Company's Q3 2026: Contradictions Emerge on Renewal Predictability, AI Investments, and Financial Sustainability

Date of Call: December 3, 2025

Financials Results

• Revenue: Total revenue $219.1M, up 9% year-over-year; subscription revenue $190.3M, up 5% year-over-year
• EPS: Non-GAAP net income $0.12 per diluted share for the quarter
• Gross Margin: 67% non-GAAP total gross margin (subscription 77%, professional services 5%); higher data/hosting costs due to AI and service deployments
• Operating Margin: 15% non-GAAP operating margin (non-GAAP operating income $33.5M for the quarter)

Guidance:

• Q4 revenue $216.5M–$217.5M (≈7% YOY at midpoint); subscription $191M–$192M (≈5% YOY); professional services ≈$25.5M (25% YOY) with slightly negative services gross margin.
• Q4 billings ~ $320M; Q4 non‑GAAP operating income $29M–$30M; non‑GAAP EPS $0.09–$0.10 (assumes 254M diluted shares).
• FY26 subscription $754M–$755M (≈5% YOY); FY26 total revenue $853M–$854M (≈7% YOY).
• FY26 non‑GAAP operating income $137.5M–$138.5M (16% margin); non‑GAAP EPS $0.43–$0.44 (assumes 265M diluted shares).
• FY26 free cash flow ~ $125M excluding restructuring (reported ≈ $110M); FY27 guidance to be provided on Q4 call.

Business Commentary:

• Revenue and Subscription Growth:
• Sprinklr reported total revenue of $219.1 million for Q3, showing a 9% year-over-year increase.
• Subscription revenue grew 5% year-over-year to $190.3 million.

• The growth was attributed to improving customer engagement and strategic investments in expanding and strengthening disruptive services.

• Operational Improvements and Leadership Changes:

• The company made significant operational improvements by streamlining processes, modernizing systems, and enhancing cross-functional alignment.
• Leadership changes included the hiring of Anthony Coletta as CFO and Karthik Suri as Chief Product and Corporate Strategy Officer.

• These improvements were part of a broader strategy to drive sustainable growth and enhance customer-centric operations.

• AI and Platform Enhancements:

• Sprinklr emphasized its AI native platform, which leverages first-party data to provide holistic customer views and enhance customer experience.
• The company highlighted AI capabilities such as Agentic deflection and intelligent collaboration, demonstrating the value they bring to customer interactions.

• Investments in AI and R&D talent aim to position Sprinklr for future revenue growth and maintain a competitive edge.

• Customer Engagement and Renewal Strategies:

• The company launched Project Bear Hug to strengthen relationships with top customers, aiming to improve renewal rates.
• Early results showed stronger C-suite relationships and better alignment with customer priorities.
• This initiative is expected to improve renewal rates and drive future growth by focusing on customer retention and satisfaction.

Sentiment Analysis:

Overall Tone: Positive

• Management: "Q3 came in better than anticipated" with revenue up 9% YOY to $219.1M and subscription up 5% to $190.3M; company raised full‑year top‑line and non‑GAAP bottom‑line guidance and described "early momentum" from Project Bear Hug and improving renewal predictability.

Q&A:

• Question from Jackson Ader (KeyBanc Capital Markets Inc., Research Division): How sustainable is this quarter's performance as we head into next year?
  Response: Encouraging quarter but sustainability not yet proven; management needs several quarters (4Q, 1Q, 2Q) of consistent execution to confirm durability while in the transition/execution phase.

• Question from Jackson Ader (KeyBanc Capital Markets Inc., Research Division): What is at risk in troubled accounts and what outcomes does Project Bear Hug deliver (e.g., down 20% salvage to down 5%, or down 10% to flat)?
  Response: Bear Hug deep engagement is already improving outcomes—$1M+ cohort revenue up 9% YOY with 113% net dollar expansion—and can convert potential downsells into renewals, extensions or expansion; full impact expected by spring.

• Question from Elizabeth Elliott (Morgan Stanley, Research Division): With recent leadership changes, how are you stabilizing the bench and what indicators will ensure productivity isn't disrupted through fiscal '27?
  Response: Major senior leadership changes are largely complete; management believes the team is stabilized and expects no near‑term productivity disruption, monitoring execution, customer relationships and process improvements.

• Question from Elizabeth Elliott (Morgan Stanley, Research Division): As you reinvest in GTM and AI, how should we think about margin trends into next year?
  Response: Plan is a balanced, prudent approach—remain profitable while making targeted AI and go‑to‑market investments; specific FY27 margin guidance will be provided on the Q4 call.

• Question from Patrick Walravens (Citizens JMP Securities, LLC, Research Division): How did renewals in Q3 compare to expectations and are there big renewals in Q4?
  Response: Q3 renewals met or beat forecasts, showing improved predictability; renewals are being managed 3–4 quarters out and management expects further improvement in 4Q/1Q/2Q.

• Question from Patrick Walravens (Citizens JMP Securities, LLC, Research Division): What attracted you to Sprinklr (question to CFO Anthony Coletta)?
  Response: Attracted by the market opportunity, differentiated product, high‑quality customer base, strong balance sheet and the opportunity to drive a transformation to grow and optimize margins.

• Question from Catharine Trebnick (Rosenblatt Securities Inc., Research Division): Update on pricing and bundling work (pricing/bundling rollout from Phase 1 into Phase 2)?
  Response: First phase of new pricing/bundling rolled out for new MarTech/core offerings with positive early feedback; plan to expand to existing MarTech customers next quarter and to services mid‑next year.

• Question from Catharine Trebnick (Rosenblatt Securities Inc., Research Division): Where are you in the Deutsche Telekom (large contact center) deployment?
  Response: Large telco implementations are progressing into production across Europe, execution has materially improved, agents like the solution, and rollouts are accelerating.

• Question from Arjun Bhatia (William Blair & Company L.L.C., Research Division): Where are you on AI capabilities, what investments remain, and what margin impact should we expect as AI use cases go live?
  Response: Platform is AI‑native with embedded analytics and 300+ skills; company will add skills and regional resources—these increase revenue potential but create higher cloud and hiring costs that pressure near‑term margins.

• Question from Arjun Bhatia (William Blair & Company L.L.C., Research Division): Qualitatively, is fiscal '27 another transition year or moving to acceleration?
  Response: FY27 remains part of the transition until multiple quarters of execution are strung together; management hopes to enter an acceleration phase next year but will provide concrete FY27 guidance on the Q4 call.

• Question from Raimo Lenschow (Barclays Bank PLC, Research Division): How do services-driven handholding and implementations translate into subscription revenue growth and on what timeframe?
  Response: Improvements—moving support onto Sprinklr, implementing services‑tracking tech, stronger partner execution and run books—should convert into better subscription growth by spring to mid‑summer next year.

• Question from Raimo Lenschow (Barclays Bank PLC, Research Division): How will you communicate going forward (metrics/guidance philosophy)?
  Response: Guidance philosophy is realistic and transparent; communications will focus on subscription revenue, cRPO/quality of RPO, net dollar expansion, operating margin and free cash flow.

• Question from Matthew VanVliet (Cantor Fitzgerald & Co., Research Division): Can you explain the sequential decline in total RPO and the contracts pulled forward last year?
  Response: Sequential RPO decline was driven by timing and a few large prior‑year deals pulled forward; on an apples‑to‑apples basis RPO is roughly flat and should trend positively with upcoming telco renewals.

• Question from Matthew VanVliet (Cantor Fitzgerald & Co., Research Division): Learnings from the initial Bear Hug cohort that will speed or improve scaling to a larger set of customers?
  Response: Key learnings—consistent account teams, weekly customer engagement, advance renewal planning, service skill augmentation and playbooks—are being applied at scale and should yield proof points by 1Q/2Q.

Contradiction Point 1

Renewal Predictability and Customer Engagement

It indicates a discrepancy in the company's narrative regarding the predictability of renewals and the effectiveness of customer engagement initiatives, which are crucial for stable revenue and customer retention.

How did Q3 renewals compare to expectations, and are there any major renewals expected in Q4? - Patrick Walravens (Citizens JMP Securities, LLC, Research Division)

2026Q3: Q3 renewals met expectations or were better than expected. 1 million cohort showed net dollar expansion of 113%. The business has seen a 3-4 year decline in renewals, but there's progress in predictability. - Rory Read(CEO)

Can you give an example of a churn scenario? What investments are driven by the strong AI adoption? - Patrick Walravens (Citizens JMP)

2026Q2: Churn has been a multi-year issue due to inconsistencies in execution. ... He emphasized their focus on improving renewal rates and customer engagement. - Rory Read(CEO)

Contradiction Point 2

AI Investment and Margin Impact

It highlights a disparity in the company's statements regarding the impact of AI investment on margins, which are important for financial forecasting and profitability.

What is your AI progress, and how will AI growth affect margins? - Arjun Bhatia (William Blair & Company L.L.C., Research Division)

2026Q3: AI is crucial to unifying customer experience across all channels, driving value through context and collaboration. - Rory Read(CEO)

Can you explain the hybrid pricing strategy and how it affects revenue and profitability? - Matthew VanVliet (Cantor Fitzgerald & Co., Research Division)

2026Q2: Regarding AI investment, it's driven by higher LLM costs and support structure due to increased customer utilization of AI features. - Rory Read(CEO)

Contradiction Point 3

Customer Engagement and Renewal Rates

It involves changes in the company's strategy and expectations regarding customer engagement and renewal rates, which are critical for business sustainability and growth.

Can you discuss leadership bench stability and productivity through FY27? - Elizabeth Elliott (Morgan Stanley, Research Division)

2026Q3: Project Bear Hug is about deep customer engagement. Early results show improvements, with $1 million cohort growing 9% year-over-year and net dollar expansion of 113%. - Rory Read(CEO)

What's driving logo churn, and how should we assess dollar churn this year? - Pinjalim Bora (JPMorgan)

2026Q1: The business has seen a 3-4 year decline in renewals, but there's progress in predictability. Q4, 1Q, 2Q will be crucial for seeing consistent improvement in renewal rates. - Rory Read(CEO)

Contradiction Point 4

Renewal and Customer Retention Strategy

It involves differing perspectives on the company's approach to customer retention and renewal, which are critical for revenue stability and growth.

How did Q3 renewals compare to expectations, and are there major renewals expected in Q4? - Patrick Walravens (Citizens JMP Securities, LLC, Research Division)

2026Q3: Q3 renewals met expectations or were better than expected. 1 million cohort showed net dollar expansion of 113%. - Rory Read(CEO)

Were there any issues with fourth-quarter bookings, and what is the renewal seasonality? - Jackson Ader (KeyBanc Capital Markets)

2025Q4: The fourth-quarter bookings were stronger than expected... and the largest renewals in Q4 and Q2. - Rory Read(CEO)

Contradiction Point 5

Financial Performance and Sustainability

It involves differing assessments of the company's financial performance and sustainability, which are crucial for investor confidence and strategic planning.

How sustainable is the current financial performance and what are the expectations for next year? - Jackson Ader (KeyBanc Capital Markets)

2026Q3: The current quarter was good, but it's important to see several quarters in a row to assess sustainability. - Rory Read(CEO)

How are you allocating resources between new customer acquisition and the installed base? - Arjun Bhatia (William Blair)

2025Q4: The company's performance in Q1 of fiscal 2026 has exceeded our expectations, and we believe we are on track to achieve our fiscal 2026 guidance. - Manish Sarin(CFO)