AI Drives Growth for Verint and Sprinklr Amid Market Challenges

Verint (VRNT) Q1 2026 Earnings Call Transcript | The Motley Fool

Chief Corporate Development Officer -- Alan Rhoad Vice President, Investor Relations -- Matthew Frankel Need a quote from one of our analysts? Email [email protected] ARR Growth -- Annual recurring revenue (ARR, non-GAAP) accelerated to 6% in the first quarter, driven by expanded adoption of AI-powered bots. Revenue -- Reported revenue of $208 million, surpassing guidance due to timing of two large unbundled SaaS deals. Non-GAAP Diluted EPS -- Delivered $0.29 non-GAAP diluted EPS, with management noting revenue overachievement in the first quarter is not expected to recur in subsequent quarters due to timing factors. AI ARR Growth -- AI ARR grew 24% year over year in the first quarter, reaching $354 million and now comprising close to 50% of subscription ARR (non-GAAP). Full-Year ARR Target -- Management reiterated guidance to exit FY2026 with $768 million in ARR, plus or minus 1%. AI ARR Full-Year Growth Forecast -- AI ARR growth is expected to exceed 20% in FY2026 as customers expand usage and adopt new bots. Free Cash Flow Guidance -- Projected to increase 12% to $145 million in free cash flow in FY2026, driven by ARR growth and improved cash contribution margin (non-GAAP). Second Quarter Outlook -- Second quarter revenue expected to be around $200 million, with non-GAAP diluted EPS forecast at $0.26. SaaS Pipeline -- The rolling four-quarter SaaS pipeline rose more than 30% year over year, indicating heightened demand for AI-driven solutions. Large Deal Wins -- Secured a $13 million TCV order from an insurance company and a $14 million TCV order from a healthcare company in the first quarter, both focused on AI-based workflow automation. Share Repurchases -- Repurchased approximately 2.5 million common shares during the first quarter as the primary use of free cash flow. Revolver Update -- Increased revolver credit facility to $500 million with a new maturity in 2030, intended for refinancing existing convertible notes at maturity. Net Debt -- Maintained net debt at approximately one times last twelve-month EBITDA, bolstered by strong cash flow generation. Customer Seat Count -- Maintained around four million agent seats, with AI adoption resulting in stable seat levels but a shift in value from non-AI to AI-powered solutions. Management emphasized that Verint Systems Inc. (VRNT 2.58%) is observing a pronounced shift in customer behavior, with buyers focused on rapid, measurable ROI within six months, leading to smaller initial deployments and expansion as value is demonstrated in production environments. The company defined AI ARR as a non-GAAP metric that includes the annualized run rate from both fixed-term and usage-overage SaaS agreements for solutions featuring AI, calculated as of the end of a period, and stated that this non-GAAP metric now drives total business growth, supported by high retention and net revenue retention (NRR) well above 100%. In response to competitive pressures and customer caution stemming from prior negative industry AI bot experiences, Verint Systems Inc. is focusing its differentiation on proven production outcomes and a hybrid cloud platform that layers AI on top of incumbent systems without disruption. CEO Bodner said, "ARR growth accelerated every quarter over the last year," describing a consistent upward trend tied to AI adoption. CFO Highlander explained that "our 8% ARR growth, combined with cash contribution margin expansion, is driving an approximate 12% increase in free cash flow to $145 million in FY2026 (non-GAAP)." Management disclosed that customer payroll impacts are varied, with some clients reducing agent headcount through automation, while others repurpose agents for higher-value activities, resulting in a stable overall agent base. CEO Bodner cited major deal examples, noting a healthcare customer increased ARR from $8 million to $15.6 million over the past year, nearly doubling through multi-bot AI adoption, and an insurance company that grew from $2 million in the first quarter last year to $5 million in ARR in the first quarter now. Grant Highlander clarified that AI ARR (non-GAAP) includes all committed recurring SaaS spend and usage-based overages from active and signed contracts, fully capturing revenue tied to AI-enabled features. ARR: Annual Recurring Revenue; the annualized value of active recurring revenue contracts at a given point in time. AI ARR: The portion of ARR derived from solutions with AI functionality, including both fixed commitments and variable usage-based overages in SaaS agreements. TCV: Total Contract Value; the aggregate revenue expected from a customer contract over its full term. Unbundled SaaS: Software-as-a-Service revenue recognized separately from bundled offerings, subject to increased timing volatility under ASC 606 accounting. Matthew Frankel: Thank you, operator. Good afternoon, and thank you for joining our conference call today. I'm here with Dan Bodner, Verint Systems Inc. CEO, Grant Highlander, Verint Systems Inc. CFO, and Alan Rhoad, Verint Systems Inc. Chief Corporate Development Officer. Before getting started, I'd like to mention that accompanying our call today is the slide presentation. If you'd like to view these slides in real time during the call, please visit the IR section of our website at verint.com, click on the Investor Relations tab, then click on the webcast link and select today's conference call. I'd also like to draw your attention to the fact that certain matters discussed in this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of the federal securities laws. Forward-looking statements are based on management's current expectations and are not guarantees of future performance. Actual results could differ materially from those expressed in or implied by these forward-looking statements. The forward-looking statements are made as of the date of this call and, except as required by law, Verint Systems Inc. assumes no obligation to update or revise them. Investors are cautioned not to place undue reliance on these forward-looking statements. For a more detailed discussion of these and other risks and uncertainties that could cause Verint Systems Inc.'s actual results to differ materially from those indicated in these forward-looking statements, please see our Form 10-K for the fiscal year ended January 31, 2025, our Form 10-Q for the quarter ended April 30, 2025, once filed, and other filings we make with the SEC. The financial measures discussed today include non-GAAP measures and certain operating metrics, as we believe investors focus on those measures in comparing results between periods and among our peer companies. These include revenue and ARR growth, which are adjusted for the divestiture we effectuated on January 30, 2024. Please see today's slide presentation, our earnings release, and the Investor Relations section of our website at verint.com for a reconciliation of non-GAAP financial measures to GAAP measures, as well as for more information about our key operating metrics. Non-GAAP financial information should not be considered in isolation from, as a substitute for, or superior to GAAP financial information, but is included because management believes it provides meaningful supplemental information regarding our operating results when assessing our business and is useful to investors for informational and comparative purposes. The non-GAAP financial measures the company uses have limitations and may differ from those used by other companies. Now, I'd like to turn the call over to Dan. Dan? Dan Bodner: Thank you, Matt. I'm pleased to report that we started the year with a strong first quarter and are on track to achieve our annual targets. In Q1, ARR growth accelerated to 6%, reflecting our continued AI momentum, and both revenue and diluted EPS came ahead of guidance. Behind the strong momentum are two key differentiators. First, our ability to transform the latest AI technology into strong, tangible AI business outcomes, delivering customer value better than any other CX vendor. And second, our ability to deploy AI in a hybrid cloud model, layering our AI-powered bots on top of existing customer environments. With Verint Systems Inc., customers can benefit from AI value now. They can start small, with quick AI deployments in real production environments, and once they prove the value, they can quickly scale with the Verint Systems Inc. platform. ARR growth accelerated every quarter over the last year. This growth is driven by more and more of our customers increasing usage of Verint Systems Inc. AI-powered bots that they've already deployed, as well as customers adding new bots from our CX automation platform. Today, our platform delivers more than 50 bots, each designed to automate a specific manual CX workflow and quickly create significant value. The combination of a strong first quarter and a growing pipeline for our AI solutions gives us confidence in our annual growth targets, and we look to exit the year with 8% year-over-year growth in ARR. During Q1, we continued to win large deals, including a $13 million TCV order from a leading insurance company. This large multiyear commitment was driven by the customer's goal of automating workflows to increase workforce capacity. We expect the insurer to use the Verint Systems Inc. AI-powered bots to increase supervisor capacity by more than 50% and agent capacity by more than 25%, resulting in significant value creation and delivering an over 10x return on their investments. The second eight-figure deal is a $14 million TCV order from a leading healthcare company. Let's take a closer look at the AI journey of this customer. Over the last year, our ARR from this healthcare customer nearly doubled from $8 million to $15.6 million as the customer added multiple Verint Systems Inc. AI bots to automate manual CX workflows. As discussed on our prior calls, Verint Systems Inc. customers can get access to AI-powered bots hosted in the Verint Systems Inc. cloud. Also, with Verint Systems Inc.'s unique hybrid cloud design, customers can choose to maintain their existing Verint Systems Inc. solutions on-prem or in a partner cloud while adding new AI-powered solutions in the Verint Systems Inc. cloud. This large healthcare customer is a great example of the hybrid cloud model benefits driving faster AI adoption, as customers do not need to rip and replace their existing solutions to take advantage of the new Verint Systems Inc. CX automation capabilities now. The blue color on the chart represents the portion of our ARR with this customer that is derived from solutions that include AI capabilities, and the gray color represents the portion of our ARR that does not include AI capabilities. You can see that the vast majority of the growth from this customer over the past year has been driven by their adoption of our AI-powered bots. On our website, you can find many examples of customers reporting strong AI business outcomes from the Verint Systems Inc. platform. Today, Verint Systems Inc. is a pure-play CX automation company with a focus on helping brands automate their manual CX workflows. Our platform differentiation stems from many years of experience working with the largest brands in the world on CX initiatives. And as our customer base increases adoption of Verint Systems Inc. AI-powered bots, we benefit from working closely with leading brands to innovate even faster, and we're introducing new cutting-edge AI solutions at a rapid pace. In summary, we deliver AI business outcomes stronger and faster than any other CX vendor in the market, and behind our AI momentum is the proven value we create for our customers. We kicked off the year strong, expect our AI momentum to continue, and are targeting exiting the year with 8% ARR growth and double-digit free cash flow growth. And now let me turn the call over to Grant. Grant? Grant Highlander: Thanks, Dan. Good afternoon, everyone. Our discussion today will include non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available, as Matt mentioned, in our earnings release and in the IR section of our website. Differences between our GAAP and non-GAAP financial measures include adjustments related to acquisitions and divestitures, including amortization of acquisition-related intangibles, certain other acquisition and divestiture-related expenses, stock-based compensation expenses, restructuring expenses, as well as certain other items that can vary significantly in amount and frequency from period to period. As Dan highlighted, we started the year strong. ARR growth accelerated to 6% year over year, and we overachieved our revenue and non-GAAP diluted EPS guidance. We believe that ARR is the best metric to track our growth, and I'm very pleased with another quarter of acceleration. Revenue came in at $208 million, and non-GAAP diluted EPS came in at $0.29. Our revenue overachievement was primarily due to the timing of two large unbundled SaaS deals and therefore does not impact our revenue and diluted EPS outlook for the year. As we discussed on our last conference call, given our unbundled SaaS revenue volatility associated with ASC 606 accounting, we are providing guidance and tracking our results in two ways. The first way is the ratable view of the business via cash generation model, and the second way is a traditional P&L model. Now here is the guidance we introduced last quarter for our cash generation model. As a reminder, our cash generation model starts with ARR and ends with free cash flow. With respect to our outlook for ARR, we expect our momentum to continue with a sequential dollar increase. For Q2, we expect ARR to increase to approximately $720 million, and we expect to exit the year with around $768 million of ARR, plus or minus 1%, reflecting 8% year-over-year growth. With respect to free cash flow, we expect our 8% ARR growth combined with cash contribution margin expansion to drive an approximate 12% increase in free cash flow to $145 million for the full year. I'd like to note that our rolling four-quarter SaaS pipeline has increased more than 30% year over year, reflecting strong demand for AI. Our growing pipeline combined with our strong Q1 results gives us confidence in achieving our fiscal 2026 ARR outlook. Now I'd like to double-click on how AI is driving our ARR growth. This chart shows our AI ARR performance. We define AI ARR as the portion of ARR that is derived from solutions that include AI functionality and represents the annualized quarterly run rate value of the associated active or signed SaaS agreements as of the end of a period. As you can see from the chart, our AI ARR growth has been steadily accelerating. In Q1, AI ARR increased 24% year over year, reaching $354 million. We are pleased with this acceleration, and I'd like to mention that AI ARR now represents close to 50% of our subscription ARR. For the year, we expect AI ARR to continue to grow more than 20%, an acceleration from last year, as customers increase usage and adopt additional bots from our CX automation platform. Turning to our P&L outlook, we are maintaining our annual guidance as follows: We are targeting $960 million of revenue with a range of plus or minus 3%, driving non-GAAP diluted EPS of $2.93 at the midpoint. For modeling purposes, I would like to give you a bit more color on our expectations for Q2. As we have discussed in the past, our quarterly revenue is heavily influenced by the timing of unbundled SaaS renewals. Based on this timing, we expect around $200 million of revenue in Q2. With respect to diluted EPS, we expect $0.26 in Q2. Turning to our balance sheet, we continue to be in a very good financial position. Our net debt of one times last twelve-month EBITDA is further supported by our strong cash flow. With regard to capital allocation, we expect the largest use of our free cash flow to be stock buybacks. During the quarter, we bought back approximately 2.5 million common shares. As we mentioned on our last call, during Q1, we increased the size of our revolver to $500 million and extended the term to 2030. This new revolver can be used to pay down our existing convertible notes upon maturity, as we are not currently planning to issue a new convertible note. In summary, we are pleased with our strong start to the year and our ARR acceleration driven by growing AI adoption. We began to provide a cash generation model to help investors better understand the strong underlying growth trends in our business and to look through the unbundled SaaS revenue volatility. Finally, we expect our 8% ARR growth to drive double-digit free cash flow growth this year. With that, operator, please open the line for questions. Operator: Also ask that you please wait for your name and company to be announced before proceeding with your question. One moment for the first question. From the line of Joshua Reilly of Needham. Your line is open. Joshua Reilly: Alright. Thanks for taking my questions. Maybe just starting off, you know, there's a lot of AI noise right now in your space. Can you help explain how Verint Systems Inc. differentiates given all of that noise, and what are you seeing in terms of just growing AI voice chatbot use, particularly in customer support, as a tailwind for your business and maybe the overall industry? Dan Bodner: Sure. Thank you, Josh. So first, you know, the customer sentiment for investing in AI is very positive. But at the same time, customers are very cautious. And that's due to the noise and hype that exist by many vendors and also, quite frankly, some very bad experiences that customers had with bots they purchased, and they looked good in a demo in a lab environment, but did not deliver any value in production. So given that situation we have in the market, Verint Systems Inc. differentiates from all this noise with two simple and quite frankly common sense principles. The first principle is proven AI outcomes that are reported by leading brands around the world. So don't trust what we say. Just see what other customers are able to deliver in terms of value and tangible AI business outcomes. And the second principle is about the hybrid cloud benefits, which is delivering AI value now. There's a lot of noise about, you know, you have to change your infrastructure, you have to change things in your environment before you can get AI to work. Our message is no. You can layer AI-powered bots on your existing infrastructure. You can start now. And even more important, customers can start small. They don't have to invest big money. They don't have to invest big resources. Once they prove the value in their own production environments, then they can quickly scale in the cloud. So these are quite strong differentiators that work and they drove our 24% growth in AI ARR in Q1. So I believe the market adoption of AI is really this year only in the first inning. Where last year, I'm calling it customers were more exploring. They were fascinated by the promise of AI, but they were exploring. They did a lot of, you know, lab experiments. But this year, at the beginning, of course, was actually willing to spend money, but also they want to make sure that they are investing in the right platform because customers are not looking to invest in AI technology. Not in this space, not in the CX space. It's not about technology. They want to invest in a platform that transforms the latest AI technology into strong and tangible AI business outcomes. So I think that's kind of it. Any follow-up on that, Josh? Joshua Reilly: Yeah. Kind of the follow-up is, you know, you've been kind of pursuing this strategy of smaller lands with the opportunity to upsell. Are there examples that you can provide that demonstrate that's been a successful strategy thus far? Of moving to much larger deals from these kind of smaller lands. Dan Bodner: Yeah. Yeah. I can definitely give you examples. So I believe I mentioned last quarter that we had a healthcare company spending with 18 bots. And they purchased those 18 different bots, but each one was purchased in different consumption levels. And they were actually increasing the consumption of each bot as they proved the value, so exactly the story that we're now telling to the market. And this customer, when you look at their journey, as they were increasing the consumption over time, they reached ARR from this customer from Verint Systems Inc. is $13 million, and that's compared to only $5 million that they were two years ago. So they saw value, and we saw an increase in consumption, which drove AI ARR growth. And to give you more examples, an insurance company increased the AI consumption, and, in this case, from $2 million in Q1 last year to $5 million ARR in Q1 now. We have a large media company that increased the AI consumption, and they grew from $3 million ARR to $9 million in Q1 now. So the formula is very clear. You know, once customers prove the AI outcomes in their own environment, then they see that the ROI is very compelling. And it's almost like, you know, the solution sells itself because they want to expand, then it's about, you know, how can I capture the full value of what I started as in a small scale. And, of course, because our AI is available in the Verint Systems Inc. cloud, we have built a platform that is easily scalable for our customers. They can turn the consumption level up on very short notice. Joshua Reilly: Got it. Maybe just one last quick follow-up from me. As you know, from the work that I've been doing in the industry, it seems that the adoption of, you know, AI voice chatbot is accelerating maybe more than people would have expected entering the year. What is the implication for some of your WFM seat renewals that you're seeing with some of the larger customers? Are they renewing at a lower level than you would have expected entering the year, or has it been pretty consistent with what you would have expected in terms of the long-term trajectory of the decline? Thanks. Dan Bodner: Yes. I think that the success of the voice bots is very clear. And also, it's quite easy compared to, you know, the good old IVR that was not really providing much of responses, but it was just a way to interact and allow customers to choose, you know, menu options and so on. So a lot of these basic IVRs are being replaced by voice bots. I think that today, the voice bots are starting to contain in self-service and get more intelligent responses than what IVR could do. Verint Systems Inc. is one of the leading voice bots in the market. If you check with industry analysts, Verint Systems Inc. is leading the market in this area. If you look at the customer-reported AI business outcomes that Verint Systems Inc. is putting on our website, you'll see a lot of chatbots and voice bots success stories where we contained 60% and 80% of interactions with our voice bots. So obviously, as the technology improves over time and AI is moving very fast, I expect, like the rest of the market, that chatbots and voice bots will become more capable. At the same time, you know, to be really successful with this kind of bots, you need to make them part of a platform. You can't just throw a point solution self-service because all of these bots eventually need to work together with the workforce. And what we do in our platform is we provide those chatbots and voice bots together with automating manual CX workflows for the workforce, and we do all that with orchestrating the work of bots and humans in a way that increases workforce capacity. So yes, we see some customers are starting to reduce the number of agents. We do see that. It's not everywhere because, again, AI is in the first inning. When I look at our total number of seats under management, which we told the market is four million, it's still about the same. It's still about four million agents today, but, obviously, we see some customers that are using AI and starting to get capacity and either they reduce agents or they use agents for upselling and increasing revenue or different ways to use the capacity. But at the same time, we also see some expansion in the number of agents in other accounts that maybe are not yet caught up to the AI. So overall, we have about the same number of agents today, four million. But we see now a very clear transition in our ARR base, right, we talked about 50% of our ARR now is AI. And it's growing at 24%. So we're not really relying anymore on any growth in the non-AI business, which obviously we don't expect any expansion of licenses. And we see 24% growth in our AI, and that's 50% of our business. Obviously, that's the engine that drives the overall growth of Verint Systems Inc. And we believe that will continue. And when we replace this, as we've discussed many times before in calls, when we replace seats with AI, we increase our revenue substantially. So that's what we see now in our numbers, where the AI engine basically drives the overall growth of the company. Joshua Reilly: Awesome. Thanks, guys. Operator: Thank you. One moment for the next question. And our next question will be coming from the line of Shaul Eyal of TD Cowen. Your line is open. Shaul Eyal: Thank you so much, guys. Congrats on a solid start to the year. Apologies for a little bit of some background noise. Dan, where do you think we are from an adoption curve? Are we at an inflection point as it relates to AI-driven voice bots? Where are we from an inning viewpoint? Maybe just as a follow-up, you know, what internal steps are you guys taking to assure a more consistent execution? And thanks, Grant, for the color on the entire dynamics between ARR and cash flow. Thanks. Dan Bodner: Yes. I think it's a very good question. As I mentioned before, I think last year, it was really difficult for customers to move outside of their experiments. They had a lot of interest in AI, but it was more "show me in the lab." Relatively few customers were willing to actually move it to production, and they all did it on a small scale. And, you know, lots of IT organizations were playing with AI models that they purchased, and they tried to find use cases. So that's kind of the industry last year. When I look at Q1, it's starting to change. It's very difficult to say, you know, what would be the pace of the change. It's clearly changing towards, you know, it's time. It's time to do something with AI. There's a lot of pressure by boards and CEOs on the management team to show value from AI because, you know, people think there's a lot of potential, and they are a little tired of the experiments. They want to see real value, and I think that's where I refer to as the first inning where customers are willing to invest real money, and we obviously talk about some eight-figure deals that were predominantly driven by the adoption of bots. Beyond just initial scale. But I don't think we can predict the pace other than to say with good confidence that it's accelerating, but I would not call it an inflection point at this point because, again, there are too many situations where customers have adopted the voice bots and saw very, very poor results. To the point that they stopped using them because they annoyed customers and they created no value or negative value in terms of customer retention. So as much as we hear about the good stories, I think we hear less about some very bad stories with AI. And that's what's causing the market to be a little bit more cautious. What we did, and it was a strategy we talked to the market about more than a year ago, is that we are going to introduce AI first to our top accounts. And last quarter, you know, we talked about, you know, 90 of the Fortune 500 companies already have some AI from Verint Systems Inc. So our strategy was let's start with the leaders in the market, the largest brands in the world, across many sectors. We now have AI in financial services, in insurance, in healthcare, in telco, in retail. So we kind of targeted large accounts which on one hand are obviously more difficult because they are large and complex. On the other hand, once they adopt AI, not only can they scale, but also they influence the rest of the market. So I think the more success stories we can tell from our customers, the more we will be able to get more acceleration of AI adoption in the overall market. And, you know, we have our engaged customer conference coming up in September in Orlando. And we are inviting many customers actually to tell their success stories to other customers. So it's not just Verint Systems Inc. telling stories, but I think it's going to be one of the leading events in the industry in terms of what's really been accomplished with AI beyond just the hype of what can be done. But what is working today and what value it's bringing, not just cold technology. I think that this kind of progress, Shaul, is going to accelerate the adoption. But there's no lack of interest from customers. Every customer that we contact and say, let me tell you, you know, our AI story is definitely now interested in learning more. Shaul Eyal: Great color. Thank you so much. Operator: Thank you. One moment for the next question. And the next question will be coming from the line of Peter Levine of Evercore. Your line is open. Peter Levine: Great. Thank you very much for taking my questions. Maybe I'll start with Grant. Can you maybe share with us kind of the conviction or your confidence in the second half ramp for ARR? If I look at, you know, your guidance, I believe, is $768 million plus or minus one, so call it plus 8% exiting Q4. Looks like there is a significant ramp here in the second half. So maybe just walk us through the seasonality and then the conviction or confidence that you see today that will kind of help you hit those targets. Grant Highlander: Yeah. Sure, Peter. So as I mentioned, we came in, accelerated growth here in the first quarter, 6%. We guided that $7 million to $10 million will go up to $720 million in Q2 in the guidance. And then in the second half, right, as we'll bridge it, Q3 will, you know, help to bridge that gap and ending with the 8% or $768 million. What we have out there in terms of, again, the ARR metric is a signal of the overall growth. Right? But at the end of the day, it's a combination of the new bookings as well as, you know, offset from just overall attrition. And that's the driver of the growth. Within the overall growth to get to that 8% ARR, we only need 12% or so bookings. And as Dan mentioned, that's total growth. And as Dan mentioned, we see the pipeline for our overall business, the SaaS ACV rolling fourth quarter. It's up greater than 30% year over year. So we got off to a good start here in Q1. I would highlight that anytime you look at the Q4 to Q1 dynamics in terms of overall aggregate ARR, Peter, we often have the seasonality in the fourth quarter where usage over and above, you know, our fixed contracts is higher, and that tends to occur every fourth quarter. And so we see some of that acceleration. And as we look at the sequencing across the year, looking at the pipeline, looking at how we got off to a good start in the first quarter, I think the combination of those things gives us confidence that we're on track to the 8% just based on the factors. Peter Levine: I mean, I guess if you can share, are there any metrics that you can give us around even with your AI or AI, I'm sorry, a lot of acronyms here, AI ARR net adds, either on the subscription ARR or the AI ARR, is there a metric you can share with us in terms of what adoption, what, you know, upsells look like at renewal? We'd love to know what that looks like on the software side. Grant Highlander: Sure. We have obviously a lot of metrics that we, you know, provided in the past and try to balance, and actually some of the feedback, Peter, that we've gotten is that, you know, we've provided too many in the past that oftentimes it isn't as clear on the drivers of growth, etcetera. So in order to be responsive, right, we've tried to provide just that. Focus on the ones that are most important to us, which is the aggregate measure of our total business will be the subscription ARR growth, which we highlighted. And then that AI ARR is really the measure of our key driver of that growth, which will be the AI adoption. So with the AI adoption, and that metric growing 24% overall, you can imagine that's obviously that's where we have the combination of very strong new bookings. That's what the customers are prioritizing their budgets around dollars. And, you know, within that, obviously, the retentions are very high. So aggregate business, we've seen actually improvements across last year in terms of each of the four quarters, the total ARR acceleration, I can tell you that the GRR has improved year over year as well. And, you know, the signaling for the 8% ARR growth is obviously an NRR that's well above the hundred mark. Peter Levine: Perfect. And maybe just one last one for Dan. We didn't talk much about macro. Maybe can you share with us kind of what you saw, you know, transpire maybe in the month of April, even in May? Would love to hear some of your commentary from customers and how they're thinking about the environment and moving forward. Obviously, your report and I think the numbers you gave us today indicate, you know, things are looking pretty healthy. But we'd love to know, was there any impact? Is there any impact to the guidance? Just love to hear kind of what customers are saying in today's environment. Thank you. Dan Bodner: Yeah. That's a good question. Obviously, the results speak for a strong Q1, and it's not just the reported results, but also the pipeline growth, 30%, represents strong demand. But if you're looking forward to the color, I would say that each and every conversation with a customer is now focused on value and ROI that is measured in less than six months. So people are much less interested in the multiyear projects where you move to the cloud and change your entire contact center infrastructure before getting some ROI. That is much less of an interest now. And it's shifting to discussion about value. And one of the things that we actually improved during Q1, given the focus on value, is we improved the way we explain value to our customers. We came up with some clear metrics on, you know, these are the things that we will measure for you after you deploy. Of course, you can measure many other things, but we're going to measure for you these metrics, and you'll be able to track on an ongoing basis, you know, how much value you're creating based on this value model. And I think that's been increasingly important for customers to see that there is a value model. Having said that, they still, in most cases, started on a small scale. So even if they were, you know, impressed by the PowerPoint, and they looked at the value and said that's impressive value, in most cases, yeah, we had some large deals, but we had also many deals where they're starting small. And, you know, you mentioned in your prior question to Grant something about expansion upon renewal. We see AI investments disconnected from renewal. Because, again, it's not necessarily big deals. And we encourage customers if there's no disruption with the hybrid cloud design. They can just layer bots on top of whatever they have. They don't have to wait for renewal with Verint Systems Inc. And they will start small. And then upon renewal, sometimes they just increase the scale because it's a good time when you renew a contract also to expand into the new AI areas, but it's always based on first let me prove that the value that you show me on PowerPoint is actually something I'm seeing in my own environment. So, you know, I'm not saying it's completely new, and we added last year as well, but perhaps this was because of the overall macro in Q1. It was even more focused on value selling. Peter Levine: Yeah. Perfect. No. I appreciate the color. Thank you very much. Operator: Thank you. As a reminder, if you'd like to ask a question, please press star one on your telephone. And the next question will come from the line of Billy Fitzsimmons on behalf of Samad Samana of Jefferies. Your line is open. Billy Fitzsimmons: Hey, guys. This is Billy Fitzsimmons on for Samad. Dan, maybe for you, as we think about the new AI ARR growth in disclosures and the acceleration in year-over-year bundled SaaS revenue, I want to get your view on how we should think about Verint Systems Inc.'s differentiation in an AI world, whether that's for agent assist tools, text-based chatbots, voice bots. And I think one of the core questions right now is that large well-funded software players are kind of investing in seemingly similar opportunities, whether that's transcription, summarization, chatbots, IVRs. And we've also seen the emergence of some well-funded startups who seem to be targeting a similar opportunity. Obviously, Verint Systems Inc. has been doing this a long time, has a large installed base that gets a voice data. So curious how we should think about differentiation and how the competitive landscape has maybe changed in recent quarters. Dan Bodner: Yes. Good question. Look, first, the fact that a lot of new players are attracted to this market is positive. It's positive because it's creating more demand in the markets. And I believe that, you know, the opportunity for customers to save a lot of money by shifting their budgets from human workforce to AI is obviously a very compelling ROI opportunity for customers. But then there's going to be an increase in technology spend. And Verint Systems Inc. is not going to take 100% market share. So the new entrants in the market are actually creating a more robust market. And I think we'll accelerate AI adoption. And I believe, as we see now, a 24% growth in AI, you know, and we're looking to have, you know, more than 20% growth also as we exit the year. The AI will continue through the year to be the engine to get to the 8% total growth. So we're taking a good market share of what is now becoming a new market. And I think we have very strong differentiation today both against startups, as well as against larger companies who are showing cool demos, but quite frankly, we don't see reported outcomes from customers yet. So I can be talking with, you know, strong conviction about we are different. Today. We are providing value to our customers today. I think your question is, you know, how are we going to maintain our differentiation over time? And, you know, it comes from, I would say, three main areas. One is that we're working with the leading brands in the world, and they are pushing us. They're pushing us really, really hard. And there's nothing better for a company to continue to innovate than to work with the most difficult customers in the world that push you hard. And you can see that with the pace of innovation that we are showing over the last, you know, eight quarters, since we introduced a new platform seven quarters ago. Right? It was the combination of three years in the work and, obviously, two decades of experience, but we launched it seven quarters ago. We, you know, now have real large customers that are reporting good outcomes, and they continue to push us to innovate. The second reason is that we have a platformmatic view on how to use AI in CX, not just about the, you know, one point solution, one chatbot that does one thing. Because you need to orchestrate all these different bots and humans to work together. Eventually, the more trivial conversation will move to AI, and the more complex conversation will remain with humans. And the need to maintain relationships in some industries is very important for our customers, actually, for humans to talk to humans because that's how they, you know, retain relationships. That's how they upsell, you know, like in insurance. There's nothing insurance companies love more than to talk to the customer when they call. Because it's an opportunity to show them some new products. So the human workforce is not going anywhere. There's going to be changes, but the way we, you know, we originally designed this platform with hybrid cloud, allowing customers to move forward with AI in an evolutionary way, not throw away everything and start over again, which doesn't work. It's a big advantage. And those startups just don't have the platform. And I think the third area that we have designed in the platform that will maintain our differentiation is the fact that we have an open DaVinci AI. And in the same platform, we are running many, many different AI models from many different vendors. So because we are open and we're taking the latest AI technology and obviously training it on data and embedding it into real solutions. You know, many of these startups just take one Gen AI model from somewhere, and they just use Gen AI to develop something. And it's cool, but it's not going to be the best AI model forever. The pace of AI changes is quick. And we are future-proofing AI investment for our customers by actually allowing them to use any other models, incorporate many different AI approaches, and also bring the best tools in the market and change them all the time. And different bots require different AI models. It's not, you know, we have more than 50 bots. Each one is designed to automate a different workflow. Because there are many, many different workflows, not just chatbots. And we have all these different models living in one platform. So these are big advantages that are very core to the approach we had. And at the end of the day, we are, you know, the only $1 billion pure-play CX automation company. There are a lot of companies who are trying to add CX automation to what they do, but I think we have it at scale. That's all we do. And as we move forward, we expect that we could continue to do it better than others. Billy Fitzsimmons: Hopeful. Thanks, Dan. And maybe one for Grant. Obviously, the AI ARR metric is a new metric. You talked about it in the prepared remarks, but I want to double-click because it's important. So first, can you just recap for us what's included in that metric? Assuming it's committed spend for your 50-plus bots, but any other products from your portfolio that are in that number that we should be aware of. And then second, you have minimum commitments for some of your bots, and then there's the potential for overages from a customer usage or volume above expectation. So does that AI ARR number just capture the committed minimum spend, and there's actually potential for upside on the revenue line due to overages? Want to understand how that can impact ARR versus the revenue number. Grant Highlander: Sure. Thank you. So let me start with that definition. Right? The AI ARR is all of the ARR derived from our solutions that include the AI functionality. Okay? And it represents what the quarterly run rate value of both active or, you know, the newly signed SaaS agreements that we have at the end of the period. So it's that combination consistent with our subscription ARR, but it's specifically segmenting that subscription ARR and looking at any solutions that today include that AI functionality. Now in terms of how we look at these solutions, right, in terms of the fixed, it does include both all of the fixed term agreements that we have, and, again, that's providing that quarterly annualized run rate of those. And then in a given quarter, if we do have overages, then it's going to go ahead and pick up that. So usage-related above the fixed commitments, it's capturing that as well. Billy Fitzsimmons: Understood. Super helpful. Thank you. Operator: Thank you. One moment for the next question. And the next question will be coming from the line of Timothy Horan of Oppenheimer. Your line is open. Timothy Horan: Oh, thank you. Oh, sorry. Just missed that. Can you talk about which bots are working well? And you know what? Your analyst day in Orlando last September. Their ROI was amazing, and, you know, a bunch of the bots looked like they were working well. Can you talk about just what's been the customer main reticence to adoption? I mean, when they can save, you know, ten or twenty dollars for every dollar they're spending, you know, with you. And, you know, how are you overcoming that? Dan Bodner: Yeah. So I would say overall, we're getting very positive feedback from customers on all our bots. And, you know, there are bots like with the sales channels. Sales channels like certain bots more because they require very short sales cycles. So for example, we have the bot we call the GinnieBot. This is a quick add-on the customers can add to their business analytics solution. And what it does, it's kind of supercharges the analysts and immediately increases analyst capacity for those business analysts. So it's one that I would say, I sell a lot of it because it's so compelling. It's so easy. The others that require a customer to change human behavior, so they need to enable their employees, and that takes some time. You know, for example, our Copilot coaching bots is one that will provide real-time next best action suggestions to agents. That bot requires some enablement, some users lobby, some users laugh because they feel like they already have the answers. There's another copilot which provides real-time CX scores to supervisors. So during the call, supervisors can get alerts on is the sentiment on the call going up or down? And they can see whether the sentiment is because of customer sentiment or employee sentiment. Sometimes employees get tired during the day. And a supervisor can just suggest, hey. You should go on a coffee break for fifteen minutes because you are tired. So they can, in real-time, react to the changing sentiments during the call. And obviously, they adapt it. So I would say that the reaction is overall very positive to all of them. But like any new technology that you introduce into a workforce, some customers have unions. They need to sell it into the union. This will add a lot of complexity in changing the market, you know, from being 100% manual to automation. We're not, you know, part of the design of our platform is we did not underestimate these challenges. And I think that's why, you know, overall, we have great customer-reported outcomes because we're not just showing a nice lab demo. We actually, you know, we are encouraging our customers. Let's go to production right away. Let's skip the lab experiment. And when you're in production, you find things like this. And I think we are dealing with this objection to it very well. And we'll continue to improve. We'll continue to improve because it's part of what the transition that the whole market needs to make. And look, we believe that eventually the AI, which is first is it's inevitable, but it's also going to be good for the workforce because it provides the workers opportunities to do a better job, really delight customers. They can, you know, give the bots the more mundane jobs and have more time to develop relationships and deal with more complex issues. So it's not that it's creating a negative impact on the workforce, but it definitely we see from customers that they need to make those changes in behavioral changes in their workforce. And I think that's part of why the industry is moving at the pace they're moving. It's not something we can trivialize. Timothy Horan: And, Grant, can you talk about working capital? How should that trend over the next few years as you get a lot more bundled SaaS? And what levers can you pull to improve that? Grant Highlander: Yeah. Sure. The way I would look at it, right, is as our cash generation, the ARR grows, the 8% you know, exiting this year. And we have it modeled with revenue being very similar to the cash generation model that will generate we won't have a lot of working capital burn. Right? Now and as I've talked about before, the cash gen is going to drive the free cash flow growth. That's, you know, throughout the whole model and the reason that we're providing this guidance in both ways. We know that the mix of, you know, bookings, etcetera, come in different, then that could have a little different impact on the revenue, but no change whatsoever on the free cash flow. That's where you get into some of the differences on working capital overall. Change in working capital. But right now, you know, we are projecting the year to be similar between the two models. And, again, as I just point to the model going forward, as the overall ARR and cash gen grows, you will see the free cash flow grow continue to grow at that fast pace and double-digit periods. Timothy Horan: Thank you. Operator: Thank you. And that concludes today's Q&A session. I would like to turn the call back over to Matthew Frankel for closing remarks. Please go ahead. Matthew Frankel: Thanks, Lisa, and thanks everyone for joining us today. As always, please feel free to reach out with any questions you have, and we look forward to speaking to you again soon.

Sprinklr (CXM) Q1 2026 Earnings Call Transcript | The Motley Fool

President and Chief Executive Officer -- Rory Read President and CEO Rory Read stated, "the broader macroeconomic uncertainty has resulted in longer sales cycles and increased scrutiny of enterprise spending," causing renewal pressure and more downsell and logo churn. Chief Financial Officer Manish Sarin indicated, "Our subscription revenue base net dollar expansion rate in the first quarter was 102%. This reflects the ongoing impact from the elevated customer churn and downsell activity that we have experienced in the quarter and over the past twenty-four months." Management expects A $10 million negative impact on non-GAAP operating expenses in FY2026 is expected from foreign exchange rates, as a significant proportion of employees are based outside the US and paid in local currency, Non-GAAP Operating Income: $36.7 million, producing an 18% non-GAAP operating margin for Q1 fiscal year 2026. Record Free Cash Flow: $80.7 million reported, or $92.5 million including $11.8 million in restructuring payments added back, for Q1 FY2026. Net Dollar Expansion Rate: 102% subscription revenue base net dollar expansion rate, reflecting churn and downsell impacts according to Sarin. Large Customer Cohort: 146 customers generated $1 million or more in annual subscription revenue, up 6% year-over-year but sequentially down from Q4 due to churn and downsell. Calculated Billings: $204.3 million, up 7% year over year. Remaining Performance Obligations (RPO): $943.2 million total RPO, up 2% year-over-year; $596.8 million current RPO, up 5% year-over-year. Cash and Securities: $570.2 million, with no debt reported. Stock Buyback: New $150 million stock buyback authorization to be fully completed by June 30, 2026. Q2 Guidance: Total revenue of $205 million-$206 million (4% year-over-year growth midpoint), subscription revenue of $184 million-$185 million, professional services revenue of $21 million (9% year-over-year growth), non-GAAP operating income of $33.5 million-$34.5 million, and non-GAAP net income of approximately $0.10 per diluted share (270 million shares) for Q2 FY2026. Fiscal 2026 Guidance: Subscription revenue expected at $741 million-$743 million (3% year-over-year growth midpoint), total revenue at $825 million-$827 million (4% year-over-year growth midpoint), non-GAAP operating income of $129 million-$131 million (16% margin midpoint), and a free cash flow target of $125 million (15% margin), all for FY2026. Operating Margins: Non-GAAP subscription gross margin was 78%, professional services gross margin was 6%, and total non-GAAP gross margin was 70% for Q1 FY2026. Restructuring & Litigation Charges: $16.3 million in restructuring charges in Q1 FY2026, $11.8 million in restructuring cash paid, and $0.8 million in litigation costs, all excluded from non-GAAP results. Buyback Timeline: Sarin said, "we intend to complete the full buyback by June 30, 2026." Professional Services Investment: Professional services gross margin (non-GAAP) is expected to be approximately breakeven in Q2 FY2026, reflecting continued investments. Management underscored that FY2026 remains a transitional year, explicitly identifying operational inconsistencies and elevated churn as ongoing challenges, despite improving free cash flow and non-GAAP margin discipline. The company announced a new $150 million stock buyback program to be completed by June 30, 2026, leveraging a cash position of $570.2 million and no debt. Subdued subscription revenue growth and a declining net dollar expansion rate in Q1 FY2026 were directly linked to increased downsell activity and elevated customer churn. Strategic initiatives included a shift to a pod-based sales structure, renewed focus on top customers through "Project Bear Hug," and broad-based investment in AI-native platform capabilities and professional services. FY2026 guidance was reiterated with a mild upward revision to total revenue, driven exclusively by increased expectations for professional services, not subscriptions. Chief Executive Officer Rory Read described the current sales motion transformation as a multi-quarter journey, identifying the latter half of FY2026 as the period to "really start reaching some of its momentum" Management confirmed the company continues to face renewal pressure across core marketing, insights, and social platform components, with no single area experiencing meaningfully worse churn. The strategic transition toward a unified, enterprise AI-native customer experience platform was repeatedly emphasized, with leadership highlighting industry recognition from Gartner and Forrester. Management attributed the sequential decline in $1 million+ customer count in Q1 FY2026 to cumulative downsell and churn, noting that they are targeting improvements through deep engagement programs and focused enablement activities. A $10 million negative foreign exchange headwind is expected for non-GAAP operating expenses, which leadership plans to offset through targeted cost containment. Read characterized FY2026 as a year to "harden" the CCaaS business, prioritizing platform maturity over market expansion until support and implementation are strengthened. Q1 FY2026 restructuring and reinvestment plans balanced efficiency improvements with continued investments in AI, the product roadmap, and sales enablement, signaling readiness for an improved growth trajectory in FY2027 and beyond. CCaaS (Contact Center as a Service): Cloud-based software for managing customer service interactions and contact center operations, typically used by enterprises to unify channels such as voice, chat, and social media. RPO (Remaining Performance Obligations): The sum of contracted revenue that has not yet been recognized, representing future revenue under signed customer agreements. Net Dollar Expansion Rate: A measure of retained and expanded subscription revenue from existing customers, accounting for both churn and upsell activity during a given period. Pod Structure: An organizational sales approach where cross-functional teams jointly manage accounts to drive performance and customer outcomes. Project Bear Hug: Sprinklr, Inc.'s targeted initiative to engage its top 500 revenue-generating customers with intensive cross-functional account support. LLM (Large Language Model): An AI technology used for processing and generating natural language, often powering chatbots and agentic AI features within the Sprinklr, Inc. platform. Eric Scro: Thank you, Operator, and welcome everyone to Sprinklr, Inc.'s first quarter fiscal year 2026 financial results call. Joining us today are Rory Read, Sprinklr, Inc.'s President and CEO, and Manish Sarin, Sprinklr, Inc.'s Chief Financial Officer. We issued our earnings release a short time ago, filed the related Form 8-Ks 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. The company believes these non-GAAP financial measures provide useful information for investors; the presentation of this information is not intended to be considered in isolation as a substitute for financial information presented in accordance with GAAP. You are directed to our press release and supplementary investor presentation for a reconciliation of such measures to GAAP. In addition, during today's call, we will be making some forward-looking statements about the business and about the financial results of Sprinklr, Inc. that involve many assumptions, risks, and uncertainties, including our guidance for the second fiscal quarter and full fiscal year of 2026, the impact of our corporate strategies 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 belief in 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, including Sprinklr, Inc.'s quarterly report on Form 10-Q, for the quarter ended April 30, 2025. With that, I'll now turn it over to Rory. Rory Read: Thank you, Eric, and hello, everyone. It's nice to be with you today. I'll start by providing a few 1Q financial highlights before covering some of my thoughts on the progress we are making in transforming the Sprinklr, Inc. business. First quarter total revenue grew 5% year over year to $205.5 million, and subscription revenue grew 4% year over year to $184.1 million. We generated $36.7 million in non-GAAP operating income, which resulted in an 18% non-GAAP operating margin for the quarter. I'd also like to highlight the record $81 million in free cash flow generation for the quarter. I want to thank Sprinklr, Inc. team members from around the globe and our customers and partners for trusting us to help them solve some of their most important business needs. In April, we welcomed Sanjay Mccwan as our Chief Information Officer. Sanjay's experience, leading enterprise technology and information security at scale, will help strengthen our security posture so we can deliver hardened world-class products while supporting our long-term vision to make every customer experience extraordinary. I expect we will make further leadership team additions as we move through FY 2026. Now I'd like to provide you with an update on Sprinklr, Inc.'s transformation. Today, we have established a clear ambidextrous strategy, implemented a business management system, optimized our cost structure, realigned our go-to-market coverage model, and strengthened our product delivery roadmaps. We are creating a foundation from which we will strategically invest and efficiently run Sprinklr, Inc. to improve our business. While we saw positive improvements in the business in the quarter, particularly around non-GAAP operating income and free cash flow, we are still a work in progress and have significant work to do across our business to elevate the consistency of our execution, improve the predictability of our results, and drive future growth. As I have shared in our previous two earnings calls, FY 2026 is a transitional year for Sprinklr, Inc. We anticipated some near-certain challenges as we implemented a series of strategic and operational changes to directly address past execution challenges and to position the company for the long term. During my many meetings with customers around the world, there are clear instances where some of them were not effectively implemented or properly supported, which understandably led to their dissatisfaction. In addition, the broader macroeconomic uncertainty has resulted in longer sales cycles and increased scrutiny of enterprise spending. This heightened scrutiny, coupled with inconsistent operational execution and lingering technical debt from the past several years, has continued to put pressure on our renewal site, resulting in more downsell activity and, in some cases, logo churn. Addressing all forms of churn is a top priority in our transformational journey, and we are actively working to resolve these issues. As Manish will cover later in the call, subscription revenue non-GAAP operating income guidance. However, we must continue to improve our execution to drive stronger financial performance in FY 2027 and beyond. Our commitment is to help our customers realize the full value of our AI-native platform. This is why we are focused on taking steps to strengthen our implementation processes and increase our post-sales support. We believe these changes and our continued investment will help customers see faster time to value, deepen confidence in the value of our solutions, and unlock expansion opportunities aligned to our customers' critical priorities. We are also making changes to improve our day-to-day execution. Our new business management system provides a more comprehensive view of the business with a clearer understanding of potential risks and opportunities so we can take proactive steps to address them quickly. And our new sales pod structure, implemented in February, enables our sales, services, and product teams to operate in a more unified and collaborative way to support customers. We are getting closer to the C-suite customers and building champions within the CIO and CTO organizations to better align with our customers' technology roadmap and their business priorities. We continue to strengthen our sales teams with hires across our pod structures. With respect to the HealthEbog pipeline, Sprinklr, Inc. Core remains strong and is at the highest level over the past eighteen months. Reenergizing and growing the core is a key driver to durable growth for Sprinklr, Inc. Since our founding, Sprinklr, Inc. has been an ally for the world's largest iconic brands. We believe shifting trends in social media today, notably the advancements in AI, social commerce, immersive content experiences, and cross-functional content strategies, play to Sprinklr, Inc.'s strength and position us to win. And in service, we have a pipeline with numerous seven-figure opportunities to pursue and win. Our AI solution was one of the key reasons we are winning as a disruptor in service. We're witnessing a pivotal shift where AI is no longer confined to automating basic tasks. Instead, AI is driving real-time decision-making, and the depth and breadth of the Sprinklr, Inc. platform is helping turn data into insights and insights into actions that's creating value for the brands we serve. Our LLM agnostic architecture is built on Sprinklr, Inc.'s proven automation and AI engine. This foundation enables seamless integration of AI agents into existing workflows. Customers are reporting containment rates ranging from 30% to as high as 80%, significantly reducing the need for human intervention. Now I'd like to cover our Project Bear Hug, which was one of our key back-to-the-field initiatives focused on deeply engaging our top 500 customers. This group represents approximately 80% of our revenue. In the first few months of Project Bear Hug, we've had detailed engagements with well over 100 of our largest customers. We're encouraged by the early results and new expanded use cases as we help companies drive ROI across the Sprinklr, Inc. platform. This initiative brings together all functions of Sprinklr, Inc., sales, service, product, marketing, to bear hug our customers, enabling us to better understand their priorities and deliver better outcomes for their business. As many of you know, product and technology innovation have always been at the core of our strategy and competitive advantage. This focus is earning us industry recognition. We are extremely proud to be highlighted in three top-tier analyst evaluations by Gartner and Forrester, showcasing our exceptional cross-product innovation and unified platform vision. These accolades validate our ambidextrous strategy to reenergize and grow the core while hardening and expanding our service offering to deliver the industry's most powerful AI-native, unified customer experience management platform. This momentum confirms our continued leadership in the Martech space and as a form of disruptor and challenger in the voice of the customer and CCaaS markets. Now I'd like to talk about some of our recent customer wins. During 1Q, we continued landing and expanding with many leading brands, companies such as Calvin Klein, LG Electronics, and Pepsi, to name just a few. As of April 30, we now have 146 customers generating at least $1 million in annual subscription revenue, which is up 6% year over year. I'd like to highlight a couple of examples that demonstrate how we're helping customers to win and deliver measurable results. This quarter, a Fortune 500 global medical technology leader replaced a five-year legacy vendor to reset their digital foundation for future growth. They needed a more innovative enterprise-ready platform. They chose Sprinklr, Inc. in a highly competitive process for our ability to unify global operations, deliver best-in-class publishing capabilities, and support future growth across customer service, advertising, and listening, all on one AI-native platform. Now with Sprinklr, Inc. Social and Sprinklr, Inc. Service, the company is transforming how it delivers content and customer experience across markets, equipping its customer service and global social media operations teams with AI-powered workflows, stronger governance, and smarter campaign execution. This win signals a strategic shift to unify and scale while positioning Sprinklr, Inc. at the core of their long-term customer engagement strategy. Our next win is with a leading British retailer in the healthcare and wellness space. They were in search of a strategic partner to completely reimagine their contact center, transforming it from a call center to a driver of valuable insights and revenue growth. Following a competitive RFP process, they selected Sprinklr, Inc.'s unified platform to power a four-phase transformation, capturing the voice of the customer through advanced quality management and analytics, deflecting low-value contacts with intelligent knowledge management, deepening digital engagement via bots, live chat, and WhatsApp, and ultimately, unifying voice, workforce optimization, and CX operations. This win signals a bold shift in how the brand views its services organization, and Sprinklr, Inc. is at the heart of this evolution. A big congratulations to the bear-hugging of cross-functional pods who helped win these customers in Q1. In closing, we're focused on building a better company, and we're making tangible progress in our transformation. We have acknowledged there will be challenges along the way, and we still have significant work to do. But we have clarity about where we are going, where we must improve, and how we will help our customers win. And I'm optimistic about the opportunity in front of us. But this will take some time. Sprinklr, Inc. is the definitive AI-native platform for unified customer experience management that empowers customer-facing teams to deliver seamless and consistent experiences across every touchpoint of the customer journey. The world is moving from transactional customer engagement to unified 360-degree customer experiences. We will leverage our AI-based unified platform and execute an ambidextrous approach to reenergize and grow our leading Sprinklr, Inc. core business while hardening and expanding our disruptive Sprinklr, Inc. service solution and our march towards the rule of forty. Thank you again, Sprinklr, Inc. team members around the world who are passionate about our future. To innovation, we are driven by a shared vision and commitment and aligned to our commitment to creating long-term value for our customers, partners, shareholders, and each other. Now I'd like to turn the call over to Manish to go through the numbers in a bit more detail. Manish? Manish Sarin: Thank you, Rory, and good morning, everyone. For the first quarter, total revenue was $205.5 million, up 5% year over year, while subscription revenue was $184.1 million, up 4% year over year. Professional services revenue came in at $21.4 million. Our subscription revenue base net dollar expansion rate in the first quarter was 102%. This reflects the ongoing impact from the elevated customer churn and downsell activity that we have experienced in the quarter and over the past twenty-four months. At the end of the first quarter, we had 146 customers contributing $1 million or more in subscription revenue over the preceding twelve months, which is a 6% increase year over year but down slightly on a sequential basis versus Q4 of last year. The sequential decline reflects the cumulative impact from some of the downsell and customer churn challenges we have referenced in the past year. This had led to some customers that were previously included in this metric falling below the $1 million level in trailing twelve months revenue and fewer customers expanding into this cohort. We believe our barefoot focus on customers with the high end of the market should positively impact our seven-figure customer count over time. Regarding gross margins for the first quarter, on a non-GAAP basis, our subscription gross margin was 78% and the professional services gross margin was 6%, resulting in a total non-GAAP gross margin of 70%. As noted on previous calls, we are experiencing higher data and hosting costs as we are launching new cloud environments in response to new business opportunities, especially in Springless. Turning to profitability for the quarter, non-GAAP operating income was $36.7 million or an 18% margin, which drove non-GAAP net income of $0.12 per diluted share. In the quarter, we booked $16.3 million in restructuring charges and paid out $11.8 million in cash related to the restructuring. We also incurred $0.8 million in litigation costs that we deem to be non-core to the operations of the business. As a reminder, these restructuring charges and litigation costs are not included in our non-GAAP figures. With respect to free cash flow, we generated $80.7 million during the first quarter, which is a record for Sprinklr, Inc. And if you factor in the $11.8 million cash paid out for the restructuring, free cash flow would have been $92.5 million for the quarter. This is a good start to the year and positions us well. This strong metric reflects our ongoing efficiency efforts, better expense discipline, and improved collection processes. This free cash flow generation contributed to our healthy balance sheet, which now stands at $570.2 million in cash and marketable securities with no debt outstanding. As we disclosed in our earnings release, I'm happy to report that Sprinklr, Inc.'s board has authorized a new $150 million stock buyback program, and we intend to complete the full buyback by June 30, 2026. Given the strong cash flow generation in Q1 and the operational improvements we have been making, we believe this is a prudent use of cash at this time. Calculated billings for the first quarter were $204.3 million, an increase of 7% year over year. As of April 30, 2025, total remaining performance obligations or RPO, which represents revenue from committed customer contracts that have not yet been recognized, was $943.2 million, up 2% compared to the same period last year. And current RPO or CRPO was $596.8 million, up 5% year over year. Before moving to guidance, I would like to comment on the macro environment. Since our last earnings call, it is clear the macro environment has been changing. While we continue to see a healthy pipeline, we think it is reasonable to expect customers to be more cautious and scrutinize their spending decisions for the remainder of the year. Furthermore, I want to address the potential impact on the volatility of the US dollar on our business. Given that most of our billings are in US dollars, changes in exchange rates do not materially impact our revenue. From an expense perspective, however, as a significant proportion of our employee population is based outside the US and paid in local currency, we have a more significant impact on operating expenses. At this point, we estimate a $10 million negative impact on our non-GAAP operating expenses based on current FX rates. However, at this time, we are confident we will be able to identify savings across the business to offset this headwind. Our guidance reflects these assumptions. Now moving to the numbers. For Q2, we expect total revenue to be in the range of $205 million to $206 million, representing 4% growth year over year at the midpoint. Within this, we expect subscription revenue to be in the range of $184 million to $185 million, representing 4% growth year over year at the midpoint. The Q2 guide implies $21 million in professional service revenue, which is growing by 9% year over year. As we have signaled in prior earnings calls, we will continue to invest in our professional services delivery capabilities and expect professional services gross margin to be approximately breakeven in Q2. With respect to billings, we estimate total billings of just under $200 million here in Q2. We expect non-GAAP operating income to be in the range of $33.5 million to $34.5 million, resulting in non-GAAP net income per diluted share of approximately $0.10, assuming 270 million diluted weighted average shares outstanding. This equates to a 17% non-GAAP operating margin at the midpoint. As we discussed on the call in March, we began investing some of the capital freed up from our restructuring earlier this year. This includes hiring in key areas such as go-to-market, R&D, and AI resources to both grow the core and harden our service product offering. For the full year FY 2026, we maintain our expectation for subscription revenue to be in the range of $741 million to $743 million, representing 3% growth year over year at the midpoint. As we previously shared, we continue to make progress in our transformation, but there is much more work still to do and challenges to address. We expect this transformation to continue across FY 2026. We now expect total revenue to be in the range of $825 million to $827 million, representing 4% growth year over year at the midpoint. This is a $3.5 million increase from prior guidance, driven by an increase in our professional services revenue expectation to $84 million. For modeling purposes, you can assume approximately $21 million in professional services revenue for both Q3 and Q4. For the full year FY 2026, we are maintaining our non-GAAP operating income to be in the range of $129 million to $131 million. This equates to non-GAAP net income per diluted share of $0.39 to $0.40, assuming 277 million diluted weighted average shares outstanding. This implies a 16% non-GAAP operating margin at the midpoint. When modeling the spread of non-GAAP operating income for the second half of FY 2026, you can assume a midpoint of $30 million for both Q3 and Q4 as the investments flow through the income statement. In deriving the net income per share for modeling purposes, a total tax provision of approximately $39 million needs to be added to the non-GAAP profit before tax. To get to non-GAAP profit before tax, start with the non-GAAP operating income ranges provided, and add an estimated $19 million in other income for the full year, with $4 million of that to be earned here in Q2. This other income line primarily consists of interest income. We estimate a tax provision of $10 million here in Q2. This equates to approximately a 26% effective tax rate on our non-GAAP profit before tax for both the quarter and the year. We also expect to be GAAP net income positive for the full year FY 2026, consistent with our performance over the last two years. Regarding free cash flow, we're still tracking to achieve a 15% free cash flow margin in FY 2026, which would equate to free cash flow generation of approximately $125 million for the full year. Q1 coming in at $92.5 million gives us a strong start to this year. Lastly, I would like to thank all our employees for their dedication and passion for what we are building at Sprinklr, Inc., and I'm grateful for the confidence that our customers have placed in us. And with that, let's open it up for questions. Operator? Operator: You may press star two if you would like to remove your question from the queue. And for a participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question is from Arjun Bhatia with William Blair and Company. Please proceed. Arjun Bhatia: Perfect. Thank you so much. Maybe for you, Rory, to start out with, it seems like you're making progress on the go-to-market side with some of the changes that you're implementing. But as you point out, you know, we're still early in the journey, and there's a lot of work still to be done. So I'm curious, how long is it before you think start firing and also unders with the go-to-market or can kinda reach its full potential and cross-sell, with upsell, with customer retention, kind of getting to levels where you would be happy with it. Rory Read: Yeah. Thanks, Arjun. That's a great question. You know, with the go-to-market is a fundamental component of the transformation. I think we did a great job with the coverage model that we implemented in February. I think having the pod structure and creating those teams and really over the right accounts is fundamental to this transformation. In terms of where we are, I think we're making good progress. But as I told you, FY 2026 would be a transitional year. I thought the first half would be choppier than the second half, and I'd look for more of a bend as I went through the year. The two things I think that are important about unlocking the go-to-market is one, I think this push around Project Bear Hug to get our team back in front of the customer every day and a focus on sales execution and sales activity. Driving that engagement with the customer. You know, as we finish May, we've gotten to about 200 of our top clients through this Project Bear Hug, and we're definitely seeing traction from that activity. So I'm very encouraged. So we have to get that bear hug work out through about five, six hundred customers over the next two quarters. And that should put us into, you know, somewhere in 3Q. The second thing we have to do, Arjun, is we need to make sure we are creating a robust enablement program for our internal pods as well as our partners because we have to build out our partner ecosystem and our customer. That we're actually implementing this month. We're starting with a series of 100 level classes, 200 level classes, and then later in the summer, we're gonna be training our teams on 300 and 400 level classes around our eight or nine selling motions. So teaching the pod exactly how to sell, what are the pain points of the customer, and how do we ramp them faster and create those use case models that help them sell. So I'd say as we move through this year, transitional FY 2026, I'll look for that sales force and that pod structure to really start reaching some of its momentum in the latter part of the second half. I think we should see that in 3Q and 4Q and then into FY 2027, 2028, which is your acceleration time period, that's what I'd look for in that. Does that help, Arjun? Arjun Bhatia: Yeah. Perfect. That sounds very promising. Appreciate that. And then maybe the second one just on CCaaS, it sounds like you're making some progress there. We know it's a competitive market. But it sounds like what you're doing is resonating. So I'm curious what from a product perspective customers are coming with to you to Sprinklr, Inc. and saying, hey. We really like this. This is differentiating the market. And then what's driving that edge in the CCaaS service space? Rory Read: I think what is key in that, you know, what differentiates Sprinklr, Inc. and why some of these iconic brands are looking to us and how we've made some really important inroads in that CCaaS phase. We only entered that market, what, two and a half years ago. But we have some really outstanding brands. It's because of the AI capability and this platform. Now our CCaaS customers have an experience where they can see more robust. They don't have to switch screens. They can really pull in data about the customer from a unified perspective from the social and the listening and the insights world. They have the robust kinds of capability with the right copilot, AI agentic deflection, and the social support around it. I think that's what they really like about it. The experience and the forward-thinking of that AI-native platform that we're creating and then how we link the other components of Sprinklr, Inc. onto that platform. You're gonna hear later in the year some of the, you know, the wins that we've had in that space at a global level. And I think that they're going to be very important in unlocking the future there. Now the challenge for us has been we have to mature that. And that's when I talk about the strategy about hardening and expanding CCaaS. I need to have that this is a mission-critical application. They love the experience. They love the solution and the platform and the AI nativity of it and the functionality around Agentic AI Copilot, and our studio work, but we have to have robustness in terms of how we release product, how we support product. We need to be a mature enterprise software company, and that's something we'll work across this whole year. So they love the solution. They like the idea. But we have to be better at implementing it and making sure that it's a great experience. We have to harden it, and we have to add some functionality management that will enable us to have the full answer. And I think all of that's on track through the end of the year, through the beginning of next year. And I consciously not pushed the accelerator down there. We are still continuing to grow in that space and add new customers. But I want to get that hardened before I expand further. And I'm spending a lot of time with our existing customers to make sure that's a good experience. Arjun Bhatia: Alright. Very good. Thank you. Operator: Our next question is from Pinjalim Bora with JPMorgan. Please proceed. Pinjalim Bora: Thank you for taking the questions. Two quick questions. The elongation in sales cycles in scrutiny that you highlighted, I want to ask you, is that broad-based across your customers or is that associated with certain geographies and certain verticals? And maybe talk about what have you seen in terms of spending trends as you stepped into Q2? And the second question is, the logo churn, what is driving that? How should and how should we think about the dollar churn through the year? Thank you. Rory Read: Yeah. So let's take the first one first. I think what you're seeing there's definitely been pressure in terms of the macro and the uncertainty created by tariffs. It doesn't directly affect us, but I think everyone has, and I don't think it's vertical. I don't think it's geography-based. I think everyone's just focused on managing expense as effectively as they can. And make sure that they're investing in those areas that cover churn. We're seeing plenty of opportunities. I mentioned that we're at the highest point in eighteen months in terms of our core pipeline. I think that's a macro fact. I'd say it's across the planet. I'd say in terms of the impact to us, I'd put that in the 30% plus or minus. I think more of our pressure has been over the past two years is on our execution. Okay? I think everyone's gonna feel that scrutiny on selling on expense management. I don't think it's catastrophic. I just think there's more focus on it. Our key is getting better implementation and better execution, delivering on the commitments we made. And I can tell you the ones where we're bear hugging and we're spending more time with the customer we're seeing tangible progress. We just have to do it across a wider swath of the customer set. Now in terms of renewals, you know, we've seen renewal pressure in Sprinklr, Inc. long before I got here, I guess, the past two plus years. You know, I think, again, that's really driven by the need to make our company a mature enterprise software company, improve our implementation, engage the customer, make sure we do what we say and own what we do. If we make a commitment, we do it effectively. And make sure you're in front of the customer every day. And now each of those activities, we have specific actions with our sales pods, with Project Bear Hug, with our enablement, with our work to a our implementations be 80% consistent and 20% bespoke. And we want our part Today, too much of our implementations are unique bespoke implementations and not consistent enough. So in terms of that, you know, from quarter to quarter and predictability, we just are kind of in the same mode. I'm looking for the business to show a bend in the second half. I'm looking for the changes that we're making in terms of the roadmap, in terms of the enablement, in terms of the pods, in terms of the improvements to implementation, improvements to the enablement, that should all start to translate to a bend in the second half of the year. Now, plus or minus, we'll look at it. We're a work in progress. And all I'll continue to do is give you updates on this. The challenges of the past two years plus two years, we're not gonna fix in two quarters, but we're gonna fix in a transitional year as we move forward. And I think we're working on the right stuff. I really do. Pinjalim Bora: Got it. Thank you. Operator: Our next question is from Catharine Trebnick with Rosenblatt Securities. Please proceed. Catharine Trebnick: Oh, thank you for taking my question and good first quarter here. So could you delineate maybe the between Sprinklr, Inc. marketing, Sprinklr, Inc. insights, and Sprinklr, Inc. social on the churn, are any one of those having more of a particular problem on renewal? And then the second follow-on question would be, you know, what type of R&D activity are you putting into those projects to help with the renewal? Thank you. Rory Read: Hey. Thanks, Catharine. From a standpoint, you know, that whole social the core Martech stack space, I think the company, as it pivoted two and a half years ago towards CCaaS, really neglected and really didn't focus there. And I think it's a fundamental part of our solution long term. We wanna reenergize and grow that core. There's no question. We've changed our incentives this year to make sure, and we see that manifesting itself in a better pipeline. That's good news. I like that. I think what we're seeing in terms of renewal there's not much variation between those three components that you referenced. You know, maybe one's three, four points higher or lower, and it can vary from quarter to quarter, but they're all in the same kind of space. When we engage the customer and we work with them on a regular basis, and we help them grow and have the right insights, we see stickiness. We see activity. We see buy-in. When we don't engage the customer, you expect it atrophies. You don't get the impact. That's why we're pushing so hard in the go-to-market. Now in terms of innovation, we're about a project we internally called Project Tiger Shark. In Tiger Shark, what we're trying to do is really focus on all activities around the core to accelerate. So we have focused on improving the user experience, and the UI. We're around innovation and advancing and we're looking externally. Are there acquisition opportunities that can add different capabilities and functionality? And there's some interesting opportunities out there that we're gonna continue to pursue. I think you're gonna see us introduce in the customer feedback management space. As a competitor to some of the traditional players in that space, I think we can be very disruptive there. The key though fundamentally is being engaged with a customer. When we get it right, we grow. We just implemented a large, you know, multimillion-dollar core deal that went live. We sold it in 4Q. It was with a big healthcare retailer. It went live just the past couple of days. Very, very powerful. The key here is to engage the customer, continue to innovate, look for acquisitions that are small but meaningful that allow us to continue to expand on that space. No big variation in the renewals between the three pieces of the stack. We're definitely got an understanding of how to make that change. And we're executing on it. Thank you, Catharine. Catharine Trebnick: Thank you. Operator: Our next question is from Jackson Ader with KeyBanc Capital Markets. Please proceed. Jackson Ader: Good morning, guys. Thanks for taking our questions. On the Bear Hug customers, so the 200 that you've identified what was the rationale behind those 200? Is it just the largest 200? Is it ones that were most at risk? How did you define 200 versus the other, you know, three to four? Rory Read: Yeah. What we did that's a great question, Jackson. What we did is we started on the strategic accounts. The top 25 to 50 accounts. And then we're then expanded to the top 100 and 200. They're definitely based on size, so we wanted to capture that first. But at the same time, through our business management system, we're building more analytics into the accounts, and we're one of the things Bear Hug did a lot of AI analytics around correlations. What things do we see in account that has pressure? And so we're actually getting kind of like a health check on all our accounts. So we started Bear Hug from largest to smallest, and we're gonna move in that direction. But in parallel, we did this work to do the analytic, and we're really starting to understand what are the factors. Are we seeing the right uptake? Are we seeing the engagement in the platform? Are we getting the right customer sales activity? For example, if we touch a customer fifteen times or more in a year, whether that's through the website, a sales call, getting them to an event. We see their buying propensity increase by 25%. That's a big number. So we want to get sales activity up. And so in parallel, Bear Hug is top goes top to bottom first, but then we're creating this kind of health analytic that's gonna highlight that. And we are now looking twelve months in advance on accounts so that we're managed way further ahead. When I got here in November, they were talking about renewals that were gonna happen that next month in December. That's way, way too late. We have to be way ahead of that. And what you're gonna see as I answer the question earlier on the call, we've got to see that pod structure fund this year. Does that help, Jackson? Jackson Ader: Yeah. Yeah. Makes sense. Thank you. Quick follow-up, Manish. The $10 million FX headwind on non-GAAP EBIT or, I guess, you know, the to the expense base. Are some of the areas that you think you can actually, you know, some of the levers you have to offset that $10 million in order to kinda keep your profitability metrics in line. Manish Sarin: Yeah. Thanks, Jackson. So I mean, at this point, look, we're actively evaluating the situation. You know, as I think you've picked up, we've been pretty thoughtful in where we're spending our money. So I think everything's on the table. We you know, as we did our reduction earlier in the year, we did keep some dry powder to figure out where we would invest during the course of the year. We're just gonna look thoughtfully at the monies that we have and as I said in the prepared remarks, we are looking to maintain the guide that we've put out. So we just look at where we can pull back and just be more thoughtful about our spending. Rory Read: And, Jackson, I'd add a little bit of color on that one from an investment standpoint. You know, I'm not saving our we're not gonna save our way to cross prosperity here. We wanna run an efficient model, and I think we've done some good work on cost optimization. We have to continue to invest in innovation. As we talked about with Catharine just a minute ago. But I also I think there's key areas like AI. We have a real leadership product here. We need to continue to expand that. I need some tiger teams in the region so I can engage the customer faster. I think that's gonna be an area I'll look at. Another one is around this pod and enablement structure. I need them to come up to speed. We need them to come up to speed faster and really understand how to sell. And then our support and services and implementation we have to transform some of that so that we're way better. I think we've been very prudent in where we've made our investments in the product area and improve the roadmap, but those are three areas. And I wanna make sure that everyone knows that we were gonna continue to make those moves that put us in position for long-term durable profitability and growth in 2027 and 2028. And that's what's most important. Operator: Our next question is from Raimo Lenschow with Barclays. Please proceed. Raimo Lenschow: Perfect. Thank you. Congrats on me as well, Rory and Manish, good early performance. The question I had on CCaaS, there's obviously a big discussion in the industry about, like, what AI is going to do to them. Can you speak a little bit about your vision there? To that space. And can you so Like, how that will come together and how you are maybe slightly differently positioned than the classic CTOs vendors. Thank you. Rory Read: Raimo, I love that question. I love this disruption. I think this disruption has opened the door for Sprinklr, Inc. I think this AI transformation is 100% real. And this idea of digital deflection and agentic deflection and support, it's real. Do I think agents in the CCaaS space are gonna dramatically decline? You know, there's some people out there that say, you know, 90% of the agents will be gone in ten years. That's not the case. That's not gonna happen. But I think that you're gonna see an important component of co-piloting and agentic work that's gonna deflect a fair amount of work. You're gonna see the digital support activity. It's gonna deflect a significant part of partial of work. I still see that space growing in total. And I think that you're gonna see this kind of movement that's occurring. That plays to our hand. We have that capability built in. And this will drive this movement to a unified customer experience. Well, you'll pull in the other activities around social and around digital and around voice settled create an end-to-end solution. We're already selling it, and we're seeing momentum in that space. It's now a question of when does it accelerate. And if you read some of my LinkedIn posts, you'll see that I talk about that. I think that's what I love this disruption. I think it's spot on, and that's one of the key reasons I believe in Sprinklr, Inc. Now the key for us to winning it is we've got a good platform. We've got it in the right space, but we have to mature this company. We have to get the right processes. We have to get the right sales motion. We have to get the right support function. That's what this year is about. You've got to give us time to fix those items. And if we fix those items, then we really can scale with these iconic brands. And support this, we're in a very good position to capture a lot, you know, a significant part of that business. And I think we're very well positioned for it. But we've got to fix the maturity and harden the platform. This isn't just a social listening platform anymore. This is a mission-critical, unified AI-native customer experience platform. You have to behave like that if you're gonna support the world's most iconic brand on their mission-critical apps. That's what we have to do over the next six, nine, twelve plus months. And if we do that, that transformation and that movement of the market plays to our hand. I love that this disruption. I want it to happen. But I need to mature at the same time. Thanks, Raimo. Raimo Lenschow: Yep. Makes sense. Jake, can I have just one quick follow-up? Maybe it's more for Manish. If you think about your new business information system that is in place now, it's great to see. They usually are things that you realize, oh my god. I know something that I didn't know, and now I can act better. How comprehensive will that be for the organization? At the moment, you know, sales renewal, etcetera. Is that going just is it small for that space, or is it going broader than that? Thank you. Manish Sarin: Yeah. Thanks, Raimo. So the BMS is way broader than that. So it's not just focused on renewals. It's everything from product delivery to enablement to how the sales teams are performing. Most BMS systems you would look at would tend to be just around what's happening in the go-to-market. And I think one of the things we realized was we were good at what we did. Put more in silos. And so I think the BMS is really all around making sure everybody in the company has a full 360 view of what's going on and how do we perform better as a team versus in our own individual domains. Rory Read: And what the key here is, Raimo, is you got to create a thirteen-week cadence every quarter. And you've got month one, month two, month three, and then you have biweekly components. We reviewed the roadmap. We reviewed the implementation. We do month one, which has a strategic deep dive. We get the entire leadership team together three times a quarter for, you know, two days. We're engaged and we have a we look at product, we look at sales, we look at marketing, we look at people. How we're changing the culture. We look at all those components. And across each thirteen-week cycle, we have a full calendar of events. Now we're burning that in, and I think we're getting you know, if you think of Sprinklr, Inc. like an airplane, when we got here, it had a couple of dials. You knew how fast it was flying and maybe what height we were. Now we know oil pressure on the engines. We knew the temperature of the water. We know the airspeed. We know the we're starting to be able to see the weather that's coming in the future. And that's where you have to get the BMS to get proactive. But again, a work in progress. You have to give us time to do the work to create the bed. Raimo Lenschow: Yep. Makes sense. Thank you. Congrats. Operator: Our next question is from Elizabeth Porter with Morgan Stanley. Please proceed. Elizabeth Porter: Wanted to follow-up on comments around the pod structure and just fundamentally changing the sales culture. Just understanding that culture may be hard to change, wanted to better understand the receptiveness from the teams, kind of what incentives you're putting in place, and what are the metrics you're looking at to really measure success of the new pod structure? Thank you. Rory Read: Yeah. Elizabeth, that's a great question. So the I think the first piece of work we did to launch in February was to get the new coverage model and really have this concept of pod where you have the AE kind of running the quarterback of the play. You got this solution consultant being the CTO, you know, the technical. You've got the technical success manager with the right technical skills to have the ongoing relationship to really build it. You've got, you know, the RAM, the renewal manager in there. You've got the implementation and the managed service. So they're behaving as a single unit. And they're getting in front of the customer. It didn't it creates that collaboration and teamwork. And we're bringing in product skills. So when we do a win report, you can see salespeople, product people, finance people, marketing people, all referenced as it takes a village. We've got to create this mindset that everyone's job is around the customer. The Sprinklr, Inc. way is about this objection with the customer around accountability. I do what I say, and I own what I do. And it's about, you know, collaboration and teamwork. I do it as a group. We only succeed united. And then, ultimately, it's about building trust. And remember, I love that book, The Speed of Trust. It's fundamental. If you build trust, you'll be successful. In the culture of the sales, you want to create this ownership. We can't have a hit-and-run sales team. We need a team that's working. We live and die together, and we've created this engagement with the customer and get the sales activity. Because I referenced earlier, we get the touches, our sales win rate increases by 25%. You build better pipeline. We're creating the incentives to encourage it, but you're right. It takes time. That's why I need time to build that in. Now good news is we've had a fair amount of attrition in the past two years, so a lot of new people. So you can help train them and grow them. That's why we're spending time on enablement right now. And you've got to create this, and winning begets winning. We're not all the way there. But we are highlighting where we have these great successes. And that's the kind of dichotomy of Sprinklr, Inc. Sometimes we have this renewal pressure that's been going on for two years, and then other accounts we just have these amazing unlocks, and we're able to grow it. And we're so fundamentally important to them. How do we catch that lightning and show that team? That's how we change the sales culture and the culture of the company. And that's what you know, Joy Corso and her team is focused on. It's really creating that kind of cultural transformation. But it'll take, you know, most of this year. Culture always takes between twelve and twenty-four months to get there. Always. Elizabeth Porter: Great. Thank you. And then just as a quick follow-up, after the 15% reduction in workforce and some of the reinvestment you're doing just in the right areas. How should we think about the puts and takes and what year-end headcount could be looking like? Rory Read: Yeah. I think plus or minus where we are today. I mean, maybe a little bit more. I want to be prudent on it. I'm really looking to upgrade our technical capability. I think we have, you know, maybe, you know, plus or so, maybe a hundred, a hundred and change, something like that. But I think it's in the ballpark. I think we ought to make sure we don't get ahead of ourselves. That we're very prudent. I need I could continue to grow on 300 plus AI skills that I have. I need to upgrade the technical capability of our success managers and in our solution cell consultants. Those are two areas. I think we gotta make some investment in the enablement but I think there's puts and takes. There's some other areas. I think we're in the general right ballpark, you know, and I think let's get revenue, you know, let's see a bend in the business and then we can kinda talk about where do we go from there. But I think we can be just as efficient. Elizabeth Porter: Thank you. Operator: Our next question is from Patrick Walravens with Citizens JMP. Please proceed. Patrick Walravens: Oh, great. Thank you. Hey, Rory. Can we go back in time a little bit? When you were at and what I'm trying to get at here is sort of as you fix the fundamentals of Sprinklr, Inc. the strategic value of this business. So at Vonage, you were appointed July of 2021. So that went 2020, and Ericsson announced the acquisition November really quick. Right? Can you just walk us through how that played out and help us think about sort of what the strategic value of Sprinklr, Inc. might be. Rory Read: Yeah. I think as I've shared with you, Patrick, and the team, there's a particular approach that we go about when we take on one of these transformations and these kind of turnarounds. The first phase is always around business optimization, and most of that work is done. That's where we reorganize the go-to-market, and we get the pod structure. That's where we refocus the roadmaps to make sure that we have the right priorities. We put in place the BMS. We get the right strategic initiatives. Often, companies like this struggle with lack of clarity, and they get they get kinda paged like an old mainframe. Right? They're so busy switching from idea to idea, they're not really doing any work. They're just paging workload in and out of memory and never getting there. Now that shows how old I am because that's not the case how it works at computing anymore. But I think, you know, you do that optimization work. And then most of that is all done. The BMS is in place. I highlighted that as strategy is clearer. Then you go through a transitional phase, and that's somewhere between, say, twelve and eighteen months. You know, that's why I talked about the first half of this year being, you know, that bumpy kind of period. And then you look for a bend as we go through the second half into FY 2027. And that puts you somewhere eighteen to twenty-four months out. I think, you know, Vonage had the advantage of the COVID kind of acceleration that it caught the wind at the same time. But we followed the exact same structure. And then you move into an acceleration phase, whether that's, you know, twelve to eighteen months in or whether that's, you know, twenty months in or twenty-four it's in that general period. It could be as short as fifteen months. But, you know, that's what you're looking for. And then you start to build on it. So you do your optimization work. That's pretty much done here at Sprinklr, Inc. Now we've got clarity on the strategy. Now we use this transition year to fix the processes, the programs. We make some of the investments. We start to change the culture, and we move the whole thing in terms of maturation and maturity as a software company. And then that kind of puts us at the end of this year beginning of next year sometime. And then we're then we're trying to put more logs on the fire. Now you're trying to accelerate the business and grow, and that's how you push towards the rule forty. You know, each one is a little bit different. So you can go look at Dell Boomi or Dell Virtustream or AMD or Lenovo. You know, there's a whole long list of different companies that I've worked on. This is definitely the approach. That's how you should look at it, Patrick. And I think we're right where we should be at this point. Now this transition year is really fundamental. And I think we're doing the right things. Now we gotta see it, you know, each component. And I can tell you that we're a better Sprinklr, Inc. than we were six months ago. And I expect to be a better Sprinklr, Inc. in six months and a much better Sprinklr, Inc. in twelve months. Patrick Walravens: Thank you. And Manish, should I do a quick follow-up, which is I think I well, I was looking for 103 on the dollar expansion you guys came in at 102. So just what should what should we expect going forward just so we can sort of not be overestimating it? Manish Sarin: Yeah. And I think so that's a good question, Patrick. I think where we are right now, the 102 give or take, is probably where I expect it to be. Again, we don't make any predictions around it. It's hard to sort of estimate. But if you look at a full-year growth rate of call it 4% or percent on the subscription side, that would sort of put the 102 right around where you'd expect it to be because some growth will come from new business sold during the year and obviously, a lot will come from upsells into the existing accounts. I would expect this number to be kind of where it is right now. Rory Read: That's it, Patrick. I appreciate that. I think we're good now. Alright, Eric. Eric Scro: I think we're good. Operator, if you have anything else, otherwise, Rory, any last remarks from you? Rory Read: Well, first of all, I'd just like to thank everyone for joining. I appreciate everyone's interest in the company. I do want to thank the Sprinklr, Inc. team members around the world for their passion and energy. I'd ask you to continue to track us as we go through. We'll give you updates in a very open, transparent way so you can track where we're going. It's a work in progress. But I think we're in the right place at the right time. We're dealing with some of the challenges of the past. We're making the right changes. And we're looking for the company to see it bend sometime in the second half of the year. But at this point, we're a work in progress. Let's keep focused on making a better Sprinklr, Inc. give us a bit of time. I appreciate everyone's interest. And thank you, Sherry, for hosting the call today. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Earnings call transcript: Sprinklr Q2 2025 beats estimates, stock surges 7% By Investing.com

Sprinklr Inc. reported stronger-than-expected earnings for the second quarter of 2025, with its earnings per share (EPS) and revenue surpassing analysts' forecasts. The company's EPS came in at $0.12, beating the forecast of $0.10. Revenue reached $205.5 million, exceeding the anticipated $201.88 million. Following the announcement, Sprinklr's stock price rose by 7.13% in pre-market trading, reflecting investor optimism about the company's performance. According to InvestingPro data, the company maintains a healthy balance sheet with more cash than debt, while trading at an attractive P/E ratio relative to its near-term earnings growth potential. Key Takeaways Company Performance Sprinklr demonstrated robust performance in Q2 2025, with total revenue increasing by 5% year-over-year. The company continues to solidify its position in the customer experience management space, leveraging AI innovations and expanding its product offerings. Despite a challenging macroeconomic environment, Sprinklr's strategic initiatives helped drive growth and maintain market leadership. Financial Highlights Earnings vs. Forecast Sprinklr's Q2 2025 EPS of $0.12 surpassed the forecasted $0.10, marking a 20% positive surprise. Revenue also exceeded expectations, coming in at $205.5 million against the projected $201.88 million. This performance indicates a strong operational execution and effective cost management, contributing to the earnings beat. Market Reaction Following the earnings announcement, Sprinklr's stock price increased by 7.13% in pre-market trading, reaching $8.9. This rise reflects positive investor sentiment driven by the company's earnings beat and strategic initiatives. The stock's movement places it closer to its 52-week high of $11.01, signaling renewed confidence among shareholders. Based on InvestingPro's Fair Value analysis, Sprinklr currently appears undervalued, with analysts setting a consensus high target of $17. Management's aggressive share buyback program further supports the stock's potential upside. Outlook & Guidance For FY 2026, Sprinklr expects subscription revenue to range between $741 million and $743 million, representing a 3% growth. Total revenue guidance is set at $825 million to $827 million, with a projected non-GAAP operating income of $129 million to $131 million. The company anticipates continued business evolution in the latter half of FY 2026, aiming for Rule of 40 performance. InvestingPro analysis shows the company maintains a strong financial health score of GOOD, with a beta of 0.81, indicating lower volatility compared to the market. Get access to the comprehensive Pro Research Report for detailed analysis of Sprinklr's growth trajectory and market position. Executive Commentary CEO Rory Reed stated, "FY 2026 is a transitional year for Sprinklr," emphasizing the company's strategic focus on creating a foundation for future growth. Reed also highlighted the shift towards unified 360-degree customer experiences as a key industry trend. Risks and Challenges Q&A During the earnings call, analysts inquired about challenges in sales execution and customer renewals. Executives addressed AI's transformative impact on contact center operations and detailed the company's cultural and strategic changes to navigate macroeconomic pressures. Full transcript - Sprinklr Inc (CXM) Q1 2026: Conference Operator: Greetings. Welcome to Sprinklr First Quarter Fiscal Year twenty twenty six Earnings Call. At this time, participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this call is being recorded. It is now my pleasure to introduce Eric Skrow, Vice President, Finance. Thank you. You may begin. Eric Skrow, Vice President, Finance, Sprinklr: Thank you, operator, and welcome, everyone, to Sprinklr's first quarter fiscal year twenty twenty six financial results call. Joining us today are Rory Reed, Sprinkler's President and CEO and Manish Serene, Sprinkler's Chief Financial Officer. We issued our earnings release a short time ago, filed the related Form eight ks 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 this 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 supplementary 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 second fiscal quarter and full fiscal year of 2026, the impact of our corporate strategies 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, including Sprinklr's quarterly report on Form 10 Q for the quarter ended 04/30/2025. With that, I'll now turn it over to Rory. Rory Reed, President and CEO, Sprinklr: Thank you, Eric, and hello, everyone. It's nice to be with you today. I'll start by providing a few 1Q financial highlights before covering some of my thoughts on the progress we are making in transforming the Sprinkler business. First quarter total revenue grew 5% year over year to $205,500,000 and subscription revenue grew 4% year over year to $184,100,000 We generated $36,700,000 in non GAAP operating income, which resulted in an 18% non GAAP operating margin for the quarter. I'd also like to highlight the record $81,000,000 in free cash flow generation for the quarter. I want to thank Sprinklr team members from around the globe and our customers and partners for trusting us to help them solve some of their most important business needs. In April, we welcomed Sanjay Makwan as our Chief Information Officer. Sanjay's experience, leading enterprise technology and information security at scale will help strengthen our security posture, so we can deliver hardened world class products while supporting our long term vision to make every customer experience extraordinary. I expect we will make further leadership team additions as we move through FY 2026. Now I'd like to provide you with an up on Sprinklr's transformation. Today, we have established a clear ambidextrous strategy, implemented a business management system, optimized our cost structure, realigned our go to market coverage model and strengthened our product delivery roadmaps. We are creating a foundation from which we will strategically invest and efficiently run Sprinklr to improve our business. While we saw positive improvements in the business in the quarter, particularly around non GAAP operating income and free cash flow, we are still a work in progress and have significant work to do across our business to elevate the consistency of our execution, improve the predictability of our results and drive future growth. As I have shared in our previous two earnings calls, FY twenty twenty six is a transitional year for Sprinklr. We anticipated some near term challenges as we implemented a series of strategic and operational changes to directly address past execution challenges and to position the company for the long term. During my many meetings with customers around the world, there are clear instances where some of them were not effectively implemented or properly supported, which understandably led to their dissatisfaction. In addition, the broader macroeconomic uncertainty has resulted in longer sales cycles and increased scrutiny of enterprise spending. This heightened scrutiny coupled with inconsistent operational execution and lingering technical debt from the past several years has continued to put pressure on our renewal cycles, resulting in more down sell activity and in some cases, logo churn. Addressing all forms of churn is a top priority in our transformational journey, and we are actively working to resolve these issues. As Manish will cover later in the call, we are maintaining our FY 'twenty '6 subscription revenue non GAAP operating income guidance. However, we must continue to improve our execution to drive stronger financial performance in FY 'twenty seven and beyond. Our commitment is to help our customers realize the full value of our AI native platform. This is why we are focused on taking steps to strengthen our implementation processes and increased our post sales support. We believe these changes and our continued investment will help customers see faster time to value, deepen confidence in the value of our solutions and unlock expansion opportunities aligned to our customers' critical priorities. We are also making changes to improve our day to day execution. Our new business management system provides a more comprehensive view of the business with clear understanding of potential risks and opportunities, so we can take proactive steps to address them quickly. And our new sales pod structure implemented in February enables our sales services and product teams to operate in a more unified and collaborative way to support customers. We are getting closer to the C suite customers and building champions within the CIO and CTO organizations to better align with our customers' technology roadmap and their business priorities. We continue to strengthen our sales teams with hires across our pod structures. With respect to the health of our pipeline, Sprinklr core remains strong and is at the highest level over the past eighteen months. Reenergizing and growing the core is a key driver to durable growth for Sprinklr. Since our founding, Sprinklr has been an undisputed market leader in social media management for the world's largest iconic brands. We believe shifting trends in social media today, notably the advancements in AI, social commerce, immersive content experiences and cross functional content strategies play to Sprinklr's strength and positions us to win. And in service, we have a pipeline with numerous 7 figure opportunities to pursue and win. Our AI solution was one of the key reasons we are winning as a disruptor in service. We're witnessing a pivotal shift where AI is no longer confined to automating basic tasks. Instead, is driving real time decision making and the depth and breadth of the Sprinklr platform is helping turn data into insights and insights into actions that's creating value for the brands we serve. Our LLM agnostic architecture is built on Sprinklr's proven automation and AI engine. This foundation enables seamless integration of AI agents into existing workflows. Customers are reporting containment rates ranging from 30% to as high as 80%, significantly reducing the need for human intervention. Now I'd like to cover our Project Bearhug, which was one of our key back to the field initiatives focused on deeply engaging our top 500 customers. This group represents approximately 80% of our revenue. In the first few months of Project Bearhug, we've had detailed engagements with well over 100 of our largest customers. We're encouraged by the early results and new expanded use cases as we help companies drive accelerated ROI across the Sprinklr platform. This initiative brings together all functions of Sprinklr, sales, service, product, marketing to bear hug our customers, enabling us to better understand their priorities and deliver better outcomes for their business. As many of you know, product and technology innovation have always been at the core of our strategy and competitive advantage. This focus is earning us industry recognition. We are extremely proud to be highlighted in three top tier analyst evaluations by Gartner and Forrester, showcasing our exceptional cross product innovation and unified platform vision. These accolades validate our ambidextrous strategy to reenergize and grow the core while hardening and expanding our service offering to deliver industry's most powerful AI native unified customer experience management platform. This momentum confirms our continued leadership in the Martech space and as a formidable disruptor and challenger in the voice of the customer and CCaaS markets. Now I'd like to talk about some of our recent customer wins. During 1Q, we continued landing and expanding with many leading brands, companies such as Calvin Klein, LG Electronics and Pepsi to name just a few. As of April 30, we now have 146 customers generating at least $1,000,000 in annual subscription revenue, which is up 6% year over year. I'd like to highlight a couple examples that demonstrate how we're helping customers to win and deliver measurable results. This quarter, a Fortune 500 global medical technology leader replaced a five year legacy vendor to reset their digital foundation for future growth. They needed a more innovative enterprise ready platform. They chose Sprinklr in a highly competitive process for our ability to unify global operations, deliver best in class publishing capabilities and support future growth across customer service, advertising and listening all on one AI native platform. Now with Sprinklr Social and Sprinklr Service, the company is transforming how it delivers content and customer experience across markets, equipping its customer service and global social media operations teams with AI powered workflows, stronger governance and smarter campaign execution. This win signals a strategic shift to unify and scale while positioning Sprinklr at the core of their long term customer engagement strategy. Our next win is with a leading British retailer in the healthcare and wellness space. They were in search of a strategic partner to completely reimagine their contact center, transforming it from a cost center to driver of valuable insights and revenue growth. Following a competitive RFP process, they selected Sprinklr's unified platform to power a four phase transformation, capturing the voice of the customer through advanced quality management and analytics, deflecting low value contacts with intelligent knowledge management, deepening digital engagement via bots, live chat and WhatsApp, and ultimately unifying voice, workforce optimization and CX operations. This win signals a bold shift in how the brand views its services organization and Sprinklr as a heart of this evolution. A big congratulations to the bear hugging of cross functional pods who helped win these customers in Q1. In closing, we're focused on building and we're making tangible progress in our transformation. We have acknowledged there will be challenges along the way and we still have significant work to do. But we have clarity about where we are going, where we must improve and how we will help our customers win. And I'm optimistic about the opportunity in front of us, but this will take some time. Sprinklr is the definitive AI native platform for unified customer experience management that empowers customer facing teams to deliver seamless and consistent experiences across every touch point of the customer journey. The world is moving from transactional customer engagement to unified three sixty degree customer experiences. We will leverage our AI based unified platform and execute an ambidextrous approach to reenergize and grow our leading Sprinklr core business, while hardening and expanding our disruptive Sprinklr service solution in our march towards the Rule of 40. Thank you again, Sprinklr team members around the world who are passionate about our future. We are driven by a shared vision and commitment to innovation and aligned to our commitment to creating long term value for our customers, partners, shareholders and each other. Now I'd like to turn the call over to Manish to go through the numbers in a bit more detail. Manish? Manish Serene, Chief Financial Officer, Sprinklr: Thank you, Rory and good morning everyone. For the first quarter, revenue was $205,500,000 up 5% year over year, while subscription revenue was $184,100,000 up 4% year over year. Professional services revenue came in at $21,400,000 Our subscription revenue base net dollar expansion rate in the first quarter was 102%. This reflects the ongoing impact from the elevated customer churn and down sell activity that we have experienced in the quarter and over the past twenty four months. At the end of the first quarter, we had 146 customers contributing $1,000,000 or more in subscription revenue over the preceding twelve months, which is a 6% increase year over year, but down slightly on a sequential basis versus Q4 of last year. The sequential decline reflects the cumulative impact from some of the down sell and customer churn challenges we have referenced in the past year. This had led to some customers that were previously included in this metric falling below the $1,000,000 level in trailing twelve months revenue and fewer customers expanding into this cohort. We believe our bear hug focus on customers at the high end of the market should positively impact our seven figure customer count over time. Regarding gross margins for the first quarter, on a non GAAP basis, our subscription gross margin was 78% and the professional services gross margin was six percent, resulting in a total non GAAP gross margin of 70%. As noted on previous calls, we are experiencing higher data and hosting costs as we are launching new cloud environments in response to new business opportunities, especially in Sprinklr steps. Turning to profitability for the quarter, non GAAP operating income was 36,700,000.0 or an 18% margin, which drove non GAAP net income of $0.12 per diluted share. In the quarter, we booked $16,300,000 in restructuring charges and paid out $11,800,000 in cash related to the restructuring. We also incurred $800,000 in litigation costs that we deem to be non core to the operations of the business. As a reminder, these restructuring charges and litigation costs are not included in our non GAAP figures. With respect to free cash flow, we generated $80,700,000 during the first quarter, which is a record for Sprinklr. And if you factor in the $11,800,000 cash paid out of the restructuring, free cash flow would have been $92,500,000 for the quarter. This was a good start to the year and positions us well. This strong metric reflects our ongoing efficiency efforts, better expense discipline and improved collection processes. This free cash flow generation contributed to our healthy balance sheet, which now stands at $570,200,000 in cash and marketable securities with no debt outstanding. As we disclosed in our earnings release, I'm happy to report that Sprinklr's Board has authorized a new $150,000,000 stock buyback program and we intend to complete the full buyback by 06/30/2026. Given the strong cash flow generation in Q1 and the operational improvements we have been making, we believe this is a prudent use of cash at this time. Calculated billings for the first quarter were $204,300,000 an increase of 7% year over year. As of 04/30/2025, total remaining performance obligations or RPO, which represents revenue from committed customer contracts that has not yet been recognized was $943,200,000 up 2% compared to the same period last year. And current RPO or CRPO was $596,800,000 up 5% year over year. Before moving to guidance, I would like to comment on the macro environment. Since our last earnings call, it is clear the macro environment has been changing. While we continue to see a healthy pipeline, we think it is reasonable to expect customers to be more cautious and scrutinize their spending decisions for the remainder of the year. Furthermore, I want to address the potential impact on the volatility of the U. S. Dollar on our business. Given that most of our billings are in U. S. Dollars, changes in exchange rates do not materially impact our revenue. From an expense perspective, however, as a significant proportion of our employee population is based outside The U. S. And paid in local currency, we have a more significant impact on operating expenses. At this point, we estimate a $10,000,000 negative impact on our non GAAP operating expenses based on current FX rates. However, at this time, we are confident we will be able to identify savings across the business to offset this headwind. Our guidance reflects these assumptions. Now moving to the numbers. For Q2, we expect total revenue to be in the range of $2.00 $5,000,000 to $2.00 $6,000,000 representing 4% growth year over year at the midpoint. Within this, we expect subscription revenue to be in the range of $184,000,000 to $185,000,000 representing 4% growth year over year at the midpoint. The Q2 guide implies $21,000,000 in professional services revenue, which is growing by 9% year over year. As we have signaled in prior earnings calls, we will continue to invest in our professional services delivery capabilities and expect professional services gross margin to be approximately breakeven in Q2. With respect to billings, we estimate total billings of just under $200,000,000 here in Q2. We expect non GAAP operating income to be in the range of $33,500,000 to $34,500,000 resulting in non GAAP net income per diluted share of approximately $0.10 assuming $270,000,000 diluted weighted average shares outstanding. This equates to a 17% non GAAP operating margin at the midpoint. As we discussed on the call in March, we began investing some of the capital freed up from our restructuring earlier this year. This includes hiring in key areas such as go to market, R and D and AI resources to both grow the core and harden our service product offering. For the full year FY 'twenty six, we maintain our expectation for subscription revenue to be in the range of $741,000,000 to $743,000,000 representing 3% growth year over year at the midpoint. As we previously shared, we continue to make progress in our transformation, but there is much more work still to do and challenges to address. We expect this transformation to continue across FY 2026. We now expect total revenue to be in the range of $825,000,000 to $827,000,000 representing 4% growth year over year at the midpoint. This is a $3,500,000 increase from prior guidance, driven by an increase in our professional services revenue expectation to 84,000,000 For modeling purposes, you can assume approximately $21,000,000 in professional services revenue for both Q3 and Q4. For the full year FY 2026, we are maintaining our non GAAP operating income to be in the range of $129,000,000 to $131,000,000 This equates to non GAAP net income per diluted share of $0.39 to $0.40 assuming $277,000,000 diluted weighted average shares outstanding. This implies a 16% non GAAP operating margin at the midpoint. When modeling the spread of non GAAP operating income for the second half of FY 2026, you can assume a midpoint of 30,000,000 for both Q3 and Q4 as the investments flow through the income statement. In deriving the net income per share for modeling purposes, a total tax provision of approximately 39,000,000 needs to be added to the non GAAP profit before tax. To get to non GAAP profit before tax, start with the non GAAP operating income ranges provided and add an estimated $19,000,000 in other income for the full year with $4,000,000 of that to be earned here in Q2. This other income line primarily consists of interest income. We estimate a tax provision of $10,000,000 here in Q2. This equates to approximately a 26% effective tax rate on our non GAAP profit before tax for both the quarter and the year. We also expect to be GAAP net income positive for the full year FY 2026 consistent with our performance over the last two years. Regarding free cash flow, we're still tracking to achieve a 15% free cash flow margin in FY 2026, which would equate to free cash flow generation of approximately $125,000,000 for the full year. Q1 coming in at $92,500,000 gives us a strong start to this year. Lastly, I would like to thank all our employees for their dedication and passion for what we are building at Sprinklr and I'm grateful for the confidence that our customers have placed in us. And with that, let's open it up for questions. Operator? Conference Operator: Thank Our first question is from Arjun Bhatia with William Blair and Company. Please proceed. Arjun Bhatia, Analyst, William Blair and Company: Perfect. Thank you so much. Maybe for you Rory to start out with, it seems like you're making progress on the go to market side with some of the changes that you're implementing. But as you point out, we're still early in the journey and there's a lot of work still to be done. So I'm curious how long is it before you think the go to market or can kind of reach its full potential and start firing and also unders with cross sell with up sell with customer retention kind of getting to levels where you would be unhappy with it? Rory Reed, President and CEO, Sprinklr: Yes. Thanks, RJ. That's a great question. The go to market is a fundamental component of the transformation. I think we did a great job with the coverage model that we implemented in February. I think the pod structure and creating those teams and really having them over the right accounts is fundamental to this transformation. In terms of where we are, I think we're making good progress. But as I told you, FY 2026 would be a transitional year. I thought the first half would be choppier than the second half and I'd look for more of a bend as I went through the year. The two things I think that are important about unlocking the go to market is one, I think this push around Project Bearhug to get our team back in front of the customer every day and a focus on sales execution and sales activity, driving that engagement with the customer. As we finish May, we've gotten to about 200 of our top clients through this project bear hug and we're definitely seeing traction from that activity. So I'm very encouraged. So we have to get that bear hug work out through about 500, six hundred customers over the next two quarters. And that should put us into somewhere in 3Q. The second thing we have to do Arjun is we need to make sure we are creating a robust enablement program for our internal pods as well as our partners because we have to build out our partner ecosystem and our customer. That we're actually implementing this month. We're starting with a series of 100 level classes, 200 level classes. And then later in the summer, we're going to be training our teams on 304 level classes around our eight or nine selling motions. So teaching the pod exactly how to sell, what are the pain points of the customer and how do we ramp them faster and create those use case models that help them sell. So I'd say as we move through this year transitional FY 2026, I'll look for that sales force and that pod structure to really start reaching some of its momentum in the latter part of the second half. I think we should see that in 3Q and 4Q and then in the FY 2027, '20 '20 '8 which is your acceleration time period. That's what I'd look for in that. Does that help, Barden? Arjun Bhatia, Analyst, William Blair and Company: Yes, perfect. That sounds very promising. Appreciate that. And then maybe the second one, just on CCaaS, it sounds like you're making some progress there. We know it's a competitive market, but it sounds like what you're doing is resonating. So I'm curious what from a product perspective customers are coming with to you to Sprinklr and saying, hey, we really like this. This is differentiating the market. And then what's driving that edge in the CCaaS service space? Rory Reed, President and CEO, Sprinklr: I think what is key in that what differentiates Sprinklr and why some of these iconic brands are looking to us and how we've made some really important inroads in that CCaaS space. We only entered that market about two point five years ago, but we have some really outstanding brands. It's because of the AI capability and this platform. Now CCaaS customers have their agents have an experience where they can see more robust. They don't have to switch screens. They can really pull in data about the customer from a unified perspective from the social and listening and the insights world. They have the robust kinds of capability with the right co pilot AI agentic deflection and the social support around it. I think that's what they really like about it. The experience and the forward thinking of that AI native platform that we're creating and then how we link the other components of Sprinklr onto that platform. You're going to hear later in the year some of the wins that we've had in that space at global level. And I think that they're going to be very important in unlocking the future there. Now the challenge for us has been we have to mature that. And that's when I talk about the strategy about hardening and expanding CCaaS. I need to have that. This is a mission critical application. They love the experience. They love the solution and the platform and the AI nativity of it and the functionality around AgenTeq AI, Copilot and our studio work. But we have to have robustness in terms of how we release product, how we support product. We need to be a mature enterprise software company and that's something we'll work across this whole year. So they love the solution, they like the idea, but we have to be better at implementing it and making sure that it's a great experience. We have to harden it and we have to add some functionality like in areas of workflow management that will enable us to have the full answer. And I think all of that's on track through the end of the year through the beginning of next year. And I consciously not push the accelerator down there. We are still continuing to grow in that space and add new customers but want to get that hardened before I expand further and spending a lot of time with our existing customers to make sure that's a good experience. Arjun Bhatia, Analyst, William Blair and Company: All right. Very good. Thank you. Conference Operator: Our next question is from Pindulom Bhora with JPMorgan. Please proceed. Pindulom Bhora, Analyst, JPMorgan: Thank you for taking the questions. Two quick questions. The elongation in sales cycles and scrutiny that you highlighted, I want to ask you, is that broad based across your customers? Or is that associated with certain geographies and certain verticals? And maybe talk about what have you seen in terms of spending trends as you stepped into Q2? And the second question is, the logo churn, what is driving that? How should and how should we think about the dollar churn through the year? Thank you. Rory Reed, President and CEO, Sprinklr: Yes. So let's take the first one first. I think what you're seeing, there's definitely been pressure in terms of the macro and the uncertainty created by tariffs. It doesn't directly affect us. But I think everyone has and I don't think it's vertical, I don't think it's geography based. I think everyone's just focused on managing expense as effectively as they can and to make sure that they're investing in those areas that get return. We're seeing plenty of opportunities. I mentioned that we're at the highest point in eighteen months in terms of our core pipeline. I think that's a macro effect. I'd say it's across the planet. I'd say in terms of the impact to us, I'd put that in the 30% plus or minus. I think more of our pressure has been over the past two years is on our execution, okay? I think everyone's going to feel that scrutiny on selling on expense management, But I don't think it's catastrophic. I just think it there's more focus on it. Our key is getting better implementation and better execution, delivering on the commitments we made. And I can tell you the ones where we're bear hugging and we're spending more time with the customer, we're seeing tangible progress. We just have to do it across a wider swap of the customer set. Now in terms of renewals, we've seen renewal pressure in Sprinklr long before I got here, I guess the past two plus years. I think again, that's really driven by the need to make our company a mature enterprise software company, improve our implementation, engage the customer, make sure we do what we say and own what we do. If we make a customer commitment, deliver on it. When we see how we do an implementation, do it effectively. And make sure you're in front of the customer every day. And now each of those activities, we have specific actions with our sales pod, with Project BearHug, with our enablement, with our work to transform our implementations. We want to move to have our implementations be 80% consistent and 20% bespoke. And we want our partner ecosystem to grow significantly as we move forward. Today, too much of our implementations are unique bespoke implementation and not consistent enough. So in terms of that, from quarter to quarter and predictability, we just are kind of in the same mode. I'm looking for the business to show a bend in the second half. I'm looking for the changes that we're making in terms of the roadmap, in terms of the enablement, in terms of the pods, in terms of the improvements to implementation, improvements to the enablement, that should all start to translate to a bend in the second half of the year. Now plus or minus, we'll look at it. We're a work in progress. And all I'll continue to do is give you updates on this. The challenges of the past two years plus two years, we're not going to fix in two quarters, but we're going to fix in a transitional year as we move forward. And I think we're working on the right stuff. I really do. Pindulom Bhora, Analyst, JPMorgan: Got it. Thank you. Conference Operator: Our next question is from Catherine Trebnick with Rosenblatt Securities. Please proceed. Thank you for taking my question and good first quarter here. So could you delineate maybe between Sprinklr Marketing, Sprinklr Insights and Sprinklr Social on the churn or any one of those having more of a particular problem on renewal? And then the second follow on question would be, what type of R and D activity are you putting into those projects that help with the renewal? Thank you. Rory Reed, President and CEO, Sprinklr: Hey, thanks, Catherine. Catherine, from a standpoint that whole social, that core Martech stack space, I think the company as it pivoted two point five years ago towards CCaaS really neglected and really didn't focus there. And I think it's a fundamental part of our solution long term. We want to reenergize and grow that core. There's no question. We've changed our incentives this year to make sure and we see that manifesting itself in a better pipeline. That's good news. I like that. I think what we're seeing in terms of renewal, there's not much variation between those three components that you referenced. Maybe one, three, four points higher or lower and it can vary from quarter to quarter, but they're all in the same kind of space. When we engage the customer and we work with them on a regular basis and we help them grow and have the right insights, we see stickiness, we see activity, we see buy in. When we don't engage the customer, what would you expect? It atrophies, you don't get the impact. That's why we're pushing so hard in the go to market. Now in terms of innovation, we've got a project we internally call Project Tiger Shark. In Tiger Shark, what we're trying to do is really focus on all activities around the core to accelerate. So we have focused on improving the user experience in the UI. We're around innovation and advancing and we're looking externally, are there acquisition opportunities that can add different capabilities and functionality. And there's some interesting opportunities out there that we're going to continue to pursue. I think you're going to see us introduce in the customer feedback management space as a competitor to some of the traditional players in that space, I think we can be very disruptive there. The key though fundamentally is being engaged with the customer. When we get it right, we grow. We just implemented a large multimillion dollar core deal that went live. We sold it in 4Q. It was with a big healthcare retailer. It went live just the past couple of days, very, very powerful. The key here is engage the customer, continue to innovate, look for acquisitions that are small but meaningful that allow us to continue to expand on that space. No big variation in the renewals between the three pieces of the stack, but we're definitely got an understanding of how to make that change and we're executing on it. Thank you, Catherine. Conference Operator: Thank you. Our next question is from Jackson Adler with KeyBanc Capital Markets. Please proceed. Jackson Adler, Analyst, KeyBanc Capital Markets: Hi, good morning guys. Thanks for taking our questions. On the bear hug customers, so the 200 that you've identified, what was the rationale behind those 200? Is it just the largest 200? Is it the ones that were most at risk? How did you define 200 versus the other three to four? Rory Reed, President and CEO, Sprinklr: Yes. What we did that's a great question, Jackson. What we did is we started on the strategic accounts, top 25 to 50 accounts. And then we're then expanded to the top 102. They're definitely based on size. So we wanted to capture that first. But at the same time through our business management system, we're building more analytics into the accounts and we're one of the things Bearhug did, did a lot of AI analytics around correlations. What things do we see in account that has pressure? And so we're actually getting kind of like a health check on all our accounts. So we started BearHug from largest to smallest and we're going to move in that direction. But in parallel, we did this work to do the analytic and we're really starting to understand what are the factors. Are we seeing the right uptake? Are we seeing the engagement in the platform? Are we getting the right customer sales activity? For example, if we touch a customer 15 times or more in a year, whether that's through the website, sales call, getting them to an event, we see their buying propensity increase by 25%. That's a big number. So we want to get sales activity up. And so in parallel, bear hug goes top to bottom first, but then we're creating this kind of health analytic that's going to highlight that. And we are now looking twelve months in advance on account so that we're managing way further ahead. When I got here in November, they were talking about renewals that were going to happen that next month in December. That's way, way too late. We have to be way ahead of that. And what you're going to see as I answered the question earlier on the call, we've got to see that pod structure fundamentally change the sales culture as we move through the second half of this year. Does that help Jackson? Jackson Adler, Analyst, KeyBanc Capital Markets: Yes, yes. Makes sense. Thank you. A quick follow-up, Manish. The $10,000,000 FX headwind on non GAAP EBIT or I guess to the expense base, what are some of the areas that you think you can actually some of the levers you have to offset that $10,000,000 in order to kind of keep your profitability metrics in line? Manish Serene, Chief Financial Officer, Sprinklr: Yes. Thanks, Jackson. So, I mean, at this point, look, we're actively evaluating the situation. As I think you've picked up, we've been pretty thoughtful in where we're spending our money. So, I think everything is on the table. We as we did our reduction earlier in the year, we did keep some dry powder to figure out where we would invest during the course of the year. So we're just going to look thoughtfully at the monies that we have. And as I said in the prepared remarks, we are looking to maintain the guide that we've put out. So we just look at where we can pull back and just be more thoughtful about our spending. Rory Reed, President and CEO, Sprinklr: And Jack, I'd add a little bit of color on that one from an investment standpoint. I'm not saving our we're not going to save our way to prosperity here. We want to run an efficient model and I think we've done some good work on cost optimization. We have to continue to invest in innovation as we talked about with Catherine just a minute ago. But I also I think there's key areas like AI. We have a real leadership product here. We need to continue to extend that. I need some tiger teams in the region, so I can engage the customer faster. I think that's going to be an area I'll look at. Another one is around this pod and enablement structure. I need them to come up to speed. We need them to come up to speed faster and really understand how to sell. And then our support and services and implementation, we have to transform some of that so that we're way better. I think we've been very prudent in where we've made our investments in the product area and improved the roadmap. But those are three areas. And I want to make sure that everyone knows that we are going to continue to make those moves that put us in the position for long term durable profitability and growth in 2027 and 2028. And that's what's most important. Those are the areas we're going to look at. Manish Serene, Chief Financial Officer, Sprinklr: Thank you. Conference Operator: Our next question is from Raimo Lenschow with Barclays. Please proceed. Raimo Lenschow, Analyst, Barclays: Perfect. Thank you. Congrats from me as well, Rory and Manish, good early performance. The question I had on CCARS, there's obviously a big discussion in the industry about like what AI is going to do to them to that space. Can you speak a little bit about your vision there, like how that will come together and how you are maybe slightly differently positioned than the classic CCaaS vendors? Thank you. Rory Reed, President and CEO, Sprinklr: Raimo, I love that question. I love this disruption. I think this disruption has opened the door for Sprinklr. I think this AI transformation is 100% real. And this idea of digital deflection and agentic deflection and support is real. Do I think agents in the CCaaS space are going to dramatically decline? There are some people out there that say 90% of the agents will be gone in ten years. That's not the case. That's not going to happen. But I think that you're going to see an important component of co piloting and agentic work that's going to deflect a fair amount of work. You're going to see the digital support activity is going to deflect a significant portion of work. I still see that space growing in total. And I think that you're going to see this kind of movement that's occurring that plays to our hand. We have that capability built in and this will drive this movement to a unified customer experience. Well, you'll pull in the other activities around social and around digital and around voice that will create an end to end solution. We're already selling it and we're seeing momentum in that space. It's now a question of when does it accelerate. And if you read some of my LinkedIn posts, you'll see that I talk about that. I think that's what I love this disruption. I think it's spot on and that's one of the key reasons I believe in Sprinklr. Now the key for us to winning it is we've got a good platform, we've got it in the right space, but we have to mature this company. We have to get the right processes. We have to get the right sales motion. We have to get the right support function. That's what this year is about. You've got to give us time to fix those items. And if we fix those items and we really can scale with these iconic brands and support this, we're in a very good position to capture a significant part of that business. And I think we're very well positioned for it. But we've got to fix the maturity and harden the platform. This isn't just a social listening platform anymore. This is a mission critical unified AI native customer experience platform. You have to behave like that if you're going to support the world's most iconic brands on their mission critical apps. That's what we have to do over the next six, nine, twelve plus months. And if we do that, that transformation and that movement of the marketplace to our hand. I love that this disruption. I want it to happen. I need to mature the same time. Raimo. Raimo Lenschow, Analyst, Barclays: Yes. Makes sense. Dick, can I have just one quick follow-up here, maybe it's more for Manish? If you think about your new business information system that is in place now, it's great to see, they usually are things that you realize, oh my god, I know something that I didn't know and now I can act better. How comprehensive will that be for the organization? At the moment, you talk a lot about like sales renewal, etcetera. Is that going just is it sort of small for that space? Or is it going broader than that? Thank you. Manish Serene, Chief Financial Officer, Sprinklr: Yes. Thanks, Raimo. So the BMS is way broader than that. So it's not just focused on renewals. It's everything from product delivery to enablement to how the sales teams are performing. Most BMS systems you would look at would tend to be just around what's happening in the go to market. And I think one of the things we realized was we were good at what we did, but more in silos. And so I think the BMS is really all around making sure everybody in the company has a full three sixty view of what's going on and how do we perform better as a team versus in our own individual domains. Rory Reed, President and CEO, Sprinklr: And what the key here is, Raimo, is you've got to create a thirteen week cadence every quarter. And you've got month one, month two, month three and then you have biweekly components. We review the roadmap. We review the implementation. We do sales every week, the sales cadence. We do month one, which has a strategic deep dive. We get the entire leadership team together three times a quarter for two days. We're engaged and we have a we look at product, we look at sales, we look at marketing, we look at people, how we're changing the culture, we look at all those components. And across each thirteen week cycle, we have a full calendar of events. Now, we're burning that in. And I think we're getting if you think of Sprinklr like an airplane, when we got here, it had a couple of dials. You knew how fast it was flying and maybe what height we were. Now we know oil pressure on the engines. We knew the temperature of the water. We know the airspeed. We know that we're starting to be able to see the weather that's coming in the future. And that's where you have to get the BMS to get proactive. But again, a work in progress, you have to give us time to do the work to create the bet. Raimo Lenschow, Analyst, Barclays: Yes, makes sense. Thank you. Congrats. Conference Operator: Our next question is from Elizabeth Porter with Morgan Stanley. Please proceed. Elizabeth Porter, Analyst, Morgan Stanley: Great. Thank you so much for the question. I wanted to follow-up on comments around the pod structure and just fundamentally changing the sales culture. Just understanding that culture may be hard to change, I wanted to better understand the receptiveness from the teams kind of what incentives you're putting in place and what are the metrics you're looking at to really measure success of the new pod structure? Thank you. Rory Reed, President and CEO, Sprinklr: Yes, Elizabeth that's a great question. So I think the first piece of work we did to launch in February was to get the new coverage model and really have this concept of a pod where you have the AE kind of running the quarterback of the play. You've got this solution consultant being the CTO, the technical. You've got the technical success manager with the right technical skills to have the ongoing relationship to really build that. You've got the RAM, the renewal manager in there. You've got the implementation and the managed service. So they're behaving as a single unit and they're getting in front of the customer. It creates that collaboration and teamwork. And we're bringing in product skills. So when we do a win report, you can see sales people, product people, finance people, marketing people, reference is it takes a village. We've got to create this mindset that everyone's job is around the customer. And our quote, the Sprinklr Way is about this subsection with the customer around accountability. I do what I say and I own what I do. And it's about collaboration and teamwork. I do it as a group. Only succeed United. And then ultimately, it's about building trust. And remember, I love that book, The Speed of Trust. It's fundamental. If you build trust, you'll be successful. In the culture of the sales, you want to create this ownership. We can't have an hit and run sales team. We need a team that's working. We live and die together and we create this engagement with the customer and get the sales activity. Because I referenced earlier, we get the touches, our sales win rate increases by 25%. You build better pipeline. We're creating the incentives to encourage it. But you're right, it takes time. That's why we need time to build that in. Now good news is we've had fair amount of attrition in the past two years, so a lot of new people. So you can help train them and grow them. That's why we're spending time on enablement right now. And you've got to create this and winning begets winning. We're not all the way there. But we are highlighting where we have these great successes. And that's the kind of dichotomy of Sprinklr. Sometimes we have this renewal pressure that's been going on for two years and then other accounts we just have these amazing unlocks and we're able to grow it and we're so fundamentally important to them. How do we catch that lightning and show that team? That's how we change the sales culture and the culture of the company. And that's what Joy Corso and her team is focused on. It's really creating that kind of cultural transformation. But it will take most of this year. Culture always takes between twelve and twenty four months to get there, always. Elizabeth Porter, Analyst, Morgan Stanley: Great. Thank you. And then just as a quick follow-up. After the 15% reduction in workforce and some of the reinvestment you're doing just in the right areas, how should we think about the puts and takes and what year end headcount could be looking like? Rory Reed, President and CEO, Sprinklr: I think plus or minus where we are today. I mean maybe a little bit more. I want to be prudent on it. I'm really looking to upgrade our technical capability. I think we have maybe plus or so maybe 200,000,000 and change something like that. But I think it's in the ballpark. I think we ought to make sure we don't get ahead of ourselves that we're very prudent. I need I could continue to grow on the 300 plus AI skills that I have. I need to upgrade the technical capability of our success managers and in our solutions consultants. Those are two areas. I think we got to make some investment in the enablement. But I think there's puts and takes. There's some other areas. I think we're in the general right ballpark. And I think let's get revenue. Let's see a bend in the business and then we can kind of talk about where do we go from there. But I think we can be just as efficient. Conference Operator: Thank you. Our next question is from Patrick Walravens with Citizens JMP. Please proceed. Jackson Adler, Analyst, KeyBanc Capital Markets: Great. Thank you. Hey, Rory, can we go back in time a little bit? When you were at and what I'm trying to get at here is sort of as you fix the fundamentals of Sprinklr, the strategic value of this business. So, Advantaj, appointed in July of twenty twenty and Ericsson announced the acquisition in November 21. So that went really quick, right? Can you just walk us through how that played out and help us think about sort of what the strategic value of Sprinklr might be? Rory Reed, President and CEO, Sprinklr: Yes. I think as I've shared with you Patrick and the team, there's a particular approach that we go about when we take on one of these transformations and these kind of turnarounds. The first phase is always around business optimization and most of that work is done. That's where we reorganize the go to market and we get the pod structure. That's where we refocus the roadmaps to make sure that we have the right priorities. We put in place the BMS. We get the right strategic initiatives. Often companies like this struggle with lack of clarity and they get kind of page like an old mainframe, right? They're so busy switching from idea to idea, they're not really doing any work. They're just paging workload in and out of memory and never getting there. Now that shows how old I am because that's not the case how it works at computing anymore. But I think you do that optimization work. And most of that is all done. The BMS is in place. I highlighted that. The strategy is clearer. Then you go through a transitional phase. And that's somewhere between say twelve and eighteen months. That's why I talked about the first half of this year being that bumpy kind of period and then you look for a bend as we go through the second half into FY 2027. And that puts you somewhere eighteen to twenty four months out. I think Vonage had the advantage of the COVID kind of acceleration that it caught the wind at the same time, but we follow the exact same structure. And then you move into an acceleration phase, whether that's twelve to eighteen months in or whether that's twenty months in or twenty four months, it's in that general period. It could be as short as fifteen months, but that's what you're looking for. And then you start to build on it. So you do your optimization work, that's pretty much done here at Sprinklr. Now we've got clarity on the strategy. Now we use this transition year to fix the processes, the programs. We make some of the investments. We start to change the culture and we move the whole thing in terms of maturation and maturity as a software company. And then that kind of puts us at the end of this year beginning of next year sometime. And then we're trying to put more logs on the fire. Now you're trying to accelerate the business and grow and that's how you push towards the Rule of 40. Each one is a little bit different. So you can go look at Dell Boomi or Dell Virtu Stream or AMD or Lenovo. There's a whole long list of different companies that I've worked on. This is definitely the approach. That's how you should look at it, Patrick. And I think we're right where we should be at this point. Now this transition year is really fundamental and I think we're doing the right things. Now we got to see it each component. And I can tell you that we're a better sprinkler than we were six months ago. And I expect to be a better sprinkler in six months and a much better sprinkler in twelve months. Jackson Adler, Analyst, KeyBanc Capital Markets: Thank you. And Manish, can I do a quick follow-up, which is I think I was looking for 103 on the dollar expansion? You guys came in at 102. So just Raimo Lenschow, Analyst, Barclays: what should we Jackson Adler, Analyst, KeyBanc Capital Markets: expect going forward just so we can sort of not be overestimating it? Manish Serene, Chief Financial Officer, Sprinklr: Yes. I think so that's a good question, Patrick. I think where we are right now, the one or two, give or take, is probably where I expect it to be. Again, we don't make any predictions around it. It's hard to sort of estimate. If you look at a full year growth rate of, call it, four odd percent on the subscription side, that would sort of put the 102 right around where you'd expect it to be because some growth will come from new business sold during the year and obviously a lot will come from upsells into the existing accounts. So I would expect this number to be kind of where it is right now. Again, or take a couple of points below that. Rory Reed, President and CEO, Sprinklr: Until we see the bet. Thank you That's it, Patrick. I appreciate that. I think we're good now. All right, Eric, Manish Serene, Chief Financial Officer, Sprinklr: I think we're at the Eric Skrow, Vice President, Finance, Sprinklr: if you have anything else, otherwise, Rory, any last remarks from you? Rory Reed, President and CEO, Sprinklr: Well, first of all, I'd just like to thank everyone for joining. I appreciate everyone's interest in the company. I do want to thank the Sprinklr team members around the world for their passion and energy. I'd ask you to continue to track us as we go through. We'll give you updates in a very open transparent way so you can track where we're going. It's a work in progress. But I think we're in the right place at the right time. We're dealing with some of the challenges of the past. We're making the right changes and we're looking for the company to see a bend sometime in the second half of the year. But at this point, we're a work in progress. Let's keep focused on making a better Sprinklr and give us a bit of time. I appreciate everyone's interest and thank you, Sherri, for hosting the call today. Conference Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Symbotic : Official-Transcript-Q225-SYM-FINAL

Derek Soderberg, Cantor Fitzgerald -- Analyst Ken Newman, KeyBanc Capital Markets -- Analyst Greg Palm, Craig-Hallum -- Analyst Thank you for standing by. Welcome to Symbotic's second quarter 2025 financial results conference call. (Operator Instructions) I would now like to hand the conference over to your first speaker today, Charlie Anderson, Vice President of Investor Relations. Thank you. Hello. Welcome to Symbotic's second quarter 2025 financial results webcast. I'm Charlie Anderson, Symbotic's vice president of investor relations. Some of the statements that we make today regarding our business operations and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our Form 10-K including the risk factors. We undertake no obligation to update any forward-looking statements. In addition, during this call we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at ir.symbotic.com. On today's call we are joined by Rick Cohen, Symbotic's Founder, Chairman and Chief Executive Officer; and Carol Hibbard, Symbotic's Chief Financial Officer. These executives will discuss our second quarter fiscal 2025 results and our outlook, followed by Q&A. With that, I'll turn it over to Rick to begin. Rick? Thank you, Charlie. Good afternoon. And thank you for joining us to review our most recent results. In the second quarter, we delivered strong results, both financially and operationally. Our revenue grew by 40% year-over-year, and our gross margins expanded significantly, reflecting our focus on project execution while controlling costs and delivering high-quality deployments. Carol will give more detail on the level of improvements in her remarks, but at a high level, the changes we have made to improve our deployment processes are beginning to pay off. These include a more streamlined and predictable workflow in installation, closer coordination with contractors by in-sourcing construction management, and a strong emphasis on quality management principles to minimize errors and rework, among others. With stronger project execution, we are well positioned to access future growth and are adding talent to do so. That includes Brian Alexander, our new Senior Vice President, Commercial, who joined us recently from Hub Group, where he served in roles including Chief Operating Officer and Chief Marketing Officer, serving multiple Fortune 500 clients with specialized supply chain solutions. Additionally, GreenBox, our warehouse as a Service joint venture with SoftBank, recently hired Ashfaque Chowdhury as CEO. Ashfaque joins GreenBox from CEVA Logistics, where he oversaw the third largest contract logistics business in the world as its Global Managing Director. GreenBox also began a third site during the quarter, and we remain excited about its prospects. During the quarter, we also closed our acquisition of Walmart Advanced Systems & Robotics, or ASR, which expands our product portfolio to include a micro-fulfillment solution, both for ambient and perishable environments. Beyond this addition, we have compelling innovation on our roadmap to deliver even more value to our customers while also building upon the progress we've made to deploy systems more efficiently. I'm excited to share more in the coming quarters. In summary, Symbotic is in an advantageous position going forward. We have a strong multiyear opportunity with nearly $23 billion of backlog. Our margins have expanded due to improved execution, and we continue to attract impressive talent. I will close my remarks by thanking our customers for their continued trust, our team for their strong execution and our investors for their support of our company. Now Carol will discuss our financial results and outlook. Carol? Thanks, Rick. Second quarter revenue grew 40% year-over-year to $550 million, with revenue growth driven by solid progress across our 46 systems in deployment, and we more than doubled the number of operational systems from a year ago. We also benefited from two months of contribution from the acquired Walmart Advanced Systems & Robotics. Higher revenues than forecast, combined with improving gross margins drove a reduction in our net loss to $21 million in the second quarter versus $55 million in the second quarter of fiscal 2024. Adjusted EBITDA in the quarter of $35 million was also above our forecast and more than tripled year-over-year from $9 million in the year ago quarter. In our second quarter, we began a record 10 new system deployments, which included one new GreenBox site in Southern California intended for multiple tenants, along with multiple BreakPack deployments. We also completed eight systems in the quarter, doubling our previous record of four, bringing us to a total of 37 operational systems. As Rick mentioned, we are improving our installation performance. You have heard us talk in the past about total deployment timelines of roughly 24 months, defined as the time between the signing of the statement of work for system to customer acceptance of that system. However, the portion of the deployment most in our control is the time between the start of its installation and its acceptance by a customer. This also happens to be where we see most of the cost and revenue recognition, which impacts our margin performance. The largest sample size we have for comparison are the Phase 1 deployments for our largest customer. In the second quarter, our installation to acceptance timelines were roughly two months shorter for Phase 1 systems than our historical average. And notably, these systems were 15% larger in size than our historical average for Phase 1 systems. Normalizing for size, which also equates to revenue, our improvement level is more than 30% better than our historical average. With the increase in operational systems, we saw our software revenue grow by over 160% year-over-year to $6.7 million and operations services revenue grew 47% year-over-year to $29.6 million. In terms of the backlog, our backlog was $22.7 billion and grew sequentially from $22.4 billion last quarter. This increase was primarily due to the addition of our development contract with Walmart associated with accelerated pickup and delivery, or APD systems, offset by the revenue recognized. Turning to margins. System gross margin improved significantly on a sequential basis as we gain the expected improvement from completing lower-margin systems while also improving our overall project execution as both Rick and I highlighted. Revenue from Walmart ASR was also accretive to our system margins. Gross margin on software maintenance and support again exceeded 65% trending toward typical software industry margins as we gain scale. And in operation services, we swung back to a gross profit, thanks to a more favorable mix due to training revenue associated with the large number of new systems that went live. We also saw modest benefits in the Walmart ASR acquisition, where we are now providing services for the existing APD sites in operations. Operating expenses were up sequentially due to acquisitions and the investments we are making to support our growth. We finished the quarter with cash and equivalents of $955 million, which increased from $903 million in the first quarter, primarily due from cash from operations of $270 million in the quarter, offset by the $200 million paid for Walmart ASR and $21 million of capital expenditures. Now turning to our outlook. For the third quarter of fiscal 2025, we expect revenue between $520 million to $540 million and adjusted EBITDA between $26 million and $30 million. In summary, our execution has improved, resulting in improved gross margin performance, and we are investing to drive future growth and product innovation. With that, we now welcome your questions. Our first question comes from the line of Andy Kaplowitz with Citigroup Rick and Carol, I know one of the big focal points this year was scaling for growth. So does Q2 foreshadow where you want to be in terms of, I think you said 10 system starts and completions. And if it does, how do we think about system starts and completions given the ramp-up in Q2. Carol, I know you've said in the past it's lumpy, but should we assume that you've turned the corner, you continue to ramp up from here? And is the improvement really a function of getting your arms around EPC and sourcing? So thanks for the question, Andy. Our system starts will continue to be lumpy. So I do think the number that we start is a combination of ourselves as well as our customers, being ready to go ahead and launch and demo in a new building or a new space. And so it's a mutual decision between the two of us to go ahead and start. But that being said, we do see the trajectory with the backlog ahead of us that we will continue to see the number of system starts improve as we go through the coming quarters and the coming years. Got it. And you're forecasting EBITDA margin down a bit sequentially in Q3 versus Q2 at the midpoint. Is there anything in the forecast for tariff-related impact? Maybe it's mix? Can you talk about the puts and takes on margin going into the second half? And do you have an estimate for tariff-related expense? Or how are you thinking about it moving forward in terms of price versus cost? Okay. Yes. You've got a lot wrapped up in that question. I'll start with the overall gross margin performance. So this quarter's gross margin performance was driven by three key things. It was project mix. We had eight projects that we completed, many of those were our lower-margin projects. And so those will be moving off. Overall, project execution improved, we also had contribution, as I mentioned, from our ASR business, which is bringing accretive margins to our overall systems revenue. As I think about the -- our EBITDA guide for 3Q would imply roughly 100 basis points down from what we just posted this quarter. Primarily, the difference there is the ASR business for this quarter was higher than what we expect to see in the next quarter. And so some of that business, as we work through overall design, we'll see that ramp back up in the coming quarters when we start building prototypes. But you're seeing the impact of that, which is why we're at roughly 21% for the coming quarter. In terms of tariffs, our guide, both for top line and for bottom line does not include the impact of tariffs. If I think about tariff impact for us, with most of our contracts allowing tariffs being passed through, you'll actually see increases in revenue associated with that, but it will be a drag on gross margin because it's pass-through revenue. Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Just a follow-on from Andy, you guys are also kind of modeling revenue down sequentially in the third quarter, which is unusual from a seasonal perspective. Is that also to do with the timing of acquisition impacting the P&L? Or is there something else going on there? So thanks for the question, Nicole. There is a little bit of impact because we did have modest revenue this quarter associated with ASR. We'll see that drop a little bit in the next quarter. But the primary driver for our third quarter revenue is really a function of the number of starts that we had a year ago. So if you remember, 2Q and 3Q last year were our lowest system starts and we're now a year into where they would be really heavy in system implementation. And so that's the primary driver in terms of what you're seeing for our guide for the third quarter. Okay. Understood. And then with respect to the OpEx, so R&D and SG&A stepped up pretty significantly sequentially. Are we now kind of at a good R&D and SG&A run rate? Or should we expect further step-ups in the second half? For our R&D run rate, I'd say that's a good run rate going forward. The SG&A run rate was higher this quarter, primarily related to acquisitions. So our acquisition costs were higher in SG&A. You're going to see that step back down in the next quarter and see that flatten. Any quantification of how much we should expect that to step down? I would expect $4-5 million in a stepdown in the SG&A OpEx. Operator Our next question comes from the line of Jim Ricchiuti of Needham. I wasn't sure if you gave this in your script, did you say what ASR contributed in the quarter to revenue? No. We did not. Thanks for the question, Jim. So we are a single-digit percent of revenue associated with ASR. As we build out the development program over the coming eight to 12 quarters, you'll see our revenue for ASR in back half of this year, early next year start ramping up as we start building prototypes. Got it. That's helpful. Are you able to tell us what the installation time looks like for your large customer? You're clearly are making progress there. But -- and I know some of these are different. But is there any -- in rough terms, can you tell us what the installation to acceptance time looks like right now? So we quantify from start or signature of a project when we hit project acceptance of about 24 months. the install to acceptance, which is what we indicated where we have the most ability to impact is about half of that time. So what we saw this quarter is a couple of month improvement. So we think we were at 12 months from install to accept on the -- a couple of the projects that we had this quarter, we saw two months shaved off of that. Operator Our next question comes from the line of Matt Summerville of D.A. Davidson. I was hoping maybe you could talk a little bit more about your technology and innovation roadmap, Rick. You've obviously touched on the development in perishable in the past. So maybe an update there and maybe some of the other projects you're able to talk about that you're working on, maybe some milestones you may be achieving along the way there with some of those things. And then I have a follow-up. Yes. Thanks, Matt. So with the ASR projects, which we're developing, we will have bots that can do both perishables and frozen. So -- and that will -- eventually, we're now beginning to talk to people about actually building perishable warehouses for them. So -- that's on our roadmap and I can't say exactly when that will happen, but it's a lot sooner than it was two months ago. So there's demand for it, and people are very interested in that. And we have to do it for the back of the store. And so that's moving right along. The other -- and we're doing a couple of other things to make the structure smaller, which is giving us opportunities to talk to customers that want smaller systems. And also, it actually will accelerate the installation of some of the bigger systems because we can actually put more in a smaller space and get it built faster. So technology is moving right along, we're starting our second design of our BreakPack system. The first one is working well. The second one is -- will be better. So we're now really able to offer three products. One is the big system, and that can come in anywhere from very, very large to a couple of inbound and outbound cells on the smaller side. BreakPack system can be large or small. And now we're talking about a third module, which will be the really a 15,000-[square]-foot system in the back of a store or even -- we've had some people now come and say, "could you do a 30,000-foot system for us for special needs." So as our product offering is expanding -- we're generating a lot of interest. And so we'll be going -- the development will be continuing to speed up. And as a follow-up, Carol, I just want to be clear. The Walmart ASR revenue was a single-digit millions or single-digit percentage because if it's a single-digit percentage that could be anywhere from like $5 million to $50 million. So can you maybe help us triangulate on that a little bit. And then also, if you guys can give an update on when you think you'll be able to make some announcements regarding potential GreenBox tenants. So yes, to clarify, ASR was single-digit percentage I'd say that's mid- to high single-digit percentage of revenue. Yes. GreenBox -- we now have a CEO, and so we're accelerating our sales efforts, looking at a number of strategic opportunities and now talking to early customers about involvement in GreenBox. Our first customer will be the Lathrop site, and that will be -- C&S will be the very first customer, plus we may be able to add some other customers onto that site compared to incorporating all the capacity that's available. Second site's in Atlanta, the third site will be in California. So more interest because we're on both coasts now. Operator Our next question comes from the line of Joe Giordano of TD Cowen. Just curious on the tariffs. Is there any like -- how hard is the language on this stuff with pass-throughs? I know we had some in the past, like some of the stuff that was thought to be reimbursable was not. So like I'm guessing these contracts when they are written or then contemplating something like this necessarily like from a policy standpoint. So how much debate or like ambiguity is there around [this]? Is this kind of except like is something from Eurozone? Like how do we think about this? Is there -- how certain are you on that? We are certain. So in general, these costs will be passed through for us. And we've gone through and analyzed all of our contracts over the last quarter or so. And I'll take this opportunity, Joe, to highlight a bit on tariffs because I really just answered the portion related to guide. So if I think about the current environment, we have now our overall exposure is a single-digit percent of a typical system. We have coverage for USMCA for our bot production in Mexico. So our primary exposure comes from Europe. And as I indicated, the costs are passed through. We recognize that this equates to higher system cost, though. And so we're in the process of identifying with our supply chain: What else can we go do to work offsets so that we're not passing all those costs on to our customers? But from a contractual perspective, we're protected. Got it. That's clear. And then, Rick, I know it's early days with ASR, but like -- any updated thoughts on how you might be able to leverage kind of technology and best practices to take the best parts of each of the three types of modules you have to make like the three best things you can build? Yes, sure. I think we're talking to some people about putting all three in the same building. And then we're also talking to some people about just putting them in the back of the store. Essentially, ASR is -- and this is a potential big plus for GreenBox -- is a modified e-commerce solution because we're actually, the goal of the system is to pick an each, put it in the bag, in the back of a store customer picks it up or you deliver. But you can put it in a box and ship it to a customer. So -- and of course, e-commerce, the top 300,000, 400,000, 500,000 items that sell in e-commerce are the same top 400,000, 500,000 items that sell in the store. So where we've had a lot of incomings because micro fulfillment, which is what other people call it, was really only looking at doing 5,000 or 6,000 items in the back of a store. And we think we can do it in 15,000 or 20,000 feet -- we think we can do 50,000 or 60,000 items. So in 100,000 square feet, we might be able to do one million items. And so the opportunity -- and it uses the same basic software platform. There's some changes we would make to the bot. But the reason that people are interested in because this is an existing technology that's modified -- the example I keep using this is just another app on the iPhone using the same iOS. And that's the way we position the technology, but it solves different problems for different customers. And there's shipping cases, they're shipping interpacks, and they're shipping eaches. So, we think we're the only ones that actually offer with the same software and the same supplier, all three levels of integration. So, people are interested in that. Operator Our next question comes from the line of Mark Delaney with Goldman Sachs. Just trying to better understand what you're seeing for the potential to bring in additional customers, not only with GreenBox, but with Symbotic. You talk a little bit around the momentum and having a GreenBox CEO, but maybe you could elaborate a bit more on potential incoming demand? And have you seen it change at all with the tariff landscape and some of the supply chain challenges that may be creating for some of potential new customers? We've seen two things. We've seen some people just -- the world is so unknown. We've had a lot of incoming. We've had people probably said we want to study this. We want to understand it. Not sure we want to go forward to some -- and then the flip side is in places that have a lot of visas are foreign labor that was coming into the U.S. We've seen a significant uptick in places where large customers are doing well are very concerned about labor shortages. And so on balance, I would say we're seeing more incoming plus we've also increased our sales force. So we probably made twice as many sales calls in the second quarter as we did in the prior one. But in general, we're -- I think the amount of incoming is increasing. We're not -- the first thing we get is -- how effected are you by tariffs, what's the pricing? Most of our stuff comes from the U.S. We make a lot of stuff in a trade free zone in Mexico. So I think there's like, "okay." And then I think people think inflation is coming. I think they think labor is going up. And so, a lot of incoming for that -- for those reasons. So, on balance, I would say, we're not seeing -- we're seeing more incoming than we are seeing people holding off. This is very helpful. A follow-up on that. I mean what's the likelihood in your opinion of material new customers being announced this year, either for GreenBox or core Symbotic? I recognize you would want to be selective and take the right kinds of projects on, but do you expect to be able to announce meaningful new customers this year? We do. Okay. Helpful. We'll stay tuned. My other question was for you, Carol, on free cash flow, very strong in the quarter, I think $249 million against EBITDA of $35 million. So maybe elaborate a bit more on what drove the degree of free cash flow strength and how to think about free cash flow from here. Yes. 2Q, similar to where we were in 1Q, benefited by timing of receipts. And as we've talked about, when we have a quarter where we're high in terms of the number of signatures, so we had 10 new starts this quarter. Our contracts are pretty much set up as we get cash flow early on. And so that's what you're seeing levered. We also had the acquisitions take place this quarter. So both the incoming cash and the outgoing cash, which was a net benefit for Symbotic. I would expect our free cash flow position between now and the end of the year to be stable as we head into the end of the year. Operator Our next question comes from the line of Colin Rusch with Oppenheimer. As some of the perception technology begins to evolve at a little bit faster rate. How quickly can you start to integrate some of that improvement into your systems? And how should we think about that impacting the productivity of the overall system. Yes. I mean great question. So, we are -- because we're in 20, 30 warehouses now but we can also see each level of a warehouse. So let's say, there's 10 levels in the warehouse. There might be 300 or 400 [overall] levels where we'll have 100 bots on each level. So we now have bots in warehouses with LiDAR. We have bots in warehouses with vision. We have bots in warehouses that we can run remotely. So, the level of technology and the incoming -- I mean it's very interesting and the incoming talent is accelerating. So, we would expect that the level of innovation will increase, not decrease. I think we're just getting started with the learnings for what the bot can do. And so eventually, our fleet will be pretty much -- I don't know if it will be 100%, but pretty much a significant portion of our fleet will be -- will include LiDAR, we also have a new battery, which has 10x the energy. So, I think what's going to happen and what we've been working on as we scale, is much more reliable machines and therefore, fewer operators, therefore, lower operating costs and therefore, higher returns for our customers and for us and easier to sell the system. So, I think when we started the technology, there was always a concern about "where are you with Walmart? Where are we with the first systems?" And the word of mouth that we're getting back is why I think our incoming is increasing. There's just nobody doing -- there's nobody that has LiDAR that we know of on a bot that runs in a warehouse at this scale. Nor can I tell you about bots, nor do you have vision. So all of those things are things that we're accelerating. That's super helpful. And then just in terms of the scalability as you get into the back half of the decade, early next decade. I'm curious about the work that you're doing with finance partners in terms of underwriting these things with that, underwriting these assets with that, and helping kind of seed some of the education at this point? I guess, how mature is that, is that process? And is it anything that you really need to invest a fair amount of time on at this point? Yes. So, we haven't encountered very many customers that have inquired about a financing arm. When you think about what GreenBox is designed to do, with GreenBox being warehouse-as-a-[service]. That's one of the opportunities for customers who might have less CapEx capability, so they could come in and be able to utilize part of the warehouse. And so, we've used GreenBox as that part of the leverage, but we have not seen a lot of incoming to date from our customers looking for financing. Operator Our next question comes from the line of Guy Hardwick of Freedom Capital Markets. Just wondering what the Q3 revenue guidance assumes in terms of systems and deployments. Because obviously as pointed out earlier, it is a step down. So just wondering what you have in terms of deployments and progress as well as completions and starts in the quarter? So thanks for the question. We typically don't guide with specific numbers of systems that are in deployment. But if you think about three were signed a year ago, four were signed the quarter after that, -- 12 months in, those are not -- there's not a large number contributing to the heavy install at that point. We've got 10 that we signed this quarter and associated with our revenue ramp. Typically, we see revenue first quarter where we signed and then we're pretty stagnant on that for the next couple of quarters. But we typically don't guide in terms of total number of systems in deployment. Okay. And just a follow-up on GreenBox. Can you kind of update us on kind of the progress of building out the sales capability and what stage do you think the GreenBox as a company is at this point? I think pretty much, it's an early stage. We have two sites beyond the initial site that we're building out the sales force for and we're prospecting. And we've hired people from the 3PL space, one from Hub Group, one from CEVA. And we have some time because the buildings are still being built out for the Symbiotic system. So we have about a year, 1.5 years before we're really concerned about filling them up, but the prospecting is going well and we're continuing to make a lot of sales calls. So, it just takes time. Operator Our next question comes from the line of Derek Soderberg with Cantor Fitzgerald. On the ASR business, can you provide some color as to what sort of revenue that is? I think you mentioned you're providing services. Curious if you're paying based off of each unit that you're handling? And I might have missed it, but are we going to be seeing that ASR revenue in operation services? Or is there a systems component to that as well? The development associated with ASR is running through our systems line. And so that's where we saw the revenue for this quarter primarily. And we talked about that being mid-to-high single-digit percentage of what we posted for the quarter. And so that's the development activity and the design activity. And for the next three years as we work through develop and build of our three prototypes, that's where you're going to see the primary revenue. We do have some revenue running through recurring because associated with the acquisition, we are responsible for maintaining the existing APD systems. So we have a small amount of software running through software, and then we have parts and services similar to how we operate our core business that you're going to see in the op services, but it's a very small amount of revenue. Got it. That's helpful. And then, Rick, you mentioned your scale and capabilities and just sort of being at multiple layers in the supply chain -- it seems like you can find some pretty valuable insights with that data. Curious if you're exploring new avenues to monetize some of that data. Has there been an environment where you've kind of found certain insights and plug that back into the ROI of the system that longer term can improve kind of the wallet share with your customers? Any ways to sort of monetize that data at this point? Yeah. We are doing that, we're actually -- the selling of the customer's data, the customer owns the data, so that's very tricky for us. And so, we should just -- I get asked this question a lot. And so, we can't sell their data. It's their data. But what we've learned is surprisingly, we probably know more about the shape and size of boxes than anybody in the world at this point. And so, it's actually helped us redesign our system to be smaller, and that allows the customer to store more, and we're actually taking advantage of that in our pricing. Operator Our next question comes from the line of Ken Newman with KeyBanc Capital Markets. Carol, maybe back on the tariff question. I know it sounds like the guide isn't reflecting any impact from pass-through pricing. But I am curious if you're already seeing some of your larger suppliers push price to you. And curious if you have a sense of just how much that pass-through could look given the early notifications you may or may not be getting from your suppliers? Yes. So, our primary impact is from Europe. Their tariffs went into effect in April. And so 3Q will be the first where we're actually seeing the impact of that. As I indicated, we're a single digit percent of a typical system. And so, what we're in the process of doing right now is discussions with our supply chain because we also are interested in making sure we're focused on continuing to reduce the cost. So, where we'll start seeing the impact is as the suppliers deliver equipment here in the third quarter. But we're in discussions to figure out other ways to offset. Right. Okay. And then maybe as a follow-up there, just on that pass-through conversation, I get that pass-through protects gross profit dollars, but given all the talk that you had on improving the efficiencies and lowering the amount of time it takes to deploy a system, I would imagine you could also drive stronger SG&A leverage. Even if -- on the higher revenue base, even if you keep price cost neutral on the gross profit line. I know there are a lot of moving pieces, but do you think it's possible to drive EBITDA margin expansion even if the gross margins are nominally weaker just from tariffs? Yes. We continue to focus on our SG&A leverage. And I think the step-up you saw this quarter was primarily related to our acquisitions as we get the synergies between the two companies better understood and work through that integration, we hopefully will be able to identify additional synergy going forward. And then as you indicated, as we continue to scale, we're seeing the benefit of that scale on overall program management on our -- just the performance of what we did for in-sourcing on our EPC contract. So, we're starting to see the benefit as we continue to ramp. Operator Our next question comes from the line of Greg Palm with Craig-Hallum. Specifically on gross margin, I think, Carol, you mentioned or alluded to maybe a little bit of a benefit in the quarter from ASR. But can you just talk about whether there were any other sort of one-time benefits? It sounds like a lot of it was just due to more efficiencies. And obviously you had much better gross margin in software and operation services. But, just kind of curious how you view that going forward? Yes. The other one-time benefit is mostly in the recurring. And so, in a quarter where we had eight systems hit acceptance there's a significant amount of high-margin training revenue that goes along with that accepted. So that's what you're seeing in the op services revenue. We had a bounce back this quarter from last quarter. So that's the one timer. But in terms of the system gross margin - the project mix shifting - that will continue going forward. Our overall improvements that we're seeing from shorter install duration, benefits from bringing the in-sourcing in of EPC. That will continue. And the ASR is a higher margin contribution. And so, we saw the benefit of that in the quarter, we'll have less of that next quarter, but that will come back as revenue continues to grow. Okay. Perfect. And you mentioned the three GreenBox locations already. I think there are another 10 that you have already specifically targeted in terms of cities. Can you just help us out with revenue contribution from GreenBox? I mean is there a timeline associated with the startup of these additional 10? And so, what we've talked about -- so we've launched three. And in prior quarters, we had talked about five locations where we would typically be thinking through a potential multi-tenant warehouse. So one was the Atlanta region, one was Southern California. We've looked at Dallas, we looked at Chicago and we've looked at somewhere on the East Coast. So we've identified five of those which we have now launched two. GreenBox has been slower to ramp -- but now that we've got the CEO and they're in place identifying additional sales folks, I think we're going to see a lot more activity on GreenBox in the coming quarters. Operator Our next question comes from the line of Robert Mason of Baird. Carol, you may have run through this, but could you bridge the backlog again from Q1 to Q2? I know ASR was booked, but was there anything else? Yes. Thanks for the question. Backlog, the addition to the backlog was for the development associated with the ASR business -- that was the only addition and then what you saw was reductions associated with the revenue posted for the quarter. So those offset. And then every quarter, as we talk about, we sign a final statement of work, there's puts and takes in terms of final configuration, and that's what the delta is. Okay. Maybe related to that, I think earlier on, you mentioned around your deployment schedules compressing some of that Phase 1 -- some Phase 1s are now 15% larger than some of the earlier stage deployments. I'm just curious what's driving that? Or is that just the nature of the particular sites? Or the customer wants more installed upfront. I'm just curious what's caused the expansion. Yes. It is purely the nature of those particular sites. I would not infer from that, that all future Phase 1s are getting bigger. It really is dependent on every single location and size and capability of that particular warehouse as we go in. And as we talked about our largest customers, we typically end up with three phases. And so, there is a little bit of a mix of what they want to do in Phase 1, 2, or 3. But I would not infer that all of our Phase 1s are getting 15% larger. I am showing no further questions at this time. I would now like to turn it back to Charlie Anderson for closing remarks. Yes. Thanks, everybody, for joining our call tonight. We really appreciate your interest in Symbotic and look forward to seeing many of you during the quarter during the investor conferences we attend. Thanks. And have a nice day. Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Symbotic is an automation technology leader reimagining the supply chain with its end-to-end, A.I.-powered robotic and software platform. Symbotic reinvents the warehouse as a strategic asset for the world's largest retail, wholesale, and food & beverage companies. Applying next-generation technology, high-density storage and machine learning to solve today's complex distribution challenges, Symbotic enables companies to move goods with unmatched speed, agility, accuracy and efficiency. As the backbone of commerce Symbotic transforms the flow of goods and the economics of the supply chain for its customers. For more information, visit https://www.symbotic.com.

HP : Second Quarter 2025 Transcript

Good day, everyone, and welcome to the Second Quarter 2025 HP Incorporated Earnings Conference Call. My name is Tina, and I will be your conference moderator for today's call. At this time, all participant lines will be in a listen-only mode. We will be facilitating a question-and-answer session toward the end of the conference. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Orit Keinan-Nahon, Head of Investor Relations. Please go ahead. ..................................................................................................................................................................................................................................................................... Good afternoon, everyone, and welcome to HP's second quarter 2025 earnings conference call. With me today are Enrique Lores, HP's President and Chief and Chief Executive Officer; and Karen Parkhill, HP's Chief Financial Officer. Before handing the call over to Enrique, let me remind you that this call is a webcast, and a replay will be available on our website shortly after the call for approximately one year. We posted the earnings release and accompanying slide presentation on our Investor Relations web page at investor.hp.com. As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. For more detailed information, please see disclaimers in the earnings materials relating to forward-looking statements that involve risks, uncertainties and assumptions. For a discussion of some of these risks, uncertainties and assumptions, please refer to HP's SEC reports, including our most recent Form 10-K. HP assumes no obligations, and does not intend to update any such forward-looking statements. We also note that the financial information discussed on this call reflects estimates based on information available now and could differ materially from the amounts ultimately reported in HP's SEC filings. During this webcast, unless otherwise specifically noted, all comparisons are year-over-year comparisons with the corresponding year-ago period. In addition, unless otherwise noted, references to HP channel inventory refer to Tier 1 channel inventory, and market share references are based on calendar quarter information. For financial information that has been expressed on a non-GAAP basis, we've included reconciliations to the comparable GAAP information. Please refer to the tables and slide presentation accompanying today's earnings release for those reconciliations. With that, I'd now like to turn the call over to Enrique. ..................................................................................................................................................................................................................................................................... Thank you, Orit. And thank you to everyone for joining today's call. Against the backdrop of a highly dynamic landscape, we delivered another quarter of solid top line growth, driven by continued momentum in the Personal Systems Commercial business. However, due to additional tariff costs that could not be fully mitigated in the quarter, our non-GAAP operating profit fell short of expectations. Today, we will take a deeper dive into Q2 performance, the evolving external environment, and our outlook. I will also highlight new innovations we introduced to drive our momentum forward. Let me start with our Q2 result. Overall, we delivered revenue growth for the fourth consecutive quarter with a 5% increase in constant currency year-over-year. We saw strong growth in Personal Systems, particularly in Commercial and high-value category, driving momentum in our key growth areas. These meaningful results show that our Future of Work strategy is working. Nonetheless, the rapidly changing external landscape, including shifting trade policies and additional tariffs, had a net impact of approximately 100 basis points on our non-GAAP operating profit, mainly in April and primarily impacting Personal Systems. This resulted in a roughly $0.12 impact on our non-GAAP earnings per share. By net impact, we are referring to all tariff-related impacts after taking into account the mitigation actions. We swiftly responded to these changing market dynamic, and were able to partially offset them in the quarter through cost actions, pricing and accelerating the transition of our manufacturing footprint. We continued to diversify our manufacturing locations so that we can best respond to geopolitical changes with agility. We have expanded our manufacturing footprint for both PCs and printers to different locations, and we recently increased our production coming from Vietnam, Thailand, India, Mexico, and the US. By the end of June, we now expect nearly all of our products sold in North America will be built outside of China, significantly accelerating our previous plan. However, it takes time and investment to fully mitigate such impacts. Let me now share more color on our business unit performance. In Personal Systems, revenue grew 8% in constant currency, above our expectation, driven by strong Commercial performance. PC Commercial revenue grew 9% year-over-year, including strong growth in North America and Asia. As expected, we saw continued strength in AI PC demand and the Windows 11 refresh, and we believe that momentum will carry forward. We drove share gains year-over-year in Commercial PC, particularly in premium, workstations, AI PCs and gaming. We drove growth in services with several new wins in healthcare, financial services and retail. Personal Systems operating margin came in below our guidance, largely due to higher tariffs that were not fully offset by our actions in the quarter. We expect to successfully mitigate these costs and return to our long-term target range of 5% to 7% next quarter. In Print, revenue declined 3% in constant currency, in line with our expectation. We saw revenue growth across home and office in Europe, helping to offset a slowdown in North America and continued weak demand in China. And we continued to drive momentum in home with units up 2%, fueled by strong Big Tank growth. We grew share year-over-year in developed market, optimizing profitable share, mainly in office A4 value and A3. In our key growth areas for Print, we saw continued growth in Consumer Subscriptions and Workforce Solutions, and we drove another quarter of growth in Industrial Graphics, supported by the portfolio launched at Drupa, confirming the high adoption of our new product introductions. Our focus remains on what we can control, executing with discipline, supporting our customers, and making strategic decisions that position HP for the long term. Now, let's turn to the significant strides we made in innovation. This quarter, we advanced our strategy to lead the Future of Work by delivering experiences that help businesses grow and employees find greater professional fulfillment. At our Global AMPLIFY Conference in March, we deepened relationships with over 1,100 partners and customers. We unveiled more than 80 new products and services, and the positive reactions from attendees reaffirmed our direction. A key highlight was the global rollout of the HP Workforce Experience Platform. Combining AI with real-time insights, this software solution enables CIOs to boost productivity and address issues before they disrupt work. Feedback from our early adopters has been incredibly positive, highlighting the platform's impact on workplace efficiency and its role in improving employee satisfaction. To accelerate the adoption of AI and bring its benefits to the mainstream, we introduced one of the most comprehensive AI PC portfolios in the industry. This portfolio features the redesigned HP EliteBook and EliteDesk engineered to help people work smart and faster while keeping their data secure. To enhance advanced workflows for data scientists and AI developers, we teamed up with NVIDIA to launch the HP ZGX AI Station, our high-performance workstation powered by Blackwell, and designed to accelerate productivity and enhance security. In Print, we are leading the way in security with our new LaserJet Enterprise devices, the first printers in the world designed to guard against quantum computer attacks. And our industrial print team received five prestigious European Digital Press Awards, recognizing our bold vision to lead the industry for automation, productivity and sustainability. In April, we brought our latest generation of latest technology to life, engineered to simplify production and optimize printing processes. Third, with our Print Hub software, print shops can now drive greater efficiency and control from a single platform. This innovation played a pivotal role in our recent collaboration with Scuderia Ferrari, where we've co-engineered a high-performance car product that's up to 14% lighter and 17% thinner, translating breakthrough technology into real-world speed. The advancements across our entire portfolio this quarter demonstrate our leadership in creating a secure and powerful AI stack that connects devices, data and workflows to drive meaningful productivity. In Q2, we acted quickly to address tariff-related headwinds, taking decisive steps like accelerating our manufacturing rebalancing, redesigning our logistics network, shifting sourcing, and qualifying new product configuration. These efforts both strengthened our operational agility and led the foundation for continued resilience. We will carry this momentum into Q3 and Q4 as we further reinforce our supply chain and operational capabilities. Additionally, we have implemented price increases to help offset cost pressure. While these decisions are never taken lightly, they are essential to maintaining our financial discipline. Looking ahead, the remainder of fiscal 2025 will be shaped by a range of factors, some of which remain uncertain. We have planned for today's tariff landscape. And if it changes, we will respond swiftly as we did in Q2. We continue to expect that PC market will grow in 2025, but softer than originally planned, driven by increased macro uncertainty. That said, we remain confident in our ability to grow faster than the market and gain share. In Print, we continue to expect the market to decline low-single digit for calendar year 2025. We expect the actions we are taking to gain full traction in the second half, leading to sequential operating profit improvement. We are making progress with the execution of the Future Ready Accelerated Plan that we announced last quarter, and we are now expecting to exceed our goal and deliver at least $2 billion in gross annual run rate structural savings by the end of fiscal year 2025. These incremental structural savings will help mitigate macro and geopolitical uncertainties while continuing to support investments in strategic areas. We are confident in our ability to navigate an evolving market. We have always excelled in managing complex environment. We have an incredible team capable of optimizing processes, implementing best practices, and achieving global efficiency. As we move forward, we remain committed to delivering sustainable growth and creating long-term value for our shareholders. Our focus on harnessing the power of AI to make work more personal, productive and fulfilling will drive our success now and into the future. We delivered another quarter of solid top line growth, driven by continued momentum in the Personal Systems commercial business, aligned with our vision of leading the Future of Work. We executed our strategy across multiple fronts, including growing share in high-value categories across Personal Systems and Print, driving momentum in our key growth areas, and exercising disciplined cost management while continuing to invest in strategic initiatives. However, against the backdrop of a dynamic geopolitical landscape, our non-GAAP operating profit fell short of expectations due to additional tariff costs that could not be fully mitigated in the quarter. As a reminder, our guidance for Q2 included tariffs in place at the time. While we plan for a range of scenarios in the quarter and we worked aggressively to respond to changes in the regulatory trade environment, the tariff increases announced in Q2 2025 Earnings Call 28-May-2025 April were higher than expected. That said, as you heard from Enrique, we made meaningful progress expanding our supply chain and manufacturing footprint, and we accelerated actions on cost reduction and pricing. However, as we indicated last quarter, the full benefit of these mitigating actions can take a few months' lead time depending on the scope. During the quarter, our operating margin was impacted by net tariff costs, mainly in Personal Systems. Taking a closer look at the details of the quarter. Net revenue was up 3% nominally and 5% in constant currency, with growth across all regions. In constant currency, APJ grew 9%, Americas grew 5% and EMEA grew 1%. And while we made progress on the cost of good reduction actions we started at the beginning of the year, gross margin at 20.7% was down year-over-year, with increased tariff and commodity costs. We drove non-GAAP operating expenses down year-over-year to help offset, including driving Future Ready cost savings, continuing disciplined cost management, and reducing variable compensation. All in, our operating margin of 7.3% was impacted by roughly 100 basis points due to unmitigated tariff and related impacts, mainly in Personal Systems. Below the op profit line, non-GAAP net OI&E was flat year-over-year, in line with our expectations, with lower short-term borrowing costs offset by currency losses. Finally, with the diluted share count of approximately 956 million shares, our non-GAAP diluted net earnings per share was $0.71, reflecting the tariff and related impacts net of mitigations of approximately $0.12. Now, let's turn to segment performance. We delivered another quarter of solid growth in Personal Systems with revenue up 7% nominally and 8% in constant currency, above our expectations, and driven by higher Commercial volumes and increased ASPs. We did see some demand pull forward, but estimate it was minimal, accounting for less than 1% of our revenue growth. As we signaled, we drove disciplined pricing actions to help mitigate increased tariff and component costs, and shifted mix toward premium categories. And momentum continued in our key growth areas, with strong performance in AI PCs, Advanced Compute and Workforce Solutions. We also drove Commercial unit growth of 11%, gaining share overall and in premium categories as the market momentum and refresh activity continued. Commercial revenue increased 9% year-over-year with pricing actions and mix shift toward premium offset in part by currency impacts. In Consumer, our results reflect our strategy to rebalance our portfolio to a more profitable mix. We saw 2% revenue growth on lower volume through favorable pricing and mix shift, including share gains in gaming. Our operating margin in Personal Systems was 4.5%, below the range we guided at the beginning of the quarter and down year-over-year from higher commodity costs and tariff costs that were not yet fully offset by repricing and cost reductions. It's worth noting that excluding the impact of tariff costs, our PS margin would have been well within our 5% to 7% guidance range. Turning to Print. Our results were in line with expectation as we continue to focus on profitable unit placement. We increased our market share in high-value categories, and drove overall hardware unit growth. Our key growth areas continue to gain momentum, including revenue and subscriber growth in Consumer Subscriptions and industrial growth fueled by both hardware and supplies. Across Print, revenue declined 3% in constant currency on supplies declines and hardware softness in North America. By customer segment, we grew Consumer units 3% year-over-year, led by strong growth in Big Tank. In Commercial, revenue declined 3% year-over-year on a 2% unit decline. We continued our purposeful focus on profitable long-term unit growth, gaining share in the higher-value categories of A4 and A3. Supplies performed as expected, down 3% in constant currency, and we drove favorable pricing and market share gains that were more than offset by installed base and usage headwinds. Yet we delivered strong Print operating margin, up year-over-year and above the high end of our range, reflecting rigorous cost discipline and pricing actions, as well as the favorable impact of grant funding received in the quarter. We continue to execute our accelerated Future Ready Plan across process efficiency, automation, portfolio optimization and operational excellence. And as Enrique mentioned, we now expect to achieve cumulative gross run rate savings of at least $2 billion by the end of fiscal year 2025, with no change to our estimated restructuring charges of $1.2 billion for the program. These incremental structural savings continue to be a key lever to help offset macro and geopolitical uncertainties while also continuing to fuel investment in our key growth areas and AI innovation, all designed to position us well for long-term sustainable growth. Now, let me move to cash flow and capital allocation. Our cash flow from operations was roughly $38 million in the quarter. And as expected, free cash flow was slightly negative due to the timing of payments for intentional inventory actions we took in the prior quarter as part of our overall tariff mitigation. Those payments resulted in a decrease in DPO and corresponding increase in our cash conversion cycle in Q2, also as expected. Lastly, we returned close to $400 million to shareholders through both dividends and share repurchases. A planned debt refinancing ahead of an upcoming maturity contributed to us finishing the quarter slightly above our target leverage range. So, in line with our stated policy, with a temporary increase in leverage, we limited our repurchase to offsetting stock compensation dilution. As we look ahead, we will continue to navigate a dynamic environment that may be impacted by a continuing evolution in global trade policy, broader macroeconomic trends and the associated impact on customer demand. For that reason, we believe it is prudent to moderate our guidance for the second half of the year to reflect this. In our guide, we have accounted for the added costs driven by the current tariffs in place and associated mitigations, including leveraging our supply chain flexibility, Future Ready cost reductions and pricing action. We were able to mitigate part of these costs in Q2, and we are confident that we will fully mitigate them by Q4. In Personal Systems, while we expect to continue to gain share, we now expect the PC market to grow low single digits for both the second half and full calendar year, given the uncertain macro environment. We still anticipate commercial PC catalysts, including the Win 11 refresh and AI PC adoptions to drive solid revenue growth in the back half of the year. And we expect the actions we are taking to offset the cost of tariffs to gain full traction in the second half, leading to sequential improvement in Personal Systems margins in both Q3 and Q4. In Print, we continue to expect the market to decline low single digits for the calendar year, with the second half of the year declining closer to mid-single digits, in line with industry experts. We also expect our operating margin to continue to be near the top of our 16% to 19% long-term range for the year. Beyond the segments, we expect Corporate Other to be slightly higher, approaching $1.1 billion, as we integrate the operations of our Humane asset acquisition into our technology and innovation organization. With this all in, we now expect FY 2025 non-GAAP diluted net earnings per share to be in the range of $3 to $3.30 and FY 2025 GAAP diluted net earnings per share to be in the range of $2.32 to $2.62. Turning to Q3. In Personal Systems, we expect revenue to grow high single digits sequentially as we continue to see strength in Commercial aligned with our Future of Work efforts and pricing actions. And we expect Personal Systems margins in the lower half of the 5% to 7% range, improving sequentially as a result of the mitigation efforts we are driving. In Print, we expect Q3 revenue growth to perform better than typical seasonality on incremental hardware placements and pricing actions. We expect operating margins solidly within our 16% to 19% range as we continue to focus on profitable unit placement, tariff mitigation and disciplined cost management. With all of this, we expect third quarter non-GAAP diluted EPS to be in the range of $0.68 to $0.80 and GAAP diluted net earnings per share to be in the range of $0.57 to $0.69. In line with our revised earnings, particularly in Personal Systems, where we have a negative cash conversion cycle, we now expect free cash flow to be in the range of $2.6 billion to $3 billion for FY 2025. With regard to working capital, we expect our cash conversion cycle to also be impacted by the timing of purposeful actions we are taking to mitigate the fluidity of the tariff situation. It is important to note, however, that we not only expect the impact of these actions on working capital to be temporary, but as mentioned earlier, we also expect to fully mitigate the current cost of tariffs by Q4. And on our balance sheet and capital allocation, given the impact of tariffs, we expect our leverage ratio to continue to be above our target range in Q3. That said, we remain fully committed to returning approximately 100% of free cash flow to shareholders over time as long as our gross leverage ratio remains under 2 times, and we do not see more attractive investment opportunities. In closing, we responded quickly to the changing market dynamics in the quarter to address headwinds from a rapidly changing trade environment. We remain focused on what we can control and are confident that the actions we are taking are the right ones to position us for long-term profitable growth. With that, I would like to hand it back to the operator and open the call for your questions. Thank you so much for taking my questions. Enrique, maybe just to start. Can you maybe add a little bit more context around your expectations for the PC market in the second half of the year? What is causing the guide down? Is it large enterprises weaker? Is it small enterprise weaker And then big picture, does this really mean that kind of Windows 11 refresher is really not a catalyst that we need to think about if we're growing low-single digits during the refresh period? Just a little bit more context would be helpful. And then I have a quick follow-up. Thanks. Sure. Thank you, Erik. So, let me try to answer all the questions you have in your question. First of all, in Q2 and in the first half, we have seen strong demand on the PC side, especially in Commercial, as reflected in our results. When we think about the second half, though, we thought it was important to be more prudent in the estimation that we have for the market, given a few of the trends that we see. First of all, we are, today, in a very different economic situation from where we were a few months ago in terms of both consumer and business confidence. Second, we have seen announcements across the industry for price increases in the second half, and we think the combination of both will potentially have an impact in the demand that we see. We are not integrating any effect from channel inventory. All of them are under control or under good And I would just add, Erik, that Win 11 does remain a catalyst for the back half. And if demand comes in stronger than our moderated guide, that will be reflected in our results. Okay. Great. I appreciate all that color, guys. Thank you so much for that. And then maybe a follow-up. Enrique, I would just love if you could give a little bit more kind of high-level color for your growth businesses. I think it would help us all better understand kind of two key metrics there. First, just when you add up all of the growth businesses that you alluded to in your presentation, how big are they? What percentage of revenue are Personal Systems or Print? Any color that you could share on the size there? And then how fast are they growing? I appreciate the commentary on sequential growth, but I assume many of these businesses have different seasonality. So, just how big are these businesses? How fast are they growing year-over-year? And how should we think about growth of these businesses, say, over the next one to three years? Would just love to get better context on that. Thanks so much. Thank you, Erik. So, we haven't disclosed the overall size of the businesses. Let me tell you, the two key metrics we have shared before that continue to be true is they are growing faster than the core businesses, and the gross margin is also higher than the gross margin of the core businesses. So, these two key factors continue to be true. Within growth businesses, we include businesses like AI PCs where we have seen very solid growth, not only quarter-on-quarter, but year-on-year. We said that our goal is for AI PCs to represent more than 25% of the PC business by the end of year, and we are on track to meet that goal. Within growth businesses, we have also our Workforce Solutions business on services and consumer services. Both of them have very solid growth in the quarter. Within the growth businesses, we have workstations that had a very solid growth performance during the quarter, industrial print. So, overall, they performed well, they performed as we were expecting, and they're a significant part of why we continue to see the second half stronger than the first half because they will continue to drive growth for the company. Hi. Good afternoon. Thank you for the question. I have just two, both in Personal Systems. First, just on Personal Systems margins, it's encouraging to hear that you'll return to the long-term range next quarter. I was just wondering if you're assuming that you'll be in that 5% to 7% range for the full year as well? And what are some of the key swing factors that you're watching for? And then secondly, I was just wondering if you could comment on whether you saw any Personal Systems demand pull-in in this past quarter ahead of any prospective tariffs and the current outlook there. Thank you. Yeah. Thanks, Michael, for the question. In terms of PS margins, yes, we do expect our margins to be in the 5% to 7% range for the full year. Given the impact in Q2 for the full year, it's likely to be in the lower half of that range, but with good sequential improvement. And... And in terms of pull-in, we saw some pull-in in the PC space into Q2. But at the overall level, fairly small. Our estimation, having look at achievement data, sell-out data, is that less than 1 point of growth was driven by pull-in. So, it's a relatively small number overall. Of course, if we look at North America sales, it would be bigger because it will represent a bigger percentage. But again, overall, at the company level, was less than 1%. And this is the case for PCs. We didn't see any pull-in for Print. Great. Thank you very much. A couple ones. One, on just AI PCs. I know you're still pretty bullish on AI PCs. But if you can just help us understand what are some of the killer applications that you hear from your end customers on this mix shift towards AI PCs? And then within your expectations for PS Systems growth, how should we think about the impact of pricing and mix shift towards these AI PCs within your overall growth expectations for that segment? And then I have a quick follow-up. Thank you. Thank you. So, overall, as I said before, we are very pleased with the progress that we see in AI PCs. Our goal is that they will be more than 25% of the mix of PCs by the end of the year, and this continues to be the case. In terms of key applications, what we have seen is a large number of software companies introducing solutions that utilize the capabilities of AI PCs. We had more than 100 ISVs supporting that now, and this number is only growing. And this is why we think that the penetration is going to continue to grow because if you are in the Commercial space and you buy a PC today, you want to be able to take advantage of those capabilities as software will be available. That's the key message we make to customers. And as you can see from the progress we are making is resonating. In terms of the impact it will have, you 're correct, it will have an impact on average selling price. The goal that we have shared before is that they will represent around 50% of the total shipments of PCs three years after introduction, so about two years from now. We are on track to make that number. And at the average, they are between 10% and 20% higher price than regular PCs. But this, of course, will have an impact on the total value. Something relevant to highlight this quarter is that we introduced AI PCs for the mainstream. This was one of the major innovation announcements we made in Q2 that is going to continue to help to drive adoption and to drive growth in this category. Yeah. No, thanks for the question. Our free cash flow guide that we revised does follow earnings. And so, in line with that earnings guide, we did reduce our free cash flow expectations for the year, but it's mainly driven by the reduction that we saw in earnings, which is really driven by the operating margin impact that we had this quarter. That, along with lower-than-expected working capital improvement, is what caused us to guide down. We still do expect working capital improvement, but just a little lower than we had anticipated given the fact that we're focused on doing everything we can to offset these trade-related costs. I would say it's important to note, though, that these working capital moves are temporary and they are purposeful actions really as we mitigate the fluidity of the situation. Let me maybe provide some color on the working capital side. As we have said in the prepared remarks, we have diversified our supply chain, we have built factories in different places. And to operate those factories now, we need more working capital than we did in the past. Over time, we will optimize and we will make them more efficient. And this is what Karen was saying, this will be temporary, but we see a needed increase now as the supply chain has become more diverse. Yeah. Thank you. I was wondering if you could share a little more color on some of the mitigation impacts that you're putting in place. How much of this tariff impact you expect to offset from pricing? So, maybe some thoughts around what those price increases could look like and which areas of the market would you be targeting versus cost actions versus potentially moving supply chain? Any quantification there would be helpful. And I have a follow-up. Let me provide more color on that, and maybe Karen also wants to complement. So, we have taken a lot of actions during the quarter to mitigate the change of the trade environment. Let me start by, we accelerated the shift of factories out from China into Southeast Asia, into Mexico, to a certain extent in the US, to mitigate the impact of the change. A quarter ago, we shared that our goal was to have less than 10% of the products in North America being shipped from China by September. We have accelerated that, and we shared that now almost no products will be coming from China sold in the US by June. This is a very significant acceleration of the plan that we have. We have also changed our logistics network. And for example, we have removed the US as a distribution hub for products that will be going to Canada or to Latin America, which I will avoid them having And I would just add that we're not going to quantify what comes from price versus supply chain moves versus other cost actions. But on our Future Ready program, we did talk about driving an additional $100 million more in savings. And those are really Okay. Thanks for that color. And as my follow-up, you are actively moving the supply chain away from China, but you also noted like areas like Vietnam, Thailand, Mexico, Philippines. What gives you confidence that your moves, given sort of we still don't know where reciprocal tariffs might end up, that these moves are going to be optimal. What are some of the things that you're thinking through? And how quickly would you be able to shift production between these areas as you think about what might happen potentially with reciprocal tariffs? Thank you. Yeah. I think you're right. We are in a fairly fluid environment, so I think I don't want to speculate on what could happen and what changes we will do. I think what you have seen is we have reacted very fast to the changes that we saw in April. We have been able to rebalance supply chain and accelerate some of the plans that we have. We will be fully compensating for that in about two quarters by Q4, as Karen just said. And we will respond in a similar way to whatever changes happen going forward. We will look for the opportunities, we will optimize the supply chain, and we will respond swiftly to those changes. Question. And maybe if I can start off with the Print margins in the quarter, again very solid margins. Maybe if you can just help us with sort of the driver of the margin out performance you had there? How much of that is maybe some business drivers versus the Future Ready cost actions that you're taking? And particularly in relative to the guidance you have for 3Q, you talked about above seasonal revenue growth as well, but moderating the margin expectations. So, is there a certain one-off driver there that we should think of or is that more just in terms of business mix to sort of really play out in the quarter? And then I have a follow-up. Thank Yeah. Thanks, Samik, for the question. So, on our Print margins, we were pleased with the fact that they were And in terms of our confidence in Print margins going forward, we do expect margins to be solidly within our 16% to 19% range in Q3, and that's really because we expect to drive some incremental hardware placements. But then we also expect sequential improvement in Q4 with a higher supplies mix that we typically have in that quarter, along with the full benefit of the traction that we're making on trade-related actions and Future Ready cost savings. So, hopefully, that helps. Yeah. No, thank you for that. And the second question is just a clarification on the PS margins and the sequential improvement to expect in Q3 and Q4. From your prepared remarks, Q3 does have a part quarter benefit from the supply chain changes that you're making. But as we look from Q3 to Q4, is it really the improvement, the realization of a full quarter benefit of the supply chain changes or is there incremental benefit from pricing as we move from Q3 to Q4 as well? Thank you. Yeah. So, we are expecting strong improvement in Q4, and I'll start with the fact that Q4 is typically our strongest quarter for both Print and PS. And this year, we do expect continued momentum in the PC market, driven by Commercial. We also see Q4 as typically our highest season with an increase in consumer demand tied to back-to-school and the holiday purchases. And we have many new products for customers to choose from. And then also, we talked about the cost side. We've implemented these moves in the manufacturing supply chain that are going to take broader traction as we proceed through the year. And then we're on track to achieve the additional $100 million to achieve the $2 billion in broader cost savings as we exit our Future Ready program at the end of the year. And of course, pricing will play a role too. Altogether, we expect our PS margins to be in the lower half of the 5% to 7% range in Q3 and improve sequentially. So, hopefully, that helps. And I think it's probably important to highlight that based on the guide that we are providing that we have high confidence for, we will be exiting Q4 with both the company with revenue growth at the company level and with both businesses within the long-term ranges that we have shared before, which is a sign of confidence for the future. Yes. Good afternoon, everyone. I have two as well. I guess maybe just to start off with Enrique, what you were talking about the end right now. You're sort of embedding a very sizable step-up in earnings in your fiscal Q4. I think the implication is you'll do $1 for earnings power in Q4. Can you just touch on how much of that ramp-up from, call it, the $0.70 run rate you have right now to $1, how much of that is revenue driven versus driven by all the cost reduction initiatives that you have in place? Would be good to understand just how much of this is controllable versus not perhaps. Thank you. It's a combination of both. In Q4, as Karen just said, we expect to see a strengthening of demand compared to Q3. And if you look at normal seasonality, this is what happens, for example, in the Consumer space, driven by both back-to-school and the holiday season. Q4 is a very strong quarter. And in the Commercial side, we continue to expect to see the demand that we have seen in the previous quarters, driven by Windows 11, driven by the refresh of the installed base, and driven by AI. All this will have an impact on the demand side. And then on the margin side, on the cost side, both the pricing actions that we are taking, but also all the work on costs, both redesigning supply chain, the impact of Future Ready will have an impact in the margins on Q4 sequentially, and this is what gives us confidence that we'll be able to achieve these numbers. As I said at the beginning, we have moderated our growth expectations for PS especially, but we continue to expect that the PS business will grow in the second half compared to where it was a year ago. I would just reiterate that much of our confidence is because of the actions that we're taking today that we know just take time and will gain full traction in Q4. Fair enough, and that's helpful to just kind of understand those dynamics. You've also talked about a couple of issues that are impacting your fiscal 2025 EPS guide, right? It's about 40% impact right now. At a very high level, is there a way to think about how much of the 40% impact is from just the direct trade tariff-related issues that you have versus demand potentially moderating? Is there a way to think about those two buckets and how big of an impact each one is causing? Yeah. I would think about it this way, that the impact that we had in this quarter of 100 basis points on our margin and $0.12 of EPS was due to the tariff-related impact that we weren't able to fully mitigate. And as we look ahead in the back half, the reduction in our guide is mainly driven by us choosing to prudently moderate our growth expectations given the macroeconomic environment. But in an indirect way, also the change of expectations is related to the new trade environment and to the new trade situation, not directly on cost, but just on demand. ....moving the manufacturing to avoid the near-term tariffs, and you've noted that you expect higher working capital. But my question is, what are the longer-term impacts from these changes, particularly to your expense structure and margin for the new configuration versus the prior configuration in fiscal 2026 and beyond? Hello. As we said before, we expect to finish the year within the range that we had provided before. And at this point, this continues to be the expectation for the year 2026 and beyond. We think that we can compensate the cost impact on tariffs. It takes us this time a couple of quarters, and this continues to be the assumption that we have going forward. Maybe just on the first one on PC, one on Print. On the PC side, can you just talk a little bit about kind of price elasticity and what you've seen in prior cycles? It sounds like there might be some upward ASP pressure due to tariffs and everything else. If you could just talk about what you've seen traditionally in this time, do you think because of AI PC and enterprise and maybe an aged base, it's not as much of an issue? And then second, on the Print-related businesses, could you just talk about competitive landscape and any kind of Yen movement that might have impacted or might be impacting competition either way there? Thank you. Yes. I think in terms of elasticity, it's hard to compare the situation to previous situations given what is driving that. We have built some of that into our estimation for the second half and the more conservative plan or estimation for the market that we have put in place. And I think this is the best way to reflect kind of the changes and elasticity that we see. In terms of Print, what we have seen quarter-on-quarter is that pricing has been more stable, so we haven't seen an improved repricing environment, but it has stayed stable versus what it was a quarter ago. And during the last weeks, most of the Print competitors announced price increases related to the changes in the trade environment. So, this will be reflected in the overall pricing environment in the market in Q3 and in Q4. Hey, guys. Thanks for taking my questions. This is Alek, on for Ananda. So, my question, I actually have one more on PC pull-in. So, I know you mentioned you saw a very small impact during the quarter, but I wanted to see if there's any impact to second half of the year. Again, the impact was so small that, again, the company level has a very minimum impact. If we look at the US, it had more just because of mathematics of dividing the pull-in versus a smaller market. And we have reflected on that in the guide that we have for the second half and in the estimation that we have for the market. Got it. Thank you for that. Just a quick follow-up. Also on PCs, are you seeing customers buy richer PC configurations yet, specifically for the purpose of GenAI? Well, we have seen significant growth of the AI PC category and the mix continued to improve, of course, year-on-year, but especially quarter-on-quarter, which is more relevant at this stage. So, clearly, they are having Thank you. So, I think that we are approaching the end of the call. So, again, thank you, everybody, for participating and joining the call today. I would like to close the call confirming our confidence in three areas. First, the confidence in our Future of Work strategy to continue to drive growth. Second, the confidence in the team on how to respond and how to navigate any type of environment, responding quickly and decisively. And finally, our confidence in our ability to continue to create shareholder value. Thank you, everybody, for joining today, and looking forward to continue the conversation in the coming weeks. Thank you.