Sprinklr, Inc. (CXM) Q1 2025 Earnings Report, Transcript and Summary

Greetings, and welcome to Sprinklr Q1 Full Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Scro, VP Finance. Thank you, Eric. You may begin.

Thank you, Alicia, and welcome, everyone, to Sprinklr's first quarter fiscal year 2025 financial results call. Joining us today are Ragy Thomas, Sprinklr's Founder and Co-Chief Executive Officer; Trac Pham, Co-Chief Executive Officer; and Manish Sarin, Chief Financial Officer. We issued our earnings release a short time ago, filed the 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. 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 second fiscal quarter and full fiscal year of 2025, the impact of our corporate strategies and changes to our leadership team, 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. For more details on the risks associated with these forward-looking statements, please refer to our filings with the SEC also posted on our website, including Sprinklr's quarterly report on Form 10-Q for the quarter ended April 30, 2024. And with that, I'll now turn it to Ragy.

Thank you, Eric, and hello, everyone. Q1 total revenue grew 13% year-over-year to $196 million, and subscription revenue grew 12% year-over-year, to $177.4 million. We generated $20.4 million in non-GAAP operating income, which resulted in a 10% non-GAAP operating margin for the quarter. We are focused on delivering consistent and repeatable results for our stockholders. As we have shared on recent earnings calls, we've been experiencing lower net bookings over the past few quarters, as we transition the company to better support our two distinct market opportunities in our core business and in CCaaS. To address this, we continue to make broad changes to our go-to-market strategy, and hiring leaders to help grow and scale the business. This quarter, we made good progress with these leadership changes and operational improvement. However, these changes are significant, and will take time to show measurable improvement. Furthermore, implementing these changes during, what has become a more challenging macro environment has created more short-term volatility than we expected. In the first quarter, buying behavior was more measured, sales cycles were longer and - but its scrutiny on renewals increased as well. As a result, Q1 performance reflects lower net new bookings, and increased customer churn. Based on the current outlook for the year, we are lowering our revenue guidance for FY '25, but are committed to diligently managing the business and maintaining our non-GAAP operating income guidance. Manish will provide more details in his remarks. As you've seen, we're taking decisive actions to address these challenges and remain confident in our long-term vision and our ability to execute against it. Our new leadership and an industry-leading AI-powered platform position us well for long-term growth and success. Sprinklr is built on a single code base and operate a multichannel, multifunction and multi-market front office platform. Our current focus remains on our go-to-market execution, and enhancing stakeholder alignment across both selling and delivering our platform's extensive capabilities. We are making changes internally to elevate our sales and field expertise to focus on the C-suite within our customer base, and to better align accounts with skill sets internally. We're also investing in more scalable and repeatable onboarding experiences, for our customers. This will require both operational rigor, and platform capabilities that we expect will result in faster time to value for our customers, and better retention and growth opportunities for Sprinklr. In recent quarters, we have highlighted the experienced leaders we have brought on board from successful companies. Scott Harvey, who is at ServiceNow for many years and Amitabh Misra from Adobe, both known for their ability to scale revenue and profitability, which we believe is a crucial foundational step. These leaders have operated businesses at scale, and develop processes and systems, to address sophisticated go-to-market needs. And as you saw with today's press release, we are excited to announce that Trac Pham has been appointed as the Co-CEO of Sprinklr. In the time Trac has been with us, he's already made a solid impact in establishing a consistent operating rhythm, fostering strong alignment across our executive team and leveraging his operational expertise to set us up for our next phase of growth. Trac has been an invaluable partner drawing on his extensive experience at Synopsys. As a member of the executive leadership team at Synopsys, he led the company through an extended period of strong growth, and expanding profitability. In this new structure, we will maintain the effective collaboration that we established over the last five months and leverage our complementary skill sets to realize our shared vision for Sprinklr. Let me turn it over to Trac, to share a few words.

Thanks, Ragy. I am excited to partner with Ragy as Co-CEO and lead Sprinklr through the next phase of growth. Initially, I stepped into the leadership team on an interim basis, due to my Board exposure and to provide support to the team, as the company conducted a search for a permanent operating leader. Sprinklr operates a unique and powerful platform. We work with incredible brands, and I believe we have a very good hand to play. We are working through some major operational changes with new leaders at the helm and what I've now experience firsthand, is a company that is pioneering a technical vision, while the rest of the company must catch up operationally. But my genuine belief in Sprinklr's mission and conviction, for our potential motivated me to join the company in a permanent capacity. Ragy and I are aligned on how our co-CEO structure can drive our success. Our partnership is built on a strong foundation of complementary skill sets, trust and mutual respect. And together, we are committed to delivering the best outcomes for our customers, partners, employees and investors. I look forward to working with you all. Let me hand it back to Ragy.

Thanks, Trac. I'm excited to work in partnership with you in this new capacity. Now let's shift gears a little bit, and focus on some positive developments with our products and customers. Recently, we hosted a few hundred of Sprinklr customers, partners and industry luminaries at our flagship event, CXUnifiers in New Orleans. This event was an opportunity to share our vision, and collaborate on how AI can elevate customer experiences and productivity. Here are a few of the highlights. First is the Sprinklr Digital Twin, which is an AI version of your brand, your teams and employees that have access to all the same systems, and information as you do, but with guardrails so that tasks can be done with privacy and governance. We believe that this is the next evolution of AI for Unified-CXM, and we're excited by the definition partnerships that are already underway. Next is Sprinklr Surveys, which formally enters us into the customer feedback management market, with a comprehensive voice of the customer platform. Sprinklr customers will now be able to leverage generative AI-powered surveys to gather solicited and unsolicited, structured and unstructured feedback from all customers in one unified platform. It's designed to unify insights from all channels, and customer touch points. So they are actionable and available in real time. Another innovation we launched is Sprinklr Voice Connect, our vertically integrated CPaaS solution, which is a powerful contact center connectivity layer that integrates sprinkles service, and telephony to deliver high-quality voice connections. This allows us to be vertically integrated for our CCaaS offering, and enables us to take full responsibility for end-to-end performance and uptimes, required for mission-critical contact centers. Further details about this, can be found in the press release we issued on May 7, at my keynote address at the conference, which is posted on the sprinklr.com website. We also had a good quarter from the perspective of industry analyst reports. Forrester named Sprinklr a strong performer in conversational AI for customer service report. Per the report, "Brands interested in managing their customer self-service as a part of the broader approach to customer experience should give serious thought to Sprinklr." We believe that the report validates our goal of helping enterprises move productivity, reduce costs and drive meaningful conversations with the most advanced conversational AI. We were also named a leader in the 2024 Magic Quadrant for content marketing platforms for the fifth consecutive year. Per the report, "Sprinklr marketing is a comprehensive marketing platform that offers a variety of tools and features to organize - optimize marketing efforts." This validates our commitment to providing AI-powered capabilities to help marketing teams achieve improved results and operate in a unified way. During the first quarter, we continued to add new customers, and expand with existing ones, such as Alibaba, Audi, IAG Hotels & Resorts, Lululemon and Vodafone, across all our product suite. I'm also happy to announce that we have signed a new partnership agreement with Reddit. With its broad reach, extensive user base and unique approach to community and conversations, Reddit is a compelling platform for Sprinklr enterprise customers. Sprinklr and Reddit's partnership is significant and spans multiple aspects of the Reddit platform, including social listening and management of ad campaigns, which will empower Sprinklr enterprise customers to leverage Reddit it as a business-critical channel for their digital strategies. In closing, FY '25 is an important transition year for Sprinklr to further strengthen our foundation with top-tier leadership, product innovation, and enhanced execution capabilities. Critical elements in the sustained success of our company and our ability to drive value for all our customers and stockholders. We have deep conviction in our belief that the market needs three or four unified and consolidated platforms for the front office, not countless point solutions, and the foundational role that AI will play in the long run. We are confident that our vision is very aligned with this opportunity. Thank you to our customers, partners, our employees for their hard work, and thank you all to our investors for believing in our vision. I'll now hand the call over to Manish.

Thank you, Ragy, and good afternoon, everyone. For the first quarter, total revenue was $196 million, up 13% year-over-year. This was driven by subscription revenue of $177.4 million, which grew 12% year-over-year. Services revenue for the first quarter came in at $18.6 million. As Ragy noted, new business in Q1 was lower than expected although we did see some good strength in our Sprinklr Service offering. However, the broader demand environment has softened with longer sales cycles and heightened budgetary scrutiny. In addition, we continue to experience higher churn in our core product suites, driven by reduced marketing spend, elimination of programs and seat reductions. As such, we now estimate this elevated level of churn, to continue for the full year FY '25. Our subscription revenue-based net dollar expansion rate in the first quarter was 115%. 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 heightened renewal pressure rolls through the revenue waterfall and works its way through the calculation. As of the end of the first quarter, we had 138 customers, contributing $1 million or more in subscription revenue over the preceding 12 months, which is a 20% increase year-over-year. Turning to gross margins for the first quarter. On a non-GAAP basis, our subscription gross margin was 82%, and professional services gross margin was 2% equating to a total non-GAAP gross margin of 74%. Turning to profitability for the quarter. Non-GAAP operating income was $20.4 million, or a 10% margin, which drove non-GAAP net income of $0.09 per diluted share. Lastly, on the topic of profitability, we posted positive GAAP net income totaling $10.6 million, or $0.04 per diluted share. In terms of free cash flow, we generated $36.2 million during the first quarter, which represents an 18% free cash flow margin compared to free cash flow of $14.3 million in the same period last year. This cash flow generation contributed to our healthy balance sheet, which includes $610.1 million in cash and equivalents, with no debt outstanding. During the first quarter, pursuant to the company's stock buyback program, we purchased 8.3 million shares of our Class A common stock for a total cost of $101.2 million. All the shares repurchased have been retired. The Board has also authorized an incremental $100 million share buyback program. As such, we now have a cumulative $300 million share buyback program, of which as of June 3, 2024, we have $128 million remaining. We intend to complete this buyback by the end of the year. Calculated billings for the first quarter were $191.8 million, an increase of 12% year-over-year. As of April 30, 2024, total remaining performance obligations, or RPO, which represents revenue from committed customer contracts that have not yet been recognized was $922.5 million up 30%, compared to the same period last year, and cRPO was $570.4 million, up 19% year-over-year. The sequential decrease in RPO and cRPO is seasonal, with prior year Q1 demonstrating a similar dynamic. The decline this year, however, was more pronounced given the weak demand environment and heightened renewal pressures as described earlier. Moving now to Q2 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. Related to some of these market dynamics and performance challenges, we recently concluded an internal review across product areas, regions and support functions to ensure our resources are best aligned with Sprinklr's priorities. As a result of this review, we restructured our global workforce by approximately 3% in May. Expenses related to this action were approximately $4 million and will be booked here in Q2, FY '25. These expenses are included in the guidance figures for both Q2 and the full year FY '25. For Q2, we expect total revenue to be in the range of $194 million to $195 million, representing 9% 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, also representing 9% growth year-over-year at the midpoint. This implies approximately $16.5 million services revenue in Q2. Using the midpoint of the Q2 subscription guide, this equates to a first half subscription growth rate of 11%. 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 Q2, to approximately negative 10%. We expect non-GAAP operating income to be in the range of $16.5 million to $17.5 million. Non-GAAP net income per diluted share of $0.06 to $0.07 per share, assuming 277 million weighted average shares outstanding. And as noted earlier, this non-GAAP operating income range, is impacted by approximately $4 million in costs related to the workforce reduction taken here in Q2 that is included in these numbers. For the full year FY '25, we now expect subscription revenue to be in the range of $714 million to $716 million, representing 7% growth year-over-year at the midpoint. This implies a modest sequential quarterly increase for the remainder of the year. We expect total revenue to be in the range of $779 million to $781 million, representing 7% growth year-over-year at the midpoint. For the full year FY '25, we reaffirm our previous non-GAAP operating income, to remain in the range of $104 million to $105 million, equating to a non-GAAP net income per diluted share of $0.40 to $0.41, assuming 276 million weighted average shares outstanding. This implies a 13% non-GAAP operating margin at the midpoint. Recall the restructuring charge of approximately $4 million in Q2, is included in these numbers. Considering the current operating environment, we have proactively taken steps to reduce our expense base and maintain our operating income. Furthermore, we are committed to regularly evaluating our investments and resources, to ensure they are commensurate with our near-term growth outlook. In deriving the net income per share for modeling purposes, we estimate $23 million in other income for the full year, with $5 million of that to be earned here in Q2. This other income line primarily consists of interest income. Furthermore, a $13.5 million total tax provision for the full year FY '25, needs to be added to the non-GAAP operating income range just provided. We estimate a tax provision of $3.5 million here in Q2. We are tracking to be GAAP net income positive for the full year FY '25, consistent with our comments on the Q4 earnings call. While billings grew 12% in Q1, we estimate billings for the full year FY '25 to grow in line with the annual subscription revenue growth rate. And we expect that same growth rate for the first half and second half of FY '25. With respect to free cash flow, we now estimate to generate free cash flow of approximately $60 million for the full year. Given everything just discussed, we are also withdrawing the FY '27 financial targets. To be clear, we have conviction that we can achieve the financial targets we set out at Investor Day. However, we believe this may now take longer than originally planned. 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?

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

I have two quick questions. One is on - if you think about the macro situation, here is like - we've been in a tough macro environment for like the best part of two years now. What you're seeing out there at the moment, does it feel like it's getting worse, because it's getting - it's longer and so now people making kind of renewed kind of decision about something else that they didn't do before? Or is this a little bit of sales execution? And then more on the financial side, for the second half, if I do the implied guidance for the second half. Second half looks kind of - numbers are coming down a lot more than on the first half now. Is there anything that we should kind of be aware of that is driving that extra second half headwind for you guys? Thank you.

Yes. So, hi, Raimo, how are you? I'll take the first part of it, and Manish will probably jump on the second. I have to say that we're seeing a more pronounced squeeze on budgets, more so than we've seen in the last two years. And anecdotally, my suspicion is that companies like ours had a little spillover COVID effect, where we got some lingering budgets, as companies were trying to go digital in a very, very strong way. And then the last year, while the budgets were tight, the controls hadn't force people to go bounce it back up all the way every time. What we're seeing and what I'm anecdotally hearing is that the budget cycles when they got refreshed for this new year, came with the operational control of, hi, you're not allowed to spend, everyone's got to find 20%, 30% back so that we can invest in AI and other things. And budgets weren't growing as much as they did or shrinking in some cases. And I think as the new year rolled in, these controls force the buying behavior to change, which was not very obvious even going into Q4. I wouldn't say a lot, but it was pronounced enough for us to feel it.

And Raimo, let me address your question around the guide. And I think you're correct in assessing if you look at the first half of this year, just looking at subscription revenue, it sort of implies an 11% growth year-over-year. In the second half, obviously by definition, has slower for the full year to be around 7%. And I think this is driven by two factors. One is, as Ragy alluded to earlier, we're just seeing a fairly weak demand environment, we do not have the level of visibility that we had even last year. So demand is definitely weaker. And then, we also addressed even compared to a few months ago, we're seeing much more pressure on renewals. I had flagged in prior earnings calls that we expected, an elevated level of churn just for the first half. But just given the dynamics we are seeing now, I think the prudent thing for us to assume is that dynamic continues for the remainder of the year. So, I think both of those factors in the aggregate, are what is baked into the guide.

Okay, makes sense. Thank you. Thanks for the clarification.

Thank you.

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

Perfect. Thank you. Can you guys maybe just touch a little bit on where you are in going through some of the go-to-market changes that you've talked about? And as we're thinking about what to look for to understand that we might be in later innings on the go-to-market being more stable. Like what should we look for to see that you've kind of adjusted the go-to-market motion, and things are maybe starting to get better instead of still getting worse?

Right. Let me take that, Arjun. Look, there are three things that are super clear to us. One is, as we said, the macro is - we're experiencing a pronounced change. Second, our go-to-market motion and the transition to the level of maturity that we need to have for a business of this scale and size, we are not there, and it's taking us longer. And I'm not going to go through all of it, I'm sure we can follow up in the actions. But with the kind of people that we have around this and inside the company, what needed to do was fairly clear. And what we realized as we went late last year and looked at our own progress, needless to say, no one, including myself, was happy with pace of progress. And what we decided to do was to upgrade -- make significant upgrades to the leadership, starting at the very top, right? That's what the investors and the Board would love to see, and we brought in Trac with his rich experience at Synopsys, being there for 16 years in a very hands-on operational role. Followed by Scott, who is at ServiceNow who's our Chief Commercial Officer, a new Head of Europe, again, similar pedigree, Head of Americas, of similar pedigree, Head of Global Success, Head of Renewals, Head of Sales Strategy, a brand-new role that we never had, Head of Partnerships. So - and these recruiting was done with a very clear filter of proven track record at other companies like us who went through this multi-buyer complex selling process. So at this point, we feel like we've got to handle, we got the people, and I'm very - I'm cautiously optimistic. But it's going to take time as these leaders settle in, find their own leaders, or upgrade and enable our existing talent. But I'm very encouraged by what we're doing. And it's safe to say, look, I think we had embarked on a four to six quarter transition at least, and we'll probably - one quarter into it is the way I'd characterize it.

Okay. Got it. And then I think you had also just called out now that you might expect a little bit more contraction and churn and down sell in some cases. When you think where that might come from, how do you think about the - just the split between the CCaaS and the Care opportunity versus your core Social?

I'll acknowledge that we're seeing increased pressure on the core, which is everything else have a CCaaS the way we see it. And what we're finding is more price compression. We're not seeing like a crazy amount of logo churn. We're not seeing -- I'm sure there'll be a question. We're not seeing the competitive dynamics shift. What we're finding is, CIOs and CMOs looking at their top spend and looking to find money, and we're a premium provider. We were able to command premium prices and we're just getting squeezed. And that I see as the primary driver. And a lot of these as Arjun, I'm making more calls than you would ever expect someone like me to be doing to these customers. And I can tell you firsthand, a lot of it is our own execution, which in a little perverse way gives us confidence that once our GTM motion is maturing, we'll see some of that reverse.

All right, thank you, guys.

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

Hi, thanks so much for the question. In the prepared remarks, lower seats were called out as a pressure. And just given the large concern with AI is the impact of seat based models. What are you picking up in your conversations that give us comfort that AI is not pressuring, driving fewer seats, or any sort of company expectation that fewer seats may be needed as AI expands? Thank you.

That's a great question, Elizabeth, and thank you for that. Look, we are believers that AI is going to dramatically improve productivity in the front office. And you've heard me say this countless number of times, and even at IPO that we bet the company on AI. What you're seeing is a shift, and the shift is to consolidation and the shift is to AI and more generative AI improving productivity. We do have our AI products that are designed to offset any pricing compression that we're going to see on the seats side. We're very early in the transition and our strategy is to review our pricing and packaging to make sure that we can adapt to it gracefully. So we'll have some transitionary pressures. But I think we're pretty good in the medium and long term. In this quarter or even last quarter, as we're looking at churn, we're not seeing AI impact seat count just yet, and we're preparing our company to deal with that, with the pricing shift, as I said, and the AI products that we're ready with. However, what we're seeing is people scrutinizing the current seat count. We're seeing layoffs at many of our customers. We're seeing downsize marketing spend, all of which will impact seat counts in core products.

Got it. Thank you so much for the color. And then just as a follow-up, I would love to better understand kind of the Co-CEO structure. Why is a co structure the right one for this time? And Trac, any early thoughts on top priorities as the Co-CEO?

I'll start and I'll let Trac pick it up. Look, I think it was clear to me that we needed operational executional focus at the very top. And so this is sort of me accepting responsibility and looking to find talent that would complement the executive team that we have that has a lot more execution chops than I do. And so we had an open search out for a President and COO as we had disclosed before. I convinced Trac to come and help on an interim basis. And working with him for four months, it was clear to me that this was our dream candidate. And we kept looking for people like Trac in our -- among our candidates. And it was just very fortunate and we're very grateful that Trac's here and committed to a permanent job. We have extremely complementary skill sets. I love and live and breathe and love being in the product, talking to customers and innovating and thinking about the future. And Trac is very good at all the things have not been good. And let me turn it over to him to add a little more color.

Certainly. Elizabeth, what we saw, what we experienced over the last five months with me here on an interim basis, was that Ragy and I actually worked really well together. And we found a lot of leverage in terms of our complementary skills, as Ragy mentioned. And the partnership evolved very naturally. We both found a lot of value and actually respected and appreciated the partnership and what we both brought to leading the company over the last five months. And to Ragy's credit, the Co-CEO appointment really reflects his acknowledgment of the operational shortcomings and his commitment to making that change. And the structure is really a reflection of what has evolved very naturally in terms of how well we work together. So from our perspective, we're genuinely and super excited about how we're going to proceed forward.

Great. Congrats on the role, and thank you for the color.

Thank you, Elizabeth.

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

Yes, good afternoon. Thanks for taking the questions. I guess I wanted to dig in a little bit on the contact center trends in the Modern Care solution. And you said you're still seeing solid traction there. So curious on how you're finding yourself sort of measuring up against some of the more long-standing competitors, especially some of the cloud competitors? And then maybe more importantly, when you are winning new deals, how much of the footprint are you taking? Are you still winning mostly the digital side and sort of bringing that expertise to existing contact centers? Or how have you done in terms of actually ripping or replacing the voice component in existing CCaaS deployments?

All right. So let me start with the second one, Matt, and then I'll come back to the first. We are currently ripping and replacing pretty much the entire riprap of contact center point solutions. And so that's the value prop. The fact that you're replacing 5, 10, 15, 25, and if you have multiple contact center and this creates stacks, different ones in each country, we're replacing that with one unified system that really works completely on single unified code base and architecture. So it completely knows every part works well together. And in the contact center, that's a big deal, right? If your knowledge base is an independent provider, your learning system and your workforce management and independent system that's now plugged in to routing or if your knowledge base is an independent system that's not plugged into agent assist with AI. They just -- it's too much work and the work falls on the shoulder of the IT team to put together and system integrators. So we're able to just put a clean solution in place. Having said that, I'll acknowledge that we're new to this space, we still have part of our platform modules that we're finishing up. And -- but we're seen as a disruptor, and we are able to really, really impress the buyer with what the future can be. And it comes from the power of unification and it comes from the power of AI. The power of unification shows brilliantly because we're not just approaching the contact center stack as it exists today. We can launch our community. We do our chat. We do our bot. All of those are traditionally independent solutions. We bring our knowledge base. And then all of that gets super imposed in a unified way on the contact center and from AI from the beginning to the end, right? And remember, we've got an eight-year advantage on traditional AI, of understanding intent and routing and sentiment and emotions in lots and lots of languages, right, over a hundred. And we have deployed it regionally for many, many years to fine-tune it against the way people naturally speak on social media. And so those are very powerful advantages that we bring in. So buyers look at that and go, man, I see the future, and this is where I want to go. Because this contact center decisions are very long term, and the difference is very apparent when you look at the traditional incumbents versus Sprinklr's solution, although everyone's claiming AI. Now we can prove it. We show it in POCs, they test us out and they buy it. So we stack really well against traditional competition, for the buyer who's willing to look forward, right? But we will acknowledge that traditional outages, no one ever got fired for buying IBM. It still exists in contact centers. But we're very bullish that with the reception that we're getting now as we finish building out the rest of the capabilities, which we should be in a good place by the end of the year. We're really optimistic about what this can do for our business.

Okay. Very helpful. And then, I guess when you look at the overall penetration or saturation rate on the Social side, do you feel like there are net new opportunities out there? Or is it a matter of consolidating the spend that's sort of already in the system over the next couple of years? And bringing more of it onto the Sprinklr platform to sort of get the Social side of the business back on the growth side?

Again, a great question, Matt. I'm super glad that you asked it in this public forum. Look, I want to point out something. I'm a big believer in where Social is going. And we keep talking about social media as a space. And we assume that space isn't changing when we make -- ask ourselves what's going to -- is that going to stay or we're going to consolidate. Our observation as a company that probably pioneered the concept of social media management in our early years, and I think lots of people would give us credit for creating that category is to say the impact of social media is forever. And -- but that impact is not going to be the way social media management is perceived and was perceived a few years ago. Social media management has got three critical elements. The first is social publishing and engagement. And that has morphed because people were opening up social accounts everywhere and trying to publish and get their own following, and that slowed down, they've consolidated. And the strategy has changed because reach has gone down. Second is social listening, and social listening is expensive, because the data sources are demanding a premium to access their data and social advertising with the consolidation of ad spend mostly under the meta proof has changed as well. So social media, the way we build the category and the first set of capabilities, we're not betting our house on it. And the plan is not to recover the money that they're spending with others. The plan is to build against where the future of that is. So when you look at social, what should be very clear for everyone is social customer service is here to stay. Social marketing and advertising will change the way marketing and advertising is done. And with AI, it's going to get personalized, it's going to be everywhere. Social listening with AI, and add surveys on top of it, is going to take on the CFM market the way we see the likes of Medallia and Qualtrics do. And social engagement is going to evolve as we add voice and messaging and e-mail to it. Social engagement becomes engagement and will evolve to social selling or conversational commerce, which we see. All of this, Matt, we saw four years ago. So when you saw us take our social customer service and deploy it at CCaaS, it was a manifestation of our strategy of taking a first product suite, which was the weakest at that time, and that's going to be a front runner for us. We have clear strategies for each one. What you are finding us is in the middle of a transition, both externally and internally. And this is where you're going to hear us almost speak from both sides of our amount, right? The numbers we're reporting. Admittedly, we aren't proud of it either. But when we look forward, we go, we are executing on a strategy that the market needs, and we are pretty optimistic about where it can take us. Long answer, but I know this is a question that was in everybody's mind.

Great. Thank you.

Thank you, Matt.

Thank you. Our next question comes from the line of Jackson Ader with KeyBanc. Please proceed with your questions.

Hi. This is Michael Vidovic on for Jackson and thanks for taking my question here. You started seeing the disruption back in 3Q, but it seem like conditions seem to have stabilized somewhat in 4Q, but I guess just looking month-to-month, when did you start seeing conditions to deteriorate such that things just weren't quite on track yet?

Look, I think this year, we -- it's a year broke. We started seeing all the things just sort of take a pronounced dip. And so, we also have to acknowledge that fourth quarter traditionally is very seasonal for SaaS companies or budgets and flushing through the system. And so I'd say right from the beginning of the year, it's probably when we saw the impact being more pronounced.

Okay. And then you talked about the incremental controls being set around deal renewals and then Sprinklr's getting squeezed kind of on resigning. But I guess, could you clarify what the customer was spending those incremental dollars on? Because I know you've had numerous conversations with customers around that, right?

We -- generative AI is on everybody's mind. AI and generative AI is on everybody's mind. And some of this is the shift to platforms. And so we have to position ourselves. As we've built a platform, we have to position ourselves through go-to-market effort that we are a consolidator or platform in the CIOs and the CMOs and the CTOs and the CXOs mind, which we are, but again, it'll go back to our go-to-market needing more maturity to market at the C-suite is something that we're trying to address.

Thank you very much.

Thank you.

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

Hi, guys, thanks for taking my questions. On the comment that you guys are getting squeezed, I guess, what can you do to prevent that? And once some of your bigger customers start exerting that influence, does that have a trickle-down effect to other customers asking for the same thing? And how do you get out of that cycle?

Brett, it is -- we have a very extensive platform. That's between products and solutions, 58 of them for suite, right? And we are confident that we can add a lot of value to every one of our customers. Our customers are the biggest companies in the world, as you know. So when we get squeezed, our strategy when executed properly is to say, hey, we understand that your ad budget went down or you just buy it, 70% of your marketing team. But let me show you how our AI capabilities can do more work for you or our auto optimization can help or our content marketing can help. Or our new project marketing management can help or find another buyer and say, hey, just help you with the contact center capability. So, all of that requires sort of a multi-function, multi-product selling motion that's very strategic. And we're not there, and that's the shift we need to make. So the strategy when there's compression is to offer more and the product payload exists and it's proven, and when execution fails to deliver on that strategy we switch on. And when you have leadership and new leadership and people transition, it's always exacerbate these kind of situations.

Perfect. And then just looking at your customer base, I know you have a couple of very large customers with Fortune 500, who are in the Fortune 500. Have you seen any outsized impact among those customers relative to churn being more focused at the lower end of your customer base? Or is it just more broadly across the entire customer base?

I'd say it's more broadly across the customer base. And what we have to enable and train our field team on is how to deal with that. I mean, a lot of what we're seeing is, hey, you got to come down on price, and this is our budget.

Prefect. Thanks.

And if we don't do it, we're going to do an RFP. And I do think we have had execution issues and people have not heeded to that help cry -- its cry for help. And then they do the RFP and say, hey, we're going to just not worry about those sophisticated things you can do because I'm going to go for the money.

Understood. Thank you so much.

Thank you.

Thank you. Our next question comes from the line of Pat Walravens with Citizens JMP. Please proceed with your questions.

Great. Thank you. Trac, congratulations. And Ragy, for you, I'd ask you to put your shareholder add on for a second because you own a lot of this business. So I mean clearly, public investors are lowering their assessment of the value of software companies. But the strategic acquirers seem to feel differently, right? So Hashi was also trying to figure out their go-to-market and they ended up selling to IBM. And the Hashi Board decided that was the best outcome. And then just this morning, SAP announced that they would acquire WalkMe, also about a 40%-plus premium. So how do you think about whether it would make more sense for Sprinklr to be part of a bigger company or whether you should keep going alone?

That's a very interesting and good question. Let me first acknowledge that our explicit strategy was to build a platform out of all the things that the big boys weren't paying attention. So that you've talked about before, there's a general understanding that we can be and we are the third or fourth large front office platform for large enterprise companies. So that makes us a very interesting complementary partner for many companies. I also believe that the infrastructure, the cloud giants, if you will, are going to have to move into the app layer, and 14 years of building this as a truly unified platform, app layer down, will have tremendous value for them. And most of these companies have very mature, very built out go-to-market machines and relationships that could make Sprinklr extremely valuable for many of them. And it's just a symmetric understanding of what we do and how we do it that may be missing. Having said that, we're focused on building a company for the long term and doing the right thing for all our shareholders. So these are very interesting questions and decisions. And I think we have a really, really competent board and we will do the right things at the right time, all acting in the interest of all stakeholders and our shareholders.

Great. Thanks for that perspective.

Thank you, Pat.

Our next question comes from the line of Catharine Trebnick with Rosenblatt. Please proceed with your questions.

Yes. Thank you for taking my questions and squeezing me in. So on CCaaS perspective, I mean, are you seeing any of the similar down sell of seats internationally with the customers. But what could you put a finer point on what macros you're seeing on the CCaaS side? And then also discuss what you're seeing between your international and your U.S. and has your go-to-market strategy in the U.S. changed from international? Thanks.

So your first question was seat count on the CCaaS side. Actually, interestingly, it's working in our favor, because we have companies contracting us primarily for our AI capabilities with a view of bringing down the seat count, bringing down the employee count which is what our technology can do. So we have many products that are not priced based on seat. So in CCaaS, I think we are positioned pretty well. So that's the answer there. U.S. versus international. Look, I think our go-to market, there's a lot of foundational things we are working on. There are some theaters that are working better than others. And so, there are some theaters that require a little more of the go-to-market reboot, if you will. And so, it's more people and theater dependent, not macro or country dependent. So I can confirm that the demand environment and the opportunity we see continues to be global. We might see more opportunities for CCaaS in Europe today and more for marketing in the U.S. maybe. But as a platform, we're very well positioned.

Yes. And then as far as your larger deployments, I mean, sometimes I found over the course covering CCaaS providers that these large deployments, like, for example, Deutsche Telekom, take a lot longer to wrestle and close the deal. And are you -- and it really ties up the organization and has any of these larger deals you closed, put a strain on the organization such that maybe you weren't able to tackle some other newer opportunities?

My friend, it's almost like you've been peaking over our shoulders here. But yes, you actually described something that's very important for investors to know. Our success in the CCaaS world has put implementation strain on the organization, which we are working through. The good news is we have been landing planes consistently in each one of these, and we're developing the implementation muscle and building out the partnership. But at this point, one of the things holding as back in CCaaS is our inability to scale any faster than we currently are, which we hope over the next couple of quarters through improved institutional learning and best practices and tools and frameworks and partners and playbooks, we can get better and take on more.

All right. Thank you very much.

Thank you.

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

Hey, thanks for taking my questions and be in here. I wanted to just ask in terms of budget priority and within your customer base, there's been a lot of discussion today around the budget compression, budget tight-end sales elongation. But I was more curious if you're seeing -- are there different types of projects or different types of technologies, maybe either leapfrogging someone like a Sprinklr or how you're viewing -- how IT budget priorities may be shifting and how it can potentially be hurting the business in the current environment today? Thanks.

Thank you, Michael. I can acknowledge and confirm that we're seeing more pressure on the marketing side and on the traditional social side. And on the contact center side, we're actually on the right side of that equation where we can actually deliver a lot more with a lot less, right? So we usually the -- not just the better solution, but the cheaper solution as well. And with agents, right, our ability to kind of move some of this into self-service. We can go after the $800 billion labor plus tech market in contact center. So it's a tale of two cities with our core and our CCaaS, and that's how we're seeing the budget pressure.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Ragy Thomas for closing remarks.

Thank you, Alicia. Thank you all for joining us today. 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 all of you again on our next quarterly call as we continue on this exciting journey. We truly believe that the best is yet to come. Thank you very much, and have a wonderful evening.

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