splunk (splk) earnings report: q2 2016 conference call...

CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnologyIndustry:ComputerSof tware&Services

EventDescription:Q22016EarningsCallMarketCapasofEventDate:7.73BPriceasofEventDate:64.24

©2014TheStreet,Inc.Al l R ightsReserved Page1of22

Splunk(SPLK)EarningsReport:Q22016ConferenceCallTranscriptThefollowingSplunkconferencecalltookplaceonAugust27,2015,04:30PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

KenTinsley;Splunk;VP-IR&CorporateTreasurerGodfreySullivan;Splunk;CEODougMerritt;Splunk;Head-WorldwideFieldOperationsMarcOlesen;Splunk;Head-CloudHaiyanSong;Splunk;Head-SecurityMarketsDaveConte;Splunk;CFO

OtherPart icipants

BrentThill;UBS;AnalystKeithWeiss;MorganStanley;AnalystWalterPritchard;Citigroup;AnalystBrianWhite;CantorFitzgerald;AnalystMattHedberg;RBCCapitalMarkets;AnalystMarkMurphy;JPMorgan;AnalystMichaelTurits;RaymondJames;AnalystKatherineEgbert;PiperJaffray;AnalystKashRangan;BofAMerrillLynch;AnalystJohnRizzuto;SunTrustRobinsonHumphrey;AnalystKirkMaterne;EvercoreISI;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodday,ladiesandgentlemen,andwelcometotheSplunkIncorporatedsecond-quarter2016financialresultsconferencecall.

(OperatorInstructions)

Asareminder,thisconferenceisbeingrecorded.

IwouldnowliketohandthemeetingovertoKenTinsley,VicePresidentofInvestorRelationsandCorporateTreasurer.Pleasegoahead.

KenT insley(VP-IR&CorporateTreasurer):

Thankyouverymuch,Karen,Iappreciatethat.And,goodafternoon,everybody.

WithmeonthecalltodayareSplunkCEO,GodfreySullivan;CFO,DaveConte;HeadofWorldwideFieldOperations,DougMerritt;HeadofSecurityMarkets,HaiyanSong;andHeadofCloud,MarcOlesen.WeissuedourPressReleaseafterthecloseofmarkettoday,anditispostedonourwebsite.Thisconferencecallisbeingbroadcastliveviawebcast.And,followingthecall,anaudioreplaywillbeavailableonour




website.

Onthiscall,wewillbemakingforward-lookingstatements,includingfinancialguidanceandexpectationsforourthirdquarterandFY16transaction;productandservicesmix;plannedinvestmentsincludingproductsservices,sales,Cloudfacilities,andgeographies;expectedbenefitsfromourrecentacquisitions;andtrendsandmomentuminourbusiness,includingCloudbusinessandimpactonourmargins.Thesestatementsreflectourbestjudgmentbasedonfactorscurrentlyknowntous,andactualeventsorresultsmaydiffermaterially.

PleaserefertodocumentswefiledwiththeSEC,includingtheForm8-Kfiledwithtoday'sPressRelease.Thesedocumentscontainrisksanduncertainties,andotherfactors,thatmaycauseactualresultstodifferfromthosecontainedinourforward-lookingstatements.Theseforward-lookingstatementsarebeingmadeasoftoday,andwedisclaimanyobligationtoupdateorrevisethesestatements.Ifthiscallisreviewedaftertoday,theinformationpresentedduringthiscallmaynotcontaincurrentoraccurateinformation.

Wewillalsodiscussnon-GAAPfinancialmeasureswhicharenotpreparedinaccordancewithgenerallyacceptedaccountingprinciples.AreconciliationofGAAPtonon-GAAPresultsisprovidedinthePressRelease,andonourwebsite.

Withthat,letmeturnitovertoGodfrey.

Godf reySullivan (CEO):

Thanks,Ken.Hello,everyone.

WehadagreattoQ2.Iwanttothankourcustomersandpartnersfortheirenthusiasticsupport,andourSplunkemployeesfortheirmanycontributions.Totalrevenuescameinat$148.3million,up46%overlastyear.We'redelightedtowelcomemorethan500newcustomerstotheSplunkfamily.And,wenowhavemorethan10,000customersworldwide.

ThehighlightsofanySplunkquarterarealwaysaboutourcustomersuccess.IwasreallyhappytoseesomeofyouwhoattendedourrecentSplunkLiveSanFrancisco,whereourcustomerSephoraspokeaboutthechallengesofdeployingtheirin-storemobilepoint-of-salesystems.Splunkhelpedthemreducefailedcustomertransactionsby95%,increasedcustomersatisfactionanddoubledtherevenuethroughtheirmobilepoint-of-salesystems.Sephorasaid,quote,Splunkhashelpedusmovefromambiguitytotransparency.

AlsoatSanFrancisco,Equinixexplainedhow,afterdeployingSplunkCloudastheirsecurityintelligencesolution,theywentfrommonitoring20billionraweventsacrossmultiplesilos,tojust20dailyactionablealerts.Allthroughthecorrelationsandanalyticsinoursecurityapp.

YoucancheckouttheseandothergreatcustomerpresentationsonourSplunkLive.comwebsite.Ourcustomerscontinuetocreateimpressivenewusecases,andtheyalsoguideourinvestmentsintonewsolutionsareas.

Movingontoproducts.WeclosedtwoAcquisitionsinQ2,MetaforSoftwareandCaspida.MetaforprovidesanomalydetectionandbehavioralanalyticsforIToperationsusecases.Caspidaprovidesdatascience-drivenbehavioralanalyticsforsecurityusecases.ThisAcquisitionisalignedwithourstrategyofexpandingourcybersecurityofferings,andwillenableustobringmoreadvancedanalyticalcapabilitiestoourcustomers.WearepleasedtowelcometheMetaforandCaspidateamstoSplunk.

Aremindertoeveryoneonthecall,ourUserConferenceiscomingupinSeptember.And,ourProductteamswillbemakinganimpressivesetofannouncements,includingthelaunchofournewsolutionforIT




serviceintelligence.And,ofcourse,anexcitingnewreleaseforSplunkEnterprise.Ihopetoseeyouthere,andwe'llcertainlybereadytocelebratewithyou.

Onthecallwithmetoday,DougwillprovideourFieldreport,HaiyanwillcoverSecurityMarketsandMarcOlesenwillprovideanupdateonourvelocityinCloud.Asalways,DaveContewillmesmerizeyouwithhisfinancialupdate.

Let'sgotoDoug.

DougMerritt (Head-WorldwideFieldOperations):

Thankyou,Godfrey.

I'mreallyproudofourfieldorganization,fordeliveringanotherstrongquarterinthefirsthalfoftheyear.Wearerapidlybuildingourcustomer-facingorganizationstosupportfourinitiatives.First,we'reconcentratingourheadcountexpansiontomajorcountries,whereweneedcriticalmasstobettersupportourcustomers.DuringQ2,weaddedmorethan100globalfieldpositions.

Second,we'realigningourfieldtechnicalresourceswithourmarketgroups,toensurethatwecandeliverabest-in-classcustomerexperienceinourcoresolutionsareas.Third,we'reinvestinginourcustomersuccessorganization.ThisisateamthatworkswithcustomerstodriveROI,valuerealizationandexpansionofthosecriticalSplunkusecases.Finally,withourchannelpartners,we'reconcentratingourfocusandoureconomics,toensurethatthosewhoinvestinSplunkcapabilitiesseeahigherreturnontheirinvestment.

Publicsectorisagreatexamplewherewe'veinvestedheavily,tocreateteamsthatarededicatedtofederal,stateandlocalgovernment.And,anewteamdedicatedtohighereducation.GreatexamplesofourworkinpublicsectorinQ2includetheUnitedStatesMarineCorps,whochoseSplunkEnterpriseastheanchoroftheirnewIToperations.And,afederalagencywhopurchasedSplunkEnterprise,ESandHunk,tocorrelateandanalyzeterabytesofdataacrossmultipleHadoopenvironments.

Wehadcontinuedmomentuminthestateandlocalarena,aswell.ThestateofUtahboughtSplunkEnterpriseandEStoidentifysuspiciousevents,bycorrelatingdatafromfirewalls,systems,devicesandapplications.And,manyothergreatwins,includingNewMexicoHumanServices,PennsylvaniaDepartmentofTransportation,WashingtonDCHealthBenefitExchangeandtheSanDiegoSheriff'sDepartment.

I'malsoreallypleasedabouttheaccelerationofournew,higher-educationteam.Inadditiontohavingmorethan500higher-edcustomers,oursoftwareisnowbeingtaught,orusedforresearch,atmorethan100universities.Stateside,collegeslikeGeorgetown,Northwestern,SanJoseState,andUCBoulder.Internationally,Singapore'sNanyangPolytechnic,Italy'sSapienzaandtheUK'sOxford,areamongthecampusessupplyingtheworkforceofthefuturewithawaytolearnSplunkskills,reflectingthehighdemandthatweseefortheseskillsinourcustomerbase.

AsScottWheelerofNorthwesternputit,studentsneedtounderstandthepowerofcombiningunstructureddatawiththestructureddatathatbusinessesalreadycollectandmanage.IntegratingSplunksolutionsintoourcurriculumgivesthemaccesstoasimple-to-useplatform,thatcanchangethecompetitivestatureofanybusiness.

IalsowanttocomplimentourAmericasteam,whocontinuetoleadwithexcellence.TheyhadanimpressiveQ2,drivingenterpriseadoptionagreementswithmultiplecustomers,includingStaples,forIToperations,applicationdeliveryandcustomeranalytics.Asareminder,ourEAAprogramenablescustomersofanysizetopurchaseunlimitedlicenseswithfixed,predictablecosts.Othercustomerwins




includedBarnes&Noble,forapplicationdelivery;andYelp,anewmulti-terabytecustomerforbusinessanalytics.

Aswecontinuetorampourinternationalcoverage,I'mpleasedtoannouncecustomerwinsincludingSamsungSemiconductor,anewcustomerinInternetofThings.And[Atlassian],whosawthebenefitsofSplunkoverprioropen-sourceinitiatives,andsignedanunlimitedEAAtostandardizeonSplunk.

Finally,I'dliketocalloutafewpartners,includingAmazon,whereweteamedtowinCloudordersatChicagoPublicSchools,andArlingtonCounty,Virginia.AndKepware,oneofourpartnersforIOTdata,whoreceivedanawardfor2015ProductoftheYearbyIOTEvolutionmagazine,fortheirindustrialdataorderforSplunk.

Insummary,itwasagreatquarter.Healthybreadthoforders,geographicdiversityandSplunkcontinuingtobecomeaplatformthatspansmultipledepartments,supportingawidevarietyofthesecases.OurteamalsodidafantasticjobintheCloud,whereourabilitytohandleon-the-premandCloudisasignificantadvantage.

Formoreonthat,letmeturnitovertoMarcOlesen.

MarcOlesen (Head-Cloud):

Thankyou,Doug.

OurQ2resultsshowcontinuedaccelerationinourCloudbusiness.Wetripledourordersinninemonths.OurcustomersareexcitedwiththespeedandeaseofSplunkCloud.Theyarehappytofocustheirtimeandattentiononanalyzingthedatatoachievetheirbusinessresults,ratherthanprocuringanddeployingequipment.Asareminder,SplunkCloudisavailablethroughnineAWSglobalregions,andisnowavailableonUSGovCloudaswell.

TherearethreepathstoSplunkCloud.Thefirstpathisourwebself-serviceplatform,totrialandpurchaseSplunkCloudwithacreditcard.Thesecondpathiswithourfieldandchannel,wherenewcustomerschooseSplunkCloudasthedeploymentmodeltoacceleratetimetovalue.AfewofthecustomersweaddedinQ2includeTenneco,PernodRicardinFranceandAustralia'sUnifySolutions.

Thethirdpathiswhereourexistingon-premisecustomersareexpandingtheircapacitywithSplunkCloud,anddeployinginahybridmode.AfewofourhybridcustomersthisquarterincludeAAA,cityofAustinandLondon'sGatwickAirport.Wecontinuetohearfromcustomersthattheabilitytorunahybridsolutionisincrediblypowerfulandimportanttothem.And,Splunkisuniquelypositionedtodeliveronthat.

SomenotablewinsthisquarterincludedInfoSpace,whoreplacedacompetitivecloud-only,logsearchcompanywithSplunkCloud,andtheSplunkappforAWS.Wearehelpingthemenablecontinuousdeliverytotheirweb-publishingcustomers.Geico,anexistingSplunkcustomer,expandedwithSplunkCloud,takingadvantageoftheCloud'sfavorableTCO.Maxim'sCaterers,thebiggestfoodandbeveragecompanyinHongKong,selectedSplunkCloudandourappforPCIcompliance,forsecuringandanalyzingtheire-commercedata.

AndourlargestSplunkCloudorderthisquarterwasfromasocialmediacompanythatsignedaseven-figureorder,foramulti-terabyteinstance.ThisexistingcustomerisexpandingwithSplunkandplanstotransitionfromon-premtotheCloud.

CustomerswanttoknowthattheirworkloadsareasreliableandsecureintheCloud,astheyareonpremise.SplunkistheretohelpcustomersmovetotheCloudwithconfidence.




Andnow,overtoHaiyan.

HaiyanSong (Head-SecurityMarkets):

Thanks,Marc.

InQ2,wehadgreatmomentumandcontinuedtostrengthenourroleasthenervecenterforsecurity.We,again,deliveredtriple-digit,year-over-yearbookingsgrowthforES.CustomerdemandforsolutionsthatdeliverfastertimetovaluehasdriventhegrowthofES,on-premandintheCloud.Herearesomeofourcustomerexamples.

TheSecuritiesandExchangeCommissionextendedtheiruseofSplunkEnterpriseandES,asthesecurityanalyticsplatform,whereallITandsecuritydataismonitored,analyzedandreported.Nexttimeyou'reenjoyingalegendarysteakatyourlocalTexasRoadhouserestaurant,thinkofSplunkastheirnervecenter.Splunkgivesthesecurityteambetterabilitytodetect,followandshutdownattackers.And,givestheITopsteamvisibilitytoimprovecustomerexperienceontheirwebsite.

InadditiontobeingaSIEMforsituationalawareness,Splunkhasbeenincreasinglyviewedasthetrustedsecurityintelligenceplatformforbreachresponse.Thispastquarter,ahigh-profilegovernmentagencyandawell-knownuniversitywerebothbreached.And,subsequently,purchasedSplunktobeefuptheirsecurityandbreachresponse.

ThehighnoteforsecurityinQ2wasouracquisitionofCaspida,aleadinginnovatorinmachinelearninganddata-drivensecurity--datascience-drivenbehavioranalytics.Itsignifiesourcommitmenttoinvestinexhilaratinginnovationandexpandingouranalytics-drivensecurityoffering.CustomerscanbenefitfromCaspida'smachinelearningsolutiontodetectadvancedthreatsfromexternalattackersandmaliciousinsiders.

Recentbreacheshaveshownusthesignificanceofidentityandusercredentialsasanattacksurface.And,ourfirstcombinedsolutionwillfocusonuserandentitybehavioralanalyticstohelpourcustomerswiththiscriticalsecurityneed.We'reveryexcitedtowelcomethistalentedteam,andareworkinghardtowardsunveilingourplansfortheintegratedSplunkandCaspidasolutionsatourupcomingUserConferenceinLasVegas.

Wefeelprivilegedtobeattheforefrontofleadingtheindustrytransformationtowardsnextgeneration,analytics-drivensecurity.As451Researchnoted,thisemergingtechniquesarefundamentallyreshapingthenatureofsecurityanalytics,andaremovingtowarddefininganarchitecturethatgoeswellbeyondSIEM.

Forthethirdstraightyear,SplunkwasnamedaleaderinGartner'sMagicQuadrantforsecurityinformationandeventmanagement.Infact,Splunkwastheonlyvendortoimproveitscompletenessofvisionintheirreport.

Wecouldnotaskforabettertiming,andshowcase,thanthisyear'sBlackHatUSA,whichtookplaceearlyAugust.InadditiontorecordvisitorsatSplunk'sbooth,oursessiononbehavioralintuitiondetectionhadover1,000attendees.AlthoughBlackHat'snetworkoperationscenterishiddeninadarkroom,Splunkwasfrontandcenter,poweringtheNOCthatwasdescribedas,quote,thenervecenterforoneofthemosthostiletechnologyenvironmentsontheplanet,endquote.

Splunk'sanalyticsandvisualizationshelptokeepthatadvancednetworksecuredandoperational.Iamproudofthemomentumwehaveinthemarket,andtheresultswehavedeliveredinthesecuritybusiness.And,lookforwardtocontinuingtoinnovateandexpandoursecuritysolutionstohelpourcustomers.




Now,backtoGodfrey.


Thanks,Doug,MarcandHaiyan.

I'dhavetosaythatI'mreallyproudoftheSplunkExecTeam.Ourcoredevelopmentteamskeepcrankingoutwithimpressivefunctionalitythatshowsinournetpromoterscoreof50,almostunheardofinenterprisesoftware.Themarketgroupsaredefiningstrategy,productdirectionandbuildinganenviableecosystemfortheirsolutions.

OurCloudbusinessisaccelerating,basedonclearstrategyandmaniacaloperationalfocus.AndoursuperbFieldorganizationjustkeepsgettingstronger,andevenbetteratdeliveringcustomersuccess.

Ihopetoseeyouatcompnextmonth,wherewe'llraisethecurtainonourproductreleases,enjoyawiderangeofkillerpresentationsbyourcustomersandhostforyou,thefinancialcommunity,andinteractivepanelwithourExecTeam.It'sgoingtobeagreatshowandIcan'twaittogettogetherwithyouthere.Again,thankstoallofourcustomersandpartners,andthankstoeveryonewhoworksatSplunk,foranothergreatquarter.

Now,I'llturnthecallovertoCFO,DaveConte.

DaveConte (CFO):

Thanks,Godfrey.Goodafternoon,everyone.Thanksforjoiningthecall.

Q2wasanotherstrongquarter.And,we'repleasedwithourfirst-halfperformanceandcertainlyexcitedaboutouroutlookfortheremainderoftheyear.Second-quarterrevenueswere$148.3million,a46%increaseoverQ2lastyear.Licenserevenuesgrew42%,yearoveryear,totaling$88million.InQ2,andnowfor13outof14quartersasapubliccompany,morethan70%ofourlicensebookingscamefromexistingcustomers,intheformofup-sellsforadditionalcapacityandexpansionsfornewusestations.

Also,webookedmoreordersinQ2thaninanypriorquarterinourhistory.Werecorded327ordersgreaterthan$100,000.AsGodfreymentioned,wenowhavemorethan10,000customers,globally.

Onpriorcalls,I'vementionedthattheratablemixofbookingscontinuestovarysubstantially,quartertoquarter.Asarefresher,thecontributorstothatratablemixare,term-licensecontracts,SplunkCloudandcertainEAAs.

Let'stalkaboutEAAsforsecond,justafewreminders.EAAsareratablebecausetheyareeitherastandalonetermlicense,orincludeaterm-licensecomponent.Thesecontractsaretypicallythreeyearsinduration.And,inmanycases,onlythefirstyearisimmediatelybillable.

Subsequentyearsofthecontractareusuallybillableonanannualbasis,soyou'renotgoingtoseethoseextrayearsonthefaceofthefinancialstatements.Todate,theseunbilledamountshavenotbeensignificanttothefinancialsoverall.

Now,themixforthequarterwas41%,whichisonthehighendofourannualrange.We'veexperiencedandwe'veexpressedthat,toasubstantiallydegree,theratablemixwillswingfromquartertoquarter.And,itgenerallyfollowsseasonalpatterns.Asaresult,we'lltakealongerrangeviewofthemix,givenitsunpredictablenature.

Fornow,wemaintainourcurrentfull-yearguidanceof30%to40%,thoughwe'relikelytoendtheyearatthetopendofthatrange,basedonfirst-halfresults.We'regoingtokeepupdatingyouguysaswegainmoreinsight,intermsofhowthatmixistrending.




Now,asMarcmentionedearlier,we'repleasedwithourCloudmomentum.BothexistingandnewcustomersareutilizingCloudservicesforvariedusecasesandhybriddeployments.AsitrelatestotheimpactofCloudonourfinancials,recallthatCloudrevenueiscapturedentirelyintheserviceslineontheP&L,andtheassociatedcostsarereflectedinthecostofservices.Importantly,therearenoCloud-relatedrevenuesallocatedtothelicenseline,eventhoughmostofthisrevenuerelatestotheuseofoursoftware.

Eventually,whenCloudrevenuesbecomeasignificantcomponentoftotalrevenues,we'llreportitseparately,muchlikeyouareaccustomedtoseeingwithpeerassessedmodels.Aswe'vesaid,weexpectthegrowthinourCloudbusinesstocontinuetoimpactboththecompositionofrevenuesbetweenlicenseandservices,andtheassociatedgrossmargins.But,moreonmarginsinaminute.Now,backtotheresults.

InQ2,internationaloperationsrepresentedapproximately22%oftotalrevenues,consistentwithpreviouslevels.Oureducationandprofessionalservicesrepresented7%ofrevenuesinQ2,intherangeofpriorandexpectedlevelsofbetween5%and10%.Remember,sincewegenerallyrecognizerevenuesonserviceswhentheyaredeliveredandbilled,servicesbookingstypicallydonotflowtothebalancesheetasdeferredrevenue.

Withrespecttomargins,whichareallnon-GAAP,Q2overallgrossmarginwas88%,unchangedfromQ1.And,asexpected,startingtoshowtheimpactfromourrampingCloudbusiness.Operatingincomewas$4.8million,representingapositivemarginofapproximately3%.

Q2netincomewas$4.1million.And,EPSwas$0.03pershare,basedonafullydilutedsharecountof132millionshares.Cashflowfromoperationswas$13.6million,andfreecashflowwas$10.8million.Weendedthequarterwithover$900millionintotalcashandinvestments,whichreflectsthenetcashpaidof$143millionfortheMetaforandCaspidaacquisitions.

Now,lookingforwardtothesecondhalfoftheyear.WeexpectQ3totalrevenuesofbetween$158millionand$160million,witha1%to2%positivenon-GAAPoperatingmargin.Withourfirst-halfperformanceandQ3outlook,wenowexpectfull-yearrevenuetorangebetween$628millionand$632million,upfromourpriorguidanceof$610millionto$614million.SincewedenominaterevenuegloballyinUSdollars,wedonothaveforeignexchangeexposureontherevenueline.

Aswecontinuetoincreaseourinvestmentsinmarketgroups,productteams,theFieldandSplunkCloud,weexpecttogeneratepositivenon-GAAPoperatingmarginsofbetween2%and3%forthefullyear,consistentwithlastyear'slevelsandpriorguidance.NotethatareouropmargintargetincorporatestheexpenserunratesofboththeMetaforandCaspidaAcquisitions.

I'llsharethatourmargintargetsincludetheimpactofagradual1%to2%increaseincostofservices,fromgrowingourCloudbusiness.Italsoincludeshigherprofessionalservicescosts,deliveredaroundourmarketgroupssolutions.

Asahousekeepingitem,sinceweexpecttobeprofitableonanon-GAAPbasisforthebalanceoftheyear,foryourEPScalculations,youshouldusefullydilutedsharecountsofapproximately134millioninQ3,and137millionsharesinQ4.Weremaincommittedtorunningthebusinessonapositiveoperatingcashflowbasis,andcontinuetoexpectthatfull-yearoperatingcashflowwillbeapproximately20%oftotalrevenues,withthequarterlylevelsfollowingthetrendwe'veseenoverthepastseveralyears.

AsI'vementioned,FY16isahigherthantypicalCapExyear,asweexpectthebulkofourSanFranciscoHQbuildoutcostswillbeincurredthisyear.Whencombinedwithglobalfacilityexpansionstoaccommodateourgrowingemployeebase,weexpectapproximately$50millionintotalCapExthisyear.FirsthalfCapExtotaled$10million,andexpecttheremaining$40millionwillcomeinthebackhalfofthe




year,mostlyinQ4.

Inclosing,ourteamcontinuestoexecuteonourmissiontodeliverexceptionalvaluetoourcustomers.And,wearecommittedtocontinuinginvestmentsinourproducts,solutionsandoverallglobalreach.Q2endedasolidfirsthalf,and,I'menthusiasticaboutouroutlookfortheremainderofFY16.

Withthat,let'sopenitupforquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

BrentThill,UBS.

BrentT hill(Analyst-UBS):

Thankyou.Goodafternoon.Dave,thetermmixcontinuestocomeinaboveyourguiderange.And,Irealizeyouendedwithacommentthatyouexpecttoendclosertothehighendofyourrangethatyougaveat30%to40%.ButI'mcurious,justintermsoftheeconomics,ofwhatyou'reseeinginmostcontracts,versustheperpetualworld?Howyoulookatthetrade-off?And,howyouthinkaboutthelong-termvaluetothosedeals,versuswhatyou'reseeingontheperpetualside?

DaveConte (CFO):

Sure.Brent,thanksforthequestion.Asyouknow,thepredictabilityinany90-daycycle,ofwhatthatmixisgoingtobe,hasbeenafunitemtotrytoforecast.And,that'sfromthreeyearsagowhenwefirstwentpublic.Ithinkwhat'simportantaboutthelifetimevalueofthosearrangements,whenwethinkaboutmix,ishowwe'reenablingcustomerstoadoptaproduct.That'sourobjective.

HowdowestructurearrangementsthatgivethecustomerthepredictabilityaroundtheirinvestmentinSplunk,andthefreedomtodeploybroadlyacrosstheenterprise?So,intermsoflifetimevalue,themathematicsaroundit--athreeyear,maybeafouryeartermcontract,isequivalenttoastandardperpetuallicense.Butwhenlookingatthecohortofacustomer,andtheadoptiontrends,wethinkit'sobviouslyfarmorevaluableintermsofoverallLTVofthosecustomers.

BrentT hill(Analyst-UBS):

Great.And,aquickfollow-upforGodfreyandHaiyanonthesecurityside.Youhadareallyimpressiverunthere.AndI'mjustcurious,whenyoulookatthehaloimpactthatyoursecuritybusinessisnowhavingonotheraspectsoftheSplunk,go-to-marketandnewproducts.Whatareyouseeingintermsoflandingthatsecuritycustomer,andhowquicklyyouarestartingtoseethatnowspreadintootherareasofgovernance,riskcompliance?


Well,Ijusthaveanoverallcommentonthat,Brent,whichisifyouhadaskedmethatquestionthreeorfouryearsago,IalwayscoachedourfieldorganizationtogointoIToperationsfirst.Because,youcanspreadmorequicklyfromthere.And,Iwasalwaysalittlebitreservedaroundgoingintosecuritydepartmentfirst,withacustomer.Because,Iwasalwaysalittlefearfulthatwe'dgetde-positionedasasecurity,likeaSIEM,whichwouldnotbenotgreatforus.And,Ithinkthatmarkethaschangedsomuchinthelastthreeyearsthatthesecuritydepartmentisoften,now,thekeeperoftheSplunkindex.Butthedifferenceis,forthefirsttime,theyareservingasastewardforalotofmachinedataacrosstheorganization.




SoIthinkit'saseasyforusnowtoentersecurity,andthenexpandacrosstoappdevorIToperationsorbusinessanalytics,asitwasthreeorfouryearsago,forustoenterinthroughITopsorapps,andthenspreadtothesecuritydepartment.IthinkthatifyoulookatallofourEAA's,andyoulookatourlargecustomerorders,allofthemaremultipleusecase.AlmosteverysingleoneofthemisbecauseSplunkhasbecomeadataplatformandwe'rebeingusedacrossmultipledepartments,multipleusecases.So,Ithinkit'schangedalotinthelasttwoorthreeyears,allforthebetterforourcustomersandus.


Verywellsaid.


Thanks,Brent.

Operator :

KeithWeiss,MorganStanley.

KeithWeiss (Analyst-MorganStanley):

Firstofall,guys,verynicequarter.Maybefollowinginonthatvein,whenwethinkabouttherecentacquisitions,theCaspidaandtheMetafor,aretheseadditionalfunctionalitiesthat'sgoingtobesoldas,perhaps,aseparateapplication,isitaseparatepaidforfunctionalityonagoingforwardbasis?Or,doesthisjustbecomepart-and-parcelofthestrengthoftheunderlyingplatform?Andonarelatednote,aswethinkaboutthatbackhalfguidance,isthereanyrevenuecontributionattributedtothoseacquisitions?


Okay.So,multi-partquestion,multi-speakeranswer.I'lltaketheMetaforpiece,whichistosaythatinthatcase,that'sreallymorelikeatechnologyacquisitionthatyouarelikelytoseeincorporatedintothingslikeourITserviceintelligencesolution,asopposedtoastandaloneappforexample,buttimewilltell.Wehavealotof--there'ssomeveryrobusttechnologythere,thatwethinkwillbeveryhelpfultousinIToperations.Caspidaisalittlebitdifferentthanthat,soHaiyan,I'llhandyoutheCaspidapeace.


Alright.Caspidahasservedinthisfastmovingmarketcalledbehavioranalytics,especiallyfocusingonusers.And,weanticipatethat'sgoingtobeadditionalcapabilities.Wecontinuetobuildandintegrate.And,we'llcontinuetoofferitasastandaloneproduct,aswellasgivingusoptionstoofferbundlesandmorechoicesforthecustomer.Intermsofrevenue,weareinaveryearlystageandwe'rerunningearlyassetsprogram.AsImentioned,we'llbeunveilingmoreofthedetailsofthisintegratedplanat.comp.So,lookingforwardtotalkingtoyouguysthere.

DaveConte (CFO):

Andhey,Keith.ThisisDave.SpecificallyintermsofourmodelandourOutlook,asHaiyanmentioned,we'rereallyfocusedonensuringthatthetechnology,andhowwebundlethatinwithouroverallsecuritysolution,ispairedappropriatelywithourexistingESapplication.Ourmodelassumesnorevenuecontribution,becausewe'rereallynotplanningtohaveamajorrolloutofthatsolutionuntiltowardstheendoftheyear.So,wedon'thaveanyrevenuebuiltintoday.


Gotit.And,ifIcouldjustsneakonemoreclarificationin.IthinkDougmentionedaddingmorethan100




globalfieldpositionsduringthequarter.I'massumingthat'snotallquota-carryingreps.Canyougiveusalittlebitmorecoloronwhatthoseglobalfieldpositionswere?Andmaybe,canyougiveusthenumberofquota-carryingrepsexitingthequarter?


Sure,Keith.Wehavebeenalittlebitmorefocused,goingintothisyear,atmakingsurethatwegaincriticalmassindifferentmarkets,andthatwehaveawell-balancedhiringapproach.So,we'veconcentratedhiringinahandfulofcustomers,wherewe'veseencriticalmassintheUSandpublicsectorreallyworktoouradvantage.We'remirroringthatmodel.But,we'realsoensuringthatweremaintainingtherightmanager-to-repratio.So,theycanactuallydotheirjobofgrowinganddevelopingtherepseffectively.We'vegottherightpresalesratios.It'sagreattechnicalsale.

Andwe'veseen,consistently,thathavingthetechnicalsideofthehousewalkthehallswiththereps,greatlyincreasestheireducationandknowledgeofSplunkandhelpsspreadthoseusecases.And,we'vebeentalkingaboutsomeofthesespecializedresourcesthatcarrydistinctsecuritycapability,orIToperationscapability,orappdevorbusinessanalyticsrather.And,we'realsoaddingthatspecializationonbothsalesandpresalesaroundtheglobe.Sothatwecanincreaseourwinrates,ormaintainourwinrates,withinthosecategories.

DaveConte (CFO):

Hey,Keith.It'sDave.Letmepileonalittlebit.I'mreallyexcitedtoseeaddingthattype--over100resourcesinthefieldorganizations,allaroundtheinitiativesthatDougmentioned.Asyouguysknow,we'vebeentalkingnowoverayearaboutbuildingoutourcapabilitiesaroundourcoremarkets.Highend'sdoingaterrificjobinsecurityasyouknow,RickFitz.

And,we'reexcitedabouttheintelligentappthatwe'regoingtobetalkingaboutat.comp.So,theseinvestmentshavebeenreallyimportant,intermsofhowwedelivervaluetothecustomer.So,seeingthattypeofmomentum,intermsofourabilitytogetcoverageandreacharoundalltheseinitiativesinfieldorganization,isgreat.Over100inasinglequarter.

Thebackhalfofyourquestionishowmanyarequotacarriers.So,weendedthequarterwith362quotacarriers.Thatisupabout36%,37%yearoveryear.30plusincrementalquotacarriessincelastquarter.


Excellent.Greatjob,guys.


Thanks,Keith.

Operator :

WalterPritchard,Citi.

WalterPritchard (Analyst-Citigroup):

Hi.Thanks.AquestiononmyendaroundthedriversoftheCloudbusiness.I'mwonderingifyoucouldhelpusunderstandhowmanyofthesecustomersarebornintheCloud?Or,customersthatmaybewouldn'thavelookedatyourproducttwoyearsago,orthreeyearsago,whenyoudidn'thavetheCloudoffering?Andthen,ofthecustomersthataremoreyourtraditionalbase,what'scausingthemtoconsidertheCloudoffering,versusjustconsumingthecapacitythatthey'veconsumedforawhile?




MarcOlesen (Head-Cloud):

Hey,Walter.ThisisMarc.Thanksforthequestion.Obviously,we'reextremelyexcitedwiththedemandwe'reseeinginthemarketplaceforCloudsolutions,andthrilledwithourgrowthtodate.It'sreallyasolution,andadeliveryoption,that'sappealingtocustomersofallshapesandsizes.So,wehaveverysmallcustomers,smalldepartmentsthatareusingCloudasanentrywayintoSplunkandtheirfirstexperience.Atthesametime,we'vegotcustomersthataresendingusatmultipleterabytesperday.

And,Ithinktherearereallytwomaindriversaroundthis.So,thefirstisjustwheredoyouwanttofocusyourtime,effort,energyandattention?OnrunningSplunk?Or,onusingSplunk?So,that'soneofthedrivers.Andthen,theotheroneiswhereisthesourceofthedata?

So,foralotofworkloadsthatarerunningintheCloud,thereisalackofinterestinbackhaulingallthatdatatoon-premiseSplunkdeplyoment.It'salreadyintheCloud,they'vealreadyrationalizedthat.So,itreallymakessensetosendittoaSplunkCloud.But,withtheadditionaloptionsthatSplunkCloudpresentsforcustomers,wedefinitelyseeanexpanding,addressablemarketbecauseofthat.

And,ofcourse,weofferahybridsolutionforourcustomers,sothattheycanrunSplunkEnterpriseon-premandSplunkCloud.And,we'reactuallytheonlysolutioninthemarketplacethatgivescustomersthattruehybridexperience,wheretheycansearchseamlesslyacrossdatastoredon-premandintheCloud.Andtotheuser,theycanbeabletogetthatunifiedexperience.


Okay.Thankyou.Nextquestion,please.

Operator :

BrianWhite,CantorFitzgerald.

BrianWhite (Analyst-CantorFitzgerald):

Higuys.I'mwonderingifwecouldtalkjustalittlebitabouttheordersover$100,000.Iwentbackinmymodel,itlookslikeit'sthestrongestsequentialgrowthwe'veeverseenforJulyquarter,forthesebigorders.So,numberone,what'sthedynamicyouseeoutinthefield?Andnumbertwo,maybetalkaboutpricechangesintheJulyquarter,andwhatwastheASPthatwesaw?Ithink,previously,youtalked$40,000to$50,000.Whatarewelookingatthisquarter?Thanks.


So,onthesix-andseven-figureorders,Ithinkwe'rejustdoing,asyousawwiththehiring,wetalkedthroughwiththefocusandexpansionwe'redrivingonarapidandoverallfeelbasis.We'rejustdoinganincreasinglybetterjob,Ithink.Findingopportunities,butevenmoreimportantly,addinginthecustomersuccessorreallydrivingtheseopportunities,drivingSplunkacrossmultipledifferentdepartmentsandusecases.Sothatwecandriveourselvesintotheseorganizations,asadatafabric,adataplatform.Andthose,bynature,drivelargerdeals.

Soit's--we'vegotthewonderfulchallengeofmakingsurewehaveenoughrepstocovertheBrownfieldaccounts,andthatwe'restillpayingattentiontoGreenfield.And,aswe'redrivingtheseBrownfield,you'reseeingbiggerorderscomeout.Dave,doyouwanttohandletheASP.

DaveConte (CFO):

Hey,Brian.So,ASPswereatthetopendofthatrange,atabout$50,000.And,it'sinteresting.Soyoulookat,toyourpoint,asequentialincreaseandayear-over-yearincrease,intermsoflargeorders.Andyet,




ASPsareconsistent.And,backtomypreparedremarks,thiswasourindividuallylargestquarter,intermsoftotalordersoverall.So,thevelocityinthebusinessisgrowing,notjustintermsofalargeorders,butallordersintotal.And,that'showyougetaconsistentASP,given320somethingplussix-figuretransactions.


Okay.Andjustasafollow-up,anyupdateonHunk?


Asfarasmarketdynamics,we'recontinuingtoseemoreinterestinHunk.But,it'slimitedbytheamountofproduction,theHDFSinstancesweseeoutthere.


Yes.


So,we'reslowlygrowing.And,Ithinkwe'llcontinuetobealittlebitheldbackbyhowindustrialstrengthandproductionfocusedaretheseHDFSinitiatives.


Okay.Great.Greatjob.Thankyou.


Thanks,Brian.

Operator :

MattHedberg,RBCCapitalMarkets.

MattHedberg (Analyst-RBCCapitalMarkets):

Sorryaboutthat.Congratsfrommeaswell.Thanksagainforsqueezingmeinhere.Iknowyouguyshavesaidinthepast,securityusecasescouldmakeupbetween35%and40%ofsomeofyourdeals.Wehadaresellersurvey,itlookslikeitcouldbeashighasmaybe50%nextyear.Iguesswiththeacquisitionsthatyou'redoinghere,doesthatlevelofactivityseemreasonabletoyouguys?

DaveConte (CFO):

Hey,Matt.It'sDave.So,asyouknow,securitymaybe2plusyearsago,was20%,25%ofthebusiness.And,attheendoflastyear,ittrueduptobeingnotquite50%,butover40%.Q2wasabout40%ofthetotalbusiness,howthatmassagesovertime,thechallengeforanyindividualmarketgroupistheothermarketgroupsaredoingreallywellalso.So,ourcoremarketsofITOA,nowover50%ofthebusiness,islookinggreat.

I'msure[SnayHall]whohasbusinessanalytics,willhavesomethingtosayaboutitoncehegetssomemoretenureunderhisbelt.But,Iwouldn'tsayit'sunreasonable,butitreallywillfluctuatequartertoquarter,andthisisimportant.Whenyoulookatthecompositionofourtransactions,someofourmorematurecustomerswhotendtodothelargerorders,canflingthatpercentageonaquarterlybasis.Fromanannualtrend,Ithinkit'sstillappropriatetothinkaboutsecurityasthe35%to45%ofthebusiness,untilweseesomethingchangeintermsoftheanalyticsspace.





IhatetopileonananswerbutIwillhere.Whichis,inthesix-figureorders--thefive-figureandthelowsix-figureorderstendtobeeasiertotrack,becausethey'reoftenasingleusecase.Mostofourlargesix-figure,andalmosteveryseven-figureorder,isbecauseacustomerisusingSplunkasadataplatform.And,theyareusingitacrossmultipledepartmentsandusecases.Andthen,yougetintoanallocationgame.

So,Idon'tknowhowprecisethismarketgroupnumberwillbe,aswecontinuetomoveintoaplatform.And,we'lljusthavetotrytogiveyouthebestcolorwehave,basedongoingthroughthecustomerinformationandtryingourbesttosortitout.But,partofbeingaplatformisthatyougetmultipleusecaseswithallthesebigorders.


That'shelpful.Andthen,asafollow-uptothat,youguysobviouslyhavegreatpartnerships,PaloAltoinparticular.Itseemslikethereareanumberofnicedealsthroughthatpartner.Isthereariskthatyouguyscouldstarttoincorporateadditionalfeaturesthatcouldeventuallystarttocompetewithsomeofthesepartners?Or,isthisstillofthemindsetthatit'scomplementarytosomeofthoseexistingrelationships?


Idon'tthinkthere'smuchoverlap,andIdon'tseeanyonthenearhorizon.Doyou,Haiyan?


Ithinkit'sagreatquestion.Insecurity,there'salotofoverlappingintermsofthewordspeopleuse.But,intermsoftheparticularproblems,theanglewe'resolvingproblems,it'sjustlikeGodfreywassaying.Idon'tthinkthere'sanyoverlap,perse.So,wecontinuetohavegreatpartnershipsand,forus,Splunkwillbeassuccessfulastheecosystemweserve.And,ecosystemthatcustomersusetoputuptheirsecuritydefenses.


There'sjustnotenoughmarketingwordstogoaround.That'sall.


Thanksalot,guys.Greatquarter.


Thanks,Matt.

Operator :

MarkMurphy,JPMorgan.

MarkMurphy(Analyst-JPMorgan):

Yes.Thankyou.I'lladdmycongratulations.Godfrey,Iwantedtoaskyou,asyoubuildtowardstheseasonallystrongfiscalQ4.Welookedbackatpastyearsandyou'veproducedapproximately60%sequentialgrowthinBillings.And,Iknowthatthenumbersaregettinglargerandthatmightnotalwayshappen.But,weknowthatyoubuildpipelinetowardsthatallyearlong.So,justgivensomeoftherecentgyrationsintheequitymarkets,Iwascurious,whatisyoursenseofpipelinebuild?Arecustomerscalm




andthinkingrationally?Andmaybe,howdoyoufeelaboutthesetupforyear-endbudgetflushactivity?


Yes.Theenterprisesoftwareisenterprisesoftware.So,customersarewell-trainedtotrytouseend-of-yeartotheiradvantage.Andso,Idon'tknowthatSplunkisanydifferentthananyothercompanyinthatregard.Idon'tknowthatwe'llseeimpactofequitymarketsforanotherquarterortwo.

Becausewhat,ifany,impactallthisequitymarketgyrationwillhavedoesn'tshowuponaday-to-daybasis.Itwouldreallybemoreabout,doesitimpactacompany'sbudgetfornextyear?DotheychangetheirOutlookfornextyear?But,Idon'tsensethatthemarkethashadmuchimpactoverthelastweek,thelast30minutes.It'sreallyhardtosortthatout.Andourguidance,aswe'veconstructeditforQ3andQ4,takesthatintoconsideration.


Thankyou.Andasafollow-up,Godfrey.IwaslookingonSplunkbase,andthenumberofappsbyvendor.Thereare151forMicrosoft,29forCisco,13forOracle.I'mjustwondering,whydothinkthatitissoheavilyskewedtowardsMicrosoft?IsMicrosoftthatdisproportionateintermsofthecriticalsystemsthatareproducingallthishigh-valuemachinedata?Or,doyouthinktheothersarejusttemporarilyunderrepresentedinthere,andthattherelikelytoclosethatgapovertime?


No.Iwouldsayit'sbecauseMicrosofttendstobealittlebitmore--it'sclosertotheoperatingsystemlevel.YoualmosthavetocompareMicrosoftandourappsonSplunkbasetoUnix,asopposedtocomparingittoCisco,forexample.And,there'sjustsomanydifferentutilities.

Theycertainlydon'trisetothedescriptionofasolution,orafullapp.Theymightbemoreofaconnector,oraplug-in,indescription.So,thewordsarealittlebithardto--liketherearen'tenoughwordstogoaroundforthateither.And,wetrytooversimplifyit.

ButIwouldsaythat,inthecaseofCisco,thereareenoughdifferentsecurityenvironments,andenoughdifferentproductsintheCiscoworld,thatalmostalloftheappsappliedtoaproductortechnologythat'sdistinctintheMicrosoftworld.Thereissometimesthreeorfourofthemthatcustomershavepublished,thatsolvethesameproblemaslightlydifferentway.So,it'salittlebit--Ijustwouldn'toveranalyzeit.It'snotsomethingwespendanytimeon.Let'sputitthatway.


Thankyouverymuch.


Thanks,Mark.

Operator :

PhilWinslow,CreditSuisse.

Unidentif iedPart icipant :

Hey,it's[Joanne].IcameinonforPhil.Thanksfortakingmyquestion.Iwasjustwondering,withthisintegratedsolutionwithCaspida,fromacompetitivestandpoint,whoyouguysaregoingtobegoingupagainstordisplacing?And,ifyouaredisplacingaGeneration1SIEMvendor,doyouthinkSplunkisalso




seeinganetbroaderdeployment,insideofthesecustomers,versustheGeneration1SIEMvendor?


Allright,I'lltakethat.So,Caspidabringsbehavioranalyticsintoouralreadyverymuchanalyticsdrivenandcentricsolution,tosecurity.So,wehaveseengreatmomentuminadoptionofthenewapproach.Wehaveseengreatmomentuminreplacing,likeyousaid,thepreviousgenerationsolutionsaroundSIEM.Andwealso,asImentionedinthepreparedremarks,peopleareincreasinglylookingtoustoprovidethebestsolutionaroundbreachresponse.So,definitelyanexpandedusecase,beyondSIEM.And,weseeverygoodtractioninreplacingsomeoftheoldgenerationsolutionsthatwerethere.


Andwhileyou'reonthehorn,we'dliketoknowifyoucanthrowalittledirtaboutPhilonthehorn,sincehe'snotonthecall.

Unidentif iedPart icipant :

Thanks,guys.


Goodcall.

Operator :

MichaelTurits,RaymondJames.

MichaelT urits (Analyst-RaymondJames):

Hey,guys.ThisisMichaelTurits.AquestiononEAAs,anythingmoreyoucantellusabouttherateofadoption,whetherit'sgettingmaterial,andwhattheusecasehasbeenforEAAs?AndI'vegotafollow-up.


Sure,Michael.So,aswecontinuouslytalkabout70%ofourrevenue,roughly,comesfromexistingaccounts.And,IthinkthatinthewisenessofDaveandGodfreyyearsago,ofcallingthisenterpriseadoptionagreementisthekey.We'veseengrowthwithintheseaccounts,totryandtreatSplunkasaplatform.And,theenterpriseadoptionagreementsofvariousflavorsarehelpingtodrivethat.

Theywrapinthingslikeprofessionalservices,insomeinstances.Splunkadvisoryengineers,ourcustomer-successorientedfolks,educationcredits,headroomthattheaccountcangrowinto.

And,Idothinkthattheyareanimportantcontributortothat300plus,six-andseven-figuredealcountthatwesawthisquarter.It'sjustanythingthatwecandotomakeiteasierforourcustomerstolearnSplunk,getmoredataintoSplunk,seethevalueoftheadditionalcorrelationsandusecasesastheydothat.It'sgreatforthecustomer.AndIthinkobviously,ultimately,long-term,reallygoodforSplunk,too.

DaveConte (CFO):

Hey,Michael,it'sConte.IthinkintermsofquantifyinghowmanyEAAsarewedoing,theabsolutenumberisn'tasrelevant,Ithink.It'simportantthatwehavetheprogram,andthevehicle,sothatcustomerscanactuallygettostandardization.

So,whatweareseeingthatultimatelybridgesfromtheinitialnewcustomerusingSplunkoverthe




lifecycleandthematurityoftheirdeployments,tobecominganEAAcustomer,isthevelocityaroundmultipleusecasesinthesameaccount.And,Ithinkthat'spart-and-parceltothepreviouslymentionedmetric.That,again,over70%ofthebusinessistheinstallbase.

Thatdoesn'tmean70%ormoreofthebookingsareEAA's.That'scustomersdeployingmultipleusecasesacrosstheirdepartments.Andnow,pairedwithhybridsearchcapabilitiesintheCloud.So,thecombinationofon-premplusClouddeployments,plusmultipleusecasesacrossmultipledepartments.That'swhatwe'reseeing,Ithink,quitefrequentlyinthecustomerbase.Ultimately,thosecustomerswillbecomeEAAsinourconstruct,butthey'renottheretoday.


Gotit.Andthen,myfollow-upquestionwasaroundtheissueofthemix,theshifttowardsratable,andtheimpactongrowth.Obviously,we'vealltriedtodocalculationsonit.Anythingelsethatyoucanhelpuswiththisquarter?46%revenueand42%billingsgrowth,verystrong.But,weallsuspectthatsomething,thequoterunrateorrealrateisabithigher.Anythingthathelpsusthere?


Well,Itriedtoaddsomeclarity.Wemeasurethemixasapercentageofourgrossbookings.Thecalculationsthatwecanalldooffthefaceofthefinancialstatementsare,effectively,thederivedbillingsnumber.And,asImentionedinpreparedremarks,wedohaveacomponentofcontractvaluethat'sunbilled.It'snotsignificantinthecontextoftheoverallfinancials,thatI'dbedisclosingit.Butitwould,obviously,whenincluded,uptickthegrowthratesome.

But,it'snotsodifferentiatingthatIwouldsay,holysmokes,the46%growthrateisn'tgoodenough.And,youguysshouldunderstandthatthere'sthiswholeotherbasketofgrowth.But,asweseemoreandmore,multi-yearcontracts,andthebuildingcharacteristicsofthose.And,ifwethinkthatthereisacomponentthat'slacking,thatyouarenotgettingclearvisibilityintermsofassessingourperformance,thenwe'llobviouslyincludethat.ButIthink,asreported,Ithinkitdemonstratesthestrengthofthequarterandthemomentumwehaveinthebusiness.


Okay.Great.Thanksverymuch.


Thanks,Michael.

Operator :

KatherineEgbert,PiperJaffray.

KatherineEgbert (Analyst-PiperJaffray):

Hi,thanks.Youmentionedacoupletimes,onthecall,aboutwinrates.Canyoujustgiveusanupdateonthecompetition,andhowthepricingisgoing?Thanks.


Yes.Weremaininanenviablepositiononwinrates.IjustsatthroughaseriesofQVRs,aswouldnormallyhappenthefirstmonthofanewquarter.And,oneofthethingswereviewishowwe'redoingagainstcompetition.And,thatSplunkasadataplatformapproachthatwehave,itstillseemstobeprettygoshdarndifferentiated.Wehadacoupleofnicewindbacks,ortakeaways,fromcompetitors.Someopen-




sourcecompetitors,somesmallerCloudorother-basedcompetitors.

And,whatIjustkeepseeingoverandoveriscustomers,nomatterwhattheyexperimentwith,comebacktoSplunkasthemostcompletesolutionthatdrivesthelowesttotalcostofownershipforthem.AndIthink,moreimportantly,getsproduction-worthyhigh-valuevisibilityaroundthiscomplexdataequation,quickestforthem.It'sjustbeenfuntowatch.


Okay.Thanks,Dave.Andthen,acouplequickfinancialquestions.Youarenowsolidlyprofitable,intermsofoperatingmargin.Itlookslikeyou'llbethatwayfortherestoftheyear.WillyoustaythatwayyouthinkintoFY17?

DaveConte (CFO):

Yes.Hey,Katherine.Obviouslyweexpect,thisyear,FY16smargintobeconsistentwiththeprioryear.And,therateatwhichwe'reinvestingonanannualbasis,Iwouldnotexpecttodeviatesignificantlyfromthattwo-yeartrend.Mightthatbeacouplehundredbasispointsup,oracouplehundredbasispointsdown,aswemanageourinvestmentsacrossalltheseinitiatives?And,whenwegettotheendoftheyearandwelookatourpriorities,andwesetourinternalobjectives,thatwethenwillsharewithyouguys.We'llupdateyou,forsure.

Butintermsofthepositionthatwe'rein,intermsofthematurityofourmarketandourpenetration,intermsofthesizeoftheTAM.We'rereallyfocusedoncontinuingtoinvest.Because,weseejustatremendousamountofgrowthahead.So,makingsurethatwegocaptureallthosecustomerusecases.And,continuetodelightthemwithourproductsandreachthemwithourfieldorganization,andelevateourvaluewithsolutions,iscritical.And,ofcourse,thatrequiresinvestment.So,again,Iwouldexpectmaybeacouplehundredbasispointsofdeviation.But,I'llupdateyouwhenwegettotheendoftheyear.


Okay.Andthen,justquickly,didtheacquisitionsaddanyrevenuethisquarter?

DaveConte (CFO):

No.


Okay.Thanks.Goodjob.


Thanks,Katherine.

Operator :

KashRangan,BankofAmericaMerrillLynch.

KashRangan (Analyst-BofAMerrillLynch):

Hey,I'lladdmyhunkofcongratulations.Acoupleofquestionswithrespecttothesuccessful[unkasadnes]oneyearupandgettothepointwherecustomerslikeitsomuch,thatitstartstogetexpensive.AndthenyoucamebackwiththeEAAsandCloud.




Towhatextentisthe,ohIloveitbutit'salittleexpensive,isstillprevalentinyoursalescycles?Hastocomedown,stable?Andsecondly,whenyou'rebusinessmakesashiftingtowardsmoresubscription,howareyoumeasuringsalesproductivity?And,whatisthetrendthere?

Andthirdandfinal,myfavoritequestionforDaveConte,yousaid40%ofgrossbookingssubscription.ButIwouldassumethat,giventhatroughlyhalfyourbusinessisofftheincomestatement.Onthebalancesheet,offthebalancesheet.Whyisyourgrowthratenotatleast2timesofyourreportedgrowthrate?Thankyou.


Thankyou,Kash.Threegoodquestions.


Doug,whydon'tyouanswerwhyourgrowthrate'snotdouble?


Yes,I'llstartwiththegrowthrateandletyouanswercompetitiveandthepricing.So,IdothinkthattheEAAdiscussionoptions,andespeciallytheunlimitedEAA,havehelpedabitasfaraspeople'sperceptionofavariablepricingmetric,thattheyperceivetheydon'thavefullcontrolover,aroundthepergigabytesofdataadjusted.

But,whatI'mseeingasamorenotabletrendwithinmoreofthebiggercompaniesthathave,now,gottheirmindsmorewrappedaroundanybigdatasolutionis,they'reunderstandingthetotalcostofdrivingthesetypesofsolutionsintheircompany.

And,nomatterwhatwechargeforoursoftware,whetherwegiveitawayorkeptcurrentprice,wewere10%,15%ofthetotalinvestmentnecessaryoncompute,network,storage,manpoweraroundthat.And,whyIjustseethisflipthat'sbeenreallyconsistentLetmegotrysomethingelse,andthencomebacktoSplunk.It'sgreatproductcharacteristics,greattimetovalue.

But,ultimately,theyrealize,youguysaresignificantlycheaperbecausethathugeboatthatfollowsyou,andfollowsanyonethat'sgoingtobeinthisbigdataarena,issomuchsmallerandsomuchmoreefficient.Andthen,themanpoweragainstitissignificantlymoreefficient.So,Ithinkthatourcompetitivedifferentiationwillcontinuetobereally,reallyquicktimetovalue,becauseofourintegratedapproachacrossthemultipleaspectsofourplatform,andthedifferentiationofourtechnology.

DaveConte (CFO):

And,Kash,it'sDave.Aswehavediscussedinpriorperiods,Idoagreewithyouthatifyoulookattotalgrossbookings,thegrowthratewouldbehigherthanwhatyouseederivedfromthefinancialstatements.But,I'mnotnecessarilyagreeingwiththemapthatyouhave,intermsoftheratethatgrowthwouldbe,ifyouincludeallthecontractvalue.


SoIguessthatthebookingisaone-yearbooking,right?But,thebreakevenpointforasubscription,versuslicense,ismorelikeatwoyear.So,ifyouaretoconvertthatintoaproformabasis,mythinkingisthatthegrowthrateisnotjustlittlebitabove,butalotabove.Conceptually,that'swhatIwassteeringtowards.

DaveConte (CFO):




Sure.Nowremember,though,thatatypicallargeorderthathasatermcomponentisthreeyearinduration.Now,notallofthatcontractvalueisonthefinancialstatements,asImentionedinthepreparedremarks.And,intheone-yearvariety,we'renotmeasuringanyrenewalstreamthatweexpecttoreceive.We'renotdoinganyproformacalculationsthatwouldtakeanannualcontractvalue,andconvertitintoatotalcontractvalue,eventhough--we'renotdoingthatmathintheimpliedgrowthrate.


Yes.I'mdoingthat,andthat'swhyI'mgettingamuchhighergrowthrate.It'sallgood.Thankyou.

DaveConte (CFO):

Yes.That'sright.


AndKash,IwanttotakeyouformakingConteworkalittlebitonthiscall.

DaveConte (CFO):

Everycall.


Thanks,Kash.

DaveConte (CFO):

Thanks,Kash.


Youbet.

Operator :

JohnRizzuto,SunTrust.

JohnRizzuto (Analyst-SunTrustRobinsonHumphrey):

Hi.Goodafternoon,everyone.Thisquestionisalittlebitmorequalitativethananything.

And,it'sreally--ifyoulookatthepotentialforSplunk,IknowyouliketothinkthatIkindofforecastit.Youareonlyscratchingthesurfaceofhowbigyoucanbe.Butso,inthatsense,you'rereallyonlyjuststartingtherace.And,themetricsjustkeepcomingup.Theylookgreat.

Youcouldbeonautopilot,butclearlyyou'renotdoingthatinternally.Whatarethethings,towhatyoucan,thatyou'relookingatinternallytomakesurethatyourbusinessisoperating,orgrabbingtheopportunityinfrontofit,thatithas?Suchthat,asgrowthratespotentiallymayslow,you'restillsolidifyingyourgripandyourholdofthemarketplace?


Goodquestion,andI'mhappytogiveaveryshortanswertothat.TherearethreethingsthatIthinkabout,onacontinuingbasis,tomakesurethatwe'redrivingthisopportunityashardaswecan.Numberoneisimprovingthetechnologyfromtoptobottomofthestack.Wecontinuetoimprovethecore,Splunk




Enterpriseandallthecoreplatformelements,sothatitcanbetheverybestindexingengineanddataanalyticsdeviceknowntoman.

But,thatalsohastoencompassthesolutionsbusiness,henceourmarketgroups.So,beingabletoaddsolutionsandappsontopofthat,likeenterprisesecurity,whichhasbecomesuchaforceinthemarketplace.LikeCaspida,whichwe'llbenextyear.LikeITserviceintelligence,andonandon.So,makingsurethatwehavethebestwholeproduct,regardlessofwhatthecustomer'susecaseis,sothatR&Dspendisjobone.

CloselyfollowingthatisCloud.Because,thenextmajorgrowthareaforusistomakesurethatwecaptureeveryone'sbusiness,regardlessofwheretheywanttodeployit.And,therearesomanycustomerswhohavealotofon-prembusiness,butalsoareputtingnewprojectsintheCloud.

And,wearesouniquelypositionedtohelpthecompanybridgetheirwayfromon-premtotheCloud,becauseofourhybridapproachandbecauseoftheflexibilityofoursoftware,andourfastdeploymenttimes.We'rejust--there'snobodyinthemarketplace.AsDougsaid,there'snobodythatcandeployanddeliversuccessasfastaswecan.

And,thethirdiscoverage.Andit'sallaboutfield.It'saboutfieldexpansion.And,asDougsaid,it'saboutsalespositions,technicalpositions,customersuccess.It'sahighlytechnicalworldwelivein.And,youcan'tjustputsalespeopleonthestreetandbesuccessful.Youhavetoputaverystrongtechnicalteamonthestreettohelpthecustomerachievesuccess,andreallyunderstandthesecomplexissues.

Andsomehow,Splunkmagicallytranslatesalltheseverycomplexdataissuesintoveryrapiddeploymentsuccess.So,nowbacktobeginning.CoreR&Dplussolutionsisone,Cloudistwoandalltypesofcoverageisthree.And,aslongaswekeepdoingthat,Ithinkwehaveaprettygoodrunwayinfrontofus.


Great.Andthenjustafollow-uptothat,lookingatone,youboughttwocompanieshereinanomalydetectionandbehavioralanalytics,which--theycouldbethoughtofasrun-of-the-millapplicationsbutthatactuallyseemslikeitmightbeaninflectionpointinwhereyoucantakeyourtechnology.Particularlyintermsofremediation,prescriptive,analytics,automationanddetection,whatdoyouthinkthatsectorshowimportantthesetechnologiesaretothenextgenerationSplunkoraretheynot?


Theyareimportant.Splunk'sreputation,Splunk'sbrandtothedegreethatourtechnologybrandisbuiltaroundhighlyflexiblesearch,isfantastic.Butcustomersdon'twanttobelimitedtojustsearch.LikeifIjustkeepsearching,I'llfindtheanomaliesorI'llfindtheunusualpatternsorI'llfindtheoutliers.TheywantSplunktotellthemwherethosepatternsareandtotellthemwheretheoutliersare,tobeabletocompareknownversusnewsothatyoudon'thavetodoeverythingthroughaquery.

Soitdoesn'tmatterwhetheryou'retalkingaboutsecurity,orIToperations,orbusinessanalytics,acustomertransactionalsetofquestions,anytypeofprocessanalysis.Youwanttobeabletocomparenewversusoldorrareversusnormalandthosetypesofthings.Sothewholenotionofmachinelearning,anomalydetection,andthelakeiscoretoawholenewsetofapplicationsofwhichinsiderthreatanduserbehavioranalyticsarejusttwoexamples,butyouhavetohavethosecoretechnologiesinordertomovefromquerytopatternrecognition.


IfImayjustaddonequickthing,Imentionedweareincreasinglybeingplayingtheroleasanervecenter.Youcanjustthinkofthattwoacquisitionsasamajorboosttothebrainpowerthatwe'llbringto




thecustomer.


Perfect.Allright.Thankyou.


Thanks,John.

Operator :

KirkMaterne,EvercoreISI.

KirkMaterne (Analyst-EvercoreISI):

Yes.Thanksverymuchforsqueezingmein,andcongratsonthequarter.Godfrey,Ijustwantedaquickupdateonwhatyou'rethinkingabouttheopportunitytoexpandtheISEplatform--ISEpartneropportunityontopofyourdataplatform.IthinkyoutalkedacoupletimesonthecallaboutSplunkevolvingintomoreofadataplatform.

Obviouslyaplatformconnotatestheabilitytobuildmoreandmoreappsontopofit.Youguyshaveobviouslybuildalotofappsyourself.WheretogostandintermsofbringingonnewISEsthatmightbeapproachingdatafromamoreverticalperspectiveorcouldhelpyouguysextendsomeoftheusecasesandbuildsolutionsaroundsomeofyourunderlyingtechnology?I'mjustcuriouswherewestandonthatheadinginto.compnextmonth.Thanks.


Thanks,Kirk.I'llprobablyI'llgiveyouashortanswertodayandclumptherestofthatanswertocomp,becauseIdidn'treallydoalotofhomeworkaroundourmostrecentstatsthere.ButpartofwhatI'veasked[Zahall]todoistoreallybeefuptheteamwehavethat'sdoingallofthedevelopercertifications.Wehaveallthetools.WehavealltheAPIsandtheSDKs.WehavealotofthetechnologybitstohelpadeveloperorganizationandISVsetupcompaniesbecomemoreandmoreconfidentandcapableofsuccessontopoftheSplunkengine.

WherewearealittlebehindonresourcesisactuallyhelpingthemtestandcertifythoseappstomakesurethatwhenstuffgoesuponSplunkbase,it'sreallyeasyforcustomerstotellwhatlikeanopensourcesubmissionversussomethingthat'sbeentestedinanenterpriseenvironment.

AndIthinkthatfortheISVsoftheworld,thenumberonethingenterprisecustomersaskmeis,havethoseappsbeentestedandyouarecertainthattheycanworkinanenterpriseproductionenvironmentwithoutfail?Andthat'saverydifferentleveloffitandfinishthatthecustomersarenowaskingustomakesureof.

Theorganizationwehavethathelpsourdevelopersbesuccessfulisanextareaofmajorinvestmentforus.AndIthinkit'dbealittleeasierforustogiveyouacompletewalk-throughonthat,oratleastabriefwalk-throughonitatcomp,I'lltrytobuilditintoremarkswearepreparingfortheinvestorQ&Aforthepanel.

Butanyway,it'ssomethingthat'shighonmymind.IthinkIprobablywillgetalittlebetterorganizedansweritforcomp.

KirkMaterne (Analyst-EvercoreISI):




Great,lookforwardtoit.Thanks,guys.

DaveConte (CFO):

Thanks,Kurt.


Okay.Thanks,everyone,Karen,thanksforyourhelptoday.Weappreciateit,andwearearoundheretonightifyouhaveanyfollow-upquestions.Hopeyouhaveaniceevening.Thankseveryone.

Operator :

Thankyou.Ladiesandgentlemen,thankyouforyourparticipationintoday'sconference.Thisdoesconcludetheprogramandyoumaynowdisconnect.

Allrightsreserved(c)2014TheStreet,Inc.

Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"ProvidedbyTheStreet"andalinktothecompletetranscriptandwww.thestreet.com.Anyotheruseormethodofdistributionisstrictlyprohibited.

THEINFORMATIONCONTAINEDINEACHWRITTENORAUDIOTRANSCRIPT(the"TRANSCRIPT")ISAREPRODUCTIONOFAPARTICULARCOMPANY'SCONFERENCECALL,CONFERENCEPRESENTATIONOROTHERAUDIOPRESENTATION.THETRANSCRIPTSAREPROVIDED"ASIS"AND"ASAVAILABLE"ANDTHESTREETISNOTRESPONSIBLEINANYWAYNORDOESITMAKEANYREPRESENTATIONORWARRANTYREGARDINGTHEACCURACYORCOMPLETENESSOFTHETRANSCRIPTSASPRODUCED,NORTHESUBSTANCEOFAPARTICULARCOMPANY'SINFORMATION.

THETRANSCRIPTSAREPROVIDEDFORINFORMATIONALPURPOSESONLY.THESTREETISNOTPROVIDINGANYINVESTMENTADVICEORENDORSINGANYPARTICULARCOMPANY.

splunk (splk) earnings report: q2 2016 conference call...

Documents