Sprinklr Inc

NYSE:CXM

Earnings Call Analysis

Sprinklr Reports Strong Q2 Results; Raises FY2024 Outlook

Sprinklr notched a robust second quarter with total revenue reaching $178.5 million, climbing 18% from the previous year, powered by a 23% surge in subscription revenue to $163.5 million. Both figures topped the high end of their respective guidance ranges. The company saw a healthy addition of new logos, particularly in their Sprinklr Service product suite, and ended the quarter with 120 customers contributing over $1 million each in subscription revenue, a 22% year-on-year increase. Non-GAAP subscription gross margin stood strong at 83%, pulling the total non-GAAP gross margin to 76%. The non-GAAP operating income reached $21.3 million, which translated into a net income of $0.10 per basic share, marking the fourth consecutive quarter of non-GAAP profitability. Free cash flow also impressed at $8.7 million, significantly higher than the prior year's $1.4 million. Looking ahead, the company raised its full-year FY2024 total revenue projection to the range of $719 million to $721 million and subscription revenue to $658 million to $660 million, indicating a 16% and 20% year-on-year growth at the midpoints, respectively.

Substantial Revenue Growth with Strong Operational Efficiency

The company demonstrated a robust second quarter, with total revenue climbing by 18% from the previous year to $178.5 million, riding particularly on a 23% surge in subscription revenue which reached $163.5 million. This growth can be credited to their strategic focus on operational efficiency, which gave rise to $21.3 million in non-GAAP operating income.

Introducing Unified-CXM: The Competitive Edge

With an innovative push into creating a new category christened Unified-CXM, the company is swiftly outpacing its competitors by leveraging artificial intelligence (AI) technology and optimizing operational efficiencies. This product provides a seamlessly integrated customer experience across multiple platforms including voice, chat, email, SMS, and social media, revolutionizing the customer experience in over 250 metropolitan areas within the United States.

A Sturdy Client Base with Expanding Margins

Notably, their subscription revenue-based net dollar expansion rate stood at a healthy 120%, indicating existing customers increased their spending by 20% over the prior year. Aggressive acquisition of new customers contributed to an impressive customer base of 120 that each contribute over $1 million in subscription revenue annually, showing a 22% increase year-over-year. Non-GAAP subscription gross margins were high at 83%, demonstrating the company's cost-effective cloud operations.

Solid Free Cash Flow and a Debt-free Balance Sheet

The company's free cash flow was markedly strong at $8.7 million for the quarter, a significant improvement from the $1.4 million of the corresponding quarter last year. This financial prudence resulted in an amassed $628.4 million in cash and marketable securities, complemented by the absence of any debt. Billings augmented by 19% year-over-year to $179.2 million, and the total remaining performance obligations (RPO) sat at an impressive $806.4 million, highlighting the company's future revenue potential.

Projected Revenue Growth and Profitability

Looking ahead, the company forecasts Q3 revenue to range between $179 million and $181 million, which translates to a 14% growth earmarked for year-over-year at the midpoint. The expected subscription revenue is projected to be between $164 million and $166 million, amounting to an 18% year-over-year growth at the midpoint. Meanwhile, the company has raised its full-year subscription revenue outlook to range from $658 million to $660 million, reflecting a 20% year-over-year growth at the midpoint. The full-year total revenue guidance was likewise buoyed to between $719 million to $721 million, denoting a 16% year-over-year growth at the midpoint.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to Sprinklr's Second Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. Please limit your questions to one with one follow-up, so we'll have time to go through all the questions. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Mr. Eric Scro, Vice President of Finance, for introductory remarks. Please go ahead, Eric.

[Eric Scro, Senior Vice President, Finance]

Thank you, Doug. And welcome, everyone, to Sprinklr's second quarter fiscal year 2024 financial results call. Joining us today are Ragy Thomas, Sprinklr's Founder and CEO, and Manish Sarin, Chief Financial Officer.

We issued our earnings release a short time ago, filed the related Form 8-K with the SEC, and we've made them available on the Investor Relations section of our website, along with the supplementary investor presentation.

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

In addition, during today's call, we'll be making forward looking statements about the business and about the financial results of Sprinklr that involve many assumptions, risks and uncertainties, including our guidance for the third fiscal quarter of 2024 and full fiscal year 2024, our strategy, our product capabilities and our market opportunity. Our actual results might differ materially.

Any forward-looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them.

For more details on the risks associated with these forward-looking statements, please refer to our filings with the SEC, which are also posted on our website.

With that, I'll now turn it over to Ragy.

[Ragy Thomas]

Thank you, Eric. And hello, everyone. Thank you for joining us today. We are very pleased that Q2 was another strong quarter that exceeded guidance across all key metrics. Q2 total revenue grew 18% year-over-year to $178.5 million and subscription revenue grew 23% year-over-year to $163.5 million. With our continued focus on operational efficiency, we generated $21.3 million in non-GAAP operating income for the quarter.

Our key focus areas continue to be creating a new category that we call Unified-CXM, innovating faster than our competitors by harnessing the power of AI and improving our operational efficiencies while focusing on measurable value for our customers. We are pleased with how Unified-CXM is continuing to evolve as a category and we are focused on mainstreaming our core product suite across the broader front office.

In my travels around the world last quarter, the best brands in the world are continuing to ask us to help consolidate front office technologies, reduce their operating costs, help reduce risk, all while bringing people and data together to create better customer experiences.

For large and complex enterprise brands, seamless experiences are impossible to create across a multitude of channels, functions, business unit and markets that are traditionally operating in silos.

Unified-CXM is differentiated at its core with a single instance AI powered architecture that simplifies this complexity. It also gives man's access to publicly available conversational and mostly unstructured data in a safe and privacy compliant way that the current CRM and CDP relational databases cannot.

The second topic on every customer's mind is AI. On the heels of announcing our AI+ plus integration with OpenAI, we are now excited to announce the integration of the Sprinklr AI+ platform with Google Cloud's Vertex AI. This means that Sprinklr AI+ plus can now provide brands with even more generative AI capabilities that are prebuilt for enterprise level governance, security and data privacy.

More importantly, customers will now be able to bring along their own models from OpenAI, Vertex AI, create new ones or integrate them as appropriate with our proprietary AI. We believe that every company will embrace AI eventually. Our assertion is that companies that approach AI as a foundational strategy will win against AI adoptive and AI enabled companies in the long run.

As we shared with you during our Investor Day, generative AI has given our proprietary AI wings and Sprinklr's AI is the fastest way for customers and prospects to deploy AI across their entire front office.

Third, as we all know, the macroenvironment continues to be uncertain. However, we are diligently managing what's in our control with our go-to-market strategy, productivity improvements and execution.

This past quarter, we made a few more key hires in the service specialist team to add expertise and depth to selling our contact center offerings. And we continue to provide verticalized solutions to enable quicker time to value and faster deployment. This now includes financial services, airlines, CPG, technology and retail.

Regarding our partner ecosystem, we're also encouraged with some of our recent successes, including the launch of our new unified partners program. We have integrated several new types of partners, including independent consultants, referral partners, and technological solution brokers and business process outsourcing partners.

Partners, as you all probably know, are especially critical in the contact center space, and we remain committed to training and onboarding them as rapidly as we can. Two of our largest CCaaS deals in Q2 were both sourced by partners.

Furthermore, our technology solution brokers model is showing great momentum, providing us with almost 50 new opportunities in the past two months in the contact center space.

And finally, we continue to make progress with our self-serve products. We've added dozens of new paying customers through this initiative in Q2. We believe that our investment in self-service products will help us expand access to Sprinklr products and enable companies of all sizes eventually to experience the power of our front office platform, with decision making around product purchases becoming increasingly democratized even inside of large companies as self-service product provide easy access to teams and practitioners, who eventually end up recommending it to senior stakeholders within their organization.

With respect to Sprinklr Service, we've continued our momentum as a disruptor in the contact center as a service space. Our vision is to help customers transform the contact center from a legacy voice-focused cost center to a more efficient, AI powered omnichannel revenue center by unifying it with marketing and sales.

Sprinklr's AI first, unified CCaaS provides its customers and prospects with, one, more seamless consistent customer experience across channels; two, a lower agent attrition rate; and three, a lower total cost of ownership.

During the second quarter, we once again saw several meaningful CCaaS deals close across all three of our primary theaters, and the majority of our service deals won were with new logos.

During the second quarter, we continue to add new customers and expand with existing customers. This includes world class brands like Deutsche Telekom, LVMH, Novo Nordisk, Toyota and TransUnion.

Here are some examples. In Q2, one of the largest technology companies signed a multiyear, $60 million plus ELA agreement, expanding its partnership with Sprinklr across all four of our product suite as it drives tech consolidation across its companywide ecosystem. Sprinklr replaced two more competitors this time in the marketing and engagement space, onboarding hundreds of new users to the platform, enabling tighter collaboration between these teams and saving the company significant dollars by replacing point solutions.

The company also added 1000 new Sprinklr Social seats and unlimited listening from Sprinklr Insight. This customer has served as Sprinklr's definition partner for our AI product, and we look forward to a continued partnership with them.

This past quarter, Deutsche Telekom expanded its partnership with Sprinklr further into the contact center. Europe's largest telco provider first partnered with us in 2022 when it implemented Sprinklr Marketing and Sprinklr Service to manage content marketing and social customer service in the German market.

As a part of this latest expansion, Deutsche Telekom will move its entire European contact center operation across 11 countries on to Sprinklr's AI powered customer service platform. Until now, the company's contact centers have each been using its own set of legacy solutions.

A transition to Sprinklr's cloud based solution will enable them to streamline operations and enhance efficiency, while improving agent workflows and customers' experiences. The flexible architecture of Sprinklr's CCaaS solution will enable Deutsche Telekom to integrate its contact center ecosystem across Europe and drive its consolidation and innovation strategy across the region. By the end of next year, the company will have more than 40,000 customer service agents across 11 countries working from one unified platform.

Another Sprinklr Service win this past quarter is with a company of a different profile than our traditional global 2000 base. This North American delivery company facilitates same day delivery of groceries and household essentials via its app and website. The company will replace six point solutions with Sprinklr's unified platform, and would help its over 700 agents to drive a more frictionless experience with customers.

Sprinklr Service will power best-in-class customer service to company's members and shoppers across voice, chat, email, SMS and social in more than 250 metropolitan areas across the US. Sprinklr's platform will be integrated into the company's other backend systems, including their order management tool, and will help to future proof their business by supporting new self-service features like chat and voice bot.

Earlier this year, I told you about an exciting first-of-its-kind win in the public center when Sprinklr was elected by the Civil Services and Government Development Bureau of Qatar as its technology partner to transform how the government provide services to and engages with the public.

Today, I have another exciting development in the public sector space, this time the Emirate of Admah, which is in the northern part of the United Arab Emirates. The Emirate's leadership's futuristics vision is to transform the experience of its citizens residents and tourists. For this, the Digital Department of Admah, or DDA, has been tasked with transforming the citizen and tourist experience across 17 local government entities. DDA selected Sprinklr as its future unified citizen experience management platform, offering government services seamlessly across social, digital and voice channels to more than 500 citizens and residents and more than 300,000 tourists who visit the emirate every year.

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

In closing, we are pretty pleased with the quarter's results and even more excited about what is to come. We are encouraged by the engagement and the momentum we see from customers and the broader ecosystem.

We believe that our unified platform, industry leading AI and efficient execution will set us apart in helping customers unify the teams, consolidate front office technology, increase productivity, lower costs, and mitigate brand risk. We remain committed to our vision of becoming the most loved enterprise software company, innovating for our customers, succeeding with our partners, delivering shareholder value and executing for growth and continued profitability.

Thanks to our customers, partners and our employees for their hard work and results. And to all our investors, thank you for believing in the vision.

I'll now hand over the call to Manish.

[Manish Sarin, Chief Financial Officer]

Thank you, Ragy. And good afternoon, everyone. As you heard from Ragy, we're pleased with this quarter's solid results.

For the second quarter, total revenue was $178.5 million, up 18% year-over-year and above the high end of our guidance range. This was driven by subscription revenue of $163.5 million, which grew 23% year-over-year, also above the high end of our guidance range.

Professional Services revenue for the quarter came in at $15 million, above our guidance of $14 million.

Our subscription revenue based net dollar expansion rate in the second quarter was 120%. As we've discussed in the past, the NDE statistic is not something we monitor as part of growing our business, but rather a byproduct. As macroeconomic conditions moderate renewal rates and customer upsells and as we focus more on new logo acquisition, we expect NDE to decline slightly in the coming quarters.

In terms of new logos, we are very pleased with the number of new customers that joined the Sprinklr platform in Q2. This is particularly true with our Sprinklr Service product suite as many of the deals in our service product suite over the last few quarters have been with new customers.

Given our momentum in the CCaaS market and how early we are in targeting this opportunity, we're confident in our ability to add new logos at a healthy clip going forward.

As of the end of the second quarter, we had 120 customers contributing $1 million or more in subscription revenue over the preceding 12 months, an increase of five customers sequentially and a 22% increase year-over-year.

Turning to gross margins for the second quarter. On a non-GAAP basis, our subscription gross margins came in at 83% as we continue to drive efficiencies in our cloud operations with total non-GAAP gross margins of 76%. Non-GAAP gross margins for professional services were slightly negative coming in at minus 2%, but was positive 4% for the first half of the year and ahead of the breakeven estimate we shared last quarter. As we have discussed in the past, we continue to invest in CCaaS delivery capabilities and build out our expertise in that area.

We also continue to generate efficiencies in sales and marketing and have shown consistent improvement in sales and marketing efficiency over the last several quarters. Non-GAAP sales and marketing expense in the second quarter now stands at 41% of revenues compared to 52% in Q2 of last year.

Non-GAAP R&D costs increase sequentially in the second quarter, as we onboard our annual cohort of new R&D engineers every summer from leading universities in India, but held steady at 11% of total revenue for the quarter.

Turning to profitability for the quarter, non-GAAP operating income was $21.3 million, resulting in non-GAAP net income of $0.10 per basic share. This 12% non-GAAP operating margin for the quarter was the result of revenue over performance, improved subscription gross margins, coupled with broad-based expense discipline, and is the fourth consecutive quarter of non-GAAP profitability.

Lastly on the topic of profitability, for the second consecutive quarter, we posted positive GAAP net income totaling $10.5 million or $0.04 per basic share.

In terms of free cash flow, we generated $8.7 million during the second quarter compared to free cash flow generation of $1.4 million in the same period last year. Recall, on the Q1's earnings call, we had alluded to a large annual payment to one of the public cloud vendors as a reason for expecting negative free cash flow in Q2.

However, during the quarter, we were able to renegotiate a set of more favorable payment terms. With this result in Q2, our free cash flow generation during the first half of this year now stands at $23 million, higher than what we had generated during the entirety of last year. Our balance sheet remains healthy, now standing at $628.4 million in cash and marketable securities with no debt outstanding.

Calculated billings for the second quarter were $179.2 million, an increase of 19% year-over-year. Q2 billings benefited from several million dollars more of early renewals than we had anticipated.

As of the end of Q2, total remaining performance obligations, or RPO, which represents revenue from committed customer contracts that has not yet been recognized, was $806.4 million, up 35% compared to the same period last year, and CRPO was $510.4 million, up 22% year-over-year. The strength in RPO is driven by multiyear renewals at some of our largest customers that closed during the quarter, as well as multiyear Sprinklr Service deals. This is a testament to the commitment that some of the largest, most recognized brands around the world are making to Sprinklr.

Moving now to our Q3 and full year FY 2024 non-GAAP guidance and business outlook. As you heard today, long term demand trends and engagement for Sprinklr 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 Q3 FY 2024, we expect total revenues to be in the range of $179 million to $181 million, representing 14% growth year-over-year at the midpoint. Within this, expect subscription revenue to be in the range of $164 million to $166 million, representing 18% growth year-over-year at the midpoint.

We expect non-GAAP operating income to be in the range of $15 million to $17 million and non-GAAP net income per share of $0.06 to $0.07 per share, assuming 274 million basic shares outstanding. The slight decrease in non-GAAP operating income sequentially can be attributed to the seasonal hiring in R&D, whose full impact is felt in Q3, as well as our ongoing investments in Sprinklr Service product delivery.

For the full year FY 2024, we are raising and tightening both our subscription and total revenue outlook for the year. We now expect subscription revenue to be in the range of $658 million to $660 million, representing 20% growth year-over-year at the midpoint. This is an increase of $8 million at the midpoint, which is greater than the full magnitude of the Q2 beat and the subscription revenue guidance raise for Q3. As we discussed in prior earnings calls, we have been investing in making our products easier to implement and, therefore, accelerating the time to value for customers.

In addition, we have also been cultivating a partner ecosystem around delivering our product suites such that we expect our service delivery partners to take on a larger proportion of the services revenue attached in delivering our products. These transitions have now picked up steam and are happening faster than what we had previously anticipated. As such, we now expect professional services revenue of approximately $30 million for the second half of FY 2024 split evenly between Q3 and Q4, so approximately $15 million per quarter.

We also expect non-GAAP gross margin for professional services to be approximately negative $2.5 million in each of Q3 and Q4, driven by investments in Sprinklr Service product delivery as we continue to scale that business.

Given this, we expect total revenue to be in the range of $719 million to $721 million for the full year FY 2024, representing 16% growth year-over-year at the midpoint. One way to internalize this guide is from the perspective of the 20% subscription revenue growth year-over-year, which is being dragged down by the approximately 13% decline in professional services compared to the full year FY 2023.

Similar to last quarter, we have included a bridge slide for our revenue guidance, which can be found on the investor presentation currently posted on our Investor Relations website.

For the full year FY 2024, we're raising and tightening our non-GAAP operating income estimate to now be in the range of $65 million to $67 million, equating to a non-GAAP net income per share of $0.30 to $0.31, assuming 273 million basic weighted average shares outstanding. This implies an approximately 9% non-GAAP operating margin at the midpoint. Note the increase of $13 million at the midpoint is greater than the full beat for Q2 and the accompanying operating income raise for Q3.

In deriving the net income per share for modeling purposes, we estimate $24 million in interest income for the full year with $6 million of that to be earned here in Q3. Furthermore, a $6 million total tax provision for the full year FY 2024 needs to be added to the non-GAAP operating income ranges provided. We estimate a tax provision of $2.5 million here in Q3.

And given the performance through the first half of the year, we expect to be GAAP net income positive for every quarter as well as for the full year FY 2024, consistent with our comments on the past few earnings calls.

As I alluded to earlier, we had several million dollars' worth of early renewals in Q2 than expected. This will impact Q3 billings, which is already our seasonally slowest billings quarter. As such, we estimate Q3 billings to be in the mid $150 million range. For the full year FY 2024, however, we expect billings to grow approximately 18% year-over-year, which will equate to around $780 million for the full year. And consistent with our prior commentary, we expect to be solidly free cash flow positive on a full year basis.

Lastly, I would like to thank all our employees for their dedication and passion for what we're building at Sprinklr. I'm also grateful for the confidence that our customers have placed in us during these uncertain times. We remain focused on building a track record of successful execution and operating discipline across the business.

And with that, let's open it up for questions. Operator?

[Operator]

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

[Pinjalim Bora, J.P. Morgan]

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

[Ragy Thomas]

There are three distinct reasons that we see when customers do a pretty extensive process and pick Sprinklr for their CCaaS solution. The first is the fact that we give them a unified platform with 13 products in it that works seamlessly at the architecture level with each other, as opposed to point solutions that they have to buy or acquisitions that other competitors offer, not in a unified way.

Second is the power of AI in everything we do. It's not just a smart response or a smart routing, pretty much every component in Sprinklr is built with AI and is brought together to create a better experience for the agent and a better experience for the customer.

Third is, very simple, on proof of concept. Demonstrably, we're able to show value for the business. We're able to bring the cost of technology down, we're able to improve the average handling time, we're able to improve the time to resolve an issue, and we're able to improve NPS scores. So it's like a triple win. Customers are happier. Your agents are happier and your company is happier because making more money and saving more money.

[Pinjalim Bora, J.P. Morgan]

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

[Manish Sarin, Chief Financial Officer]

I think we did call out the fact that – look, our growth in RPO is because several large customers renew on a tier basis. But those are the ones you'd remember from even a few years ago, we had them do multiyear billings. So that hasn't happened this time where we are sticking to annual billings.

When I called out on the billing side that there were select customers that renewed early, that was only to make sure that as you think about your Q3 billings, you do take that into account. But I think macro, if you just step back, we're seeing strength in renewal activity as shown in the multiyear RPO renewals, RPO numbers as well as our sense around overall billings for the year.

[Operator]

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

[Frank Surace, Barclays Capital]

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

[Ragy Thomas]

Both. CCaaS is definitely a good driver for us. But we have been investing consistently in making the technology more accessible and more approachable and easier to use for practitioners.

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

[Operator]

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

[Arjun Bhatia, William Blair]

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

[Ragy Thomas]

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

[Arjun Bhatia, William Blair]

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

[Ragy Thomas]

There are two factors that are helping us. One is, obviously, strategy to add voice and get into the broader CCaaS space, which, as you know, is a huge market, right? $800 billion market, which – the technology is not going to replace technology. I think it's going to replace and scale human labor. So I think, for the first time, a bigger chunk of that $800 billion, which includes human labor, is also [indiscernible]. So that's obviously I think – as we disrupt that market, that puts us in a good place to grow.

Two is, we've been very consistent in articulating that we have a focus on our go-to-market side, just fixing the fundamentals and making it easier for our salespeople and the field to understand us and sell the solution better. And that's going to take a few more quarters to completely roll out, but we're pretty pleased with the results we've been seeing so far.

[Arjun Bhatia, William Blair]

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

[Manish Sarin, Chief Financial Officer]

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

[Operator]

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

[Fiona Hynes, Morgan Stanley]

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

[Ragy Thomas]

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

[Fiona Hynes, Morgan Stanley]

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

[Ragy Thomas]

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

[Operator]

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

[Brett Knoblauch, Cantor Fitzgerald]

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

[Ragy Thomas]

In this case, I can confirm there was a material upsell in it. So this is again, as you would guess, one of our larger customers who, at the end of the term, again, had more to buy in, wanted to buy more. So that's the answer to question number one.

Question number two, are they buying more seats and more products, they are buying both. So in this particular case, we continue to believe that we have a list price of $25 million to $30 million of product payload that a large company can buy, if you want to deploy us across business units and across markets.

In this case, they've already bought all four product suites and most of our products. So some were in ELA mode. So like we pointed out this time, listening is unlimited for the Insight product suite. So, what we're seeing is where the products are not unlimited in the ELA, they are expanding more seats. We talked about thousands more seats in social, but it's not restricted to social. It's more seats, more consumption and expanded license. And at some point, we expect these to end in unlimited use for most of our products.

[Brett Knoblauch, Cantor Fitzgerald]

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

[Ragy Thomas]

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

[Operator]

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

[Michael Turits, KeyBanc Capital Markets]

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

[Ragy Thomas]

Self-service, for us, has been a strategy to make sure that we have our defenses lined up, right, to make sure that no one's attacking us from downstream in the long run. In the short run, our focus has been trying to give the practitioner more exposure to the power of Sprinklr, get hands on keyboard. And you know that we're very, very solidly focused on our target ICP, ideal customer profile – on our ICP and we've identified 43,000 companies as fitting that profile in our target market.

So our strategy has been making these products available for everyone – you can go sign up – but directing our marketing and advertising and outreach only to those 43,000 companies. And we only follow up and encourage when a customer fits our target profile.

And one of two things happen as they come in. Usually, sometimes it's like a small team that wants to try it for a bit and they can do so. And in many times, which we're seeing – what we're hoping to see and what we're seeing is they try it and they realize that, okay, this is powerful and easy to use, and they talk to our sales team and buy the enterprise version. We are beginning to see now – again, this is, as most things, strategic. It's going to take us several quarters, but every quarter we're seeing increasing green shoots come from this approach. And we're very encouraged by how it's progressing.

[Michael Turits, KeyBanc Capital Markets]

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

[Ragy Thomas]

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

[Operator]

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

[Michael Berg, Wells Fargo]

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

[Ragy Thomas]

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

[Operator]

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

[Tyler Radke, Citigroup]

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

[Ragy Thomas]

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

[Manish Sarin, Chief Financial Officer]

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

[Tyler Radke, Citigroup]

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

[Manish Sarin, Chief Financial Officer]

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

[Operator]

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

[Austin Cole, JMP Securities]

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

[Ragy Thomas]

To answer your question, look, I think there's a lot of hype and excitement and we've all seen this movie many times. Usually, the hype always settles and then the real deal starts. What we're finding ourselves is having this blessed opportunity of being able to now talk about AI and have people appreciate it. And the awareness that our customers and the buyers have, our buyer personas now have of the power of what AI can do. And that makes articulation of our capabilities and our differentiators much easier than it used to be. So net-net, we're seeing positive impact on deals with the excitement around AI.

Our strategy has not been to introduce a new AI product or to have a new AI feature because, for the last five years, we've bet the farm on the idea that we are the purveyors of unstructured conversational data. And there is no way to read and understand and speak back in over 100 languages to billions of people without using AI. So we think it is table stakes. We think there are different approaches to jumping on the AI wave. And one approach is to say, look, this is going to change everything. We're going to go into a DNA and make sure that it's AI powered. And that's how we think.

The other one is to say that there's an opportunity for some incremental dollars or a new product. We've taken the former. We stand by it.

[Operator]

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

[Matt VanVliet, BTIG]

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

[Ragy Thomas]

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

[Matt VanVliet, BTIG]

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

[Ragy Thomas]

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

[Operator]

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

[Ragy Thomas]

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

Thank you very much and have a good evening. Thank you.

[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.