Splunk (SPLK) Earnings Report: Q4 2015 Conference Call ...s.t.st/media/xtranscript/2015/Q1/13061339.pdf · welcomed a record 600 new customers to Splunk in Q4 and had a rocking quarter

CompanyName:SplunkIncCompanyTicker:SPLKSector:Technology

Industry:ComputerSof tware&ServicesEventDescription:Q4 2015EarningsCall

©2014TheStreet,Inc.AllRightsReserved Page1of 23

Splunk(SPLK)EarningsReport:Q42015ConferenceCallTranscriptThefollowingSplunkconferencecalltookplaceonFebruary26,2015,04:30PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

KenTinsley;Splunk;VP-IRGodfreySullivan;Splunk;CEOHaiyanSong;Splunk;SVP-SecurityMarketsDougMerritt;Splunk;Head-FieldOperationsDaveConte;Splunk;CFO

OtherPart icipants

PhilWinslow;CreditSuisse;AnalystBrentThill;UBS;AnalystKeithWeiss;MorganStanley;AnalystRaimoLenschow;BarclaysCapital;AnalystEdMaguire;CLSA;AnalystKashRangan;BofAMerrillLynch;AnalystDanielIves;FBRCapitalMarkets;AnalystJohnDiFucci;JefferiesandCo.;AnalystMarkMurphy;JPMorgan;AnalystGregDunham;GoldmanSachs;AnalystKarlKeirstead;DeutscheBank;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator:

Goodday,ladiesandgentlemen,andwelcometotheSplunkIncfourthquarterFY15financialresultsconferencecall.

(OperatorInstructions)

Asareminder,today'sprogramisbeingrecorded.

Iwouldnowliketointroduceyourhostfortoday'sprogram,KenTinsley,SplunkCorporateTreasurerandVicePresidentofInvestorRelations.Pleasegoahead.

KenT insley(VP-IR):

Great.Thankyou,Jonathan,andgoodafternoon,everyone.

WithmeonthecalltodayareSplunk'sCEO,GodfreySullivan;CFO,DaveConte;aswellasexecutivesHaiyanSongandDougMerritt.OurpressreleasewasissuedafterthecloseofthemarkettodayandispostedonourWebsite.ThisconferencecallisbeingbroadcastliveviaWebcastand,followingthecall,anaudioreplaywillbeavailableonourWebsite.




Onthiscall,wewillbemakingforward-lookingstatements,includingfinancialguidanceandexpectationsforourfirstquarterandFY16,transactionandproductmix,plannedproductsalesandfacilitiesinvestments,ourmarketopportunitiesandcustomeradoptionofourproducts,expectedsuccessofourmarketgroupsanduse-caseopportunities.Thesestatementsreflectourbestjudgmentbasedonfactorscurrentlyknowntousandactualeventsorresultsmaydiffermaterially.

PleaserefertodocumentswefilewiththeSECfromtimetotime,includingthe8-Kfiledwithtoday'spressrelease.Thosedocumentscontainrisksanduncertaintiesandotherfactorsthatmaycauseouractualresultstodifferfromthosecontainedinourforward-lookingstatements.

Theseforward-lookingstatementsarebeingmadeasoftodayandwedisclaimanyobligationtoupdateorrevisethesestatements.Ifthiscallisreviewedaftertoday,theinformationpresentedduringthiscallmaynotcontaincurrentoraccurateinformation.Wewillalsodiscussnon-GAAPfinancialmeasures,whicharenotpreparedinaccordancewithgenerallyacceptedaccountingprinciples.AreconciliationofGAAPwithnon-GAAPresultsisprovidedinthepressreleaseandourWebsite.

Withthat,letmeturnitovertoouresteemedleader,GodfreySullivan.

GodfreySullivan(CEO):

Thankyou,Ken,andIhavetosaythatwasoneofyourbestdisclaimersever.Imean,thatwasawesome.

Welcome,everyone.Thanksforjoiningthecall.WehadagreatfinishtotheyearandIwanttothankourcustomersfortheirenthusiasticsupportandalsoourSplunkemployeesfortheirmanycontributions.

RevenuesforQ4were$147.4million,up48%yeartoyear.Licenserevenues,$98.1million,up43%yeartoyear.Wefinishedthefullyearat$450.9million,up49%fromtheprioryear.

NotablecustomersinQ4includeMacy's,Toyota,LennarCorporationandNewYorkCityTransit.Wewelcomedarecord600newcustomerstoSplunkinQ4andhadarockingquarterforSplunkCloud.

Weshowedprogressinproductdiversity.OnegoodexampleisourrecentpressreleaseregardingHunkadoptionbyYahoo.WealsoclosednewHunkopportunitieswithSocieteGenerale,andCenturyLink.

Ourthemesforthiscallaremarketsandgeos.Overthelastyear,I'vebeendescribingSplunk'sincreasingTAMandhowwe'reorganizinginthemarketgroupssothatwecandeliverbest-in-classsolutionsinourcore-usecases.

Themarketgroupsenableustocreatestrategiesthatareadirectmatchtoourcustomers'needsandaspirations.Thesegroupsownofthevision,productspec,andgo-to-marketelements,withworld-classdomainexpertsleadingthem.

Thesecuritymarketgroupisagreatexampleandthatbusinessisonfirebecauseofourfocus,andgreatleadership.Today,I'veinvitedHaiyanSong,whorunsoursecuritybusiness,tojoinusandgiveyouareadoutonourprogressandvelocity.

InadditiontoHaiyanleadingsecurity,wealsonowhaveMikeOlesonrunningourCloudteamandRickFitzleadingourITmarketsgroup.Onfuturecalls,wewillhaveMarkandRickasgueststoupdateyouontheirprogress.ForyourfavoriteCEO,thatwouldbeme,itgivesmetheabilitytodelegatethesecoremarketstoaverycapableexecteam,sothatIcanfocusonspinningupthenextareaofopportunity.

ThemarketthatIwanttotargetnextisbusinessanalytics.ManyofyouknowthatourcustomersstartusingSplunkforITopsorsecurity,buttheyultimatelydiscoverhigh-valueusecaseslikecustomerexperienceanalytics.Wehaveauniquevaluetodeliverhereandit'stimeweformedupafocusedteamaround




analyticsusecases.

Sotwothemestoday,marketsandgeos.Onthegeoside,we'reinvestingheavilyinourfieldbecauseweknowthatmorecustomertouchisgreatforcustomersandisgreatforus.I'veinvitedDougMerritt,whorunsourcustomer-facingteamstogiveyouareadoutonourwinsandourfieldactivities.

BeforeturningitovertoHaiyanandDoug,afewcommentsonproducts.First,Cloud.FromQ3toQ4,weincreasedthenumberofCloudcustomersby90%,includinganumberofsix-andseven-figureorders.WashingtonPosthasbeenaSplunkcustomerforseveralyears.InQ4,theychoseSplunkCloudtomonitorandanalyzetheirnewmobileapps.

TheScore,thinkofthemasESPNofCanada,isanewcustomer.They'lluseSplunkCloudtomonitortheirinfrastructure,traceengineeringrequests,andreceivethresholdalertstobetteranticipateandpreventsystemproblems.AlsohappytotellyouthatComputerResellerNewsjustnamedSplunkoneoftheCoolestCloudVendorsfor2015.

WealsohadastrongquarterwithHunk.SocieteGenerale,thethirdlargestbankinFrance,expandedtheiruseofHunkwithintheirbigdatainnovationcenter.WehadastrongquarteratAmazon,andsoldtensofthousandsofhoursofHunkontheAmazonEMRconsole.

Justlastweek,weannouncedthatYahooisusingHunktoexplore,analyze,andvisualizedatafromtheirHadoopenvironment,whichstoresmorethan600petabytesofdata--Ican'tevensaypetabyte.ToquoteYahoo,insightswegainfromHunkhelpsussavemillionsofdollarsperyearinhardwareprovisioning.TheYahooproductionteamsarealsousingSplunkEnterprisetoanalyzemorethan150terabytesofmachinedatadaily.

Sogreatprogressonmarketsandgeos,alltoacceleratethevelocityofsomegreatproducts.WejustcompletedourannualCompanykickoffeventandIcantellyouthateveryoneisfiredupaboutourplansforthisyear,platform,apps,Cloud,marketgroups,partners,anddevelopers.Andwehavesignificantworkunderwayineacharea.

Okay.SoQ4wasoutrageousandfun.Now,togettothesecuritystoryI'mhappytoturnthecallovertoHaiyan.

HaiyanSong(SVP-SecurityMarkets):

Thankyou,Godfrey.

Itwasindeedanothergreatquarterforoursecuritymarket.Withincreasedawarenessandconcernsaroundhigh-profilebreachesandinsiderthreats,companiesandgovernmentagenciesarelookingtocompanieslikeSplunktoprovidethenextgenerationsecuritysolutions.

Splunkisnowthego-toplatformforthenextgenerationofsecurityoperationscenter.Someevensignifiedthisevolutionwithanewname,securitycommandcenter.Or,whatIliketosay,Splunkisbecomingthenewnervecenter,thesecuritybrainfororganizationsaroundtheworld.

Inpublicsector,cyberattacksareonthemindofjustabouteveryone,andSplunkisbecomingoneofthego-tocompaniesforagenciesforbetterdetectionandprotectionfromtoday'scyberthreats.TheUSDepartmentofState,alongtimeSplunkcustomer,expandedtheiruseofSplunktohelpprotectthenetworks,domesticallyandabroad.

Securityusecaseshaveexpandedfromadepartmentalpurchaseandarenowdrivingenterprise-wideadoptionofSplunk.AglobalbankinginstitutionstandardizedonSplunkforsecurityanalyticsanddidaglobalreplacementofalegacySIM.




Solutionsellingcontinuestobeoneofthehighlightsofoursecuritybusiness.OurappforEnterprisesecuritycontinuestobeadriverinopportunitiesandcompetitivewins.

ZurichInsuranceGroupisanewcustomerthatisreplacingtheirlegacySIMwithSplunkandwearenowtheirglobalsecurityintelligenceplatform.We'realsoseeingmoreorganizationsadoptingthenewCloudparadigmandleveragingSplunkCloudtodeploysecuritysolution.

1-800-Flowers.comusesSplunkCloudtocomprehensive--forcomprehensivereal-timewebperformancemonitoringacrossintheire-commerceplatformtoprovideasuperiorcustomerexperience.TheyalsoutilizeSplunksecuritysolutions,whichincludemultiplesecurityappstohelpmanageemergingsecuritythreats,alerts,andreal-timeincidentsresponse.

SplunkCloudenablescustomerstorespondtosecuritythreatsfasterthaneverbefore.Theydon'thavetimetospenduptheinternalinfrastructure.Theyjustneedtogettheworkdone.MoreorganizationsunderstandthatthedatacanbesecureintheCloudandthey'recomfortableandhaveconfidenceinoursecuritymodelinSplunkCloud.

IthasbeenagreatyearatSplunksincetheformationofthesecuritymarketgroup.Ourmissionhasbeentolead,focus,andenable.IrecentlyattendedtheWhiteHouseCyberSecuritySummitwiththePresidentandthenation'sleadingCEOs,andit'sclearthatcybersecuritywillcontinuetobeatoppriorityforeverybusinessandgovernmentagencyandSplunkisakeypartofthatdiscussion.

Lookingaheadtothenextyear,wherewe'llinvestfurtherinanalytics-drivensecurity,withafocusonbreachanalysisandinsiderthreatusecasestohelpourcustomerscombattoday'seventthreats.Wewillalsocontinuetoinvestinourecosystemofsecuritypartners,withSplunkactingasthenervecenterforsecurityoperations.

Iamproudoftheprogresswehavemadeandtheresultswehavedeliveredinoursecuritymarket.I'mveryexcitedabouttheopportunitiesahead.

Now,I' llturnitovertoSplunk'sHeadofFieldOperations,DougMerritt.

DougMerrit t (Head-FieldOperations):

Thankyou,Haiyan.

It'ssuchagreattimetobeatSplunkandI'mexcitedtosharemoreonourexcellentquarter.Onthiscall,I' lltalkaboutmarkets,geos,partners,andpricing.

YoujustheardfromHaiyanabouthowourfocusinthesecuritymarketisdeliveringtremendoussuccess.Weareextendingthesamefocustoourothermarketsaswell.

First,ITops.InQ4,theUSNavyexpandedtheirlicensetohelpwithanongoingdatacenterconsolidation.They'reclosingmorethan200datacentersandmovingtheworkloadstoNavyEnterprisedatacenters.Andthey'reusingSplunktomonitorandensureasuccessfulandsmoothtransition.

Macy'sisalong-timeSplunkcustomerthatexpandedtheirlicenseinQ4.SplunkishelpingincreaseuptimeandperformanceofMacys.comandBloomingdales.com,allleadingtoabetteronlinecustomerexperience.

LongtimecustomerZ illowsignificantlyexpandedtheiruseofSplunkforITopsandalsopurchasedtheSplunkappforVMware.Splunk'splatformnowfunctionslikeautility,providingdashboardstoallotherdevelopersandengineerstoimprovequalityandperformanceofZ illow'sproductsandservices.

TheiropsteamisevenusingSplunktochangethecoloroftheirofficelightingasproblemsbecomecritical.NowthatisaninnovativeuseofSplunk.OtherorganizationsselectingSplunkforITopsincludetheCityof




Boise,HongKongUniversityofScienceandTechnology,andPentagonFederalCreditUnion.

Next,businessanalytics.WeclosedanopportunitywithWalmartBrazilinQ4.WalmartBrazilisusingSplunkEnterpriseforbusinessanalytics,aswellasforappdeliveryandITops.Theyanalyzetheire-commerceplatformtoimproveWebsiteperformance,ensureuptimeanddiscoverednewrevenueopportunitiesbyimprovingthecustomershoppingexperience.OthercompanieschoosingSplunkforbusinessanalyticsinQ4includeAuchan,alargeFrenchretailerandCenturyLink.

Nowontothegeos.AllgeosdeliveredastrongQ4,withinternationalcontributing25%ofourrevenuesandgrowingbookingsgreaterthan60%overlastQ4.Aspartofourcontinuedfocusoncustomeradoptionandsuccess,I'mhappytotellyouaboutseveralchangesinleadership,includingtwonewleaderstotheinternationalteam.

AdamBanglejoinsusasourHeadofSalesinEMEA.AdamformerlywaswithRSAandwe'repleasedtohavehimonboard.ThanksagaintoTomSchodorfforspendingQ4inEMEAtoassistwiththetransition.

AtAPAC,EmilioUmeoka,whoisourHeadofGlobalPartners,willnowalsoleadAPACsales.EmiliohasextensiveexperienceinAPAC.HewasformallyPresident,APAC,inMicrosoftand,bytheway,ComputerResellerNewsMagazinejustnamedEmilioaTopChannelChiefof2015.

InadditiontoAdamandEmilio,we'veputBillCull,who'sbeenleadingthepublicsectorintheAmericasforthepastthreeyears,inchargeofglobalpublicsector,andAnthonyPalladinocontinuestodoafantasticjobasourHeadofSalesintheAmericas.

AndI'msureyou'veheardthatVishalRaoisleadingSplunk.Iwanttothankhimforfourgreatyears.We'vedecidedtoeliminatethepositionofHeadofDirectSalesandnowallthegeoswillreportdirectlytome.I'mverypleasedaboutourstrongleadershipthat'sinplacetohelpusprepareforthisnextphaseofgrowth.

Nowontopartners.Investmentinpartnersisabsolutelycriticaltoourgrowthstrategyandyou'llseeusputrenewedfocusonthisinFY16aswelaunchtheSplunkPartnerPlusprogram,whichwewillunveilatourupcomingPartnerSummits.

ServiceNowisbothastrategicpartnerandacustomer.TheyhavesignedanenterpriseagreementinQ4toexpandedinseveralusecases,includingITops,applicationdelivery,andsecurity.Wealsohadastrongpartnerrelationshipheadlinedbyourcompellingproductintegrations.

Voxisanotherimportantpartner.Theyhavepurchasedamulti-terabytelicensetoexpandtheirusecasesfromITopstosecurityandbusinessanalytics,gaininginsightsintotheirend-useractivitytofeedtheirqueueofnewproductfeaturesandfunctions.OurjointcustomersalsoappreciatetheSplunkappforVox,whichenabledbusinessteamstotrackusagetrends,securityteamstospotsuspiciousactivity,andfinanceteamstoauditforcompliance.

Deloitte--ourpartnershipwiththemisexpanding.WehadanumberofjointtransactionsinpublicsectoraloneinFY15,includingthestateofGeorgiaHealthandHumanServicesinQ4.I2,ourhigheredpartner,isalsoonatear.

Thisquarterwereceived10orderstotalingmorethan1terabytewithuniversitiesincludingBallState,theUniversityofAlabama,andWashingtonState.WashingtonStateisstandardizedonSplunkouracrossIT,IToperations,security,andnetworking.

Andthelasttopic,pricing.Overthepastyear,you'veheardustalkabouthowweareconstantlylookingforwaystoimproveourpricingstrategiestoacceleratebroadadoptionandtimetovalueforourcustomers.

LearningfromourexperiencewithcustomerswhohavealreadystandardizedonSplunkwithanEAA,today




werolledoutaprogramtomakeiteasierforcustomerstodeploySplunkenterprise-wide.Thegoalistohaveastandardenterprisepricingprogramthatprovidesbudgetpredictabilityforthesecustomers.

Sowhat'sdifferent?Ournewunlimitedpricingisalignedwiththesizeandscaleofthecustomerandtheirsystemsandisnotbaseddirectlyonvolumeofdailydataindexed.Thisapproachwillenablecustomerstoingestmoredata,frommoresources,withthecostdeterminedupfront.

Soinsummary,wehadafantasticquarter.Weareinvestinginmarkets,inthefield,andmakingenterpriseadoptioneasierandinourpartnerstodeliverastrongFY16.

Nowbacktoyou,Godfrey.


Thanks,Doug.

AsImentionedatthestartofthiscall,FY16istheyearofthemarkets.Ayearagoweintroducedtheideaandnowwe'reinfullexecutionmodewithCloud,ITops,andsecurity.Allthebreachheadlinesaredrivingorganizationstomakefasterandmorecomprehensivedecisionswhenselectingasecuritysolution,sothatbusinesswillcontinuetobeverystrongforus.

Forme,businessanalyticsisthenextstopandI' llbespendingalotoftimethere.Inourgeos,we'reexpandingsalesandtechnicalheadcountandwe'rereadyforthenextphaseofgrowth.Andaswe'veheardfromDoug,partnersarekeytoourgrowthstrategyandwe'reexcitedaboutthemarqueerelationshipswe'rebuildingandstrengtheningthiscomingyear.

Withthat,I'mdelightedtoturnthecallovertoCFOConte,whowillmesmerizeyouwiththenumbers.Go,Dave.

DaveConte (CFO):

Thanks,Godfrey.MaybeI' llhypnotizingyouwiththenumbersinstead.

Asyoucanhearfromtheteam'senthusiasm,Q4withastrongfinishtoaremarkableyearforSplunk.Theinvestmentswe'vemadeinproductdevelopment,fieldexpansion,ourmarketgroups,andtheClouddrilledperformancesubstantiallyaboveourFY15plan.

Fourthquarterrevenuetotaled$147.4million,a48%increaseoverQ4oflastyear.Licenserevenuegrew43%overlastyear,totaling$98.1millionforthequarter.Forthefullyear,revenuegrew49%tomorethan$450millionintotal,ofwhichabout$283millionwaslicenserevenue,ora42%increaseoverlastyear.

OurproductandCloudinvestmentsareallaboutmakingtheadoptionandexpansionofSplunkeasierforourcustomers,allowingthemtogainvaluableinsightsfromtheirmachinedata,irrespectiveoftheirenvironment,datasources,orwheretheirdatalives.Ourmarketgroupapproachhelpsusbringsolutionstailoredtoourcustomers'mostimportantusecasesandenhancesthevaluetheygetfromtheirdata.

Onthefieldside,wecontinuetobuildourcapacityglobally.Weendedtheyearwith306quotacarriers.Aswe'vediscussed,ourgo-to-marketstrategyisevolvingfromasingularlygeo-basedapproachintoamultidimensionalfieldorganization.

Asaresult,weexpectoursellingcapacityinthefuturewillreflectmorethanourtraditionalquotacarriermodelandincludeglobalchannelleverage,suchaspartners,marketorientedspecialists,andresourcesdedicatedtokeyverticalsorevenspecificusecases.

I' llcontinuetoupdateyoulaterintheyeararoundourcapacityoverallasthisevolutioncontinues.More




broadly,wegrewourtotalCompanyheadcountbyabout400inFY15,andendedtheyearwithmorethan1,400totalemployees.

AspleasedasIamwithourprogress,we'restillintheearlystagesinourmarkets.WehaveauniqueopportunitytoestablishSplunkasthestandardforourcustomersandtheirdataanalytics,andwewillcontinueouraggressiveandfocusedinvestmentsinourproductportfolio,thefield,ourmarketgroups,andtheCloudtoensurecustomerreachandsuccess.

Splunkcontinuestodeliverincrementalvaluetoourcustomersastheyindexmoredataacrosstheirenterprise.Onceagain,morethan70%ofourQ4licensebookingscamefromexistingcustomers,whilewealsorecordedarecord600-plusnewcustomersinthequarter.Forthefullyear,weaddedover2,000newcustomersoverallandendedwithover9,000customersintotal.

OurcontinuingcommitmenttoenableSplunkadoptionviaproductinnovations,aswellasmoreeffectivepricingstrategiessuchasEAAs,collectivelyisdrivingadoption.InQ4,werecorded429ordersgreaterthan$100,000,comparedto289inQ4lastyear.Onafull-yearbasis,webookedjustover1,100largeorders,comparedto791lastyear.

InQ4,wealsorecordedarecord39transactionsgreaterthan$1million,comparedto21lastQ4.Forthefullyear,webooked68ordersgreaterthan$1million,comparedto41lastyear.

Ourgrowingproductfamily,plusincreasedawarenessandadoptionofSplunksoftware,aredrivingthistypeofadoption.Asaresult,we'veseenourfull-yearlicensedASPrangeincreaseto$40,000to$50,000inFY15,upfrom$30,000to$40,000inprioryears.

ThegrowingappealofourEAAtransactions,aswellasoursubscriptionproductmomentum,continuedtoimpactourbookingsmix.InQ4,thetotalofallourratabletransactionsaccountedfor45%ofourlicensedbookings.Forthefullyear,ourratablemixwas38%,whichwasaboveourpreviouslyguidedfull-yearrangeof25%to35%.

LastquarterIsaidthatthepaceofadoptionofourCloudofferingsandotherratableproductswoulddriveratablemixevenhigher.Withcurrentvisibilityintocustomerbuyingbehavior,andincorporatingourexpandedEAAofferingsplusHunkandCloudmomentum,wenowestimatethatfull-yearratablemixgoingforwardwilllikelyrangebetween30%and40%.Themixofratabletransactionswillcontinuetovarysubstantiallyquartertoquarter,generallyfollowingseasonaltrends.

Allright.Oureducationprofessionalservicesrepresented6%ofrevenueinQ4,consistentwithpastlevelsof5%to10%.Remember,sincewerecognizerevenueonservicesonlywhentheyaredelivered,servicesbookingstypicallydonotflowthroughthebalancesheetasdeferredrevenue.

Turningtomargins,thedetailIgiveforoperatingmetricsarenon-GAAP.OverallQ4grossmarginwas90%,inlinewithourexpectationsandpriorperiodlevels.Q4operatingincomewasapproximately$11.5million,representingapositivemarginofabout8%andbetterthanourexpectationsonthestrengthofouroveralltop-lineperformance.

Q4netincomewas$11.6million,or$0.09pershare,basedonafullydilutedweightedaveragesharecountof128.6millionshares.Forthefullyear,operatingmarginwas2.7%.

Onanon-GAAPbasis,thiswasourfirstprofitablefiscalyear.Full-yearnon-GAAPnetincomewasabout$11million,or$0.09pershare,basedonafullydilutedweightedaveragesharecountof127.1millionshares.

CashflowfromoperationsinQ4was$51million.Freecashflowwas$49million.Full-yearcashflowfromoperationswasabout$104million,or23%oftotalrevenues.Freecashflowwas$90million.



©2014TheStreet,Inc.AllRightsReserved Page8 of 23

Lookingbackovertheyear,investmentsinourmarkets,product,field,andCloudareclearlypayingoff.Lookingforward,wewillcontinuetoaggressivelyinvestintheseareasaswescalethebusinessforournextphaseofgrowth.Thisiscentraltoourlong-termstrategyofdeliveringSplunkanywhereandeverywhereourcustomers'dataresides.

Ourplanistoinvestproportionatelywithourtop-linegrowth,soforthefullyear2016,wearetargetingnon-GAAPoperatingmarginofbetween2%and3%,consistentwithourFY15opmarginperformance.Overthemediumterm,ouroperatingmargintargetsincludetheimpactofagradual1%to2%increaseincostofservicestoreflecttherampingofourCloudbusiness.

Weremaincommittedtorunningthebusinessonapositiveoperatingcashflowbasisandestimatethatfull-yearoperatingcashflowwillbeapproximately20%oftotalrevenues,withthequarterlylevelsfollowingthetrendwe'veseenoverthepastseveralyears.FY16willbeahigherCapExyearforusasweexpectedthebulkofourSanFranciscoHQbuildoutcostswillbeincurredthisyear.

Wecombinedwithourglobalfacilityexpansionstoaccommodateourgrowingemployeebase.Weareplanningforapproximately$50millionintotalCapExinFY16,weightedabout$20millioninthefirsthalfand$30millioninthesecond.Weexpecttoachievetheseoperatingresultsonourexpectedfull-yearrevenueofabout$600million,anincreasefromourpreviousguidanceof$575million.

WeexpectQ1revenuetorangebetween$116millionand$118million,withsubsequentquarterlyrevenuesfollowingtheseasonalpatternswehaveseenhistorically.WiththecontinuedinvestmentsI'vedescribedandoverlaidwithourrevenueplan,weexpectednegativenon-GAAPoperatingmarginofbetweenthe2%and4%inQ1,increasingtoaboutbreak-eveninQ2,thenturningpositiveinQ3andQ4,consistentwiththeseasonalnatureofourmodel.

BecausewedenominategloballyinU.S.dollars,wehavenoforeignexchangeexposuretoourrevenueline.(Technicaldifficulty)however,havemodestriskbelowtherevenuelinefromforeigncurrencyfluctuations.InQ4,webenefitedfromthestrongdollartothetuneofabout$0.01ashareatthebottomline.

Overall,ourQ4resultsandourfull-yearperformanceweresolid.Ourproductinvestmentsaredrivingcustomersuccessandourfieldexpansionandmarketfocusisenhancingourexecutioncapabilities.OurstrategyisworkingwellandweplantocontinuetoinvestandfuelthepaceofadoptionasweaimtomakeSplunkthestandardformachinedataanalytics.

Thanksmuchforyourtimeandinterest.Withthat,we'lltakeyourquestions.

QUESTIONS&ANSWERS

Operator:

(OperatorInstructions)

PhilWinslow,CreditSuisse.

PhilWinslow(Analyst-CreditSuisse):

Hi.Thanks,andcongratulationsonanotherjustawesomequarterhere.Twoquestions.Onejuststickingwiththethemeofmarketsshareandverticals.Yoursecurity--ifIrewindbacktosortoftheIPOtime,Ithinkyoualltalkedaboutsecuritybeing20%orlessofthemixofyourbusiness.Iknowit'salwayshardtotellsortofwhatexactlySplunkcapacityisbeingusedfor,butwhathasnotgottenuptonow?Itsortoffeelslikeit'smaybe30%,35%.Wonderingifyoucouldjustgiveusasenseofthat.

Andthenalso,whenyouthinkaboutthatbusinessgoingforward,howdoyoukindofthinkabouttheTAM?I




meanobviouslywe'vetalkedaboutyoursecurityinformationmanagement,butnowyou'veseensortofsecurityintelligence,sortofanewfieldstartingtoshowupaswell.Howdoyouthinkofthepotentialofthat?

Andthensortofsecondquestionisonthebigdataside.Obviously,youmentionedthecontractwithYahoo,basicallythebirthplaceofHadoopforHunk.Godfrey,justfromaveryhigh-levelperspective,whatyouthinkthatmeansinthesensethattheplacethatHadoopwasbornisactuallypayingforandusingHunk?


Hey,Phil.Well,first,thanksforyourcommentsandhappytotakethoseon.

So,partofthe--Imean,thewholemotivationfordoingmarketgroupstobeginwithwasthatwe--oneofthechallengesofrunningSplunk,asyouwellknow,istryingtodecidewhatnottodo.Thatis,customersusetheengineforsomanyusecasesthatwehadtostartlookingfortheplacewherewewouldseerepeatableusecasesandknowthatwecoulddoacertainsolutionmultipletimesasopposedtoeverythingbeingsortofaone-at-a-timeissue.Securityisagreatexampleofthat.

WestartedworkingontheSplunkappyearsago,whichwasawaytoputworkflowandcontentandallthepartnerdataintoaplacewherecustomerscouldeasilyuseit.Ithinkthesecurityhasbeenthefirstofourusecasestomaturewherewecanactuallyfullyformupplatform,app,bestpractices,andthelike,andIthinkHaiyan'sjustthatatmarvelousjobofunifyingtheteam,furtherdrivingproductstrategyandyouseeitinourresults.

Ithinkthedirectanswertoyourquestionaroundpercentages,it'sanywherethe35%to40%rangeonaquarter-to-quarterbasisthroughoutthisyearandIwouldexpectfortostayinthatrangegoingforward,becausethatbusinessisjustonfire.Therestofthebusinessgrowingnicely,too,butsecurityhasbeendoinggreat.Nowit'sourchallengetothenmoveontoeachoftheotherareaswherewehaverepeatableusecasesanddosomethingexcitingthere,soI'mvery,verybullishaboutthat.

OntheHunkside,IstillseeHadoopprimarilyusedasenterprisedatawarehousereplacement.It'scheapstorageandreplacementofveryexpensivestorage.Andoncethathappens,thencustomerssayIneedtohaveawaytogettothatdata,andthefactthatHunkcananalyzethatdatainplace,thatis,wesortofindexitwithintheclusterandgiveyoutheanswerback,evenonaniterativebasis,issodifferentthanhavingthetomovethatdateoutofHadoopinordertodoanalyticsonit.

ThearchitectureandtheapproachofHunkisexactlywhatthebigHadoopshopslookforwhenthey'retryingtoanalyzethatdata,especiallyverylargedatasetsovertime.IthinkthatHadoop--IshouldsaytheHunkworldwillcontinuetomakeprogressmoreslowlythanourothersegmentsofbusinessjustbecausetheyarenotasmanyHadoopcustomersasmatureasYahooandsomeoftheotherbiggerHadoopinstallations.Butwe'rebullishaboutthatbusiness,too.

Thankyou.

DaveConte (CFO):

Thanks,Phil.

PhilWinslow(Analyst-CreditSuisse):

Thanks.

Operator:

BrentThill,UBS.




Brent Thill(Analyst-UBS):

Hey,goodafternoon.

GodfreyandDoug,aroundtheEAAsandaroundtheformalizationnow,canyoujustmaybegiveusasenseofwhatyouthinkthisdoesnowwithsomeofthelargerenterprisesaccounts?Iknowyou'vebeenveryflexiblewithyourclientsonpricinginthepast,butwhatdoesthismeannowwithtoday'sannouncementandwhatyouthinkthiswilldoforsomeofthepipeline,thelargertransactionsandperhapssomeofthemulti-solutionareasthatyou'regoingafter?


Thanks,Brett.

Youknow,youfolkshavebeenprettyvocalwithusoverthelastseveralyears,saying:wealwayshearthatyourcustomersloveyourproducts,theyliketheCompany,theylikeeverythingaboutSplunkexcepttheyworryaboutthepricingmodelhavinganindeterminatecostattachedtoitbecausetheydon'tknowhowbigtheirdatacouldget.

Andsokindoflookedback--IliketheoldOracleanalogyfromtheirearlydayswhere,whenitwasveryearlygame,theysaidlet'sgooutandoffercustomerstheabilitytoputasmuchdataastheywantintotheengineandthengofromthere.

Ithinkthat'sagoodmodelforuswheretheseareearlydays,butwehavefirst-moveradvantageandwehaveaverydifferentiatedproductandthecombinationofthosetwomeansweshouldgiveourcustomersawaytothinkaboutputasmuchdataasyouwantedintoSplunk,notjusthigh-valuedataordatathatisheldbackbyanindexingrate.

Sofromastrategystandpoint,it'sjustamatterof,let'smakeitaseasyaspossibleforcustomerstostandardizeonSplunk.Idon'tknow,Doug,you'vebeenonanairplanealotoverthelastninemonths.You'vegottenplentyoffeedbackyourself.


Yes.

It'sinlinewithwhatGodfreyjustwentthrough.Firstofall,beingabletooffermorestructuredvehicles,sothatoursalesforcecanhavedirectdialoguewithcustomersthatreallydowanttogolargerwithSplunkwithoutallthecheckbacksthatwerenecessarywithalittlebitmorehand-craftedapproach,IthinkissuperimportantwithwherewearenowasaCompany,giventhedesireofmanycompaniestoexpand.

Whatwasn't--mayhavenotbeenasclearthatannouncementis,customerswanttodeploymultiplemodalities,classicandperpetual,termandunlimited.Theannouncementisfocusedonunlimited,butwearecontinuingtogivechoicewiththeEAAstructures,sothatwecanmaptocustomersbuyingpreferencesandmakesurethatwemeettheirneedsfortheuseofSplunk.


Great.

AndjustaquickfollowupforDave,justonthemovetotheCloudversustermorperpetual.There'sbeensomeconcerns,perhaps,thattheremaybedifferenteconomics.I'mjustcuriousifyoucouldjustwalkthroughthequickviewintermsofwhatyou'reseeingeconomicallyacrossthedifferentwaysthatyoucangotomarket.

DaveConte (CFO):




Sure.

Whenyoulookat--intermsofthetopline,Brent,theeconomicsarereallyspecifictotheusecase.We'reseeingthatcustomers,manyofourcustomersaretakingadvantagesofhybridsearch,sothey'llhavecertainusecaseswheretheirdataisbehindthefirewallandotherusecaseswheretheirdataisinthecloudandabilitytoleverageSplunkacrossallthedatasourcesisreallyvaluable.

Thattranslatesinto,Iwould,saytop-lineeconomicsthatareappropriatefortheparticularusecaseandweseethatacrossthedeliveryvehicles.Obviously,fromacostperspective,andImentioneditinmypreparedremarks,thereisincrementalcostsforustodeliverthatserviceandweseethatagainincreasingourcostofserviceandhittingourgrossmarginbymaybe100,200basispointsoverthecourseoftheyear.


Great.Thankyou.


Thanks,Brent.

Operator:

KeithWeiss,MorganStanley.

KeithWeiss (Analyst-MorganStanley):

Excellent.Thankyoufortakingthequestionandverynicequarter.


Thankyou.


Iwaswonderingifyoucouldgiveusalittlebitmorecoloronthesalesinvestmentsthatyou'relookingtomake.Itseemslikelastyearwasaheavyfocusongeographicexpansionandsecurity.IsitasimilarpaceofexpansionwhenyougointoBIsandsimilartypeofguidethatyou'rebringingonboard?

AndthenifDavecouldquantifyatargetofwhereyoulooktoendtheyearintermsofsalescapacity,thatwouldbehelpful.


Thanks,Keith.Yes.

SoconsistentwithwhatIwalkedthrough,Ithinkit'sacombinationofgeoexpansion,there'sstillalotofopportunityacrossthemultipledifferenttheaters;themarketinvestments,makingsurewegottherightspecialistcapabilityorthemainexpertcapabilitytosupportourgeneralsalesforce;andcontinuedbalanceinvestmentacrossthepartnerecosystem,aswell.Dave,I' llhandittoyouforanyspecificson--

DaveConte (CFO):

Sure.Keith,we'vebeentalkingaboutthecompositionofthesalesteam,andIwasalittlemoreexplicitthatit'sanevolutionintermsofitsbreadth.Dougjusttouchedonthefactthatmarketspecialization,theinvestmentwearemakingintermsofgetting--ultimately,whatwewantisaleveragechannelrelationshipwithnotjustpurevarsbutstrategicchannelpartners.Thoseareallpartofourinvestmentthesis.




Intermsofwhatyoucanexpectforthenextyear,ifyougotopsdowntheexpectationsaroundopmarginwillbeaconsistentamountofpositiveoperatingmarginoverallforthefiscalyear.We'lllooktomakethoseinvestmentsconsistentintermsoftheexpansecategories,betweensalesandmarketing,R&D,G&A,thatyou'veseenfromusinprioryears.

Asitrelatestospecificmetricsaroundcapacity,asI'vementionedinmypreparedremarks,we'llcontinuetomeasurethoseinternallyanddeterminewhat'sappropriatetoshareexternallysothatyoucanbuildyourmodel,whichwewanttoreflectourmodel.Consistentwithwhatwe'vedoneinthepastinthatregard,wegettoaboutthemiddleoftheyearandthenI' llgivesomeinsightintermsofhowwearethinkingaboutyear-endingsalescapacityoverall.


Gotit.Itsoundsliketheactualnumberofsalesperhapsmightbealittlelessimportantbecauseyouhavesomanyguysworkingaroundthemthatitmightbeabouttheactualproductivityofeachoneofthesalesguysisenhancedbypartners,bymarketspecialist.Isthattherightwaytobethinkingaboutit?

DaveConte (CFO):

Well,we'recertainlylookingtoalwaysaddressandmakeoursalesfolksproductive.Imean,thatisanever-endingexerciseforusandIthinkwe'vedoneanicejobofit.I'mcertainlyhappywiththeproductivitythatwe'veexperiencedandtheproductivitygainsthatwe'veexperienced.

Butinterms--it'sreallyabout,howdoweaddresswhatlookstousittobeanever-increasingTAM.Weneedtohavetherightexpertsinthesalesteams,partneringwithourmarketgroupslikeRickandHaiyan's,andalsoourdirectsalesguystogotothecustomerandsay,okaywe'regoingtotellyouhowtoextractallthevaluefromyourdata.Ithinkthatyouarethinkingaboutittherightway,butintermsofspecifics,again,mid-yearI' llcomebackandI' llgiveyousincethespecificsintermsofhowtothinkofitfortheendofthefiscalyear.


Excellent.Thankyouverymuch.


Thanks,Keith.

Operator:

RaimoLenschow,Barclays.

RaimoLenschow(Analyst-BarclaysCapital):

Congratulationsfromme,aswell,andthanksfortakingmyquestion.

Thequestionwasonthepricingannouncementyouannouncedthismorning,andIknowwehavetalkedaboutthisbefore.Canyoutalkalittlebitabouttheimplicationsyouseeinyourconversationswiththebigcustomersaroundthe--Imean,youobviouslyhadEAAsbefore.What'sthedifferentdebateyoucanhavenow,andwhatimpactareyouexpectingfornextyearandgoingforward?

Thankyou.


Thanks,Raimo.




I'mgoingtoturnitovertoDougandI' llsweepupthefloorincaseit'snecessary.


Nopressure.


Hey,Raimo.It'sDoug.ThewaythatweapproachEAAs,itis--bythetimeacustomer--youdon'tleadrightawaywithanEAA,obviously.Youbuildcredibilitywithinthecustomerandactuallygetthere.AndI'mreallythankfulandhappyforthethoughtfulandthoroughprocesseswehavearoundsaleshere.

We'vegotawholebestpracticesguidelineforourEAAsthathaspricingasactuallytheeighththestepofeightkeysteps.Itiscertainlyimportant,butthere'salotofunderstandingthecustomer,understandingtheirneeds,understandingtheenvironment,buildingtherightchampionsandcoaches,provingvaluealongthewayandensuringthatthecustomer'sgottherightmomentumbeforewedropintoanEAAdiscussion.

IthinktheclaritythatwereaddingwithanewEAAstructuresmakesitaneasierearlyframeworkforourcustomersasthey'redealingwithus,andmakesitacleanerdiscussionorlandingpointforthemastheyget--astheyunderstandwheretheirdemandsetforSplunkwillgoovertime.

Ithinkthemainfocusitwasintwoaspects,ensurethatwehelpourcustomersgetgreateradoptionandtractionbytakingthepricingissue,orbymakingthepricingissuemoreclearforthem,andensuringthatourrepsaremoreempoweredandhavethemoreclarityandtoolsattheirdisposaltohavethosediscussionsonabroad-basedandscaledorientation.


Perfect.Godfrey,areyouokaywiththat?Thankyou.


Raimo,aslongasyou'rehappy,I'mhappy.


Okay.Thankyou.Welldone.

Operator:

EdMaguire,CLSA.

EdMaguire (Analyst-CLSA):

Hey,goodafternoon,everybody.

Ijusthadaquestionaboutsomeofthesaleschangesyouaremakingandhowthoseactuallymapintotheindustrygroups.Itsoundstome,fromhowyou'vedescribedit,thatyouaremovingfromevenmoreofaspecializedapproachthaneventhestructureofthemarketgroups.I'dbeinterestedinanycolorintermsofhowthatisactuallyinformingnotjustthego-to-market,butalsohowthat'styingintoyourdevelopmentofsolutionsets.


Ed,Iheardarumorthatyou'reinTokyoorsomewhere.Isthatright?





It'snotarumor.I'mthere.


Soyou'reaskingmethatquestionatfourinthemorning.Ijustwantedtomakesureallisclearaboutthat.


Yes.It's14hoursahead,soit'sactuallyacivilizedhour.


Allright.Well,thanksforthequestion,asalwaysandgoodtohearyourvoice.SoI'dliketoaskHaiyantoopineonthisabit,butwhenyoulookatthemarketgroupformationismore--fieldstructureisapartofthemarketgroupformation,butit'sreallyaboutformingupcompetencyinourmajorusecases.Haiyan,maybeit'sworthjusttotalkaboutwhatthemembersofyourteam,likewhatarethetypesoftitlesthatbelongtoyourteamandthenhowdoesthatapplytoappsandsortofthesolutionsstackandthenwecancomebacktofield.


Sure.Ed,goodtotalktoagain.

AsImentioned,themissionforthesecuritymarketgroupistolead,tofocus,andtoenable.SowhatwehaveisourHeadofProductManagement,HeadofDevelopment,HeadofSolutionMarketing,theyarefullyfocusedonthesecuritymarket.Notonlythat,wehaveadedicatedCDdirectorwhofocusesonbuildingourecosystemandthatintothefield,whatwe'redoingiswe'rebuildingamulti-tieredteamwithsubjectmatterexpertise.

Theyaredistributedintothefield,intodifferentregions,andthereisaglobalsupportforthem,formorestrategicaccountsandmoreadvancedprototypeneeds.Notonlythat,wealsobuildadedicatedprofessionalservicesorganizationjustforsecuritycustomersandsowecanprovidetrustedadvisoryservicestothem.Withallofthose,it'sreally,themarketgroupprovidesthevisionandthestrategyandalsotheenablementfortheexecution,ifthathelps.


Great.Andjustaquickfollowup,ayearon,westartedtalkingaboutInternetofThingslastyearandIknowyouhavesomeinitiatives.Justquickthoughtsonprogress?Idorealizeit'searlydays,butanycoloronthatfromyouwouldbeveryhelpful.Thankyou.


Yes,thanksEd.

TheInternetofThingstomestilllookslikeit'sshapinguptobeanindustryconversationmorethananythingelse.Ialwaysthink,whatistheprimarylensyoulookatwhenyoulookatamarketorsetofcustomersandintheinsideoftheexistingSplunkcompany,theprimarylenswelookatisamarketorsolutionslens.HowmanypeoplearebuyingtheproducttouseitforsecurityusecasesorIToperationsusecases?

WhenyougettoIOT,itlooksanawfullotlikeindustrysegmentsandveryspecificeventothat.Sowithinbuildingsystems,you'dbeinmilitaryoperationsorresidentialwouldbetwoverydifferentmarketsegments.Intrafficmanagement,weseetrains,we'vegotalotoftraincustomersthatuseSplunkformonitoringtrains




remotely.Atthesametime,smartgridwouldbeacompletelyseparateindustry,butwithverysimilartypesoftechnologystacksupply.

Idon'thavethatoneallfiguredoutyet.I'mspendingalotoftimethisyearonthebusinessanalyticspiece,butwearedoingalotinIOT.WeprobablyhavemoreIOTcustomersthananyotherbigdatacompany,butit'sbecausetheproductissoeasytouse.IthinkthattheworkthatwillapplytoIOTwillbeindustry-specificandtherefore,partnerswillbeabigpartofthatconversation.


Great.Thanksverymuch.


Thanks,Ed.

Operator:

KashRangan,MerrillLynch.

KashRangan(Analyst-BofAMerrillLynch):

Hello.Thankyouverymuch.OnequestionforDoug,withrespecttothenewpricingmodelforEAA.Iknowyoueloquentlyexplainedhowthesetwodealsarebedifferent,soitfeellikeyou'vegotaprettygoodhandleonpotentiallyspilloverfromonebuckettotheother.Canyoutalkalittlebitmoreabouthowyouarepricingitexactly?Isitbasedonheadcountorrevenue,whatnot?Howdoyouthinkthatexpansionsalesofcurrentcustomersarelikelytoplayout?

Iguessafollow-upforMr.Conteis,haveyou--areyoureally--theviewthatsincethispricingmodelwaslaunchedtoday,wereallydon'thaveagreatfeedback,alotoffeedbackfromthecustomertobeabletoassesshowmuchofyourbusinessmixisgoingtobefromtheratable,becauseitwouldseemlikeit'sgoingtotakesometimeforthistobesortedoutamongyourcustomersandtherecouldbesomevolatilityinthatmix.Right?Justwantedtogetthat.

Thanks.


Sotostartontheactualstructure,fortheunlimitedEAA,it'sbasedoncustomersize,withrevenueasacomponentofthatbutthere'sotherfactorsthatgointothatsize,aswell.Again,thegoalthereistotakethedatavolumepieceawayandinsteadallowthecustomerfocusonhowtouseSplunkasamachinedataplatformacrossallfunctions,allusecases,thewaythattheyhavegivenusfeedbackthattheywanttodrive.

Tostructurethedifferentvehicleswecameoutwith,wediddoaseriesofinteractionsoverthepastsixtoeightmonthswithkeycustomersthatalreadywerebeginningtodiscussdifferentEAAtypeformats.Sowe'vegotsomedecentfieldvalidationandcustomervalidationonhowthesethingsshouldbestructuredandIfeelprettygoodaboutthethoughtfulnessthatwentintoit.Dave'steamwaskeyindrivingtheoverallstructureandmakingsureitworkedandI' llhandtheremainderofthequestionovertoDave.

DaveConte (CFO):

Hey,Kash.It'sDave.Yourquestionaboutmixandvolatilityinthatmix,youarespoton.

Aswegetinto--justbecausewe'vestructuredtheprogram,asyouknow,we'vebeendoingEAAsforcertainlywelloverthelastyear,buteachoneanindividualexercise,notjustforthecustomerbutforthefield.Sothis




programhassomedualbenefitintermsofenablingcustomerstogetthepredictabilitythattheywantinstandardizingonSplunk,enablingfieldtodeliverthatstructuretothecustomer.

SoIexpectwewillcontinuetoseequarterlyvolatility.Again,Iexpectittobetheway--seasonal,intermsofhowwe'veseenitbyquarter,Q1probablyhavingtheleastamountofratablecompositionandQ4havingthegreatest,generallytiedtolargertransactions.

Butasyouknow,I'vebeenprovidinganoutlookonmixforthelastthreeyearsthat'sgonefrom10%to20%oflicenseto20%to30%oflicensetonow30%to40%oflicense.Sothecompositionhasobviouslygrownasapercentageofthewholebutitcertainlyvolatileonaquarter-to-quarterbasisandallthewaydowntoaparticulartransactionandwhenitcloses.


AndthenquicklyifIcould,withinthatsubscriptionmix,anyfeelforhowtheproportionofHunkdealsversusratabledealsversusfield,whichpieceissmaller?Justyour--

DaveConte (CFO):

Well,yes.Imean,it'shardto--obviously,aswe'vemovedfromsingleproducttomulti-product,manyofthosemulti-products,andwhileCloudisnotnecessarilyaseparateproduct,it'srevrecistreatedseparatelyandratable.

ButgiventheoverallgrowthintheBusinessandourtraditionalenterpriseplatformsales,it'sreallytoughtomeasureexactly,well,howmuchcanIexpectthesenewproductsanddeliverymechanismsaregoingtoincreasethatratablecontribution,becausetherestoftheBusinessisn'tstandingstill.

Soagain,you'rejustgoingtohavetostickwithmeasIgiveyouthevisibilitythatIhaveandthewayweplanforratabilityacrossthebalanceoftheyear.Wewillcontinuetorefinethatmetricasitbecomesrefinedforus.


Thanks,Kash.

Operator:

DanielIves,FBRCapitalMarkets.

DanielIves (Analyst-FBRCapitalMarkets):

Yes.Thanksalot.Godfrey,couldyoumaybetalkoverifwecomparewherewewereayearagoandhowtheconversationwithcustomershavechangedintermsoftheadoptioncurveandjustmorecustomersarereallywillingtospendsignificantdollarswiththeSplunkplatform.Maybecanjustcompareandcontrastwherewewereayearago.


Sure.Happytoandthanksforthequestion.

Weshowthatinthenumbers,justifyoulookattheincreaseinthenumberofseven-figuretransactions,forexample,fromoneyeartothenext.It'saprettyimpressivepercentage,andthatisatthemirrorimageofthefactthatcustomerswentfromdepartmentaltomulti-departmentalandnowareexpandingouttomoreenterpriseadoption.SoIthinkthatpartofthematuritycurvethatwewillgoupisjustacontinuationofthatexpansionfrommulti-departmentaltomoreofanenterpriseflavorandthepricingmodelhelpsacceleratethat.

I--thedifferenceinconversations,twoorthreeyearsagoIwasoutmeetingwithsysadminsandfirstlevelIT




administratorsandIwastryingtoexplaintothemwhatasearchengineforamachinedatawas.Morerecently,IwasoutinEuropemeetingwitha3ClevelexecsofalargeEuropeantelecomandtheywerecommenttomewas:SplunkiseverywhereinsideourCompany.

Weneedtocomebackandspendseveraldaysdoingtechnicalplanningwithyourdevelopmentteambecauseweneedtoembedyouasamission-criticalpartofourCloudservice.PrettygoodexampleofhowtheconversationshavechangedovertheyearsandIcouldn'tbemoreexcitedaboutit.


Yes.Andjustasaquickfollowup,cybersecurityandsortoftheconvergenceofwhatwe'reseeingwithSplunkonthesecurityside,howbigofagamechangerhasthatbeentoyourBusinessandevenyour--goingforwardintoFY16.Thanks.


I'mnotsureIheardthequestion.Howbigis--


--itintermsofsecurity,intermsofifIthinkaboutthesecurity(technicaldifficulty)intheplatform,justyoutalkabouthowbigofacontributorthatisgoingforwardoverthenextonetotwoyearsandjusthowthat'sreallybeenabigchangethatyou'veseenintermsofthatdemandcycle.


Gotit.YoubrokeupalittlebuttherebutI'mgoingtoturnthisovertoHaiyanfromastandpointthattwoyearsago,wehadacollectionahandfulofreallysmartsecuritypractitioners,individualpractitioners,scatteredacrosstheCompanyandnowwehaveafullyformedmarketing--marketteamaroundit.Ithink,Haiyan,thisisprobablybestforyoutoanswerhowthatlooks.


Sure.IthinkinmyyearhereatSplunk,I'vecertainlyhaveseengreatmomentumbuildingup.Themarketisembracingouranalytics-drivenapproachandisembracingthesolutions.Youcanseefromtheresultsthatwehavesharedandwehavebeengrowingreally,reallyhealthyandIthinkmultiplesofthemarketgrowthforthesecuritymarket.Andthosewinsisnotbecausethemarketitselfexpandingonlyandisalsoforcompetitivewinsthatwehavegotinthisexistingmarket.

Intermsof(technicaldifficulty)coupleyears,asImentionedinthecall,fromjustattendingtheWhiteHouseCyberSecuritySummitandthepeopleandtheresourcesthatwasmadeavailablebythegovernmentandbytheenterprises,wecancontinuetoseetoppriorityisgoingtobegiventocybersecurityanddefenseandwearebecomingthego-toplatformforalotofenterprisesandorganizations.

Partlybecausetherolethattheyareexpectingustoplayandwehaveprovenbeingthenervecenterinalotofthesecurityoperationsisreallyhelpingthesecurityoperationteamevolveintothenextgentechnologysolutionforsecurityandsolvingthemoreadvancedthreats.


Veryhelpfulanswer.Thanks.


I'mreallybullishonthefactthatthecontentthatyou'veassembled,liketheappandthededicatedProServ



©2014TheStreet,Inc.AllRightsReserved Page18 of 23

teamandallthat'sbeenarealenabler,becausewe'reseeingaveryhighattachratenowonourenterprisesecurityapp;oursolutionontopofourenginesales.It'sagreatsignofthemarketplacelookingtousforacompletesolution.

Operator:

JohnDiFucci,Jefferies.

JohnDiFucci(Analyst-JefferiesandCo.):

Thanksfortakingmyquestion.

IhaveanotherquestionontheEAAsandthepricingandthenafollow-upforGodfrey.Onthepricing,andyousayinthepressrelease,it'sforcustomersofanysize.AndI'mjustwondering,doanticipatethisforsmallercustomers?Maybecouldyougiveus--sortofgiveusanexampleofgeneralterms?Whatisthelicensepricegoingtobebasedon,especiallythosesmallercustomers.Wesortofgetitwiththelargerones,butjusthowmightthisworkdifferentlyforsmallercustomers,ifatall?


OneofthecoolthingsaboutSplunkisthedataofvolumeisnotdependentonsizeoftheorganizations.There'sanumberofsmaller--technicallysmaller,revenue-wise,mid-sizeandsmallerdot-comsthathavehugedatavolumes,andstillwouldfitinwellwithanunlimitedEAAoneoftheotherstructuredvehicleswehave.

ButIalsounderstandyourpointofwhensomeoneisstill--isnotcompletelywall-to-wallwithSplunk,howdoEAAshelpthem?That'swhatwe'vegotthatperpetualtermandunlimitedtriumviratestructureandtheperpetual--theothervehiclesstillmaintainadataorientation,justgivevisibilityonwhatthatdatapricingisandtheygodowntosmallerlevels.Theygodowntoaslowas100gigor250gig.Sowe'rehopingthatwecoverthefullgamutofcustomersthatareinterestedinSplunk.

DaveConte (CFO):

Hey,John,it'sDave.

Ithinktheconversationaroundenterpriseadoption,pre-programorpre-announcementthismorning,it'sreallyaboutthecustomermaturity.Andhowdowegettheminthatpositionwheretheircomfortablestandard--theywantmoreofourproductandgivingthemthatpredictableabilitytodeploybroadlyoursolution--ourplatformandsolutionsontopofit,isreallytheobjective.

Sowhenwetalk--wewanttomakethatthecaseforallcustomers,regardlessoftheirsize,thatareatthatlevelofmaturitysothatwecanmovethemupfromthatoperationalintelligencelevelonetotheultimategoalofoperationalintelligencelevelfour,wherethey'rederivingmissioncriticalinformationfromtheirdata.

AsDougmentioned,we'vecreatedtheprogramwith,whatIthink,enoughflexibilitytomakeitattractiveforallofourcustomers,regardlessofwhattheirparticularneedsare,whetherit'sperpetual,whetherit'sterm,andthesizingofthelicensewillcertainlybefactoredonmanythings.Inthiscase,notourhistoriccapacitypricing,butrather,sizeofcustomer.


Okay.That'shelpful,becauseIthink--andyouknowthis,right?Wegetaskedthequestionsallthetimeaboutyourpricingandit'salwaysbeenabigquestionandit'sactuallybeensomewhatofaconcernofinvestors.




ButIthinkwhenItalktoinvestorsthatIusuallysay,listen,Splunkmanagementisnotstupid.Ifitmakessensetodothingsinadifferentwaywithalargecustomer,that'swhattheydo.Butitsoundsinthiscasewhereyoumightbeableto--atleastasfarasIknow,youhadn'tbeendoingthatalotwithsmallercustomers.AndwhatImeanthattheydon'thavehugebusinessesyet.

Andwhenyoutalkmaturity,Dave,Ijustwanttomakesureyou'retalkingaboutmaturityastohow--notmaturityofthecompanyandhowbigtheyare,butmaturityoftheiradoptionofSplunk.

DaveConte (CFO):

That'sright.You'vegotit.


Okay,cool.

DaveConte (CFO):

HowfaralongaretheyontheirdatajourneywiththeSplunk?


Okay.Gotit.Great.Thanks.AndifIcould,afollow-upforGodfrey.Godfrey,whenyouspeakaboutthebusinessanalyticsopportunity,doesthisrefertowhatmostpeoplethinkofwhentheythinkofSplunk,likewebanalyticsofretailWebsites,orareyoureferringtosomethingevenbroaderthanthat,likesomeoftheapplicationsthattraditionalbusinessintelligenceaddress?Ifyouarethinkingbroaderthanthat,willthatrequiremorespecializedappstobewrittenontopofSplunk?


Greatquestion.

IdonotthinkthatSplunkhas--shouldpursuetheanalyticsmarketplaceasdefinedbytoday'sBItools.Thereareplentyoftoolsthatunderstandhowtosearch,report,analyze,structureddatasetsandthat'snotaplacewherewewouldaddsignificantvalue.Theplacewherewereallyaddvalueisindatain-flight.Soyouthinkaboutdatathat'sinmotionandthat'swhereSplunk'stimeseriesenginehasasignificantadvantageoveranythingelse.

Now,ifyoucombinethosetwosetsofdata,datathat'sinmotionwithdatathat'satrest,youcandosomething,oh,likeDominoesdoes,whentheylookatrealtimephonesfromfolks'mobiledevicestotheirwebsystem,andyoucouldunderstandwhatpizzarightnowisbeingorderedthat'smostpopularinCleveland,let'sputamarketingpromotionouttheretoboostsalesinthatmoment.SothetraditionalBImarket,peoplejust--theycomparedthisquarter'sresultstolastquarter'sresultsandlookforvariancesinthosenumbersandtimereallyisn'tadimension.

Ourcustomers,onesthathaveveryhightransactionvolumesandcustomer-facingdot-comenvironmentsormobileenvironments,whichisreallyonthesurge,youwanttobeabletocombinethevaluethat'sinthedatainmotionalongwithsomeofthedatathat'satrest,likecustomernames,accountnumbers,pricinginformation,andsoforthandwehaveanenormousopportunitythere.WehavealotofcustomersthatdoitthatwithSplunktoday.

It'smostlykindofacustombusiness,wheretheygrowintothatovertimeandIthinkwecanacceleratethatifwestarttoputamodelaroundit.Theanswertothelastpartofyourquestionisyes,itwillrequiresometemplatesorcontentthathelpacceleratethatlevelofadoptionbecauseit'safairlycomplexsetoftechnologiesthatyou'repullingtogether.





Okay.Great.That'shelpful.

AndifIcould,soitsoundslike,youtalkaboutreal-timeanalyticsandisthenextstepthere,andisthatpartofwhatyouweresaying,wereyousortofimplyingthatyoualso,bydoingthis,getintopredictiveanalyticstoo?Maybethat'stoobroadacategory.Idon'tknow.


Yes.Iagreewiththat.


Okay.Great.Thanksalot.Nicejob.


Appreciateit.Thanks.

Operator:

MarkMurphy,JPMorgan.

MarkMurphy(Analyst-JPMorgan):

Yes.Thankyou.Iwilladdmycongratulations.

Godfrey,Ibelieveyousaidthesecuritygroupisonfire,andI'mcurious,diditgrowmateriallyfasterthanthetotalrevenuegrowthforthequarter,whichcameinat48%?Evenifyoucancommentdirectionallyonthat.Doexpectthatthesecuritygroupisgoingtooutgrowtherestofthebusinessthisfiscalyear?


Yes.

Imean,asImentionedto,IbelieveitwasPhilaskedthequestion,securitybusinessisrunningbetween35%and40%ofourrevenueonanygivenquarterbasis,soitsgrowingat--asfastorfaster,dependingonthegeoandalltherestofthat,soit'sallgood.Thereasonit'sonfireishighend,bytheway.Ijustwanttobeclearaboutthat.


Thankyou,Godfrey.


Thankyou.

Andthenasafollow-up,Godfrey,Iwasadigestingthehandfulofchangesinsalesmanagementandofcourse,Ialwayswonderifyou'refactoringinanypossibilityofanyminordisruptionsthatcouldresultinthefieldthisfiscalyearorbeyond?Andthen,whenyoumentionedthatthenewunlimitedpricing,Istartedwonderingiftherecouldbeanoffsetthere,justintermsofperhapssomepent-upcustomerdemand?

I'maskingthisquestionfromadifferentangle.I'dhavetothinkyoucouldseeasurgeofsomelargertransactionsfromcustomerswhowanttoseparatethecostfromthedatagrowthormaybeapull-forwardofcertaintransactions.SoI'mjustcurious,whattoexpectonbothfronts?Isthetimingofthosetwoeventspurely




coincidental?

Onthedisruptionquestion,IthinkQ1isQ1.It'salwaystheplacewhereDougandhisteam,theyassignnewquotas,theysplitterritories,theyreassignaccountteams.Whateveritis.Allthechangesthatoccurinenterprisesoftware,theyalwaysoccurinQ1,whichis,IthinkoneofthereasonswhyyouseeQ1seasonallyweakerthantherestofthequarters.It'swhenallthechangehappens.

Sothere'snothingparticularlydifferentthisyearaboutitthanprior.It'sjustallthosechangesandrolloutatthebeginningoftheyearandoffyougo,sothatpartofitfeelsprettygood.

IwouldjustliketoreemphasizewhatDougsaid.Thatis,onthepricingmodel,wehavemultipledimensionstothatmodel.WehaveaperpetualmodelforcustomerswhowanttospendCapExandownsoftware,wehavetermforpeoplewholiketobuyitthatway,andwehaveunlimited,dependingonwhatyouneedasacustomer.I--throughalltheseyears,thenumberonethingyoucancountonisthatthecustomerhasanopinionabouthowtheywanttodothat,andtheyusuallytelluswhichofthosemodelsaremostimportanttothem.

SoIdon'texpectasurgeofanythingasmuchasIexpect--well,ifthereisasurge,itwouldbeinconversation,customerssaying,cometellmeaboutyourprogram.Ithinkthatwillbefantastic.ButasDougsaid,pricingistheeighthstepoutofaneight-stepcustomermanagementprocessthatweteachhere,andsowedon'tleadwithpricing.

It'sjustawaytohaveacustomerbetterunderstandthemodels.I'mexcitedaboutthenewprogramsbutit'sgoingtotakethenormalamountoftimefortheseopportunitiesforittoshowuswhattheoutcomeis,whichwaythecustomerpreferstobuy.

MarkMurphy(Analyst-JPMorgan):

Thankyou.


Thanks,Mark.

Operator:

GregDunham,GoldmanSachs.

GregDunham(Analyst-GoldmanSachs):

Hi,thanksfortakingmyquestion.Aquickonsecurity.It'srelatedtoHaiyan'scommentsthatit'snotjustthatthesecuritymarketisdoingwell,it'sthatyouroutgrowingthemarket.Thequestionreallyis,whathasbeentheimpactfromthesecuritymarketsgroup?Whathaveyoumeasuredasthebenefitstothatinthelastyear?

Couldyourankorder?Isitvolume?Isitlessdiscounting?Isitconsistently?Howdoyoumeasurethesuccessofmovingtothatmodelwithinsecuritynowatyearend?

Thanks.


Letmegiveyouacoupleofthingsthatwesetoutasgoalsforourteam.Ithinkit'sthewinningandthemomentumcomesfromusbringingtherightsolutionstothecustomerandwhattheyreallyneedistohaveanewapproachtohelpwithtoday'sadvancedthreats.

Someofthelegacyproductisnotreallymeetingthatneed,soIthinkthat'sthemostimportantpart.Intermsof




metricsandothersis,howmanytimesdowegetinvitedtothetable.Ithinkwithusbeingrecognizedastheleaderforthemarket,weareinalltheconversations,becausewegetautomaticallyincludedintheRSPs.

Theotherpartishowmanytimesthatwecangoandmessageouttothemarketandthecustomerswhyanewapproachisneeded,whybeingthenewnervecenterisanimportantthingaspartoftheirtechnologyrefreshwhentheylookatintosecurity.Ithinkotherareasforusisgettingourfieldorganizationtrainedandsowecanhaveaproductiveconversationwithcustomersandwiththeusersanddifferentaudienceswiththerightmessagingandtherightsolutionstothem.

Ithinkthoseareafew.Thereisprobablymanyotherthingsintermsofattachratesandgrowthrates.IthinkthosearethingsI' lldefertoDave.

DaveConte (CFO):

Yes,Greg.It'sDave.

Ithinkwe'vebeentalkingalongtimeaboutsingleproductandmulti-productsandwehavebeeninvestingsignificantlyintermsofcontentthatwecanprovideontopofourplatformandenablingotherstoprovidecontent,bothourcustomersandthirdpartiestoprovidecontentontopofourplatform.Ashiningexampleofthatisourenterprisesecurityappthatsitsontop.

Haiyanmentionedattachrate.Therateofattachisthatweseeasourmarketgroupthat'sledbyHaiyanisabletoengageandarticulatethevaluepropositionofoursolutionaroundsecurity,hasbeenadifferentiatorforusinthatmarket,andweseeitultimatelyinourwinrate,whichisextremelyhigh.

Whenweareengagedinanopportunity,thedepthofexpertisethatourmarketgroupfocusbringstothefieldorganization,anditsinfluenceontheproductdevelopmentorganization,createsasolutionthatcustomershavetohavetoprotectthemselves.

GregDunham(Analyst-GoldmanSachs):

That'shelpful.Thanks.


Thanks,Greg.

Operator:

KarlKeirstead,DeutscheBank.

KarlKeirstead(Analyst-DeutscheBank):

Actually,I'mgood.I' llpingKenafterwards.Thankyou.


Thanks,Carl.Appreciatethat.

Operator:

Thankyou.Thisdoesconcludeourquestion-and-answersessionfortoday'sprogram.I'dliketohandoftheprogrambacktoManagementforanyfurtherremarks.


Great.Thanks,Jonathan.Appreciateyourhelptoday.Thanks,everybody,forjoiningus.




Asareminder,wewillbehostingaSplunkliveeventinDConApril8.YoucanregisterviatheWebsite.Hopeeverybodyhasagoodevening.Thankyouforyourtimetoday.

Operator:

Thankyou,ladiesandgentlemen,foryourparticipationintoday'sconference.Thisdoesconcludetheprogram.

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.

Documents

Splunk (SPLK) Earnings Report: Q4 2015 Conference Call ...s.t.st/media/xtranscript/2015/Q1/13061339.pdf · welcomed a record 600 new customers to Splunk in Q4 and had a rocking quarter