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Sprinklr (NYSE:CXM) Surprises With Q2 Sales But Quarterly Guidance Underwhelms


Full Report / September 08, 2022
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Customer experience software provider Sprinklr (NYSE:CXM) reported Q2 FY2023 results that beat analyst expectations, with revenue up 26.9% year on year to $150.6 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $156 million, 0.16% below analyst estimates. Sprinklr made a GAAP loss of $23.9 million, improving on its loss of $33.2 million, in the same quarter last year.

Sprinklr (CXM) Q2 FY2023 Highlights:

  • Revenue: $150.6 million vs analyst estimates of $147.4 million (2.15% beat)
  • EPS (non-GAAP): -$0.03 vs analyst estimates of -$0.06
  • Revenue guidance for Q3 2023 is $156 million at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year, at $618 million at the midpoint
  • Free cash flow of $1.44 million, up from negative free cash flow of $5.83 million in previous quarter
  • Customers: 98 customers paying more than $1m annually
  • Gross Margin (GAAP): 72%, up from 68.5% 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 year, growing from quarterly revenue of $118.6 million, to $150.6 million.

Sprinklr Total Revenue

This quarter, Sprinklr's quarterly revenue was once again up a very solid 26.9% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $5.65 million in Q2, compared to $9.31 million in Q1 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Sprinklr is expecting revenue to grow 22.7% year on year to $156 million, slowing down from the 31.8% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 21.2% over the next twelve months.

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 72% in Q2.

Sprinklr Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.72 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is around the lower average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market so it is important to track.

Cash Is King

If you follow 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 $1.44 million in Q2, turning positive year on year.

Sprinklr Free Cash Flow

Sprinklr has burned through $26.5 million in cash over the last twelve months, resulting in a negative 4.74% free cash flow margin. This below average FCF margin is a result of Sprinklr's need to invest in the business to continue penetrating its market.

Key Takeaways from Sprinklr's Q2 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Sprinklr’s balance sheet, but we note that with a market capitalization of $2.96 billion and more than $540.8 million in cash, the company has the capacity to continue to prioritise growth over profitability.

Sprinklr delivered solid revenue growth this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is flat on the results and currently trades at $11.56 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 strong. Unfortunately, its customer acquisition is less efficient than many comparable companies, and its gross margins aren't as good as other tech businesses we look at.

Sprinklr's price to sales ratio based on the next twelve months is 4.4x, 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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