Ladies and gentlemen, thank you for standing by. Welcome to Sprinklr's Second Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. Please limit your questions to one with one follow-up, so we'll have time to go through all the questions. 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, Doug. And welcome, everyone, to Sprinklr's second quarter fiscal year 2024 financial results call. Joining us today are Ragy Thomas, Sprinklr's Founder and CEO, and Manish Sarin, Chief Financial Officer. We issued our earnings release a short time ago, filed the related Form 8-K with the SEC, and we've made them available on the Investor Relations section of our website, along with the supplementary investor presentation. Please note that, on today's call, management will refer to certain non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. You are directed to our press release and supplementary investor presentation for a reconciliation of such measures to GAAP. In addition, during today's call, we'll be making forward looking statements about the business and about the financial results of Sprinklr that involve many assumptions, risks and uncertainties, including our guidance for the third fiscal quarter of 2024 and full fiscal year 2024, our strategy, our product capabilities and our market opportunity. Our actual results might differ materially. Any forward-looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them. For more details on the risks associated with these forward-looking statements, please refer to our filings with the SEC, which are also posted on our website. With that, I'll now turn it over to Ragy.

Thank you, Eric. And hello, everyone. Thank you for joining us today. We are very pleased that Q2 was another strong quarter that exceeded guidance across all key metrics. Q2 total revenue grew 18% year-over-year to $178.5 million and subscription revenue grew 23% year-over-year to $163.5 million. With our continued focus on operational efficiency, we generated $21.3 million in non-GAAP operating income for the quarter. Our key focus areas continue to be creating a new category that we call Unified-CXM, innovating faster than our competitors by harnessing the power of AI and improving our operational efficiencies while focusing on measurable value for our customers. We are pleased with how Unified-CXM is continuing to evolve as a category and we are focused on mainstreaming our core product suite across the broader front office. In my travels around the world last quarter, the best brands in the world are continuing to ask us to help consolidate front office technologies, reduce their operating costs, help reduce risk, all while bringing people and data together to create better customer experiences. For large and complex enterprise brands, seamless experiences are impossible to create across a multitude of channels, functions, business unit and markets that are traditionally operating in silos. Unified-CXM is differentiated at its core with a single instance AI powered architecture that simplifies this complexity. It also gives man's access to publicly available conversational and mostly unstructured data in a safe and privacy compliant way that the current CRM and CDP relational databases cannot. The second topic on every customer's mind is AI. On the heels of announcing our AI+ plus integration with OpenAI, we are now excited to announce the integration of the Sprinklr AI+ platform with Google Cloud's Vertex AI. This means that Sprinklr AI+ plus can now provide brands with even…

Thank you, Ragy. And good afternoon, everyone. As you heard from Ragy, we're pleased with this quarter's solid results. For the second quarter, total revenue was $178.5 million, up 18% year-over-year and above the high end of our guidance range. This was driven by subscription revenue of $163.5 million, which grew 23% year-over-year, also above the high end of our guidance range. Professional Services revenue for the quarter came in at $15 million, above our guidance of $14 million. Our subscription revenue based net dollar expansion rate in the second quarter was 120%. As we've discussed in the past, the NDE statistic is not something we monitor as part of growing our business, but rather a byproduct. As macroeconomic conditions moderate renewal rates and customer upsells and as we focus more on new logo acquisition, we expect NDE to decline slightly in the coming quarters. In terms of new logos, we are very pleased with the number of new customers that joined the Sprinklr platform in Q2. This is particularly true with our Sprinklr Service product suite as many of the deals in our service product suite over the last few quarters have been with new customers. Given our momentum in the CCaaS market and how early we are in targeting this opportunity, we're confident in our ability to add new logos at a healthy clip going forward. As of the end of the second quarter, we had 120 customers contributing $1 million or more in subscription revenue over the preceding 12 months, an increase of five customers sequentially and a 22% increase year-over-year. Turning to gross margins for the second quarter. On a non-GAAP basis, our subscription gross margins came in at 83% as we continue to drive efficiencies in our cloud operations with total non-GAAP gross margins of…

[Operator Instructions]. Our first question comes from the line of Pinjalim Bora with J.P. Morgan.

Congrats on a very strong quarter. Ragy, it seems like you're starting to close some material CCaaS wins. I want to ask you if AI is becoming kind of a core decisioning factor for customers because you have been investing in AI for quite some time, you have a very strong foundation? But is that becoming, at this point, a decisioning factor for customers, especially in the CCaaS market to choose Sprinklr versus others?

There are three distinct reasons that we see when customers do a pretty extensive process and pick Sprinklr for their CCaaS solution. The first is the fact that we give them a unified platform with 13 products in it that works seamlessly at the architecture level with each other, as opposed to point solutions that they have to buy or acquisitions that other competitors offer, not in a unified way. Second is the power of AI in everything we do. It's not just a smart response or a smart routing, pretty much every component in Sprinklr is built with AI and is brought together to create a better experience for the agent and a better experience for the customer. Third is, very simple, on proof of concept. Demonstrably, we're able to show value for the business. We're able to bring the cost of technology down, we're able to improve the average handling time, we're able to improve the time to resolve an issue, and we're able to improve NPS scores. So it's like a triple win. Customers are happier. Your agents are happier and your company is happier because making more money and saving more money.

One question for Manish. The strength in RPO is obviously palpable. You talked about some renewals as well and some large deals. I want to ask you if there's meaningful expansion in the contract durations, which is kind of inflating the year-over-year growth rate. Any way to think about that?

I think we did call out the fact that – look, our growth in RPO is because several large customers renew on a tier basis. But those are the ones you'd remember from even a few years ago, we had them do multiyear billings. So that hasn't happened this time where we are sticking to annual billings. When I called out on the billing side that there were select customers that renewed early, that was only to make sure that as you think about your Q3 billings, you do take that into account. But I think macro, if you just step back, we're seeing strength in renewal activity as shown in the multiyear RPO renewals, RPO numbers as well as our sense around overall billings for the year.

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

This is Frank on for Raimo. Congrats on another strong quarter here. I just want to double click on the new customer addition trends that you mentioned. Have we really started to see the investments made into speeding up the time to value for new customers start to pay dividends or is CCaaS really the major driver here in the new customer strength.

Both. CCaaS is definitely a good driver for us. But we have been investing consistently in making the technology more accessible and more approachable and easier to use for practitioners. So as you may recall, we've created an entire new UX design paradigm that we call hyperspace. We've rolled it out across the entire platform. Number two, we've introduced the concept of Persona App. So you just only see the stuff that's relevant to you, regardless of all the other powerful things the platform can do. And three, you know that we've been systematically rolling out our offerings in a self-service mode, so that a practitioner can go get a hands on keyboard and experience it and then come back and buy the enterprise product or continue using it. So I would say it's both and I think it's pretty refreshing for the practitioner to get a next generation UI on their hands.

Our next question comes from the line of Arjun Bhatia with William Blair.

Congrats on the good quarter here, guys. Maybe I want to pick up on that last point around self-service and ease of use. It seems like you're making quite a bit of progress there, Ragy, to the points that you just called out. But what is that enabling from a business perspective? Can you just talk about – obviously, we see the new customer strength, but is it allowing you to go after a different type of customer, allowing you to do more deals in a shorter period of time? Help us maybe understand a little bit more of the business ramifications and benefits that you're seeing now that the user base has gotten – and implementation has gotten better?

Sorry, let me just understand the question clearly, Arjun. Are you asking what's supporting our growth or what incremental benefits we're bringing to the customer?

No. Sorry, more about what's supporting your growth and how you're able to manage and run the business, drive growth differently now that implementation is easier and time to value is quicker? What does that enable from a growth perspective incrementally?

There are two factors that are helping us. One is, obviously, strategy to add voice and get into the broader CCaaS space, which, as you know, is a huge market, right? $800 billion market, which – the technology is not going to replace technology. I think it's going to replace and scale human labor. So I think, for the first time, a bigger chunk of that $800 billion, which includes human labor, is also [indiscernible]. So that's obviously I think – as we disrupt that market, that puts us in a good place to grow. Two is, we've been very consistent in articulating that we have a focus on our go-to-market side, just fixing the fundamentals and making it easier for our salespeople and the field to understand us and sell the solution better. And that's going to take a few more quarters to completely roll out, but we're pretty pleased with the results we've been seeing so far.

Manish, can you touch on the go-to-market leverage that you saw this quarter because we saw a pretty significant improvement in sales and marketing spend? I think the dollars actually went down from Q1. Can you help us understand what's driving that? And should we view that as sustainable? Or are there some one-time factors in there?

Arju, you'd notice, if you looked at a four-quarter trend, it's sort of been headed in the right direction. There isn't anything unusual to call out in Q1. All the factors, I think we've discussed in the past. We actually have been really aligning the sales team around the core focus areas. Ragy has mentioned before around making it easier to sell. We're obviously engaging the partners in a different fashion as well. So I think all of this is – as we try to look at an incremental cost that we probably had in the plan, we've been more judicious about spending money than what we've been doing in the past. So nothing unusual to call out, but I think you should assume these savings you're seeing sequentially to sort of sustain.

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

This is Fiona on for Elizabeth Porter. I wanted to ask on the dynamics that you're seeing with large customers. We saw million dollar plus subscription revenue customers grew 22% year-over-year. And so, my question is, what are you seeing at the enterprise end of the market in terms of willingness to take on strategic projects? How are conversations around expansion [indiscernible] going as we start to look ahead into enterprise budget planning season in the second half of this year?

As we've articulated before, we're seeing a very consistent theme and trend, especially among our larger customers, of consolidating across point solutions into platform. And this team of – the marketing team or the customer service them not being able to run 10, 15, 20 RFPs and then go hire a system integration vendor and then create data lakes, and it's just too archaic. And so there's a pronounced shift to having and wanting, let's say, three to four companies to work together to provide a more complete front office capability set. And so, I think we are enjoying the benefits of being one of the options to consolidate onto. So we go and replace anywhere from sometimes 5, sometimes 15 and 20, over the years, different points solutions in different markets. So we're positioning ourselves as the third or fourth vendor and benefiting from that consolidation.

One follow up to that. As you make this transition and start to benefit from these consolidation trends that you're talking about, are you seeing any changes in the persona that you're selling to? So they think about the traditional Sprinklr, the buyer of the carrier solutions, not necessarily the same as the CCaaS solution? And so, I'm curious how that's changing the end conversations that you have with the ultimate buyer for who you're selling to?

We have been steadily seeing that shift, the traditional buyer versus CMO's organization and the CMO. With our expansion into CCaaS, that's expanded to include the CIO, CDIO organization. So we are more broadly penetrating the C suite, everybody from a CMO to a CDO to now the CIO.

Our next question comes from the line of Brett Knoblauch with Cantor Fitzgerald.

The multi-year, $60 million contract, could you maybe provide a bit more color on that? I guess, how much bigger of an annualized value is the "new contract" relative to the old one? And then, more generally, just on the expansion motion, are you seeing your customers expand more so with additional seats from maybe social or is it more driven by new product expansion with maybe your CCaaS solution?

In this case, I can confirm there was a material upsell in it. So this is again, as you would guess, one of our larger customers who, at the end of the term, again, had more to buy in, wanted to buy more. So that's the answer to question number one. Question number two, are they buying more seats and more products, they are buying both. So in this particular case, we continue to believe that we have a list price of $25 million to $30 million of product payload that a large company can buy, if you want to deploy us across business units and across markets. In this case, they've already bought all four product suites and most of our products. So some were in ELA mode. So like we pointed out this time, listening is unlimited for the Insight product suite. So, what we're seeing is where the products are not unlimited in the ELA, they are expanding more seats. We talked about thousands more seats in social, but it's not restricted to social. It's more seats, more consumption and expanded license. And at some point, we expect these to end in unlimited use for most of our products.

Maybe if I could just follow-up with one question. I guess how frequently do you guys – I guess do customers do an ELA with you guys? Or is this one of the first ELA deployments you guys have done? Or do you see this trend kind of continue as you go forward?

It's infrequent. That's something that we want to get to eventually. So this is a customer who has been with us for over 10 years. As you know, our sales approaches traditionally and currently being bottoms up. So we'd like to get in with – in a market for the product suite one of our offerings and then build credibility and go bottom up. So it's typically a multiyear journey. And it builds momentum as bottom up success is embraced by an executive who sees the overarching ability to unify and get better business outcomes.

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

Solid quarter. Wanted to ask some more questions about self-service? So, first, a couple. So, the self-service deals that you've done or have taken self-service, is that primarily in land or expand? And what have been the customer sizes versus relative to your typical customer sizes? And then I have two more details around that same question.

Self-service, for us, has been a strategy to make sure that we have our defenses lined up, right, to make sure that no one's attacking us from downstream in the long run. In the short run, our focus has been trying to give the practitioner more exposure to the power of Sprinklr, get hands on keyboard. And you know that we're very, very solidly focused on our target ICP, ideal customer profile – on our ICP and we've identified 43,000 companies as fitting that profile in our target market. So our strategy has been making these products available for everyone – you can go sign up – but directing our marketing and advertising and outreach only to those 43,000 companies. And we only follow up and encourage when a customer fits our target profile. And one of two things happen as they come in. Usually, sometimes it's like a small team that wants to try it for a bit and they can do so. And in many times, which we're seeing – what we're hoping to see and what we're seeing is they try it and they realize that, okay, this is powerful and easy to use, and they talk to our sales team and buy the enterprise version. We are beginning to see now – again, this is, as most things, strategic. It's going to take us several quarters, but every quarter we're seeing increasing green shoots come from this approach. And we're very encouraged by how it's progressing.

So just two follow-ups on that, Ragy and Manish. Is it possible to tell you if this is actually reducing your average customer acquisition costs and it is actually reducing the time to deployment for analogous types of build?

It's too early. We've got a few trends kind of going back and forth. One is, as we get into CCaaS, as you know, deal cycles take longer because it's a very thorough process. CCaaS transitions are very hard and they are very – customer service teams are very risk averse. So it's a much more longer thought-out, deliberate, RFP/RFI kind of process that takes time. So on the self-service side, we're able to kind of gain some of those momentum, have a deal open and close within the quarter to offset it. But, again, these customers are coming to us in the self-service, trying it out tend to be, at least on an average, smaller in the first deal site.

Our next question comes from the line of Michael Berg with Wells Fargo.

Congrats on the quarter. I just wanted to have more of a philosophical view on your guidance. You obviously had a very strong quarter and being raised by more than the beat, like you said, and more than the Q3 raise. So, maybe what's providing that confidence? Is there anything outside of the strong renewal activity and the large deals you saw in the quarter? Maybe just help us parse through what's giving you the confidence and the guidance?

I don't think it's any more complex than what you articulate. At the end of the day, if you leave the professional services line item aside, subscription business, it's all driven by the strength in the renewal business. When we do have multi-year renewals, we call it out. And that shows up in our view, like it did this time, and it's all driven by the linearity within the quarter. So we have been seeing stronger linearity for the last couple of quarters than what we had modeled, which is part of the reason you're seeing strength in in the beat in the quarter. And that's giving us more confidence as we look out over the next two quarters. And I think that's captured in the guide.

Our next question comes from the line of Tyler Radke with Citi.

I wanted to just hear how you're seeing things trend so far in Q3. Sounded like some really good execution in the quarter on the renewals and the large eight figure transaction, but it seems kind of inconsistent in Q3 versus Q2. What do you just kind of expected in terms of the large deal potential in the second half?

Well, I'll take the first part of it and maybe Manish can talk about the next quarter. Look, the macroenvironment is just about as uncertain as it was. And it has been. So, we're not seeing any different behavior this quarter or last quarter than we saw before. But just to tie it, there's CFO scrutiny and all the good things that come with people being not very sure where the markets going, right, and interest rates are going to be. But I think what you're seeing is, like, a consistent trickling impact of our better execution and focus on go to market.

Just to make sure I understand. Was your question, Tyler, are we seeing anything different in the month or so of Q3 that we've been in compared to Q2? Was that what you were trying to ask?

Yeah, sorry. I guess I'll rephrase the question slightly to make it more specific. And apologies for the background noise. But, really, the question was, you saw some really good large deal activity in Q2. I know there's been a lot of noise around RPO and current RPO because of the multi-year renewal cycle. So I'm just curious if there's any things to call out in terms of RPO volatility and just how your overall large deals, you're expecting those to land in Q3, Q4, just anything that would be noteworthy to call out as we're building our models.

Thank you for that clarification, Tyler. But there's nothing that I would call out at this stage. As I look at the quantum of business that we're booking, it sort of seems in line with what we would expect. Like any enterprise software company, we're pretty back-end loaded. So I wouldn't make any broad assumptions around how Q3 and Q4 would land. But there is nothing that we are seeing today that would give us any cause for concern. It's sort of along the lines of what we would expect. So steady is what I would say.

Our next question comes from the line of Austin Cole with JMP Securities.

I'm wondering, if you just kind of look back on this more recent AI wave we've seen over the last six months or so and you say that generative AI has given your proprietary AI wings, do you think that the kind of more recent excitement around AI has accelerated and boosted Sprinklr's AI efforts or put more pressure on Sprinklr kind of competitively overall? Over the long term, do you see some of this – to what degree is this going to be table stakes and then how is Sprinklr thinking about being really differentiated over the long term?

To answer your question, look, I think there's a lot of hype and excitement and we've all seen this movie many times. Usually, the hype always settles and then the real deal starts. What we're finding ourselves is having this blessed opportunity of being able to now talk about AI and have people appreciate it. And the awareness that our customers and the buyers have, our buyer personas now have of the power of what AI can do. And that makes articulation of our capabilities and our differentiators much easier than it used to be. So net-net, we're seeing positive impact on deals with the excitement around AI. Our strategy has not been to introduce a new AI product or to have a new AI feature because, for the last five years, we've bet the farm on the idea that we are the purveyors of unstructured conversational data. And there is no way to read and understand and speak back in over 100 languages to billions of people without using AI. So we think it is table stakes. We think there are different approaches to jumping on the AI wave. And one approach is to say, look, this is going to change everything. We're going to go into a DNA and make sure that it's AI powered. And that's how we think. The other one is to say that there's an opportunity for some incremental dollars or a new product. We've taken the former. We stand by it.

[Operator Instructions]. Our next question comes from the line of Matt VanVliet with BTIG.

I guess as you look at the contact center opportunity and really broadening it to obviously all of service. How much is that still being driven by high demand from the social media side and that sort of the entryway in and the knowledge of Sprinklr and all that you can handle versus seeing sort of net new landing opportunities that are more of a pure play, like-for-like replacement of an existing contact center out there?

Matt, excellent question. I'm glad you asked it. We are doing more of real contact center RFPs and proving ourselves to be complete unified replacement solutions for legacy players more so in the last two quarters than we've ever done before. So we're kind of kind of coming into our own as a disrupter with the ability to kind of show value out of the gate. That was not true, I'd say, maybe two quarters ago. That was kind of sort of beginning to play out a quarter ago. And last quarter, many of our deals which is independent voice solutions doing an RFP, comparing us to the top five players in that space and choosing us. So, increasingly so, they are seeing us as a pure CCaaS unified solution as opposed to somebody with social and who can expand to do other things.

Just quickly on some of the growing SI partnerships you've had out there, as they look at this broader portfolio of products that they can go in and help customers really make traditional transformations, anything you're doing on your end to even, I guess, place a greater emphasis on those partners really leaning into the entire sort of go-to-market there that you call out for us. Or maybe it's on the horizon that could accelerate that business even more.

We have been investing in our partnerships, generally, and specifically, a lot more on the CCaaS side. So, companies like Accenture, like Tech Mahindra who are established players in the contact center space see this as an opportunity to take the partnership to the next level. I've got to admit, though. It's very early for us, right? We're a disruptor. We're building a different kind of – we're taking a different approach of unifying it. So there's a lot of innovation and a lot of sort of velocity in the change that's happening. So it is going to take us a few more quarters to really even get to documenting everything and enabling the partners. It's very much underway, but I wouldn't count on any of the results.

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Well, thank you, Doug. And thank you all for joining us today. Again, I'd like to thank our employees, our partners and, most importantly, our customers for their trust and continued business. We look forward to updating you all again soon as we continue this exciting journey of creating a new category that we call unified customer experience management and building an enterprise software company we hope our customers love. Thank you very much and have a good evening. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.