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

Citi's Co-Head of U.S. Software and counting down the last two sessions of the day, but we're excited to have Rory Read, the CEO of Sprinklr, and you reported results just yesterday. So I appreciate you coming to the conference the day after. I'm sure you've been busy this week.

Absolutely. Busy on the transformation.

Exactly. Yes, not just this week, this whole year. So maybe it would be great just to get an overview. I think you It's been about 1 year since...

9 months.

Since you took over. Yes, a little under a year. What has you kind of set out to do when you first joined? How are we tracking against that? And what are your goals from here?

Yes. I think one of the key things, Tyler, when you take on a transformation like this, you really want to lay out a game plan. I kind of look at it across the three phases of a transformation. The first phase is around business optimization. It's really improving the execution, making sure you have the business management system, the capabilities. You want to make sure you're building a company that can really execute more cleanly. You want to take out cost, you create that business management system, change the culture, you create better road maps, you create better execution. That's all about that optimization phase. Most of that's done in the first 6 to 9 months of a transformation. Once that transformation is going, then you really focus on burning that in. That's really the transition phase. That lasts somewhere between 4 and 6 quarters. So you do that business optimization work for the first 6 to 9 months. These are overlapping. Then you go into transition phase. Then you're burning that in, you're really creating the energy around the transformation, you're getting the buy-in from the teams, you're meeting all the customers, you're understanding that dynamic. You're leveraging the culture, the business management, the capabilities that you're putting in place from the optimization phase, you're doing some reinvestment work. And you're really kind of getting the organization fit to fight and ready to accelerate. And that usually goes over like a 4- to 6-quarter transformation. I think transition period, the first half is a little more choppy than the second half. You're looking for a bend in the business as you move through that transition period. As you come out of that transition period, you move into the third phase of the transformation, which is really around acceleration. I think the acceleration work is really focused on, now I can invest heavier into the go-to-market, the marketing positioning, you add structure and capabilities to accelerate your growth as you come out of that first spin. That's really the three-phase approach I've applied across seven transformations I've done in my career, most recently at Vonage. If you listen to Vonage's first 5 or 6 earnings call, you'll hear exactly the same messaging. I'm following that same playbook. I've done seven times before. I think that -- and if you reflect it on the first 9 months. I think I'm right where I would expect to be. I've done the optimization work. I've set the culture. I've set the strategy. I've got the organization moving in the right direction. I met with over 250 customers around the planet. I'm getting direct feedback on how to make a better Sprinklr. I'm seeing better business management and metrics, and now I'm beginning to burn that in. In the first half, a little bit more choppy than the second half. And as I talked about in each earnings call. I expect that we'll start to see a bend in the business in that 3Q, 4Q, 1Q timeframe. I think it's kind of progressing the way we would expect. And what's really encouraging, I love the technology. The platform is AI first. It's AI native. It's been using AI for now for the past 8, 9 years, huge amounts of unstructured social data was foundational. Now it's one platform across CCaaS, Customer Feedback Management, Digital Support, all of the social leadership capabilities, all of that in place. And I think you've really -- if we execute better and we really implement better, we're going to see dramatically better execution and better results.

Got it. Okay. And so that transition phase that we're in, that's kind of the longer part of this journey. What -- I guess, what sort of underpins that bend in the business that you're expecting? Is this kind of more on the go-to-market side? I know there's various initiatives like Project Bear Hug for instance, but just help us understand where we are?

Yes. I think if you think about that transitional period, you really are looking to improve all facets of the company. In a transformation like this and a turnaround, it's all about incrementally improving the performance of business, and it's a day-by-day thing. Every day, you're looking to make incremental progress across each function. So I'm looking across the product area, that my road maps are highly reliable. I'm delivering on time. I'm adding great innovation and new product capability. And I'm creating more maturity in my enterprise process. I'm putting our Support structure on Sprinklr -- on Sprinklr so that we have a full robust global support structure. I'm looking at creating a culture, a culture inside of a Sprinklr that's focused on enabling, a focus on customer obsession. The customer wins, we win. I'm looking for accountability, accountability that I do what I say, and I own what I do. Three, no silos. It's about teamwork and collaboration. It takes a village. And then I really focus on building trust, building trust with those customers. I get that go-to-market. And you think about our business, if I properly cover the top 700 accounts, I cover 90% of my revenue. And my biggest challenge is really growth and making sure my renewal rates are strong. I think that's been a bit neglected over the past 3 years, and they've had kind of a slowdown in that space. What we're seeing is with the focus on Bear Hug which is a go-to-market initiative to get deep with our customers. First, we're targeting our largest customers and then those with the most interesting renewals that are coming up and putting in the business management so that we know the health of the count, what's the adoption? What's the usage? We look at all of the renewal data. And we know now 4 quarters out, all of our renewal activity. Are we engaging that customer in a powerful way that's changing the way they're using the tool and the structure of the solution? What I get excited about and what I'm really fired up about -- Bear Hug is that Bear Hug with 700 top customers, I cover almost 90% of my revenue. All of my early data is beginning to show that when I engage those customers, I only began this 4 or 5 months ago. I'm getting better results. I'm getting better renewals. I'm getting better utilization. I'm getting more adoption, I'm getting faster and positive customer satisfaction. All of them are pointing in a positive. The second thing I see is my pipeline building and pipeline generation. The company had some weak generation, the last year. Our 1Q and 2Q pipeline generation are significantly better back to pre 3Q, 4Q levels last year. That gives me a good indication for the second half. So I'm seeing all the right data in terms of pipeline, my analytics around vectors and what I'm going to yield in terms of success and yield out of the pipeline, my results in terms of Bear Hug in terms of the impact that that's going to have, Tyler, all of them are showing that the indications are in the right direction to show that bend is coming. And I think that's the key to really creating that energy. Each of those programs, whether it's in the product area, the support, the implementation, the go-to-market all of them are moving in a positive direction to make a better sprinkler. And I think you're going to see a fundamentally different Sprinklr when we get to the spring next year and summer.

Yes. And I'd love to just kind of hear some anecdotes of some of these large customers. I mean, I know the traditional Sprinklr usage, a lot of this was for social media monitoring and CCaaS and contact center was a big push. But when you're engaging these customers like what are kind of the pain points that they have? How do you translate that into a better outcome for Sprinklr in terms of new products, retention et cetera?

I think one of the key things you have to think about Sprinklr, this is an AI native platform. And on top of it, it's the historical core marketing martech stack. So it's that social leadership, broad channels, marketing insight, marketing placement, it's where the company originated. Then we're building out CCaaS over the last 3 years. CCaaS -- we've been very disruptive. We've won huge implementations, 1,000 seats, 10,000 seats. Those implementations are going well. Since I've come in, we've improved our execution. I believe that we're going to have all of those major customers as potential references as we get to the end of this year. And where we've had challenges in the past around execution and delivery, I think we're in a position where we're going to see that really kind of continue to improve, and those customers are going to accept that. Then we're introducing, and we have leadership digital support structure. We're introducing Customer Feedback Management. We have the social conversational commerce activities, all of those fit together. And if you think about that, you could knit together the most powerful voice of the customer across a single AI-driven platform. In 3 years, how did we win 10,000 seats with some 10,000-seat implementations in CCaaS against competitors in the space for 20 years, because it's a disruptive, differentiated AI-driven solution, and they're excited about it as we become better at executing it. They like the solution. When we get it right, we get large customers. $10 million, $20 million, $25 million plus a year in our customers. That's powerful. And we already have 149 over $1 million in our customers for just a relatively small -- a little less than $1 billion software company. This says there's an opportunity for us to sell into social, sell into digital deflection, sell into CCaaS. And then once we're successful there, I think there's a C-level discussion that says, Hey, I can create you across this platform, a view of the voice of the customer across all channels. So that you could see and leverage that customer interaction across discovery, commerce, support, service in a way that's truly differentiated. And we have customers that are taking us global across those vectors at scale at this point. And we're starting to see that in terms of the increase of our service activity that are setting up several of these large transformational projects with some very large customers. So I do think it's a cool time.

And I'd love to talk a little bit more about the CCaaS stuff.

Please.

Because -- there's some big deals there. You talked about the 5,000, 10,000 type seat deals. Like are you displacing kind of the full stack there? Obviously, you got voice and routing, et cetera...

Work Force Management, Reporting the whole 9 yards. Yes, one of the things that makes it powerful, that it's one screen. The screen links you across and that agent is able to see all that information across those functions on one platform. And then they get all of the AI capabilities to create intelligent collaboration around Copilot, around nudges around -- not nudges, and around creating that kind of one screen where they link together 7, 8, 10 different solutions today. And when you get that implemented, the feedback from the agents is very powerful. And then we combine that with a deflection technology to drive to digital support and lower cost channels, so you get the better intelligent collaboration with the agents. Then you get -- which is through more of the Copilot and developed through our AI Studio and then you get the whole agentic capability to drive them to the digital lower-cost solution. So you get cost savings you get the voice of the customer and you get the capability to do it on one screen. And that's what the agents like. The cost savings are what the owners like and the best better customer experience is what the business likes. That's how we've been able to win in that space. Now we've hardened that and we're improving our enterprise maturity, that's our focus. We'll turn on the spigot more aggressively as we go into FY '27. We're growing very well in that space, but we can grow even faster, but I wanted to make sure we got our processes in place, our support capability, that we got the structure in place that would enable us to really capture it.

Got it. Okay. And then on the AI front, you referenced just kind of the origination of Sprinklr and how I was kind of built into the platform from an early days perspective. But how are you seeing customers just sort of evolve there? I mean one of the big concerns out there is that AI is disrupting a lot of these software companies. How have you seen that in the conversation with Sprinklr?

Yes. It's interesting. I've been in technology space now for 42 years, over 4 decades. I've seen seven huge technology waves, mainframe to client server, client server to the Internet and dot-com, mobility, I've seen cloud. I've seen a whole series of activities. AI is the next big wave. It's an important wave. It's going to play an important role for the next 5, 10 years and the next 20, 30 years. These waves do not displace the other waves. IBM still makes a huge amount of their profit from mainframes. Cloud is a huge player. They're streams and that weaves are built on top of each other, at the point that these new waves come out, there gets to be an overhyped situation usually where everyone thinks they're going to take over everything. And it's not a binary discussion. Remember in dot-com, there was not going to be any more brick-and-mortar solution. They were going to take over the world. And everything was going to be dot-com and it was going to be Internet. That didn't happen. There's plenty of brick-and-mortar, actually, more of it in some cases. But if dot-com and the whole Internet, an important factor and driver now for 30 years, absolutely. And it will continue to be. Same thing on AI. Everyone believes that it's going to completely displace everything. Wrong, not going to happen. And you can go read reports today. Is it having the impact that it wants to have? Is it really manifesting exactly? Yes, there's going to be questions. And as that euphoria kind of peaks, there'll be an adjustment in valuation and then there'll be a steady incline in growth a bit because this is an important technology wave. But it's not binary, and it's not going to replace things. The companies that are going to take advantage of this take this AI and embed it as an AI-native solution, and they're going to leverage the workflow and data to create a differentiated experience. Why am I winning in CCaaS with a 3-year-old product competing against the usual suspects that have been there for 20 years. Because I can go in there and create a better experience with intelligent collaboration for the agent through Copilot and our AI Studio work, and then I can do the genic work on top of that to deflect and drive to lower cost channels. So i get cost savings, better experience for the agents and I get better experience for the customers. That's how to best leverage this. A bolt-on is going to make some fast progress, but it's not going to fully leverage. Everyone says that software is going to be completely displaced. It's the same discussion as brick-and-mortar during the dot-com phase. It's not going to happen. What's going to happen is those that have it embedded and truly as an AI native platform, have a definitive advantage to take advantage of this technology wave. And i think Sprinklr is that kind of company. It's a company that was built on this technology for 8, 10 years now. And we've now created this platform end-to-end in this very relatively small billion dollar company that now can leverage that across this spread. I think that's a really interesting outcome. And when I meet with customers, they're excited to leverage the investment that they have. They -- we're bringing that solution. We're seeing rapid uptake in terms of the implementations of our social AI skills, AI capabilities in the CCaaS. That's why we've won these accounts. It's a 3-year-old solution. How did we win 10,000 with the largest company? Because it's a differentiated, disruptive AI-based solution. And then you take that and you combine that and say, okay, now on that single platform, Mr. Large enterprise or Mrs Large enterprise, I can hit that whole customer experience and voice of the customer across all those channels and show you every experience your customer's having. You know what that's worth? That's worth gold. And there's -- that's a defendable moat. And that's something that very few people can do. Cloud can do it, maybe, but it's going to be lowest common denominator. You're going to see it in a couple of players like Salesforce and Adobe are going to try to do. But in the customer experience, you look at who we compete in social? They can't do anything but social. What can Qualtrics and Medallia do in the customer feedback? A little bit of customer zero data, but I can link data with Social, Feedback, Digital, CCaaS. CCaaS players? Who they're going to get their data from? I can show the entire voice of the customer across that, and I can suck it in from each of those into one platform. I have customers very interested in that space. That, I think, is the next wave of Unified Customer Experience. I think we're very well positioned.

Got it. And just the -- I mean as you think about the growth potential of the business, I mean, you talked about some very large customers and just highlighting the scale and which you can operate. I mean, how would you sort of size the opportunity for Sprinklr? $1 billion business today, like where can this business grow?

Yes. I mean -- I think what's really interesting about this company, iconic brands. huge enterprise, the best of the best in technology and they like the solution and the technology scales and it's very progressive. I think Ragy and the team did a beautiful job in that space. I think we improve our execution, our go-to-market, our delivery, our culture, our execution. I think there's significant upside. This company trades at what, 2x revenue, that's low. If you get that, I can stretch out the bottom at any time. Our bottom has improved significantly with the cost optimization that we did. But I want to make sure that I'm also investing to get growth. You got to move into double digits. You've got to get that into a healthy space. There's no question I can do that in CCaaS but I have to do that across social, which was neglected for a period of time. Can it be a $1 billion company for sure? Can it be $1.5 billion? I'm hiring the leadership team that will be here for the next 3, 4 years that have that scale and experience to grow that business that way. We throw off a ton of cash. We have a pristine balance sheet. We can acquire other assets and other combinations. But the key to unlocking this in the tactical timeframe is improving execution. Deeper engagement with our customers, being trustworthy, being a company that does what it says and owns what it delivers and making sure that we're creating the value for the customer. That will open up faster growth, both for the Social platform, the Digital Support, the Customer Feedback Management, which is a new product, I think, will be very disruptive and CCaaS which was off to a very good start. You combine that and you say, where can this company go? If you're in a Rule of 40, somewhere in the 30s, some of our competitor -- some of the players in the software space, knock a better trade in that what, 4.5x to 6x. That seems like some significant upside, if we execute well. And we've done this before at companies like Vonage, Dell, Boomi, at Lenovo, at AMD, all of those companies have gone through these transformations and they've come out the other side in a much better place.

Right? One of the areas you emphasized earlier was just around culture. And obviously, with these transformations, you can have personnel changes and sort of responsibility changes how would you sort of evaluate where the culture is now, where you want to go, just kind of in the context of employee retention and in attrition.

That's a great question, Tyler. If you look at these transformations and you think about it in terms of the journey, right? And I told it's three phases. You do the business optimization get that burned, then you go into a burn-in phase the transition, and then you begin to bend the business and you go into an acceleration phase. You're really trying to win the culture of the company. You're doing the same thing with customers because you want them to be excited about Sprinklr. And I hear from them talking about they see a different Sprinklr. And I've met with over 250 of our customers directly multiple times over the first 9 months. They're telling me they're noticing a different Sprinklr. On the team member side and within the company, when you take over a transformation like this, 25% of the company is very excited they come along for the journey on day 1. They're excited, they're energized, and they're ready to go. If you -- on the other side, about 15% of the company is negative. They're not positive. They're not going to change. You could say, well, well, why don't you just fire them and get rid of them? Not the right answer because, by the way, they have some of the best ideas. They have a contrarian view and you want some contrarian view and some really good ideas come out. It's the middle 60% that you have to win over. I saw this when Lou Gerstner did a transformation at IBM. You've got to get to about 55%, 60% of the organization, 25% plus another 30%, 35% to come together. Then it becomes a flywheel where they all talk to each other and they recruit each other and they become change agents. When they talk in pantry or at the water cooler or online, they begin to talk about a different Sprinklr. I'd say we're about 9 months in from the 25%, I think we've gone now to about 45% high 40%. I think over the next 6, 9 months, I get to that 55% ,60%, and it becomes a self-fulfilling engine. I've seen this in every one of the transformation. And that's the key. Once you get there, it starts to feed on sell. And once you get in that 55% of the organization, they start to recruit and drive the whole organization. I'm getting close. I think I'm maybe 5 to 10 points from getting where I need to be. And it's definitely -- that's a real boost because then the whole organization, I can't be in every meeting, they become the voice. They do the driving. They do the recruiting. They act very differently in front of the customer. They see the future, and they begin to talk about it that way. That's where we're headed.

Okay. And other than maybe inertia just the way people are used to doing things, like they are some of the biggest, like road blocks to get more people over the line.

But they want to see proof points. So one of the things I do is I spend a disproportionate amount of time meeting with leadership teams, with staff members, we do a company all hand every month. We have opened 30 minutes where we cover the strategy of the business. We also have open questions where they vote up the questions. I don't manage the questions. It's anything they vote up and they vote them up, the top vote, they come off and I answer them and the leadership team. We want them to be part of this transformation. We want them to see it. And we lay out the proof points in advance and say, this is what you should see next. And this is what's coming. And when they see more of that, they begin to buy in, and they say, okay, he told us about that. Is our results getting better? Are we seeing improvement in customer? Am I getting real talent to come and join. Is the customer reacting differently. Those are the things that give them the guide post the mile markers that show them what and be open and transparent because we're in this together, we have to create an organization that creates a different outcome. They have to be bought into this, and they have to feel that energy. This is a transformation. It's hard work. It takes time. When you're in a difficult situation, keep moving, keep going forward, you're going to get to the other side. And we want to bring as many of those people with us as we can. But that transformation of this scale takes time. Everyone needs to be patient. I'm 9 months in. I've done this multiple times before, look at the other companies and see and then see where we are over the next 1, 2, 3, 4 quarters, you should start to see a very different Sprinklr as we progress through that. And definitely, as we get to spring and summer next year, it should be a very interesting time for us.

Okay. Great. And just as we think about the additional changes to -- in advance of that because 1 to 4 quarters is a bit of a range. Like are there additional personnel hires, obviously, CFO -- kind of announcement that came this week. But what other like personnel or process changes kind of have to take place before you get that running?

Yes. Most of the senior leadership work has done. I'm deep into the discussion on the CFO. Probably down select. I do like to run each function before I do a replacement. I'd like to get deep into it, really understand what's happened. I get to meet everybody. I get to help recruit them for the journey. I get to help understand exactly how each part of the business runs. I've run every part of the functions of the business and my 42-year technical career. I used to be the youngest person always in the room now I'm the oldest, I can't believe, I'm 63 years old with 8 grandchildren and I've been through a few journeys. But I generally want to get the leadership team in place by my 1-year anniversary plus or minus a couple of months. I have most of that work done. I think I've added some interesting players that add scale and expertise so our transformation can run a much bigger organization. I think that we're in a very interesting spot in terms of that. I think the CFO work, I really appreciate the work that Manish and the team have done. But I think I'm deep in that search, like I ran the sales organization for 2-plus months, I think something like that would be appropriate. It could be anywhere from 1 to 6 months. But like I said, I'm deep in that search. I'd like to run it. I'd like to get it all in place for my 1-year anniversary, plus or minus a month or so, which is November 5.

Coming up.

Yes it is coming up not that far away. And so I think I have it in the right spot, and I like where we're going. A lot of work to do and people have to be patient and see the progress they're making. We're making each day, each month, each quarter, that's how they should matter and they should keep track of us.

Sure. Well, I know we only got a couple of minutes left. So I just wanted to see if there was any closing remarks you wanted to make or anything you wanted to get across the folks that we didn't cover.

No, I'd just say this. I repeat everybody's interest in the company. I also appreciate you hosting us here today and being part of the event. We had a lot of interesting meetings, in our one-on-ones, some very good discussion. I think that it's an interesting AI-native based platform that's really in a unique position to knit together the vectors of customer engagement that will position us for future growth. And I think that's a really good place to be. And I look forward to really leveraging the Bear Hug work, the transformational activities to build a better Sprinklr over the coming months and quarters. This isn't done in one day. It's like -- if you follow baseball and you think about a 33 hitter, they get 200 hits and 600 a bat. That's a Hall of Fame career. You can't get 200 hits in one day. It's courses -- this is accumulated over the three phases of the transformation. Business optimization, transition and burn-in and then acceleration. I think if you look at how we've done it at many other companies, you listen to the first 5 or 6 earnings calls at Vonage, you're going to hear exactly the same playbook that I'm running gear at Sprinklr. And I think that was a great outcome. This company has got great technology, iconic brands, real passionate team members and really customers when we get it right that love the solution. Now if we execute better and we create great innovations and leverage this technology and this platform well, and we really execute better, I think we can create significant value here as a company, and we can create real business impact for our customers. I think it's a very cool time, keep track of us.

We certainly will. Rory, thank you so much for your time and thanks to the audience.

All right. Appreciate it. Thank you.