Q1 2024 Sprinklr Inc Earnings Call
Ladies and gentlemen, thank you for standing by, and welcome to Sprinklers first quarter fiscal 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session.
Please limit your questions to one with one follow-up so we'll have time to go through all the questions.
Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your first speaker today, Mr. Eric Scrow, Vice President of Finance for introductory remarks. Please go ahead, Eric. Mr. Eric Scrow, Vice President for introductory remarks.
Thank you, Doug, and welcome everyone to Sprinkler's first quarter fiscal year 2024 financial results call. Joining us today are Raji Thomas, Sprinkler's founder and CEO , and Manish Sreen, chief financial officer. We issued our earnings release a short time ago.
filed the related form 8k 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 company is also looking for information about the non-GAAP financial measures.
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 reconciliation of such measures to GAAP. With that, let me please turn it over to Rajeev Thomas.
Thank you, Eric. And hello, everyone. Thank you for joining us today. Before we jump to our quarterly results, there are a few things I'd like to share. First is that on July 12, we will be hosting our first ever investor day at the New York Stock Exchange. We look forward to seeing many of you in person and sharing more details about Sprintler's vision Micro Kennedyfrush
business strategy.
The second, you saw the 8K we filed on May 15th about John Chambers resigning from a boat as of June 14th but remaining as an advisor. We want to take a moment to publicly thank John for his contributions as a board member since joining our board in 2017.
John is one of the most caring and hardest working executives I know, and if anyone deserves a little time back in his life, it would be him. While John will no longer have bold commitments, we are grateful that he'll stay on as an advisor and continue to be a coach, a mentor, and a friend to all of us.
Next, we are excited to welcome Trac Pham to our board of directors. His appointment will become effective on June 15th, and Trac will also be a member of our audit committee. Trac most recently served as the CFO at Synopsys with a broad remit.
across finance, business development strategy, and IT. Track is a great culture fit for Sprinkler and given its vast experience scaling a multi-billion dollar business, a great addition to our boat. The management team and I are looking forward to working with him and tapping into his product expertise. So let's jump into the results.
to the results of her first quarter. We are very, very pleased that Q1 was another strong quarter that exceeded guidance across all key metrics. Q1 total revenue grew 20% year-over-year to 173.4 million and subscription revenue grew 24% year-over-year to...
$157.7 million. With our continued focus on operational efficiency, I'm also delighted to report that we generated $11 million in non-GAAP operating income for the quarter.
These results are driven by a few key things that are top of mind for all of us. First, we believe we are creating a new category of enterprise software for the front office. We call it Unified Customer Experience Management.
As we hear constantly from some of the best brands in the world, there's a clear need for a front office platform to eliminate siloed technology, teams, data, and to create seamless customer experiences, as simple as it might appear. These seamless experiences are impossible to create across the multitude of channels.
functions, business units, and markets that most large companies have and operate in today. Unified CXM is differentiated at its core by a unified AI-powered architecture that spans all of these different silos, and it's fueled by publicly available and mostly unstructured
improve and brands can reduce costs, mitigate risk, and increase productivity for growth.
We recently hosted our first analyst summit in Dubai, where approximately 20 well-respected industry analysts joined us and our customers. It was very encouraging to see them speak to our customers and validate our vision. We have made some of their quotes and references available for you in the presentation on our IR website. Don't miss out.
is that we are very, very excited to see AI finally become mainstream. As all of you who've been tracking us from the beginning and at our IPO, you know that AI has been foundational to our platform from the very, very beginning. It's woven into every fabric.
of our unified platform. And if you read our IPO prospectus, it should be very clear that it was, and always has been a key differentiator for us.
Sprinkler is the system of record for unstructured external and conversational data for some of the best brands in the world.
And we've been training over 2,000 AI models with over 100 million training data points in over 100 languages across over 70 industries and sub industries for five years.
And that accuracy that we're able to achieve with the training, I don't believe can be matched by any other company in our space in the short term. A recent announcement regarding Sprinkler AI Plus is the next evolution of our AI. Sprinkler AI Plus includes generative AI capabilities through an open AI integration across all our product suites.
With generative AI, our AI becomes even more powerful. We delivered over 30 features, AI features, in our last release. We have another 25 planned for our next. Some of these features include smarter responses, generative recommendations, content summarizations.
which help customers with more relevant and specific auto responses and increase agent productivity. For example, one of our streaming customers improved the agents acceptance of sprinkler smart responses, which are the suggested responses that we provide for agents.
by 300 percent after we enabled AI+.
Every company will embrace AI sooner or later. What I believe will separate winners from losers is whether AI is a feature for you or is it at the core of everything you do?
So, despite the macro environment, we are very pleased with how we're managing what's in our control with our go-to-market strategy, productivity, and execution.
Specifically, we are excited about the progress we are making.
to make it easier to sell, which has been a top priority for the company. This past quarter we made several key hires in the Service Overlay team to add expertise in depth to our CCAS offering.
go to market and we continue to verticalize to enable quicker time to value and faster deployments. We are now up and running for CCAS with a couple of more key industries including financial services and airlines. We are also doubling down on our partner ecosystem and we have recently partnered with some amazing companies like Intel.
Last quarter, we discussed our self-serve offerings, sprinkler social advance.
Feedback has been incredibly positive in terms of how easy it is to use. And the product is opening the door as we anticipate for larger deals. This past quarter, a very large media company actually started with social advance and now in conversation with our sales team to expand to multiple geographies and product suites.
I'd love to provide a brief update on sprinkler service and our continued momentum as a disruptor in the CCAS phase. Our vision is to help customers transform the contact center from a voice-focused cost center to a more efficient and effective AI-powered omni-channel revenue center.
by unifying it with marketing and sales. IT buyers find Sprinkler to be a great fit for their needs as they consolidate point solutions in the contact center stack.
to a platform that's built on a single code base with a very extendable architecture.
During the first quarter, we saw meaningful CCAS deals close across all three of our primary theaters.
During the first quarter, we continue to add new customers and expand with existing customers, including world-class brands like Avis, Garmin, Lululemon, Puma, Spirit Airlines, and Wilson. Let me give you a few examples of how customers are currently using Sprinkler.
starting with service and showcasing the power of the Unified CXM platform is an expansion win in Q1 with a top 5 global technology company which renewed and expanded their business.
to over $15 million in ARR with Sprinkler. They are now using 40 Sprinkler products across all of our products within over 13 languages. Sprinkler service is now a critical part of the deployment at this client, enabling guided workflows, knowledge bases for agents, customers.
video chat, co-browsing, and AI-powered agent assist capabilities like smart comprehension pairing and responses. Through Sprinkler, this client can now detect issues within five minutes as opposed to the 30 to 45 minutes it used to take previously.
enabling them to expand their support coverage and improve their SLAs through increased actionability, AI, and automation. Another service story is with Americana, one of the largest restaurant companies in the Middle East and Africa. Americana originally began partnering with Prinkly to build out an actionable voice of the customer and custom...
Americana reduced response time now to minutes. With the expansion last quarter, Americana now has implemented Sprinkler across 10 brands in multiple countries across several thousand restaurants.
Another example is a new logo, HILTI.
leading multinational manufacturing company with over 30,000 employees who signed
Interestingly, a seven-year deal with Sprinkler as a new customer to use our inside social and marketing solutions.
This is an amazing example and a testament to how strategic Unified CXM is for large enterprises. Another example is the expansion of a strategic partnership with Roche, one of the largest pharma companies in the world. Using Sprinkler, they have now laid the foundation for global intelligence.
vision to become one roach as it enables diverse siloed stakeholders across the pharma and diagnostic divisions in over 100 countries to make informed decisions and proactively respond in crisis situations. And obviously it's driving growth and optimizing strategies.
Before wrapping up, I'd like to take a moment to celebrate our incredible engineering team, who, as always, make all of this possible. Their speed of innovation and dedication continue to differentiate SpringQuix in the marketplace.
In closing, we are very pleased with our start to FY24. We're encouraged by the engagement and momentum we're seeing from customers, industry analysts, influencers, around three things. First, a new category of front office software. We call it Unified CXM, but the simple idea that teams in data and technology and customers...
and generative AI plus integrations that give them.
what I think is customer facing superpowers. And our focus, lastly, third, our focus on efficient execution, which is helping us drive strong momentum across our product suite.
We remain committed to our vision of becoming the world's most loved enterprise software company, innovating for our customers, succeeding with our partners, and delivering shareholder value, and in the long term executing for growth and continued profitability. Thanks to our customers, partners, and our employees for hard work and results. And thanks to our investors for believing in our vision.
Let me hand the call over to Manish. Thank you, Rajee, and good afternoon, everyone. As you heard from Rajee, we're pleased with our start to FY24. For the first quarter, total revenue was $173.4 million, up 20% year-over-year, and above the high end of our guidance range.
This was driven by subscription revenue of $157.7 million, which grew 24% year over year, also above the high end of our guidance range.
One of the key drivers of subscription revenue art performance was the timing of new bookings, which was front-loaded in Q1, and the commensurate benefit to Q1 subscription revenue was approximately 2 million.
Services revenue for the quarter came in at $15.7 million.
Our subscription revenue based net dollar expansion rate in the first quarter was 122%.
As we have discussed in the past, the NDE statistic is not something we monitor as part of growing our business, but is a byproduct.
As macroeconomic conditions moderate renewal rates and customer upsells, and new logo acquisition continues to increase, we expect NDE to moderate in the coming quarters.
Our current expectation is for NDE to settle in the mid to high teens percentage range over the next few quarters.
As of the end of the first quarter, we had 115 customers contributing $1 million or more in subscription revenue over the preceding 12 months.
an increase of 7 sequentially, which is a 28% increase year-over-year. Turning to gross margins for the first quarter, on a non-GAAP basis, our subscription gross margin was 82.8% As we continue to drive efficiencies in our cloud operations, our
leading to a total non-GAAP gross margin of 76.2%.
We continue to generate efficiencies in sales and marketing and have shown consistent improvement in S&M spend over the last several quarters.
Sales and marketing expense in the first quarter is now 48% of revenues compared to 56% in Q1 of last year.
This is an 800 basis point decrease year over year. The sequential increase in SNM spend in Q1 compared to Q4 of FY23 is largely attributed to sales activities slated for the start of the year such as sales kickoff.
as well as costs related to the Q1 restructuring we had discussed on the Q4 earnings call. We also realized operating leverage from GNA, which decreased by 100 basis points year over year.
Turning to profitability for the quarter, non-GAAP operating income was $11 million, equating to a non-GAAP net income of 6 cents per share.
This 6% operating margin for the quarter was a result of revenue overperformance, improved gross margins, coupled with operating expense discipline across every department, and is the third consecutive quarter of non-GAAP profitability.
It is also worth noting that in Q1, we had approximately 3 million in tax credits related to the release of valuation allowances in our Brazil and Japan entities.
Had we not realized these credits, the tax provision in Q1 would have been approximately 2.2 million in line with our prior guidance.
Lastly, on the topic of profitability, for the first time ever as a publicly traded company, we posted positive gap net income for the quarter totaling $2.8 million or 1 cent per share.
While we were the beneficiary of one-time tax credits allowing us to achieve GAAP net income profitability faster than expected, we remain committed to achieving GAAP net income profitability on a full year basis for FY24.
In terms of free cash flow, we generated $14.3 million during the first quarter, an 8% margin, compared to an adjusted free cash flow of $6.2 million in the same period last year. This cash flow generation contributed to our very healthy balance sheet.
which now stands at $604.4 million in cash and equivalents with no debt outstanding. Calculated billings for the first quarter were $170.5 million, an increase of 23% year over year.
As of the end of Q1, total remaining performance obligations or RPO, which represents revenue from committed customer contracts that has not yet been recognized, was $708.1 million, up 23% compared to the same period last year.
and CRPO was $478.8 million, up 19% year over year. The sequential decrease in RPO and CRPO can be attributed to a handful of large, multi-year deals that are up for renewal in Q2 and therefore not included in both RPOs.
the macroeconomic environment continues to be uncertain. And our current assumption is that the broader macro trends from the last few quarters are likely to continue throughout FY24.
For Q2 FY24, we expect total revenue to be in the range of $172 million to $174 million, representing 15% growth year-over-year at the midpoint.
Within this, we expect subscription revenue to be in the range of $158 million to $160 million, representing 20% growth year-over-year at the midpoint.
As we had mentioned on the Q4 earnings call, we expect approximately $30 million in services revenue in the first half, equating to approximately $14 million of services revenue here in Q2. Concurrently, we expect services margins to dip here in Q2.
earnings call.
We expect non-GAAP operating income to be in the range of $11 million to $13 million and non-GAAP net income per share of $0.04 to $0.05 per share, assuming 270 million weighted average shares outstanding.
For the full year FY24, we are raising both our subscription and total revenue outlook for the year. We now expect subscription revenue to be in the range of $649 million to $653 million, presenting 19% growth year-over-year at the midpoint.
This is an increase of $5 million, which represents the full magnitude of the Q1 beat and the subscription revenue guidance raised for Q2. As we alluded to on prior earnings calls, we have been investing in making our products easier to implement.
and therefore accelerating the time to value for customers. In addition, we have also been cultivating a partner ecosystem around delivering our product suites such that we expect our service delivery partners to take on a larger proportion of the services revenue attached in delivering our product.
In light of these dynamics, we are reducing the FY24 Services Revenue Guide from $66 million to $62 million.
With this change, services revenue for FY24 will be approximately 9% of total revenues.
We expect total revenue to be in the range of $711 million to $715 million representing 15% growth year over year at the midpoint.
For the full year FY24, we are raising our non-GAAP operating income estimate to now be in the range of $51 million to $55 million, equating to a non-GAAP net income per share of $0.19 to $0.21, assuming 273 million weighted average shares outstanding.
This implies an approximately 7% non-GAAP operating margin at the midpoint. Note the increase of 10 million at the midpoint represents the full beat for Q1 and the accompanying raise for Q2.
In deriving the net income per share for modeling purposes, we estimate $13 million in interest income for the full year, with $4 million of that to be earned here in Q2.
Furthermore, a $6 million total cash provision for the full year FY24 needs to be added to the non-GAAP operating income range just provided. We estimate a tax provision of $2.5 million here in Q2. We are tracking to be GAAP net income positive for the full year FY24.
consistent with our comments on the Q4 earnings call. Billings in Q2 are expected to grow in the high teens.
growing slightly slower than subscription revenue, but faster than total revenue. We expect the Q1 beat and any Q2 upside in billings to flow through for the full year FY24. For modeling purposes, I would assume the same billing seasonality in FY24 as in FY23.
With respect to free cash flow, in Q2, we have a large annual payment due to one of our public cloud partners.
As such Q2 free cash flow is expected to be negative and coming around negative 15 million.
consistent with our prior commentary, we expect to be solidly free cash flow positive on a foliar basis.
As a quick reminder, Raji, the broader Sprinkler Management team, and I are eager to share more details about our business and financial profile with you at our upcoming Investor Day on Wednesday, July 12th, and look forward to seeing many of you there.
Lastly, I would like to thank all our employees for their dedication and passion for what we are building at Sprinkler. During an uncertain macro environment, I am also grateful for the confidence that our customers have placed in us. We remain focused on building a track record of successful execution and operating discipline across the business. I am friends with a unified standalone business today that urges the technology to destroy and develop new
And with that, let's open it up for questions. Operator? Thank you. Ladies and gentlemen, at this time, we'll be conducting a question and answer session.
If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
In the interest of time, please limit yourself to one question and one follow-up so we may get to everyone's questions. Our first question comes from the line of Rameau Lenchow with Barclays. Please proceed with your question....
Perfect, thank you. I have two, if I may. First one, and congrats on a great quarter. First one is on the services push that you're kind of doing now, and thanks for the updated guidance there. That kind of explains a lot. If you think about what's the nature of the relationship with the service partners, it's a lot easier to spread, right, like.
Is the kind of building it as a bigger digital transformation in the front office?
As a big effect we get practice there or is it kind of more? Sprinkler specific there what you're seeing there in terms of how they are thinking about Building and working with you, and then I had one follow-up
Yeah, so, Remo, this is Rajee. Good to connect always. So, there are two things I would point out. First is, you know, our broader partnership ecosystem that we've been developing with the systems integrators like Deloitte and Accenture are more on the digital transformation and the broader ecosystem.
g statewide.
That's you've outlined. What is interesting now is we're developing a second category of partnership and more specifically in the customer service space. And there's a pretty interesting ecosystem there of referral partners, implementation partners, consulting partners, they're very focused on the contact center industry. So we're rapidly expanding that aspect of our partnership ecosystem.
which was something that in the past we hadn't done. Yes, okay, perfect. Lindy, the other big debate that happens in the market at the moment is like, it was that front office first maybe kind of over invested a little bit in 2021. And now we had like a digestion period.
And now we can slowly start looking forward again in your customer conversations What do you see in terms of like thinking about in you know ongoing investments? Do you see a change in the nature of the conversation that you have here and I leave it with that and congrats again for me again We are we're seeing a palpable change from our biggest and best customer
is taking, what we're finding is companies are expanding across business units, what we're finding is that companies are expanding across channels and they are expanding across the market. So you know we have two vectors of growth, one is more products and more cross-cell capabilities across products and product suite.
The other one is expanding across business units and markets. That's a less understood part of our expansion strategy, because you have a single instance architecture where the new business unit that comes along, or the new market that gets added, it suddenly has global collaboration and visibility.
Okay, perfect. Thank you. Congrats again. Thank you. Our next question comes from the line of Pendulum Bora with JP Morgan. Please proceed with your question. Hey, guys. This is Noah for Pendulum. Thanks for taking our questions. Just for the first one, you know, you launched the self-service training program.
product at the end of March, which should really help with the top of the funnel dynamics. Can you just maybe provide some more additional color around the new self-service product and just the other take there? Thanks?
So we are, it's been, like we said last time, it's been a fairly controlled rollout, because what we wanted to do was get the product and the dynamics of someone using the product right, which I'm very happy to report that the feedback is very, very strong. We are now in the process of...
increasing the reach using traditional and digital marketing capabilities to get more people to that top of the funnel to try. It's working really well as companies in a target market who are smaller teams going on there, trying testing out and giving us great feedback. And I say over the next two to three quarters we'll be putting
more resources and more focus on that to build that out as a very hopefully potentially big lead generation and try before you buy channel. Great. And then just a quick follow-up. As it relates to the macro, it sounds like that the environment's been...
So what we're seeing is more scrutiny, careful spend, measured spend, more people approving deals, and that continues, we're not seeing a change. What I'd point out is as we get into CCAS, get into the partner, unlocking the partners, as you probably know already, CCAS deals take longer. They're a very formal RFP process.
We're running several proof of concepts and we're able to show agent productivity and average case handling time reduced by 20%, agent productivity go up by 30% in many cases. So it's very promising. Now we got to get scale and get a few deals through the sales cycle.
Thank you and congrats on the quarter.
Thank you and congrats on the quarter. Thank you.
Our next question comes from the line of Elizabeth Porter with Morgan Stanley . Please proceed with your question. Great, thank you so much. I wanted to ask on generative AI, just given how topical it is, we see a lot of interesting press releases across the broader landscape specifically for generative AI, including sprinkler zone AI+.
So how do you view what generative AI capabilities really become table stakes versus real incremental monetizable solutions? And how should we think about the roadmap for new Gen AI features and what forms of monetization make the most sense for Sprinkler?
I'm glad you asked the question. Look, you know that if you read a prospect, we've been saying this for five years, and we are thrilled that generative AI is adding wings to our own AI and raising broader awareness.
I think, as we said in the prepared remarks, there will be two kinds of companies. One that is adding a feature on the AI and got five things going, and others that deeply go back to their core architecture and embed AI. And I think over time, the latter will clearly be the winners. They will be the AI companies, not people who use AI.
Having said that, for us, AI is a fundamental differentiator across the front office.
As you know, we have several hundred features in every product suite. And most, I can just rattle off maybe in the call back, I'll show you a slide. You take any product that we have, any feature that chances are, more than 60, 70% of that is enhanced using AI. Now, how do we monitor AI is very, very interesting.
Awareness helps us and I think there are additional monetization opportunities that are not obvious right now. For companies that are completely unjust seed based, this is going to be a deflationary situation for them, for us and companies like us who can fluidly transition between agent based cases, community based cases.
We are exploring different pricing models like case-based pricing, insight-based pricing, and you know our insight product is completely based on AI and price on the licensing basis based on the value we create. So we see this as a net positive for us. In the short term, we're going to use this to differentiate massively.
And the awareness is doing wonders for us. We're having C-level conversations as the AI platform. As a traditional, older companies have struggled. And everyone's talking a big game, but we can prove it. You know, we're showing 90% accuracy in actionability when you look at the random message and ask yourself, should I act on it?
Is it engageable? We're showing 30% better sentiment accuracy. We're showing 25 to 30% better routing with our smart routing. Agent productivity is gone. So we're doing proof of concepts where we're showing, in some cases twice as better accuracy and AI capability.
I'll give you a specific example, because everyone's talking generically. We've always had the concept of smart responses.
If you're using sprinkler in a contact center, the agent is guided to, hey, why don't you use SAVERS or offer that. That's a smart response that the system is nudging the agent to do. That had a good usage, but when we added the student to the contact center, the agent would be able to control the agent's response. That was part of the process. If you're using sprinkler in a contact center, the agent is guided to, hey, why don't you use SAVERS or offer that. That had a good usage,
the generative AI integration and expanded it, now the agent is getting a full script and so he can just read off without having to process and rephrase and the adoption, as we called out, has gone up 300%. So that's the kind of quantum leap that suddenly makes AI a lot more accessible and visible.
from an external user synthesizable way as opposed to in the back end. So, I think it's going to just really help us differentiate in a big way. Great. Thank you. And as a follow-up, I was wondering if you could talk about the success you've seen on new customers since launching new initiatives like that new logo team or focusing partners to source deals.
I understand you don't report the customer account number, but any color on how those initiatives are taking hold would be helpful. And historically, about two-thirds of the business has been driven by existing accounts. Can we expect that to change over time? No, look, I think there is precedent for very sustained long-term growth without having to just...
keep adding logos. As a very high-end enterprise company, I think we are very well placed with the likes of companies like ServiceNow, where we're seeing our top customers buy more and more and more growth. And I think that's a very sustainable long-term growth driver for us. Now we want to continue adding more customers, and we have identified as we.
said last time with the focus on go-to-market, we've identified a target customer base of 43,000 companies. So through everything we do, we're only trying to reach those companies and we're not chasing anybody else. So the focus continues to be on growth and not logo count. We've put dedicated teams and I think that's one of 10 things we're doing and I think almost all those things are.
first principles space, and it's a multi-quarter thing. So we don't have any early results to report, but it looks very promising. Great, thank you. Thank you. Our next question comes from the line of Matt Van Vliet with BTIG. Please proceed with your question. Good evening. Thanks for taking the question.
I was maybe curious on all the success around the contact center and sprinkler service space overall. What are you finding that you're replacing most often or any of these sort of net new contact center type of engagements that you're seeing?
We're seeing two distinct patterns. One is we're finding that companies with 50 agents to let's say 500, maybe even 1,000 agents, have all the problems that large 5,000 agent contact centers have in terms of...
workforce optimization, routing needs, and ticket volume, and a whole bunch of things. And we're finding that that market specifically is craving for a unified solution because they can't afford to buy six or seven and then integrate it together. So that's what we think of as a right to win segment for us and we're seeing success in that market.
Second is the large enterprise deployments. Now we're seeing success there but these are larger drawn-out protracted proof of concept to RFPs to replacements where we are encountering traditional vendors like Avaya and Genesys a lot.
And essentially what's going on there is we have opportunities where it's long-term and we're going after the whole thing. And we have a lot of like lower hanging fruit in terms of just augmenting the core voice infrastructure that is working with about seven of our AI-based products. So that suite is our...
contact center, CTAI product suite for the service industry. So you can just deploy that as a pack on top of your current traditional voice infrastructure. And in many cases, because they've already been using those capabilities for digital or social with sprinkler.
It's a much easier list to make sense. Yep. No, that's very helpful. Thank you. And then maybe just a quick follow up on the, the services gross margins and just kind of thinking about that more long term. If you can push more of that work to some of the partners.
maybe ignoring the potential business development side or kind of top of the funnel, but as you just look at kind of how that could impact gross margins over the longer term, maybe just help us think about how framing that out is also a cost benefit analysis here for the model.
Hi, it's Manish. I think that's a great question because we've been spending a lot of time evaluating the kind of services opportunities we take on board. And I think this is consistent with the comments we'd given on the last earnings call whereby we were looking to
partner with firms that could develop an ecosystem of delivery capabilities around us, whereby we could transition some of the, let's just say, less attractive margin business to them.
So our view, once we are through with this transition and the investments that we are making in CCAS delivery, managed services, which is a lot more higher margin, that we should be in the circa 20 percent, give or take, over the long term. Now these can obviously go up, depending on any course that we might be in. But given where we are right now, that's what we feel comfortable looking out over the next year or so.
So that sort of margin profile probably is achievable. Does that make sense? Yep, that's great. Thanks for taking the question. Our next question comes from the line of Michael Berg with Wells Fargo. Please proceed with your question.
Hi, thanks for taking the question and congrats on the quarter. I wanted to touch on the shape of the quarter. You noted that it was front-end loaded. I was curious if there was, just looking at some of the Q4 statistics, if there was some larger deals that fell out of Q4 into Q1 and that's...
what drove part of the upside and shape of the quarter? And then secondarily to that, is there anything meaningfully different that you're seeing in the demand environment more broadly? Thank you. Yeah, that's a great question. So, there weren't any deals that flopped over from Q4 into Q4.
Now, we, like any other enterprise software company, do believe that a lot of our new business is back and loaded, and we've been fairly consistent in how we then model it out and guide the street to.
But of course we can't predict customer buying behavior and every once in a while we do run into a situation where for a variety of reasons the customers have a desire to purchase one of our product suites and that was the case here in Q1. And consistent with our prior commentary, we were fairly transparent in pointing out when that happens and the additional benefit that accrued to us here in Q1, which as I pointed out in the prepared remarks was approximately two million.
So if you sort of factor that into both the guide as well as what Q1 results look like, you would see a more normalized sort of revenue pattern. Helpful. And then going back to the services piece, do you have a long-term target goal in terms of the mix there? Like how can we... Does remarkably well after loss being plus?
see that shaping up over time. And with that, in particular, you're referring to as a percentage of overall revenue.
Correct. Or the mix within services. Services is a mix of overall.
Yeah, so if you go back a couple of years, services for us was almost 12% of overall revenues and we did feel as a management team we wanted to sort of bring that down partly because we were all driven by trying to make the sweets.
much more easier to implement, providing value to the customers in a much more expedited fashion. And so I think where we are right now, just under, call it nine odd percent, is probably a respectable level. So as I look out over the longer term, somewhere between eight and 10% seems to be the right spot for us. The mix within services obviously will.
migrate more towards managed services or CCaaS service delivery, sort of more higher up the value chain, if you will, versus just your plain vanilla implementation. And that might obviously lead to a better margin profile in the longer term, as I said earlier.
So I think where we are probably is what you should expect more as a steady state level. I will however admit that we're in a fast evolving industry and we're trying our level best to adjust our economic model to what the customers demand. And should things change, we would be transparent with the streets on future earnings calls.
Thank you. Our next question comes from the line of Patrick Walravens with JMP. Please proceed with your question.
Oh great, thank you. Rajeev, how do you expect your competitive environment to evolve over the next three years? In particular, it seems like Amazon is making a lot of progress.
in the contact center space and I know you have a partnership with them so if you could touch on that element on it too that would be great.
using invoice engineering, if you will. Where we have evolved to is we've mainstreamed and we are mainstreaming every one of our product suites. So that's very important for the market to understand. So we've got four product suites, the service product suite, the inside product suite, the marketing product suite, and our social product suite. And each one of those are evolving to a mainstream category. And the easiest way to understand is what we're doing and have done with, frankly, with the service space. We started with social service, now we have digital, now we're in the CCAT space. So now we're obviously competing with the likes of the...
the Avayas and the Genesises and a lot of Zendesk and other companies who are in that enterprise space, that's a very large time. The contact center market, as you know, is about $800 billion, and that's including tech and labor. As you know, the tech is only a small single digit percentage. What's super exciting is now a good chunk of the $800 billion is at play.
because AI will actually expand the tech market into the labor cost mitigation opportunity. So we know that's a major market. We know we're doing a replacement sale. We know we have a better product. We know we are AI based.
So it's become easier. So a competitive step has evolved to a very different group of companies. That's the same thing we're going to do in marketing. That's the same thing we're doing in insights where we're going to be adding more voice of the customer capabilities as I outlined in the prepared remarks. We have increasingly, we're doing deals where the...
customers using us as a voice of the customer platform, in addition to their survey-based platforms. So at some point, it should be obvious that we add surveys and we're incredibly competitive there. So that's a strategy and our competitive set will evolve. You know very clearly, I've mentioned many, many times that our goal is to become the third or the fourth platform in the enterprise. Thank you.
is a ton of point solutions, somewhere between five and 25, and connects to the other three. And that is the stated strategy.
Let me now switch gears and talk about how we see the cloud providers. Now, it's very interesting the way the market's moving. The infrastructure providers are going to keep coming up the stack. And so you'll see the market with the past players, communication service providers, and all of that.
I think that they will be able to date into each other. We're coming from the very top of the AppStack. We're a pure clay application.
I think that's people who beat into each other. We're coming from the very top of the app stack. We're a pure play application player.
operating system play. It's all code, it's all software, we have no data aspirations, it's all license-based and it's all part of the architecture. And we're agnostic across channels and we provide a unified way to communicate across channels and business units. So I think they will eventually connect but right now it's a great compliment.
to each other. So we see ourselves as great partners to Amazon, great partners to Microsoft, great partners to Google, and we actually do several deals together every quarter. Now obviously do they bleed into each other a little bit? Yeah, possibly, but in the front office you're gonna see everybody bleed into each other. And I think what I would bet on if I were you is truly platform architecture. Because invoice engineering is pretty tough to pull off over the long run.
That is super helpful. Thank you. Thank you. Great questions. As a reminder, it is star one to ask a question. Our next question comes from the line of Tyler Radtke with Citi. Please proceed with your question. Thank you. Good evening. I wanted to ask you about how your
seeing some of the large renewals shape up. I think you talked about some large renewals expected here in Q2. Some of the other larger front office players have talked about some renewal pressure. We've heard anecdotes of shelf ware and seats that have gone undeployed.
How are you expecting your renewal rates to trend? And if you could just remind us on the composition of your revenue base that is based versus usage or interactions based. Thank you.
Okay, so there are two questions there. The first one is what are we seeing in our larger deals in terms of renewal? I'll tell you, once you buy into the sprinkler approach, we keep growing.
And, true story now, we have customers who call us first before they go put out an RFP or open it up to a point solution and say, hey, do you guys do this? Because they've bought into, they've tuned the AI model, they've set up the governance, they've got the analytics. I'll give you an example of a very, very large... createdoldemort API for us.
I'd say top five, probably top three tech company, that expanded their marketing services with us. And the idea was there was an agency breach that happened, an issue that resulted in ad spend that was not governed and approved. So they just paused spending until everybody got on sprinklers.
the number of customers that are paying over 10, that's going up as well. And so we'll share more details on our investor day, but we love what we are seeing at the very top of the market. We love it, we love that. It's just cementing a position as the third or fourth platform. Now you also know we've been obsessed, unlike many other companies, about value delivery, in our aspiration to try and build a company that people are gonna love.
So, value delivery is super important for us. Everything is backed up by a business case. And so, we're not seeing the shelfware compression that you're seeing. We're seeing it as well for our customers. They're telling us they're seeing shelfware compression from other vendors. Thankfully and fortunately, that's not us.
Thanks, that's helpful. Are you able to talk about the mix of revenue versus interactions or usage? We don't really have any usage-based pricing at the moment. We'll have flat enterprise products that you buy, like some AI SKUs.
or you have seed-based licenses that you buy, or you have tier-based. Like for example, an insights product is based on what tier of data are you consuming. So I don't know whether that qualifies as usage. We think of it as you're buying a license. It's not like you, if you don't use.
all of that, you get money back, but you just burst into a different tier if you go. So they're committing to a license always. And I think it's a pretty good mix. Our insights product is all based on AI and quantity.
of data that they ingest and process. Our CGAS is, again, we have community products and knowledge-based products and other things that are license-based, and then you have the contact center that's seed-based, and we're very open to other pricing models there as well, like flat fee and enterprise license models. So making sure that we associates be able to management
It's a healthy mix. I couldn't tell you exactly how that is split. Okay, that's a helpful color. So then I wanted to just follow up again on the contact center wins. It sounded like you saw some large ones in the quarter. You talked about some airlines and financial services. Did I hear you correctly? Are you, in those larger deals, are you kind of...
complementing them initially, you know, in other words you're not displacing, you know, one of these large incumbents in terms of the seats you're kind of complementing with the potential roadmap or optionality to displace them longer term or, you know, we're just curious on those two examples, kind of your role. Thank you. Both, both, both, both. Tyler, so we have our typical route is, you know, we are putting the digital care solution. Let's start with...
in it, which will be a drag on short-term bookings, right, because these are larger, longer-term plays and there's significant people and resources being committed to moving that long. Our hope and aspiration, as we publicly stated, is to become a pretty serious material seacast player. So that requires us to kind of over-invest early on.
The fruits of that labor will probably take a few quarters, but we're able to show remarkable business results, Tyler. So we know that's the right strategy, and it allows us to put our head down and not think about this quarter or next quarter, but think about the next three to five years.
Our next question comes from the line of Michael Teretz with KeyBank. Please proceed with your question. Hi, this is Michael Vadovik, I'm from Michael Teretz, and thanks for taking my question. You talked about the early traction you're seeing with the self-service offerings, but is there any indication at this point that it'll help you move down market, call it longer term, or are you really just seeing these products help you land the 43 customer count you talked about earlier?
Michael, more of the latter. We are not looking to go down market, let me be very, very clear. So if you are coming to a website, we're actually not contacting anybody who's not in our target list of 43,000 companies. So you know, it's not that people wake up and go find us, right? And someday we'll be ranked very high in SEO, but that day is not today. So we're very intentional in terms of driving the audience to our self-serve product and that is only in our target segment.
So it's not a volume game for us and our intention, at least I can say in the medium terms, is to stay very focused. There is a lot of upside to the market we play. So it's not... It's not a volume game for us and our intention, at least I can say in the medium terms, is to stay very focused.
game for us and our intention at least I can say in the medium terms is to stay very focused. There is a lot of lot of upside to them in the market we play so it's not going down market at all.
Thanks. And just now that we're past May here, any trends or changes between now and Q1 that you'd call out? Thanks. Now and – oh, you mean in just in the last month or so? Right. Look, I think everyone's talking about generating very high.
that is super exciting and I think the awareness of AI broadly is helping us differentiate and people are paying more attention to performance metrics. I think the noise is going to subside and the winners will be declared over the next few years.
I love what I'm seeing in clients thinking of us as a strategic partner, you know, companies thinking of us as the system, companies thinking of us as, hey, you are the company, well, I had a customer that I was speaking to who said to us that they're paying Sprinkler more than they're paying Adobe, and was very surprised, and I'm like, sure, you know, it's just value-based. I'm not saying all companies, all industries, so.
Because I think the point solution versus platform, that game is up and people want to consolidate point solutions and CIOs want to talk to companies who can rip out 5, 10, 20 of those at a time.
Our next question comes from the line of Arjun Bhatia with William Blair. Please proceed with your question.
Hey guys, thanks for taking the question. Raji, for you just on the contact center opportunity, can you just help me understand how you're delineating what's a contact center deal versus a service deal? Is it where it's sitting, whether it's the marketing team or the...
service team because you've had this product in market for some time. And then just to follow up on that, the growth strategy there, do you see that focusing more on existing sprinkler customers, or is this a way to
kind of get some of the holdouts onto your platform. So Arjun, the good news is everything that we're referring to in our service bucket is a seat that's assigned to somebody in the customer service department. So it's almost always in the contact center, but it's...
real customer service. If you are a marketing user engaging with a customer, you're probably, that revenue goes under the social bucket or the marketing bucket. So everything we're talking about is service, which is very interesting for us. It's a customer service seat.
The second thing I want to point out is for us, a customer service seat is a customer service seat. So you may choose to activate five channels and call it social. You may choose to activate 30 and just do only digital. Or you may activate voice and go entire contact center. It's all the same for us.
and I'll give you a real story with one of the largest, the 15,000 feet contact center we implemented at the bank that we talked about before. In the contact center, before Sprinkler, there were a bunch of people with the email customer service capability. So if you email them, hey, I want to increase my credit card limit, they literally would email you back because that's all they could do. They were email agents.
And so you would send an email Sunday night, you go to work Monday, that case wouldn't get closed till Friday when you come back and send an email to respond. With Sprinkler, this was just, they came to this analyst summit and said this story. It was amazing because now the email agent gets that request, hits the call button, talks to the guy and say, hey, can you submit your proof of income, blah, blah, blah. And that case resolution went from weeks and days to hours and minutes.
So you just turn things on and off and you'll get by the exact same capability, which is what we mean by true omnichannel. Understood. All right. That makes sense. And then one for Manish. You talked about just maybe some downward pressure on that retention rate coming up in the next few quarters here.
Are you anticipating some renewal headwinds from customers? Let me just walk us through some of the assumptions that you are baking in there, because you did raise the subscription revenue guidance. I'm just trying to square the two.
Yeah, so we raised the subscription revenue guide for the full year by the full beat of Q1 and the raise for Q2. I don't think the issue is are we expected, expecting any churn, but look we live in a fairly, you know, uncertain macro environment.
and I just didn't want investors to start feeling that the 120% was sort of set in stone for the rest of the year. So just trying to be cautious there, and the commentary that I've provided in the prepared remarks will square with the 19% subscription growth rate for the full year. So I think this is
us in the spirit of as we look out over the next three quarters, what we are expecting in terms of new business, renewals, all of that captured together is what I was trying to give commentary on.
Okay, perfect. That's helpful. Thanks guys and great. Thank you. There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.
Thank you, operator, and thank you all for joining us today. I'd like to first thank our employees and then our partners, and most importantly, our customers for their trust and continued business. We look forward to updating you all again soon as we continue on this exciting journey of creating a new category and aspiring to create the world's most loved enterprise software company. Thank you very much.
and have a great evening. Thank you. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.