Sprinklr, Inc.

Greetings and welcome to Sprinkler's third 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Skro, SVP Finance. Thank you, Eric. You may begin.

Thank you, Alicia, and welcome, everyone, to Sprinkler's third quarter fiscal year 2024 results financial call. Joining us today are Raji Thomas, Sprinkler's founder and CEO, and Manish Sareen, chief financial officer. We issued our earnings release a short time ago, filed the related Form 8K with the SEC, and we've made them available on the investor relations section of our website, along with supplementary investor presentations. 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 financial information presented in accordance with GAAP. You are directed to our press release and supplementary investor presentation for reconciliation of such measures to GAAP. 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 fourth fiscal quarter and full fiscal year 2024 and our initial framework for fiscal year 2025, and 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 also posted on our website. With that, let me turn it over to Raji.

Thank you, Eric, and hello, everyone. Thank you for joining us today. We're pleased that Q3 was another strong quarter that exceeded guidance across all key metrics. Q3 total revenue grew 18% year-over-year to $186.3 million, and subscription revenue grew 22% year-over-year to $170.5 million. With our continued focus on operational efficiency, we generated $27.4 million in non-GAAP operating income, which resulted in a record 15% non-GAAP operating margin for the quarter. We are going through what I believe is the most exciting time in recent history for the modern front office. Many AI experts agree that AI is going to boost human productivity significantly over the next few years. For many industries, customer facing functions are the most labor intensive. And we believe that 20 to 40% productivity improvements are a real possibility in the next five years. We also believe that the data to train the AI models and the unification of siloed teams, technology, and processes are required to unlock the power of predictive and generative AI. I'd like to share more details on these three key areas, given the benefits customers are experiencing in terms of their operating costs, risk management, and improved customer experiences. Let's start with everyone's favorite topic, AI. We continue to believe that we are at the forefront of a very long-term, durable growth opportunity, given our deep investments in AI more than five years ago. Today, I'm sure no one is debating the fact that we have an early mover AI advantage, given our decision to design Sprinklr on a single architectural code base, where AI has been infused across all product suites. Sprinkler Service, Sprinkler Social, Sprinkler Marketing, Sprinkler Insights, our self-service offerings, and our entire platform. During the third quarter, customers executed over 170 AI deployments in Sprinkler Service alone. These include auto speech recognition, advanced intent detection, and speech-to-text models, along with agent-assist features like smart responses and other generative AI enablement. I met with more than 70 customers around the world this quarter, and while everyone is universally excited about the possibilities of AI, the customers I spoke with wanted more than AI in theory. They wanted practical, actionable, real-world AI that works safely and reliably and produces measurable business results now. This is what Sprinklr is doing for them. For example, one of our leading telecom customers using Sprinklr's conversational AI bots and AI routing achieved over 90% improvement in their response time. and more than 60% reduction in average case handling time after enabling our chatbot. One of our luxury goods customers has seen a 25% improvement in their CSAT score, along with a 50% reduction in their average handling time using Sprinklr's conversational analytics product. As you know, we've taken a very open approach to AI. This is why you've seen us announce our integrations with Google Cloud's Vertex AI and OpenAI, in addition to our proprietary Sprinklr AI+. We offer customers the greatest choice in how to utilize generative AI with accuracy, privacy, and security in just a few clicks. We maintain that Sprinklr is the fastest and the most effective ways for many enterprise customers and prospects to get actionable and practical AI across a global brand's front office today. The breadth of the Sprinklr platform enables us to bring practical, actionable AI-powered insights to a brand's front office. This can only be achieved with AI that is pre-trained with bound, real-world data. and is secure for use in enterprises given their compliance and risk profile. We've been working for over five years across a dozen industries to pre-train AI for brand insights, product insights, location insights, crisis insights, and competitive insights. Given the enormous amount of data that Sprinklr has access to, outside of the traditional CRM and CDP data, and our industry-leading AI, we can generate and provide actionable insights out of the box right after implementation. Let's talk about unification. Since our inception in 2009, we've been talking about unifying the front office. If you aren't able to make AI and insights actionable in customer-facing functions, you really aren't moving the needle. How do you take a negative customer review or a comment and automatically convert it into a customer service ticket if your product feedback isn't unified with customer service? How do you take a competitive or a content insight and translate that to a marketing campaign that works if your inside product isn't unified or integrated with your marketing stacks? This makes unifying the front office one of the most critically important and strategic things any brand can do today to improve customer experiences. Those who don't unify have numerous point solutions, which creates inconsistencies in interpretation and reporting. And trying to infuse these point solutions independently with siloed AI models that aren't coming off the same training data makes it even worse. The result is just AI point solution chaos. To create better experiences for the customer and to improve everything from marketing and sales and service and compliance and growth opportunities, brands of the future must unify their digital edge where their customers meet a customer-facing employee and have their different customer-facing teams, markets, and geographies work together. As many of you know, we've been on a multi-year journey to transition each one of our product suites into a large mainstream replacement market. Over the past few quarters, you have heard us talk about how we are taking our service product suite and successfully transitioning it from a social-slash-digital solution to a complete CCAP solution by adding voice as a channel. That's telephone lines. The second is our insights product suite, where we have started transitioning that from a social-digital listening product to a full-blown customer feedback management, or a voice of the customer suite, as some call it. by adding surveys. The power of unifying unstructured, unsolicited feedback with structured and solicited feedback is endless. It makes the feedback real-time, actionable, and one that can be validated. This quarter, we started definition partnership for our customer feedback management suite with a select few brands. and have been demonstrating our early success to industry analysts. We're pleased to announce that Sprinklr was recently named by IDC's research director, Lou Reinman, in the major players category in the 2023 IDC MarketScape assessment for worldwide voice of the customer applications. IDC noted, and I quote, Sprinklr, has grown its capabilities to have a fully featured voc platform for listening analyzing and acting on customer feedback sprinkler aims to bridge functional silos sales marketing support etc to seamlessly manage whole customer journey experiences we're very pleased with the momentum and the progress we've made in our service suite Our vision is to help customers transform the contact center from a reactive voice-first cost center to a more efficient AI-powered proactive omni-channel revenue center by unifying it with marketing and sales. We are excited to share the launch of conversational AI plus in the sprinkler service suite. We can now empower our enterprise customers to deploy and scale generative AI-powered bots for human-like text and voice conversations in as little as three easy steps. This is a leading and innovative way for customers to train a bot in their brand's voice, automate and deflect call volume, and provide a natural conversational experience to their customers. We also announced a partnership with Infinite.cx in Germany to help customers in the DAC region facilitate a seamless migration to cloud-based unified customer service in the contact center. Together with Infinite.cx, we will help the most innovative companies in the region harness AI to its full extent and be able to act on insights and unify the front-off functions. During the third quarter, we continue to add new customers and expand with existing customers. This includes world-class brands like Alaska Airlines, AstraZeneca, Ford, Mercedes-Benz, and Shine. Here are some examples. In Q3, one of the world's top five cosmetics companies expanded its long-standing partnership with Sprinklr to now include conversational commerce. With over 65 brands working on over 20 channels, the company has integrated Sprinklr's conversational AI and conversational commerce to enhance customer interactions, support care agents, and transform conversations into sales and long-term value. Sprinklr is helping the company to achieve its goal of generating more than 50% of its revenue through digital sales by 2025. In Q3, a top three North American home improvements retailer selected Sprinklr's AI-first CCAP solution to provide customers with a unified, seamless customer experience across channels. The retailer will consolidate all digital channels onto the Sprinklr platform to provide a more consistent customer experience while simplifying the lives of its customer service agents. Sprinklr's AI-powered agent assist capabilities will enable the company to reduce the number of open applications and screens at the agent level and provide the proactive support needed to resolve customer needs faster. Integrations with the company's knowledge base and order management systems ensure that agents have all the data and information at their fingertips compared to their previous set of solutions. Another example of unification and transformation powered by AI comes from a top three global food and beverage company, a Sprinklr customer for over 10 years. Last year, the company began to globally transition their social teams to Sprinklr's service suite to empower a closer, more meaningful brand experience for all its customers. To understand and build brand love further, in Q1 this year, they made They decision to move all their social insights, just the listening part, more than 1.5 billion brand mentions over to Sprinklr. This includes social listening, benchmarking, and product insights. This past quarter, they doubled their competitive insight scope and now monitor over 2,000 digital accounts. As a partner in our AI plus beta program this year, the company has also harnessed the power of Sprinklr's generative AI reply assistance. By unifying these solutions onto a single powerful platform, the company now has access to deep actionable insights and gen AI capabilities that enable it to provide personalized experiences to each of their many brands that they sell around the world. Before wrapping up, I'd like to take a moment to celebrate our incredible product and engineering teams, as always, who make this possible. Their speed of innovation and dedication to serving customers continues to differentiate Sprinklr in the marketplace. In closing, we had two primary goals this year. The first was to build and establish a foundation to scale in the exciting CCaaS market. And second was to meaningfully improve the operational efficiency and margins of our business. There's no question that we've been very successful in achieving both of these goals. And we're on track to deliver a solid year with 18% revenue growth, record profitability, and strong free cash flow generation. We believe that the product suites we've built, the customers we serve, and the size of the market opportunity ahead of us put us in a great position to become a multi-billion dollar revenue company in the years ahead. Since our IPO in the June of 2021, we've continued to expand our product portfolio and market focus from social to digital and transitioning to unified CXM. The investments we've been making over the last 18 months are enabling us to mainstream our product suites into large obvious replacement markets, starting with establishing ourselves as a disruptor in CCAS. As we've diversified the business and focused on scaling our CCAS business, we'd like to acknowledge that we have made slower progress on some of our other go-to-market initiatives focused on our core product suites. We expect this will have a near-term impact on growth, which Manish will review in more detail in his remarks as he shares an initial framework for FY25. We maintain our conviction for the long-term vision of what we are building. And like so many companies that have successfully built billion-dollar businesses, we are navigating through the normal course of resource allocation and investment cycles required to balance short-term success metrics with long-term growth objectives. We're committed to innovating and developing a new category of software that we call Unified Customer Experience Management and executing for growth and profitability to deliver for our customers and our shareholders. Thank you to our customers, partners, and our employees for the hard work and results. And thank you to our investors for believing in our long-term vision. Let me now hand over the call to Manish.

Thank you, Raji, and good afternoon, everyone. As you heard from Raji, we're pleased with this quarter's results, which exceeded the high end of our guidance range on the top and bottom line. For the third quarter, total revenue was $186.3 million, up 18% year over year. This was driven by subscription revenues of $170.5 million, which grew 22% year over year. Subscription revenue benefited by $1 million from new business being booked earlier than expected in the quarter. Professional services revenue for the quarter came in at $15.9 million. In terms of new logos, we are pleased with the number of new customers that joined the Sprinklr platform in Q3. This is particularly true with our Sprinklr service product suite. as many of the deals in this product suite over the last few quarters have been with new customers. As of the end of the third quarter, we had 123 customers contributing $1 million or more in subscription revenue over the preceding 12 months, an increase of three customers sequentially, and a 15% increase year over year. Our subscription revenue-based net dollar expansion rate in the third quarter was 118%. While NDE was healthy in the quarter, I would note that we began to see incremental pressure on renewals in Q3, as certain customers that are impacted by the difficult macro environment adjusted their spending levels with us. As a reminder, the NDE statistic is not something we monitor as part of growing our business. but rather a byproduct. Turning to gross margins for the third quarter, on a non-GAAP basis, our subscription gross margins came in at 83%, and we continue to drive efficiencies in our cloud operations with total non-GAAP gross margins of 75%. Non-GAAP gross margins for professional services were slightly negative, coming in at minus 2%. As we have discussed in the past, we continue to invest in CCAS delivery capabilities and build out our expertise in that area. Turning to profitability for the quarter, non-GAAP operating income was a record 27.4 million, resulting in non-GAAP net income of 12 cents per basic share. This 15% non-GAAP operating margin for the quarter was a result of revenue overperformance, strong subscription gross margins, coupled with broad-based expense discipline, and is the fifth consecutive quarter of non-GAAP profitability. Lastly, on the topic of profitability, for the third consecutive quarter, we posted positive GAAP net income totaling $17 million, or $0.06 for basic share. In terms of free cash flow, we generated $15.9 million during the third quarter, compared to a cash burn of 1.7 million in the same period last year. With this result in Q3, our free cash flow generation during the first nine months of this year now stands at 38.9 million. Our balance sheet has become stronger each quarter, now standing at 656.4 million in cash and marketable securities with no debt outstanding. Calculated billings for the third quarter were 161.2 million, an increase of 16% year-over-year. As of the end of Q3, total remaining performance obligations, or RPO, which represents revenue from committed customer contracts that has not yet been recognized, was 774.5 million, up 34% compared to the same period last year, and CRPO was 491.4 million, up 19% year-over-year. Moving now to our Q4 and full-year FY24 non-GAAP guidance. Our Q4 guidance assumes the go-to-market dynamics Raji mentioned and the renewal headwinds I discussed earlier will have an impact on revenue growth in the quarter. As a reminder, Q4 is our biggest book of business for both new business and renewals. Given the macro environment, we are experiencing a higher level of downsells as large customers right-size their software spend. As such, we are mindful that this cycle of renewals may be one of the more challenging quarters to get through and is factored into the guidance numbers. Given these dynamics, for Q4, we expect total revenues to be in the range of 187.5 million to 189.5 million, representing 14% growth year-over-year at the midpoint. Within this, we expect subscription revenue to be in the range of 172.5 million to 174.5 million, representing 17% growth year-over-year at the midpoint. We expect professional services revenue of approximately $15 million in Q4. We also expect non-GAAP gross margin from four professional services to be approximately negative $2 million in Q4. From a profitability perspective, we expect non-GAAP operating income to be in the range of 20.3 million to 22.3 million, and non-GAAP net income per share of 8 cents to 9 cents per share, assuming 275 million basic shares outstanding. The slight decrease in non-GAAP operating income sequentially is driven by our ongoing investments in sprinkler service product development and delivery. For the full year FY24, we are raising both our subscription and total revenue outlook for the year. We now expect subscription revenues to be in the range of $664 million to $666 million, representing 21% growth year-over-year at the midpoint. This is an increase of $6 million at the midpoint, which is higher than the full magnitude of the Q3 beat. We expect total revenue to be in the range of $725.5 million to $727.5 million for the full year FY24, representing 18% growth year over year at the midpoint. For the full year FY24, we are raising our non-GAAP operating income estimate to now be in the range of $80 million to $82 million, equating to a non-GAAP net income per share of 36 to 37 cents, assuming 273 million basic weighted shares outstanding. This implies an approximately 11% non-GAAP operating margin at the midpoint on a full year basis. Note the increase of 15 million at the midpoint is greater than the full beat for Q3 and the accompanying operating income raise for Q4. In deriving the net income per share for modeling purposes, we estimate 24 million in interest income for the full year, with six million of that to be earned here in Q4. Furthermore, a six million total tax provision for the full year FY24 needs to be added to the non-GAAP operating income ranges provided. We estimate a tax provision of two and a half million here in Q4. And given the performance throughout the first nine months of the year, we will be GAAP net income positive for the full year FY24, consistent with our comments on the past few earnings calls. And lastly, I would like to provide some thoughts on billings. We estimate billings to grow 13% here in Q4, equating to total billings of approximately $262 million for the quarter. This translates to total billings of about $773 million for the full year FY24, which is up a little over 17% on a full-year basis compared to FY23. Before moving into Q&A, I would like to provide some high-level commentary on fiscal year 2025. As I just outlined, we are on track to deliver a very successful FY24 with 18% revenue growth and 11% operating margins that will have expanded by more than 1,000 basis points year over year. and we accomplished all this while broadening our product portfolio. Our primary strategic focus in FY24 has been to rapidly scale our sprinkler service product suite. We are very pleased with the results, having made significant demonstrable progress with sprinkler service, gaining market share and customer momentum in the CCaaS market. As Raji mentioned, our focus on succeeding in our CCaaS business slowed progress with some of our other go-to-market initiatives in our core product suites much more than we had anticipated. Now that Sprinklr service is at scale, we have developed a consistent and repeatable selling motion to that buying persona and built an enviable collection of reference customers. We're in a position to refocus our go-to-market efforts to better align our resources across all product suites. We expect it will take several quarters for the full impact of these changes to work its way through the P&L. To put some numbers around these dynamics, if you adjust for the 1 million linearity benefit I mentioned for Q3, Q4 subscription revenue is expected to grow approximately 2.5% sequentially. At this time, based on what I just outlined, coupled with an unforgiving macro environment we expect a sequential quarterly increase of 2.5% for each quarter of FY25. This equates to approximately a 10% total revenue growth for the full year, which we believe is the appropriate starting point for FY25. From a profitability perspective, we have been pleased with the significant progress in our profitability performance this year. We expect FY25 non-GAAP operating margins to continue to expand from our guidance for 11% operating margins for FY24. I want to be clear that the dynamics I've just discussed here will be short-term in nature and do not change our expectations for Sprinklr's growth potential across each of our four product suites. We have the strongest product portfolio in our history with an innovation flywheel that is consistently expanding our competitive differentiation. 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?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove the question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Arjun Bhatia with William Blair. Please proceed with your question.

Perfect. Thank you, guys. Maybe to start just on the go-to-market adjustments that you're making and the macro pressures that you called out, are there any products where you're seeing the greatest incremental pressure or any part of the customer base that sticks out here in Q4 where the downsell is greater than other areas, just as we try to hone in on where the headwinds are increasing the most.

Yeah, Arjun, let me take a first pass at it. It's kind of the obvious culprit is what most people would guess it is. You know, one of our product suites is a marketing and advertising product suite. And as you know, you know, in difficult times, marketing is one of the first budgets and teams to be impacted with layoffs, cutting back on spend, what's going on with some of the networks that isn't helping. And so that's an obvious place where we're seeing some additional pressure.

Okay, got it. And then just as we look to the other side of this, when you think about the go-to-market revamp, what are some of the steps that you need to take to, I guess, refocus on the broader suite? Is there incremental hiring that needs to happen, or is it more a matter of internal resource allocation, enablement, etc.? ?

It's more of an internal resource allocation. And in hindsight, I think the most obvious explanation for this is the fact that we, and I don't know whether we would have, knowing everything we know, done it differently. We kind of over-rotated a little bit more on the CCAS side. And so we took our field and we incented them strongly to go sell CCAS. And essentially, there's a lot of people who jumped in and really are happy, and we're thrilled with the results. And there are some that didn't quite, you know, jumped but didn't quite make it on the other side. And the fix is quite obvious to all of us. You've got to take the field folks in sales and support and services that came from the social suite background or the marketing suite background or the research inside suite background. And we got to let them go back and focus on it. So what we are doing now is we think and plan for the next year is we are adjusting quotas and we are just, um, you know, bifurcating or trifurcating the field to, to have, uh, to just fix the rotation we did. And, and we're pretty hopeful that in one or two quarters, we'll begin to see some data that would allow us to just update you further.

Okay, understood. Thank you very much. Appreciate it.

Thank you. Our next question comes from the line of Pinjalene Bora with JP Morgan. Please proceed with your question.

Hey, guys. This is Noah on for Pendulum. Thanks for taking our questions. On the first part, Raji, you mentioned that you met with over 70 customers globally this quarter. Just curious to hear some of the feedback from those conversations, just any incremental takeaways from there, and then a quick follow-up. Thanks.

Hey, I'm Pendulum. Glad you asked that question. Look, I think our – I have not seen this kind of excitement since the early days of social that I'm seeing now on the CCAS side. I think we have a very differentiated product. And we've landed, I mean, we're ahead of schedule in terms of our own expectations, which is why we over-rotated. And we're seeing such an exciting reception to that. And the idea there is pretty simple, right? We're going into a market with vendors who have been there for a long time, and a market that's very fragmented. If you're knowledge-based, you're agent console, you're supervisor console, you're routing, and you're bot, and you're quality, and you're workforce management, all just is unified, and everything is based on AI. These results are fairly spectacular, and it's cost-advantages as well, right? So we're bringing the average handling time down, and these demos are received really well. And the number one question we get is, that's not real. Is it in the way like we are? We'll set it up for you. I want you to know, though, that excitement is meted in months, not weeks, right? A social product, turn it on, people are happy, let's go. In the CCAS world, these are very... time-consuming transformation. So there are long protracted RFPs. And so we're very pleased with where we are. The number one excitement we're seeing in the field among customers is our CCAS product. And so we know we've done the right thing. Now, if you play this movie in, you know, three-year increments, I think most of us would agree we did the right thing. So excitement on AI, excitement on practical AI, excitement seeing the results. Because we are walking into customers, I'll give you a large customer that I spoke to who was on a track to kind of build their own LLM. And after really understanding how we're approaching AI, they were like, oh my God, yeah, we just got to work with you and then you'll ensure that we can always use the best LLM and the best model that yields us the best results. So that's the most exciting thing that's going on. No surprise that AI and what it can do for you and we're manifesting just easy, measurable results on the CCAS side.

Got it. Thanks so much for that answer. And then maybe just focusing a little bit more on the model as we sort of contemplate the preliminary 2025 guidance. How does that, if anything, does that change at all the long-term model that you had outlined during your annual study? How should we really think about that going forward?

Well, I'll start by saying no, and Manish, can you elaborate?

Yeah, it does not change our FY27 long-term plan. And again, just to be clear, this is not our guide for 25. I will do that in our March earnings call. Just given some of the renewal pressures we are seeing here in Q3, and as I said, Q4, we expect it to be quite intense. Given the visibility that we have, we just wanted to be clear that we laid out what we are seeing right now. It might change substantially when we talk in March and we talk about the full year guide. But at sitting where we sit today, we don't feel any difference about FY27 than we did six months ago.

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

Hi, this is Matt Saltzman on for Elizabeth. So I'd love to just touch on some of the renewal headlines that you all are seeing. You previously highlighted the expectations for net dollar expansion to be under pressure from some of those moderating renewals and upsells. So I'm just curious, the downsell pressure incrementally more than you expected and just any sense for why now? when we've been hearing from a lot of your software peers over the last year talk about this dynamic. So just curious around the timing of it now and also just versus your initial expectation. Thank you.

Yeah, that's a good question. So let me start and then Rajeev might chime in. So first I want to be clear. We're not seeing logo churn. We're just seeing reduction in the number of seats, as an example. And why now? Well, you've seen a lot of corporations pull back on headcount. There have been layoffs across the economy. Q4 tends to be our biggest business, both in terms of renewals and new business. And I suspect what is happening is when those contracts are up for renewal, which for us happens to be in Q4, we're seeing a down draft in terms of the number of seats being renewed. So I think that's point number one. And then as Raji was saying, there are quite a bit of macro challenges, particularly as we look at the marketing and advertising suite. We sell volumes here, so it's not really seed-based. And again, companies are looking to advertise less just given the macro, and that's pulling back the ARR that we ascribe to that product suite.

Hope that helps. Got it. Yeah, no, it's very helpful. And just maybe as a quick follow-up, When you think about the pressure on some of those seat-based renewals, is there any opportunity to potentially move some of those seats into separate SKUs that maybe the customer will utilize more to maintain overall ACV? I'm curious if there's any discussion internally about pursuing avenues like that to just maintain overall retention levels. Thank you.

That's an exciting thought. Our approach here as we kind of bring a fairly disruptive new product to a new buyer is to not confuse them with a new model, pricing model. So we've started by, there are some products that are just flat AI-based, conversational bots, et cetera, but we've tried to keep the pricing model parity with the market sees. But I agree with him, and I think there is some upside for us as we get to scale in our CCAS side, there is opportunity for us to revisit pricing. And that's not something we're willing to comment on right now.

Yeah. And let me make sure, was your question that at renewal time, are we trying to offer them additional SKUs to maintain ARR? Was that the question?

Yeah, that's partly it. But your answer, no, also addresses it.

Yeah, and I think to be clear, that is one of the plays we are running. So we are constantly, as you'd recall from our prior earnings calls, upsells for us has always been a very strong suit. So we are constantly figuring out ways to either maintain as what we're doing now or increase the error on accounts. So offering them additional product suites is one of the plays. There's a number of other plays we are running. And again, this is part of the reason I was saying, just given where we are and the limited visibility and how this plays out for the remainder of this year, what is captured in the guide is the situation we see.

Understood, thank you.

Thank you. Our next question comes from the line of Matt VanVleet with BTIG. Please proceed with your question.

Yeah, good afternoon. Thanks for taking the question. I guess when you look at the success of the contact center product on sprinkler service here, you know, any any help in terms of the mix of existing customers that are buying that versus this as a tool to land at new logos? And how do you think about that going forward?

Not surprisingly, I think it's 50-50. We're surprised to see brand-new companies involved and include us in a contact center RFP. Usually a late addition is usually coming from an analyst who's seen the product saying, you guys have got to take a look, or our reps calling in, or someone who's tried us, the few that have tried us that have been impressed. And so the answer is there is a surprising number of sort of net new RFPs we are beginning to get in. And then there is always the customers that have been using us for social and digital care and are also, you know, expanding into voice with us. But I'll tell you a new category that potentially has some upside and we're beginning to look at them are the large BPO players. And these are things that, you know, there's an established market that's 20 years old. So we're seeing more traction early, but more traction from the partner-sourced sort of leads for us, and so that's something that we're excited about.

Okay, very helpful. And then when you look at the partner community, it seems like they've been pretty instrumental in helping some of the growth here on the contact center side, but did you You know, were you also sort of refocusing them in that direction and maybe they also took the eye off the ball on the social and marketing side or anything that you think your internal sort of sales focus influenced performance by the partner community as well?

Yeah, yeah, it's a good question. And actually, let me just take a step back, right? You know, it's obvious that we're going to go through an air pocket here. And that's the nature of the beast as we transition from a set of buyers that were largely marketing-based or like social customer service or digital customer service-based. Now we're talking to the guy who runs the contact center, who kind of didn't know that Sprinklr existed until about three to six months ago. And that curiosity and that growth is what we think was worth the effort. Having said that, the partner ecosystem is the same way. They are transitioning off very long-term established partnership and trying as out. So I think a lot of this air pocket situation for, let's say, up to a year or so, can be explained by making that transition and landing it right where, you know, we're still developing our playbook and our blueprint to enable partners, right? So the people are trying and loving it. We have to document our successes. We have to create the blueprints. We have to train the partners. So there's a, let's say any way you look at it, you're looking at a six to nine month lag in that, you know, going from one to the other. And that's the way we look at it. So, We're seeing very good early traction, and that early traction to convert to steady, predictable growth on the booking side, I think that's probably the two quarters or three that we need.

Okay. Thanks for taking the question.

Absolutely.

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

Perfect. Thanks, guys. Congrats on the strong quarter. I guess last quarter you flagged some very large deals with some of your largest customers and said that those kind of contract values were up 10%, 15% or double-digit. But it seems like this quarter large customers are more of a headwind. So I guess is there a bifurcation of, I guess in terms of the type of customer, maybe the industry of that customer that is expanding versus downselling?

Yeah, these are two different bases, right? So, you know, some of the down to the pressure we're talking about sort of the marketing side and advertising side. And the other thing to put in perspective, you know, we did land some large implementations in contracts sort of brand-wise, size-wise on CCAT, so we will continue to do so. The thing, though, is they go market by market, right? So these are companies in many cases that have executed a master agreement, but then you go market by market, and you'll start seeing those bookings and revenues only as markets come on board. And these markets are on different contract timing cycles, right? So you might have a set of markets in LATAM whose renewal with their current solution is coming up in six months or nine months. It's actually good for us because these early implementations, you know, the 99, the 5-9 uptime and a whole bunch of things that we are just working through. We've done it before. It's good to have that breathing room. So I just want to make sure that you understand the time lapse as you take those snapshots and try to put it together. And that should, once the base is established through the rest of this year and next year, we should see that pipeline convert steadily, but you're going to see a little bit of a starting lag.

Understood. Makes sense. And then maybe just on your kind of like net revenue retention and how we should think about that going forward. I guess to get to maybe the 10% growth that you guys were talking about next year, it seems like that's going to fall pretty sharply. Is that something that we should expect to maybe end 25 below 110?

Yeah, this is Manish. So I have never given a number for net dollar expansion or retention. As I state on every earnings call, it's a byproduct of what's happening in the business. We have signaled, even in the past, we do expect the 118% to keep coming down. I don't know where it's going to end up, but I think you can use the total revenue guide. You can use the billings number for next year to sort of know that it is going to come down from the 118%. Probably maybe not very different from where you were expecting, but it's not something that I formally put out a number on.

Got it. Let me just ask one more on the expense side. Particularly with sales and marketing, it looks like kind of cash-based sales and marketing expenses are down a good bit from the first quarter. I guess, how should we think about expense growth while you go through this go-to-market transition?

I think at this point we will probably provide more color in the March earnings call for next year. I did want to point out that non-GAAP operating margins ought to expand from here. So there will be more efficiencies across the business. I don't want to specifically call out for sales and marketing, but I think as Rajiv answered in one of the other questions, we're not looking to incrementally invest a lot more. I think it's more around reallocation of existing resources.

Yeah, I mean, and this might be premature, but look, I started the call by saying one should expect 20% to 40% productivity gains in the front office. And look, we intend, and let me be specific, I intend for us to be client zero. So there's a lot of things that we're doing now that's going to take a few quarters that it's just like we're going to eat our own dog food or drink our own champagne here. And so, look, we're anticipating and working towards improving productivity. So I think I echo Manisha's sentiment that we should be able to do both. Perfect.

Thank you, guys. I appreciate it.

Thank you. question comes from the line of Michael Bird with Wells Fargo. Please proceed with your question.

Hi, thanks for taking my question. I wanted to ask, going back to CCAS, when you think of the sales process for your CCAS offering, it's primarily in the application layer. You do have the voice capabilities now, but maybe more holistically, how do you think about that piece of the business progressing to doing more, at least how I imagine it, augmentations today to more strategic holistic rip and replaces, or at least that's becoming more of a norm. Thank you.

Sorry, Michael. What was your question? Can you repeat the question? I'm not sure I got it.

Absolutely. I guess how do you think about the progression of in CCAS moving from being an augmentation in the more the digital application layer within a CCAS deployment to being a more holistic, strategic replacement of the legacy vendors from end to end moving forward? Or I guess what inning are you in in that transition? Thank you.

Got it, got it, got it, got it, got it. We, I don't know when and what to expect in reality. So we have two sets of buyers, right? We have a set of buyer that is used as the social customer service and is expanding to digital maybe as the next step. We have a bunch of those. The exciting development there, Michael, is our conversational AI capability. And that's becoming really, really good. And it's becoming more human-like. I'm not going to name the customer, but we have one customer that where our bots and a case that's closed by a bot has a higher NPS than a case that's closed by a human. So I think that speaks to the progress we've made in technology. So that's sort of the class A digital customer service and mitigation of production and call volume when it just saves you money. And the other one is where we are actually in a CCaaS replacement RFP. I can tell you, This is anecdotally because we don't have enough data to be specific here. Our win rate when we are seriously considered is pretty high. And, you know, you have this, whoever got fired for buying IBM syndrome is the only reason why someone who sees it and believes it and tests it and kind of, you know, maybe says, you know, I'm going to give it more time. So we know we have a very differentiated product. We know that the opportunities we are in, we're seeing very good win rates. We have to develop that muscle across the company. And that muscle development takes time. The good news is the parts of the world where that muscle seems to have developed quickly, either through hiring salespeople who have been at other CCAS companies or leaders embracing CCAS, they're doing really well. And so it's inconsistent at this point across the company. And one of our big goals for next year is to make that really consistent around the world.

Helpful. Thank you. Thank you, Michael.

Question comes from the line of Michael Turretts with KeyBank Capital Markets. Please proceed with your question.

Hi, this is Michael Vidovic. I'm from Michael Turretson. Thanks for taking my question. On the headwinds, you talked about seeing this quarter with the over-rotation and the down-sell pressure. I guess, were you not seeing those same dynamics in Q2 and Q3 in, like, a similar frequency, or is that still relatively new for this quarter? Thanks.

It's kind of consistent, right? But because, as Manish said, we have a much bigger base coming up in Q4. So we're not seeing the macro environment get better or get worse. And so I wouldn't characterize it something changed in Q4.

Yeah, so let me clarify that. I think what Vaidya is getting at is, the level of down sales that we are beginning or we saw in Q3 and then we expect here in Q4 is much sharper than what we saw in the first half of the year. But to also add to what he said, when we look at how the sales teams were organized, of course, a lot of this was things that we had wanted to do in terms of our focus on CCAS, which was very successful. But I think that whole sequence of moving the sales teams around, we probably didn't see, at least till now, that we were not getting the level of market momentum in our core products or traction in the core products that we should have had. So I think that's a bit of a new element.

But I would, again, to reconcile the two, right, the macro we don't think is what's changing. It's really our over-rotation. That that's causing the change that we're malicious articulated.

Great. And then just, just on that over-rotation you called out, I guess how significant on like a dollar or a resource standpoint, resource standpoint, are you reallocating away from CCAS? I guess I'm just trying to figure out, are you far enough along in the CCAS expansion or growth that you can continue to like push into that market and grow the business despite that reallocation?

I think the short answer is yes. We have had several quarters here of looking at not just win rates, but the go-to-market model for CCAS, what is working in the market. As Rajiv was mentioning earlier, we've been successful in onboarding partners in that segment. So we now have, I'd say, enough of a science around what it's going to take for us to succeed in that segment. And I think this would be the appropriate time for us so that we focus on all of our product suites, not just CCAS.

I would just say, though, I would, again, give ourselves the explanation for all of this is we'll probably need another quarter or two before the partner enablement, the scaling of that completely new product suite happens. is just brought to the world, right? So now we're implementing these early partners working with that. So it's just we're in the process of templatizing it and being able to do it with much less heavy lifting.

Great. Thanks, guys.

Thank you. As a reminder, please press star 1 to ask a question at this time. Our next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed with your question.

Hey, this is Ari Friedman sitting in for Brian Schwartz. Thanks for taking my question. I'm just wondering, like, in the quarter, if you saw any strength in certain verticals or weakness. Our research suggests that there's been, like, some softness in, like, insurance and autos. and tax and financials. Wondering if you're seeing the same thing or something different. Thanks.

I mean, I don't think there's anything super noticeable. If you like want to interpret it a certain way, I'd say maybe the media sector, right? Yeah, media, publishing, you know, channels who have been customers. We're seeing some sort of Can you interpret that there's some extra softness there? You know, there's been, you know, the streaming wars that have been going on has calmed down. You know, so these social networks are in a very different place than they used to be. And as you know, there is some, these are all like one-time things that we, for us, it's just unfortunate timing that they're coming together at the same time. But I'd say that's probably one way to interpret it.

Yeah, thank you. That was very helpful.

Thank you.

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

Hello. Thanks for taking my question. So on sprinkler service, it sounds like customers are seeing pretty meaningful productivity improvements. I'm wondering if you could walk through how does sprinkler service handle automated call deflecting and routing to agents? Just maybe so investors can better understand kind of the technical pieces here. And how are those functions different from other CCAS solutions and how are customers benefiting? Anything there? Thank you.

Well, Austin, thank you for that question. I really mean it because I think when it's, When you see it action, it actually, um, it just changes your perspective. I'll tell you the story of, you remember the big bang we talked about, right? One of the, I think the fifth largest bank that we was one of our first CCAS implementations, 15,000 agents. I met with the CEO, and they did a live demo for me, put the phone on the table, and just dialed out 1-800-BANK. What do you get when you call a big bank? Press 1 for credit cards. Press 2. And after they finished implementing Sprinklr, for the most part, the question on the other side that the system poses is, how can I help you? And you just say, I want to know my credit card balance. And then the follow-up question is, can you please put in your security code, maybe recognize your phone number? And literally, you can just continue the conversation. And there are, you know, I don't know, 100-some journeys that they've identified. Some are 50% to 80% of that as we connect the more internal systems have been automated. And the credit card balance inquiry is something that is automated. So literally, you now have an experience where it's very unlike a traditional experience where we're routing and calling. And on the back end, if you did ask a question like, I want to change my credit limit, that would go to a human. But we already understand from your speech and your text and your voice that what you want to do. So we know where to send you. And then we use smart AI to find the best agent who can do that. And because you can do it across channels, let's say you request a credit limit increase at the bank, you know, before you had Sprinklr, if that request was on the phone, they could ask you, hey, can you just send me a proof of your salary increase, blah, blah, blah, and you send it and get it done. But if that came on the phone on a Friday or a Sunday night, if that came on email on a Sunday night, the agent that had an email console Remember, before Sprinklr, these consoles were all different, right? And they were logging into eight screens. The agent will reply back via email saying, hey, can you send me a proof of your income? And that email, you know, you go to work and you reply back five days later, the SLA for the same call driver on email was dramatically different than if it were on the phone. And with Sprinklr, that agent who's responding on email, because it's an omni-channel console, just puts on call and calls the customer. And those are the kind of magical things. And by the way, in the demo, it was the head of CX who did the demo. He hung up before Sprinklr could blurt out the bank credit card balance and called back. And Sprinklr picked up from where it left off and continued that transaction. Those are the kind of things that are not possible in a traditional point solution existing legacy contact center infrastructure. I hope that brings it to life. Very helpful.

Thank you.

Thank you. There are no further questions at this time. I would now like to pass the floor over to Raji Thomas for closing comments.

Thank you, Alicia, 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 in 90 days or so as we continue this exciting journey. I'm sure that's going to span years and decades of creating a new category that we call Unified Customer Experience Management. Thank you very much and have a wonderful evening.

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