Sprinklr - Q2 2024

Transcript

Operator (participant)

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 speaker's 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.

Eric Scro (VP of Finance)

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, Sprinklr's 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.

Ragy Thomas (Founder and CEO)

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 units, 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 brands 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+ 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+ can now provide brands with even more generative AI capabilities that are prebuilt for enterprise-level governance, security, and data privacy. More importantly, customers will now be able to bring along their own models from OpenAI, Vertex AI, create new ones, or integrate them, as appropriate with our proprietary AI. We believe that every company will embrace AI eventually. Our assertion is that companies that approach AI as a foundational strategy will win against AI adoptive and AI-enabled companies in the long run.

As we shared with you during our Investor Day, Generative AI has given our proprietary AI wings, and Sprinklr's AI is the fastest way for customers and prospects to deploy, deploy AI across their entire front office. Third, as we all know, the macro environment continues to be uncertain. However, we are diligently managing what's in our control with our go-to-market strategy, productivity improvements, and execution. This past quarter, we made a few more key hires in the service specialist team to add expertise and depth to selling our contact center offerings. We continue to provide verticalized solutions to enable quicker time to value and faster deployment. This now includes financial services, airlines, CPG, technology, and retail. Regarding our partner ecosystem, we're also encouraged with some of our recent successes, including the launch of our new Unified Partners Program.

We have integrated several new types of partners, including independent consultants, referral partners, and technological solution brokers, and business process outsourcing partners. Partners, as you all probably know, are especially critical in the contact center space, and we remain committed to training and onboarding them as rapidly as we can. Two of our largest CCaaS deals in Q2 were both sourced by partners. Furthermore, our technology solution brokers model is showing great momentum, providing us with almost 50 new opportunities in the past two months in the contact center space. Finally, we continue to make progress with our self-serve products. We've added dozens of new paying customers through this initiative in Q2. We believe that our investment in self-service products will help us expand access to Sprinklr products and enable companies of all sizes eventually to experience the power of our front office platform.

With decision-making around product purchases becoming increasingly democratized, even inside of large companies, a self-service product provides easy access to teams and practitioners who eventually end up recommending it to senior stakeholders within their organization. With respect to Sprinklr Service, we've continued our momentum as a disruptor in the contact center as a service space. Our vision is to help customers transform the contact center from a legacy voice-focused cost center to a more efficient AI-powered, omni-channel revenue center by unifying it with marketing and sales. Sprinklr's AI-first unified CCaaS provides its customers and prospects with, one, more seamless, consistent customer experience across channels. Two, a lower agent attrition rate, and three, a lower total cost of ownership.

During the second quarter, we once again saw several meaningful CCaaS deals close across all three of our primary theaters, and the majority of our service deals were with new logos. During the second quarter, we continued to add new customers and expand with existing customers. This includes world-class brands like Deutsche Telekom, LVMH, Novo Nordisk, Toyota, and TransUnion. Here are some examples: In Q2, one of the largest technology companies signed a multiyear $60+ million ELA agreement, expanding its partnership with Sprinklr across all four of our product suites. As it drives tech consolidation across its company-wide ecosystem. Sprinklr replaced two more competitors this time in the marketing and engagement space, onboarding hundreds of new users to the platform, enabling tighter collaboration between these teams, and saving the company significant dollars by replacing point solutions.

The company also added 1,000 new Sprinklr Social feeds and unlimited listening from Sprinklr Insights. This customer has served as Sprinklr's definition partner for our AI product, and we look forward to a continued partnership with them. This past quarter, Deutsche Telekom expanded its partnership with Sprinklr further into the contact center. Europe's largest telco provider first partnered with us in 2022 when it implemented Sprinklr Marketing and Sprinklr Service to manage content, marketing, and social customer service in the German market. As a part of this latest expansion, Deutsche Telekom will move its entire European contact center operation across 11 countries onto Sprinklr's AI-powered customer service platform. Until now, the company's contact centers have each been using its own set of legacy solutions. A transition to Sprinklr's cloud-based solution will enable them to streamline operations and enhance efficiency while improving agent workflows and customers' experiences.

The flexible architecture of Sprinklr's CCaaS solution will enable Deutsche Telekom to integrate its contact center ecosystem across Europe and drive its consolidation and innovation strategy across the region. By the end of next year, the company will have more than 40,000 customer service agents across 11 countries, working from one unified platform. Another Sprinklr Service win this past quarter is with a company of a different profile than our traditional Global 2000 base. This North American delivery company facilitates same-day delivery of groceries and household essentials via its app and website. The company will replace 6-point solutions with Sprinklr's unified platform and will help its over 700 agents to drive a more frictionless experience with customers.

Sprinklr Service will power best-in-class customer service to companies, members, and shoppers across voice, chat, email, SMS, and social in more than 250 metropolitan areas across the U.S. Sprinklr's platform will be integrated into the company's other backend systems, including their order management tool, and will help to future-proof their business by supporting new self-service features like chat and voice bots. Earlier this year, I told you about an exciting first of its kind win in the public sector, when Sprinklr was selected by the Civil Services and Government Development Bureau of Qatar as its technology partner to transform how the government provides services to and engages with the public. Today, I have another exciting development in the public sector space. This time, the Emirate of Ajman, which is in the northern part of the United Arab Emirates.

The Emirates leadership's futuristic vision is to transform the experience of its citizens, residents, and tourists. For this, the Department of Digital Ajman, or DDA, has been tasked with transforming the citizen and tourist experience across 17 local government entities. DDA selected Sprinklr as its future unified citizen experience management platform, offering government services seamlessly across social, digital, and voice channels to more than 500 citizens and residents, and more than 300,000 tourists who visit the Emirate every year. Before wrapping up, I'd like to take a moment to celebrate our incredible engineering team who make all of this possible. Their speed of innovation and dedication continues to differentiate Sprinklr in the marketplace. In closing, we are pretty pleased with the quarter's results, and even more excited about what is to come.

We are encouraged by the engagement and the momentum we see from customers and the broader ecosystem, and we believe that a unified platform, industry-leading AI, and efficient execution will set us apart in helping customers unify their teams, consolidate front office technology, increase productivity, lower costs, and mitigate brand risk. We remain committed to our vision of becoming the most loved enterprise software company, innovating for our customers, succeeding with our partners, delivering shareholder value, and executing for growth and continued profitability. Thanks to our customers, partners, and our employees for their hard work and results. And to all our investors, thank you for believing in the vision. I'll now hand over the call to Manish.

Manish Sarin (CFO)

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 have discussed in the past, the NDE statistic is not something we monitor as part of growing our business, but rather a by-product.

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 are 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 twelve 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 76%. Non-GAAP gross margins for professional services were slightly negative, coming in at -2%, but was +4% for the first half of the year and ahead of the break-even estimate we shared last quarter. As we have discussed in the past, we continue to invest in CCaaS delivery capabilities and build out our expertise in that area.

We also continue to generate efficiencies in sales and marketing and have shown consistent improvement in sales and marketing efficiency over the last several quarters. Non-GAAP sales and marketing expense in the second quarter now stands at 41% of revenues, compared to 52% in Q2 of last year. Non-GAAP R&D costs increased sequentially in the second quarter as we onboard our annual cohort of new R&D engineers every summer from leading universities in India, but held steady at 11% of total revenue for the quarter. Turning to profitability for the quarter, non-GAAP operating income was $21.3 million, resulting in non-GAAP net income of $0.10 per basic share. This 12% non-GAAP operating margin for the quarter was a result of revenue overperformance, improved subscription gross margins, coupled with broad-based expense discipline, and is the fourth consecutive quarter of non-GAAP profitability.

Lastly, on the topic of profitability, for the second consecutive quarter, we posted positive GAAP net income totaling $10.5 million, or $0.04 per basic share. In terms of free cash flow, we generated $8.7 million during the second quarter, compared to free cash flow generation of $1.4 million in the same period last year. Recall, on the Q1 earnings call, we had alluded to a large annual payment to one of the public cloud vendors as the reason for expecting negative free cash flow in Q2. However, during the quarter, we were able to renegotiate a set of more favorable payment terms. With this result in Q2, our free cash flow generation during the first half of this year now stands at $23 million, higher than what we had generated during the entirety of last year.

Our balance sheet remains healthy, now standing at $628.4 million in cash and marketable securities with no debt outstanding. Calculated billings for the second quarter were $179.2 million, an increase of 19% year-over-year. Q2 billings benefited from several million dollars more of early renewals than we had anticipated. As of the end of Q2, total remaining performance obligations, or RPO, which represents revenue from committed customer contracts that has not yet been recognized, was $806.4 million, up 35% compared to the same period last year, and CRPO was $510.4 million, up 22% year-over-year. The strength in RPO is driven by multiyear renewals at some of our largest customers that closed during the quarter, as well as multiyear Sprinklr Service deals.

This is a testament to the commitment that some of the largest, most recognized brands around the world are making to Sprinklr. Moving now to our Q3 and full-year FY 2024 non-GAAP guidance and business outlook. As you heard today, long-term demand trends and engagement for Sprinklr remain strong. However, we recognize that the macroeconomic environment continues to be uncertain, and our current assumption is that the broader macro trends from the last few quarters are likely to continue throughout FY 2024. For Q3 FY 2024, we expect total revenues to be in the range of $179 million-$181 million, representing 14% growth year-over-year at the midpoint. Within this, we expect subscription revenue to be in the range of $164 million-$166 million, representing 18% growth year-over-year at the midpoint.

We expect non-GAAP operating income to be in the range of $15 million-$17 million, and non-GAAP net income per share of $0.06-$0.07 per share, assuming 274 million basic shares outstanding. The slight decrease in non-GAAP operating income sequentially can be attributed to the seasonal hiring in R&D, whose full impact is felt in Q3, as well as our ongoing investments in Sprinklr Service product delivery. For the full year FY 2024, we are raising and tightening both our subscription and total revenue outlook for the year. We now expect subscription revenue to be in the range of $658 million-$660 million, representing 20% growth year-over-year at the midpoint.

This is an increase of $8 million at the midpoint, which is greater than the full magnitude of the Q2 beat and the subscription revenue guidance raise for Q3. As we discussed in prior earnings calls, we have been investing in making our products easier to implement and therefore accelerating the time to value for customers. In addition, we have also been cultivating a partner ecosystem around delivering our product suites, such that we expect our service delivery partners to take on a larger proportion of the services revenue attached in delivering our products. These transitions have now picked up steam and are happening faster than what we had previously anticipated. As such, we now expect professional services revenue of approximately $30 million for the second half of FY 2024, split evenly between Q3 and Q4, so approximately $15 million per quarter.

We also expect non-GAAP gross margin for professional services to be approximately -$2.5 million in each of Q3 and Q4, driven by investments in Sprinklr Service product delivery as we continue to scale that business. Given this, we expect total revenue to be in the range of $719 million-$721 million for the full year FY 2024, representing 16% growth year-over-year at the midpoint. One way to internalize this guide is from the perspective of the 20% subscription revenue growth year-over-year, which is being dragged down by the approximately 13% decline in professional services compared to the full year FY 2023. Similar to last quarter, we have included a bridge slide for our revenue guidance, which can be found on the investor presentation currently posted on our investor relations website.

For the full year FY 2024, we're raising and tightening our non-GAAP operating income estimate to now be in the range of $65 million-$67 million, equating to a non-GAAP net income per share of $0.30-$0.31, assuming 273 million basic weighted average shares outstanding. This implies an approximately 9% non-GAAP operating margin at the midpoint. Note the increase of $13 million at the midpoint is greater than the full beat for Q2 and the accompanying operating income raise for Q3. In deriving the net income per share for modeling purposes, we estimate $24 million in interest income for the full year, with $6 million of that to be earned here in Q3. Furthermore, a $6 million total tax provision for the full year FY 2024 needs to be added to the non-GAAP operating income range just provided.

We estimate a tax provision of $2.5 million here in Q3. Given the performance through the first half of the year, we expect to be GAAP net income positive for every quarter, as well as for the full year FY 2024, consistent with our comments on the past few earnings calls. As I alluded to earlier, we had several million dollars worth of early renewals in Q2 than expected. This will impact Q3 billings, which is already our seasonally slowest billings quarter. As such, we estimate Q3 billings to be in the mid-$150 million range. For the full year FY 2024, however, we expect billings to grow approximately 18% year-over-year, which would equate to around $780 million for the full year.

Consistent with our prior commentary, we expect to be solidly free cash flow positive on a full year basis. Lastly, I would like to thank all our employees for their dedication and passion for what we are building at Sprinklr. I'm also grateful for the confidence that our customers have placed in us during these uncertain times. We remain focused on building a track record of successful execution and operating discipline across the business. And with that, let's open it up for questions. Operator?

Operator (participant)

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Just as a reminder, please limit yourself to one question and one follow-up, so we may get to everyone's questions. Our first question comes from the line of Pinjalim Bora with JPMorgan. Please proceed with your question.

Pinjalim Bora (Executive Director of Equity Research)

Oh, great. Thanks for taking the questions, and, 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, for customers, especially in the CCaaS market, to, to choose Sprinklr versus, versus others?

Ragy Thomas (Founder and CEO)

Well, let me thank you, Pinjalim. 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 work 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 concepts, 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. You know, customers are happier, your agents are happier, and your company is happier because it's making more money and saving more money.

Pinjalim Bora (Executive Director of Equity Research)

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

Manish Sarin (CFO)

Yeah, and I think we did call out the fact that, look, our growth in RPO is because several large customers renewed on a multiyear basis.

... But those are the ones you'd remember from even a few years ago, we had them do multi-year 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, you know, select customers that renewed early, that was only to make sure that, you know, 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, you know, multi-year RPO renewals, our RPO numbers, as well as our sense around overall billings for the year.

Pinjalim Bora (Executive Director of Equity Research)

Got it. Thank you.

Operator (participant)

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

Frank Surace (VP of Equity Research)

Hey, 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 on the new customer strength?

Ragy Thomas (Founder and CEO)

I would both. CCaaS is definitely a growth 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 if, 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 apps. 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, you know, 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.

Frank Surace (VP of Equity Research)

Great. Thank you.

Operator (participant)

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

Arjun Bhatia (Partner and Co-Head of Tech Equity Research)

Yep, thank you. And 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 are 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 self or ease of use has gotten and implementation has gotten better.

Ragy Thomas (Founder and CEO)

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

Arjun Bhatia (Partner and Co-Head of Tech Equity Research)

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 ease implementation is easier and time to value is quicker. What does that enable from a growth perspective, incrementally?

Ragy Thomas (Founder and CEO)

Sure. So 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, you know, technology is not gonna just replace technology. I think it's gonna 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 up for grabs. So that's obviously, I think, you know, 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 to fixing the fundamentals and making it easier for our salespeople in the field to understand us and sell the solution better.

That's gonna take a few more quarters to completely roll out, but we're pretty pleased with the results we've been seeing so far.

Arjun Bhatia (Partner and Co-Head of Tech Equity Research)

Okay. That's helpful. Perfect. And then, 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?

Manish Sarin (CFO)

So, can you 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, you know, the core focus areas. Ragy has mentioned before about making it easier to sell. We're obviously engaging with partners in a different fashion as well. So I think all of this is as we try to look at incremental costs that we probably had in the plan, we've been more judicious about spending money than what we have been doing in the past. So nothing unusual to call out, but I think you should assume the savings you're seeing sequentially to sort of sustain.

Arjun Bhatia (Partner and Co-Head of Tech Equity Research)

Okay. Got it. Thank you, guys. Appreciate the color.

Operator (participant)

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

Speaker 13

Great, thank you. This is Fiona on for Elizabeth Porter. Thank you for taking the question. 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 at this end going as we start to look ahead into enterprise budget planning season in the second half of this year? Thank you.

Ragy Thomas (Founder and CEO)

Thanks for the question, Elizabeth. We as we've articulated before, we're seeing a very consistent theme and trend, especially in large, among our larger customers, of consolidating across point solutions into platforms. The theme of the marketing team or the customer service team not being able to run, you know, 10, 15, 20 RFPs and then go hire a system integration vendor and then create data lakes, and it's just too archaic. 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. So I think we are, we're enjoying the benefits of being that one of the options to consolidate onto.

So when we go and replace anywhere from sometimes five, sometimes 15, and 20 over the years, different point solutions in different markets. So, you know, we're, we're positioning ourselves as the third or fourth vendor and benefiting from that consolidation.

Speaker 13

Thank you. And 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 when I think about the traditional Sprinklr, the buyer of, the Care solution is 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. Thank you.

Ragy Thomas (Founder and CEO)

Great question. So we, we have been steadily seeing that shift. Our traditional buyer was the CMO's organization and the CMO. With our expansion into CCaaS, that's expanded, 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.

Speaker 13

Very helpful. Thank you.

Operator (participant)

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

Brett Knoblauch (Director of Crypto and Digital Assets Research)

The multiyear $60 million contract, could you maybe provide a bit more color on that? I guess, how many years... 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? Thank you.

Ragy Thomas (Founder and CEO)

Thank you. So 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 and 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, you know, a list price of $25 million-$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, you know, listening is unlimited for the insights product suite. And so what we're seeing is where the products are not unlimited in the ELA, they're expanding more seats. We talked about 1,000 more seats in social, but it's not restricted to social. It's more seats, more consumption, and expanded license. And, you know, at some point, we expect these to end in unlimited use for most of our products.

Brett Knoblauch (Director of Crypto and Digital Assets Research)

Perfect. Maybe if I could just follow up with one question. I guess, how frequently do you guys, or I guess, do customers do an ELA with you guys, or is this, you know, one of the, you know, first ELA deployments you guys have done, or do you see this trend kind of continuing, as we go forward? Thank you.

Ragy Thomas (Founder and CEO)

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

Brett Knoblauch (Director of Crypto and Digital Assets Research)

Perfect. Thank you, guys. Congrats on the quarter.

Ragy Thomas (Founder and CEO)

Thank you.

Operator (participant)

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

Michael Turits (Managing Director)

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

Ragy Thomas (Founder and CEO)

Sure, sure, Michael. So, 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 so we only follow up and encourage when a customer fits our target profile.

One of two things happen as they come in. Usually, you know, sometimes it's like a small team that wants to try it for a bit, and they can do so. And 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 a sales team and buy the enterprise version. We are beginning to see... Now, again, this is, as most things strategic like this, it's gonna 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.

Michael Turits (Managing Director)

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

Ragy Thomas (Founder and CEO)

Yeah, it's too early. Now, we've got a few trends kind of going back and forth here. One is as we get into CCaaS, as you know, deal cycles take longer because it's a very thorough process. It's CCaaS, transitions are very hard and they are very, you know, 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, you know, 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 size.

Michael Turits (Managing Director)

Okay, great. Ragy, thanks so much.

Ragy Thomas (Founder and CEO)

Absolutely, Michael.

Operator (participant)

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

Michael Berg (VP and SMID-Cap Software Analyst)

Hi, congrats on the quarter, and thanks for taking my question. 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 large deals you saw in the quarter? Maybe just help us parse through what's giving you the confidence in the guidance. Thank you.

Ragy Thomas (Founder and CEO)

Yeah, thank you for the question. So I don't think it's any more complex than what you articulate. You know, 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 multiyear renewals, we call it out, and that shows up in our PO 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 the beats 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.

Michael Berg (VP and SMID-Cap Software Analyst)

Wonderful. Thank you.

Operator (participant)

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

Tyler Radke (Director and Senior Software Research Analyst)

Yeah. Hi, thanks for taking the question. Wanted to just hear how you're seeing things trend so far in Q3. Sounded like, you know, some really good execution in the quarter on the renewals and the, you know, the large eight-figure transaction. But have things kind of been consistent in Q3 versus Q2? And, what are you just kind of expecting in terms of, you know, the large deal potential in the second half? Thank you.

Ragy Thomas (Founder and CEO)

Well, I'll take the first part of it, and maybe Manish can talk about the next quarter. Look, the macro environment 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. Budgets are tight, there's more CFO scrutiny and all the good things that come with people being not very sure where the market's going, right? And interest rates are gonna be.... But I think what you're seeing is like a consistent trickling impact of our better execution and focus on go-to-market. Yeah, and 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?

Tyler Radke (Director and Senior Software Research Analyst)

Yeah, sorry. So I guess I'll rephrase the question slightly, and apologies for the background noise. But really the question was just, 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 multiyear 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.

Ragy Thomas (Founder and CEO)

Yeah, thank you for that clarification, Tyler, but there's nothing that I would call out at this stage. We, as I look at the quantum of business that we're booking, it sort of seems in line with what we would expect. It's, you know, 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 that we would expect. So, so steady is, is what I would say.

Tyler Radke (Director and Senior Software Research Analyst)

Thank you.

Operator (participant)

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

Austin Cole (Equity Research Associate)

Great. Thanks, Ragy. So I'm wondering if, 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, AI wings, do you think that the kind of more recent excitement around AI has accelerated and boosted Sprinklr's AI efforts or, or put more pressure on Sprinklr kind of competitively overall? And then over the long term, I mean, do you see some of this... To, to what degree is this, is this gonna be table stakes, and then how, how is Sprinklr thinking about being really differentiated over the long term? Thanks.

Ragy Thomas (Founder and CEO)

Thank you, Austin. To answer your question, you know, look, I think there's a lot of hype and excitement, and we've all seen this movie many times, you know? Usually the hype wave settles, and then the real deal starts. Where 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, 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, you know, different approaches to, to jumping on the AI wave, and one approach is to say, "Look, it's gonna change everything. We're gonna go into our DNA and, and make sure that it's AI-powered, and that's how we think." The other one is to say, "There's an opportunity for some incremental dollars or a new product." We've taken the former, we stand by it.

Austin Cole (Equity Research Associate)

Great. Thank you.

Operator (participant)

As a reminder, it is star one to ask a question. Our next question comes from the line of Matt VanVliet with BTIG. Please proceed with your question.

Matt VanVliet (Director and Software Applications Equity Research Analyst)

Yeah, thanks for fitting me in here at the end. I guess, as you look at the contact center opportunity and really broadening it to obviously, all of service, you know, how much is that still being driven by high demand from the social media side, and that's 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, you know, like for like replacement of an existing contact center out there?

Ragy Thomas (Founder and CEO)

So 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 have ever done before. So we're kind of coming into our own as a disruptor, 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, you know, 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.

Matt VanVliet (Director and Software Applications Equity Research Analyst)

... Very helpful. And then 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 true digital transformations. You know, 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 co-go-to-market there that you'd call out for us or maybe is on the horizon that could accelerate that business even more?

Ragy Thomas (Founder and CEO)

We have been investing in our partnerships generally and, 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, I got to admit, though, it's very early for us, right? We're a disruptive, 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 that change that's happening. So it is gonna take us a few more quarters to really even get to documenting everything and, and enabling the partners. It's very much underway, but I wouldn't count on any early results.

Matt VanVliet (Director and Software Applications Equity Research Analyst)

Great. Thank you.

Operator (participant)

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

Ragy Thomas (Founder and CEO)

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.

Manish Sarin (CFO)

Thank you.

Operator (participant)

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 night.