Sprinklr Inc

NYSE:CXM

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to Sprinklr's First Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. Please limit your questions to one with one follow up, so we will 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, Vice President-Finance]

Thank you, Doug, and welcome, everyone, to Sprinklr's first quarter fiscal year 2024 financial results call. Joining us today are Ragy Thomas, Sprinklr's Founder and CEO; and Manish Sarin, Chief Financial Officer. We issued our earnings release a short time ago, filed the related Form 8-K with the SEC, and we've made them available on the Investor Relations section of our website, along with the supplementary investor presentation.

Please note that on today's call, management will refer to certain non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. You are directed to our press release and supplementary investor presentation for a reconciliation of such measures to GAAP.

With that, let me please turn it over to Ragy Thomas.

[Ragy Thomas, Founder and Chief Executive Officer]

Thank you, Eric, and hello, everyone. Thank you for joining us today. Before we jump to our quarterly results, there are a few things I like to share. First is that on July 12, we will be hosting our first ever Investor Day at the New York Stock Exchange. We look forward to seeing many of you in person and sharing more details about Sprinklr’s vision and business strategy.

The second, you saw the 8-K we filed on May 15th about John Chambers resigning from our Board as of June 14, but remaining as an advisor. We want to take a moment to publicly thank John for his contributions as a Board member since joining our Board in 2017. John is one of the most caring and hardest working executives I know, and if anyone deserves a little time back in his life, it would be him. While John will no longer have board commitments, we are grateful that he'll stay on as an advisor and continue to be a coach, mentor, and a friend to all of us.

Next, we are excited to welcome Trac Pham to our Board of Directors. His appointment will become effective on June 15, and Trac will also be a member of our Audit Committee. Trac most recently served as the CFO at Synopsys with a broad remit across finance, business development strategy, and IT. Trac is a great culture fit for Sprinklr and given its vast experience scaling a multibillion dollar business a great addition to our Board. The management team and I are looking forward to working with him and tapping into his broad expertise.

So, let's jump into the results of our first quarter. We are very, very pleased that Q1 was another strong quarter that exceeded guidance across all key metrics. Q1 total revenue grew 20% year-over-year to 173.4 million and subscription revenue grew 24% year-over-year to 157.7 million. With our continued focus on operational efficiency, I'm also delighted to report that we generated 11 million in non-GAAP operating income for the quarter.

These results are driven by a few key things that are top of mind for all of us. First, we believe we are creating a new category of enterprise software for the front office. We call it unified customer experience management. As we hear constantly from some of the best brands in the world, there's a clear need for a front office platform to eliminate siloed technology team's data, and to create seamless customer experiences as simple as it might appear.

These seamless experiences are impossible to create across the multitude of channels, functions, business units, and markets that most large companies have and operate in today. Unified CXM is differentiated at its core by a unified AI powered architecture that spans all of these different silos and it's fueled by publicly available and mostly unstructured data and conversation. And that just cannot be supported by the current CRM and CDP relational database package. This approach of unifying the front office benefits both customers and brands. Customer experiences improve and brands can reduce costs, mitigate risk, and increase productivity for growth.

We recently hosted our first Analyst Summit in Dubai where approximately 20 well-respected industrial analysts joined us and our customers. It was very encouraging to see them speak to our customers and validate our vision. We have made some of their quotes and references available for you in the presentation on our IR website. But one quote worth mentioning came from an IDC analyst who said, ‘built on an already robust architectural framework, Sprinklr appears to be set up well to address its ambitious growth plan.’

The second point for us is, is that we are very, very excited to see AI finally become mainstream. As all of you who've been tracking us from beginning and are at our IPO, you know that AI has been foundational to a platform from the very, very beginning. It's woven into every fabric of our unified platform. And if you read our IPO prospectus, it should be very clear that it was and always has been a key differentiator for us.

Sprinklr is the system of record for unstructured external and conversational data for some of the best brands in the world. And we've been training over 2,000 AI models with over 100 million training data points in over 100 languages across over 70 industries and sub industries for five years. And that accuracy that we're able to achieve with the training, I don't believe can be matched by any other company in our space in the short-term. A recent announcement regarding Sprinklr AI+ is the next evolution of our AI.

Sprinklr AI+ includes generative AI capabilities through an open AI integration across all our product suite. With generative AI, our AI becomes even more powerful. We delivered over 30 features AI features in our last release. We have another 25 planned for our next. Some of these features include smarter responses, generated recommendations, content summarizations, which help customers with more relevant and specific auto responses and increase agent productivity.

For example, one of our streaming customers improved the agent's acceptance of Sprinklr smart responses, which are the suggested responses that we provide for agents by 300% after we enabled AI plus. Every company will embrace AI sooner or later. What I believe will separate winners from losers is whether AI is a feature for you or is it at the core of everything you do.

So, despite the macro environment, we are very pleased with how we're managing what's in our control with our go to market strategy, productivity, and execution. Specifically, we're excited about the progress we're making it – to make it easier to sell, which has been a top priority for the company. This past quarter, we made several key hires in the service overlay team to add expertise in-depth to our CCaaS offering go to market and we continue to verticalize to enable quicker time to value in faster deployments.

We are now up and running to CCaaS with a couple of more key industries, including financial services and airlines. We're also doubling down on our partner ecosystem and we've recently partnered with some amazing companies like Intelisys and Foundever, which are beginning to result in deals that we want together in the field. As you all know, partners are critical, especially in the context and the space and we remain committed to training and onboarding them as rapidly as we can.

And finally, last quarter, we discussed our self-serve offerings, Sprinklr Social event. Feedback has been in incredibly positive in terms of how easy it is to use and the product is opening the door as we anticipate for larger deals. This past quarter, a very large media company, actually started with social advance and now in conversation with our sales team to expand to multiple geographies and product suites.

I'd love to provide a brief update on Sprinklr Service and our continued momentum as a disruptor in the CCaaS space. Our vision is to help customers transform the contact center from a voice focused cost center to a more efficient and effective AI powered omnichannel revenue center by unifying it with marketing and sales. IT buyers find Sprinklr to be a great fit for their needs as they consolidate point solutions in the contact center stack to a platform that's built on a single code base with a very extendable architecture.

During the first quarter, we saw meaningful CCaaS deals close across all three of our primary theaters. During the first quarter, we continue to add new customers and expand with existing customers, including world-class brands like Avis, Garmin, Lululemon, [Tuma] [ph], Spirit Airlines and Wilton.

Let me give you a few examples of how customers are currently using Sprinklr. Starting with service and showcasing the power of the unified CXM platform is an expansion win in Q1 with the top 5 Global Technology company, which renewed and expanded their business to over $15 million in ARR with Sprinklr. They are now using 40 Sprinklr products across all of our product suite in over 13 languages.

Sprinklr service is now a critical part of the deployment at this client, enabling guided workflows, knowledge bases for agents, customers, video chat, co-browsing, and AI powered agent assist capabilities like smart comprehension, pairing, and responses. Through Sprinklr, this client can now detect issues within 5 minutes as opposed to the 30 minutes to 45 minutes it used to take previous enabling them to expand their support coverage and improve their SLAs through increased actionability, AI, and automation.

Another service story is with Americana, one of the largest restaurant companies in the Middle East and Africa. Americana originally began partnering with Sprinklr to build-out an actionable voice of the customer and customer service program. This program gathers life, actionable voice of customer insights across all digital and voice sources to provide enhanced resolution. Our platform and the implementation of it has helped Americana reduce response time now to minutes.

With the expansion last quarter, Americana now has implemented Sprinklr across 10 brands in multiple countries across several 1,000 restaurants. Another example is a new logo, Hilti, a leading multinational manufacturing company with over 30,000 employees, who signed interestingly a 7-year deal with Sprinklr as a new customer using – to use our inside, social, and marketing solutions. This is an amazing example and a testament to how strategic Unified-CXM is for large enterprises.

Another example is the expansion of a strategic partnership with Roche, one of the largest pharma companies in the world. Using Sprinklr, they have now laid the foundation for global intelligence teams to provide holistic insights across social, digital, and traditional media including print and broadcasting stations.

The consolidation and analytics based on real time data display is, it plays a key role in Roche's vision to become One Roche as it enables diverse siloed stakeholders across the pharma and diagnostic divisions in over 100 countries to make informed decisions and proactively respond in crisis situations and obviously is driving growth and optimizing strategies.

Before wrapping up, I'd like to take a moment to celebrate our incredible engineering team who as always make all of this possible. Their speed of innovation and dedication continue to differentiate Sprinklr in the marketplace.

In closing, we are very pleased with our start to FY 2024. We’re encouraged by the engagement and momentum we're seeing from customers industry analysts, influencers, around three things. First, a new category of front office software. We call it Unified-CXM, but the simple idea that teams and data and technology and customer journeys have to be unified at the architecture level and that a disconnected set of point solutions won't work.

Two, AI is well on its way to being mainstream and customers are super excited with our AI first approach and generative AI plus integrations that give them I think is customer facing superpowers. And our focus, lastly, third, our focus on efficient execution, which is helping us drive strong momentum across our product suite.

We remain committed to our vision of becoming the world's most loved enterprise software company innovating for our customers, succeeding with our partners, and delivering shareholder value and in the long-term executing for growth and continued profitability. Thanks to our customers, partners, and our employees for hard work and results and thanks to our investors for believing in our vision.

Let me hand the call over to Manish.

[Manish Sarin, Chief Financial Officer]

Thank you, Ragy, and good afternoon everyone. As you heard from Ragy, we’re pleased with our start to FY 2024. For the first quarter, total revenue was 173.4 million, up 20% year-over-year and above the high-end of our guidance range. This was driven by subscription revenue of 157.7 million, which grew 24% year-over-year also above the high-end of our guidance range.

One of the key drivers of subscription revenue outperformance was the timing of new bookings, which was front loaded in Q1 and the commensurate benefit to Q1 subscription revenue was approximately 2 million. Services revenue for the quarter came in at 15.7 million. Our subscription revenue based net dollar expansion rate in the first quarter was 122%. As we have discussed in the past, the NDE statistic is not something we monitor as part of growing our business, but is a byproduct.

As macroeconomic conditions moderate renewal rates and customer upsells and new logo acquisition continues to increase, we expect NDE to moderate in the coming quarters. Our current expectation is for NDE to settle in the mid-to-high teens percentage range over the next few quarters.

As of the end of the first quarter, we had 115 customers contributing $1 million or more in subscription revenue over the preceding 12 months, an increase of seven sequentially, which is a 28% increase year-over-year.

Turning to gross margins for the first quarter. On a non-GAAP basis, our subscription gross margin was 82.8% as we continue to drive efficiencies in our cloud operations, leading to a total non-GAAP gross margin of 76.2%. We continue to generate efficiencies in sales and marketing and have shown consistent improvement in S&M spend over the last several quarters. Sales and marketing expense in the first quarter is now 48% of revenues, compared to 56% in Q1 of last year. This is an 800 basis point decrease year-over-year.

The sequential increase in S&M spend in Q1, compared to Q4 of FY 2023 is largely attributed to sales activities slated for the start of the year such as sales kick-off, as well as costs related to the Q1 restructuring we had discussed on the Q4 earnings call. We also realized operating leverage from G&A, which decreased by 100 basis points year-over-year.

Turning to profitability for the quarter, non-GAAP operating income was 11 million, equating to a non-GAAP net income of $0.06 per share. This 6% operating margin for the quarter was a result of revenue over performance, improved gross margins, coupled with operating expense discipline across every department and is the third consecutive quarter of non-GAAP profitability.

It is also worth noting that in Q1, we had approximately 3 million in tax credits related to the release of valuation allowances in our Brazil and Japan entities. Had we not realized these credits, the tax provision on Q1 would have been approximately 2.2 million, in-line with our prior guidance.

Lastly, on the topic of profitability. For the first time ever as a publicly traded company, we posted positive GAAP net income for the quarter totaling 2.8 million or $0.01 per share. While we were the beneficiary of one-time tax credits allowing us to achieve GAAP net income profitability faster than expected, we remain committed to achieving GAAP net income profitability on a full-year basis for FY 2024.

In terms of free cash, we generated 14.3 million during the first quarter, [an] [ph] 8% margin compared to an adjusted free cash flow of 6.2 million in the same period last year. This cash flow generation contributed to our very healthy balance sheet, which now stands at 604.4 million in cash and equivalents with no debt outstanding. Calculated billings for the first quarter were $170.5 million, an increase of 23% year-over-year.

As of the end of Q1, total remaining performance obligations or RPO, which represents revenue from committed customer contracts that has not yet been recognized was 708.1 million, up 23% compared to the same period last year and CRPO was 478.8 million, up 19% year-over-year. The sequential decrease in RPO and CRPO can be attributed to a handful of large multi-year deals that are up for renewal in Q2 and therefore not included in both RPO and CRPO.

Moving now to Q2 and full-year FY 2024 non-GAAP guidance and business outlook. As you heard today, long-term demand trends and engagement for Sprinklr remains 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 Q2 FY 2024, we expect total revenue to be in the range of 172 million to 174 million, representing 15% growth year-over-year at the mid-point. Within this, we expect subscription revenue to be in the range of 158 million to 160 million, representing 20% growth year-over-year at the midpoint.

As we had mentioned on the Q4 earnings call, we expect approximately $30 million in services revenue in the first half equating to approximately 14 million of services revenue here in Q2. Concurrently, we expect services margins to dip here in Q2, driven by our ongoing investments in CCaaS service delivery and managed services such that our overall services margins for the first half of FY 2024 are effectively breakeven consistent with our commentary on the Q4 earnings call.

We expect non-GAAP operating income to be in the range of 11 million to 13 million, and non-GAAP net income per share of $0.04 to $0.05 per share assuming 270 million weighted average shares outstanding. For the full-year FY 2024, we are raising both our subscription and total revenue outlook for the year.

We now expect subscription revenue to be in the range of 649 million to 653 million, representing 19% growth year-over-year at the midpoint. This is an increase of 5 million, which represents the full magnitude of the Q1 beat and the subscription revenue guidance raise for Q2.

As we alluded to on 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 product.

In-light of these dynamics, we are reducing the FY 2024 services revenue guide from 66 million to 62 million. With this change, services revenue for FY 2024 will be approximately 9% of total revenues. We expect total revenue to be in the range of 711 million to 715 million, representing 15% growth year-over-year at the mid-point.

For the full-year FY 2024, we are raising our non-GAAP operating income estimate to now be in the range of 51 million to 55 million equating to a non-GAAP net income per share of $0.19 to $0.21, assuming 273 million weighted average shares outstanding. This implies an approximately 7% non-GAAP operating margin at the midpoint. Note, the increase of 10 million at the midpoint represents the full beat for Q1 and the accompanying raise for Q2.

In deriving the net income per share for modeling purposes, we estimate 13 million in interest income for the full-year with 4 million of that to be earned here in Q2. Furthermore, a $6 million total cash 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 Q2. We are tracking to be GAAP net income positive for the full-year FY 2024 consistent with our comments on the Q4 earnings call.

Billings in Q2 are expected to grow in the high teens, growing slightly slower than subscription revenue, but faster than total revenue. We expect the Q1 beat and any Q2 upside in billings to flow through for the full-year FY 2024. For modeling purposes, I would assume the same billing seasonality in FY 2024 as in FY 2023. With respect to free cash flow, in Q2, we have a large annual payment due to one of our public cloud partners.

As such, Q2 free cash flow is expected to be negative and coming around negative $15 million. Consistent with our prior commentary, we expect to be solidly free cash flow positive on a full-year basis. As a quick reminder, Ragy, the broader Sprinklr management team, and I are eager to share more details about our business and financial profile with you at our upcoming Investor Day on Wednesday, July 12, and look forward to seeing many of you there.

Lastly, I would like to thank all our employees for their dedication and passion for what we are building at Sprinklr. During an uncertain macro environment, I'm also grateful for the confidence that our customers have placed in us. 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]

Thank you. [Operator Instructions] Our first question comes from the line of Raimo Lenschow with Barclays. Please proceed with your question.

[Raimo Lenschow, Barclays]

Perfect. Thank you. I had two, if I may. First one – and congrats on a great quarter. First one is on the Services push that you're kind of doing now, and thanks for the updated guidance there, that kind of explains a lot. If you think about what's the nature of the relationship with the Service partners, like, are they kind of building it as a bigger digital transformation in the front office – a bigger practice there or is it kind of more Sprinklr specific what you're seeing there in terms of how they are thinking about building and working with you? And then I had one follow-up.

[Ragy Thomas, Founder and Chief Executive Officer]

Yes. So, Raimo, this is Ragy. Good to connect always. So, there are two things I would point out. First is, our broader partnership ecosystem that we've been developing with the systems integrators like Deloitte and Accenture, are more on the digital transformation and the broader ecosystem, as you've outlined. What is interesting now is, we're developing a second category of partnership and more specifically in the customer service space, and there's a pretty interesting ecosystem there of peripheral partners, implementation partners, consulting partners. They're very focused on the contact center industry. So, we're rapidly expanding that aspect of our partnership ecosystem, which was something that in the past we hadn't done.

[Raimo Lenschow, Barclays]

Yes. Okay. Perfect. And then the other big debate that happens in the market at the moment is like was that front office first maybe, kind of overinvested a little bit in 2021, and now we have like a digestion period, and now we can slowly start looking forward again. In your customer conversations, what do you see in terms of like thinking about ongoing investments, do you see a change in the nature of the conversation that you have here? And I'll leave it with that and congrats again from me again.

[Ragy Thomas, Founder and Chief Executive Officer]

We're seeing a palpable change from our biggest and best customers for the, let's say, 20 or 30 customers I spoke to that are large. I'd say a large customer for us is over 1 million. And as you probably know, we actually have several that are over 10 million now and increasingly more over 15 million. What we're finding is the platform is sticking. What we're finding is companies are expanding across business units. What we're finding is that companies are expanding across channels, and they are expanding across markets. So, you know we have two vectors of growth. One is more products and more cross-sell capabilities across products and product suite. The other one is expanding across business units and market. That's a less understood part of our expansion strategy because you have a single instance architecture where the new business unit that comes along or the new market that gets added, it suddenly has global collaboration and visibility.

[Raimo Lenschow, Barclays]

Okay, perfect. Thank you. Congrats again.

[Ragy Thomas, Founder and Chief Executive Officer]

Thank you.

[Operator]

Our next question comes from the line of Pinjalim Bora with J.P. Morgan. Please proceed with your question.

[Unidentified Analyst]

Hey, guys. This is [indiscernible] on for Pinjalim. Thanks for taking our questions. Just for the first one, you launched the self-service product at the end of March, which should really help with the top of the funnel dynamics. Can you just maybe provide some more additional color around the new self-service products and just the uptake there? Thanks.

[Ragy Thomas, Founder and Chief Executive Officer]

So, we are – it's been – like we said last time, it's been a fairly controlled roll-out because what we wanted to do is get the product and the dynamics of someone using the product, right, which I'm very happy to report that the feedback is very, very strong. We are now in the process of increasing the reach using traditional and digital marketing capabilities to get more people to that top of the funnel to try.

It's working really well as companies in our target market, who are smaller teams going on there, try and testing out and giving us great feedback. And I'd say, over the next two to three quarters, we'll be putting more resources and more focus on that to build that out as a very hopefully, potentially big lead generation and try before you buy channel.

[Unidentified Analyst]

Great. And then just a quick follow-up. Related to the macro, it sounds like that the environment has been relatively consistent. You did call out some moderation in the retention going forward. Could you maybe just unpack that a little bit for us? Thank you.

[Ragy Thomas, Founder and Chief Executive Officer]

Yes. So, we've always said that. I think, for the last now three quarters, we've consistently said that the environment is steady. So, what we're seeing is more scrutiny, careful spend, measured spend, more people approving deals, and that continues. We're not seeing it change. What I'd point out is, as we get into CCaaS, get into the partner, unlocking the partners, as you probably know already, CCaaS deals take longer. There are very formal RFP processes and multiple stakeholders outside consultants and lots of people involved. And change management is a huge deal in that space.

So, as we lean more, you're going to see sales cycles increase a little bit, but we don't think it's a macro thing, but we're seeing very strong reception. We're running several proof of concepts, and we're able to show agent productivity and average case handling time reduced by 20%, agent productivity go up by 30% in many cases. So, it's very promising. Now, we got to get scale and get a few deals through the sales cycle.

[Unidentified Analyst]

Thank you and congrats on the quarter.

[Ragy Thomas, Founder and Chief Executive Officer]

Thank you.

[Operator]

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

[Elizabeth Porter, Morgan Stanley]

Great. Thank you so much. I wanted to ask on generative AI, just given how topical it is. We see a lot of interesting press releases across the broader landscape, specifically for generative AI, including Sprinklr AI+. So, how do you view what generative AI capabilities really become table stakes versus real incremental monetizable solutions? And how should we think about the road map for new Gen AI features? And what forms of monetization make the most sense for Sprinklr?

[Ragy Thomas, Founder and Chief Executive Officer]

Well, I'm glad you asked the question. Look, you know that if you read a prospectus, we've been seeing this for 5 years, and we are thrilled that generative AI is adding wings to our own AI and raising broader awareness. I think, as we said in the prepared remarks, there'll be two kinds of companies, one that is adding a feature on the AI and got five things going. And others that deeply go back to their core architecture and embed AI. And I think over time, the latter will clearly be the winner.

They will be the AI companies, not people who use AI. Having said that, for us, AI is a fundamental differentiator across the front office. As you know, we have several hundred features in every product suite. And most, I can just wrap it up, maybe in the call back, I'll show you a slide. You take any product that we have, any feature, that center more than 60%, 70% of that is enhanced using AI.

Now how do we monetize AI is very, very interesting. Awareness helps us, and I think there are additional monetization opportunities that are not obvious right now for companies that are completely and just see base, this is going to be a deflationary situation for them. For us, and companies like us, who've fluidly transition between agent base cases, community-based cases, knowledge-based, self-resolution and who can charge for licensing and enterprise licensing that includes AI regardless of the agent hours, I think it's a good thing.

And we are exploring different pricing models like case-based pricing, insight based pricing. And you know our insights product is completely based on AI and price on a licensing basis based on the value we create. So, we see this as a net positive for us. In the short-term, we're going to use this to differentiate massively and the awareness is doing wonders for us. We are having C-level conversations as the AI platform, as the traditional older companies have struggled. And everyone's talking a big game, but we can prove it.

We're showing 90% accuracy in actionability, when you look at the random method and ask you, should I act on it? Is it engaged? We're showing 30% better sentiment accuracy, we're showing 25% to 30% better routing with our smart routing, agent productivity is [indiscernible]. So, we're doing proof of concepts where we're showing in some cases, twice as better accuracy and AI capabilities.

I'll give you a specific example because everyone's talking generically. We've always had the concept of smart responses. So, if you're using Sprinklr in a context, enter the agent is guided to [indiscernible], why don't you use say this, offer that. That's a smart response that the system is nudging the agent to do. I mean that had good usage, but when we added the generative AI integration and expanded it, now the agent is getting a full script and so he can just read off where they're having the process and rephrase. And the adoption, as we called out, has gone up 300%.

So, that's the kind of quantum leap that suddenly makes AI a lot more accessible and visible from an external user synthesizable way as opposed to in the back end. So, I think it's going to just really help us differentiate in a big way.

[Elizabeth Porter, Morgan Stanley]

Great. Thank you. And as a follow-up, I was wondering if you could talk about the success you've seen on new customers and launching new initiatives like that new logo team or focusing partners to source deals. I understand you don't report the customer count number, but any color on how those initiatives are taking hold would be helpful. And historically, about two-thirds of the business has been driven by existing accounts. Can we expect that to change over time?

[Ragy Thomas, Founder and Chief Executive Officer]

Look, I think there is precedent for very sustained long-term growth without having to just keep adding logos. And as a very high-end enterprise company, I think we are very well placed with the likes of companies like ServiceNow, where we're seeing our top customers buy more and more and more growth. And I think that's a very sustainable long-term growth driver for us.

Now, we want to continue adding more customers, and we have identified as we said last time with this focus on go-to-market, we've identified a target customer base of 43,000 companies. So, through everything we do, we're only trying to reach those companies, and we're not chasing anybody else. So, the focus continues to be on growth and not logo count. We've put dedicated teams. And I think that's 1 of 10 things we're doing. And I think almost all those things are first principle space, and we – it's a multi-quarter thing. So, we don't have any early results to report, but it looks very promising.

[Elizabeth Porter, Morgan Stanley]

Great. Thank you.

[Ragy Thomas, Founder and Chief Executive Officer]

Thank you.

[Operator]

Our next question comes from the line of Matt VanVliet with BTIG. Please proceed with your question.

[Matt VanVliet, BTIG]

Hi, good evening. Thanks for taking the question. I was maybe curious on all the success around the contact center and Sprinklr Service space overall. What are you finding that you're replacing most often or are any of these, sort of net new contact center type of engagements that you're seeing?

[Ragy Thomas, Founder and Chief Executive Officer]

Matt, we're seeing two distinct patterns. Well, one is, we're finding that companies with 50 agents to, let's say, 500, maybe even 1,000 agents have all the problems that large 5,000 agent contact centers have in terms of workforce optimization, routing needs and ticket volume and a whole bunch of things. And we're finding that, that market specifically is craving for a unified solution because they can't afford to buy 6 or 7 and then integrate it together. So that's – what we think of as a right-to-win segment for us, and we're seeing success in that market.

Second is the large enterprise deployments. Now, we're seeing success there, but these are larger drawn out, protracted proof of concept to RFPs to replacements where we are encountering traditional vendors like Avaya and Genesys a lot. And essentially, what's going on there is, we have opportunities where it’s long-term, and we're going after the whole thing. And we have a lot of like lower-hanging fruit in terms of just augmenting the core voice infrastructure that is working with about seven of our AI-based products.

So that suite is our contact center CCAI product suite for the service industry. So, you can just deploy that as a pack on top of your current traditional voice infrastructure. And in many cases, because they've already been using those capabilities for digital or social with Sprinklr, it is a much easier lift. Does it make sense?

[Matt VanVliet, BTIG]

Yes. No, that's very helpful. Thank you. And then maybe just a quick follow-up on the services gross margins and just, kind of thinking about that more long-term. If you can push more of that work to some of the partners maybe ignoring the potential business development side or kind of top of the funnel, but as you just look at kind of how that could impact gross margins over the longer-term, maybe just help us think about how framing that out is also a cost benefit analysis here for the model?

[Manish Sarin, Chief Financial Officer]

Hi, it's Manish. I think that's a great question because we've been spending a lot of time evaluating the kind of services opportunities we take on board. And I think this is consistent with the comments we've given on the last earnings call, whereby we were looking to partner with firms that could develop an ecosystem of delivery capabilities around us, whereby we could transition some of the, let's just say, less attractive margin business to them.

So our view, once we are through with this transition and the investments that we are making in CCaaS delivery, managed services, which is a lot more higher margin that we should be in the circa 20%, give or take, over the long-term. Now these can obviously go up depending on any quarter that we might be in. But given where we are right now, that's what we feel comfortable looking out over the next year or so that, that sort of margin profile probably is achievable. Does that make sense?

[Matt VanVliet, BTIG]

Yes, that’s great. Thanks for taking the question.

[Operator]

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

[Michael Berg, Wells Fargo]

Hi, thanks for taking the question and congrats on the quarter. I wanted to touch on the shape of the quarter. You noted that it was front-end loaded. I was curious if there was – just looking at some of the Q4 statistics, if there were some larger deals that fell out of Q4 into Q1, and that's what drove part of the upside shape with the quarter. And then secondarily to that, is there anything meaningfully different that you're seeing in the demand environment more broadly? Thank you.

[Manish Sarin, Chief Financial Officer]

Yes, that's a great question. So, there weren't any deals that flopped over from Q4 into Q1. Now, we, like any other enterprise software company do believe that a lot of our new business is back-end loaded. And we've been fairly consistent in how we then model it out and guide the Street to, but of course, we can't predict customer buying behavior. And every once in a while, we do run into a situation where, for a variety of reasons, the customers have a desire to purchase one of our product suites and that was the case here in Q1.

And consistent with our prior commentary, we were fairly transparent in pointing out when that happens and the additional benefit that accrued to us here in Q1, which, as I pointed out in the prepared remarks, was approximately $2 million. So, if you sort of factor that into both the guide as well as what Q1 results look like, you would see a more normalized, sort of revenue pattern.

[Michael Berg, Wells Fargo]

Helpful. And then going back to the Services piece, do you have a long-term target goal in terms of the mix there? Like how can we see that shaping up over time?

[Manish Sarin, Chief Financial Officer]

And with that, in particular, you're referring to as a percentage of overall revenue?

[Michael Berg, Wells Fargo]

Correct.

[Manish Sarin, Chief Financial Officer]

Or the mix within Services?

[Michael Berg, Wells Fargo]

Services as a mix of overall.

[Manish Sarin, Chief Financial Officer]

Yes. So, if you go back a couple of years, Services for us was almost 12% of overall revenues. And we did feel, as a management team, we wanted to sort of bring that down partly because we were all driven by trying to make the suites much more easier to implement, providing value to the customers in a much more expedited fashion. And so, I think where we are right now is just under, call it, [9-odd percent] [ph], it is probably a respectable level. So, as I look out over the longer term, somewhere between 8% and 10% seems to be the right spot for us.

The mix within Services obviously will migrate more towards managed services or CCaaS service delivery, sort of more higher up the value chain, if you will, versus just your [plain vanilla] [ph] implementation. And that might obviously lead to a better margin profile in the longer-term, as I said earlier. So, I think where we are probably is what you should expect more at a steady state level. I will, however, admit that we're in a fast-evolving industry. And we're trying our level best to adjust our economic model toward the customers' demand. And should things change, we would be transparent with the Street on future earnings calls.

[Michael Berg, Wells Fargo]

Helpful. Thank you.

[Operator]

Our next question comes from the line of Patrick Walravens with JMP. Please proceed with your question.

[Patrick Walravens, JMP]

Great. Thank you. Ragy, how do you expect your competitive environment to evolve over the next three years? And maybe in particular, it seems like Amazon is making a lot of progress in the contact center space, and I know you have a partnership with them. So, if you could touch on that element of it too, that would be great?

[Ragy Thomas, Founder and Chief Executive Officer]

Absolutely. So Patrick, as you know, we started out in the social space right. Our legacy with a lot of little companies that we're competing with. We evolved from that to the digital space where we were competing with bigger companies, but still endpoint solution world or companies who have bought some of these and been selling this together using invoice engineering, if you will. Where we have evolved to is, we have mainstreamed and we are mainstreaming every one of our product suite.

So, that's very important for the market to understand. So, we've got four product suites. The Service product suite, the Insights product suite, the Marketing product suite, and our Social product space. And each one of those are evolving to a mainstream category. And the easiest way to understand is, what we're doing and have done with, frankly with the service space, right? We started with Social service. Now, we have digital. Now, we're in the CCaaS space. So, now we're obviously competing with the likes of the Avayas and the Genesis and a lot of Zendesk and other companies who are in that enterprise space.

That's a very large TAM. The contact center market, as you know, is about $800 billion, and that's including tech and labor. And as you know, the tech is only a small single-digit percentage. What's super exciting is now the – a good chunk of the $800 billion is at play because AI will actually expand the tech market into and [beat] [ph] into the labor cost mitigation opportunity. So, we know that's a major market. We know we're doing a replacement sale. We know we have a better product. We know we are AI-based.

So, it's become easier. So, a competitive set is involved to a very different group of companies. That's the same thing we're going to do in marketing. That's the same thing we're doing in Insights, where we're going to be adding more voice of the customer capabilities, as I outlined in the prepared remarks. We have – increasingly we're doing deals where the customer is using us as a voice of the customer platform in addition to their survey-based platform.

So, at some point, it should be obvious that we add surveys, and we are incredibly competitive there. So, that's a strategy and our competitive set will evolve. You know very clear, I've mentioned many, many times that our goal is to become the third or the fourth platform in the enterprise. You go buy Salesforce, such as CRM suite. You go buy Adobe, it takes care of your website and analytics, Microsoft can and should be your stack and then you have Sprinklr and that's a platform that unifies it and connects a lot of those other – replaces a ton of point solution somewhere between 5 and 25 and connects to the other three. And that is the [stated stack] [ph].

Let me now switch gears and talk about how we see the cloud providers. Now, it's very interesting the way the market is moving. The infrastructure providers are going to keep coming up the stack. And so, you'll see the market with the past players, the communication service providers and all of that. I think that's – they are going to bleed into each other. We're coming from the very top of the app stack. We're a pure play application player, operating system play. That's – it's all code. It's all software. We have no data aspirations with.

It's all license based, and it's all part of the architecture. And we're agnostic across channels, and we provide a unified way to communicate across channels and business units. So, I think they will eventually connect, but right now, it's a great complement to each other. So, we see ourselves as great partners to Amazon, great partners to Microsoft, great partners to Google, and we actually do several deals together every quarter.

Now obviously, do they bleed into each other a little bit, possibly. But in the front office, you're going to see everybody bleed into each other. And I think what I would bet on, if I were you, is a truly platform architecture. Because invoice engineering is pretty tough to pull off over the long run.

[Patrick Walravens, JMP]

That’s super helpful. Thank you.

[Ragy Thomas, Founder and Chief Executive Officer]

Thank you. Great questions.

[Operator]

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

[Tyler Radke, Citi]

Yeah, thank you. Good evening. I wanted to just ask you about how you're seeing some of the large renewals shape up. I think you talked about some large renewals expected here in Q2. Some of the other larger front-office players have talked about some renewal pressure. We've heard anecdotes of shelf ware and seats that have gone undeployed. How are you expecting your renewal rates to trend? And if you could just remind us on the composition of your revenue base that's seat space versus usage or interactions based? Thank you.

[Ragy Thomas, Founder and Chief Executive Officer]

Okay. So, there are two questions there. The first one is, what are we seeing in our larger deals in terms of renewal? Well, now I'll tell you, once you buy into the Sprinklr approach, we keep growing. And true story now we have customers who call us first before they go put out an RFP or open it up to a point solution and say, hey, do you guys do it, because they've bought into the – attuned the AI models, they've set up the governance. They've got the analytics.

I'll give you an example of a very, very large as a top 5, probably top 3 tech company that expanded their marketing services with us. And the idea was there was an agency breach that happened and issue that resulted in ad spend that was not governed and approved. So, they just paused spending till everybody got on Sprinklr, so that they can be compliant, right? And so they can have governance and visibility and they can have a global editorial calendar. So, I can confirm to you, and you know we had one customer that paid us over [15 million] [ph]. And if you count the number of customers that are paying over [10 million] [ph], that's going up as well.

And so, we'll both share more details on our Investor Day, but we love what we are seeing at the very top of the market that we love it. We love that. It's just cementing our position as the third or fourth platform. Now, you also know we've been obsessed unlike many other companies about value delivery in our aspiration to try and build a company that people are going to love.

So, value delivery is super, super important for us. Everything is backed up by a business case. And so, we're not seeing the shelfware compression that you're seeing. We're seeing it as well from, for – our customers are telling us they are seeing shelfware compression from other vendors, thankfully. And fortunately, that's not us.

[Tyler Radke, Citi]

Thanks. That's helpful. And then are you able to talk about the mix of revenue versus interactions or usage?

[Ragy Thomas, Founder and Chief Executive Officer]

Yes. So, we don't really have any usage-based pricing at the moment. So, we'll have flat enterprise products that you buy like some AI SKUs or you have seat based high sensory buy or you have tier based, like, for example, our Insights product is based on how much – what tier of data are you consuming, right? So, I don't know whether that qualifies as usage. We think of it as you're buying a license. So, it's not like you, if you don't use all of that, you get money back, but you just get push into a different tier, if you go.

So, they're committing to a license always. And I think it's a pretty good mix. Our Insights product is all based on AI and quantity of data that they ingest and process. Our CCaaS is again, we have community products and knowledge-based products and other things at the license based, and then you have the contact center that's seat-based and we're very open to other pricing models there as well like flat fee and enterprise license models. So, it's a healthy mix. I couldn't tell you exactly how that is split.

[Tyler Radke, Citi]

Okay. That's helpful color. So, then I wanted to just follow-up again on the contact center wins. It sounded like you saw some large ones in the quarter. You talked about some airlines and financial services. Did I hear you correctly that are you – in those larger deals, are you kind of complementing them initially? In other words, you're not displacing one of these large incumbents in terms of the seats, you're kind of complementing with the potential road map or optionality to displace them longer-term or – was just curious on those two examples, kind of your role? Thank you.

[Ragy Thomas, Founder and Chief Executive Officer]

Both, both, Tyler. So, we have – our typical route is, we're the digital care solution to start with social plus digital, right? It used to be social, now social plus digital. And that's where they first, kind of see the power of AI agent productivity, time to respond, all of that gets better very quickly. And I can also confirm that we have several early pilots, conversations, proof of concepts with large wall-to-wall plays. And we're very invested in it, which will be a drag on short-term bookings, right, because these are larger longer-term plays and there's significant people and resources being committed to moving that along.

Our hope and aspiration is we publicly stated is to become a pretty serious CCaaS player. And so that requires us to, kind of overinvest early on. So, the fruits of that labor will probably take a few quarters. But we're able to show remarkable business results, Tyler. So, that's that – we know that's the right strategy, and it allows us to put our head down and not think about this quarter or next quarter, but think about the next 3 years to 5 years.

[Operator]

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

[Michael Vidovic, KeyBanc]

Hi. This is Michael Vidovic on for Michael Turits and thanks for taking my question. You talked about the early traction you're seeing with the self-service offerings, but is there any indication at this point that will help you move down market, call it, longer-term? Or are you really just seeing these products help you land the [43 customer count] [ph] you talked about earlier? Thanks.

[Ragy Thomas, Founder and Chief Executive Officer]

Michael, more of the latter. We are not looking to go down market. Let me be very, very clear. So, if you are coming to a website, we're actually not contacting anybody who's not in our target list of 43,000 companies. So, it's not that people wake up and go find us, right? And some day, we'll be ranked very high in [that year] [ph], but that day is not today. So, we're very intentional in terms of driving the audience to our self-serve products, and that is only in our target segment.

So, it's not a volume game for us. And our intention, at least I can say in the medium term is to stay very focused. There is a lot of upside to them in the market we play. So, it's not going down market at all.

[Michael Vidovic, KeyBanc]

Got it. Thanks. And then just now that we're past May here, any trends or changes between now and Q1 that you'd call out? Thanks.

[Ragy Thomas, Founder and Chief Executive Officer]

Now, and – you mean just in the last month or so?

[Michael Vidovic, KeyBanc]

Right.

[Ragy Thomas, Founder and Chief Executive Officer]

Look, I think everyone's talking about generative AI, that is super exciting and I think the awareness of AI broadly is helping us differentiate and people are paying more attention to performance metrics. Look, I think the noise is going to subside and the winners will be declared over the next few years. I love what I'm seeing in terms clients thinking of us as a strategic partner, companies thinking of us as the system [Technical Difficulty] companies thinking of us as you are the – well, I had a customer that I was speaking to who said to us that they're paying Sprinklr more than they're paying Adobe and it was very surprising. And sure, it's just value based.

I'm not saying all companies in all industries. So, that's something that I'm personally very excited about being a strategic partner in the C-suite. And I can also tell you that increasingly, we're talking to the C-suite and we're having a lot less difficulty getting to and holding a conversation and demonstrating a value to a CIO and CMO than we ever did before. Because I think the point solution versus platform, that game is up and people want to consolidate point solutions and CIOs want to talk to companies who can rip out 5, 10, 20 of those at a time.

[Operator]

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

[Arjun Bhatia, William Blair]

Hi, guys. Thanks for taking the question. Ragy, for you, just on the contact center opportunity. Can you just help me understand how you're delineating, what's a contact center deal versus service deal? Is it where it's sitting, whether it's the marketing team or the service team because you've had this product in market for some time. And then just to follow up on that, the growth strategy there, does that focus – do you see that focusing more on existing Sprinklr customers or is this a way to, kind of get maybe some of the holdouts on to your platform?

[Ragy Thomas, Founder and Chief Executive Officer]

So Arjun, the good news is, everything that we're referring to in our service bucket is a seat that's assigned to somebody in the customer service department, okay? So, it's almost always in the contact center, but it's real customer service. If you are a marketing user engaging with a customer, you're probably that – revenue goes under the social bucket or the marketing bucket. So, everything we're talking about is service, which is very interesting for us. It's a customer service seat.

The second thing I want to point out is, for us, a customer service seat is a customer service seat. So, you may choose to activate five channels and call it social. You may choose to activate 30 and just do only digital or you may activate voice and go entire contact center. It's all the same for us. And I'll give you a real story with one of the largest of the 15,000 seat contact center we implemented at the bank that we talked about before.

In the contact center, before Sprinklr, there were a bunch of people with the e-mail customer service capability. So, if you e-mail them, hey, I want to increase my credit card limit, they literally would e-mail you back because that's all they could do. They were e-mail agents. And so you would send an e-mail Sunday night, you go to work Monday. That case wouldn't get close till Friday when you come back and send an e-mail to respond.

With Sprinklr, this is just – they came into this analyst summit and said the story, it was amazing, because now the e-mail agent gets that request, hits the call button, talks to the guy and say, hey, can you submit your proof of income blah, blah, blah. And that case resolution went from weeks and days to hours and minutes. So, you just turn things on and off and just – you are buying the exact same capability, which is what we mean by true omnichannel.

[Arjun Bhatia, William Blair]

Understood. All right. That makes sense. And then one for Manish. You talked about just some – maybe some downward pressure on net retention rate coming up in the next few quarters here. Is that – are you anticipating some renewal headwinds from customers? Maybe just walk us through some of the assumptions that you're baking in there because you did raise the subscription revenue guidance? I'm just trying to square the two.

[Manish Sarin, Chief Financial Officer]

Yes. So, we raised the subscription revenue guide for the full-year by the full beat of Q1 and the raise for Q2. So, I don't think the issue is, are we expected – expecting any churn? But look, we live in a fairly uncertain macro environment. And I just didn't want investors to start feeling that the 120% was sort of set in stone for the rest of the year. So, just trying to be cautious there. And the commentary that I've provided in the prepared remarks will square with the 19% subscription growth rate for the full-year. So, I think this is us in this period of as we look out over the next three quarters, what we are expecting in terms of new business, renewals, all of that captured together is what I was trying to give commentary on.

[Arjun Bhatia, William Blair]

Okay, perfect. That’s helpful. Thanks guys and great quarter.

[Operator]

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 Chief Executive Officer]

Well, thank you, operator, and thank you all for joining us today. I'd like to first thank our employees and 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 on this exciting journey of creating a new category and aspiring to create the world's most loved enterprise software company. Thank you very much, and have a great evening.

[Manish Sarin, Chief Financial Officer]

Thank you.

[Operator]

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