Sprinklr's Q2 2026: Contradictions Emerge on Churn, Hybrid Pricing, Engagement, New Logos, and Bend in Challenges

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $212.0M total revenue, up 8% YOY; subscription revenue $188.5M, up 6% YOY
• EPS: $0.13 non-GAAP per diluted share
• Gross Margin: 69% non-GAAP; subscription 78% and professional services ~0%; pressured by higher data/hosting costs
• Operating Margin: 18% non-GAAP (record $38.2M operating income)

Guidance:

• Q3 total revenue $209–$210M (~4% YOY); subscription $186–$187M (~3% YOY); professional services ~$23M (+15% YOY); PS gross margin ~-3%.
• Q3 billings ~$150M; non-GAAP operating income $28.5–$29.5M (~14% margin); non-GAAP EPS ~$0.09 on 257M diluted shares.
• FY26 subscription revenue $746–$748M (~4% YOY); total revenue $837–$839M (~5% YOY).
• FY26 non-GAAP operating income $131–$133M (~16% margin); non-GAAP EPS $0.42–$0.43 on 266M shares; other income ~$22M; tax provision ~$40M (~26% rate).
• FY26 FCF ~$125M; Q3 FCF slightly negative; PS revenue ~$23M in both Q3 and Q4.
• Higher AI-related cloud/hosting costs and increased investments in AI, R&D, GTM, and implementation.

Business Commentary:

* Revenue Growth Challenges: - Sprinklr reported second quarter total revenue of $212 million, up 8% year over year, while subscription revenue rose 6% year over year to $188.5 million. - The growth was impacted by continuing customer churn and downsell pressures, which have been affecting Sprinklr for over two years.

• Transformation and Customer Engagement:
• Sprinklr has completed the first phase of its transformation, focusing on business optimization and cost restructuring.

• The company is focusing on improving customer satisfaction and reducing churn through initiatives like Project BearHug, which targets top 700 customers.

• Investment in AI and Product Enhancements:

• Sprinklr is investing in AI capabilities, with significant uptake in AI product usage, leading to higher cloud costs in the second half of the year.

• The investment includes enhancements in AI features, new channel capabilities, and expanded technical skills to improve customer engagement.

• Leadership Changes:

• Sprinklr announced the hiring of Bit Rambusch and Scott Millar as the Head of Global Services and Support and Chief Revenue Officer, respectively.
• These additions reflect a strategic focus on enhancing customer experience and driving revenue growth.

Sentiment Analysis:

• Management reported 8% YOY revenue growth to $212M and record non-GAAP operating income (18% margin), raised FY26 outlook. However, they flagged continued renewal pressure and churn, guided Q3 revenue to $209–$210M (~4% YOY) with lower margins due to higher AI-driven cloud costs, and emphasized ongoing transformation and cleanup of challenged accounts.

Q&A:

• Question from Willow Miller (William Blair): When will the business 'bend' and which metrics should we watch?
  Response: Expect the bend in H2 FY26 into early FY27; watch renewals, customer satisfaction, count of challenged accounts, and overall growth.

• Question from Patrick Walravens (Citizens JMP): Give an example of churn issues and what’s being done.
  Response: Past inconsistent execution led to downsells and overbought ELAs; Project BearHug deepens C‑suite engagement and fixes implementations, converting many to longer renewals.

• Question from Patrick Walravens (Citizens JMP): Are higher AI costs from LLM token/hosting consumption?
  Response: Yes—strong uptake of Agentic AI and copilot features is driving LLM and hosting costs; AI is embedded in workflows, and guidance remains prudent.

• Question from Elizabeth Porter (Morgan Stanley): How to reconcile decelerating back-half guide with Q2 progress?
  Response: Guidance is intentionally prudent; Q3 step-down reflects cleanup of challenged accounts, with improvement expected into Q4 and early FY27.

• Question from Elizabeth Porter (Morgan Stanley): What unlocks CCaaS demand—product or GTM/support?
  Response: Focus in H2 FY26 is hardening large implementations, support, security, and features; plan to accelerate CCaaS growth in FY27 once hardened.

• Question from Matt Dembley (Cantor Fitzgerald): How will the new hybrid pricing (seats + consumption) affect revenue/profitability?
  Response: Simplified bundles with seat plus token-based consumption for core new logos (ratable subscription) aim to boost transparency, adoption, and upsell; expand to CCaaS next year.

• Question from Parker Lane (Stifel): How many of the top-700 have troubled engagements, and how are margins trending with higher cloud costs?
  Response: Challenged accounts peaked in May/June and are now in the teens; expect a 2–3 point gross-margin reduction in H2 from AI/cloud consumption.

• Question from Chris Lynch (Barclays): Timing to move beyond challenged renewals?
  Response: Multi-year renewals are improving, but durable change comes from daily, deeper engagement to expand use cases; bend expected 3Q/4Q into next year.

• Question from Jackson Ader (KeyBanc Capital Markets): What’s happening with net-new logos?
  Response: FY26 mix intentionally ~25% new/75% expansion to reduce execution risk; focus on Global 2000 enterprises; plan to increase new-logo mix in FY27.

• Question from Clark Wright (D.A. Davidson): Where is churn concentrated, and thoughts on buybacks?
  Response: Churn is mainly downsell and skewed to mid/low-end; enterprise cohort is growing (149 $1M+ customers). Buybacks considered, but priority is growth and selective tuck-ins.

• Question from Andrew King (Rosenblatt Securities): Build/partner/M&A priorities and balancing growth vs margin?
  Response: Build-first via R&D; consider tuck-ins/acqui-hires in AI, social, CCaaS. Investing now to accelerate FY27 growth while maintaining margin progress toward Rule of 40.