splunk (splk) earnings report: q1 2016 conference call...
TRANSCRIPT
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page1of22
Splunk(SPLK)EarningsReport:Q12016ConferenceCallTranscriptThefollowingSplunkconferencecalltookplaceonMay28,2015,04:30PMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
KenTinsley;SplunkInc.;VP-IR,CorporateTreasurerGodfreySullivan;SplunkInc.;CEOHaiyanSong;SplunkInc.;Head-SecurityMarketsDougMerritt;SplunkInc.;Head-WorldwideFieldOperationsDaveConte;SplunkInc.;CFO
OtherPart icipants
BrentThill;UBS;AnalystKeithWeiss;MorganStanley;AnalystRaimoLenschow;BarclaysCapital;AnalystBrianWhite;CantorFitzgerald;AnalystPhilWinslow;CreditSuisse;AnalystJimMoore;FBRCapitalMarkets;AnalystKashRangan;BofAMerrillLynch;AnalystKatherineEgbert;PiperJaffray;AnalystWalterPritchard;Citigroup;AnalystClarenceChen;CLSALimited;AnalystJohnDiFucci;JefferiesandCo.;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Goodday,ladiesandgentlemen.WelcometotheSplunkIncorporatedfirstquarter2016financialresultsconferencecall.
(OperatorInstructions)
Asareminder,today'scallisbeingrecorded.IwouldnowliketoturnthecallovertoMr.KenTinsley,VicePresident--InvestorRelationsandcorporateTreasurer.Pleasegoahead.
KenT insley(VP-IR,CorporateTreasurer):
Great,thankyou.Goodafternoon,everyone.
WithmeonthecalltodayareSplunk'sCEO,GodfreySullivan;CFO,DaveConte;HeadofWorldwideFieldOperations,DougMerritt;andHeadofSecurityMarkets,HaiyanSong.
Ourpressreleasewasissuedafterthecloseofmarkettoday,andwaspostedonourWebsite.Thisconferencecallisbeingbroadcastliveviawebcastandfollowingthecall,anaudioreplaywillbeavailableonourWebsite.
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page2of22
Onthiscall,wewillbemakingforward-lookingstatementsincludingfinancialguidanceandexpectationsforoursecond-quarterandFY16;transaction,product,andservicesmix;investmentsininternationaloperationsandexpectedgrowthininternationalbusiness;plannedinvestments,includingproducts,services,sales,andfacilities;andmarketandusecaseopportunities.
Thesestatementsreflectourbestjudgmentbasedonfactorscurrentlyknowntous,andactualeventsorresultsmaydiffermaterially.
PleaserefertodocumentswefilewiththeSEC,includingtheForm8-Kfiledwithtoday'spressrelease.Thosedocumentscontainrisksanduncertaintiesandotherfactorsthatmaycauseouractualresultstodifferfromthosecontainedinourforward-lookingstatements.
Theseforward-lookingstatementsarebeingmadeasoftoday,andwedisclaimanyobligationtoupdateorrevisethesestatements.Ifthiscallisreviewedaftertoday,theinformationpresentedduringthiscallmaynotcontaincurrentoraccurateinformation.
Wewillalsodiscussnon-GAAPfinancialmeasures,whicharenotpreparedinaccordancewithGenerallyAcceptedAccountingPrinciples.AreconciliationofGAAPandnon-GAAPresultsisprovidedinthepressrelease,andonourWebsite.
Withthat,letmeturnitovertoGodfrey.
Godf reySullivan (CEO):
Thanks,Ken.Hello,everyone.I'mhappytoreportastrongstarttotheyear.
Totalrevenueswere$125.7million,a46%increaseoverlastyear.Wewelcomedmorethan450newcustomerstotheSplunkfamily,andnowhavemorethan9,500customersworldwide.It'snowbeenaboutthreeyearssinceourIPO,andsometimestolookforward,it'sbettertolookbackatourjourneythusfar.
IntheyearpriortotheIPO,weputpostersinallofourofficeswithasinglemessage:Mile3.ThatmessagetoouremployeeswasthatourIPOwasnotadestination,butjusttheMile3markeronthelongruntobuildingalastingcompanyandbrand.ThedayaftertheIPO,wetookdownalltheMile3postersandputupourMile6posterwithourcorporateinitiatives.Andjustlastmonth,threeyearslater,wetoredowntheMile6postersandreplacedthemwithMile8.
TheMile8posterhasfourwordsonit.Enterprise,partners,solutions,andcloud.Thesewordsrepresentthecoreinitiativesthatwe'repursuingonbehalfofourcustomers.
Today,Iwouldliketospendafewminutesontheseinitiatives,andalsotodescribehowwe'veorganizedtheCompanytoachievethem.Thefirstwordisenterprise.
Itmeansthescaleandqualityofourproducts.Itmeansbuildinganenterpriseplatformthatcandrivemultipleusecases.Itmeansmakingiteasyfordeveloperstobuildapps.Enterprisealsoreflectsourcustomers'needs,andourinvestmentsandtechnicalresources,thatdrivecustomersuccessandadoption.
Partnersreflectsourglobalecosystemofresellers,developers,andourtechnicalalliances.AllarecriticaltoourCompanygrowthandcustomersuccess.
Solutionsmeansapps,content,anddrivinginsightsandbusinessoutcomesforourcustomers.Splunkisnotjustaboutindexingandsearchingmachinedata.Wearebecomingasolutionscompany,asolutionscompanythatissupportedbyanenterprisegradeplatform,withappsthatwebuildandourpartnersbuild.
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page3of22
Cloud.Thismayseemobvious,buthereitmeanscloudfirst.Thatisdesigningeverythingwedotobeeasy,tobeofferedasaservice,andtoprovideevenshorterdevelopmentcyclesforourcustomers,deploymentcycles,pardon.Weofferauniquecombinationofcloudonpremorahybridofthosetworoles,andourcustomersreallyappreciateandvaluethatapproach.
Thesefourwordssayalotaboutournextphaseofgrowth,andtruetoSplunk'sopenculture,wepublishthemforeveryonetosee.JustlikeMile3andMile6,Mile8isamulti-yearrunaheadofus,andwe'veorganizedourexecteamtobetterdrivetheseinitiatives.
GuidoSchroederandthecoredevelopmentteamarebuildingtheenterprisegradefoundation.InQ1,theproductteamsshippedversiononeofSplunkLight,rolledoutSplunkCloudinternationally,andreleasednewversionsoftheappforenterprisesecurity,Mint,andanappforStream.
Onthepartnerside,EmilioUmeokaisdrivingourprogramsforourgo-to-marketpartners.StephenSorkinisbuildingthedevelopertoolsandprograms.Wenowhavemorethan700appsonSplunkbase,andanewframeworktohelpdevelopersbuildappsfaster.
Solutions.Ourcoreusecasesarewell-known:appdev,ITops,security,compliance,analytics,andIoT.Toachieveourgoals,wehavecreatedexactpositionstodrivethesemarkets.
WekickedoffthisinitiativewiththeSecurityMarketGroupandHaiyanSongisshapingourvision,strategies,andproductsforthatmarket.We'recomingoffastrongshowingatRSA,andHaiyanwillbriefyoulateronthiscall.
Next,wecreatedtheITOAmarketgroupwithRickFitzleadingthatteam.He'salsoleadingoureffortsformobile.
IshouldhaveRickheretodefendhimself,butinhisabsence,I'mhappytoreportthatwehadareallystrongQ1forIToperations.ThemajorityofourlargetransactionswereforITopsusecases.Wealsoshippedthepre-releaseofourITserviceintelligenceapp,andcustomerfeedbackhasbeenoutstanding.WeexpecttolaunchthisappatConf,andIlookforwardtoshowingtoyouthen.
Lastquarter,Imentionedthatwewouldfocusnextonanalyticssolutions,andthatIhadstartedaformalsearchforthisposition.I'mhappytoreportthatwe'vefilledthatposition.SnehalAntanihasjustjoinedSplunkasourCTO,comingtousfromGECapital.
SnehalwillalsobecomeourmarketgroupleaderforbusinessanalyticsandIoTusecases.ManyofyouwillrecallSnehal'spresentationatConflastyear,wherehismessageofcontinuousappdevelopmentwasahitwithourcustomer.Snehalhasastrongbackgroundinbuildingappsforcommercialanalytics,andisuniquelyqualifiedtofillbothrolesofCTOandmarketgroupforanalytics.
Ontocloud.MarcOlesenisdrivingourCloudbusiness,andhasbuiltastrongteam.OurQ1resultsshowcontinuedacceleration,andexcludingtheverylargetransactions,wedoubledourbookingsfromjusttwoquartersago.
Customerswanttospendtheirbudgetsonsoftwareandtrainingtoachievebusinessresults.They'relessinterestedinmanagingtheunderlyingkit,andtheyaredelightedwiththespeedandROIofSplunkCloud.ThesefourinitiativesreflectalargeandgrowingTAM.Ourfieldorganizationisdoingafabulousjoboftakingalloftheseproductstomarket.
Ourglobalfieldteams,whichrepresentabouthalfofourheadcount,areledbyDougMerritt.Thatincludessales,professionalservices,customersuccess,andourpartnerteams.Doug'sheretodaytogiveyoumorecoloronourresultsandcustomersuccess.
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page4of22
GiventhesizeofourTAM,andourongoingpenetrationofnewmarkets,mygoalfortheseearningscallsistogiveyouincreasingtransparencyintotheseinitiatives.
Notonlythemilestones,butalsoexposuretotheexecswhoareleadingthem,andhopefullythiswillbeasmuchfunforyouasitisforme.Today,wewillcoversecurityandfieldoperations.Infuturecalls,you'llhearupdatesfromcloud,IToperationsandmore.
Firstup,HaiyanSong,whoiscomingoffanotherimpressivecoreinthesecuritymarket.Haiyan?
HaiyanSong (Head-SecurityMarkets):
Thanks,Godfrey.InQ1,wecontinuedtostrengthenourroleatthenervecenterforsecurity.Ourecosystemofpartnersisgrowingrapidly.
Itwasevidentatthisyear'sRSAconference,asourpresencewentwellbeyondtheSplunkgroup.WepresentedalongsidekeypartnerslikePaloAltoNetworks,FireEye,QualysandTripwire,abouttheimportanceofsecurityanalytics.Weleddiscussionswithcybersecuritythoughtleadersinboththepublicandprivatesector,ontheneedforawell-orchestratedsecuritysolutionsstack.
SplunkcustomerJonathanJowers,theCISOofSAICpresentedtoastandingroomonlytheaterandtalkedaboutcontinuousbreachresponse,andhowSplunkistheirsecurityintelligenceplatformforanalytics-enabledSoC.Wemade2excitingannouncements.AnewreleaseoftheSplunkappforEnterpriseSecurity,whichcontinuesitstripledigityear-over-yeargrowth.
InQ1,webookedourfirstseven-figureordersolelyforES.WealsoannouncedthesecondSplunkAptitudecontest,todrivecommunity-ledinnovationinsecurity.Atopprizeof$100,000willbeawardedtothebestappforinsiderthreatandfrauddetection.
Weshowcasedactionableintelligence,byjointlydevelopingandreleasingtheVerizonDBIRappforSplunk,ontheheelsofVerizon'sreleaseofthe2015databreachinvestigationsreport.
AndwecappedRSAconferencewithSplunkEnterprisewinningthebestfraudpreventionsolutionattheSCAwards.Frauddetection,justlikebreachanalysis,continuestobeagrowingusecaseforSplunk.
Forourcustomers[sure-script]standardizedonSplunksoftwaretocrackdownonhealthcarefraud,byanalyzingbillionsofelectronicprescriptionsandotherhealthdatatransactionsfromdoctors,pharmacies,andhealthplans.
High-profilebreachesareacontinuingbiggestdriver,leadingbothtoreactiveandproactiveopportunitiesacrossallindustries.
Inpublicsector,wecouldsaywehelpedtodefendthedefenders.[NorthernCommand],anewcustomerisincommandandcontrolofDoD'shomelanddefenseeffortsandselectedSplunkEnterpriseandEStoreplaceanexistinglegacySIM.SplunkisusedforbothsecurityandITopusecases.
AndalargefederalagencyselectedtheSplunkAppforStreaminQ1,toleveragewiredatatosupportsecurityefforts,andtomitigatetheriskofinsiderthreats,byalertingtheagencywhensensitiveinformationisbeingtransmitted,andensuringtrafficanduseractivityfromthenetworkaretrustworthy.
OnefinaltrendworthnotingisthecontinuedmomentumfromourcustomersselectingSplunkCloudwithESforsecurity.TheCityofLosAngelesandOktaareamongthecustomersselectingCloudplusESthisquarter.Iamproudofthebuildoutofoursecurityecosystemandtheresultswehavedeliveredthusfar.Andwelookforwardtocontinuingtoinnovateandexpandoursecuritysolutionsforourcustomers.
Now,overtoDoug.
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page5of22
DougMerritt (Head-WorldwideFieldOperations):
Thankyou,Haiyan.EnterpriseisthefirstpillarofourMile8initiatives.Asareminder,enterprisemeansthescaleandqualityofourproducts,andreflectsourinvestmentsintechnicalresourcesthatdrivecustomersuccessandadoption,withEAAsbeingakeyindicatorofthisadoption.
YouwillrecallweannouncedanewprograminFebruarytoallowcustomersofanysizetopurchaseunlimitedlicenses,withfixedpredictablecosts.SonyPlayStationNetworksignedanEAAinQ1forSplunkEnterprise.TheyalsopurchasedEnterpriseSecurityandHunk.
Ourlongtimecustomer,Adobe,alsosignedanEAA.Thisisthelatestmulti-yearadoptionstoryfromAdobe.WealsoclosedanEAAwithPartnersHealthcaretostandardizeonSplunkEnterprise.
TheyalsoboughttheSplunkapplicationforMicrosoftExchange.Theseareallexamplesofcustomerswho,overaperiodofyears,havemovedfromasingledepartmentpurchasetocrossdepartmentalusage,tostandardizingonSplunk.AndtheydemonstratetheadditivevalueofconsumingmultipleproductsfromSplunk.
Nowontotoourpartners,anotheroneofthekeypillarsofourMile8initiatives.Wearetightlyfocusedonglobalsystemsintegrators,MSPs,strategictechnologypartners,andofcourse,thechannel.InQ1,weannouncedadistributionagreementwithArrowElectronicsforNorthAmerica,andareworkingwithCDWonago-to-marketforSplunkLight.
WealsorolledoutourPartnerPlusprogramatpartnerkickoffsaroundtheworld.TheprogramhasalreadybeennamedaChannelResellerNewsfive-starpartnerprogram.Wecontinuetodrivestrategictechnologypartners.Examplesofexecutionaretheco-sellingmomentumwithourpartnerSyncsort,andjointmarketinginitiativeswithPaloAltoNetworks.
AndweexpandedourstrategicalliancewithAmazonWebServicesbyannouncingtheinternationalavailabilityofSplunkCloudonAWS.SplunkCloudisnowavailablethroughnineAWSglobalregions,andearlyresultsfromourinternationallauncharepromising.
SophosintheUKusesSplunkCloudforanalyticstosupportitssecurityoperationscenter.Katana1outofAustraliareliesonSplunkCloudasthebackbonefortheirmarketinganalyticssolution.AndPolycomisusingSplunkCloudacrosstheirglobaloperationstodrivevisibilityacrossITintheirservicesandbusinesscenters.
Domestically,SplunkCloudwinsincludeAOL,whosignedupforlargeterabyteSplunkCloudinstanceforreal-timeperformancemonitoring,loganalysis,anddevops.
TheCityofLosAngelespurchasedSplunkCloudandtheAppforEnterpriseSecuritytocorrelatecyberthreatinformationwithseveralothergovernments,andmonitorandanalyzenetworktraffictoidentifydiscrepanciesthatindicatemaliciousattacks.
Oneofourlargesttransactionsforthequarterwasaseven-figureorderforacustomerwhowasmoving90%ofalldatatoAWSandisturningtoSplunkforenterpriseassuranceandtransparency.
Inadditiontoourinternationalcloudexpansion,we'realsopleasedwithhowadoptionandournewpricingprogramsarespreadingglobally.Swisscom,along-standingSplunkcustomer,signedalargetransactiontobuildastrategicdataplatformwithSplunk.
Inaddition,wehavetransactionswithSaudiArabianAirlines,SIXSwissExchange,LaingO'RourkeinAustralia,SkyBrasil,andMeasatBroadcastNetworkSystemsinMalaysia.Interestinglyenough,MeasatwillbeusingSplunktogainoperationalintelligencefromtheirpaytelevisionservice.
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page6of22
Haiyanalreadycoveredthesecurityusecases,wealsohadagreatquarterforIToperations.Letmegiveyouafewexamples.BloombergisalongtimeSplunkcustomer,andincreasedtheirinvestmentinSplunkEnterpriseforITopsandsecurity.
AndtheCentersforMedicareandMedicaidServices,anagencywithintheDepartmentofHealthandHumanServicescommittedtoalargeexpansionofSplunkEnterprisetohelpkeepHealthcare.govonline,andensurethatAmericanswereabletosignupforhealthcare.
Ontobusinessanalytics.Wehadsignificantwinsinthismarketsegment.ThomsonReutersupgradedtheirSplunklicensetoanalyzeclientusagetrendsforincomesecurities,derivatives,andbankloans.Shazamisalongtimecustomer,andexpandedtheiruseofSplunkforbusinessanalyticsdashboards,withnewandcurrentusertrendsinreal-timeforbettertargeting.
Andasalways,someofthebeststoriescomefromtheInternetofThings.AgreatIoTstoryfromSplunkLiveZurichcamefromGraphmasters,aGermancustomer.TheCompanyisbehindanewnavigationapp,whichhelpsdriversmaptheirtrips.SplunkEnterprisehelpedGraphmasterscorrelatedatafromtrafficfeeds,andsuggeststhequickestrouteatanytime.
AndinSplunkLightHongKong,theHongKongMarinedepartmentshareditsuseofSplunktokeeptrafficjamsfromhappeningintheirharbor.ByleveragingSplunkforradarandvesselidentifierdata,thedepartmentmonitorsshippingvesselsastheyenter,dock,andexit.
Insummary,itwasagoodquarteronmanydimensions.EAAexecution,partnerexpansion,Cloud,andmarketsolutions.Now,backtoyou,Godfrey.
Godf reySullivan (CEO):
Thanks,DougandHaiyan.Thediversityofcustomerstoriesisalwaysaninspirationforouremployees,andthosestoriesjustkeepgettingbetter.IrecentlyattendedSplunkLivesinDCandLondon.Greatcustomerpresentationsasalways.
Inthatspirit,I'mdelightedtotellyouthatwe'vecreatedanewsectiononourWebsitethatholdsmostofthecustomerpresentationsbycity.Ifyoueverwanttoseethebreadthofourmarketopportunity,orjustagoodold-fashionedshotofadrenaline,gocheckoutthesegreatcustomerpresentationsatSplunkLive.comfromcustomerslikeSocialSecurityAdministration,Ticketmaster,andDirecTV,tonamejustafew.
Inclosing,I'dliketothankeveryonewhoworksatSplunk,afterwewerenamedfortheeighthconsecutiveyearasoneofthebestplacestoworkintheBayArea.Now,letmeturnthecallovertoDaveConte.
DaveConte (CFO):
Thanks,Godfrey.Goodafternooneveryone,thanksforjoiningthecall.Q1wasastrongquarter,andasolidstarttoFY16,andwe'repleasedwithourresults.
First-quarterrevenueswere$125.7million,a46%increaseoverQ1oflastyear.Licenserevenuesgrew40%overlastyear,totaling$71.9million.Onceagain,inQ1,morethan70%ofourlicensebookingscamefromexistingcustomers.Wecontinuedtoseeabouttwo-thirdsofourupsellscomingfromhorizontalexpansionsintonewusecases.
Weaddedover450newcustomersinthequarter,andrecorded226ordersgreaterthan$100,000.Consistentwithourexpectations,theratablemixcontinuestovarysubstantiallyquartertoquarter.
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page7of22
Withtheimpactfromtheseven-figureCloudtransactionDougdescribedearlier,aswellastheoverallstrengthofourCloudbusiness,ourQ1ratablemixwas43%.GivenQ1isourseasonallylowestbookingsquarter,westillexpectourfull-yearratablemixtorangebetween30%and40%.
InQ1,internationaloperationsrepresentedapproximately24%oftotalrevenues,consistentwithpreviouslevels,andcomparableonayear-over-yearbasis.Wewillcontinuetomakeinvestmentsinourinternationalbusiness,andlookforwardtocontinuedgrowthandglobalexpansion.
Oureducationandprofessionalservicesrepresented8%ofrevenueinQ1,intherangeofpriorandexpectedlevelsofbetween5%and10%.Onceagain,remember,sincewegenerallyrecognizerevenuesonserviceswhentheyaredeliveredinfull,servicesbookingstypicallydonotflowthroughthebalancesheetasdeferredrevenue.
Turningtomargins,whichareallnon-GAAP.Q1overallgrossmarginwas88%,consistentwithQ1lastyear,andourexpectations.Operatinglosswasabout$1million,representinganegativemarginofapproximately1%.Q1netlosswasalsoabout$1million,andEPSwasanegative$0.01pershare,basedonaweightedaveragesharecountof124.5millionshares.
Cashflowfromoperationswas$28.6million.Freecashflowwasabout$22million,andweendedthequarterwithjustover$1billionintotalcashandinvestments.Now,lookingforwardtotherestoftheyear,weexpectQ2totalrevenuesofbetween$138millionand$140million,witha1%to2%positiveoperatingmargin.
WithourQ1performanceandourQ2outlook,wenowexpecttotalrevenuesfortheyeartorangebetween$610millionand$614million,upfromourpriorguidanceofapproximately$600million.RememberthatwedenominaterevenuegloballyinUSdollars,andthereforehavenoforeignexchangeexposuretoourrevenueline.
Aswecontinuetoincreaseourinvestmentsinmarketgroups,productteams,thefield,andSplunkCloud,weexpecttogeneratepositivenon-GAAPoperatingmarginsofbetween2%to3%forthefullyear,consistentwithlastyear'slevelandourpriorexpectation.
RecalllastquarterthatIsaidoverthemedium-term,ouroperatingmargintargetswillincludetheimpactofagradual1to2pointincreaseinthecostofservices,toreflecttheimpactoframpingourCloudbusiness.
Additionally,youcanexpectthatwewillcontinueexpandingourservicecapabilities,tailoredtowardtheusecasesandsolutionsthatalignwithourmarketgroupfocus.
Aswehavesaidinthepast,customerswhoconsumeourserviceshaveahigherlikelihoodtoalsodeploymoreofoursoftwareovertime,sowe'rehappytoofferthoseadditionalcapabilities.
Remember,sinceweexpecttobeprofitableonanon-GAAPbasisforthebalanceoftheyear,foryourEPScalculations,youshoulduseafullydilutedsharecountofapproximately132millionsharesinQ2,whichwillaccreteabout2millionsharesperquarterthereafter.
Weremaincommittedtorunningthebusinessonapositiveoperatingcashflowbasis,andcontinuetoexpectthatfull-yearoperatingcashflowwillbeapproximately20%oftotalrevenues,withthequarterlylevelsfollowingthetrendwehaveseenoverthepastseveralyears.
AsImentionedonourlastcall,FY16willbeahigherthantypicalCapExyearforus,asweexpectthebulkofourSanFranciscoheadquartersbuildoutcoststobeincurredthisyear.
Wecombinewithglobalfacilityexpansionstoaccommodateourgrowingemployeebase,we'replanning
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page8of22
forapproximately$50millionintotalCapExthisyear.
Lastquarter,IsaidthisCapExwouldbeweightedabout$20millioninthefirsthalf,and$30millioninthesecond.BasedonnowthatSanFranciscoprojectistrackingspecifically,ourcurrentestimateisnowabout$12millioninthefirsthalf,and$38millioninthesecond.
Inclosing,ourteamcontinuestoexecuteonourmissiontodeliverexceptionalvaluetoourcustomers,andwe'recommittedtocontinuinginvestmentsinourproducts,solutions,andoverallglobalreach.Q1wassolid,andI'menthusiasticaboutouroutlookfortheremainderofFY16.Thanksmuchforyourtimeandinterest.
Withthat,wewillopenitupforquestions.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)
BrentThill,UBS.
BrentT hill(Analyst-UBS):
IknowtheEAAprogramisfairlynew.I'mcuriousifyoucouldgiveusmoreinputintermswhatyou'reseeing.IknowDougmentionedAdobeandSony,butmaybealittlemorecolor.
AndthenalsoforDoug,ifyoucouldmaybejustchataboutyourgo-to-marketstrategyfortheyear.Didyoumakeanytweaksorchangestothesalesforcego-to-marketmodelforQ1forthefiscalyear?
Godf reySullivan (CEO):
I'lltake--Dougisswallowingsomecoughsyrup,soI'lltakethefirsthalfofthequestion,andhe'llcomeinforthesecond.WejustrolledouttheEAAprogramattheendofFebruarytothefieldorganizationatoursaleskickoff,andofcourse,they'vebeenouttakingittoselectedcustomers.
AsDougmentionedintheprepared,typicallyacustomergoesfromdepartmental,overaperiodofyears,goesfromdepartmentaltomultidepartmental,andatthatpointoftimethat'swhenthey'remoreinterestedinstandardizingonalarge-scalelicense.
SoIthinkthecombinationofitsearlyintherolloutphase,plusittakessomecustomerssomeyearsofexperiencetogettotheplacewherethat'sreallyanappropriatethingforthemtodo.Iwouldcallitveryearlystage.Wehavejust,thinkofithavingjustrolleditoutandsomecustomersnowgettinganexplanationofit.
SoIthinkoverthenextseveralquarters,it'llbeagoodopportunityforustogiveyoumorefeedback,becausethesalescyclesonthesethingsarenotinstantaneous.Butthereactiontoithasbeenquitepositive.Secondhalfofthequestion,intermsofchangesinQ1orneartermtothego-to-marketmodel,
Douganycommentonthat?
DougMerritt (Head-WorldwideFieldOperations):
Thanks,Godfrey.Thecoreofthego-to-marketremainsthesame,Brent,butoneofthebiggershiftsthatwe'vemade,orIguessoneofthemoreexplicitshifts,wasleveragingthesuccesswesawintheAmericaswitheffectivesalessegmentationbetweenlarger,medium,andsmalleraccounts.
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page9of22
WehavereflectedthatthroughoutQ1intoourmajorcountriesinternationallywiththeinvocationofmajorsandenterprisesegment,orlargerandmediumlargeaccountswithinthosecountries.AndIthinkwe'reseeingsomegoodpositiveeffectsfromthatmove.
BrentT hill(Analyst-UBS):
Great,thankyou.
Operator :
KeithWeiss,MorganStanley.
KeithWeiss (Analyst-MorganStanley):
Excellent.Thankyouguysandverynicequarter.There'sbeenlotofdiscussionamongsttheinvestorcommunityaboutthecompetitiveenvironmentaroundSplunk,andIthinkitcomesfromtwosides.
Onefromthedomainexpertisecompetitors,sotosaylikeanArcSight,anHPinthesecurityspaceandthenalsofromtheopensourcecommunity,particularlywiththeELKStackandwhatpeoplearedoingaroundHadoop.
Iwaswonderingifyoucouldcommentonwhetheryou'reseeinganychangeyourself,whatyou'reseeinginthemarketplace?Areyouseeingopen-sourcebecomingmorecompetitive,areyougettingintomoreengagementswiththedomainexpertslikeanArcSightwithinHP,andhowareyourwinratesholdingupagainstthosetypesofcompetitors?
Godf reySullivan (CEO):
Sothanksforthecomments,andhappytoaddressthat.Idon'tthinktherewasanychangeinthecompetitivelandscapeinQ1.Splunk'scompetitivelandscapehasalwaysbeen,whenit'sausecase,securityorinfrastructureoranalytic,whenit'sausecase,whichmostofthemare,it'salwaysaboutwhohasabettersolution,andhowquicklycanitprovideROI.
Andwe'reinfantasticshapethere.Mostofourcompetitorsonlydothatverynarrowverticalsolution,andweusuallyhavetheadvantageofsaying,wedothatusecase,andwhenyougetthedataintoSplunk,youcanthensolvealotofotherdepartmentalusecasesoffofthatsamedata.
Sothere'snothingwelikebetterinacompetitivelandscapesituationthantocomeupagainstaverticalusecaseonlycompany,you'vealreadynamedacoupleofnamesbecausetheflexibilityofoursystemandthespeedandtimetosuccessfuldeployment,andhowquicklyyoucanexpandtootherusecasesisahugeadvantage,anditshowsupinveryhighwinratesglobally.So,couldn'tbehappieraboutthat.
So,thenIthinkaboutcustomerswhoeitherhaveabiastobuildorbiastobuy.Andifyoulookatenterprisesoftwareoverthemany,manyyearsI'vebeeninthisbusiness,therehavebeensomefairlysteadypercentagesbetweenthepercentageofcustomerswhowanttobuycommercialofftheshelfsoftware,becausetheydon'twanttobuildanything,andthat'sabout60%oftotalspend;andabout40iscustomerswhoareusingawholevarietyofbuildtechnologiestoactuallybuildcustomenterpriseapplications.
Soyouhavetolookatthemarketthroughthosetwolenses,andsaywhichcustomertypeisit?Ifit'sacustomerwhowantstobuysoftwarenotbuildit,theopen-sourcethingnevercomesup.Inthecustomerswhohaveatendencytobuild,thebankswouldbeagoodexample,buildingbigcustomenterpriseapps,oftenlargedevelopmentstaffsandahighpropensitytobuildthings,theywillalwaysgolookatthenextopen-sourcetechnology,tosayisthatsomethingthatprovidesvalue?
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page10of22
Butwhenyougetthere,HadoopandELKaretwoverydifferentanimals,soHadoopreallygoodatcheapbatchstorage,ELKreallygoodatsolvingverynarrowquestions,butyouhavetoapplyaboutfivetimestheamountofhardwaretogetittowork.
Andthereasonforthatis,becauseitparsesthedataaheadoftimeatreadandwritetime,andthenyouhavetocreatekeyvaluepairs.It'scustomdevelopmentallthewayjusttoanswereachquestion,creatingkeyvaluepairscausesanexplosionindata,whichiswhyyouneedfivetimesmorehardwaretorunit.
Andyou'veonlynarrowed--answeredanarrowquestion.Everytimeyouwanttoaddanewquestionoraddanewdatasourceorsourcetypes,youhavetogetthedevelopersbackinvolvedtocreatemorekeyvaluepairs,andcustomcodeallthatstuff,soit'sreallyexpensive.Iknoweverybodysaysit'sfree.
It'sreallyexpensivetobuildonELKbothfromahardwarestandpoint,storage,andcostofownershipandmaintenance,andit'snotaveryflexiblesystem.Sothere'snosecretastowhyit'sbeenreallygoodatdocumentsandweblogsovertheyearswebanalyticsasitsprimaryusecase,andoutsideofdocuments.
Butithasn'tdoneverywellintermsofgoingintothetypesofmultisource,multisourcetype,multi-question;theflexibilityweprovide,andhowquicklywedeploy,itissomethingtheysimplycan'ttouch.Sowehavealotofcustomerswhowanderoffandtrytobuildthatstuff,andtheycomebackbruisedandbloody;andsayboythatwashard,andwedidn'tgetveryfar.Andeverytimewewantedtomakeachange,wehadtogobackinandopenupthesystem.
Sogobacktotheoriginallens.Therearecustomerswhowanttobuysoftware,becausetheydon'twanttobuildstuff,andweneverseethem,andit'sonlyreallyintheaccountsthathaveahighpropensitytobuildwherethisstuffcomesupandtheyusuallywanderoffinthewoodsforawhileandthentheycomeback.
KeithWeiss (Analyst-MorganStanley):
Excellent,thankyouverymuch.
Operator :
RaimoLenschow,Barclays.
RaimoLenschow(Analyst-BarclaysCapital):
Thanks,andcongratsonupgreatfirstquarter.Twoquickones.FirstifyouthinkaboutCloudandhowcustomersarethinkingaboutCloud,canyoutalkalittlebitabouttheevolutionofthatmarket?
Initially,itwasallaboutlikeCloudappsandthenyouaddSplunkonit,butfromtheconversationsIhave,itfeelslikeit'sgettingbroaderandpeoplearetakingon-premisestuffintotheCloud.
Canyoujustsaywhatyouseethere,isthatsomethingthatexcitesyou?Andsincewetalkedaboutsecurity,alotofthesethingsatRSA,alotofthemessagestherewasthatalotvendorsstartedonanalytics,andit'snotthesame.Iseeyourprogressthere,buthowdoyouthinkaboutthat?Isjustthatconfirmingusecase,butisthatlong-termacompetitivethreatforyou?Thankyou.
Godf reySullivan (CEO):
Iwillreversecourseonthequestions,sothankyouforyourcomments.I'vebeengoingtoRSAforanumberofyearsnow,sixorsevenyearsnow,andHaiyantwicethatlongormore,andit'ssofunnythatfiveyearsagoalltheboothsignssaidSIMandweweretheonlyonestalkingaboutsecurityanalytics.
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page11of22
AndnowifyougotoRSAthewordSIMhascompletelydisappeared,andeverybody'stalkingaboutsecurityanalytics.SoIfeellikethemarketiscomingtousinabigway,andsoIgetabigchargeoutofwatchingthatwholethingpivot.
I'msureHaiyanwillhaveamuchmorearticulateanswertothatthenIwill,butthat'smytwocentsonit.Haiyan,doyoucaretogofurther?
HaiyanSong (Head-SecurityMarkets):
Sure.Youaskedabout,doweseethatasacompetitivethreatcomingin?Weactuallythinktheotherwayaround.
LikeGodfreyjusttalkedabout,welikethemarketandwhatwehavebuiltasaplatformandsolutionisreallyforourcustomerstousetheBigDataandanalyticscapabilitiestogainvisibilityandinsight.
AndnoothercompanythatIknowhasthatholisticviewofallthedatafromtheenterprise,andhasthatparticularabilitytogoacrossthesilostobringtheinsightsforthebusiness.SecurityisnolongeranIT-relatedissue,it'sactuallyabusiness-relatedissue,sothatholisticviewisveryimportant.
Godf reySullivan (CEO):
TogobacktotheCloudquestion,Dougtalkedaboutoneofourlargeordersforthequarterwasactuallyacustomerwhowasmoving--itwasadevopsledinitiativethatwasledbythedevelopersofthecompany,theyweretryingtomovetheirentirestack,apps,infrastructure,andstoragealltotheCloud.Sothatwasanunusualcustomer,who'ssaying,let'sjustgoallCloud.
Butinthatcase,whenyou'removingallthattotheCloud,youhavetohaveSplunkthere.Youeffectivelyhaveallthosesameissuesyouweretryingtomonitorandmanageandanalyzeonprem,youjusthappentohavethemsomewhereelse.Soasthosetypesofmigrationsoccur,we'reanaturalpartofthatarchitecturegoingin.
Whatactuallyhappensmoreoftenthanthatisthatacustomerwhohasmostoftheiractivityonprem,theyidentifyanapporabusinessinitiative,oraunitofsomekind,andtheysay,let'sdothatthingintheCloud.
Soit'susuallyacombinationofalotofstuffonpremandanewthingontheCloud,buttheywanttobeabletotraversebothenvironments,sothatourabilitytoprovideahybridsearch,ourabilitytoprovideunifiedanalysis,regardlessofwhetheryourappisintheCloudoryouhavebrotherandsisterappsonprem;it'sahugecompetitiveadvantageforus.We'rereallytheonlycompanyinthisspacethatcandoboth,sothat'swhatweseemost.
RaimoLenschow(Analyst-BarclaysCapital):
Perfect,thankyou.
Operator :
BrianWhite,CantorFitzgerald.
BrianWhite (Analyst-CantorFitzgerald):
Godfrey,justfollowingupontheCloudquestionthere.HowimportantisthistoexpandwithAWSinto--itlooksyou'llbeintotal--nineglobalregionsforthatbusiness?AndcouldyoujustremindushowmanyCloudpartnersdoyouhavetoday?IsitjustAWS,arethereotherCloudpartners?IfitisAWSonly,areyougoingtoexpandthatCloudnetwork?Thankyou.
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page12of22
Godf reySullivan (CEO):
Yes,wearewritingexclusivelytotheAWSCloudstack,andwe'reprettyhappyaboutthat.Weparticipatedintheirgloballaunch,soMarcOlesenwasrunningaroundtheworldwiththemaspartoftheirpresentations,tolaunchtheinternationalinstances.SoIthinkthere'samassivemarketopportunitytohelpinternationalcustomers.
IwashearingaboutinterestfromcustomersandAWSinAustraliaasearlyasIwasintheUS.Ithinkthere'sopportunityforustogocapture,andit'salongtimebeforewecanrunoutofthatopportunity,sowe'reprettyexciteditabouttherelationship,andtheabilitytogo-to-marketwiththem.Ithinktheyhave,what,fivetimesthemarketshareofthenumbertwocompetitor,soit'sagreatpartnershiptohave.We'rereallyhappyaboutit.
BrianWhite (Analyst-CantorFitzgerald):
AndGodfrey,arethereanymetricstotrackhowtheCloudbusinessistrending,eithercustomersorgrowthrates,percentageofrevenue?
Godf reySullivan (CEO):
Iwillturnthatovertoourgrouch,Conte,ourCFO,Conte.
DaveConte (CFO):
WhatyoucanhearinthebackgroundisDougchokingonalltheCloudpipelinethatwe'redealingwith.Unfortunately,Dougisnotfeelingsowell.IntermsofCloud,we'recertainlypleasedwithwhereweare,intermsofitscontributiontoday,particularlytorevenue,it'sdeminimus.
We'vegotalotofmomentumintermsofnumberoftransactions.Wespecificallycallout,wedidanotherseven-figureorder,oneofourlargestinthequarterintheCloud,sothescalabilitythatweprovidetothosecustomersisstartingtoshowintransactions.
We'llgetfurtherdowntheroadintermsoftrackrecord,andprovideyouwhatwethinkaretherightreportingmetricstodemonstratehowwe'redoingintermsofCloud.Butoverall,we'rereallyhappywiththatmomentum.
AndtojustpileontoGodfrey'searlierpoint,thedifferentiationaboutourabilitytodeliverahybridenvironmentbetweenCloudandonpremisreallyimportant,soweseeanumberofourexistingonpremcustomersalsodeployingSplunkintheCloud.
Sometimes,there'satransactionthatincludesbothcomponents,whichmuddiesthewatersalittlebitintermsofyourquestion,likehowareyoudoing,whatmetricsthatyouhave?Again,aswegetmoremilesdowntheroad,we'llcomebackandgiveyousomeinsight.
Godf reySullivan (CEO):
We'llcertainlyhaveapresentationonitatConf,soIencourageeverybodytobeupthereforit.
BrianWhite (Analyst-CantorFitzgerald):
Okay,thanksalot.Greatquarter.
Operator :
PhilWinslow,CreditSuisse.
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page13of22
PhilWinslow(Analyst-CreditSuisse):
Congratsonanothergreatquarter.I'veoftendescribedSplunkastheGratefulDeadofBigData.Nobodydoeswhatyoudo,thewayyoudoit.Kindofalongthoselines,whenyouthinkaboutthatplatform,thewayyoudoit,andtwoofthoseinitiativesyoulaidout,solutionsandpartners,howdoyoudelineateabouthowyouwanttomoveupthestack,sotospeak,andofferyourselvesasapplications,versusfindpartnersforit?
Insomeofthemovingupstacksolutions,ontopofthatplatformsortofawayinyourmindtogettheflywheelgoingtoalsoattractpartners,hey,seewhatIcandoonthis?Maybeyoucandosomethingelse?Andgetthatvirtuouscyclegoingofapplicationsandplatform?
Godf reySullivan (CEO):
Exactly,Phil.Sothanksforthecomplimentonthequarter.Everydataengineovertimebecomesanengineonwhichapplicationsandsolutionsarebuilt.That'sjustthewaymarketsevolve,andthemoneygoesthereaswell.
Andyou'dbesurprisedhowmanycustomersstartaconversationwithussaying,Ihavethisbusinessrequirement.Theydon'tsay,Iwishyouwouldcomeinandanalyzemymachinedataforme,orcanyouingestourlogs?Theyactuallyhaveabusinessproblemtheyaretryingtosolve,andthat'smostoftenrepresentedbyanapporasolutionofsomekind.
Soweneedtodotwothings.Oneis,weneedtobuildourownsolutionsforthecoremarketswhereyouhavetohavethatsolutiontocompetewithawholeproduct,andthesecondthingweneedistodevelopandevangelize,andhelpourpartnersgogetthosesolutionsthatwecan'tpossiblyhopetocover.
Soifsecurityisagoodexample,IthinkitwasfiveorsixyearsagothatweactuallypurchasedEnterpriseSecurity,theappfromapartner,andoverthelastfiveyearshavebuiltitintoareallycorepartofourofferings,becauseyoucan'treallycompeteinthesecuritymarketasaseriousplayer,unlessyouhavethecombinationoftheengineandtheapp.That'skindofaminimumcomponenttocompete.
Butthetwoofthemtogether,Gartnersaysthatequals97%ofwhattheyseeasaworld-classSIM.Soitreallyisamarketthatevolvesthroughacombinationoftheplatform,plusthesolutionsthatareappropriateforacustomer;andouropportunitylong-termistodojustthat.
Andwhencustomerscometousaskingustoputtheirstuff,whateverstuffis,intheCloud,it'stypicallyasolutionofsomekind.It'sanapplicationthat'sdoingajob,andwe'reapartofthatinitiative.
Soanyway,alonganswertoashortquestion.Yesit'simportantforustobecomeasolutionscompany,andaswedoso,thosesolutionsthatarenotwhatwebuildourselvesareaperfectopportunitytogobuildapartnerecosystemandHaiyanistryingtocorrectmeonsomething.Haiyan,goahead
HaiyanSong (Head-SecurityMarkets):
Ijustwantedtoadd,soifyoutakesecurity,it'sactuallyagoodexampleofhowittakesawholesuiteofsolutionstoprovideacompletesecuritysolutionstacktoacustomer.
SowehaveES,andtogetherfromourecosystempartners,theyhavebuiltgreatappslikePaloAltoNetworkhasbuiltanappthatnotonlyhelpedtheircustomersviewandanalyzetheirdatainsideSplunk,butalsohavingtheabilitytotaketheintelligencederivedfromit,andactuallytakeactionsontotheirappliances.Sothosearegreatexamplesofwhyittakesawholecommunityandavillagetoprovidethebestsolutionstoourcustomers.
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page14of22
PhilWinslow(Analyst-CreditSuisse):
Great,thanks.
Operator :
DanIves,FBRCapitalMarkets.
JimMoore (Analyst-FBRCapitalMarkets):
Great,thisisJimMooreinforDanIves.Goodquarter.Onthesecuritysideagain,couldyoutalkaboutwhatyouareseeingonthefederalfront.Youtalkedaboutsomegovernmentdealsandjusttheincreasedfocusfromtheirend,andhowthismightbeshapingspendingoverthecomingquarters?
HaiyanSong (Head-SecurityMarkets):
AsImentioned,weseegreatmomentuminbothpublicsectorandprivatesector,andpartlyit'sfilledbyallthesehigh-profilebreachesthatwehaveseeninthelastyearorso.Theycontinuetogetalotofmomentumfortworeasons.
Oneisbreachanalysisisabigusecase,andit'scontinuedtogrow,andinsiderthreatisoneofthetopprioritiesforalotofthefederalagenciestounderstandwhat'shappeninginsidetheiragency.
Wehavedoubleddownonalotofourinvestmentsinthepublicsectorarea,intermsofbuildinggovernmentrelationshipsandevangelizing.Wedefinitelywillcontinuetobenefitfromalltheinvestmentwe'reputtinginthatarea.
JimMoore (Analyst-FBRCapitalMarkets):
Great,thanksfortakingthequestion.
Operator :
KashRangan,MerrillLynch.
KashRangan (Analyst-BofAMerrillLynch):
ThanksIlikePhil'smusicalanalogy,butIwillsayyouarethechampionsofBigData.Onethingthatoccurredtomeislookingatthefairlysignificanttrendthat'shappening,therabblegoingfrom45%to43%,25%to43%onayear-over-yearbasis,thatlooksprettymassive.
Sojudgingbymyroughbackoftheenvelopecalculations,thismeansthree-yearbreakevenforasubscriptionversuslicense.Lookslikethevalueofyourbusinesswasupsomewhere80%to85%.Soclearlyveryimpressive.
Andalso,yourbillingsonareportedbasislookstohavestayedcourseat47%.ButhowamItoreconcilethatwiththefactthatdeferredrevenueswereflat,andwehavetypicallyseenthatbumpupnicelyfromQ4toQ1?
Obviouslythereissomestrengthbeneaththereportedmetrics,thatI'mtryingtogetabetterhandleon.Andsecondly,what'syoursalesquotacarryingheadcounttoday,andwheredoyouplantoendtheyear?That'sitforme,thankyou.
DaveConte (CFO):
Idon'tknowifIshouldsaythanksKash,orthanksFreddie,butasitrelatestodeferred,asIlookback
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page15of22
overthesequentialchangeoverthelastnumberofyearsbetweenQ4andQ1,Ithinkit'sbeenprettyflat,Kash.
Andyoucanseeyoupointedoutthecalculator,thederivedbillingsnumbergrewintheupper40thpercentile,whichyoucanseeintherevenueline,whereweoverdeliveredintermsofourexpectation.
AndIrepeatedlyhavethecommentinmypreparedremarks,justasareminderthatservicesandservicesbookingstypicallydon'tflowthroughthebalancesheet,andit'sanareathatwethinkisreallyimportantintermsofgettingcustomerstovalue,customerscomebackanddeploymoreofoursoftware.Andwe'regoingtobedoingmoreworkaroundprovidingthosetypesofservicescapabilitiesaroundoursolutionsthatalignwiththemarketgroups.
SoIthinkthecompositionandthegeographyofthebookingsbetweentheincomestatementandthebalancesheetareactuallypositiveandconsistentwithhowwe'vehaditinthepast.
Asitrelatestoquotacarriers,weendedthequarterwith328quotacarriersintotal.Whatwehavedoneinthepast,aswegettothemiddleoftheyear,weprovidesometypeofguidanceandwherewethinkwewillendtheyearintermsoftotalquota.
Recallat[.Conf]lastyear,duringtheanalystsession,Iintroducedtheideathatourgo-to-marketandouroverallfieldcapacityisevolving;anditincludestheimpactofnotjustpurequota-carryingfolks,butalotofthechannelinvestmentthatDoughasreferredtobefore,aswellassomeofthespecialiststhatwe'readdingtothefieldorganization,thatcangodelivertherightamountofvaluetoacustomerthathasasecureusecaseoranIToperationsusecase,orabusinessanalyticsusecase.
Whenwelookatouroverallinvestmentinthefield,we'restilldigestingandworkingthrough,howdowethinkaboutoverallfieldcapacityandwhat'stherightwaytosetthatexpectationwithyouallexternally.
Andthat'ssomethingthatagain,at.Conflastyear,Icommittedwewouldcomebackwithwhatistherightoverallfieldcapacitymetrictothinkabout;andI'mtargeting.Confforthisyear,sohopefullywewillseeallyouguysthere,andwe'llbeabletosharesomeofthat.
Insummary,Ithinkthebestwaytothinkaboutitiswe'recontinuingtoinvestinourGTMteams,andyoucanseethat,intermsoftheallocationofexpensesonthefaceoftheincomestatement,wherewe'veconsistentlyprovided,againonanon-GAAPbasis,anywherefrom55%to60%ofrevenueintosalesandmarketing,andIexpectthatto--continuetoseethatastheallocationintermsofinvestment.
KashRangan (Analyst-BofAMerrillLynch):
AndifImay,whyisthepercentageofratableexpandingsodramatically?Thatisabigshift.What'sgoingoninyourendmarketandthewaycustomersarebuying?
DaveConte (CFO):
Ithink,youmentionedtheyear-over-yearcomparisonQ1oflastyearwas25%,Q1ofthisyearwas43%,anditspecificallytiesintoaverylargeCloudspecifictransaction,whichisinthatcalculation.
MomentumintheCloudbusinessoverall,we'recertainlypleasedwithhavingrolledoutaformalprogramaroundEAAs,andDouglistedoffahandfulofexamplesofthosecustomers.Sowe'reenablingthecustomerswiththestructurethatgivesthemthepredictiveeconomicsthattheyneed,andwe'reseeingthosetypesoftransactionsmaterialize.
Allofthatfeedsintowhatthepercentageis.Ithinkthelastcomponent,whichItriedtoarticulateinpreparedremarks,isQ1isourseasonallylowestquarter.SowhenyouhavealargeCloudtransactionin
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page16of22
thenumeratorandthedenominator,itcanskewthepercentage.
Whatwe'recommittedtoandyouknowbecauseI'veupdatedthemetricprobablyfivetimes,asweseeatrendlinethatsaysourfull-yearratablepercentageisincreasing,thenwe'regoingtoupdatethatexpectation.Butagain,eventhoughlastyearweendedatup45%ofratableinQ4,theoverallfull-yearpercentagewas38%.Soinsideofourcurrentrange,whichis30%to40%,that'sourexpectationforthisyear.
KashRangan (Analyst-BofAMerrillLynch):
Gotit.Andsomuch.
Operator :
KatherineEgbert,PiperJaffray.
KatherineEgbert (Analyst-PiperJaffray):
Tofollowupabitmoreonthat,canyoutalkabouttherevenuerecognition,specificallyontheEAAs,Dave?Aretheyratable,oraretheymoreupfront?Andalsogiven,iftheyaremoreratable,andgiventhatyou'redoingmoreintheCloud,whyisn'tyourratablepercentagegoingupfortheyearandforward?
DaveConte (CFO):
Hey,Katherine.SoamajorityofadoptiontransactionsIwouldcharacterizeasratable.Butbydefinition,bydefaultanEAAdoesnotmeanratable.
AnotherclarificationthatIalwaysliketothrowin,whenwetalkedaboutlargetransactionseveryquarter,thosegreaterthan$100,000,annuallywereportthenumberofseven-figuretransactions,butit'simportanttonotethateverylargeorderisnotsynonymouswithanEAA.Buttoansweryourquestion,amajorityofEAAswouldfallintotheratablecategory.
Intermsofwhyisn'tthepercentagegoingup?Again,aswegetfurtherdownintotheyear,ifweseeasustainedlevelofmixbeinghigherthanwhatisourcurrentguidanceat30%to40%,thenwe'llupdatethat.ButIcantellyouthatthewaywehavebuiltourownmodelusesassumptionsthatareinthatrange.
KatherineEgbert (Analyst-PiperJaffray):
Okay,andjusttoputafinerpointonit,areEAAsthatareratabletakingoverfrompreviousdealsthatwerenon-ratable?Soisthereashiftgoingonalittlebithere?
DaveConte (CFO):
WhatIsee,ifyouthinkaboutthecompositionofourtransactions,wehavethisgrowingnumberoflargetransactions.ASPsovertimehavebeenprettyconsistent,andtheonlywayyougetagrowingnumberoflargetransactionswithconsistentASPsisagrowingnumberofsmallertransactions,aswell.
AndQ4wasourlargestnumberoftransactionsinourhistory,andwewereprettyclosetothatinaseasonallylowQ1,soIwouldn'tsaythatthelargeratabletransactionsaretakingoverforwhatwouldhaveotherwisebeenupfronttransactions.
Rather,ascustomersmaturewithusandgetbroaderamountsofdeployment,andultimatelystandardizeacrosstheplatform,thosewilltendtoturnintoratabletransactions.Theentry-levelpoint,thosewilltendtobeperpetualorupfront.
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page17of22
KatherineEgbert (Analyst-PiperJaffray):
Okaythatmakessense,andjustonelastquickquestion.CanyougiveusEAAasapercentageofrevenueinthequarter?
DaveConte (CFO):
That'snotametricthatweprovidetoday,butifwethinkit'srelevantintermsofhowtobuildthemodel,thenwe'llprovideit.Whenwebuildourownestimatesaroundadoptiontransactions,andwhatthatmeansintermsofflowintorevenue,that'sallpartofour30%to40%mixrangethat'scontemplated.
KatherineEgbert (Analyst-PiperJaffray):
Okaygotit.Thanks,goodjob.
Operator :
WalterPritchard,Citigroup.
WalterPritchard (Analyst-Citigroup):
NottobeatthistopictodeathDavid,butontheratable,orontheEAAtransactionscanyoutellhowmanyhaveatermnature,asopposedtoaratablebutperpetual?
DaveConte (CFO):
Sure,Walter.Amajorityofourenterpriseadoptiontransactionsaretermtransactions,orhaveatermelement.WhatImeanbythatis,somemightbeastraighttermtransaction,callitthreeyears,acertainamountofcapacity.
Atthetopendofourprogram,that'sunlimitedcapacity.Othersmightbeperpetualinnaturethatsay,youownacertainamountofthesoftwareasaperpetuallicense.We'regoingtogiveyouheadroombeyondthatcapacityforaperiodoftime,i.e.aterm,andwhenthattermexpires,youownwhatyouown.
Sothisprogramthatwerolledoutlastquarter,wetalkedmostlyaboutthetopendofthatprogram,whichisunlimitedadoptiontransactions.Thosearecharacterizedasthree-yearterms.
Wehavethisheadroomconceptwhere,asIjustmentioned,youcanbuyaperpetuallicensethathasadditionalcapacitylicensetoyouthatyoucankeepifyoudeploywithinacertainamountoftime.
Andthenwehaveanadoptionbundlethatismostlyaperpetuallicensethat'swrappedaroundasetofservices,andaccountmanagementresourcesthatarefocusedonensuringasuccessfuldeploymentontheadoptioninsideoftheenterprise.
WalterPritchard (Analyst-Citigroup):
Great,andjustonequickoneontheproductside.ItsoundedlikeITONwasabigdriverthisquarter,andI'mwondering,sometimesbigdealsdrivethosetrendsandthey'reratherlumpy.
Butdoyoucontributethatsuccesstoanythingspecificontheproductside,oranythingyou'vedonethatmightberepeatable?Doyoulookatthatmoreasaproductoflumpiness?
Godf reySullivan (CEO):
It'sjustaquartertoquartersituation.Thesecurityhasbeenrunningalonginthemidtohigh30s.OverthelastcoupleofquartersitwasmorelikeathirdinQ1.ButIthinkit'sjustmoreaboutpipelineandwhich
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page18of22
customers,andwhatusecasesandthelike.
InQ4alotofthesevenfiguretransactionsweresecurity,mostofthemorabigmajorityofthem,andQ1,alotofthemwereops.ThethingI'mmostexcitedaboutistheITserviceintelligenceappthatwe'reoutinpreviewwithrightnow.
Wehaveabout20or25customersaroundtheworldthathaveactuallyinstalledit,andareusingit,andthecustomerreactiontothat'sjustbeenextraordinary.SoIlookforwardgettingthreeorfourmonthsmoreofprereleasetestingatthoselarge-scalecustomerssowecanlaunchitatConf,sobesurebeatConf,ifIhaven'tsaidthatalreadyonthiscall.We'llhavesomeexcitingstufftoshow.
WalterPritchard (Analyst-Citigroup):
Great,thanks.
Operator :
EdMaguire,CLSA.
ClarenceChen (Analyst-CLSALimited):
ThisisClarenceChensittinginforEd,thankyoufortakingourquestions.Twoquickones.Thefirstone,I'mwonderingifyoucouldcommentonwhetheryouseemorecustomersswitchingbetweenperpetualandtermlicensesrecently,andifso,isthereanyreasonbehindit?
Andthesecondoneis,I'mwonderingifyoucouldalsoelaborateabitmoreonyourexpectationsontheadoptioncurveofSplunkLight,aswellastheexpectationontheArrowElectronicsdealfromMarch?Thankyou.
Godf reySullivan (CEO):
SotellEdthatI'mupsethe'snotonthecall.TellhimIwanthimtocallme.
ClarenceChen (Analyst-CLSALimited):
Iwilllethimknow.
Godf reySullivan (CEO):
Theoddthingaboutwholetermversusperpetual,andcustomershaveanopinionaboutthisstuff,andiftheysay,Iwanttotakealowerpriceandsetupanannualtermservice,andpayforcapacityoveraperiodofyearswithatermcontractandnothaveaperpetualownershipofsoftware,wedowhattheywantthemtodo.
SoCloudisimpactingthattosomedegree,becausetherearemoreandmorecustomersgettingusedtoasubscriptionmodel,thathitsOpExandthatgoesagainstthetraditionalwaythatpeoplebroughtenterprisesoftwareonaCapExmodel.
Sothere'sbeenashiftgoingoninthebusiness,andI'dsayifIlookatthewaythewinddirectionischanging,Iwouldsayit'schangingalittlebittowardstheOpExmodelasopposedtotheCapExmodel,ledbyourgoodfriendsatsalesforceandotherswhostartedthatwave.
IthinkovertheyearsasDavehashadtoupdateourmodelhowmanytimesnow?Fourorfivetimes,andcontinuetoincreasethepercentageofourbookingsthataretreatedinsomesortofratableway;Ithinkitreflectstheshiftthat'sgoingonslowlyinthemarketplace.Cloudwillexacerbatethat,oratleastaddtoit.Ithinkthat'sgoingtogoup,notdown.
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page19of22
ClarenceChen (Analyst-CLSALimited):
Gotit.Andthenwouldyoubeabletoalsocommentonthesecondoneaswell,inregardtotheadoptionforSplunkLightandtheArrowElectronicsagreement?
Godf reySullivan (CEO):
AskmethatquestionagainontheQ2call.WejustgotthecontractsignedinlateQ1,andwe'redoingtrainingandallthatsortofthing,earlyintherelationshipthere.It'sprobablybetter,I'dbebetterofftobringthatbackforQ2question.
ClarenceChen (Analyst-CLSALimited):
Understood,okay.Thankyouverymuch,Iappreciateit.
Operator :
JohnDiFucci,Jefferies.
JohnDiFucci(Analyst-JefferiesandCo.):
I'montheroad,I'msorryaboutthat.
QuestionforGodfreyandDoug,Ithink.I'mjustcurioushowyouthinkthisprogramtohavetechnologyspecialists,andyouhadHaiyanspeaktoday,tocomplementamoregeneralistsalesforceisgoing?
You'vegotsomeexperiencenowwiththis,andthere'sobviouslydemand.Youguyscontinuetoputupreallygoodnumbersandgoodmomentum.Haveyouconsideredexpandingthesalesforcemorequicklynow?Itseemslikeyoumightbeabletodosomethinglikethat.
Godf reySullivan (CEO):
ThelastIsawDoughewasleavingtheroomchuggingcoughsyrup,sohemightbebackinheretoanswerthatquestion,butinthemeantime,I'lltakeaswingatitforhim.
Aswecontinuetoinvestinfieldresourcesoverall,there'senormouscompetitionforbothsalescapacity,aswellastechnicalresources.Asourcustomersgetlarger,theywantmorehelpfromusinprofessionalservicesandclientarchitects,solutionsspecialistformarket,usecaseslikesecurity,soit'snotquitesoeasyanymorejusttoaddaccountingexecsandSCsandknowthatyouhaveaunitofone.
Aunitofoneinthefieldanymoreismoretechnical--technicallyweightedthanitusedtobe.Soyes,Iwouldliketoexpandrevenuegeneration,thatisquota-carryingcapacity,asfastaswecaninsideofbrotherConte'sfinancialenvelope,whichisalwaysaconstrainttome,butI'velearnedtoaccommodatethat.Wehaveourhammerfightsbutwegetalongotherwise.
Andinsidethatabilitytoinvestasmuchasthefinancialenvelopewillallowisalsoaconstraintcalled,isthemarketready?Itdoesn'tdogoodtoputalotofsalesand/ortechnicalresourcesintoaterritory,unlessit'sready,unlessit'saplacewherewefeellikewecanturngreenfieldintosomethingelse.
Ithinkwe'reapproachingitabouttherightwayrightnow.Wedivideterritories,orweinvestinnewcountries,orweinvestinnewverticals,orweinvestinnewtechnicalcapacitybasedonwhereouranalyticsshowusthemarketopportunityis.AndIhavetosayatthismoment,Ifeellikewe'reinprettygoodbalance.
JohnDiFucci(Analyst-JefferiesandCo.):
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page20of22
IguessGodfrey,okay,thatmakessense,buthowwouldyougaugehowthat'sgoing?Therewasatime,notlongagowhenyouwouldhiresalespeopleandittookthemalongtimetocomeuptospeedbecauseit'sstillaprettysophisticatedsale,there'salotofdifferentusecases,it'sverytechnical.
Andthenyousaid,listen,we'regoingtobringintechnologiststosupplementthat,andmaybewecanusesalespeoplethataren'tquiteastechnical,andit'llhelpthemgetuptospeedmorequickly.
Areyouhappywithhowthathasdeveloped,orhasthatbeenslower,fasterthanyouwouldhaveexpected?BecausewhenIseethenumbersyouputup,andlisten,ifyouaregoingtoinvestforgrowth,youhavetogrow,right?We'veseencompaniesinvestforgrowthandnotgrow,that'snotagoodthing.
Butfranklyifit'soutthereandthere'salltheseothercompaniesandsomeoneaskedaquestionaboutcompetition,becauseeverybodywantstobelikeSplunk,theywanttobe.
There'scompaniesthatgooutandsay,we'relikeSplunk.Whichisagreatcompliment,butmostofthetime,they'renotlikeSplunk.Areyousatisfiedwiththatprogram,orIdon'tknowifit'saprogram,thatstrategy?
Godf reySullivan (CEO):
Yes,sogotit.Iunderstandyourquestion,andappreciatethat.Iwouldsaythattheonethingthatisstillanobstacleisthetimeittakestoramppeople.
There'salotmoreresource,Haiyanhasawhole--shehasalotoftechnicalresourcethat'ssecurityspecificacrosstheglobenow.WeareinalotbettershapethanwewereayearortwoagointermsofbeingabletogointoalmostanycountryoranycustomeroranyPOCoranycompetitivechallengeandknowthatwehavethefieldcoverage,pluswehavethetechnicalspecialistsonthesecurityside,whereweareaformidablecompetitorgoingintoanopportunity.Thatpart,Ifeelmassivelygoodabout,verysatisfiedwiththestrategyandthedesign.
Thethingthatactuallyhasn'tchangedverymuchashowlongittakestorampnewpeoplecomingintoSplunk.
Thecomplexityofthemarketplace,thecomplexityofallthedatasourcesandthenumberofusetypes,thenumberofusecases,thenumberofdifferencesbetweenthetypesofproblemscustomersaretryingtosolveissodiversethatitstilltakesalongtimetolearn;youknow,from'Hello,.IjustjoinedSplunk'to,'I'mactuallyabletogoandhaveaconversationwithacustomeraboutavarietyofusecases,andactuallybuildapipeline'.Actuallybuildpipeline.
That'sthethingthatstilltakessometime,andIthinktosomedegree,whenDougtalkedlastquarteraboutit,hesaidwe'renotgoingtogointomanynewcountriesthisyear,we'rereallygoingtotrytobackfillandputmorepeopleineachcountry.
That'sstillabigpartofourplanofrecord,andwe'reexecutingagainstthat.Andoneofthereasonswe'redoingthatisbecausewhenyouhavethismanyusecasesinthiswideofarangeofmarketopportunity,criticalmassisalotmoreimportantthanbreadthofcoverage.
Sowe'restillpursuingthatdesignpointwithasmuchconvictionasweeverhave.SoI'mverysatisfiedwiththestrategy,butthismarketplaceistechnicalenough,complexenoughanddiverseenoughthatyoucan'tjustthrowpeopleinaterritoryandhavethemautomaticallygeneratepipeline.It'snotquitethat.
DaveConte (CFO):
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page21of22
AndJohn,wehavetalkedovertheyears,thatweareveryconsciousabouttherateatwhichwebringfolksonboard,becausehiringthemistheeasypiece.Gettingthemproductiveandsettingthemupforsuccess,asGodfreyhasjustarticulatedismoreartthanscience.
Sowewanttobeverythoughtfulabouttherateatwhichwebringpeopleon,sothatthey'reultimatelysuccessfulandcandeliverforthecustomer.Sothatisnotnewforus,intermsofhowwesetourobjectives,andultimatelymakethoseinvestmentsattheratewhichweinvest.
JohnDiFucci(Analyst-JefferiesandCo.):
Great,thatallmakessense.Thanks,alot.Dave,onequickquestion.Yourrenewalrate?
DaveConte (CFO):
Renewalrate.TheDiFucciorgdesignisaliveandwell.Therenewalrateagainwaswellabove90%inthequarter.Infact,itwas94%.Ithinkthat'stheeighthquarterinarowthatit'sbeenat94%,andIthinkitwasacallortwoagothatweretiredthemetric,justbecauseitwasconsistentlyatthat94%rangeorabout94%.Somanyquartersinarowthatitwasnolongerreallythatinteresting.
JohnDiFucci(Analyst-JefferiesandCo.):
Well,it'sstillinterestingtome.Thanksalot.Takecare.
Operator :
Thankyou.Ladiesandgentlemen,thisconcludestoday'sQ&Asession.IwouldliketoturnthecallbackovertoKenTinsleyforclosingremarks.
KenT insley(VP-IR,CorporateTreasurer):
Okay,great,thanks,[Nicholas].Iappreciateyourhelptoday.Andthanks,everyone,foryourparticipation.Asalways,ifyouhaveanyquestions,we'reavailabletonightifyouneed.Pleasegiveusacall.Thanks,andhaveagoodevening.
Operator :
Ladiesandgentlemen,thankyouforparticipationintoday'sconference.Thisdoesconcludetheprogramandyoumaynowdisconnect.
Allrightsreserved(c)2014TheStreet,Inc.
Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"ProvidedbyTheStreet"andalinktothecompletetranscriptandwww.thestreet.com.Anyotheruseormethodofdistributionisstrictlyprohibited.
THEINFORMATIONCONTAINEDINEACHWRITTENORAUDIOTRANSCRIPT(the"TRANSCRIPT")ISAREPRODUCTIONOFAPARTICULARCOMPANY'SCONFERENCECALL,CONFERENCEPRESENTATIONOROTHERAUDIOPRESENTATION.THETRANSCRIPTSAREPROVIDED"ASIS"AND"ASAVAILABLE"ANDTHESTREETISNOTRESPONSIBLEINANYWAYNORDOESITMAKEANYREPRESENTATIONORWARRANTYREGARDINGTHEACCURACYORCOMPLETENESSOFTHETRANSCRIPTSASPRODUCED,NORTHESUBSTANCEOFAPARTICULARCOMPANY'SINFORMATION.
THETRANSCRIPTSAREPROVIDEDFORINFORMATIONALPURPOSESONLY.THESTREETISNOTPROVIDINGANYINVESTMENTADVICEORENDORSINGANYPARTICULARCOMPANY.
CompanyName:SplunkIncCompanyTicker:SPLKSector:T echnology
Industry:ComputerSof tware&ServicesEventDescription:Q12016EarningsCall
©2014TheStreet,Inc.Al l R ightsReserved Page22of22