Customer experience software provider Sprinklr (NYSE:CXM) beat analysts' expectations in Q2 FY2024, with revenue up 18.5% year on year to $178.5 million. The company also expects next quarter's revenue to be around $180 million, in line with analysts' estimates. Turning to EPS, Sprinklr made a GAAP profit of $0.04 per share, improving from its loss of $0.09 per share in the same quarter last year.
Sprinklr (CXM) Q2 FY2024 Highlights:
- Revenue: $178.5 million vs analyst estimates of $173.5 million (2.89% beat)
- EPS (non-GAAP): $0.09 vs analyst estimates of $0.05 ($0.04 beat)
- Revenue Guidance for Q3 2024 is $180 million at the midpoint, roughly in line with what analysts were expecting
- The company raised its revenue guidance for the full year to $720 million at the midpoint (above expectations of $714 million
- Free Cash Flow of $8.73 million, down 38.8% from the previous quarter
- Customers: 120 customers paying more than $1m annually
- Gross Margin (GAAP): 75.6%, up from 72% 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.
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 $118.7 million in Q2 FY2022 to $178.5 million this quarter.
This quarter, Sprinklr's quarterly revenue was once again up 18.5% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $5.1 million in Q2 compared to $8.03 million in Q1 2024. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Next quarter's guidance suggests that Sprinklr is expecting revenue to grow 14.5% year on year to $180 million, slowing down from the 23.8% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 13.9% over the next 12 months before the earnings results announcement.
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 75.6% in Q2.
That means that for every $1 in revenue the company had $0.76 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 $8.73 million in Q2, up 505% year on year.
Sprinklr has generated $37.6 million in free cash flow over the last 12 months, a decent 5.47% 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 Q2 Results
With a market capitalization of $4.23 billion, Sprinklr is among smaller companies, but its $628.4 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
This was a nice "beat and raise" quarter. It was good to see Sprinklr beat analysts' revenue and profit expectations this quarter. We were also glad that its full-year revenue and profit guidance was raised and came in higher than Wall Street's estimates. On the other hand, its new large contract wins slowed. Zooming out, we think this was still a solid quarter, showing that the company is staying on track. The stock is flat after reporting and currently trades at $15.75 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, though we don't expect it to maintain historical growth rates.
The market is certainly expecting long-term growth from Sprinklr given its price to sales ratio based on the next 12 months is 5.8x. 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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