Increases Annual Recurring Revenue 16%, More
Than Triples Operating and Free Cash Flow
Splunk Inc. (NASDAQ: SPLK), the cybersecurity and observability
leader, today announced results for its fiscal first quarter ended
April 30, 2023.
First Quarter 2024 Financial
Highlights
- Total ARR was $3.725 billion, up 16% year-over-year.
- Total revenues were $752 million, with Cloud revenue growing
30% to $419 million.
- GAAP Operating Expenses declined 2% year-over-year; non-GAAP
Operating Expenses declined 1% year-over-year.
- Operating cash flow was $492 million, up 243%
year-over-year.
- Free cash flow was $486 million, up 253% year-over-year.
- 810 customers with total ARR greater than $1 million, an
increase of 120 year-over-year.
“Splunk delivered another solid quarter and once again delivered
durable growth with increasing profitability and free cash flow,”
said Gary Steele, President and CEO of Splunk. “Customers worldwide
gain tremendous value from Splunk as we help make their digital
systems more resilient amidst a formidable threat landscape,
greater technology complexity and ever-increasing demand for
better, faster digital experiences. Only Splunk has the enterprise
scale, unified product portfolio, industry maturity and vision to
meet their needs.”
“Q1 was a milestone quarter for Splunk, demonstrating our
operating leverage as we generated 16% ARR growth while reducing
non-GAAP operating expenses by 1% year-over-year,” said Brian
Roberts, CFO of Splunk. “We met or exceeded all of our guided
metrics. Notably, we generated nearly half a billion dollars of
free cash flow in Q1 and are raising our operating margin and free
cash flow outlook for the full year. We remain focused on
delivering value to our customers while managing our expenses and
increasing profitability.”
Recent Business
Highlights
- Splunk® Delivers Unified Security and Observability
Innovation: Splunk announced new enhancements to Splunk Mission
Control and Splunk Observability Cloud, and the general
availability of Splunk Edge Processor to help build safer and more
resilient digital enterprises.
- Splunk Security for SAP® Solutions Now an SAP Endorsed
App: Splunk announced its Splunk Security for SAP solutions is
an SAP endorsed app, and listed on the SAP Store, to help deliver
immediate value for security and SAP teams. The app, which is
expected to be available for purchase next month, extends Splunk’s
powerful security capabilities to SAP environments.
- Splunk Achieves 'In Process' Status for FedRAMP® High
Authorization and ‘Pending’ Status for StateRAMP™ Moderate
Authorization: Splunk achieved an “In Process” designation from
the Federal Risk and Authorization Management Program (FedRAMP®)
Program Management Office (PMO) and a “Pending” designation from
the State Risk and Authorization Management Program (StateRAMP) as
it works towards authorization to provide these attested versions
of the Splunk Cloud Platform to government entities.
- Splunk Products Win Nine 'Best of' Awards: Resulting
from customer reviews on TrustRadius, Splunk SOAR, Splunk
Enterprise Security, and Splunk Log Observer were each recognized
for Best Feature Set, Best Value for the Price and Best
Relationship.
- State of Security 2023: Splunk released a new research
report, The State of Security 2023, featuring insights from over
1,500 security and IT leaders.
- Splunk Names New Chief Customer Officer: Splunk
appointed Toni Pavlovich as its Chief Customer Officer.
- Splunk Announces New Chief Technology Officer: Splunk
appointed Min Wang as its Chief Technology Officer.
- Splunk Board of Directors Appointment: Yamini Rangan,
President, CEO and Director of HubSpot, was appointed to the Splunk
Board of Directors.
Financial Outlook
The company is providing the following guidance for its fiscal
second quarter 2024 (ending July 31, 2023):
- Total ARR is expected to be approximately $3.825 billion.
- Total revenues are expected to be between $880 million and $895
million.
- Non-GAAP operating margin is expected to be between 10% and
12%.
- Free cash flow is expected to be approximately negative $15
million which implies trailing twelve months free cash flow of $785
million.
The company is providing or updating the following guidance for
its fiscal year 2024 (ending January 31, 2024):
- Total ARR is expected to be between $4.125 billion and $4.175
billion.
- Total revenues are expected to be at the top-end of our prior
range of approximately $3.9 billion (was previously between $3.85
billion and $3.9 billion).
- Non-GAAP operating margin is expected to be between 18% and
18.5% (was previously between 16.5% and 17.5%).
- Free cash flow is expected to be between $805 million and $825
million (was previously between $775 million and $795
million).
A reconciliation of non-GAAP guidance measures to corresponding
GAAP guidance measures is not available on a forward-looking basis
without unreasonable effort due to the uncertainty regarding, and
the potential variability of, expenses that may be incurred in the
future. For example, stock-based compensation-related charges,
including related employer payroll tax-related items, are impacted
by the timing of employee stock transactions, the future fair
market value of our common stock, and our future hiring and
retention needs, all of which are difficult to predict and subject
to constant change. We have provided a reconciliation of GAAP to
non-GAAP financial measures in the financial statement tables for
our historical non-GAAP financial results included in this
release.
Conference Call and
Webcast
Splunk’s executive management team will host a conference call
beginning at 1:30 p.m. PT (4:30 p.m. ET) today to discuss financial
results and business highlights. Interested parties may access the
call by dialing (800) 715-9871 in the U.S. or (646) 307-1963 from
international locations and referencing conference ID 3063836. A
live audio webcast and replay of the conference call will also be
available on Splunk’s Investor Relations website at
https://investors.splunk.com/events-presentations. An audio webcast
replay of the call will be available for the next 12 months.
Safe Harbor Statement
This press release contains forward-looking statements that
involve risks and uncertainties, including statements regarding
Splunk’s long-term prospects, including Splunk’s guidance for total
ARR, total revenues, non-GAAP operating margin and free cash flow
targets for the company’s fiscal second quarter 2024 and fiscal
year 2024; our global presence and trends in customer demand and
engagement; statements regarding our operating efficiency, growth,
profitability and cash flows; statements regarding our products,
projects, technology and ongoing product development; statements
regarding our market opportunity as well as our ability to meet
customer needs; and trends in the markets for our products,
including the security market. There are a significant number of
factors that could cause actual results to differ materially from
statements made in this press release, including: the macroeconomic
environment, including inflationary pressures, economic uncertainty
and impacts on information technology spending; risks associated
with Splunk’s growth, particularly outside of the United States;
the impact of Splunk’s restructuring plans; Splunk’s inability to
realize value from its significant investments in the company’s
business, including product and service innovations and through
acquisitions; Splunk’s shift from sales of licenses to sales of
cloud services which impacts the timing of revenue and margins;
Splunk’s transition to a multi-product software and services
business; Splunk’s inability to successfully integrate acquired
businesses and technologies; Splunk’s inability to service its debt
obligations or other adverse effects related to the company’s
convertible notes; and general market, political, economic,
business and competitive market conditions.
Additional information on potential factors that could affect
Splunk’s financial results is included in the company’s Annual
Report on Form 10-K for the fiscal year ended January 31, 2023,
which is on file with the U.S. Securities and Exchange Commission
(“SEC”) and Splunk’s other filings with the SEC. Splunk does not
assume any obligation to update the forward-looking statements
provided to reflect events that occur or circumstances that exist
after the date on which they were made.
About Splunk Inc.
Splunk Inc. (NASDAQ: SPLK) helps build a safer and more
resilient digital world. Organizations trust Splunk to prevent
security, infrastructure and application issues from becoming major
incidents, absorb shocks from digital disruptions, and accelerate
digital transformation.
Splunk, Splunk>, and Turn Data Into Doing 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. © 2023 Splunk Inc. All rights
reserved.
Splunk Inc.
Condensed Consolidated
Statements of Operations
(In thousands, except per
share amounts)
(Unaudited)
Three Months Ended April
30,
2023
2022
Revenues Cloud services
$
419,435
$
322,929
License
171,430
185,811
Maintenance and services
160,643
165,341
Total revenues
751,508
674,081
Cost of revenues Cloud services
129,707
119,521
License
1,382
1,463
Maintenance and services
76,146
81,172
Total cost of revenues
207,235
202,156
Gross profit
544,273
471,925
Operating expenses Research and development
236,952
255,691
Sales and marketing
406,505
395,213
General and administrative
107,372
112,708
Total operating expenses
750,829
763,612
Operating loss
(206,556
)
(291,687
)
Interest and other income (expense), net Interest income
23,938
1,372
Interest expense
(10,858
)
(10,663
)
Other income (expense), net
1,606
10
Total interest and other income (expense), net
14,686
(9,281
)
Loss before income taxes
(191,870
)
(300,968
)
Income tax provision
4,550
3,354
Net loss
$
(196,420
)
$
(304,322
)
Basic and diluted net loss per share
$
(1.19
)
$
(1.90
)
Weighted-average shares used in computing basic and diluted
net loss per share
164,991
160,339
Splunk Inc. Condensed Consolidated Balance Sheets
(In thousands) (Unaudited) April 30, 2023
January 31, 2023 Assets Current assets Cash
and cash equivalents
$
801,457
$
690,587
Investments, current
1,661,485
1,316,347
Accounts receivable, net
774,062
1,572,604
Prepaid expenses and other current assets
270,300
174,388
Deferred commissions, current
112,289
116,758
Total current assets
3,619,593
3,870,684
Investments, non-current
43,850
41,700
Accounts receivable, non-current
203,561
314,286
Operating lease right-of-use assets
178,666
186,981
Property and equipment, net
110,962
108,540
Intangible assets, net
105,404
119,588
Goodwill
1,416,920
1,416,920
Deferred commissions, non-current
241,338
242,731
Other assets
45,816
42,493
Total assets
$
5,966,110
$
6,343,923
Liabilities and Stockholders' Equity Current
liabilities Accounts payable
$
14,842
$
15,299
Accrued compensation
241,983
357,550
Accrued expenses and other liabilities
214,437
229,480
Deferred revenue, current
1,472,129
1,657,685
Debt, current
776,032
775,656
Total current liabilities
2,719,423
3,035,670
Debt, non-current
3,100,941
3,099,289
Operating lease liabilities
195,601
202,268
Deferred revenue, non-current
76,230
91,102
Other liabilities, non-current
29,911
26,107
Total non-current liabilities
3,402,683
3,418,766
Total liabilities
6,122,106
6,454,436
Stockholders' equity Common stock
172
171
Accumulated other comprehensive loss
(3,467
)
(6,363
)
Additional paid-in capital
4,818,486
4,671,776
Treasury stock
(988,032
)
(989,362
)
Accumulated deficit
(3,983,155
)
(3,786,735
)
Total stockholders' equity (deficit)
(155,996
)
(110,513
)
Total liabilities and stockholders' equity
$
5,966,110
$
6,343,923
Splunk Inc.
Condensed Consolidated
Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended April
30,
2023
2022
Cash flows from operating activities Net loss
$
(196,420
)
$
(304,322
)
Adjustments to reconcile net loss to net cash provided by
operating activities: Depreciation and amortization
24,677
23,321
Amortization of deferred commissions
32,530
26,989
Amortization of investment premiums (accretion of discounts), net
(7,965
)
282
Amortization of debt issuance costs
2,028
1,513
Non-cash operating lease costs
933
(1,833
)
Stock-based compensation
184,471
213,665
Deferred income taxes
(484
)
(648
)
Other
987
(91
)
Changes in operating assets and liabilities: Accounts receivable,
net
909,267
642,945
Prepaid expenses and other assets
(98,732
)
(21,019
)
Deferred commissions
(26,668
)
(24,551
)
Accounts payable
(457
)
(39,487
)
Accrued compensation
(115,567
)
(178,156
)
Accrued expenses and other liabilities
(16,405
)
(29,782
)
Deferred revenue
(200,428
)
(165,479
)
Net cash provided by operating activities
491,767
143,347
Cash flows from investing activities Purchases of
property and equipment
(2,769
)
(3,192
)
Capitalized software development costs
(2,651
)
(2,428
)
Purchases of marketable securities
(673,999
)
(780,755
)
Maturities of marketable securities
339,835
99,090
Purchases of strategic investments
(3,150
)
(5,799
)
Other investment activities
-
500
Net cash used in investing activities
(342,734
)
(692,584
)
Cash flows from financing activities Proceeds from
the exercise of stock options
87
950
Taxes paid related to net share settlement of equity awards
(38,250
)
(66,394
)
Net cash used in financing activities
(38,163
)
(65,444
)
Net increase (decrease) in cash and cash equivalents
110,870
(614,681
)
Cash and cash equivalents at beginning of period
690,587
1,428,691
Cash and cash equivalents at end of period
$
801,457
$
814,010
Splunk Inc. Operating Metrics
Total Annual Recurring Revenue (“Total ARR”) represents the
annualized revenue run-rate of active cloud services, term license
and maintenance contracts at the end of a reporting period. Cloud
Annual Recurring Revenue (“Cloud ARR”) represents the annualized
revenue run-rate of active cloud services contracts at the end of a
reporting period. We calculate cloud dollar-based net retention
rate (“Cloud DBNRR”) by dividing the Cloud ARR at the end of a
period (“Cloud Current Period ARR”) by the Cloud ARR of the same
group of customers at the beginning of that 12-month period. Cloud
Current Period ARR includes existing customer renewals and
expansion and is net of existing customer contraction and churn.
For the trailing 12-month Cloud DBNRR, we take the dollar-weighted
average of the Cloud DBNRR over the trailing 12 months.
Non-GAAP Financial Measures and
Reconciliations
To supplement Splunk’s unaudited interim condensed consolidated
financial statements, which have been prepared in accordance with
generally accepted accounting principles in the United States
(“GAAP”) and applicable rules and regulations of the Securities and
Exchange Commission regarding interim financial reporting, Splunk
provides investors with the following non-GAAP financial measures:
cloud services cost of revenues, cloud services gross margin, cost
of revenues, gross margin, research and development expense, sales
and marketing expense, general and administrative expense,
operating expenses, operating income (loss), operating margin,
income tax provision (benefit), net income (loss), net income
(loss) per share and free cash flow (collectively the “non-GAAP
financial measures”). These non-GAAP financial measures exclude all
or a combination of the following (as reflected in the following
reconciliation tables): expenses related to stock-based
compensation and related employer payroll tax, amortization of
intangible assets, restructuring and facility exit charges,
capitalized software development costs, non-cash interest expense
related to convertible senior notes and a net loss (gain) on
strategic investments. The non-GAAP financial measures are also
adjusted for Splunk's current and deferred tax rate on non-GAAP
income (loss). Splunk uses a long-term projected non-GAAP tax rate
to provide consistency across interim reporting periods. We base
our rate on non-GAAP financial projections. In determining our tax
rate, we exclude the impact of nonrecurring items, and we make
assumptions including those about tax legislation and our tax
positions. We applied a 20% non-GAAP tax rate to the three months
ended April 30, 2023 and 2022. In addition, non-GAAP financial
measures include free cash flow, which represents operating cash
flow less purchases of property and equipment and capitalized
software development costs. Splunk considers free cash flow to be a
liquidity measure that provides useful information to management
and investors about the amount of cash generated or used by the
business.
Splunk excludes stock-based compensation expense because it is
non-cash in nature and excluding this expense provides meaningful
supplemental information regarding Splunk’s operational performance
and allows investors the ability to make more meaningful
comparisons between Splunk’s operating results and those of other
companies. Splunk excludes employer payroll tax expense related to
employee stock plans in order for investors to see the full effect
that excluding that stock-based compensation expense had on
Splunk’s operating results. Employer payroll tax expense is 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 intangible assets, restructuring and facility exit charges,
capitalized software development costs, non-cash interest expense
related to convertible senior notes and a net loss (gain) on
strategic investments from the applicable non-GAAP financial
measures because these adjustments are considered by management to
be outside of Splunk’s core operating results. A reconciliation of
non-GAAP guidance measures to corresponding GAAP guidance measures
is not available on a forward-looking basis without unreasonable
effort due to the uncertainty regarding, and the potential
variability of, expenses that may be incurred in the future. For
example, stock-based compensation-related charges, including
related employer payroll tax-related items, are impacted by the
timing of employee stock transactions, the future fair market value
of our common stock, and our future hiring and retention needs, all
of which are difficult to predict and subject to constant change.
We have provided a reconciliation of GAAP to non-GAAP financial
measures in the financial statement tables for our historical
non-GAAP financial results included in this release.
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 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. The non-GAAP financial measures are meant to
supplement and be viewed in conjunction with GAAP financial
measures.
The following tables reconcile Splunk’s GAAP results to Splunk’s
non-GAAP results included in this press release.
Splunk Inc.
Reconciliation of GAAP to
Non-GAAP Financial Measures
(In thousands, except per
share data)
(Unaudited)
Reconciliation of Cash Provided By
Operating Activities to Free Cash Flow Three Months
Ended April 30,
2023
2022
Net cash provided by operating activities
$
491,767
$
143,347
Less purchases of property and equipment
(2,769
)
(3,192
)
Less capitalized software development costs
(2,651
)
(2,428
)
Free cash flow (non-GAAP)
$
486,347
$
137,727
Net cash used in investing activities
$
(342,734
)
$
(692,584
)
Net cash used in financing activities
$
(38,163
)
$
(65,444
)
Reconciliation of GAAP to Non-GAAP
Financial Measures Three Months
Ended April 30, 2023 GAAP
Stock-basedcompensationand relatedemployer payrolltax
Amortization ofintangible assets Restructuringand
facility exitcharges (3)
Capitalizedsoftwaredevelopmentcosts Non-cashinterest
expenserelated toconvertiblesenior notes Loss on
strategicinvestments, net Income taxadjustment (2)
Non-GAAP Cloud services cost of revenues
$
129,707
$
(6,531
)
$
(8,209
)
$
(400
)
$
(3,788
)
$
-
$
-
$
-
$
110,779
Cloud services gross margin
69.1
%
1.6
%
2.0
%
-
%
0.9
%
-
%
-
%
-
%
73.6
%
Cost of revenues
207,235
(21,761
)
(9,438
)
(1,558
)
(3,788
)
-
-
-
170,690
Gross margin
72.4
%
2.9
%
1.3
%
0.2
%
0.5
%
-
%
-
%
-
%
77.3
%
Research and development
236,952
(78,555
)
-
(16,497
)
2,651
-
-
-
144,551
Sales and marketing
406,505
(60,261
)
(4,747
)
(4,109
)
-
-
-
-
337,388
General and administrative
107,372
(29,050
)
-
(4,405
)
-
-
-
-
73,917
Operating expenses
750,829
(167,866
)
(4,747
)
(25,011
)
2,651
-
-
-
555,856
Operating income (loss)
(206,556
)
189,627
14,185
26,569
1,137
-
-
-
24,962
Operating margin
(27.5
)%
25.2
%
1.9
%
3.5
%
0.2
%
-
%
-
%
-
%
3.3
%
Income tax provision
4,550
-
-
-
-
-
-
3,985
8,535
Net income (loss)
$
(196,420
)
$
189,627
$
14,185
$
26,569
$
1,137
$
2,028
$
1,000
$
(3,985
)
$
34,141
Basic net income (loss) per share (1)
$
(1.19
)
$
1.15
$
0.08
$
0.16
$
0.01
$
0.01
$
0.01
$
(0.02
)
$
0.21
Diluted net income (loss) per share (1)
$
(1.19
)
$
0.18
(1) GAAP basic and diluted net loss per share and non-GAAP basic
net income per share is calculated based on 164,991
weighted-average shares of common stock. Non-GAAP net income per
share is calculated based on 188,437 diluted weighted-average
shares of common stock, which includes 23,446 potentially dilutive
shares related to convertible notes and employee stock awards. GAAP
to non-GAAP diluted net income (loss) per share is not reconciled
due to the difference in the number of weighted-average shares used
to calculate GAAP and non-GAAP diluted net income (loss) per share.
(2) Represents the income tax adjustment using our estimated
non-GAAP tax rate of 20%. (3) Excludes $2,462 of total stock-based
compensation restructuring charges, which are included under
Stock-based compensation and related employer payroll tax.
Reconciliation of GAAP to Non-GAAP Financial Measures
Three Months Ended April 30, 2022 GAAP
Stock-basedcompensation andrelated employerpayroll tax
Amortization ofintangible assets
Capitalizedsoftwaredevelopment costs Non-cash
interestexpense related toconvertible seniornotes Gain on
strategicinvestments, net Income taxadjustment (2)
Non-GAAP Cloud services cost of revenues
$
119,521
$
(5,010
)
$
(7,578
)
$
(2,442
)
$
-
$
-
$
-
$
104,491
Cloud services gross margin
63.0
%
1.6
%
2.2
%
0.8
%
-
%
-
%
-
%
67.6
%
Cost of revenues
202,156
(20,428
)
(8,807
)
(2,442
)
-
-
-
170,479
Gross margin
70.0
%
3.0
%
1.3
%
0.4
%
-
%
-
%
-
%
74.7
%
Research and development
255,691
(87,504
)
-
2,428
-
-
-
170,615
Sales and marketing
395,213
(75,047
)
(5,242
)
-
-
-
-
314,924
General and administrative
112,708
(37,395
)
-
-
-
-
-
75,313
Operating expenses
763,612
(199,946
)
(5,242
)
2,428
-
-
-
560,852
Operating loss
(291,687
)
220,374
14,049
14
-
-
-
(57,250
)
Operating margin
(43.3
)%
32.7
%
2.1
%
-
%
-
%
-
%
-
%
(8.5
)%
Income tax provision (benefit)
3,354
-
-
-
-
-
(16,376
)
(13,022
)
Net loss
$
(304,322
)
$
220,374
$
14,049
$
14
$
1,513
$
(91
)
$
16,376
$
(52,087
)
Basic and diluted net loss per share (1)
$
(1.90
)
$
1.37
$
0.10
$
-
$
0.01
$
-
$
0.10
$
(0.32
)
(1) Calculated based on 160,399 weighted-average shares of common
stock. (2) Represents the income tax adjustment using our estimated
non-GAAP tax rate of 20%.
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