Sprinklr, Inc. (CXM) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call shows steady financial growth, with revenue and subscription increases. Positive developments include improved renewal predictability, successful pricing initiatives, and strategic AI investments. Leadership stability and positive market feedback further support sentiment. While some concerns exist, like the lack of detailed guidance and margin pressures, the overall outlook remains positive due to optimistic guidance and strategic initiatives.
Key Financial Performance
Total Revenue $219.1 million, up 9% year-over-year. The increase is attributed to the company's transformation efforts and operational improvements.
Subscription Revenue $190.3 million, up 5% year-over-year. Growth driven by progress on previously challenged accounts and increased consumption.
Non-GAAP Operating Income $33.5 million, resulting in a 15% non-GAAP operating margin for the quarter. This reflects operational discipline and cost management.
Free Cash Flow $15.5 million in Q3 and $126 million year-to-date. Excluding restructuring payments, free cash flow for the first 9 months was nearly $140 million. This indicates strong cash generation and operational efficiency.
Subscription Revenue-Based Net Dollar Expansion Rate 102%, flat sequentially, showing stabilization in subscription revenue.
Customers Contributing $1 Million+ in Subscription Revenue 145 customers, a decrease of 4 customers from Q2. However, revenue from this cohort was up 9% year-over-year, indicating stronger contributions from existing top-tier customers.
Non-GAAP Gross Margin 67%, with subscription gross margin at 77% and professional services gross margin at 5%. Higher data and hosting costs impacted margins.
Calculated Billings $158.4 million, an increase of 7% year-over-year. Reflects growth in customer engagements and project rollouts.
Total Remaining Performance Obligations (RPO) $857.6 million, down 5% year-over-year. Excluding outliers, RPO would be flat year-over-year, indicating stable long-term commitments.
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Operating Highlights
AI-powered platform: Sprinklr's platform leverages first-party data to enable personalized omnichannel engagement, turning data into actionable insights for customer needs.
AI agent expansion: Expanded partnership with a leading Latin American bank, showcasing AI-powered automation that improved case deflection by 35%, handling times by 50%, and agent productivity by 500%.
Latin American market expansion: Sprinklr expanded its services with a leading Latin American bank, consolidating customer care and marketing intelligence across three regional markets.
Global contact center transformation: Partnered with a global streaming company to implement a contact center transformation across 210 countries, supporting 40+ languages and handling over 40 million contacts annually.
Project Bear Hug: Focused on deepening engagement with top 700 customers, representing over 80% of total revenue, leading to stronger C-suite relationships and improved renewal rates.
Operational improvements: Streamlined processes, modernized systems, and enhanced cross-functional alignment to drive durable growth.
Leadership changes: Welcomed Anthony Coletta as CFO and Karthik Suri as Chief Product and Corporate Strategy Officer to strengthen leadership and drive growth.
Transformation strategy: Entered the second phase of transformation, focusing on embedding operational changes and creating a foundation for scale and efficiency.
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Risk or Challenges
Renewal Pressure: There has been downward pressure from renewals for more than 2 years, which continues to impact subscription revenue growth. Driving consumption and securing renewals remain high on the agenda.
Operational Transformation Challenges: The company is undergoing a significant transformation, which is expected to take time and may create operational inefficiencies during the transition period. This includes embedding foundational changes into operations and culture.
Customer Retention: Retention rates are beginning to show improvement, but challenges remain in stabilizing and improving renewal rates, particularly for top-tier enterprise customers.
Data and Hosting Costs: Higher data and hosting costs are being incurred in response to business opportunities, especially in Sprinklr Service and expanded AI capabilities, which could pressure margins.
Professional Services Gross Margin: Professional services gross margin is expected to be slightly negative in Q4 due to continued investment in services delivery and capabilities, which may impact short-term profitability.
Customer Implementation Challenges: Initial challenges in implementing solutions for a major customer required personnel changes, process tightening, and quality control improvements, highlighting risks in execution and delivery.
Economic Uncertainty: The company acknowledges economic uncertainties that could impact customer spending and overall business performance.
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Guidance & Outlook
Q4 Revenue Guidance: Total revenue is expected to be in the range of $216.5 million to $217.5 million, representing 7% growth year-over-year at the midpoint. Subscription revenue is projected to be between $191 million and $192 million, reflecting 5% growth year-over-year at the midpoint. Professional services revenue is anticipated to be $25.5 million, growing by 25% year-over-year.
Q4 Non-GAAP Operating Income: Non-GAAP operating income is expected to range between $29 million and $30 million, resulting in a 14% non-GAAP operating margin at the midpoint.
Full Year FY '26 Revenue Guidance: Total revenue is projected to be between $853 million and $854 million, representing 7% growth year-over-year at the midpoint. Subscription revenue is expected to range from $754 million to $755 million, reflecting 5% growth year-over-year at the midpoint.
Full Year FY '26 Non-GAAP Operating Income: Non-GAAP operating income is expected to range between $137.5 million and $138.5 million, driving a 16% non-GAAP operating margin. Non-GAAP net income per diluted share is projected to be between $0.43 and $0.44.
Full Year FY '26 Free Cash Flow: Free cash flow is estimated to be $125 million, excluding restructuring costs. On a reported basis, free cash flow is expected to be approximately $110 million, up over 80% year-over-year.
FY '27 Financial Outlook: A detailed financial outlook for FY '27 will be provided during the Q4 earnings call, expected to be scheduled for mid-March.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:How sustainable is the current revenue performance as we head into next year?
A:Rory Read explained that the company is in the transition-execution phase of its transformation, which is less predictable. While the quarter showed good performance in metrics like NAR and renewals, sustainability will depend on consistent performance over several quarters. The company is still a work in progress with significant improvements needed.
Q:What is Project Bear Hug and its impact on troubled accounts?
A:Rory Read described Project Bear Hug as an initiative to build deep relationships with customers, especially troubled accounts. It has shown positive results, such as turning potential down-sells into renewals or extensions. Metrics like a 9% year-over-year growth in $1 million-plus customers and a 113% net dollar expansion rate highlight its impact. The full effect of Bear Hug is expected by the end of 1Q or beginning of 2Q next year.
Q:How is the leadership bench being stabilized after recent changes?
A:Rory Read stated that most senior leadership changes are complete, with a mix of experienced team members. The focus is on building a team committed to the transformation journey over the next 3-4 years. He does not foresee disruptions in productivity due to these changes.
Q:What is the outlook for margin trends next year given investments in AI and go-to-market strategies?
A:Rory Read indicated that the company aims to balance profitability with reasonable investments in growth areas like AI and go-to-market strategies. While specific guidance will be provided later, the current approach is to maintain a balanced and disciplined investment strategy.
Q:How did renewals in Q3 compare to expectations, and what is the outlook for Q4?
A:Renewals in Q3 met or exceeded expectations, showing improved predictability. The company is managing renewals 3-4 quarters in advance and has plans in place for upcoming quarters. Q4 is expected to be a big quarter with good momentum, but consistent improvement over several quarters is needed.
Q:What motivated Anthony Coletta to join Sprinklr as CFO?
A:Anthony Coletta was attracted by Sprinklr's market opportunity, product quality, and customer base. He sees potential for growth and transformation, aligning with his experience at SAP. He also highlighted the relevance of Sprinklr's platform, as evidenced by its use by top global companies.
Q:What updates are there on pricing and bundling initiatives?
A:Rory Read reported that the first phase of new pricing and bundling for the MarTech stack has been implemented with positive feedback. The next steps include expanding it to existing customers and later to the service function, with full implementation expected by mid to late next year.
Q:What is the status of the Deutsche Telekom contact center deployment?
A:Rory Read stated that significant progress has been made in rolling out the solution, with positive feedback from agents. The implementation is moving in the right direction, and similar progress is being seen with other large telco customers in Europe.
Q:What is the current state of AI capabilities in the platform, and where are investments needed?
A:Rory Read emphasized that Sprinklr's platform is AI-native, enabling a 360-degree view of customer signals. AI is embedded to provide context and intelligent collaboration. Investments will focus on adding AI skills and enhancing regional capabilities. The platform's AI capabilities are seen as a competitive advantage.
Q:What is the outlook for fiscal '27, and is it still a transition year?
A:Rory Read stated that fiscal '27 will still be part of the transition phase, with the potential to move into the acceleration phase later in the year. The focus remains on executing consistently over the next few quarters to build a strong foundation.
Q:How is the services organization improving implementation and support?
A:Rory Read outlined several initiatives, including moving support functions onto Sprinklr's platform, implementing new technology for tracking services projects, and expanding partnerships. These changes aim to improve consistency and execution, with full implementation expected by mid-summer next year.
Q:What is the guidance philosophy and key metrics for communication?
A:Anthony Coletta emphasized a focus on realistic and transparent guidance, with key metrics including subscription revenue, net dollar expansion, operating margin, and free cash flow. The goal is to ensure consistency and transparency in performance.
Q:What caused the sequential decline in total RPO, and what is the outlook?
A:Rory Read attributed the decline to timing issues, particularly with large telco deals last year. He expects RPO to move in a positive direction over the next few quarters as execution improves.
Q:What are the learnings from the initial phase of Project Bear Hug?
A:Key learnings include the importance of consistent account teams, proactive customer engagement, and early renewal discussions. These insights are being applied as the initiative expands to cover 700-800 accounts, representing 90% of revenue.
Q:Review of Unclear Management Responses
A:Management avoided providing specific guidance for fiscal '27, stating that it is still a transition year and emphasizing the need to execute consistently over the next few quarters. Additionally, while discussing margin trends and AI investments, responses were general and lacked detailed numerical guidance.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI platform
America EMEA
America customer
Analyst Summit
Asia Service
Bear Hug
Brands consumer
CEO position
CFO Chief
CSAT score
CX Unifiers
CX marketing
Chief Product
Conference Nashville
Financial Results
Project Bear
alignment
bank
brand customer
case
channel
contact
core service
country
customer story
expansion AI
expectation
face
interaction
loyalty
million
momentum
party
personalization
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success
world
CXM Transcript
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The earnings call presents a generally positive outlook, with stable financial performance, a focus on innovation, and improved renewal rates. Despite some concerns about elevated churn and service deceleration, management's emphasis on strategic investments, AI, and customer relationships supports a positive sentiment. The market cap indicates moderate sensitivity to these factors, and the company's strategic focus and financial health are likely to result in a stock price increase over the next two weeks.
Sprinklr, Inc. (CXM) Q3 2026 Earnings Call Transcript
Positive12-3
The earnings call shows steady financial growth, with revenue and subscription increases. Positive developments include improved renewal predictability, successful pricing initiatives, and strategic AI investments. Leadership stability and positive market feedback further support sentiment. While some concerns exist, like the lack of detailed guidance and margin pressures, the overall outlook remains positive due to optimistic guidance and strategic initiatives.
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