Customer experience software provider Sprinklr (NYSE:CXM) reported results ahead of analyst expectations in the Q4 FY2023 quarter, with revenue up 21.9% year on year to $165.3 million. The company expects that next quarter's revenue would be around $169 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Sprinklr made a GAAP loss of $666 thousand, improving on its loss of $34.3 million, in the same quarter last year.
Sprinklr (CXM) Q4 FY2023 Highlights:
- Revenue: $165.3 million vs analyst estimates of $162.8 million (1.57% beat)
- EPS (non-GAAP): $0.06 vs analyst estimates of $0.02 ($0.04 beat)
- Revenue guidance for Q1 2024 is $169 million at the midpoint, roughly in line with what analysts were expecting
- Management's revenue guidance for upcoming financial year 2024 is $712 million at the midpoint, in line with analyst expectations and predicting 15.2% growth (vs 25.8% in FY2023)
- Free cash flow of $16.3 million, up from negative free cash flow of $1.68 million in previous quarter
- Customers: 108 customers paying more than $1m annually
- Gross Margin (GAAP): 76.2%, up from 70.7% 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.
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 quarterly revenue of $104.1 million in Q4 FY2021, to $165.3 million.
This quarter, Sprinklr's quarterly revenue was once again up a very solid 21.9% year on year. On top of that, revenue increased $8.08 million quarter on quarter, a very strong improvement on the $6.62 million increase in Q3 2023, which shows re-acceleration of growth, and is great to see.
Guidance for the next quarter indicates Sprinklr is expecting revenue to grow 16.6% year on year to $169 million, slowing down from the 30.6% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $712 million at the midpoint, growing 15.2% compared to 25.5% increase in FY2023.
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 is left after paying for servers, licenses, technical support and other necessary running expenses was at 76.2% in Q4.
That means that for every $1 in revenue the company had $0.76 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is a good gross margin that allows companies like Sprinklr to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.
Cash Is King
If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Sprinklr's free cash flow came in at $16.3 million in Q4, turning positive year on year.
Sprinklr has generated $10.2 million in free cash flow over the last twelve months, 1.65% of revenues. This FCF margin is a result of Sprinklr asset lite business model, and provides it with at least some cash to invest in the business without depending on capital markets.
Key Takeaways from Sprinklr's Q4 Results
With a market capitalization of $2.78 billion Sprinklr is among smaller companies, but its more than $578.6 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.
It was good to see Sprinklr improve their gross margin this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. Additionally, RPO (remaining performance obligations) and subscription revenue also beat. On the other hand, the revenue guidance for next year indicates a slowdown and there was a slowdown in new contract wins. Overall, this quarter's results were fine but could have been better. The company is flat on the results and currently trades at $10.88 per share.
Is Now The Time?
When considering Sprinklr, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of Sprinklr we will be cheering from the sidelines. Its revenue growth has been solid, though we don't expect it to maintain historical growth rates.
Sprinklr's price to sales ratio based on the next twelve months is 4.7x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.
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