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Company Profile

250 Brannan Street

San Francisco, CA

94107

United States

415-848-8400

http://www.splunk.com

Sector: Technology

Industry: Application Software

Full Time Employees:

Splunk Inc. provides software solutions that enable

organizations to gain real-time operational

intelligence in the United States and internationally.

The company's products enable users to collect,

index, search, explore, monitor, and analyze data

regardless of format or source. It offers Splunk

Enterprise, a machine data platform with collection,

indexing, search, reporting, analysis, alerting,

monitoring, and data management capabilities; and

Splunk Cloud service. The company also provides

Splunk Light, which offers log search and analysis

for small IT environments; and Splunk Analytics for

Hadoop, a software for exploring, analyzing, and

visualizing data stored in Hadoop and Amazon S3.

In addition, it offers Splunk Enterprise Security,

which addresses emerging security threats; Splunk

User Behavior Analytics that detects cyber-attacks

and insider threats; and Splunk IT Service

Intelligence, which monitors health and key

performance indicators of critical IT services, as

well as Splunk App for AWS to ensure cloud

security and compliance; Splunk Stream to capture,

analyze, and correlate network wire data; and DB

Connect to get enterprise context; Palo Alto

Networks App for Splunk to gain visibility to Palo

Alto Networks firewalls; and Splunk App for

Salesforce. Further, the company operates

Splunkbase and Splunk Answers Websites, which

High 123.00Current 98.39

Low 98.00

Americas Research

* Adam Hathaway Holt

MoffettNathanson LLC - Partner & Senior Research

Analyst

* Brad Alan Zelnick

Crédit Suisse AG, Research Division - MD

* Brad Robert Reback

Stifel, Nicolaus & Company, Incorporated, Research

Division - MD and Senior Equity Research Analyst

* Daniel Robert Bergstrom

RBC Capital Markets, LLC, Research Division - Analyst

* Fatima Aslam Boolani

UBS Investment Bank, Research Division - Associate

Director and Equity Research Associate Technology-

Software

* Jesse Wade Hulsing

Goldman Sachs Group Inc., Research Division - Equity

Analyst

* John Stephen DiFucci

Jefferies LLC, Research Division - Equity Analyst

* Kasthuri Gopalan Rangan

BofA Merrill Lynch, Research Division - MD and Head

of Software

* Michael Turits

Raymond James & Associates, Inc., Research Division -

MD of Equity Research and Infrastructure Software

Analyst

* Nathaniel Birdsall Cunningham


2 of 52 3/29/2018, 6:46 PM

Splunk's market capitalization of $14.7 billion is supported by 23% revenue growth to$1.1 billion and positive free cash flow. Now companies are favoring a startup's product30% of the time over Splunk and its old-line rivals. Should Splunk investors take their



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42

provide an environment to share apps, collaborate

on the use of its software, and provide community-

based support, as well as offers application

programming interfaces and software development

kits. Additionally, it offers maintenance and

customer support, training, and consulting and

implementation services. The company serves

cloud and online services, education, financial

services, government, healthcare/pharmaceuticals,

industrials/manufacturing, media/entertainment,

retail/ecommerce, technology, and

telecommunications industries. Splunk Inc. was

incorporated in 2003 and is headquartered in San

Francisco, California.

News

Data-driven approach will disrupt worlds: Splunk CEOJim Cramer sits down with Splunk President and CEO Doug Merritt for the latest on hisanalytics company's disruptive story.

News

'Worlds are being disrupted' by our data-drivenapproach:...

analytics company's disruptive story.

Guggenheim Securities, LLC, Research Division -

Analyst

* Philip Alan Winslow

Wells Fargo Securities, LLC, Research Division - Senior

Analyst

* Raimo Lenschow

Barclays Bank PLC, Research Division - Director and

Analyst

* Stewart Kirk Materne

Evercore ISI, Research Division - Senior MD &

Fundamental Research Analyst

* Taylor John Reiners

Piper Jaffray Companies, Research Division - Research

Analyst

======================================

======================================

====

Presentation

------------------------------------------------------------------

--------------

Operator [1]

------------------------------------------------------------------

--------------

Ladies and gentlemen, good afternoon, and welcome to

the Splunk Inc. Fourth Quarter 2018 Financial Results

Conference Call. (Operator Instructions) As a reminder,

this conference call is being recorded. I would now like

to turn the call over to your host, Mr. Ken Tinsley,

Corporate Treasurer and Vice President of Investor

Relations. Please go ahead, sir.

------------------------------------------------------------------

--------------

Ken Tinsley, [2]

------------------------------------------------------------------


3 of 52 3/29/2018, 6:46 PM

--------------

Great. Thank you, Amanda, and good afternoon,

everyone. With me on the call today are Doug Merritt

and Dave Conte. We issued a press release after close of

market today, and it is posted on our website.

Additionally, this conference call is being broadcast via

live webcast and then following the call, an audio replay

will be available on our website.

On this call, we will be making forward-looking

statements, including financial guidance and

expectations, including our forecast for our fiscal

quarter and full year of fiscal 2019 and our expectations

for fiscal 2020. Trends and expectations regarding

customers' deal size, international revenue as well as

transaction, product, services, subscription and revenue

mix, planned investments and trends in our operating

model resulting from our investments and the impact of

the adoption of ASC 606 to our financial statements.

These statements reflect our best judgment based on

factors currently known to us, and actual events or

results may differ materially.

Please refer to documents we file with the SEC,

including the Form 8-K filed with today's press release.

Those documents contain risks and other factors that

may cause our actual results to differ from those

contained in our forward-looking statements.

These forward-looking statements are being made as of

today, and we disclaim any obligation to update or

revise these statements. If this call is reviewed after

today, the information presented during this call may

not contain current or accurate information. We will

also discuss non-GAAP financial measures, which are

not prepared in accordance with generally accepted

accounting principles. A reconciliation of GAAP and

non-GAAP results is provided in the press release and

on our website.

Before I turn it over to Doug, I want to remind you that

we're holding our analyst and investor meeting at the

end of the month, and we look forward to seeing you

there. Go ahead, Doug.

------------------------------------------------------------------


4 of 52 3/29/2018, 6:46 PM

--------------

Douglas Merritt, Splunk Inc. - CEO, President and

Director [3]

------------------------------------------------------------------

--------------

Thanks, Ken. Hello, everyone, and welcome to the call.

Having just flown in from our annual sales kickoff, I am

excited to be talking to you all about the opportunity in

front of us. I'm proud of our delivery and our execution

in FY '18, and our confidence heading into FY '19

couldn't be higher.

Our energy comes from a great Q4 where we delivered

$420 million in total revenue, up 37% over last year. We

saw strong demand for Splunk solutions globally, such

as in Europe with a win of Deutsche Bahn and the

Middle East with the Saudi Department of Zakat and

Income Tax; and APAC with Domino's Australia; and in

Africa with GTBank of Ghana.

For the full year, revenue totaled $1.271 billion, up 34%

year-over-year. Our growth continues to come from a

combination of new and existing customers, expanding

their deployments both on-prem and in the cloud, and

we exited the year with more than 15,000 customers.

I'd also like to thank our partners from around the world

who joined us at our sales kickoff. It was inspiring to see

our collective teams driving the alignment that is so

critical to ensure that we capitalize on our mutual

opportunity. Most importantly, our customers continue

to be the #1 source of inspiration for every Splunker and

every partner.

At our Analyst Day last year, we shared with you the go-

to-market model changes that Susan was rolling out.

We're investing and optimizing our demand-generation

activities and field segmentation and coverage to

accelerate customer success. As part of our go-to-market

evolution, we're thrilled to welcome Richard Timperlake

as our new EMEA sales leader under Susan. Richard

joins us from Qlik, where he was the EVP of global sales.

I am happy with the changes we made thus far, and our

strong results continue to validate what we've said


5 of 52 3/29/2018, 6:46 PM

before. Our market opportunity is massive. And we're

still early on the Splunk adoption journey even within

our largest accounts.

Earlier this week, we announced our agreement to

acquire Phantom, a leader in Security Orchestration,

Automation and Response, also known as SOAR. The

combination of the Splunk platform, Enterprise Security

and Phantom's products, talent and technology will help

Splunk customers stay ahead of the fast-evolving threat-

and-attack landscape and handle the growing

complexity of alerts and analytics for better decision-

making.

In addition to security, we're also looking forward to

leveraging Phantom's automation capabilities for IT and

other use cases. Technologies like these and the teams

behind them fit into our broad strategy of leveraging the

ecosystem around us as an extension of our own R&D

efforts. We look forward to welcoming Oliver, Sourabh

and the Phantom team to the Splunk family.

Organizations are increasingly using machine data to

provide critical context to the transactional data they

store in their databases and data warehouses. Splunk's

platform is the best solution to enable customers to

harness these data sets to gain operational intelligence.

There is no other solution on the market today that does

what we do, and our customers are gaining more

insights from their data than ever before.

What continues to be unique about the Splunk platform

is the ability it gives our customers to ask different

questions of the same data across multiple use cases. We

continue to learn from our customers' experiences as we

both introduce new solutions as well as ramp our

delivery of prescriptive recipes that can be rapidly

implemented using the Splunk platform. These recipes

are designed to help customers solve critical pain points

quickly. We're calling these recipes Splunk Essentials,

and we're providing them on Splunkbase for our

customers and our partners. A good example of the new

solution is Project Waitomo, which we previewed at

.conf. This solution makes infrastructure monitoring

easy and is specifically built to help systems

administrators and site reliability engineers who may


6 of 52 3/29/2018, 6:46 PM

have never tried Splunk and need to get up and running

in minutes.

An example of a prescriptive recipe is Splunk's ability to

help customers comply with the upcoming GDPR

regulation. In Q4, TDC, Denmark's largest telco, became

a Splunk customer purchasing Splunk Enterprise and

Enterprise Security for their GDPR use case. Thanks to

our partner Netic, who is instrumental in this

opportunity.

Moving on to Q4. We saw continued momentum in both

our Splunk platform and in our premium apps. Starting

with ITOps and app delivery. Wins in the quarter

include The Cincinnati Insurance Companies who added

Splunk IT Service Intelligence, or ITSI, to proactively

identify and resolve IT issues and expand their use of

Splunk Cloud. A joint AWS Marketplace win was global

payments provider, Worldpay, who expanded their use

of Splunk to support new use cases and help their

business as they spin up new workloads in the cloud.

New use cases for Worldpay include artificial

intelligence and IT operations, visibility into storage,

network virtualization and container environments and

more proactive security investigation and response.

The State of Delaware is a Splunk customer taking on

significant digital transformation initiatives. They made

a Splunk upgrade to get complete visibility into their

technology infrastructure as they grow.

We're also very proud to provide 3 Splunk licenses and

training to a major higher ed institution via Splunk

Pledge helping to support some of the cybersecurity

workforce initiatives recently introduced by Governor

Carney. Other customer wins this quarter include

Tampa Electric Company and Statnett.

Moving to security where we continue to help our

customers migrate from a structured legacy SIM to an

analytics-based approach. Notable security wins

include: Texas State University System, who's a new

Splunk customer; the CSO at San Marcos, a customer

since 2014, presented their success story to all university

CIOs, which led the entire university system to deploy

Splunk Enterprise for a wide range of security IT and IT


7 of 52 3/29/2018, 6:46 PM

use cases; British satellite provider, Surrey Satellite

Technology, expanded their use of Splunk Enterprise,

ES and ITSI and added User Behavior Analytics this

quarter. UBA as an additional layer to the company's

security operations center with insider threat detection

around their user accounts to further reduce risk and

protect their brand, while ITSI is used to ensure their

business services are always available. In the future, the

company plans to take data directly from satellites to

monitor the success of missions and take preemptive

measures to avoid issues and breakages.

San Francisco has always been home to Splunk, and

we're proud that the City and County of San Francisco is

using Splunk Enterprise and Splunk ES to better defend

against cyber threats and meet compliance and auditing

mandates.

Other customer wins in security include: Los Angeles

World Airports, Nashville Electric Service and

Australian Digital Health Agency. In Q4, we continue to

see multiple customers standardize on Splunk as their

data platform, including The Washington Post, who's a

long-time customer using Splunk Enterprise for use

cases across the entire organization, including SIM,

monitoring e-commerce activities, improving DevOps,

processes management and monitoring marketing data

to improve its subscription rates.

Penn State University signed an EAA for Splunk

Enterprise, ES and ITSI to provide campus-wide

visibility into their IT and security operations. Penn

State is going to use Splunk to ensure their applications

and websites stay online during heavy load times. Penn

State also uses Splunk to provide a connected campus so

their students and faculty and to save time and money

by reducing MTTI and MTTR.

Another customer going all-in on Splunk is transport

and logistics company Deutsche Bahn, with their

internal IP supplier, DB Systel, signing an EAA for

Splunk Enterprise, ES and ITSI. This expansion is a core

part of their digital transformation, and Splunk will

deliver insights around everything from Internet of

Things use cases, like predictive locomotive

maintenance, to improving the customer experience


8 of 52 3/29/2018, 6:46 PM

when someone books a train ticket.

Shopify, the leading commerce platform, purchased an

EAA to expand its use of Splunk Enterprise. The

expansion helps maintain their commerce platform and

customer support management systems.

And finally, Yelp expanded its use of Splunk Enterprise

this quarter with more than 10 terabytes of machine

data streaming through AWS every day. Yelp originally

deployed Splunk several years ago to correlate all log

data in one central point so people across the company

could get answers to business and operational questions.

Today, Yelp uses Splunk to enhance its operational

intelligence to analyze business, application and system

trends.

We also saw our cloud business continue its momentum.

A sampling of our cloud wins in the quarter include

Guardian Life Insurance Company, who expanded their

use of Splunk Enterprise and ES and bought Splunk

Cloud. After previously using ES to replace its legacy

SIM, Guardian will use Splunk in a hybrid approach to

meet new regulatory guidelines and reach corporate

goals in DevOps, IT operations and application

performance. This is another win that came to the AWS

Marketplace.

The University of Vermont Medical Center made a

significant expansion and is leveraging Splunk for some

of our classic IT use cases, such as network and app

monitoring and proactive alerting to ensure the

hospital's critical systems are operating at their best.

Moving on to the ecosystem. Q4 saw great momentum

with our strategic partnership with AWS. We worked

together on several joint opportunities, including an

EAA with a global Fortune 500 entertainment company.

It was one of our larger wins in Q4 and our largest win

ever on the AWS Marketplace. We also announced new

integrations with Amazon Kinesis data Firehose and

Amazon GuardDuty, our latest integrations to help our

customers get more value from their AWS data.

This quarter, our strategic partner, Accenture, created a

new community of practice specifically for Splunk

within their security business unit. It's the first time that


9 of 52 3/29/2018, 6:46 PM

Accenture has established a vendor-specific community

of practice within their security business. This new

community gives Accenture's customers a place to learn

from Accenture's Splunk experts and gives them access

to unique knowledge-sharing platform made up of other

passionate Splunk users. Ultimately, this will enable our

joint customers to better detect, defend and remediate

cyber threats.

Finally, our partner NTT Security expanded their license

as part of their continued investment in enhancing their

advanced managed security service offering with Splunk

Enterprise. NTT expects Splunk to complement their

current offerings and believes their customers will

proactively find threats and execute response much

more efficiently.

In summary, it was a great quarter and a great finish to

FY '18. I'm really proud of the whole Splunk team. We're

uniquely positioned to capture the tremendous

opportunity in front of us, and we are pursuing it

aggressively. We are early in our journey, and we are

investing for scale and for growth. We're delivering high

value to our customers. We're expanding their adoption

of Splunk as their platform for machine data analytics,

both on-prem and in the cloud. Again, thanks to all of

our customers and partners and thanks to everybody

who works at Splunk.

Now let me turn the call over to our CFO, Dave Conte.

------------------------------------------------------------------

--------------

David F. Conte, Splunk Inc. - Senior VP & CFO [4]

------------------------------------------------------------------

--------------

All right. Thanks, Doug. Good afternoon, everyone.

Thanks for joining the call. I'm pleased to report another

strong quarter, which caps a solid year for Splunk.

Fourth quarter revenues were $420 million, a 37%

increase over Q4 of last year. For the full year, total

revenues were $1.271 billion, up 34% over last year.

Cloud revenue was $30.7 million in Q4 and totaled $94


10 of 52 3/29/2018, 6:46 PM

million for the full year, up nearly 100% over fiscal '17,

and full year cloud billings were $181 million. Q4

software revenues, which is the total of license and

cloud, were $285 million, up 38%. Full year software

revenues were $788 million, up 32% from last year. And

full year total billings were $1.55 billion, up 38% over

last year.

Now as pleased as we are with our execution, we're not

satisfied. As you've heard us say, we have a unique

opportunity to establish Splunk as a standard for our

customers and their data analytics, and we will continue

our focused investments in our product portfolio, our

market groups, our field coverage and the cloud to

ensure customer success. To that, in Q4, we added over

570 new customers. And for the full year, we added over

2,000 new customers overall, ending with 15,400

customers globally, on pace to our fiscal 2020 target of

20,000 customers.

Our continuing commitments to product innovations

around our platform and solutions as well as our

continued pricing and packaging programs are

accelerating Splunk adoption. In Q4, we recorded more

than 850 6-figure orders. And for the full year, we

booked more than 2,300 6-figure orders, 271 7-figure

orders and 10 8-figure orders, which compares to 6 total

from company inception through the start of fiscal '18.

International operations contributed 31% of Q4 revenue

as our international teams continue to help customers

along their path with Splunk. Full year contribution was

26%. And longer term, we expect to see our

international teams contribute between 30% and 35% of

total annual revenues.

Our education and professional services represented 7%

of revenues in Q4. The increase in large orders is

reflected in ASPs this year. In fiscal '18, license ASP

reached $95,000, up from prior levels of $60,000 to

$70,000. Overall, our growing product suite,

complemented by increased awareness and compelling

ROI together are driving this type of broad and large-

scale adoption.

Now turning to margins and other results, which are all


11 of 52 3/29/2018, 6:46 PM

non-GAAP. Q4 overall gross margin was 85%,

comparable on a year-over-year basis. Q4 operating

income was $73 million, representing a positive margin

of 17.4%. And Q4 net income was $53.9 million or $0.37

per share using a fully diluted weighted average share

count of 147 million shares.

For the full year, operating margin was 9.2% above our

expectations due to the strength of our overall top line

performance. Net income was $89.2 million or $0.62

per share based on a fully diluted weighted average

share count of 144.9 million shares. These results

translate to cash flow from operations in Q4 of $146

million and free cash flow of $139 million. For the full

year, cash flow from operations was $263 million. Free

cash flow was $242 million, and we ended the year with

almost $1.2 billion in cash and investments.

Now turning to guidance. Based on the strong finish to

fiscal '18 and continued momentum in the business, we

are increasing our fiscal '19 full year revenue expectation

to $1.62 billion,(sic-see press release "$1.625 billion")

up from the $1.55 billion we previously guided. We are

also reiterating our fiscal 2020 target of $2 billion in

total revenues. Fiscal '19 cloud should contribute billings

of about $270 million and revenue of about $160

million.

Our fun topic, the impact of 606, which we adopted as of

February 1. This will be evident on the face of the

financial statements going forward. Importantly, all of

our fiscal '19 and '20 guidance has been on a 606 basis,

and we have elected the full retrospective reporting

option so you'll be able to compare our results on an

equivalent basis. Under the full retro method, fiscal '18

and fiscal '17 revenue will be recast. Specifically, fiscal

'18 revenues of $1.271 billion under 606 -- I'm sorry,

under 605, will increase to $1.309 billion under 606. FY

'17 revenues of $950 million under 605 will become

$944 million under 606. So what you now have is 4

consecutive years of revenue results and guidance: fiscal

'17, '18, '19 and '20, all on a 606 basis.

Now you've heard me talk about headwinds and

tailwinds to revenue from 606. Clearly, the largest

headwind is the reduction of deferred revenue, and the


12 of 52 3/29/2018, 6:46 PM

largest tailwind is term license bookings, which will now

be recognized upfront. Additionally, with the growing

contribution of subscription contracts in fiscal '19, we

expect another headwind as overall order sizes for

subscription transactions are generally about 2/3 the

size of a perpetual order. Now the net impact of all these

items are included in our updated fiscal '19 and fiscal '20

revenue guidance.

Our fiscal '18 subscription mix, which we have updated

to include all cloud-related amounts, was 50% and

compares to 48% in fiscal '17. Our outlook of 65% in

fiscal '19 and 75% in fiscal '20 are on this same basis.

Without this adjustment, FY '18 mix was 48% and fiscal

'17 was 46%.

Now given the impact on the balance sheet from

adopting 606, we will no longer provide overall billings

guidance. Going forward, disclosures will be in

accordance with the new accounting standards.

With 606 also comes the requirement to capitalize and

amortize certain sales commissions. Up to now, we fully

expense commission in the quarter it was earn. We

expect that the operating margin benefit from

capitalizing commissions will likely be in the 1% to 2%

range, the bulk of which we will reinvest back into

product and field initiatives. So given our op margin

outperformance in fiscal '18 and considering the benefit

we expect to receive from the commission changes, we

are increasing our op margin expectation for fiscal '19 to

11.5%, up from the 10.5% we previously guided. We will

continue to focus our investments on delivering our #1

company priority of customer success. We remain

disciplined about how we expand our product lines and

ensure our coverage model continues to deliver top line

growth at these absolute levels.

Given our fiscal '18 performance and expectation for

fiscal '19, it is likely that we will achieve an op margin

performance in fiscal '20 at the high end of our

previously guided 12% to 14% range.

Now looking at the quarterization of fiscal '19. As I

mentioned on the last call, 606 will cause the weighting

of revenues to be steeper, likely 40% to 60% first half to


13 of 52 3/29/2018, 6:46 PM

second half, with the largest impact in Q1 where we

expect total revenues of between $295 million and $297

million. Our op margin will be seasonally impacted as

well. We expect non-GAAP operating margin of a

negative 6% in Q1, turning slightly positive in Q2 and

then ramping in Q3 and Q4, consistent with the trend

we've seen historically.

Just to add on some more fun. With the recent changes

in tax laws, we are reducing our estimated effective tax

rate to 20% from 27% previously provided.

And finally, for EPS calculations, since we expect to be

in an operating loss position in Q1, you should use a

share count of about 144 million shares for your

calculations.

The transition to subscription also has an impact on

cash flows, particularly this year as we're moving to 65%

subscription. With this move, current average dollar

duration cloud and term transactions of 2 years should

start to shorten as customers typically pay annually

under subscription contracts. Reflecting this, for fiscal

'19, we expect full year operating cash flow of about

$300 million and free cash flow of around $275 million.

The cash flow generating capabilities of our business are

strong, especially when you think about our growth

trajectory on our path to $2 billion and beyond.

In closing, our Q4 results and full year performance

were solid. Our product investments are driving

customer success, and our field expansion is enhancing

our overall execution capabilities. Our strategy is

working well, and we will continue to fuel this pace of

adoption as we drive to make Splunk the machine data

platform for our customers.

Thanks much for your time and interest. Look forward

to seeing most of you, I hope, at our Analyst Day later in

the month. And now we'll open it up for questions.

======================================

======================================

====

Questions and Answers


14 of 52 3/29/2018, 6:46 PM

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Operator [1]

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(Operator Instructions) Your first question comes from

the line of Kash Rangan from Merrill Lynch.

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Kasthuri Gopalan Rangan, BofA Merrill Lynch, Research

Division - MD and Head of Software [2]

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"He's a rebel and a runner, he's a signal turning green,

he wants to run the big data machine," that's the New

World Man lyrics for you, a bit of a Rush (inaudible)

thing. Congratulations, guys. I think those lyrics really

exemplify the transition that you guys are going

through, especially the signal turning green. A question

for you, Doug. The tactics and the strategies that a $1

billion revenue company is used to employing for

success are not the ones that usually work for a company

that wants to be a $2 billion, $3 billion revenue

company. Clearly, you guys have undisputed market

position in the space that you've been defining. And

since given your experience at larger companies and

smaller companies, how do you view the strategy when

it comes to go-to-market, product development,

marketing, applicationization of the product? How do

you see that changing as you build the foundation to

become a multi-billion dollar revenue company? And for

Dave, a simple question for you. It looks like the revenue

recognition is going to be ahead of the -- in the

subscription transaction, the revenue recognition is

going to be accelerated, right? So how should we think

about the way the company salespeople will be

incentivized to go sell contracts given there's the

potential risk, and maybe it doesn't exist, that what you

intend to be subscription will actually become license

sales? Just wanted to get your thoughts on that.


15 of 52 3/29/2018, 6:46 PM

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Thanks, Kash, it's Dave. Obviously, the simplest way to

think about rev rec for us where we sell both on-prem

and in the cloud is the on-prem rev rec will be treated

the same. So a subscription term contract, which

historically would have been recognized over time, will

be recognized upfront just like a perpetual contract. And

our customers really deploy our products dependent on

the use case and the data location between on-prem

behind a firewall or in the cloud. The implications of

these chances as we move to 65% subscription, which

would be all of on-prem term plus cloud, to 75% is

reflected in the guidance. And we felt it was important to

not only provide the outlook for fiscal '19 and '20 on a

606 basis but adopt the full retro method for the 606

implementation, so we give you fiscal '17 and '18,

basically a 4-year view, in terms of revenue trajectory

and growth for the company.

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Director [4]

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And on the first question, Kash, and thank you for the

Rush intro.

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Ken Tinsley, [5]

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That was a Signals album, Kash.

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16 of 52 3/29/2018, 6:46 PM

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Director [6]

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Yes, a good album. We really focused on Analyst Day on

highlighting this business model transition. Moving

from largely a perpetual company to eventually an all-

subscription or virtually all-subscription company is

probably one of the more disruptive things that a

company can do. But given the need for both the market

opportunity in front of us and continued growth, we felt

and feel that it was critically important to do. To bring

that to life, as you highlighted there, are 3 main knobs

that you got to turn in addition to all the core processes

on that subscription orientation. You've got to drive the

right product strategy. And as you talk about the

platformization of the product, continue platformization

so we could have a growing and more effective and

monetizable ecosystem of partners is key. The sales --

continued sales migration, both from a heavy direct to a

much more blended group but also continuing with

segmentation, both on size of the company and

beginning to introduce vertical segmentation, and as we

talked about at Analyst Day and we've highlighted in a

couple of calls, the continued transition, the marketing

function as well, getting much more aggressive on

touchless, viral, online, high-demand gen activities to

complement the really effective branding and high level

awareness approach that Splunk, I think, was very

effective and still remains effective at doing. So those are

all -- we're going to talk about -- we're going to -- we're

investing -- we're taking a portion of the margin and

continue to invest it back in the company to ensure that

those transitions continue their momentum and we

exceed -- do deliver on and exceed our expectation in a

subscription transition.

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Operator [7]

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17 of 52 3/29/2018, 6:46 PM

--------------

Your next question comes from the line of Raimo

Lenschow from Barclays.

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Raimo Lenschow, Barclays Bank PLC, Research Division

- Director and Analyst [8]

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I wanted to double-click on Phantom, first of all. Dave,

did you guys have the number of how much came from

security this quarter? Like just a quick numbers

question, and then my real question comes.

------------------------------------------------------------------

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Raimo, yes, the security contribution was consistent

with the prior quarter, above 50%. As Doug mentioned,

we're getting a lot of benefit from customers moving to

that analytics-based approach.

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Okay, perfect. So the question was for Doug then

actually. So Doug, with Phantom you're just going

deeper into security, and it's a good detail and it's great

to have strong leadership to go deep into security. How

do you make sure that you don't become a security

company over time, going back to Kash's question that

you want to go to kind of like $2 billion, $4 billion and

higher longer term?


18 of 52 3/29/2018, 6:46 PM

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Director [11]

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You bet, Raimo. Yes, we obviously are very, very

enthusiastic about adding Phantom to the Splunk

family. They were off to an incredibly good start with

some of the customers that we share with this overall

orchestration automation framework that they have.

Our customers were -- they and our customers actually

and many of our partners were continuing to highlight

that there's so much leverage potential between the

solutions. That would be an important addition to

Splunk. Off the bat, it's going to -- like Enterprise, it's

going to -- and UBA, it's going to directly contribute and

impact our security footprint to ensure that the typical

SOC participant has a full range of capability from data

discovery all the way through to ensuring effective

remediation and action and AI on all steps of the

process. But the underlying componentry will

increasingly be available to all users of Splunk. As we

know, the intersection between IT and security is really

tight. Cybersecurity relies on what the IT group

provisions and provides for them. But we also should

see the orchestration, automation elements surfacing in

business analytics and IoT. The interesting part about

Splunk, we've talked about over and over, is where you

land is different than where you actually wind up

occupying. Washington Post and Penn State University

were 2 examples in the scripts where they have security,

IT and business operations under wraps with Splunk.

And in both those cases, we landed with a specific

solution. But then they saw the value of Splunk as a

platform and continue to cross the different dimensions

of use cases.

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19 of 52 3/29/2018, 6:46 PM

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Okay, perfect. So it's more like it's a landing spot and

then you can branch out from there, okay.

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Director [13]

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Yes, we are -- it's a sad predicament for the universe that

security is so topical and something that, obviously,

we're responding to very, very aggressively as a

company. And it just -- for us, that provides the entry

point for additional value down the road. And the whole

point of the market group -- so there's Haiyan and the

entire ecosystem around Haiyan, who leads our security

practice, wakes up every day, and all they care about is

using Splunk for success in security. But Rick wakes up

just as hungry for ITOps and AppDev, and Ammar

wakes up just as hungry for IoT. In the collaboration

between them, I think, is really what the customers are

looking for as they go deeper and deeper with Splunk.

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Operator [14]

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Your next question comes from the line of Brad Zelnick

from Credit Suisse.

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Brad Alan Zelnick, Crédit Suisse AG, Research Division -

MD [15]

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20 of 52 3/29/2018, 6:46 PM

My first question for Doug. Doug, having just come back

from Sales Kickoff, what are the themes you're instilling

into the sales force of this year? And what different

behavior are you incentivizing in the comp plan?

Because it seems like you've come off of last year with so

much momentum and such a stellar performance, it

seems like it's tough to beat. And I've got a follow-up for

Dave as well.

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Director [16]

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Well, thank you, Brad. So the core theme of SKO was the

colossal opportunity in front of us. We focused on a

couple of key elements of the company strategy that I

think is centered with product but really are around the

-- what a customer cares about from Splunk that we got

to continue to execute around. The first pillar is time to

decision and successful execution of that decision in

more of a real-time operational intelligence basis. The

second is overall cost opportunity and other of getting to

that decision and action. And the third is

trustworthiness of those decisions which, as we look

forward over the coming years, we're going to be much

more data-driven ideally, and there'll be humans

involved but not on every single response as we see with

Phantom and SOAR. So how do you make sure that you

surface the right degree of transparency and veracity of

the data and the algorithms themselves so that we all

feel comfortable with the decisions that are being made

around us. From a focus for the sales team perspective,

as you'd guess, the commission plan continues to make

it very valuable to our reps and our partners to lead with

term and with cloud so we can continue to drive this

march to be a subscription-oriented company. And

we've got a whole series of Splunk Essentials and plays

as well as a lineup of some pretty exciting product as

well that helps the partner and Splunk team be able to

lean forward with a specific use case and then bring the

right deal architecture that increasing will be --


21 of 52 3/29/2018, 6:46 PM

increasingly is going to be this term and subscription-

based approach to quickly solve that problem for the

account.

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Brad Alan Zelnick, Crédit Suisse AG, Research Division -

MD [17]

------------------------------------------------------------------

--------------

I appreciate that. By the way, we're huge fans of

Phantom preacquisition and really look forward to what

you guys are going to be able to deliver together as one.

But for Dave, Dave, you're ahead of where you thought

you would be on cloud a year ago. What do you need to

see to raise your 2020 view on cloud? And how should

we think about the customer preference and take rate of

cloud today versus what you might have thought a year

ago?

------------------------------------------------------------------

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------------------------------------------------------------------

--------------

Yes. Hey, Brad. Ultimately, the customers' vote is the

loudest, and it really gets down to the specificity around

the problem that they're trying to address. And with

workloads continually moving to the cloud and, in

particular, lots of folks leveraging public cloud, I mean

that's really a sweet spot for us. We have, I think,

neutrality across all the public cloud providers and the

underlying service that we give to customers is to be able

to put their information in these locations with

confidence and then access it real-time. So I think, over

time, it really is going to be the customers' momentum

around where they want to locate their data and then

how they want to pair that with whatever they retain

behind the firewall that's going to have the biggest

impact on the rate of growth or the contribution overall

from cloud.


22 of 52 3/29/2018, 6:46 PM

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Operator [19]

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Your next question comes from the line of Philip

Winslow from Wells Fargo.

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Philip Alan Winslow, Wells Fargo Securities, LLC,

Research Division - Senior Analyst [20]

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I've got a question on, call it, new customers and

expansion because it looks like this year was just a

phenomenal expansion year and, obviously, you

continue to click off a lot of new customer wins as well.

As you look forward this coming year and then in terms

of just your longer-term guidance, how are you sort of

expecting that, that mix to trend and then just

particularly, just on the new customer side because,

obviously, the expansion is quite strong right here? So

just any color there would be great.

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Director [21]

------------------------------------------------------------------

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Thank you, Phil. Yes, I've talked about our priorities and

initiatives last year, and we refreshed them this year.

And new customers remains one of our top initiatives

for the company. We're really happy to have welcomed

over 2,000 new customers to Splunk this year, but we

expect that we absolutely can do better than that. And a

lot of our investments are geared to focus specifically on

this area, which is part of why, again, we continue to

drive investment across coverage and products over and


23 of 52 3/29/2018, 6:46 PM

over. An example, I think, of something that will impact

that metric this year is this Project Waitomo, a product

that we announced at .conf. It's a low SPL, very simple

point-and-click, auto data populate product that is

focused specifically on site reliability engineers, SREs,

and infrastructure owners. So that I think principally, it

will hit new participants to Splunk that may want

something much easier to use for installs or to populate

with data and fills up screens of both potential alerts

information and then recommended actions, so that you

can get time-to-value in minutes without some of the

technical expertise that a traditional Splunk footprint

installs. That's just one example of the ways within

product, sales, marketing and channel that we're trying

to attack this new customer opportunity set.

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Hey, Phil, it's Dave. We've talked several times in the

past about the cohort for customers. And that after 5

years from initial purchase, they'll be at 10x the amount

of data, roughly 7x the economics. So when we look at

the composition of the large transactions, one of our

other initiatives that -- we talk about new customers, but

adoption has been a long-standing initiative for us, all

tied back to customer success. And if I look at the

composition of our largest orders, almost 300 7-figure

orders in the year, the vast, vast majority are existing

customers as they move from single instance to multi-

department to broader standardization and, ultimately,

EAA. So we are focused on ensuring that we get to our

$20,000 -- 20,000-customer mile marker, but equally

on ensuring that the customers that we do have our

optimizing their Splunk investment and getting ultimate

value from it. And I think that's depicted in terms of the

metrics I provided around 6-figure and 7-figure and

8-figure transactions.

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24 of 52 3/29/2018, 6:46 PM

Philip Alan Winslow, Wells Fargo Securities, LLC,

Research Division - Senior Analyst [23]

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Yes, that's great. You actually answered my other

question, I was going to ask about the deal size, Dave.

------------------------------------------------------------------

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Operator [24]

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You next question comes from the line of John DiFucci

from Jefferies.

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John Stephen DiFucci, Jefferies LLC, Research Division

- Equity Analyst [25]

------------------------------------------------------------------

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Sorry about that, guys. You hear me okay, right? So

Dave, I have a question on...

(technical difficulty)

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Ken Tinsley, [26]

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Yes. John, you're breaking up. We can't hear you.

Amanda, let's go to the next question, please. John, we'll

come back to you.

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Operator [27]


25 of 52 3/29/2018, 6:46 PM

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You next question comes from the line of Adam Holt

from MoffettNathanson.

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Adam Hathaway Holt, MoffettNathanson LLC - Partner

& Senior Research Analyst [28]

------------------------------------------------------------------

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It's good to be back on a Splunk call.

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Welcome back, Adam.

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I guess I have a follow-up to Phil's question. The fourth

quarter, you look at your 44% billings, the comp was a

little bit easier but still tough, and a lot of large deal

activity. Do you think what you saw there was really a

Q4 phenomenon on the larger deals and the billing

strength? Or has the momentum of the business really

inflected on the back of some of the changes that you

made in sales and as you look into the next couple of

quarters around both large deals and just in general, the

billings momentum?

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26 of 52 3/29/2018, 6:46 PM


Director [31]

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I think as -- I think Dave and I were ham and egg-ing, or

whatever you say, back and forth on new versus

adoption. The yin and yang that Susan's been dealing

with and that I had to deal with as well as the head of

field, was how do you deploy effective resources across

existing accounts as well as make sure that you're

striping more greenfield opportunities well enough. And

I think there's a lot of good balancing that we did in this

past fiscal '18 that we further leaned in on and striped

the field for FY '19 to make sure that where we have a

good propensity to buy a set of indicators, that we're

reducing the number of accounts that those reps -- the

rep to account ratio so that we can help the accounts

with that use case virality across the -- their

organization. And -- but the more surgical approach,

continue to add more of the commercial and what we

call field, kind of the $2 billion and below, $3 billion and

below, territories. Enough resource there with the

increasing investments and demand gen and some of

the products initiatives so that those commercial and

net new greenfield accounts get their volume as well.

And I think 7 -- a lot -- those 8-figure deals and overall

volume at 7-figure is both a better understanding of the

customers on what Splunk can do. But to help guide that

understanding, you need enough time and attention

from the go-to-market teams with that account.

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And Adam -- no, I was just going to say that to your

point about fourth quarter momentum, I mean, as you

would expect, our fourth quarter is our seasonally

largest. And many of our largest transactions occur in

the fourth quarter. But we had good representation in

terms of 7-figure orders across all 4 quarters of the year.


27 of 52 3/29/2018, 6:46 PM

Now you might recall on the last call, we talked about 2

of our largest cloud orders closed in our history, and

that was Q3. So it's not just some massive inflection

because it's the fourth quarter, we're seeing these types

of adoption transactions occur broadly and both

domestically and abroad.

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And if I could just -- that's terrific. If I could just ask one

question on the guidance. So get the point on durations

around -- and the impact on cash flow, but as we look at

the potential top line momentum versus the guide for

cash flow, which looks like, call it, 14%, 15% growth, is

that the only factor that's driving a little bit slower cash

flow? Or are there other factors that we should be

considering as we think about the mechanics of next

year?

------------------------------------------------------------------

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------------------------------------------------------------------

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Yes, you bet, Adam. The cash flow is a derivative of the

duration -- the billings duration. So there's 2 elements

that I mentioned in the prepared remarks. One was we

expect duration to ease down as the pool gets larger.

And again, the typical behavior for customers under a

subscription contract is to pay annually. The other is

that as we get to higher levels of subscription, unless the

duration, in fact, elongates, the size of the contracts is

actually smaller than a perpetual. So both of those

impact our outlook as it relates to fiscal '19 cash flow,

which we think is, again, part and parcel to the

transition from primarily on-prem perpetual to the

primarily subscription.


28 of 52 3/29/2018, 6:46 PM

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Operator [35]

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Your next question comes from the line of Abhey Lamba

from Mizuho Securities.

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Abhey Rattan Lamba, Mizuho Securities USA LLC,

Research Division - MD of Americas Research [36]

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Doug, you talked about some of the product changes

you're making to increase net new customer additions.

How about on the go-to-market side? As you're going

into fiscal '19 comp plans, are you doing some things in

that to escalate that metric? Because 570 is, kind of

year-over-year, down. And the last time you had

anything kind of less than this was in, I think, fiscal '14.

So just trying to see what are the other levers you're

trying to pull to get that metric of net new customers to

go up.

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Director [37]

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Yes, it's a multipronged approach. I think -- I still

believe that coverage is the most important factor. The

-- making sure that we are -- that both building a

leadership team and bringing on the right types of

people that know how to do much more of a

transactional and new entry greenfield sell is critical but

also lining up the partner and channel community and

making sure that they have the right incentives to drive

that behavior as well is key because, as Dave says over


29 of 52 3/29/2018, 6:46 PM

and over, and as we all have experienced, (inaudible)

has experienced. I'm going to go wherever I can have the

highest chance of making the most money, and current

customers is where that exist. So the segmentation that

Susan did in FY '18 allowed the beginnings of a much

more aggressive build for our commercial segment. And

the hiring rate and the investments we're making,

continue to make in FY '19 on everything from the

business development and sales development reps to the

inside sales teams that would traditionally be allocated

to that commercial segment, I think will be a good

impact area for us in FY '19 and beyond.

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Operator [38]

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Your next question comes from the line of Kirk Materne

from Evercore ISI.

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Stewart Kirk Materne, Evercore ISI, Research Division -

Senior MD & Fundamental Research Analyst [39]

------------------------------------------------------------------

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Just 2 quick ones, I guess, first for Doug. In terms of

getting more leverage out of the channel and using the

channel as more a force multiplier to help augment your

own direct sales force, where do you think we are on

that? And I guess, did you see signs of progress this

year? And what is sort of your hope for 2018 on that

front?

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Director [40]

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30 of 52 3/29/2018, 6:46 PM

Yes. It's been -- it has been a continuous year journey to

try and move from probably a channel-neutral to maybe

slightly channel-negative company to one where the

partner community actually -- where we are aligned with

the partner community and we have enough proof

points that they see it and believe it. This year was the

first year that we really started to see a more universal

positive response in the partner community, but that's

after 2 years of continuous investments. Two years ago,

we neutralized the landscape so that all reps were paid

on partner activities, so we didn't have any type of -- so

we could minimize the conflicts happening in the field.

We started to invest in automation and had some really

nice releases this year with our partner portals so that

we had an effective deal reg. We've got now automated

online marketing development funds that people can

register for. We've got online training. We've had to

ramp up all the partner enablement resources, partner

technical resources that can help, with partners, get

them to the right certification levels. And at .conf in

September and then at this SKO that I literally just flew

back from it midnight last night, I could really feel a

very, very different tone from the partners. Last year,

they were now beginning to really understand that we're

serious. This year it's like, "I get it. The opportunity is

enormous, and you guys are going to be consistent in

your investments in the way that you interact with us."

So it's a -- I'm feeling confident about the partner

channel in a much more grounded way going into FY '19

and beyond.

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Stewart Kirk Materne, Evercore ISI, Research Division -

Senior MD & Fundamental Research Analyst [41]

------------------------------------------------------------------

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Okay. And then just one quick one for Dave. Dave, if we

sort of back out or normalize for the 606 adjustment,

obviously, you don't seem that you're going through a

ton of operating leverage this year. Obviously, I'm just

trying to get a sense. But then when you look at fiscal '20

guidance that you sort of talked about, obviously, the


31 of 52 3/29/2018, 6:46 PM

operational leverage looks to ramp back up. Was it just

an explicit decision on your guys' part to sort of maybe

pull forward some investments into this year? Or is

there something structural where you don't get as much

this year but next year, from just a purely operational

perspective, you get a little bit more of a ramp on op

margin expansion?

------------------------------------------------------------------

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Yes. No, it's really more around decision-making and

where do we get the best ROI. And a lot of the

commentary that we've been providing so far is around

our appetite to continue to invest in the product

offerings and the coverage. We have these initiatives

around adoption, which is obviously bearing a lot of

fruit. And we certainly think that we'd like to do better

on the customer acquisition side, which is all about

having the right go-to-market structure that Doug

mentioned and then the right product portfolio to go

address the needs of those customers. So we look at the

implications from accounting. We built that into our

outlook. We increased it to 11.5% from what we expected

3 months ago. And then as we project forward, we think

we end up at the top end of what we had guided before,

which is 12% to 14%. So all, to me, in a very disciplined

and explicit approach in terms of what kind of results we

want to deliver.

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Operator [43]

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Your next question comes from the line of Nate

Cunningham from Guggenheim.

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32 of 52 3/29/2018, 6:46 PM

Nathaniel Birdsall Cunningham, Guggenheim

Securities, LLC, Research Division - Analyst [44]

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Sounds like customers are getting more positive on the

features and scalability of Splunk Cloud relative to your

on-prem offering. And I was wondering if you could talk

a little bit about what steps you've been taking to bring

those 2 products to parity.

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Director [45]

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It's a good question, Nate. I'd actually flip that a little

bit. Right now, the products are actually at parity. It's

the same code that is in our cloud minus the automation

and the other trimmings around it that people are

getting on-prem. And what we've been working toward

the past 1.5 years, and you'll start to see some continued

cadence around this year, is to allow the cloud product

to become much more cloud-oriented and everything

from a continuous deployment approach, where we can

update at any point in time like any cloud vendor, all the

way through to the types of self-service and ease-of-use

interfaces that you need in cloud, where you really can't

and shouldn't get access to deep configuration,

capability and a lot of command line type interface

capabilities. So I think what we will see is a continued

move on velocity and cloud-iness of our cloud offering

that eventually we package and deliver back on-prem.

And again, it's been -- like the other transitions we're

working through, there's a lot of work we've been doing

in the past 2 years that we can have that happen at the

quality level and without disrupting our on-prem

customers the way that we need to.

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33 of 52 3/29/2018, 6:46 PM

Operator [46]

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Your next question comes from the line of Michael

Turits from Raymond James.

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Michael Turits, Raymond James & Associates, Inc.,

Research Division - MD of Equity Research and

Infrastructure Software Analyst [47]

------------------------------------------------------------------

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Let me just jump back into the cash flow questions. If we

look from '19 into '20, at that point, is duration still

going to be an overhang? Or should we have more

steadiness in terms of the duration in that year and,

therefore, a return to more normalized cash growth into

'20?

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Yes. Hey, Michael. I expect that as the pool of

subscription contracts continues to grow, that it's -- the

duration should ease down. We give a weighted duration

and, obviously, some of our largest transactions are

multiyear. So that's yet -- it will play out in terms of

what duration is but, again, I expect it to ease down. I

think the other element in terms of where do you get to

like a normalized growth rate in cash flow is when we

get to a change in terms of the transition to subscription

that is less dramatic, meaning we're expecting to go

from 50% subscription in fiscal '18 and jump to 65% and

then 75%. So the change to subscription actually starts

to slow in fiscal '20. And I think that then translates to a

normalized level of cash flow growth.

------------------------------------------------------------------


34 of 52 3/29/2018, 6:46 PM

--------------

Michael Turits, Raymond James & Associates, Inc.,

Research Division - MD of Equity Research and

Infrastructure Software Analyst [49]

------------------------------------------------------------------

--------------

Great, that's helpful. And then just one other cash flow

question. In fiscal 3Q, you had -- collections are a little

slow because the big deals end up -- you beat the heck

out of billings, but cash flow a little less and DSOs still

high. So are there any adjustments that you're making

here in terms of collections given that these deals are

bigger, maybe more back-end loaded? Or should we just

have to wait now and a year later to catch up on DSOs

and cash flow?

------------------------------------------------------------------

--------------


------------------------------------------------------------------

--------------

Yes, I think for it to normalize -- so obviously, the

linearity of large orders has a big impact on DSO. And

with as much momentum that we had around 7- and

8-figure orders in the quarter, those are typically going

to close more so in the third month than they are in the

first. So what you see as a result is an uptick in DSO. In

terms of the health of the aging and collectibility, I mean

it's as solid as I've ever seen. Our collections team is the

best, and I don't have any concerns at all in terms of

how the DSO moves from a seasonal perspective. I think

if we were flatlining in terms of overall growth, then

you'd get a flatline in DSO. But with continued

momentum around these adoption transactions, that's

the result. But in terms of the actual collection activity

and are we going to catch up, in a way, I hope not

because that means we flatlined on the growth. And we

don't expect to flatline on the growth, so I think that's

how it's going to play out over time.

------------------------------------------------------------------


35 of 52 3/29/2018, 6:46 PM

--------------

Operator [51]

------------------------------------------------------------------

--------------

Your next question comes from Fatima Boolani from

UBS.

------------------------------------------------------------------

--------------

Fatima Aslam Boolani, UBS Investment Bank, Research

Division - Associate Director and Equity Research

Associate Technology-Software [52]

------------------------------------------------------------------

--------------

A question for you, Doug, to start. Doug, you spent a lot

of time talking about Splunk Essentials. And I wanted to

get a better sense of what the monetization angle there

is, if there is one. And a follow-up for Dave.

------------------------------------------------------------------

--------------


Director [53]

------------------------------------------------------------------

--------------

Hey, Fatima, I just -- I didn't hear you say talking about

-- and at that critical moment, you cut out.

------------------------------------------------------------------

--------------




------------------------------------------------------------------

--------------

The monetization and goal for Splunk Essentials. I mean

is that...

------------------------------------------------------------------


36 of 52 3/29/2018, 6:46 PM

--------------


Director [55]

------------------------------------------------------------------

--------------

Splunk Essentials.

------------------------------------------------------------------

--------------




------------------------------------------------------------------

--------------

Splunk Essentials, right.

------------------------------------------------------------------

--------------


Director [57]

------------------------------------------------------------------

--------------

Got it. Yes, thank you. I'm really enthusiastic about what

we're doing with Splunk Essentials. So there's -- the way

that we're looking at go-to-market for us and partners is

there's 3 levels of investment to help customers on their

journey with Splunk. The lowest -- the easiest level, the

lowest hurdle rate is Splunk Essentials. And we've been

-- Splunk Essentials is basically a pretty big use case that

doesn't come with a full application, but it's all the

detailed information you need with assistance or some

technical interfaces that go with it, what data sources

you need to go after, how they should be striped or

handled if they need to be transformed in any way, what

the schema looks like, what they've be stored in, what

kind of visualizations surround them, what kind of ML

routine should go with them, what kind of remediation

should occur. The customer, by themselves or with a

partner, still has to do the work to implement them. But

given that you follow the recipe, you should have an


37 of 52 3/29/2018, 6:46 PM

effective and consistent outcome. And the goal there is a

very wide aperture. They're generally [dated] to test

them out. We started internally on how do we define

these and start to scale them. But they're being opened

up across Splunk and, over the course of this year, will

be open to the partner and customer community. The

layer above that is, what we call, Insights. And that's

where Waitomo fits. And that's almost a submodule of

what would be a premium solution like Enterprise

Security or ITSI. So Project Waitomo is more focused on

infrastructural monitoring, which is a -- almost a blade

or a component of a broad-based systems monitoring

piece that ITSI would be on top of. And the target there

is much more managerial level, how do we -- and it

should be smaller development teams, smaller level

investment, very specific pain and use case. And then

the top of the rung are these premium solutions where

they become a little bit more broad-based, just probably

2 or 3 mission teams or agile teams to get them created

and support them.

------------------------------------------------------------------

--------------




------------------------------------------------------------------

--------------

That makes a ton of sense. And Dave, a follow-up for

you. Both of you have talked a lot in the prepared

remarks around the incentive that you're putting into

cloud adoption and customers increasingly adopting

cloud. So I'm wondering what sort of the thought

process is going into next year with cloud growth

decelerating. I mean how should we sort of reconcile

that with the momentum you're seeing with the cloud

uptake and the incentives you're providing or the

incentives that you're rolling out in your go-to-market to

encourage that adoption? That's it for me.

------------------------------------------------------------------

--------------



38 of 52 3/29/2018, 6:46 PM

------------------------------------------------------------------

--------------

Sure, Fatima. So from an incentive perspective, to me,

that always translates back to how are we incenting the

behavior of our field. And what we've really been

working toward in that context is as much neutrality in

the comp plan as possible to enable customers to have

the vote. And for fiscal '19, we're leaning more on

subscription from an incentive perspective ever so

slightly, and striking that balance is always a challenge. I

think from a growth rate perspective, the numbers are --

the growth rates are very large when you're talking

about tens of millions of dollars, and then the growth

rates get smaller when the numbers get bigger. So I

don't -- I'm happy with what we've achieved in terms of

cloud transactions and the cloud contribution in fiscal

'18 and certainly looking forward to doing more and

more cloud transactions going forward. But ultimately,

we just want the customer to pick, like how do we serve

them best.

------------------------------------------------------------------

--------------

Operator [60]

------------------------------------------------------------------

--------------

Your next question comes from the line of Matt Hedberg

from RBC Capital Markets.

------------------------------------------------------------------

--------------

Daniel Robert Bergstrom, RBC Capital Markets, LLC,

Research Division - Analyst [61]

------------------------------------------------------------------

--------------

It's Dan Bergstrom for Matt Hedberg. So both AWS and

Palo Alto are good partners for you. You called out

impressive AWS success on the call. But I'm wondering,

could you comment on AWS' acquisition of SQuirreL

and then Palo Alto's got good momentum from its new

logging service? Ultimately, I guess, are these just


39 of 52 3/29/2018, 6:46 PM

complementary technologies and another source of data

for you to ingest?

------------------------------------------------------------------

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Director [62]

------------------------------------------------------------------

--------------

Yes. I would view them -- they're -- AWS' job is to

continue to offer more and more services, both

infrastructure and platform services, to the community.

And our job is to keep adding more value on top of those

services so that people would still want to do business

with Splunk in addition to, or with, AWS. And that's just

-- that's a game that we all know how to play in tech. It's

the same game that people have got to play around the

Cisco ecosystem or the Microsoft ecosystem or the

Oracle ecosystem. So our focus every single day is to

continue to drive more ease-of-use, more power, more

capability on the discovery of data, the enrichment of

data, the storage and manipulation of data, ultimately,

by getting value out of the data and the execution of

decisions around that data. And with AWS, we leverage

their technology to help get that done as well as other

complementary technologies. So the Kinesis integration

is a great example. Kinesis is a great product, so is

Kafka, so is Spark, so is Flink, we've got to be open to

the whole lineup of different technologies that can help

us on that journey of find, get and create meaningful

action around data. And the same thing with Palo Alto.

They, for sure, have got to be able to provide effective

reporting and insight into the data that surrounds the

Palo Alto fire -- the Palo Alto lineup, the Pal Alto tech

lineup. We, I think, provide additional visibility around

the Palo Alto data sources. But more importantly, Palo

Alto is one. The average CSO has well over 70

technologies; most of them, well over 100 technologies

in their landscape. And our ability to sit on top of that

very diverse and very volatile landscape and be able to

provide the visibility and the correlation and the insight,

the actions across it is the value that we are driving. So

integrating with Palo Alto is key to help the Palo Alto


40 of 52 3/29/2018, 6:46 PM

user. But we do -- we flow beyond that to make sure that

we give the right security analytics and nerve center

capabilities to the entire security and IT landscape.

------------------------------------------------------------------

--------------

Operator [63]

------------------------------------------------------------------

--------------

Your next question comes from the line of Jesse Hulsing

from Goldman Sachs.

------------------------------------------------------------------

--------------

Jesse Wade Hulsing, Goldman Sachs Group Inc.,

Research Division - Equity Analyst [64]

------------------------------------------------------------------

--------------

I have 2. First for Doug, I guess, throughout the call,

you've made a few references to changes to the sales org

or tweaks to the sales org. I guess, how major or minor

are those tweaks? I mean, were these big changes or

small changes? And do you expect any impact to the first

quarter? And then for Dave, for the first quarter under

606, what was revenue in fiscal '18? Was it -- can you

disclose that so we can have a growth rate compare?

------------------------------------------------------------------

--------------


Director [65]

------------------------------------------------------------------

--------------

So the joy of being a high-growth company is that you

are never done changing. So actually, the other core

message at the SKO event we just had was the growth

mindset and the learning mentality that you have to

have if you want to be part of a high-growth company,

and the field is no different. The job that Susan and her

teams have is to continuously lean forward and make


41 of 52 3/29/2018, 6:46 PM

sure that, in all avenues, direct sales, partner, customer

success, proserve, pre-sales, that would make whatever

tweaks you need to make every month and every quarter

and every year so that we can address the opportunity

with our customers. Obviously, Feb 1 for us is a bigger

opportunity to make changes. And it depends region-

wise within our landscape what Susan focused on

because each theater is at a different stage of both

maturity and customer growth. And -- but there were

changes made to each theater as it were last year and the

year before to make sure that we can provide the right

segmentation and focus on existing and new customers

to move both those dials forward. I'd say that the

changes this year were less of a magnitude than last year

but still were a material set of changes to make sure that

we're taking the right lean-forward approach to sustain

growth for FY '19 and beyond.

------------------------------------------------------------------

--------------


------------------------------------------------------------------

--------------

Yes. Hey, it's Dave. So on a preliminary basis, our

current estimate for Q1 of prior year under 606 is about

two and a quarter million, so $225 million.

------------------------------------------------------------------

--------------

Operator [67]

------------------------------------------------------------------

--------------

Your next question comes from the line of Alex Zukin

from Piper Jaffrey.

------------------------------------------------------------------

--------------

Taylor John Reiners, Piper Jaffray Companies, Research

Division - Research Analyst [68]

------------------------------------------------------------------

--------------


42 of 52 3/29/2018, 6:46 PM

This is Taylor Reiners on for Alex. I wanted to dig in a

little bit on international. It looks like your international

business significantly accelerated during the quarter. I

know you called out some challenges in Europe earlier

in the year. And I was wondering what drove that

recovery, especially while you were still searching for a

VP of sales in the region? And then looking to 2019,

what are some of the Richard Timperlake's priorities as

he moves into the new seat?

------------------------------------------------------------------

--------------


Director [69]

------------------------------------------------------------------

--------------

Yes. Incredibly proud of our international teams, and

especially the EMEA team for their ability to dig in,

focus and not let any of the distractions get in the way.

As we talked about in the past couple of quarters, Susan

was the de facto head of Europe, but we have a COO

over there that came from the Eastern region before we

made any changes, before the Q1 issue, who was the key

right-hand person to make sure that -- there was a

combination of Susan and the really strong ADP level of

leadership across EMEA are kept on track. I think the

progress that we made at the second half of last year --

second half of FY '17 and in FY '18, principally around

the building and hiring of that ADP level, the sub-

theater heads, North, South, Central, emerging markets,

et cetera, U.K., that we had strong leadership in place

and that those leaders built out the right first level and

implemented the right operating cadence within those

different theaters. What I think we saw and why -- our

guidance in Q1 is we're making this change. But hang

tight because I'm not so sure that it's as dramatic as it

appears because I think we've got a really strong ADP

sub-theater management team there. What we saw in

Q2, Q3, Q4 was exactly that. Really, really proud of that

team. And I think Susan's overall top-level leadership,

operational cadence and strategic orientation within

that region, combined with the COO of that region, did a

really, really effective job of making sure that we kept


43 of 52 3/29/2018, 6:46 PM

the ball moving forward. So I think Richard inherits a

very, very mature and solid foundation. He, however,

still has got the same challenge as the head of Americas,

the head of APAC and Pub Sec, which is we got a big

year in front of us. There's a lot of key initiatives that we

got to drive. He's got to continue to bring in top, top

talent. He's got to make sure that we -- he continues to

grow the talent that we have. He's going to lean forward

for -- with the term orientation and the right deal

structuring and customer adoption services. There's a

lot of good momentum that we've driven across EMEA

on this commercial segment, in the VDR/SDR segment.

We continue to focus hard there. And EMEA tends to be

one of our better partner-driven areas as well but

continue to double down on the partner contribution

and the true strategic leverage of the partner channel.

And I think our APAC leader, Boey, has got a similar set

of cadence for this year as well.

------------------------------------------------------------------

--------------

Taylor John Reiners, Piper Jaffray Companies, Research

Division - Research Analyst [70]

------------------------------------------------------------------

--------------

Excellent. And then maybe just a quick operational

follow-up. Some of our similar conversations with

partners as well as a lot of the logos you called out

suggest that you've seen a really strong performance out

of your state, local and education team. I was wondering

is there a similar opportunity to accelerate adoption

within other verticals? And if so, what are some of the

changes you're looking to make to the sales organization

to go after those -- some of those opportunities?

------------------------------------------------------------------

--------------


Director [71]

------------------------------------------------------------------

--------------


44 of 52 3/29/2018, 6:46 PM

Yes, it's a great follow-on question because we -- there's

a lot of talk that we have and a lot of focus on customer

size segmentation. But I think that there is also huge

opportunity in the verticalization approach as well. And

pub sec, federal government, state, local and education

in the U.S. has been a really successful segment for us.

We have mirrored that approach in a couple of our more

mature regions, U.K., Australia being 2 good examples.

And so we will continue to roll those out to the markets

where there's enough maturity, momentum and critical

mass that we can afford that verticalization. And then

Susan and the team continue to look at other top-tier

segments that have strong momentum with Splunk and

some uniqueness. And the areas we've talked about for a

while, and we actually have a very decent rep dedication,

too, just not from more a management infrastructure.

It's financial services, telecommunications and,

increasingly, health care and manufacturing as IoT come

on the scene. But for now, we're taking a nonformal

organizational approach for those just given the

overhead that comes with casting any formal field

architecture there.

------------------------------------------------------------------

--------------


------------------------------------------------------------------

--------------

Yes. And hey, Taylor, it's Dave. I really think it's part

and parcel to our philosophy around investing in our

coverage and our overall go-to-market to make sure

we've got the right geographic coverage then the right

segment coverage. And then, additionally, given the very

specific verticalization just requires more critical mass

in the field. There's great opportunities for us to leverage

the repeatability of what we might do in transportation

or in retail or in health care or in telco. It's just work to

get there. So that's certainly something that is on our

GTM road map, and we'll go attack it judiciously as you

would expect.

------------------------------------------------------------------

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45 of 52 3/29/2018, 6:46 PM

Operator [73]

------------------------------------------------------------------

--------------

Your last question comes from the line of Brad Reback

from Stifel.

------------------------------------------------------------------

--------------

Brad Robert Reback, Stifel, Nicolaus & Company,

Incorporated, Research Division - MD and Senior

Equity Research Analyst [74]

------------------------------------------------------------------

--------------

Hopefully, a pretty quick one. Dave, do you happen to

have the backlog under 606 historically?

------------------------------------------------------------------

--------------


------------------------------------------------------------------

--------------

We don't have that disclosure now. We'll certainly be

looking at that when we get later in the year and we're

reporting on the 606 numbers.

------------------------------------------------------------------

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Ken Tinsley, [76]

------------------------------------------------------------------

--------------

Okay. Amanda, I'll wrap it up. Thank you for your help

today. And thanks, everybody, for your participation.

We're around here later tonight if you have any

clarifying questions. Thanks, and have a good evening.

------------------------------------------------------------------

--------------

Operator [77]


46 of 52 3/29/2018, 6:46 PM

SMARTASSET.COM

Start the conversation

Sign in to post a message.

Splunk Inc(NASDAQ:SPLK): PoisedFor Long-Term Success?

Austin Wood , Simply Wall St. • March 23, 2018

------------------------------------------------------------------

--------------

Ladies and gentlemen, this does conclude today's

conference. Thank you, and have a wonderful day. You

may now disconnect.


47 of 52 3/29/2018, 6:46 PM

Splunk Inc’s (NASDAQ:SPLK) announced its latest

earnings update in January 2018, which suggested that

losses became smaller relative to the prrior year’s level

as a result of recent tailwinds Investors may find it

useful to understand how market analysts perceive

Splunk’s earnings growth outlook over the next couple

of years and whether the future looks brighter. I will be

using net income excluding extraordinary items in order

to exclude one-off volatility which I am not interested in.

View our latest analysis for Splunk

Analysts’ expectations for next year seems buoyant, with

earnings becoming less negative, arriving at

-US$228.39M in 2019. Furthermore, earnings are

predicted to continue its upward trend, arriving at

-US$186.24M in 2020, and -US$68.35M in 2021.

While it is useful to be aware of the growth each year

relative to today’s figure, it may be more insightful to

determine the rate at which the business is rising or

falling every year, on average. The pro of this approach

is that we can get a better picture of the direction of

Splunk’s earnings trajectory over the long run,

irrespective of near term fluctuations, which may be

more relevant for long term investors. To compute this

rate, I’ve inserted a line of best fit through the forecasted

earnings by market analysts. The slope of this line is the

rate of earnings growth, which in this case is 22.11%.

This means, we can presume Splunk will grow its

earnings by 22.11% every year for the next few years.

Next Steps:

For Splunk, I’ve compiled three pertinent factors you

should further examine:

Financial Health: Does it have a healthy balance

sheet? Take a look at our free balance sheet analysis

1.

NasdaqGS:SPLK Future Profit Mar 23rd 18


48 of 52 3/29/2018, 6:46 PM

Valuation: What is SPLK worth today? Is the stock

undervalued, even when its growth outlook is factored

into its intrinsic value? The intrinsic value infographic in

our free research report helps visualize whether SPLK is

currently mispriced by the market.

2.

Other High-Growth Alternatives: Are there other

high-growth stocks you could be holding instead of

SPLK? Explore our interactive list of stocks with large

growth potential to get an idea of what else is out there

you may be missing!

3.

To help readers see pass the short term volatility of the

financial market, we aim to bring you a long-term

focused research analysis purely driven by

fundamental data. Note that our analysis does not

factor in the latest price sensitive company

announcements.

The author is an independent contributor and at the

time of publication had no position in the stocks

mentioned.



Shopify Inc (NASDAQ:SHOP) isn’t known for a

robust dividend or low valuation. It’s a momentum

growth stock, plain and simple. And right now, Shopify

stock has got plenty of momentum to go around. The

question is, will it help propel the SHOP stock price to

even more new highs, or will it fade into support?

Shopify Inc Stock CouldFlash a Perfect Buy SignSoon

Bret Kenwell , InvestorPlace • March 21, 2018

with six simple checks on key factors like leverage and

risk.


49 of 52 3/29/2018, 6:46 PM

looking to play Shopify, risk/reward is all it comes down

to. Because of that, let’s look at the charts.

Trading Shopify Stock

SHOP stock had pretty strong support from May 2017

until the start of the year. But rather than seeing that

support fade in 2018, it turned out to be gasoline on the

fire. In other words, Shopify stock began rocketing

higher at a faster and faster rate.

InvestorPlace - Stock Market News, Stock Advice &

Trading Tips

5 Big Biotech Stocks to Buy Under $10

The way Shopify stock has been setting up, new highs

over $150 shouldn’t be a surprise. It’s clearly got the

wind at its back right now. The highest price target on

Wall Street currently sits at $160. That’s about $10 per

share or 6.6% above current levels.

However, I’d rather wait for a pullback and buy for even

more upside. Here’s the rationale:

Click to Enlarge

We can see the previous channel (black lines), where

prior resistance has now become support. However, a

separate and steeper level of trend-line support has

formed, too (blue line).

If SHOP stock pulls back, both levels could act as great

buoys of support. Despite it requiring a 7% to 10%

pullback to get there, it would be very bullish to see a

chart of Shopify stock price

Both scenarios are possible, but the higher Shopify stock

goes, the worse the risk/reward becomes. As a trader


50 of 52 3/29/2018, 6:46 PM

Rallies followed by pullbacks into support often lead to

longer and more sustainable rallies. Especially when

compared to stocks that rally significantly too far, too

fast.

Additionally, the stock’s RSI, which measures how

overbought or oversold a stock is, is closer to the former

than the latter. While currently at just about 66, it

admittedly needs to go higher to signal an overbought

condition. That said, it’s not necessarily low at the

moment, either. Also, SHOP’s MACD (orange line at the

bottom of the chart) signals that momentum could be

fading.

Breaking Down SHOP Stock

Like I said, new highs wouldn’t be surprising. Maybe

Shopify stock will surge to $160 before ultimately

pulling back. Remember both new highs and a pullback

are possible. However, the probabilities just don’t favor

buying Shopify stock right now. The risk is too high, and

the reward is too low, plain and simple.

Fading momentum near overbought levels and notably

far from support does not signal a buy sign. At least in

my mind.

I don’t mind chasing a stock if I love the fundamentals.

Despite how great the growth is at Shopify, I just can’t

pile into the stock with confidence like I could

with salesforce.com, inc. (NASDAQ:CRM) or Apple

Inc. (NASDAQ:AAPL).

Analysts expect a whopping 48% sales growth this year

and another 37% in 2019. That’s amazing growth that

shouldn’t be overlooked. But valuing a company at $15.5

billion for just under $1 billion in sales is a high

valuation. Particularly for a company that’s not

profitable on a GAAP basis. While gross profit surged

82% in 2017, Shopify sports gross margins of just 56%.

Admittedly, these aren’t terrible gross margins. But for

the valuation, better margins would surely be welcome.

Things Are Getting Too Bubbly for Shopify Inc Stock

For instance, Splunk Inc (NASDAQ:SPLK) sports

decline to these levels and for support to kick in.


51 of 52 3/29/2018, 6:46 PM

grosses an insane $80 out of every $100 in revenue. It

then pours a bulk of that back into growing its sales

channel even more to bolster its future profit.

Bottom Line on Shopify Stock

All of this isn’t to say Shopify is a bad company — only

that for its valuation and steep stock rally, I do not feel

compelled to chase it at these levels. Instead, I’d rather

wait for a pullback into support. If it holds, I’m a buyer

of SHOP stock.

Bret Kenwell is the manager and author of Future Blue

Chips and is on Twitter @BretKenwell. As of this

writing, Bret Kenwell held a position in AAPL and

CRM.

More From InvestorPlace

7 Dividend Funds for Your 401k

Shopify Inc Stock Is a Big Winner in an Increasingly

Decentralized World

4 Big-Cap Tech Stocks Getting Slammed

Compare Brokers

The post Shopify Inc Stock Could Flash a Perfect Buy

Sign Soon appeared first on InvestorPlace.



gross margins of 80%, while most of its costs are tied up

in marketing and sales expenses. In other words, it


52 of 52 3/29/2018, 6:46 PM

splk 98.39 2.45 2.55% : splunk inc. - yahoo finance · 27.04.2018 · 0rwoh\ )rro gd\v djr *urzwk...

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