Splunk Inc. Announces Fiscal Second Quarter 2016 Financial Results

SAN FRANCISCO–(BUSINESS WIRE)–Splunk Inc. (NASDAQ:SPLK), provider of the leading software platform for real-time Operational Intelligence, today announced results for its fiscal second quarter ended July 31, 2015.

Second Quarter 2016 Financial Highlights

  • Total revenues were $148.3 million, up 46% year-over-year.
  • License revenues were $88.0 million, up 42% year-over-year.
  • GAAP operating loss was $65.6 million; GAAP operating margin was negative 44.2%.
  • Non-GAAP operating income was $4.8 million; non-GAAP operating margin was 3.2%.
  • GAAP loss per share was $0.44; non-GAAP earnings per share were $0.03.
  • Operating cash flow was $13.6 million with free cash flow of $10.8 million.

“We are pleased with our quarterly results and thrilled to cross the 10,000 customer mark worldwide,” said Godfrey Sullivan, Chairman and CEO. “We have extended our position as the leading platform for machine data with two acquisitions focused on machine learning. With Metafor, we added world-class IT anomaly detection, and with Caspida we will provide data science-driven behavioral analytics for security. Our continuing investments in product innovation will help our customers realize even greater value from our solutions across a wide range of use cases.”

Second Quarter 2016 and Recent Business Highlights

Customers:

  • Signed more than 500 new customers, ending the quarter with more than 10,000 customers worldwide.
  • New and Expansion Customers Include: AFLAC, Barnes & Noble, Blue Coat Systems Inc., City of San Diego, Covered California, Deutsche Bahn (Germany), Experian (United Kingdom), Gatwick Airport (United Kingdom), GEICO, Infospace, Materialise NV (Belgium), Maxim’s Caterers (Hong Kong), Pernod Ricard (France), Samsung Semiconductor (South Korea), Sharp Healthcare, Staples, State of Missouri, Texas Roadhouse, Unify Solutions (Australia), United States Marine Corp, U.S. Securities and Exchange Commission and Yelp.

Product:

Acquisitions:

  • Announced the acquisition of Caspida, extending Splunk’s security analytics leadership by adding Behavioral Analytics and machine learning to better detect advanced and insider threats.
  • Acquired Metafor Software, an anomaly detection and machine learning company.

Strategic and Channel Partners:

  • Splunk technology partner, Kepware Technologies, awarded the 2015 IoT Evolution Product of the Year Award, from IoT Evolution Magazine, for its Industrial Data Forwarder for Splunk plug-in.

Recognition:

Events:

  • Hosted SplunkLive! events in cities around the world, including: Boston, Chicago, Hamburg, London, New York, Osaka, Philadelphia, San Francisco, Singapore, Sydney, Tokyo, Toronto and Vienna. Presentations can be found on the SplunkLive! website.

Financial Outlook

The company is providing the following guidance for its fiscal third quarter 2016 (ending October 31, 2015):

  • Total revenues are expected to be between $158 million and $160 million.
  • Non-GAAP operating margin is expected to be between 1% and 2%.

The company is updating its previous guidance for its fiscal year 2016 (ending January 31, 2016):

  • Total revenues are expected to be between $628 million and $632 million (was $610 million to $614 million per prior guidance provided on May 28, 2015).
  • Non-GAAP operating margin is expected to be between 2% and 3%.

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

While a reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis, the company has provided a reconciliation of GAAP to non-GAAP financial measures in the financial statement tables for its fiscal second quarter 2016 and fiscal first half 2016 non-GAAP results included in this press release.

Conference Call and Webcast

Splunk’s executive management team will host a conference call today beginning at 1:30 p.m. PT (4:30 p.m. ET) to discuss the company’s financial results and business highlights. Interested parties may access the call by dialing (866) 501-1535. International parties may access the call by dialing (216) 672-5582. A live audio webcast of the conference call will be available through Splunk’s Investor Relations website at http://investors.splunk.com/events.cfm. A replay of the call will be available through Sept. 3, 2015 by dialing (855) 859-2056 and referencing Conference ID 89826862.

Safe Harbor Statement

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding Splunk’s revenue and non-GAAP operating margin targets for the company’s fiscal third quarter and fiscal year 2016 in the paragraphs under “Financial Outlook” above and other statements regarding momentum in the company’s business, customer growth, customer adoption of and value using our existing and acquired products, product innovations, and planned investments. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: Splunk’s limited operating history and experience developing and introducing new products and services; including its cloud offerings; risks associated with Splunk’s rapid growth, particularly outside of the U.S.; Splunk’s inability to realize value from its significant investments in its business, including through acquisitions and product and service innovations; Splunk’s transition to a multi-product software and services solutions oriented business; Splunk’s inability to successfully integrate acquired businesses, products and technologies; and general market, political, economic and business conditions.

Additional information on potential factors that could affect Splunk’s financial results is included in the company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2015, which is on file with the U.S. Securities and Exchange Commission. Splunk does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

About Splunk Inc.

Splunk Inc. (NASDAQ:SPLK) provides the leading software platform for real-time Operational Intelligence. Splunk® software and cloud services enable organizations to search, monitor, analyze and visualize machine-generated big data coming from websites, applications, servers, networks, sensors and mobile devices. More than 10,000 enterprises, government agencies, universities and service providers in more than 100 countries use Splunk software to deepen business and customer understanding, mitigate cybersecurity risk, prevent fraud, improve service performance and reduce cost. Splunk products include Splunk® Enterprise, Splunk Cloud™, Hunk®, Splunk Light™, Splunk MINT and premium Splunk Apps. To learn more, please visit http://www.splunk.com/company.

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Splunk, Splunk>, Listen to Your Data, The Engine for Machine Data, Hunk, Splunk Cloud, Splunk Light, SPL and Splunk MINT are trademarks and registered trademarks of Splunk Inc. in the United States and other countries. All other brand names, product names, or trademarks belong to their respective owners. © 2015 Splunk Inc. All rights reserved.

                 
SPLUNK INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended Six Months Ended
July 31, July 31, July 31, July 31,
2015 2014 2015 2014
Revenues
License $ 87,960 $ 62,081 $ 159,832 $ 113,355
Maintenance and services   60,366     39,466     114,159     74,099  
Total revenues   148,326     101,547     273,991     187,454  
 
Cost of revenues
License 1,813 72 2,974 150
Maintenance and services   23,227     14,999     45,151     29,108  
Total cost of revenues 1,2,3   25,040     15,071     48,125     29,258  
Gross profit   123,286     86,476     225,866     158,196  
 
Operating expenses
Research and development 48,308 34,179 93,006 63,921
Sales and marketing 111,786 79,978 213,775 151,056
General and administrative 4,5   28,760     32,676     55,632     53,679  
Total operating expenses 1,2,3   188,854     146,833     362,413     268,656  
Operating loss   (65,568 )   (60,357 )   (136,547 )   (110,460 )
 
Interest and other income (expense), net
Interest income, net 425 163 785 293
Other income (expense), net   (295 )   (54 )   (206 )   (274 )
Total interest and other income (expense), net   130     109     579     19  
Loss before income taxes (65,438 ) (60,248 ) (135,968 ) (110,441 )
Income tax provision (benefit) 6   (10,149 )   534     (9,493 )   1,096  
Net loss $ (55,289 ) $ (60,782 ) $ (126,475 ) $ (111,537 )
 
 
Basic and diluted net loss per share $ (0.44 ) $ (0.51 ) $ (1.01 ) $ (0.94 )
 

Weighted-average shares used in computing basic and diluted net loss per share

126,621 119,012 125,602 118,165
 
 
1 Includes amortization of acquired intangible assets as follows:
Cost of revenues $ 1,572 $ 703 $ 2,483 $ 1,390
Research and development 79 69 148 138
Sales and marketing 155 150 305 297
 
2 Includes stock-based compensation expense as follows:
Cost of revenues $ 5,662 $ 3,808 $ 12,194 $ 7,614
Research and development 19,301 13,578 39,376 26,165
Sales and marketing 28,210 21,263 57,820 40,383
General and administrative 10,436 20,861 20,328 28,587
 
3 Includes employer payroll tax on employee stock plans as follows:
Cost of revenues $ 398 $ 97 $ 661 $ 233
Research and development 732 515 1,635 1,322
Sales and marketing 985 401 2,061 1,281
General and administrative 602 328 1,182 893
 
4 Includes ground lease expense related to build-to-suit lease obligation $ 222 $ 222 $ 444 $ 222
 

5 Includes acquisition-related costs

$ 1,993 $ $ 1,993 $
 
6 Includes a partial release of the valuation allowance due to acquisition $ (10,924 ) $ $ (10,924 ) $
 
       
SPLUNK INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
July 31, January 31,
2015 2015
 
ASSETS
 
Current assets
Cash and cash equivalents $ 326,200 $ 387,315
Investments, current portion 529,174 462,849
Accounts receivable, net 99,694 128,413
Prepaid expenses and other current assets   22,312     21,256  
Total current assets   977,380     999,833  
 
Investments, non-current 71,685 165,082
Property and equipment, net 77,013 50,374
Intangible assets, net 55,842 10,416
Goodwill 124,321 19,070
Other assets   6,899     3,016  
Total assets $ 1,313,140   $ 1,247,791  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities
Accounts payable $ 4,116 $ 3,726
Accrued payroll and compensation 57,174 65,220
Accrued expenses and other liabilities 33,702 27,819
Deferred revenue, current portion   263,157     249,883  
Total current liabilities   358,149     346,648  
 
Deferred revenue, non-current 58,093 54,202
Other liabilities, non-current   59,311     33,620  
Total non-current liabilities   117,404     87,822  
Total liabilities   475,553     434,470  
 
Stockholders’ equity
Common stock 128 123
Accumulated other comprehensive loss (2,164 ) (837 )
Additional paid-in capital 1,352,921 1,200,858
Accumulated deficit   (513,298 )   (386,823 )
Total stockholders’ equity   837,587     813,321  
Total liabilities and stockholders’ equity $ 1,313,140   $ 1,247,791  
 
                 
SPLUNK INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended Six Months Ended
July 31, July 31, July 31, July 31,
2015 2014 2015 2014
 
Cash Flows From Operating Activities
Net loss $ (55,289 ) $ (60,782 ) $ (126,475 ) $ (111,537 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 4,310 2,887 7,776 5,538
Amortization of investment premiums 361 136 722 136
Stock-based compensation 63,609 59,510 129,718 102,749
Deferred income taxes (10,986 ) (228 ) (11,305 ) (513 )
Excess tax benefits from employee stock plans (186 ) (389 ) (652 ) (868 )
Changes in operating assets and liabilities
Accounts receivable, net (18,353 ) (17,725 ) 28,719 13,510
Prepaid expenses, other current and non-current assets 12,795 968 12,468 1,492
Accounts payable (502 ) 5 (100 ) 391
Accrued payroll and compensation 9,657 7,093 (8,698 ) (6,664 )
Accrued expenses and other liabilities (7,725 ) 4,878 (7,085 ) 9,339
Deferred revenue   15,947     12,983     17,165     14,674  
Net cash provided by operating activities   13,638     9,336     42,253     28,247  
 
Cash Flow From Investing Activities
Purchases of investments (58,681 ) (53,070 ) (219,195 ) (303,953 )
Maturities of investments 87,000 15,000 247,000 15,000
Acquisitions, net of cash acquired (142,693 ) (2,500 ) (142,693 ) (2,500 )
Purchases of property and equipment (2,809 ) (2,908 ) (9,224 ) (7,146 )
Other investment activities           (1,500 )    
Net cash used in investing activities   (117,183 )   (43,478 )   (125,612 )   (298,599 )
 
Cash Flow From Financing Activities
Proceeds from the exercise of stock options 5,370 3,582 10,736 9,418
Excess tax benefits from employee stock plans 186 389 652 868
Proceeds from employee stock purchase plan 10,906 8,355 10,906 8,355
Payment related to build-to-suit lease obligation       (523 )       (523 )
Net cash provided by financing activities   16,462     11,803     22,294     18,118  
Effect of exchange rate changes on cash and cash equivalents   (224 )   (10 )   (50 )   179  
Net decrease in cash and cash equivalents (87,307 ) (22,349 ) (61,115 ) (252,055 )
Cash and cash equivalents at beginning of period   413,507     667,747     387,315     897,453  
Cash and cash equivalents at end of period $ 326,200   $ 645,398   $ 326,200   $ 645,398  
 

SPLUNK INC.
Non-GAAP financial measures and reconciliations

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

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

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

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

         
SPLUNK INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended Six Months Ended
July 31, July 31, July 31, July 31,
2015 2014 2015 2014
 

Reconciliation of cash provided by operating activities to free cash flow:

Net cash provided by operating activities $ 13,638 $ 9,336 $ 42,253 $ 28,247
Less purchases of property and equipment   (2,809 )   (2,908 )   (9,224 )   (7,146 )
Free cash flow (Non-GAAP) $ 10,829   $ 6,428   $ 33,029   $ 21,101  
Net cash used in investing activities $ (117,183 ) $ (43,478 ) $ (125,612 ) $ (298,599 )
Net cash provided by financing activities $ 16,462   $ 11,803   $ 22,294   $ 18,118  
 

Gross margin reconciliation:

GAAP gross margin 83.1 % 85.2 % 82.4 % 84.4 %
Stock-based compensation expense 3.8 3.7 4.5 4.1
Employer payroll tax on employee stock plans 0.3 0.1 0.2 0.1
Amortization of acquired intangible assets   1.1     0.7     0.9     0.7  
Non-GAAP gross margin   88.3   %   89.7   %   88.0   %   89.3   %
 

Operating income (loss) reconciliation:

GAAP operating loss $ (65,568 ) $ (60,357 ) $ (136,547 ) $ (110,460 )
Stock-based compensation expense 63,609 59,510 129,718 102,749
Employer payroll tax on employee stock plans 2,717 1,341 5,539 3,729
Amortization of acquired intangible assets 1,806 922 2,936 1,825
Acquisition-related costs 1,993 1,993
Ground lease expense related to build-to-suit lease obligation   222     222     444     222  
Non-GAAP operating income (loss) $ 4,779   $ 1,638   $ 4,083   $ (1,935 )
 

Operating margin reconciliation:

GAAP operating margin (44.2 ) % (59.4 ) % (49.8 ) % (58.9 ) %
Stock-based compensation expense 43.0 58.6 47.3 54.8
Employer payroll tax on employee stock plans 1.8 1.3 2.0 2.0
Amortization of acquired intangible assets 1.2 0.9 1.1 1.0
Acquisition-related costs 1.3 0.7
Ground lease expense related to build-to-suit lease obligation   0.1     0.2     0.2     0.1  
Non-GAAP operating margin   3.2   %   1.6   %   1.5   %   (1.0 ) %
 

Net income (loss) reconciliation:

GAAP net loss $ (55,289 ) $ (60,782 ) $ (126,475 ) $ (111,537 )
Stock-based compensation expense 63,609 59,510 129,718 102,749
Employer payroll tax on employee stock plans 2,717 1,341 5,539 3,729
Amortization of acquired intangible assets 1,806 922 2,936 1,825
Acquisition-related costs 1,993 1,993
Ground lease expense related to build-to-suit lease obligation 222 222 444 222
Partial release of the valuation allowance due to acquisition   (10,924 )       (10,924 )    
Non-GAAP net income (loss) $ 4,134   $ 1,213   $ 3,231   $ (3,012 )
 

Reconciliation of shares used in computing basic and diluted net income (loss) per share

Weighted-average shares used in computing GAAP basic net loss per share 126,621 119,012 125,602 118,165
Effect of dilutive securities: Employee stock awards   5,380     6,606     5,551      
Weighted-average shares used in computing non-GAAP basic and diluted net income (loss) per share   132,001     125,618     131,153     118,165  
GAAP basic and diluted net loss per share $ (0.44 ) $ (0.51 ) $ (1.01 ) $ (0.94 )
Non-GAAP basic and diluted net income (loss) per share $ 0.03   $ 0.01   $ 0.02   $ (0.03 )




Source: Splunk Inc. Announces Fiscal Second Quarter 2016 Financial Results

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