Greetings, and welcome to Sprinklr Fourth Quarter Fiscal Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Scro, Vice President of Finance. Thank you. You may begin.

Thank you, Camilla, and welcome, everyone, to Sprinklr’s fourth quarter and full year fiscal 2024 results financial 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. In addition, during today's call, we'll be making some 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 first fiscal quarter and full fiscal year of 2025, actual results might differ materially. With that, let me turn it over to Ragy.

Thank you, Eric, and hello, everyone. Thank you for joining us today. We're pleased that Q4 was another strong quarter that exceeded guidance across all key metrics. Q4 total revenue grew 17% year-over-year to $194.2 million and subscription revenue grew 19% year-over-year to $177 million. We generated a record $32.4 million in non-GAAP operating income, which resulted in a 17% non-GAAP operating margin for the quarter. The end of the fiscal year is often a good time to reflect on how far we've come and where we are going. The opportunity we saw when we founded Sprinklr is coming to fruition in an accelerated fashion because of generative AI, after investing 14 years of unifying the back end of customer facing functions with our AI-powered platform, we're beginning to see customers bring our vision of unifying to life with generative AI and conversational AI. Generative AI has accelerated conversations, happening at the brand's digital edge, where the customer buys, gives feedback and engages for support and service. Anyone can use GenAI to build a chatbot but under the engine or the foundation behind it is unified to sell, to serve and to gain actionable insights. Siloed chatbots can't manifest significant value for the brand. In today's hyper-connected world, customers must experience a unified approach across all touch points with the brand. As you know, we're on a journey to create a new category of enterprise software that we call unified customer experience management. And we believe that will revolutionize the front-office and after continuous building and iteration across our core portfolio, CCaaS and AI, we have even more conviction today for our long-term vision and success and our platform strategy than we have ever had before. As many of you know, we've been committed to this vision for quite some…

Thank you, Ragy and good afternoon, everyone. As you heard from Ragy, FY 2024 was a solid year for Sprinklr punctuated by strong financial results with noted opportunities for operational improvement. Starting with our Q4 financial results, total revenue was $194.2 million up 17% year-over-year. This was driven by subscription revenue of $177 million, which grew 19% year-over-year. Services revenue for the quarter came in at $17.2 million as we completed several key project implementations during the quarter. As noted on our Q3 earnings call, we began to see incremental pressure on renewals in Q3 as certain customers adjusted their spending levels with us. This renewal pressure lingered into Q4 and our current expectation is that we will continue to see some renewal pressure in the first half of FY 2025. Our subscription revenue base net dollar expansion rate in the fourth quarter held steady at 118%. As a reminder, we calculate NDE on a trailing 12 month subscription revenue basis, which makes it a lagging indicator. While we do not forecast NDE, we estimate this number to keep coming down over the next few quarters as the renewal pressure rolls through the revenue waterfall and work its way through the calculation. As of the end of the fourth quarter, we had 126 customers contributing $1 million or more than subscription revenue over the preceding 12 months which is a 17% increase year-over-year. And as Ragy stated, we ended the year with 1,735 total customers which is a 21% increase in new customers for the year. Turning to gross margins for the quarter. On a non-GAAP basis our subscription gross margins came in at 83% with total non-GAAP gross margins of 76%. Non-GAAP gross margins for professional services were better than expected coming in at 5%. Turning to profitability for…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Arjun Bhatia with William Blair. Please proceed with your question.

Thank you guys and I appreciate all the detail here. And maybe one to start off with -- I know it last quarter and this quarter to talking about some of those down-sell and churn pressure that we're seeing with. Manish, when I look at the numbers CRPO growth in the low 20s, billings growth was strong. I'm not sure I fully see where that pressure is coming at least in Q4. So, can you maybe just walk us through what you're seeing in terms of demand? And is there something that's maybe offsetting it from a new customer perspective, where you are seeing some tailwinds I suppose that offset some of the churn headwinds?

Thanks Arjun. I think the way we look at this is, you'd note that, in the past, we've said we endeavor to get to a 90% and above gross retention rate or renewal rate and I think the pressure we're seeing now is just what's happening in the macro, definitely driven by usage patterns. We're sort of below that. In terms of what we shared in the Q3 earnings call, some of that had obviously got us by surprise and so we want to just be transparent there. So, I think a lot of this is driven by where we want to be. Now, certainly, it's not yet fully reflected in the numbers and I was saying even when you look at the NDE calculation, it is going to start to show up because some of these are lagging indicators. But as I -- sitting where I sit and looking into at least the first half of this year, I do expect to experience or keep experiencing renewal pressure just the way, I think, we've spoken in the December call.

Okay, understood. And then just in terms of -- as you're thinking about fiscal 2025, it definitely sounds like you're making quite a few investments in the CCaaS product set. But when you think about growth and maybe some of the go-to-market changes that are being made, how do you think growth should fare between your core social solutions versus CCaaS in fiscal 2025?

Yes, Arjun, I'll take that. This is Ragy. We have redesigned our go-to-market to be what we think is a fairly high quality, multiproduct company with multiple buying centers and so those changes are -- we've just kicked off our new year, so those changes are -- have been rolled out. That means we have specialists focused on our core offerings and specialists focused on CCaaS. We expect CCaaS to be a growth driver, but we also expect that renewed focus to start yielding better results in core as the quarters progress.

Okay, perfect. Thank you very much.

Thank you, Arjun.

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

Thank you. Congrats from me as well. Two questions. Manish, if you think about guidance for the next year, the thing that puzzles me a little bit is like you still have all the uncertainties, you have the go-to-market changes, but you're narrowing the ranges that you're giving. Can you just talk me through that logic? In theory, I would think it's a broader range rather than a smaller range. I'm just trying to understand that. And then I had one follow-up.

Yes, hi Raimo. So, I think what's driving it is, as we look at, again, what's happening in the broader macro environment and obviously, a lot of our peers, they certainly felt that given the visibility that we have, at least for the quarter, we could tighten the range. You'd also note, last couple of years, we have had a broader range for the full year and then we have had to adjust the range as we got into the second half of the year. That added a little bit more confusion as analysts were trying to figure out what was happening to the range. And I just felt entering this year -- I ended our prepared remarks by saying we're looking to get into a lot more operating discipline. It just felt the right time for us to introduce a much tighter range for the full year as well.

Okay. Perfect. Okay, thank you. And then the -- Ragy, one for you more, if I think about the CCaaS space, like a lot of players want to kind of play the AI angle and thing like oh, we have that, et cetera. Can you talk a little bit about like, who you're running into on those assignments and like what's the main difference between who is real or like what are you offering that is more real than what others have to offer? Thank you.

Well, I can confirm that we are running into the traditional incumbent large CCaaS competitors who've been around for a while. Look, I can't comment on what other people are doing with AI. But I can tell you that our win rate is pretty high when we get a chance at that. And that comes from the fact that we have built a unified platform from the ground up. So, when you look at the contact center stack, it's usually somewhere between six and 20 applications that they use in the contact center, that usually connected to somewhere between 15 and 100 in some cases, external applications that they have to go look at. And these 5, 10, 15 point solutions from a knowledge base to quality management to workforce management to ticketing to agent console and supervisor console and all of those community knowledge base, them not being meshed together, even the big guys, some of them don't even have like an agent console or a pure ticketing capability. So what we're encountering is this mismatch of solutions from competitors that aren’t woven together. And ours is just clean, pure everything work with everything else. And then we integrate with all the external systems and everything is based on AI. So right from the conversational interface, the bank that we have talked about in the past and many other customers, in many cases, are replacing their IVR with the conversational expedients. Imagine not having to press one and say, hey, I just want to know what my credit card balances when you pick up the phone. And so it's fairly dramatic right at the onset with the customer, go through the community where we're using AI. When the agent logs on, we've automatically summarized all the previous assignments. We've looked up the knowledge base, not -- you don't have to search. We found you the right two lines that you can use. You're being taken through guided workflows. The agent is determined using smart response, smart assignments, which is AI-based, is prompted with a smart response, nudged with better things that can be upsold and better response. And so it's just completely end-to-end AI and summarize when you close the call. And what's happening now is there are start-ups that offer like these -- some of these capabilities, but it's an add-on and you have to go figure out how to bolt it with your existing infrastructure, whereas our legacy is in conversation management in AI in over 100 languages that we've been developing models for finessing for the last six seven years.

Okay, that makes sense.

Thanks, Raimo..

Our next question comes from the line of Pinjalim Bora with JPMorgan. Please proceed with your question. Q – Unidentified Analyst: Hey, guys this is Noah [ph] on for Pinjalim. Thanks for taking the questions. On the net revenue retention side, it was great to see that holding stable at 118%. But as we're thinking about going forward, I mean how should we think about the trend for that on that for the rest of this year given the reiteration of the 10% revenue growth guide for the year? And I also have a quick follow-up.

Yes, I think this is where I did say in the prepared remarks, that we do expect this to come down over the next few quarters. I wouldn't be able to give you an exact number of where I think it should land. But I think, just looking at the way this metric is calculated for us, and this is why I take pains to walk through every quarter that this is done on a trailing 12-month subscription revenue basis. So as some of the renewal pressures that I spoke about earlier worked through the revenue waterfall, I do expect this to keep coming down. Again, no point guessing where it's going to come down, but it will come down. Q – Unidentified Analyst: Got it. And then, one of the customer wins you highlighted during the quarter was with BT. I'm just doing a quick Google search. It seems like BT supports over 80,000 service agents from what we see on our end. And I mean I think that's double what Deutsche Telekom does, which is also a customer. So just curious how that relationship came into fruition and if you can unpack any details around that, that deal. Thanks.

Pinjalim, I can tell you that it's a strategic partnership. I can tell you that it was a very long, tough evaluation process where they looked at -- they're BT, right, I think the number one brand in the U.K., one of the top brands. So all the -- everybody with any AI from the small to the big to the cloud providers all participated in the process, so we think of this as a very momentous win for us, hard fought one and a great validation of the vision. We can't go into any of the details unfortunately, but I can tell you it's very strategic. And it's something that is along the lines of other bigger partnerships we're signing off very, very early, but we see a lot of potential.

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

Great. Thank you very much. I wanted to hit on some of the productivity savings you mentioned. You referenced a customer seeing a 45% increase. And then you previously talked about 20% to 40% savings in the front office. And given that you guys are leveraging your own tools internally, how is this impacting kind of your own cost initiatives? I'd be curious to hear how you've changed your own view on spending and how that may play out in your margin expansion? Thanks.

Elizabeth, I have to thank you for that question. We are running several implementations of our own AI technology for ourselves. And obviously, we're smaller than many of the customers we serve. And we're seeing some very, very dramatic impact. I'll give you a quick example. And by the way, don't model any of this into this year's guidance because this is very early and -- but it's a big focus for us. Sprinklr on Sprinklr is a big focus for us this year, and I'm personally focused on it. But I'll give you an example. We just modeled the process that from beginning to end was going to take a week for every one of our outbound outreaches, and this involves -- in fact would be very interesting. It involves, I mean, like all companies, B2B companies doing, you have to research everything that's out there, externally read the public filings, investor report, news, look people up, figure out a point of view on what the focus areas are for the company, then you got to translate that into what products fit, and then you got to put that into an e-mail and send it out if you're an SDR. That process, to do it really well, was taking a week across all the stakeholders. And we just finished our internal pilot. And literally now you click a button, ask our internal go on Teams, ask our internal conversational AI product and you get the answer in seconds. So we're talking about dramatic and this is where we get excited about our own ability to use it. Now granted, it's too early and we're not modeling any of this, but I would definitely hope that, in the out years, we're going to be able to grow without adding resources and drop that to the bottom line.

Great. Thank you so much. And just as a follow-up on the go-to-market changes, you made the fix and kind of the overcorrection into CCaaS and refocusing on the core. Any update on the progress you can share that drives confidence that these changes are getting you back to balance? Or any metrics as it relates to sales and efficiency in your pipeline that you can speak to?

I mean, look, I think the leadership changes are the most important ones. I'd start there. I mean no plan is going to work unless you have great leaders. So this is -- I can tell you, this is the most direct, most focused, most substantive set of changes that we've made. I can tell you that, in every area, we've brought in leaders who've been there and done that. You can go look them up on LinkedIn. Second, we've spent a lot of time getting everyone on the same page mapping out our 16 stages of the customer's journey with us, all the teams. And we've been leveraging an external consulting firm to bring all of us together and get on the same page. And the plans are being formulated and we've got ownership in a way that this company has never done before. So, I'm very optimistic, but I can also tell you, this is going to take several quarters to roll out. And then these leadership changes are cascading, and it takes -- even just to flow through and get the team that we want everywhere, it's going to take us a couple of quarters. And so -- but we feel very good about where we're going and how we're approaching this. I can tell you, this was always a priority. Right now, this is the priority. So, that's all I can tell you about what's different.

Great. Thank you so much.

Thank you, Elizabeth.

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

Hi, guys. Thanks for taking my questions. I guess, the first one is maybe on the annual customer count metric. I guess, is there any way to provide or provide additional color into maybe what was the bigger driver of that this year in between CCaaS, and maybe your kind of core social media products? And how has that changed maybe compared to years of past?

I'd say, look, what I can tell you is it was in CCaaS or core. We had outlined last year that we were -- we had put together a team that's focused on new logos. It was a small team in sort of a limited capacity, but we're seeing success with that model. So that's something that we're going to double down on.

Got it. And then maybe I could just touch on the -- I think, if I heard you correctly, you're expecting a two percentage point headwind to cost or gross margin this year due to one-time implementation costs or your CCaaS solution. I guess maybe in a bit more detail. A 2% headwind kind of sounds like a lot.

Yeah. So this is Manish. I said, approximately 2%, but what is going on here is there are data residency requirements in many geographies across the globe. And largely, this is driven by as we spin up new instances with our hyperscalers partners there are one-time fees for a lot of them. There are initial costs to set up these instances that, again, I'm conservatively estimating approximately up to 2%. Hopefully, it will be lower. But that's what's baked into the model right now.

Perfect. Thank you.

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

Hi, there. Congrats on the quarter, and thanks for taking my question. I guess, just in terms of the relationship between free cash flow and operating margin, should we expect that to steady moving forward, as now it seems like billings are mostly annualized and the growth should be in line with subscription revenue? And I have a follow-up. Thank you.

Yeah. I think, that's a terrific question. As billings get sort of in line with subscription revenue, now also note, there is the professional services, which many a times is sort of build upon completion. So that is a separate element. But over time, you should expect our free cash flow to get closer in line to operating income. Where the distinction will be is, many a times, we have to pre-pay for a lot of cloud usage as an example. So there are those aberrations that do affect free cash flow, obviously don't affect operating income to that same extent. But I think that's part of the reason, you would have seen, over the last couple of years, the steady improvement in free cash flow. So you've gone from obviously, I believe, negative $45 million a couple of years ago to positive $51 million in FY 2024. And I think, based on where we sit, we're comfortable with an $80 million number for FY 2025. Again, all steps in the right direction, but you should see the narrowing of the two margins over time.

Got it. Helpful. And then just a quick follow-up to that, the implied margin expansion for this year is in the 150 bps range, a pretty meaningful step down from last year. I know, there's all the go-to-market changes happening in the background. But anything for us to point to you as to why there's not more margin expansion here as growth slows or just natural offset the realignment of the go-to-market organization. Thanks.

And just to make sure I understand. So we ended FY 2024 around 13% non-GAAP operating margin. And that's what we are using the guide for the full year FY 2025. Maybe I'm not following the question.

Sure. It's just the incremental step function and operating margin progression is much less implied for fiscal '25 guidance relative to what was done in fiscal '24 and the nature of the question is, is there a particular reason or driver as to why there's not more margin accretion here as growth slows? I understand there's the go to market changes happening in the background but is there something else at play?

Yes. I think up in the December call I also mentioned and I've been saying to investors that we obviously have a lot of near term success as we went from where we were a couple of years ago to last year. So there was a lot of low-hanging fruit that we were able to go take care of margin expansion from here will be subdued. Again, let's be let's be candid. This is just the initial outlook for the year as we make progress during the year. We'll of course update investors, but at this point I'm most comfortable just stating the 13%.

Helpful. Thank you.

Our next question comes from the line of Jackson Ader with KeyBanc Capital Market. Please proceed with your question.

Great. Good evening guys. Thanks for taking our questions. The first one Ragy, how can we or I guess can we quantify how much of either bookings dollars or growth actually comes or is being generated by generative AI? And then, how much maybe going forward, do you expect to come from generative AI.

Jackson, thank you for that, question. We have taken the approach of like infusing everything we do with AI and in the past and take the approach of trying to monetize it separately. However, we're looking at what's going on in the industry and we think that could be an opportunity. So, we are currently evaluating and this is quite a bit of work. So again don't factor anything into this year, but we think there's an opportunity to charge a premium for it least for our AI Plus offering and we're exploring that. So right now no, but we're exploring the possibility of being able to do that on our part or our position has always been that AI is a big differentiator for us across everything we do, but I think the market's willing to absorb some additional cost for.

Okay. All right. Got you. And then on the renewals pressure, I'm expecting it kind of persist here in the first half and then maybe start to go away. I'm just curious like how do we know that the pressure will end? Is there something -- is there some cohort or is there something specific about the renewals that are going to be happening over the next couple of quarters that you can point to and say like they are different from what the renewals will look like after we get past this first half?

Okay. So I think first off, I got to tell you, we've put a lot of energy behind understanding what is going on. And what I can confirm as we’ve done in the past is we think the majority of it is self-inflicted. And we're finding that – is that the best execution of our team versus the best execution of any competitor in our core markets and the CCaaS frankly, we win. So what we're finding is -- and I say it self-inflicted because weak execution, weak execution on our side, meeting strong execution with the competitor is when we're losing. And so it gives us a lot of confidence that there's a fixable things and is a part of this big set of initiatives that we have outlined. And like we said, it's going to take a few quarters. But right now, we're pretty optimistic that we should see our retention go back to our historic norms once our execution and what we can control is addressed.

Okay. I got you. So this is a process turnaround, not necessarily like a customer-driven thing. Okay. All right. That’s great. Thank you.

Correct. Correct. Thank you, Jackson.

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

Hi. This is Matt Pride [ph] on for Tyler Radke. I was just curious if you could comment on just dive more into the win rates for CCaaS and what you expect moving forward?

Look, I think we have taken a very pointed approach right now, given that we've only been in general availability for a short period. So I can confirm that when we are in a competitive RFP and follow-on process that CCaaS – in the CCaaS market, I can confirm that the win rates are pretty high. But we -- it's not -- we're not able to deploy it everywhere in every market across all teams. And that's partly because we need to get to a critical mass of seats, which we should be getting through towards later this year. That will then allow us to be featured in analyst reports, which will then allow us to be a default participant. Right now is word of mouth and people being very impressed when they actually see the platform in action and trying it out and doing a proof of concept and being convinced that a new comment like us can outperform others. So it's more measured and it's more -- it's not around the world in all markets.

Got it. And can you speak to the conversational AI offering and how that's ramping?

Very well. Very well. It's one of the silver linings that we see are -- so we are able to now digitize voice and have conversational AI called, not just text and chat and interaction. So many of the deals we are winning is because of our ability to manifest this. So there's a lot of talk about whose AI is better. We challenge our customers to just put this to task and we show them that we can do a better job than others. So we have taken the approach of developing models across languages for each function and now developing those models, specifically for industries. And so we're able to start with a baseline of a much higher accuracy level than others. And then we customize those models. We've done thousands of customer models, where that just gets to a really, really good percentage of accurate responses. And our power is we're not a point solution offering AI in the contact center, right? We have a full blown agent experience sitting behind it. So the frustrating thing for a lot of customers and brands is, if you just go in with AI and on the bar takes you through 17 steps and then you hit a dead end. And it's very frustrating because in the Non-Unified Contact Center the consumer is not repeating everything he did which is beyond frustrating. So in our world that doesn't happen, because all of that context you've seen seamlessly transfers to an AI whose pickup is as though he was the one talking to them. So there's a few things that are strategically it is working well for us.

Thank you.

Thank you.

Thank you. Our final question comes from the line of Austin Cole with Citizen's GMP. Please proceed with your question.

Great. Thanks for taking our questions. I guess, I just wanted to ask kind of as you do this rebalancing and you look at the core products you mentioned, you're doing with insights and adding integrations with advertising and marketing. Kind of what where do you see the roadmap for these products and what can you do to, if there's anything you can do to add stickiness to these products?

I mean the products are pretty sticky often when implemented correctly. So I think it brings us back to that execution that we have consistency and repeatability of execution we need to have. What we are finding is, the product and when configured the way they intended to be used the right way creates a lot of value and it's very sticky. And where we struggle is people changes on either side of implementation or was it done the way it was originally envisioned, because something changed or seven think of that as a priority. So it's more self-inflicted. So I think we'll be in a better position to answer that question, after we feel like our execution across the 16 stages of touching a customer is more pointed and repeatable across the stages.

Okay. That’s helpful. Thank you.

Thank you. We have reached the end of our question-and-answer session. And with that I would like to turn the floor back over to Ragy Thomas, for closing comments.

Thank you, Camilla. And thank you all for joining us today. Again, I'd like to thank our employees and partners and most importantly, our customers, for their trust and continued business. We look forward to updating you all again, on the next quarterly call. As we continue on this exciting journey, we truly believe the best is yet to come. Thank you very much. And have a wonderful evening.

Thank you, all.

This concludes today's teleconference. You may disconnect your lines at this times. Thank you for your participation.