Splunk Inc. Announces Fiscal Second Quarter 2018 Financial Results

Revenues Grew 32%; Company Increases Full-Year Billings and Revenue Outlook

Splunk Inc. SPLK, provider of the leading software platform for real-time Operational Intelligence, today announced results for its fiscal second quarter ended July 31, 2017.

Second Quarter 2018 Financial Highlights

• Total revenues were $280.0 million, up 32% year-over-year.
• Total billings were $303.4 million, up 32% year-over-year.
• GAAP operating loss was $82.1 million; GAAP operating margin was negative 29.3%.
• Non-GAAP operating profit was $14.7 million; non-GAAP operating margin was positive 5.2%.
• GAAP loss per share was $0.60; non-GAAP earnings per share was $0.08.
• Operating cash flow was $23.2 million with free cash flow of $20.3 million.

"I am pleased with the solid sales execution in Q2, particularly our results in EMEA," said Doug Merritt, President and CEO, Splunk. "As I traveled across Europe, Asia and North America over the last two months, I was excited to see businesses, governments and universities adopting Splunk across multiple departments and use cases. Customer success and product innovation are at the heart of what we do. I am looking forward to the more than 140 customer presentations at .conf2017, our annual users conference, September 25-28 in Washington, D.C. It is an excellent opportunity to learn the many new ways that leading organizations are using Splunk software to solve problems and gain Operational Intelligence."

Second Quarter 2018 and Recent Business Highlights:

Customers:

• Signed over 500 new customers.
• New and Expansion Customers Include: Athenahealth, Carnegie Mellon University, Carnival Cruise Lines, CentraCare Health System, Department of Homeland Security, DuluxGroup (Australia), Educational Testing Service, George Mason University, Harvard Business School, Klarna (Sweden), Long Beach Container Terminal, Maricopa County Office of Enterprise Technology, Panasonic Avionics, Regeneron, Shutterfly, SRT Communications, State of Montana, Swisscom (Switzerland), Uber, Verizon Enterprise Solutions and Webroot.

Products:

• Announced Splunk Insights for AWS Cloud Monitoring, a solution that helps organizations drive more value from their journey to the cloud.
• Introduced Splunk Insights for Ransomware, a new offering that delivers organizations an analytics solution to manage ransomware threats.
• Released new versions of Splunk Enterprise 6.6 and Splunk Cloud to make it easier than ever for a wide range of users to leverage datasets, build dashboards, gain answers and share insights.
• Released the latest version of Splunk Enterprise Security (ES) 4.7 to improve investigation efficiency and incident response, as well as provide insight from common SaaS applications.
• Splunk and Booz Allen Hamilton announced a private beta of Booz Allen Cyber4Sight for Splunk, a new solution designed to empower security analysts and threat hunters with actionable intelligence.
• Released new version of the Splunk Add-on for Microsoft Cloud Services in Splunkbase, which gives Splunk administrators the ability to collect events from various Microsoft Cloud Services APIs.

Corporate:

• Splunk named the market share leader in the Worldwide IT Operations Analytics Software Market by IDC.
• Splunk named the market share leader in the Worldwide IT Event and Log Management Software Market by IDC.
• Announced the findings of a new IDC InfoBrief, "Investigation or Exasperation? The State of Security Operations," revealing security teams are struggling to keep up with the rising volume of cyberattacks.
• Announced the results of a new IDG Research survey, "Digital Transformation Trailblazing: A Data-Driven Approach," showing digital transformation initiatives are more successful when they have buy-in across the business.

Strategic and Channel Partners:

• Launched the new Splunk Partner Portal to promote new joint business opportunities for resellers, MSPs and service providers in the Splunk Partner+ Program.
• Sponsored and exhibited at Palo Alto Networks Ignite 2017 to display Splunk's comprehensive cybersecurity approach and provide demonstrations of the Palo Alto Networks App for Splunk.
• Sponsored the Puppet Enterprise 2017 State of DevOps Report, which found transformational leaders rely on automation and velocity is a key metric for DevOps success.

Recognition:

• Recognized as one of LinkedIn's Top Companies at attracting and retaining talent for the second year in a row.
• Named one of the 40 Coolest Business Analytics Vendors in the CRN 2017 Big Data 100.
• Splunk ES was honored with several industry awards: Best SIEM Solution in the SC Awards Europe 2017, Security Product of the Year in the U.K.'s National Technology Awards and top SIEM solution in the Computerworld Hong Kong Awards 2017.

Financial Outlook

The company is providing the following guidance for its fiscal third quarter 2018 (ending October 31, 2017):

• Total revenues are expected to be between $307 million and $309 million.
• Non-GAAP operating margin is expected to be approximately 8%.

The company is updating its previous guidance for its fiscal year 2018 (ending January 31, 2018):

• Total billings are expected to be approximately $1.450 billion (was approximately $1.425 billion per prior guidance provided on May 25, 2017).
• Total revenues are expected to be between $1.210 and $1.215 billion (was approximately $1.195 billion per prior guidance provided on May 25, 2017).
• Non-GAAP operating margin is expected to be approximately 8% (unchanged from prior guidance).

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 and adjustments related to a financing lease obligation.

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 second quarter 2018 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 August 31, 2017 by dialing (855) 859-2056 and referencing Conference ID 65847645.

Safe Harbor Statement

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding Splunk's revenue, billings, and non-GAAP operating margin targets for the company's fiscal third quarter and/or fiscal year 2018 in the paragraphs under "Financial Outlook" above and other statements regarding future growth, strategy, customer demand and penetration, expanding use of Splunk by customers, and expected benefits of new products and product innovations. 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, business and competitive market conditions.

Additional information on potential factors that could affect Splunk's financial results is included in the company's Annual Report on Form 10-K for the fiscal year ended January 31, 2017, 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. SPLK is the market leader in analyzing machine data to deliver Operational Intelligence for security, IT and the business. Splunk® software provides the enterprise machine data fabric that drives digital transformation. More than 14,000 customers in over 110 countries use Splunk solutions in the cloud and on-premises. Join millions of passionate users by trying Splunk software for free: http://www.splunk.com/free-trials.

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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. © 2017 Splunk Inc. All rights reserved.

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 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): stock-based compensation expense, employer payroll tax expense related to employee stock plans, amortization of acquired intangible assets, adjustments related to a financing lease obligation and the partial release of the valuation allowance due to acquisition. 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 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 annual non-GAAP tax rate applied to the three and six months ended July 31, 2017 was 27%. Splunk will utilize this annual non-GAAP tax rate in fiscal 2018 and will provide updates to this rate on an annual basis, or more frequently if material changes occur. In addition, non-GAAP financial measures include free cash flow, which represents cash from operations less purchases of property and equipment, and billings, which represents revenues plus the change in deferred revenue during the period. 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, the partial release of the valuation allowance due to acquisition and makes adjustments related to a financing lease obligation 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. Splunk considers billings to be a useful measure for management and investors because it provides visibility into Splunk's sales activity for a particular period, which is not necessarily reflected in its revenues given that Splunk recognizes term licenses and subscriptions for cloud services ratably.

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.

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