Q3 2023 Sprinklr Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Sprinklers third quarter fiscal 'twenty 'twenty three earnings conference call. At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session.
Please limit your questions to one with one follow up so we'll have time to go through all the questions. Please be advised that today's conference is being recorded.
I would now like to hand over the conference to our first speaker today, Mr. Eric Crowe Vice President of Finance for introductory remarks. Please go ahead Sir.
Thank you Diego and welcome everyone to sprinklers third quarter fiscal 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 S. E T and we've made the avere.
Well on the Investor Relations section of our website, along with supplementary investor presentation.
Please note that on today's call management will refer to certain non-GAAP financial measures. While the company believes these 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.
The release and supplementary investor presentation for a reconciliation of such measures to GAAP with that let me turn it over to Rajiv.
Thank you, Eric and Hello, everyone. Thanks for joining us today as we share the financial results of our third quarter in 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 Manish will then share details of our financial results turning now to the quarter.
I'm very pleased to report that Q3 was another strong quarter that exceeded guidance.
Q3 children revenue grew 24% year over year to $157.3 million and subscription revenue grew 27% year over year to $139.9 million.
And with our commitment to operational efficiency be generated 6.9 million and non-GAAP operating income for the quarter due to prudent financial management and greater operational disciplined company wide.
Before providing key takeaways from this quarter I'm excited to share that we have appointed the former Chief revenue Officer of service now Kevin have a D to our board of directors, Kevin joined test at an exciting time in Springfield, Johnny and his experience will greatly benefit our go to market execution something that we have.
Very focused on now Kevan currently serves as a senior advisor to the CEO at service now and has been a C. R. O. There under three different Ceos I also want to thank Matt Jacobsen partner at iconic capital who has retired from our board after serving us but eight years.
Iconic joined as an investor in springboard into very early days and help charter of course back that we are very appreciative mats contribution and I wish him all the best.
Now moving onto Q3, I was fortunate to move meet with well over 100 customers around the world from across the U S to India, Singapore, South Korea, Dubai, Mexico, the excitement of brands transitioning from point solution chaos and customer facing functions to spring flows.
Unified CX and platform is truly palpable if you talk to these customers and the results. They are seeing in terms of reducing customer service costs, increasing revenue by making that AD dollars and marketing dollars work harder and innovating faster, while mitigating risk by listening to customers in real time, it's truly inspiring.
Our new storyline that is clearly emerging in these conversations, especially from our newer clients is how sprinkling AI is helping motto and automate omni channel journeys that can potentially eliminate the need for human service agents by up to 95%.
For some use cases, while improving customer satisfaction scores at the same time. This use case is real at Ara Max the largest multinational logistics provider in the middle East that someone referred to me as the Fedex or the U P. As of the Middle East, who recently consolidated their digital contact center.
Back onto sprinkler I met their group Vice President of Technology, and Dubai. It was great to hear how they've been able to automate 95% of the resolution for several common customer inquiries using sprinklers, AI chatbot and automation, while continuing again to improve see sat scores.
While we continue to win deals across all our four product suites across a variety of industries more than a third of our bookings in Q3 came from our customer service suite or our modern care suite, where voice, let's see cash was a key driver for US we are pleased with our momentum in this space.
And are confident that technology and our pace of innovation will further differentiate us in this very interesting marketplace. We believe that you can have great customer experience management without great customer service.
However, the current macro environment is leading to delays in purchase decisions and longer sales cycles and like many other enterprise software companies. We did experience additional pressure on deals in Q3 versus Q2, particularly in Europe , we expect these longer sales cycle.
And tightening of budgets to continue in light of global uncertainties.
While we can't control the macro climate, we can control how we manage the fundamentals of our business you will see us continue to focus on delivering value to our customers and generating a clear path to profitability for our shareholders as we go forward.
Since founding spring like we've been clear that the market will move from point solutions that don't work well together.
Handful of best of suite platforms that become a more and more tightly integrated furthering our intention of becoming the third or fourth major front office platform for the enterprise in Q3, we announced an expanded partnership with Salesforce and Accenture and.
Apprised customers will now be able to incorporate their massive CX dataset within sprinkler there with their C. D P and CRM datasets inside Salesforce and Accenture is a key partner in our go to market strategy. They are the experts in helping brands bring technology and data together.
To deliver best customer experience this is Bob.
We're also actively working with sales force to support customers through their transition from social studio to sprinkler. This work has been well underway. This year and we're seeing positive momentum from those customers. During the third quarter, we continued to add new customers as well as <unk>.
Span with existing customers.
Some examples of these world class brands include Geico hymns, Honda IPG health and Overstock I'd like to provide a few examples of how customers are currently using sprinkler across our product suites.
Minder. These suites include our modern care suite modern research suite, our social and sale suite in our marketing and advertising suite, let's start with our customer service offering the modern care suite.
In Q3, one of the largest global consumer software and hardware players further expanded their partnership with sprinkler by adding over 500 more care agents doubling their current agent count to over a thousand they're now supporting 60 of their product lines across 16.
Wages on modern channels using sprinkler and their agents support has gone from 90% coverage in one hour to 95% coverage in under 30 minutes with sprinklers AI studio, they're also achieving over 95% accuracy, which is reduce man Oh man.
It will processes significantly since first becoming a customer in 2014, they're now using 24 sprinkler products across all four product suite.
Another Great example of impressive customer service result for US is with one of the world's leading <unk>.
Global streaming services. They conducted an extensive RFP process with 20 of today's leading C cost providers to selected technology partner that they could use to help transform their legacy gas infrastructure that currently has around 5000 agents.
They chose sprinkler.
And in large part because of our full set of <unk> capabilities on a single unified AI based platform.
And also our architectural flexibility to integrate with their large number of homegrown tools that exist currently.
Turning to modern research this quarter, one of the largest food and beverage companies in the U S expanded its partnership by adding product insights to their already expansive portfolio of sprinkler products. They chose our product inside solution to access competitive insight and better predict the success of the current and.
Future product lines in the marketplace you by using our AI they are creating a real time closed loop data.
That connects.
This of the customer feedback to their product and their customer service teams moving to our social engagement and sales suite in Q3, BMO one of the largest banks in North America expanded its partnership with us adding over 2200 users on a distributed product.
If you recall, our distributed product for us as a key product that's used in the financial services sector for advisors to engage with and sell to their customers across modern digital channels in a compliant way very essential if you're in one of the regulated industries like financial services.
In 2019, the unified seven point solutions onto sprinkler and today they have scaled to nearly 8000 distributed users and 25000 seats for employee advocacy BMO is a showcase of what can be done by a financial institution across social selling employee and exec.
They've advocacy when branch social enablement.
Lastly, global technology leader Siemens expanded their partnership with sprinkler this quarter by adding 150, modern marketing and advertising seats within four years Siemens is consolidated eight siloed solutions into our unified exempt platform today nearly 2000.
Communicators in more than 60 countries work from the sprinkler platform everyday to plan manage distribute and optimized content across social web blogs and email rounding out on the product friend I'd also like to share that we continue to make progress with our light products in research and care as we have stated.
Previously the goal for our light products is to accelerate and drive greater efficiency in our inbound demand generation efforts. This is a self serve way for enterprises to try and easy to use lightweight version of our platform free of charge, which we see as a gateway for companies that are at the earliest stage of their digital journeys.
Before wrapping up I'd like to applaud our customers for the work, they're doing to improve their customers' experiences and for co creating unified customer experience management asset category.
I also want to celebrate sprinklers incredible engineering team, who make all of this possible. They continue to innovate at a breakneck pace and speed that differentiate sprinklers platform in the marketplace, whether it's improving our proprietary AI every day or taking on a channel like voice that has reversed.
40 years of maturity and to seek out space or making user expedient simpler. This team shows no fear regardless of how daunting challenges.
In closing I lie.
To reiterate that we remain focused on the fundamentals in our business. We will continue to execute on our fishing growth strategy balancing revenue growth and profitability, while being disciplined about our strategic hiring and expense management, but we will also stop at nothing to provide.
The innovation our customers deserve.
Our collective belief has never been stronger brands want a no compromise unified approach to create better customer experiences at the edge of their brand.
And that.
The emergence of unified CX M. As a category is inevitable. Thank you to all of you our customers partners employees and most importantly investors for believing in that vision with that let me handover the call to manage.
Thank you Roger and good afternoon, everyone.
As you heard from Rajiv, we delivered another strong quarter across the board.
Beating expectations across all key financial metrics.
Our third quarter results demonstrate our ability to generate strong growth with a clear path to profitability.
We are benefiting from multiple long term tailwind that we believe will support our business for the foreseeable future, namely 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.
However, we are not immune to the current macroeconomic environment in the short term.
Many of the macro trends that we saw in the second quarter worsened through the third quarter with a general tightening of budgets for both new and existing customers.
In addition, during the third quarter, we saw the operating environment becomes increasingly challenging most notably with a more pronounced slowdown in our EMEA business.
Turning to our financial results for the third quarter total revenue was $1 57, 3 million up 24% year over year and slightly above the high end of our guidance range.
This was driven by subscription revenue of $139 9 million, which grew 27% year over year also above the high end of our guidance range subscription revenue outperformance was driven by more new business closed earlier in the quarter than expected.
Services revenue for the quarter came in at $17 3 million down marginally from the recent quarterly trend.
This is driven by a focus on margins for our services business as we have been thoughtful about not taking on lower margin services business.
We will continue to actively manage our professional services margin, which may impact the absolute level of professional services revenue moving forward.
Our subscription revenue base net dollar expansion rate in the third quarter was 125% consistent with our Q2 results.
I had alluded to this earlier as we have continued to be successful in upselling existing customers at renewal time, as we drive significant new business from existing accounts.
This metric continues to demonstrate how strategic the sprinkler platform is for our mid to large enterprise customers and how we expand with them as they mature.
Our gross renewal rate in Q3 was again on par with leading enterprise software companies. We believe this high renewal rate coupled with the expansion in our installed customer base is a testament to how important sprinkler is to our customers daily workflows.
This should also provide further evidence that sprinklers position in the front office software suite remains resilient, even in a potentially recessionary environment.
As of the end of the third quarter, we had 107 customers contributing $1 million or more in subscription revenue over the preceding 12 months, which is a 34% increase year over year.
Our platform and the traction we have with the world's largest and most valuable brands continues to grow.
A reminder, we calculate this customer count using $1 million in recognized revenue from these customers on a trailing 12 month basis as opposed to <unk>.
Turning to gross margins for the third quarter on a non-GAAP basis, our subscription gross margin increased to a record 81, 4% as we continue to drive efficiencies in our cloud operations, leading to a total non-GAAP gross margin of 74, 7% another record.
For us here at Springfield.
Our professional services non-GAAP gross margin came in at approximately 20% much higher than in recent quarters as we have become more selective in taking on new services business, yes.
To meet the non-GAAP services gross margin to be in the mid teens for Q4, which we believe could be a sustainable level moving forward.
During the third quarter total non-GAAP operating expenses increased.
Eight 5% year over year to $110 5 million, representing 70% of revenues.
This is in fact down from 18% of revenues during the same period last year and total non-GAAP operating expenses are down $4 1 million sequentially.
We continue to generate efficiencies in sales and marketing, which is reflected in our results this quarter with 750 basis points decrease year over year.
We also continue to generate operating leverage from G&A, which decreased by 200 basis points of year over year.
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 in FY 'twenty three were partly the result of catch up investments from prior years due to the unknown impact of the pandemic 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 moderate in the coming quarters.
Turning to profitability for the quarter non-GAAP operating income was $6 9 million or <unk> <unk> per share on a non-GAAP EPS basis.
This 4% operating margin for the quarter was the result of revenue over performance improved gross margins, coupled with operating expense discipline across every department.
This was also the first quarter of positive non-GAAP operating income since Q4 of FY 'twenty, one and we achieved positive bottom line performance one quarter ahead of our street guidance.
To that end in terms of free cash flow, we had a marginal bond of $1 7 million during the third quarter compared to a burn of $4 1 million in the same period last year.
The free cash flow improvement in the third quarter was driven by ongoing operational improvements slightly muted by the timing of our billings and subsequent collections.
And as mentioned on prior calls given the seasonality and low duration of our billings, we estimate that adjusted free cash flow will be negative here in Q4 and on a full year basis for FY 'twenty three.
However, we remain committed to generating positive free cash flow in FY 'twenty for on a full year basis and improvement on what we have communicated on our previous earnings calls.
We ended the quarter with a very healthy balance sheet, including $544 million in cash and investments and no debt. This puts us in excellent shape to continue investing in strategic initiatives that will drive growth in a profitable manner.
Calculated billings for the third quarter were $138 4 million, an increase of 19% year over year.
And just as a quick reminder, our third quarter billings have historically been the lowest quarter for us given the quieter summer months in Europe , and the general timing of our renewals.
The dynamics of our billing trends as outlined on the last few earnings calls, notably the seasonality, we expedients with Q4 being the highest billings quarter in our overall billing cadence, having a duration less than 12 months remains in place.
For the first nine months of FY 'twenty three calculated billings are up 22% compared to the first nine months of FY 'twenty two.
And as noted previously and reported here in the third quarter, 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 remains the same.
As of the end of Q3 total remaining performance obligations or RVO, which represents revenue from committed customer contract that has not yet been recognized was $586 1 million up 28% compared to the same period last year, while current RPM.
Was $422 million.
<unk>, 7% year over year as.
As expected the third quarter, there's a seat in a seasonally slower quarter for both.
<unk> given the timing of our renewals.
We continue to believe that subscription revenue and our peer 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 over the needles and the duration of customer contracts.
Moving now to our Q4 and full year FY 'twenty, three guide and business outlook.
As noted on our last earnings call, we face tougher comparisons in the second half of the year given the strong growth we have demonstrated over the last three quarters of FY 'twenty two.
We also recognize that the macroeconomic environment has worsened in the third quarter with additional scrutiny along with tighter budgets on new spending given this environment, we're taking a prudent view of the near term growth expectations for Q4.
Starting with Q4 FY 'twenty three we expect total revenue to be in the range of $162 3 million to $163 3 million, representing 20% growth year over year at the midpoint.
Given this we expect subscription revenue to be in the range of $145 5 million to 146 5 million, representing 24% growth year over year at the midpoint.
We expect non-GAAP operating income to be in the range of 6 million to 7 million and non-GAAP net income per share of <unk> <unk> to <unk> <unk>, assuming 264 million weighted average shares outstanding.
For the full year FY 'twenty three we're tightening both our subscription and total revenue outlook for the year.
We now expect subscription revenue to be in the range of 545.8 million to $546 8 million, representing 28% growth year over year at the midpoint.
We expect total revenue to begin the range of $615 2 million to $616 2 million, representing 25% growth year over year at the midpoint.
Note that the full year FY 'twenty three guide is impacted by our decision to actively managed services margin moving forward impacting the absolute level of professional services revenue as previously mentioned.
For the full year FY 'twenty three we now expect a non-GAAP operating loss to be in the range of $1 3 million to $2 3 million equating to a non-GAAP net loss per share of four to five.
Assuming 260 million weighted average shares outstanding.
The non-GAAP operating loss for the year at the midpoint is an operating margin improvement of $34 million versus FY, 'twenty, two and a $44 million improvement versus our original guide for FY 'twenty three.
This is a result of our continued focus on operating discipline, specifically go to market efficiencies and better allocation of resources.
As a quick reminder, in driving the net loss per share for modeling purposes, and $9 5 million total tax provision for the full year FY 'twenty three needs to be added to the non-GAAP operating loss ranges provided.
We booked a $7 million tax provision in total for the first nine months of the fiscal year. Therefore, we estimate the tax provision to be approximately $2 5 million for Q4.
FX continues to be a very topical discussion given the macro environment. So I want to reiterate our position here.
<unk> does not have a material impact on our financials, because even though we have approximately 35% of our business outside the U S. Most of our billings are in U S dollars.
Before moving into Q&A I would like to provide some high level commentary on fiscal year 'twenty.
We will provide formal guidance on our Q4 earnings call sometime in March which is our normal practice, but given the uncertainty in the market. We believe it is helpful to give investors a view of our thinking for next year.
As you heard today long term demand trends and engagement for spring Clos remains strong.
However in the near term, we believe we will continue to be impacted by the current macroeconomic environment.
We expect the macro trends from the last three months to continue through FY 'twenty four resulting in further tightening of budgets and lengthening of sales cycles.
With all that said, we expect revenue growth to moderate in FY 'twenty four from the Q4 growth rate I just outlined.
Based on what we are seeing today, we estimate total revenue growth to be approximately 15% for the next fiscal year.
In terms of our path to profitability. We are proud of the improvements we have made over the course of FY 'twenty three.
We will build upon that success next year and expect to generate meaningful non-GAAP operating income that is at least equal to the non-GAAP operating margin. We just reported for Q3 FY 'twenty three.
And as mentioned earlier, we continue to expect to be free cash flow positive on a full year basis for FY 'twenty four.
Lastly, I would like to thank all our employees for delivering a strong third quarter during an uncertain macro environment and continued volatility in the financial markets.
Grateful for the confidence that our customers have placed in us and the dedication of our employees.
Main focused on building a track record of successful execution and operating discipline across the business.
With that said, let's open it up for questions.
Operator.
Thank you and at this time, we will conduct a question and answer session.
To ask a question. Please press star one on your telephone keypad.
And just a reminder, please limit your questions to one with one follow up.
Press Star two on your telephone keypad to remove yourself from the queue.
Once again to ask a question press star one on your telephone keypad.
Our first question comes from Raimo <unk> with Barclays. Please state your question.
Hey, this is breakout for <unk>. Thanks for taking my question I wanted to ask if you could walk us through any specific changes to make the go to market playbook.
Just given the recent sales leadership transition and the changed macro environment. Thank you.
Absolutely Raimo good to talk to you again this is being as I outlined last year has been a significant focus for the company and you you probably saw from our reason both director announcement to the changes that we are squarely focused on it.
We have an initiative in.
In the company across the board.
Which is our number one priority across the four priorities, we had set for ourselves and this years.
That is to make it easier to sell sprinkler and the way we look at it we have a business that is pretty world class retention rates and expansion rate, which just means that if we make it easier for customers to come in the door and for our field folks to sell and the business should grow.
Better.
We have a fairly comprehensive plan I'll give you a few high level details.
One is to move from selling products to vertical lies in cell solutions for each vertical that's a multiyear project. That's already underway two is to go from.
The focus and capacity to start focusing on productivity, which gives us a much more nuanced way to decide where to invest our dollars and traditionally we've been more focused on geographic expansion and we're going to switch that now to investing where we're seeing growth in.
Being a lot more prudent in where we put our chips on the table.
There's a lot more behind it but.
There's going to be increased focus on new logos forever with companies just considered a dollar is a dollar whether it comes from an existing account or a new account that we are making changes to have dedicated teams focus on new logos. So I'm not going to go through everything but there is a clear seven point plan that translate.
It's to about 12 different goals and Kpis and strength related to several hundred okay ours for the entire company.
Big priority for us.
Very helpful. Thank you Rajeev.
Thank you.
Thank you and our next question comes from <unk> Bora with J P. Morgan. Please state your question.
Oh, great Hey.
Hey, guys. Thanks for taking the questions.
One question on.
On the guidance for next year, it seems like you're calling for about 10 points. So maybe Roger you help us understand what youre hearing from <unk> in terms of.
How theyre thinking about budgets for next year are you hearing them.
Setting budgets lower dramatically.
Help us understand what's kind of guiding that guidance and maybe manish you can chime in with maybe some of the assumptions around expansion rates.
New business bookings, how are you kind of.
Building that guide.
Yes, I want to make sure that we are.
We're communicating.
What we were trying to communicate what you're seeing US do here is in my mind I.
I was taking a slightly more defensive posture for next year.
Well if you read.
Everything many said listen to him basically what we're seeing and we've taken the top line down a little bit and adding it to the bottom line.
And that I think is a prudent thing to do given what we're seeing in the marketplace today.
Can you comment on that before I really answered the question, yes, so pendulum.
Let's just quickly go through the math behind it so it isn't a 10 point decrease so consensus is 21% and I think we're saying as a starting point use 15% and the math there is very simple because based on what I see today. If you take the midpoint of the Q4 died that is a sequential increase.
<unk> of <unk>, 5% over Q3, and if you now apply that same 305% across the arc of FY 'twenty for fourth quarter as well.
Get to a starting point of just around 15% for next year and I think what we are saying before Roger adds more color is given the visibility that we have right. Now this would seem to be the prudent place to start and to the point that.
Raj mentioned earlier, the thing that I want to make sure people do take into account is that.
Demonstrated a 4% non-GAAP operating margin for Q3, and we are comfortable at this point, saying you could apply the same 4% for the entire FY 'twenty, four which will give you a significantly higher operating income number for next year. So said differently, we are turning the dial.
Based on what we can see today and we're obviously looking at seeing productivity an uptake in customer demand before we turn the dials back again, so if that makes sense I'll turn it back to Roger Yes. So you've been telling me your question on what I'm seeing in the marketplace. When gosh, you know I've been on the road nonstop and listen to what.
The C suite thing in every every continent.
What we are hearing them say is very very clear. We don't know just like we would sit here and we said we don't know how things are going to turn out so everyone's just.
Much much more careful and deliberate and intentional.
I mean, you all are following a ton of companies in the marketplace I think what you're hearing is doing and youre seeing our core.
Right.
A moderate from a defensive place, but the reason we're not swinging from a like a 40% growth down to 18% growth is because we have a very balanced portfolio of product suites full product suites that play in everything from customer service to marketing through voice of customer and research to sales and engagement that is.
What's really helping us cushioning this up what we're seeing is companies universally wanting to save money and so the our ability and customer service to automate in self serve and bring down the cost while improving customer satisfaction and time to respond and resolve.
It is working really well marketing and advertising as you would expect that's not the hot area right now understandably a research product our voice of customer product feeds into our care. So that get the natural pull as care becomes more successful and our sales and engagement product again.
You know I would say is is very very modest in terms of our outlook for its growth for now.
A lot of things going on in the traditional social space, which we where we come from the <unk>.
Advent of read it as a major data source money moving to ticked up things that are going on Twitter, but the balanced portfolio is what's helping us and I alluded to.
Europe .
And what we're seeing in Europe in my prepared remarks, that's an example of a region for us that was slower to focus more on customer service and we have regions, where like the U S and the middle East, where we have swung a little more towards selling customer service and getting into <unk>, we're seeing more.
Much better success. So do we have a strategy to deal with it as we go through it and a lot of that is going to come down through execution.
Understood that's very clear thank you for going through everything.
Our next question comes from Michael <unk> with Keybanc. Please state your question.
Hi, This is Michael the Diavik on for Michael <unk> and thank you for taking my question.
Was wondering if you could comment what are you seeing in terms of customer size as high end enterprise growing better than the mid market or is it relatively the same for you.
While we we wouldn't know Michael we've been playing in the enterprise space.
Fairly squarely has been a lot of temptation to go down market something that.
We thought as a company and our strategy, which is something we're focused on so what I can tell you is large companies are spending money to save money large companies are spending money to mitigate risk and they are cautiously spending money to grow revenue is are they a little more tight fisted than they were a year ago, absolutely are we seeing that.
In Q4 than we saw in Q3, absolutely we are seeing in some parts of the world more than we have in other parts of the world absolutely.
I think it is it is much more muted compared to and I'm speaking from sprinkler expedient for broadly from friends, who were playing in the SMB space. It's a lot more muted than the bigger swings, we're seeing down market.
Okay, Great and then just one quick follow up for me.
Would you expect any pressure.
Average revenue per customer or initial deal sizes in light of macro headwinds or you're really not seeing that at this point.
Well you heard me say that our where.
Well, we have over 100, and 107 customers that pay us over $1 million right. So we have customers now multiple customers that pay us north of $10 million. So our strategy is not focused on that initial land deal all strategies.
Lending that customer that has the potential to keep growing keep paying us.
Hundreds of thousands and potentially millions of dollars. So we are less focused on the initial land deal and more focused on the type of customers.
Equally we have a list of 100000 companies and a list of 10000 companies and 5000 companies within that that's in our sweet spot and we keep expanding down from there.
To answer your question directly we're not seeing much pressure there.
But not in the volume game, so that might really explain why we.
<unk> answer.
Thank you and our next question comes from Parker Lane with Stifel. Please go ahead.
Hi, it's Max.
Parker line, Thanks for taking my questions.
For starters is there any single solution that you guys are seeing drive the majority of the customer interest right now or is it still a good mix of all of the core features.
This uncertain environment.
Yeah.
Like we said we saw.
<unk>.
Over one third of our bookings was in our customer service product suite, that's kind of what reflects our focus but it also reflects where the market's focused we are we're seeing excitement in not rip and replace Sekos, but really.
Kind of modernize the CCAR and then put automation on it and traditionally if youre doing it without sprinkler.
Working with our legacy gas player and then you're trying to bring a shiny automation or AI company into it which is fraught with a lot more integration and breakage points inside the infrastructure.
And so we're seeing a lot of excitement in automating customer journeys. If you recall, we talked about a large bank first to go big implementation and see cash.
It's gone really well.
Automated AP customer journeys.
Dan.
We talk about our other customers most of them are on this journey of identifying modeling and automating at least the low hanging fruit when it comes to service enquiries. So that's something that we're seeing a lot of excitement.
<unk> channel is something that we're seeing a lot of excitement around.
Customers looking to I talked about at IMAX in my prepared remarks.
He said to me it was fascinating he said look whatsapp would vary.
Important channel for their customers and before sprinkler.
It just really didn't have an SLA. So you could try to reach them on Whatsapp and your inquiry maybe unanswered for days.
From there because of the bot that now services Whatsapp is the gatekeeper their first responses in eight seconds and many of their use cases are completely handled by the box or seamlessly hand, it over to the human and back.
But when there's human and watching what.
So those are the areas, we're seeing excitement.
Got it and then thinking about the comment.
Made earlier on the outlook for 2004.
I understand waiting for demand to improve before kind of dialing up the spending is there.
<unk> will see a decrease in margins once that time comes or are you guys committed to margin expansion kind of trigger long run.
Yeah, we're committing to margin expansion, if you're referring to gross margins and operating margin.
We're committing to that for the long term what we are seeing though is given the limited visibility that we have and given the preponderance of factors that are beyond our control or ability to.
With a different number.
If that makes sense.
Got it thanks, that's it for me.
Our next question comes from Elizabeth Porter with Morgan Stanley . Please state your question.
Great. Thank you so much and thank you for all the color on next year that was super helpful.
In your comments you highlighted customers focused a lot on saving money, especially with single module efficiency with the customer care.
But we're also hearing just broadly in the market who are willing to kill consolidates.
Okay.
It vendors to save more money. So I just wanted to get a sense for what are you seeing in terms of the willingness to consolidate vendors have displaced.
Other solutions and is that happening at a more accelerated rate or is that something that takes a little bit longer to play out.
With great question, and thank you for asking that and giving us an opportunity to highlight something that we've always believed in you remember we were the first ones to kind of keep using the phrase point solution chaos and traditionally. This is this is a major strategy.
For the company. So we're actually on the receiving end of that trend and Thats reflected in our.
Our net expansion rate of 25% that is reflected in our retention rates are once a customer is in and we know in many verticals. We have a clear path of how they should expand and how they should consolidate what I'll point out in our case is a transition that we seem to have made.
If you talk to US three years ago typically the companies, we were replacing where social publishing tools, social listening tools and advocacy tools and.
You know advertising tools and all that but what we are now replacing in the contact center is a different slew of subsystems like vendors with ticketing.
<unk> replaced with sprinkler.
Like a module from something like a nice is being replaced with our our AI and our sentiment analysis, our knowledge play basis, replacing another little suite.
Or a homegrown system, our self service community is replacing another community solution in all of this because it's a platform works very well together.
So we are now replacing.
AI is replacing a pure play AI, that's promising to automate the contact center. So we're taking a three to seven.
Contact Center point solutions, and that's a that's for me as I talk to customers. That's a interesting new phenomena, we're seeing a different set of competitors in that market.
Great. Thank you so much and just as a follow up I wanted to ask on the customers that are spending over a million dollars.
You actually saw an increase quarter over quarter or that was higher than what we've seen publicly not not a ton but.
I just think that surprising just given the environment you spoke to you about it harder.
You can find new logos and expand so what's driving kind of that that momentum selling that large customer strong how much of them yeah about landing a new logo a lot of big size vessels.
Customers have spending more consolidating on the platform.
Elizabeth almost all of that is existing customers consolidating spending more or what is driving that hard ROI like non negotiable a hard ROI every one of our expansion deals in the big ones are preceded by making a business case and that has a hard here.
How much youre going to say, here's how much you're going to automate here's how much money you can expect in <unk>.
Advertising dollar optimization here is what those insights pan out to do so our go to market and expanding is just very business gains driven and as you can imagine if someone's paying $5 million 710, there's no way we are retaining the way we are if thats not all backed up by.
Not just shiny objects, but hard dollars and so we're able to now take a use case show how an AI automation can automate at three of the agent's time to do other things, we're able to show how.
You can convert.
Unhappy customers are happy advocates and quantify the marketing impact there's a whole slew of models that we have developed that we we show and validate with customers if they sign off before they buy and we are increasingly doing a lot more proof of concept to traditionally its not something that we did increasingly because we're so.
<unk> and I encourage everybody on the call to call our customers and talk to them.
<unk>.
We're still confident that our technology is superior and the result is a very real we do a proof of concept and then thereby taking the risk of it.
Thank you.
And our next question comes from Rajiv Bhatia with William Blair. Please state your question.
Hey, guys. Thanks for taking the question.
Ravi I know you mentioned, new customers are becoming a priority and you're dedicating a team to that can you just talk about.
The timing before you start to see tangible results in.
Yes.
New customers land with that team and maybe put that into the context of this macro environment, where I think newer customers or maybe a little bit more hesitant to spend on new software solutions, how do you see that playing out over the next year or so.
Our June I'm, assuming it's you and you didn't change your name.
Yes that is right.
So yes, it's a great question.
Look I, we have not been disclosing new logos right on a quarterly basis the change <unk> made.
I can disclose that that number is on the rise and our early efforts to focus on that is panning out really well, there's a lot more to optimize but we're still kind of heavily weighted on up sells compared to new logos and we've made a lot of progress this year.
Our modeling and continuing to focus on making more progress next year, because we think the Tam. So big we are very encouraged by how customers.
You know behave once they are on them.
Understand what it is to work with us.
A dollar is a lot more valuable for us if it's a new logo and we're just going to invest a little bit more.
Yeah.
Okay got it that makes sense and then just.
In terms of care.
Impressive to hear that third of the bookings are coming from the care module. As you think about just the near term pipeline of that solution do you see that being more resilient than some of your.
Other suites.
You have especially as you look into Q4, meaning is that seeing less scrutiny from from executives and buyers then.
Then some of your other solutions.
Yes, we are have all confirmed that its a lot more of a slam dunk business case.
Much less.
You know risk factors.
And the reason if you recall argue in many quarters two three years ago, we basically started talking about Kevin.
Kind of focusing more on that again the strategy is always building the unified platform within that we think in the next few years Theres, a big opportunity coming up with everybody trying to lose contact centers to the cloud consolidate data centers.
And what's happening is the.
The traditional CCAR vendors put a lot of their energy into building that literally infrastructure.
10 years ago that was a differentiator can you keep the calls managed it falls can you keep the costs down and can you route a call.
And can you get the call and can you make the IV our work.
And today, we're in a place where that just got in my mind fairly completely commoditized right.
And to players like Amazon will continue to kind of make that as a part of the infrastructure and we got lucky in that 13 years. We've just been building the app layer, making the agent more productivity more AI to working in understanding conversations and responding back somewhat.
And.
Picking up all public data and connecting to all channels. So that's the advantage we have and that we're able to kind of like I said, you know go into a company and say, let me show you. The 15% of your service complains that have not been responded giving your average is at Lee Let me Pete.
I've said this to you before.
The company one of the largest tech companies use our cat. One is of course definition partners right. An average case is resolved and sprinkler cost and 30% of license responded to 50% faster and has 80% less dissatisfaction we can quantify it we won the award this year. It was one of the top windows for CX suite.
To your point, it's a little bit more of a clearer articulation to value with fewer variables at play.
Thank you.
Our next question comes from Patrick Wall Ravens with JMP Securities. Please state your questions.
Oh, great. Thank you.
So many.
First of all I'm really grateful to you and I'm sure Rajiv had apartments two for guiding to 2022.
Next year since fiscal 2020 for so many companies aren't doing it and I think it's a real service to.
To us and to investors when you do.
Now that being said no. Good deed goes unpunished. So I just don't understand why youre going to go from 24% growth down to 15, why wouldn't you be able to drive the operating margins higher than when you are right now.
So great question, Patrick So, let's step back and look at it.
So if you look at.
What we did last year, we grew in FY 'twenty to subscription revenue 26%.
Even with the slightly reduced Q4 guide for this year subscription revenue growth is going to be 28%.
Is very respectable given what's happening in <unk>.
Having said all of that.
And I'm still of the top line and I'll address your bottom line here in a minute it would not be prudent for us to start.
Conjecturing colleague.
16 months before.
FY 'twenty, four and what that full year ought to look like.
Which is part of the reason Youre seeing is taking a prudent view just using the same sequential growth rate for Q4 and applying that for the rest of the year.
Now you'd be correct in assuming that our operating margin ought to move up and it most likely would but again given where we sit.
It doesn't make sense for us to conjecture, what it would be for the full year, we're obviously comfortable saying use 4% for the full year. If you apply that to the 708 million give or take you will get for the top line for next year, you will get a number like $28 million, which is much higher than 19 working.
Sensus is.
You got to give us a little bit of room to maneuver as we see how the book of business builds here in Q4.
And what the outlook looks like when we guide in March if that makes sense.
That's actually really helpful. And then Rajiv how I think you've kind of addressed this but just to be direct about it how it is November .
Yes.
Beautiful.
Yeah.
No listen I think.
We with the portfolio like we have.
Patrick it's kind of.
Yeah.
You should not get excited with Greenhill <unk> should not get pessimistic when the region doesn't do well in a product with so many variables.
We feel good about where we are and I actually feel really good about how yes, we are moderating up and down a little bit but in our fluctuation is in a limited bandwidth and that's a better place to be.
So we feel good placement with good and I think it's all in line with.
What we are telling you. We you know that we want to build the fundamentals driven.
Company, we want to be as transparent as we humanly can.
We just do what you would expect us to do and what you would expect from a good company.
Focused on 10 years not the next two quarters.
Thank you. Our next question comes from Tyler Radke with Citi. Please state your question.
Yeah. Thanks for taking the question so just going back to some of the prior questions around the assumptions that you're assuming in your outlook.
Maybe you can just kind of clarify how much of this is is what youre seeing today in terms of deal delays.
Are you anticipating that maybe there'll be some some downhole pressure on renewals or is this simply kind of deal delays based on what youre seeing in the macro or what youre seeing in your customer base, just just really want to get it exactly what youre assuming in terms of how Q4 plays out.
And the assumptions for next year.
I'll confirm that is mostly based on macro I think that will focus on our optimizing our go to market, which.
Tyler you know that's relatively new for us for a company of our scale.
It is.
Most other companies would have been a little bit ahead, so we feel pretty optimistic.
With mostly based on the macros, we think we have a clear strategy.
Leading with care in this recessionary environment is something that we think we can apply across markets.
Sure.
Further ahead, we are seeing better results. So we think we have an antidote to deal with it we just don't know and every quarter. We've been we've been watching this Q3 is the first time, where.
Which is clear to us that Europe is slowing down.
Decisions are not being made by like another layer and deals just like not.
Not getting approved after a very clear business cases, and the answer is theres just wait a little bit right. Now is that really waiting is that people are going to pull the budgets. We don't know so we have a lot of uncertainties, mostly based on macros internally, we feel pretty good about how we're optimizing our go to market and becoming more and more efficient so.
I will commit to you that rule of 40 is kind of all of the metrics that drive towards the rule of 40 is something that the executive team here is very very squarely focused on.
Thank you.
Our next question comes from Michael <unk> with Wells Fargo Securities. Please state your question.
Thanks I appreciate you taking the question I wanted to go back to the expansion rates.
It is held in at 125 percentage.
Other than what we're seeing across a lot of companies in the sales and marketing software stack, where that metric is starting to revert back a little bit.
First just kind of focus on what's driving the stabilization at least so far and then do you have.
The guide for next year. It does sound like you would expect that metric to revert going forward. So can we just talk a little bit about the push pull between getting customers to consolidate.
The platform and expand and then what youre seeing in the macro and how that informs maybe the delta between the 15% assumed in the 125 an expansion you're seeing thank you.
So let me start.
Ken can add more details look I think.
Push pull you've said, it's very clear now I'd submit to you that we have probably one of the few companies right.
Literally has a play in in sales marketing.
Research and care of voice of customer and care.
A little more broader portfolio, that's what's driving the ups and downs.
I can tell you that we're seeing traction with care like I said and Thats driving the upsell.
I can tell you that our customer satisfaction rates both on the way we measure it and anecdotally speaking to a lot of customers. It is kind of almost at an all time high customer to consistently happy.
And so I would I would tell you that's just directly attributable to the macro environment that we see that's where our conservatism is coming from.
And we're doing things internally, but the variables of too many for us to kind of.
Predicting beyond what we are predicting yes.
Yeah, and just to add to that so.
I think we have said publicly that just around two thirds of our new business comes from existing accounts.
So you would imagine as we sell into the installed base and sell them more modules. The net dollar retention rate. The way we calculate is on a dollar a recognized basis over the last 12 months, so that by definition ought to grow youre seeing that show up even in the 1 million customers and above.
Which is growing at a much nicer.
And so you are correct in that that.
Metric has maintained a very healthy growth trajectory. We also mentioned earlier in the call that we are now beginning to focus more on new logos we.
We don't want to just be farming the existing installed base, so that metric will ebb and flow, partly driven by macro as Roger was saying, partly driven by our push towards getting additional sort of large enterprise logos. So there's a number of things baked into that metric, it's hard for us to project what that number would have.
It look like next year, but certainly given the existing go to market motion the plethora of products that we bring to our existing installed base that metric has remained rather healthy over the last several quarters if that makes sense.
Thank you.
And our next question comes from Matt Vanvliet with BTG. Please state your question.
Hey, good afternoon, Thanks for taking my question.
I appreciate that.
Going to see some weakness in Europe , but maybe looking at it from a little different lens are there any particular verticals that continue to be very strong or or any of that standout is already showing material weakness.
That maybe give you some additional <unk>.
Reason to have the produced in your guidance. Thank you.
We are not seeing any pronounced vertical trends.
Our top vertical.
<unk> mentioned before our technology and.
And <unk>.
Financial services travel hospitality the ones that we would expect that with 12.
12 vertical make up about 90% around 90% of our business and.
I can tell you that post COVID-19 travel and hospitality has rebounded quite strongly I can tell you as well.
Well, we don't have that much exposure.
But the crypto meltdown.
I'm sure it will impact companies that are.
Focus on startups.
But we're not seeing any sector specific trends thats materially affecting us.
Head count plans over the next 12 or 15 months or so.
Those moderated and are there any areas that you are still going to continue to push forward on hiring or do you feel like you're at sort of a capacity level that will allow you to grow into those 24 expectations. Thank you.
Yes, great question.
We explained in our current quarter as in previous quarters commentaries that we over invested coming out of Covid given that we would start the field when we pulled back during COVID-19.
That those investments are largely kind of behind us. So we don't expect to grow head count the way, we grow two years ago.
We have capacity in the business to support the growth we have.
And and we standby prepared to add more capacity, if we need to so head count projections for next year is it.
It's fairly moderate compared to the previous years.
No I think the only nuance from my perspective, given the investments already made both in terms of product development as well as go to market. We're just stepping back a little bit waiting to see the fruits of those investments before we make any more incremental than that.
You've been very clear that we are focused on productivity and that is across the board and I think as you can imagine the many enterprise software company that needs to be some gestation period before that.
And we're sort of in that phase, where we had invested a fair bit in FY 'twenty two in the first half of this year now we just need to take a little bit of a digestive approach going forward.
Thank you.
There are no further questions at this time I'll hand, the floor back to management for closing remarks.
Thank you.
I'll summarize by saying this.
This quarter was a strong one we're going into uncertainty we think we have a.
Strategy to play it out and we are.
Taking a slightly more defensive posture to next year.
We think it's still very very early in the category, we're very excited but by more and more analysts now referring to front office in DSM.
That we are referring to it so we're excited about what the future has.
It's a great it's great to see all of you and I'll just remind you that we are here trying to build a long term business based on fundamentals. Thank you.
Thank you. This concludes today's conference all parties may disconnect have a good evening.