10-Q: Sprinklr Reports Q2 Profit Surge, Restructuring Costs Mount

Sprinklr, Inc. reported a significant increase in net income for the three months ended July 31, 2025, alongside substantial restructuring charges and a decline in its net dollar expansion rate.

Summary

• Total revenue for the three months ended July 31, 2025, increased by 8% to $212.0 million, up from $197.2 million in the prior year period.
• Subscription revenue grew by 6% to $188.5 million, while professional services revenue increased by 22% to $23.6 million for the three months ended July 31, 2025.
• Net income for the three months ended July 31, 2025, was $12.6 million, a substantial increase from $1.8 million in the same period last year.
• Operating income for the three months ended July 31, 2025, improved significantly to $16.3 million from an operating loss of $0.1 million in the prior year period.
• For the six months ended July 31, 2025, total revenue increased by 6% to $417.5 million, with subscription revenue up 5% to $372.6 million and professional services revenue up 18% to $44.9 million.
• Net income for the six months ended July 31, 2025, decreased to $11.0 million from $12.5 million in the prior year period, primarily due to higher restructuring costs.
• The Net Dollar Expansion Rate (NDE) on a trailing 12-month basis decreased to 102.2% for the period ending July 31, 2025, from 110.8% in the prior year, attributed to elevated churn and down-selling.
• The company had 149 large customers (with over $1.0 million in subscription revenue) as of July 31, 2025, an increase from 145 in the prior year.
• Restructuring costs for the six months ended July 31, 2025, totaled $15.3 million, significantly higher than $3.8 million in the prior year, reflecting a 12% global workforce reduction in February 2025.
• Free cash flow for the six months ended July 31, 2025, was $110.5 million, a substantial increase from $52.7 million in the prior year period.
• The company completed its $150 million 2025 Share Repurchase Program by August 7, 2025, having repurchased 16,494,694 shares for $140.4 million during the three and six months ended July 31, 2025.

Sentiment

Score: 5

Explanation: The company shows mixed results with strong quarterly net income and free cash flow, but a concerning decline in Net Dollar Expansion Rate and significant restructuring costs. Ongoing legal challenges and a broad range of risks temper the positive financial improvements.

Positives

• Net income for the three months ended July 31, 2025, surged by 585% to $12.6 million, indicating strong quarterly profitability.
• Operating income for the three months ended July 31, 2025, turned positive to $16.3 million from a loss of $0.1 million, demonstrating improved operational efficiency.
• Professional services revenue showed robust growth of 22% for the quarter and 18% for the six months, driven by Contact Center as a Service (CCaaS) delivery capabilities.
• Free cash flow significantly increased to $110.5 million for the six months ended July 31, 2025, up from $52.7 million, reflecting strong cash generation from operations.
• The company increased its number of large customers (>$1.0 million subscription revenue) to 149, up from 145 year-over-year, indicating continued success with enterprise clients.
• Sales and marketing expenses decreased by 9% for the quarter and 14% for the six months, primarily due to lower sales headcount from restructuring activities, suggesting cost optimization efforts.
• A reversal of restructuring costs of $1.0 million was recorded for the three months ended July 31, 2025, indicating some efficiency gains or adjustments from prior workforce reductions.

Negatives

• Net Dollar Expansion Rate (NDE) decreased to 102.2% from 110.8% year-over-year, indicating elevated churn and down-selling among existing customers, partially due to macroeconomic conditions.
• Subscription gross margin decreased by four percentage points to 77% for both the three and six months ended July 31, 2025, primarily due to increased third-party data, cloud, and network infrastructure costs.
• Professional services gross margin remained negative at (3)% for the three months ended July 31, 2025, and only slightly positive at 1% for the six months, impacted by higher subcontractor and personnel costs.
• Net income for the six months ended July 31, 2025, decreased by 11% to $11.0 million, primarily due to higher restructuring expenses.
• Restructuring expenses for the six months ended July 31, 2025, increased by 300% to $15.3 million, reflecting a significant 12% global workforce reduction.
• Cash and cash equivalents decreased from $145.3 million at January 31, 2025, to $125.4 million at July 31, 2025.
• The accumulated deficit increased to $756.4 million as of July 31, 2025, from $626.1 million at January 31, 2025.

Risks

• Recent growth may not be indicative of future growth, making it difficult to evaluate future prospects and increasing the risk of not being successful.
• The company has incurred significant net losses in the past and may not be able to generate sufficient revenue to achieve and maintain profitability.
• Failure to effectively manage growth and organizational change could harm business and results of operations.
• Inability to effectively develop platform enhancements, introduce new products, or keep pace with technological developments could adversely affect the business.
• Actual operating results may differ significantly from any guidance provided, and financial metrics may be difficult to predict, potentially causing stock price decline.
• Any failure of the Unified-CXM platform to satisfy customer demands, achieve increased market acceptance, or adapt to changing market dynamics would adversely affect the business.
• The rapidly evolving market for Unified-CXM solutions, if it develops more slowly or differently than expected, or if the company does not compete effectively, could adversely affect the business.
• Dependence on customer renewals and expansion; any decline in these areas would harm business, results of operations, and financial condition.
• Use of artificial intelligence in products may result in operational challenges, legal liability, reputational concerns, and competitive risks, including issues with intellectual property and data privacy.
• Reliance on strategic relationships with third parties and the continued availability and quality of feedback data from third parties over whom the company has no control.
• Failure to obtain, maintain, protect, defend, or enforce intellectual property rights could impair the ability to protect proprietary technology and brand.
• Subject to stringent and changing obligations related to data privacy and security, with actual or perceived failure to comply leading to regulatory actions, litigation, and reputational harm.
• Cybersecurity breaches or other security incidents could harm reputation, reduce demand, and incur significant liabilities.
• The stock price may be volatile, and the value of Class A common stock may decline due to various market and company-specific factors.
• The dual-class structure of common stock concentrates voting control with executive officers and directors, limiting other stockholders' influence.
• Unstable market and economic conditions and catastrophic events may have serious adverse consequences on business, financial condition, and share price.
• Indemnity and other provisions in various agreements potentially expose the company to substantial liability for intellectual property infringement and other losses.
• Business and operations could be negatively affected by any pending or future securities litigation or stockholder activism.
• Subject to governmental export and import controls and economic sanctions laws and regulations, which could impair international competitiveness and subject to liability.
• Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws could subject the company to penalties.
• Business could be adversely affected by changes in laws and regulations related to the Internet or changes in access to the Internet generally.
• Business could be adversely impacted by laws and regulations related to the telecommunications industry.
• Interruptions in availability or suboptimal performance associated with technology and infrastructure may adversely affect the business.
• Results of operations may be harmed if required to collect sales, value-added, goods and services, or other similar taxes in jurisdictions where it has not historically done so.
• International operations subject the company to potentially adverse tax consequences, including transfer pricing disputes.
• Uncertainties in the interpretation and application of existing, new, and proposed tax laws and regulations could materially affect tax obligations and effective tax rate.
• Ability to use net operating losses (NOLs) and other tax assets to offset future taxable income or tax liability could be subject to certain limitations, such as Section 382 of the Code.
• Delaware law and provisions in charter documents could make a merger, tender offer, or proxy contest difficult, thereby depressing the market price of Class A common stock.

Future Outlook

The company expects costs of subscription and professional services revenue to increase in absolute dollars. Gross margin is anticipated to decline in the near term due to higher data, hosting, and service delivery costs, and will vary in the long term. Research and development expenses are expected to generally increase in absolute dollars. Sales and marketing expenses are projected to decrease in the near term due to restructuring activities, then generally increase in absolute dollars in the long term. General and administrative expenses are expected to decrease in the near term due to cost-saving initiatives, then generally increase in absolute dollars in the long term. The company believes its existing liquidity will be sufficient for at least the next 12 months and over the long term. It may become subject to the OECD's Pillar Two rules in the foreseeable future, which could increase tax obligations, but does not expect the One Big Beautiful Bill Act to have a material impact.

Management Comments

• "The decrease year-over-year [in NDE] was driven by elevated churn and down-selling of certain existing customers, partially driven by the current macroeconomic environment."
• "We expect that our gross margin will decline in the near term due to higher data and hosting costs coupled with higher service delivery costs and, in the long term, will vary from period to period."
• "In the near term, we expect sales and marketing expense to decrease given recent restructuring activities. In the long term, we expect sales and marketing expense to generally increase in absolute dollars as we continue to drive the growth of our business."
• "We expect that our general and administrative expense will decrease in the near term as a result of cost saving initiatives and generally increase in absolute dollars in the long term as we continue to grow our business."
• "We believe that our existing cash and cash equivalents, marketable securities and cash from operations will be sufficient to meet our working capital needs, capital expenditures and financing obligations for at least the next 12 months and over the long-term."
• "We anticipate that we may become subject to the Pillar Two rules in the foreseeable future, which could increase our overall tax obligations and result in additional material compliance costs."
• "We currently are assessing the impact on our condensed consolidated financial statements, as well as our annual estimated effective tax rate. However, we do not expect the OBBBA to have a material impact."

Industry Context

Sprinklr operates in the rapidly evolving Unified Customer Experience Management (Unified-CXM) market, which is characterized by increasing demand for flexible solutions that integrate marketing, service, and sales across digital channels, often leveraging AI. The company's focus on large global enterprises and its AI-native platform positions it within a competitive landscape that includes specialized experience management solutions, CCaaS providers, and broader CRM/ERP platforms. The decline in Net Dollar Expansion Rate, partially attributed to macroeconomic conditions, suggests that even leading players in the CXM space are not immune to broader economic pressures affecting customer spending and retention. The company's continued investment in AI and CCaaS capabilities aligns with industry trends towards enhanced automation and integrated customer engagement, but also introduces risks related to AI deployment and competition.

Comparison to Industry Standards

• The Net Dollar Expansion Rate (NDE) of 102.2% is a key metric for SaaS companies. While still positive, the decline from 110.8% indicates a slowdown in expansion from existing customers, which could be below the higher growth rates seen in some top-tier SaaS peers (e.g., some high-growth SaaS companies aim for NDEs above 120-130%). This suggests a potential challenge in upselling or retaining customers compared to industry leaders.
• The gross margin for subscription revenue at 77% is generally healthy for a SaaS business, though a 4-percentage point decline from 81% indicates pressure from increased hosting and data costs. This could be a point of concern compared to peers who might be maintaining or improving margins through scale or more efficient infrastructure management.
• The negative gross margin for professional services (-3% for the quarter) is not uncommon for SaaS companies that use professional services as an enablement tool rather than a primary profit driver. However, the slight improvement to 1% for the six-month period suggests some progress in managing these costs, potentially aligning with industry efforts to make professional services more self-sustaining or at least less of a drag on overall profitability.
• The increase in large customers (+$1M subscription revenue) from 145 to 149 is a positive indicator of continued enterprise adoption, which is crucial for a company focused on complex, large-scale deployments. This growth rate should be benchmarked against competitors like Salesforce, Adobe, or Zendesk in their respective enterprise segments to assess relative market penetration and growth efficiency.

Management Changes

Corporate Governance

Legal Proceedings

• A putative securities class action, Boshart v. Sprinklr, Inc., et al., was filed on August 13, 2024, alleging violations of federal securities laws for misleading investors regarding Sprinklr Service risks and resource allocation during the period March 29, 2023, to June 5, 2024. A motion to dismiss is currently pending.
• Three stockholder derivative actions (Coffey v. Thomas, et al., Figurella v. Thomas, et al., and Newman v. Thomas, et al.) were filed in March and April 2025, asserting claims on behalf of the company against certain current and former directors and officers for alleged federal securities law violations and breaches of fiduciary duties, related to the same factual allegations as the securities class action. These actions have been consolidated and stayed pending the outcome of the securities class action.

Related Party Transactions

• The company engaged Lyearn Inc., wholly owned by Ragy Thomas (Founder and Chairman), for digital training services. Payments to Lyearn for employee training were nil for the six months ended July 31, 2025 (compared to $0.1 million in the prior year), and $0.1 million for customer training for both the three and six months ended July 31, 2025 and 2024. Outstanding payables to Lyearn were $0.1 million as of July 31, 2025.

Stakeholder Impact

• Shareholders: Potential for stock price volatility due to mixed financial results, ongoing legal proceedings, and changes in Net Dollar Expansion Rate. Share repurchase programs aim to return value to shareholders, but increased accumulated deficit is a concern.
• Employees: Significant global workforce reductions (12% in February 2025) indicate job insecurity and potential impact on morale, though aimed at long-term success. Stock-based compensation remains a key component of overall compensation.
• Customers: Decline in Net Dollar Expansion Rate and difficulties with CCaaS project implementations suggest potential dissatisfaction or reduced engagement from existing customers. Continued investment in the Unified-CXM platform and AI aims to improve customer experience.
• Suppliers/Partners: Increased costs for third-party data, cloud, and network infrastructure, as well as subcontractor costs for professional services, indicate continued reliance on and financial commitments to these partners.
• Creditors: The company's strong free cash flow and belief in sufficient liquidity for the long term suggest a stable position for meeting financial obligations.

Next Steps

• Continue to invest in enhancing and expanding the capabilities of the Unified-CXM platform, including AI features.
• Optimize sales and marketing expenses while driving business growth.
• Monitor and manage the impact of macroeconomic conditions on customer spending and retention.
• Address challenges in managing the implementation of certain larger CCaaS projects to improve customer satisfaction and revenue recognition.
• Vigorously defend against the pending securities class action and stockholder derivative lawsuits.
• Monitor developments and evaluate the potential impact of the OECD's Pillar Two rules on tax obligations.
• Continue to attract and retain highly qualified talent in a competitive market.

Key Dates

Recommendation

The company demonstrated improved operating income and a significant increase in net income for the quarter, alongside strong free cash flow, which are positive indicators. The completion of the share repurchase program also reflects active capital management. However, the decline in the Net Dollar Expansion Rate, substantial restructuring costs, and ongoing legal proceedings introduce considerable uncertainty. The decrease in subscription gross margin due to rising infrastructure costs also warrants attention. Given these mixed signals, a 'hold' recommendation is appropriate, suggesting investors monitor the company's ability to stabilize its NDE, integrate AI effectively, and navigate legal and macroeconomic challenges before making further investment decisions.

Keywords

Unified-CXM, Customer Experience Management, CXM, Cloud Software, AI-native platform, Subscription Revenue, Professional Services, Net Dollar Expansion Rate, RPO, Share Repurchase, Restructuring, SEC Filing, 10-Q, Sprinklr, CXM stock