May 26, 2016

Splunk Inc. Announces Fiscal First Quarter 2017 Financial Results

Total Revenues Grew 48%; Increases Full Year Revenue Outlook

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 first quarter ended April 30, 2016.

First Quarter 2017 Financial Highlights

  • Total revenues were $186.0 million, up 48% year-over-year.
  • License revenues were $101.0 million, up 41% year-over-year.
  • GAAP operating loss was $98.1 million; GAAP operating margin was negative 52.8%.
  • Non-GAAP operating loss was $1.4 million; non-GAAP operating margin was negative 0.7%.
  • GAAP loss per share was $0.77; non-GAAP loss per share was $0.02.
  • Operating cash flow was $35.7 million with free cash flow of $32.0 million.

"Q1 was a solid start to the year and we are pleased to welcome more than 450 new customers to the Splunk family," said Doug Merritt, President and CEO, Splunk. "Our product team continued to deliver innovation in Splunk Enterprise 6.4, a new Splunk Cloud release, and new versions of Splunk Enterprise Security and Splunk User Behavior Analytics. We will continue to support our customers who are leveraging Splunk as their machine data fabric with increased investments in the Splunk platform, our ecosystem and high value solutions."

First Quarter 2017 and Recent Business Highlights:

Customers:

  • Signed more than 450 new enterprise customers.
  • New and Expansion Customers Include: Auburn University, Central 1 Credit Union (Canada), Chicago Public Schools, Chipotle, Clemson University, Co-Operative Group (United Kingdom), Dartmouth-Hitchcock Medical Center, Denver International Airport, FamilySearch, GoodData, Jetstar (Australia), LGA Telecom Pte Ltd (Singapore), NTT Docomo (Japan), Okta, Tesco (United Kingdom), University of Alabama at Birmingham Health System, University of Virginia, U.S. Courts, Virginia Department of Motor Vehicles, Virginia Department of Taxation, World Bank Group.

Products:

Strategic and Channel Partners:

  • Splunk announced an alliance with Accenture to help organizations analyze machine data to drive high-impact business performance.
  • Splunk was named the Cisco Global ISV Partner of the Year in the Cisco Partner Summit Global awards for enabling organizations to reduce operational and security risks, drive informed decisions across the organization and ultimately transform their business with Splunk Enterprise.
  • Splunk announced it is leading a new Adaptive Response Initiative, bringing together the best technologies across the security industry to help organizations combat advanced attacks.
  • Splunk announced an alliance with Verizon Enterprise to bring analytics-driven, predictive threat detection to enterprises and government agencies.
  • Splunk announced an alliance with Herjavec Group that includes Splunk solutions at the heart of Herjavec Group's new managed security service provider (MSSP) offerings.
  • Splunk announced a reseller agreement with EMC. Joint customers will have a simple way to purchase EMC® solutions with Splunk Enterprise, Hunk, Splunk Enterprise and Global Support, Splunk Professional Services and Splunk Education.

Recognition:

Events:

  • Hosted SplunkLive! events in cities around the world, including Frankfurt, San Diego, San Francisco, Washington, D.C., Portland, Seattle, Chicago, Kansas City and Milan. Presentations can be found on the SplunkLive! website.
  • Splunk showcased its big data solutions to solve critical healthcare issues for IT, security, medical staff and patients at HIMSS16.
  • Splunk participated in the 2016 RSA Conference to demonstrate how Splunk solutions enable organizations to optimize security operations and improve security posture.
  • VenueNext, a Splunk customer, spoke at the 2016 Gartner Business Intelligence & Analytics Summit to discuss how VenueNext is leveraging Splunk technology to help venue operators gain real-time visibility into operations and understand event-goer behavior.

Appointments:

Financial Outlook

The company is providing the following guidance for its fiscal second quarter 2017 (ending July 31, 2016):

  • Total revenues are expected to be between $198 million and $200 million.
  • Non-GAAP operating margin is expected to be between 2% and 3%.

The company is updating its previous guidance for its fiscal year 2017 (ending January 31, 2017):

  • Total revenues are expected to be between $892 and $896 million (was approximately $880 million per prior guidance provided on Feb. 25, 2016).
  • Non-GAAP operating margin is expected to be approximately 5% (unchanged from prior guidance provided on Feb. 25, 2016).

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 and adjustments related to a financing lease obligation.

While 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 2017 non-GAAP results included in this press release. The exclusion of these costs and expenses will have a significant impact on Splunk's non-GAAP operating margin.

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 June 2, 2016 by dialing (855) 859-2056 and referencing Conference ID: 6355619.

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 2017 in the paragraphs under "Financial Outlook" above and other statements regarding customer demand and penetration, market opportunity, expected investments and innovations 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, 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; 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 Annual Report on Form 10-K for the year ended January 31, 2016, 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) is the market-leading platform that powers Operational Intelligence. We pioneer innovative, disruptive solutions that make machine data accessible, usable and valuable to everyone. More than 11,000 customers in over 110 countries use Splunk software and cloud services to make business, government and education more efficient, secure and profitable. Join hundreds of thousands of passionate users by trying Splunk solutions for free: http://www.splunk.com/free-trials.

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Splunk, Splunk > , Listen to Your Data, The Engine for Machine Data, Hunk, Splunk Cloud, Splunk Light, SPL and Splunk MINT 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. © 2016 Splunk Inc. All rights reserved.

           
SPLUNK INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended
April 30, April 30,
2016 2015
Revenues
License $ 100,992 $ 71,872
Maintenance and services   84,960     53,793  
Total revenues   185,952     125,665  
 
Cost of revenues
License 2,962 1,161
Maintenance and services   36,538     21,924  
Total cost of revenues   39,500     23,085  
Gross profit   146,452     102,580  
 
Operating expenses
Research and development 67,371 44,698
Sales and marketing 145,151 101,989
General and administrative   32,073     26,872  
Total operating expenses   244,595     173,559  
Operating loss   (98,143 )   (70,979 )
 
Interest and other income (expense), net
Interest income (expense), net (403 ) 360
Other income (expense), net   (1,125 )   89  
Total interest and other income (expense), net   (1,528 )   449  
Loss before income taxes (99,671 ) (70,530 )
Income tax provision   1,225     656  
Net loss $ (100,896 ) $ (71,186 )
 
 
Basic and diluted net loss per share $ (0.77 ) $ (0.57 )
 

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

  131,494     124,548  
 
 
SPLUNK INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
           
 
April 30, January 31,
2016 2016
 
ASSETS
 
Current assets
Cash and cash equivalents $ 428,245 $ 424,541
Investments, current portion 594,246 584,498
Accounts receivable, net 98,607 181,665
Prepaid expenses and other current assets   30,599     26,565  
Total current assets   1,151,697     1,217,269  
 
Investments, non-current 1,500

 

1,500
Property and equipment, net 144,655

 

134,995
Intangible assets, net 46,504

 

49,482
Goodwill 124,642

 

123,318
Other assets   14,866  

 

  10,275  
Total assets $ 1,483,864  

 

$ 1,536,839  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities
Accounts payable $ 4,885

 

$ 4,868
Accrued payroll and compensation 62,171

 

95,898
Accrued expenses and other liabilities 43,192

 

49,879
Deferred revenue, current portion   354,888  

 

  347,121  
Total current liabilities   465,136  

 

  497,766  
 
Deferred revenue, non-current 95,889

 

102,382
Other liabilities, non-current   89,789  

 

  77,277  
Total non-current liabilities   185,678  

 

  179,659  
Total liabilities   650,814  

 

  677,425  
 
Stockholders' equity
Common stock 133

 

132
Accumulated other comprehensive loss (1,233 )

 

(3,770 )
Additional paid-in capital 1,600,641

 

1,528,647
Accumulated deficit   (766,491 )

 

  (665,595 )
Total stockholders' equity   833,050  

 

  859,414  
Total liabilities and stockholders' equity $ 1,483,864  

 

$ 1,536,839  
 
           
SPLUNK INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended
April 30, April 30,
2016 2015
 
Cash Flows From Operating Activities
Net loss $ (100,896 ) $ (71,186 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 6,461 3,466
Amortization of investment premiums 258 361
Stock-based compensation 91,370 66,109
Deferred income taxes (506 ) (319 )
Excess tax benefits from employee stock plans (692 ) (466 )
Changes in operating assets and liabilities
Accounts receivable, net 83,058 47,072
Prepaid expenses, other current and non-current assets (8,119 ) (327 )
Accounts payable 99 402
Accrued payroll and compensation (33,727 ) (18,355 )
Accrued expenses and other liabilities (2,891 ) 640
Deferred revenue   1,274     1,218  
Net cash provided by operating activities   35,689     28,615  
 

Cash Flow From Investing Activities

Purchases of investments (142,787 ) (160,514 )
Maturities of investments 133,120 160,000
Purchases of property and equipment (3,709 ) (6,415 )
Strategic investment   -     (1,500 )
Net cash used in investing activities   (13,376 )   (8,429 )
 
Cash Flow From Financing Activities
Proceeds from the exercise of stock options 1,664 5,366
Taxes paid related to net share settlement of equity awards (21,731 ) -
Excess tax benefits from employee stock plans   692     466  
Net cash provided by (used in) financing activities   (19,375 )   5,832  
 
Effect of exchange rate changes on cash and cash equivalents   766     174  
Net increase in cash and cash equivalents 3,704 26,192
Cash and cash equivalents at beginning of period   424,541     387,315  
Cash and cash equivalents at end of period $ 428,245   $ 413,507  
 

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 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): stock-based compensation expense, employer payroll tax expense related to employee stock plans, amortization of acquired intangible assets and adjustments related to a financing lease obligation. The adjustments for the financing lease obligation are to reflect the expense we would have recorded if our 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. 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 amortization of acquired intangible assets and makes adjustments related to a financing lease obligation from its non-GAAP financial measures because these 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 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)

               
 

Reconciliation of Cash Provided by Operating Activities to Free Cash Flow

 
Three Months Ended
April 30, April 30,
2016 2015
Net cash provided by operating activities $ 35,689 $ 28,615
Less purchases of property and equipment   (3,709 )   (6,415 )
Free cash flow (Non-GAAP) $ 31,980   $ 22,200  
Net cash used in investing activities $ (13,376 ) $ (8,429 )
Net cash provided by (used in) financing activities $ (19,375 ) $ 5,832  
 
             

Reconciliation of GAAP to Non-GAAP Financial Measures

Three Months Ended April 30, 2016

          Adjustments
Employer payroll Amortization of related to
Stock-based tax on employee acquired financing lease
GAAP compensation stock plans intangible assets obligation Non-GAAP
 
Cost of revenues $ 39,500 $ (7,555 ) $ (262 ) $ (2,912 ) $ 26 $ 28,797

Gross Margin

78.8 % 4.0 % 0.1 % 1.6 % 0.0 % 84.5 %
 
Research and development 67,371 (29,206 ) (756 ) (71 ) 58 37,396
Sales and marketing 145,151 (40,233 ) (1,026 ) (151 ) 118 103,859
General and administrative 32,073 (14,376 ) (441 ) - 26 17,282
Operating loss (98,143 ) 91,370 2,485 3,134 (228 ) (1,382 )
Operating margin (52.8 )% 49.2 % 1.3 % 1.7 % (0.1 )% (0.7 )%
 
Net loss $ (100,896 ) $ 91,370 $ 2,485 $ 3,134 $ 1,263

(2)

$ (2,644 )

Net loss per share(1)

$ (0.77 ) $ 0.70 $ 0.02 $ 0.02 $ 0.01 $ (0.02 )
 

(1) Calculated based on 131,494 basic and diluted weighted-average shares of common stock.

(2) Includes $1.5 million of interest expense related to the financing lease obligation.

 
 

Reconciliation of GAAP to Non-GAAP Financial Measures

Three Months Ended April 30, 2015

Adjustments
Employer payroll Amortization of related to
Stock-based tax on employee acquired financing lease
GAAP compensation stock plans intangible assets obligation Non-GAAP
 
Cost of revenues $ 23,085 $ (6,532 ) $ (263 ) $ (911 ) $ - $ 15,379
Gross Margin 81.6 % 5.2 % 0.2 % 0.8 % - 87.8 %
 
Research and development 44,698 (20,075 ) (903 ) (69 ) -

23,651

Sales and marketing 101,989 (29,610 ) (1,076 ) (150 ) - 71,153
General and administrative 26,872 (9,892 ) (580 ) - (222 ) 16,178
Operating loss (70,979 ) 66,109 2,822 1,130 222 (696 )

Operating margin

(56.5 )% 52.6 % 2.2 % 0.9 % 0.2 % (0.6 )%
 
Net loss $ (71,186 ) $ 66,109 $ 2,822 $ 1,130 $ 222 $ (903 )
Net loss per share(1) $ (0.57 ) $ 0.53 $ 0.02 $ 0.01 $ 0.00 $ (0.01 )
 
(1) Calculated based on 124,548 basic and diluted weighted-average shares of common stock.
 
Note: The reconciliation tables above have been reformatted compared to prior quarters and now include amounts previously shown as footnotes in the Condensed Consolidated Statements of Operations. These changes were made in order to clarify the presentation for investors and allow for easier reference to our GAAP results.
 

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

Source: Splunk Inc.

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