Sprinklr, Inc. (CXM) Earnings Call Transcript & Summary

Excellent. So we'll get kicked off here. Thank you, everyone, for joining us this afternoon. My name is Keith Weiss. I run the software equity research practice here at Morgan Stanley and very pleased to have with us Founder, Chairman and CEO of Sprinklr, Ragy Thomas. Thank you for joining us.

Thank you, Keith.

So relatively recent IPO into the marketplace. Maybe a good place to start, you could just talk to us about what's the central problem Sprinklr is trying to solve. Like when you founded this company back in -- it was 2009. What was it that you saw in the marketplace, saying, listen, this isn't getting worked on. This isn't getting solved. This is an important problem, and this is why I founded this company.

The central problems that we are solving is that customers are looking at large companies and seeing a brand. So I think I'm dealing with Microsoft or Sony or Samsung or JPMorgan Chase and Morgan Stanley. And inside these large companies, they're unable to see their customer. And so you've got your CRM system, which helps you understand and see a customer from inside your box. But when -- as a customer, when you look inside at a company, they can't -- you can't understand how they see you. So what's missing -- if this is CRM, what's missing is an operating system around that unifies all aspects of touching customers across different channels holistically. And what's missing is the next-generation digital care capabilities, next-generation digital marketing capabilities, next-generation digital voice of the customer, customer feedback management capabilities and next-generation sales and engagement capabilities. And that's the opportunity that Sprinklr was built for. So companies had their transactional systems, right? They could see what the customer was transacting with you. You could take a look at your P&L. You could take a look at your CRM and see what your customers are transacting, but nobody could understand what was the experience the customer was having with your customer. And that's why it's customer experience management because you're trying to figure out what's -- how is the customer experiencing my brand, my company, my product.

Exactly. So how do you go about finding that? How do you go about like understanding and gathering that data to what the customers experience?

I'm glad you asked that question. So today, the primary data store for any company is their CRM system, which basically has transactional data, what did you buy, when did you visit me, et cetera. They are trying to build the second data store that's typically called CDP, which is putting together behavior from owned digital properties and trying to connect it with CRM. So if you look inside the CRM system, for you, let's say, from a hotel CRM system, I'll say how many times did you stay. When you look inside a CDP, you'll say how many times did you come to the website and search for something, right? What did you click on? And then you can probably see what did you buy if it's connected. But if I spend 30 seconds online looking you up, I can see everything that you've chosen to make public. I can see what you look like. I can see what your wife and kids look like if you've made it public. I can see every job you have had. I can see how -- where did you studied. I can see all your friends. I can see your colleagues. I can see what conference you attended. If I look at your tweet, I can understand which way you're going to vote. What are the things that are topical to you this week? Well, how did this change from last month? Where is that data, right? And that data sits inside Sprinklr. We call it the third data store. We call it the CXM database. That data, if a CDP is 10x bigger than a CRM database, this data, I'd argue, is 10,000x bigger than the CRM system. And it's not being harnessed, rightfully, because most companies should not try to use this without a platform like Sprinklr because this data is very different than your CDP data or your CRM data. This is unstructured data. It's raw text in over 100 languages. It is photos. It's videos. Without AI, you can't understand it. Two, it's owned by the consumer. You can't just concatenate it, put it next to your CDP or CRM because it'd be violating GDPR regulations or California privacy regulation. This is why 13 of the 14 large banks are Sprinklr customers. So this data store has to be managed separately, connected with consumer permission, audit trailed for compliance and then unlocked to drive your business.

Right. Got it. Got it. So I want to dig into that a little bit just to make sure I understand. I'm going to use this as a giant kind of help Keith understand this market session. You have your core transactional system, your CRM system, which has transactional data about your customer. Where did they buy, right? And sort of through how long were they in the pipeline? You have a CDP -- and this is where it gets a little fuzzy for me because everyone and their mother is talking to me about being a CDP. And -- but the CDP is really based upon your marketing efforts. Like did they hit that e-mail that I sent them that they come to the website? Am I tracking them on the website? Did they sign up for a credit card or whatnot? So it's customer data, but it's basically what's reacting to what the company is putting out there either first party or third party. But what you're looking at is everything else. This is just data about potential consumers and customers that exist out there in the Internet that you're pulling into.

That you can legally access.

So you can legally access, yes.

And in -- that you're pulling into an unstructured data store and putting AI against to get real insights on. We get 2 things. We get insights that can dramatically impact your growth. So for example, we've said this before. McDonald's came up with the idea of all-day breakfast but by looking at CXM data through Sprinklr. And when they did focus groups, what they found was people said to them they wanted salads and healthy eating. In reality, they weren't going to McDonald's to buy a salad and sales wasn't taking off. When they looked at CXM data, what they found was plenty of people wanting breakfast items outside of breakfast hours, and they have these in the store. So this was -- and then they did regression, went back in time, was like, oh my God, tens of thousands of people want this. So they knew this was a need that they couldn't find without CXM data, without AI. And then they rolled it out using Sprinklr engagement in a unified platform, and that impacted stock price and reversed 14 straight quarters of decline. Companies like L'Oreal and other -- many other CPG companies are using Sprinklr to find out what products launch like travel-sized luxury moisturizer. Like you need the best moisturize you can find when you're in a plane because it gets dry. Yet, if you want a travel size when you don't -- you can't buy the good ones, right? So that was -- that's another opportunity. Car companies looking at consumer complaints. Did the car catch fire? Someone's talking about -- so these are not things you can find by survey, right? If I'm an electric car company, I can run a survey saying if I increased my range to 500 miles, would you buy another car. That's a survey question. But you can't run a survey saying, "Did your car catch fire last week? How about this week?" So you have to have that real-time view of what customers are talking about in a connected world where most people that matter to you are online, both customers and prospects. I don't know how long you can ignore that data.

Right. Yes, those are great examples of kind of why that data is separate from what you're collecting today and why it's so important. Surveys aren't going to get to it because people are going to tell you their ideal version of themselves, not what they really want. I much rather have chicken nuggets than a salad all day long. So can you talk to us about those data sources? I think Sprinklr is known as they're one of the companies that has access to the Twitter pipe but is broader than that. This is about sort of the range of data sources that you guys have access to and you're able to put the brands in touch with.

Yes. Well, people don't understand, at least first flush is we are way beyond the social media company. We're doing like -- have all the public websites. We have blogs. We have forums. We have Reddit. We have ratings and reviews with syndicate. Anybody that has public data that legally can make it available, chances are we're already partnering. And it's data partnership. It's contracts. Advertising revenue flows through Sprinklr, so it's an ecosystem that we've built, where it's all the right way to do it because we only work with large brands. We're also their biggest advertisers. It's a data with technology infrastructure to deal with privacy. Like if you delete a tweet, we can go -- we have to go and cascade delete it from everybody's copy. And so there's a lot of tech, a lot of sort of business maturity and an ecosystem partnership that makes it extremely compelling and probably, I'd say, one of the, if not, the only legal right way to do that.

Right. So it's a huge infrastructure you have to put together to be able to sort of connect to this variety of data sources, ingest them and in a secure way, in a way that respects GDPR and all the privacy concerns. Can you give us some sense of the scale of this infrastructure? Like how many data points are you bringing back? How much AI sort of insights are you putting against that data on an annual basis?

No, we keep separate -- so the data is built in universally. Then it goes into separate instances because we are -- it's a true multi-tenant SaaS platform with the ability for every customer to have their own database. So we're like Salesforce in that regard. It's your instance. It's your data, and we keep separate copies, which is very unlike some of the other listening companies. Because this is your data. This is legally and rightly your data. If you -- again, we won't let you connect and download it because it'll violate privacy. But this is your data and your -- you can use it. One thing that also is not obvious because I gave you 3 examples of companies that are changing their course based on this data, what you're -- what most people don't also realize is this is your new customer care [ spiked ]. If I go and leave you a 1-star review saying that the bottom plate of this picture comes off in 2 weeks, it's actually 1,000x worse than they call in customer care and say the bottom plate just came off. And so we have the ability not just to find these patterns that you can build your company off of. We have the ability to take that 1-star review, know that the plate is off, attach it to the right product and send it to your customer care queue, which, by the way, if you have Sprinklr Modern Care, we have next-generation ticketing end to end, where you -- agents are sitting and resolving it.

Right. Got it. So that's a great segue. So we talked about the importance of the data and it's a different type of data that you guys have access to and are able to bring in. We talked about the infrastructure and what it takes to be able to utilize it and create insights. You started to touch on Modern Care. You guys have 4 solution categories, right? Can you talk to us about the 4 solution categories? Because this is application functionality and workflows that you guys built upon this data to help the brand, help the company actually make use of it. It's not just, hey, look, that's an interesting data point. It's what are you going to do about it? How are you going to make use of that?

Correct. So once you start refining this crude oil, this new data service, which is unlike your CRM and CDP data, what we found out in 2015 or so is you need a very different kind of digital care to deal with it because this is always on, and if a customer is talking to you on Google Message or Apple messaging, bots become inevitable. Like you can't keep chatting and scaling unless you want to hire millions of people and train them. So we had to develop bots in conversational AI. We had to build community platforms because how do you deflect and help people solve it, knowledge basis. So we can -- we had to create guided workflows that agents can use to scale because your customers can solve each other's problems. So then we had to build care for these channels, pure ticketing system, an agent console, supervisor console, routing. And around 2015, after developing this category, which is now called social media management. In '15, we realized this is what the world is going to need, a unified the ability to do it. For the last 4 years, we've been developing next-generation care; and arguably, we're beginning to get our first migrations from companies like LivePerson and Zendesk. And in many of these [ qual ] customers that we have, somewhere between 10%, in some cases, 30% or 40% of their entire care volume is handled end to end on Sprinklr. Like the rest is on like Genesys or Salesforce. But if it comes on WhatsApp or WeChat, it's all on Sprinklr, and we connect it to the same system. So our care platform is one of our fastest growing product suites. It's evolving into the most advanced digital care solution, and we just recently added voice. And in our earnings call, we talked about this new contract that we signed, where 1 of the largest banks in Asia is moving 15,000 agents from their contact center and their sales agents, moving them to Sprinklr and where sales and care are going to work together, and they want to serve to sell.

Got it. What do you think of this analogy? If you could -- to me, it's -- what the Sprinklr story sparks in my head, it reminds me of RightNow. And this is back like 15 years ago, right, and that RightNow started as like -- it was FAQs, right? It was like, "Hey, listen, one avenue, one vector of how customers are going to want to interact with you is on your website. And they just understood that this vector of communications was very important, right? Replace -- this vector communication is very important. And then RightNow, they've built a whole customer service sort of platform around it; unfortunately, acquired by Oracle and we know what happens when you get acquired by Oracle. But just having that one insight of, hey, listen, this is -- these vectors are important. Enable them. Give them a place on the table to build an entire suite. You guys, understanding this data is important, that this experiential data about enabling [ your rack ] faster and being able to do it, that's important. That's the vector that you start with in terms of that data, and that gives you the place at the table and gives you the ability to create the whole suite around it and start to become that new customer care advocate or new customer care solution for the customer.

Yes. I almost think of this as a customer operating system, right? It's the CRM and your transactions or the [ kernel ]. The operating system is the ability to put the human body around that data, the ability to reach and engage and listen, the ability to market, the ability to advertise, the ability to do customer care. Take Salesforce, right, which has grown amazingly fantastic company. You buy Salesforce, but in a company like Sprinklr today, very few people are using Salesforce because my success managers who used to use Salesforce and then move to Gainsight and now use Sprinklr are not logging into Salesforce anymore. They're using Sprint. My care agents who used to use Zendesk that was connected to Salesforce have moved to Sprinklr care. My inside sales team is using, I don't know, SalesLoft or InsideSales or some other product. My outside sales is looking at 2 or 3 other companies for their workflow and stuff. And yet, I'm paying a lot of money to Salesforce, and then I'm paying everyone else. Average marketing team has 91-point solutions, Keith. How crazy -- isn't it lunatic or is it me? 91-point solutions in 1 team and typically duplicated across markets. It makes no sense. We were just talking to an account team of one of the largest tech companies in the world. Think of top 3 large technology companies, 1 of them. 52 business units and Sprinklr was the first platform that got implemented. 51 of them are now using Sprinklr to publish and engage and respond to across like 52 multibillion-dollar businesses, the only platform to do that. And they are -- they're ecstatic because they're like this is the first time we've got universal tagging, universal automation, same AI models to detect, so I know if you're calling on this product because these products are connected, and you're watching this video on this device and whether you call the device hotline or the video providing hotline, I cannot begin to see it together. And now they're going how do I do that for care. So we solve the problem of unifying across business units, unifying across channels, unifying across markets. Samsung is a 98-country implementation on 1 instance. What we're doing -- I mean, frankly, if you really understand what we do, the question you'll be asking is why am I not using Sprinklr. Like when people say, like, why should I use Sprinklr, we're like, okay, for sure, you don't understand what we do. And so we've got to get past this as an industry, world that inevitably will move to this. That's not -- what we have is not sustainable. In every space, every industry, the platforms have eventually subsumed the point solution market, right? Remember, we used to carry our own calculators. Remember, we uses to carry our own music players. Remember, we used to carry phones and cameras. If I gave you the best phone and the best camera and the best music player and the best calculator, would you give me your iPhone back? But it takes 10 years, 20 years. We were happy in waiting in these silos. If I gave you the best e-mail program and I gave you a different but the best contact management program, a different but best calendar management and I'll also sell you software to connect those, would you give me your Gmail or Outlook back? So it takes 10 years, 15 years sometimes to develop a brand-new architecture to show the power of this unification, and then you can't go back.

Got it. Got it. That makes sense. So that unified platform that you have, the underlying data architecture you have, the 4 modules, the customer care, research, marketing, advertising, sales and engagement on top of that, can you talk to us about how a customer journey takes place for your customers? Like where do they start with typically? How do you get in the door? And then sort of how does it build from there on like all customer bases? Then we'll extract down, see like for your overall customers how far are you in sort of the journey of expanding from 1 product to 2 product to the 3 product customers.

So 1 platform and you talked about 4 product suites. Between these 4 product suites, we've got 31 products, 31 products. So typically, the way a customer gets started with us is 1 or 2 of those products maybe on the marketing side. They want to do social engagement and content marketing. Maybe 1 or 2 products on the care side or we want to use customer care on modern channels on WhatsApp or WeChat or Google Message. And then I want to have chat bots. Those are 2 products, right? Or I want my LiveChat [ here ]. We want to replace live person with that. So typically, what happens is 1 to 2 products either on the care side or the marketing side. Then the way it expands is it goes from one market to another market to another market. I'm unifying across market. I'm unifying across business units. I'm adding more products, so you're unifying care; or I'm adding more markets or more business units and streamlining content, and I'm unifying marketing. Siemens uses 10 of our 31 products in 58 countries with unified marketing. There, when you write a press release today, it goes through the same workflow that -- that's very similar unified with the advertising workflow that the agency is executing that comes for approval. They've unified -- they unified -- they're starting with unified digital marketing. Samsung, on the other end, is unifying digital care. That's a 98-country implementation, that Europe started with care. Korea started with product insight and about 70 market strategies with social engagement, but then now they are across 98 markets, they've got a unified fabric for governance, for compliance, for visualization, for analytics, for AI and all of that.

So they typically start in 1 and -- with kind of 1 product family and you could expand across 31 different products. You could expand with sort of different regions and sort of different parts of the organization. So when we think about Sprinklr, I think it's 3-3-5, $335,000 per year is like the average customer today. What does that represent? Like where are you in terms of taking that customer base across that journey? Is that average customer using 2 products or 3 products? And like how much potential is there just in the customer base in terms of being able to take those axes to more products and kind of more regions and more use cases?

So today, we have 74 customers that pay us over $1 million each. The average on that cohort is $2.5 million. Only 10% of our customers are using all of our product suites or products in all our product suites. If you take -- let me make it real. If you take large tech companies with the exception of maybe 1 or 2, most of them are Sprinklr customers. If on the right side we have a customer that pays us $13 million, $14 million a year and on the left side, we've got a customer that pays us $50,000 or $80,000, $100,000 a year, you know what the only difference between these 2 are? Education and having a champion, enterprise selling and time. There's no reason if 1 of the top PC manufacturers or laptop manufacturers is paying us $6 million. The other one's paying $2 million. One of the top banks paying us $6 million. The other one's paying us $2 million. We're getting in our own way. Our messages -- messaging is just beginning to get simple. Our story never changed. We've been friend loading and building this product, and now it's just becoming more accessible. And so there's tremendous potential within our existing customer, which is we were targeting only 6,000 customers, right? And we have 1,000 of them as customers already. And now we're going to expand that set, make the product easier and more accessible through self-service. And I think it's -- we're thinking of this as a 15-, 20-, 30-year journey. And we want to build the foundation. This quarter, did growth go up or did it go down? Those are going to be a lot less relevant than are you putting the foundational blocks and pillars down underneath 13 stories so that when you start to keep going, right, the market realizes, which they're beginning to, then can you keep going. Can you have a company that grows 30%, 40% for 10, 20 years?

Right. So you target just the biggest customers out there, the 6,000 kind of target enterprise customers that's kind of in your purview. And if I'm hearing you correctly, like all those could be the $6 million to $10 million a year customer if they're using the solution broadly within their organizations versus, today, the average customer is paying you $335,000 a year.

Right. So yes, so the biggest customer uses 22 of our 31 products and they pay us north of $10 million a year. So the marketing example, 10 of our 31 products unifying marketing, $3.5 million ARR; care example, 98 markets unifying care, $6 million ARR. So it's just time, education and delivery.

Okay. Got it. I wanted to make sure there's really some time to sort of talk about how you're executing to this opportunity. Can you walk us through, from our perspective, it seems like a great environment for marketing overall, right? Our Internet analysts and our media analysts, they just put out their digital marketing forecast and revised it up significantly, right? And they're looking for like 25% growth, something crazy like that. More tech spending seems -- it tends to kind of go along with that. What are you seeing in the environment in terms of the appetite and sort of the demand environment for solutions like Sprinklr?

We see that grow massively. We're seeing increased appetite. There's a lot of noise in the marketplace. And that's where the struggle is. The struggle is not the food or the hunger. There's plenty of hunger and the food is there. For the hungry to find the food, because there's so much noise, there's a problem. So that is why we took the company public because we want to have a platform to tell the story. We're increasingly doing our meetings at the C-suite level. Our story is becoming so much easier, our proof points, customers using it, talking to each other, our -- it's all going up. What's interesting now is when we went public, most analysts and investors was like, well, I'm looking at your growth numbers. Last quarter, we posted 27% growth, and obviously, that didn't happen in a 90-day period. And so they're now beginning to, these last set of meetings that we're doing, and most of them have talked to customers and they were like pleasantly surprised. We're talking to customers, like, "Okay, you just talk to our customers. Go call any one of our customers."

Got it. So in terms of that noise, like we were talking about before, there's a lot of vendors out there talking about a CDP, right? There's a lot of vendors talking about customer experience, right? There's a lot of vendors talking about social listening. The -- 2 questions for you. One, like who do you actually compete with the most, number one? And number two, the differentiation, and I'm presupposing, but it's going to be the breadth of the portfolio, right?

And the unification and the unified architecture. The differentiation at the heart of it is the unified architecture. The access to CXM data and the partnerships and the AI to understand it. That's a 12-year moat that, look, we're now beginning to focus on improving our go to market. Obviously, we've got a company that's growing really well on a revenue basis, pretty substantial. But we're now beginning to optimize and tweak and refine go to market in a way that we had never done before. And so the noise is very real. Everyone says they can do everything. We see lots of point solution companies, some of them that are growing really well. But if I ask you what your priority is for today, you will give me a different answer than if I ask you what's it for this week. You will give me a different answer what's for this year, what's it for the next 10 years. We're taking a 10-, 20-year prioritization approach, and many of these guys are doing well because we're optimizing go to market. And frankly, we are a better fit for investors who take it 5, 10, 15, 20 years. And those we're looking for -- there's nothing -- there are no right or wrong answers, right? Your priority for this week is as real as your priority for next year. But they are different games. And we're playing the long game, and we're a very good fit for investors who want to play the fundamental long game. I have a thesis. I'm watching the market. I'm talking to customers. And probably not a great fit for investors who are looking for -- will they pop next quarter?

Right. Got it. Just wanted -- anyone from the audience have any questions before I continue on? Okay. So -- but when it comes to that competitive situation, is it more so like the big guys that you see? Is it like the Adobe with their marketing suite and the Salesforce with the Marketing Cloud? Or is it kind of hand-to-hand combat with all kind of the best-of-breed solutions and sort of convincing the end buyer, hey, listen, you don't want to add to the problem of 91 vendors. You want to solve the problem with 91 vendors by having this consolidated view?

So 2 categories, right? So we got the point solution chaos, where the little companies are saying, "Oh, we can do this and we can do that. That is -- this is a category of competitors. So we replace somewhere between 5- to 25-point solutions when we go into a customer over 12 to 24 months. On the other side, we used to see a lot of like a Salesforce or Adobe. We can do that, too. We see that occasionally. But every one of our customers has fallen into that trap where the CEO is like, "I've written a big check. I think I'll get this." Like if 1 customer in the Middle East, a very large company came back in 4 months, most come back at the end of 12 months, but it's very clear that the capabilities that we've built, the 31 products, they're unique and different from what Salesforce or Adobe is doing. And you can't -- they are big and real conversational commerce, right, or content marketing. You can't just flush it under we do content anymore. So I think that's -- the market's recognizing and those companies are recognizing, and so most companies are buying Salesforce and Adobe and Sprinklr. So that's kind of -- that is less noise now, but that's another category. In reality, what we are gearing up for, Keith, is 5 years from now, we think there's going to be 1 or 2 big companies coming at it. You can see the likes of Zendesk adding -- started in care adding sales. HubSpot started in marketing going into care or like a Freshworks SMB but telling the same story or a Twilio with -- starting with developer. We're all seeing the same opportunity to -- so you can call it customer engagement. You can call it customer experience. Don't call it customer feedback. Customer feedback is what Medallia and Qualtrics do. And they call themselves customer experience, and I love them, amazing companies, great growth, but they're not -- they're doing the category a disservice because they actually don't manage experience. They manage feedback, which was what we do in our modern research product, voice of the customer. So we think that is the world we're looking at. And that's an interesting cohort. All of them are growing. And we're like, how -- what do we do now that when the game really plays out in 2, 3, 4 years that we've built such a big advantage? And because frankly, everyone is executing well now. I think 3 years, the difference will be how deep is the foundation.

Right. Less of a -- in 5 seconds, I want touch on is just kind of the investments that you're making because after 2021 -- sorry, 2020, you guys pressed on the brakes a little bit like during the downturn. And the messaging over the past couple of months, definitely a couple of quarters has been, hey, listen, now is the time to press on the gas, increase that level of investment in the go to market, in partners and getting more SIs onboard. Can you talk to us about sort of the focal point of those investments, where you're really looking to sort of build out the capabilities?

So remember, we now target 10,000 companies in our primary sales motion up from 6,000. That's what we call as a vector 1. We're adding a second vector, which is the next 90,000 companies. These are still very large companies, mainly local, but not quite the multibillion-dollar brand that you would recognize. So our money is spent on adding capacity to vector 1, investing in vector 2 and providing brand and ground support through digital marketing and traditional marketing, which we had not done a good job of in our past. So that's where the money is going, sales and marketing.

Got it. And can you talk to us just real briefly the difference between the go-to-market strategy for vector 1 and vector 2? What's -- so how do you have to adjust your go to market to get to that 90,000 versus -- not 90,000.

Yes, 90,000.

Yes. Okay. 90,000 versus the 10,000?

So I mean once it goes past the few thousands, right, you quickly outgrow the ability to have a rep assigned in named accounts. So in vector 2, whether you're going after 100,000 or 1 million, you really have to have a product-led growth strategy. You have to have a self-service product. You have to have SDR, all the wonderful things that these companies who have cracked it are doing, right? So there's no magic there. You just got to build it out. There will be some tries, some learnings as we go through. And so the key difference is a lot more digital demand and pipeline. The key difference is SDR, BDR that are optimized for sale on the phone and with that 6-month sales cycle, a key difference is self-service product and support that is much more scalable.

Got it. Perfect. Unfortunately, we're out of time, but fascinating conversation. I could sit up here and chat with you all day. But I very much appreciate you coming to the Spark Conference.

Great conference. Thank you much.

Thanks, guys.