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Sprinklr's (NYSE:CXM) Q3 Sales Top Estimates But Contract Wins Slow Down


Full Report / December 06, 2023

Customer experience software provider Sprinklr (NYSE:CXM) reported results ahead of analysts' expectations in Q3 FY2024, with revenue up 18.5% year on year to $186.3 million. The company expects next quarter's revenue to be around $188.5 million, in line with analysts' estimates. It made a GAAP profit of $0.06 per share, improving from its loss of $0.02 per share in the same quarter last year.

Sprinklr (CXM) Q3 FY2024 Highlights:

  • Revenue: $186.3 million vs analyst estimates of $180.4 million (3.3% beat)
  • EPS (non-GAAP): $0.11 vs analyst estimates of $0.07 ($0.04 beat)
  • Revenue Guidance for Q4 2024 is $188.5 million at the midpoint, roughly in line with what analysts were expecting
  • Free Cash Flow of $15.9 million, up 82.2% from the previous quarter
  • Customers: 123 customers paying more than $1m annually
  • Gross Margin (GAAP): 75.1%, up from 74.2% in the same quarter last year

Initially focused only on social media management, Sprinklr (NYSE: CXM) is a leading provider of unified customer experience management software.

Customer communications have shifted dramatically in the past decade, as customers now shift from traditional channels, like email and phone, to an ever-expanding universe of modern channels, like messaging, chat, text, and social. The shift online has also meant customers are more willing to advocate and criticize on public platforms, with nearly unlimited reach, where a single comment or review can make or break a brand’s reputation.

For large enterprises, meeting these expectations is a challenging new reality where they must be able to understand how a customer is interacting with their business - often across different departments where information is siloed.

Sprinklr is a software platform that utilizes AI and unstructured data to break down and combine information across different departments as a means of gaining a unified view of each customer at any point in time. The result is that enterprises improve customer service, thereby increasing revenue, reducing costs, and mitigating brand reputation risks. Unified solutions like Sprinklr's CXM platform can replace multiple other products in the enterprise front office resulting in a reduction in licensing costs.

Customer Experience Software

The Internet has given customers more choice on whom to conduct business with and has also given them the power to easily share their experiences with other customers. These twin dynamics effectively have increased pressure on companies to both improve their customer service and also monitor their brand reputation online, driving the need for customer experience software offerings.

Sprinklr’s competitors include large vendors such as Adobe (NASDAQ:ADBE), Salesforce.com (NYSE:CRM), and Microsoft (NASDAQ:MSFT), along with more focused platforms like Sprout Social (NASDAQ:SPT), Qualtrics (NASDAQ:XM), and Zendesk (NASDAQ:ZEN).

Sales Growth

As you can see below, Sprinklr's revenue growth has been strong over the last two years, growing from $127.1 million in Q3 FY2022 to $186.3 million this quarter.

Sprinklr Total Revenue

This quarter, Sprinklr's quarterly revenue was once again up 18.5% year on year. We can see that Sprinklr's revenue increased by $7.86 million quarter on quarter, which is a solid improvement from the $5.10 million increase in Q2 2024. Shareholders should applaud the acceleration of growth.

Next quarter, Sprinklr is guiding for a 12.3% year-on-year revenue decline to $188.5 million, a further deceleration from the 21.9% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 14.1% over the next 12 months before the earnings results announcement.

Large Customers Growth

This quarter, Sprinklr reported 123 enterprise customers paying more than $1m annually, an increase of 3 from the previous quarter. That's a bit fewer contract wins than last quarter and quite a bit below what we've typically observed over the past four quarters, suggesting that its sales momentum with large customers is slowing.

Sprinklr customers paying more than $1m annually

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Sprinklr's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 75.1% in Q3.

Sprinklr Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.75 left to spend on developing new products, sales and marketing, and general administrative overhead. Sprinklr's impressive gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity. It's also comforting to see its gross margin remain stable, indicating that Sprinklr is controlling its costs and not under pressure from its competitors to lower prices.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Sprinklr's free cash flow came in at $15.9 million in Q3, turning positive over the last year.

Sprinklr Free Cash Flow

Sprinklr has generated $55.16 million in free cash flow over the last 12 months, a decent 7.9% of revenue. This FCF margin stems from its asset-lite business model and gives it a decent amount of cash to reinvest in its business.

Key Takeaways from Sprinklr's Q3 Results

Sporting a market capitalization of $4.53 billion, Sprinklr is among smaller companies, but its more than $656.4 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

It was good to see Sprinklr beat analysts' revenue expectations this quarter. We were also glad its full-year revenue guidance came in higher than Wall Street's estimates. On the other hand, its new large contract wins slowed. Overall, the results we mostly in line, showing the company is staying on target. The stock is up 1.2% after reporting and currently trades at $16.9 per share.

Is Now The Time?

When considering an investment in Sprinklr, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

Although Sprinklr isn't a bad business, it probably wouldn't be one of our picks. Its revenue growth has been solid over the last two years, though we don't expect it to maintain that historical pace.

The market is certainly expecting long-term growth from Sprinklr given its price to sales ratio based on the next 12 months is 6.0x. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that Sprinklr doesn't trade at a completely unreasonable price point.

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