Splunk Inc. Announces Fiscal First Quarter 2020 Financial Results

Software Revenues Up 54%

Company Increases Full Year 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 first quarter ended
April 30, 2019.

First Quarter 2020 Financial Highlights

• Software revenues were $265 million, up 54% year-over-year.
• Total revenues were $425 million, up 36% year-over-year.
• GAAP operating loss was $145 million; GAAP operating margin was
  negative 34.1%.
• Non-GAAP operating loss was $7.8 million; non-GAAP operating margin
  was negative 1.8%.
• GAAP loss per share was $1.04; non-GAAP income per share was $0.02.
• Operating cash flow was $35.0 million with free cash flow of $20.1
  million.

“Our customers are successful because they can unlock value from their
growing data landscapes with the unique Splunk platform, and this is
what fuels our strong performance,” said Doug Merritt, President and
CEO, Splunk. “In Q1, we released Splunk Connected Experiences and Splunk
Business Flow, new products that are part of our vision to take Splunk
beyond IT and security and to bring our customers closer to their data.
These products further differentiate Splunk as we strive to bring data
to every question, every decision and every outcome for any
organization.”

Business Highlights:

Customers:

• Signed more than 400 new enterprise customers.
• New and Expansion Customers Include: Brink’s, Cerner
  Corporation, Chipotle, City University of Hong Kong, El Corte Inglés
  (Spain), Entertainment One (Canada), LATAM Airlines Group (Chile), PCL
  Construction, Slack, SumTotal Systems, University of Alabama at
  Birmingham Health System, Vancouver City Savings Credit Union (Canada)
  and West Bend Mutual Insurance.

Corporate:

• New Innovations Bring Customers Closer to Their Data: Splunk
  unveiled a wide range of new technologies including Splunk®
  Connected Experiences, which helps customers bring the power of
  data where they need it through augmented reality, Splunk Mobile and
  Splunk TV. Splunk
  Business Flow expands Splunk’s reach, enabling business operations
  professionals to quickly discover bottlenecks that threaten business
  performance and identify opportunities for improvement. Splunk also
  unveiled new versions of Splunk
  ITSI, Splunk
  ES, Splunk
  UBA, Splunk
  Phantom and Splunk
  App for Infrastructure.
• Research Reveals Data Opportunity: Splunk released a new
  research report, The
  State of Dark Data, which found that, on average, business and IT
  decision makers estimate that 55 percent of their data is dark
  (unknown or untapped) despite widespread belief that such data is
  highly valuable and drives meaningful business outcomes. The report
  also explored how automation via AI and machine learning is believed
  to impact the future of jobs, and how the data opportunity is
  impacting career growth.
• Employee Success Celebrated Around the Globe: Splunk was
  recognized for being a great
  place to work around the world: LinkedIn, the San Francisco
  Business Times, Great Place to Work Asia and Washingtonian all named
  Splunk as a top employer. Splunk is committed to celebrating and
  empowering employees to build an inclusive culture.
• Executive and Board Appointments: The company celebrated two
  new additions to its executive team: Jason Child as Chief Financial
  Officer and Carrie Palin as Chief Marketing Officer. Splunk also
  announced the appointment of Board member Graham Smith, former CFO at
  Salesforce, as the Chairman of the Board of Directors, and welcomed
  Atlassian CTO Sri Viswanath to the Board.
• Global Partner Summit: The company deepened relationships with
  strategic partners and announced a host of new updates that make it
  easier than ever for partners to be successful with Splunk at Global
  Partner Summit.

Financial Outlook

The company is providing the following guidance for its fiscal second
quarter 2020 (ending July 31, 2019):

• Total revenues are expected to be approximately $485 million.
• Non-GAAP operating margin is expected to be approximately 3%.

The company is updating its previous guidance provided on February 28,
2019 for its fiscal year 2020 (ending January 31, 2020) as follows:

• Total revenues are expected to be approximately $2.25 billion (was
  approximately $2.20 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, and amortization of
acquired intangible assets.

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 first quarter 2020 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 May 30, 2019 by dialing
(855) 859-2056 and referencing Conference ID 1946609.

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 second
quarter and fiscal year 2020 in the paragraphs under “Financial Outlook”
above and other statements regarding Splunk’s new products, innovations
and product development, Splunk’s market opportunity, future growth,
current momentum, strategy, expectations for Splunk’s industry and
business, customer demand and penetration, Splunk’s partner
relationships, customer success and expanding use of Splunk by
customers. 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; 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 Splunk’s 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 Splunk’s Annual Report on Form 10-K for
the fiscal year ended January 31, 2019, 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) helps organizations ask questions, get
answers, take actions and achieve business outcomes from their data.
Organizations use market-leading Splunk solutions with machine learning
to monitor, investigate and act on all forms of business, IT, security,
and Internet of Things data. Join millions of passionate users and try
Splunk for free today.

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, acquisition-related adjustments, including the partial
release of the valuation allowance due to acquisitions and non-cash
interest expense related to convertible senior notes that was issued in
the fiscal third quarter of 2019. 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. 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 months ended April 30, 2019 was
20%. Splunk will utilize this annual non-GAAP tax rate in fiscal 2020
and will provide updates to this rate on an annual basis, or more
frequently if material changes occur. In addition, non-GAAP financial
measures includes 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,
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 the applicable non-GAAP
financial measures because these expenses 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.

Splunk Inc.
Reconciliation of GAAP to Non-GAAP Financial
Measures
(In thousands, except per share data)
(Unaudited)

Contacts

Media Contact
Tom Stilwell
Splunk Inc.
press@splunk.com

Investor Contact
Ken Tinsley
Splunk Inc.
IR@splunk.com