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Sprinklr's (NYSE:CXM) Q4 Sales Beat Estimates, Next Quarter Growth Looks Optimistic


Full Report / March 27, 2024

Customer experience software provider Sprinklr (NYSE:CXM) reported Q4 CY2023 results topping analysts' expectations, with revenue up 17.5% year on year to $194.2 million. The company expects next quarter's revenue to be around $194.5 million, in line with analysts' estimates. It made a non-GAAP profit of $0.12 per share, improving from its profit of $0.06 per share in the same quarter last year.

Sprinklr (CXM) Q4 CY2023 Highlights:

  • Revenue: $194.2 million vs analyst estimates of $188.7 million (2.9% beat)
  • EPS (non-GAAP): $0.12 vs analyst estimates of $0.09 (37.3% beat)
  • Revenue Guidance for Q1 CY2024 is $194.5 million at the midpoint, roughly in line with what analysts were expecting
  • Management's revenue guidance for the upcoming financial year 2025 is $805 million at the midpoint, in line with analyst expectations and implying 9.9% growth (vs 18.5% in FY2024) (operating profit guidance for the period also in line)
  • Gross Margin (GAAP): 75.5%, in line with the same quarter last year
  • Free Cash Flow of $12.26 million, down 22.9% from the previous quarter
  • Customers: 126 customers paying more than $1m annually
  • Market Capitalization: $3.51 billion

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 three years, growing from $104.1 million in Q4 2021 to $194.2 million this quarter.

Sprinklr Total Revenue

This quarter, Sprinklr's quarterly revenue was once again up 17.5% year on year. We can see that Sprinklr's revenue increased by $7.88 million in Q4, which was roughly the same growth rate observed in Q3 CY2023. This steady quarter-on-quarter growth shows that the company can maintain its paced growth trajectory.

Next quarter's guidance suggests that Sprinklr is expecting revenue to grow 12.2% year on year to $194.5 million, slowing down from the 19.6% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $805 million at the midpoint, growing 9.9% year on year compared to the 18.5% increase in FY2024.

Large Customers Growth

This quarter, Sprinklr reported 126 enterprise customers paying more than $1m annually, an increase of 3 from the previous quarter. That's in line with the number of contracts wins in the last quarter but quite a bit below what we've typically observed over the last year, suggesting that the sales slowdown we observed in the last quarter could continue.

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 75.5% in Q4.

Sprinklr Gross Margin (GAAP)

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 $12.26 million in Q4, down 24.7% year on year.

Sprinklr Free Cash Flow

Sprinklr has generated $51.14 million in free cash flow over the last 12 months, or 7% of revenue. This FCF margin enables it to reinvest in its business without depending on the capital markets.

Key Takeaways from Sprinklr's Q4 Results

It was good to see Sprinklr beat analysts' revenue expectations this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. Full year revenue and operating profit guidance were both relatively in line with expectations--while not the most exciting result, it shows that the company is on track. Zooming out, we think this was still a decent quarter. The stock is up 2.2% after reporting and currently trades at $13.29 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 we have other favorites, we understand the arguments that Sprinklr isn't a bad business. We'd expect growth rates to moderate from here, but its revenue growth has been solid over the last three years. And while its low free cash flow margins give it little breathing room, the good news is its customers are increasing their spending quite quickly, suggesting they love the product.

Sprinklr's price-to-sales ratio based on the next 12 months is 4.7x, suggesting the market is expecting more moderate growth relative to the hottest software stocks. 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. If you like Sprinklr, it seems to be trading at a reasonable price right now.

Wall Street analysts covering the company had a one-year price target of $16.07 right before these results (compared to the current share price of $13.29).

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