November 20, 2014

Splunk Inc. Announces Fiscal Third Quarter 2015 Financial Results

Revenues Grow 48%; Company Adds More than 500 New Customers

SAN FRANCISCO--(BUSINESS WIRE)-- Splunk Inc. (NASDAQ: SPLK), provider of the leading software platform for real-time Operational Intelligence, today announced results for its fiscal third quarter ended October 31, 2014.

Third Quarter 2015 Financial Highlights

  • Total revenues were $116.0 million, up 48% year-over-year.
  • License revenues were $71.8 million, up 41% year-over-year.
  • GAAP operating loss was $48.3 million; GAAP operating margin was negative 41.6%.
  • Non-GAAP operating income was $2.7 million; non-GAAP operating margin was 2.3%.
  • GAAP net loss per share was $0.40; non-GAAP net income per share was $0.02.
  • Operating cash flow was $24.2 million with free cash flow of $20.2 million.

"This quarter we released new versions of all of our core products, offered new solutions for mobile, wire, mainframe and sensor data, and strengthened our market teams," said Godfrey Sullivan, Chairman and CEO. "We welcomed over 500 new customers, saw growth in all of our core markets - with the growth in security especially notable - and we had our best quarter yet with Splunk Cloud."

Third Quarter 2015 and Recent Business Highlights

Customers:

  • Signed more than 500 new enterprise customers, ending the quarter with more than 8,400 customers worldwide.
  • New and Expansion Customers Include: Abacus International Pte Ltd. (Singapore), ADP, AT&T, Beth Israel Deaconess Medical Center, Boeing Employees Credit Union, Cembra Money Bank (Switzerland), Chicago Public Schools, Cisco Systems, Comcast, Consolidated Edison, Dell, 1-800-FLOWERS.COM, Inc., Global Blue Austria GmbH, Hospital Corporation of America, Intermedia, Johns Hopkins University Applied Physics Lab, KeyBank, M2 Telecommunications Group (Australia), Oppenheimer & Co. Inc., Orrstown Bank, SAP, SFR (France), Shazam (United Kingdom), State of New Mexico, The Warehouse Group (New Zealand), University of Lyon (France), U.S. Department of Energy, U.S. Department of Health and Human Services, Valve Corporation, Weight Watchers and Zulily.

Product:

  • Announced the general availability (GA) of Splunk Enterprise 6.2, the latest version of the award-winning platform for machine data, to deliver improved scalability and extend powerful Splunk analytics to a broader number of users.
  • Announced the GA of Hunk 6.2 to extend the power of exploratory analytics and enable all professionals to easily unlock the business value of data in Hadoop and NoSQL data stores.
  • Announced the availability of Hunk priced on an hourly basis, directly from the Amazon Elastic MapReduce (Amazon EMR) console.
  • Announced the GA of Splunk MINT Express and the beta program for Splunk MINT Enterprise, the first new products from the acquisition of BugSense, to empower customers to gain greater Operational Intelligence from mobile apps.
  • Announced the industry's first 100 percent uptime service level agreement for Splunk Cloud and a free Splunk Online Sandbox to give customers a trial experience of Splunk Cloud within minutes.
  • Announced the GA of the Splunk App for Stream to capture real-time streaming wire data to support app management, IT operations, security and business analytics.

Strategic and Channel Partners:

Recognition:

Appointments:

  • Appointed Mark Carges, Splunk Board of Directors.
  • Appointed Marc Olesen, Senior Vice President and General Manager, Cloud Solutions.
  • Appointed Rick Fitz, Vice President, IT Markets.
  • Promoted Haiyan Song to Senior Vice President, Security Markets.

.Conf:

  • Hosted a record number of customers and partners at this year's .conf2014 with 80+ customer presentations across use cases and industries.

Financial Outlook

The company is providing the following guidance for its fiscal fourth quarter 2015 (ending January 31, 2015):

  • Total revenues are expected to be between $135 million and $137 million.
  • Non-GAAP operating margin is expected to be between 4% and 5%.

The company is updating its previous guidance for its fiscal year 2015 (ending January 31, 2015):

  • Total revenues are expected to be between $438 million and $440 million (was $423 million and $428 million per prior guidance provided on August 28, 2014).
  • Non-GAAP operating margin is expected to be between 1% and 2% (was previously approximately 1% per prior guidance provided on August 28, 2014).

The Company is providing the following guidance for its fiscal year 2016 (ending January 31, 2016):

  • Total revenues are expected to total approximately $575 million.

All forward-looking non-GAAP financial measures contained in this section "Financial Outlook" exclude estimates for stock-based compensation expenses, employer payroll tax expense related to employee stock plans, amortization of acquired intangible assets, ground lease expense related to a build-to-suit lease obligation, impairment of a long-lived asset and acquisition-related costs.

While a reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis, the company has provided a reconciliation of GAAP to non-GAAP financial measures in the financial statement tables for its fiscal third quarter 2015 and fiscal year-to-date 2015 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.cfm. A replay of the call will be available through November 27, 2014 by dialing (855) 859-2056 and referencing Conference ID 32818367.

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 fourth quarter and fiscal year 2015 and Splunk's revenue target for the company's fiscal year 2016 in the paragraphs under "Financial Outlook" above and other statements regarding momentum in the company's business, increasing customer adoption, expected success from product and service investments and innovations, expected benefits from new product offerings, expected profitability and growth strategies. 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; risks associated with Splunk's rapid growth, particularly outside of the U.S.; Splunk's inability to realize value from its significant investments in its business, including product and service innovations; Splunk's transition to a multi-product software and services business; Splunk's inability to successfully integrate acquired businesses and technologies; and general market, political, economic and business 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 quarter ended July 31, 2014, which is on file with the U.S. Securities and Exchange Commission. 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) provides the leading software platform for real-time Operational Intelligence. Splunk® software and cloud services enable organizations to search, monitor, analyze and visualize machine-generated big data coming from websites, applications, servers, networks, sensors and mobile devices. More than 8,400 enterprises, government agencies, universities and service providers in more than 100 countries use Splunk software to deepen business and customer understanding, mitigate cybersecurity risk, prevent fraud, improve service performance and reduce cost. Splunk products include Splunk® Enterprise, Splunk Cloud™, Hunk®, Splunk MINT Express™ and premium Splunk Apps. To learn more, please visit http://www.splunk.com/company.

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Splunk, Splunk > , Listen to Your Data, The Engine for Machine Data, Hunk, Splunk Cloud, Splunk Storm, SPL, Splunk MINT Express and Splunk MINT Enterprise 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. © 2014 Splunk Inc. All rights reserved.

SPLUNK INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
       
 
Three Months Ended Nine Months Ended
October 31, October 31, October 31, October 31,
2014 2013 2014 2013
Revenues
License $ 71,754 $ 50,873 $ 185,109 $ 130,230
Maintenance and services   44,275     27,760     118,374     72,483  
Total revenues   116,029     78,633     303,483     202,713  
 
Cost of revenues
License 535 84 685 229
Maintenance and services 5   17,045     10,441     46,153     24,398  
Total cost of revenues 1,2,3   17,580     10,525     46,838     24,627  
Gross profit   98,449     68,108     256,645     178,086  
 
Operating expenses
Research and development 6 39,534 18,961 103,455 49,635
Sales and marketing 85,720 53,052 236,776 138,999
General and administrative 4   21,446     12,917     75,125     35,275  
Total operating expenses 1,2,3   146,700     84,930     415,356     223,909  
Operating loss   (48,251 )   (16,822 )   (158,711 )   (45,823 )
 
Interest and other income (expense), net
Interest income, net 199 55 492 174
Other income (expense), net   (52 )   (283 )   (326 )   (459 )
Total interest and other income (expense), net   147     (228 )   166     (285 )
Loss before income taxes (48,104 ) (17,050 ) (158,545 ) (46,108 )
Income tax provision (benefit) 7   447     (500 )   1,543     269  
Net loss $ (48,551 ) $ (16,550 ) $ (160,088 ) $ (46,377 )
 
 
Basic and diluted net loss per share $ (0.40 ) $ (0.16 ) $ (1.35 ) $ (0.45 )
 

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

  120,331     106,008     118,895     104,063  

 

 
1 Includes amortization of acquired intangible assets as follows:

 

Cost of revenues $ 703 $ 82 $ 2,093 $ 82
Research and development 569 12 707 12
Sales and marketing 150 42 447 42
 
2 Includes stock-based compensation expense as follows:
Cost of revenues $ 4,039 $ 1,165 $ 11,653 $ 2,735
Research and development 15,352 4,405 41,517 10,995
Sales and marketing 21,075 5,947 61,458 15,425
General and administrative 7,770 2,815 36,357 6,969
 
3 Includes employer payroll tax on employee stock plans as follows:
Cost of revenues $ 111 $ 53 $ 344 $ 97
Research and development 327 86 1,649 277
Sales and marketing 387 315 1,668 907
General and administrative 267 237 1,160 576
 
4 Includes ground lease expense related to build-to-suit lease obligation $ 222 $ - $ 444 $ -
 
5 Includes charge related to impairment of long-lived asset $ - $ 2,128 $ - $ 2,128
 
6 Includes acquisition-related costs $ - $ 408 $ - 408
 
7 Includes a partial release of the valuation allowance due to acquisition $ - $ (747 ) $ - $ (747 )
 
SPLUNK INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
   
 
October 31, January 31,
2014 2014
 
ASSETS
 
Current assets
Cash and cash equivalents $ 329,553 $ 897,453
Investments, current portion 466,835 -
Accounts receivable, net 82,550 83,348
Prepaid expenses and other current assets   13,495     12,019  
Total current assets   892,433     992,820  
 
Investments, non-current 160,923 -
Property and equipment, net 43,236 15,505
Intangible assets, net 11,546 12,294
Goodwill 19,070 19,070
Other assets   2,000     642  
Total assets $ 1,129,208   $ 1,040,331  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities
Accounts payable $ 2,830 $ 2,079
Accrued payroll and compensation 48,481 43,876
Accrued expenses and other liabilities 23,461 12,743
Deferred revenue, current portion   180,131     149,156  
Total current liabilities   254,903     207,854  
 
Deferred revenue, non-current 49,146 43,165
Other liabilities, non-current   27,265     4,404  
Total non-current liabilities   76,411     47,569  
Total liabilities   331,314     255,423  
 
Stockholders' equity
Common stock 121 116
Accumulated other comprehensive income (loss) (205 ) 58
Additional paid-in capital 1,127,773 954,441
Accumulated deficit   (329,795 )   (169,707 )
Total stockholders' equity   797,894     784,908  
Total liabilities and stockholders' equity $ 1,129,208   $ 1,040,331  
 
SPLUNK INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
       
Three Months Ended Nine Months Ended
October 31,

October 31,

October 31, October 31,
2014 2013 2014 2013
 
Cash Flows From Operating Activities
Net loss $ (48,551 ) $ (16,550 ) $ (160,088 ) $ (46,377 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 3,430 1,620 8,968 4,500
Amortization of investment premiums 316 - 452 -
Stock-based compensation 48,236 14,332 150,985 36,124
Deferred income taxes (280 ) (1,068 ) (793 ) (1,188 )
Excess tax benefits from employee stock plans (240 ) (271 ) (1,108 ) (539 )
Impairment of long-lived asset - 2,128 - 2,128
Changes in operating assets and liabilities
Accounts receivable, net (12,712 ) (13,249 ) 798 9,953
Prepaid expenses, other current and non-current assets (3,533 ) 3,843 (2,041 ) 366
Accounts payable 654 414 1,045 267
Accrued payroll and compensation 11,269 8,767 4,605 2,532
Accrued expenses and other liabilities 3,334 (159 ) 12,673 5,220
Deferred revenue   22,282     13,510     36,956     26,433  
Net cash provided by operating activities   24,205     13,317     52,452     39,419  
 
Cash Flow From Investing Activities
Purchases of investments (387,324 ) - (691,277 ) -
Maturities of investments 48,000 - 63,000 -
Acquisitions, net of cash acquired - (8,958 ) (2,500 ) (8,958 )
Purchases of property and equipment   (4,054 )   (4,035 )   (11,200 )   (7,265 )
Net cash used in investing activities   (343,378 )   (12,993 )   (641,977 )   (16,223 )
 
Cash Flow From Financing Activities
Proceeds from the exercise of stock options 3,387 6,342 12,805 18,865
Excess tax benefits from employee stock plans 240 271 1,108 539
Proceeds from employee stock purchase plan - - 8,355 6,076
Taxes paid related to net share settlement of equity awards - (2,239 ) - (2,752 )
Payment related to build-to-suit lease obligation   -     -     (523 )   -  
Net cash provided by financing activities   3,627     4,374     21,745     22,728  
 
Effect of exchange rate changes on cash and cash equivalents   (299 )   83     (120 )   32  
Net increase (decrease) in cash and cash equivalents (315,845 ) 4,781 (567,900 ) 45,956
Cash and cash equivalents at beginning of period   645,398     347,114     897,453     305,939  
Cash and cash equivalents at end of period $ 329,553   $ 351,895   $ 329,553   $ 351,895  
 

SPLUNK INC.

Non-GAAP financial measures and reconciliations

To supplement Splunk's 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 gross margin, non-GAAP operating income (loss), non-GAAP operating margin, 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 table): stock-based compensation expense, employer payroll tax expense related to employee stock plans, amortization of acquired intangible assets, ground lease expense related to a build-to-suit lease obligation, impairment of a long-lived asset, acquisition-related costs and the partial release of the valuation allowance due to acquisition. In addition, non-GAAP financial measures include 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. In particular, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC Topic 718, Splunk believes that providing non-GAAP financial measures that exclude this expense 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 the non-cash charge for previously capitalized Storm research and development expense (reflected as an impairment of a long-lived asset) as a result of its strategic decision to start making its Storm product available at no cost to customers, a decision that Splunk expects to be infrequent in nature. Splunk also excludes acquisition-related costs, amortization of acquired intangible assets and ground lease expense related to its build-to-suit lease obligation from its non-GAAP financial measures because these are considered by management to be outside of Splunk's core operating results. Splunk further excludes the partial release of the valuation allowance due to acquisition from non-GAAP net income (loss) and non-GAAP net income (loss) per share because it is also considered by management to be outside 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 table reconciles Splunk's non-GAAP results to Splunk's GAAP results included in this press release.

SPLUNK INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)
           
 
Three Months Ended Nine Months Ended
October 31, October 31, October 31, October 31,
2014 2013 2014 2013
 

Reconciliation of cash provided by operating activities to free cash flow:

Net cash provided by operating activities $ 24,205 $ 13,317 $ 52,452 $ 39,419
Less purchases of property and equipment   (4,054)   (4,035)   (11,200)   (7,265)
Free cash flow (Non-GAAP) $ 20,151 $ 9,282 $ 41,252 $ 32,154
Net cash used in investing activities $ (343,378) $ (12,993) $ (641,977) $ (16,223)
Net cash provided by financing activities $ 3,627 $ 4,374 $ 21,745 $ 22,728
 

Gross margin reconciliation:

GAAP gross margin 84.8 % 86.6 % 84.6 % 87.9
Stock-based compensation expense 3.5 1.5 3.8 1.3
Employer payroll tax on employee stock plans 0.1 0.1 0.1 -
Amortization of acquired intangible assets 0.6 0.1 0.7 -
Impairment of long-lived asset   -   2.7   -   1.0
Non-GAAP gross margin   89.0 %   91.0 %   89.2 %   90.2
 

Operating income (loss) reconciliation:

GAAP operating loss $ (48,251) $ (16,822) $ (158,711) $ (45,823)
Stock-based compensation expense 48,236 14,332 150,985 36,124
Employer payroll tax on employee stock plans 1,092 691 4,821 1,857
Amortization of acquired intangible assets 1,422 136 3,247 136
Impairment of long-lived asset - 2,128 - 2,128
Acquisition-related costs - 408 - 408
Ground lease expense related to build-to-suit lease obligation   222   -   444   -
Non-GAAP operating income (loss) $ 2,721 $ 873 $ 786 $ (5,170)
 

Operating margin reconciliation:

GAAP operating margin (41.6) % (21.4) % (52.3) % (22.6)
Stock-based compensation expense 41.6 18.2 49.8 17.8
Employer payroll tax on employee stock plans 0.9 0.9 1.6 0.9
Amortization of acquired intangible assets 1.2 0.2 1.1 0.1
Impairment of long-lived asset - 2.7 - 1.0
Acquisition-related costs - 0.5 - 0.2
Ground lease expense related to build-to-suit lease obligation   0.2   -   0.1   -
Non-GAAP operating margin   2.3 %   1.1 %   0.3 %   (2.6)
 

Net income (loss) reconciliation:

GAAP net loss $ (48,551) $ (16,550) $ (160,088) $ (46,377)
Stock-based compensation expense 48,236 14,332 150,985 36,124
Employer payroll tax on employee stock plans 1,092 691 4,821 1,857
Amortization of acquired intangible assets 1,422 136 3,247 136
Impairment of long-lived asset - 2,128 - 2,128
Acquisition-related costs - 408 - 408
Ground lease expense related to build-to-suit lease obligation 222 - 444 -
Partial release of the valuation allowance due to acquisition   -   (747)   -   (747)
Non-GAAP net income (loss) $ 2,421 $ 398 $ (591) $ (6,471)
 

Reconciliation of shares used in computing basic and diluted net income (loss) per share:

Weighted-average shares used in computing GAAP basic net loss per share 120,331 106,008 118,895 104,063
Effect of dilutive securities: Employee stock awards   6,541   12,117   -   -
Weighted-average shares used in computing Non-GAAP basic and diluted net income (loss) per share   126,872   118,125   118,895   104,063
 
 
GAAP basic and diluted net loss per share $ (0.40) $ (0.16) $ (1.35) $ (0.45)
 
Non-GAAP basic and diluted net income (loss) per share $ 0.02 $ 0.00 $ (0.00) $ (0.06)

Splunk Inc.
Sherry Lowe, 415-852-5529
slowe@splunk.com
Investor Contact
Ken Tinsley, 415-848-8476
ktinsley@splunk.com

Source: Splunk Inc.

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