Sprinklr reports mixed Q1 results amid customer retention challenges

Sprinklr Inc. reported first quarter fiscal 2026 financial results on June 4, 2025, showing total revenue growth to $205.5 million, up 5% year-over-year from $196.0 million in the same period last year. The unified customer experience management platform provider, however, faced operational challenges that impacted profitability and customer expansion metrics.

According to the company's earnings report, subscription revenue reached $184.1 million for the quarter ended April 30, 2025, representing a 4% increase from $177.4 million in the prior year period. Professional services revenue grew more substantially at 15% to $21.4 million, driven primarily by expanded managed services related to Contact Center as a Service delivery capabilities.

The New York-based company experienced significant pressure on its subscription gross margins, which declined to 78% from 82% in the same quarter last year. This compression stemmed largely from increased costs associated with third-party data, cloud infrastructure, and network services. According to the financial statements, data and hosting costs alone increased by $9.3 million during the quarter.

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Operating performance reflected the challenging environment, with the company reporting a GAAP operating loss of $1.8 million compared to operating income of $5.7 million in the first quarter of fiscal 2025. The shift to negative operating income occurred despite revenue growth, highlighting the impact of cost pressures and restructuring activities implemented during the period.

The quarter included substantial restructuring expenses totaling $16.3 million, reflecting a workforce reduction of approximately 12% that the company implemented in February 2025. According to the filing, this restructuring aimed to "help position the Company for long-term success by realigning employee costs with the current business and freeing up capital for incremental investments."

Customer metrics presented mixed signals about the business trajectory. Sprinklr reported 146 customers generating $1 million or more in annual subscription revenue, up from 138 in the same period last year. However, the company's net dollar expansion rate declined to 102% from 115% in the prior year, indicating slower growth among existing customers.

The customer retention challenges appeared linked to broader market conditions and implementation difficulties. According to the company's risk disclosures, Sprinklr has "experienced difficulties with managing the implementation of certain larger CCaaS projects, which has resulted in increased customer dissatisfaction, loss of certain customers and a delay in recognizing revenue associated with certain of these projects."

Cash generation remained strong despite operational headwinds. The company reported free cash flow of $80.7 million for the quarter, substantially higher than $36.2 million in the same period last year. Net cash provided by operating activities reached $83.8 million, benefiting from seasonal collection patterns and reduced accounts receivable balances.

Sprinklr's balance sheet maintained considerable strength with total cash, cash equivalents, and marketable securities of $570.2 million as of April 30, 2025. The company raised this figure from $483.5 million at the end of the previous quarter, primarily through investment activities in marketable securities.

The artificial intelligence integration across Sprinklr's platform continued advancing, though the company acknowledged risks associated with these technologies. According to the risk factors disclosure, "Our use of generative AI tools to generate code also may present additional security risks because the generated source code may contain security vulnerabilities."

Geographic revenue distribution showed international markets contributed approximately 43% of total sales during the quarter. The Americas region generated $117.6 million in revenue, while Europe, Middle East, and Africa contributed $72.0 million. Other regions, primarily Asia-Pacific, accounted for $15.9 million.

Looking ahead, Sprinklr provided guidance for the second quarter of fiscal 2026, projecting subscription revenue between $184.0 million and $185.0 million, representing approximately 4% growth at the midpoint. Total revenue guidance of $205.0 million to $206.0 million suggests modest sequential growth expectations.

For the full fiscal year 2026, management expects subscription revenue between $741.0 million and $743.0 million, implying roughly 3% annual growth. Non-GAAP operating income guidance of $129.0 million to $131.0 million for the full year represents a significant improvement from current quarterly run rates, suggesting anticipated operational efficiency gains.

The company's stock repurchase program expanded during the quarter, with the board of directors authorizing a new $150 million share buyback program in June 2025. This program runs through June 30, 2026, and supplements previous repurchase activities that totaled $300 million.

Competition in the customer experience management market intensified as traditional software providers and newer entrants expanded their offerings. According to the company's analysis, "some of our competitors may be able to offer products or functionality similar to ours at a more attractive price than we can or do, including by integrating or bundling such products with their other product offerings."

Platform reliability remained critical for customer retention, particularly as enterprises increasingly depend on unified communications across multiple digital channels. The company reported investments in infrastructure resilience while managing cost pressures from third-party data providers and cloud computing services.

Research and development expenses remained relatively stable at $22.8 million, representing approximately 11% of revenue. Sales and marketing costs decreased to $71.1 million from $87.5 million in the prior year, largely due to workforce reductions implemented during the restructuring.

Industry analysts have recognized Sprinklr's market position across multiple categories. According to the company's presentation materials, recent analyst reports positioned Sprinklr as a leader in Forrester's Digital Customer Interactions Solutions, Social Suites evaluations, and Gartner's Content Marketing Platforms and Voice of the Customer Magic Quadrants.

This mixed quarterly performance reflects broader challenges facing enterprise software companies as organizations reassess technology spending amid economic uncertainty. Customer experience management platforms face particular pressure as businesses seek to optimize operational costs while maintaining service quality standards.

Why this matters

These results signal important shifts in how enterprises approach customer experience technology investments. The margin pressure Sprinklr faces from data and infrastructure costs affects the entire martech ecosystem, potentially leading to price increases across customer experience platforms. Marketing teams should prepare for more scrutinized technology spending and longer implementation cycles as vendors face operational challenges.

The decline in net dollar expansion rates suggests enterprises are becoming more selective about expanding their customer experience technology footprints. This trend could push marketing teams toward more integrated platforms rather than point solutions, favoring vendors who can demonstrate clear ROI on unified customer data and engagement capabilities.

Timeline

February 2025: Sprinklr implements workforce reduction of approximately 12%

April 30, 2025: Q1 FY2026 quarter ends with 5% revenue growth but operating loss

June 4, 2025: Company reports earnings and announces $150 million share repurchase program (announced 5 months ago from today)