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Splunk Inc. Announces Fiscal First Quarter 2020 Financial Results

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Reading Time: 12 minutes

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

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  • 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

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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 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.

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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.

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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

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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 investing activities $ (6,275 ) $ (139,591 )
Net cash used in financing activities $ (68,647 ) $ (255 )
 
       

Reconciliation of GAAP to Non-GAAP
Financial Measures

Three Months Ended April 30, 2019

GAAP  

Stock-based
compensation and
related
employer

payroll tax

Amortization of
acquired
intangible
assets

Non-cash interest
expense related to

convertible senior

notes

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Income tax effects
related to non-
GAAP
adjustments
(2)

Non-GAAP
 
Cost of revenues $ 95,823 $ (11,674 ) $ (5,922 ) $ $ $ 78,227
Gross margin 77.4 % 2.8 % 1.4 % % % 81.6 %
 
Research and development 129,290 (43,445 ) (249 ) 85,596
Sales and marketing 278,961 (53,403 ) (955 ) 224,603
General and administrative 65,762 (21,546 ) 44,216
Operating loss (144,986 ) 130,068 7,126 (7,792 )
Operating margin (34.1 )% 30.6 % 1.7 % % % (1.8 )%
 
Income tax provision 3,233 (2,432 ) 801
Net income (loss) $ (155,429 ) $ 130,068 $ 7,126 $ 19,005 $ 2,432 $ 3,202
Net income (loss) per share (1) $ (1.04 ) $ 0.02
 
(1) GAAP net loss per share calculated based on 149,060
weighted-average shares of common stock. Non-GAAP net income per
share calculated based on 155,427 diluted weighted-average shares of
common stock, which includes 6,367 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%.
 

Reconciliation of GAAP to Non-GAAP
Financial Measures

Three Months Ended April 30, 2018

           
 
GAAP

Stock-based
compensation and
related
employer

payroll tax

Amortization of
acquired
intangible
assets

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Adjustments
related to
financing lease

obligation

Acquisition-
related
adjustments

Income tax effects
related to non-
GAAP

adjustments
(4)

Non-GAAP
 
Cost of revenues $ 77,970 $ (9,549 ) $ (4,250 ) $ 312 $ $ $ 64,483
Gross margin 75.0 % 3.0 % 1.4 % (0.1 )% % % 79.3 %
 
Research and development 86,357 (28,238 ) (278 ) 489 58,330
Sales and marketing 218,036 (45,840 ) (178 ) 1,170 173,188
General and administrative 50,742 (17,287 ) 234 (3,304 ) 30,385
Operating loss (121,466 ) 100,914 4,706 (2,205 ) 3,304 (14,747 )
Operating margin (39.0 )% 32.4 % 1.5 % (0.7 )% 1.1 % % (4.7 )%
 
Income tax benefit (1,988 ) 3,313

(3)

 

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(3,665 ) (2,340 )
Net loss $ (118,499 ) $ 100,914 $ 4,706 $ (136

)(2)

 

 

$ (9 ) $ 3,665 $ (9,359 )
Net loss per share (1) $ (0.83 ) $ 0.70 $ 0.03 $ $ $ 0.03 $ (0.07 )
 
(1) Calculated based on 143,548 basic and diluted
weighted-average shares of common stock.
(2) Includes $2.1 million of interest expense related to
the financing lease obligation.
(3) Represents the partial release of the valuation
allowance due to acquisition.
(4) Represents the tax effect of the non-GAAP adjustments
based on the estimated annual effective tax rate of 20%. Application
of this annual effective tax rate to the non-GAAP pre-tax loss
during the quarter resulted in a non-GAAP tax benefit, which was
offset by future tax expense during fiscal 2019.

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Contacts

Media Contact
Tom Stilwell
Splunk Inc.
[email protected]

Investor Contact
Ken Tinsley
Splunk Inc.
[email protected]


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