Sprinklr (CXM)

Customer experience software provider Sprinklr (NYSE:CXM) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 4.9% year on year to $205.5 million. Guidance for next quarter’s revenue was better than expected at $205.5 million at the midpoint, 1.4% above analysts’ estimates. Its non-GAAP profit of $0.12 per share was 21.6% above analysts’ consensus estimates.

Company Overview

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

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Sprinklr grew its sales at a 15.3% annual rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds.

This quarter, Sprinklr reported modest year-on-year revenue growth of 4.9% but beat Wall Street’s estimates by 1.8%. Company management is currently guiding for a 4.2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.8% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Sprinklr’s billings came in at $204.3 million in Q1, and over the last four quarters, its growth was underwhelming as it averaged 4% year-on-year increases. This alternate topline metric grew slower than total sales, meaning the company recognizes revenue faster than it collects cash - a headwind for its liquidity that could also signal a slowdown in future revenue growth.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

It’s relatively expensive for Sprinklr to acquire new customers as its CAC payback period checked in at 168.9 months this quarter. The company’s slow recovery of its sales and marketing expenses indicates it operates in a highly competitive market and must invest to stand out, even if the return on that investment is low.

For software companies like Sprinklr, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Sprinklr’s gross margin is better than the broader software industry and signals it has solid unit economics and competitive products. As you can see below, it averaged a decent 71% gross margin over the last year. That means for every $100 in revenue, roughly $71.02 was left to spend on selling, marketing, and R&D.

Sprinklr’s gross profit margin came in at 69.5% this quarter, marking a 4.4 percentage point decrease from 73.9% in the same quarter last year. Sprinklr’s full-year margin has also been trending down over the past 12 months, decreasing by 4 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs.

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Sprinklr has done a decent job managing its cost base over the last year. The company has produced an average operating margin of 2%, higher than the broader software sector.

Looking at the trend in its profitability, Sprinklr’s operating margin decreased by 3.6 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Sprinklr’s breakeven margin was down 3.8 percentage points year on year. Since Sprinklr’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Sprinklr has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 12.9% over the last year, slightly better than the broader software sector.

Sprinklr’s free cash flow clocked in at $80.7 million in Q1, equivalent to a 39.3% margin. This result was good as its margin was 20.8 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

Over the next year, analysts predict Sprinklr’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 12.9% for the last 12 months will increase to 16.7%, giving it more flexibility for investments, share buybacks, and dividends.

Companies with more cash than debt have lower bankruptcy risk.

Sprinklr is a profitable, well-capitalized company with $570.2 million of cash and $50.91 million of debt on its balance sheet. This $519.3 million net cash position is 22.2% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how Sprinklr raised its full-year revenue and EPS guidance, which blew past analysts’ expectations. We were also glad its revenue, EPS, and adjusted operating income exceeded Wall Street’s estimates. Overall, we think this was a solid "beat-and-raise" quarter. The stock traded up 3.9% to $8.89 immediately following the results.

Updated: July 9, 2025 at 10:24 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Sprinklr, you should also grasp the company’s longer-term business quality and valuation.

We see the value of companies addressing major business pain points, but in the case of Sprinklr, we’re out. To begin with, its revenue growth was uninspiring over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while Sprinklr’s forecasted free cash flow margin suggests the company will have more capital to invest or return to shareholders next year, its declining operating margin shows it’s becoming less efficient at building and selling its software.

Sprinklr’s price-to-sales ratio based on the next 12 months is 2.8x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $10.50 on the company (compared to the current share price of $9.18).