Splunk (SPLK) Earnings Report: Q1 2016 Conference Call...

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.




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.




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.




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.




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.




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.


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.




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




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?


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.




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?


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?




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.


Iwillreversecourseonthequestions,sothankyouforyourcomments.I'vebeengoingtoRSAforanumberofyearsnow,sixorsevenyearsnow,andHaiyantwicethatlongormore,andit'ssofunnythatfiveyearsagoalltheboothsignssaidSIMandweweretheonlyonestalkingaboutsecurityanalytics.




AndnowifyougotoRSAthewordSIMhascompletelydisappeared,andeverybody'stalkingaboutsecurityanalytics.SoIfeellikethemarketiscomingtousinabigway,andsoIgetabigchargeoutofwatchingthatwholethingpivot.

I'msureHaiyanwillhaveamuchmorearticulateanswertothatthenIwill,butthat'smytwocentsonit.Haiyan,doyoucaretogofurther?


Sure.Youaskedabout,doweseethatasacompetitivethreatcomingin?Weactuallythinktheotherwayaround.

LikeGodfreyjusttalkedabout,welikethemarketandwhatwehavebuiltasaplatformandsolutionisreallyforourcustomerstousetheBigDataandanalyticscapabilitiestogainvisibilityandinsight.

AndnoothercompanythatIknowhasthatholisticviewofallthedatafromtheenterprise,andhasthatparticularabilitytogoacrossthesilostobringtheinsightsforthebusiness.SecurityisnolongeranIT-relatedissue,it'sactuallyabusiness-relatedissue,sothatholisticviewisveryimportant.


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.





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.


AndGodfrey,arethereanymetricstotrackhowtheCloudbusinessistrending,eithercustomersorgrowthrates,percentageofrevenue?


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.


We'llcertainlyhaveapresentationonitatConf,soIencourageeverybodytobeupthereforit.


Okay,thanksalot.Greatquarter.

Operator :

PhilWinslow,CreditSuisse.




PhilWinslow(Analyst-CreditSuisse):

Congratsonanothergreatquarter.I'veoftendescribedSplunkastheGratefulDeadofBigData.Nobodydoeswhatyoudo,thewayyoudoit.Kindofalongthoselines,whenyouthinkaboutthatplatform,thewayyoudoit,andtwoofthoseinitiativesyoulaidout,solutionsandpartners,howdoyoudelineateabouthowyouwanttomoveupthestack,sotospeak,andofferyourselvesasapplications,versusfindpartnersforit?

Insomeofthemovingupstacksolutions,ontopofthatplatformsortofawayinyourmindtogettheflywheelgoingtoalsoattractpartners,hey,seewhatIcandoonthis?Maybeyoucandosomethingelse?Andgetthatvirtuouscyclegoingofapplicationsandplatform?


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


Ijustwantedtoadd,soifyoutakesecurity,it'sactuallyagoodexampleofhowittakesawholesuiteofsolutionstoprovideacompletesecuritysolutionstacktoacustomer.

SowehaveES,andtogetherfromourecosystempartners,theyhavebuiltgreatappslikePaloAltoNetworkhasbuiltanappthatnotonlyhelpedtheircustomersviewandanalyzetheirdatainsideSplunk,butalsohavingtheabilitytotaketheintelligencederivedfromit,andactuallytakeactionsontotheirappliances.Sothosearegreatexamplesofwhyittakesawholecommunityandavillagetoprovidethebestsolutionstoourcustomers.




PhilWinslow(Analyst-CreditSuisse):

Great,thanks.

Operator :

DanIves,FBRCapitalMarkets.

JimMoore (Analyst-FBRCapitalMarkets):

Great,thisisJimMooreinforDanIves.Goodquarter.Onthesecuritysideagain,couldyoutalkaboutwhatyouareseeingonthefederalfront.Youtalkedaboutsomegovernmentdealsandjusttheincreasedfocusfromtheirend,andhowthismightbeshapingspendingoverthecomingquarters?


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




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.


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




thenumeratorandthedenominator,itcanskewthepercentage.

Whatwe'recommittedtoandyouknowbecauseI'veupdatedthemetricprobablyfivetimes,asweseeatrendlinethatsaysourfull-yearratablepercentageisincreasing,thenwe'regoingtoupdatethatexpectation.Butagain,eventhoughlastyearweendedatup45%ofratableinQ4,theoverallfull-yearpercentagewas38%.Soinsideofourcurrentrange,whichis30%to40%,that'sourexpectationforthisyear.


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.


Okay,andjusttoputafinerpointonit,areEAAsthatareratabletakingoverfrompreviousdealsthatwerenon-ratable?Soisthereashiftgoingonalittlebithere?

DaveConte (CFO):

WhatIsee,ifyouthinkaboutthecompositionofourtransactions,wehavethisgrowingnumberoflargetransactions.ASPsovertimehavebeenprettyconsistent,andtheonlywayyougetagrowingnumberoflargetransactionswithconsistentASPsisagrowingnumberofsmallertransactions,aswell.

AndQ4wasourlargestnumberoftransactionsinourhistory,andwewereprettyclosetothatinaseasonallylowQ1,soIwouldn'tsaythatthelargeratabletransactionsaretakingoverforwhatwouldhaveotherwisebeenupfronttransactions.

Rather,ascustomersmaturewithusandgetbroaderamountsofdeployment,andultimatelystandardizeacrosstheplatform,thosewilltendtoturnintoratabletransactions.Theentry-levelpoint,thosewilltendtobeperpetualorupfront.





Okaythatmakessense,andjustonelastquickquestion.CanyougiveusEAAasapercentageofrevenueinthequarter?

DaveConte (CFO):

That'snotametricthatweprovidetoday,butifwethinkit'srelevantintermsofhowtobuildthemodel,thenwe'llprovideit.Whenwebuildourownestimatesaroundadoptiontransactions,andwhatthatmeansintermsofflowintorevenue,that'sallpartofour30%to40%mixrangethat'scontemplated.


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.


Great,andjustonequickoneontheproductside.ItsoundedlikeITONwasabigdriverthisquarter,andI'mwondering,sometimesbigdealsdrivethosetrendsandthey'reratherlumpy.

Butdoyoucontributethatsuccesstoanythingspecificontheproductside,oranythingyou'vedonethatmightberepeatable?Doyoulookatthatmoreasaproductoflumpiness?


It'sjustaquartertoquartersituation.Thesecurityhasbeenrunningalonginthemidtohigh30s.OverthelastcoupleofquartersitwasmorelikeathirdinQ1.ButIthinkit'sjustmoreaboutpipelineandwhich




customers,andwhatusecasesandthelike.

InQ4alotofthesevenfiguretransactionsweresecurity,mostofthemorabigmajorityofthem,andQ1,alotofthemwereops.ThethingI'mmostexcitedaboutistheITserviceintelligenceappthatwe'reoutinpreviewwithrightnow.

Wehaveabout20or25customersaroundtheworldthathaveactuallyinstalledit,andareusingit,andthecustomerreactiontothat'sjustbeenextraordinary.SoIlookforwardgettingthreeorfourmonthsmoreofprereleasetestingatthoselarge-scalecustomerssowecanlaunchitatConf,sobesurebeatConf,ifIhaven'tsaidthatalreadyonthiscall.We'llhavesomeexcitingstufftoshow.


Great,thanks.

Operator :

EdMaguire,CLSA.

ClarenceChen (Analyst-CLSALimited):

ThisisClarenceChensittinginforEd,thankyoufortakingourquestions.Twoquickones.Thefirstone,I'mwonderingifyoucouldcommentonwhetheryouseemorecustomersswitchingbetweenperpetualandtermlicensesrecently,andifso,isthereanyreasonbehindit?

Andthesecondoneis,I'mwonderingifyoucouldalsoelaborateabitmoreonyourexpectationsontheadoptioncurveofSplunkLight,aswellastheexpectationontheArrowElectronicsdealfromMarch?Thankyou.


SotellEdthatI'mupsethe'snotonthecall.TellhimIwanthimtocallme.


Iwilllethimknow.


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.





Gotit.Andthenwouldyoubeabletoalsocommentonthesecondoneaswell,inregardtotheadoptionforSplunkLightandtheArrowElectronicsagreement?


AskmethatquestionagainontheQ2call.WejustgotthecontractsignedinlateQ1,andwe'redoingtrainingandallthatsortofthing,earlyintherelationshipthere.It'sprobablybetter,I'dbebetterofftobringthatbackforQ2question.


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.


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.





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?


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):




AndJohn,wehavetalkedovertheyears,thatweareveryconsciousabouttherateatwhichwebringfolksonboard,becausehiringthemistheeasypiece.Gettingthemproductiveandsettingthemupforsuccess,asGodfreyhasjustarticulatedismoreartthanscience.

Sowewanttobeverythoughtfulabouttherateatwhichwebringpeopleon,sothatthey'reultimatelysuccessfulandcandeliverforthecustomer.Sothatisnotnewforus,intermsofhowwesetourobjectives,andultimatelymakethoseinvestmentsattheratewhichweinvest.


Great,thatallmakessense.Thanks,alot.Dave,onequickquestion.Yourrenewalrate?

DaveConte (CFO):

Renewalrate.TheDiFucciorgdesignisaliveandwell.Therenewalrateagainwaswellabove90%inthequarter.Infact,itwas94%.Ithinkthat'stheeighthquarterinarowthatit'sbeenat94%,andIthinkitwasacallortwoagothatweretiredthemetric,justbecauseitwasconsistentlyatthat94%rangeorabout94%.Somanyquartersinarowthatitwasnolongerreallythatinteresting.


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.

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Splunk (SPLK) Earnings Report: Q1 2016 Conference Call...

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