Ladies and gentlemen, thank you for standing by. And welcome to Sprinklr’s First Quarter Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Eric Scro, Vice President of Finance for introductory remarks. Please go ahead, Eric.

Thank you, Shamali, and welcome everyone to Sprinklr’s first quarter fiscal year 2023 earnings call. Joining us today are Ragy Thomas, Sprinklr’s Founder and CEO; and Manish Sarin, Sprinklr’s Chief Financial Officer. We issued our earnings release a short time ago, filing the associated 8-K with the SEC and we’ve made that available on the Investor Relations section of our website, along with the supplementary investor presentation. With that, let me turn the call over to Ragy.

Thank you, Eric, and hello, everyone. Thank you for joining us today as we share the results of our first quarter in FY '23. I will get started with highlights including what I'm hearing from customers in some of our key wins. Manish will then share details of our financial results. I am very pleased to report that Q1 was another strong quarter that exceeded guidance. Q1 total revenue grew by 31% year-over-year to $145 million, and subscription revenue climbed to $127.3 million, an increase of 32% year-over-year, coming off a strong finish to our FY '22. This is now our third straight quarter delivering more than 30% in total revenue growth. We continue to believe that there is a durable long-term growth opportunity for Sprinklr to lead the unified customer experience management category that we believe is still just getting started. Before diving into details, let me take a moment to welcome our new CMO Arun Pattabhiraman to Sprinklr. As you saw in our announcement in May, Arun joins us from Freshworks, where he served as the Chief Growth Officer of the company. He brings extensive experience in marketing hypergrowth SaaS companies and we're excited about his ability to position Sprinklr for our next phase of growth. In Q1, I had the privilege and opportunity to sit down face-to-face with over 100 of our top customers and over 75 of our top customer-facing Sprinklrites. The message we're hearing is remarkably consistent. Again, large global companies are all focused on creating great customer experiences across channels. But in today's environment, they're also trying to reduce cost, mitigate risk and convert legacy cost centers to profit centers. Marketing and care have evolved dramatically in a short period of time. We're seeing the volume of customer interaction shift to new channels like…

Thank you, Ragy and good afternoon, everyone. As you heard from Ragy, we delivered another strong quarter across the board, and are pleased with our ability to once again exceed expectations across all key financial metrics. In spite of a challenging macro environment, our ability to deliver strong results demonstrates the long-term tailwind from our customers transforming their digital edge, the breadth of our product offering and the importance of our unified CXM platform. For the first quarter, total revenue was $145 million, up 31% year-over-year, and above our previously announced guidance range of $140 million to $142 million. This was driven by subscription revenue of $127.3 million, which grew 32% year-over-year, and was also above our previously announced guidance range of $123 million to $125 million. Q1 marked a fifth consecutive quarter of accelerating revenue growth for our subscription business. I'm also happy to report that our subscription revenue based net dollar expansion rate in the first quarter was 123%. This metric continues to grow and demonstrates our ability to upsell and cross sell our extensive product set to our installed base of mid and large enterprise customers. And we now have 90 customers contributing $1 million or more in subscription revenue over the preceding 12 months, which is a 30% increase year-over-year. This momentum speaks to the strategic value that our platform creates for the world's largest and most valuable brands. As a reminder, we calculate this customer count using $1 million and recognize revenue from these customers for the duration of the 12 months as opposed to ARR. Turning to gross margins for the first quarter. On a non-GAAP basis, our subscription gross margin improved further to 81% as we continue to drive efficiencies in our cloud operations, leading to a total non-GAAP gross margin of 72%.…

[Operator Instructions] And our first question comes from the line of Pinjalim Bora for JPMorgan. Please proceed with your question.

Oh, great. Thank you for taking the questions and congrats on a good start to the year. I wanted to ask you about the demand environment. It seems like in the Q2 guide, kind of incorporate some kind of buffer from potential adverse impacts from the macro. Maybe you could talk about the demand environment that you're seeing so far, in Q2 across your various theaters globally, especially in Europe. And how would you characterize the pipeline? Are you seeing any change in the texture of the deal dynamics or customer conversations? Any color will be helpful?

Great question and thank you for that. Let me confirm that we are not seeing any shift in the demand for our product, let me - and platform, let me clarify it by just maybe giving you an example. Two weeks ago, I was talking to a large manufacturer who spends about a $1.5 billion between content and advertising. They had deployed a marketing and advertising solution, originally for media measurement and optimization on digital side and the projected savings was $25 million, which they wanted to, use that to do fund some other initiatives. And now they are looking at -- we did a workshop to see how much content optimization can save them. Our call center products are primarily deployed to get efficiency using AI and improve agent productivity. So we attach ourselves on the cost reduction and on the revenue improvement side. And traditionally as an enterprise platform, selling to the largest companies in the world and you know the number of clients we have that pays over a $1 million and that -- it's gone up this quarter as well, like always. We've always engaged in a business outcome and a quantified business outcome based sales approach. So look, there are a lot of factors at play, while we're not seeing it immediately, it will not be very smart for us to not factor that in. There are uncertainties in the C-suite, the executives we speak to all talk about uncertainties and as Manish would affirm when everyone talks about uncertainty and hesitation it’s prudent on our part to kind of model some of that in.

Understood. I'll stick to one and get back in the queue. Thank you.

Thank you.

Our next question comes from the line of Raimo Lenschow with Barclays. Please proceed with your question.

Hi. This is Frank up for Raimo. Thanks for taking my question. I wanted to ask one around your efforts to verticalize the product, specifically how the steps taken here have been progressing and how has this helped to minimize the time to value for new customers. Thank you.

Raimo, thank you. It's almost like you read our minds. As I told you about all the customers we met and we built -- we've always been proud of our 33 products and the 4 product suite. As you kind of double-click and now look at our customers who are paying us 7, 8 digit numbers in ARR, what we are finding is they have all standardized business outcome based solutions that they've implemented on the platform. And so there's a big a-ha that we've had that's going to now drive us. You'll see, as early as next quarter, us introducing a whole layer of verticalized solutions. Let me bring it to life with a couple of examples. When we look at the travel and hospitality industry, an example of product selling would be, hey, Mr. Airlines, you should use our listening capability. We found that when we looked at some of our top implementations is they're not using the word listening anywhere. What one of the airlines, I'm not going to name them, had implemented with Sprinklr was a threat detection solution. What that means is an AI-based listening capability, looking for anyone talking about bombs or explosives or guns or violence associated with the name of the airline. So that's a great example of product versus solutions. And I'm pretty sure we will have everybody's attention if our SDRs and our AEs consistently talked about the threat detection package as opposed to why they should implement solution like a listening product. A second example is that of an oil company. Oil companies are largely monopolies, duopolies or like a few large companies in every country and continent. We found that one of the typical use cases for large companies in regulated environments is to understand how consumer perception is shifting. So if I'm an oil company, I want to know where -- how to adjust my policies and where regulation is going to go. And the best way to do that is to understand how public perception, let's say, on renewable energy, solar and electric vehicles are changing and how regulators are going to shift subsidies. And that would allow them to get ahead of it and understand who is for and against their specific industry and how to get ahead of that through policies. So this is a couple of examples. You will start seeing us talk a lot more about solutions. And my hope is that, let's say, a year from now, hopefully, 75% to 90% of the buying that customers do happens at the solution level and not at the product level. Makes sense, Raimo. Good to always talk to you.

Very helpful. Thank you.

Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Please proceed with your question.

Hi. Congrats on the quarter and thanks for taking the question. Previously, you discussed some of the macro volatility coinciding with increased engagement and just renewed confidence in the platform as customers navigate the difficult environment. And I wanted to ask if that trend has exacerbated or slowed over the last quarter. And any color on how engagement trends have occurred over the last couple of months, just given this volatility and the higher level of uncertainty seems to be the -- at least the new normal for now. Thank you.

Yes. Thanks for that question, Elizabeth. Well, like I said, we're not seeing any pronounced shifts. We are all -- world is coming back to normal, but we -- most of you should be experiencing what I'm experiencing, mild COVID cases are on the rise. And sometimes there's a procurement person out or a customer champion or an executive buyer who is out. And we're seeing stuff like that, like I'm sure everybody is seeing. But there's lot more conversations about uncertainty and pullback that we're hearing. So we're just going to be prudent in modeling the rest of the year. And one of the things we have done and like all companies, I'm sure, have and the public market's a great barometer of what they value. We've also, under Manish's leadership, we have put a focus on our bottom line like we have never done before. And you -- if you recall, from most of my conversations, look, our goal is to build a company that can stand the test of time across decades, and we think this is an opportunity. And our goal was to pull this up to a say, 25% plus growth company and then put our attention to the bottom line and that then focus on efficient growth, and that's what we're planning to do.

Great. Thank you.

Our next question comes from the line of Michael Turrin with Wells Fargo. Please proceed with your question.

Hey, there. Great, thanks. Good afternoon. I appreciate you taking the question. Obviously, the macro is top of mind for everyone, so we've been fielding a couple of different types of questions that I think your perspective around would be valuable. Number one is just around what's discretionary versus what's necessary in terms of tax spend, particularly looking at marketing-focused software spend And then potential for vendor consolidation. I'm wondering if the vendor consolidation piece is something you feel Sprinklr stands to benefit from, given the number of product offerings you have within your portfolio. And if there are any observations you could share around where you sit on that discretionary versus essential conversation, I think that's also very useful from our side. Thank you.

Absolutely. Thank you for the question, Michael. We are not -- 100% of our revenue and subscription comes from license, right? We don't -- there's zero consumption-based models at Sprinklr. So the concept of discretionary comes from -- our budgets are fairly fixed. We're not -- they're not -- nobody is creating new budgets for us, so it comes from marketing tech and ad tech and care tech budgets that are consistent. And what we're seeing everybody do, so we're not in -- we're not seeing and we're not in the discretionary pool for anything. And what we are seeing is everybody wants to make the dollar work harder. And as you mentioned, unifying point solutions into a platform, consolidating vendors and not just consolidating vendors on contract, but unifying it truly so that they're reducing the need for more human capital, right? We are seeing that as a trend and we're seeing on the -- we're on the right side of that movement and CX is fairly resilient and durable. And we see ourselves as a cost reducer. We see ourselves as a risk mitigator. We see ourselves as a revenue generator, right, with conversational commerce. If you look at financial services, it's a pretty important industry for us. I was talking to a -- the Chief Compliance Officer of one of the larger financial services companies, and they're now paying hundreds of millions of dollars in fines because investment advisers are jumping out into a WhatsApp channel to talk to customers. So we're on the right side of that movement in the short, medium and long-term. Thank you.

Our next question comes from the line of Michael Turits with KeyBanc. Please proceed with your question.

Hey, guys. Congrats on the continued acceleration in subscription especially. I want to -- Ragy, you pointed to Manish having focused a bit more on the bottom line. So Manish, can you walk through exactly where you've had the most incremental investment in the last year and where that will be the biggest change? In other words, where we should see the most operating leverage among your lines and, if possible, more specifically within those lines. And whether or not all that is going to actually lead to just a quarter of free cash flow in fiscal '24 or if we're really on the path to stay positive full year in '25.

Yes, thank you for the question. So I think as I said in my prepared remarks, some of the investments we've been making in FY '22 were really a catch up from 1.5 years of COVID. And we felt, given the investments we have already made in the business, the quantum of investments going forward, ought to be on a sort of declining trend, given the investments already made. As it relates to operating discipline across the business, this is looking at a variety of things. There's not one thing in particular, all the way from where we spend our incremental dollars to the pace of hiring to any number of other investments that we make to grow the business. And again, to be very clear, we are looking to deliver durable growth. And as Ragy said earlier, that's sort of in the 25% to 30% zone, but we're trying to do that a lot more efficiently. With respect to free cash flow, so Q1 obviously benefited from the strong billings number in Q4 of last year. But on top of that, given all the operational improvements we were making, we got a benefit here in Q1. Given where we sit and again, no different than what I've said in the last call, we would probably wouldn't be able to deliver a positive number for the full year but feel very confident we can do that for FY '24. It's a little too early for me to comment in terms of when in FY '24. We'll see how the business progresses during the arc of this year, and we can obviously provide more color commentary as we get towards the end of the year.

Yes. I’m sorry. I don't know -- hopefully, it's not a second question, but just a clarification. So are you saying full -- I don't think you're saying full year positive free cash flow in fiscal '24? Are you or just at some point?

I'm, right now, saying at some point and we will provide more color as we get towards the end of this year.

Thanks.

The next question comes from the line of Parker Lane with Stifel. Please proceed with your question.

Yes, hi. Thanks for taking the questions. Ragy, I wondered if you could hit a little bit more on the rise of TikTok. Just how the brands you're working with are thinking about that channel across the 4 key pillars of the platform. Is there any one area particularly maybe Marketing & Advertising, that they see the most immediate opportunity? And what do you think the future holds there for businesses over the next few years?

Great question, Parker. So I can confirm that we're seeing increasing interest from our Marketing & Advertising customer base on using the platform and taking advantage of it, so that's exciting. And as you know, there are other platforms that are innovating on short form video and the features are becoming a little more prevalent in other channels. In terms of -- I think it's still early. And as you know, we support 36 channels and we're fairly channel-agnostic. And with the license model, we're more of a AI-driven optimization workflow governance layer, right, when you're thinking about the Marketing & Advertising side of our business. We -- I think over time, we keep thinking like, "Man, we've got too many counts. We don't need any one more and there's more coming, and we're learning more about ourselves." And so I'm excited about what the future holds. And look, I think there's -- there are -- most people may believe that Metaverse is far and out. The AR/VR world, whether it's far and out or a little sooner than that, I think that could potentially introduce another whole world of the next level of the Internet. So we have built the foundation of a platform that can scale across channels, across new innovation and the infrastructure, the unified architecture we have created for everything from care to marketing and insights kind of serve us really well.

Got it. Appreciate the feedback. Thank you.

And our next question comes from the line of Pat Walravens with JMP Group. Please proceed with your question.

Oh, great. Thank you. So Ragy, I love that you spoke to 100 customers. I don't know how you did that, but it's fabulous. I'm guessing you're continuing to do it. We are already halfway through your second quarter. How does it feel compared to Q1 so far?

How you -- do you want to know how to do it? Just stay on a plane for 40 days.

Well, I was hoping it wasn't all over Zoom. I'm delighted to hear it's in-person [indiscernible].

No, my friend. No, my friend. Yes, it was amazing. There's no substitute for face-to-face, right? The emotions don't fully copy over video. What -- look, I am more pumped than I ever was. And we touched a little bit on verticalized solutions. You look at our business, any way you want to slice it, the fundamentals are super healthy. You'll -- talk about the NDE that's been going up. You can talk about retention rates and renewal rates, which we see is going up and like kind of enterprise class levels. And it's clear that our customers are buying more and the good ones are buying more and renewing more. And so we just have to having built this expansive platform. It was just about looking at how they're using us and taking generalizing for each industry. So we are pretty pumped up about that. I can tell you the enthusiasm that we're seeing in the marketplace demand hit. It's -- I mean, the early days of social where we got the wave and the tailwinds, I'm beginning to kind of see the early excitement when we start talking about how do you convert 12 data center contact center operations into potentially something that's going to help you with sales? And these concepts, they're early but a lot of customer service leaders who don't want to be relegated as a cost center in the back office and who think that when customers call you, you could reinvent the next generation of a real-world store, right? They walk in and they could ask you any kind of question. So we're building this headless ability with our bots and with our conversational AI and an operating system to be able to do that. So look, I'm more excited than I ever was, and we still think it's very early.

That’s great. Thank you.

Our next question comes from the line of Tyler Radke with Citi. Please proceed with your questions.

Hi. This is Boyoung Kim on for Tyler Radke. Thank you so much for taking our question. CRPO growth was very nice, so I'd love to hear if there was, at all, a difference in the growth rate in the U.S. versus international, which is primarily Western Europe and any different dynamics that you're seeing across the region. Thanks.

I am -- like I said before, we -- and I know we got the same question last quarter, we're on the right side of that cost savings and optimization and revenue. And we're not seeing the impact in Europe and Western Europe. Manish, you want to comment on the …?

No, I'd agree with Ragy. I mean, CRPO growth was up 30%. If I look at the booking trends in the quarter across the 3 regions, nothing that would jump out at me as being out of the ordinary. So we're definitely not seeing any slowdown in Europe as some other companies have alluded to. And I think it all points to the tailwinds, as Ragy said in his opening remarks.

Right. Thank you.

And our next question comes from the line of Arjun Bhatia with William Blair. Please proceed with your question.

Perfect. Thanks for taking the question. Manish, maybe one for you. When you talk about incorporating some of the perceived macro risks into your guidance, I was wondering if you could just maybe elaborate a little bit into which factors you're sensitizing more. Is it just longer deal cycles do you see potential for down sell or is it more new customer-oriented? And then for Ragy, I'm curious how you think about your go-to-market playbook now that you are in a more settled phase with the sales organization. Do you make any changes into the areas that you're focusing on, whether it's vertical-specific, whether it's geos or how much you focus on new versus expansion activity? Thank you.

So let me take the go-to-market first, and maybe Manish can answer the part that we're modeling in. In terms of -- Arjun, you remember that in the last year or two, we did make several go-to-market upgrades, if you will, which are just normal for the size and scale and growth of the business, right, establishing a large global accounts program, large enterprise and enterprise program because all our customers are large, right? So we had to kind of trifurcate at the top, laying the foundation for the self-service product for the out years. So all of that -- all those changes have been made. And we're now -- sales is about capacity and productivity. So I think what you saw us invest in was lay the foundation for capacity expansion and modeling. And what you're going to see now is with verticalization and the changes we are making is not the foundation for productivity optimization. And we also needed like 1,200 implementations in 5 years and 90 customers paying us over $1 million to kind of find enough patterns. So we -- you will see us focus on productivity more than we did. And I think the capacity angle is kind of fairly sorted out now. In terms of modeling it, look, I think Manish would say to every one of our his peers at Sprinklr say, "Look, I want to keep an eye on what we're spending." And that caution that Manish has is something that Manish expects other CFOs to have. So that, Manish, you want to comment on that?

No, I think that's exactly right. So to be abundantly clear, we are not seeing any slowdown in demand yet. We are not seeing anything untoward happen in terms of bookings. But as Ragy was saying, there are folks like me who get paid to worry all the time. And there is a part of that is concerned, they might try to pull back on spend here and there. And that would lead to lengthening sales cycles. That could lead to a number of other things that would slow down business. But again, we aren't seeing that yet. That's our current view and that's what's baked into the guide.

Understood. Thank you very much and congrats on a good quarter, guys.

Thank you, Arjun.

And we have reached the end of the question-and-answer session, and I'll now turn the call back over to Ragy Thomas for closing remarks.

Thank you, Shamali, and thank you for all of you who joined the call today. I would also like to thank our employees. There's a lot of things going on in the world with inflation and Ukraine and COVID and a lot of stuff, right? That's very -- and it's impacting every one of us. And so I want to especially thank our employees for putting their head up and working through this. And I want to thank our partners and mostly -- most of all, I want to thank our customers for their business and their continued confidence with us. We look forward to updating all of you again as we continue on this exciting journey of creating a new category that we call unified CXM and the best, I'm sure, is yet to come. Thank you much.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.