Splunk Inc. Announces Fiscal Second Quarter 2020 Financial Results

Splunk Inc. (NASDAQ: SPLK), delivering actions and outcomes from the world of data, today announced results for its fiscal second quarter ended July 31, 2019.

Second Quarter 2020 Financial Highlights

• Software revenues were $350 million, up 46% year-over-year.
• Total revenues were $517 million, up 33% year-over-year.
• GAAP operating loss was $87 million; GAAP operating margin was negative 16.8%.
• Non-GAAP operating income was $47 million; non-GAAP operating margin was 9.0%.
• GAAP loss per share was $0.67; non-GAAP income per share was $0.30.
• Operating cash flow was negative $129 million with free cash flow of negative $141 million.

“I am excited by our strong quarter, tremendous cloud growth, and our agreement to acquire SignalFx. I am particularly pleased with how quickly we are accelerating our business transformation to cloud, and the impact cloud is having on our customers,” said Doug Merritt, president and CEO, Splunk.

“With year-over-year revenue growth of 80% and ARR now over $300 million, the strength of our cloud business is driving a faster transition to a renewable software model,” said Jason Child, CFO, Splunk. “By the end of the year, we expect that virtually all new software sales will be cloud or term license-based.”

Business Highlights

Customers:

• Signed almost 500 new enterprise customers.
• New and Expansion Customers Include: ABB (Switzerland), Conde Nast, Cox Automotive, Denny’s, DoorDash, Duke University, Gatwick Airport (England), Harvard Business School, Jump Operations, NATO (Belgium), Nubank (Brazil), The Pennsylvania State University, United States Postal Service, Verizon Media Group, Zoom

Corporate:

• Splunk to Acquire Cloud Monitoring Provider SignalFx: Splunk continues to invest in technologies in growth categories that help our customers deliver business outcomes with data. SignalFx is a SaaS leader in real-time monitoring and metrics for cloud infrastructure, microservices and applications. Following the acquisition, Splunk will provide leading solutions in observability and application performance monitoring (APM) for organizations at every stage of their cloud journey, from cloud-native apps to homegrown on-premises applications.
• Splunk and Partners Make The World More Secure: Deloitte Risk & Financial Advisory and Splunk expanded our strategic relationship as Deloitte’s Fusion Managed Services offerings now incorporate Splunk Phantom, which provides automated security monitoring and response to help clients address evolving cyber threats. Splunk also announced a new integration with AWS Security Hub at AWS re:Inforce. With AWS Security Hub, Splunk Enterprise and Splunk Phantom integrations help accelerate detection, investigation and response to potential threats within AWS security environments.
• World-Class Leadership: Splunk’s executive team continues to be recognized for their contributions to the global technology ecosystem. Splunk president and CEO Doug Merritt was named by Ernst & Young as a winner of the Entrepreneur of the Year 2019 Award in Northern California; SC Magazine named Splunk GM and senior vice president of Security Markets, Haiyan Song a ‘security veteran luminary’ in its annual Women in Security issue; and Splunk CFO Jason Child was named to the San Francisco Business Times’ 2019 “CFO of the Year” list.
• Splunk Embraces New Technologies To Support Next-Generation Data: As organizations around the world continue to introduce emerging technology like blockchain, Splunk is building new tools that enable customers to turn that data into business outcomes. The new Splunk App for Hyperledger Fabric gives customers visibility and analytics into hyperledger technologies.
• Turn Data Into Doing at .conf19: Splunk announced the first round of breakout sessions for .conf19: the 10th Annual Splunk Users Conference. Over 12,000 attendees are expected to descend on Las Vegas to learn more about how their companies can transform business with data. Register for .conf19, taking place from October 21-24, on the Splunk website.

Financial Outlook

The company is providing the following guidance for its fiscal third quarter 2020 (ending October 31, 2019):

• Total revenues are expected to be approximately $600 million.
• Non-GAAP operating margin is expected to be approximately 16%.

The company is updating its previous guidance for its fiscal year 2020 (ending January 31, 2020):

• Total revenues are expected to be approximately $2.30 billion (was approximately $2.25 billion).
• Non-GAAP operating margin is expected to be approximately 14% (unchanged from previous guidance).

All forward-looking non-GAAP financial measures contained in this section “Financial Outlook” exclude estimates for stock-based compensation and related employer payroll tax, and amortization of acquired intangible assets.

A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty regarding, and the potential variability of, many of these costs and expenses that may be incurred in the future. The company has provided a reconciliation of GAAP to non-GAAP financial measures in the financial statement tables for its fiscal second quarter 2020 non-GAAP results included in this press release.

Conference Call and Webcast

Splunk’s executive management team will host a conference call today beginning at 1:30 p.m. PT (4:30 p.m. ET) to discuss the company’s financial results and business highlights. Interested parties may access the call by dialing (866) 501-1535. International parties may access the call by dialing (216) 672-5582. A live audio webcast of the conference call will be available through Splunk’s Investor Relations website at http://investors.splunk.com/events-presentations. A replay of the call will be available through August 28, 2019 by dialing (855) 859-2056 and referencing Conference ID 1267496.

Safe Harbor Statement

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding trends in Splunk’s revenue composition, including cloud revenue and transition to a renewable model, statements regarding the SignalFx acquisition and the related benefits, Splunk’s revenue and non-GAAP operating margin targets for the company’s fiscal third quarter and fiscal year 2020 in the paragraphs under “Financial Outlook” above and other statements regarding our market opportunity, the market for data-related products, future growth, momentum, strategy, technology and product innovation, expectations for our industry and business, customer demand, customer success and feedback, expected benefits and scale of our products and expected attendance at our user conference .conf19. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: Splunk’s limited operating history and experience developing and introducing new products, including its cloud offerings; risks associated with Splunk’s rapid growth, particularly outside of the United States; Splunk’s inability to realize value from its significant investments in its business, including product and service innovations and through acquisitions; Splunk’s shift from sales of perpetual licenses in favor of sales of term licenses and subscription agreements for our cloud services; Splunk’s transition to a multi-product software and services business; risks associated with Splunk’s acquisition of SignalFx, including delays in the timing of receipt of regulatory approvals and delays in closing; and Splunk’s inability to successfully integrate acquired businesses and technologies, such as SignalFx; Splunk’s inability to service its debt obligations or other adverse effects related to our convertible notes; and general market, political, economic, business and competitive market conditions.

Additional information on potential factors that could affect Splunk’s financial results is included in the company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2019, which is on file with the U.S. Securities and Exchange Commission (“SEC”) and Splunk’s other filings with the SEC. Splunk does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

About Splunk Inc.

Splunk Inc. (NASDAQ: SPLK) helps organizations ask questions, get answers, take actions and achieve business outcomes from their data. Organizations use market-leading Splunk solutions with machine learning to monitor, investigate and act on all forms of business, IT, security, and Internet of Things data. Join millions of passionate users and try Splunk for free today.

Splunk, Splunk>, Listen to Your Data, The Engine for Machine Data, Splunk Cloud, Splunk Light and SPL are trademarks and registered trademarks of Splunk Inc. in the United States and other countries. All other brand names, product names, or trademarks belong to their respective owners. © 2019 Splunk Inc. All rights reserved.

Splunk Inc.

Non-GAAP Financial Measures and Reconciliations

To supplement Splunk’s condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”), Splunk provides investors with the following non-GAAP financial measures: cost of revenues, gross margin, research and development expense, sales and marketing expense, general and administrative expense, operating income (loss), operating margin, income tax provision (benefit), net income (loss) and net income (loss) per share (collectively the “non-GAAP financial measures”). These non-GAAP financial measures exclude all or a combination of the following (as reflected in the following reconciliation tables): expenses related to stock-based compensation and related employer payroll tax, amortization of acquired intangible assets, adjustments related to a financing lease obligation, acquisition-related adjustments, including the partial release of the valuation allowance due to acquisitions, and non-cash interest expense related to convertible senior notes that were issued in the fiscal third quarter of 2019. The adjustments for the financing lease obligation are to reflect the expense Splunk would have recorded if its build-to-suit lease arrangement had been deemed an operating lease instead of a financing lease and is calculated as the net of actual ground lease expense, depreciation and interest expense over estimated straight-line rent expense. The non-GAAP financial measures are also adjusted for Splunk’s estimated tax rate on non-GAAP income (loss). To determine the annual non-GAAP tax rate, Splunk evaluates a financial projection based on its non-GAAP results. The annual non-GAAP tax rate takes into account other factors including Splunk’s current operating structure, its existing tax positions in various jurisdictions and key legislation in major jurisdictions where Splunk operates. The non-GAAP tax rate applied to the three and six months ended July 31, 2019 was 20%. Splunk expects to utilize this annual non-GAAP tax rate for all of fiscal 2020 and will provide updates to this rate on an annual basis, or more frequently if material changes occur. The applicable fiscal 2019 tax rates are noted in the reconciliations. In addition, non-GAAP financial measures includes free cash flow, which represents cash from operations less purchases of property and equipment. The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Splunk uses these non-GAAP financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. Splunk believes that these non-GAAP financial measures provide useful information about Splunk’s operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. In addition, these non-GAAP financial measures facilitate comparisons to competitors’ operating results.

Splunk excludes stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding Splunk’s operational performance and allows investors the ability to make more meaningful comparisons between Splunk’s operating results and those of other companies. Splunk excludes employer payroll tax expense related to employee stock plans in order for investors to see the full effect that excluding that stock-based compensation expense had on Splunk’s operating results. These expenses are tied to the exercise or vesting of underlying equity awards and the price of Splunk’s common stock at the time of vesting or exercise, which may vary from period to period independent of the operating performance of Splunk’s business. Splunk also excludes amortization of acquired intangible assets, adjustments related to a financing lease obligation, acquisition-related adjustments, including the partial release of the valuation allowance due to acquisitions, and non-cash interest expense related to convertible senior notes from the applicable non-GAAP financial measures because these expenses are considered by management to be outside of Splunk’s core operating results. Accordingly, Splunk believes that excluding these expenses provides investors and management with greater visibility to the underlying performance of its business operations, facilitates comparison of its results with other periods and may also facilitate comparison with the results of other companies in its industry. Splunk considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities, including investing in its business, making strategic acquisitions and strengthening its balance sheet.

There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by Splunk’s competitors and exclude expenses that may have a material impact upon Splunk’s reported financial results. Further, stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in Splunk’s business and an important part of the compensation provided to Splunk’s employees. The non-GAAP financial measures are meant to supplement and be viewed in conjunction with GAAP financial measures.

The following tables reconcile Splunk’s GAAP results to Splunk’s non-GAAP results included in this press release.

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