Splunk Inc. Announces Fiscal Second Quarter 2020 Financial Results

Software Revenues Up 46%; Cloud ARR Surpasses $300 million

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

Second Quarter 2020 Financial Highlights

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

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

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

Business Highlights

Customers:

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

Corporate:

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

Financial Outlook

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

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

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

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

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

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

Conference Call and Webcast

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

Safe Harbor Statement

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

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

About Splunk Inc.

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

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

Splunk Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended July 31, Six Months Ended July 31,

 

2019

 

 

 

2018

 

 

 

2019

 

 

 

2018

 

Revenues
License

$

279,279

 

$

200,668

 

$

482,141

 

$

339,643

 

Maintenance and services

 

237,279

 

 

187,635

 

 

459,267

 

 

360,299

 

Total revenues

 

516,558

 

 

388,303

 

 

941,408

 

 

699,942

 

Cost of revenues
License

 

5,936

 

 

5,671

 

 

11,618

 

 

10,795

 

Maintenance and services

 

92,372

 

 

78,077

 

 

182,513

 

 

150,923

 

Total cost of revenues

 

98,308

 

 

83,748

 

 

194,131

 

 

161,718

 

Gross profit

 

418,250

 

 

304,555

 

 

747,277

 

 

538,224

 

Operating expenses
Research and development

 

134,110

 

 

106,739

 

 

263,400

 

 

193,096

 

Sales and marketing

 

298,773

 

 

243,830

 

 

577,734

 

 

461,866

 

General and administrative

 

72,264

 

 

57,844

 

 

138,026

 

 

108,586

 

Total operating expenses

 

505,147

 

 

408,413

 

 

979,160

 

 

763,548

 

Operating loss

 

(86,897

)

 

(103,858

)

 

(231,883

)

 

(225,324

)

Interest and other income (expense), net
Interest income

 

16,415

 

 

3,564

 

 

32,761

 

 

6,751

 

Interest expense

 

(24,104

)

 

(2,058

)

 

(47,121

)

 

(4,131

)

Other income (expense), net

 

(654

)

 

(336

)

 

(1,193

)

 

(471

)

Total interest and other income (expense), net

 

(8,343

)

 

1,170

 

 

(15,553

)

 

2,149

 

Loss before income taxes

 

(95,240

)

 

(102,688

)

 

(247,436

)

 

(223,175

)

Income tax provision (benefit)

 

5,632

 

 

811

 

 

8,865

 

 

(1,177

)

Net loss

$

(100,872

)

$

(103,499

)

$

(256,301

)

$

(221,998

)

 
Basic and diluted net loss per share

$

(0.67

)

$

(0.71

)

$

(1.71

)

$

(1.54

)

 
Weighted-average shares used in computing basic and diluted net loss per share

 

150,306

 

 

145,030

 

 

149,723

 

 

144,306

 

Splunk Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
July 31, 2019 January 31, 2019
 
Assets
Current assets
Cash and cash equivalents

$

1,672,005

 

$

1,876,165

 

Investments, current

 

903,864

 

 

881,220

 

Accounts receivable, net

 

408,908

 

 

469,658

 

Prepaid expenses and other current assets

 

83,033

 

 

73,197

 

Deferred commissions, current

 

77,616

 

 

78,223

 

Total current assets

 

3,145,426

 

 

3,378,463

 

Investments, non-current

 

94,009

 

 

110,588

 

Operating lease right-of-use assets

 

215,228

 

 

 

Property and equipment, net

 

94,869

 

 

158,276

 

Intangible assets, net

 

77,417

 

 

91,622

 

Goodwill

 

503,388

 

 

503,388

 

Deferred commissions, non-current

 

64,705

 

 

64,766

 

Other assets

 

292,528

 

 

193,140

 

Total assets

$

4,487,570

 

$

4,500,243

 

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable

$

25,924

 

$

20,418

 

Accrued compensation

 

179,846

 

 

226,061

 

Accrued expenses and other liabilities

 

176,075

 

 

125,641

 

Deferred revenue, current

 

645,370

 

 

673,018

 

Total current liabilities

 

1,027,215

 

 

1,045,138

 

Convertible senior notes, net

 

1,673,569

 

 

1,634,474

 

Operating lease liabilities

 

191,471

 

 

 

Deferred revenue, non-current

 

160,888

 

 

204,929

 

Other liabilities, non-current

 

587

 

 

95,245

 

Total non-current liabilities

 

2,026,515

 

 

1,934,648

 

Total liabilities

 

3,053,730

 

 

2,979,786

 

Stockholders’ equity
Common stock

 

151

 

 

149

 

Accumulated other comprehensive loss

 

(3,484

)

 

(2,506

)

Additional paid-in capital

 

2,918,277

 

 

2,754,858

 

Accumulated deficit

 

(1,481,104

)

 

(1,232,044

)

Total stockholders’ equity

 

1,433,840

 

 

1,520,457

 

Total liabilities and stockholders’ equity

$

4,487,570

 

$

4,500,243

 

Splunk Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Three Months Ended July 31, Six Months Ended July 31,

 

2019

 

 

 

2018

 

 

 

2019

 

 

 

2018

 

 
Cash flows from operating activities
Net loss

$

(100,872

)

$

(103,499

)

$

(256,301

)

$

(221,998

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization

 

13,726

 

 

12,751

 

 

27,141

 

 

24,167

 

Amortization of deferred commissions

 

23,850

 

 

17,089

 

 

53,882

 

 

32,877

 

Amortization of investment premiums (accretion of discounts)

 

(2,786

)

 

(361

)

 

(5,645

)

 

(537

)

Amortization of debt discount and issuance costs

 

20,090

 

 

 

 

39,095

 

 

 

Stock-based compensation

 

123,013

 

 

105,043

 

 

246,076

 

 

199,664

 

Deferred income taxes

 

(164

)

 

114

 

 

(184

)

 

(125

)

Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net

 

(123,608

)

 

(39,214

)

 

60,750

 

 

156,362

 

Prepaid expenses and other assets

 

(92,449

)

 

1,362

 

 

(110,349

)

 

(21,937

)

Deferred commissions

 

(29,762

)

 

(28,644

)

 

(53,214

)

 

(43,360

)

Accounts payable

 

2,391

 

 

4,068

 

 

5,316

 

 

2,990

 

Accrued compensation

 

16,562

 

 

32,602

 

 

(46,215

)

 

(11,833

)

Accrued expenses and other liabilities

 

20,511

 

 

20,599

 

 

17,395

 

 

6,259

 

Deferred revenue

 

527

 

 

11,614

 

 

(71,689

)

 

(12,518

)

Net cash provided by (used in) operating activities

 

(128,971

)

 

33,524

 

 

(93,942

)

 

110,011

 

Cash flows from investing activities
Purchases of investments

 

(250,298

)

 

(175,756

)

 

(539,723

)

 

(198,631

)

Maturities of investments

 

243,170

 

 

173,051

 

 

541,595

 

 

347,176

 

Acquisitions, net of cash acquired

 

 

 

(110,740

)

 

 

 

(394,910

)

Purchases of property and equipment

 

(11,534

)

 

(5,562

)

 

(26,434

)

 

(7,858

)

Other investment activities

 

(875

)

 

 

 

(1,250

)

 

(4,375

)

Net cash used in investing activities

 

(19,537

)

 

(119,007

)

 

(25,812

)

 

(258,598

)

Cash flows from financing activities
Proceeds from the exercise of stock options

 

196

 

 

241

 

 

556

 

 

1,354

 

Proceeds from employee stock purchase plan

 

34,482

 

 

24,201

 

 

34,482

 

 

24,201

 

Taxes paid related to net share settlement of equity awards

 

(48,686

)

 

 

 

(117,693

)

 

(779

)

Repayment of financing lease obligation

 

 

 

(629

)

 

 

 

(1,218

)

Net cash provided by (used in) financing activities

 

(14,008

)

 

23,813

 

 

(82,655

)

 

23,558

 

Effect of exchange rate changes on cash and cash equivalents

 

(708

)

 

(475

)

 

(1,751

)

 

(1,237

)

Net decrease in cash and cash equivalents

 

(163,224

)

 

(62,145

)

 

(204,160

)

 

(126,266

)

Cash and cash equivalents at beginning of period

 

1,835,229

 

 

481,826

 

 

1,876,165

 

 

545,947

 

Cash and cash equivalents at end of period

$

1,672,005

 

$

419,681

 

$

1,672,005

 

$

419,681

 

Splunk Inc.

Non-GAAP Financial Measures and Reconciliations

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

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

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

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

 
Splunk Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)
 
Reconciliation of Cash Provided by (Used in) Operating Activities to Free Cash Flow
 
Three Months Ended July 31, Six Months Ended July 31,

 

2019

 

 

2018

 

 

 

2019

 

 

2018

 

Net cash provided by (used in) operating activities

$

(128,971

)

$

33,524

 

$

(93,942

)

$

110,011

 

Less purchases of property and equipment

 

(11,534

)

 

(5,562

)

 

(26,434

)

 

(7,858

)

Free cash flow (non-GAAP)

$

(140,505

)

$

27,962

 

$

(120,376

)

$

102,153

 

Net cash used in investing activities

$

(19,537

)

$

(119,007

)

$

(25,812

)

$

(258,598

)

Net cash provided by (used in) financing activities

$

(14,008

)

$

23,813

 

$

(82,655

)

$

23,558

 

Reconciliation of GAAP to Non-GAAP Financial Measures
Three Months Ended July 31, 2019
GAAP Stock-based
compensation
and related
employer payroll tax
Amortization
of acquired
intangible
assets
Non-cash
interest expense
related to
convertible
senior notes
Income tax
effects related
to non-GAAP
adjustments (2)
Non-GAAP
Cost of revenues

$

 

98,308

 

$

 

(10,939

)

$

 

(5,876

)

$

 

 

$

 

 

$

 

81,493

 

Gross margin

 

81.0

%

 

2.1

%

 

1.1

%

 

%

%

 

84.2

%

Research and development

 

134,110

 

 

(41,393

)

 

(249

)

 

 

 

 

 

92,468

 

Sales and marketing

 

298,773

 

 

(50,458

)

 

(955

)

 

 

 

 

 

247,360

 

General and administrative

 

72,264

 

 

(23,578

)

 

 

 

 

 

 

 

48,686

 

Operating income (loss)

 

(86,897

)

 

126,368

 

 

7,080

 

 

 

 

 

 

46,551

 

Operating margin

 

(16.8

)%

 

24.4

%

 

1.4

%

 

%

%

 

9.0

%

Income tax provision

 

5,632

 

 

 

 

 

 

 

 

6,028

 

 

11,660

 

Net income (loss)

$

 

(100,872

)

$

 

126,368

 

$

 

7,080

 

$

 

20,090

 

$

 

(6,028

)

$

 

46,638

 

Net income (loss) per share (1)

$

 

(0.67

)

$

 

0.30

 

(1)

GAAP net loss per share calculated based on 150,306 weighted-average shares of common stock. Non-GAAP net income per share calculated based on 155,440 diluted weighted-average shares of common stock, which includes 5,134 potentially dilutive shares related to employee stock awards. GAAP to non-GAAP net income (loss) per share is not reconciled due to the difference in the number of shares used to calculate basic and diluted weighted-average shares of common stock.
(2)

Represents the tax effect of the non-GAAP adjustments based on the estimated annual effective tax rate of 20%.

Contacts

For more information, please contact:

Media Contact

Richard Brewer-Hay

Splunk Inc.

[email protected]

Investor Contact

Ken Tinsley

Splunk Inc.

[email protected]

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