Splunk Inc. Announces Fiscal First Quarter 2020 Financial Results

Software Revenues Up 54%


Company Increases Full Year Revenue Outlook

SAN FRANCISCO–(BUSINESS WIRE)–Splunk
Inc. (NASDAQ: SPLK), delivering actions and outcomes from the world
of data, today announced results for its fiscal first quarter ended
April 30, 2019.


First Quarter 2020 Financial Highlights


Software revenues were $265 million, up 54% year-over-year.


Total revenues were $425 million, up 36% year-over-year.


GAAP operating loss was $145 million; GAAP operating margin was
negative 34.1%.


Non-GAAP operating loss was $7.8 million; non-GAAP operating margin
was negative 1.8%.


GAAP loss per share was $1.04; non-GAAP income per share was $0.02.


Operating cash flow was $35.0 million with free cash flow of $20.1
million.


“Our customers are successful because they can unlock value from their
growing data landscapes with the unique Splunk platform, and this is
what fuels our strong performance,” said Doug Merritt, President and
CEO, Splunk. “In Q1, we released Splunk Connected Experiences and Splunk
Business Flow, new products that are part of our vision to take Splunk
beyond IT and security and to bring our customers closer to their data.
These products further differentiate Splunk as we strive to bring data
to every question, every decision and every outcome for any
organization.”


Business Highlights:


Customers:


Signed more than 400 new enterprise customers.


New and Expansion Customers Include: Brink’s, Cerner
Corporation, Chipotle, City University of Hong Kong, El Corte Inglés
(Spain), Entertainment One (Canada), LATAM Airlines Group (Chile), PCL
Construction, Slack, SumTotal Systems, University of Alabama at
Birmingham Health System, Vancouver City Savings Credit Union (Canada)
and West Bend Mutual Insurance.


Corporate:


New Innovations Bring Customers Closer to Their Data: Splunk
unveiled a wide range of new technologies including Splunk®
Connected Experiences, which helps customers bring the power of
data where they need it through augmented reality, Splunk Mobile and
Splunk TV. Splunk
Business Flow expands Splunk’s reach, enabling business operations
professionals to quickly discover bottlenecks that threaten business
performance and identify opportunities for improvement. Splunk also
unveiled new versions of Splunk
ITSI, Splunk
ES, Splunk
UBA, Splunk
Phantom and Splunk
App for Infrastructure.


Research Reveals Data Opportunity: Splunk released a new
research report, The
State of Dark Data, which found that, on average, business and IT
decision makers estimate that 55 percent of their data is dark
(unknown or untapped) despite widespread belief that such data is
highly valuable and drives meaningful business outcomes. The report
also explored how automation via AI and machine learning is believed
to impact the future of jobs, and how the data opportunity is
impacting career growth.


Employee Success Celebrated Around the Globe: Splunk was
recognized for being a great
place to work around the world: LinkedIn, the San Francisco
Business Times, Great Place to Work Asia and Washingtonian all named
Splunk as a top employer. Splunk is committed to celebrating and
empowering employees to build an inclusive culture.


Executive and Board Appointments: The company celebrated two
new additions to its executive team: Jason Child as Chief Financial
Officer and Carrie Palin as Chief Marketing Officer. Splunk also
announced the appointment of Board member Graham Smith, former CFO at
Salesforce, as the Chairman of the Board of Directors, and welcomed
Atlassian CTO Sri Viswanath to the Board.


Global Partner Summit: The company deepened relationships with
strategic partners and announced a host of new updates that make it
easier than ever for partners to be successful with Splunk at Global
Partner Summit.


Financial Outlook


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


Total revenues are expected to be approximately $485 million.


Non-GAAP operating margin is expected to be approximately 3%.


The company is updating its previous guidance provided on February 28,
2019 for its fiscal year 2020 (ending January 31, 2020) as follows:


Total revenues are expected to be approximately $2.25 billion (was
approximately $2.20 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 first 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
A replay of the call will be available through May 30, 2019 by dialing
(855) 859-2056 and referencing Conference ID 1946609.


Safe Harbor Statement


This press release contains forward-looking statements that involve
risks and uncertainties, including statements regarding Splunk’s revenue
and non-GAAP operating margin targets for the company’s fiscal second
quarter and fiscal year 2020 in the paragraphs under “Financial Outlook”
above and other statements regarding Splunk’s new products, innovations
and product development, Splunk’s market opportunity, future growth,
current momentum, strategy, expectations for Splunk’s industry and
business, customer demand and penetration, Splunk’s partner
relationships, customer success and expanding use of Splunk by
customers. There are a significant number of factors that could cause
actual results to differ materially from statements made in this press
release, including: 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; Splunk’s inability to
successfully integrate acquired businesses and technologies; Splunk’s
inability to service its debt obligations or other adverse effects
related to Splunk’s 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 Splunk’s Annual Report on Form 10-K for
the fiscal year ended January 31, 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 April 30,








2019




2018












 


Revenues












License






$


202,862






$


138,975




Maintenance and services






 


221,988


 




 


172,664


 


Total revenues






 


424,850


 




 


311,639


 












 


Cost of revenues












License








5,682








5,124




Maintenance and services






 


90,141


 




 


72,846


 


Total cost of revenues






 


95,823


 




 


77,970


 


Gross profit






 


329,027


 




 


233,669


 












 


Operating expenses












Research and development








129,290








86,357




Sales and marketing








278,961








218,036




General and administrative






 


65,762


 




 


50,742


 


Total operating expenses






 


474,013


 




 


355,135


 


Operating loss






 


(144,986


)




 


(121,466


)












 


Interest and other income (expense), net












Interest income








16,346








3,187




Interest expense








(23,017


)






(2,073


)


Other income (expense), net






 


(539


)




 


(135


)


Total interest and other income (expense), net






 


(7,210


)




 


979


 


Loss before income taxes








(152,196


)






(120,487


)


Income tax provision (benefit)






 


3,233


 




 


(1,988


)


Net loss






$


(155,429


)




$


(118,499


)












 












 


Basic and diluted net loss per share






$


(1.04


)




$


(0.83


)












 


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




 


149,060


 




 


143,548


 


















 


 


Splunk Inc.


Condensed Consolidated Balance Sheets


(In thousands)


(Unaudited)




 


 


 


 




 


 


 






















 












April 30, 2019








January 31, 2019




















 


Assets




















Current assets




















Cash and cash equivalents










$


1,835,229










$


1,876,165




Investments, current












840,215












881,220




Accounts receivable, net












285,300












469,658




Prepaid expenses and other current assets












79,102












73,197




Deferred commissions, current










 


74,976


 








 


78,223


 


Total current assets










 


3,114,822


 








 


3,378,463


 




















 


Investments, non-current












146,159












110,588




Operating lease right-of-use assets












201,675












–




Property and equipment, net












89,615












158,276




Intangible assets, net












84,497












91,622




Goodwill












503,388












503,388




Deferred commissions, non-current












61,433












64,766




Other assets










 


205,155


 








 


193,140


 


Total assets










$


4,406,744


 








$


4,500,243


 




















 


Liabilities and Stockholders’ Equity




















Current liabilities




















Accounts payable










$


23,407










$


20,418




Accrued compensation












163,284












226,061




Accrued expenses and other liabilities












155,145












125,641




Deferred revenue, current










 


631,732


 








 


673,018


 


Total current liabilities










 


973,568


 








 


1,045,138


 




















 


Convertible senior notes, net












1,653,479












1,634,474




Operating lease liabilities












179,227












–




Deferred revenue, non-current












173,999












204,929




Other liabilities, non-current










 


445


 








 


95,245


 


Total non-current liabilities










 


2,007,150


 








 


1,934,648


 


Total liabilities










 


2,980,718


 








 


2,979,786


 




















 


Stockholders’ equity




















Common stock












150












149




Accumulated other comprehensive loss












(3,165


)










(2,506


)


Additional paid-in capital












2,809,273












2,754,858




Accumulated deficit










 


(1,380,232


)








 


(1,232,044


)


Total stockholders’ equity










 


1,426,026


 








 


1,520,457


 


Total liabilities and stockholders’ equity










$


4,406,744


 








$


4,500,243


 




























 


Splunk Inc.


Condensed Consolidated Statements of Cash Flows


(In thousands)


(Unaudited)




 


 




 


 
















 








Three Months Ended April 30,








2019






2018














 


Cash flows from operating activities














Net loss






$


(155,429


)






$


(118,499


)


Adjustments to reconcile net loss to net cash provided by operating
activities:














Depreciation and amortization








13,415










11,416




Amortization of deferred commissions








30,032










15,788




Amortization of investment premiums (accretion of discounts)








(2,859


)








(176


)


Amortization of debt discount and issuance costs








19,005










–




Stock-based compensation








123,063










94,621




Deferred income taxes








(20


)








(239


)


Changes in operating assets and liabilities, net of acquisitions:














Accounts receivable, net








184,358










195,576




Prepaid expenses and other assets








(17,900


)








(23,299


)


Deferred commissions








(23,452


)








(14,716


)


Accounts payable








2,925










(1,078


)


Accrued compensation








(62,777


)








(44,435


)


Accrued expenses and other liabilities








(3,116


)








(14,340


)


Deferred revenue






 


(72,216


)






 


(24,132


)


Net cash provided by operating activities






 


35,029


 






 


76,487


 














 


Cash flows from investing activities














Purchases of investments








(289,425


)








(22,875


)


Maturities of investments








298,425










174,125




Acquisitions, net of cash acquired








–










(284,170


)


Purchases of property and equipment








(14,900


)








(2,296


)


Other investment activities






 


(375


)






 


(4,375


)


Net cash used in investing activities






 


(6,275


)






 


(139,591


)














 


Cash flows from financing activities














Proceeds from the exercise of stock options








360










1,113




Taxes paid related to net share settlement of equity awards








(69,007


)








(779


)


Repayment of financing lease obligation






 


–


 






 


(589


)


Net cash used in financing activities






 


(68,647


)






 


(255


)














 


Effect of exchange rate changes on cash and cash equivalents






 


(1,043


)






 


(762


)


Net decrease in cash and cash equivalents








(40,936


)








(64,121


)


Cash and cash equivalents at beginning of period






 


1,876,165


 






 


545,947


 


Cash and cash equivalents at end of period






$


1,835,229


 






$


481,826


 






















 


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 certain non-GAAP financial measures, including non-GAAP
cost of revenues, non-GAAP gross margin, non-GAAP research and
development expense, non-GAAP sales and marketing expense, non-GAAP
general and administrative expense, non-GAAP operating income (loss),
non-GAAP operating margin, non-GAAP income tax provision (benefit),
non-GAAP net income (loss) and non-GAAP 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 was 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 months ended April 30, 2019 was
20%. Splunk will utilize this annual non-GAAP tax rate in fiscal 2020
and will provide updates to this rate on an annual basis, or more
frequently if material changes occur. 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
Operating Activities to Free Cash Flow






 


 




 


 












Three Months Ended April 30,










2019






2018


Net cash provided by operating activities








$


35,029








$


76,487




Less purchases of property and equipment






 


(14,900


)






 


(2,296


)


Free cash flow (non-GAAP)








$


20,129


 






$


74,191


 


Net cash used in investin