Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.23.1
Stock-Based Compensation
 12 Months Ended
Jan. 31, 2023
Share-Based Payment Arrangement [Abstract]  
Stock-Based Compensation Stock-Based Compensation
Equity Incentive Plans
The Sprinklr, Inc. 2011 Equity Incentive Plan (the “2011 Plan”) provided certain equity grants to the Company’s employees, directors, consultants and service providers. The 2011 Plan was terminated as to future awards in June 2021 upon the adoption of the Sprinklr, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), although it continues to govern the terms of any equity grants that remain outstanding under the 2011 Plan.
The Company’s board of directors adopted the 2021 Plan in May 2021, which was subsequently approved by its stockholders and became effective on June 22, 2021. Initially, the maximum number of shares of the Company’s Class A common stock that may be issued under the 2021 Plan was 80,401,680 shares, which includes (i) 25,480,000 new shares of Class A common stock and (ii) shares subject to outstanding awards granted under the 2011 Plan that expire or otherwise terminate or that are not issued or are otherwise reacquired by the Company under certain circumstances. The 2021 Plan provides that the number of shares reserved and available for issuance under the 2021 Plan will automatically increase each January 1, beginning on January 1, 2022 and ending on (and including) January 1, 2031, by an amount equal to 5% of the number of our Class A and Class B common stock outstanding on the immediately preceding December 31 or such lesser number of shares as determined by the Company’s board of directors. As of January 31, 2023, there were 51,298,472 shares available for grant under the 2021 Plan.
The 2021 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, RSUs, PSUs, and other forms of awards to employees, directors and consultants, including employees and consultants of the Company's affiliates, as permitted by law.
Performance-Based Stock Units
In January 2021, the Company granted 3,100,000 PSUs to certain executives that vest over a five-year period if certain performance and market conditions are met. The performance condition was met on June 22, 2021, the effective date of the Company’s registration statement, filed in connection with its IPO. The market conditions of the PSUs will be achieved on the date, following the IPO, on which the volume weighted-average trading price of the Company's Class A common stock has, for 45 consecutive trading days, equaled or exceeded pre-determined threshold prices ranging between $30 and $100. If the first threshold of $30 is not met, then no shares will vest. Each PSU is equal to and paid in one share of Class B common stock. The number of shares actually issued will range from zero to 3,100,000 shares in the aggregate. If the market conditions are not met on or prior to the five year anniversary of the grant date, the associated awards will not vest and be subsequently cancelled.
To determine the fair value of the PSUs, the Company utilized a Monte Carlo simulation, a computational algorithm which allowed the Company to model the impact of one or more, often uncertain, variables on the value of complex securities and evaluate many possible outcomes to forecast the stock price of the Company. As part of the valuation, the Company considered various scenarios related to the pricing, timing and probability of an IPO. The Company applied an annual equity volatility of 40.0%, a risk-free rate of 0.42%, fair value of common stock of $9.07 per share and an expected term of five years to arrive at a valuation of $3.5 million on the grant date.
The achievement of the performance condition was not deemed probable until the effective date of the Company’s registration statement, and therefore, stock-based compensation related to these PSUs remained unrecognized prior to that date. Upon effectiveness of the Company’s registration statement on June 22, 2021, the Company recognized cumulative stock-based compensation based on the proportion of the requisite service period already completed since the date of grant, which amounted to $0.4 million using the accelerated attribution method. The remaining stock-based compensation is recognized over the subsequent remaining requisite service period.
As of January 31, 2023, 1,450,000 of the PSUs remain outstanding as certain awards were cancelled due to grantee departures.
Chief Executive Officer Stock Option Agreement
In March 2019, the Company granted options to purchase 9,274,528 shares of common stock to its Chief Executive Officer. The grant was split into four tranches, each covering 2,318,632 shares of common stock. Tranche 1 was service-based and vested over three years, with the full amount of the related stock-based compensation recognized by March 2022. Tranches 2, 3 and 4 are performance-based, with tranche 2 vesting upon the date of effectiveness of the Company’s registration statement and tranches 3 and 4 vesting if the Company’s share price equals or exceeds certain values at or after the date of the effectiveness the Company’s registration statement.
For the 6,955,896 options that were subject to the performance condition satisfied upon the effectiveness of the Company’s registration statement, stock-based compensation expense remained unrecognized until the effective date of June 22, 2021. On this date, the 2,318,632 options under tranche 2 vested and the Company recognized cumulative stock-based compensation expense of $5.8 million using the accelerated attribution method for the portion of the options for which the service-based vesting condition was fully or partially satisfied. The remaining stock-based compensation expense associated with tranches 3 and 4 was recognized through the subsequent remaining requisite service period, or March 2022. If the market conditions associated with tranches 3 and 4 are not met by May 1, 2023, the associated options will not vest and be subsequently cancelled.
To determine the fair value of stock options that include market and performance conditions (tranches 2, 3 and 4), the Company utilized a Monte Carlo simulation, which allowed for the modeling of complex securities and evaluate many possible outcomes to forecast the stock price of the Company post-IPO. As part of the valuation, the Company considered various scenarios related to the pricing, timing and probability of an IPO. The Company applied an annual equity volatility of 44.0%, a risk-free rate of 2.6%, fair value of the common stock of $4.14 and an expected term of ten years to arrive at a valuation of $6.1 million on the grant date.
Summary of Stock Option Activity
A summary of the Company’s stock option activity for the Plan for year ended January 31, 2023 is as follows:
Number of Stock Options Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value
(in thousands) (in years) (in thousands)
Balance as of January 31, 2022
 44,355  $ 6.23  7.8 $ 226,504 
Exercised (5,392) 4.60 
Cancelled/forfeited (5,902) 8.40 
Expired (12) 4.24 
Balance as of January 31, 2023
 33,049  $ 6.11  6.6 $ 135,831 
Exercisable as of January 31, 2023
 23,808  $ 5.49  6.3 $ 110,167 
Vested and expected to vest as of January 31, 2023
 31,218  $ 5.91  6.5 $ 133,364 
Year Ended January 31,
2023 2022 2021
Intrinsic value of options exercised $ 32,391  $ 83,387  $ 51,952 
Estimated grant date fair value of options vested in the period $ 32,085  $ 29,256  $ 14,900 
The weighted-average grant date fair value of options granted in the years ended January 31, 2022 and 2021 were $5.58 and $2.96, respectively. There were no options granted during fiscal 2023.
Determining Fair Value of Stock Options
The fair value of each option grant with service and performance conditions is estimated on the date of grant using the Black-Scholes option valuation model. The following assumptions were used to estimate the fair value of options granted to employees for the years ended January 31, 2022 and 2021:
Year Ended January 31,
2022 2021
Expected term (in years) 6.0 6.1
Risk-free interest rate
0.9% - 1.4%
0.3% - 0.8%
Expected volatility
50.9% - 52.1%
42.3% - 45.5%
Expected dividend rate 0% 0%
Fair value of common stock
$10.96 - $14.02
$4.93 - $9.07
The assumptions were based on the following for each of the periods presented:
Expected term—The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. As all of the Company’s option grants are considered to be “plain vanilla,” the Company determined the expected term using the simplified method. The simplified method calculates the expected term as the average of the time-to-vesting and contractual terms of the stock-based award.
Risk-free interest rate—The risk-free interest rate is based on U.S. Treasury zero coupon issues with remaining terms similar to the expected term on the options.
Expected volatility—Because the Company had limited trading history by which to determine the volatility of its own common stock price, the expected volatility being used is derived from the historical stock volatilities of a representative industry peer group of comparable publicly listed companies over a period approximately equal to the expected term of the options.
Expected dividend rate—The Company has never declared or paid any cash dividends and does not anticipate paying cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.
Fair value of common stock – Prior to the IPO, the fair value of common stock underlying the stock options had historically been determined by the Company's board of directors, with input from the Company’s management and its valuations from an independent-third party valuation specialist. The Company’s board of directors previously determined the fair value of the common stock at the time of grant of the options by also considering a number of objective and subjective factors, including valuations of comparable companies, sales of common stock to unrelated third parties, operating and financial performance, the lack of liquidity of the Company’s capital stock, and general and industry-specific economic outlook. Subsequent to the IPO, the Company determines the fair value using the closing price, on the date of grant, of the Company’s Class A common stock, which is publicly traded on the NYSE.
Forfeiture rate—The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. For non-executive employees, the estimated forfeiture rate assumes that the likelihood that an award will be forfeited decreases through the passage of time.
Restricted Stock Units
A summary of the Company’s RSU activity was as follows:
(in thousands except per share data) Number of Restricted Stock Units Outstanding Weighted Average Grant Date Fair Value
Balance as of January 31, 2022
 1,730 $ 14.67 
Granted 9,690 12.12 
Released (622) 14.17 
Cancelled/forfeited (1,398) 13.74 
Balance as of January 31, 2023
 9,400 $ 12.23 
In January 2021, the Company granted 300,000 RSUs with a performance condition. These RSUs vest over a five-year period, with 20% met after one year and then equal quarterly installments over the succeeding four years if a certain performance condition is met. The performance condition was met upon the effective date of the Company’s registration statement, filed in connection with its IPO, June 22, 2021. Stock-based compensation related to these RSUs remained unrecognized prior to effectiveness of the Company’s registration statement as the performance condition was not yet deemed probable. On June 22, 2021, the Company recognized cumulative stock-based compensation based on the proportion of the requisite service period already completed since the date of grant, which amounted to $0.6 million using the accelerated attribution method. The remaining stock-based compensation is recognized over the subsequent remaining requisite service period.
Prior to the IPO, the Company estimated the fair value of its service-based RSUs based on the fair value of the underlying common stock, which it estimated in a similar manner to its pre-IPO options, as discussed above. Subsequent to the IPO, the Company determines the fair value of its service-based RSUs using the closing price, on the date of grant, of its Class A common stock, which is publicly traded on the NYSE.
Employee Stock Purchase Plan (“ESPP”)
In June 2021, the Company’s ESPP became effective. The ESPP initially reserved up to 5,100,000 shares of the Company’s Class A common stock to certain eligible employees or, as designated by the board of directors. The number of shares reserved for issuance under the ESPP automatically increase each January 1, beginning on January 1, 2022 and ending on (and including) January 1, 2031, by an amount equal to the lesser of (i) 1% of the outstanding number of shares of Class A and Class B common stock on the immediately preceding December 31 and (ii) 15,300,000, or such lesser number of shares as determined by the Company’s board of directors. The ESPP is intended to qualify as an ‘employee stock purchase plan’ under Section 423 of the Internal Revenue Code and also contains the necessary rights to permit participation by eligible employees who are foreign nationals or employed outside of the United States while complying with applicable foreign laws. The Company has 8,479,135 shares reserved for future issuance as of January 31, 2023.
Under the ESPP, employees may 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. The ESPP provides for consecutive offering periods that will typically have a duration of approximately 12 months in length and is comprised of two purchase periods of approximately six months in length. The offering periods are scheduled to start on the first trading day on or after June 15 and December 15 of each year, subject to a reset provision. The first offering period commenced on June 23, 2021.
If the fair market value of the Company’s stock on the offering date is higher than the fair market value of the Company’s stock on the last day of any applicable purchase period, participants will be withdrawn from the ongoing offering period and automatically be enrolled in the subsequent offering period, resulting in modification accounting. This reset provision resulted in incremental charges totaling $2.4 million and $3.4 million for the years ended January 31, 2023 and 2022, respectively.
ESPP employee payroll contributions accrued as of January 31, 2023 and 2022 totaled $1.4 million and $2.3 million, respectively, and are included within accrued expenses and other current liabilities in the consolidated balance sheet. Employee payroll contributions ultimately used to purchase shares will be reclassified to stockholders’ equity on the purchase date. The Company recorded stock-based compensation of $8.6 million and $6.1 million during the years ended January 31, 2023 and 2022 in connection with the ESPP.
The fair value of the share purchase rights granted under the ESPP during the year ended January 31, 2023 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
Year Ended January 31,
2023 2022
Expected term (in years)
0.5 - 1.0
0.5 - 1.0
Risk-free interest rate
2.2% - 4.6%
0.1% - 0.3%
Expected volatility
66.2% - 81.9%
49.3% - 57.0%
Expected dividend rate
0%
0%
Fair value of common stock
$8.84 - $9.84
$14.27 - $22.37
Deferred Stock Compensation Plan
In May 2020, the Company implemented a program that provides eligible employees the opportunity, through regular payroll deductions, to purchase shares of the Company’s common stock worth between 10% to 25% of the employee’s salary as elected by the participant, subject to certain caps set forth under the program. Employees were able to purchase shares of the Company’s common stock at the lower of the fair value of the common stock at the beginning or ending date of the purchase period, which commenced on June 1, 2020 and concluded on June 1, 2021. Receipt of common stock under this program was contingent on continued employment through June 1, 2021.
This share-settled obligation was recognized in June 2021, at which point the employees were granted shares under this program. In determining the fair value of the right to purchase under this program, the Company used the Monte-Carlo simulation and applied an annual equity volatility of 48.2%, a risk-free rate of 0.17%, fair value of the common stock of $4.93 and an expected term of one year to arrive at a valuation of $1.9 million for the put right, resulting in a grant date fair value of $5.86. The Company recognized $3.2 million of stock-based compensation expense during the year ended January 31, 2022 related to shares issuable pursuant to this program. On June 7, 2021, the Company issued 1,769,945 shares in connection with this program based on the fair value of the common stock at the beginning of the purchase period.
Secondary Stock Sale
In October 2020, in connection with the sale of the Series G convertible preferred stock, the purchasers of the Series G convertible preferred stock facilitated a secondary stock sale to purchase 9,707,427 shares of common stock from certain eligible employees for $9.25 per share for an aggregate purchase price of $89.8 million. The Company recognized stock-based compensation of $16.3 million in connection with the sale, which represented the difference between the purchase price and the estimated fair value of the common stock on the date of the sale.
Tender Offer Transaction
In November 2020, the Company, the purchasers of the Series G convertible preferred stock and other existing investors commenced a tender offer to acquire 5,974,776 shares of convertible preferred stock and 3,303,891 shares of common stock from employees and from certain existing and former employees and other existing investors.
The shares were repurchased from the stockholders at a purchase price of $9.25 per share. As a result of this transaction, the Company recognized $0.6 million as deemed dividends as a reduction to stockholders’ deficit in relation to the excess of the selling price of convertible preferred stock paid to the existing investors over the original issuance price paid by investors of the shares tendered, and $5.2 million of share-based compensation expense for the difference between the price paid for shares held by our employees and former employee stockholders and the estimated fair market value on the date of the transaction.
Stock-Based Compensation Expense
Stock-based compensation expense included in operating results was allocated as follows:
Year Ended January 31,
(in thousands) 2023 2022 2021
Cost of subscription $ 1,528  $ 1,794  $ 2,012 
Cost of professional 2,249  2,448  1,658 
Research and development 10,678  6,417  4,804 
Sales and marketing 26,651  19,929  14,976 
General and administrative (1)
14,411  19,543  21,619 
Stock-based compensation, net of amounts capitalized 55,517  50,131  45,069 
Capitalized stock-based compensation 2,540  696  — 
Total stock-based compensation $ 58,057  $ 50,827  $ 45,069 
Year Ended January 31,
(in thousands) 2023 2022 2021
Equity classified awards (2)
$ 57,057  $ 49,827  $ 44,159 
Other awards (3)
1,000  1,000  910 
Total stock-based compensation $ 58,057  $ 50,827  $ 45,069 
Year Ended January 31,
(in thousands) 2023 2022 2021
Stock options (4)
$ 23,454  $ 36,385  $ 14,896 
Performance-based stock units (5)
(55) 897  19 
Restricted stock units (4)
24,963  3,196  555 
Employee stock purchase plan 8,695  6,142  — 
Deferred stock compensation plan —  3,206  7,171 
Secondary stock sale —  —  16,331 
Tender offer transaction —  —  5,187 
Total stock-based compensation $ 57,057  $ 49,827  $ 44,159 
(1) For the fiscal years ended January 31, 2023, 2022 and 2021 the net impact of stock-based compensation related to modifications was immaterial.
(2) Expense associated with equity-classified awards includes $8.6 million and $6.1 million of ESPP expense recognized during the years ended January 31, 2023 and 2022, respectively. For the year ended January 31, 2021, it includes $16.3 million recognized in connection with the secondary stock sale and $5.2 million recognized in connection with the tender offer transaction.
(3) Non-employee grant recorded over five years, representing the same period and in the same manner as if the grantor had paid cash for the services instead of paying with or using the share-based payment award.
(4) Stock-based compensation for the year ended January 31, 2022 includes the acceleration of the expense recognized upon the effectiveness of the Company’s registration statement for the Chief Executive Officer’s performance-based stock options. Similarly, the acceleration of the expense for performance-based RSUs upon the effectiveness of the Company’s registration statement is captured within the stock-based compensation for RSUs for the year ended January 31, 2022.
(5) The stock-based compensation for performance-based stock units during the year ended January 31, 2023 includes the impact of stock-based compensation modifications.
As of January 31, 2023, total unrecognized compensation cost related to unvested awards not yet recognized under all equity compensation plans, was as follows:
January 31, 2023
(in thousands) Unrecognized Expense Weighted Average Expense Recognition Period (in years)
Stock options $ 28,296  2.1
Performance share units $ 854  2.1
Restricted stock units $ 64,674  3.2
ESPP $ 3,764  1.0