10-Q: Sprinklr Reports Q3 Net Income Drop Amid Restructuring

Sprinklr, Inc. reported a significant 72% decrease in net income for the third quarter, despite a 9% rise in total revenue, driven by higher tax provisions and restructuring costs.

Summary

• Total revenue for the three months ended October 31, 2025, increased by 9% to $219.1 million from $200.7 million in the prior year period.
• Subscription revenue grew 5% to $190.3 million, while professional services revenue surged 43% to $28.8 million for the quarter.
• Net income for the quarter decreased significantly by 72% to $2.9 million, down from $10.5 million in the same period last year.
• Operating income for the quarter increased by 46% to $11.6 million, compared to $7.9 million in the prior year.
• The provision for income taxes dramatically increased by 392% to $14.4 million for the quarter, primarily due to the inclusion of U.S. profit before tax in the effective tax rate computation and discrete tax charges.
• For the nine months ended October 31, 2025, total revenue increased 7% to $636.6 million, with subscription revenue up 5% and professional services revenue up 27%.
• Net income for the nine-month period decreased by 39% to $14.0 million, from $22.9 million in the prior year period.
• Operating income for the nine-month period increased by 93% to $26.1 million.
• The Net Dollar Expansion Rate (NDE) for the trailing 12-month period ending October 31, 2025, was 102.3%, a decrease from 107.3% in the prior year, attributed to elevated churn and down-selling.
• Cash and cash equivalents increased to $189.6 million as of October 31, 2025, from $145.3 million as of January 31, 2025.
• Free cash flow for the nine months ended October 31, 2025, was $126.0 million, up from $57.6 million in the prior year period.
• The company completed its $150 million 2025 Share Repurchase Program during the third quarter of fiscal year 2026.
• Restructuring costs for the nine months ended October 31, 2025, were $15.9 million, significantly higher than $3.0 million in the prior year, due to a 12% global workforce reduction in February 2025.

Sentiment

Score: 4

Explanation: While revenue and operating income showed growth, the significant decline in net income, coupled with a lower Net Dollar Expansion Rate and substantial restructuring costs, indicates underlying challenges impacting profitability and customer retention. The legal proceedings and reliance on third-party data also add to the negative sentiment, despite strong free cash flow.

Positives

• Total revenue increased by 9% for the quarter and 7% for the nine-month period, indicating continued top-line growth.
• Professional services revenue showed strong growth of 43% for the quarter and 27% for the nine-month period, driven by CCaaS delivery capabilities.
• Operating income increased substantially by 46% for the quarter and 93% for the nine-month period, reflecting improved operational efficiency before taxes.
• Professional services gross margin improved significantly to 2% for the quarter (from -10%) and 1% for the nine-month period (from -4%), largely due to CCaaS project delivery.
• Sales and marketing expense decreased by 4% for the quarter and 11% for the nine-month period, indicating cost optimization efforts.
• Free cash flow more than doubled to $126.0 million for the nine-month period, demonstrating strong cash generation from operations.
• The company completed its $150 million share repurchase program, signaling confidence in its valuation and returning capital to shareholders.
• Cash and cash equivalents increased by $44.3 million since the fiscal year-end, strengthening liquidity.

Negatives

• Net income decreased by 72% for the quarter and 39% for the nine-month period, primarily due to higher tax provisions and restructuring costs.
• The provision for income taxes increased by 392% for the quarter and 223% for the nine-month period, significantly impacting the bottom line.
• Subscription gross margin decreased by four percentage points for both the quarter and nine-month period, driven by increased third-party cloud infrastructure and data costs.
• The Net Dollar Expansion Rate (NDE) declined to 102.3% from 107.3%, indicating elevated customer churn and down-selling, partially due to macroeconomic conditions.
• Restructuring expenses increased significantly to $0.5 million for the quarter and $15.9 million for the nine-month period, reflecting costs associated with global workforce reductions.
• Marketable securities decreased to $290.8 million from $338.2 million, and total assets decreased from $1.18 billion to $1.05 billion since the fiscal year-end.

Risks

• Recent growth may not be indicative of future growth, and growth makes it difficult to evaluate future prospects.
• 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, leading to stock price decline.
• 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 would harm business, results of operations, and financial condition.
• Revenue recognition over the contract term means increases or decreases in new sales may not be immediately reflected in results of operations.
• Failure to attract and retain qualified talent could prevent successful execution of the business strategy.
• Reliance on third-party data centers and cloud computing providers; any interruption or delay in service could impair delivery of the Unified-CXM platform.
• Use of artificial intelligence in products and operations may result in operational challenges, legal liability, reputational concerns, and competitive risks.
• Dependence on strategic relationships with third parties and continued availability and quality of feedback data from third parties (e.g., X/Twitter API) over whom the company does not have control.
• Failure to obtain, maintain, protect, defend, or enforce intellectual property rights could impair the ability to protect proprietary technology and brand.
• Potential claims by third parties alleging infringement, misappropriation, or other violation of their intellectual property, trade secrets, or proprietary rights.
• 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 that could impair ability to compete internationally.
• 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 telecommunications industry.
• Interruptions in availability or suboptimal performance associated with technology and infrastructure may adversely affect the business.
• Subject to stringent and changing obligations related to data privacy and security; actual or perceived failure to comply could lead to regulatory actions, litigation, fines, and reputational harm.
• Cybersecurity breaches or other security incidents, identified vulnerabilities, or unauthorized access to data could harm reputation and reduce demand.
• Results of operations may be harmed if required to collect sales, value-added, goods and services, or other similar taxes in jurisdictions where not historically done so.
• International operations subject the company to potentially adverse tax consequences.
• Uncertainties in the interpretation and application of existing, new, and proposed tax laws and regulations could materially affect tax obligations and effective tax rate (e.g., IRA, Pillar Two).
• Ability to use net operating losses and other tax assets to offset future taxable income or tax liability could be subject to certain limitations.
• Stock price may be volatile, and the value of Class A common stock may decline.
• Dual class structure of common stock concentrates voting control with executive officers and directors and their affiliates.
• Failure to maintain an effective system of disclosure controls and internal control over financial reporting could impair ability to produce timely and accurate financial statements.
• Unstable market and economic conditions and catastrophic events may have serious adverse consequences on business, financial condition, and share price.

Future Outlook

The company expects costs of subscription revenue to increase in absolute dollars due to customer base expansion and investments in cloud infrastructure. Gross margin is expected to decline in the near term due to higher data, hosting, and service delivery costs. Research and development, and sales and marketing expenses are expected to generally increase in absolute dollars as the company invests in platform enhancements and business growth. The company anticipates that it may become subject to Pillar Two rules of the OECD framework in the foreseeable future, which could increase overall tax obligations. The company believes existing cash, cash equivalents, marketable securities, and cash from operations will be sufficient to meet working capital, capital expenditures, and financing obligations for at least the next 12 months and long-term. The company intends to indefinitely reinvest funds held outside the United States.

Management Comments

• The increase in subscription revenue was primarily due to increased revenue from existing customers driven by the purchase of additional quantities of current subscription solutions and additional add-on solutions within our platform, as well as demand for our solutions from new customers.
• Such growth was partially offset by certain existing customers purchasing fewer quantities of current subscription solutions within our platform, as well as certain customers no longer subscribing to our platform, partially driven by macroeconomic challenges.
• The increase in professional services revenue was primarily due to growth in both implementations and managed services related to Contact Center as a Service (CCaaS) delivery capabilities.
• Gross margin for subscription decreased by four percentage points, primarily driven by increased costs associated with third-party cloud infrastructure and data.
• Gross margin for professional services increased by twelve percentage points, largely driven by the delivery and implementation of various CCaaS projects.
• The increase in research and development expense was primarily due to increased subcontractor and consulting costs as a result of quality improvement projects implemented in the current fiscal year and higher personnel costs.
• The decrease in sales and marketing expense was primarily due to a decrease in personnel costs related to lower sales headcount as a result of restructuring activities.
• The increase in restructuring expense was due to the reduction in global workforce implemented in the first quarter of fiscal year 2026 impacting 12% of our workforce versus a 3% impact to the workforce as a result of the reduction in global workforce implemented in the second quarter of fiscal year 2025.
• The increase in other income, net was primarily due to an increase of $1.2 million associated with net foreign currency gains, partially offset by a $1.0 million decrease in interest income from our money market and short-term investment accounts.
• The increase in provision for income tax relates primarily to the impact of including U.S. profit before tax in the annual effective tax rate computation for the three months ended October 31, 2025.
• 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.

Industry Context

Sprinklr operates in the rapidly evolving Unified Customer Experience Management (Unified-CXM) market, which is seeing increasing demand for flexible solutions that bridge traditional silos. The company faces competition from various specialized solutions (social media management, customer service, CCaaS, CRM/ERP) and relies on third-party data providers and APIs (e.g., X, Meta, Snap). Macroeconomic conditions, including inflation and interest rates, are impacting customer spending and Net Dollar Expansion Rates across the industry. The company's investment in AI-native platforms aligns with broader industry trends towards AI integration in customer experience solutions, though this also introduces new operational and regulatory challenges.

Comparison to Industry Standards

• The Net Dollar Expansion Rate (NDE) of 102.3% for the trailing 12-month period ending October 31, 2025, decreased from 107.3% in the prior year, which management attributes to elevated churn and down-selling, partially driven by the current macroeconomic environment. This suggests a potential softening in customer retention and expansion compared to previous periods, which could be a broader industry trend or specific to Sprinklr's competitive positioning.
• The significant increase in professional services revenue and gross margin improvement in this segment, particularly related to CCaaS projects, indicates a strong performance in a competitive area of the CXM market. While no specific comparable companies are named, this suggests effective execution in a high-demand segment where companies like Genesys, Five9, or NICE are key players.
• The decline in subscription gross margin due to increased third-party cloud infrastructure and data costs could reflect industry-wide pressures on cloud service expenses or specific contractual terms with providers like AWS, Azure, or Google Cloud, which are common across the SaaS industry.

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 allegedly making false and misleading statements, particularly regarding risks associated with Sprinklr Service and resource allocation. An amended complaint was filed on January 24, 2025, and 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-April 2025, asserting claims substantially similar to the securities class action against current and former directors and officers. These actions were consolidated on May 2, 2025, and subsequently stayed on June 20, 2025, pending the outcome of the securities class action.

Related Party Transactions

• The company engaged Lyearn Inc., a learning management system company wholly owned by Ragy Thomas (Founder and Chairman), for digital training services to employees and certain customers. Payments to Lyearn were approximately $0.1 million for employee training during the three months ended October 31, 2025, and $0.1 million for employee training and $0.1 million for customer training during the nine months ended October 31, 2025. Outstanding payables to Lyearn were nil as of October 31, 2025.

Stakeholder Impact

• Shareholders: The significant drop in net income and declining Net Dollar Expansion Rate could negatively impact shareholder value. However, the share repurchase program and increased operating income may offer some offset. Ongoing legal proceedings introduce uncertainty.
• Employees: The global workforce restructuring (12% reduction in February 2025) indicates job losses, impacting employee morale and potentially increasing workload for remaining staff. Delays in employee notifications for restructuring also suggest internal communication challenges.
• Customers: Difficulties with CCaaS project implementations led to increased customer dissatisfaction and loss of certain customers. The declining NDE also points to reduced customer expansion or increased churn, which could affect customer loyalty and future revenue.
• Suppliers/Partners: Increased costs for third-party cloud infrastructure and data providers, as well as subcontractor costs for professional services, indicate continued reliance on these partners, but also cost pressures. The reliance on social media APIs (e.g., X/Twitter) poses a risk if agreements are not renewed or terms change.
• Creditors: Strong free cash flow and sufficient liquidity (cash and marketable securities) suggest a healthy ability to meet financial obligations, which is positive for creditors.

Next Steps

• Continue to invest in enhancing and expanding the capabilities of the Unified-CXM platform.
• Expand international operations, potentially opening additional offices and providing services in more languages.
• Monitor and evaluate the potential impact of new accounting standards (ASU 2023-09, 2024-03, 2025-01, 2025-05, 2025-06) on financial statements and disclosures.
• Vigorously defend against the pending securities class action and stockholder derivative lawsuits.
• Monitor for updates to business and guidance issued with respect to the Inflation Reduction Act (IRA) and the OECD's Two-Pillar framework (Pillar Two rules).

Key Dates

Recommendation

While Sprinklr demonstrated continued revenue growth and a notable increase in operating income, the substantial decline in net income, primarily due to higher tax provisions and significant restructuring costs, raises concerns about bottom-line profitability. The decrease in the Net Dollar Expansion Rate indicates challenges in retaining and expanding existing customer relationships, which is a critical metric for SaaS companies. The ongoing securities litigation and derivative actions introduce legal and reputational uncertainties. However, the company's strong free cash flow generation and the completion of a $150 million share repurchase program suggest underlying financial health and management's confidence. The strategic focus on AI-native platforms and growth in professional services, particularly CCaaS, are positive long-term drivers. Given the mixed financial signals and ongoing operational adjustments, a 'hold' recommendation is appropriate, advising investors to monitor the company's ability to translate revenue growth into sustainable net income and improve customer expansion rates.

Keywords

Unified-CXM, Customer Experience Management, CXM, Cloud Software, AI-native platform, Subscription Revenue, Professional Services, Net Dollar Expansion Rate, Share Repurchase, Restructuring, SEC Filing, 10-Q, Financial Results, Software as a Service, SaaS, Corporate Governance, Legal Proceedings, Cybersecurity, Data Privacy, Artificial Intelligence, CCaaS, Contact Center as a Service