Splunk Inc. Announces Fiscal Second Quarter 2017 Financial Results

Splunk Inc. (NASDAQ:SPLK), provider of the leading software platform for real-time Operational Intelligence, today announced results for its fiscal second quarter ended July 31, 2016.

Second Quarter 2017 Financial Highlights

• Total revenues were $212.8 million, up 43% year-over-year.
• License revenues were $115.7 million, up 32% year-over-year.
• GAAP operating loss was $83.6 million; GAAP operating margin was negative 39.3%.
• Non-GAAP operating income was $8.2 million; non-GAAP operating margin was 3.9%.
• GAAP loss per share was $0.65; non-GAAP earnings per share was $0.05.
• Operating cash flow was $18.3 million with free cash flow of $7.8 million.

“We had a solid Q2 and our success continues to come from a combination of our existing customers expanding across multiple use cases and from adding more than 500 new customers,” said Doug Merritt, President and CEO. “We were pleased to see strength across each of our core markets, the continued adoption of the Splunk platform and increased cloud momentum.”

Second Quarter 2017 and Recent Business Highlights:

Customers:

• Signed more than 500 new enterprise customers.
• New and Expansion Customers Include: City of Los Angeles, Clearbridge Investments, Cox Automotive, Dubai Airport (United Arab Emirates), Fruit of the Loom, Hong Kong Jockey Club, Hulu, National Health Service (UK), Orion Health (New Zealand), Penn State Hershey Medical Center, Priceline.com, Qualys, Queensland Department of Education and Training (Australia), SAP SuccessFactors, Subway, State of New York, Texas Roadhouse, Uber and Yelp.

Products:

• Announced the availability of the Splunk App for AWS 4.2, which allows Splunk Enterprise and Splunk Cloud customers to manage multiple Amazon Web Services accounts and regions seamlessly through a single pane of glass.
• Announced that Amazon EC2 Container Service (ECS) added the Splunk native logging driver to the newest version of the ECS agent, making it easier to implement a comprehensive monitoring solution for running containers at scale.

Strategic and Channel Partners:

• Accenture introduced a new breach prevention offering that integrates Splunk Enterprise and Splunk Enterprise Security (ES) with Palo Alto Networks and Tanium through the Accenture Cyber Defense Platform. The solution helps organizations improve security across networks and endpoint devices.
• Participated in Cisco Live 2016 to showcase how Splunk and Cisco deliver unified visibility into application and network performance, dramatically reduce troubleshooting times, enable better and faster response to security incidents and more.
• Participated in DockerCon16 to demonstrate how to monitor, analyze and troubleshoot Docker environments using Splunk.

Recognition:

• Splunk was named a leader in the 2016 Gartner Magic Quadrant for Security Information and Event Management (SIEM). Splunk was positioned furthest in completeness of vision in the SIEM Category.
• Splunk was named to LinkedIn’s Top Attractors List as one of the top 40 companies that are best in the U.S. at attracting and keeping top talent.
• The City of Los Angeles, a Splunk customer, won the City on a Cloud award at the AWS Public Sector Summit in Washington, D.C. for its use of Splunk Cloud as a SIEM for one of its cybersecurity initiatives.
• Splunk ES was named the inaugural winner for best Security Information and Event Management (SIEM) product at the 2016 Computerworld Hong Kong Awards.

Events:

• Announced that Schmidt Peterson Motorsports (SPM) test drove a data-driven strategy with Splunk during the 100th running of the Indianapolis 500. Splunk, SPM and Splunk partner Kinney Group collaborated to analyze real-time operational data for all three SPM race cars.
• The Splunk Women in Technology group hosted its first international event in Vancouver, providing the opportunity for technology professionals and students to hear from Splunk experts on Splunk and machine learning.
• Hosted SplunkLive! events in cities around the world, including Calgary, Boston, Salt Lake City, Vienna, London, Zurich and Seattle. Presentations can be found on the SplunkLive! website.

Financial Outlook

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

• Total revenues are expected to be between $228 million and $230 million.
• Non-GAAP operating margin is expected to be between 5% and 6%.

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

• Total revenues are expected to be between $910 and $914 million (was between $892 and $896 million per prior guidance provided on May 26, 2016).
• Non-GAAP operating margin is expected to be approximately 5% (unchanged from prior guidance provided on May 26, 2016).

All forward-looking non-GAAP financial measures contained in this section “Financial Outlook” exclude estimates for stock-based compensation expenses, employer payroll tax expense related to employee stock plans, amortization of acquired intangible assets, acquisition-related costs and adjustments related to a financing lease obligation.

A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty regarding, and the potential variability of, many of these costs and expenses that may be incurred in the future. For example, stock-based compensation expense is impacted by a number of factors, such as Splunk’s future hiring and retention, as well as the future fair market value of Splunk’s common stock, all of which are difficult to predict and subject to constant change. The company has provided a reconciliation of GAAP to non-GAAP financial measures in the financial statement tables for its fiscal second quarter 2017 non-GAAP results included in this press release. The exclusion of these costs and expenses will have a significant impact on Splunk’s non-GAAP operating margin.

Conference Call and Webcast

Splunk’s executive management team will host a conference call today beginning at 1:30 p.m. PT (4:30 p.m. ET) to discuss the company’s financial results and business highlights. Interested parties may access the call by dialing (866) 501-1535. International parties may access the call by dialing (216) 672-5582. A live audio webcast of the conference call will be available through Splunk’s Investor Relations website at http://investors.splunk.com/events.cfm. A replay of the call will be available through September 1, 2016 by dialing (855) 859-2056 and referencing Conference ID: 52440447.

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 third quarter and fiscal year 2017 in the paragraphs under “Financial Outlook” above and other statements regarding customer demand and penetration, strength of various sales geographies, strength of Splunk’s market groups and related customer use cases, the rate of customer adoption and Splunk’s cloud offerings. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: Splunk’s limited operating history and experience developing and introducing new products, including its cloud offerings; risks associated with Splunk’s rapid growth, Splunk’s limited experience with respect to predicting future customer demand and customer acceptance of the company’s products and services, in and outside of the United States; Splunk’s ability to rapidly and successfully integrate new employees into its workforce, particularly sales personnel; Splunk’s inability to realize value from its significant investments in its business, including product and service innovations; Splunk’s transition to a multi-product software and services business; Splunk’s inability to successfully integrate acquired businesses and technologies; and general market, political, economic and business conditions.

Additional information on potential factors that could affect Splunk’s financial results is included in the company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2016, which is on file with the U.S. Securities and Exchange Commission. Splunk does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

About Splunk Inc.

Splunk Inc. (NASDAQ: SPLK) is the market-leading platform that powers Operational Intelligence. We pioneer innovative, disruptive solutions that make machine data accessible, usable and valuable to everyone. More than 12,000 customers in over 110 countries use Splunk software and cloud services to make business, government and education more efficient, secure and profitable. Join hundreds of thousands of passionate users by trying Splunk solutions for free: http://www.splunk.com/free-trials.

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Splunk, Splunk>, Listen to Your Data, The Engine for Machine Data, Hunk, Splunk Cloud, Splunk Light, SPL and Splunk MINT are trademarks and registered trademarks of Splunk Inc. in the United States and other countries. All other brand names, product names, or trademarks belong to their respective owners. © 2016 Splunk Inc. All rights reserved.

SPLUNK INC.
Non-GAAP financial measures and reconciliations

To supplement Splunk’s condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”), Splunk provides investors with certain non-GAAP financial measures, including non-GAAP cost of revenues, non-GAAP gross margin, non-GAAP research and development expense, non-GAAP sales and marketing expense, non-GAAP general and administrative expense, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss) and non-GAAP net income (loss) per share (collectively the “non-GAAP financial measures”). These non-GAAP financial measures exclude all or a combination of the following (as reflected in the following reconciliation tables): stock-based compensation expense, employer payroll tax expense related to employee stock plans, amortization of acquired intangible assets, acquisition-related costs, adjustments related to a financing lease obligation and the partial release of the valuation allowance due to acquisition. The adjustments for the financing lease obligation are to reflect the expense we would have recorded if our build-to-suit lease arrangement had been deemed an operating lease instead of a financing lease and is calculated as the net of actual ground lease expense, depreciation and interest expense over estimated straight-line rent expense. In addition, non-GAAP financial measures include free cash flow, which represents cash from operations less purchases of property and equipment. The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Splunk uses these non-GAAP financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. Splunk believes that these non-GAAP financial measures provide useful information about Splunk’s operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. In addition, these non-GAAP financial measures facilitate comparisons to competitors’ operating results.

Splunk excludes stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding Splunk’s operational performance. In particular, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC Topic 718, Splunk believes that providing non-GAAP financial measures that exclude this expense allows investors the ability to make more meaningful comparisons between Splunk’s operating results and those of other companies. Splunk excludes employer payroll tax expense related to employee stock plans in order for investors to see the full effect that excluding that stock-based compensation expense had on Splunk’s operating results. These expenses are tied to the exercise or vesting of underlying equity awards and the price of Splunk’s common stock at the time of vesting or exercise, which may vary from period to period independent of the operating performance of Splunk’s business. Splunk also excludes amortization of acquired intangible assets, acquisition-related costs, the partial release of the valuation allowance due to acquisition and makes adjustments related to a financing lease obligation from its non-GAAP financial measures because these are considered by management to be outside of Splunk’s core operating results. Accordingly, Splunk believes that excluding these expenses provides investors and management with greater visibility to the underlying performance of its business operations, facilitates comparison of its results with other periods and may also facilitate comparison with the results of other companies in its industry. Splunk considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities, including investing in its business, making strategic acquisitions and strengthening its balance sheet.

There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by Splunk’s competitors and exclude expenses that may have a material impact upon Splunk’s reported financial results. Further, stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in Splunk’s business and an important part of the compensation provided to Splunk’s employees. The non-GAAP financial measures are meant to supplement and be viewed in conjunction with GAAP financial measures.

The following tables reconcile Splunk’s non-GAAP results to Splunk’s GAAP results included in this press release.

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