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Nov 19, 2015

Splunk Inc. Announces Fiscal Third Quarter 2016 Financial Results

Total Revenues Grew 50%; Company Increases Full Year Outlook

SAN FRANCISCO--(BUSINESS WIRE)-- The third column of the first financial table has been replaced (instead of the incorrect third column originally issued).

The corrected release reads:

SPLUNK INC. ANNOUNCES FISCAL THIRD QUARTER 2016 FINANCIAL RESULTS

Total Revenues Grew 50%; Company Increases Full Year Outlook

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, 2015.

Third Quarter 2016 Financial Highlights

  • Total revenues were $174.4 million, up 50% year-over-year.
  • License revenues were $104.2 million, up 45% year-over-year.
  • GAAP operating loss was $72.3 million; GAAP operating margin was negative 41.5%.
  • Non-GAAP operating income was $6.6 million; non-GAAP operating margin was 3.8%.
  • GAAP loss per share was $0.57; non-GAAP earnings per share were $0.05.
  • Operating cash flow was $36.4 million with free cash flow of $21.1 million.

"We are excited about our performance in Q3 and pleased to welcome more than 500 new customers to the Splunk family," said Godfrey Sullivan, Chairman and CEO. "Our customers at .conf2015 shared inspiring new use cases and their innovation continues to guide our investments in Cloud, IT, Security and Business Analytics solutions. We made an impressive set of announcements including new premium solutions for IT Service Intelligence and User Behavior Analytics, and new releases of Splunk Enterprise and Enterprise Security."

Third Quarter 2016 and Recent Business Highlights

Customers:

  • Signed more than 500 new enterprise customers.
  • New and Expansion Customers Include: CenterPoint Energy, China Merchants Bank, Cisco, Creative Artists Agency - (CAA), Dubai Smart Government, Fairfax County (Virginia), Getty Images, Groupon, Hong Kong Marine Department, Independent Health, Jabil Circuit, NASDAQ, NetEnt (Sweden), Northwestern Mutual, NTT DOCOMO (Japan), Pernod Ricard Asia (Hong Kong), State of Arkansas, State of Maine, Surfdome (United Kingdom), Synchrony Financial, University of Pittsburgh Medical Center, U.S. Department of Energy, U.S. Pharmacopeial Convention, United States Postal Service, University of Macau (China), Wüstenrot & Württembergische (Germany), Yodlee, Zillow.

Products:

  • Announced the general availability (GA) of Splunk Enterprise 6.3, the latest version of the award-winning platform for machine data, to deliver double the performance and lower total cost of ownership (TCO).
  • Announced the GA of Splunk IT Service Intelligence, a new IT monitoring and analytics solution that delivers immediate value to IT with advanced analytics and powerful visualizations.
  • Announced the GA of Splunk Enterprise Security (ES) 4.0 to help organizations track attackers' actions with streamlined ad hoc analyses and event sequencing.
  • Announced the GA of Splunk User Behavior Analytics (UBA), delivering out-of-the-box capabilities driven by machine learning and advanced analytics to help detect advanced cyberattacks and insider threats.
  • Made Splunk Light available as a cloud service, delivering the power of Splunk to small IT environments.
  • Announced the GA of Hunk 6.3, a full-featured, integrated analytics platform used to interactively explore, analyze and visualize big data in Hadoop and Amazon S3. This allows Splunk users to further drive down TCO by archiving historical data from Splunk Enterprise.
  • Released the latest version of Splunk App for Amazon Web Services (AWS) to provide easy-to-use dashboards with comprehensive security, compliance and operational insights into AWS environments.

Strategic and Channel Partners:

  • Announced a strategic alliance with Booz Allen Hamilton to deliver predictive security analytics and operationalize threat intelligence.
  • Verizon Enterprise Solutions announced the launch of its Data Breach Investigations Report (DBIR) App for Splunk, providing actionable security intelligence for enterprises.

Recognition:

Events:

  • Hosted a record number of customers and partners at .conf2015, the 6th Annual Splunk Worldwide Users Conference.
  • Hosted inaugural GovSummit with more than 1,000 attendees.
  • Hosted SplunkLive! events in cities around the world, including: Amsterdam, Auckland, Austin, Denver, Nashville, Sao Paolo, Seoul, Shanghai, Stockholm, Taipei, Warsaw and Wellington. Presentations can be found on the SplunkLive! website.

Financial Outlook

The company is providing the following guidance for its fiscal fourth quarter 2016 (ending January 31, 2016):

  • Total revenues are expected to be between $200 million and $202 million.
  • Non-GAAP operating margin is expected to be between 5% and 6%.

The company is updating its previous guidance for its fiscal year 2016 (ending January 31, 2016):

  • Total revenues are expected to total approximately $650 million (was $628 million to $632 million per prior guidance provided on August 27, 2015).
  • Non-GAAP operating margin is expected to be approximately 3% (was previously between 2% and 3% per prior guidance provided on August 27, 2015).

The company is providing the following guidance for its fiscal year 2017 (ending January 31, 2017):

  • Total revenues are expected to be approximately $850 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, acquisition-related costs and ground lease expense related to a build-to-suit lease obligation.

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 and year-to-date 2016 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 26, 2015 by dialing (855) 859-2056 and referencing Conference ID 75195214.

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 2016 as well as revenue target for fiscal year 2017 in the paragraphs under "Financial Outlook" above and other statements regarding momentum in the company's business, customer growth, customer adoption of and value using our existing and acquired products, product innovations, and planned investments. 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 and services, including its cloud offerings; risks associated with Splunk's rapid growth, particularly outside of the U.S.; Splunk's ability to realize value from its significant investments in its business, including through acquisitions and product and service innovations; Splunk's transition to a multi-product software and services solutions oriented business; Splunk's inability to successfully integrate acquired businesses, products and technologies; Splunk's limited experience transitioning executive officer roles; retention of Splunk's executives and key employees; 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, 2015, 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 10,000 customers in over 100 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.

Social Media: Twitter | LinkedIn | YouTube | Facebook

Splunk, Splunk &#62 , 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. © 2015 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,
  2015     2014     2015     2014  
Revenues
License $ 104,164 $ 71,754 $ 263,996 $ 185,109
Maintenance and services   70,256     44,275     184,415     118,374  
Total revenues   174,420     116,029     448,411     303,483  
 
Cost of revenues
License 3,136 535 6,110 685
Maintenance and services   27,455     17,045     72,606     46,153  
Total cost of revenues 1,2,3   30,591     17,580     78,716     46,838  
Gross profit   143,829     98,449     369,695     256,645  
 
Operating expenses
Research and development 56,186 39,534 149,192 103,455
Sales and marketing 130,131 85,720 343,906 236,776
General and administrative 4,5   29,857     21,446     85,489     75,125  
Total operating expenses 1,2,3   216,174     146,700     578,587     415,356  
Operating loss   (72,345 )   (48,251 )   (208,892 )   (158,711 )
 
Interest and other income (expense), net
Interest income, net 377 199 1,162 492
Other income (expense), net   (271 )   (52 )   (477 )   (326 )
Total interest and other income (expense), net   106     147     685     166  
Loss before income taxes (72,239 ) (48,104 ) (208,207 ) (158,545 )
Income tax provision (benefit) 6   735     447     (8,758 )   1,543  
Net loss $ (72,974 ) $ (48,551 ) $ (199,449 ) $ (160,088 )
 
 
Basic and diluted net loss per share $ (0.57 ) $ (0.40 ) $ (1.58 ) $ (1.35 )
 
Weighted-average shares used in computing basic
and diluted net loss per share   128,368     120,331     126,534     118,895  
 
 
1 Includes amortization of acquired intangible assets as follows:
Cost of revenues $ 2,896 $ 703 $ 5,379 $ 2,093
Research and development 86 569 234 707
Sales and marketing 164 150 469 447
 
2 Includes stock-based compensation expense as follows:
Cost of revenues $ 6,384 $ 4,039 $ 18,578 $ 11,653
Research and development 22,534 15,352 61,910 41,517
Sales and marketing 33,247 21,075 91,067 61,458
General and administrative 11,999 7,770 32,327 36,357
 
3 Includes employer payroll tax on employee stock plans as follows:
Cost of revenues $ 145 $ 111 $ 806 $ 344
Research and development 510 327 2,145 1,649
Sales and marketing 501 387 2,562 1,668
General and administrative 283 267 1,465 1,160
 
4 Includes ground lease expense related to build-to-suit lease obligation $ 222 $ 222 $ 666 $ 444
 
5 Includes acquisition-related costs $ - $ - $ 1,993 $ -
 
6 Includes a partial release of the valuation allowance due to acquisition $ - $ - $ (10,924 ) $ -
 
         
SPLUNK INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
October 31, January 31,
2015 2015
 
ASSETS
 
Current assets
Cash and cash equivalents $

501,691

$ 387,315
Investments, current portion

446,840

462,849
Accounts receivable, net

125,657

128,413
Prepaid expenses and other current assets  

20,721

  21,256  
Total current assets  

1,094,909

  999,833  
 
Investments, non-current

1,500

165,082
Property and equipment, net

100,264

50,374
Intangible assets, net

52,693

10,416
Goodwill

124,306

19,070
Other assets  

5,440

  3,016  
Total assets $

1,379,112

$ 1,247,791  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities
Accounts payable $

4,205

$ 3,726
Accrued payroll and compensation

78,213

65,220
Accrued expenses and other liabilities

37,545

27,819
Deferred revenue, current portion  

282,547

  249,883  
Total current liabilities  

402,510

  346,648  
 
Deferred revenue, non-current

66,341

54,202
Other liabilities, non-current  

69,315

  33,620  
Total non-current liabilities  

135,656

  87,822  
Total liabilities  

538,166

  434,470  
 
Stockholders' equity
Common stock

130

123
Accumulated other comprehensive loss

(2,298

)

(837 )
Additional paid-in capital

1,429,386

1,200,858
Accumulated deficit  

(586,272

)

  (386,823 )
Total stockholders' equity  

840,946

  813,321  
Total liabilities and stockholders' equity $

1,379,112

$ 1,247,791  
 
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,
2015 2014 2015 2014
 
Cash Flows From Operating Activities
Net loss $ (72,974) $ (48,551) $ (199,449) $ (160,088)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 5,691 3,430 13,467 8,968
Amortization of investment premiums 327 316 1,049 452
Stock-based compensation 74,164 48,236 203,882 150,985
Deferred income taxes (111) (280) (11,416) (793)
Excess tax benefits from employee stock plans (343) (240) (995) (1,108)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net (25,963) (12,712) 2,756 798
Prepaid expenses, other current and non-current assets 3,162 (3,533) 15,630 (2,041)
Accounts payable 484 654 384 1,045
Accrued payroll and compensation 21,039 11,269 12,341 4,605
Accrued expenses and other liabilities 3,246 3,334 (3,839) 12,673
Deferred revenue 27,638 22,282 44,803 36,956
Net cash provided by operating activities 36,360 24,205 78,613 52,452
 
Cash Flow From Investing Activities
Purchases of investments - (387,324) (219,195) (691,277)
Maturities of investments 152,145 48,000 399,145 63,000
Acquisitions, net of cash acquired - - (142,693) (2,500)
Purchases of property and equipment (15,272) (4,054) (24,496) (11,200)
Other investment activities - - (1,500) -
Net cash provided by (used in) investing activities 136,873 (343,378) 11,261 (641,977)
 
Cash Flow From Financing Activities
Proceeds from the exercise of stock options 1,960 3,387 12,696 12,805
Excess tax benefits from employee stock plans 343 240 995 1,108
Proceeds from employee stock purchase plan - - 10,906 8,355
Payment related to build-to-suit lease obligation - - - (523)
Net cash provided by financing activities 2,303 3,627 24,597 21,745
Effect of exchange rate changes on cash and cash equivalents (45) (299) (95) (120)
Net increase (decrease) in cash and cash equivalents 175,491 (315,845) 114,376 (567,900)
Cash and cash equivalents at beginning of period 326,200 645,398 387,315 897,453
Cash and cash equivalents at end of period $ 501,691 $ 329,553 $ 501,691 $ 329,553
 

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 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, acquisition-related costs, ground lease expense related to a build-to-suit lease obligation 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 amortization of acquired intangible assets, acquisition-related costs, ground lease expense related to its build-to-suit lease obligation and the partial release of the valuation allowance due to acquisition 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 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,
2015 2014 2015 2014
 

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

Net cash provided by operating activities $ 36,360 $ 24,205 $ 78,613 $ 52,452
Less purchases of property and equipment   (15,272 )   (4,054 )   (24,496 )   (11,200 )
Free cash flow (Non-GAAP) $ 21,088   $ 20,151   $ 54,117   $ 41,252  
Net cash provided by (used in) investing activities $ 136,873   $ (343,378 ) $ 11,261   $ (641,977 )
Net cash provided by financing activities $ 2,303   $ 3,627   $ 24,597   $ 21,745  
 

Gross margin reconciliation:

GAAP gross margin 82.5 % 84.8 % 82.4 % 84.6 %
Stock-based compensation expense 3.6 3.5 4.2 3.8
Employer payroll tax on employee stock plans 0.1 0.1 0.2 0.1
Amortization of acquired intangible assets   1.7     0.6     1.2     0.7  
Non-GAAP gross margin   87.9   %   89.0   %   88.0   %   89.2   %
 

Operating income (loss) reconciliation:

GAAP operating loss $ (72,345 ) $ (48,251 ) $ (208,892 ) $ (158,711 )
Stock-based compensation expense 74,164 48,236 203,882 150,985
Employer payroll tax on employee stock plans 1,439 1,092 6,978 4,821
Amortization of acquired intangible assets 3,146 1,422 6,082 3,247
Acquisition-related costs - - 1,993 -
Ground lease expense related to build-to-suit lease obligation   222     222     666     444  
Non-GAAP operating income $ 6,626   $ 2,721   $ 10,709   $ 786  
 

Operating margin reconciliation:

GAAP operating margin (41.5 ) % (41.6 ) % (46.6 ) % (52.3 ) %
Stock-based compensation expense 42.5 41.6 45.5 49.8
Employer payroll tax on employee stock plans 0.8 0.9 1.6 1.6
Amortization of acquired intangible assets 1.9 1.2 1.4 1.1
Acquisition-related costs - - 0.4 -
Ground lease expense related to build-to-suit lease obligation   0.1     0.2     0.1     0.1  
Non-GAAP operating margin   3.8   %   2.3   %   2.4   %   0.3   %
 

Net income (loss) reconciliation:

GAAP net loss $ (72,974 ) $ (48,551 ) $ (199,449 ) $ (160,088 )
Stock-based compensation expense 74,164 48,236 203,882 150,985
Employer payroll tax on employee stock plans 1,439 1,092 6,978 4,821
Amortization of acquired intangible assets 3,146 1,422 6,082 3,247
Acquisition-related costs - - 1,993 -
Ground lease expense related to build-to-suit lease obligation 222 222 666 444
Partial release of the valuation allowance due to acquisition   -     -     (10,924 )   -  
Non-GAAP net income (loss) $ 5,997   $ 2,421   $ 9,228   $ (591 )
 

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 128,368 120,331 126,534 118,895
Effect of dilutive securities: Employee stock awards   4,307     6,541     5,159     -  
Weighted-average shares used in computing non-GAAP basic and diluted net income (loss) per share   132,675     126,872     131,693     118,895  
GAAP basic and diluted net loss per share $ (0.57 ) $ (0.40 ) $ (1.58 ) $ (1.35 )
Non-GAAP basic and diluted net income (loss) per share $ 0.05   $ 0.02   $ 0.07   $ (0.00 )

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

Source: Splunk Inc.

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