splunk (splk) earnings report: q4 2015 conference call...
TRANSCRIPT
CompanyName:SplunkIncCompanyTicker:SPLKSector:Technology
Industry:ComputerSof tware&ServicesEventDescription:Q4 2015EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page1of 23
Splunk(SPLK)EarningsReport:Q42015ConferenceCallTranscriptThefollowingSplunkconferencecalltookplaceonFebruary26,2015,04:30PMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
KenTinsley;Splunk;VP-IRGodfreySullivan;Splunk;CEOHaiyanSong;Splunk;SVP-SecurityMarketsDougMerritt;Splunk;Head-FieldOperationsDaveConte;Splunk;CFO
OtherPart icipants
PhilWinslow;CreditSuisse;AnalystBrentThill;UBS;AnalystKeithWeiss;MorganStanley;AnalystRaimoLenschow;BarclaysCapital;AnalystEdMaguire;CLSA;AnalystKashRangan;BofAMerrillLynch;AnalystDanielIves;FBRCapitalMarkets;AnalystJohnDiFucci;JefferiesandCo.;AnalystMarkMurphy;JPMorgan;AnalystGregDunham;GoldmanSachs;AnalystKarlKeirstead;DeutscheBank;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator:
Goodday,ladiesandgentlemen,andwelcometotheSplunkIncfourthquarterFY15financialresultsconferencecall.
(OperatorInstructions)
Asareminder,today'sprogramisbeingrecorded.
Iwouldnowliketointroduceyourhostfortoday'sprogram,KenTinsley,SplunkCorporateTreasurerandVicePresidentofInvestorRelations.Pleasegoahead.
KenT insley(VP-IR):
Great.Thankyou,Jonathan,andgoodafternoon,everyone.
WithmeonthecalltodayareSplunk'sCEO,GodfreySullivan;CFO,DaveConte;aswellasexecutivesHaiyanSongandDougMerritt.OurpressreleasewasissuedafterthecloseofthemarkettodayandispostedonourWebsite.ThisconferencecallisbeingbroadcastliveviaWebcastand,followingthecall,anaudioreplaywillbeavailableonourWebsite.
CompanyName:SplunkIncCompanyTicker:SPLKSector:Technology
Industry:ComputerSof tware&ServicesEventDescription:Q4 2015EarningsCall
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Onthiscall,wewillbemakingforward-lookingstatements,includingfinancialguidanceandexpectationsforourfirstquarterandFY16,transactionandproductmix,plannedproductsalesandfacilitiesinvestments,ourmarketopportunitiesandcustomeradoptionofourproducts,expectedsuccessofourmarketgroupsanduse-caseopportunities.Thesestatementsreflectourbestjudgmentbasedonfactorscurrentlyknowntousandactualeventsorresultsmaydiffermaterially.
PleaserefertodocumentswefilewiththeSECfromtimetotime,includingthe8-Kfiledwithtoday'spressrelease.Thosedocumentscontainrisksanduncertaintiesandotherfactorsthatmaycauseouractualresultstodifferfromthosecontainedinourforward-lookingstatements.
Theseforward-lookingstatementsarebeingmadeasoftodayandwedisclaimanyobligationtoupdateorrevisethesestatements.Ifthiscallisreviewedaftertoday,theinformationpresentedduringthiscallmaynotcontaincurrentoraccurateinformation.Wewillalsodiscussnon-GAAPfinancialmeasures,whicharenotpreparedinaccordancewithgenerallyacceptedaccountingprinciples.AreconciliationofGAAPwithnon-GAAPresultsisprovidedinthepressreleaseandourWebsite.
Withthat,letmeturnitovertoouresteemedleader,GodfreySullivan.
GodfreySullivan(CEO):
Thankyou,Ken,andIhavetosaythatwasoneofyourbestdisclaimersever.Imean,thatwasawesome.
Welcome,everyone.Thanksforjoiningthecall.WehadagreatfinishtotheyearandIwanttothankourcustomersfortheirenthusiasticsupportandalsoourSplunkemployeesfortheirmanycontributions.
RevenuesforQ4were$147.4million,up48%yeartoyear.Licenserevenues,$98.1million,up43%yeartoyear.Wefinishedthefullyearat$450.9million,up49%fromtheprioryear.
NotablecustomersinQ4includeMacy's,Toyota,LennarCorporationandNewYorkCityTransit.Wewelcomedarecord600newcustomerstoSplunkinQ4andhadarockingquarterforSplunkCloud.
Weshowedprogressinproductdiversity.OnegoodexampleisourrecentpressreleaseregardingHunkadoptionbyYahoo.WealsoclosednewHunkopportunitieswithSocieteGenerale,andCenturyLink.
Ourthemesforthiscallaremarketsandgeos.Overthelastyear,I'vebeendescribingSplunk'sincreasingTAMandhowwe'reorganizinginthemarketgroupssothatwecandeliverbest-in-classsolutionsinourcore-usecases.
Themarketgroupsenableustocreatestrategiesthatareadirectmatchtoourcustomers'needsandaspirations.Thesegroupsownofthevision,productspec,andgo-to-marketelements,withworld-classdomainexpertsleadingthem.
Thesecuritymarketgroupisagreatexampleandthatbusinessisonfirebecauseofourfocus,andgreatleadership.Today,I'veinvitedHaiyanSong,whorunsoursecuritybusiness,tojoinusandgiveyouareadoutonourprogressandvelocity.
InadditiontoHaiyanleadingsecurity,wealsonowhaveMikeOlesonrunningourCloudteamandRickFitzleadingourITmarketsgroup.Onfuturecalls,wewillhaveMarkandRickasgueststoupdateyouontheirprogress.ForyourfavoriteCEO,thatwouldbeme,itgivesmetheabilitytodelegatethesecoremarketstoaverycapableexecteam,sothatIcanfocusonspinningupthenextareaofopportunity.
ThemarketthatIwanttotargetnextisbusinessanalytics.ManyofyouknowthatourcustomersstartusingSplunkforITopsorsecurity,buttheyultimatelydiscoverhigh-valueusecaseslikecustomerexperienceanalytics.Wehaveauniquevaluetodeliverhereandit'stimeweformedupafocusedteamaround
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analyticsusecases.
Sotwothemestoday,marketsandgeos.Onthegeoside,we'reinvestingheavilyinourfieldbecauseweknowthatmorecustomertouchisgreatforcustomersandisgreatforus.I'veinvitedDougMerritt,whorunsourcustomer-facingteamstogiveyouareadoutonourwinsandourfieldactivities.
BeforeturningitovertoHaiyanandDoug,afewcommentsonproducts.First,Cloud.FromQ3toQ4,weincreasedthenumberofCloudcustomersby90%,includinganumberofsix-andseven-figureorders.WashingtonPosthasbeenaSplunkcustomerforseveralyears.InQ4,theychoseSplunkCloudtomonitorandanalyzetheirnewmobileapps.
TheScore,thinkofthemasESPNofCanada,isanewcustomer.They'lluseSplunkCloudtomonitortheirinfrastructure,traceengineeringrequests,andreceivethresholdalertstobetteranticipateandpreventsystemproblems.AlsohappytotellyouthatComputerResellerNewsjustnamedSplunkoneoftheCoolestCloudVendorsfor2015.
WealsohadastrongquarterwithHunk.SocieteGenerale,thethirdlargestbankinFrance,expandedtheiruseofHunkwithintheirbigdatainnovationcenter.WehadastrongquarteratAmazon,andsoldtensofthousandsofhoursofHunkontheAmazonEMRconsole.
Justlastweek,weannouncedthatYahooisusingHunktoexplore,analyze,andvisualizedatafromtheirHadoopenvironment,whichstoresmorethan600petabytesofdata--Ican'tevensaypetabyte.ToquoteYahoo,insightswegainfromHunkhelpsussavemillionsofdollarsperyearinhardwareprovisioning.TheYahooproductionteamsarealsousingSplunkEnterprisetoanalyzemorethan150terabytesofmachinedatadaily.
Sogreatprogressonmarketsandgeos,alltoacceleratethevelocityofsomegreatproducts.WejustcompletedourannualCompanykickoffeventandIcantellyouthateveryoneisfiredupaboutourplansforthisyear,platform,apps,Cloud,marketgroups,partners,anddevelopers.Andwehavesignificantworkunderwayineacharea.
Okay.SoQ4wasoutrageousandfun.Now,togettothesecuritystoryI'mhappytoturnthecallovertoHaiyan.
HaiyanSong(SVP-SecurityMarkets):
Thankyou,Godfrey.
Itwasindeedanothergreatquarterforoursecuritymarket.Withincreasedawarenessandconcernsaroundhigh-profilebreachesandinsiderthreats,companiesandgovernmentagenciesarelookingtocompanieslikeSplunktoprovidethenextgenerationsecuritysolutions.
Splunkisnowthego-toplatformforthenextgenerationofsecurityoperationscenter.Someevensignifiedthisevolutionwithanewname,securitycommandcenter.Or,whatIliketosay,Splunkisbecomingthenewnervecenter,thesecuritybrainfororganizationsaroundtheworld.
Inpublicsector,cyberattacksareonthemindofjustabouteveryone,andSplunkisbecomingoneofthego-tocompaniesforagenciesforbetterdetectionandprotectionfromtoday'scyberthreats.TheUSDepartmentofState,alongtimeSplunkcustomer,expandedtheiruseofSplunktohelpprotectthenetworks,domesticallyandabroad.
Securityusecaseshaveexpandedfromadepartmentalpurchaseandarenowdrivingenterprise-wideadoptionofSplunk.AglobalbankinginstitutionstandardizedonSplunkforsecurityanalyticsanddidaglobalreplacementofalegacySIM.
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Solutionsellingcontinuestobeoneofthehighlightsofoursecuritybusiness.OurappforEnterprisesecuritycontinuestobeadriverinopportunitiesandcompetitivewins.
ZurichInsuranceGroupisanewcustomerthatisreplacingtheirlegacySIMwithSplunkandwearenowtheirglobalsecurityintelligenceplatform.We'realsoseeingmoreorganizationsadoptingthenewCloudparadigmandleveragingSplunkCloudtodeploysecuritysolution.
1-800-Flowers.comusesSplunkCloudtocomprehensive--forcomprehensivereal-timewebperformancemonitoringacrossintheire-commerceplatformtoprovideasuperiorcustomerexperience.TheyalsoutilizeSplunksecuritysolutions,whichincludemultiplesecurityappstohelpmanageemergingsecuritythreats,alerts,andreal-timeincidentsresponse.
SplunkCloudenablescustomerstorespondtosecuritythreatsfasterthaneverbefore.Theydon'thavetimetospenduptheinternalinfrastructure.Theyjustneedtogettheworkdone.MoreorganizationsunderstandthatthedatacanbesecureintheCloudandthey'recomfortableandhaveconfidenceinoursecuritymodelinSplunkCloud.
IthasbeenagreatyearatSplunksincetheformationofthesecuritymarketgroup.Ourmissionhasbeentolead,focus,andenable.IrecentlyattendedtheWhiteHouseCyberSecuritySummitwiththePresidentandthenation'sleadingCEOs,andit'sclearthatcybersecuritywillcontinuetobeatoppriorityforeverybusinessandgovernmentagencyandSplunkisakeypartofthatdiscussion.
Lookingaheadtothenextyear,wherewe'llinvestfurtherinanalytics-drivensecurity,withafocusonbreachanalysisandinsiderthreatusecasestohelpourcustomerscombattoday'seventthreats.Wewillalsocontinuetoinvestinourecosystemofsecuritypartners,withSplunkactingasthenervecenterforsecurityoperations.
Iamproudoftheprogresswehavemadeandtheresultswehavedeliveredinoursecuritymarket.I'mveryexcitedabouttheopportunitiesahead.
Now,I' llturnitovertoSplunk'sHeadofFieldOperations,DougMerritt.
DougMerrit t (Head-FieldOperations):
Thankyou,Haiyan.
It'ssuchagreattimetobeatSplunkandI'mexcitedtosharemoreonourexcellentquarter.Onthiscall,I' lltalkaboutmarkets,geos,partners,andpricing.
YoujustheardfromHaiyanabouthowourfocusinthesecuritymarketisdeliveringtremendoussuccess.Weareextendingthesamefocustoourothermarketsaswell.
First,ITops.InQ4,theUSNavyexpandedtheirlicensetohelpwithanongoingdatacenterconsolidation.They'reclosingmorethan200datacentersandmovingtheworkloadstoNavyEnterprisedatacenters.Andthey'reusingSplunktomonitorandensureasuccessfulandsmoothtransition.
Macy'sisalong-timeSplunkcustomerthatexpandedtheirlicenseinQ4.SplunkishelpingincreaseuptimeandperformanceofMacys.comandBloomingdales.com,allleadingtoabetteronlinecustomerexperience.
LongtimecustomerZ illowsignificantlyexpandedtheiruseofSplunkforITopsandalsopurchasedtheSplunkappforVMware.Splunk'splatformnowfunctionslikeautility,providingdashboardstoallotherdevelopersandengineerstoimprovequalityandperformanceofZ illow'sproductsandservices.
TheiropsteamisevenusingSplunktochangethecoloroftheirofficelightingasproblemsbecomecritical.NowthatisaninnovativeuseofSplunk.OtherorganizationsselectingSplunkforITopsincludetheCityof
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Boise,HongKongUniversityofScienceandTechnology,andPentagonFederalCreditUnion.
Next,businessanalytics.WeclosedanopportunitywithWalmartBrazilinQ4.WalmartBrazilisusingSplunkEnterpriseforbusinessanalytics,aswellasforappdeliveryandITops.Theyanalyzetheire-commerceplatformtoimproveWebsiteperformance,ensureuptimeanddiscoverednewrevenueopportunitiesbyimprovingthecustomershoppingexperience.OthercompanieschoosingSplunkforbusinessanalyticsinQ4includeAuchan,alargeFrenchretailerandCenturyLink.
Nowontothegeos.AllgeosdeliveredastrongQ4,withinternationalcontributing25%ofourrevenuesandgrowingbookingsgreaterthan60%overlastQ4.Aspartofourcontinuedfocusoncustomeradoptionandsuccess,I'mhappytotellyouaboutseveralchangesinleadership,includingtwonewleaderstotheinternationalteam.
AdamBanglejoinsusasourHeadofSalesinEMEA.AdamformerlywaswithRSAandwe'repleasedtohavehimonboard.ThanksagaintoTomSchodorfforspendingQ4inEMEAtoassistwiththetransition.
AtAPAC,EmilioUmeoka,whoisourHeadofGlobalPartners,willnowalsoleadAPACsales.EmiliohasextensiveexperienceinAPAC.HewasformallyPresident,APAC,inMicrosoftand,bytheway,ComputerResellerNewsMagazinejustnamedEmilioaTopChannelChiefof2015.
InadditiontoAdamandEmilio,we'veputBillCull,who'sbeenleadingthepublicsectorintheAmericasforthepastthreeyears,inchargeofglobalpublicsector,andAnthonyPalladinocontinuestodoafantasticjobasourHeadofSalesintheAmericas.
AndI'msureyou'veheardthatVishalRaoisleadingSplunk.Iwanttothankhimforfourgreatyears.We'vedecidedtoeliminatethepositionofHeadofDirectSalesandnowallthegeoswillreportdirectlytome.I'mverypleasedaboutourstrongleadershipthat'sinplacetohelpusprepareforthisnextphaseofgrowth.
Nowontopartners.Investmentinpartnersisabsolutelycriticaltoourgrowthstrategyandyou'llseeusputrenewedfocusonthisinFY16aswelaunchtheSplunkPartnerPlusprogram,whichwewillunveilatourupcomingPartnerSummits.
ServiceNowisbothastrategicpartnerandacustomer.TheyhavesignedanenterpriseagreementinQ4toexpandedinseveralusecases,includingITops,applicationdelivery,andsecurity.Wealsohadastrongpartnerrelationshipheadlinedbyourcompellingproductintegrations.
Voxisanotherimportantpartner.Theyhavepurchasedamulti-terabytelicensetoexpandtheirusecasesfromITopstosecurityandbusinessanalytics,gaininginsightsintotheirend-useractivitytofeedtheirqueueofnewproductfeaturesandfunctions.OurjointcustomersalsoappreciatetheSplunkappforVox,whichenabledbusinessteamstotrackusagetrends,securityteamstospotsuspiciousactivity,andfinanceteamstoauditforcompliance.
Deloitte--ourpartnershipwiththemisexpanding.WehadanumberofjointtransactionsinpublicsectoraloneinFY15,includingthestateofGeorgiaHealthandHumanServicesinQ4.I2,ourhigheredpartner,isalsoonatear.
Thisquarterwereceived10orderstotalingmorethan1terabytewithuniversitiesincludingBallState,theUniversityofAlabama,andWashingtonState.WashingtonStateisstandardizedonSplunkouracrossIT,IToperations,security,andnetworking.
Andthelasttopic,pricing.Overthepastyear,you'veheardustalkabouthowweareconstantlylookingforwaystoimproveourpricingstrategiestoacceleratebroadadoptionandtimetovalueforourcustomers.
LearningfromourexperiencewithcustomerswhohavealreadystandardizedonSplunkwithanEAA,today
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werolledoutaprogramtomakeiteasierforcustomerstodeploySplunkenterprise-wide.Thegoalistohaveastandardenterprisepricingprogramthatprovidesbudgetpredictabilityforthesecustomers.
Sowhat'sdifferent?Ournewunlimitedpricingisalignedwiththesizeandscaleofthecustomerandtheirsystemsandisnotbaseddirectlyonvolumeofdailydataindexed.Thisapproachwillenablecustomerstoingestmoredata,frommoresources,withthecostdeterminedupfront.
Soinsummary,wehadafantasticquarter.Weareinvestinginmarkets,inthefield,andmakingenterpriseadoptioneasierandinourpartnerstodeliverastrongFY16.
Nowbacktoyou,Godfrey.
GodfreySullivan(CEO):
Thanks,Doug.
AsImentionedatthestartofthiscall,FY16istheyearofthemarkets.Ayearagoweintroducedtheideaandnowwe'reinfullexecutionmodewithCloud,ITops,andsecurity.Allthebreachheadlinesaredrivingorganizationstomakefasterandmorecomprehensivedecisionswhenselectingasecuritysolution,sothatbusinesswillcontinuetobeverystrongforus.
Forme,businessanalyticsisthenextstopandI' llbespendingalotoftimethere.Inourgeos,we'reexpandingsalesandtechnicalheadcountandwe'rereadyforthenextphaseofgrowth.Andaswe'veheardfromDoug,partnersarekeytoourgrowthstrategyandwe'reexcitedaboutthemarqueerelationshipswe'rebuildingandstrengtheningthiscomingyear.
Withthat,I'mdelightedtoturnthecallovertoCFOConte,whowillmesmerizeyouwiththenumbers.Go,Dave.
DaveConte (CFO):
Thanks,Godfrey.MaybeI' llhypnotizingyouwiththenumbersinstead.
Asyoucanhearfromtheteam'senthusiasm,Q4withastrongfinishtoaremarkableyearforSplunk.Theinvestmentswe'vemadeinproductdevelopment,fieldexpansion,ourmarketgroups,andtheClouddrilledperformancesubstantiallyaboveourFY15plan.
Fourthquarterrevenuetotaled$147.4million,a48%increaseoverQ4oflastyear.Licenserevenuegrew43%overlastyear,totaling$98.1millionforthequarter.Forthefullyear,revenuegrew49%tomorethan$450millionintotal,ofwhichabout$283millionwaslicenserevenue,ora42%increaseoverlastyear.
OurproductandCloudinvestmentsareallaboutmakingtheadoptionandexpansionofSplunkeasierforourcustomers,allowingthemtogainvaluableinsightsfromtheirmachinedata,irrespectiveoftheirenvironment,datasources,orwheretheirdatalives.Ourmarketgroupapproachhelpsusbringsolutionstailoredtoourcustomers'mostimportantusecasesandenhancesthevaluetheygetfromtheirdata.
Onthefieldside,wecontinuetobuildourcapacityglobally.Weendedtheyearwith306quotacarriers.Aswe'vediscussed,ourgo-to-marketstrategyisevolvingfromasingularlygeo-basedapproachintoamultidimensionalfieldorganization.
Asaresult,weexpectoursellingcapacityinthefuturewillreflectmorethanourtraditionalquotacarriermodelandincludeglobalchannelleverage,suchaspartners,marketorientedspecialists,andresourcesdedicatedtokeyverticalsorevenspecificusecases.
I' llcontinuetoupdateyoulaterintheyeararoundourcapacityoverallasthisevolutioncontinues.More
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broadly,wegrewourtotalCompanyheadcountbyabout400inFY15,andendedtheyearwithmorethan1,400totalemployees.
AspleasedasIamwithourprogress,we'restillintheearlystagesinourmarkets.WehaveauniqueopportunitytoestablishSplunkasthestandardforourcustomersandtheirdataanalytics,andwewillcontinueouraggressiveandfocusedinvestmentsinourproductportfolio,thefield,ourmarketgroups,andtheCloudtoensurecustomerreachandsuccess.
Splunkcontinuestodeliverincrementalvaluetoourcustomersastheyindexmoredataacrosstheirenterprise.Onceagain,morethan70%ofourQ4licensebookingscamefromexistingcustomers,whilewealsorecordedarecord600-plusnewcustomersinthequarter.Forthefullyear,weaddedover2,000newcustomersoverallandendedwithover9,000customersintotal.
OurcontinuingcommitmenttoenableSplunkadoptionviaproductinnovations,aswellasmoreeffectivepricingstrategiessuchasEAAs,collectivelyisdrivingadoption.InQ4,werecorded429ordersgreaterthan$100,000,comparedto289inQ4lastyear.Onafull-yearbasis,webookedjustover1,100largeorders,comparedto791lastyear.
InQ4,wealsorecordedarecord39transactionsgreaterthan$1million,comparedto21lastQ4.Forthefullyear,webooked68ordersgreaterthan$1million,comparedto41lastyear.
Ourgrowingproductfamily,plusincreasedawarenessandadoptionofSplunksoftware,aredrivingthistypeofadoption.Asaresult,we'veseenourfull-yearlicensedASPrangeincreaseto$40,000to$50,000inFY15,upfrom$30,000to$40,000inprioryears.
ThegrowingappealofourEAAtransactions,aswellasoursubscriptionproductmomentum,continuedtoimpactourbookingsmix.InQ4,thetotalofallourratabletransactionsaccountedfor45%ofourlicensedbookings.Forthefullyear,ourratablemixwas38%,whichwasaboveourpreviouslyguidedfull-yearrangeof25%to35%.
LastquarterIsaidthatthepaceofadoptionofourCloudofferingsandotherratableproductswoulddriveratablemixevenhigher.Withcurrentvisibilityintocustomerbuyingbehavior,andincorporatingourexpandedEAAofferingsplusHunkandCloudmomentum,wenowestimatethatfull-yearratablemixgoingforwardwilllikelyrangebetween30%and40%.Themixofratabletransactionswillcontinuetovarysubstantiallyquartertoquarter,generallyfollowingseasonaltrends.
Allright.Oureducationprofessionalservicesrepresented6%ofrevenueinQ4,consistentwithpastlevelsof5%to10%.Remember,sincewerecognizerevenueonservicesonlywhentheyaredelivered,servicesbookingstypicallydonotflowthroughthebalancesheetasdeferredrevenue.
Turningtomargins,thedetailIgiveforoperatingmetricsarenon-GAAP.OverallQ4grossmarginwas90%,inlinewithourexpectationsandpriorperiodlevels.Q4operatingincomewasapproximately$11.5million,representingapositivemarginofabout8%andbetterthanourexpectationsonthestrengthofouroveralltop-lineperformance.
Q4netincomewas$11.6million,or$0.09pershare,basedonafullydilutedweightedaveragesharecountof128.6millionshares.Forthefullyear,operatingmarginwas2.7%.
Onanon-GAAPbasis,thiswasourfirstprofitablefiscalyear.Full-yearnon-GAAPnetincomewasabout$11million,or$0.09pershare,basedonafullydilutedweightedaveragesharecountof127.1millionshares.
CashflowfromoperationsinQ4was$51million.Freecashflowwas$49million.Full-yearcashflowfromoperationswasabout$104million,or23%oftotalrevenues.Freecashflowwas$90million.
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Lookingbackovertheyear,investmentsinourmarkets,product,field,andCloudareclearlypayingoff.Lookingforward,wewillcontinuetoaggressivelyinvestintheseareasaswescalethebusinessforournextphaseofgrowth.Thisiscentraltoourlong-termstrategyofdeliveringSplunkanywhereandeverywhereourcustomers'dataresides.
Ourplanistoinvestproportionatelywithourtop-linegrowth,soforthefullyear2016,wearetargetingnon-GAAPoperatingmarginofbetween2%and3%,consistentwithourFY15opmarginperformance.Overthemediumterm,ouroperatingmargintargetsincludetheimpactofagradual1%to2%increaseincostofservicestoreflecttherampingofourCloudbusiness.
Weremaincommittedtorunningthebusinessonapositiveoperatingcashflowbasisandestimatethatfull-yearoperatingcashflowwillbeapproximately20%oftotalrevenues,withthequarterlylevelsfollowingthetrendwe'veseenoverthepastseveralyears.FY16willbeahigherCapExyearforusasweexpectedthebulkofourSanFranciscoHQbuildoutcostswillbeincurredthisyear.
Wecombinedwithourglobalfacilityexpansionstoaccommodateourgrowingemployeebase.Weareplanningforapproximately$50millionintotalCapExinFY16,weightedabout$20millioninthefirsthalfand$30millioninthesecond.Weexpecttoachievetheseoperatingresultsonourexpectedfull-yearrevenueofabout$600million,anincreasefromourpreviousguidanceof$575million.
WeexpectQ1revenuetorangebetween$116millionand$118million,withsubsequentquarterlyrevenuesfollowingtheseasonalpatternswehaveseenhistorically.WiththecontinuedinvestmentsI'vedescribedandoverlaidwithourrevenueplan,weexpectednegativenon-GAAPoperatingmarginofbetweenthe2%and4%inQ1,increasingtoaboutbreak-eveninQ2,thenturningpositiveinQ3andQ4,consistentwiththeseasonalnatureofourmodel.
BecausewedenominategloballyinU.S.dollars,wehavenoforeignexchangeexposuretoourrevenueline.(Technicaldifficulty)however,havemodestriskbelowtherevenuelinefromforeigncurrencyfluctuations.InQ4,webenefitedfromthestrongdollartothetuneofabout$0.01ashareatthebottomline.
Overall,ourQ4resultsandourfull-yearperformanceweresolid.Ourproductinvestmentsaredrivingcustomersuccessandourfieldexpansionandmarketfocusisenhancingourexecutioncapabilities.OurstrategyisworkingwellandweplantocontinuetoinvestandfuelthepaceofadoptionasweaimtomakeSplunkthestandardformachinedataanalytics.
Thanksmuchforyourtimeandinterest.Withthat,we'lltakeyourquestions.
QUESTIONS&ANSWERS
Operator:
(OperatorInstructions)
PhilWinslow,CreditSuisse.
PhilWinslow(Analyst-CreditSuisse):
Hi.Thanks,andcongratulationsonanotherjustawesomequarterhere.Twoquestions.Onejuststickingwiththethemeofmarketsshareandverticals.Yoursecurity--ifIrewindbacktosortoftheIPOtime,Ithinkyoualltalkedaboutsecuritybeing20%orlessofthemixofyourbusiness.Iknowit'salwayshardtotellsortofwhatexactlySplunkcapacityisbeingusedfor,butwhathasnotgottenuptonow?Itsortoffeelslikeit'smaybe30%,35%.Wonderingifyoucouldjustgiveusasenseofthat.
Andthenalso,whenyouthinkaboutthatbusinessgoingforward,howdoyoukindofthinkabouttheTAM?I
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meanobviouslywe'vetalkedaboutyoursecurityinformationmanagement,butnowyou'veseensortofsecurityintelligence,sortofanewfieldstartingtoshowupaswell.Howdoyouthinkofthepotentialofthat?
Andthensortofsecondquestionisonthebigdataside.Obviously,youmentionedthecontractwithYahoo,basicallythebirthplaceofHadoopforHunk.Godfrey,justfromaveryhigh-levelperspective,whatyouthinkthatmeansinthesensethattheplacethatHadoopwasbornisactuallypayingforandusingHunk?
GodfreySullivan(CEO):
Hey,Phil.Well,first,thanksforyourcommentsandhappytotakethoseon.
So,partofthe--Imean,thewholemotivationfordoingmarketgroupstobeginwithwasthatwe--oneofthechallengesofrunningSplunk,asyouwellknow,istryingtodecidewhatnottodo.Thatis,customersusetheengineforsomanyusecasesthatwehadtostartlookingfortheplacewherewewouldseerepeatableusecasesandknowthatwecoulddoacertainsolutionmultipletimesasopposedtoeverythingbeingsortofaone-at-a-timeissue.Securityisagreatexampleofthat.
WestartedworkingontheSplunkappyearsago,whichwasawaytoputworkflowandcontentandallthepartnerdataintoaplacewherecustomerscouldeasilyuseit.Ithinkthesecurityhasbeenthefirstofourusecasestomaturewherewecanactuallyfullyformupplatform,app,bestpractices,andthelike,andIthinkHaiyan'sjustthatatmarvelousjobofunifyingtheteam,furtherdrivingproductstrategyandyouseeitinourresults.
Ithinkthedirectanswertoyourquestionaroundpercentages,it'sanywherethe35%to40%rangeonaquarter-to-quarterbasisthroughoutthisyearandIwouldexpectfortostayinthatrangegoingforward,becausethatbusinessisjustonfire.Therestofthebusinessgrowingnicely,too,butsecurityhasbeendoinggreat.Nowit'sourchallengetothenmoveontoeachoftheotherareaswherewehaverepeatableusecasesanddosomethingexcitingthere,soI'mvery,verybullishaboutthat.
OntheHunkside,IstillseeHadoopprimarilyusedasenterprisedatawarehousereplacement.It'scheapstorageandreplacementofveryexpensivestorage.Andoncethathappens,thencustomerssayIneedtohaveawaytogettothatdata,andthefactthatHunkcananalyzethatdatainplace,thatis,wesortofindexitwithintheclusterandgiveyoutheanswerback,evenonaniterativebasis,issodifferentthanhavingthetomovethatdateoutofHadoopinordertodoanalyticsonit.
ThearchitectureandtheapproachofHunkisexactlywhatthebigHadoopshopslookforwhenthey'retryingtoanalyzethatdata,especiallyverylargedatasetsovertime.IthinkthatHadoop--IshouldsaytheHunkworldwillcontinuetomakeprogressmoreslowlythanourothersegmentsofbusinessjustbecausetheyarenotasmanyHadoopcustomersasmatureasYahooandsomeoftheotherbiggerHadoopinstallations.Butwe'rebullishaboutthatbusiness,too.
Thankyou.
DaveConte (CFO):
Thanks,Phil.
PhilWinslow(Analyst-CreditSuisse):
Thanks.
Operator:
BrentThill,UBS.
CompanyName:SplunkIncCompanyTicker:SPLKSector:Technology
Industry:ComputerSof tware&ServicesEventDescription:Q4 2015EarningsCall
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Brent Thill(Analyst-UBS):
Hey,goodafternoon.
GodfreyandDoug,aroundtheEAAsandaroundtheformalizationnow,canyoujustmaybegiveusasenseofwhatyouthinkthisdoesnowwithsomeofthelargerenterprisesaccounts?Iknowyou'vebeenveryflexiblewithyourclientsonpricinginthepast,butwhatdoesthismeannowwithtoday'sannouncementandwhatyouthinkthiswilldoforsomeofthepipeline,thelargertransactionsandperhapssomeofthemulti-solutionareasthatyou'regoingafter?
GodfreySullivan(CEO):
Thanks,Brett.
Youknow,youfolkshavebeenprettyvocalwithusoverthelastseveralyears,saying:wealwayshearthatyourcustomersloveyourproducts,theyliketheCompany,theylikeeverythingaboutSplunkexcepttheyworryaboutthepricingmodelhavinganindeterminatecostattachedtoitbecausetheydon'tknowhowbigtheirdatacouldget.
Andsokindoflookedback--IliketheoldOracleanalogyfromtheirearlydayswhere,whenitwasveryearlygame,theysaidlet'sgooutandoffercustomerstheabilitytoputasmuchdataastheywantintotheengineandthengofromthere.
Ithinkthat'sagoodmodelforuswheretheseareearlydays,butwehavefirst-moveradvantageandwehaveaverydifferentiatedproductandthecombinationofthosetwomeansweshouldgiveourcustomersawaytothinkaboutputasmuchdataasyouwantedintoSplunk,notjusthigh-valuedataordatathatisheldbackbyanindexingrate.
Sofromastrategystandpoint,it'sjustamatterof,let'smakeitaseasyaspossibleforcustomerstostandardizeonSplunk.Idon'tknow,Doug,you'vebeenonanairplanealotoverthelastninemonths.You'vegottenplentyoffeedbackyourself.
DougMerrit t (Head-FieldOperations):
Yes.
It'sinlinewithwhatGodfreyjustwentthrough.Firstofall,beingabletooffermorestructuredvehicles,sothatoursalesforcecanhavedirectdialoguewithcustomersthatreallydowanttogolargerwithSplunkwithoutallthecheckbacksthatwerenecessarywithalittlebitmorehand-craftedapproach,IthinkissuperimportantwithwherewearenowasaCompany,giventhedesireofmanycompaniestoexpand.
Whatwasn't--mayhavenotbeenasclearthatannouncementis,customerswanttodeploymultiplemodalities,classicandperpetual,termandunlimited.Theannouncementisfocusedonunlimited,butwearecontinuingtogivechoicewiththeEAAstructures,sothatwecanmaptocustomersbuyingpreferencesandmakesurethatwemeettheirneedsfortheuseofSplunk.
Brent Thill(Analyst-UBS):
Great.
AndjustaquickfollowupforDave,justonthemovetotheCloudversustermorperpetual.There'sbeensomeconcerns,perhaps,thattheremaybedifferenteconomics.I'mjustcuriousifyoucouldjustwalkthroughthequickviewintermsofwhatyou'reseeingeconomicallyacrossthedifferentwaysthatyoucangotomarket.
DaveConte (CFO):
CompanyName:SplunkIncCompanyTicker:SPLKSector:Technology
Industry:ComputerSof tware&ServicesEventDescription:Q4 2015EarningsCall
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Sure.
Whenyoulookat--intermsofthetopline,Brent,theeconomicsarereallyspecifictotheusecase.We'reseeingthatcustomers,manyofourcustomersaretakingadvantagesofhybridsearch,sothey'llhavecertainusecaseswheretheirdataisbehindthefirewallandotherusecaseswheretheirdataisinthecloudandabilitytoleverageSplunkacrossallthedatasourcesisreallyvaluable.
Thattranslatesinto,Iwould,saytop-lineeconomicsthatareappropriatefortheparticularusecaseandweseethatacrossthedeliveryvehicles.Obviously,fromacostperspective,andImentioneditinmypreparedremarks,thereisincrementalcostsforustodeliverthatserviceandweseethatagainincreasingourcostofserviceandhittingourgrossmarginbymaybe100,200basispointsoverthecourseoftheyear.
Brent Thill(Analyst-UBS):
Great.Thankyou.
GodfreySullivan(CEO):
Thanks,Brent.
Operator:
KeithWeiss,MorganStanley.
KeithWeiss (Analyst-MorganStanley):
Excellent.Thankyoufortakingthequestionandverynicequarter.
GodfreySullivan(CEO):
Thankyou.
KeithWeiss (Analyst-MorganStanley):
Iwaswonderingifyoucouldgiveusalittlebitmorecoloronthesalesinvestmentsthatyou'relookingtomake.Itseemslikelastyearwasaheavyfocusongeographicexpansionandsecurity.IsitasimilarpaceofexpansionwhenyougointoBIsandsimilartypeofguidethatyou'rebringingonboard?
AndthenifDavecouldquantifyatargetofwhereyoulooktoendtheyearintermsofsalescapacity,thatwouldbehelpful.
GodfreySullivan(CEO):
Thanks,Keith.Yes.
SoconsistentwithwhatIwalkedthrough,Ithinkit'sacombinationofgeoexpansion,there'sstillalotofopportunityacrossthemultipledifferenttheaters;themarketinvestments,makingsurewegottherightspecialistcapabilityorthemainexpertcapabilitytosupportourgeneralsalesforce;andcontinuedbalanceinvestmentacrossthepartnerecosystem,aswell.Dave,I' llhandittoyouforanyspecificson--
DaveConte (CFO):
Sure.Keith,we'vebeentalkingaboutthecompositionofthesalesteam,andIwasalittlemoreexplicitthatit'sanevolutionintermsofitsbreadth.Dougjusttouchedonthefactthatmarketspecialization,theinvestmentwearemakingintermsofgetting--ultimately,whatwewantisaleveragechannelrelationshipwithnotjustpurevarsbutstrategicchannelpartners.Thoseareallpartofourinvestmentthesis.
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Intermsofwhatyoucanexpectforthenextyear,ifyougotopsdowntheexpectationsaroundopmarginwillbeaconsistentamountofpositiveoperatingmarginoverallforthefiscalyear.We'lllooktomakethoseinvestmentsconsistentintermsoftheexpansecategories,betweensalesandmarketing,R&D,G&A,thatyou'veseenfromusinprioryears.
Asitrelatestospecificmetricsaroundcapacity,asI'vementionedinmypreparedremarks,we'llcontinuetomeasurethoseinternallyanddeterminewhat'sappropriatetoshareexternallysothatyoucanbuildyourmodel,whichwewanttoreflectourmodel.Consistentwithwhatwe'vedoneinthepastinthatregard,wegettoaboutthemiddleoftheyearandthenI' llgivesomeinsightintermsofhowwearethinkingaboutyear-endingsalescapacityoverall.
KeithWeiss (Analyst-MorganStanley):
Gotit.Itsoundsliketheactualnumberofsalesperhapsmightbealittlelessimportantbecauseyouhavesomanyguysworkingaroundthemthatitmightbeabouttheactualproductivityofeachoneofthesalesguysisenhancedbypartners,bymarketspecialist.Isthattherightwaytobethinkingaboutit?
DaveConte (CFO):
Well,we'recertainlylookingtoalwaysaddressandmakeoursalesfolksproductive.Imean,thatisanever-endingexerciseforusandIthinkwe'vedoneanicejobofit.I'mcertainlyhappywiththeproductivitythatwe'veexperiencedandtheproductivitygainsthatwe'veexperienced.
Butinterms--it'sreallyabout,howdoweaddresswhatlookstousittobeanever-increasingTAM.Weneedtohavetherightexpertsinthesalesteams,partneringwithourmarketgroupslikeRickandHaiyan's,andalsoourdirectsalesguystogotothecustomerandsay,okaywe'regoingtotellyouhowtoextractallthevaluefromyourdata.Ithinkthatyouarethinkingaboutittherightway,butintermsofspecifics,again,mid-yearI' llcomebackandI' llgiveyousincethespecificsintermsofhowtothinkofitfortheendofthefiscalyear.
KeithWeiss (Analyst-MorganStanley):
Excellent.Thankyouverymuch.
GodfreySullivan(CEO):
Thanks,Keith.
Operator:
RaimoLenschow,Barclays.
RaimoLenschow(Analyst-BarclaysCapital):
Congratulationsfromme,aswell,andthanksfortakingmyquestion.
Thequestionwasonthepricingannouncementyouannouncedthismorning,andIknowwehavetalkedaboutthisbefore.Canyoutalkalittlebitabouttheimplicationsyouseeinyourconversationswiththebigcustomersaroundthe--Imean,youobviouslyhadEAAsbefore.What'sthedifferentdebateyoucanhavenow,andwhatimpactareyouexpectingfornextyearandgoingforward?
Thankyou.
GodfreySullivan(CEO):
Thanks,Raimo.
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I'mgoingtoturnitovertoDougandI' llsweepupthefloorincaseit'snecessary.
RaimoLenschow(Analyst-BarclaysCapital):
Nopressure.
DougMerrit t (Head-FieldOperations):
Hey,Raimo.It'sDoug.ThewaythatweapproachEAAs,itis--bythetimeacustomer--youdon'tleadrightawaywithanEAA,obviously.Youbuildcredibilitywithinthecustomerandactuallygetthere.AndI'mreallythankfulandhappyforthethoughtfulandthoroughprocesseswehavearoundsaleshere.
We'vegotawholebestpracticesguidelineforourEAAsthathaspricingasactuallytheeighththestepofeightkeysteps.Itiscertainlyimportant,butthere'salotofunderstandingthecustomer,understandingtheirneeds,understandingtheenvironment,buildingtherightchampionsandcoaches,provingvaluealongthewayandensuringthatthecustomer'sgottherightmomentumbeforewedropintoanEAAdiscussion.
IthinktheclaritythatwereaddingwithanewEAAstructuresmakesitaneasierearlyframeworkforourcustomersasthey'redealingwithus,andmakesitacleanerdiscussionorlandingpointforthemastheyget--astheyunderstandwheretheirdemandsetforSplunkwillgoovertime.
Ithinkthemainfocusitwasintwoaspects,ensurethatwehelpourcustomersgetgreateradoptionandtractionbytakingthepricingissue,orbymakingthepricingissuemoreclearforthem,andensuringthatourrepsaremoreempoweredandhavethemoreclarityandtoolsattheirdisposaltohavethosediscussionsonabroad-basedandscaledorientation.
RaimoLenschow(Analyst-BarclaysCapital):
Perfect.Godfrey,areyouokaywiththat?Thankyou.
GodfreySullivan(CEO):
Raimo,aslongasyou'rehappy,I'mhappy.
RaimoLenschow(Analyst-BarclaysCapital):
Okay.Thankyou.Welldone.
Operator:
EdMaguire,CLSA.
EdMaguire (Analyst-CLSA):
Hey,goodafternoon,everybody.
Ijusthadaquestionaboutsomeofthesaleschangesyouaremakingandhowthoseactuallymapintotheindustrygroups.Itsoundstome,fromhowyou'vedescribedit,thatyouaremovingfromevenmoreofaspecializedapproachthaneventhestructureofthemarketgroups.I'dbeinterestedinanycolorintermsofhowthatisactuallyinformingnotjustthego-to-market,butalsohowthat'styingintoyourdevelopmentofsolutionsets.
GodfreySullivan(CEO):
Ed,Iheardarumorthatyou'reinTokyoorsomewhere.Isthatright?
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Industry:ComputerSof tware&ServicesEventDescription:Q4 2015EarningsCall
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EdMaguire (Analyst-CLSA):
It'snotarumor.I'mthere.
GodfreySullivan(CEO):
Soyou'reaskingmethatquestionatfourinthemorning.Ijustwantedtomakesureallisclearaboutthat.
EdMaguire (Analyst-CLSA):
Yes.It's14hoursahead,soit'sactuallyacivilizedhour.
GodfreySullivan(CEO):
Allright.Well,thanksforthequestion,asalwaysandgoodtohearyourvoice.SoI'dliketoaskHaiyantoopineonthisabit,butwhenyoulookatthemarketgroupformationismore--fieldstructureisapartofthemarketgroupformation,butit'sreallyaboutformingupcompetencyinourmajorusecases.Haiyan,maybeit'sworthjusttotalkaboutwhatthemembersofyourteam,likewhatarethetypesoftitlesthatbelongtoyourteamandthenhowdoesthatapplytoappsandsortofthesolutionsstackandthenwecancomebacktofield.
HaiyanSong(SVP-SecurityMarkets):
Sure.Ed,goodtotalktoagain.
AsImentioned,themissionforthesecuritymarketgroupistolead,tofocus,andtoenable.SowhatwehaveisourHeadofProductManagement,HeadofDevelopment,HeadofSolutionMarketing,theyarefullyfocusedonthesecuritymarket.Notonlythat,wehaveadedicatedCDdirectorwhofocusesonbuildingourecosystemandthatintothefield,whatwe'redoingiswe'rebuildingamulti-tieredteamwithsubjectmatterexpertise.
Theyaredistributedintothefield,intodifferentregions,andthereisaglobalsupportforthem,formorestrategicaccountsandmoreadvancedprototypeneeds.Notonlythat,wealsobuildadedicatedprofessionalservicesorganizationjustforsecuritycustomersandsowecanprovidetrustedadvisoryservicestothem.Withallofthose,it'sreally,themarketgroupprovidesthevisionandthestrategyandalsotheenablementfortheexecution,ifthathelps.
EdMaguire (Analyst-CLSA):
Great.Andjustaquickfollowup,ayearon,westartedtalkingaboutInternetofThingslastyearandIknowyouhavesomeinitiatives.Justquickthoughtsonprogress?Idorealizeit'searlydays,butanycoloronthatfromyouwouldbeveryhelpful.Thankyou.
GodfreySullivan(CEO):
Yes,thanksEd.
TheInternetofThingstomestilllookslikeit'sshapinguptobeanindustryconversationmorethananythingelse.Ialwaysthink,whatistheprimarylensyoulookatwhenyoulookatamarketorsetofcustomersandintheinsideoftheexistingSplunkcompany,theprimarylenswelookatisamarketorsolutionslens.HowmanypeoplearebuyingtheproducttouseitforsecurityusecasesorIToperationsusecases?
WhenyougettoIOT,itlooksanawfullotlikeindustrysegmentsandveryspecificeventothat.Sowithinbuildingsystems,you'dbeinmilitaryoperationsorresidentialwouldbetwoverydifferentmarketsegments.Intrafficmanagement,weseetrains,we'vegotalotoftraincustomersthatuseSplunkformonitoringtrains
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remotely.Atthesametime,smartgridwouldbeacompletelyseparateindustry,butwithverysimilartypesoftechnologystacksupply.
Idon'thavethatoneallfiguredoutyet.I'mspendingalotoftimethisyearonthebusinessanalyticspiece,butwearedoingalotinIOT.WeprobablyhavemoreIOTcustomersthananyotherbigdatacompany,butit'sbecausetheproductissoeasytouse.IthinkthattheworkthatwillapplytoIOTwillbeindustry-specificandtherefore,partnerswillbeabigpartofthatconversation.
EdMaguire (Analyst-CLSA):
Great.Thanksverymuch.
GodfreySullivan(CEO):
Thanks,Ed.
Operator:
KashRangan,MerrillLynch.
KashRangan(Analyst-BofAMerrillLynch):
Hello.Thankyouverymuch.OnequestionforDoug,withrespecttothenewpricingmodelforEAA.Iknowyoueloquentlyexplainedhowthesetwodealsarebedifferent,soitfeellikeyou'vegotaprettygoodhandleonpotentiallyspilloverfromonebuckettotheother.Canyoutalkalittlebitmoreabouthowyouarepricingitexactly?Isitbasedonheadcountorrevenue,whatnot?Howdoyouthinkthatexpansionsalesofcurrentcustomersarelikelytoplayout?
Iguessafollow-upforMr.Conteis,haveyou--areyoureally--theviewthatsincethispricingmodelwaslaunchedtoday,wereallydon'thaveagreatfeedback,alotoffeedbackfromthecustomertobeabletoassesshowmuchofyourbusinessmixisgoingtobefromtheratable,becauseitwouldseemlikeit'sgoingtotakesometimeforthistobesortedoutamongyourcustomersandtherecouldbesomevolatilityinthatmix.Right?Justwantedtogetthat.
Thanks.
DougMerrit t (Head-FieldOperations):
Sotostartontheactualstructure,fortheunlimitedEAA,it'sbasedoncustomersize,withrevenueasacomponentofthatbutthere'sotherfactorsthatgointothatsize,aswell.Again,thegoalthereistotakethedatavolumepieceawayandinsteadallowthecustomerfocusonhowtouseSplunkasamachinedataplatformacrossallfunctions,allusecases,thewaythattheyhavegivenusfeedbackthattheywanttodrive.
Tostructurethedifferentvehicleswecameoutwith,wediddoaseriesofinteractionsoverthepastsixtoeightmonthswithkeycustomersthatalreadywerebeginningtodiscussdifferentEAAtypeformats.Sowe'vegotsomedecentfieldvalidationandcustomervalidationonhowthesethingsshouldbestructuredandIfeelprettygoodaboutthethoughtfulnessthatwentintoit.Dave'steamwaskeyindrivingtheoverallstructureandmakingsureitworkedandI' llhandtheremainderofthequestionovertoDave.
DaveConte (CFO):
Hey,Kash.It'sDave.Yourquestionaboutmixandvolatilityinthatmix,youarespoton.
Aswegetinto--justbecausewe'vestructuredtheprogram,asyouknow,we'vebeendoingEAAsforcertainlywelloverthelastyear,buteachoneanindividualexercise,notjustforthecustomerbutforthefield.Sothis
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programhassomedualbenefitintermsofenablingcustomerstogetthepredictabilitythattheywantinstandardizingonSplunk,enablingfieldtodeliverthatstructuretothecustomer.
SoIexpectwewillcontinuetoseequarterlyvolatility.Again,Iexpectittobetheway--seasonal,intermsofhowwe'veseenitbyquarter,Q1probablyhavingtheleastamountofratablecompositionandQ4havingthegreatest,generallytiedtolargertransactions.
Butasyouknow,I'vebeenprovidinganoutlookonmixforthelastthreeyearsthat'sgonefrom10%to20%oflicenseto20%to30%oflicensetonow30%to40%oflicense.Sothecompositionhasobviouslygrownasapercentageofthewholebutitcertainlyvolatileonaquarter-to-quarterbasisandallthewaydowntoaparticulartransactionandwhenitcloses.
DougMerrit t (Head-FieldOperations):
AndthenquicklyifIcould,withinthatsubscriptionmix,anyfeelforhowtheproportionofHunkdealsversusratabledealsversusfield,whichpieceissmaller?Justyour--
DaveConte (CFO):
Well,yes.Imean,it'shardto--obviously,aswe'vemovedfromsingleproducttomulti-product,manyofthosemulti-products,andwhileCloudisnotnecessarilyaseparateproduct,it'srevrecistreatedseparatelyandratable.
ButgiventheoverallgrowthintheBusinessandourtraditionalenterpriseplatformsales,it'sreallytoughtomeasureexactly,well,howmuchcanIexpectthesenewproductsanddeliverymechanismsaregoingtoincreasethatratablecontribution,becausetherestoftheBusinessisn'tstandingstill.
Soagain,you'rejustgoingtohavetostickwithmeasIgiveyouthevisibilitythatIhaveandthewayweplanforratabilityacrossthebalanceoftheyear.Wewillcontinuetorefinethatmetricasitbecomesrefinedforus.
GodfreySullivan(CEO):
Thanks,Kash.
Operator:
DanielIves,FBRCapitalMarkets.
DanielIves (Analyst-FBRCapitalMarkets):
Yes.Thanksalot.Godfrey,couldyoumaybetalkoverifwecomparewherewewereayearagoandhowtheconversationwithcustomershavechangedintermsoftheadoptioncurveandjustmorecustomersarereallywillingtospendsignificantdollarswiththeSplunkplatform.Maybecanjustcompareandcontrastwherewewereayearago.
GodfreySullivan(CEO):
Sure.Happytoandthanksforthequestion.
Weshowthatinthenumbers,justifyoulookattheincreaseinthenumberofseven-figuretransactions,forexample,fromoneyeartothenext.It'saprettyimpressivepercentage,andthatisatthemirrorimageofthefactthatcustomerswentfromdepartmentaltomulti-departmentalandnowareexpandingouttomoreenterpriseadoption.SoIthinkthatpartofthematuritycurvethatwewillgoupisjustacontinuationofthatexpansionfrommulti-departmentaltomoreofanenterpriseflavorandthepricingmodelhelpsacceleratethat.
I--thedifferenceinconversations,twoorthreeyearsagoIwasoutmeetingwithsysadminsandfirstlevelIT
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administratorsandIwastryingtoexplaintothemwhatasearchengineforamachinedatawas.Morerecently,IwasoutinEuropemeetingwitha3ClevelexecsofalargeEuropeantelecomandtheywerecommenttomewas:SplunkiseverywhereinsideourCompany.
Weneedtocomebackandspendseveraldaysdoingtechnicalplanningwithyourdevelopmentteambecauseweneedtoembedyouasamission-criticalpartofourCloudservice.PrettygoodexampleofhowtheconversationshavechangedovertheyearsandIcouldn'tbemoreexcitedaboutit.
DanielIves (Analyst-FBRCapitalMarkets):
Yes.Andjustasaquickfollowup,cybersecurityandsortoftheconvergenceofwhatwe'reseeingwithSplunkonthesecurityside,howbigofagamechangerhasthatbeentoyourBusinessandevenyour--goingforwardintoFY16.Thanks.
GodfreySullivan(CEO):
I'mnotsureIheardthequestion.Howbigis--
DanielIves (Analyst-FBRCapitalMarkets):
--itintermsofsecurity,intermsofifIthinkaboutthesecurity(technicaldifficulty)intheplatform,justyoutalkabouthowbigofacontributorthatisgoingforwardoverthenextonetotwoyearsandjusthowthat'sreallybeenabigchangethatyou'veseenintermsofthatdemandcycle.
GodfreySullivan(CEO):
Gotit.YoubrokeupalittlebuttherebutI'mgoingtoturnthisovertoHaiyanfromastandpointthattwoyearsago,wehadacollectionahandfulofreallysmartsecuritypractitioners,individualpractitioners,scatteredacrosstheCompanyandnowwehaveafullyformedmarketing--marketteamaroundit.Ithink,Haiyan,thisisprobablybestforyoutoanswerhowthatlooks.
HaiyanSong(SVP-SecurityMarkets):
Sure.IthinkinmyyearhereatSplunk,I'vecertainlyhaveseengreatmomentumbuildingup.Themarketisembracingouranalytics-drivenapproachandisembracingthesolutions.Youcanseefromtheresultsthatwehavesharedandwehavebeengrowingreally,reallyhealthyandIthinkmultiplesofthemarketgrowthforthesecuritymarket.Andthosewinsisnotbecausethemarketitselfexpandingonlyandisalsoforcompetitivewinsthatwehavegotinthisexistingmarket.
Intermsof(technicaldifficulty)coupleyears,asImentionedinthecall,fromjustattendingtheWhiteHouseCyberSecuritySummitandthepeopleandtheresourcesthatwasmadeavailablebythegovernmentandbytheenterprises,wecancontinuetoseetoppriorityisgoingtobegiventocybersecurityanddefenseandwearebecomingthego-toplatformforalotofenterprisesandorganizations.
Partlybecausetherolethattheyareexpectingustoplayandwehaveprovenbeingthenervecenterinalotofthesecurityoperationsisreallyhelpingthesecurityoperationteamevolveintothenextgentechnologysolutionforsecurityandsolvingthemoreadvancedthreats.
DanielIves (Analyst-FBRCapitalMarkets):
Veryhelpfulanswer.Thanks.
GodfreySullivan(CEO):
I'mreallybullishonthefactthatthecontentthatyou'veassembled,liketheappandthededicatedProServ
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teamandallthat'sbeenarealenabler,becausewe'reseeingaveryhighattachratenowonourenterprisesecurityapp;oursolutionontopofourenginesales.It'sagreatsignofthemarketplacelookingtousforacompletesolution.
Operator:
JohnDiFucci,Jefferies.
JohnDiFucci(Analyst-JefferiesandCo.):
Thanksfortakingmyquestion.
IhaveanotherquestionontheEAAsandthepricingandthenafollow-upforGodfrey.Onthepricing,andyousayinthepressrelease,it'sforcustomersofanysize.AndI'mjustwondering,doanticipatethisforsmallercustomers?Maybecouldyougiveus--sortofgiveusanexampleofgeneralterms?Whatisthelicensepricegoingtobebasedon,especiallythosesmallercustomers.Wesortofgetitwiththelargerones,butjusthowmightthisworkdifferentlyforsmallercustomers,ifatall?
GodfreySullivan(CEO):
OneofthecoolthingsaboutSplunkisthedataofvolumeisnotdependentonsizeoftheorganizations.There'sanumberofsmaller--technicallysmaller,revenue-wise,mid-sizeandsmallerdot-comsthathavehugedatavolumes,andstillwouldfitinwellwithanunlimitedEAAoneoftheotherstructuredvehicleswehave.
ButIalsounderstandyourpointofwhensomeoneisstill--isnotcompletelywall-to-wallwithSplunk,howdoEAAshelpthem?That'swhatwe'vegotthatperpetualtermandunlimitedtriumviratestructureandtheperpetual--theothervehiclesstillmaintainadataorientation,justgivevisibilityonwhatthatdatapricingisandtheygodowntosmallerlevels.Theygodowntoaslowas100gigor250gig.Sowe'rehopingthatwecoverthefullgamutofcustomersthatareinterestedinSplunk.
DaveConte (CFO):
Hey,John,it'sDave.
Ithinktheconversationaroundenterpriseadoption,pre-programorpre-announcementthismorning,it'sreallyaboutthecustomermaturity.Andhowdowegettheminthatpositionwheretheircomfortablestandard--theywantmoreofourproductandgivingthemthatpredictableabilitytodeploybroadlyoursolution--ourplatformandsolutionsontopofit,isreallytheobjective.
Sowhenwetalk--wewanttomakethatthecaseforallcustomers,regardlessoftheirsize,thatareatthatlevelofmaturitysothatwecanmovethemupfromthatoperationalintelligencelevelonetotheultimategoalofoperationalintelligencelevelfour,wherethey'rederivingmissioncriticalinformationfromtheirdata.
AsDougmentioned,we'vecreatedtheprogramwith,whatIthink,enoughflexibilitytomakeitattractiveforallofourcustomers,regardlessofwhattheirparticularneedsare,whetherit'sperpetual,whetherit'sterm,andthesizingofthelicensewillcertainlybefactoredonmanythings.Inthiscase,notourhistoriccapacitypricing,butrather,sizeofcustomer.
JohnDiFucci(Analyst-JefferiesandCo.):
Okay.That'shelpful,becauseIthink--andyouknowthis,right?Wegetaskedthequestionsallthetimeaboutyourpricingandit'salwaysbeenabigquestionandit'sactuallybeensomewhatofaconcernofinvestors.
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ButIthinkwhenItalktoinvestorsthatIusuallysay,listen,Splunkmanagementisnotstupid.Ifitmakessensetodothingsinadifferentwaywithalargecustomer,that'swhattheydo.Butitsoundsinthiscasewhereyoumightbeableto--atleastasfarasIknow,youhadn'tbeendoingthatalotwithsmallercustomers.AndwhatImeanthattheydon'thavehugebusinessesyet.
Andwhenyoutalkmaturity,Dave,Ijustwanttomakesureyou'retalkingaboutmaturityastohow--notmaturityofthecompanyandhowbigtheyare,butmaturityoftheiradoptionofSplunk.
DaveConte (CFO):
That'sright.You'vegotit.
JohnDiFucci(Analyst-JefferiesandCo.):
Okay,cool.
DaveConte (CFO):
HowfaralongaretheyontheirdatajourneywiththeSplunk?
JohnDiFucci(Analyst-JefferiesandCo.):
Okay.Gotit.Great.Thanks.AndifIcould,afollow-upforGodfrey.Godfrey,whenyouspeakaboutthebusinessanalyticsopportunity,doesthisrefertowhatmostpeoplethinkofwhentheythinkofSplunk,likewebanalyticsofretailWebsites,orareyoureferringtosomethingevenbroaderthanthat,likesomeoftheapplicationsthattraditionalbusinessintelligenceaddress?Ifyouarethinkingbroaderthanthat,willthatrequiremorespecializedappstobewrittenontopofSplunk?
GodfreySullivan(CEO):
Greatquestion.
IdonotthinkthatSplunkhas--shouldpursuetheanalyticsmarketplaceasdefinedbytoday'sBItools.Thereareplentyoftoolsthatunderstandhowtosearch,report,analyze,structureddatasetsandthat'snotaplacewherewewouldaddsignificantvalue.Theplacewherewereallyaddvalueisindatain-flight.Soyouthinkaboutdatathat'sinmotionandthat'swhereSplunk'stimeseriesenginehasasignificantadvantageoveranythingelse.
Now,ifyoucombinethosetwosetsofdata,datathat'sinmotionwithdatathat'satrest,youcandosomething,oh,likeDominoesdoes,whentheylookatrealtimephonesfromfolks'mobiledevicestotheirwebsystem,andyoucouldunderstandwhatpizzarightnowisbeingorderedthat'smostpopularinCleveland,let'sputamarketingpromotionouttheretoboostsalesinthatmoment.SothetraditionalBImarket,peoplejust--theycomparedthisquarter'sresultstolastquarter'sresultsandlookforvariancesinthosenumbersandtimereallyisn'tadimension.
Ourcustomers,onesthathaveveryhightransactionvolumesandcustomer-facingdot-comenvironmentsormobileenvironments,whichisreallyonthesurge,youwanttobeabletocombinethevaluethat'sinthedatainmotionalongwithsomeofthedatathat'satrest,likecustomernames,accountnumbers,pricinginformation,andsoforthandwehaveanenormousopportunitythere.WehavealotofcustomersthatdoitthatwithSplunktoday.
It'smostlykindofacustombusiness,wheretheygrowintothatovertimeandIthinkwecanacceleratethatifwestarttoputamodelaroundit.Theanswertothelastpartofyourquestionisyes,itwillrequiresometemplatesorcontentthathelpacceleratethatlevelofadoptionbecauseit'safairlycomplexsetoftechnologiesthatyou'repullingtogether.
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Industry:ComputerSof tware&ServicesEventDescription:Q4 2015EarningsCall
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JohnDiFucci(Analyst-JefferiesandCo.):
Okay.Great.That'shelpful.
AndifIcould,soitsoundslike,youtalkaboutreal-timeanalyticsandisthenextstepthere,andisthatpartofwhatyouweresaying,wereyousortofimplyingthatyoualso,bydoingthis,getintopredictiveanalyticstoo?Maybethat'stoobroadacategory.Idon'tknow.
GodfreySullivan(CEO):
Yes.Iagreewiththat.
JohnDiFucci(Analyst-JefferiesandCo.):
Okay.Great.Thanksalot.Nicejob.
GodfreySullivan(CEO):
Appreciateit.Thanks.
Operator:
MarkMurphy,JPMorgan.
MarkMurphy(Analyst-JPMorgan):
Yes.Thankyou.Iwilladdmycongratulations.
Godfrey,Ibelieveyousaidthesecuritygroupisonfire,andI'mcurious,diditgrowmateriallyfasterthanthetotalrevenuegrowthforthequarter,whichcameinat48%?Evenifyoucancommentdirectionallyonthat.Doexpectthatthesecuritygroupisgoingtooutgrowtherestofthebusinessthisfiscalyear?
GodfreySullivan(CEO):
Yes.
Imean,asImentionedto,IbelieveitwasPhilaskedthequestion,securitybusinessisrunningbetween35%and40%ofourrevenueonanygivenquarterbasis,soitsgrowingat--asfastorfaster,dependingonthegeoandalltherestofthat,soit'sallgood.Thereasonit'sonfireishighend,bytheway.Ijustwanttobeclearaboutthat.
HaiyanSong(SVP-SecurityMarkets):
Thankyou,Godfrey.
GodfreySullivan(CEO):
Thankyou.
Andthenasafollow-up,Godfrey,Iwasadigestingthehandfulofchangesinsalesmanagementandofcourse,Ialwayswonderifyou'refactoringinanypossibilityofanyminordisruptionsthatcouldresultinthefieldthisfiscalyearorbeyond?Andthen,whenyoumentionedthatthenewunlimitedpricing,Istartedwonderingiftherecouldbeanoffsetthere,justintermsofperhapssomepent-upcustomerdemand?
I'maskingthisquestionfromadifferentangle.I'dhavetothinkyoucouldseeasurgeofsomelargertransactionsfromcustomerswhowanttoseparatethecostfromthedatagrowthormaybeapull-forwardofcertaintransactions.SoI'mjustcurious,whattoexpectonbothfronts?Isthetimingofthosetwoeventspurely
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Industry:ComputerSof tware&ServicesEventDescription:Q4 2015EarningsCall
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coincidental?
Onthedisruptionquestion,IthinkQ1isQ1.It'salwaystheplacewhereDougandhisteam,theyassignnewquotas,theysplitterritories,theyreassignaccountteams.Whateveritis.Allthechangesthatoccurinenterprisesoftware,theyalwaysoccurinQ1,whichis,IthinkoneofthereasonswhyyouseeQ1seasonallyweakerthantherestofthequarters.It'swhenallthechangehappens.
Sothere'snothingparticularlydifferentthisyearaboutitthanprior.It'sjustallthosechangesandrolloutatthebeginningoftheyearandoffyougo,sothatpartofitfeelsprettygood.
IwouldjustliketoreemphasizewhatDougsaid.Thatis,onthepricingmodel,wehavemultipledimensionstothatmodel.WehaveaperpetualmodelforcustomerswhowanttospendCapExandownsoftware,wehavetermforpeoplewholiketobuyitthatway,andwehaveunlimited,dependingonwhatyouneedasacustomer.I--throughalltheseyears,thenumberonethingyoucancountonisthatthecustomerhasanopinionabouthowtheywanttodothat,andtheyusuallytelluswhichofthosemodelsaremostimportanttothem.
SoIdon'texpectasurgeofanythingasmuchasIexpect--well,ifthereisasurge,itwouldbeinconversation,customerssaying,cometellmeaboutyourprogram.Ithinkthatwillbefantastic.ButasDougsaid,pricingistheeighthstepoutofaneight-stepcustomermanagementprocessthatweteachhere,andsowedon'tleadwithpricing.
It'sjustawaytohaveacustomerbetterunderstandthemodels.I'mexcitedaboutthenewprogramsbutit'sgoingtotakethenormalamountoftimefortheseopportunitiesforittoshowuswhattheoutcomeis,whichwaythecustomerpreferstobuy.
MarkMurphy(Analyst-JPMorgan):
Thankyou.
GodfreySullivan(CEO):
Thanks,Mark.
Operator:
GregDunham,GoldmanSachs.
GregDunham(Analyst-GoldmanSachs):
Hi,thanksfortakingmyquestion.Aquickonsecurity.It'srelatedtoHaiyan'scommentsthatit'snotjustthatthesecuritymarketisdoingwell,it'sthatyouroutgrowingthemarket.Thequestionreallyis,whathasbeentheimpactfromthesecuritymarketsgroup?Whathaveyoumeasuredasthebenefitstothatinthelastyear?
Couldyourankorder?Isitvolume?Isitlessdiscounting?Isitconsistently?Howdoyoumeasurethesuccessofmovingtothatmodelwithinsecuritynowatyearend?
Thanks.
HaiyanSong(SVP-SecurityMarkets):
Letmegiveyouacoupleofthingsthatwesetoutasgoalsforourteam.Ithinkit'sthewinningandthemomentumcomesfromusbringingtherightsolutionstothecustomerandwhattheyreallyneedistohaveanewapproachtohelpwithtoday'sadvancedthreats.
Someofthelegacyproductisnotreallymeetingthatneed,soIthinkthat'sthemostimportantpart.Intermsof
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metricsandothersis,howmanytimesdowegetinvitedtothetable.Ithinkwithusbeingrecognizedastheleaderforthemarket,weareinalltheconversations,becausewegetautomaticallyincludedintheRSPs.
Theotherpartishowmanytimesthatwecangoandmessageouttothemarketandthecustomerswhyanewapproachisneeded,whybeingthenewnervecenterisanimportantthingaspartoftheirtechnologyrefreshwhentheylookatintosecurity.Ithinkotherareasforusisgettingourfieldorganizationtrainedandsowecanhaveaproductiveconversationwithcustomersandwiththeusersanddifferentaudienceswiththerightmessagingandtherightsolutionstothem.
Ithinkthoseareafew.Thereisprobablymanyotherthingsintermsofattachratesandgrowthrates.IthinkthosearethingsI' lldefertoDave.
DaveConte (CFO):
Yes,Greg.It'sDave.
Ithinkwe'vebeentalkingalongtimeaboutsingleproductandmulti-productsandwehavebeeninvestingsignificantlyintermsofcontentthatwecanprovideontopofourplatformandenablingotherstoprovidecontent,bothourcustomersandthirdpartiestoprovidecontentontopofourplatform.Ashiningexampleofthatisourenterprisesecurityappthatsitsontop.
Haiyanmentionedattachrate.Therateofattachisthatweseeasourmarketgroupthat'sledbyHaiyanisabletoengageandarticulatethevaluepropositionofoursolutionaroundsecurity,hasbeenadifferentiatorforusinthatmarket,andweseeitultimatelyinourwinrate,whichisextremelyhigh.
Whenweareengagedinanopportunity,thedepthofexpertisethatourmarketgroupfocusbringstothefieldorganization,anditsinfluenceontheproductdevelopmentorganization,createsasolutionthatcustomershavetohavetoprotectthemselves.
GregDunham(Analyst-GoldmanSachs):
That'shelpful.Thanks.
GodfreySullivan(CEO):
Thanks,Greg.
Operator:
KarlKeirstead,DeutscheBank.
KarlKeirstead(Analyst-DeutscheBank):
Actually,I'mgood.I' llpingKenafterwards.Thankyou.
GodfreySullivan(CEO):
Thanks,Carl.Appreciatethat.
Operator:
Thankyou.Thisdoesconcludeourquestion-and-answersessionfortoday'sprogram.I'dliketohandoftheprogrambacktoManagementforanyfurtherremarks.
GodfreySullivan(CEO):
Great.Thanks,Jonathan.Appreciateyourhelptoday.Thanks,everybody,forjoiningus.
CompanyName:SplunkIncCompanyTicker:SPLKSector:Technology
Industry:ComputerSof tware&ServicesEventDescription:Q4 2015EarningsCall
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Asareminder,wewillbehostingaSplunkliveeventinDConApril8.YoucanregisterviatheWebsite.Hopeeverybodyhasagoodevening.Thankyouforyourtimetoday.
Operator:
Thankyou,ladiesandgentlemen,foryourparticipationintoday'sconference.Thisdoesconcludetheprogram.
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