Sprinklr Inc
NYSE:CXM
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Sprinklr Inc
Earnings Call Analysis
Q2-2025 Analysis
Sprinklr Inc
In the recently concluded second quarter, Sprinklr reported total revenue of $197.2 million, marking an 11% year-over-year growth, while subscription revenue rose slightly by 9% to $177.9 million. Despite this growth, the macroeconomic climate has imposed challenges, leading to longer sales cycles and increased budget scrutiny from clients, which has notably affected customer renewals and product adoption. The company also faces elevated churn in core product suites, with expectations that this trend will persist through the fiscal year 2025.
For the third quarter, Sprinklr anticipates total revenue between $196 million to $197 million, equating to a 5% growth year-over-year at the midpoint, with subscription revenue expected to fall between $177.5 million to $178.5 million (4% growth year-over-year). This decline in growth forecasts for the next quarter is partly attributed to a complex transition process as Sprinklr invests heavily in its CCaaS (Contact Center as a Service) capabilities. Additionally, services gross margins are expected to dip significantly to approximately -15%, reflecting urgent investments for long-term scalability.
Sprinklr’s non-GAAP operating income for the second quarter was reported at $15.2 million, translating to an 8% operating margin. A credit loss charge of $10.1 million adversely impacted these earnings. Adjusting for this charge elevates the effective operating income to $25.3 million, which leads to a more favorable operating margin of 13%. Unfortunately, the company is now reducing its non-GAAP operating income guidance for the entire FY 2025 to a range of $80.5 million to $81.5 million, affecting net income per diluted share forecasts to approximately $0.32 to $0.33.
Despite these hurdles, Sprinklr reported adding 145 customers contributing $1 million or more in subscription revenues over the last year, a 21% increase indicative of its value proposition among top-tier clients. However, the elevated churn, especially as it relates to the CCaaS segment, suggests a tougher road ahead in stabilizing existing accounts and capitalizing on new growth opportunities.
In a bid to optimize revenue generation, Sprinklr is refreshing its pricing and packaging approach. The leadership highlighted the necessity to evaluate how customer preferences in purchasing have evolved, with planned evaluations including a more consumption-based pricing model for AI features. This initiative reflects a strategic recognition of shifting market dynamics and customer requirements, which may enhance competitive positioning.
Looking toward the future, Sprinklr is sharpening its focus on segments with high growth potential, specifically its core suites and CCaaS offerings. The management has committed to addressing operational complexities from past aggressive growth strategies and concentrating efforts on improving execution, including investing in upskilling teams and refining sales approaches to bolster renewal rates. Continuing efforts to synchronize pricing strategies and product functionalities are expected to yield positive results over the coming quarters.
Sprinklr generated free cash flow of $16.5 million in Q2, representing an 8% margin—a notable increase from $8.7 million in the previous year. The company's strong cash position of $468.5 million with no debt further provides a solid foundation for strategic investments and share buybacks, with $300 million allocated for repurchasing shares during this fiscal year. Overall, the emphasis remains on sustaining cash flow while navigating macro challenges.
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Greetings and welcome to the Sprinklr Second Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.
I would now like to turn the call over to Eric Scro, Vice President of Finance. Thank you, Eric. You may begin.
Thank you, Paul, and welcome, everybody, to Sprinklr Second Quarter Fiscal Year 2025 Financial Results Call. Joining us today are Ragy Thomas, Sprinklr's Founder and Co-CEO; Trac Pham, Co-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 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 some forward-looking statements about the business and about the financial results of Sprinklr that involve many assumptions, risks and uncertainties, including our guidance for the third fiscal quarter and full year of at 2025. The impact of our corporate strategies and changes to our leadership, the benefits of our platform and our market opportunity. Our actual results might differ materially from such forward-looking statements. 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. more details on the risks associated with these forward-looking statements, please refer to our filings with the SEC, also posted on our website, including Sprinklr's quarterly report on Form 10-Q for the quarter ended July 31, 2024.
With that, let me now turn it over to Ragy.
Thank you, Eric, and hello, everyone. Q2 total revenue grew 11% year-over-year to $197.2 million, and subscription revenue grew 9% year-over-year to $177.9 million. We generated $15.2 million in non-GAAP operating income, which resulted in an 8% non-GAAP operating margin for the quarter. Included in these results is a credit loss charge of $10.1 million.
Our free cash flow for the quarter was not impacted by this charge. Manish will discuss this topic in more detail during his remarks. As we acknowledged on previous calls, the transformation we're working through will take several quarters. Trac will discuss the progress we are making and our plan to capitalize on our strength to reaccelerate growth.
Before I hand it over to Trac, I would like to reflect on some recent successes we have achieved. To begin with, Sprinklr's platform has several building blocks that we believe will underpin our turnaround in growth and profitability. We operate in attractive and growing markets. and support a gold star list of customers through an AI-powered unified customer experience management platform. We have differentiated leadership position in our core product suites. And we're also an emerging disruptor within the CCaaS space, where our product is already top quadrant, generating tangible benefits for our customers.
During the second quarter, we added several new customers and expanded with existing ones, such as UBS, Ford, T-Mobile, Grupo Bimbo and Planet Fitness across all our product suites. Some specific examples include one of the largest global asset managers in the world. At this industry-leading company, our platform replaced multiple social tools and point solutions, including an incumbent vendor who is in place for 12 years. Sprinklr is unifying AI-powered listening, publishing, engagement, marketing and customer service. across all social channels, which will allow these teams to work better together and improve their customers' experiences.
Another example is a global EV company who is using our core product suite to support their aggressive launch in multiple countries. This company uses printless insight suite to understand market opportunities and our social capabilities to market on different channels that may be popular in each country. We're also seeing some remarkable business results as customers deploy our AI capabilities. Notably, with our service suite, a large North American retailer was able to use our AI to increase their call deflection up to 35%. This resulted in an estimated 420,000 fewer calls a year that needed to be handled by extensive agents. Another example is a large global bank that saw their customers use of AI self-service increased to over 60%. This customer has implemented Sprinklr's CCaaS and saw their outbound virtual agent productivity improved by 50% as well. These are just a few recent examples of how our value proposition is resonating with some of the world's largest enterprise customers.
In addition to these customer validations, our innovation is also being recognized by industry analysts. In Q2, Sprinklr was named a leader in digital customer interaction solutions Forrester Wave, as cited by Forrester and I quote, Sprinklr both the most feature complete solution batton. We were also named a major player in the 2024 IDC Marketscape for Contact Center as a Service. As you know, we've been building out our executive leadership team. Over the last several quarters, we've attracted and hired leaders who are experts in their fields and are deeply passionate about driving our business forward. One of these leaders is our co-CEO Trac.
And now like to invite Trac to share his thoughts on the work we're doing and the improvements we're making here at Sprinklr. Trac, over to you.
Thanks, Ragy. We have a strong conviction for the power of our technology vision and the significant progress we have made in building a recognized market-leading platform. We acknowledge the near-term challenges we are facing, including lower net bookings we've been experiencing over the past few quarters. This is due to execution challenges exacerbated by macroeconomic factors that have impacted customer budgets and spending, specifically.
First, our unified platform enables us to operate in 2 distinct markets with our core suites and CCaaS. Related to our core suites, we have seen pressure on renewals due to tightening customer budgets compounded by a renewal process that was not effective enough in demonstrating value. Second, our push into CCaaS has required us to make investments in both product and implementation as we gain scale in a competitive market. We have a strong offering, but have not yet achieved brand recognition. Third, as we enter new markets and push for growth, we launched new product innovations very quickly over the past 3 years. This has created product and operational complexity, which we are addressing. We are now rebalancing our focus between building on our leadership position in our core suites while pressing our advantage in CCaaS. We're taking decisive action and with great urgency to ensure the business is on a solid foundation. These are actions we are taking to address these issues. We are sharpening our strategic focus to improve execution and scale. Once sold and implemented successfully, our customers love our products.
We are, therefore, focusing more closely on those segments and products where we can create the most value for our customers. We're most successful when we sell the full value of our platform and the breadth of its capabilities while aligning with the priorities and expectations of our executive clients. Related to our go-to-market efforts for the broader platform, we are refining execution processes and activities designed to reaccelerate revenue growth and meaningfully expand operating margins. Some of these initiatives include: one, we are reorienting our sales team with the support of our new renewals team to increase renewal rates and reduce churn. This will improve swift engagement with customers throughout the life cycle, helping them unlock the full value of our offerings. We are also measuring health factors and renewal likelihood directing efforts where they have the greatest impact. Second, we are changing our geographic support model to be closer to where the customers operate. We're doing this in 2 ways. First, by moving our implementation teams closer to client geographies; and secondly, better aligning our success and solution consultants with our territory model. Additionally, we are deploying specialists to match expertise with customer needs to the right deal opportunities. As mentioned earlier, we are elevating our sales and field expertise to focus on C-suite selling for both users and technology buyers. Third, we are driving improvements in pricing and packaging aimed at simplifying our product and solution offerings. We believe this will enable us to create fewer but more targeted bundles aligned with customer expectations and will help remove sales and purchase friction. There are early signs of success with some of these targeted initiatives. In the second quarter, we closed several large deals within our global strategic accounts across the tech, telecom and retail industries. We believe we have a strong product market fit with our marketing social, insights and services suites across these segments, and we're building the organization to better serve and scale these customers.
Another key priority is ensuring we sufficiently invest in areas foundational to our ability to scale. We are examining all areas of the company, including third-party spending, for opportunities to increase productivity and efficiencies. While we are in the early stages of this effort, we believe that these actions are required to fund necessary investments to reaccelerate growth and increased margins.
In closing, we are confronting the challenges we are facing with a clear and aggressive agenda. We're acting with urgency, reassessing our focus areas and strategically reallocating our resources to align with our top priorities. Our commitment to driving excellence across the company is unwavering, and we are diligently evaluating our cost structure to drive margin expansion. By executing our agenda, we believe we are building a solid operational foundation that will better position us for sustainable success. We believe these efforts will enable us to deliver to deliver long-term value for our customers, partners, shareholders and employees.
With that, I'll turn it over to Manish to discuss the financials.
Thank you, Trac, and good afternoon, everyone. For the second quarter, total revenue was $197.2 million, up 11% year-over-year. This was driven by subscription revenue of $177.9 million which grew 9% year-over-year.
Services revenue for the second quarter came in at $19.3 million. The broader demand environment that we have seen for over a year now has continued with longer sales cycles and heightened budgetary scrutiny. In addition, we continue to experience elevated churn in our core product suites and expect this level of churn to continue for the full year FY '25. Our subscription revenue-based net dollar expansion rate in the second quarter was 111%. As a reminder, we calculate NDE on a trailing 12-month subscription revenue basis which makes it a lagging indicator. While we do not forecast NDE, we expect this number to come down over the next few quarters as the lower quantum of new business and elevated churn rolls through the revenue waterfall and works its way through the calculation.
As of the end of the second quarter, we had 145 customers contributing $1 million or more in subscription revenue over the preceding 12 months, which is a 21% increase year-over-year. We believe our continued success in winning and growing 7-figure customers is an indicator of the value of the platform we deliver for our customers.
Regarding gross margins for the second quarter, on a non-GAAP basis, our subscription gross margin was 81% and professional services gross margin was negative 1%, resulting in a total non-GAAP gross margin of 73%.
Turning to profitability for the quarter. Non-GAAP operating income was $15.2 million or an 8% margin, which drove non-GAAP net income of $0.06 per diluted share. Included in this non-GAAP operating income is a $10.1 million credit loss charge. Excluding this charge, would have resulted in a non-GAAP operating income of $25.3 million or a 13% non-GAAP operating margin and higher than the guidance range provided for the quarter. This charge was booked to the G&A expense line in Q2 and is largely driven by 2 factors. As we entered new markets and launched new products in recent years, we saw early traction in international markets. Business practices in these markets result in elongated collection cycles. Furthermore, we experienced implementation challenges in some of these markets where we did not have established partnerships and implementation teams with deep technical expertise in our new product offerings. As such, we have taken specific reserves against select accounts, which will impact both revenue recognition and cash collection from these accounts. We have since invested in both to shore up our implementation performance as we continue to expand and scale our product offerings. This charge had no effect on free cash flow for the quarter. However, these customer situations resulted in approximately $5 million being removed from our CRPO calculation as of July 31.
With respect to free cash flow, we generated $16.5 million during the second quarter, which represents an 8% free cash flow margin compared to free cash flow of $8.7 million in the same period last year. This cash flow generation contributed to our healthy balance sheet, which now stands at $468.5 million in cash and equivalents with no debt outstanding. During the second quarter, pursuant to the company's stock buyback program, we purchased 17.1 million shares of our Class A common stock for a total cost of $169.8 million. With these purchases, we have completed the full $300 million buyback that was authorized by the Board. a total of 27.9 million shares were repurchased and returned to the company's authorized but unissued share reserve during the buyback program. Calculated billings for the second quarter were $192.8 million, an increase of 8% year-over-year. As of July 31, total remaining performance obligations or RPO which represents revenue from committed customer contracts that has not yet been recognized was $887.1 million, up 10% compared to the same period last year. and CRP was $557.8 million, up 9% year-over-year. The sequential decline in RPO and CRP was driven by the soft demand environment elevated churn and the approximately $5 million impact from specific customer situations as described earlier.
Moving now to the Q3 and full year FY '25 non-GAAP guidance and business outlook. We continue to see elevated churn and our current assumption is that the macro softness that we are experiencing will continue through the entirety of FY '25. For Q3, we expect total revenue to be in the range of $196 million to $197 million, representing 5% growth year-over-year at the midpoint. Within this, we expect subscription revenue to be in the range of $177.5 million to $178.5 million, representing 4% growth year-over-year at the midpoint. The Q3 guide implies approximately $18.5 million in professional services revenue. As we have signaled on prior earnings calls, we are continuing to invest in our CCaaS delivery capabilities given the growth opportunities available to us in that market. As such, we expect services gross margins to decline in Q3 to approximately negative 15%. As we continue to gain scale in CCaaS, we will begin to focus on billing rates and utilization, which should improve services gross margins going forward.
We expect non-GAAP operating income to be in the range of $19 million to $20 million, resulting in non-GAAP net income per diluted share of approximately $0.08, assuming 266 million diluted weighted average shares outstanding. The sequential decline in non-GAAP operating income from the Q2 adjusted level of $25.3 million is driven by 2 factors. First, an increase in subscription costs from higher data and hosting cost as we launch new environment; and second, from the higher professional services costs related to CCaaS delivery, as mentioned earlier.
For the full year FY '25, we expect subscription revenue of $710.5 million to $712.5 million, representing 6% growth year-over-year at the midpoint. We expect total revenue to be in the range of $785 million to $787 million, representing 7% growth year-over-year at the midpoint. Note that the approximately $5 million impact to CRPO described earlier, equates to an approximately $3.5 million impact to FY '25 subscription revenue and is factored in the revised guide for both Q3 and full year FY '25. Implicit in the above numbers is that we are increasing our FY '25 services guidance from $65 million to $74.5 million.
For the full year FY '25, we are reducing our non-GAAP operating income to be in the range of $80.5 million to $81.5 million, equating to non-GAAP net income per diluted share of $0.32 to $0.33, assuming 270 million diluted weighted average shares outstanding. This implies a 10% non-GAAP operating margin at the midpoint. When adjusted for nonrecurring expense categories as well as the $11 million credit loss charges taken in the first half of FY '25, this is in line with the previously issued guidance of $104 million to $105 million. These items include: first, severance and related costs of $4 million incurred in Q2 and for the reduction in force we executed in May. Second, $5 million spend on consulting resources for strategic and operational initiatives to be spent during FY '25. We and third, approximately $3.5 million FY '25 revenue impact from the approximately $5 million impact to CRPO as discussed previously.
In deriving the net income per share for modeling purposes, we estimate $24 million in other income for the full year, with $5 million of that to be earned here in Q3. This other income line primarily consists of interest income. Furthermore, a $15 million total tax provision for the full year FY '25 needs to be added to the non-GAAP operating income ranges provided. We estimate a tax provision of $4 million here in Q3. We are still tracking to be GAAP net income positive for the full year FY '25, consistent with our comments on the past few earnings calls.
With respect to billings, Q3 is traditionally our weakest quarter, and we estimate billings to be down approximately 10% compared to the same quarter last year. And consistent with the billings trend from last year, we expect a billings reacceleration in the fourth quarter such that full year FY '25, billings will be up 6% in line with the subscription revenue growth rate for the full year.
With respect to free cash flow, we now estimate to generate approximately $55 million in free cash flow for the full year. Lastly, I would like to thank all our employees for their dedication and passion for what we are building at Sprinklr.
And with that, let's open it up for questions. Operator?
[Operator Instructions] Our first question is from Arjun Bhatia with William Blair.
I'm Will O'Miller on for Arjun. So to start off, it sounds like pricing pressure is continuing. I was hoping to get more color there. Is it to the same extent as last quarter? Just trying to see if there's any changes there. .
This is Ragy. I'll take that question. We're continuing to see budgetary pressures. In terms of -- is it better or worse than last quarter, I'd say it's not getting any better. And so I'd say kind of consistent with what we have seen in the past last quarter and quarter before.
Okay. And then in your prepared remarks, you called out pricing and packaging changes, hoping for you to unpack that a little bit more.
Yes. So we have the unified platform that was organically built out over the last 14, 15 years. And it's evolved quite a bit in terms of its functionality and capabilities. So where it stands now is we have been consolidating point solutions that are our customers use and replacing it with this unified platform. And our pricing and packaging kind of has been evolving organically based on the products we compete. We realize that there are opportunities to be more efficient and more accretive for the business by relooking at the pricing and packaging and aligning it more to how customers buy now, given that in the 15 years, each one of these subindustry have also dramatically changed. So we are working. We've hired the pricing. We're building a pricing team internally as well as working with a pricing consulting company to evaluate the market and talk to our customers comprehensively.
And I might just hope to add that we have an opportunity to look at how we are pricing our AI, and we have been throwing it in because we are an AI-first platform, but there's an opportunity to relook and examine that as well.
Our next question is from Raimo Lenschow.
This is Frank on for Raimo. So last quarter, you called out a bit of an AI crowding out effect in marketing spend specifically. I just want to check in and see how you've seen this trend play out with another quarter of data and customer conversations.
Yes. So we're seeing pretty interesting success in terms of business outcomes with AI, more on our CCaaS and our service suite our marketing product suite has got a ton of AI, but I think it's more pronounced in our service suite where we are able to diffract calls using our bots and our IVR capabilities that's powered by AI. And as I called out in my prepared remarks, I have a couple of case studies that are pretty interesting, one where the customers are 60% of the time -- more than 60% are relying on AI-powered but now as opposed to finding their way to the human agent. We have another one with a large telecom company where we replaced their current AI-powered bot that had 12% containment. And out of the gate after implementation, we were able to boost that containment up to 20%. So we're seeing some -- and this is in addition to making the inbound and the outbound agents more productive. So we're seeing some pretty interesting numbers there.
Our next question is from Pinjalim Bora with JPMorgan.
Just moving in that threat that you're answering before. The you have obviously -- it seems like some of your customers are seeing some pretty good productivity increases. But what are you hearing from these companies in terms of agent growth as they see these productivity improvements? And then how do you feel about that transition of Sprinklr as potentially, there is some pressure on agent growth going forward. And you talked about pricing and packaging? Could we see some kind of a consumption-based element when it comes to AI specifically? .
With a few questions but good to connect. Well, number one, we're seeing sort of companies bifurcate a couple of ways. One, there are companies who are really looking to cut down human labor cost in the contact center and using AI as a way to do so. To be fair, though, the turnover in the context and is pretty high. So if you get 25% more efficient, you're just covering 1 year's worth of attrition. Two, we are finding companies who are translating that newfound productivity into sales improvement. Well, most of the contact centers we go into both have inbound as well as outbound activity, inbound customer service as well as outbound TV sales. And so as they cut down on one, they're able to repurpose those dollars and time into more outbound spot and cross-selling from the inbound service. So those are the 2 trends we see. With AI, we know that the agent seat count is going to come down. So we've priced our AI differently as different modules, and we are evaluating as a part of this sort of more comprehensive exercise evaluating interaction-based models as well.
Got it. One follow-up for Manish. If I heard that correctly, I think billing is supposed to be down 10% year-over-year in Q3 and then it seems like a big sequential ramp in wondering what gives you confidence in that maybe talk about the pipeline/visibility going to the second half of the year at this point?
So one is, if you look at Q3 of last year and even Q3 of FY '22, so you will note that there is always a big sequential decline. So last year was 10%. And I think the one the year before that was also in the same range. There was just given the quantum of new business that we were booking back then and just given the renewal streams. Q3 for us is always a little pronounced because it's our slowest quarter. The book of business is the smallest, so I think it has a more pronounced impact in Q3, which is what we are reflecting now in this guide. And then Q4, you remember, is always our strongest quarter. It always accounts for, give or take, 40% of our business. So I think it's going by what we have seen and what visibility we have, that's what's factored into the guide that I've provided.
Our next question is from Elizabeth Porter with Morgan Stanley.
Great. I wanted to go back on the AI debate. It's really interesting to hear some of the case studies on improvements that customers are seeing when they leverage Sprinklr's AI capabilities. I think the other side of the debate that we often here is what happens when customers decide to build AI themselves where we've seen also some headlines in the news -- so I'd love to just get your view on the build versus buy debate and kind of what drives your confidence that the deal slowdown is more macro versus customers trying to do more themselves versus buy?
Elizabeth, that's a great question, and thank you for asking that. We -- to be clear, I think when you talk about AI, I want to just frame it the way we see it, okay? We see the foundation of AI, which is insatiable need for more hardware, of which I'm sure NVIDIA is being a very, very successful company because of it. We see what we call as the infrastructure layer of AI, which is the general purpose models that companies like open AI and Google and Meta and others are building. And there's a lot of value in that stack. And what you're going to build on top of it is going to be based on the best models that are currently available. building models are expensive. We have our own that's built on open source available models, and we enhance them. but Sprinklr has traditionally focused on what we call as the application layer of AI, which is the third layer that sits on top of these general purpose models. When you look at large companies, they have large corpuses of internal data in the contact center, that's your knowledge base, that's your product spec that is customer feedback. All of that today resides on Internet and documents and some old legacy knowledge base, if you look at marketing and product information, that's in the dam, that's on the website. So it's all over the place. So companies are going to need to bring these together somewhere where they can sanctify it because the change in the document going forward, if AI is answering customer inquiries, wrong change in the document can be catastrophic for customer experience. So there's a whole need to bring the data together, have closed-loop feedback and training. Workflows and version control of your internal data, all of which Sprinter provides. Second is the ability to provide governance and compliance on that data? Who made the change? Why did I say this? What was the approval workflow. And third, on top of that is guardrailing. What is the AI allowed to do and not allowed to do. And depending on how you move that slider left to right, it can have undesirable effects. So these are application level things that we specialize in which makes us very confident that what we bring to the enterprise is very unique and it's very enterprise grade and is built to be on top of general purpose models.
Yes. And I'd also stress Elizabeth that AI -- we all know that there's going to be a huge economic boom that's going to happen because of AI. And it's tempting to think it's going to be just AI than these models that do everything. In reality, this AI has to be applied to every channel. That's number one. This AI has to be applied to every function, and this AI has to be applied across every customer-facing teams through the car company from the dealership to the global marketing back in Japan. So all of these have to be driven of centralized ontologies and unification. And we're in a very unique position not downplaying our execution focus that we need to have in the short term. We're in a very unique place where we spent 14 years unifying the fabric of this independent business units and markets, which we have solved very well in starting in social channels, which has been a differentiator for us.
Great. Thank you so much for that very comprehensive answer. I just wanted to get a quick follow-up in as well. You've made a lot of changes internally just around elevating the sales and expertise of fields. Could you just speak to some of the productivity level that you're seeing within the sales force, where you are on ramped capacity and where you expect to be heading into next year?
This is Trac. Elizabeth, I think we're making the right changes. We've got good leaders in place. They're building out their bench strength, and it takes time for those things to change. I think there's a degree of stabilization that we're seeing, which is really good despite the macro headwinds that we're facing there are some very encouraging signs that we're stabilizing the business and then we're moving ahead in certain areas. But we're still in the very early stages of that given that when you make these organizational changes, it does take time for it to flow through.
Our next question is from Jackson Ader with KeyBanc Capital Markets.
First one, when customers are either electing to churn or reduce their spend or just maybe not expand as much with Sprinklr upon renewal. Where are they going? Is there a specific competitor that -- where people are headed? Or is there other parts of the IT budget that are getting dollars that may be Sprinklr is not?
So we are -- we're seeing budget cuts as sort of a common theme, which are the things we can't really control. But when customers -- again, as we mentioned on the last call, we're seeing more like down sales and not logo churns. So customers are truing up is probably one way to -- to look at it. But when we -- when they go to a competitor, we're not seeing that landscape change dramatically at all. We're not -- we are not seeing any new shift in where they go or how they go. But I think the more pronounced things that we're seeing in downsells and true in up and cutting back.
Okay. All right. Understood. And then Manish, on the -- can we just go through the mechanics of the credit charge. Have you recognized revenue from these customers? And if you have, how much? And then if I just think about $10 million -- or $10 million or $11 million in total, $5 million taken out of noncurrent -- or I'm sorry, current RPO, does that mean that the balance is still left to come out of revenue in future periods?
Yes. So I think the way to think about -- let's just look at Q2, the $10.1 million charge give or take, $3.5 million to $4 million is just write-offs. These are older accounts for a variety of reasons we've deemed uncollectible. And then I said -- as I said in my prepared remarks, $6 million is for specific accounts where either given their geography or some of the implementation challenges that I referenced earlier, for that $6 million of specific reserves, the CRPO associated with those accounts is approximately $5 million. So that would be for the duration of those accounts. For FY '25, which is till the end of January, the revenue we would have recognized had we not taken the $6 million work specific reserves would have been $3.5 million. So that $3.5 million, we have then removed and that is factored into the guidance that I gave for the full year. Does that square for you?
Yes. So then the just $6 million minus the $3.5 million, that's just going to come in will be a headwind to FY '26, as the rest of that CRPO would have fallen in [indiscernible].
Correct. But just for this year, if the midpoint of the guide we take right now, it's $711.5 million for subscription revenue, add back to 3.5 year sort of at where we were before. but I was just trying to provide you that bridge for this year. And you're correct in your view around there is a headwind for next year.
Our next question is from Matt VanVliet with BTIG.
Just wanted to come back to the new pricing and packaging initiatives you put in place. Curious as you've gone through your analysis and now putting that into place sort of what the expectation is on overall deal sizes coming out of that as you sort of streamline and simplify what you're doing there? And then what, if any impact would you expect that to also have on the renewals with existing customers?
Matt, I want to be very clear. We have not completed that project. In fact, we've just rolled it out in the last quarter. So I would expect that project to run through another quarter or so and it will not have any impact for this year. This was -- Trac was outlining it as a series of things that we're doing as we foundationally set this up for reacceleration in the out quarters.
Okay. Helpful. And then I guess on the renewal team that you put in place, can you give us a sense of sort of the size of that team and any, I guess, headcount-related expenses that are associated with that? And maybe what the discussion internally was about building out that team rather than just hiring more account executives that would still handle some of that renewal pressure as part of their overall quota?
Matt, this is Trac. I think there's 2 things I would add. One is, in the past, and part of the problem is that the renewal effort was distributed across a variety of different teams and different folks. The idea of building out the renewal team is to create a central focus that can drive that effort. And to your -- that's the first point. Second, to your point, why would we hire more AEs, we are going to do both. We are making sure we hire folks to try to better bookings as well as supporting the renewal effort. All those things that I'm describing is factored into the guidance that Manish has given. So it's not incremental to that.
Our next question is from Michael Berg with Wells Fargo.
I have a -- I have one for Manish here on margin impact from the charge. You mentioned on your opening remarks that adjusting for the charge as well as a handful of other items that the operating income would be in line with the prior guidance. Can we think about that prior guidance of $104 million as a starting point for modeling out your operating income versus coming off of a lower number. I know you're not guiding for out here yet, but just for modeling purposes?
Yes. So if I understand your question, what you're trying to ask is, assuming the $104 million to $105 million the operating margin derived from there, should that be used as a rough rule of thumb for the out years? .
Correct.
I think we will provide more color right now as I think both Ragy and Trac alluded squarely focused on the second half of this year. There is a lot of initiatives underway. So we will provide more constructive color commentary around operating income numbers for the out years, I think in the subsequent calls.
Our next question is from Parker Lane with Stifel.
This is Jack McShane on for Parker. Trac, you mentioned sharpening your strategic strategy, saying you're going to focus more on segments and products that are delivering the most value. Would you mind providing a little color on what products or segments you may be more or less focused on going forward? And I know you guys just kind of starting this project, but any initial thoughts around where you might be a little more focused?
I think a really good way to describe is that really going back to what we've been good at. When you look at how we built this company over the course of 14 years. We've done really well when we've targeted enterprises and large companies. We've done well when we've been able to sell the platform and its full capabilities. We've done well. We've sold up to executives. And over the years, as we've expanded the capabilities of the products and we've added more suites to it, and we've added more capabilities we lost focus of that strategy. So in some ways, that the strategic intent that I described is just going back to what made us successful and really being diligent about driving the discipline on focusing that. And if we do that, we should actually be able to reaccelerate growth, actually reaccelerate growth and drive healthier -- a healthier business.
Got it. That's super helpful. And then one quick one for me. I wanted to ask for an update on your guys' self-serve social media management solution that you guys announced early last year. How is it fair in the market? And is it maybe picking up some demand from traditional social SKU deals that maybe aren't crossing the finish line given the tougher macro?
Yes. Jack, we had mentioned this in previous earnings call very clearly that our strategy in introducing the self-serve product. And the short term was not as a revenue driver but more as -- when a company has very, very independent teams that don't -- I just want to simply to , and we wanted to give them an alternative instead of having to go out of Sprinklr, number one. Number two, we wanted to have our enterprise customers have an opportunity to play around touch and feel what the Sprinklr product looks like. So those were our stated goals and consistent with that team, that -- this is more experimental and it's not something that could any substantial focus on by design and intentionally so. When to Truc's comment earlier, the strategy where we've been successful is a large enterprise. And as you know, the large global companies in the world are very complex and very fragmented. And require a very hands-on enterprise selling approach, which is where we're going to put our energy on.
Our next question is from Catharine Trebnick with Rosenblatt Securities.
Can we go back and talk about renewals for a minute. I'm trying to understand -- I understand when you piece part it how you're changing your team up. What I'm trying to really get a better handle on what's going on within your customer base? And why is there a delay? And what do you see some of the issues around the renewals from that aspect?
Catherine, this is Ragy. So we can broadly bucket the pressure on renewals into 2 categories. One is obviously things we can control budget cuts and restructuring and macro stuff, and that's pretty evident. Two, the interesting thing about Sprinklr where we're more pronounced in the churn is the internal execution implementation stuff that we've referred to in the past that we are putting more discipline around. The platform has evolved pretty substantially. The implementation of that complex platform and the templatizing of that implementation so that we are standardizing how we implement products by industry. That's something that we are working on right now that we know will impact. So the second category are things where we can fix like implementation like making sure that we have consistent AE, Success Manager, SE supporting the account. Those are things that we know we can do a better job, and we are squarely focused on.
Okay. And then how about the overhang of AI from marketing departments, not from the CCaaS perspective but more from your marketing Martech departments. What are you seeing there?
And again, our marketing suite is probably our smallest of the other -- of the 4, right? And so it is -- we're seeing pressure there. But it's hard to pinpoint that on an AI, just the AI overhang. We see things we can fix, and we're not able to put it on an AI overhang.
Our next question is from Brian Knoblauch with Cantor Fitzgerald.
I guess I'm just looking at this year, we're going to grow, I guess, based on your guidance for the full year of subscription revenue. subscription revenue is going to grow maybe $1 million or $2 million year-over-year, and we're spending, call it, north of $300 million in marketing. So I guess, what in the go-to-market are you specifically doing that's going to change the productivity of your go-to-market motion to the point where we can start to see growth come back? Or is it just entirely dependent on macro? .
No, Matt, this is Trac. It's going to be more than -- a lot of this can be driven by internal execution. The macro is a contextual element that we had to be aware of, but a lot of this is going to be our internal execution. You're highlighting the cost structure and the results that we're getting. We're clearly aware of that. And our focus right now is recognizing that we haven't built up the structure and the discipline and the operational rigor to drive growth. We do have a cost structure that is -- that needs to be optimized. I think the key for us right now is balance the need to look at the challenges that we have shoring up the areas that need to be -- that need to be strengthened to turn this business around. And then through that, we expect that we should be driving better productivity that will get our cost structure in a place that's commensurate with the growth .
Perfect. And then maybe just one follow-up on the share buyback program, I think you said that you guys completed. Is there any plans for you guys to authorize another one given the quite flexible balance sheet you guys have?
Matt, we'll always look at leveraging our balance sheet to create the most value for shareholders. forging about where we stand right now, it gives us a lot of flexibility, and we'll continue to evaluate the best use of cash going forward.
Our next question is from Patrick Walravens with Citizens JMP.
Yes. Great. This is Austin Cole on for Pat. I just wanted to drill down on one of these operational complexities. I mean I think you guys mentioned the implementation challenges last quarter. It seems like that's a little bit more front and center. Can you just talk about like is this a friction to CCaaS adoption? Or like what specifically do you need to do to shore it up? Like when might that happen? Is it adding more partners or something internally?
Well, we -- it's different for our core suites and CCaaS. Since you mentioned, let me start with CCaaS first. CCaaS is a new muscle for us. and it's regulated in all markets, and it's pretty different categories and landing zones. They're all pretty complex as you do global rollout. So it's a new muscle and we are developing that muscle, and we need regional partners and global partners, and we're doing that in each market as we land a customer and we go through that experience. And admittedly, there's 40 years of learning that we're going through in an executive fashion. So that's what taking the implementation there. What we're doing though is developing partners and building our own internal muscle, creating playbooks, working with an external company to document it so we can enable our partners on it. All of that is undergoing. And I'd say it is probably the first quarter that we feel like the bulk of the heavy lifting and development is kind of done. We're going to continue to evolve some modules that need to be upgraded and built out be the best. But the bulk of the heavy lifting is done. So there's a lot of focus on how do we now simplify implementation because we are, in many cases, migrating legacy solutions that have been in place for some cases, 20 years. So there's a lot of institutional stuff. There's a lot of learning on how do you troubleshoot the customers' infrastructure instrument in fix things quickly when they're not in your control. So all of that are things that we're learning, and I'm pretty happy with the way we are progressing. That's on the CCaaS side. On our core products, they have evolved as well, right? What started out in social media management is now social marketing and advertising is our Insights product has evolved to be very, very AI-driven for unstructured data into product insights. So we have to now figure out how to do that correctly 100% at the time. We're in a world where if we're not setting up the product because we're a premium platform. If we're not setting it correctly, the customer doesn't get value commensurate with the premium that they pay. They're going to go to a cheaper solution or churn it, right? So blue printing by industry for each solution so that the implementation team can be consistent and deliver it and turning it over to customers with a run book so they can maintain and get value is something that we are focused on. And that, again, these are not trivial things to undertake. So I want to make sure that we know these are multi-quarter projects that are underway to solve it.
Our next question is from Clarke Wright with D.A. Davidson.
You had 7 new $1 million plus customers and providing the momentary and how churn impacted and how many new CCaaS adoption?
I'm sorry, there's a lot of speed back during your question. Would you mind repeating that?
Yes, sure. So on a net basis, you added 7 new $1 million-plus customers. Can you provide any commentary on how that churn impacted this account? And then how many new customers are a result of CCaaS adoption?
This is Manish. So just so that I understand your question is the [ 1 45 ] $1 million or more, you're saying that grew sequentially, and you want to understand the breakdown of that growth between CCaaS and core?
Correct.
Yes. So first and foremost, I want to make sure you understand the [ 1 45 ] is not ARR driven. So it's all trailing 12 months revenue. So it's possible we sold these accounts in prior quarters as we have built up the revenue recognition for those accounts, it's edged over $1 million. So I don't think it's a fair sort of representation looking at the breakdown because these customers, as you also know, we upsell regularly. We've shared in the past that, call it, 2/3 of our new business comes from upsell. So it can be any number of these suites that we sell to the account. And as you know, we are really good at selling the full platform. So I think that in the aggregate is what's driving growth in here, which is what Ragy alluded to earlier saying, as we stick go back to our core strategy of sticking to selling the full platform really into larger accounts, that's where we find more success.
Got it. And then speaking about that success, how did enterprise-specific bookings trend compared to your internal expectations this quarter?
Overall, I think we continue to do well in our sweet spot. -- which is the enterprise under both.
There are no further questions at this time. I'd like to hand the floor back over to Ragy Thomas for any closing comments.
Thank you, Paul, and thank you all for joining us today. Let me close by reiterating that we have a strong conviction for our platform. We have a strategy that supports our vision, and we are doubling down execution. I'd like to thank our employees, our partners and most importantly, our customers for their trust and continued support. We look forward to updating you all again on our next quarterly call as we continue our journey. Thank you very much, and have a wonderful evening.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.