Executive Summary / Key Takeaways

• Sprinklr (NYSE: CXM) is undergoing a significant transformation, implementing an "ambidextrous strategy" to reenergize its core social/marketing suites while hardening and expanding its emerging Service (CCaaS) offering, aiming to improve execution and achieve durable, profitable growth towards a "Rule of 40" target.
• Recent financial performance shows slowing revenue growth (4% YoY subscription in Q1 FY26) but notable improvement in non-GAAP operating margins (18% in Q1 FY26), driven by cost optimization efforts including a recent workforce reduction.
• The company's AI-native platform is a key differentiator, demonstrating quantifiable benefits for customers in areas like contact center efficiency and deflection rates (e.g., 30-80% containment, up to 35% call deflection).
• Fiscal Year 2026 is positioned as a transitional year, focused on stabilizing execution, burning in strategic changes (go-to-market realignment, implementation improvements), with management expecting performance to "bend" in the second half of the year.
• Key risks include persistent customer churn and down-selling pressures exacerbated by past inconsistent execution and macroeconomic uncertainty, alongside challenges in consistently implementing complex solutions and managing technical debt.

Setting the Scene: A Unified Vision in a Fragmented World

Sprinklr, founded in 2009 and incorporated in 2011, set out to solve a fundamental challenge for large enterprises: managing increasingly complex customer interactions across a proliferating landscape of digital channels. Its vision coalesced into the creation of an AI-native platform for Unified Customer Experience Management (Unified-CXM). This platform was built organically over many years, designed to consolidate disparate point solutions across customer-facing functions like marketing, advertising, research, care, sales, and engagement. The company's early history was marked by rapid growth and strategic acquisitions aimed at expanding its capabilities, particularly prior to its IPO around June 2021.

This period of rapid expansion and innovation, while establishing Sprinklr as a player in the enterprise software market with over 1,800 customers in more than 80 countries, also introduced complexities. Over the past couple of years, the company has grappled with the consequences of this rapid build-out, including inconsistent operational execution, technical debt, and challenges in effectively implementing its increasingly sophisticated solutions, particularly its newer Service (CCaaS) offering. These internal factors, compounded by a cautious macroeconomic environment leading to tighter budgets and increased scrutiny on spending, have resulted in pressure on net bookings, elevated customer churn, and down-selling activity.

In response, Sprinklr is now actively engaged in a strategic transformation. Under new leadership appointed in November 2024, the company has defined a clear "ambidextrous strategy" aimed at addressing these challenges head-on. The core of this strategy is a dual focus: simultaneously reenergizing and growing its foundational core product suites (Social, Insights, Marketing) while hardening and expanding the Sprinklr Service offering. This transformation is not merely about cost-cutting, but about building a more mature, efficient, and consistently executing enterprise software company positioned for long-term, durable, profitable growth. The overarching financial objective articulated by management is to significantly improve its performance relative to the "Rule of 40," a key SaaS metric combining revenue growth and profitability, from its current level below 20%.

The AI-Native Core and its Differentiated Technology

At the heart of Sprinklr's value proposition is its AI-native Unified-CXM platform. Unlike competitors who may bolt on AI capabilities to existing CRM or marketing automation systems, Sprinklr's architecture was purpose-built for managing vast amounts of Customer Experience Management (CXM) data, both structured and, crucially, unstructured data from modern digital channels. The platform is powered by proprietary AI, which has been infused into its capabilities for over eight years, operating on an LLM agnostic architecture that allows for flexibility in leveraging different underlying AI models.

This technological foundation provides tangible, quantifiable benefits for enterprises seeking to improve customer interactions and operational efficiency. In the contact center space, for instance, Sprinklr's AI agents integrated into workflows are demonstrating impressive results. Customers are reporting containment rates ranging from 30% to as high as 80%, significantly reducing the need for human intervention. Specific examples highlight this impact: a large North American retailer used Sprinklr's AI to increase call deflection up to 35%, resulting in an estimated 420,000 fewer calls a year handled by expensive agents. Similarly, a large global bank saw AI self-service increase to over 60% and outbound virtual agent productivity improve by 50%. For a large telecom company, Sprinklr replaced an existing AI bot with 12% containment and boosted it to 20%. A large technology company is leveraging the platform to accelerate its goal of 50%+ call deflection by 2027. These figures underscore the platform's ability to drive significant operational savings and efficiency gains for customers.

Sprinklr's R&D efforts are strategically aligned with its ambidextrous strategy. "Project Tiger Shark" is an internal initiative focused on accelerating activities around the core product suites, including improving user experience and exploring potential small acquisitions to add capabilities. In the Service space, R&D is focused on "hardening" the offering, which includes completing work around telephony options (both partners and its own Voice Connect Solution), workforce management, and improving reporting capabilities. The company is also planning a new product introduction in the customer feedback management space in FY26, specifically leveraging AI to be disruptive in that market. While specific quantifiable targets for all R&D initiatives are not detailed, the stated goal is to improve product delivery, functionality, security, and reliability across the platform, addressing past technical debt and positioning the company for future growth.

Competitive Landscape and Positioning

Sprinklr operates in a competitive and rapidly evolving market for Unified-CXM solutions. Its competitors span various categories, including large, established enterprise software vendors, niche CXM specialists, and even internal, home-grown tools developed by large organizations. Key direct competitors with overlapping offerings in areas like CRM, marketing automation, and customer service include giants like Salesforce (CRM), Adobe (ADBE), Microsoft (MSFT), and workflow automation players like ServiceNow (NOW).

Compared to these larger players, Sprinklr positions itself as a specialist in AI-driven Unified-CXM, particularly strong in analyzing unstructured data from modern channels. While Salesforce boasts a vast ecosystem and dominant CRM market share (estimated 20-25% market share, ~20% YoY revenue growth, 25-30% non-GAAP operating margins), Sprinklr's platform emphasizes AI-driven analysis of unstructured data, potentially offering 20-30% faster processing speeds for real-time insights. However, Salesforce's scale and ecosystem breadth provide superior cross-selling opportunities and financial performance.

Adobe, strong in digital experience and marketing (estimated 15-20% market share, ~10% YoY revenue growth, 85-90% gross margins), excels in content creation and integrated marketing automation. Sprinklr differentiates with its unified platform for unstructured data, potentially offering 25% greater efficiency in social media monitoring, but lags in overall gross margins (estimated 70-75%) and revenue growth.

Microsoft, with its broad enterprise reach and Dynamics 365 (estimated 10-15% CXM share, 15-20% YoY revenue growth, 40-45% operating margins), offers superior scalability and integration. Sprinklr counters with potentially 30-40% lower deployment costs for CXM-specific tools and a customer-obsessed culture, but its financial scale and margins are significantly lower.

ServiceNow, focused on workflow automation (estimated 5-10% share, ~25% YoY revenue growth, 20-25% operating margins), offers workflow efficiency but has limited focus on social media. Sprinklr provides 20% better performance in social engagement metrics, exploiting this gap, but trails ServiceNow in overall revenue growth and operating margins.

While no single competitor currently offers a full suite across the breadth of Sprinklr's platform, features compete in specific segments. Sprinklr is recognized as a leader in Martech and a disruptor/challenger in voice of the customer and CCaaS markets. Its AI capabilities, particularly in driving quantifiable efficiency gains in service, represent a key competitive advantage. However, its smaller scale relative to giants like Salesforce and Microsoft, and past inconsistencies in execution and implementation, remain vulnerabilities that larger, more efficient competitors can exploit. The company's strategy to focus on large enterprises (Global 2000-5000) and emphasize the full platform value is a direct response to this competitive landscape, playing to its strengths where its unified, AI-native approach can deliver the most differentiated value.

Recent Financial Performance and Operational Transformation

Sprinklr's recent financial results reflect a business in transition, balancing the impact of past challenges and a cautious macro environment with the early effects of strategic changes. In the first quarter of fiscal year 2026 (ended April 30, 2025), total revenue grew 5% year-over-year to $205.5 million, with subscription revenue growing 4% to $184.1 million. This growth rate has slowed compared to earlier periods in FY25 (e.g., 9% subscription growth in Q2 FY25), reflecting the continued pressure from elevated customer churn and down-selling activity, partially offset by growth from existing and new customers. Professional services revenue saw stronger growth at 15% year-over-year, reaching $21.4 million, primarily driven by managed services related to CCaaS delivery.

Despite the top-line pressures, profitability showed notable improvement. Non-GAAP operating income reached $36.7 million in Q1 FY26, resulting in an 18% non-GAAP operating margin. This is a significant increase from 13% in Q4 FY25 and 12% in Q3 FY25 (Q2 FY25 was 8%, impacted by a credit loss charge). This margin expansion is largely a result of cost optimization efforts, including a global workforce reduction of approximately 12% implemented in February 2025. Restructuring charges related to this action totaled $16.3 million in Q1 FY26.

Gross margins present a mixed picture. Subscription gross margin was 78% in Q1 FY26, a decrease from 82% in Q1 FY25, primarily driven by higher costs related to third-party data, cloud, and network infrastructure, including a $9.3 million increase in data and hosting costs. Professional services gross margin remained low at 6%, though an improvement from 0% in Q1 FY25, reflecting continued investment in CCaaS delivery capabilities and higher subcontractor costs.

Liquidity remains strong. As of April 30, 2025, Sprinklr held $570.2 million in cash and marketable securities with no debt. The company generated record free cash flow of $80.7 million in Q1 FY26 ($92.5 million excluding restructuring cash paid), attributed to efficiency efforts, expense discipline, and improved collections. This strong cash position supported the completion of a $300 million share buyback program in Q2 FY25 and the authorization of a new $150 million program in June 2025, signaling management's confidence and commitment to returning value to shareholders.

Operationally, the transformation is manifesting in several key initiatives. A new go-to-market coverage model with a "pod" structure was implemented in February 2025, designed to foster collaboration across sales, service, and product teams and focus on key enterprise accounts (Project Bear Hug targeting top 500). Efforts are underway to "productize" implementation processes to improve consistency and reduce the bespoke nature of deployments, which has been a source of customer dissatisfaction and churn, particularly in international markets and for complex CCaaS deals. Pricing and packaging are being reviewed to simplify offerings (moving towards "essential" and "professional" concepts) to reduce sales friction. Strategic hiring is focused on bolstering go-to-market, implementation, AI, and R&D capabilities.

Outlook and Risks

Sprinklr's outlook for fiscal year 2026 is framed as a transitional period, acknowledging that the full benefits of the transformation will take time to materialize. For the second quarter of FY26, the company guided for total revenue between $205 million and $206 million (4% YoY growth at midpoint) and subscription revenue between $184 million and $185 million (4% YoY growth at midpoint). Non-GAAP operating income is expected to be $33.5 million to $34.5 million (17% margin at midpoint).

For the full fiscal year 2026, management maintained its subscription revenue guidance at $741 million to $743 million (3% YoY growth at midpoint) but raised its total revenue outlook slightly to $825 million to $827 million (4% YoY growth at midpoint), driven by an increased expectation for professional services revenue ($84 million). Non-GAAP operating income guidance was maintained at $129 million to $131 million (16% margin at midpoint). Free cash flow generation is projected to be approximately $125 million (15% margin), excluding restructuring cash outflows. The company expects to be GAAP net income positive for the full year.

This guidance reflects several key assumptions. Macroeconomic caution is expected to persist, influencing customer spending decisions. The first half of FY26 is anticipated to be "choppier" as strategic changes are implemented and burned in. Investments freed up by the restructuring will be made in key growth areas in the second half of the year. Headwinds include an estimated 400 basis point negative impact on full-year subscription gross margins from higher data and hosting costs and potential negative impacts from foreign currency fluctuations on operating expenses, which the company aims to offset through efficiencies. Management is looking for the business to show a "bend" in performance in the second half of FY26, positioning for potential acceleration in FY27 and FY28.

Despite the strategic focus and operational changes, significant risks remain. Elevated customer churn and down-selling continue to pressure revenue growth, stemming from a combination of macro factors and past execution inconsistencies. The success of the transformation hinges on the effective implementation of the new go-to-market model, improvements in implementation processes, and the ability to consistently deliver value across the platform, particularly in the complex CCaaS space. Technical debt and the need to mature product delivery processes could hinder innovation speed and reliability. Reliance on third-party data providers, like the agreement with X expiring in late 2026, poses a risk to platform functionality and costs. Furthermore, the increasing use of AI introduces potential operational challenges, legal liabilities (e.g., around intellectual property and data privacy), and reputational concerns if not managed responsibly, while the evolving regulatory landscape for AI adds uncertainty and compliance costs.

Conclusion

Sprinklr is a company with a compelling vision for unified customer experience management, underpinned by a differentiated AI-native platform and a roster of gold-standard enterprise customers. Its technology demonstrates clear, quantifiable benefits in driving efficiency and improving customer interactions, particularly in the burgeoning Service market. However, the company is currently in a critical transitional phase, actively addressing the operational complexities, technical debt, and execution inconsistencies that have weighed on its recent growth and profitability.

The ambidextrous strategy to reenergize the core while hardening and expanding Service, coupled with decisive actions on cost optimization and go-to-market realignment, lays out a plausible path towards improving performance and marching towards the Rule of 40. While the near-term outlook for FY26 reflects the challenges and necessary investments inherent in this transformation, the expectation for a bend in performance in the second half signals potential progress. For investors, the story of Sprinklr is one of a promising technology and market opportunity confronting internal execution hurdles. Success will depend on the company's ability to consistently deliver on its strategic initiatives, translate its technological advantages into predictable financial results, and effectively navigate the competitive landscape and macroeconomic uncertainties. Monitoring the execution of the transformation plan, particularly improvements in customer retention, implementation consistency, and the realization of efficiency gains, will be crucial indicators of whether Sprinklr can successfully transition to a phase of durable, profitable growth.