Splunk Inc. Announces Fiscal Fourth Quarter and Full Year 2019 Financial Results

Software Revenues Grew 42% in Q4; Full Year Up 44%

Company Increases Fiscal 2020 Revenue Outlook

SAN FRANCISCO–(BUSINESS WIRE)–Splunk
Inc. (NASDAQ: SPLK), delivering actions and outcomes from the world
of data, today announced results for its fiscal fourth quarter and full
year ended January 31, 2019.

Fourth Quarter 2019 Financial Highlights

• Software revenues were $464 million, up 42% year-over-year.
• Total revenues were $622 million, up 35% year-over-year.
• GAAP operating income was $24.2 million; GAAP operating margin was
  3.9%.
• Non-GAAP operating income was $166.4 million; non-GAAP operating
  margin was 26.8%.
• GAAP income per share was $0.01; non-GAAP income per share was $0.93.
• Operating cash flow was $127.4 million with free cash flow of $119.4
  million.

Full Year 2019 Financial Highlights

• Software revenues were $1.2 billion, up 44% year-over-year.
• Total revenues were $1.8 billion, up 38% year-over-year.
• GAAP operating margin was negative 13.9%; non-GAAP operating margin
  was positive 12.7%.
• Operating cash flow was $296.5 million with free cash flow of $273.3
  million.

“I’m proud of the team’s exceptional performance which drove strong
results this year,” said Doug Merritt, President and CEO, Splunk.
“Organizations are competing in a highly complex and constantly
changing data landscape. Splunk customers are succeeding because they
have access to their data through Splunk’s investigative
capabilities and integrated monitoring, analysis and
automation. Our customers are also increasingly excited about our new
technologies which unlock the value from streaming big data and lower
the bar to entry for anyone to create business outcomes with data.”

Fourth Quarter 2019 and Fiscal Year 2019
Business Highlights:

Customers:

• Signed more than 600 new enterprise customers in the fourth quarter.
• New and Expansion Customers Include: Arlo, Bertelsmann
  (Germany), California Community Colleges, FIFA (Switzerland), Lego
  (Denmark), MINDBODY, ORIX Life Insurance Corporation (Japan), Puget
  Sound Energy, Queensland Health (Australia), Santos Limited
  (Australia), S&P Global Inc., Stagecoach (England), Steel Dynamics,
  Toast, World Wildlife Fund

Corporate:

• New Product Innovation Fuels Future Growth: Splunk introduced
  more than a dozen new or updated products this fiscal year that make
  it easier to ask questions, take actions and drive meaningful business
  outcomes with data, including Splunk
  Enterprise, Splunk
  Cloud and Splunk
  for Industrial IoT. Splunk also unveiled Splunk
  Next, a series of new beta technologies such as Splunk Mobile,
  Splunk Data Stream Processor and Splunk Business Flow, demonstrating
  how our customers will be able to deliver limitless insights with data.
• Strategic Acquisitions Expand Value for Customers: Splunk made
  several technology investments this fiscal year, including the
  acquisitions of Phantom
  and VictorOps.
  Phantom’s security orchestration, automation and response technology
  allows customers to extend the power of Splunk ES and Splunk UBA to
  act on security data significantly faster. With VictorOps, Splunk is
  combining machine learning and AI capabilities with incident
  management technology, giving customers a platform of engagement which
  helps DevOps teams innovate faster and deliver better customer
  experiences.
• Recognition for World-Class Products and Strategy: Splunk
  continued to be recognized for its innovative approach to delivering
  value from data. Gartner named Splunk a Leader in the 2018
  Gartner Magic Quadrant for Security Information and Event Management
  (SIEM) for the sixth consecutive year, while IDC’s WorldWide
  IT Operations Management Software Market Shares report recognized
  Splunk as the fastest growing vendor in the IT Operations market.
• Partner Integrations Make Customers Successful: Splunk deepened
  relationships with its most strategic partners this year, including
  Amazon Web Services. Splunk announced its participation in AWS
  Security Hub, designed to help customers tackle their biggest security
  challenges within their AWS security environment in addition to
  several other AWS
  product integrations. Splunk continued to expand its vast partner
  ecosystem, with nearly 2,000 apps and integrations available on Splunkbase,
  making it easy for customers to extend the value of data within their
  existing infrastructure.

Financial Outlook

The company is providing the following guidance for its fiscal first
quarter 2020 (ending April 30, 2019):

• Total revenues are expected to be approximately $395 million.
• Non-GAAP operating margin is expected to be approximately negative 8%.

The company is updating its previously provided guidance for its fiscal
year 2020 (ending January 31, 2020):

• Total revenues are expected to be approximately $2.20 billion (was
  approximately $2.15 billion).
• Non-GAAP operating margin is expected to be approximately 14%
  (unchanged from previous guidance).

All forward-looking non-GAAP financial measures contained in this
section “Financial Outlook” exclude estimates for stock-based
compensation and related employer payroll tax, amortization of acquired
intangible assets, adjustments related to a financing lease obligation,
interest expense related to convertible senior notes and
acquisition-related adjustments, which may be significant.

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 2019 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 8, 2019 by dialing
(855) 859-2056 and referencing Conference ID 7387795.

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 first
quarter and fiscal year 2020 in the paragraphs under “Financial Outlook”
above and other statements regarding our market opportunity, the market
for data-related products, future growth, momentum, strategy, technology
and product innovation, expectations for our industry and business,
expectations for our acquisitions and acquired products, customer
demand, 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:
Splunk’s limited operating history and experience developing and
introducing new products, including its cloud offerings; 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; Splunk’s transition to a multi-product software
and services business; Splunk’s inability to successfully integrate
acquired businesses and technologies; Splunk’s inability to service its
debt obligations or other adverse effects related to our convertible
notes; 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, 2018, 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 machine data into answers.
Organizations use market-leading Splunk solutions with machine learning
to solve their toughest IT, Internet of Things and security challenges.
Join millions of passionate users and discover your “aha” moment with
Splunk today: http://www.splunk.com.

Splunk, Splunk>, Listen to Your Data, The Engine for Machine Data,
Splunk Cloud, Splunk Light and SPL 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. © 2019 Splunk Inc. All rights reserved.

SPLUNK INC.

Non-GAAP financial measures and reconciliations

To supplement Splunk’s condensed consolidated financial statements,
which are prepared and presented in accordance with generally accepted
accounting principles in the United States (“GAAP”), Splunk provides
investors with certain non-GAAP financial measures, including non-GAAP
cost of revenues, non-GAAP gross margin, non-GAAP research and
development expense, non-GAAP sales and marketing expense, non-GAAP
general and administrative expense, non-GAAP operating income (loss),
non-GAAP operating margin, non-GAAP income tax provision (benefit),
non-GAAP net income (loss) and non-GAAP net income (loss) per share
(collectively the “non-GAAP financial measures”). These non-GAAP
financial measures exclude all or a combination of the following (as
reflected in the following reconciliation tables): expenses related to
stock-based compensation and related employer payroll tax, amortization
of acquired intangible assets, adjustments related to a financing lease
obligation, adjustments related to facility exits, acquisition-related
adjustments, including the partial release of the valuation allowance
due to acquisitions and non-cash interest expense related to convertible
senior notes. The adjustments for the financing lease obligation are to
reflect the expense Splunk would have recorded if its build-to-suit
lease arrangement had been deemed an operating lease instead of a
financing lease and is calculated as the net of actual ground lease
expense, depreciation and interest expense over estimated straight-line
rent expense. Splunk issued convertible notes in the third quarter of
fiscal 2019, and therefore excludes non-cash interest expense related to
the convertible senior notes beginning with the third quarter of fiscal
2019. The non-GAAP financial measures are also adjusted for Splunk’s
estimated tax rate on non-GAAP income (loss). To determine the annual
non-GAAP tax rate, Splunk evaluates a financial projection based on its
non-GAAP results. The annual non-GAAP tax rate takes into account other
factors including Splunk’s current operating structure, its existing tax
positions in various jurisdictions and key legislation in major
jurisdictions where Splunk operates. The non-GAAP tax rate applied to
the three and twelve months ended January 31, 2019 was 20%. Splunk
provides updates to this rate on an annual basis, or more frequently if
material changes occur. In addition, Splunk’s 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 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 acquired
intangible assets, adjustments related to a financing lease obligation,
adjustments related to facility exits, acquisition-related adjustments,
including the partial release of the valuation allowance due to
acquisitions, and non-cash interest expense related to convertible
senior notes from its non-GAAP financial measures because these are
considered by management to be outside of Splunk’s core operating
results. Accordingly, Splunk believes that excluding these expenses
provides investors and management with greater visibility to the
underlying performance of its business operations, facilitates
comparison of its results with other periods and may also facilitate
comparison with the results of other companies in its industry. Splunk
considers free cash flow to be a liquidity measure that provides useful
information to management and investors about the amount of cash
generated by the business that can be used for strategic opportunities,
including investing in its business, making strategic acquisitions and
strengthening its balance sheet.

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

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

Contacts

Media Contact
Tom Stilwell
Splunk Inc.
[email protected]

Investor Contact
Ken Tinsley
Splunk Inc.
[email protected]

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