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Splunk (SPLK) Q4 Earnings Beat, Customer Win Drives Growth

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Splunk Inc.SPLK delivered fourth-quarter fiscal 2018 non-GAAP earnings of 37 cents per share, beating the Zacks Consensus Estimate by 3 cents. Moreover, the figure soared 78.7% year over year.

Revenues surged 37% year over year to $419.7 million and surpassed the Zacks Consensus Estimate of $390 million. Year-over-year growth was primarily driven by strong product portfolio and expanding clientele.

Cloud revenues totaled $30.7 million in the quarter. Overall software revenues including license and cloud revenues grew 38% year over year to $285 million.

Total billings improved 44% year over year to $622.8 million. International operations represented 31% of total revenues. Education and professional services comprised 7% of revenues.

Shares jumped 9.3% to close at $102.32 on Mar 2, 2018.

Splunk Inc. Price, Consensus and EPS Surprise

Splunk Inc. Price, Consensus and EPS Surprise | Splunk Inc. Quote

Customer Win Momentum Continues

Splunk recorded more than 850 six-figure orders in the quarter and added more than 570 new enterprise customers. The list includes the likes of Deutsche Bahn (in Europe), the Saudi Department of Zakat and Income Tax (in Middle East), Domino's Australia (in APAC), and GTBank of Ghana (in Africa).

In the quarter, Denmark's largest telco, TDC, selected Splunk Enterprise and Enterprise Security for the GDPR regulations.

Momentum continued for Splunk platform and premium apps with customer wins like Cincinnati Insurance Companies, Worldpay, the State of Delaware, Tampa Electric Company and Statnett.

Notable security wins during the quarter include Texas State University system, Surrey Satellite Technology, the City and County of San Francisco, Los Angeles World Airports, Nashville Electric Service and Australian Digital Health Agency.

Shopify SHOP expanded its usage of Splunk Enterprise, which will help it in maintaining commerce platform and customer support management systems.

Long-time customer Yelp YELP expanded its utilization of Splunk Enterprise with more than 10 terabytes of machine data streaming through AWS every day. Yelp uses Splunk to enhance operational intelligence to analyze business, application and system trends.

Cloud momentum continued with customer wins like Guardian Life Insurance Company and The University of Vermont Medical Center.

Product Update

During the quarter, the company launched Splunk Enterprise Security 5.0, which accelerates incident response and streamlines investigations through Investigation Workbench.

Splunk released new security analytics stories via Splunk Enterprise Security Content Update to help customers better detect cybersquatting, phishing and corporate espionage.

The company also launched the Splunk Add-on for Google Cloud Platform, allowing organizations to collect, index and analyze Google Cloud Platform events, logs, performance metrics and billing data.

Moreover, the Campus Compliance Toolkit for NIST 800-171, a free app developed in partnership with Blackwood Associates to help universities achieve NIST 800-171 compliance, was launched in the quarter.

Acquisitions & Partnerships

Splunk announced the acquisition of Phantom Cyber Corporation, a leader in Security Orchestration, Automation and Response ("SOAR").

Management believes that the combination of the Splunk platform, Enterprise Security and Phantom's products, talent and technology will help customers stay ahead of the fast evolving threat and attack landscape. Moreover, the combined product offerings will make it easier for customers to handle the growing complexity of alerts and analytics for better decision-making.

Splunk is significantly benefiting from its partnership with Amazon Web Services ("AWS"). During the quarter, the company announced new integrations with Amazon Kinesis Firehose and Amazon GuardDuty to deliver real-time analytics for joint customers across IT, security, big data and IoT use cases.

The company also unveiled "Ask Splunk" for Alexa for Business.

In the reported quarter, Accenture created a new community of practice specifically for Splunk within their security business unit. This not only improves awareness of Splunk's offerings but also gives customers access to a unique knowledge-sharing platform, which ultimately helps them to better face cyber threats.

Operating Details

Non-GAAP gross margin contracted 80 basis points (bps) from the year-ago quarter to 85.4%.

Operating expenses, as percentage of revenues, declined 490 bps to 68%. Research & development (R&D) expenses, sales & marketing (S&M) expenses and general & administrative (G&A) expenses declined 280 bps, 100 bps and 110 bps, respectively.

Non-GAAP operating margin expanded 570 bps to 17.4%.

Cash Flow

Cash flow from operations was $146.1 million, while free cash flow totaled $139.5 million at the end of the quarter. This compared favourably with cash flow from operations of $52.3 million and free cash flow of $46.9 million at the end of the previous quarter.

Guidance

For first-quarter fiscal 2019, Splunk expects revenues between $295 and $297 million. Non-GAAP operating margin is likely to be around negative 6%.

Buoyed by encouraging fourth-quarter results, the company increased fiscal 2019 guidance. The company now expects revenues of $1.625 billion, up from 1.550 billion. Non-GAAP operating margin is now expected to be 11.5%, up from previous guidance of 10.5%.

Cloud revenues are now expected at $160 million, while billings are anticipated to be $270 million.

Billings are now anticipated to be $1.485 billion compared with the previous guidance of $1.450 billion. Cloud billings are projected at $170 million, up from previous guidance of $150 million.

The adoption of ASC 606 will negatively impact deferred revenues. Moreover, growing contribution of subscription contracts (50% in fiscal 2018 versus 48% in fiscal 2017) is a headwind post adoption of the ASC 606 regulation.

For fiscal 2019, Splunk expects operating cash flow of about $300 million and free cash flow of around $275 million.

Management reiterated fiscal 2020 revenues target of $2 billion. Operating margin is now anticipated in the high-end of the previously guided range of 12% to 14%. Moreover, customer base is expected to expand 20K by 2020.

Splunk forecasts subscription mix to be 65% in fiscal 2019 and 75% in fiscal 2020.

Zacks Rank & Stocks to Consider

Splunk has a Zacks Rank #5 (Strong Sell).

Paycom Software PAYC is a stock worth considering in the same sector. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Long-term earnings growth rate for Paycom is currently pegged at 25.75%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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