Splunk Inc. Announces Fiscal Fourth Quarter and Full Year 2016 Financial Results

Full Year Revenues Grew 48%; Company Increases 2017 Outlook

SAN FRANCISCO--()--Splunk Inc. (NASDAQ:SPLK), provider of the leading software platform for real-time Operational Intelligence, today announced results for its fiscal fourth quarter and full year ended January 31, 2016.

Fourth Quarter 2016 Financial Highlights

  • Total revenues were $220.0 million, up 49% year-over-year.
  • License revenues were $141.4 million, up 44% year-over-year.
  • GAAP operating loss was $79.0 million; GAAP operating margin was negative 35.9%.
  • Non-GAAP operating income was $14.7 million; non-GAAP operating margin was 6.7%.
  • GAAP loss per share was $0.61; non-GAAP income per share was $0.11.
  • Operating cash flow was $77.0 million with free cash flow of $50.2 million.

Full Year 2016 Financial Highlights

  • Total revenues were $668.4 million, up 48% year-over-year.
  • License revenues were $405.4 million, up 43% year-over-year.
  • GAAP operating margin was negative 43.1%; non-GAAP operating margin was 3.8%.
  • Operating cash flow was $155.6 million with free cash flow of $104.3 million.

“Our record results, customer adoption and expansions reaffirm that we are truly differentiated in the market,” said Doug Merritt, President and CEO, Splunk. “We ended the year with over 11,000 customers who recognize that the more data they put into Splunk, the more value they realize. We are confident in our future growth and long-term strategy and are raising our outlook for FY17.”

Fourth Quarter 2016 and Recent Business Highlights:

Customers:

  • Signed more than 600 new enterprise customers and ended the year with more than 11,000 customers worldwide.
  • New and Expansion Customers Include: Bloomberg, Boston Scientific, Cardinal Health, eBay, EchoStar, Expedia, Experian, Fairfax County (Virginia), Fanatics, Federal Reserve, Fox News, GEICO, GoDaddy, IAC/InterActiveCorp, Iluka Resources (Australia), Los Angeles Department of Water and Power, Mr Green (Malta), Neustar, NASDAQ, Northwestern Mutual, PagerDuty, Queensland Department of Education and Training (Australia), Shell, Skandiabanken (Sweden), Softbank Corp. (Japan), Sporting Index (UK), State of Delaware, U.S. Army, Veterans Affairs, Voya Financial and William Hill (UK).

Products:

  • Released the new version of the Splunk App for AWS, which delivers operational, security and economic insights in Amazon Web Services environments.
  • Released the Splunk App for Akamai to help Splunk Cloud customers gain end-to-end visibility and operational insight into the performance, availability and security of cloud applications.
  • Released the new version of Splunk App for ServiceNow, which provides insights into incident, change and event management processes in ServiceNow instances.

Strategic and Channel Partners:

Recognition:

Financial Outlook

The company is providing the following guidance for its fiscal first quarter 2017 (ending April 30, 2016):

  • Total revenues are expected to be between $172 million and $174 million.
  • Non-GAAP operating margin is expected to be between negative 1% and 2%.

The company is updating its previous guidance for its fiscal year 2017 (ending January 31, 2017):

  • Total revenues are expected to be approximately $880 million (was approximately $850 million per prior guidance provided on November 19, 2015).

The company is providing the following guidance for its fiscal year 2017 (ending January 31, 2017):

  • Non-GAAP operating margin is expected to be approximately 5%.

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, ground lease expense related to a build-to-suit lease obligation and acquisition-related costs.

While a reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis 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 2016 and fiscal year 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 March 3, 2016 by dialing (855) 859-2056 and referencing Conference ID 42319003.

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 2017 in the paragraphs under “Financial Outlook” above and other statements regarding customer demand and penetration, market opportunity, expected success from product and service investments and innovations, adoption across all market groups and growth strategies. 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; Splunk’s transition to a multi-product software and services business; Splunk’s inability to successfully integrate acquired businesses 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 October 31, 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) is the market-leading platform that powers Operational Intelligence. We pioneer innovative, disruptive solutions that make machine data accessible, usable and valuable to everyone. More than 11,000 customers in over 110 countries use Splunk software and cloud services to make business, government and education more efficient, secure and profitable. Join hundreds of thousands of passionate users by trying Splunk solutions for free: http://www.splunk.com/free-trials.

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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. © 2016 Splunk Inc. All rights reserved.

 
SPLUNK INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
       
 
Three Months Ended Fiscal Year Ended
January 31, January 31, January 31, January 31,
2016 2015 2016 2015
Revenues
License $ 141,403 $ 98,082 $ 405,399 $ 283,191
Maintenance and services   78,621     49,310     263,036     167,684  
Total revenues   220,024     147,392     668,435     450,875  
 
Cost of revenues
License 2,970 1,174 9,080 1,859
Maintenance and services   32,436     20,366     105,042     66,519  
Total cost of revenues 1,2,3   35,406     21,540     114,122     68,378  
Gross profit   184,618     125,852     554,313     382,497  
 
Operating expenses
Research and development 66,117 47,335 215,309 150,790
Sales and marketing 161,442 107,695 505,348 344,471
General and administrative 4,5   36,090     27,921     121,579     103,046  
Total operating expenses 1,2,3   263,649     182,951     842,236     598,307  
Operating loss   (79,031 )   (57,099 )   (287,923 )   (215,810 )
 
Interest and other income (expense), net
Interest income, net 636 262 1,798 754
Other income (expense), net   (42 )   542     (519 )   216  
Total interest and other income (expense), net   594     804     1,279     970  
Loss before income taxes (78,437 ) (56,295 ) (286,644 ) (214,840 )
Income tax provision (benefit) 6   886     733     (7,872 )   2,276  
Net loss $ (79,323 ) $ (57,028 ) $ (278,772 ) $ (217,116 )
 
 
Basic and diluted net loss per share $ (0.61 ) $ (0.47 ) $ (2.20 ) $ (1.81 )
 
Weighted-average shares used in computing basic
and diluted net loss per share   130,020     122,385     126,746     119,775  
 
 
1 Includes amortization of acquired intangible assets as follows:
Cost of revenues $ 2,892 $ 911 $ 8,271 $ 3,004
Research and development 62 69 296 776
Sales and marketing 154 150 623 597
 
2 Includes stock-based compensation expense as follows:
Cost of revenues $ 7,479 $ 5,536 $ 26,057 $ 17,189
Research and development 27,287 19,260 89,197 60,777
Sales and marketing 38,987 28,606 130,054 90,064
General and administrative 14,622 9,792 46,949 46,149
 
3 Includes employer payroll tax on employee stock plans as follows:
Cost of revenues $ 147 $ 295 $ 953 $ 639
Research and development 692 1,570 2,837 3,219
Sales and marketing 880 1,182 3,442 2,850
General and administrative 271 1,000 1,736 2,160
 
4 Includes ground lease expense related to build-to-suit lease obligation $ 222 $ 222 $ 888 $ 666
 
5 Includes acquisition-related costs $ - $ - $ 1,993 $ -
 
6 Includes a partial release of the valuation allowance due to acquisition $ - $ - $ (10,924 ) $ -
 
SPLUNK INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
   
 
January 31, January 31,
2016 2015
 
ASSETS
 
Current assets
Cash and cash equivalents $ 424,541 $ 387,315
Investments, current portion 584,498 462,849
Accounts receivable, net 181,665 128,413
Prepaid expenses and other current assets   26,565     21,256  
Total current assets   1,217,269     999,833  
 
Investments, non-current 1,500 165,082
Property and equipment, net 134,995 50,374
Intangible assets, net 49,482 10,416
Goodwill 123,318 19,070
Other assets   10,275     3,016  
Total assets $ 1,536,839   $ 1,247,791  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities
Accounts payable $ 4,868 $ 3,726
Accrued payroll and compensation 95,898 65,220
Accrued expenses and other liabilities 49,879 27,819
Deferred revenue, current portion   347,121     249,883  
Total current liabilities   497,766     346,648  
 
Deferred revenue, non-current 102,382 54,202
Other liabilities, non-current   77,277     33,620  
Total non-current liabilities   179,659     87,822  
Total liabilities   677,425     434,470  
 
Stockholders' equity
Common stock 132 123
Accumulated other comprehensive loss (3,770 ) (837 )
Additional paid-in capital 1,528,647 1,200,858
Accumulated deficit   (665,595 )   (386,823 )
Total stockholders' equity   859,414     813,321  
Total liabilities and stockholders' equity $ 1,536,839   $ 1,247,791  
 
SPLUNK INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
       
Three Months Ended Fiscal Year Ended
January 31, January 31, January 31, January 31,
2016 2015 2016 2015
 
Cash Flows From Operating Activities
Net loss $ (79,323 ) $ (57,028 ) $ (278,772 ) $ (217,116 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 6,024 3,526 19,491 12,494
Amortization of investment premiums 283 323 1,332 775
Stock-based compensation 88,375 63,194 292,257 214,179
Deferred income taxes 276 466 (11,140 ) (327 )
Excess tax benefits from employee stock plans 121 261 (874 ) (847 )
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net (56,008 ) (45,863 ) (53,252 ) (45,065 )
Prepaid expenses, other current and non-current assets (10,955 ) (9,243 ) 4,675 (11,284 )
Accounts payable 581 721 965 1,766
Accrued payroll and compensation 17,685 16,739 30,026 21,344
Accrued expenses and other liabilities 9,335 3,624 5,496 16,297
Deferred revenue   100,615     74,808     145,418     111,764  
Net cash provided by operating activities   77,009     51,528     155,622     103,980  
 
Cash Flow From Investing Activities
Purchases of investments (261,415 ) (129,433 ) (480,610 ) (820,710 )
Maturities of investments 123,500 129,000 522,645 192,000
Acquisitions, net of cash acquired - - (142,693 ) (2,500 )
Purchases of property and equipment (26,836 ) (2,750 ) (51,332 ) (13,950 )
Other investment activities   -     -     (1,500 )   -  
Net cash used in investing activities   (164,751 )   (3,183 )   (153,490 )   (645,160 )
 
Cash Flow From Financing Activities
Proceeds from the exercise of stock options 2,573 3,987 15,269 16,792
Excess tax benefits from employee stock plans (121 ) (261 ) 874 847
Proceeds from employee stock purchase plan 8,436 6,139 19,342 14,494
Payment related to build-to-suit lease obligation   -     -     -     (523 )
Net cash provided by financing activities   10,888     9,865     35,485     31,610  
Effect of exchange rate changes on cash and cash equivalents   (296 )   (448 )   (391 )   (568 )
Net increase (decrease) in cash and cash equivalents (77,150 ) 57,762 37,226 (510,138 )
Cash and cash equivalents at beginning of period   501,691     329,553     387,315     897,453  
Cash and cash equivalents at end of period $ 424,541   $ 387,315   $ 424,541   $ 387,315  
 

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, ground lease expense related to a build-to-suit lease obligation, acquisition-related costs 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 acquisition-related costs, amortization of acquired intangible assets, 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 Fiscal Year Ended
January 31, January 31, January 31, January 31,
2016 2015 2016 2015
 

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

Net cash provided by operating activities $ 77,009 $ 51,528 $ 155,622 $ 103,980
Less purchases of property and equipment   (26,836 )   (2,750 )   (51,332 )   (13,950 )
Free cash flow (Non-GAAP) $ 50,173   $ 48,778   $ 104,290   $ 90,030  
Net cash used in investing activities $ (164,751 ) $ (3,183 ) $ (153,490 ) $ (645,160 )
Net cash provided by financing activities $ 10,888   $ 9,865   $ 35,485   $ 31,610  
 

Gross margin reconciliation:

GAAP gross margin 83.9 % 85.4 % 82.9 % 84.8 %
Stock-based compensation expense 3.4 3.8 3.9 3.9
Employer payroll tax on employee stock plans 0.1 0.2 0.1 0.1
Amortization of acquired intangible assets   1.3     0.6     1.3     0.7  
Non-GAAP gross margin   88.7   %   90.0   %   88.2   %   89.5   %
 

Operating income reconciliation:

GAAP operating loss $ (79,031 ) $ (57,099 ) $ (287,923 ) $ (215,810 )
Stock-based compensation expense 88,375 63,194 292,257 214,179
Employer payroll tax on employee stock plans 1,990 4,047 8,968 8,868
Amortization of acquired intangible assets 3,108 1,130 9,190 4,377
Acquisition-related costs - - 1,993 -
Ground lease expense related to build-to-suit lease obligation   222     222     888     666  
Non-GAAP operating income $ 14,664   $ 11,494   $ 25,373   $ 12,280  
 

Operating margin reconciliation:

GAAP operating margin (35.9 ) % (38.7 ) % (43.1 ) % (47.9 ) %
Stock-based compensation expense 40.2 42.8 43.8 47.5
Employer payroll tax on employee stock plans 0.9 2.7 1.3 2.0
Amortization of acquired intangible assets 1.4 0.8 1.4 1.0
Acquisition-related costs - - 0.3 -
Ground lease expense related to build-to-suit lease obligation   0.1     0.2     0.1     0.1  
Non-GAAP operating margin   6.7   %   7.8   %   3.8   %   2.7   %
 

Net income reconciliation:

GAAP net loss $ (79,323 ) $ (57,028 ) $ (278,772 ) $ (217,116 )
Stock-based compensation expense 88,375 63,194 292,257 214,179
Employer payroll tax on employee stock plans 1,990 4,047 8,968 8,868
Amortization of acquired intangible assets 3,108 1,130 9,190 4,377
Acquisition-related costs - - 1,993 -
Ground lease expense related to build-to-suit lease obligation 222 222 888 666
Partial release of the valuation allowance due to acquisition   -     -     (10,924 )   -  
Non-GAAP net income $ 14,372   $ 11,565   $ 23,600   $ 10,974  
 

Reconciliation of shares used in computing basic and diluted net income per share:

Weighted-average shares used in computing GAAP basic net loss per share 130,020 122,385 126,746 119,775
Effect of dilutive securities: Employee stock awards   3,764     6,216     5,007     7,364  
Weighted-average shares used in computing non-GAAP basic and diluted net income per share   133,784     128,601     131,753     127,139  
GAAP basic and diluted net loss per share $ (0.61 ) $ (0.47 ) $ (2.20 ) $ (1.81 )
Non-GAAP basic and diluted net income per share $ 0.11   $ 0.09   $ 0.18   $ 0.09  

Contacts

Splunk Inc.
Sherry Lowe, 415-852-5529
slowe@splunk.com
or
Investor Contact
Splunk Inc.
Ken Tinsley, 415-848-8476
ktinsley@splunk.com

Contacts

Splunk Inc.
Sherry Lowe, 415-852-5529
slowe@splunk.com
or
Investor Contact
Splunk Inc.
Ken Tinsley, 415-848-8476
ktinsley@splunk.com