Q3 2021 Splunk Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Splunk, Inc. Third quarter 2021 financial results Conference call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session and you'll need.
Press Star one on your telephone as a reminder takes program may be recorded I would now like to introduce your host for today's program continually corporate Treasurer and Vice President of Investor Relations. Please go ahead, Sir right. Thank you Jonathan and good afternoon, everyone with me on the call today are Doug Merritt and Jason child.
After market close today, we issued a press release, which was posted on our website also note that we have posted a supplemental material on the Investor Relations web page as well.
This conference call is being broadcast live via webcast and following the call an audio replay will be available and the web site.
On today's call, we will be making forward looking statements, including financial guidance and expectations, such as a forecast for fourth quarter as well as revenue mix cloud gross margin full year, and long term care or and operating cash flow and statements and benefits regarding our recently announced and tend to acquire flow mill, which we expect to close during.
This quarter and trends and our markets as well as our expectations regarding our acquisitions products and technology strategy customers demand and markets.
These statements are made on our assumptions as to the macroeconomic environment in which we will be operating and reflect our best judgment based on factors currently known to us and actual events or results may differ materially. Many of these assumptions relate to matters that are beyond our control and changing rapidly, including the impact of cold and 19, but.
And Eric on our business and the overall economic environment.
Please refer to documents, we filed with the FCC, including the form 8-K filed with today's press release those documents contain risks and other factors that may cause our actual results to differ from those contained and our forward looking statements.
These forward looking statements are being made as of today and we disclaim any obligation to update or revise these statements. If this call is reviewed after today. The information presented during this call may not contain current or accurate information.
We will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of GAAP and non-GAAP results is provided in the press release and on our website with that let me turn it over to Doug Doug.
Thank you Ken welcome everyone and thanks for joining us today.
The burden and we saw in the third quarter was similar to the first half the year there.
There was continued pressure brought on by macro conditions, which resulted in some customers hesitating to commit to long term contracts.
As we reached the end of October we saw much lower than normal close rate among our largest deals.
Which caused us to fall short of our bookings target.
Overall, our third quarter did not meet our expectations.
Despite these near term headwinds and our Q3 performance Splunk remains one of the fastest growing enterprise software companies and history.
As we outlined at our Investor and Analyst day.
Early and the penetration over 81 billion dollar channel.
Demand continues to grow.
Customers are buying more overtime through data and infrastructure expansion.
More and more customers are adopting splunk broadly throughout their organizations and increasing their commitments, which has seen through air ours have seven and eight figures.
And our Q4 pipeline is robust.
We also reached an important milestone this quarter exceeding 2 billion and air are up 44% over last year.
And our cloud momentum continued with cloud era growth is 71% and cloud revenue growth of 80%.
Flunked customers continue to be and the front lines the rapidly digitizing enterprise.
Right and cloud I T security and Devops transformations to create new ways of working.
The Splunk platform uniquely accommodates every stage the cloud journey being able to meet our customers where they are when they need us and how they want to operate whether that's on from are and the cloud and it's been a critical part of our success.
Our data and everything platform is delivering on our customers' expansive and heterogeneous data needs by bringing together a scalable index with the start of the most powerful capabilities and the market.
Including stream processing machine learning, Federated search and analytics and collaboration and orchestration.
For acquisitions, and plumber and rigor as well as our recent announcement of our and tend to acquire flow mill or extending splunk observe ability portfolio and say most comprehensive and the industry, enabling us to continue the momentum and that's.
Strengthening win rate against incumbent vendors across a Dev ops and observer Dodi space, where we see a $17 billion Tam opportunity.
In October we hosted from 30000 customers partners and Splunk or at our comp 20 user conference where the switch to a virtual event made this our biggest and in my opinion are best Dot coms yet.
We are grateful to hundreds of customers, who brought their splunk and stories to life and stayed with us.
These like Zoom University of Arizona, NASDAQ and New York City Department of Education and more.
In addition to stories from those customers. We also saw a number of impressive wins this quarter.
Herbalife nutrition and Premier Global Nutrition company is a longtime customer and was an early adopter of Splunk cloud to better manage its application and infrastructure ecosystem.
Herbalife recently expanded to include enterprise security to support a significant increase and online business for the company's independent distributors.
The major retailer recently expanded their use of Splunk enterprise to accommodate for the increase and online retail brought on by come at 19.
With our IP Cod monitoring and security solutions, this global retailers and pretty customer experience and avoiding costly outages as or E. Commerce environment continues to grow.
Global Skincare leader and Nu skin enterprises upgrade their use of Splunk cloud, which they've standardized across Haiti, devops and security use cases.
Yes, Ken can now take action on data across their entire business and more effectively access historical data to better train and custom built machine learning models.
Special Thanks to our friendship and of U.S. were instrumental and that deal.
And this is a customer story I'm, particularly excited to share.
One of the world's largest technology companies signed a significant eight figure deal with us expand their use of Splunk enterprise I T ESI and Phantom.
With this major Phantom expansion. This fortune 50 organization, it's going all in on security orchestration automation and response.
This customer and Jess multiple terabytes of data per day with Splunk and is another great example of how organizations can leverage our technology to build and scale custom and how solutions no matter what their infrastructure looks like.
Moving on from customer wins and pleased to welcome retired general dentist fee to our board of directors.
General and be brings over 40 years of military technology and public sector leadership experience.
We're thrilled with his addition to the board and confident that his extensive experience will help accelerate or impact and the public sector opportunity and broader customer base.
In summary, despite our Q3 results for and short of expectations I continue to believe their opportunity is massive and our fundamentals remain strong.
I want to take our customers along with our partners and spelunkers and their commitment to delivering data driven insights and today's did age.
Now from more of the quarter and whatever Jason.
Thanks, Doug and good afternoon, everyone. Thanks for joining us just as we saw in Q2 uncertainty and volatility from macro factors persisted in Q3, causing customers to delay spending commitments, particularly for high value contracts.
As a result close rates for several large transactions slowed significantly and the final weeks of the quarter, resulting in total bookings coming in below plan, which you'll see reflected in our reported revenue as well as our PEO.
Since quarter end, we scrutinize the transaction pipeline and factors impacting our close rates all indicators point to continued strong demand overall, and we're confident and the eventual closing of delayed transactions and the pipeline, but when they will actually close remains uncertain.
As a result, we remain cautious on near term market dynamics, but confident and our long term growth trajectory.
As challenging as the environment and bookings were momentum and our cloud performance remained strong.
I'll, just nearly 50% of total software bookings for the quarter and we ended the period with cloud EHR, our $630 million up 71% year over year.
For the entire business total air our surpassed $2 billion up 44% from year ago.
We ended with total our appeal and $1.7 billion up 18% over Q3 last year and.
A portion of our appeal, which we expect to recognize as revenue over the next 12 months was just over $1 billion at period end up 20% over last year.
We ended Q3 with 444 customers, where there are of $1 million or more compared to 310 and Q3 of last year.
Turning to the piano.
Third quarter total revenues were $559 million down 11% year over year, reflecting substantially higher clawbacks and total bookings below plan.
Slot revenue was $145 million up 80% over last year, reflecting continued acceleration of customer migration to our cloud platform.
Professional services and education revenues were 9% of total revenues.
Non-GAAP cloud gross margin was our highest ever at 62% and Q3 compared to 54% last year with continued progress towards our long term target of at least 75%.
Total non-GAAP gross margin in Q3 was 80% down on a year over year basis due to the greater proportion of revenue contribution coming from club.
Non-GAAP operating margin was negative 2% in Q3, which was below plan due to lower reported revenue.
Turning to guidance.
Given Q3 performance and current visibility or lack thereof, we are tightening our air our expectation for the remainder of the year.
While we have a path to mid 40% growth, we are incorporating a lower end to the growth range to account for market uncertainty.
As such we expect and Q4 with total air are up between 2.3 and $2.35 billion.
On the income statement the acceleration of our cloud transition continues to drive variability and our revenue and operating margin results.
Just as we've seen in prior quarters. This year Q4 total revenues are expected to be relatively flat on a year over year basis or between 650 $700 million base.
Based on our plan of mid 50% contribution from cloud with and non-GAAP operating margin of between negative four and positive 3% given the wider revenue range.
Looking further out while we remain confident and the health of our long term error and operating cash flow growth rate volatility and the near term is driving significant variability and our long term targets. As a result, we're withdrawing our EPS by 23 and there are no sales guidance until we close out this year and have a greater understanding of the Bakken factors affecting the operating environment.
In closing Q3 was the most unusual selling environment, we've ever seen and it was a slow finished two and otherwise strong quarter.
We believe this is a temporary market condition and the underlying demand remained strong, particularly for cloud and we remain confident that the drivers we outlined during the analyst session net dot com create a solid foundation to build durable long term growth with that let's open it up for questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one and you touched on telephone. If your question has been answered and he'd like to move yourself from the queue. Please press the pound key our first question comes in line of Raimo Lenschow from Barclays. Your question. Please.
He.
Can you just talk a little bit about the.
And the deal slippage at the end of the core true like you'll be how to yeah.
Your head of sales or leave how much of this is execution related and disruption coming from the changes on the internal side versus the market and and what kind of confident and give so you did some of this is coming back and Q4 and because it looks like like many of our vendors and the space has really talked about that and then and one follow up.
Thanks Raimo.
Yeah, and I Ah well.
Well, we had right started describing Q2.
Unusual.
Interventions and buying cycles that we tipped typically for our larger deals high seven figure eight figure deals we are dealing with the C suite the CIO the c. so.
And that team is pretty darn rigorous and effective and making sure that the day understand that the economic buyer has got budgets that they are approved to make this acquisition et cetera, and we saw at the end of Q2, just compounded and Q3, which is deals that the executive team at the customer and our own team thought we're going through that and.
Final hours or days.
Routing for approval and got stopped by and extraneous grip, the CEO and board of directors as CFO as context.
When we go back and look quarter over quarter Doug.
The top 10 deals that were that we went into a quarter with we tend to close seven eight or nine of those top 10 deals.
And this quarter, we Wanna closing three and many of those deals if you're talking about every every quarter, our backend loaded and it's.
And I guess, the realities and dynamics and enterprise software business and so.
So I don't view this as a.
Hey, internal issue or a sudden shift and a net.
Capabilities or process within the sales force and.
But but but unusual surprises with customers that have authority that had that 40 pulled at the very end.
Yeah, Okay, and then I have one from <unk>.
Duration and assets are customers didn't commit to a kind of more a bigger and getting longer term you [laughter] I'm just looking at your duration high each kind of how do I marry that up because that doesn't show anything and looks all pretty normal there like help me understand that today and please thanks.
Yeah, well, so duration is down because last year, we had an unusually high duration because of an exceptionally strong public sector quarter, and specifically, even with a number of of beyond three year deals and.
And so we didnt see that dynamic this year, so yes sequentially duration looks relatively consistent year on year, it's definitely a bigger AD revenue was down 22% or something like that you're on your but yeah. So I I think overall I would expect duration you know probably continues to look like it has all year.
Going forward.
Okay perfect. Thanks.
Thanks very much.
Thank you. Our next question comes from the line of coupons from Morgan Stanley. Your question. Please.
Excellent. Thank you guys for taking the question.
And Doug I wanted to dig in a little bit he started touching on this I know a lot of investors are going to go to sales execution, you had a change and leadership can you help us understand like how sort of where the confidence that you have that decision and execution issued just doesn't have to do with the change of leadership that this is more of a market event than a.
Flunk event, if you will.
Yes, Thanks curious and so what we had said when Susan announced true her transition was she had strong three strong leaders and Christian Smith had been leading global sales for the past two plus years carry.
Carry obviously as our continuing CMO and John Spino, that's our continuing chief customer officer and.
So from the day in day out management and everything from that pipeline build.
Overall process flow customer engagement, it's the same team underneath Susan and Thats still driving the those activities.
And Mike just and looking at the progression to this quarter.
Good day, whereas the unusual component was the number of of our largest deals that but by the way are still in play day got they got pushed into Q4.
That just has never happened before and.
And just what I've been looking scrutinizing this never way possible.
Finance team and the sales ops team the sales theater leaders myself.
That the.
Concerns that we had in Q2 that there are some really a bear and buying behavior happening as a as and by got and large transactions got security that in the past seven years are really past price 30 years and enterprise software over the past 37 years here I've never seen get that level of scrutiny.
It is the is the one common thread.
Net across a quarter, that's still delivered 44%, hey, our growth and 80% cloud revenue growth. So it's still not a contextual basis as it is impressive growth quarter, but that's certainly short.
Our expectations and our communication of those expectations.
Got it and then as a follow up if we look at like cloud day are versus total. They are my expectations that has been that like the cloud deals tend to be smaller and side did you see impacts on the cloud side integration as well or is it more so in kind of like the term business and was that cloud air and.
Number does that come in kind of where you guys were expecting was there weakness and outside of the question too.
And it affected both large cloud transactions and loud large term transactions needy yeah. There were some material large from transactions that got pushed.
And that that would have I think had obviously a much more noticeable impact on revenue, which then flow suit, our PEO and both current and and Tiller appeal.
But but but the one interesting parts of our cloud business. The past two three years is there are a high number of million dollar plus deals and tens of terabyte now approach and hundreds terabyte per day range within the cloud footprint as well and.
Got it and it's kinda and just one more thing I would add on cloud. They are are you saw that a d. celebrated to 71%. If you adjust for cignal effects, which we've now started comping. This quarter. It would have been 86% and so if you adjust for that it's not much of an impact which is why a if you looked at from revenue aspect and.
Got it actually celebrate little from 79% up to 80%.
And here.
Got it got it and then just one last one when we're thinking about the cloud a dollar based net retention rate, that's ticked down like a percentage points. It from for the past two quarters I'm assuming that's.
Morally sort of.
From a lower expansions versus any degradation and the underlying gross retention rate is.
That's correct.
Interpretation.
That is a great question.
It's it's look the cloud business I mean look and it was a year ago at what 300, you know, it's it's growing very quickly the number it's still on an overall basis growing significantly our view is anything over 130% and that's our target and we feel good about that I think you're going to see it bounced around a little bit from time to time.
Time, but you know I I think 130% off of a year ago. It was a 300 and.
And then a plus million revenue 80, 80 million of revenue right, yeah, annualize or a or b to B and C.
Still a 368 million a year ago is still strong and and within that the target that we expected.
Got it excellent.
Thank you guys. Thanks, Steve Thanks.
Thank you. Our next question comes from the line of Brent Thill from Jefferies. Your question. Please.
Doug back on October 21st you guys spoke to all of US and had pretty strong conviction reiterated all the numbers and I guess.
That would leave us to assume that obviously just fell apart pretty pretty hard at the back half and.
And that.
That these deals were effectively probably late stage, meaning that this was non competitive loss scenario. This was more of a timing scenario. So I just want to confirm and you.
Post and analyst day, and the 21st and that's really where you saw this fall apart and secondarily.
That you don't believe that this was lost to competitors.
Yeah, two two really good point Brett.
No. There is not one of the seven push deals that wasn't competitor loss on day.
They all are still active and we are working aggressively to bring him and Q4.
Part of the slight readjustment to Q4, and the suspension and guidance.
And I guess, that's the long term model is.
The.
Variability on the pandemic.
There's obviously at least what we're seeing is relatively high and insight I brought that up in Q2 as well.
And we do play across 20000, plus customers. So 100, plus countries multiple buying three and three major buying centers across those customers and.
Virtually every industry and yeah. It says you all know from following.
The global news and said, there's lots of wins and losses out there I'm asking for day wants a pandemic. So hi, Super unusual I honestly I have never seen day approved deal within and approved prove budget envelope that sponsored by a C level executives get stalled by and outside party.
And and so part of the and let's continue to watch what what's happening and the landscape.
We obviously thought confident going into Ah dot comp and the analyst day.
On the the team's ability to perform this quarter.
And and had some very very unusual and and expect to activity occur at least from our vantage point.
But no the deals are still in play there not competitive losses.
And yes. They are all very late stage deals that were just in the process of going through the PEO approval routing.
Aspect, which is why those top 10 deals generally are coming in at seven eight or nine close rates of the top 10.
Okay, that's helpful and can.
Can you confirm if you've closed any those transactions that pushed in Q4 already.
I think that we have closed.
Yes, we have we have close one or two assets go back and look specifically I should have a look that coming and.
Okay. Thanks for the color.
Thanks Brent.
Thank you. Our next question comes the line of Matt Hedberg from RBC capital markets. Your question. Please.
Yeah. Thanks, This is Matt Swanson on from out.
And Doug we see a lot of M&A during the quarter with plumber and rigor and then now flow mill could you just give us a little more color on what you're seeing and the market more holistically, that's kind of encouraging you to accelerate the platform build out around and survivability.
Yeah again, thank you for highlight and that were obviously I'm very excited and very focused on this and your ability trend and yeah. We all are seeing and and then did you guys are seeing as well and you can see it with some of the recent ipos and the massive shifts are happening to develop and teams there driven by this next gen. David.
Moshe and Andy convergence, that's beginning to happen, but both of these are still and really days around next gen. Succop SURTAVI intertwined, but to have ops is a trend that do that and we all feel is irrefutable certainly as we move to a cloud first perspective built up a world class fully functional and functioning SRT team.
Oh really moved to a full C.I.C.D. and natural framework and.
These today, our own tools become critical to our default and teams and we can see that with.
That many many born in the cloud companies and a strong cloud movement companies that we sell to within that observed body arena.
Tam on that sector is roughly 17 billion.
And our lean and with signal effects and mission and then plumber rigor flow mill is just represent representing a de <unk>.
Excitement that we see as the pandemic and a positive side is really push people to get even more aggressive on cloud and cloud development and.
And we think that those trends are are real moving and likely accelerating and our intent is to be the.
Premier and number one organization that is serving this next gen dad Pops and SEC ops set of teams that have their world and they're back to guide their company is through online transactions and capabilities.
[laughter], sorry, if I could just ask one follow up on that kind of the same line you've been talking more and more about suite strategies lately and so the observer buildings, we launched <unk> Dot Com and then Splunk mission control. It seems like this could really simple apply the on rent free enterprises to get to that kind of GAAP set GAAP strategy yet.
You were talking about cash.
And can you just kind of elaborate more on the go to market on those two points.
Yes, we have been serving those three key buying centers the security team see infrastructure management teams and the development of Devops teams from many years now obviously the big ramp up is hey, we really we see huge opportunity and as this shift.
That's a great with and Daven Dev ops teams, so lets leaning and lean and even more aggressively there but.
But we have been good I think two years and making sure that we add to security capabilities with acquisitions like like Phantom and Caspida and adding to our t. ops capabilities with and acquisitions like victory et cetera that Doug.
Wind up getting us number one vendor rating and AI ops, and Sam and security ops et cetera.
So do you observe dodi approach is similar but we have been focusing the past year on all right. There are three key buying centers. That's it make sure that we've got an integrated suite and integrated portfolio that addresses the needs of the security teams Yashi ops teams and the Dev ops teams, which goes back to observe ability suite. The ITC suite of security suite and then the other day.
And platform suite that now includes stream processing orchestration and automation collaboration services and all frameworks that powers those three suites, so poor core suites, all in processes and being homogenized. The observatory suite is in the front with a consistent you why now.
And and much more consistent experience as we've really leaned into integrate core splunk with omniscient signal effects and how the teams are hard at work to make sure were getting the same type of uniform and impact with the plumber and rigor capabilities and they'll be ramping up from those ball.
Thank you.
Thanks, Matt.
Thank you. Our next question comes from the line of keep up and from Bank of Montreal. Your question. Please.
Hi, Thank you very much I have two and I'll ask them concurrently if I could the first for Jason on the current RP O <unk>. It was a pretty precipitous drop from 37% gross to 20.
Was that was that those large deals because it's it even on the say one out of 10 or two and a 10 closing it just seems like a startling drop on what is a fairly big base of numbers, but if you could just tease that out for a second and then Doug and my second question I wanted a director use a bit broader than that.
His as Brent said, you guys had an analyst day, not too long ago, and you reiterated longer term targets and what you suggested is these are deal push outs and you clearly said that these aren't competitive losses, there just push outs and part of its macro Colgate et cetera.
And so given that context, it's a bit surprising to hear you take off the board off like 23 targets.
Altogether or withdraw altogether, rather than giving kind of a time based stamp.
Hey, these might be pushed out or something along those lines, but.
Given that you feel things are push outs of deals and not competitive losses can you speak to why you're withdrawing.
Longer term guidance altogether.
Yeah. So.
I think there's two aspects on corn RPL, one we are lapping signal effects and so that has you know that has an impact that would get you closer to 30% and too.
Impact that or add that impact and then second you know if you look at the air our shortfall that comes from the deal push you know, it's it's a $50 million to $60 million to occur actual versus what the expectation was and and that that you know if you add that to the corner appeal that would then also get you.
And to number would be much more similar to what we've seen historically.
Okay, and then Doug just on the on.
Although the total guidance all together for 23.
And it was.
Given that we.
Went into the year with a pre co bid guidance that again, we did.
Talk through at the Analyst day, and mid October and when you really begin to factor in that 50 to 60 million that didnt come in this quarter and then the variability that could exist in Q4 and.
Ideally, we make up and big chunk of that and maybe we don't and it made it difficult for us to continue with the accuracy that we would want the confidence that would want.
Because of the amount of variability that where that that we see.
Because of the pandemic effects.
For us it felt like a more wise and prudent piece.
Given our disappointment this quarter to see what happens in Q4, and then ideally and the March call either lean forward with the reinstatement of guidance and adjusted guidance are but.
But I think we really feel that we need to see what happens over the next three months given the size magnitude and impact of a fourth quarter for any enterprise company and and for Splunk included.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from the line and Michael Turits from Keybanc. Your question. Please Hey, David first.
For Doug and Jason Doug just drill down a little bit on on the macro and mentioned to some peers had not been seeing the same thing, but certainly teck overall is not him and and.
And Eric.
There is a digital transformation and security spend and produced strong. So what do you do you think this is particular to analytics is a de prioritization. So why do you think you're seeing this back and back more and other segments.
So Michael if we if we take out the lapping of signal effects and look at our IR close at the end of last year, it's roughly 51% and we just posted a 44% a quarter and then I compare contrast that with other tech companies and what they did and Q4.
And and what they are but just pushing and Q3 and or projecting for their Q3 or Q4. The vast majority of those companies you guys can look at the company as you would guess who and compare subscale and a cloud only basis some of the smaller direct competitors that David dogs Elastics to most new relics on day on the Big Ah Hey, our base.
Yes.
The the sales force is the work days the majority of those had in between 15 and 30 point declines.
Versus a 51% to 44%.
So we we hold ourselves to extremely high standards and we see that we really believed that 81 billion dollar Tam across all buying centers and the roughly $60 billion and across our three core technical buying centers.
And at a two plus billion dollar a our assets.
That's a big suit credibly exciting thing nine enterprise software companies and history of gotten above 2 billion with a 20 plus percent growth rate. So great to get there, but 2 billion versus 60, EUR 2 billion versus 81 is small and there's still a huge opportunity out. There. So we have continued to hold ourselves to expectations on growth and delivery that are.
And beyond really anything that other enterprise software companies have done in the past 2030 years.
That my disappointment as we believed and book and believe that minus the pandemic impacts a higher.
Higher Q3 bookings rate was there for us.
And Doug Contextually, 44% is great, but that definitely falls short of what we felt internally what we communicate externally and then what we know would have been possible and less high variety landscape.
And then just I think you just 50% of two.
CV software bookings were workload and 53% last quarter and you were looking for 60% to exit. So is there some some logic to why that's cloud percentage would've trip down a little bit.
Yeah from a Q3 to Q3 based as Q3 is historically, our lowest crack cloud quarter.
The one of the bigger effects as pubs sac tends to have the fed government tend to close in Q3, and and while we got our fed ramp medium out there a few quarters ago, the cloud business and public sector is not as high as it is another the other theatres and sectors.
And the growth rate basis, if you go back to cloud Q3 last year and cloud Q3. This year, it's I think the highest acceleration and we've seen in any quarter.
It wasn't a surprise for us to come in below what we saw in Q2 and.
And we're still looking at that 50% to 60% right final for the year, great again that really is dependent upon some of these big term deals for companies as to what to manage a splunk within their own datacenters or or there did manage it themselves across the public cloud contracts.
And that they have but the cloud yeah, and if I guess.
You get a chance to look at other cloud pure play companies, especially and he is that went public the past year year and half two years.
Our cloud revenue, it's been very very consistent.
And maybe high Seventys to 80% and this quarter.
That now is a 145 and our revenue business bigger than I think all those recently public or inventory, there's recently public enterprise software cloud company and so.
And we're reviewing cloud as continuing with very strong momentum and we remain extremely excited about cloud and.
Thanks, Doug Thanks, Jason.
Thanks, Michael.
Thank you. Our next question comes from the line of Kirk and pattern from Evercore ISI. Your question. Please.
Yeah, Thanks, very much Doug and where do you just talked about and if there's any commonality and some of the deals that slipped meaning license sales ever shifting over to term or turned those going sort of and the cloud and then.
What happens I mean with a license deal that slips yeah. They can keep paying maintenance, but at some point in time, there has to be a natural rubber. So the client not to sort of re up with you guys I would expect so.
You know I guess, just how does that play and just kind of your confidence that these are kind of coming back to you within a quarter or two yeah, because I I think that the concern is that yes. It is.
And it sort of a business model shifts and that's that's impacting served closures on top of the pandemic or I guess, just anything you could give us and color maybe if there's any commonality and then sort of just the natural cadence of deals that slipped when they need to come back and just in terms of the risk associated frankly for your customers.
And so I think the biggest commonality amongst those the highlight of Dallas fed and those are not the only deals and stuff, but they understand the most material impact on our total HCV and air number and is that they were all big they're all high seven figure day, they figure deals and.
And the multiyear contract impact obviously it was and.
Hi or factor.
And that what we've seen is.
The scrutiny the unexpected scrutiny, that's coming in or the slowdown and there still are thresholds and deals flow and spend below a million and most companies and reasonable size and I don't think the CEO and board is going to be worried about that but and we've seen it 50 or 100 or term million dollars ceiling come down to as low as 5 million and some of these different organized.
Patients that.
That even our buyer that again off and as a CIO. So a material exact within the company and its not aware of that and kind of surprise to them as well and if that's the one that come and I'd ever seen day those deals were across multiple different industry is not all of them are U.S. pace here and national as well as U.S. and.
Some more cloud somewhere terms, so there there's a variety, but they all were larger deals.
The for sure and why there there is no comparable loss, while they're still in play is those companies all need expanded capacity, they're expanding into different additional buying centers or as their country and get more digital day need better visibility into those data flows.
In almost all the cases, there isn't a a gun against the organizations heads for what they currently have and say a lean forward to make sure that they can cover the landscape that they need to cover and.
Thats, where yeah and at least those organizations and our buyers obviously are very upset our champions. They wanted it needed in Q3, but those organizations are still able to manage you maintained the splunk the day, having and get that Lisa current visibility they had without that expansion and.
But but we have not had any of those deals disappear yet and we.
We will gauge them over the course of Q4 assets.
As the teams continue to work as our buyers continue to work to make sure they get approval to day need and the teams work with them to help them get that across the line.
Thanks, and just and just said and does it is dead horse and subject, but just anything you know is this global or have you seen more and the U.S. versus say Europe, and just trying to get a sense on where where you're starting to see more pressure potentially from an economic perspective.
They are bigger deals tend to be U.S.. So there was probably a higher preponderance and the U.S., but there were a handful of big.
Notable seven figure deals and all sectors.
That that saw that same impact there doesnt seem to be any industry. We've I've been surprised that and that's I think I tried. Thank you and in Q2 that beleaguered industries Airlines hotels cruise ships or cruise companies are actually still expanding and doing business with splunk not all of them uniformly, but but the numbers are actually.
Surprisingly good across from the sector. So it feels to be more of a company by company basis.
Going back to the huge variety of.
Perception reaction and belief of what this pandemic means.
For individuals are those that are comfortable running around socially and those that are hiding in their homes.
That kind of flows in my mind to companies as well and people that are being much more conservative and Super President and others that are still leaning forward and making sure that they're able to meet the Tam and the demand within their markets.
Okay. Thanks, very much thanks.
Thanks Kurt.
Thank you our final question for today comes from the line of Chris and we went from Goldman Sachs. Your question. Please.
Okay, great. Thank you.
And ask about Q4 guidance I know that I think was the seven large deals right that that's left is kind of.
They are very late stage can you talk about what you're actually assuming closes in Q4, I think a couple of closed already but just curious what's actually baked into that area and our guidance for Q4. Thanks.
Thanks for the crash and question, Jason So I would say the expectation is that whatever closes that got pushed.
It is likely offset by possibly further pushes but.
But you know that's because given the pushes the soft and last quarter I would assume that the same thing happens and then to the extent that.
There we don't see the same impact occur then you would see us get some or whatever portion of the 50 to 60 million that we lost last quarter.
Got it thank you and and maybe just one follow up on cash flow I think you mentioned in the release that that exceeded and target good.
Income from going to light and I think Q4 guidance as you know little little light as well and our op income. So just curious what's driving the outperformance and cash flow relative to what we're seeing with our EBIT and how we should also and any updates and how we should be thinking about the cash that progression over the next few years. Thanks.
Yeah. So we'll talk more about the multiyear cash flow projection next quarter, but but but overall yeah. We have been doing better than our expectation I think obviously pre pandemic was a different environment I think throughout this year, we just assumed there might be some increased collections risk.
There really hasn't been a and then there has certainly been some upside and maybe reduce travel and some other aspects.
I would say the inflow aspect of the business has been you know kind of exactly adds as we had hoped and that is the only moved from collected upfront to collecting and.
Annually over a three year period, and so were at least at this point right on track with our expectations of getting back to positive cash flow by the middle of next year, and then and then kind of fully lapping the invoicing change by 23.
Got it okay. Thanks very much.
Thanks, Chris.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Doug Merritt for any further remarks.
Thank you so Doug as I started yeah Paul.
Net deeply expressed head that we are not satisfied with this quarter. This is not the quarter that we anticipate we're going to have but I also want to reiterate that while the environment that we're in and made it much more difficult for us to achieve our original pre pandemic outlook.
I haven't wavered and anyway, and my optimism about overall prospects. We remain one of the fastest growing enterprise software companies and history and continue to grow faster than where our larger peers grew when they were at the $2 billion, Marc and our cloud business. If you look at that separately continues to outpace.
Smaller singularly focused.
Non burdened companies and their execution our.
Our shift to cloud is happening faster than we expected our David everything platform delivers most powerful capabilities and the market. We continue to invest heavily in the solutions and we push out for security I T and absurdity buyers. We can tend you to lean forward with growing the company internally and more and more.
Or where their strategic partner for our customers to accelerate their digital transformation and we continue to be excited about the opportunities the tam and our ability to fulfill to us.
So.
We look forward to Q4 and effective execution across a more robust pipeline going into our Q4.
And and look forward to a more positive and optimistic call coming out of that quarter.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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