the trading price of our Class A common stock could decline and stockholders may lose all or part of their investment.
Summary of Selected Risk Factors Associated with Our Business
The following is only a summary of the principal risks associated with an investment in our Class A common stock. Material risks that may adversely affect our business, financial condition or results of operations include, but are not limited to, the following:
•Our recent rapid growth may not be indicative of our future growth. Our rapid growth also makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.
•We have incurred significant net losses in recent years, we may incur losses in the future and we may not be able to generate sufficient revenue to achieve and maintain profitability.
•If we fail to effectively manage our growth and organizational change, our business and results of operations could be harmed.
•Our actual operating results may differ significantly from any guidance provided.
•Our results of operations and financial metrics may be difficult to predict. As a result, we may fail to meet or exceed the expectations of investors or securities analysts, which could cause our stock price to decline.
•Any failure of our Unified Customer Experience Management (“Unified-CXM”) platform to satisfy customer demands, achieve increased market acceptance or adapt to changing market dynamics would adversely affect our business, results of operations, financial condition and growth prospects.
•The market for Unified-CXM solutions is new and rapidly evolving, and if this market develops more slowly than we expect or declines, develops in a way that we do not expect, or if we do not compete effectively, our business could be adversely affected.
•Our business depends on our customers renewing their subscriptions and on us expanding our sales to existing customers. Any decline in our customer renewals or expansion would harm our business, results of operations and financial condition.
•We use artificial intelligence in our products, which may result in operational challenges, legal liability, reputational concerns and competitive risks.
•Our business and growth depend in part on the success of our strategic relationships with third parties, as well as on the continued availability and quality of feedback data from third parties over whom we do not have control.
•Any failure to obtain, maintain, protect, defend or enforce our intellectual property rights could impair our ability to protect our proprietary technology and our brand and adversely affect our business, financial condition and results of operations.
•We are subject to stringent and changing obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions, litigation or mass arbitration demands, fines and penalties, disruptions of our business operations, reputational harm, loss of revenue or profits, loss of customers or sales, and other adverse business consequences.
•If we or the third parties with whom we work experience a cybersecurity breach or other security incident or unauthorized parties otherwise obtain access to our customers’ data, our data or our Unified-CXM platform, our Unified-CXM platform may be perceived as not being secure, our reputation may be harmed, demand for our Unified-CXM platform may be reduced and we may incur significant liabilities.
•Our stock price may be volatile, and the value of our Class A common stock may decline.
•Our directors, executive officers and their respective affiliates are able to exert significant control over us, which limits your ability to influence the outcome of important transactions, including a change of control.
•Unstable market and economic conditions and catastrophic events may have serious adverse consequences on our business, financial condition and share price.
Risks Related to Our Growth
Our recent rapid growth may not be indicative of our future growth. Our rapid growth also makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.
Our revenue was $196.0 million and $173.4 million for the three months ended April 30, 2024 and 2023, respectively. You should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance. Even if our revenue continues to increase, our revenue growth rate may decline in the future as a result of a variety of factors, including the maturation of our business. Overall growth of our revenue depends on a number of factors, including our ability to:
•price our products effectively so that we are able to attract new customers and expand sales to our existing customers;
•expand the functionality and use cases for the products we offer on our Unified-CXM platform;
•provide our customers with support that meets their needs;
•continue to introduce our products to new markets outside of the United States;
•successfully identify and acquire or invest in businesses, products or technologies that we believe could complement or expand our Unified-CXM platform; and
•increase awareness of our brand on a global basis and successfully compete with other companies.
We may not successfully accomplish any of these objectives, and, as a result, it is difficult for us to forecast our future results of operations. If the assumptions that we use to plan our business are incorrect or change in reaction to changes in the markets in which we operate, or if we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability. You should not rely on our revenue for any prior quarterly or annual periods as an indication of our future revenue or revenue growth.
We have incurred significant net losses in recent years, we may incur losses in the future and we may not be able to generate sufficient revenue to achieve and maintain profitability.
Other than the recent fiscal year ended January 31, 2024, we have incurred significant net losses in recent years, including a net loss of $55.7 million for the year ended January 31, 2023. We had an accumulated deficit of $566.0 million and $474.8 million as of April 30, 2024 and January 31, 2024, respectively. We expect that our costs will increase over time and our losses may continue, as we expect to invest significant additional funds in our business and incur costs relating to operating as a public company. To date, we have financed our operations principally through subscription payments by customers for use of our Unified-CXM platform and equity and debt financings. We have expended and expect to continue to expend substantial financial and other resources on:
•our Unified-CXM platform, including investing in our research and development team, developing or acquiring new products, features and functionality and improving the scalability, availability and security of our Unified-CXM platform;
•our technology infrastructure, including expansion of our activities with public cloud service providers, enhancements to our network operations and infrastructure design, and hiring of additional employees for our operations team;
•sales and marketing, including expansion of our direct sales organization and marketing efforts; and
•additional international expansion in an effort to increase our customer base and sales.
These investments may be more costly than we expect and may not result in increased revenue or growth in our business. Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving and maintaining profitability or positive cash flow on a consistent basis. If we are unable to successfully address these risks and challenges as we encounter them, our business, results of operations and financial condition would be adversely affected. In the event that we fail to achieve or maintain profitability, the value of our Class A common stock could decline.
If we fail to effectively manage our growth and organizational change, our business and results of operations could be harmed.
We have experienced, and may continue to experience, rapid growth and organizational change, which has placed, and may continue to place, significant demands on our management, operational and financial resources. In addition, we operate globally and sell subscriptions in more than 80 countries. We plan to continue to expand our international operations into other countries in the future, which will place additional demands on our resources and operations. We also have experienced significant growth in the number of
enterprises, end users, transactions and amount of data that our Unified-CXM platform and our associated hosting infrastructure support.
In order to grow our business, we must continue to attract new customers in a cost-effective manner and enable such customers to realize the benefits associated with our Unified-CXM platform. We may not be able to attract new customers to our Unified-CXM platform for a variety of reasons, including as a result of their use of traditional approaches to customer experience management, their internal timing or budget or the pricing of our Unified-CXM platform compared to products and services offered by our competitors. After a customer makes a purchasing decision, we often must also help them successfully implement our Unified-CXM platform in their organization, a process that can last several months.
In addition, we have expanded and may attempt to further grow our business by selling our Unified-CXM platform to U.S. federal, state, and local, as well as foreign, governmental agency customers. Growing our business by increasing the number of governmental agency customers we service would subject us to a number of challenges and risks. Selling to such agencies can be highly competitive and time-consuming, often requiring significant upfront time and expenses without any assurance that these efforts will generate a sale. We may not satisfy certain government contracting requirements necessary to attain certification to sell our Unified-CXM platform to certain governmental agency customers. Such government contracting requirements may change and in doing so restrict our ability to sell into the government sector until we have attained the revised certification. Government demand and payment for our products are affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products and services. Finally, sales of our Unified-CXM platform to governmental agency customers that are engaged in certain sensitive industries, including organizations whose products or activities are perceived to be harmful, could result in public criticism and reputational risks, which could engender dissatisfaction among potential customers, investors and employees with how we address political and social concerns in our business activities. If we are unable to grow our business by increasing the number of governmental agency customers we service, or if we fail to overcome the challenges and risks associated with selling to such entities, our business, results of operations and financial condition may be adversely affected.
Risks Related to Our Business and Industry
Our actual operating results may differ significantly from any guidance provided.
Our guidance, including forward-looking statements, is prepared by management and is qualified by, and subject to, a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Many of these uncertainties and contingencies are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. We generally state possible outcomes as high and low ranges, which are intended to provide a sensitivity analysis as variables are changed but are not intended to represent that actual results could not fall outside of the suggested ranges.
Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will not materialize or will vary significantly from actual results. In particular, guidance offered in periods of extreme uncertainty, such as the uncertainty caused by macroeconomic conditions, is inherently more speculative in nature than guidance offered in periods of relative stability. Accordingly, any guidance with respect to our projected financial performance is necessarily only an estimate of what management believes is realizable as of the date the guidance is given. Actual results will vary from the guidance and the variations may be material. Investors should also recognize that the reliability of any forecasted financial data will diminish the farther in the future that the data is forecasted.
Actual operating results may be different from our guidance, and such differences may be adverse and material. In light of the foregoing, investors are urged to put the guidance in context and not to place undue reliance on it. In addition, the market price of our Class A common stock may reflect various market assumptions as to the accuracy of our guidance. If our actual results of operations fall below the expectations of investors or securities analysts, the price of our Class A common stock could decline substantially.
Our results of operations and financial metrics may be difficult to predict. As a result, we may fail to meet or exceed the expectations of investors or securities analysts, which could cause our stock price to decline.
Our results of operations and financial metrics, including the levels of our revenue, gross margin, profitability, cash flow and deferred revenue, have fluctuated in the past and may vary significantly in the future. As a result, period-to-period comparisons of our results of operations may not be meaningful, and the results of any one period should not be relied upon as an indication of future performance. Our results of operations may fluctuate as a result of a variety of factors, many of which are outside of our control, and, as a result, may not fully reflect the underlying performance of our business. Fluctuation in results of operations may negatively impact the value of our Class A common stock. Factors that may cause fluctuations in our results of operations include, without limitation, those listed below:
•variability in our sales cycle, including as a result of the budgeting cycles and internal purchasing priorities of our customers;
•the payment terms and subscription term length associated with sales of our Unified-CXM platform and their effect on our bookings and free cash flow;
•the addition or loss of large customers, including through acquisitions or consolidations;
•the timing of sales and recognition of revenue, which may vary as a result of changes in accounting rules and interpretations;
•the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure;
•network outages or actual or perceived security breaches or other incidents;
•general economic, market and political conditions;
•customer renewal rates;
•increases or decreases in the number of elements of our services or pricing changes upon any renewals of customer agreements;
•pricing adjustments made to existing customer agreements;
•changes in our pricing policies or those of our competitors;
•the mix of services sold during a period;
•the timing of our recognition of stock-based compensation expense for our equity awards, particularly in cases where awards covering a large number of our shares are tied to a specific event or date; and
•the timing and success of introductions of new platform features and services by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers or strategic partners.
The cumulative effects of the factors discussed above could result in large fluctuations and unpredictability in our quarterly and annual results of operations. This variability and unpredictability also could result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or results of operations fall below the expectations of analysts or investors or below any guidance we may provide, or if the guidance we provide is below the expectations of analysts or investors, the price of our Class A common stock could decline substantially. Such a stock price decline could occur even if we have met any previously publicly stated guidance we may provide.
Any failure of our Unified-CXM platform to satisfy customer demands, achieve increased market acceptance or adapt to changing market dynamics would adversely affect our business, results of operations, financial condition and growth prospects.
We derive, have derived and expect to continue to derive the substantial majority of our revenue from subscriptions to our Unified-CXM platform. As such, the market acceptance of our Unified-CXM platform is critical to our success. Demand for our Unified-CXM platform is affected by a number of factors, many of which are beyond our control, including the extension of our Unified-CXM platform for new use cases, the timing of development and release of new products, features and functionality introduced by us or our competitors, technological change and the growth or contraction of the market in which we compete.
In addition, we expect that an increasing focus on customer satisfaction and the growth of various communications channels and new technologies will profoundly impact the market for Unified-CXM solutions. We believe that enterprises increasingly are looking for flexible solutions that bridge across traditionally separate systems for experience management, marketing automation and customer relationship management. If we are unable to meet this demand to manage customer experiences through flexible solutions designed to address a broad range of needs, or if we otherwise fail to achieve more widespread market acceptance of our Unified-CXM platform, our business, results of operations, financial condition and growth prospects may be adversely affected.
The market for Unified-CXM solutions is new and rapidly evolving, and if this market develops more slowly than we expect or declines, develops in a way that we do not expect, or if we do not compete effectively, our business could be adversely affected.
We believe that our success and growth will depend to a substantial extent on the widespread acceptance and adoption of Unified-CXM solutions in general, and of our Unified-CXM platform in particular. The market for Unified-CXM solutions is new and rapidly evolving, and if this market fails to grow or grows more slowly than we currently anticipate, demand for our Unified-CXM platform could be adversely affected. The Customer Experience Management (“CXM”) market also is subject to rapidly changing user demand and trends. As a result, it is difficult to predict enterprise adoption rates and demand for our Unified-CXM platform, the future growth rate and size of our market or the impact of competitive solutions.
The expansion of the CXM market depends on a number of factors, including awareness of the Unified-CXM category generally, ease of adoption and use, cost, features, performance and overall platform experience, data security and privacy, interoperability and accessibility across devices, systems and platforms and perceived value. If Unified-CXM solutions do not continue to achieve market acceptance, or if there is a reduction in demand for Unified-CXM solutions for any reason, including a lack of category or use case awareness, technological challenges, weakening economic conditions, data security or privacy concerns, competing technologies and
products or decreases in information technology spending, our business, results of operations and financial condition may be adversely affected.
The market for Unified-CXM solutions is also highly competitive. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or enterprise requirements. With the introduction of new technologies, the evolution of our Unified-CXM platform and new market entrants, we expect competition to intensify in the future. Pricing pressures and increased competition generally could result in reduced sales, reduced margins, losses or the failure of our Unified-CXM platform to achieve or maintain more widespread market acceptance, any one of which could harm our business.
While we do not believe that any of our competitors currently offer a full suite of Unified-CXM solutions that competes across the breadth of our Unified-CXM platform, certain features of our Unified-CXM platform compete in particular segments of the overall Unified-CXM category. Our main competitors include, among others, experience management solutions, including solution media solutions, home-grown solutions and tools, adjacent Unified-CXM solutions, such as social messaging, customer service and support solutions, traditional marketing, advertising and consulting firms and customer relationship management and enterprise resource planning solutions. Further, other established SaaS providers and other technology companies not currently focused on Unified-CXM may expand their services to compete with us. Some of our competitors may be able to offer products or functionality similar to ours at a more attractive price than we can or do, including by integrating or bundling such products with their other product offerings. Additionally, some potential customers, particularly large organizations, have elected, and may in the future elect, to develop their own internal Unified-CXM solutions.
Acquisitions, partnerships and consolidation in our industry may provide our competitors even more resources or may increase the likelihood of our competitors offering bundled or integrated products that we may not be able to effectively compete against. In particular, as we rely on the availability and accuracy of various forms of customer feedback and input data, the acquisition of any such data providers or sources by our competitors could affect our ability to continue accessing such data. Furthermore, we also are subject to the risk of future disruptive technologies. If new technologies emerge that are able to collect and process experience data, or otherwise develop Unified-CXM solutions at lower prices, more efficiently, more conveniently or with functionality and features enterprises prefer to ours, such technologies could adversely impact our ability to compete. If we are not able to compete successfully against our current and future competitors, our business, results of operations and financial condition may be adversely affected.
Our business depends on our customers renewing their subscriptions and on us expanding our sales to existing customers. Any decline in our customer renewals or expansion would harm our business, results of operations and financial condition.
In order for us to maintain or improve our results of operations, it is important that we maintain and expand our relationships with our customers and that our customers renew their subscriptions when the initial subscription term expires or otherwise expand their subscription program with us. Our customers are not obligated to, and may elect not to, renew their subscriptions on the same or similar terms after their existing subscriptions expire. Some of our customers have in the past elected, and may in the future elect, not to renew their agreements with us or otherwise reduce the scope of their subscriptions, and we do not have sufficient operating history with our business model and pricing strategy to accurately predict long-term customer renewal rates. In addition, the growth of our business depends in part on our customers expanding their use of our Unified-CXM platform, which can be difficult to predict.
Our customer renewal rates, as well as the rate at which our customers expand their use of our Unified-CXM platform, may decline or fluctuate as a result of a number of factors, including the customers’ satisfaction with our Unified-CXM platform, defects or performance issues, our customer and product support, our prices, mergers and acquisitions affecting our customer base, the effects of global economic conditions, the entrance of new or competing technologies and the pricing of such competitive offerings or reductions in the enterprises’ spending levels for any reason. If our customers do not renew their subscriptions, renew on less favorable terms or reduce the scope of their subscriptions, our revenue may decline and we may not realize improved results of operations from our customer base, and, as a result, our business and financial condition could be adversely affected.
We rely on third-party data centers and cloud computing providers, and any interruption or delay in service from these facilities could impair the delivery of our Unified-CXM platform and harm our business.
We currently serve our customers from third-party data centers and cloud computing providers located around the world. Some of these facilities may be located in areas prone to natural disasters and may experience events such as earthquakes, floods, fires, severe weather events, power loss, computer or telecommunication failures, service outages or losses, and similar events. They also may be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct or cybersecurity issues, human error, terrorism, improper operation, unauthorized entry and data loss. In the event of significant physical damage to one of these data centers, it may take a significant period of time to achieve full resumption of our services, and our disaster recovery planning may not account for all eventualities. We also may incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the data centers that we use. Although we carry business interruption insurance, it may not be sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business that may result from interruptions in our services or products.
As we grow and continue to add new third-party data centers and cloud computing providers and expand the capacity of our existing third-party data centers and cloud computing providers, we may move or transfer our data and our customers’ data. Despite precautions taken during this process, any unsuccessful data transfers may impair the delivery of our Unified-CXM platform. Any damage to, or failure of, our systems, or those of our third-party data centers or cloud computing providers or the systems of a customer that hosts our software in their private cloud, could result in interruptions on our Unified-CXM platform or damage to, or loss or compromise of, our data and our customers’ data, including personal data. Any impairment of our or our customers’ data or interruptions in the functioning of our Unified-CXM platform, whether due to damage to, or failure of, third-party data centers, cloud computing providers or the cloud computing providers of our customers or unsuccessful data transfers, may reduce our revenue, result in significant fines, cause us to issue credits or pay penalties, subject us to claims for indemnification and other claims, litigation or disputes, result in regulatory investigations or other inquiries, cause our customers to terminate their subscriptions and adversely affect our reputation, renewal rates and our ability to attract new customers. Our business will also be harmed if our existing and potential customers believe that our Unified-CXM platform is unreliable or not secure.
Further, our leases and other agreements with data centers and cloud computing providers expire at various times, and the owners of our data center facilities and cloud computing providers have no obligation to renew their agreements with us on commercially reasonable terms, or at all. Additionally, certain of our data center and clouding computing provider agreements may be terminable for convenience by the counterparty. If services are interrupted at any of these facilities or providers, such agreements are terminated, or we are unable to renew these agreements on commercially reasonable terms or at all, or if one of our data center or cloud computing providers is acquired or encounters financial difficulties, including bankruptcy, we may be required to transfer our servers and other infrastructure to new data centers and cloud computing providers, and we may incur significant costs and possible service interruptions in connection with doing so. In addition, if we do not accurately plan for our data center and cloud computing capacity requirements and we experience significant strains on our data center and cloud computing capacity, we may experience delays and additional expenses in arranging new data center and cloud computing arrangements, and our customers could experience service outages that may subject us to financial liabilities, result in customer losses and dissatisfaction, and materially adversely affect our business, operating results and financial condition.
If we are not able to effectively develop platform enhancements, introduce new products or keep pace with technological developments, our business, results of operations and financial condition could be adversely affected.
Our future success will depend on our ability to adapt and innovate. To attract new customers and increase revenue from our existing customers, we will need to enhance and improve our existing platform and introduce new products, features and functionality. Enhancements and new products that we develop may not be introduced in a timely or cost-effective manner, may contain errors or defects, and may have interoperability difficulties with our Unified-CXM platform or other products. We have in the past experienced delays in our internally planned release dates of new products, features and functionality, and there can be no assurance that these developments will be released according to schedule. We also have invested, and may continue to invest, in the acquisition of complementary businesses and technologies that we believe will enhance our Unified-CXM platform. However, we may not be able to integrate these acquisitions successfully or achieve the expected benefits of such acquisitions. If we are unable to successfully develop, release, acquire or integrate new products, features and functionality, or enhance our existing platform to meet the needs of our existing or potential customers in a timely and effective manner, or if a customer is not satisfied with the quality of work performed by us or with the technical support services rendered, we could incur additional costs to address the situation, and our business, results of operations and financial condition could be adversely affected.
Similarly, our customers and users of our Unified-CXM platform are increasingly accessing our Unified-CXM platform or interacting via mobile devices. We are devoting valuable resources to solutions related to mobile usage, but we cannot assure you that these solutions will be successful. If the mobile solutions we have developed for our Unified-CXM platform do not meet the needs of current or prospective customers, or if our solutions are difficult to access, customers or users may reduce their usage of our Unified-CXM platform or cease using our Unified-CXM platform altogether and our business could suffer.
In addition, because our Unified-CXM platform is designed to operate on a variety of networks, applications, systems and devices, we will need to continually modify and enhance our Unified-CXM platform to keep pace with technological advancements in such networks, applications, systems and devices. If we are unable to respond in a timely, user-friendly and cost-effective manner to these rapid technological developments, our Unified-CXM platform may become less marketable and less competitive or obsolete, and our business, results of operations and financial condition may be adversely affected.
We use artificial intelligence in our products and operations, which may result in operational challenges, legal liability, reputational concerns and competitive risks.
In addition to the use of our own artificial intelligence (“AI”) features within our products, we have also incorporated generative artificial intelligence (“Generative AI”) features into our product offerings and internal operations through third-party partners integrated with our products and tools, which has the potential to result in adverse effects to our financial condition, results or reputation. Generative AI features and services leverage existing and widely available technologies, such as those owned by OpenAI or alternative large language model providers. The use of Generative AI processes at scale is relatively new and may lead to
challenges, concerns and risks that are significant or that we may not be able to predict, especially if our use of these technologies in our products and services becomes more important to our operations over time.
Use of AI or Generative AI in our products and services may be difficult to deploy successfully due to operational issues inherent to the nature of such technologies, including the development, maintenance and operation of deep learning datasets, and our customers’ reluctance or failure to adopt or implement our new products as intended. For example, AI and Generative AI algorithms use machine learning and/or content creation which, depending on the reliability of the model, may lead to flawed, biased, unexplained, and inaccurate results, which could lead to customer rejection or skepticism of such products. Emerging ethical issues surround the use of AI or Generative AI, and if our deployment or use of AI or Generative AI becomes controversial or is challenged by our current or prospective customers, we may be subject to reputational risk. Any sensitive information (including confidential, competitive, proprietary, or personal data) that we or our customers input into the third-party Generative AI features in our products could be leaked, disclosed to others or used for improper purposes, including if sensitive information is used to train the third parties’ Generative AI models, in breach of our contractual agreements. Additionally, where the product ingests personal data or where it makes connections using such data, these AI or Generative AI processes may reveal or generate other personal or sensitive information which we could lose control over or impair our ability to fulfill certain data subject requests in compliance with certain privacy laws, such as requests to delete certain personal data ingested by the product. Further, unauthorized use or misuse of Generative AI by our employees, customers or others, including violation of internal policies or procedures or guidelines or contractual agreements and terms (including Acceptable Use or other policies and third-party terms), may result in disclosure or misuse of confidential company and customer data, reputational harm, privacy law violations, legal liability, or regulatory actions, including algorithmic disgorgement. Improper use of AI and Generative AI could result in biased outcomes and could lead to decisions that could harm certain individuals (or classes of individuals), and adversely impact their rights, employment, and ability to obtain certain pricing, products, services, or benefits. In addition, use of Generative AI may also lead to novel and urgent cybersecurity risks (such as if a bad actor “poisons” the Generative AI with bad inputs or logic), including the misuse of personal or business confidential data, which may adversely affect our operations and reputation. Further, use of our AI systems for unintended use cases may alter the associated legal obligations upon Sprinklr, without our knowledge. We may not be able to detect, mitigate and remediate such misuse, and limitations of liability in contracts may be inadequate to address legal liability, fines, penalties and other regulatory actions resulting from such misuse.
As a result, the integration of Generative AI into our products and operations may not be successful despite expending significant time and monetary resources to attempt to do so. Our investments in deploying such technologies may be substantial, and they may be more expensive than anticipated. If we fail to deploy Generative AI as intended, our competitors may incorporate Generative AI technology into their products or services more successfully than we do, which may impair our ability to effectively compete in the market.
Uncertainty in the legal regulatory regime relating to AI may require significant resources to modify and maintain business practices to comply with U.S. and foreign laws, the nature of which cannot be determined at this time as they continue to evolve and solidify. Several jurisdictions around the globe have already proposed or enacted laws or guidelines governing AI. For example, the Biden administration recently issued an executive order on AI that requires companies developing certain types of AI models to notify the federal government of certain safety test results and other information. As another example, European regulators have finalized the text of the EU Artificial Intelligence Act (“EU AI Act”), which imposes a number of obligations on various parties related to the use of certain AI-powered systems, and we expect that other jurisdictions will adopt similar laws. Other jurisdictions may decide to adopt similar or more restrictive legislation that may render the use of such technologies challenging. Additionally, certain privacy laws extend rights to consumers (such as the right to delete certain personal data) and regulate automated decision making, which may be incompatible with AI. These obligations may make it harder for us to conduct our business using AI, create potential for regulatory fines or penalties, require us to change our business practices, retrain our AI, prevent or limit our use of AI or Generative AI, or delete or disgorge certain algorithms. For example, the US Federal Trade Commission has required other companies to turn over or delete or disgorge valuable insights or trainings generated through the use of AI, or the AI models or algorithms themselves, where they allege the company has violated privacy and consumer protection laws. If we cannot use AI or Generative AI, or that use is restricted, our business may be less efficient, or we may be at a competitive disadvantage. Further, intellectual property ownership and liability for violation of terms of use, open source licenses, infringement or misappropriation of intellectual property and violation of privacy or publicity rights are issues arising from the use of AI technologies that legislators are still attempting to establish and with which courts are still grappling. In addition, access to data from third-party sources, including data suppliers, may become more restricted in the future, which could negatively impact our development and deployment of products, including AI technologies, that rely on such data. Therefore, the use of AI technologies in connection with our products or operations may impact our business model or result in the inability to establish ownership of intellectual property or exposure to claims relating to the foregoing.
Moreover, our employee and personnel use Generative AI technologies to support their work, and the disclosure and use of personal data, is subject to various privacy laws and other privacy obligations. Our use of this technology could result in additional compliance costs, regulatory investigations and actions, and lawsuits if we do not use (or are perceived to not use it) it in accordance with our internal policies and governance, applicable laws or other obligations. Output from Generative AI systems that we use may infringe on third party intellectual property rights without us being aware. However, if we are unable to use Generative AI, it could make our
business less efficient and result in competitive disadvantages. Additionally, sensitive information of the Company or our customers could be leaked, disclosed, or revealed as a result of or in connection with our employees’, personnel’s, customers’ or vendors’ use of Generative AI technologies.
Our business and growth depend in part on the success of our strategic relationships with third parties, as well as on the continued availability and quality of feedback data from third parties over whom we do not have control.
We depend on, and anticipate that we will continue to depend on, various third-party relationships in order to sustain and grow our business, including technology companies whose products integrate with ours. Failure of any of these technology companies to maintain, support or secure their technology platforms in general, and our integrations in particular, or errors or defects in their technologies or products, could adversely affect our relationships with our customers, damage our brand and reputation and result in delays or difficulties in our ability to provide our Unified-CXM platform. For example, we rely on third parties to support certain components of our communication and voice services. Failure of any of these third-party providers to provide their services for any reason could adversely affect our relationships with our customers, damage our brand and reputation and result in delays or difficulties in our ability to provide certain services. We also rely on the availability and accuracy of various forms of client feedback and input data, including data solicited via survey or based on data sources across modern channels, and any changes in the availability or accuracy of such data could adversely impact our business and results of operations and harm our reputation and brand. In some cases, we rely on negotiated agreements with social media networks and other data providers. These negotiated agreements may provide increased access to application programming interfaces (“APIs”) and data that allow us to provide a more comprehensive solution for our customers. These agreements are subject to termination in certain circumstances, and there can be no assurance that we will be able to renew those agreements or that the terms of any such renewal, including pricing and levels of service, will be favorable. We cannot accurately predict the potential impact of the termination of any of our agreements with social media networks and other data providers, including the impact on our access to the related APIs. There can be no assurance that following any such termination we would be able to maintain the current level of functionality of our platform in such circumstances, as a result of more limited access to APIs or otherwise, which could adversely affect our results of operations. In addition, there can be no assurance that we will not be required to enter into new negotiated agreements with data providers in the future to maintain or enhance the level of functionality of our platform, or that the terms and conditions of such agreements, including pricing and levels of service, will not be less favorable, which could adversely affect our results of operations. In particular, X (formerly known as Twitter) provides us with certain data that supports our Unified-CXM platform pursuant to an agreement that expires on February 28, 2025. If our agreement with X (formerly known as Twitter) expires, is not renewed on the same or similar terms or at all, or if it is terminated due to the failure or unwillingness of either party to perform its obligations thereunder, we may not be able to provide the same level of Unified-CXM insights to our customers and our business, results of operations and financial condition may be materially and adversely affected.
We invest significantly in research and development, and, to the extent that our research and development investments do not translate into new solutions or material enhancements to our current solutions or we do not use those investments efficiently, our business and results of operations would be harmed.
A key element of our strategy is to invest significantly in our research and development efforts to improve and develop new technologies, features and functionality for our Unified-CXM platform. For each of the years ended January 31, 2024 and 2023, our research and development expenses were at least 10% of our revenue. If we do not spend our re