Sprinklr (CXM) Q1 2027 earnings review
Transformation Shows First Green Shoots, But Margins Pay the Price
Sprinklr's punishing FY26 'transitional year' is finally showing tangible top-of-funnel results. RPO reversed a previous decline, surging 10% YoY to break the $1 billion mark, and management explicitly highlighted improving renewals—suggesting the 'Project Bearhug' customer retention initiative is working. However, this stabilization is heavily taxing profitability. Non-GAAP gross margin collapsed 400 basis points as expensive AI infrastructure costs hit the P&L, pulling operating margins down to 14%. More concerning: Q2 guidance implies a sharp sequential deceleration in total revenue, proving the company is still sacrificing near-term velocity for long-term stabilization.
🐂 Bull Case
Total RPO grew 10% YoY to $1.04B, a massive reversal from the 5% contraction seen just two quarters ago. This signals that large enterprise churn is stabilizing and future billings are securing the pipeline.
Management backed its confidence with cash, executing $125M in share repurchases during the quarter, efficiently returning capital while trading at compressed multiples.
🐻 Bear Case
Non-GAAP Gross Margin fell steeply from 70% to 66% YoY. Higher hosting and data costs associated with AI product consumption are structurally lowering the software margin profile.
Despite the RPO jump, Q2 guidance implies total revenue will sequentially decline and YoY growth will decelerate from 7% to a paltry ~1.2%. The 'cleanup' phase is clearly not over.
⚖️ Verdict: ⚪
Neutral. The leading indicators (RPO and renewals) are finally pointing in the right direction, validating the Bearhug strategy. However, the severe margin compression and weak Q2 revenue guide mean investors must still wait for a clean re-acceleration.
Key Themes
Project Bearhug Starts Delivering: RPO Rebound
The most critical data point in this report is the Reversing trend in RPO. In 26Q3, RPO contracted 5%, sparking deep concerns about enterprise churn. This quarter, RPO accelerated to 10% growth ($1.04B), and cRPO grew 5%. Management explicitly noted that 'renewals are improving.' This suggests the intensive, high-touch 'Project Bearhug' engagement with the top 700 customers is successfully arresting down-sells.
Gross Margin Compression Materializes
Management's prior warnings about AI infrastructure costs have hit the income statement hard. The cost of subscription revenue jumped 20.5% YoY (to $50.8M), severely outpacing the 6% growth in subscription revenue. As a result, Non-GAAP gross margin Decelerated sharply from 70% to 66%. If Sprinklr's AI features (Agentic AI, Copilot) demand this level of compute cost, the company's long-term margin ceiling must be re-evaluated.
Services Over-Indexing Software
Professional Services revenue grew 15.5% YoY ($24.6M), far outpacing Subscription revenue growth (6%). While this boosts the top line, it highlights a broader truth about Sprinklr's current state: ensuring successful implementations of complex unified-CXM and CCaaS modules requires heavy, low-margin human intervention. The company is leaning on services to prevent a repeat of past implementation failures.
Q2 Implies Sequential Subscription Decline
Despite stabilizing renewals, Q2 guidance reveals ongoing friction. The midpoint of Q2 Subscription Revenue guidance ($194.0M) implies a sequential decrease from Q1's actual result ($194.8M). This Decelerating trajectory indicates that while gross churn may be slowing, new logo additions and upsells are not yet strong enough to offset remaining legacy right-sizing.
Other KPIs
Decelerating from $80.7M in the year-ago quarter, but remains highly cash generative. This liquidity funded the aggressive $125M share repurchase program in the quarter while leaving the balance sheet strong at $442.8M in cash and marketable securities.
Reversing from negative territory (-1% in 26Q1). Despite the gross margin compression, overall GAAP profitability improved YoY primarily due to controlled headcount growth and a slight reduction in total operating expenses (excluding the prior year's restructuring charge).
Guidance
Decelerating aggressively. The $214.5M midpoint implies a sequential decline from Q1 and roughly 1.2% YoY growth compared to 26Q2's $212M. This contrasts sharply with Q1's 7% YoY growth.
Decelerating. Implies roughly 3% YoY growth, down from 6% in Q1. The sequential dip from Q1's $194.8M highlights that the 'cleanup of challenged accounts' mentioned in previous quarters is still acting as a governor on growth.
Implies an operating margin of roughly 14%, flat sequentially with Q1 but significantly down from the 18% peak in the prior fiscal year, reflecting ongoing investments in AI and structural cloud cost increases.
Given as updated guidance, implying roughly 3.5% YoY growth for the full year. This sets a low bar for the remainder of the year and heavily backloads any expectation of re-acceleration into FY28.
Key Questions
Bridging RPO vs Revenue Guidance
With RPO surging 10% year-over-year to over $1 billion, why does Q2 guidance imply a sequential contraction in both total and subscription revenue? What is the duration profile of the newly signed RPO?
Gross Margin Floor
Non-GAAP gross margins compressed by 400 basis points to 66%. With increasing consumption of AI Agents and Copilot, where does management see the long-term floor for subscription gross margins?
CCaaS Growth Cadence
In FY26, management stated they were 'governing' the growth of the Sprinklr Service CCaaS product to harden it. Has the 'spigot' been opened for FY27, or are implementations still being intentionally gated?