splunk (splk) earnings report: q3 2016 conference call ... · pdf filesplunk (splk) earnings...

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

EventDescription:Q32016EarningsCallMarketCapasofEventDate:7.96BPriceasofEventDate:62.76

©2014TheStreet,Inc.Al l R ightsReserved Page1of25

Splunk(SPLK)EarningsReport:Q32016ConferenceCallTranscriptThefollowingSplunkconferencecalltookplaceonNovember19,2015,04:30PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

KenTinsley;SplunkInc.;CorporateTreasurer,VPofIRGodfreySullivan;SplunkInc.;Non-ExecutiveChairmanDougMerritt;SplunkInc.;President&CEODaveConte;SplunkInc.;SVP,CFO

OtherPart icipants

JimSuva;Citigroup;AnalystPhilipWinslow;CreditSuisse;AnalystBrentThill;UBS;AnalystMelissaGorham;MorganStanley;AnalystDanielIves;FBRCapitalMarkets;AnalystMichaelTurits;RaymondJames;AnalystEdMaguire;CLSA;AnalystAlbertChi;JPMorgan;AnalystJasonValkemar;RobertW.Baird;AnalystAndrewKisch;BarclaysCapital;AnalystKirkMaterne;EvercoreISI;AnalystMattHedberg;RBC;AnalystKashRangan;BofAMerrillLynch;AnalystBrianWhite;DrexelHamilton;AnalystSteveKoenig;WedbushSecurities;AnalystTimKlasell;NorthlandSecurities;AnalystGregMcDowell;JMPSecurities;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheSplunkIncorporatedthird-quarterfinancialresultsconferencecall.

(OperatorInstructions)

Asareminder,today'sconferencecallisbeingrecorded.

Iwouldnowliketointroduceyourfirstspeakerfortoday,KenTinsley,CorporateTreasurerandVicePresidentofInvestorRelations.Youhavethefloor,sir.

KenT insley(CorporateTreasurer,VPofIR):

Thankyou,Andrew.Goodafternoon,everyone.Thankyouforjoining.

WithmeonthecalltodayareGodfreySullivan,DougMerritt,andDaveConte.Weissuedtwopress




releasesafterthecloseofmarkettoday,andbotharepostedonourwebsite.Thisconferencecallisbeingbroadcastliveviawebcast,andfollowingthecall,anaudioreplaywillbeavailableonthewebsiteaswell.

Onthiscall,wewillbemakingforward-lookingstatementsincludingfinancialguidanceandexpectationsforourfourthquarterandFYandFY.Transaction,productandservicesmix,plannedinvestments,trendsinmomentuminourbusinessincludingcloudbusinessandimpactsonourmargins,andexpectationsregardingourexecutivetransition.Thesestatementsreflectourbestjudgmentbasedonfactorscurrentlyknowntous,andactualeventsorresultsmaydiffermaterially.

PleaserefertodocumentswefilewiththeSECincludingtheForms-Kfiledtodaywithtoday'spressreleases.Thosedocumentscontainrisksanduncertaintiesandotherfactorsthatmaycauseactualresultstodifferfromthosecontainedinourforward-lookingstatements.

Theseforward-lookingstatementsarebeingmadeasoftoday,andwedisclaimanyobligationtoupdateorrevisethesestatements.Ifthiscallisreviewedaftertoday,theinformationpresentedduringthiscallmaynotcontaincurrentoraccurateinformation.

Wewillalsodiscussnon-GAAPfinancialmeasureswhicharenotpreparedinaccordancewithgenerallyacceptedaccountingprinciples.AreconciliationofGAAPandnon-GAAPresultsisprovidedinthepressreleaseandonourwebsite.

Withthatandforthelasttime,IwouldliketoturnitovertoGodfrey.

Godf reySullivan (Non-ExecutiveChairman):

Thanks,Ken.Greetings,everyone,andwelcometothecall.Wehaveseveraltopicstocovertoday.

Firstandbestarethecoolstoriesaboutourcustomers.Wealsohavegreatresultsandoutlooktoreport--also,ofcourse,anoutcomeofourcustomers.And,wealsohavethegreatpleasuretointroducethenewCEOofSplunk.

Let'sstartwhereSplunkalwaysbegins,andthatisinthankingourcustomersfortheirincredibleandpassionatesupport.Ihadthehonorarypositionofactingasemceefor.conf,andthisyearwasthebestyearever.CustomersincludingTargetusingSplunktoanalyzedatafromautomationequipmentandroboticsintheirdistributioncenterstodrivedownsupplychaincosts.Or,BMWusingSplunktoanalyzemanufacturingandenergydatatoresolveproductionissuesandperformpredictivemaintenance.

SonicDrive-InusingSplunktoanalyzedatafromover,point-of-saledevicesacross,retaillocationstodeliverconsistentcustomerexperienceanddetectgiftcardfraud.And,RBCCapital,whotoldthestoryofa-hourSplunkHackathonandcomingoutwithmultiplenewcorporateappsthattheyimmediatelyputintoproduction.

Thanksagaintoourcustomersfortheirinnovativeusecasesandtheirpassionatesupport.Splunkisanamazingplacetowork,andIcanspeakforeveryemployeeinsayingthatourcustomersareournumberonesourceofinspiration.

WewillgettotheQresultsinamoment,butthesecondorderofbusinessistoannounceournewCEO,DougMerritt.BeforeIturnitovertoDoug,Iwanttoexpressmygratitudetoouremployees,customers,partners,andfriendsforyourincrediblefriendshipandsupportovertheyears.Thelastsevenyearshavebeenthemostfunandrewardingyearsofmyprofessionalcareer,andsoannouncingthatIamretiringfeelsprettystrange.

Inreality,Iwanttojumponanairplaneandgoseesomecustomers.But,Ihavebeendoingthatfor




years,anditisfinallythatphaseoflifewhereIwouldliketospendmoretimewiththefamily.AllofyouwhoaremyageknowwhatI'mtalkingabout.

We'veallrunhard,toomanymarathons,weekendwarriors,andabyjob,andnowwehavesomeaccelerateddepreciationonthechassis.Bettertohavesomefunnowbeforethewheelsfallcompletelyoff.

So,I'vebeenworkingwiththeBoardonasuccessionplanforsometimenow,andthat'severyCEO'sresponsibility.TheBoardhasbeeninvolvedandsupportive,butIconsiderthismyresponsibilitytopreparetheCompanyforthenextphaseofgrowth.NFLhistoryislitteredwithquarterbackswhostayedtoolong,andsomewherealongtheline,theyforgotthatthisisateamsport.

WhenIrecruitedDougtoSplunktwoyearsago,itwaswithaneyetosuccession,andI'mdelightedthatweareallnowreadyforthatsuccessfultransition.I'llbeworkingwithDougthroughQtoensureasmoothtransitionandthenmovingontoNon-ExecutiveChair.

So,nowtoyournewCEO.Dougisararehuman,onewhoissmart,competitive,andcreative.Andyet,heiskind.Heiscompassionate,andalwaysthoughtfulofeveryonearoundhim.

Heisalsorareinhavingstartedhiscareerasaprogrammer.IthinkitwasDoug'sCandCOBOL--.

DougMerritt (President&CEO):

Evenmoredetrimental,RPG.


And,alittleRPGthrownin,andthenherotatedinto-plusyearssalesandmarketing.Thenspenttenmoreyearsindevelopment,productmanagementandproductmarketingandsixyearsasaCEOleadingstartupcompanies.He'suniquelyqualifiedtoleadatechnicalCompanylikeSplunk,andI'msohappytobeabletopassthetorchtosomeoneIrespectandtrust.

AtSplunk,hehasdoneagreatjobofbuildingourfieldorganizationandcontributingtooursuccess.I'mconfidentthatDougwilldoagreatjobasthenextCEOforSplunk,andIlookforwardtobeinginvolvedwiththeCompanyasNon-ExecChairandtoassistinanywaypossible.So,Doug,congratsonyourpromotion,andit'sanhonortopassthetorchtoyou.


Thankyouverymuch,Godfrey.Gettingtheopportunitytobementoredbyyouandlearnfromyouhasleftanindeliblemark.Ofalltheremarkableleadersinhigh-techthatI'vehadtheprivilegeofworkingwithandgettingtoknow,youaretrulytheabsolutebestintheindustry.

Thankyouforbeingsuchanincrediblerolemodelandteacherinpersonforme.Icouldn'tbemoregrateful,andI'mtrulythrilledthatwillbeabletocontinueourrelationshiptogetherwithyouasNon-ExecChair.

So,ontoourresults.WehadagreatQ,andIwanttothankourcustomersandpartnersfortheirenthusiasticsupportandourSplunkemployeesfortheirmanycontributions.

Totalrevenuescameinat$.million,up%overlastyear.And,I'mthrilledthatweaddedovernewcustomerstotheSplunkfamily.

Godfreymentionedsomegreatcustomerstoriesfrom.conf.Atthesametime,ourproductteamsmadeanimpressivesetofannouncementsincludingSplunkenterprise.withdoubletheperformance,lowerTCO,




andadvancedvisualizations.Enterprisesecurity.andournewSplunkuserbehavioranalytics,orUBA,tobetterdetectandrespondthroughoutthelifecycleofasecurityattack.AswellasupdatestoSplunkLightwhichisnowavailableasacloudservice,andHunk,orwhatmightbemorenaturallydescribedasSplunkanalyticsforHadoop.

And,goingbacktoourSplunkroots,whichbeganbyfocusingontheITopsandappdeliverymarkets,weareveryhappythatwelaunchedourITserviceintelligencesolution,orITSI,whichisfocusedspecificallyonthosecoremarkets.MorethanadozenSplunkcustomerssuchasAdvancedMDandVodafonehavebeenrunningITSIinproductionandareravingabouthoweasythesolutionistoinstallandconfigure.Andhowquicklytheyareabletoimproveservicelevelsandcustomersatisfaction.

Forexample,AdvancedMDusesITSItomonitorthehealthoftheir$billionclaimsflowprocesstoensureuptimeandanimprovedcustomerexperience.Theyreportedseeingcriticalinsightsliterallydaysafterinstall.InQ,wehadgreatcustomerwinsinITopsandappdeliveryincludingGettyImages,Z illow,Cisco,Intralinks,IndependentHealth,andNASDAQ.

Asyouknow,ourQalsolinesupwiththefederalyear-endsoletmeswitchnowtothehighlightsofourpublicsectorperformance.InOctober,weheldourfirstgovernmentsummitinDCwherewehadmorethan,attendeesgathertosharegreatusecases.Now,Splunkishelpinggovernmentandeducationalorganizationsfulfilltheirmissions.

Forexample,theUSCitizenshipandImmigrationServicesaidthatquote,Splunkisthecornerstonethatgluesalotofourtechnologiestogethersowecangetfastreactiontimeonourdata.And,IquotetheWhiteHousemilitaryoffice--weuseSplunktobeproactive,sinceenabling,ithasbeenatotalmindsetshift.Andfinally,ArizonaState'sinformationsecurityofficereliesonSplunktokeepthedataoftheir,studentssecure,mitigatefishingandspam,andproactivelyidentifypayrollfraud.Itwasatrulygreatevent,andIwanttothankourcustomersfortheirenthusiasmandcongratulatetheSplunkpublicsectorteamonagreatevent.

Wealsohadareallystrongpublicsectorquarterintermsofcustomerexpansion.USPostalServiceusedSplunkoriginallytosupportIToperations.But,rapidlyexpandedwithsecuritywhentheywerebreached.Todayinadditiontosecurity,theyuseSplunkfornetworkmanagement,bigdataanalytics,andemailmonitoring.And,wehadtheDepartmentofEnergy,whosignedanEAAwithSplunk.

Wealsosawgreatmomentuminstateandlocal.FairfaxCounty,Virginia,anewSplunkcustomer,choseSplunkcloudandESastheirnext-generationsecurityanalyticsplatform.TheStateofArkansasISdepartmentsignedanEAAchoosingSplunkastheirstatewideSIM,toensureregulatorycomplianceandimprovetheirsecurityposture.And,theStateofMainepurchasedESoverlegacySIMS.

WehadanimpressiveQinourcommercialsegmentsaswell,ledonceagainbytheAmericasteam,thatalsodroveEAAswithmultiplecustomers.IncludingSynchronyFinancial,whosignedanagreementforSplunkenterprise,ES,andITservicesintelligence.And,Groupon,whoexpandedwithanEAAtodeliverimproveduserexperienceacrosschannelsthroughordermonitoring,mobileusage,andbehavioranalysis,merchantperformanceandpoint-of-saleanalytics.

WealsohadgreatcustomerwinsbyourinternationalteamsincludingLloydsbankinggroup,whoadoptedSplunkastheirloganalysisplatform,basedonsuperiorfunctionalityandaflexible,licensedeploymentmodel.And,IKEAexpandedthisquarterandalsospokeatourSplunkLiveStockholmaboutwhytheyreplacedalegacySIMwithSplunkenterpriseandES.ThelegacySIMcouldn'tscale,couldnotservethousandsofusers,oringestalltypesofdata.

IKEAalsorecognizedthestrengthofSplunkasaplatformtohelpwithITopsandbusinessanalyticsbyusingSplunktocomparereal-timesalestohistoricalsalesacrossregions.Othernotableinternational




winsthisquarterincludeDubaiSmartGovernmentandNTTDocomoinJapan.

Movingontosecurity.QwasarecordquarterwherewesoldmoreESthaninanyotherquarterinourhistory.Wecontinuetostrengthenourroleasthenervecenterforsecurity.Herearesomeofourcustomerwins.

JabilCircuit,whichhasbeenusingSplunkforITops,hasexpandedusetosecurityandaddedEStoquicklyidentifyandpreventthreatsandprotecttheintellectualpropertyoftheircustomers.NorfolkSouthernCorporationexpandedtheirSplunkenterpriselicenseandmadetheirfirstpurchaseofESforevendeeperlevelsofthreatdetection.NorfolkSouthernusesSplunkintheirstate-of-the-artsecurityoperationscenterastheirSIMtoensuretheirbusinessandITinfrastructureareprotectedatalltimes.

And,alargemedicalinstitutionandlongtimeQRadarcustomerwastargetedbysophisticatedattackerswhowereintheirenvironmentlongerthantraditionalSIMmodelretentionallows.Splunkwascalledintoreconstructthedatatoidentifytherootcauseofthebreach.OthernotablecustomersforsecurityincludeAmazon,CreativeArtistsAgency,Yodlee,andNorthwesternMutual.

OurIoTcustomerusecasescontinuetogrowaswell.CenterpointEnergy,aFortuneelectricandnaturalgasutility,choseSplunktomonitortheapplicationsandinfrastructureunderpinningtheirsmartmeteringandsmartgrid.SimilartoTargetandBMW,whichGodfreymentionedearlier,FruitoftheLoomwillbeusingSplunktoanalyzedatafrommanufacturingequipmentandsystems.ManycustomersareleveragingtheKepwareindustrialdataForwarderforSplunkforreal-timemonitoringandanalyticsoftheirindustrialdata.

Lastbutnotleast,cloud.OurQresultsshowcontinuedaccelerationinourcloudbusinesswithordersgrowingintripledigitsyear-over-year.OurcustomersareexcitedwiththespeedandeaseofSplunkcloud.Theyarehappytofocustheirtimeandattentiononanalyzingthedatatoachievetheirbusinessresultsratherthanprocuringanddeployingequipment.

OneparticularwinI'mexcitedtocalloutisProgressiveInsurance,anewcustomerthatselectedSplunkcloudforITopsandbusinessanalytics.Splunkwillbeusedtoimprovecustomerexperienceandgaindeeperinsightintooperationaltrends.Customerswanttoknowthattheirworkloadsareasreliableandsecureinthecloudastheyarein-premise.Splunkistheretohelpcustomersmovetothecloudwithconfidence.

Transitiontopartners,I'dliketocalloutafewkeypartnerendorsements.LetmestartwithAmazonwebservices,whoattheirrecentuserconference,reInvent,Splunkwasagainheavilyfeatured.OurappforAWSwaspresentedintheopeningpartnerkeynote,andSplunkwastheonlyanalyticspartnerintheAWSIoTannouncement.

AtreInvent,wealsoreleasedanewversionoftheSplunkappforAWSwhichintegrateswithservicessuchascloudtrail,config,andVPCflowlogs.ThisenablescustomerstomovetothecloudbygivingthemsecurityandoperationalandeconomicvisibilityintotheirAWSenvironments.WealsodeliverednewintegrationswithvariousAWSservicestoenablecustomerstogainanalyticsandvisualizationtoservicessuchasAWSlambda,IoT,andkinesis.

Finallyaswecontinuetoinvestinourjointengagements,TeresaCarlson,VicePresidentofAWSworldwidepublicsector,spokeduringthekeynoteatourrecentgovsummit.IndescribingthevalueofSplunk,Teresasaidquote,SplunkishelpingcustomershaveconfidencetomoveandgrowtheirbusinesswithAWS.Thankyou,Teresa.Wecouldn'tagreemore,andwelookforwardtoaffordtoourcontinuedsuccessfulpartnership.

WealsoannouncedourstrategicalliancewithBoozAllenHamiltonthispastquartertocreatejoint




solutionsforcyberthreatdetection.Inaddition,SplunkwillbeutilizedbyBoozAllen'smanagedsecurityservice,cyberforsite,tomakethedataitcollectsmoreactionablethroughsecurityanalytics.Wewillalsojointlydevelopandhosteventswhereleadersareputinasimulated,incidentresponseexercisetohelpthemunderstandhowtoprepareforandhowtorespondtocyberincidentsandthreats.Ipersonallysatthroughoneoftheseexercises,andI'vegottotellyou,itwasanincrediblypowerfulexperience.

Insummary,itwasafantasticquarter.I'mreallyproudoftheentireSplunkteam.Ourcoredevelopmentteamskeepdeliveringimpressiveinnovationandfunctionalitythatwasonfulldisplayat.conf.

Themarketgroupsaredefiningstrategy,productdirection,andbuildinganenviableecosystemfortheirsolutions.Ourcloudbusinessisacceleratingbasedonaclearstrategyandgreatoperationalfocus,andoursuperbfieldorganizationjustkeepsgettingstrongerandbetteratdeliveringcustomersuccess.

Again,thanksallofourcustomersandpartners,andthankstoeverybodyworksatSplunkandforagreat,greatquarter.Now,letmeturnthecallovertoourCFO,DaveConte.

DaveConte (SVP,CFO):

Allright.Thanksmuch.

First,Doug,manycongratulationstoyou.VeryhappytoseeyousteppinginastheroleofCEO.

Andmanycongratstoyou,Godfrey,onyourretirement.Ofcourse,asChairman,I'llstillgettomesmerizeyouwiththenumbers.Maybeyouwon'tbeontheauditcommittee,butregardless.Herewego.


ThethingIlookforwardtothemost.


Herecomethenumbers.Q,asyou'veseenintherelease,wasourbesteverdrivenbyincreasingadoptionofourproductsandplatform.

Third-quarterrevenueswere$.million,a%increaseoverQoflastyear.Licenserevenuesgrew%year-over-yeartotaling$.million.

InQonceagain,morethan%ofourlicensebookingscamefromupsellstoourcustomers.Werecordedordersgreaterthan$,.WealsosawlicenseASPsgrowsharplytoover$,inthequartercomparedto$,to$,historically.ThejumpinASPswasattributedtotheincreasedadoptionbybothexistingandnewcustomerswhoaredeployingSplunkforagrowingsetofusecases.

Nowonpriorcalls,Ihavementionedthattheratablemixofbookingscontinuestovarysubstantiallyquarter-to-quarter.Asabriefrefresher,thekeycontributorstotheratablemixaretermlicensecontracts,Splunkcloud,andcertainEAAs.

InQ,theratablemixofbookingswas%whichisonthehighendofourguidedrange.AsI'vesaid,theratablemixcanswingsubstantiallyquartertoquarterlargelybasedoncustomerbuyingbehaviorandgenerallyfollowingseasonalpatterns.Wethereforetakealongerrangeviewofmixandpreviouslyhadbeenexpectingtobeatthehighendofourfull-yearrangeof%to%.

Consideringyear-to-dateactualresultspluscurrentvisibilityforQ,wenowexpectfull-yearmixtolandbetween%and%andexpectitwillremainattheselevelsonanannualbasisoverthelongerterm.AsImentioned,themixcanswingseasonallyandfalloutsidethisrangeforanyindividualquarter.




Allright.Backtotheresults.

InQ,internationalrevenuesrepresentedapproximately%ofthetotal,consistentwithpreviouslevelsandcomparableonayear-over-yearbasis.Oureducationandprofessionalservicesrepresented%ofrevenuesinQ.

Withrespecttomargins,whichareallnon-GAAP,Qoverallgrossmarginwas%,consistentwithlastquarteranddownslightlyyear-over-year.Reflectingtheexpansionofourcloudbusinessaswellasservicesaroundourcoremarketsolutions.

Outperformanceonourtoplinetranslatedtobetter-than-expectedbottomlineaswell.Operatingincomewas$.million,representingapositiveoperatingmarginof.%.Qnetincomewas$million,andEPSwas$.persharebasedonafullydilutedsharecountof.millionshares.

Cashflowfromoperationswas$.millioninthequarter,andfreecashflowwas$million.Overall,weendedthequarterwith$millionintotalcashandinvestments.

Now,lookingforwardtotheremainderofFY.WeexpectQtotalrevenuesofbetween$millionand$millionwitha%to%positivenon-GAAPoperatingmarginforthequarter.Withouryear-to-dateperformanceandourQoutlook,full-yearrevenueswillbeapproximately$million,upfromourpriorguidanceof$millionto$million.

Aswecontinuetoincreaseourinvestmentsinmarketgroups,productteams,thefield,andSplunkcloud,wemaintainourexpectationtogeneratepositivenon-GAAPoperatingmarginofabout%forthefullyear,consistentwithlastyear'slevelandpriorguidance.Sinceweexpecttobeprofitableonanon-GAAPbasisforQandthefull-year,foryourEPScalculations,youshoulduseafullydilutedsharecountofapproximatelymillionsharesinQ.

I'vesaidthatour[fusion]margintargetsincludetheimpactofagradual%to%increaseincostofservicesfromourgrowingcloudbusinessaswellashigherprofessionalservicesdeliveredaroundourcoremarketgroupsolutions.Weremaincommittedtorunningthebusinessonapositiveoperatingcashflowbasisoverall.Withourstrongyear-to-dateperformance,wenowexpectthatfull-yearoperatingcashflowwillbeapproximately%ofupdatedfull-yearrevenues.Thecomparestoourpriorguidanceof%.

AsI'vementionedbefore,FYisahigherthantypicalCapExyearasweexpectthebulkofourSanFranciscoHQbuildoutcoststobeincurredthisyear.Whencombinedwithglobalfacilityexpansionsthatmatchupwithourgrowingemployeebase,weareontracktoincurapproximately$millionintotalCapExthisyear.$millionofwhichwe'vealreadyrecognized.

LookingpastQ,IwanttogiveyousomeinsightintermsofhowwearethinkingaboutnextyearwhichisourFY.Currently,weexpecttotalrevenuesofapproximately$millionnextyearwiththeseasonaltrendscloselyfollowingthoseofFYandFY.

Asyouknow,sinceourIPOinApril,industryanalystshaveincreasedthepotentialTAMforourproductstoabout$billion--somethingthatwesharedat.confduringanalystday.Giventheearlystageofthemarketandgivenouroveralllevelsofgrowth,wewillremainininvestmentmodeaswecontinuetheexpandtheproductportfolioandourglobalfieldreach.Wewillcontinuetorunthebusinesswiththeseinvestmentsinmind,andasaresult,weexpectthatnon-GAAPoperatingmarginnextyearwillbecomparablewiththecurrentyearlevels.

AsImentionedatthatanalystmeeting,werecentlysignedaleaseforournewSouthBayofficeatSantanaRow.Thebuildingiscurrentlyunderconstruction,andweexpecttotakeoccupancyinlatecalendar.Obviously,thisisgoingtorequiresignificantamountofcashinvestmentintermsofcompleting




thebuilding.

Assuchglobally,weexpectnextyearabout$millionto$millionoftotalcapitalexpendituresfortheentireFY.Again,thebulkofwhichwillbeforthatSantanaRowbuildout.

Inclosing,ourteamcontinuestoexecuteonourmissiontodeliverexceptionalvaluetoourcustomers.Qwasreallysolid,andI'menthusiasticaboutouroutlookfortherestofthisyearaswellasFY.

Thanksmuchforyourtime,yourinterest,andI'msurealivelyQ&Asession.Withthat,Operator,backtoyou.

QUESTIONS&ANSWERS

RETURNTOTOPÊÊ

Operator :


WalterPritchard,Citi.

JimSuva(Analyst-Citigroup):

ThisisactuallyJimonforWalter.GreatquarterandcongratstobothGodfreyandDoughere.


Thankyou.


Thankyou,Walter.


HowshouldwethinkaboutthenormalizedCapExgoingforwardbeyondFY?


NormalizeCapEx,sure.IfyoulookbackatCapExpriortotheseHQbuildouts,wewererunningintheanywherefrom$millionto$millionannually,andthosewerespecificallytiedtoheadcountadditioncosts.So,aswegainsomecriticalmassintermsofsizeoftheCompany,wealsohaveagreatercapacitytohiresowethinkthatwecanaddmoreemployeesnextfiscalyearandtheyearafterthenwehaveintheprioryears.So,IwouldexpecttheCapExtorangeinthat--callit,$millionto$millionrangeonanormalizedbasis.


Gotit.Thanks.Andthen,secondly,whatpartnershipsarereallydrivingbusinessforyou?ItseemsasthoughyoutalkedabouttheAmazononehere,anyotherinterestingtidbits?


Yes,wearestillinaheavyco-sellmodewithallofourpartners.Ithinkwemadesomegoodprogressaswe'veinvestedmorespecificallyacrossthepartnerchannel,butwhenwegetasensethatweareabletohavepartnersdrivemoreandusparticipatelessthenwewillabsolutelybuilditintoouroutlookforyou.





Gotit.Thanks.


Thankyou.

Operator :


PhilipWinslow,CreditSuisse.

PhilipWinslow(Analyst-CreditSuisse):

Thankyou,andI'mjustexcitedtobethefirsttosaycongratulationstoGodfrey.Irememberwhenwemetatthefirst.confoverfiveyearsagowhenyouweredoinglessthan$millioninrevenueandhowexcitingthestorywasthenandjustseeingwhatyouhavebuiltthisCompanyinto.Youdeservearestsocongratulations.(laughter)


Thankyou,Phil.Totalgas.Somuchfun,andIappreciateallofyoursupportovertheyears.


Ofcourse,Iknowyouweren'treferringasalifetimeBroncofantoPeytonManningwhenyouweretalkingaboutquarterbacksstayingtoolong.IfitwasDavemakingthatcomment,IknowhewouldbetalkingabouttheBroncos,butactuallygoingtobreaktheOperator


Thanks,Phil.Sosales-frontwise,I'vebeentalkingforafewoftheseearningscallsaboutafocusedstrategywithindifferentcountriestobuildcriticalmass.Wherewehaveeffectivecriticalmass.Largenumbersofpeople,referenceableaccounts,goodpenetrationwithinindustries.UScommercial,andIthinkincreasinglypublicsectoraregreatexamples.Weareseeingacontinueddropintimetoproductivity.Thoserepsarecomingupprettyquicklyasyouwouldguessbecausetheenvironmenthelpsthem.Theexplicitfocusoverthepastyearandchangehasbeen,let'sgetthatsamecriticalmassinternationally.And,overall,ifIlookglobally,wearestillprobablyaboutayearonaverageforrepresentativetoreallybeatfullproductiverates,butthat'sreallyrepresentingthevariantsofthincountriesversusmediumcountriesversusthick.And,ourgoal,aswe'vesaid,istokeeppilinginvestmentintoourtopregionssowecangetthosebenefits.


Andthen,Phil,yourquestionwasoncewegetthroughtheatypicalCapExinvestmentsthatwe'remakingaretheresomecorrespondingOpExamounts.And,we'vebuiltintoourforecastandouroutlookcertainlyforthisyeartheremainderofthisquarterandnextyearaswearethinkingaboutitinitiallywhatit'sgoingtocostusontheoperatingsidetogetthebuildingsonline.Oncetheyarethereandwehaveabettersenseintermsoftheoccupancycoststhenwewillrollthatin,butmostofthatwillgetbuiltintoFY.


Gotit.Thanks,andcongratsagain,Godfrey.





Thanks.


Thanks,Phil.

Operator :

BrentThill,UBS.

BrentT hill(Analyst-UBS):

Godfrey,you'llbedeeplymissed,butwe'reingreathandswithDoug.So,IguessforDougjustonthenewrole,canyoujusttalkalittlebitaboutwhatweshouldexpectfromyourperspectivegoingin?Obviously,everythingisworkingandgoingintherightdirection,butmaybetalkthroughjustacoupleoftopprioritiesthatyouhavegoingintoyournewrolewouldbehelpful.


Absolutely.Thankyou,Brent.OneoftheincrediblyexcitingthingsaboutSplunkasDavementionedinhisremarksistheTAMthatwearegoingafterisbigandseemstocontinuetogetbigger.Eventhoughwe'vebeenaddressingthemarketeffectivelyandjusttalkedaboutagreatquarter,wearestillsoincrediblyearlyinthatcycle.Ifwehada$billionorlargerTAMandtheguidancethatwe'reprovidingwearestillinthe.percentagepoint,lowsingle-digitpercentagepointsofpenetrationofthatTAM.So,formyfocus,thenumberonemostimportantthingaswithanytransitionistomakesurethatQhappensthewayitissupposedtohappenandwedon'tmissabeatwiththefield.I'mgoingtocontinuetomanagethefieldleadersdirectly.We'vegotareallystrongteam,andI'mconfident--weareallconfidentthatwewillkeepoureyeonthatincrediblyimportantgoal.Outsideofthat,ensuringthatwekeepthegrowthpedaldowntoexploitthatTAM,keepdrivingourproductportfoliothewaywehaveintothedifferentadjacentmarkets,andkeepdrivingSplunkasadatafabricplatform.IthinkoneoftheadvantagesthatI'vehadisI'vebeenherefor.yearsandhavedefinitelyhadalotoftimewiththerestoftheexecutiveteamandtheoverallSplunkteamtomakesurethattheformulathatGodfreyhasledandwillcontinuetoleadasanexecutivechairmanwithhisinfluencehasbeenexecutedsoeffectivelyandmakingsurethatwekeepthatinmindandkeepguidingtowardsgrowthIthinkisgoingtobekey.

BrentT hill(Analyst-UBS):

Thankyou.

Operator :

KeithWeiss,MorganStanley.

MelissaGorham(Analyst-MorganStanley):

ThisisMelissaGorham.I'mcallinginforKeith.Bestoflucktoyou,Godfrey,andechoeveryoneelsetosaythatyouwillbemissed.


Thankyou.

MelissaGorham(Analyst-MorganStanley):




JustaquestiononSplunkcloud.Itseemslikeyouarestillcontinuingtoseeverygoodtractionthere.Justwonderingifyouaredoinganythingtoincentivizeyoursalesforcetosellthatsolution?Or,aretheylargelyneutraltosellingSplunkcloudversusSplunkenterprise?Andthen,intermsofwhereyou'reseeingtraction,isitlargelygarneringnewusers?Or,doesitallowyoutofurtherpenetratewithinyourexistingcustomerbase?


Thanks,Melissa.ThisisDoug.Iwilltakethat.Wearetryingtokeepitneutralrightnow.OneofthestrengthsofSplunk,Ithink,isnomatterwiththeinfrastructurallandscapeisofacustomer--heavilyon-prem,heavilyacloudoranytypeofhybrid,ourproductcanfollowthatconfigurationandit'simportanttofollowthatconfigurationbecausewe'regoingtoneedtobeclosetothatdatasource.Makingsurethattherepsapproachthecustomerstraightfromtheverybeginningonhowdoweserveyourneedsbestwithoutpushingonewayortheotheriswherewearetryingtokeepthatcompplanintheirfocus.

Withthatsaid,Ithinkthegrowthincloudhasbeenaverybalancedgrowth.WeseesomenewcustomerslikeProgressiveInsuranceIhadtalkedaboutearlierintheremarksaswellasexpansionofexistingcustomerswhomightbehavingsometypeofhybridmodelorevensomecustomersthataremovingtheirentiresetofworkloadsovertocloud,andit'sprettymuchacrosstheboardalsoasfarassmallerSMBaccountsallthewaytosomeofthelargeraccountsthatwehaveannouncedinthepast.It'sfollowingsuitwithwhatweareseeingwithSplunkacrosstheboard.


ThisisDave.It'sinterestingasourcloudbusinessgainsmomentumandacertainlevelofscaleandmaturity,thepatternthatwehaveexperiencedwithexistingcustomers--again,over%oflicensebookingscominginupsells.ManyofourcloudcustomershavefollowedthatpatternaswellandhaveincreasedtheirworkloadsinSplunkcloud.So,there'sareplication,ifyouwill,orasimilarcustomerexperienceintermsofhowtheyputmoredataintoSplunk,getmorevalue,andthenlookformoreopportunitiestoputmoredataintoSplunk.That'sexcitingforsure.


I'lltaketwomoresecondsonthishybridapproachbecausewetalkaboutthatalotandsomeothercompaniescanusethatterm.WhatistrulyamazingaboutSplunkis,itdoesn'tmatterwhereeachcomponentsits.Youcanberunningsearchesondatabothon-premandincloud,privateclouds,publicclouds.ThedatacanbeindexedinanyportionandsentanywhereelsesoitreallyisaubiquitousapproachwhichfromwhatIcantellsofarintheindustryisitmakesusinacategoryofone.

Operator :

DanielIves,FBR.

DanielIves (Analyst-FBRCapitalMarkets):

Thanks.Godfrey,ayearfromnowareyougoingtobeascratchgolfer?(laughter)Isthatthenewgoal?


Iamsofarawayfrombeingascratchgolfer.Thatwillnotbeoneofmygoals.


Okay.Thankyou.





Godfreyalwaysshootsunderbutheplays.


And,theballfromthewoodsmagicallyendsupinthefairway.Youaregoingtobemissed.Ithasbeenagreattrip.Myquestionisonthesecurity--theintersectionofsecurityandbigdata--asbigofaroleyouguyshaveplayed.Whatinningareweintermsofonthatsecuritydataanalyticsmarketopportunities?Obviously,ithasbeenakeypartofyoursuccess,buthowdoyouviewthatgoingto?


There'stwoaspects--there'smultipleaspectsthatIkeeplookingatasfaraswhereweonthetrajectoryofgoingafterourTAM.And,oneofthemiswithinagivencustomerthatisusingusforsecurityanalyticsorforanotherusecase,howmanyofthesesourcetypesthatshouldgointoSplunktoprovidethatcomprehensive,end-to-endvisibilityareactuallymappedintoSplunk?Evenwithinsomeofourbettercustomers,therestillismoreprogressthatwecanmakeongivingthemthattruevisibility.I'mmakingsurethatallfirewalllogs,allIDSIPSlogs,end-usersecuritylogsarefedin.OSanddatabaselogs,soIthinkthatwearestillrelativelyearly.Thatwholetermofsecurityanalyticsisarelativelynewterminthesecuritylandscape,andinmanyofthecustomeraccountsthatIgointoandthatmyrepsgointo--we'restillevolvingthatviewpointofwhywearedifferentthanatraditionalSIM,whydidwegetdraggedintothismarketinthefirstplacebecausewe'remoreofthisdatafabric.We'vemadereallygoodprogressthere,butit'salonggamestillinfrontofus.


Congrats,Doug.


Thanks,Dan.


Thanks,Daniel.

Operator :

MichaelTurits,RaymondJames.

MichaelT urits (Analyst-RaymondJames):

I'llfollow-uponDaniel'squestiononsecurity.Youhavegivenusasenseofwhatpercentagesecurityhasbeenoftotalrevenuesinthequarter.Canyouupdateusonthat?Andalso,onboththecompetitivepicturethere.Whatyouareseeingcompetitively?Anychanges,anybodynewinsecurityanalytics?And,ofcourse,ithasbeenaquestionofthequarter,isthereanychangeintheoverallstrengthofsecurityspending?


Sure.Hey,Michael,it'sConte.Q,securitywasabout%ofthebusinesssothathasbeenprettyconsistentintermsofithadbeen%,%acoupleofyearsago.WeadvancedourofferingsintermsoftheESsolution.Ofcourse,weIthinkwiselycreatedourmarketgroups,andHaiyanjoinedthecrewandaddingthatsubjectmatterexpertisereallygaveusadifferentpositionatthetable.Overthelastnumberofquarters,




wehaveseensecuritygofromwhatwasagainacoupleofyearsago%,%toconsistently%ofthebusiness.WesawthatagaininQ.


Onthecompetitivefront,Michael,IsaidthatIhaven'tseenanymajorshift.IfIgobacktowhatissouniqueaboutSplunkandwhyhaveweemergedassuchasuccessfulsecurityvendor.GodfreyhastalkedoneveryearningscallI'veeverlistenedtoaboutschemaonreadinsteadofschemaonright,andwhythatissoimportantinmanyusecasesandinsecurity,inparticular,itisactuallycritical.Thatschemaonreadallowsustoaskanyquestionofthedatathatwewanttoaskatthemomentofaskingwithouthavingtohavegonethroughthepainofmanicuringandmassagingandcleansingthatdataliketraditionalsolutionshavedriven.Ourcoredifferentiatorstillremains.Securityissuchavolatile,alwaysprogressing,alwaysevolvingmarketplace,andwe'vegotacorearchitectureandthensetofproductswithenterprisingsecurityandnowwiththeuserbehavioralanalyticsproductthattakesadvantageofthatflexibility.WearestillgenerallycompetingwithpartneringwithflashcompetingwiththeSIMvendors.Feedingdatainto,grabbingdatafrom,orinsomecasesifitisabrand-newbuylookingatusversusthem.


Iwillevenpileonhere.Ithinkthenatureofthequestionistherehasbeenalotofchatterinthemarketplaceaboutwhethersecurityoftoppedoutorstartedtodeclineinsomewayorthatsortofthing.Wehadagreatquarterinsecurity,andIbelievethatwehaveanunusualopportunitygoingforwardthat'snotjustlimitedtoSIMorlimitedtothreatdetectionorlimitedtosomeofthepointsolutionaspectsforexactlythereasonthatDougpointedoutwhichistheabilitytogetlotsofdifferenttypesofdataandanalyzeitinalmostanywaythatdeliversbothforensics,security,investigation,userbehavior,insiderfraud.ThenumberofusecaseswecangetbecauseofthenumberofdatasourcesIthinkputsusinalittledifferentpositionthansomeoftheconcernthatwasinthemarketplaceearlierthismontharoundotherearningsreportsandthelike.Wearehugelybullishaboutthesecurityopportunity.

MichaelT urits (Analyst-RaymondJames):

Great.Thankyou.


Thanks,Michael.


Thanks,Michael.

Operator :

EdMaguire,CLSA.

EdMaguire (Analyst-CLSA):

Goodafternoon.Godfrey,IknowwhenyoustartedatSplunkyouwantedtohavefun,andit'sgreattoseeyoumanagingthetransitionsowellonahighnote.Bestwishestoyou.I'msureyou'regoingtocontinuetohavealotoffun.


Thanksverymuch.Iappreciatethat.





IhadaquestionabouttheroletheapplicationsareplayinginthegrowthofASPs.And,reallythequestionhere--youhadalludedtoamuchbroaderrangeofusecasesthatyourcustomersareusingthetechnologyfor,butalsoyou'reabletochargenowforITSIandenterprisesecuritywhichseemtobetrackingwell.Howdoyoubalancethebreadthofhowyourcustomersareusingtheproductswiththefocusthat'sinvolvedwithengineeringandgoingtomarketwithmorespecificsolutions?And,doyouactuallyseethishigherISPlevelcontinuingatleastforthenearterm?


Thanks,Ed.WhenIlookattheapps,Ithinktherearemanybenefitstothem.Oneiswecanchargeforthem,butthecoreisithelpsillustratethetimetovalueofSplunkbeautifullyforcustomers.Youcangivethemtheplatformandletthemhuntaroundandfigureoutthevaluetheyaregoingtoget,oryoucangivethemaplatformwithenterprisesecurityontoporwithITSIorwithUBAandtheygetimmediateah-hahmomentsandthencanstillusetheplatformtohuntaround.Ithinkabitoftheperformancethatweareseeingisfastertimetovalueinsomecasesbecausethoseappshavefasterclosecycles.But,thecoreisyoustartwithusecaseAandyouquicklyseeBandC.Youjumpinadifferent[buying]centergetadditionalusecasesandtheenterpriseorientationoftheplatformcomesout.Thatisreally,Ithink,thepredominanttrendthatIhavebeenseeingasfarassomeoftheASPincreasesorsomeofthesedeepercustomerrelationshipsastheystartedwithsecurityandmovedtoITopsandappdeliveryandthenrealizedthereissomebusinessanalyticsandIoT.Or,theymayhavestartedITOAanddoneadifferentjourney.But,IthinktheEAAformatsthatwerolledoutatthebeginningoftheyeararestartingtogetalittlebitmoretractioninthemarket,andthatincombinationwithsomeoftheseappsisIthinkaverynicebeneficialpiece.


Great.Thankyou.


Thanks,Ed.

Operator :

MarkMurphy,JPMorgan.

Albert Chi(Analyst-JPMorgan):

Thankyou.ThisisactuallyAlbertChionforMarkMurphy,andcongratulationsonagreatquarterandthenews.YoumentionedseveralEAAenterpriseadoptionagreementwinsonthecall.CouldyoucommentonhowmanyEAAsyouclosedduringthequarter,andhowdidthatcomparewiththepriorquarters?Andalso,whendoyouthinkthatcouldbecomealargerheadwind--or,sorry,atailwindifithasn'tbeenalready?


Hey,thisisDave.Again,asDougmentioned,werolledtheprogramoutMarch,andwhilewearecertainlyhappywiththeEAAtransactionsthatwe'verecorded,they'restillafractionoftheoveralltransactionvelocity,andoveralltransactionvolumecontinuestogrowforus.It'sthatcustomersarelookingatusintermsofastandardplatform,andasaresult,youareseeingitinthoseASPs.Intermsofitbeingofaheadwindortailwind,again,theabsolutenumberofthemissosmallthatintermsoftheoverallsizeofthebusiness,Ithinkwearegoingtoneedtogetsomemoremilesintherearviewmirror




beforewecanevaluatewhetherornotthere'ssometypeofcontributioncomingfromthoseguys.

Forthoseofyouthatwereatanalystday,Ihadshownsomeexamplesofacustomerlifecycle,andit'sreallyimportanttounderstandthatjustbecausewehaveanEAAprogramavailable,thecustomerintermsoftheirmaturitywithourproduct--howmanydisparateusecaseshavetheydeployedacrosshowmanydifferentdepartments.Ultimately,thevalueofstandardizationacrosstheplatformiscorrelationofallyourdatasources.So,IhadacouplecustomerexamplesinthePowerPoint,andit'sanywherefromfouryearstosixyearsofsteadyadoptionintheseindividualusecasesordepartmentsthatleadstothematuritythatyouneedtoseeinanaccounttowhereyouwouldsayyes,theyareripeforanEAA-typetransaction.Ithinkthat'sareallyimportantcontributorintermsofhowmanydoyouthinkwearegoingtodooveraperiodoftime.


Thanks.So,canIsaythatlessthan%to%ofyourlicensebusinessatthispoint?


Intermsoftransactionvolume,certainly.


Gotit.Thankyou.


Yougotit.


Thanks.

Operator :

SteveAshley,RobertBaird.

JasonValkemar (Analyst-RobertW.Baird):

ThisisJason[Valkemar]sittinginforSteve.Thanksfortakingmyquestion.IwantedtogetanupdateonSplunkLight?Ithasbeenoutforaboutsixorsevenmonthsnow.Justcuriouswhattheearlyresponsehasbeen?And,isitprimarilyattractingnewusersfrommostlysmallercompanies--mostlySMBs?


Itisaveryexcitingproduct.IthinkSplunk,againlikeIwastalkingaboutearlierasfarason-prem,cloud,hybrid,wearetryingtobepresentinasmanydifferentplacesasacustomercouldpossiblylookattothentakeadvantageofSplunk.IthinkLighthasdefinitelyopenedupmoreofthesmallerdepartmentalandSMBmarketthatwantspossiblyasimplerproduct,differentpricepoint,etcetera.Wearedefinitelyseeingvolumesincrease.Interestingly,ithasbeenprettystrongintheeducationsector,whichmakessensegiventhesmallerITstaffs,butstillalotofdemandsthateducationalinstitutionshave.Thewholepointwaslet'smakesurethatwecontinuetomakeSplunkavailabletomultipledifferenttypesofcustomers,andwe'reseeingthattractionwithSplunkLight.

JasonValkemar (Analyst-RobertW.Baird):

Great.Thanks.





Thankyou.


Yougotit.

Operator :

RaimoLenschow,Barclays.

AndrewKisch (Analyst-BarclaysCapital):

Hi,thisisAndrewKischonforRaimo.MycongratsagaintobothGodfreyandDougandonthequarter.Doug,couldyouupdateusonhowmanyquotarepsyouhavenow?And,nowthattheheadofsalesisrunningtheshow,doyouhaveanychangesinstoreforhoweitherwithpricingorwiththestructureofthesalesorgthatyoucouldsharewithus?


Sure.Wefinishedthequarteratasfarasdirect,individualquotacarriers.Obviously,theoverallsalesorgthatsupportsthemislargerwithpresalesandoverlayofsalesandthebusinessvalueconsultinggroupandtheothercontributors.Asfaraschanges,Ithinkthatthat.yearsoftimewiththeteam--thatSplunkisauniqueCompanywithsomeuniquemodels,andithasbeenreallygoodlearningexperiencetogetthechancetobeaccountableforthatrevenueandgotoeverycorneroftheglobeandseeeverytypeofcustomertoreallyunderstandwhatmakesSplunkspecial.IamabsolutelythrilledabouttheTAMandthegrowthopportunities.Ithinkwe'vebeeneffectiveindrivinginvestmentintothefieldsothatwecankeepthatexpansiongoingattheratethatweneedtohitourgrowthnumbers,andIdon'tseeanychangeintheapproachesthatwe'vebeentakingasfarasgoingafterthegrowthinthemarket.

AndrewKisch (Analyst-BarclaysCapital):

Great,andcongratsagain.


Thankyou.

Operator :

KirkMaterne,EvercoreISI.

KirkMaterne (Analyst-EvercoreISI):

I'llechomycongratstobothGodfreyandDoug.Doug,IwantedtoaskyouabouttheBoozAllenrelationship,andyoumentionedearlierthatyou'restilldoingalotofco-sellingrightnow.Youhavesuchauniquebusinessthatofferssomuchvaluetoyourcustomersoncetheyunderstandwhattodowithit.But,oneofthethingsthatprobablyhasn'tevolvedasquicklyisapartnerchannelaroundthatwhichcouldmaybeopenupthetopofthefunnelandbringmore--takethatnewcustomersaquarterupto,.DoestheBoozrelationshipopenthatpartneringchanneluptoyoualittlebit,andIguesshowdoyouseethatevolvingasweheadintocalendar?Thanks.


Absolutely,Kirk.Iwilldividethatintotwoaspectsoftheanswer.TheBoozAllenrelationorour




relationshipswithVerizonorAccentureorAWSorCiscoorotherkeystrategicpartnersreallyhelpsonhandingintroductionsintoaccountsandpointedintroductions.AtBoozAllen,itisgoingtobeallaroundeitherdrop-insonsometypeofbreachormediationorinsightintocybersecuritythreats.So,Ithinkthatthatandotherrelationshipsinthatsecurityspacewillhelpuswithbetterchiefinformationsecurityofficers--CISO-typeapproaches.Thosearegreat,andwe'vegotsomeco-sellingrelationshipswithsomeofthoseorganizations.AWSandourrepsarehand-in-handwithmanyofthesedifferentaccounts,butbeingabletohandovertheend-to-endsaletoanyofthosestrategicalliancepartnersis--wewillworkonit.Itwillbenicetogetthere.

Thesecondpieceisthechannel.First-tierdistributorslikeArrowandsecond-tierISVsandVARs,andthat'sreallywherewe'vebeenworkingtogetthemtobeabletocarrytheballendtoend.Wehaveinstancesofthatinthefieldrightnow.Ineedthoseinstancestogoupbecausewhenthathappensourrepscangofocusonthesesixopportunities.ThechannelcangofocusontheseotherXopportunities,andwecandivideandconquerandbesuccessfulwithinthemarket.And,thatwasmoreofwhatIwastalkingabout--whatImeantwiththeco-sellisstillthemajormotionwiththatchannel,andwe'reworkinghardtogettoaleveragesellwheretheyarecarryingtheball.

KirkMaterne (Analyst-EvercoreISI):

Thanksverymuch,andcongratsonagreatquarter.


Thankyou,Kirk.


Thankyou.

Operator :

MattHedberg,RBCCapitalMarkets.

MattHedberg (Analyst-RBC):

Thanksfortakingmyquestion.Twoquickones.Firstone,Doug,wouldyouexpecttoeventuallyhireareplacementforHeadofFieldOpsmaybeaswegetintonextyear?Andthen,forDave,obviouslyyoucommentedonflatmarginsnextyear.Isitsafetoassumethatcashflowasapercentageofrevenuenextyear?Shouldthatbesimilartowhatwehaveseenthisyear?Or,couldthat,infact,tickupalittlebit?Thanks.


Thanks,Matt.Yes.Absolutely,lookingatpullinginareplacement.Wewillopenasearchrightawaynowthatthenewsisout,andwehavegotalotofverytalentedfolkswithinourfieldorganization.I'mexcitedtoseewhattheopportunitiesareasfarasthosefolksaswellaswhatisoutthereexternally.MyQfocusthoughisthatwe'vegotpeopleinseats,theyaredoingtheirjob,let'skeepthatmotiongoingatthesametimethatwelookforwhotherightlong-termleaderisforthatfieldopsorforthefieldleadershiprole.Itmayturnouttobemorethanonerole.


ThisisDave.Asitrelatestomargin,we'vegivenourpreliminarypointofviewaboutrevenue,andasyoumightexpect,wearerightinthemidstofalloftheheavyliftingaroundnextyear'splansosomedirectionalthoughtsaroundthemarginiswhatIintendedintermsofwhatwe'vegiven.Whenwegetto




theendoftheyear,ofcourse,wewillgetmorespecificaroundwhatyoucanexpectfromusnotonlyintermsofmarginexpansion,butalsocashflowasapercentageofrevenue.Atthattime,I'lllooktogiveyousomeguidanceintermsofwhatFYlookslike.

MattHedberg (Analyst-RBC):

Gotit.Thanks.


Allright.


Thanks,Matt.

Operator :

KashRangan,BankofAmerica.

KashRangan (Analyst-BofAMerrillLynch):

Godfrey,Ihopetoseeyouata[unicorn],andDougyoualreadyhaveaunicornsocongratstobothofyou.


Thankyou.


Unicornsaremuchbetterthangolf.


ThethingiswhenIplaygolfIgetaviewofthecoursethatnobodyelsehaseverseen.


Myquestionisonthecompetitivelandscape.Doug,youmentionedattheanalystdaythatyouactuallysleepquitewell,butIwantedtojustunderstandinthisquarterwhatwerethemajorchangesyousawwithrespecttoAmazonasacompetitor?SumoLogic,Elasticsearch?Trend-wiseanyimprovement?Winrate?Thecompetitionfallingoffwouldbeuseful.And,secondly,Doug,oneforyou.Whatwouldyouattributethelicenseupsideto?Wasitoneortwolargetransactions?Andalso,whenwelookatyourmixofbusinesscomingfromratable,isitfairtosaythat--orletmeaskthis.Ifallofyourbusinesshadjustbeenlicenseandnosubscription,whatwouldyourbusinesshavegrownbythisquarter?(laughter)Thankyou.Ihavetoaskthatmesmerizingquestion.


Youdo.Iknowyoudo.Letmetakethecompetitive,andthenI'llhandovertheratableandmixtoDave.Onthecompetitivefront,Ireallyhavenotseenanynotablechangesinthemarketplace.Firstofall,AWSisnotacompetitor.WearenotincompetitivesituationswithAWS.AmazonisacustomerofSplunk,oneofthecustomerswetalkedaboutintheearlyremarks,andIthinkthesynergiesbetweenthetwocompaniesrightnowarestrong.Itisanevolvinglandscape.

AWShasgottoservetheirconstituency.Youneverknowwhatisgoingtohappen,butwe'retheonly




monitoringpartnerwithablueprintfor[landathat]AWSreInvent.AfterthereInventshow,AWSpostedtheirownblogonthebenefitsofkinesiscombinedwithSplunkwheretheyactuallysaid,thispowerfulcombinationletsyouquicklycapture,analyze,transformandvisualizestreamsofdatawithoutneedingtherightcomplexcodeusingAmazonkinesisclientlibraries.IthinkthereisgreatsynergieswithusandAWSandwewillcontinuetoworkaggressivelytomakesuretheystayassynergies.

Andthenfortherestofthecompetitivefront,Elasticremainssomethingthatispoppingupinouraccounts.Youcan'tstopfreewareandopensourcefrombeingdownloaded.Wherewehavedroppedintoaccountsandhadadiscussionwiththeaccount,wehadthewholebuildversusbuyworkshops,Iwastalkingaboutattheanalystday.Ourwinrateisridiculous.TheoverblowncostsofsomethinglikeElasticbecomeincrediblyapparent.Wejustbuildoutfortheusecasesandthenlookatthedevelopmenttime,thehardwarecosts,theoperationalcosts,anditliterallyisaXtoXandinsomecasesincrease.Whatlookslikefreeisnotfree,andGodfreyhasfocusedonusabunchofdifferenttimes.Ithinkthecompetitivelandscaperemainsthesame,andwe'vegottofighteverydaytotakethatbigTAM,butweareupforthefight.


HiKash,thisisDave.Asitrelatestolicense,wehadreallyniceexecutiongloballyintermsofallthesalesteamsclosingtransactionswithFortunecompaniesatmeaningfulamounts,andthat'swhatyouseeintheASPs.Thelicenseperformance,theASPperformanceandofcourse,theoverallgrowthmetricsarereflectiveof,Ithinkacollectiveeffort.AndasDougmentionedinhispreparedremarks,ofcoursewithSeptemberbeingsaidyear-endwehadaverynicequarterinthepublicsectoroftheAmericas,werejustterrificintermsofbreadthanddiversityacrossdifferentindustryverticalsacrossalloftheregions,andsimilarly,internationally.ThequalityanddiversityofthecustomerswhoarelookingtoextractvaluefromtheirdatawithSplunkisjust--themomentumisterrific.

Andyourlast,andyourfavoritequestion,ofcourse,iswiththemix,whatwouldgrowthbe?Again,Ihaveagreedwithyouphilosophicallythatifmixwaslower,thengrowthrateswouldbehigher.Butwebuildin,again,assumptionsaroundmix,althoughitisthemostdifficultcomponentofourmodeltopredict,andwebuildthatintotheoutlookthatwegive.Ithinkwe'recertainlyreallypleasedwiththeresults,anditwasasuperstrongorder.Andweregoingtodothebestwecantokeepupdatingyouguysonhowwethinkmix--again,howdoesmixstabilizeovertime?I'dliketosaywe'vegottentoalevelofstability(technicaldifficulty)annual%,butonlyexperiencewillprovethattobetrue.


Iwillkeepaskingthemesmerizingquestions.


Fairenough.


Goodquestion,Kash.

Operator :

BrianWhite,Drexel.

BrianWhite (Analyst-DrexelHamilton):

Congrats,DougandGodfrey.Idon'twanttoleaveoutDavidandKen,socongratsonanewbosstonight.





Mywifewon'tagreewiththat,butIwill.


MyquestionisaroundASPhere.Thisisaprettysubstantialupticksequentially.Ithinklastquarteryousaid$,,yousaid$,thisquarter.You'vealwaysputitinarangeof$,$,,soIjustwanttobeclear.ThisisatrendweshouldexpecttocontinueintoFY?IsthereananomalywithASPsthisquarter?Thatismyfirstquestion.Secondquestionisjustaroundcross-selling.You'vegotthisexpandingportfolio,andI'mjustwonderingifyou'reabletocrosssellalotofthesenewproductsthatyou'vebeencomingoutwith.Anymetricsaroundthatwouldbegreat.Thankyou.


Sure.Idefinitelywouldnotcharacterizethisasatrend.It'sthesinglequarterwherewe'vehithistoricallyhighandnotablyhigherthananyotherquarterintermsofASPs.Importantly,aswelookacrossthepopulationoftransactions,asI'dmentionedtoKash,wejustdidsomanyhigh-qualitytransactionswherecustomerswerereallylookingtoadopttheplatform,thatit'sreflectiveoftheASPs.Now,ifthatcontinuesintothefourthquarterandthenwhenwestartlookingatouroutlookspecificallyforthefirstquarterandwebelievethatthetrendinASPsisupticked,thenwewillgiveyouthatupdateatthattime.Butasinglequarterisnotenoughyetformetodeclarethatatrend.


Okay.(Multiplespeakers)


Onthecross-sellingpiece,watchingITSIgetlaunchedwasawesome,becausethatobviouslywasourcoremarket,thewholeITopsandapp--developmentappdeploymentmarketplace.AndIthinkitreallyhasreinvigoratedthatmarket.Youputoutanapplicationthatuplevelsthegameontopoftheplatform.AndwesawlastquarteraswereleasedITSIandpeoplestartedfocusingonthatITopsusecaseisalittlebitofauptick,andtheusecasepurchasingfortheplatformwithinthatbuyingcenter.AndI'mwatchingthathappen.Fedobviouslyisaprettysecurity-heavygrouprightnow,andI'mwatchingalotoftheirsecurityusecasesstartthere.AndthenasweshowthemsomeofthatITSIorpartnerapplicationsaswell,theydrag--they'vealreadygot%ofdatatheyneedor%ofthedatatheyneed,andtheycangetimmediatevaluewithsmalladditionsofdatainoneoftheseapplications.Idothinkithelps,anditcertainlyhelpswiththeSplunkasadatafabricplatformthatmessageswell.


Okay.Again,congrats,guys.Greatjob.


Thanks,Brent.Appreciateit.

Operator :

SteveKoenig,WedbushSecurities.

SteveKoenig (Analyst-WedbushSecurities):

Hi,gentlemen,thanksforsqueezingmein.





Hi,Steve.


Godfreyit'salittlehardtobelievethatIwon'tbefollowingyouatanymorecompanies.I'llbelieveitwhenIseeit,how'sthat?


Allright.Thanksverymuchforyourkindwords.Iappreciatethat.


Well,thankyou,Godfrey,andDoug,congratsyouaswell.


Thankyou,Steven.


Iwantedtoaskyouguys,alittlesimilartoKash'squestion,onbookings,youdon'tgivebookingsmetrics,sowecanonlyguessatthemath.Butyouobviouslyareveryrocksolidonlicenses,andthat'sdespitethevariabilityintherecurringmixofbookings.MaybeDave,ifyoucanelaboratealittlebiton,whatisitthatallowsyoutoachievethatconsistencyonlicenses,eventhoughbookingsismovingaround?Isitconservatismintheguidance,ordoyouhaveleversyoucanpullintermsofhowyoudirect--insenseoffield,orarethereotherfactorsI'mnotthinkingabout?


Well,I'dliketosayit'sbeenconsistent,butinreality,theguidancearoundthemixhasbeenametricIhaveupdatednowfivetimessincewe'vegonepublic-plusyearsago.Andevenwiththatguidance,we'vefallenoutsideoftherangeprobablyjustasmanytimesaswehaven't.Ultimately,thequalityofexecutionisinthatthefieldcontinuestodeliver,anddeliverinameaningfulway.So,witharobustportfoliooftransactions,thatflowsthroughtotheincomestatement.Therehavebeenquarterswherethemixhasbeenallovertheboard,andthere'sbeengeographydeltasbetweenincomestatementandbalancesheet,andsomefolksandtheirmodelshavehadconfusionthere.It'slike,well,welikeyourrevenuebeat,butwhere'sthedeferred?Ifwehadbeatlessonrevenue,thenwewouldhavemoredeferred,right?Thosegotogether.

Butagain,Ithinkthefundamental,orthefoundation,forourabilitytocontinuetodeliver,Ithinkenviableresults,isgroundedinunbelievableexecutioninthefield.Ofcourse,thatiscoupledwithgreatexecutionintheproductsgroups,because--Ithinkitwasprobablytwoyearsago,GodfreyandI,westartedtalkingaboutfromsingleproducttomultiproduct,andfocusedonadoption.So,theproductteamsinthemarketgroupsprovidingthesesolutionstocustomers,coupledwithterrificexecution,that'showwearesucceeding.Customerslovetheproduct.Andthat'swhyfromaninvestmentperspective,andwe'vetalkedaboutitnowacoupleoftimes,whenyoulookattheTAM,wehadearlyitis.It'sallaboutensuringthatwehavetheappropriateamountofcoveragesothatwecangoreachthecustomersandthatwedelivertheappropriateamountoftechnologythatcontinuestoleadthemdownthevalueprop.So,that'swherewearefocused.

Now,ifyouthinkbacktoanalystday,wetriedtogivesomecolorintermsoftherelationshipbetweenwhatyoucancalculatefromthefaceofthefinancialstatements,whichisabillingsnumber,andwhat




revenuewerecognize.Andthathasbeenprettyconsistentrelationshipoverthelast,isit,what,threeyears?So,wearestaringatthatandsay,boy,isthatsomethingthat--isthatcoincidental,oristhatsomethingthatwewouldbuildourownmodelaroundtohelpussolvetheratablemixquestion?ButIthinkitisadecentproxytolookat,withsomevariability,asyouwouldexpect,intermsof,howdoItrytofitinthegeographyquestionbetweenincomestatementandbalancesheet?Checkoutthatrelationship,wearedoingthesamethingonourside.Wegettotheendoftheyearandifwethinkit'smeaningful,thenwewillgivesomemorecoloronit.


Alright,soundsgood.Congrats,youguys.Thanksagain


Thankyou.


Thankyou,Steve.

Operator :

TimKlasell,NorthlandSecurities.

T imKlasell(Analyst-NorthlandSecurities):

Hey,I'llthrowmycongratulationsallaroundtoyouguysaswell.Ihavealittledifferentquestion.We'vebeentalkingalotabouttheapps,thesecurityappsandtheITops,butyouhaveaprettyactivedevelopercommunity.Areyoubeginningtoseesomeoftheapps,IwouldsayleakoutoftheITdepartmentwheremaybebusinessanalystsorwhathaveyou,whoaren'treallycoredevelopers,beginningtousetheproductfairlyconsistently?ProbablydevelopedbytheirITdepartment,butagain,movingout?


Yes,forsure,andthat'ssomething--Ithinkeveryearningscall,Godfreyhasalwaystoldtwoorthreefunstoriesthataremorebusinessanalytics-oriented,orinsomecases,IoT.AndTim,Iwouldagreewithyou.ThebulkofthoseareappsorframeworksdeliveredbyITforlineofbusiness,buttherearecases.There'samassivesemiconductororganizationwheretheirengineeringteamactuallyusesSplunknativelybecausetheyareparsingthroughmassiveamountsofCAD/CAMdata,floormachinedatatotrytofigureout,arethereanomaliesordiscrepancies,eitherinthedesignoffuturechipsorthecurrentchips.Ithinkwe'vegotamoretechnicalenduserbase,thenwestillhavegotareallygoodUIforthem.AndwerecentlybroughtonSnehalAntaniasourCTO,andtheguywho'shelpingtodrivethestrategyforbusinessanalyticsandIoTtodowhatwehavedoneinsecurityandITOAthere.Let'swatchourcustomers,let'sspendlotsofthetimewiththosecustomers.They'vebeenreallygoodatleadingustothenextstepofrepetitivehighvalueusecases,andfigureoutwhatwrapperscanweputaroundtheproductssothatthird-partydevelopers,internalITshops,orevenbetter,individualenduserscanstarttogetvalueofSplunkaswell.

T imKlasell(Analyst-NorthlandSecurities):

Okay,good,andisthatmeaningfulrevenuesrightnow,oraretheyjustinterestingusecasesandit'sgoingtotakeafewyearstogrow?





Ithinkthatnon-ITOA,nonsecuritysegmenthasalwaysbeeninbetween,fromwhatI've--%-ishto%-ish.


Ithasbeen%orlessinaggregateacrossanalytics,IoT,industrial.Ithinkthat'sasmuchafactorofthehighlevelofgrowththatwe'veexperiencedinsecurityinourcoremarketsasitisforthosefolksnotgrowing.ButasDougmentioned,intermsofhavingatailoredsolutionthatweputintothefieldthatisspecifictoahighlyrepeatableusecaseinthosemarkets,wehavenotidentifiedthatatthispoint.Ourcustomersareusingtheplatforminthousandsofdifferentusecasesthatfitintothosecategories.AndtheworkthatSnehalandtherestofusaredoingistosay,okay,howdowehelpcustomerswithatailoredsolutionontopsimilartoITSIthatisarefeedabledataextractionandvaluepropthatwewouldthenputitintoGTMteam?


Myonlyreservationaboutthosenumbersthatwe'vebeengivingoutisthatthosearetheinitialbuydesignationswhenthedealisfirstdone.Buttheexpectations,Ifeellikewe'refailingifthatinitialbuydoesn'tquicklytransformintoadditionalusecasesandnewdatasources.So,that'sasquishynumber.AndasDavesaid,therearethousandsofappsandusesandcustomers.OnthiscallwetalkedaboutLloyds,Progressive,CenterPoint,FruitoftheLoom,BMW,Target,asahandfulofthosewhoareusingusforeverythingfromroboticsinstrumentationtocustomerintimacyandunderstandingonmobileappsandwebsites.

Operator :

Thankyou.GregMcDowell,JMPSecurities.

GregMcDowell(Analyst-JMPSecurities):

Great,thankyouverymuch,andI'mhonoredtoaskthelastquestion.Godfrey,IthinkhistoryisgoingtojudgeyouasoneofthetrulyiconicSiliconValleyCEOs.Andtothatend,IwashopingwecouldmaybespendaminutebringingittoahigherlevelandmaybeaskingyoutomaybereflectonyourjourneyatSplunkandeventothisday,whatyouthinkinvestorsmostmisunderstandabouttheSplunkstory.AndIguessthesecondpartofmyquestionisyourpartingadvicetoDougandtheManagementteamonmaintainingthecultureoveratSplunk,acultureofinnovationandexecutionandhowtheteamcanmaintainwhatyoustartedoverthere.Thanks.


Well,thanksforthatquestion.Icouldgoforawhileonthesetopics.Firstofall,Ienjoythecompliment,becauseouryoungerdaughterstillthinksIamadork,sothatIwouldberememberedsomeofthewayisactuallyquiteencouraging.WhenIthinkbackonthejourneyofSplunk,thethingthat'sbeenconsistentthroughoutallthoseyearshasbeentheculturethat'sdisruptive,innovation,irreverent,nonconformistculturebuiltaroundtryingtodothingsanewway.Itshowedupintheproductstobegin,butnowithasshowedupineverypartofthewaywemaintainourrelationshipwithourcustomersandthewaywetrytodelivervalue.IstilllookatSplunkfromearlydaysandsayweareoneoftherarecompaniesthatjustgavecustomerssoftwareandsaid,useitandprovevaluetoyourself.Andwhenyou'rehappy,youletusknowandwe'llbehappytoparticipatewithyou.AndIthinktoagreatdegree,customersstillappreciatethefactthatSplunkhasoneofthemostcustomer-orientedandcustomer-friendlyapproachestothemarketofanysoftwarecompanythat'severlived.AndIthinkwe'llhavethatasahighlightforyearstocome.

So,it'sbeenatruehonortobeapartofthisplace.Idon'tknowthatyouleadasmuchasyoupartywith




it.YouhavetobeabletohangwithSplunk.It'snotquitethenormalleader-ledcompanyasmuchasitisthetribethatleadsitandeverybodyelseisapart.Butanyway,that'sawesome,andmyadvicetoDoug,well,I'vebeengivinghimadvicefortwoyearsnow,soI'mnotsureheneedsanymoreofmyadvice.Ithinkhecomesprettymissionreadyforthejob.Thebestpartofinternalsuccessionisyouhavealreadylearnedalltheproducts,you'velearnedthecustomers,youknowtheculture.He'sbeenoutontheroadnonstopthelastcoupleofyears.Idon'tknowhowmanycustomersyou'vemetwithsofarandhowmanyengineeringmeetingsyou'vebeeninandhowmanyQVRs.ButIthinkhiseminentlyreadyforthejob.AndthenicestpartaboutitisIdon'thavetoactuallydomuchintermsofcoaching,becausewehaveworkingtogethereffectivelyforalongtimenow.

I'mjustthrilledtoseetheCompanywhereitis.Ithinkthefutureisbrighterthanthepast.Ourusecaseiscontinuallyexpanded,ourcustomerscontinuingtobeadvocatesforus.Itisawonderfulandremarkableplacetobe,andIjustthinkthatnowisagreattimeforatransitionwhilebusinessisgreatandvelocityisgood,andIthinkDougisexactlytherightpersontotakeustothenextchapter.Thankyouforthatquestion.

GregMcDowell(Analyst-JMPSecurities):

Thankyou.

Operator :

Thankyou.Thatisallthetimethatwehaveforquestionstoday,soIwouldliketoturnthecallbackovertomanagementforclosingremarks.


Iwilltakethislastopportunitytodoonemorewrapup,whichisjusttosayIamso,soproudoftheteam,andI'mproudofeverybodyintheCompany.Theemployeesherehavedonearemarkablejobofbuildingsoftwareanddeliveringcustomersuccess,anditisstillwhatweto.Thankyouforallyoursupport.Doug,congratulationsonthepromotion,Dave,Ken,thewholegang,congratulationstoallofyou,andlet'srock.Thispartyisjustgettingstarted.Thankyou.


Yessir,Mr.Chairman.


Thanksverymuch.

Operator :

Ladiesandgentlemen,thankyouforagainyourparticipationintoday'sconference.Thisnowconcludestheprogram

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