Category: SPLK

SPLK – Splunk stock gains after UBS upgrade

Shares of Splunk Inc.
SPLK,
+2.52%

are up more than 3% in Wednesday afternoon trading after UBS analyst Karl Keirstead upgraded the software stock to buy from neutral. Keirstead is upbeat about the company following conversations with industry partners and customers, with a “stable” tone “namely about competition, the potential for upside in security-related demand and good Splunk Cloud traction,” he wrote. “Importantly, this is against a backdrop of continued mixed/cautious Street sentiment, making the stock set-up attractive in our view.” While there’s some concern on Wall Street that Splunk could be displaced by competitors, Keirstead found that risk to be “exaggerated” based on his industry checks. He raised his price target to $175 from $137 on Splunk’s stock, which has gained 28% over the past three months as the S&P 500
SPX,
+0.22%

has risen 7%.

SPLK – Splunk (SPLK) Gains But Lags Market: What You Should Know

Splunk (SPLK Free Report) closed at $141.75 in the latest trading session, marking a +0.48% move from the prior day. This move lagged the S&P 500’s daily gain of 1.02%.

Prior to today’s trading, shares of the maker of software that helps companies collect and analyze internal data had gained 0.96% over the past month. This has lagged the Computer and Technology sector’s gain of 1.36% and the S&P 500’s gain of 3.01% in that time.

SPLK will be looking to display strength as it nears its next earnings release. The company is expected to report EPS of -$0.69, down 109.09% from the prior-year quarter. Our most recent consensus estimate is calling for quarterly revenue of $562.23 million, up 14.35% from the year-ago period.

Looking at the full year, our Zacks Consensus Estimates suggest analysts are expecting earnings of -$1.48 per share and revenue of $2.52 billion. These totals would mark changes of -169.09% and +12.85%, respectively, from last year.

Any recent changes to analyst estimates for SPLK should also be noted by investors. Recent revisions tend to reflect the latest near-term business trends. As such, positive estimate revisions reflect analyst optimism about the company’s business and profitability.

Based on our research, we believe these estimate revisions are directly related to near-team stock moves. We developed the Zacks Rank to capitalize on this phenomenon. Our system takes these estimate changes into account and delivers a clear, actionable rating model.

Ranging from #1 (Strong Buy) to #5 (Strong Sell), the Zacks Rank system has a proven, outside-audited track record of outperformance, with #1 stocks returning an average of +25% annually since 1988. Over the past month, the Zacks Consensus EPS estimate remained stagnant. SPLK is currently sporting a Zacks Rank of #4 (Sell).

The Internet – Software industry is part of the Computer and Technology sector. This group has a Zacks Industry Rank of 200, putting it in the bottom 22% of all 250+ industries.

The Zacks Industry Rank includes is listed in order from best to worst in terms of the average Zacks Rank of the individual companies within each of these sectors. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

Be sure to follow all of these stock-moving metrics, and many more, on Zacks.com.

SPLK – Is Splunk Stock a Buy After Getting a $1 Billion Investment From Silver Lake?

Splunk (NASDAQ:SPLK) has been a severe underperformer in the last year. As of this writing, shares are down nearly 30% over the last 12-month stretch compared to a 36% run for the S&P 500. The data log management and monitoring software leader has also trailed behind its smaller higher-growth and cloud-native peers as it adapts its business to more modern customer needs.  

I think Splunk could be cheap right now after its underwhelming performance in the last year, though, and private equity firm Silver Lake seems to think so too. The Silicon Valley-based tech investor recently plopped $1 billion down on Splunk, a significant cash infusion given Splunk’s current enterprise value sits at $23 billion. Is this the software value stock for you too?

Young person sits at a desk at home looking at their phone.

Image source: Getty Images

What’s to be done with $1 billion?

Splunk’s $1 billion cash windfall gets it access to some cheap capital — at least cheap in the short-term. Silver Lake’s investment is via convertible notes, debt that can be turned into new stock later on. The notes have an annual interest rate of just 0.75% per year payable to Silver Lake, and they mature in July 2026 if they haven’t been repurchased or redeemed by then. The initial conversion price is $160 per share. At the time of the announced deal, that was some 30% above where Splunk stock was trading, although shares jumped nearly 10% higher on the news. As a reminder, debt converted into new stock dilutes ownership for existing shareholders. 

Silver Lake obviously sees upside for Splunk stock and will collect a meager amount of interest along the way for its convertible debt stake in the company. Splunk, for its part, plans to use the cash to continue to transform its business for the cloud era. Concurrent with Silver Lake’s investment, Splunk said it will also begin executing a new $1 billion share repurchase plan (which should help offset any future conversion of the debt into new stock). Silver Lake Chairman and Managing Partner Kenneth Hao will also join Splunk’s board of directors to help guide the company’s journey.

Managing its own migration to the cloud

Splunk’s software collects data logs and can give an enterprise added insight into operations, security, and application performance. But the advent of the cloud has shifted these needs away from legacy IT systems, and Splunk wasn’t exactly ready for the change. It’s had to adapt its suite of services and the way it bills customers for this new cloud era. Cloud annual recurring revenue (ARR) has been off to the races and was up 83% year over year in Q1 fiscal 2022 to $833 million, but these changes have throttled overall revenue expansion. Total revenue in Q1 2022 was up just 16% from a year ago to $502 million, a decent rally after overall revenue fell 5% last year.

This cloud transformation also caused Splunk to dip into negative free cash flow territory, and it only just returned to positive free cash flow in Q1 2022 (to $66.7 million). Management expects to be in the black for the balance of the year ahead, so that’s good news. But there’s still lots of work to be done on the cloud business. Cloud ARR was only just over one-third of total ARR in the last quarter, so there will likely be more variability in overall growth and profitability in the next couple of years as more customers make the switch.

Then there’s also the balance sheet. At the end of April, the company had $1.88 billion in cash, equivalents, and investments, offset by convertible notes of $2.33 billion. Silver Lake thus isn’t the only investor in line to convert debt into new stock, and this isn’t the cleanest balance sheet in the software industry at the moment. However, cash on hand and positive free cash flow will fund that new $1 billion share repurchase program, which should help boost earnings per share over time.

It appears Splunk is back in growth mode, and recent acquisitions and the launch of its new Observability Suite and Security Cloud offerings could help sustain this return to growth. At just under 10 times trailing-12-month sales, this cloud stock trades for a discount to its higher growth peers like Dynatrace and Datadog. Though it’s been beat down in the last year, Splunk operates as the leader in a growing industry and could be a real long-term value for those who can patiently wait out the inevitable bumps in the road.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

SPLK – Splunk (SPLK) Outpaces Stock Market Gains: What You Should Know

In the latest trading session, Splunk (SPLK Free Report) closed at $135.19, marking a +1.7% move from the previous day. This change outpaced the S&P 500’s 1.66% gain on the day. At the same time, the Dow added 1.39%, and the tech-heavy Nasdaq gained 1.24%.

Coming into today, shares of the maker of software that helps companies collect and analyze internal data had lost 8.37% in the past month. In that same time, the Computer and Technology sector lost 1.7%, while the S&P 500 gained 1.91%.

SPLK will be looking to display strength as it nears its next earnings release. The company is expected to report EPS of -$0.72, down 28.57% from the prior-year quarter. Meanwhile, the Zacks Consensus Estimate for revenue is projecting net sales of $492.89 million, up 13.55% from the year-ago period.

Looking at the full year, our Zacks Consensus Estimates suggest analysts are expecting earnings of -$0.76 per share and revenue of $2.55 billion. These totals would mark changes of -38.18% and +14.19%, respectively, from last year.

Investors might also notice recent changes to analyst estimates for SPLK. These revisions typically reflect the latest short-term business trends, which can change frequently. As such, positive estimate revisions reflect analyst optimism about the company’s business and profitability.

Our research shows that these estimate changes are directly correlated with near-term stock prices. Investors can capitalize on this by using the Zacks Rank. This model considers these estimate changes and provides a simple, actionable rating system.

Ranging from #1 (Strong Buy) to #5 (Strong Sell), the Zacks Rank system has a proven, outside-audited track record of outperformance, with #1 stocks returning an average of +25% annually since 1988. The Zacks Consensus EPS estimate has moved 21.25% lower within the past month. SPLK is holding a Zacks Rank of #3 (Hold) right now.

The Internet – Software industry is part of the Computer and Technology sector. This group has a Zacks Industry Rank of 181, putting it in the bottom 30% of all 250+ industries.

The Zacks Industry Rank gauges the strength of our industry groups by measuring the average Zacks Rank of the individual stocks within the groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

To follow SPLK in the coming trading sessions, be sure to utilize Zacks.com.

SPLK – Splunk Finds Its Way Through the Clouds


Illustration by Marcus Marritt

Unusual names are a tradition in Silicon Valley, but

Splunk

might take the cake. The software firm got its name from spelunking, or the exploration of caves. It’s one way to think about Splunk’s mission: peer into the dark; there are riches within.

Splunk (ticker: SPLK), founded in 2003, mines for nuggets of information within corporate networks—everything from system performance to bugs and errors. The company began by making the data searchable. Over time, it found ways to uncover issues in real time.

Today, Splunk helps customers improve the performance of computing systems, an area the industry calls observability; helps developers write and deploy better software, what software types call DevOps; and provides insights into system security and compliance.

Revenue rose more than 10 times from the January 2013 fiscal year through fiscal 2020, reaching $2.3 billion. On an adjusted, non-GAAP basis, Splunk grew profits to $1.88 a share in fiscal 2020 from 18 cents in fiscal 2016. But the numbers went askew in fiscal 2021, derailing the stock and creating an opportunity for intrepid investors.

The recent trouble was a long time coming. Splunk was created before the cloud era. When CEO Doug Merritt took the top job in 2015, the company was growing sales nearly 50% a year. But it came from software that was all “on premise,” meaning that it ran in customer data centers and was paid for via perpetual licenses. It was an old-fashioned approach.

Merritt says the computing world was shifting to the cloud, and Splunk wasn’t ready. “It felt like a 1990s company, but with a cool sexy product and a funky name,” he says.

Merritt knew that machine learning and artificial intelligence were key to the company’s long-term success, but Splunk’s intelligence gathering was limited because its software sat behind the customers’ firewalls.

Splunk pushed clients to move into the cloud and shift to a subscription-based model. Two years ago, the company sold its last perpetual license, which had been paired with annual maintenance contracts for upgrades and support. Some customers chose multiyear term contracts, while others moved to subscriptions.

With perpetual and term licenses, Splunk Chief Financial Officer Jason Child explains, most revenue is recognized upfront. With subscriptions, revenue is spread over the life of the contract. In the long run, investors like subscriptions, which provide more predictable revenue. But the transition always comes with near-term pain.

For Splunk, that pain came late last year, when the company reported its fiscal third-quarter results. Revenue came in short of the company’s forecast, falling 11% from a year earlier. Slower information-technology spending amid the Covid-19 pandemic was a contributing factor, but the big issue was an acceleration in the subscription shift. Investors threw in the towel. On Dec. 3, the day after the earnings report, Splunk fell 23%, clipping its market value by $8 billion.

When Splunk reported its full-year results on March 3, revenue was down 5%, snapping a string of 30%-plus growth years going back to the company’s initial public offering in 2012. “Last year, we went through what transformation experts like to call the valley of death,” Child says. “We had negative revenue, negative margin, negative cash flow…and now this year, you’ll start to see things get better.”

Investors haven’t yet bought in. At a recent $135, the stock is down almost 40% from last summer’s peak.

Child says revenue has become a misleading measure of Splunk’s growth. He would like investors to focus on annual recurring revenue, or ARR, a non-GAAP metric popular with cloud businesses; it shows the company’s subscription success. In the January quarter, Splunk’s revenue fell 6% from a year ago, but ARR was up 41%, to $2.36 billion. Cloud-based ARR—the heart of the growth story—was up 83%, to $810 million.

Splunk stopped providing guidance during the pandemic, but Child points out that Wall Street analysts think Splunk can grow ARR as much as 40% for years to come, topping $5 billion in fiscal 2025. By then, says Child, the Street is projecting that more than 80% of revenue will come from the cloud. That puts Splunk on track to be one of the world’s biggest cloud companies. It isn’t valued that way.


Datadog

(DDOG), projected to grow 38% in the coming year, trades for 31 times estimated sales.

Dynatrace

(DT), with 24% projected growth, trades for 17 times sales; and

Elastic

(ESTC), with 26% projected growth, trades for 14 times sales. Splunk, which should outgrow all of them, trades for less than nine times.

Brook Dane, a portfolio manager with Goldman Sachs Asset Management, which owns Splunk stock, says the business-model changes have made it harder for investors to project Splunk’s future, an issue compounded by Splunk withdrawing its long-term guidance. But looking out 18 to 24 months, Dane sees a company with “very attractive growth,” winning new business and expanding into new markets. He thinks the stock can eventually trade at a much higher multiple.

Morgan Stanley analyst Keith Weiss likewise remains steadfastly bullish. “Low investor expectations and a reasonable multiple frame an attractive risk/reward for Splunk.” He has a price target of $213 on the stock, nearly 60% above its recent close.

With those potential gains, Splunk is surely worth deeper exploration.

Write to Eric J. Savitz at eric.savitz@barrons.com

SPLK – Splunk Inc. Announces Fiscal Fourth Quarter and Full Year 2021 Financial Results

SAN FRANCISCO–(BUSINESS WIRE)–Splunk Inc. (NASDAQ: SPLK), provider of the Data-to-Everything Platform, today announced results for its fiscal fourth quarter and full year ended January 31, 2021.

Fourth Quarter 2021 Financial Highlights

  • Cloud ARR was $810 million, up 83% year-over-year.
  • Total ARR was $2.36 billion, up 41% year-over-year.
  • Cloud revenue was $171 million, up 72% year-over-year.
  • Total revenues were $745 million, down 6% year-over-year.
  • 510 customers with ARR greater than $1 million, up 44% year-over-year.

Full Year 2021 Financial Highlights

  • Cloud revenue was $554 million, up 77% year-over-year.
  • Total revenues were $2.23 billion, down 5% year-over-year.
  • GAAP operating loss was $780 million; GAAP operating margin was negative 35%.
  • Non-GAAP operating loss was $85 million; non-GAAP operating margin was negative 3.8%.
  • GAAP loss per share was $5.68; non-GAAP loss per share was $0.55.
  • Operating cash flow was negative $191 million with free cash flow of negative $228 million.

“Just three years ago, we set out to radically transform Splunk to better help our customers put data at the heart of their own organizations and strategy,” said Doug Merritt, President and CEO, Splunk. “I’ve been incredibly proud of our progress through our transformation, and this quarter’s performance is no exception.”

“The market’s demand for data-driven solutions that enable digital and cloud transformation has never been higher,” Merritt continued. “We now have more than 500 customers investing over $1 million annually in our platform and solutions. At our size, Splunk is one of the fastest growing companies in the history of enterprise software.”

“With Total ARR growing 41% year-over-year and $810M of Cloud ARR accelerating to 83% growth, we are extremely proud of the team’s execution and the company’s business fundamentals, both of which remain strong,” said Jason Child, chief financial officer, Splunk. “As organizations continue to reinvent towards the cloud, I’m confident that our ability to support them across IT, Security and Developer operations positions Splunk for long-term success.”

Fiscal Year 2021 & Recent Business Highlights:

New and Expansion Customers Include: California Pizza Kitchen, Cornerstone OnDemand, Europcar (France), Ghana International Bank, Lockheed Martin Space, Nationwide Building Society (United Kingdom), NATO Communications and Information Agency (Belgium), The New York City Fire Department (FDNY), Nvidia, Okta, Shopify, Strava, Tesco (United Kingdom), Tide, United States Census Bureau

  • Splunk’s Data-to-Everything Platform Helps Customers Thrive in the Data Age: New enhancements to Splunk Cloud and Splunk Enterprise power Splunk’s Data-to-Everything Platform, allowing customers to bring data to every decision, question and action across IT, Security and Observability. With updates to Splunk Data Stream Processor, Splunk Connected Experiences and Splunk’s Machine Learning Environment (SMLE), organizations around the world can improve the speed, scale and flexibility of Splunk, with new search and mobile capabilities that enable faster cloud transformation.
  • Splunk’s Industry-Leading IT & Security Platforms Accelerate the Cloud Journey: Splunk announced a series of cloud-centric updates to its market-shaping IT and Security offerings, Splunk IT Service Intelligence (ITSI) and Splunk Enterprise Security. New updates to Splunk Mission Control helps security teams unify and modernize security operations in the cloud; while the latest version of Splunk IT Service Intelligence gives teams end-to-end visibility, operational efficiency and business intelligence so organizations can predict incidents before they impact customers.
  • Splunk Customers Go All-In On Cloud: Parallel to Splunk’s significant Cloud products transformation, businesses using Splunk around the world are embracing Splunk Cloud to modernize their data strategies and embrace The Data Age. Across 2020, Splunk’s cloud business represented nearly half of the company’s software bookings, enabling organizations to migrate workloads and applications to the cloud, manage colossal spikes in data volume or increase visibility into cloud security risks.
  • Splunk Launches the World’s Most Comprehensive Observability Suite: Announced at .conf20, Splunk’s Observability Suite combines the power of Splunk’s Data-to-Everything Platform with acquired technologies including SignalFx, Ominition, Streamlio, Plumbr, Rigor and Flowmill. By aligning best-in-class solutions for infrastructure monitoring, application performance monitoring, digital experience monitoring, log investigation and incident response into a single, tightly integrated suite of products, Splunk’s Observability Suite helps IT and DevOps teams tackle new monitoring challenges that other tools simply can’t effectively address.
  • Splunk’s World-Renowned Partners Help Fuel Digital Transformation Initiatives: Spawned by the world’s rapidly accelerating shift to the cloud, Splunk’s Splunk Partner+ ecosystem continued to expand, helping customers bring data to everything. This year, Splunk Cloud launched on Google Cloud, helping organizations achieve actionable insights from their data that enable fast decisions and real-time visibility across the enterprise. Splunk also built on its strong partnership and demonstrated increased mutual investment and resourcing with AWS by signing a new 3-year strategic collaboration agreement.
  • Splunk Recognized Globally as a Career-Defining, Destination Workplace: In spite of the ongoing COVID-19 pandemic, Splunk continued to grow its global workforce to over 6,000 Splunkers, united in one mission to turn data into doing. Throughout the year, the company was recognized as a leader in corporate culture, being named by Fortune as a Most Admired Company, Future 50 Company, Best Workplace for Women and Best Workplace for Millennials, amongst other technology and workplace awards.

Financial Outlook

The company is providing the following guidance for its fiscal first quarter 2022 (ending April 30, 2021):

  • Total ARR is expected to be between $2.42 billion and $2.44 billion.
  • Total revenues are expected to be between $480 million and $500 million.
  • Non-GAAP operating margin is expected to be approximately negative 30%.

All forward-looking non-GAAP financial measures contained in this section “Financial Outlook” exclude estimates for stock-based compensation and related employer payroll tax, acquisition-related adjustments, amortization of intangible assets and capitalized software costs.

A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty regarding, and the potential variability of, many of these costs and expenses that may be incurred in the future. The company has provided a reconciliation of GAAP to non-GAAP financial measures in the financial statement tables for its fiscal fourth quarter and full year 2021 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-presentations. A replay of the call will be available through March 10, 2021 by dialing (855) 859-2056 and referencing Conference ID 1086748.

Safe Harbor Statement

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding Splunk’s total ARR, revenue and non-GAAP operating margin targets for the company’s fiscal first quarter in the paragraphs under “Financial Outlook” above and other statements regarding our market opportunity, including the impact of the COVID-19 pandemic on the business environment, such as the pace of customer digital and cloud transformation and the importance of data; the growth of our cloud business; the market for data-related products and trends in this market, future growth and related targets, including trends in our cloud software business mix, customer renewals, momentum, growth rate, strategy, technology and product innovation; expectations for our industry and business, such as our business model, customer demand, our partner relationships, customer success and feedback, expanding use of Splunk by customers, and expected benefits and scale of our products. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: risks associated with Splunk’s rapid growth, particularly outside of the United States; Splunk’s inability to realize value from its significant investments in its business, including product and service innovations and through acquisitions; Splunk’s shift from sales of perpetual licenses in favor of sales of term licenses and subscription agreements for our cloud services which impact the timing of revenue, cash collections and margins; a shift from sales of term licenses in favor of sales of subscription agreements for our cloud services which impact the timing of revenue and margins; Splunk’s transition to a multi-product software and services business; Splunk’s inability to successfully integrate acquired businesses and technologies, such as Plumbr, Rigor and Flowmill; Splunk’s inability to service its debt obligations or other adverse effects related to our convertible notes; the impact of the COVID-19 pandemic and related public health measures on our business, as well as the impact of the COVID-19 pandemic on the overall economic environment, including customer buying capacity, urgency and patterns; and general market, political, economic, business and competitive market conditions.

Additional information on potential factors that could affect Splunk’s financial results is included in the company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2020, which is on file with the U.S. Securities and Exchange Commission (“SEC”) and Splunk’s other filings with the SEC. Splunk does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

About Splunk Inc.

Splunk Inc. (NASDAQ: SPLK) turns data into doing with the Data-to-Everything Platform. Splunk technology is designed to investigate, monitor, analyze and act on data at any scale.

Splunk, Splunk>, Data-to-Everything, D2E and Turn Data Into Doing are trademarks and registered trademarks of Splunk Inc. in the United States and other countries. All other brand names, product names, or trademarks belong to their respective owners. © 2021 Splunk Inc. All rights reserved.

Splunk Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
 

Three Months Ended January 31,

Fiscal Year Ended January 31,

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 
Revenues
License

$

405,954

 

$

517,542

 

$

971,378

 

$

1,373,367

 

Cloud services

 

171,396

 

 

99,413

 

 

554,132

 

 

312,358

 

Maintenance and services

 

167,728

 

 

174,227

 

 

703,875

 

 

673,201

 

Total revenues

 

745,078

 

 

791,182

 

 

2,229,385

 

 

2,358,926

 

Cost of revenues
License

 

4,315

 

 

6,702

 

 

20,864

 

 

24,116

 

Cloud services

 

75,718

 

 

52,985

 

 

252,290

 

 

161,510

 

Maintenance and services

 

69,863

 

 

68,151

 

 

274,191

 

 

244,162

 

Total cost of revenues

 

149,896

 

 

127,838

 

 

547,345

 

 

429,788

 

Gross profit

 

595,182

 

 

663,344

 

 

1,682,040

 

 

1,929,138

 

Operating expenses
Research and development

 

211,383

 

 

197,513

 

 

791,026

 

 

619,800

 

Sales and marketing

 

369,999

 

 

367,116

 

 

1,336,056

 

 

1,263,873

 

General and administrative

 

100,398

 

 

106,484

 

 

335,144

 

 

332,602

 

Total operating expenses

 

681,780

 

 

671,113

 

 

2,462,226

 

 

2,216,275

 

Operating loss

 

(86,598

)

 

(7,769

)

 

(780,186

)

 

(287,137

)

Interest and other income (expense), net
Interest income

 

1,412

 

 

8,769

 

 

13,850

 

 

54,142

 

Interest expense

 

(34,519

)

 

(24,722

)

 

(123,076

)

 

(96,249

)

Other income (expense), net

 

(16,169

)

 

(999

)

 

(11,636

)

 

(2,407

)

Total interest and other income (expense), net

 

(49,276

)

 

(16,952

)

 

(120,862

)

 

(44,514

)

Loss before income taxes

 

(135,874

)

 

(24,721

)

 

(901,048

)

 

(331,651

)

Income tax provision (benefit)

 

3,674

 

 

(1,993

)

 

6,932

 

 

5,017

 

Net loss

$

(139,548

)

$

(22,728

)

$

(907,980

)

$

(336,668

)

 
Basic and diluted net loss per share

$

(0.86

)

$

(0.15

)

$

(5.68

)

$

(2.22

)

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

 

162,009

 

 

155,915

 

 

159,744

 

 

151,949

 

Splunk Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
 
January 31, 2021 January 31, 2020
 
Assets
Current assets
Cash and cash equivalents

$

1,771,064

 

$

778,653

 

Investments, current

 

87,847

 

 

976,508

 

Accounts receivable, net

 

1,114,199

 

 

838,743

 

Prepaid expenses and other current assets

 

162,939

 

 

129,839

 

Deferred commissions, current

 

136,331

 

 

99,072

 

Total current assets

 

3,272,380

 

 

2,822,815

 

Investments, non-current

 

13,728

 

 

35,370

 

Accounts receivable, non-current

 

347,202

 

 

468,934

 

Operating lease right-of-use assets

 

356,296

 

 

267,086

 

Property and equipment, net

 

182,780

 

 

156,928

 

Intangible assets, net

 

206,153

 

 

238,415

 

Goodwill

 

1,334,888

 

 

1,292,840

 

Deferred commissions, non-current

 

69,637

 

 

88,990

 

Other assets

 

85,422

 

 

68,093

 

Total assets

$

5,868,486

 

$

5,439,471

 

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable

$

9,319

 

$

18,938

 

Accrued compensation

 

281,986

 

 

286,159

 

Accrued expenses and other liabilities

 

202,959

 

 

177,822

 

Deferred revenue, current

 

1,030,484

 

 

829,377

 

Total current liabilities

 

1,524,748

 

 

1,312,296

 

Convertible senior notes, net

 

2,302,635

 

 

1,714,630

 

Operating lease liabilities

 

330,970

 

 

235,631

 

Deferred revenue, non-current

 

110,418

 

 

176,832

 

Other liabilities, non-current

 

5,710

 

 

653

 

Total non-current liabilities

 

2,749,733

 

 

2,127,746

 

Total liabilities

 

4,274,481

 

 

3,440,042

 

Stockholders’ equity
Common stock

 

163

 

 

157

 

Accumulated other comprehensive loss

 

(592

)

 

(5,312

)

Additional paid-in capital

 

4,063,885

 

 

3,566,055

 

Accumulated deficit

 

(2,469,451

)

 

(1,561,471

)

Total stockholders’ equity

 

1,594,005

 

 

1,999,429

 

Total liabilities and stockholders’ equity

$

5,868,486

 

$

5,439,471

 

Splunk Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
Three Months Ended January 31, Fiscal Year Ended January 31,

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 
Cash flows from operating activities
Net loss

$

(139,548

)

$

(22,728

)

$

(907,980

)

$

(336,668

)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization

 

26,397

 

 

21,582

 

 

93,666

 

 

67,661

 

Amortization of deferred commissions

 

42,878

 

 

29,275

 

 

142,095

 

 

104,353

 

Amortization of investment premiums (accretion of discounts), net

 

223

 

 

(1,584

)

 

(667

)

 

(9,553

)

Loss on strategic investment

 

4,500

 

 

 

 

4,500

 

 

 

Amortization of debt discount and issuance costs

 

27,322

 

 

20,679

 

 

98,977

 

 

80,156

 

Gain on extinguishment of convertible senior notes

 

 

 

 

 

(6,952

)

 

 

Repurchase of convertible senior notes attributable to the accreted interest related to debt discount

 

 

 

 

 

(22,149

)

 

 

Non-cash operating lease costs

 

9,627

 

 

(6,313

)

 

25,410

 

 

1,198

 

Stock-based compensation

 

166,174

 

 

166,496

 

 

618,655

 

 

545,424

 

Disposal of property and equipment

 

64

 

 

1,974

 

 

1,045

 

 

1,974

 

Deferred income taxes

 

(1,581

)

 

(5,722

)

 

(3,590

)

 

(6,120

)

Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net

 

(344,617

)

 

(365,503

)

 

(153,724

)

 

(679,891

)

Prepaid expenses and other assets

 

(31,020

)

 

(37,027

)

 

(45,476

)

 

(69,575

)

Deferred commissions

 

(60,230

)

 

(64,965

)

 

(160,001

)

 

(149,426

)

Accounts payable

 

(3,903

)

 

(4,312

)

 

(9,082

)

 

(5,441

)

Accrued compensation

 

(4,115

)

 

71,719

 

 

(3,805

)

 

58,898

 

Accrued expenses and other liabilities

 

17,311

 

 

(13,011

)

 

3,814

 

 

(10,392

)

Deferred revenue

 

266,752

 

 

150,609

 

 

134,402

 

 

119,766

 

Net cash used in operating activities

 

(23,766

)

 

(58,831

)

 

(190,862

)

 

(287,636

)

Cash flows from investing activities
Purchases of investments

 

 

 

(270,632

)

 

(87,135

)

 

(1,086,317

)

Maturities of investments

 

252,558

 

 

274,841

 

 

995,878

 

 

1,080,812

 

Acquisitions, net of cash acquired

 

(44,625

)

 

(18,574

)

 

(56,383

)

 

(594,870

)

Purchases of property and equipment

 

(8,800

)

 

(47,595

)

 

(37,107

)

 

(101,119

)

Capitalized software development costs

 

(3,899

)

 

(2,589

)

 

(14,602

)

 

(2,589

)

Other investment activities

 

 

 

(148

)

 

(3,461

)

 

(3,898

)

Net cash provided by (used in) investing activities

 

195,234

 

 

(64,697

)

 

797,190

 

 

(707,981

)

Cash flows from financing activities
Proceeds from the exercise of stock options

 

389

 

 

2,919

 

 

3,473

 

 

3,543

 

Proceeds from employee stock purchase plan

 

35,735

 

 

25,901

 

 

79,949

 

 

60,383

 

Proceeds from the issuance of convertible senior notes, net of issuance costs

 

 

 

 

 

1,246,544

 

 

 

Purchase of capped calls

 

 

 

 

 

(137,379

)

 

 

Partial repurchase of convertible senior notes

 

 

 

 

 

(668,929

)

 

 

Taxes paid related to net share settlement of equity awards

 

(91,541

)

 

 

 

(140,776

)

 

(164,160

)

Net cash provided by (used in) financing activities

 

(55,417

)

 

28,820

 

 

382,882

 

 

(100,234

)

Effect of exchange rate changes on cash and cash equivalents

 

2,750

 

 

(109

)

 

3,201

 

 

(1,661

)

Net increase (decrease) in cash and cash equivalents

 

118,801

 

 

(94,817

)

 

992,411

 

 

(1,097,512

)

Cash and cash equivalents at beginning of period

 

1,652,263

 

 

873,470

 

 

778,653

 

 

1,876,165

 

Cash and cash equivalents at end of period

$

1,771,064

 

$

778,653

 

$

1,771,064

 

$

778,653

 

Splunk Inc.

Operating Metrics

Total Annual Recurring Revenue (“Total ARR”) represents the annualized revenue run-rate of active subscription, term license, and maintenance contracts at the end of a reporting period. Cloud Annual Recurring Revenue (“Cloud ARR”) represents the annualized revenue run-rate of active subscription contracts at the end of a reporting period. Contracts are annualized by dividing the total contract value by the number of days in the contract term and then multiplying by 365.

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 the following non-GAAP financial measures: cloud services cost of revenues, cloud services gross margin, cost of revenues, gross margin, research and development expense, sales and marketing expense, general and administrative expense, operating income (loss), operating margin, income tax provision (benefit), net income (loss), net income (loss) per share and free cash flow (collectively the “non-GAAP financial measures”). These non-GAAP financial measures exclude all or a combination of the following (as reflected in the following reconciliation tables): expenses related to stock-based compensation and related employer payroll tax, amortization of intangible assets, restructuring and facility exit charges, acquisition-related adjustments, capitalized software development costs, a legal settlement charge, non-cash interest expense related to convertible senior notes, a gain on extinguishment of convertible senior notes and a strategic investment impairment. The non-GAAP financial measures are also adjusted for Splunk’s estimated tax rate on non-GAAP income (loss). To determine the estimated non-GAAP tax rate, Splunk evaluates financial projections based on its non-GAAP results and the tax effect of those projections. The estimated non-GAAP tax rate takes into account many factors including our operating structure and tax positions. The non-GAAP tax rate applied to the three and twelve months ended January 31, 2021 was 20%. The applicable fiscal 2020 tax rates are noted in the reconciliations. In addition, non-GAAP financial measures include free cash flow, which represents operating cash flow less purchases of property and equipment. Splunk considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated or used by the business.

Splunk excludes stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding Splunk’s operational performance and allows investors the ability to make more meaningful comparisons between Splunk’s operating results and those of other companies. Splunk excludes employer payroll tax expense related to employee stock plans in order for investors to see the full effect that excluding that stock-based compensation expense had on Splunk’s operating results. 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 intangible assets, restructuring and facility exit charges, acquisition-related adjustments, capitalized software development costs, a legal settlement charge, non-cash interest expense related to convertible senior notes, a gain on extinguishment of convertible senior notes and a strategic investment impairment from the applicable non-GAAP financial measures because these adjustments are considered by management to be outside of Splunk’s core operating results.

There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by Splunk’s competitors and exclude expenses that may have a material impact upon Splunk’s reported financial results. Further, stock-based compensation expense has been and will continue to be, for the foreseeable future, a significant recurring expense in Splunk’s business and an important part of the compensation provided to Splunk’s employees. The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Splunk uses these non-GAAP financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. Splunk believes that these non-GAAP financial measures provide useful information about Splunk’s operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. In addition, these non-GAAP financial measures facilitate comparisons to competitors’ operating results. The non-GAAP financial measures are meant to supplement and be viewed in conjunction with GAAP financial measures.

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

SPLUNK INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)
 
 
 
Reconciliation of Cash Used in Operating Activities to Free Cash Flow
 

Three Months Ended January 31,

Fiscal Year Ended January 31,

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net cash used in operating activities

$

(23,766

)

$

(58,831

)

$

(190,862

)

$

(287,636

)

Less purchases of property and equipment

 

(8,800

)

 

(47,595

)

$

(37,107

)

 

(101,119

)

Free cash flow (non-GAAP)

$

(32,566

)

$

(106,426

)

$

(227,969

)

$

(388,755

)

Net cash provided by (used in) investing activities

$

195,234

 

$

(64,697

)

$

797,190

 

$

(707,981

)

Net cash provided by (used in) financing activities

$

(55,417

)

$

28,820

 

$

382,882

 

$

(100,234

)

Reconciliation of GAAP to Non-GAAP Financial Measures
Three Months Ended January 31, 2021
GAAP Stock-based
compensation
and related
employer payroll
tax
Amortization
of intangible
assets
Acquisition-
related
adjustments
Restructuring
and facility
exit charges
Capitalized
software
development
costs
Non-cash
interest expense
related to
convertible
senior notes
Impairment of
strategic
investment
Income tax
adjustment (2)
Non-GAAP
Cloud services cost of revenues

$

75,718

 

$

(3,105

)

$

(7,163

)

$

 

$

257

 

$

 

$

 

$

 

$

 

$

65,707

 

Cloud services gross margin

 

55.8

%

 

1.8

%

 

4.2

%

 

%

 

(0.1

)%

 

%

 

%

 

%

 

%

 

61.7

%

Cost of revenues

 

149,896

 

 

(15,947

)

 

(9,862

)

 

 

 

257

 

 

(594

)

 

 

 

 

 

 

 

123,750

 

Gross margin

 

79.9

%

 

2.1

%

 

1.3

%

 

%

 

%

 

0.1

%

 

%

 

%

 

%

 

83.4

%

Research and development

 

211,383

 

 

(74,640

)

 

 

 

 

 

(2,972

)

 

3,899

 

 

 

 

 

 

 

 

137,670

 

Sales and marketing

 

369,999

 

 

(48,789

)

 

(4,746

)

 

 

 

 

 

 

 

 

 

 

 

 

 

316,464

 

General and administrative

 

100,398

 

 

(30,669

)

 

 

 

(1,119

)

 

 

 

 

 

 

 

 

 

 

 

68,610

 

Operating income (loss)

 

(86,598

)

 

170,045

 

 

14,608

 

 

1,119

 

 

2,715

 

 

(3,305

)

 

 

 

 

 

 

 

98,584

 

Operating margin

 

(11.6

)%

 

22.7

%

 

1.9

%

 

0.2

%

 

0.4

%

 

(0.4

)%

 

%

 

%

 

%

 

13.2

%

Income tax provision

 

3,674

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,552

 

 

16,226

 

Net income (loss)

$

(139,548

)

$

170,045

 

$

14,608

 

$

1,119

 

$

2,715

 

$

(3,305

)

$

27,322

 

$

4,500

 

$

(12,552

)

$

64,904

 

Net income (loss) per share (1)

$

(0.86

)

$

0.38

 

___________________________

(1)

 

GAAP net loss per share calculated based on 162,009 weighted-average shares of common stock. Non-GAAP net income per share calculated based on 168,711 diluted weighted-average shares of common stock, which includes 6,702 potentially dilutive shares related to employee stock awards and conversion spread on our convertible notes. GAAP to non-GAAP net income (loss) per share is not reconciled due to the difference in the number of shares used to calculate basic and diluted weighted-average shares of common stock.

(2)

 

Represents the income tax adjustment using our estimated non-GAAP tax rate of 20%.

Reconciliation of GAAP to Non-GAAP Financial Measures
Three Months Ended January 31, 2020
GAAP Stock-based
compensation
and related
employer payroll tax
Amortization
of intangible
assets
Restructuring
and facility
exit charges
Capitalized
software
development
costs
Legal
settlement
charge
Non-cash interest
expense related to
convertible senior
notes
Income tax
adjustment (2)
Non-GAAP
Cloud services cost of revenues

$

52,985

 

$

(2,756

)

$

(4,488

)

$

 

$

 

$

 

$

 

$

 

$

45,741

 

Cloud services gross margin

 

46.7

%

 

2.8

%

 

4.5

%

 

%

 

%

 

%

 

%

 

%

 

54.0

%

Cost of revenues

 

127,838

 

 

(13,136

)

 

(9,854

)

 

 

 

 

 

 

 

 

 

 

 

104,848

 

Gross margin

 

83.8

%

 

1.7

%

 

1.2

%

 

%

 

%

 

%

 

%

 

%

 

86.7

%

Research and development

 

197,513

 

 

(59,865

)

 

(25

)

 

(5,628

)

 

2,589

 

 

 

 

 

 

 

 

134,584

 

Sales and marketing

 

367,116

 

 

(68,156

)

 

(4,333

)

 

 

 

 

 

 

 

 

 

 

 

294,627

 

General and administrative

 

106,484

 

 

(29,733

)

 

 

 

(482

)

 

 

 

(10,000

)

 

 

 

 

 

66,269

 

Operating income (loss)

 

(7,769

)

 

170,890

 

 

14,212

 

 

6,110

 

 

(2,589

)

 

10,000

 

 

 

 

 

 

190,854

 

Operating margin

 

(1.0

)%

 

21.5

%

 

1.8

%

 

0.8

%

 

(0.3

)%

 

1.3

%

 

%

 

%

 

24.1

%

Income tax provision (benefit)

 

(1,993

)

 

 

 

 

 

 

 

 

 

 

 

 

 

40,910

 

 

38,917

 

Net income (loss)

$

(22,728

)

$

170,890

 

$

14,212

 

$

6,110

 

$

(2,589

)

$

10,000

 

$

20,679

 

$

(40,910

)

$

155,664

 

Net income (loss) per share (1)

$

(0.15

)

$

0.96

 

___________________________

(1)

 

GAAP net loss per share calculated based on 155,915 weighted-average shares of common stock. Non-GAAP net income per share calculated based on 161,389 diluted weighted-average shares of common stock, which includes 5,474 potentially dilutive shares related to employee stock awards. GAAP to non-GAAP net income (loss) per share is not reconciled due to the difference in the number of shares used to calculate basic and diluted weighted-average shares of common stock.

(2)

 

Represents the income tax adjustment using our estimated non-GAAP tax rate of 20%.

Reconciliation of GAAP to Non-GAAP Financial Measures
Fiscal Year Ended January 31, 2021
GAAP Stock-based
compensation
and related
employer payroll
tax
Amortization
of intangible

assets
Acquisition
-related
adjustments
Restructuring
and facility
exit charges
Capitalized
software
development
costs
Non-cash
interest expense
related to
convertible
senior notes
Impairment
of strategic
investment
Income tax
adjustment (4)
Non-GAAP
Cloud services cost of revenues

$

252,290

 

$

(11,026

)

$

(23,169

)

$

 

$

28

 

$

 

$

 

$

 

$

 

$

218,123

 

Cloud services gross margin

 

54.5

%

 

2.0

%

 

4.1

%

 

%

 

%

 

%

 

%

 

%

 

%

 

60.6

%

Cost of revenues

 

547,345

 

 

(58,828

)

 

(40,245

)

 

 

 

(240

)

 

(1,188

)

 

 

 

 

 

 

 

446,844

 

Gross margin

 

75.4

%

 

2.6

%

 

1.9

%

 

%

 

%

 

0.1

%

 

%

 

%

 

%

 

80.0

%

Research and development

 

791,026

 

 

(278,677

)

 

(25

)

 

 

 

(5,856

)

 

14,602

 

 

 

 

 

 

 

 

521,070

 

Sales and marketing

 

1,336,056

 

 

(206,380

)

 

(17,745

)

 

 

 

(1,168

)

 

 

 

 

 

 

 

 

 

1,110,763

 

General and administrative

 

335,144

 

 

(95,545

)

 

 

 

(3,342

)

 

(518

)

 

 

 

 

 

 

 

 

 

235,739

 

Operating loss

 

(780,186

)

 

639,430

 

 

58,015

 

 

3,342

 

 

7,782

 

 

(13,414

)

 

 

 

 

 

 

 

(85,031

)

Operating margin

 

(35.0

)%

 

28.7

%

 

2.7

%

 

0.1

%

 

0.3

%

 

(0.6

)%

 

%

 

%

 

%

 

(3.8

)%

Income tax provision (benefit)

 

6,932

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,711

)

 

(21,779

)

Net loss

$

(907,980

)

$

639,430

 

$

58,015

 

$

3,342

 

$

8,258

 

(2

)

$

(13,414

)

$

92,024

 

(3

)

$

4,500

 

$

28,711

 

$

(87,114

)

Net loss per share (1)

$

(5.68

)

$

4.00

 

$

0.35

 

$

0.02

 

$

0.05

 

$

(0.08

)

$

0.58

 

$

0.03

 

$

0.18

 

$

(0.55

)

___________________________

(1)

 

Calculated based on 159,744 weighted-average shares of common stock.

(2)

 

Includes a $0.5 million loss on disposal of property, plant and equipment.

(3)

 

Includes non-cash interest expense of $99.0 million and a $7.0 million non-recurring gain on extinguishment of convertible senior notes.

(4)

 

Represents the income tax adjustment using our estimated non-GAAP tax rate of 20%.

Reconciliation of GAAP to Non-GAAP Financial Measures
Fiscal Year Ended January 31, 2020
GAAP Stock-based
compensation
and related
employer payroll
tax
Amortization
of intangible
assets
Acquisition
-related
adjustments
Restructuring
and facility
exit charges
Capitalized
software
development
costs
Legal
settlement
charge
Non-cash
interest expense
related to
convertible
senior notes
Income tax
adjustment (2)
Non-GAAP
Cloud services cost of revenues

$

161,510

 

$

(7,465

)

$

(7,822

)

$

 

$

 

$

 

$

 

$

 

$

 

$

146,223

 

Cloud services gross margin

 

48.3

%

 

2.4

%

 

2.5

%

 

%

 

%

 

%

 

%

 

%

 

%

 

53.2

%

Cost of revenues

 

429,788

 

 

(46,478

)

 

(29,516

)

 

 

 

 

 

 

 

 

 

 

 

 

 

353,794

 

Gross margin

 

81.8

%

 

1.9

%

 

1.3

%

 

%

 

%

 

%

 

%

 

%

 

%

 

85.0

%

Research and development

 

619,800

 

 

(190,404

)

 

(697

)

 

(12

)

 

(5,628

)

 

2,589

 

 

 

 

 

 

 

 

425,648

 

Sales and marketing

 

1,263,873

 

 

(223,812

)

 

(8,324

)

 

(172

)

 

 

 

 

 

 

 

 

 

 

 

1,031,565

 

General and administrative

 

332,602

 

 

(101,939

)

 

 

 

(7,408

)

 

(482

)

 

 

 

(10,000

)

 

 

 

 

 

212,773

 

Operating income (loss)

 

(287,137

)

 

562,633

 

 

38,537

 

 

7,592

 

 

6,110

 

 

(2,589

)

 

10,000

 

 

 

 

 

 

335,146

 

Operating margin

 

(12.2

)%

 

23.9

%

 

1.6

%

 

0.3

%

 

0.3

%

 

(0.1

)%

 

0.4

%

 

%

 

%

 

14.2

%

Income tax provision

 

5,017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

69,141

 

 

74,158

 

Net income (loss)

$

(336,668

)

$

562,633

 

$

38,537

 

$

7,592

 

$

6,110

 

$

(2,589

)

$

10,000

 

$

80,157

 

$

(69,141

)

$

296,631

 

Net income (loss) per share (1)

$

(2.22

)

$

1.88

 

___________________________

(1)

 

GAAP net loss per share calculated based on 151,949 weighted-average shares of common stock. Non-GAAP net income per share calculated based on 157,815 diluted weighted-average shares of common stock, which includes 5,866 potentially dilutive shares related to employee stock awards. GAAP to non-GAAP net income (loss) per share is not reconciled due to the difference in the number of shares used to calculate basic and diluted weighted-average shares of common stock.

(2)

 

Represents the income tax adjustment using our estimated non-GAAP tax rate of 20%.