Q3 2024 Sprinklr Inc Earnings Call
Greetings and welcome to sprinklers third quarter fiscal year 'twenty 'twenty four earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Eric Sgro SVP finance. Thank you Eric you may begin.
Thank you Alicia and welcome everyone to sprinklers third quarter fiscal year 2024 results financial call. Joining us today are Roger Thomas Sprinklers, founder and CEO and the niche Serene Chief Financial Officer, We issued our earnings release, a short time ago filed the related form 8-K, with the SEC and we've made them available on the Investor Relations section.
Our web site, along with the supplementary investor presentation.
Please note that on today's call management will refer to certain non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. You are directed to our press release and supplementary.
Investor presentation for a reconciliation of such measures to GAAP. In addition, during today's call, we'll be making some forward looking statements about the business and about the financial results of sprinkler that involve many assumptions risks and uncertainties, including our guidance for the fourth fiscal quarter and full fiscal year 2024, and our initial framework for.
Fiscal year, 'twenty, 'twenty, five and our actual results might differ materially any forward looking statements that we make on this call are based on our beliefs and assumptions as of today and we disclaim any obligation to update them for more details on the risks associated with these forward looking statements. Please refer to our filings with the SEC also posted on our website.
Thank you, Eric and Hello, everyone. Thank you for joining US today. We're pleased that Q3 was another strong quarter that exceeded guidance across all key metrics Q.
Q3, total revenue grew 18% year over year to 186.3 million and subscription revenue grew 22% year over year 275 million.
With our continued focus on operational efficiency, we generated 27 4 million in non-GAAP operating income, which resulted in a record 15% non-GAAP operating margin for the quarter.
We are going through what I believe is the most exciting time in recent history for the modern front office.
Many AI experts agree that AI is going to boost human productivity significantly over the next few years for many industries customer facing functions are the most labor intensive and we believe that 20% to 40% productivity improvements are a real possibility in the next.
Five years.
We also believe that the data to train the AI models.
And the unification of Siloed teams technology and processes are required to unlock the power of predictive and generative AI.
I'd like to share more details on these three key areas given the benefits customer X customers are experiencing in terms of their operating cost risk management and improved customer experiences.
Let's start with everyone's favorite topic here.
We continue to believe that we are at the forefront of the very long term durable growth opportunity given our deep investments in AI more than five years ago.
Today I'm sure no. One is debating the fact that we have an early mover advantage given our decision to design sprinkler on a single architectural codebase.
Where AI has been infused across all product suite sprinkler service sprinkler, social sprinkler marketing sprinkler inside our self service offerings and our entire platform.
During the third quarter.
Customers executed over 170 AI deployment.
Finkler service alone.
These include.
Bordeaux speech recognition advanced intent detection.
And speech to text models, along with agent assist features like smart responses and other generative AI enablement.
I met with more than 70 customers around the world This quarter.
And while everyone is universally excited about the possibilities of AI the consumers I spoke with one day more than AI in theory. They wanted practical actionable real world AI that works safely and reliably and produce.
This measurable business results and now this is what sprinkler is doing for them.
For example, one of our leading telecom customers using sprinklers conversational AI bots and AI routing.
Chief Ooh.
Over 90% improvement in their response time.
And more than 60% reduction in average case handling time after enabling a chatbot one of our luxury goods customers has seen a 25% improvement in there. She sat score along with a 50% reduction in the average handling time using sprinklers.
Conversational analytics product.
As you know we've taken a very open approach to AI. This is why you've seen us announce or integrations with Google clouds verdicts AI and open AI. In addition to our proprietary sprinkler AI plus.
We offer our customers the greatest choice in how to utilize it shouldn't be a debate with accuracy privacy and security in a just a few clicks.
We maintain that spring close the fastest and the most effective ways for many enterprise customers and prospects to get actionable and practical AI across our global brands front office today.
The breadth of the sprinkler platform enables us to bring practical actionable AI powered insights to our brand strength office. This can only be achieved with AI that is pre trained with bound real world data.
And is secure for use in enterprises, given their compliance and risk profile, we've been working for over five years across a dozen industries to pre trade in AI for brand insights product insights location inside crisis insights and competitive insight given the.
The enormous amount of data, it's sprinkler has access to outside of the traditional CRM and E. D. P data and our industry, leading AI, we can generate and provide actionable insights out of the box.
After implementation.
Let's talk about unification.
Since our inception in 2009, we've been talking about unifying the front office.
If you aren't able to make a I N insights actionable in customer facing functions, you really aren't moving the needle.
How do you take a negative customer review or a comment and automatically convert it into a customer service ticket, if you're product feedback isn't unified with customer service.
How do you take a competitive or a content insight and translate that to a marketing campaign that works if you're inside product isn't unified our integrated with your marketing stack.
This makes unifying the front office one of the most critically important and strategic things any brand can do today to improve customer experiences.
And those who don't have.
Those who don't unified have numerous point solutions, which creates inconsistent season interpretation and reporting and trying to infuse. These point solutions independently with Siloed AI models.
That arent coming off the same training data makes it even worse. The result is just AI point solution chaos.
To create better experiences for the customer and to improve everything from marketing and sales and service and compliance and growth opportunities.
<unk> of the future must unify their digital edge, where their customers meet their customer facing employee and have their different customer facing teams market and.
Geographies work together.
As many of you know we've been on a multiyear journey to transition each one of our product suite into a large mainstream replacement market.
Over the past few quarters, you have heard us talk about how we are taking our survey product suite and successfully transitioning it from a social slash digital solution to a complete C cab solution by adding voice as a child.
That's telephone lines. The second is our insights product suite, where we have started transitioning that from a social digital listening product do a full blown customer feedback management or voice of the customer suite as some call it by adding <unk>.
Surveys.
The power of unifying unstructured unsolicited feedback with structured and solicited feedback is endless it makes the feedback real time actionable and one that can be validated.
This quarter, we started definition partnership for our customer feedback management suite.
Select few brands and have been demonstrating our early success to industry analysts.
We're pleased to announce that sprinkler was recently named by Idc's Research Director Lu Rhineman in the major players category in the 'twenty to 'twenty three I D. C markets keep assessment for worldwide voice of the customer applications.
D C noted and I quote sprinkler has grown its capabilities to have a fully featured V O C platform.
Listening analyzing and acting on customer feedback.
Sprinkler aims to bridge functional silos sales marketing support etcetera to seamlessly manage.
Coal customer journey experiences.
We were very pleased with the momentum and the progress we've made in our service suite. Our vision is to help customers transform the contact center.
From a reactive voice first cost center to a more efficient AI powered proactive omnichannel revenue center by unifying it with marketing and sales. We are excited to share the launch of conversational AI plus in the sprinkler service week weekend.
Now empower our enterprise customers to deploy and scale generative AI powered bot.
For human like text and voice conversations in absolutely three easy steps.
This is a leading and innovative way for customers to train them, but in the brand's voice automate and deflect call volume and provide a natural conversational expedient to their customers.
Also announced a partnership with infinite that CX in Germany to help customers in the dark region.
Facilitate the seamless migration to cloud based unified customer service in the contact center together with infinite that CX, we will help the most innovative companies in the region harness AI to its full extent and be able to act on insights and unified front our functions.
During the third quarter.
We continue to add new customers and expand with existing customers.
It includes world class brands like Alaska Airlines, Astrazeneca Ford Mercedes Benz and Shine.
Here are some examples.
In Q3, one of the world's top five cosmetics companies expanded its long standing partnership with sprinkler to now include conversational commerce.
With over 65 brands working on over 20 channels. The company has integrated sprinklers conversational AI and conversational commerce to enhance customer interactions support care agents and transform.
Transformed conversations into sales and long term value.
Sprinkler is helping the company to achieve its goal of generating more than 50% of its revenue through digital sales by 2025 and.
In Q3.
Top three North American home improvement retailer selected sprinklers AI first <unk> solution to provide customers with a unified seamless customer experience across channels. The retailer will consolidate all digital channels into this onto the sprinkler platform to provide a more consistent customer.
Expedient, while simplifying the lives of its customer service agents.
<unk> AI powered agent assist capabilities will enable the company to reduce the number of open applications and screens at the agent level and provide the proactive support needed to resolve customer needs faster.
Integrations with the Companys knowledge base and order management systems ensure that agents have all the data and information at their fingertips compared to their previous set of solutions.
Other example of unification and transformation powered by AI comes from a top three global food and beverage company as sprinkler customer for over 10 years last year. The company began to globally transition their social teams to sprinkler service suite.
To empower a closer more meaningful brand expedience for all its customers to understand and build brand love further in Q1. This year. They made the decision to move all their social insight just listening part more than $1 5 billion brand mentioned over to <unk>.
This includes social listening benchmarking and product inside this past quarter, they double their competitive insights coke and now monitor over 2000 digital accounts.
As a partner in our AI plus beta program. This year. The company has also harness the power of sprinklers generative AI reply assistance by unifying these solutions onto a single powerful platform. The company now has access to deep actionable insights and Jan AI capabilities that enable it to.
Provide personalized experiences to each of their many brands that they sell around the world before.
Before wrapping up I'd like to take a moment to celebrate our incredible product and engineering teams as always who make this possible their speed of innovation and dedication to serving customers continues to differentiate sprinkling in the marketplace.
In closing we had two primary goals this year the.
The first was to build and establish a foundation to scale and the exciting <unk> Mark.
And second was to meaningfully improve the operational efficiency and margins of our business.
There's no question that we've been very successful in achieving both of these goals and we're on track to deliver a solid year with 18% revenue growth record profitability and strong free cash flow generation, we believe that the product suites, we've built the customers we serve and the Si.
As of the market opportunity ahead of us put us in a great position to become a multibillion dollar revenue company in the years ahead.
Since our IPO in June of 2021, we've continued to expand our product portfolio and market focus from social to digital and transitioning to unified CX.
The investments we've been making over the last 18 months are enabling us to mainstream our product suites into large.
He is replacement market, starting with establishing ourselves as a disruptor and seek out.
As we've diversified the business and focused on scaling our <unk> business.
We'd like to acknowledge that we have made slower progress on some of our other go to market initiatives focused on our core product suites.
We expect this will have a near term impact on growth, which mean niche will review in more detail in his remarks as he shares our initial framework for FY 'twenty five.
We maintain our conviction for the long term vision of where we are building and like so many companies that have successfully build billion dollar businesses. We are navigating through the normal course of resource allocation and investment cycles required.
To balance short term success metrics with long term growth objectives.
We're committed to innovating and developing a new category of software that we call it unified customer experience about H meant.
In executing for growth and profitability to deliver for our customers and our shareholders.
To our customers partners and our employees for the hard work and results and thank you to our investors for believing in our long term vision.
Let me now hand over the call to vanish.
Thank you Rajiv and good afternoon, everyone.
As you heard from Rajiv, we're pleased with this quarter's results, which exceeded the high end of our guidance range on the top and bottom line.
For the third quarter total revenue was $186 3 million up 18% year over year.
This was driven by subscription revenues of $175 million, which grew 22% year over year.
Subscription revenue benefited by $1 million from new business being booked earlier than expected in the quarter.
Professional services revenue for the quarter came in at $15 9 million.
In terms of new logos, we are pleased with the number of new customers that joined the strength of our platform in Q3.
This is particularly true with our Splunk sprinkler service product suite.
As many of the deals in this product suite over the last few quarters have been with new customers.
As of the end of the third quarter, we had 123 customers contributing $1 million or more in subscription revenue over the preceding 12 months.
An increase of three customers sequentially, and a 15% increase year over year.
Our subscription revenue base net dollar expansion rate in the third quarter was 118%.
While LTE was healthy in the quarter I would note that we began to see incremental pressure on renewals in Q3.
Certain customers that are impacted by the difficult macro environment adjusted their spending levels with us.
As a reminder, the N. The statistic is not something we monitor as part of growing our business, but rather a byproduct.
Turning to gross margins for the third quarter on a non-GAAP basis, our subscription gross margins came in at <unk>.
That's continuing to drive efficiencies in our cloud operations with total non-GAAP gross margins of 75% <unk>.
non-GAAP gross margin for professional services were slightly negative coming in at minus 2%.
As we have discussed in the past, we continue to invest in and see cash delivery capabilities and build out our expertise in that area.
Turning to profitability for the quarter non-GAAP operating income was a record $27 4 million, resulting in non-GAAP net income of 12 cents per basic share.
This 15% non-GAAP operating margin for the quarter was a result of revenue over performance strong subscription gross margins, coupled with broad based expense discipline and is the fifth consecutive quarter of non-GAAP profitability.
Lastly on the topic of profitability for the third consecutive quarter, we posted positive GAAP net income totaling $17 million or six cents per basic share.
In terms of free cash flow, we generated $15 9 million during the third quarter compared to a cash burn of $1 7 million in the same period last year.
With this result in Q3, our free cash flow generation during the first nine months of this year now stands at $38 9 million.
Our balance sheet has become stronger each quarter now standing at $656 4 million in cash and marketable securities with no debt outstanding.
Calculated billings for the third quarter were $161 2 million, an increase of 16% year over year.
As of the end of Q3 total remaining performance obligations or RPE L, which represents revenue from committed customer contract that has not yet been recognized was $774 5 million up 34% compared to the same period last year and CRP was four.
$491 4 million up 19% year over year.
Yeah.
Moving now to our Q4 and full year FY 'twenty for non-GAAP guidance.
Our Q4 guidance assumes the go to market dynamics, Roger mentioned and the renewal headwinds I discussed earlier will have an impact on revenue growth in the quarter.
As a reminder, Q4 is our biggest book of business for both new business and renewals.
Given the macro environment, we are experiencing a higher level of down sellers as large customers right size their software spend as such we are mindful that this cycle of renewals and maybe one of the more challenging quarters to get through and is factored into the guidance numbers.
Given these dynamics for Q4, we expect total revenues to be in the range of 187 5 million to 189 5 million, representing 14% growth year over year at the midpoint.
Within this we expect subscription revenue to be in the range of $172 5 million to 174 5 million, representing 17% growth year over year at the midpoint.
We expect professional services revenue of approximately $15 million in Q4, we also expect non-GAAP gross margin from for professional services to be approximately negative $2 million in Q4.
From a profitability perspective, we expect non-GAAP operating income to be in the range of $20 3 million to $22 3 million and non-GAAP net income per share of eight to nine cents per share assuming 275 million basic shares outstanding.
The slight decrease in non-GAAP operating income sequentially is driven by our ongoing investments in <unk> service product development and delivery.
For the full year FY 'twenty four we are raising both our subscription and total revenue outlook for the year.
We now expect subscription revenue to be in the range of 664 million to $666 million, representing 21% growth year over year at the midpoint. This is an increase of $6 million at the midpoint, which is higher than the full magnitude of the Q3 beat.
We expect total revenue to be in the range of $725 5 million to $727 5 million for the full year FY 'twenty, four representing 18% growth year over year at the midpoint.
For the full year FY 'twenty four we are raising our non-GAAP operating income estimate to now be in the range of 80 million to 82 million equating to a non-GAAP net income per share of <unk> 36 to 37.
Assuming 273 million basic weighted.
Shares outstanding this implies an approximately 11% non-GAAP operating margin at the midpoint on a full year basis.
The increase of $15 million at the midpoint is greater than the full beat for Q3 and the accompanying operating income raise for Q4.
In driving the net income per share for modeling purposes, we estimate $24 million in interest income for the full year with $6 million of that to be earned here in Q4.
Furthermore, a 6 million total tax provision for the full year FY 'twenty four needs to be added to the non-GAAP operating income ranges provided.
The estimated tax provision of two and a half million here in Q4.
And given the performance throughout the first nine months of the year, we will be GAAP net income positive for the full year FY 'twenty four consistent with our comments in the past few earnings calls.
And lastly, I would like to provide some thoughts on billings.
We estimate billings to grow 13% here in Q4, equating to total billings of approximately $262 million for the quarter. This translates to total billings of about $773 million for the full year FY 'twenty, four which is up a little over 17% on a full year.
Basis compared to FY2023.
Before moving into Q&A I would like to provide some high level commentary on fiscal year 2025.
As I just outlined we are on track to deliver a very successful FY 'twenty four with 18% revenue growth and 11% operating margins that will have expanded by more than 8000 basis points year over year.
And we accomplished all this while broadening our product portfolio.
Our primary strategic focus in FY 'twenty.
Mean to rapidly scale, our sprinkler service product suite.
We are very pleased with our results having made significant demonstrable progress with sprinkler service, gaining market share and customer momentum in the <unk> market.
As Roger mentioned, our focus on succeeding in our <unk> business slowed the progress with some of our other go to market initiatives in our core product suite much more than we had anticipated now that sprinkler service is that scale, we have developed a consistent and repeatable selling motion.
That buying persona and built an enviable collection of reference customers.
We're in a position to refocus our go to market efforts to better align our resources across all product suites.
We expect it will take several quarters for the full impact of these changes to work its way through the P&L.
To put some numbers around these dynamics, if you adjust for the $1 million linearity benefit benefit I mentioned for Q3.
Q4 subscription revenue is expected to grow approximately two 5% sequentially.
At this time.
And what I, just outlined coupled with an unforgiving macro environment, we expect EC Crenshaw quarterly increase of two 5% for each quarter of FY 'twenty five.
This equates to approximately a 10% total revenue growth for the full year, which we believe is the appropriate starting point for FY 'twenty five.
From a profitability perspective, we have been pleased with the significant progress and our profitability performance this year.
We expect FY 'twenty five non-GAAP operating margins to continue to expand from our guidance for the 11% operating margins for FY 'twenty four.
I want to be clear that the dynamics I've just discussed here will be short term in nature and do not change our expectations for sprinklers growth potential across each of our four product suite, we have the strongest product portfolio in our history with an innovation flywheel that is consistently expanding.
Our competitive differentiation.
Lastly, I would like to thank all our employees for their dedication and passion for what we are building and sprinkler Im also grateful for the confidence that our customers have placed in us during these uncertain times.
Remain focused on building a track record of successful execution and operating discipline across the business and with that let's open it up for questions.
Later.
Yeah.
Thank you.
I'll now be conducting a question and answer session.
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One moment, please while we poll for questions.
Thank you.
First question comes from the line of argument.
With William Blair. Please proceed with your question.
Perfect. Thank you guys.
Maybe to start just on the go to market adjustments.
Adjustments that youre, making in the macro pressures and then you called out.
Are there any.
<unk>.
Where you're seeing the greatest incremental pressure or any part of the customer base.
Six out.
Here in Q4, where the downside is greater.
And then other areas just as we try to hone in on where.
The headwinds are increasing the most.
Yeah.
I'll I'll, let me take a first pass at it at kind of the obvious culprit is what most people would guess it does.
One of our product suite to some marketing and advertising product suite and as you know.
<unk>.
<unk>.
Difficult times marketing is one of the first budgets and teams to be impacted with layoffs cutting back on spend what's going on with some of the network isn't helping and so that's an obvious place where we're seeing some additional pressure.
Okay.
Got it and then.
Just as we look to the other side of boss when you're thinking about the go to market.
What are some of the swaps that you need to take.
I guess, a refocus on the broader suite.
Incremental hiring that needs to happen or is it.
More of our own internal resource allocation enablement et cetera.
It's more of an internal resource allocation and in hindsight I think the the most obvious explanation for it is the fact that we.
And I don't know, whether we would have.
Knowing everything we know done it differently, we kind of over rotated a little bit more on the <unk> side and so we took a field and we intended them strongly to go sell seek as an essentially.
There's a lot of people, who jumped in and really a happy and we're thrilled with the results.
And there are some debt in quiet jumped about didn't quite make it on the other side.
And the fixes quite obvious to all of US you've got to take the field.
Folks in sales and support and service that came from the social suite back onto the marketing suite background or the research insight suites background, and we got to let them go back and focus on it. So what we are doing now is we think and plan for the next year is we are adjusting quotas and where it is.
Brian Forgetting a try forgetting the field to have.
To just fix the over rotation, we did and we're pretty hopeful that one or two quarters, we'll begin to see some data that would allow us to just update you further.
Okay understood. Thank you very much I appreciate it.
Thank you.
Our next question comes from the line of <unk> Bora with J P. Morgan. Please proceed with your question.
Hey, guys. This is no entre pendulum, thanks for taking our questions.
On the first part Roger you mentioned that you mentioned.
You've met with over 70 customers, who this quarter just curious to hear some of the feedback from those conversations.
Just any incremental takeaways from there and then I had a quick follow up thanks.
Pendulum I'm glad you asked that question look I think our I've I've not seen this kind of excitement since the early days as social that I'm seeing now on the <unk> side I think we have a very differentiated product in of these and we've landed.
We're ahead of schedule in terms of our own expectations, which is why we over rotated.
And we're seeing like search.
Such is such an exciting reception to that and the idea there is pretty simple right, we're going into a market with.
Vendors who've been there for a long time and a market that's very fragmented knowledge base your agent console supervisor console your routing and your.
Bard and your.
Quality and workforce management, all just as unified and everything is based on AI.
Results are fairly spectacular and it's cost advantages as well right.
Bringing the average handling time down and these demos are received really well and the number one question. We okay. That's not real estate in the way of like we hired will set it up for you.
I want you to know that excitement is metered.
In months not weeks right, our social products are in the time people are happy let's go and in.
<unk> well these are very time consuming transformation, so they're a long protracted rfps and so we're very pleased with where we are the number one excitement we are seeing in the field among customers is our <unk> product and so we know we've done the right thing and I'll. If you play these movie.
In three year increments I think most of US would agree we did the right thing so excitement on AI excitement on practical AI excitement seen the results because we are walking into customers I'll give you a large large customer.
<unk>.
That I spoke to who was on the track to kind of build their own LLM.
After really understanding how we're approaching AI they were like Oh My God. Yeah. We just got to work with you and then you ensure that we can always use the best and the best model that yields us the best results. So that's the most exciting thing thats going on and no surprise that AI and what it can do for you and were manifesting juice.
Easy measurable results on the Zika side.
Okay.
Got it. Thanks, so much for that answer and then maybe just focusing a little bit more on the model.
We sort of contemplate the.
Preliminary.
25.
<unk>.
Yes.
How does that.
If anything does that change at all but the long term model that you had outlined during your analyst day, how should we really think about that going forward.
Well I'll start by saying no and Manish can you elaborate.
Yeah. It does not change our FY 'twenty seven long term plan and again just to be clear. This is not our guide for <unk> five I will do that and our March earnings call just given the some of the renewal pressures, we're seeing here in Q3 and as I as I said Q4, we expect it to be.
You know quite intense.
Given the visibility that we have and we just wanted to be clear that we laid out what we're seeing right now.
It might change substantially when we talk in in March and we talk about the full year guide, but sitting where we sit today, we don't feel any different about FY 'twenty seven than we did six months ago.
Thank you.
Our next question comes from the line of Elizabeth quarter with Morgan Stanley. Please proceed with your question.
Hi, This is Matt salts non for Elizabeth.
So I'd love to just touch on some of the renewal.
Winds that you are seeing you previously highlighted the expectations for net dollar expansion to be under pressure for some of those moderating renewals and up sell so I'm just curious the down sell pressure incrementally more than you expected.
And just any sense for why now.
We've been hearing from a lot of your software peers over the last year.
Talk about this dynamic so just curious around the timing of it now and also just versus your initial expectation. Thank you.
Yeah. That's a good question. So let me start and then Rajiv might chime in so first I want to be clear, we're not seeing logo churn. We're just seeing reduction in the number of seats as an example, and and why now well you've seen a lot of corporations pull back on head count there'll be les.
Across the economy.
Q4 tends to be our biggest business both in terms of renewals and new business and I suspect what is happening is when those contracts are up for renewal, which for us happens to be in Q4, we're seeing a drown down draft in terms of the number of seats being renewed so I think that that's point number one.
And then as Roger was saying there are.
Quite a bit of macro challenges, particularly as we look at the marketing and advertising suite.
<unk> cel volumes here, so it's not really seat based and again companies are looking to advertise less just given the macro and thats pulling back the era that we ascribe to that product suite.
Hope that helps got it got it yes, no that's very helpful and just maybe as a quick follow up when you think about the pressure on.
Some of those fee based renewals.
Is there any opportunity to potentially move some of those.
It's into separate Skus that maybe the customer will utilize more to maintain overall ACB I'm just I'm curious if there's any discussion internally about pursuing avenues like that to just maintain overall retention levels. Thank you.
Yeah, that's a that's an exciting thought.
Our approach here as we kind of bring a fairly disruptive new product to a new buyer is do not confuse them with the new model pricing model. So we've started by there are some products that are just flat AI based conversational bots et cetera, but we've tried to keep the pricing model parity with the market.
But I I agree with him that I think there is.
Upside for us as we as we as we get to scale in our CCAR side, there is opportunity for us to revisit pricing and thats not something were willing to comment on right now yes.
Let me make sure. It was your question that at renewal time are we trying to offer them additional skus to maintain the IRR was that the question.
Yes, that's partly I think but your answer.
So also addresses it.
Yeah, and I think to be clear that is one of the players. We are running so we are constantly as you would recall from our prior earnings calls up sells for US has always been a very strong suit. So we're constantly figuring out ways to.
Either maintain as what we're doing now to increase the AD on an account so offering them additional product suites.
One of the players where there's a number of other players we are running and again. This is part of the reason I was saying just given where we are and the limited visibility in how this plays out for the remainder of this year.
Ill.
What is captured in the guide is the situation we see.
Understood. Thank you.
Thank you. Our next question comes from the line.
With <unk>. Please proceed with your question.
Yeah. Good afternoon. Thanks for taking the question I guess when you look at the success of the contact center product on sprinkler service here.
Any any help in terms of.
The mix of existing customers that are buying that versus this as a tool to land new logos.
And how do you think about that going forward.
Not surprisingly.
I think it's 50 50, we're surprised to see brand new companies involved and include as in a contact center RFP will usually a later edition is Houston, usually coming from an analyst who have seen the products paying you guys have got to take a look or our reps calling in.
Or.
Someone who's tried us.
New that have tried us and have been impressed.
And so the answer is there is a surprising number of sort of net new rfps, we're beginning to get in and then there is always the customers have been using us for social and digital care and are also expanding into voice with us, but I'll tell you a new category that potentially has.
Some upside and where we're beginning to look at them or the larger BPM players and these are things that you know there's an established market. That's 20 years old. So we're seeing more traction early but more traction from the partners sourced so the leads for us and so that's something that we're excited.
About.
Okay very helpful. And then when you look at the partner community.
Like they've been pretty instrumental in helping some of the growth here on the contact center side, but.
Did you were you also sort of refocusing them in that direction and maybe they also to tie up tomorrow on the social marketing side or.
Anything that you think are you.
Your your internal sort of sales focus influence.
Performance by the partner community as well.
Yeah, Yeah. It's a good question and actually let me just take a step back right.
Obvious that we're going to go through an air pocket here and Thats the nature of the Beast as we transition from a set of buyers that were largely marketing based or like social customer service and digital customers.
No.
Service base now we're talking to the Guy who runs the contact center, who kind of didn't know that strength of assistance.
Till about three to six months ago.
And that curiosity and that growth is what we think it was worth the effort.
Having said that the partner ecosystem is the same way.
We are transitioning off very long term established partnership and trying us out.
I think a lot of this air pocket situation for let's say up to a year or so can be explained by making that transition and lending it right, where we're still developing our playbook and our blueprint.
To enable partners right. So the people who are trying are loving it.
We have to document their successes, we have to create the blueprint we have to train the partners. So there is a let's say any way you look at it you are looking at six to nine month lag in that going from one to the other and Thats the way we look at it though.
Seeing very good early traction and that early traction to convert to steady predictable growth on the booking side I think that's that.
It's probably the two quarters or three that we need.
Yeah.
Okay. Thanks for taking the question.
Absolutely.
Thank you. Our next question comes from the line of Brett Knoblauch with Cantor Fitzgerald. Please proceed with your question.
Alright, thanks, guys.
Congrats on the strong quarter I.
I guess last quarter, you flagged some very large deals.
With some of your largest customers and said that those kind of contract values were up 10, 15% or double digit but it seems like this quarter large customers are more of a headwind. So I guess, there's a bifurcation of.
I guess in terms of the type of customer maybe the industry of that customer that is expanding versus downtown.
Yes. These are two different basis right.
Some of the downhole pressure, we're talking about sort of the marketing side and advertising side and the other thing to put in perspective, we did land some large implementations and in contract sort of brand wise size wise.
<unk>. So we will continue to do so the thing though is there is a they go market by market. So these are companies in many cases sort of executed a master agreement and.
But then you go market by market and Youll start seeing those bookings and revenues only as markets come on board and these markets are on different contract timing cycles right.
You might have a set of markets in Latam, whose renewal with their current.
Solution is coming up in six months or nine months.
Actually good for us because these early implementations in other.
99, $5 95 times.
A whole bunch of things that we are just working through the system, we've done it before that.
It's good to have that breathing room. So I just want to make sure that you understand the time labs as you take those snapshot and tried to put it together.
And.
That should once the basis established through the rest of this year and next year.
Should see that pipeline converts steadily, but youre going to see a little bit of a starting lag.
Understood makes sense.
And then maybe just on.
Kind of like net revenue retention and how we should think about that going forward.
I guess to get to maybe the 10% growth that you guys were talking about next year. It seems like thats going to fall pretty sharply is that something that we should expect maybe in two.
25 below a 110.
Yeah. This is many so I have never given a number for net dollar expansion or retention as I stated on every earnings call. It's a byproduct of what's happening in the business.
We have signal even in the past, we do expect the 118% to keep coming down.
I don't know where its going to end up driving you can use the total revenue guide you can use the the.
The billings number for next year to sort of know that it is going to come down from the 118, probably maybe not very different from where you were expecting but it's not something that I formally put out a number on.
Got it.
Maybe if I could just ask one more on the expense side.
Particularly with sales and marketing it looks like kind of cash based SaaS marketing expenses.
Down a good bit from the first quarter I guess, how should we think about expense growth. While you go through this go to market transition.
I think at this point, we will probably provide more color in the March earnings call for next year.
I did want to point out that non-GAAP operating margins to expand from here. So there will be more efficiencies across the business I don't want to specifically call out for sales and marketing, but I think as Rajiv answered in one of the other questions. We're not looking to incrementally invest a lot.
More I think it's more around reallocation of existing resources.
Yeah.
This might be premature but look we.
I started the call by saying, one should expect 20% to 40%.
Productivity gains and defend the office and look we intend and let me be specific I intend for us to be client zero.
So theres a lot of things, we do and now that's going to take a few quarters.
Net interest.
But we're going to eat our own dog food or drink our own champagne here and so look we are anticipating and working towards improving productivity. So I think a echoed monoecious sentiment that we should be able to do both.
Perfect. Thank you guys really appreciate it.
Yeah.
Thank you.
Next question comes from the line of Michael Berg with Wells Fargo. Please proceed with your question.
Yeah.
Hi, Thanks for taking my question I wanted to ask going back to see costs.
When you think of the sales process for your <unk> offering it's primarily in the application layer you do have a voice capabilities now.
But maybe more holistically, how do you think about that piece of the business progressing to doing more well at least how I imagine augmentations today too.
Two more strategic holistic rip and replaces it always starts becoming more of a norm. Thank you.
Sorry, Michael can you too.
What was your question is it can you repeat the question Im not sure I got it.
Absolutely.
I guess, how do you think about the progression.
We see costs moving from being an augmentation in the more of a digital application layer within <unk> appointment to being a more holistic strategic replacement of the legacy vendors from end to end.
Moving forward I guess.
And that transition thank you.
Got it got it got it got it got it.
Thank.
I don't know when and what to expect in reality. So we have two sets of buyers right. We have a set of buyer that is used as the social customer service and is expanding to digital maybe is the next technical we have a bunch of dose the exciting development there.
Will is our conversational AI capability.
And thats, becoming really really good and so.
And is becoming more human like I'm not going to name the customer, but we have one customer.
There are plots and a case at close by a bot is a higher NPS Dent a case, that's close by human So I think that speaks to the progress we've made in technology. So that's sort of the class a digital customer service and mitigation of.
Interaction in call volume.
And it's just saves you money and the other one is where we are actually in a C cache replacements RFP.
Can tell you. This is anecdotally because we don't have enough data to be.
To be specific here our win rate when we are seriously considered is pretty high.
And you have this no one ever got fired for buying.
Buying IBM syndrome is the only reason why someone who sees it and believes it and test it.
And kind of.
Maybe he says I'm going to give it more time.
So we know we have a very differentiated product we know that.
The opportunities we are and we're seeing very good win rates that we have to develop that muscle across the company.
And that muscle development takes time.
The good news is the parts of the world where that muscles seems to have developed quickly either through hiring salespeople, who had been at other gas companies or leaders embracing seek as they.
They're doing really well.
So it's inconsistent.
At this point across the company in one of our big goals for next year is to make that really consistent around the world.
Helpful. Thank you.
Thank you Michael.
Thank you. Our next question comes from the line of Michael Parrett.
With Keybanc capital markets. Please proceed with your question.
Hi, This is Michael the Delta comes from Michael <unk>. Thanks for taking my question on the headwinds you talked about seeing this quarter with the over rotation in the downhole pressure I guess, where you're not seeing those same dynamics in Q2 and Q3 in a similar frequency or is that still relatively new for this quarter.
It's kind of consistent right because as a mini said, we have a much bigger base coming up in Q4, So we're not seeing the macro environment get better or get worse.
And so I wouldn't characterize it as something changed in Q4.
Yes, So let me let me clarify that I think <unk> is getting at is the level of down sales that we are beginning or we saw in Q3 and then we expect here in Q4 is much sharper than what we saw in the first half of the year.
But to also add to what he said.
When we when we look at the how the sales teams were organized of course a lot of this was things that we had wanted to do in terms of our focus on <unk>, which was very successful, but I think that whole sequence of moving the sales teams around we probably didn't see.
At least till now that we were not getting the level off.
Market momentum in our core products or traction in the core products that we should have that so I think that that's a bit of a new element, but I would again to reconcile the two rate macro we don't think is what's changing its really are over rotation.
That's causing the changeover from initiatives articulated.
Great and then just on that over rotation you called out I guess, how significant unlike a dollar or a research standpoint resource standpoint are you reallocating away from <unk> I guess I'm just trying to figure out are you far enough along in the <unk> expansion or growth that you can cancel it consumes like pushing for that market.
Grow the business despite that reallocation.
And I think the short answer is yes.
We have had several quarters here of looking at not just win rates, but the go to market model see cash what is working in the market as Rajeev was mentioning earlier, we've been successful in Onboarding partners.
In that segment. So we now have I'd say enough of a science around what it's going to take for us to succeed in that segment.
And I think this would be the appropriate time for us to focus on all of our product suites, not just C gas.
Just say, though I would again give ourselves the explanation for all of this is we will probably need another quarter or two before the.
The partner enablement, the scaling of that completely new product suites is just brought to the world right. So right now we're implementing these early partners working with US. So it's just we're in the process of template tithing at and being able to do it with much less heavy lifting.
Great. Thanks, guys.
Thank you.
As a reminder, please press star one to ask a question at this time.
Our next question comes from the line of Brian Schwartz with Oppenheimer. Please.
Please proceed with your question.
Hey, this is Ari Friedman sitting in for Brian Schwartz.
Thanks for taking my question.
I'm just wondering like in the quarter, if you saw any strength in certain verticals or weakness.
Our research suggests that there's been some softness in like insurance auto and <unk>.
I was wondering if youre seeing the same thing or something different.
I mean, I don't think Theres anything Super noticeable if you like want to interpret a certain way I say, maybe the media.
Sector right.
Media publishing.
You know channels, who have been customers that were seeing some sort of getting indifferent that theres some extra softness there.
You know theres been the streaming wars that have been going on has come down.
Social networks are in a very different place than they used to be.
As you know there is these are all like one time things that we.
For us as well.
Fortunately the timing that they are coming together at the same time, but I'd say, that's probably one way to interpret it.
Yeah. Thank you very much.
Yep. Thank you.
Right.
Thank you. Our next question comes from the line of Austin Cool.
J M. P Securities. Please proceed with your question.
Hello, Thanks for taking my question.
So on sprinkler service it sounds like customers are seeing pretty meaningful productivity improvements I'm wondering if you could walk through.
How does sprinkler service handle automated call deflecting and routing to agents just maybe so investors can better understand kind of the technical pieces here.
And how are those functions different from others see cash solutions and how our customers benefiting anything there. Thanks.
Austin. Thank you for that question I really mean that because I think one.
When you see it action it actually.
Just changes perspective, I'll tell you. The story of you will remember the big Bang that we talked about right. One of the I think the fifth largest bank.
One of our first seek as implementations 15000 agents I was I've met with the CEO and they did a live demo for me.
But the phone on the table and just dialed out.
<unk> hundred bank and what you get when you call a big Bank press, one for credit cards press too.
And after they finished implementing sprinkler for the most part.
Question on the other side the system posted as to how can I help you and you just say I want to know my credit card balance and then the follow up question is can you. Please put in your security code, we recognize your phone number and literally.
Just continue the conversation and there are you know I don't know 100 journeys that they've identified some of 50% to 80% of that as we connect more internal systems have been automated and the credit card balance inquiry is something that the automated so literally you now have an experience where.
It's very unlikely.
Traditional mediums, where we're routing and calling on the backend if it if you did ask a question like I want to change my credit limit that would go to a human but we already understand from your speech and text and voice that where you want to do so we know where to send to you and then we use.
AI to find the best agent, who can do that and because you can do it across channels, Let's say you request a credit limit increase at the bank before you had sprinkler if that request was on the phone it could ask US Hey can you just send me a proof of your salary increase blah blah blah and you send it and get it done.
But if that came on the phone on a Friday or Saturday night.
That came on E mail on a Sunday night.
The agent that had an E mail console remember before sprint these consoles for all different rate than they were logging into eight screens the agent will reply back.
E Mail, saying, Hey can you send me a proof of your income and that email.
<unk> work and you replied back five days later, the SLA for the same call driver on email was dramatically different than if it were on the phone with sprinkler that agent who's responding on email because it's an omni channel Concho, just quick John call and call it the customer.
And those are the kind of magical things and by the way in the demo.
It was ahead of our CX, who did the demo he hung up before sprinkler could blow down the bank credit card balance and called back and sprinkler picked up from where it left off and continued debt transaction.
So the kinds of things that are not possible in a traditional point solution existing legacy contact center infrastructure I hope that brings it to life.
Yeah.
Very helpful. Thank you.
Thank you Sir.
Further questions at this time I would.
Now like to pass the floor over to Ryan Thomas for closing comments.
Thank you Alicia and thank you all for joining us today again I'd like to thank our employees our partners and most importantly, our customers for their trust and continued business. We look forward to updating you all again in 90 days or so as we continue this exciting journey.
I'm sure that's going to span years and decades of creating a new category that we call unified customer experience management. Thank you very much and have a wonderful evening.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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