Q2 2023 Sprinklr Inc Earnings Call
Yes.
Ladies and gentlemen, thank you for standing by.
Well frankly second quarter fiscal 2023 earnings conference call.
At this time all participants are in a listen only mode.
After the Speakers' remarks, there'll be a question and answer session.
Please limit your questions to one question and one follow up so we will have time to go through all the questions.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your first speaker today, Mr. Eric Squirrel, VP finance for introductory remarks. Please go ahead Eric.
Thank you Alex and welcome everyone to sprinkler second quarter fiscal year 2023 results financial call. Joining us today are Roger Thomas Sprinklers, founder and CEO and many sarin Chief Financial Officer, We issued our earnings release, a short time ago filed the related form 8-K, with the SEC and we've made them available on.
The Investor Relations section of our website along with the supplementary Investor presentation. Please note that on today's call management will refer to certain non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors. The presentation of this information is not intended to be considered in isolation.
Or as a substitute for the financial information presented in accordance with GAAP. You are directed to our press release and supplementary investor presentation for a reconciliation of such measures to GAAP.
In addition, during today's call, we'll be making forward looking statements about the business and about the financial result of sprinkler that involve many assumptions risks and uncertainties, including our guidance for the third fiscal quarter of 2023 and full fiscal year, 'twenty 23, and our actual results might differ materially any forward looking.
Since that we make on this call are based on our beliefs and assumptions as of today and we disclaim any obligation to update them for more details on the risks associated with these forward looking statements. Please refer to our filings with the SEC also posted on our website with that let me turn it over to Roger.
Thank you, Eric and Hello, everyone. Thank you for joining us today as we share the financial results of our second quarter and FY 'twenty three.
I'll get us started with a few highlights, including what I'm hearing from customers and some of our key wins. The niche will then share details of our financial results.
But before I jump into the results of the quarter I'd like to take a moment to share that Luca Lazar on our Chief revenue Officer has made the decision to step down from his position at sprinkler has been a tremendous five years of building and growth.
When Luke joined sprinkler back in 2017, I'd asked him for a four year commitment to bring structure process and discipline to scaling our sales operations. He achieved that and so much more hiring great talent and preparing us for the IPO last year.
I want to thank Luca personally for giving us that extra year and for all of his contributions we wish him the very best.
Luca will be succeeded by fall old who has actively been serving as our EVP of worldwide sales and success Luca recruited Paul two joined four years ago and has been preparing him for this role Paul is an important member of our global leadership team.
With experience in enterprise software sales, including a lot in customer expedient space I speak on behalf of my entire leadership team. When I say that we are very confident in <unk> ability to step into this they are real and help take sprinklers growth to the next level Paul.
Officially transitioned to his new role on October 1st and Luca will stay on as an adviser until the end of the calendar year.
Turning now to the quarter I'm very pleased to report that Q2 was another strong quarter that exceeded guidance Q2 total revenue grew 27% year over year to $156 million and subscription revenue grew 29% year over year 200.
$33 $1 million.
And with our commitment to operational efficiency, we generated 1.4 million and free cash flow for the quarter and as many who will walk you through shortly we have significantly reduced our non-GAAP operating loss for the year due to prudent financial management and greater.
Operationally disciplined company wide, we continue to believe that sprinkler, it's still at the early stages of a very long term durable growth opportunity as we capitalize on our leadership position in the unified customer experience management category.
Over the course of the second quarter I had the pleasure to visit.
With over 90 of our customers in North America, Europe and Australia.
<unk> face to face interactions provide so much clarity on what our customers are trying to achieve and how important our platform has become central to their business.
And personally he's a very energizing for me as I get to see the results of the work that some of these biggest brands in the world are doing.
Getting by deploying sprinklers unified platform in their customer facing functions.
One of the consistent themes I'm hearing is how companies are seeking to better understand the needs of their customers in real time.
Specially in this radically changing environment and sprinkler is helping them not only to do this but also to translate that understanding into better experiences across all customer facing functions with Frankfurt companies have a single platform to unify their teams to reach engage.
And listened to customers in over 30 digital channels in a collaborative secure and compliant weight. This has never been more relevant in terms of our second quarter operating rhythm the sales cycle was marginally elongated versus previous quarters, while the current.
Demand continues to be robust as we outlined last quarter, we remain watchful of the macro environment changes and its potential impacts on our business.
In a more uncertain macro environment companies strive to do more with less.
Proliferation of social messaging and digital channels through the years has created point solution chaos for the world's largest enterprises. This is not sustainable.
Our customers are looking for ways to consolidate the fragmented digital tech stack full of point solutions generate efficiencies and gain better visibility into their customers' journey.
We're seeing a majority of our customers consolidate point solutions across customer facing functions and eliminate some vendors all together.
In fact, we benefited from exactly that in the quarter, we had a global pharmaceutical company, a global technology conglomerate and a leading security company, all either consolidate or significantly reduce the point solution spend.
And still increase revenue decreased cost and mitigate risk by using sprinkler and our unified platform.
We believe that sprinkler is a strategic platform investments, that's helping our customers and we're pleased with our position and our ability to deliver this meaningful and tangible ROI.
During the second quarter, we continued to add new customers as well as expand with existing customers World class brands like Amgen.
Banco Santander Heineken and see scalar.
Some of the many companies that selected or are expanding which frankly.
As you know customers don't start with unified CX them, but we believe that they will eventually end up there now.
Now like to provide you with some brief examples of use cases and customer wins from the quarter across our full product suite, but before I do I'd like to point out that all four of our suite.
Our care, our marketing our research and our social engagement suites are at scale and are growing.
Let me start with sprinkler modern care this past quarter, the world's largest cosmetics company l'oreal expanded its partnership with sprinkler, we're now helping to power of digital transformation that will enable their 35 plus grants globally to support beauty Ed.
Voices in there one on one engagement with consumers to deliver more relevant personal lives and transformational experiences at.
At scale whatever wherever their customers are on digital let.
Let me share another story this one about our modern research suite, one of sprint us foods customers as many of you know this Microsoft and they continue to expand with sprinkler steadily in Q2 alone sprinkler pull then nearly $2 2 billion public mentioned the brass.
<unk> and its products through our digital listening product and delivered intelligent insights that now informed marketing and development decisions across their entire company, Microsoft voice of customer innovation actually is helping sprinkler as well to continuously evolve and <unk>.
Hence our platform.
Moving to our social engagement and sales suite in Q2.
LTE National banking and financial services Company standard chartered renewed its partnership with strength.
The company continues its mission to make online banking simpler and faster for customers across 15, nine market, it's leveraging sprinkler to listen to and engage with customers on digital and social channels with the goal of digitizing, 70% of the conversations and convert.
Adding that engagement into sales through the help of Springless AI standard chartered has been able to achieve a 90% plus response within 10 minutes and resolve 93% of their cases on their various social channels.
And lastly, and exciting Lee one of the world's largest pharmaceutical and biotech companies Roche recently expanded its partnership with sprinkler to include a modern marketing and advertising suite as the company moves closer to his vision of one Roche it will soon have.
There's more than 30 different point solutions in social customer service <unk>.
Search and no marketing onto one enterprise front office platform.
Which is printless.
This enables more transparent and effortless collaboration from global to local teams and the affiliates and increases efficiency by reducing the number of tools used in ensuring that everyone operates from a single source of truth for content and customer context has roche.
Began to establish a global digital center of excellence, our partnership will ensure that the company can reduce costs protect its brands reputation and drive other business outcomes.
All of these stories are made possible by our incredible engineering team, who continue to make great strides to differentiate the platform each and everyday product innovation and core technology development. As you know is at the heart of who we are and this quarter alone we launched over five.
500, new platform features and enhancements across our full suite focused on innovation and enhanced usability.
Whether it's to better track agent.
Performance in real time, and customer service enhanced voice capabilities or shorten time to insight just to name a few we continue.
To build and AI powered unified platform that serves schemes and cure research marketing and social.
Customers need a unifying operating system across the digital edge.
Which is where all the interactions are happening today, it's where the customer experiences our brand, it's where customer gives feedback.
And ask questions, it's where sales opportunities to grow your company excess it's where are your biggest risks as well the sprinkler unified platform is being architected from the ground up for large global brands to manage and optimize their digital edge, we in a wait.
And grow with our customers and partners and we will continue to provide them a path to manage the next generation of customer facing functions with that let me turn the call over diminish.
Sure.
Thank you Roger and good afternoon, everyone.
As you heard from Rajiv, we delivered another strong quarter across the board and are pleased with our ability to once again exceed expectations across all key financial metrics.
In spite of a challenging macro environment, our ability to deliver strong results demonstrates the long term tailwind for our business from our customers transforming their digital edge, the breadth of our product offering and how the value of our unified <unk> platform is resonating with customers.
For the second quarter total revenue was $150 6 million up 27% year over year or $3 1 million above the midpoint of our guidance range.
This was driven by subscription revenue of $133 1 million, which grew 29% year over year and was $2 6 million above the midpoint of our guidance range.
Much of this over performance was driven by an exceptional renewal rate and renewals occurring much earlier in the quarter.
Allowing for additional revenue during the quarter.
To follow up on Rajeev remarks, we have seen sales cycles, London marginally during the quarter with additional scrutiny on new customer spend.
However to be clear the quantum of new business that you booked during the quarter was in line with our forecast except it was more backend loaded than what we had modeled.
I'm also happy to report that our subscription revenue base net dollar expansion rate in the second quarter was 125%.
This metric continues to expand for the fifth straight quarter and demonstrates our ability to upsell and cross sell our extensive product set.
Our installed base of mid and large enterprise customers.
As mentioned earlier, our renewal rate in Q2 was the highest we have seen over the last two years, putting us in great company with other elite enterprise software companies.
We believe this high renewal rate coupled with the expansions in our installed customer base is a testament to how important sprinkler this to our customers daily workflows.
This should also provide sufficient and ongoing evidence that sprinklers position in the front office software suite remains resilient, even in a recessionary environment.
And we now have 98 customers contributing $1 million or more in subscription revenue over the preceding 12 months.
32% increase year over year.
This momentum speaks to the strategic value that our platform creates for the world's largest and most valuable brands.
As a reminder, we calculate this customer account using $1 million in recognized revenue from these customers on a trailing 12 month basis as opposed to <unk>.
Okay.
Turning to gross margins for the second quarter on a non-GAAP basis, our subscription gross margin increased to 81, 2% as we continue to drive efficiencies in our cloud operations, leading to a total non-GAAP gross margin of 73% a record for us he added sprinkler on pro.
Affectional services non-GAAP gross margin came in at approximately 9% consistent with the prior quarter and our expectations.
In terms of operating expenses, we continue to invest in growing our business, but we are committed to doing it more efficiently during.
During the second quarter.
non-GAAP operating expenses increased 23% year over year to $115 million, representing 76% of revenues.
It was down from 78% of revenues during the same period last year.
As we indicated on the last few earnings calls the rate of expense growth would begin to decline and that is exactly what happened here in Q2.
In fact, the absolute level of total non-GAAP operating expenses in Q2 was similar to total non-GAAP operating expenses in Q1.
We continue to drive operating leverage from sales and marketing and G&A, both decreasing by 130 basis points and 90 basis points year over year, respectively.
As you May recall on the last few earnings calls we had said that the investments we made in the second half of FY 'twenty two and early here in FY 'twenty three were partly the result of catch up investments from prior years due to the unknown impact of Covid at that time.
That level of catch up investment has concluded and we estimate the magnitude of year over year increases in non-GAAP operating expenses to further moderate in the coming quarters.
non-GAAP operating loss was $4 9 million or <unk> <unk> per share on a non-GAAP net loss basis.
Recall, our previously around announced guidance range was an operating loss of 11 million to $13 million or five cents to <unk> non-GAAP net loss per share.
This is important to highlight for two main reasons.
Firstly, the top line beat of $3 1 million at the midpoint dropped entirely to the bottom line and we generated additional expense savings demonstrating our ability to run an efficient operation as we further scale the business.
Secondly, non-GAAP operating losses continued their downward trajectory over the last few quarters, highlighting our focus on operating discipline across the business.
As we have indicated since the IPO, we believe the market for unified CFM is expansive and investing in the platform is the best way to maximize the opportunity and drive long term value for our stockholders.
We continue to hire at a measured pace in key areas that we believe will drive future growth. We closely monitor the returns we get on these investments and if those returns don't meet our expectations, we will pare back our level of incremental investment accordingly.
To that end I am pleased to report that in terms of free cash flow, we generated positive $1 4 million and free cash flow during the second quarter compared to a burn of $10 6 million in the same period last year.
Free cash flow generation in Q2 was driven by strong billings growth posted in the first half of the year, coupled with ongoing operational improvements we are making throughout our business.
Given the seasonality and low duration of our billings, we estimate that free cash flow will be negative on a full year basis for FY 'twenty three how's.
However, we remain committed to getting to a free cash flow breakeven level during FY 'twenty four as indicated on our previous earnings calls.
We ended the quarter with a healthy balance sheet, including $541 million in cash and investments.
Putting us in excellent shape to continue investing in strategic initiatives that will drive growth with an eye towards profitability.
Calculated billings for the second quarter were $150 1 million, which was an increase of 22% year over year.
The dynamics of our billing plans as outlined on the last two earnings calls, notably the seasonality, we experience with Q4 being the highest billings quarter and our overall billing cadence, having a duration less than 12 months would remain in place and.
And just as a quick reminder, our Q3 billings has historically been the lowest quarter for us given the quieter summer months in Europe , and the jumbo timing of our renewals.
And as noted previously and reported here in Q2, we expect the delta between revenue growth and billings growth to continue to hold with billings growth lagging revenue growth by approximately five percentage points, assuming all else stays the same.
As of the end of Q2 total remaining performance obligations or RVO, which represents revenue from committed customer contracts that has not yet been recognized was $607 3 million up 33% compared to the same period last year why got onto our appeal was 400.
$29 2 million up 29% year over year.
Both metrics attached to the durability of our business.
We continue to believe that subscription revenue and <unk> growth are the best metrics to evaluate the underlying health of our business.
Our billings can fluctuate significantly relative to revenue based on the timing of invoicing cadence of renewals and the duration of customer contracts.
Moving now to our Q3 and full year, FY 'twenty three guidance and business outlook.
I had alluded to this during the last earnings call and it is probably worth repeating here.
Faced tougher comparisons for the remainder of this year given the strong growth we demonstrated over the last three quarters of FY 'twenty two.
We also recognize that macroeconomic and geopolitical issues are currently impacting businesses and there is additional scrutiny on new spend.
Talking with Q3 FY 'twenty three we expect total revenue to be in the range of 155 million to $157 million, representing 23% growth year over year at the midpoint.
Within this we expect subscription revenue to be in the range of 137 million to $139 million, representing 26% growth year over year at the midpoint.
We expect non-GAAP operating income to range from an operating loss of $1 million to an operating profit of $1 million and a non-GAAP net loss per share of <unk>, assuming 263 million weighted average shares outstanding.
For the full year FY 'twenty, three we are raising and tightening both our subscription and total revenue outlook for the year.
We now expect subscription revenue to be in the range of 543 million to $547 million, representing 27% growth year over year at the midpoint.
With this updated FY 'twenty three guide the entire $2 6 million in Q2 beat for subscription revenue has flowed through for the full fiscal year.
We expect total revenue to be in the range of $616 million.
Two $620 million, representing 26% growth year over year over year at the midpoint.
This implies the midpoint of Q4 revenue is $166 4 million or 23% growth year over year.
Note that the midpoint of FY 'twenty three total revenue has moved up by the full amount of the Q2 beat of $3 1 million.
In addition, the lower hand low end has also moved up by more than the Q2 beat and the range now has been tightened as we move through the balance of FY 'twenty three.
For the full year FY 'twenty three we are now expecting non-GAAP operating loss to be in the range of 8 million to $12 million equating to a non-GAAP net loss per share of six to eight.
Assuming 261 million weighted average shares outstanding.
This equates to a $5 million in operating profit for Q4 at the midpoint.
Note that the beat at the midpoint for Q2, non-GAAP operating loss was $7 million, but we are now comfortable improving the full year operating loss by an additional $22 million for a total full year improvement of $29 million at the midpoint.
This is the result of our continued focus on operating discipline, specifically go to market efficiencies and better allocation of resources.
You will recall that we have been focusing on productivity across the company and are now beginning to see the fruits of our efforts.
As a quick reminder than driving the net loss per share for modeling purposes, and $9 5 million total.
Tax provision for full year FY 'twenty three needs to be added to the non-GAAP operating loss of being just provided you.
We booked a $4 6 million tax provision in total for Q1 and Q2, we estimate the tax provision to be approximately $2 6 million here in Q3 with the remaining tax provision to come in Q4.
FX is very topical given the macro environment. So I wanted to address the tier.
<unk> does not have a material impact on our financials, because even though we have approximately 40% of our business outside the U S. The vast majority of our billings are in U S dollars.
Okay.
Lastly, I would like to thank all our employees for delivering a strong Q2 in the midst of an uncertain macro environment and volatility in the financial markets I'm grateful for the confidence that our customers have placed in us and the dedication of our employees.
We remain focused on building a track record of successful execution and operating discipline across the business.
And with that let's open it up for questions.
The later.
Thank you at.
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As a reminder, we ask that you please limit to one question and one follow up.
One moment, please while we poll for questions.
Okay.
Thank you.
Our first question comes from the line of Tyler Radke Citi. Please proceed with your question.
Yeah.
Thank you for taking the question.
I wanted to ask you just around the overall deal environment Youre seeing obviously.
Nice set of results and.
Our outlook as well, but I guess, specifically are you are you factoring in the.
The environment getting worse for the second half and then.
Just help us understand what you're seeing on pipeline too.
We've seen some of your peers like Salesforce Dot Com talk about maybe some pipeline generation issues in the back half of the year I'm just curious what youre seeing on the pipeline side as well. Thank you.
Alright, Thank you Tyler.
No.
We like I said in my prepared remarks, we are seeing incremental scrutiny.
In in deals.
Sir.
The enterprise the larger and we're seeing another set of eyes CFO spending an extra day looking through it.
And we did see that our deals were a little more backend loaded in the quarter than they traditionally are.
However, we're seeing demand continuing to be consistent and robust what do I mean by that.
Businesses.
Want to save money when things are uncertain and things get tougher. So we help them increase revenue reduce costs and help manage risk better by processing external data give them visibility into what customers license and they don't like.
So we're seeing demand strong but deals are going through more reviews.
And while we did not see that in last quarter affecting our numbers.
We have to be cautious and watchful of the macroeconomic changes in the next two quarters.
That's helpful and maybe if I could just ask about the competitive landscape. Obviously you have a.
Environment, where the funding for private companies.
Nearly as robust as it.
In prior years.
And then you also have what seems like an appetite for larger customers to consolidate solution. So just curious if you've noticed any uptick in win rates or you think some of those.
Competitive factors are or are helping drive.
Your results here. Thank you.
Tyler, we didn't see anything pronounced and different in the last quarter, but our entire value prop is that we go into.
And enterprise with one unified platform with four product suites for customer facing functions and 33 products.
In one of our typical larger deployments, we usually take out somewhere between five and 25 point solutions around the world. When we are done with our deployment in the first 12 to 18 months.
So we're continuing to benefit from that because that's our value proposition.
Unification has a value proposition, but to answer your question directly we didn't see the funding dry up play into our deal dynamics at least not in the last quarter.
Great. Thanks for the color.
Absolutely.
Our next question comes from the line of Michael <unk> with Wells Fargo. Please proceed with your question.
Hi, There you got Michael Berg on for Michael Congrats on a great quarter.
<unk> systems will be installed in your script.
Can you talk us through where you are getting your margin improvement.
And how we can think about the margin improvement as we look into not only the second half of this year, but moving into fiscal 'twenty four and beyond.
Hi, Michael This is many so we're getting operational improvements across the board. So you would've seen us.
Gross margins pick up so as I said in my prepared remarks.
73% gross margin was the highest we've seen here on the subscription side, we were at 81, 2% and again a lot of this is just methodical looking at where we can nip and tuck. We've always said once we hit scale, we'd be able to improve our subscription gross margins with what we did.
And then on the operating expense side I've said this in the last two earnings calls that we will look to get more efficient as we scale the business and our view always was ever since we went public but once we hit a 25% plus or minus growth rate, we would start focusing more and more on marginal production.
The video of every individual that we have in the business and we've been we've been doing that all the way from looking at non people costs. These could be real estate be it could be other investments, including how we're onboarding employees and how we are now focused more on making them more productive versus just keeping.
A very high rate of.
Employee addition into the business. So I think all of these things in the aggregate as what Youre seeing now dropped to the bottom line and we had been speaking to that over the last couple of quarters and now we're seeing the benefits of that.
Thank you and a quick follow up.
Going to point to this is probably is too low numbers, but you saw a nice little uptick in the odds of $1 million customers anything to point to in particular, whether it's.
Just getting.
Getting pulled forward or the strength to your product breadth or depth, just curious on that front as well. Thank you.
Hey, Michael that's fairly consistent I think with the evolution and maturity of the market.
And where we're seeing a gradual but very noticeable uptake in companies wanting to buy into the vision and the strategy at the outset.
Because if you know when when we IPO are our story and if you look at our past. The story has been we come from the social media management World and most companies saw such as social media management product and they got started that way and they expand it out we're beginning to see an awareness in the marketplace.
The need for the third platform.
One that complements the other two biggies in the front office space.
I'm very pronounced and we're seeing customers entertaining the notion of buying into the platform approach from the get go or much faster than they did traditionally.
Thank you very much.
Thank you. Our next question comes from the line of Raimo luncheon with Barclays. Please proceed with your question.
Thank you I've got two if possible.
Can you talk.
Think about the changes in sales leadership, that's kind of where I got most of the questions from obviously five years is a good time, but it does look like momentum is increasingly et cetera.
Why that they'll know what change now are we expecting any changes as a result of that.
That would be my first one and then I have one follow up.
Right well you answered the question yourself five years is a long time for us that would be COVID-19 I couldnt, even to Luca who is partly retired and was consulting and doing doing stops I told him we needed for years to get those teams that up.
Look at the fact that he promoting somebody he hired any REIT I don't know what else I can point to.
And look what we made the decision to go public with the team that built the company because they knew everything about everything and could provide continued in this transition well you're seeing us as a normal growing up of a company. That's that's scaling up and grow in and go into the way it should.
Nucleus, a friend or family personal friend of mine is going to be an adviser and are continuing to work with us.
Yes, Okay perfect. That's really helpful. And then the follow on question was sorry.
Well Im sorry, I just want to also add that and Paul Oleds, who has been groomed and hired by.
By Luca is has been running worldwide sales for us already so if you just look back and and and and look at how we've been transitioning at this is this is I think the smooth as anybody could have done.
Yeah, Yeah, Okay perfect. That's Super helpful. And then the follow up with them as we go into more volatile times. It's good to see that you guys havent seen that much have you kind of changed anything in terms of sales approach that you kind of are looking for higher pipeline coverage, obviously in tougher times people look more of a consolidator.
Vendors, which would play into your into your fever.
What changes have you taken to kind of prepare yourself for what's going on here. Thank you.
Again, you know that we.
We think we're on the right side of history through these transitions as painful as they are and I hate to even saying that the way I did.
But I think the trend towards consolidate and getting the big platforms to work with each other is the one way.
So we are we're definitely benefiting from that and where.
We're continuing to see companies wanting to do strategic deals and so we're not.
All of that is pointing in the right direction for us what are we changing our sales approach not really anything except the fact that as we go through and scale. We are maturing the process I've always said to you that our go to market approach will have to continue to evolve because our pedigree is in.
Selling to large global companies with the direct sales so.
Around our CMO started a few months ago, and so youre going to see you're continuing to you will see our marketing and our sales evolve and evolve together from a demand Gen top down you will see our partnership and the things that we're going to do in building out we've got a great alliances program, how do we build that out these are things that as.
Companies mature into the billion dollar range of IRR that you have to do and we're a little bit late night like but we're going to catch up.
Yes.
Thank you. Our next question comes from the line of arguing Bahia with William Blair. Please proceed with your question.
Perfect. Thank you for taking my questions.
Actually one for you maybe you know obviously, there's a lot of focus on how the macro might unfold and what that means for your business, but I'm curious as you look at your product portfolio, where you have these four phase III do you anticipate the increased uncertainty that's out there changing demand for specific products right as customers focus on different.
Areas of investment how does does care become a more important area of investment in marketing and advertising maybe less so just curious how you see that playing out.
That's a very good question Arjun and thank you for that.
Look I think we.
We are anti value prop is that the platform is unified built from the ground up on one code base with Workspaces and workflow.
In.
Whole bunch of things, which we think are very unique in the entire enterprise front office.
Software space so.
For us the key question is not which product is slowing and which product is is growing.
To understand that I wanted to understand the two things. We are doing we are creating next generation AI based truly omnichannel customer facing capabilities, whether that's in care or whether that's in marketing. Okay. So when you use our care suite, we're displacing probably 5% to <unk>.
<unk> solutions point solutions in that and we're doing the same thing in marketing. So we continue to benefit in the across our product suite now.
We've been public and the fact that we see care as a great opportunity and that's a strategic priority for two reasons first reason, we see this contact center refreshes began to spike.
The contact center space is really very it's.
It's been around for 40 plus years. So people are trying to figure out how to consolidate data centers and how to move to the cloud and when you're disrupting and you've taken apart what's been working for you you're always looking at not just how do I catch up but what's coming next and people are buying into this vision I remember a couple of quarters.
We talked about this large Asian bank that went live with our voice capability and I'm pleased to report today that they've actually gone live in multiple sites and boy. They are seeing some really good results and you have to really take this apart to understand the power of this transformation.
With our solution you can start on the phone Chris One press to go through your IV or get to a human being and when you get under the call you have to hang up and you pick that conversation backup and email we can preserve state in context within the channel across channels. If you chat with us I can see and many of them.
Solutions that cat doesn't and then restart when you come back we are persistent context that specifically comes from the Omnichannel architecture. So our first suite of customers as a customer in the middle East that has 2000 stores.
Franchise American brands and have 2000 stores in different countries for the first time after going live the hard wired their contact center to the restaurant.
You sit there in a place I had at the table and you have a problem in Youtube tweeting youre not expecting anybody to kind of youre thinking youre talking to or one 800, operator, they now have the ability across channels across languages using AI to route that understand the intent of route that to the store and <unk>.
The manager come out and have so these are like I always think of our educated investors our best investors I would encourage everyone on the call to talk to customers.
So we're not we're not talking about let's remove two or three point solutions, we're getting pumped up thinking about what we're doing here.
Yes, that's really interesting and very helpful. Thanks, Rajiv and then.
Just a follow up termination.
If I look at just your margin guidance and even during the current quarter results. It seems like you actually had a.
Quarter over quarter sequential decline in total sales and marketing spend as we look out for the remainder of the year and possibly into 2020 for fiscal 'twenty four as well where do you anticipate the biggest portion of leverage.
Come from.
Over the next four to six quarters.
Yeah. So that's a great question.
I think for FY 'twenty for official guidance, you'll have to wait for the December earnings call you might get some prelim guidance at that time, but I think your observation is this dude.
I did call out even in the prepared remarks that the biggest area of leverage we would see is in sales and marketing and again. This just goes back to marginal productivity. So some of that will taper down.
We're obviously looking to generate a very healthy level of growth, but do it in a manner, which balances board.
Growth as well as what drops to the bottom line, so youre going to see that arc continue for the remainder of this year.
On the bottom line, we're obviously alluding to a $5 million operating profit here in Q4.
And I don't think it would be a stretch to assume that.
As you look at FY 'twenty four you would see that continue as to exact numbers, we will talk to that in December .
Got it Nevada very helpful. Thank you.
Yes, that's very helpful. Thank you.
Our next question comes from the line of Michael <unk> with Keybanc. Please proceed with your question.
So first of all congrats on the quarter, probably obvious reasons tough environment great performance.
As to say.
It seems a little bit of love to keep going.
Youre welcome.
So a little bit like to keep going in the sales and marketing and tight margin direction and just trying to understand.
Yes.
Quantitatively.
Youre going to see more.
Efficiency productivity, but what's happening in terms of go to market in terms of focus on direct sales, where you are coming back from relative to the catch up.
Any changes that might be taking place.
Maybe some efficiencies to come out of the light offerings, what is really enabling that change in productivity at a very concrete level right now.
Let me, let me kick it off and maybe <unk> can add details.
Michael We you know in our earlier years as we're building the platform.
Our primary.
Primary focus in growth was adding capacity and I think what we've done and we have to add capacity because ramping takes a while right as you know in our space and enterprise software sales across the board.
So having done that what we've done is we've built enough capacity and then now we're focused on productivity and so that's what you will start seeing and I think it'll take us a few more quarters to get that capacity and productivity focus.
Weighted right and then we'll be able to kind of.
It gives you a long term where it should be but there's no reason for you to do.
Seeing that we would be anywhere less and best in class in the long run.
Yeah and to sort of add toward Roger you were saying Michael It it's nothing more complicated than it takes a certain amount of time for reps to ramp up and I think historically in a low interest rate environment. There certainly wasn't any.
A real need for companies to start focusing on what's.
The marginal productivity of a rep, how do we make sure it gets to a certain threshold.
And there was sort of all the reason to go keep adding the capacity because the whole aim was to generate a much higher growth rate and our view is look we want to get to a very healthy growth number that we believe we can sustain over a long period of time and in terms of adding additional capacity, we want to be extra thoughtful with.
Rather focus our energies on enabling the existing teams in place getting them to be more productive.
Adding more resources around enablement, adding more resources around getting them.
More leads more pipeline and more productive back again to that phrase then sort of adding additional capacity at the margin and we're sort of getting a lot more methodical about it than we were before.
Great Thats helpful exam done more color yeah. That's helpful. And then just sort of a clarification.
It was interesting you said that the renewed strong renewal rates and renewals came earlier in the quarter driving revenues, but new business in the quarter. It was more backend loaded.
No.
Why is that.
New business was more backend, but renewals earlier.
Yes, so that's it.
That's a good question and I wanted to call it out because I wanted to sort of investors to dissect the revenue composition and understand why there was all of the performance in the quarter, So as Roger and I. Both said in the prepared remarks, there is extra level of scrutiny on the new spend I mean damn these cfos, but that's what they do.
And so we saw our last court last week of the quarter was was tremendous we did book the amount of business that we were looking to book, but it all sort of came together in the last week or so.
Now every quarter is different in terms of the cadence of renewals and Q2 was one of those quarters, where a lot of our big customers were slated for renewal much earlier in the quarter. So so when we build our our financial models.
We're not down to the individual customer and Theres, a certain puristic, we used to figure out where things will land and given that we generate a lot of our new business in terms of upselling to existing accounts given those renewals are much earlier in the quarter a lot of the upsells into the accounts into those accounts happened in the <unk>.
First or second month, so we've picked up additional month or two of revenue, but a lot of the non renewal business from new accounts happened in the last week of the quarter. So if you net the whole thing out that's the $3 million in over performance compared to the midpoint do you see for the quarter. So I wanted to lay all of this bear so people understood how the.
Sausage is made.
Makes sense.
Well, let me add one other perspective, we used to be.
Our fiscal year used to be calendar year, and so the accumulated book of business that as we switch to January 31st year end.
That book of business kind of renews early right in early in the quarter. So this is some historical context to how sometimes renewals are in line with where we see the new business expansions.
Got it thanks very much guys congrats again.
Oh, thank you.
Our next question comes from the line of Elizabeth quarter with Morgan Stanley . Please proceed with your question.
Great. Thanks, so much I wanted to ask on the IRR was really impressive to continue to see that performance, especially in light of hearing other companies talk about a more challenging environment.
Could you unpack some of the improvement in the IRR between cross sell cross sell upsell and how should we should think about the continuation of trend through the rest of the year and did that renewal business that you. Just highlighted is that any sort of onetime impact at all or we should think of thank you.
Okay.
Yes.
R.
Our primary focus has been Elizabeth ups.
Upsells and growth within existing accounts.
Can you explain the strategy behind it and then <unk> can add more color.
We know we are attempting to do too much 33 products for a company that.
13 years old and most of it was built organically pretty much all of it.
And so we know we're attempting to do too much. We know we're chasing a very very big and powerful vision. So it was and it is always been very important for us to focus on a segment and make sure that they are getting very measurable tangible value from this bigger investments they are making.
And us as a platform so that was the strategy behind going to the very very top biggest companies. If we can solve the biggest and the most complicated use cases and situations and show Rois. We think it's much easier to simplify make itself servicing all that it's a admittedly a different strategy than many other companies, but thats, what we chose to do so.
Our customers.
Our larger customers have always been buying more and more of sprinkler and that's been a path to grow having said that we are now at a point. After 13 years were the core capabilities of the platform has been built out and his supervision bowl and a super clean and customer.
Sure happy and Theyre buying more.
So it is time for us now to start putting a lot more emphasis on new logos and you will see us in the next I'd say two to four quarters slowly, but surely increase.
Increase our investment in new logos.
Yeah, and just to add to that so I think as we've alluded to earlier, we don't have an internal and out or net dollar retention target.
Given that we tend to start with one product suite and then over time as Roger was saying customers do eventually end up at the unified CX and platform. So historically become fairly adept at trying to sell multiple product suites to those accounts.
As you see that in the 98 customers with more than $1 million in subscription revenue over the last 12 months.
The other thing I just wanted to make sure was clear.
And our our metric for us.
It is a trailing 12 month on a recognized revenue basis, not a IRR, so sometimes that does confuse people and.
And back to the earlier comments I made around growth retention. We're obviously best in class. So there is a number of these things that are coming together and as Raj you were saying that was one of our underlying premise that we can bring bigger accounts to a full product suite and platform over time, and we're obviously transitioning more and more to adding new <unk>.
Logos into the mix now.
And again this is we're not going to divulge too much more but we now have multiple customers that payers over $10 million.
And IRR. So that's that's where we're going with this and we will emphasize our new logo motion going forward, but we're very comfortable with where we are.
Got it. Thank you so much and then just as a quick follow up last quarter, you introduced a new CMO any early learnings or initiatives as it relates to that go to market notion.
Selling his addition X.
We're excited about arent being here is already made such a big difference now obviously had to strike by putting together his team and so it's very very early for me to declare anything but directionally I think where we're doing some of the fundamental things that I know.
Companies, one fifth the size of Dunbar.
So we're behind the eight ball on it and we will catch up Elizabeth.
But you should expect more and better and the next I'd say two to three quarters.
Yeah.
Great. Thank you.
Our next question comes from the line of pendulum Bora with J P. Morgan. Please proceed with your question.
Great. Thank you for taking the questions and congrats on the quarter guys.
Rajiv you talked about and one of the answers I think the contact center refreshes are spiking you had it voice capabilities recently I believe.
Is that helping.
Helping you on the <unk> side is that acting as appeal and.
So that modern care business, how are you approaching that market.
Is the competitive dynamics changing for you because of that.
Sure.
We expect that to be and we're not yet benefiting from it. So just know that the CCAR spaces very ambitious venture of Irish we've invested a lot of time and energy into it. We think at this point, we have a very competitive product.
We've had multiple.
Company's score is high very high even compared to very seasoned vendors on technical capabilities, but as you know that's not how the market works.
We have to kind of get a few implementations under our belt and we have to then get into the analyst waves and be known as the C gas vendors. So we're kind of in the early stages of that as well we are expecting that to be a significant opportunity for us and we are continuing to prioritize it.
Yeah.
Got it thank you.
And one for Manish.
I look at the deferred revenue it seems.
It seems like the revenue and the balance sheet has the sequential draw down but <unk> grew nicely.
Actually on a dollar basis is there anything to call out between those two dynamics is it just because of the backend loaded nature of the quarter that some deals might have got booked but not billed.
Okay.
So if you can provide.
Yes, so that's a great observation pendulum if you look back over the last six to eight quarters.
You see that our deferred revenue actually doesn't have much of a trend line Unfortunately and Ah.
A lot of this is like you alluded to we book all of the business that we get and this quarter was particularly back end loaded so billing some of it takes time and that obviously it doesn't get into the deferred.
Number.
You are correct that and obviously as I was saying earlier, our billings given the mishmash of monthly quarterly semiannually annually. The billings trend line isn't as clear cut as one would like and that's part of the reason we are always focus investors on look at subscription revenue and its growth as well as <unk>.
<unk> growth is the key driving factors in the business.
Does that makes sense, yes.
Yes, absolutely. Thank you.
Thank you. Our final question comes from the line of Parker Lein with Stifel. Please proceed with your question.
Yeah, Hey, guys. Thanks for taking the question and congrats on the quarter I'll just keep it at one of the interest of time looking at EMEA and other it looks like it grew a touch slower than the Americas business. During the quarter. I know you said FX isn't really a big consideration in your business anything to call out in international markets from a demand environment or sales cycle.
Perspective relative to the Americas.
Parker the short answer is no.
We're not seeing any macro.
Economic change.
Changes affect.
Our geographic distribution tends to be.
It's pretty consistent with what it was and any change that we're seeing is just attributed to can be attributed to operations and leadership and the changes we're making internally.
Understood appreciate the color. Thanks.
Thank you ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call back over to Rajeev Thomas for closing remarks.
Thank you Alex and thank you all for joining us today I'd like to thank our employees partners and most of all our customers for their business and their continued trust in us as we develop this category. We look forward to updating you all again soon.
And as we continue our exciting journey.
And building this category.
Whose rides we know is inevitable. Thank you all and talk to you again soon.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Yeah.
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Okay.