Sprinklr's Q2 2026 Earnings Call: Contradictions Emerge on Churn, Pricing Strategy, Sales Reorganization, Customer Focus, and Satisfaction

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

Date of Call: September 3, 2025

Financials Results

• Revenue: $212.0M, up 8% YOY
• EPS: $0.13 non-GAAP diluted EPS (no YOY figure provided)
• Gross Margin: 69% non-GAAP total; subscription 78%; professional services ~0%; impacted by higher data/hosting costs
• Operating Margin: 18% non-GAAP (record $38.2M operating income)

Guidance:

• Q3 revenue: $209–$210M (~4% YOY); subscription: $186–$187M (~3% YOY); professional services: ~$23M (+15% YOY).
• Q3 billings: ~ $150M (seasonally weakest).
• Q3 non-GAAP operating income: $28.5–$29.5M (~14% margin); EPS: ~$0.09 on 257M diluted shares.
• Q3 professional services gross margin ≈ -3%.
• 2H margins pressured by higher cloud/LLM costs and targeted investments.
• FY26 subscription revenue: $746–$748M (~4% YOY).
• FY26 total revenue: $837–$839M (~5% YOY); professional services: ~$91M.
• FY26 non-GAAP operating income: $131–$133M (~16% margin); EPS: $0.42–$0.43 on 266M shares.
• FY26 other income ≈ $22M; tax provision ≈ $40M (~26% ETR); GAAP net income positive.
• FY26 FCF ≈ $125M; slightly negative in Q3, remainder in Q4.

Business Commentary:

* Revenue and Subscription Growth: - Sprinklr's total revenue for the second quarter was $212 million, up 8% year-over-year. - Subscription revenue grew 6% year-over-year to $188.5 million. - This growth, although moderate, was driven by the company's efforts to stabilize its revenue base and improve execution, focusing on larger enterprise customers who can leverage the breadth and depth of its AI-native unified platform.

• Operating Margin and Profitability:
• Sprinklr reported a record non-GAAP operating income of $38.2 million, resulting in an 18% non-GAAP operating margin for the quarter.
• The profitability was impacted by higher data and hosting costs due to new cloud environment launches and AI capabilities expansion.

• The increase in AI product uptake and associated cloud costs are expected to continue impacting profitability in the second half of the year.

• Customer Churn and Renewal Challenges:

• Sprinklr continues to face challenges with customer churn and renewal pressure, impacting subscription expansion rates.
• The company introduced Project Bearhug to combat churn by deeply engaging top customers and addressing past implementation and execution issues.

• The focus on improving customer engagement and execution is aimed at reducing churn and enhancing renewal rates.

• AI and Product Innovation:

• Sprinklr's AI advancements are a significant focus, with enhancements in customer feedback management and AI agents aimed at improving customer experience and operational efficiency.
• The company is investing in infrastructure and implementation services to support these AI offerings, driving enterprise wins and improving customer satisfaction.

• The integration of AI capabilities into Sprinklr's platform is expected to create significant value for customers, contributing to revenue growth.

• Leadership and Strategic Hiring:

• Sprinklr has appointed new leaders, including a Chief Revenue Officer and a Head of Global Services and Support, to drive growth and improve customer experiences.
• These hires are part of the company's transformation strategy, focusing on enterprise leadership and strengthening its go-to-market strategy.
• The new leadership is expected to accelerate Sprinklr's path forward, leveraging their experience in driving customer experience at scale.

Sentiment Analysis:

• “Total revenue grew 8% YOY to $212M… record $38.2M non-GAAP operating income (18% margin).” Management also noted “churn remains a challenge,” “continued necessary cleanup of challenged accounts,” a “step down from Q2 to Q3 subscription revenue,” and “pressure on gross margins” from higher AI/cloud costs. Guidance is prudent with modest growth and near-term investment headwinds.

Q&A:

• Question from Willow Miller (William Blair): When will the “bend” in the business appear and what metrics should we watch?
  Response: Management expects the bend in 2H FY26 into early FY27; watch renewals, customer satisfaction, challenged accounts, and overall growth.

• Question from Patrick Walravens (Citizens JMP): What’s driving churn and can you give an example?
  Response: Churn is largely from past inconsistent execution and oversizing (e.g., COVID-era ELAs) and some downsells; Bearhug engagement is stabilizing and converting challenged accounts to renewals.

• Question from Patrick Walravens (Citizens JMP): Are higher AI costs from LLM consumption?
  Response: Yes—greater AI feature uptake is increasing hosting/LLM and support costs, reflecting strong usage; guidance remains prudent.

• Question from Elizabeth Elliott (Morgan Stanley): Why does guidance imply back-half deceleration despite Q2 progress?
  Response: Q3 step-down reflects necessary cleanup of legacy challenged accounts; management is guiding prudently and expects improvement by Q4 into FY27.

• Question from Elizabeth Elliott (Morgan Stanley): What unlocks CCaaS demand—product or go-to-market?
  Response: FY26 focuses on hardening large implementations and support; accelerate growth in FY27 once stability and functionality are fully in place.

• Question from Matthew VanVliet (Cantor Fitzgerald): How will the new hybrid pricing impact revenue/profitability?
  Response: Simplified bundles plus consumption aim to improve transparency and adoption; all ratable subscription; starting with Core, then CCaaS next year.

• Question from Parker Lane (Stifel): How many of the top 700 are troubled and what’s improving?
  Response: Challenged accounts peaked in May/June and are now in the teens; deeper C‑suite engagement via Bearhug is reducing issues.

• Question from Raimo Lenschow (Barclays): When does renewal pressure abate?
  Response: Sustained daily engagement and expanded use cases—not just renewals—drive durable improvement; bend expected 3Q/4Q into next year.

• Question from Jackson Ader (KeyBanc Capital Markets): What are you seeing on net-new logos?
  Response: FY26 mix targeted at ~25% new logo/75% expansion to ensure clean execution; focus on Global 2000 enterprises vs. smaller accounts.

• Question from Clark Wright (D.A. Davidson): Is churn mostly downsell and concentrated mid-market?
  Response: Primarily downsell; some logo churn. Challenges skew to lower end; strategy is to concentrate resources on upmarket enterprises.

• Question from Andrew King (Rosenblatt Securities): How are you prioritizing build/partner/M&A?
  Response: Primary focus is organic R&D; consider tuck-ins/aqui-hires in social, CCaaS, and AI if strategically and financially attractive.