Sprinklr Inc (CXM) 2026 Q3 法說會逐字稿

Greetings. Welcome to the Sprinklr third-quarter fiscal year 2026 financial results call. (Operator Instructions) As a reminder, this conference is being recorded.

At this time, I'll turn the conference over to Eric Scro. Thank you, Eric. You may now begin.

Thank you, operator, and welcome, everyone, to Sprinklr's third-quarter fiscal year 2026 financial results call. Joining us today are Rory Read, Sprinklr's President and CEO; and Anthony Coletta, Sprinklr's Chief Financial Officer. We issued our earnings release a short time ago filed the related Form 8-K with the SEC, and we've made them available on the Investor Relations section of our website, along with the supplementary investor presentation.

Please note that on today's call, management will refer to certain non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of the information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. You are directed to our press release and investor presentation for a reconciliation of such measures to GAAP.

In addition, during today's call, we'll be making some forward-looking statements about the business and about the financial results of Sprinklr that involve many assumptions, risks and uncertainties, including our guidance for the fourth fiscal quarter and full fiscal year of 2026, the impact of our corporate strategy and changes to our leadership, the benefits of our platform and our market opportunity. Our actual results might differ materially from such forward-looking statements.

Any forward-looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them. For more details on the risks associated with these forward-looking statements, please refer to our filings with the SEC also posted on our website.

With that, let me now turn it over to Rory.

Thank you, Eric, and hello, everyone. It's nice to be with you today. Third quarter total revenue grew 9% year-over-year to $219.1 million, and Subscription revenue grew 5% year-over-year to $190.3 million. We generated $33.5 million in non-GAAP operating income, which resulted in a 15% non-GAAP operating margin for the quarter. I wanted to thank our global Sprinklr team as well as our customers and partners for trusting us to help solve some of their most pressing business challenges.

I'm excited to welcome two new leaders to our executive team, Anthony Coletta as CFO; and Karthik Suri as Chief Product and Corporate Strategy Officer. Both bring deep experience in scaling operations, driving growth and building world-class products at leading technology companies. We've been intentional about strengthening our leadership team. And with these additions, we're nearly complete. Anthony and Karthik join us as we sharpen execution and continue our work to drive Sprinklr into its next phase of durable growth.

When I became CEO a year ago, we set a clear strategy to improve Sprinklr's position in a rapidly evolving customer experience market, to leverage our AI-powered platform through an ambidextrous approach, reenergizing and growing our core, while expanding and strengthening our disruptive Services. The rise of first-party data is transforming this landscape. Brands and consumers now have unprecedented access to own data, tools and channels, fueling a shift from transactional interactions to personalized omnichannel engagement powered by AI and analytics. Third-party data enables granular segmentation and real-time personalization across every touch point, making hyper-personalization not optional, but essential.

Customers expect their experiences that reflect their entire relationship with the brand, tailored to their unique needs. Delivering this requires moving beyond basic personalization toward an immersive engagement across discovery, commerce, support and service. Sprinklr makes this possible. Our AI-native platform turns first-party data into actionable insights, enabling brands to anticipate customer needs and delivering meaningful value across all customer interactions. Through our Social, Insights, Service and Customer Feedback Management suite leading brands, leveraging real-time behavior and sentiment to recommend content and products that drive engagement and loyalty.

With Sprinklr brands gain a unified voice and holistic customer view, which is unique and unmatched in the industry. These evolving dynamics require a different Sprinklr, leveraging our robust technology platform, iconic customer brands and strong balance sheet. We've used fiscal '26 as a transitional year as we transform the company.

At the beginning of this year, we recognized the need for foundational change, and we've taken decisive action. Since then, we've made significant operational improvements, streamlining processes, modernizing systems and enhancing cross-functional alignment. We've also strengthened our leadership team and welcome new talent across the organization, bringing in expertise to drive durable growth. While these changes are the right ones, and we believe will deliver long-term value. Real transformation takes time.

We're entering the second phase of our transformation, transition and execution which will extend into next year. This phase is about embedding the actions from Phase 1 into our operations and culture, creating the foundation for scale and efficiency. Key indicators and customer engagement trends are moving in the right direction, and we're seeing some early momentum.

Importantly, we are in a stronger position today than at the start of the year. While more work remains, we are confident in our strategy and committed to driving sustainable growth and long-term shareholder value over the next couple of years. One of our most important initiatives is Project Bear Hug focused on deepening engagement with our top 700 customers, representing more than 80% of our total revenue. In the first 10 months, we've established a steady cadence and held many meaningful engagements with key accounts. We also hosted our second Annual CX Unifiers Conference in Nashville, bringing together hundreds of attendees, including leading customers for advisory sessions and an analyst summit.

The event showcased our latest innovation and thought leadership in AI and customer experience. Early results from Project Bear Hug are telling stronger C-suite relationships, tighter alignment with customer priorities and clear demonstration of Sprinklr's value. We expect these efforts to improve renewal rates into FY '27.

Sprinklr is the system of record for customer engagement across Social, Digital, Customer Feedback and Voice Channels. Our AI-native platform is purpose built for customer experience with deep industry and application integrations to meet enterprise needs. As we shared in prior earnings call, we had continued to invest strategically to help customers navigate rapid industry shifts and meet evolving expectations in real time. These investments strengthen our leadership position across both Core and Sprinklr Service and will continue through FY '27, reinforcing our commitment to innovation and customer success.

Now I'd like to share a couple of customer stories. We recently signed an expansion deal with a leading Latin American bank that is scaling digital-first customer service for tens of millions of customers. The partnership began in early 2024, with Sprinklr Service and Insights in one country and rapid success drove expansion. AI-powered automation delivered a 35% increase in case deflection. 50% faster handling times and a 500% boost in agent productivity.

CSAT scores rose significantly and the insight to action cycle drop from days to minutes, enabling faster decisions on service and campaign adjustments. Building on these results the bank doubled channel coverage in the next market, managing 4 x more cases and unlocking millions of dollars in value through efficiency, risk mitigation and retention.

Today, Sprinklr's Unified platform consolidates customer care and marketing intelligence across three regional markets, creating a single source of truth for CX and marketing teams. The latest expansion in AI Agent underscores the bank's confidence in Sprinklr's ability to secure, scalable and efficient digital services as it expands across Latin America.

Our second customer story highlights our commitment to improve delivery and execution and partnership with one of the world's premier streaming and entertainment companies. We've come a long way since the initial implementation. In 2024, we launched the first phase of their global contact center transformation in Asia using Sprinklr Service and Knowledge Management. We had some initial challenges and the customer let us know. Ahead of the North America EMEA and LatAm rollout in early 2025, we met regularly face-to-face to address these challenges and to drive improvement.

We made key personnel changes, tightened processes and strengthen quality controls with each phase delivery improve. By September, the customer was fully live, 5,000 agents across 210 countries supporting 40-plus languages, handling over 40 million contacts annually.

The result, a new multiyear commitment. This turnaround reflects our values. We showed up and we made it right. We executed with excellence, and that's how we earn trust and drive growth.

In closing, we made strong progress in our transformation to build a stronger, more customer-centric spring. Retention rates are beginning to show improvement and our pipeline remains strong. Clearly, more work remains but we are executing with new discipline and prudence to enable future and sustainable growth. As brand face rising customer expectation, first-party data has become mission-critical creating new opportunities for loyalty and monetization. Sprinklr's, AI-native platform is uniquely positioned to unify this data across all channels, delivering consistent connected experience at scale.

Our dual focus on transformation and execution is gaining momentum. 3Q marked another important step forward. And while some challenges remain, we are confident these initiatives will continue to improve our business.

Now I'll turn the call over to Anthony for the financials. Anthony?

Thank you, Rory, and good morning. It is great to be with you today, and I look forward to a constructive dialogue with the financial committee. I would like to start by thanking everybody at the company for delivering such a strong Q3. This quarter marks another step in the transformation focused on business continuity as we solidify our position. It is a step forward on the (inaudible) path, one that sets the tone for consistent performance.

The leadership team, we are very much aligned and focused on scaling this business with clarity and operational discipline. As we progress towards the end of fiscal year we are laying out the ground work for the next phase to share the trajectory that compound value over time.

I'm excited to join Sprinklr at this pivotal moment. What stands out for me so far is the competitive edge and the quality of our customer base, including some of the world's most iconic brands speaks volumes about the differentiated value of our Unified CXM platform. Consistent with Rory's comments, we have a clear strategic vision, and we are committed to executing it with transparency. We are actively working through a transformation that we believe will position us for sustained growth coupled with quality of earnings. I want to thank the investors who have placed their trust in Sprinklr so far, you should expect a steady (inaudible) from us (inaudible) about the state of play and will be intentional in our approach.

Now let me dive in into the financial performance.

In Q3, total revenue was $219.1 million, up 9% year-over-year. Subscription revenue was $190.3 million days at 5% year-over-year. While this was ahead of expectations, there has been downward pressure from renewals for more than 2 years now. In the third quarter, we continue to make tangible progress on previously challenged accounts, driving consumption and securing renewals from an (inaudible) agenda. Official and Services revenue came in at $28.8 million as we are working on some large CCaas rollouts our customers that we expect will translate into software subscription revenues in future quarters.

Services revenue came in better than anticipated due to more (inaudible) led to some of these large projects. Our Subscription revenue base net dollar expansion rate in the third quarter was 102%. This is flat sequentially, showing some encouraging stabilization. At the end of the third quarter, we had 145 customers contributing $1 million plus or more in Subscription revenue over the past 12 months, which is a modest decrease of 4 customers from Q2. Given the level of (inaudible) over the past year, some customers have seen the trailing 12 months revenue dip below $1 million level for this metric.

However, and I believe more importantly, I would like to note that the revenue contributed by the $1 million customer cohort was up 9% year-over-year, and the net dollar expansion for this cohort in Q3 was 113%. We don't intend to disclose these metrics quarterly going forward, but I wanted to give you a sense of some of the progress we see in terms of cross-selling.

We firmly believe that our Bear Hug focus will solidify our baseline and contribution from the top-tier enterprise customer over time. Regarding gross margin for the third quarter on a non-GAAP basis, our Subscription gross margin was 77%, (inaudible) Services gross margin was 5% resulting in a total non-GAAP gross margin of 67%. As noted in previous calls, we are expensing higher data and housing costs in response to business opportunities, especially in Sprinklr Service and our expanded AI capabilities.

Turning to profitability for the quarter. Non-GAAP operating income was $33.5 million or 15% margin, which was non-GAAP net income of $0.12 per diluted share. It incurs $0.8 million in restructuring and nonrecurring litigation costs that are deemed to be non-core to the operations of the business, and as such, discussed are not included in our non-GAAP figures.

We generated $15.5 million in free cash flow in Q3 and $126 million year-to-date on a reported basis. Excluding restructuring payments made mostly in the first half of the year, free cash flow for the first 9 months was nearly $140 million. Our balance sheet remains strong with $480.3 million cash in marketable securities and no debt, providing optionality for future capital allocation. Calculated billings for the third quarter were $158.4 million, an increase of 7% year-over-year. As of October 31, 2025, total remaining performance obligations or RPO were $857.6 million down 5% compared to the same period last year in Q3.

Full year '25, there were a couple of large deals that were put forward and reported in the quarter leading to a higher baseline. Excluding these outliers, total RPO will be flat year-over-year. And current RPO and cRPO was $562.2 million, up 3% year-over-year. Now i like to shift to our financial outlook and guidance for the remainder of the year.

For Q4, we expect total revenue to be in the range of $216.5 million to $217.5 million, representing 7% growth year-over-year at the midpoint. Within this, we expect Subscription revenue to be in the range of $191 million to $192 million representing 5% growth year-over-year at the midpoint. The Q4 guide implies $25.5 million in proficient Services revenue, which is growing by 25% year-over-year. This is a set-down sequentially because of onetime positive impact from large projects (inaudible) for in Q3. We expect Professional Services gross margin to be slightly negative in Q4 due to continued investment in service delivery and capabilities.

We believe such investment is worthwhile as these implementations will yield dividends in terms of increased consumption and customer satisfaction in the future.

With respect to billings, Q4 is traditionally the strongest quarter given business seasonally and overall technology spending. So we estimate total billings of approximately $320 million for the quarter. We expect non-GAAP operating income to be in the range of $29 million to $30 million, resulting in non-GAAP net income per diluted share between $0.09 and $0.10, assuming 254 million diluted weighted average shares outstanding. This equates to an approximately 14% non-GAAP operating margin at the midpoint.

As noted earlier in the year, we are experiencing a strong uptake in our AI product leading to higher cloud costs. Secondly, as Rory noted in his remarks, we are investing to position the company for revenue growth in the future, through hiring AI and R&D talent, particularly in targeted regions to best service customers as well as enabling additional go-to-market capabilities. These factors are reflected in the guide for Q4.

For the full year FY '26, we are raising our expectations for both Subscription revenue and total revenue estimates. We now expect Subscription revenue to be in the range of $754 million to $755 million, representing 5% growth year-over-year at the midpoint. We (inaudible) all the Q3 EBIT. We now expect our revenue to be in the range of $853 million to $854 million, representing 7% growth year-over-year at the midpoint. This is a $15.5 million increase from prior guidance, driven by an increase in our Professional Services revenue expectation to $99 million and the corresponding flow-through and ways for Subscription revenue.

For the full year FY '26, we are raising our non-GAAP operating income to in the range of $137.5 million to $138.5 million, driving a 16% non-GAAP operating margin. This equates to non-GAAP net income (inaudible) share between $0.43 and $0.44, assuming 265 million diluted weighted averages outstanding.

Deriving the net income per share for modeling purposes, a total tax provision of approximately $42 million needs to be added to the non-GAAP profit before tax line. To get to non-GAAP profit before tax, start with the non-GAAP operating income ranges provided and add an estimated $24 million in other income for the full year with $4 million of that to be earned here in Q4. This (inaudible) income line primarily consists of interest income. We estimate a tax provision of approximately $8.7 million in Q4. This equates to approximately a 26% effective tax rate on our non-GAAP profit before tax for both the quarter and the year.

We are maintaining our full year free cash flow estimate of $125 million, excluding restructuring costs. This implies approximately negative $50 million in Q4 driven by collections on a smaller Q3 book of business and targeted investment this quarter. On a reported basis, we expect full year free cash flow of about $110 million, up over 80% year-over-year. Given the recent leadership changes and our diligence in the approach, we will provide a detailed financial outlook for FY '27 on our Q4 earnings call, which we expect to be scheduled for mid-March.

In summary, Q3 came in better than anticipated across the board. We are encouraged by the tangible progressive so far and see signals of some green shoots. We are raising the full year top line and non-GAAP bottom line guidance, reflecting our Q3 performance and business prospects. As we transition into Q4, move with velocity and our laser focus on trimming our growth engine, sustaining innovation and on staying the course towards the net leg of our journey. And with that, we will now open the line to take questions from the audience.

Operator?

(Operator Instructions) Jackson Ader, KeyBanc.

The first one, I guess, for Rory, I understand we're moving into kind of a second phase here. But with the revenue performance in the quarter, I'm just curious in the here and now or in the short run, like how sustainable do you view this kind of performance like this quarter's performance as we head into next year?

Sure. Jackson, great to hear from you. I think Jackson, the key here is you're in the three phases of a transformation, you do the optimization work, then you're into the execution and transition phase, and that's the key phase that you're burning in the changes, you're getting the organization to the right set of processes, the right execution, you have the Bear Hug work, that will eventually move into an acceleration phase.

In that transition-execution phase, it's not as predictable as you want it to be. I guided that -- I mentioned on the last call that we began to see improvements in our metrics and our predictability. I'm very interested to see how 4Q, 1Q 2Q perform. This was a good quarter, no question. And then we saw a better performance on (inaudible) better performance in terms of the predictability on renewals, all of those pointed in the right direction.

But it's 1 quarter. We need to see several quarters in a row. We need to manage this transition. We have still the significant improvements in all our key initiatives that we need to execute. We're expanding Bear Hug to more than 800 customers now.

We want to make sure that we're driving the changes in the technology base with the enhancement we're seeing significant improvements across our major implementations, but we're still a work in progress, and there's more work to do.

And sometimes it's three steps forward and one step back. I mean we're moving in the right direction. Let's run several quarters together. Let's see how 4Q on Q2 perform, that's when I think we see how sustainable this all is. It's moving in the right direction.

But again, work in progress, more work to do. Good 3Q.

Yes, that's helpful color. And then a quick follow-up. Project Bear Hug or when you go into some of these, I think the phrase you used was like, you go into troubled accounts, right, and you're trying to -- through Project Bear Hug kind of like reengaged, get your arms around them literally and maybe salvage some things. Can you give us an idea, just like what -- what is at risk? And what are you able to actually like deliver once Project Bear Hug works?

Are we talking about the customer might be down -- you might expect them to be down 20% and you're able to only negotiate something that's down 5%. Is it down 10% and it ends up being flat? Like what are we talking about here?

Yes. Bear Hug is a really important initiative. And it came from my time when I worked at IBM back when Lou Gerstner transformed the company, and he drove the organization back to the field. He used to say the customer is the final arbiter. Bear Hug is about creating deep, deep relationships with your customer every single day.

You're engaged with customer, your competitors can't be and that's key. Sometimes, it's about growing the relationship, getting closer and higher level into the C-suite understanding their next-generation usage. Sometimes it's understanding that the count is challenged and how we can fix it. I think there's a couple of interesting data points in Anthony's prepared remarks.

When he talked about the $1 million plus customers being as a cohort growing 9% year-over-year with a net dollar expansion rate of 113%. That's a very important metric that shows the impact of Bear Hug. Now we're pulling Bear Hug down the top 500 and ultimately, the top 700, 800 accounts. That will represent about 90%. When we do have a troubled account, if we do Bear Hug well, we can -- we have seen situations where we were looking at a downsell or even a significant downsell.

And we've been able to change that outcome. We've been able to renew, extend the contract we've been able to understand better what the customer needs. It's really a real variety of outcomes, but the key is the more you spend with your customer and you're focused on their impact and creating value for them, you are going to get a better outcome. Whether it's better growth, whether it's less churn, whether it's higher renewals or longer renewals, all of those are things that we're seeing at Bear Hug.

But we have the next several quarters. Bear Hug will be about a year in place when we get to spring. That's when I think we should see the full impact of Bear Hug taking hold at the end of 1Q, beginning of 2Q. All signs are good.

Elizabeth Porter, Morgan Stanley.

Welcome, Anthony. We're really forward to working with you. Rory, a question for you. There's been a fair amount of leadership change in the organization over the past couple of quarters as you've just gone through the transformation journey across CFO, CRO, CPO roles, most recently. So could you just talk about how you're stabilizing the leadership bench and what early indicators you're watching to ensure that productivity isn't disrupted through fiscal '27 and we are minimizing the risk of any sort of step back after some really encouraging step forward?

Yes. Thanks, Elizabeth. It's always great to chat with you. I think, as I've signaled throughout the past couple of earnings calls, pretty much all of the senior leadership changes are complete at this point. I think what's key is we have a nice mix of existing experienced players.

Sure, there'll be other changes down the road, you always have to be ready and people make decisions, you never know. But I think we have a strong team. I think we have a team that's got experience and knowledge in the space. They know how to scale. They're used to rolling up their sleeves and getting their hands in the gearbox.

And that transformation like this, we need team members that want to be part of this for the next 3 or 4 years and that want to create something unique. We're on a journey, and we're a work in progress. Sure I think there could be other changes in the future. But for the most part, we're fairly pretty much done on the major leadership changes. I'm excited to be running sales now again.

I love doing that, especially in 4Q and 1Q. I think these are pivotal quarters after a solid 3Q. I'm not seeing any indication that we'll have problems because of changes in the organization in the tactical time frame. Our drivers are better customer relationships, paying down our technical debt engaging our customers more effectively streamlining our processes, implementing the changes that I've been talking about, that's going to yield the better performance as we move through 4Q, 1Q, 2Q. And we get to the middle of next year, I think we start to see a different Sprinklr.

Great. And then just as a follow-up. You've shown a lot of art expansion this year. And as we look into next year, understanding we'll get a more formal guidance in a couple of months. Just do you reinvest in the go-to-market and you're investing in AI and product, how should we think about the trend into margin next year as you're balancing discipline but also investing behind growth?

Yes. I think Elizabeth the key on the bottom line. You can always stretch it out any time you want. I think we're in a good general position, and we'll share more about where we are for FY '27 when we get to the next earnings call. I think it's a prudent balance between making some reasonable investments and running around the rates that we are today.

I think that's a good place to be. I think we can be profitable, return value to the bottom line and our pristine balance sheet. But at the same time, make those spot investments.

Now if we did come across that opportunity that we could seize on and we wanted to spend a little bit more, we would talk about that, and we would definitely, definitely slant toward growth. But right now, I think we have a very nice balanced approach. I think we're in the right kind of space today. Does that help?

Yes, it does.

Patrick Walravens, Citizens.

And let me add my congratulations. Rory, for you first. I mean, it seems to me the big thing to get done initially at least, is renewals. So how did renewals in Q2 compared to your expectations? And do we have some big ones coming up in Q4?

Yes. I think renewal rate is the key for us over the next several quarters. As I've always talked about the bend in the business, I think we have a very interesting technology platform. We have iconic brands that we have -- that really when we get it right, they spend a lot of money with us. And I think the indications on that one million cohort is powerful.

I think the key on renewals is 3Q, our metrics, our forecasting predicted where we were going to be, and we came in there or better. So that was good. That's the first time we've seen real predictability in the numbers, and I think that's reflecting a better management system. As we look forward to 4Q, 1Q, 2Q, that's where I think we start to see that bend in that renewal rate. And I think what we want to do is run several quarters together.

We have big renewals every quarter. The good news, Pat, is that -- we are managing our renewals 3, 4 quarters out. I have forecast now on renewal rate for 1Q, 2Q and I'm working on 3Q right now. So we actually have bear hug plans, account level plans to manage those engagements months and months in advance. I mean that's just got to yield better results.

And I think what we got to do is see where we go in 4Q. It's a big quarter, good pipeline, good momentum coming out of 3Q but we have work to do. And then seeing the renewal rates in 1Q, 2Q, I think, are going to be fundamental that we see that continued improvement. This has been a 3-, 4-year decline. We're now starting to be able to predict it, and we're starting to see the benefits.

I really like those numbers, Pat, in that $1 million cohort. That's where we focus [bearhug] first. And we see net dollar expansion 113%, that's where you want to be. Good stuff.

All right. Fantastic. And then, Anthony, I covered -- nice to chat to you again. I covered SAP the 18 years you were there. It was already a big company when you joined in 2006 and then 18 years later, it's 4x bigger.

So it's interesting to me that you took this role, what attracted you to Sprinklr?

Pat, I appreciate the question. Obviously, Sprinklr is very attractive in terms of the space, the product and also the quality of these customers. So I'm very impressed by what I've seen so far. What motivated me is obviously, I see the opportunity in this market, I see Sprinklr as a leader and with some products also that are driving kind of the way up the market or we can lead this market and move it really in the right direction.

On the -- on the financial aspect, I think the balance sheet is healthy. The fundamentals out there. It's solid, but I see potential also in terms of the evolution. I've been doing transformation in my prior company, and I see how it looks on the other side. So I believe also in the execution and what you can get on the other side of our transformation story.

And obviously, I click with the leadership team. So I had great connection and great kind of alignment with what I heard from -- in terms of strategy and philosophy around the business from Rory and the team. So many elements, but that's in a short kind of what motivated me to join.

And what I've seen so far validates that. So the quality of the customers, the logos that I see and also the power of our product is pretty and pretty impressive. And I give you one example which gives you also kind of validating that. When I looked at the 5 most valued companies in the US are the most valued companies they are all using Sprinklr today.

So that gives you a sense of the relevance of Sprinklr in the enterprise space, in the large enterprise space. So there is work to do here, but I think we know where we are going. We have a clear strategy, and we're very well aligned on how to execute on it. But I see the potential of growing this business and, obviously, optimizing the margin profile. So we are now (inaudible) -- but very good start so far, and I appreciate the question.

Catharine Trebnick, Rosenblatt Securities.

Congratulations on the new role. So I have a question back last March talked about how in going through Phase 1 and into 2 that you were going to really do a lot of pricing and bundling on your sales enablement. Can you update us on that?

Sure, Catharine. Great to speak with you. As we did the work that I talked about on the last earnings call, we did implement the first phase of our new pricing and bundling package work. We did it on new tech core, martechs' tech core, the whole social listening insight space. Early feedback over the first quarter has been good.

Customers liked did. We saw good acceptance of it, good feedback. It wasn't crazy positive. It wasn't negative at all. It was good.

It was a step forward.

What we're doing now is in the next quarter after this, will continue to burn it in, make sure it's performing the way we want to, then we'll expand into all existing martechs' stack customers. So we'll begin to move them to the new pricing model, not just on the new offerings, but on the existing base.

And then finally, later next year, we'll move the Service function in that direction. So we implemented the first phase. It's going reasonably and good as well, and we're seeing good feedback. Next phase is to expand it from the new implementations to the existing for the martech stack in the Core space. And then later next year, we'll move it to Service probably midyear, second half.

Okay. And then just a follow-on question more tactical, I think you did win that Deutsche Telekom, a pretty large deal on contact center for your Services. Where are you in the deployment of that, if you can give us an idea?

Yes. I think there's a number of large deployments that I focus a lot of time on with the team over the past 10 months. We've seen a significant improvement in our execution. I highlighted one customer example in my prepared remarks and the progress we made and the progress was really material. And the customer super appreciated.

We've been doing the same thing with some of the larger implementations. Some of those were a bit choppy before -- as I was arriving and some more challenged. The good news is as we fix those implementations and as they're rolling out to the agent, the agents love the solution. They like technology. They like the offering.

I think that's the most encouraging thing. I don't think some of these customers would have stuck it out with us if the solution wasn't really interesting and good. I think we've made great progress. We're rolling out in production across many of the customers in Europe and they're accelerating. In the telco space, DT, Telefonica, that sunrisers of the world, they're all moving in a good direction.

And I think we made good progress. I think we're moving right through the implementation and the feedback has been good.

Arjun Bhatia, William Blair.

Yes. Perfect. Rory, just one question for you on AI capabilities. I'm curious just where you think you are in terms of the capabilities you already have on the platform where you need to make investments still? And just as you look out, what sort of margin impact should we expect over the next year or so as more AI use cases get into production?

Yes. Thanks, Arjun. I think the AI discussion is really a good one. And I think you have to understand that this is an AI-native platform for the last 9 or 10 years because of its history in social and unstructured data, it was key. When you bring the voice of the customer together across all these vectors, whether it's social or conversational commerce or customer feedback or digital support or voice support you begin to see the total 360-degree customer signal, and that's going to be critical.

That's why I firmly believe the unification of customer experience is going and is happening. And we're in a unique position to play in that space.

Many of our competitors in each of those towers they can't knit it together. They can't pull the data together. We can show our customers, large enterprises, the whole view across all of those interactions and AI is fundamental to that. Our AI is embedded into the platform. And when you see data -- you get to see the data that pulls together social information, conversations around commerce activity, maybe it's feedback data, maybe it's the contact center.

Now you're getting to see that holistic view of that customer and AI is analyzing it across a broader set of data, making it more valuable and impactful. And our approach in AI is all around context. You must have context, and we want intelligent collaboration.

We see this idea of having a studio, the ability to build and use the AI technology on our platform, check. Two, be able to then implement cold tilting, intelligent collaboration, augmenting the experience for the agent for the marketing leader, but the C-suite person. We have customers at one of the world's largest retailer using our analytics to understand buying patterns in their stores today, in places like Arkansas, New York, et cetera. This is creating the insights that allow them to drive an outcome. I think it's a powerful concept.

Then we have the Agentic capability, where we can drive the deflection. And I mentioned the bank reference in Latin America in my prepared remarks. I think that's powerful, but there's a number of those. We see AI as built on top of a powerful platform that allows us to augment the experience of the agent and the human collaboration an intelligent collaboration and the work to have the agentic deflection that to move some of the workload. It's the combination and the context across that set of data that truly unlocks the value.

That's why our customers who are implementing or AI are seeing that impact. Where we're going to continue to invest, we'll add more capabilities in terms of more skills. We have over 300 AI skills in the organization at the engineering level, we'll add more.

If we get a good tuck-in, we'll tuck one in. We're not going to spend crazy money on it, but we have opportunity to add skills, we're going to add them. And the second part is we'll put more in region forward-deployed skills that will help the implementations with the customer. But again, the real point here, Arjun, is it's the combination of this platform and data that's there and using AI to take it to a new level. That's the power of AI.

That's very helpful. And then you've been pretty clear that this year, 2026 is a transition year I'm curious like how we should think about fiscal 2027 qualitatively? Is that going to be a transition year as well? It seems like you're making quite a bit of progress on some of your initiatives. It's still maybe a little bit early.

But how do you just feel about the work that's still left to be done next year and beyond as we think about where the company is in its turnaround?

Sure. I think we'll give very specific guidance for FY '27 at the next earnings call. I think we got to remember, this is a journey, and we have to keep our powder dry. We need to string several quarters together. I think we've been doing a good job of setting the right prudent expectations and managing.

But as I said, it's two, three steps forward and another step back. I mean we're not fully in that acceleration phase. We're still fixing a lot of things. So we need to be patient.

One of the things that I think is that, that execution and transition phase that's this part of the transformation journey, as I said in prepared remarks, we'll move into next year. At some point next year, I'm hopeful that we'll move into the acceleration phase, but we had a solid 3Q, solid. We saw better performance on NAR and more predictable and better performance on renewal rates. Good, check. Now we need to execute 4Q and more -- even more importantly, we got to execute 1Q and 2Q.

That will string several quarters together and really form the foundation. At that point, I think then we can kind of talk about when do we move into Phase 3. But I think in terms of expectation, I think -- The Street has us in a general right vicinity as they think about next year. It's still part of the transition year. At some point, we'll move toward acceleration -- but at this point, we're still cleaning up things.

We're making good progress but lets string a few quarters together. Let's go execute 4Q now, and that 1Q and 2Q really important in terms of the renewal rates as we move into next year. I hope that helps.

Raimo Lenschow, Barclays.

Anthony all the best from me as well. Rory, one for you, like you talked in the prepared remarks about the Services organization just helping you at the moment, just more leading. How do you think about that time frame between services, doing more handholding, driving projects forward and then that translating into better Subscription revenue growth? Like how do you see that link there between that? And I had one follow-up.

Yes. Raimo, I think what you're -- we've talked about this a couple of times in the past around Services and implementations. One of the two challenged areas when I came here, both from the service and support areas. One was around implementations. Sometimes they were great and sometimes they were not great.

And then on the support side, we had a very mixed set of stories on support. Over the past couple of quarters and into the next future quarters, we've been implementing transformation of initiatives in the service and support areas. One of the things we're doing in support is we're moving our support function on to Sprinklr I mean that's a great idea. Don't you think?

I mean, we do it for some of the world's biggest brands, let's do it for ourselves. That implementation is underway. We're going to bring all of our support on to Sprinklr and use enhanced processes and flows to give better support to our customers. They have highlighted this in the past as an area of gap. That will see an increase in coverage in the late -- at the end of this calendar year, beginning of next year calendar, and we're implementing Sprinklr in this fiscal fourth quarter into 1Q next year.

So we will be moving that support. That's an important step.

On the Services side, we're (inaudible) transformational. We're moving to new technology to track. Do you know that we tracked our Services projects and skills with spreadsheets? Come on. That's not modern.

We're implementing a real technical solution from a third party that's going to allow us to really understand it, where our skills are, how they're being used, how the projects are going, exactly where our capacity is. And we're expanding our relationship with our partners. Our partner win rate is almost a double, other channels win rate. We saw in the quarter some outstanding wins where we partnered with some of the usual suspects. The NTT data, the Accentures, the Deloitte, the SAMYs, the premium blends, and list goes on.

And if I offend any of my partners, I apologize. I love my partners and they're key.

We're seeing good traction there. We're going to build that out over the course of the year, and we're going to continue to build stronger practices with that. And then finally, we're implementing run books around all of our implementations. And our new products are going through new product introduction process. So they actually have document and implementation plan.

One of the things that's frustrated me while I was here is some of our implementations are a amazing. They go -- just perfect, and the customer loves it. And then others are all over the floor. Why? We don't do it consistently.

And every day, we're working to make that consistency better with those three areas. Again, I think those initiatives time out in that early spring, early summer time frame, mid-summer time frame next year. All of those are all working in that period.

Okay. Perfect. And then, Anthony, on the -- if you think about the communication you want to do, like I (inaudible) SAP, there was a very strict way of kind of guiding. If you think about the situation here that we are going to try to get obviously leading indicators of where things are going. There's billings, and you talk a little bit to that, there's cRPO, which might be a bit broader, et cetera.

What's your initial thinking as you kind of think about how to communicate going forward?

That's a great question. I mean, in terms of guidance philosophy, we will be focusing really on being realistic and transparent on what we do on the assumptions and the risk. So we want to have a clear modeling and clear narrative. So -- and obviously, most importantly, we want to deliver on it. So you can expect that -- we say what we do and we do what we mean at the end of the day, and you can expect really that we'll be focusing on consistency and transparency.

So that's the philosophy.

And around the key metrics, I mean, there is -- it's fairly simple. We'll continue to focus on Subscription revenue that's kind of key indicator for us. But obviously, the quality of the cRPO, the quality of the growth of the platform, the net dollar expansion are also key elements for me in terms of -- on one end, when you see the upsell and cross-sell traction that we have, you see that we have the right product market fit. But when we think of this NDA amongst the key cohorts, to me, that's showing also the growth on the platform and the opportunity ahead.

So I think I will continue to focus on that. And when it comes to the financials, the operating margin, we need to continue to make progress on that, and we'll have some key initiatives to explore that, and the free cash flow generation. So there is good cash flow combination so far. But we continue to make -- to grow that metric, and that will be a key element for me suggesting the success that we have going forward. We have a healthy balance sheet, so we need to continue to fuel that growth and the free cash flow generation.

But that's kind of what you can expect. It's consistency in the performance, transparency and execution and deliver on it and focusing on the right metrics to support the sustained growth of this company.

(Operator Instructions) Matt VanVliet, Cantor Fitzgerald.

Welcome Anthony. I guess I wanted to double bone and ask about the comment you made about the RPO change. Can you give us just a little more detail in terms of what the contracts that were booked last year, how maybe the renewal cycle on those are? And how we can sort of square together the pretty significant sequential decline in total RPO?

Sure. I think one of the keys on that space is we saw last year, as I was just coming on that we had some larger deals that came in, in the telco space. We saw some timing issues in terms of that. We are looking out over the next couple of quarters. And as Anthony suggested in his prepared remarks, we expect that to move in a positive direction.

We also see that the progress that we're seeing in terms of our NAR and in terms of our renewal rates. We're seeing that guidance. We don't -- we saw that same drop. We think that's really more timing. If you get to an apples and apples.

Its basically a slight increase or about the same. I think we should start to see that move in a positive direction. I think we'll see some very interesting renewals in the telco space over the coming quarters. And I think that's going to reflect on our approved execution that we've been delivering this year. But again, I think it's a work in progress.

I think you got to see the next several quarters unfold. And I think everyone needs to be patient and focused on that, that's the key.

Great. And then as you think about moving to a larger cohort on the Bear Hug initiative, any, I guess, a couple of learnings from the first go round that you think will either be faster to execute or even more, I guess, fixated on certain metrics as you go into those customers and ultimately what the outcome could be there?

Yes. Absolutely. There's a couple of things that jump right out at me I've met with over 450 customers over the first year directly at extended times and many of them multiple times. The feedback that we've gotten, where we've gotten ourselves in trouble, it was because of poor execution not delivering on commitments we made, choppy levels of support and too many changes in the organization at the field level. I think we've been addressing each of those items.

And Bear Hug is about engaging that customer. As we expand to -- from the first several hundred to go to the 700, 800 kind of range and really cover 90% of our revenue, that's going to be the foundational growth that enterprises that we can grow into big accounts. We have accounts in $10 million, $20-plus million a year spending. That means that we're doing it really well with some tough customers. We have to do that on a broader scale.

The key is that you see having done Bear Hug the past 4 or 5 months, build the right account team, make sure you create consistency. Get an ongoing discussion with the customer every week, every month, be way ahead of renewals, don't even focus on the concept of renewals, focus on the concept of creating value and upsell all along, be RFPs, get ahead of them, extend and extend the customer earlier. We have a bag of tricks, a utility belt like Batman. We have a utility belt of programs that we're giving to the team, bring in service skills to augment and get next-generation usage, redo the platform. These are all items that Bear Hug we've learned over the first 6 months that we're applying at scale now.

And I think by the time we get through 1Q and 2Q, I think we're going to have very interesting proof points at that time. Do not get ahead of ourselves. We have work to do. We're a work in progress. We're making good progress, but it's still a transition-execution.

And as you know, some steps forward, some steps back. We are generally moving in the right direction. We're not in the full acceleration phase. The next couple of few quarters, building on a solid 3Q is the path forward for us.

At this time, this will conclude our question-and-answer session. I'll hand the floor back to management for closing comments.

Yes, I want to thank everyone for joining today, and I want to acknowledge our Sprinklr team members around the world for their hard work. And really importantly, our partners, we love our partners. They make a huge difference. Our customers who trust us with some of the most difficult work. They're giving us the time and space to make a better Sprinklr, they see the future.

This unified customer experience trend built on an AI-native platform linking the voice of the customer and a 360-degree Ubiquitive structure, it's huge. And it makes a big, big difference and is going to change the marketplace. I think we're uniquely positioned with a competitive moat if we improve our execution, improve our technical debt and become a fully mature enterprise software company that enables enterprises to do the right thing. We're showing the right steps forward and moving in the right direction. Give us time, be patient.

And I thank our investors who have shown interest and keep following us. We're a work in progress, but I think it's a very interesting work in progress with significant opportunities in the future.

Thanks, everybody. Have a wonderful day, and thank you for joining us.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines, and have a wonderful day.