Q2 2022 Splunk Inc Earnings Call
[music].
Ladies and gentlemen, please stand by your Splunk, Inc. Second quarter 2022 financial results Conference call will begin momentarily. Thank you for your patience and please standby.
[music].
Hello, Thank you for standing by and welcome to the Splunk, Inc. Second quarter 2022 financial results Conference call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a.
A question and answer session to ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Ken Tinsley. Please go ahead.
Great. Thank you operator, and good afternoon with me on the call today are Doug Merritt and Jason child.
After market close today, we issued a press release, which was posted to our Investor relations website, along with supplemental material.
Conference call is being broadcast live via webcast and following the call an audio replay will be available on the website.
On today's call, we will be making forward looking statements, including financial guidance and expectations.
Our forecast for third quarter, and our fiscal year 2022, as well as future expectations of revenue mix renewals duration RPM growth cloud growth bookings gross margin and operating cash flow as.
As well as trends in our markets and our business and our expectations regarding our acquisition products technology strategy customers demand and markets.
These statements are based on our assumptions after the macroeconomic environment in which we will be operating and reflect our best judgment based on factors currently known to us.
Actual events or results may differ materially.
Please refer to documents, we filed with the SEC, 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 in our forward looking statements.
These forward looking statements are.
But 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.
Reconciliation of.
Were being made and non-GAAP results is provided in the press release and on our website. So with that let me turn it over to Doug.
Thanks, Ken and good afternoon, everyone.
Our team delivered another very strong quarter.
Growing 72%.
10th consecutive quarter of 70% plus growth.
Okay.
GAAP here <unk> also doubled the number of customers in the cloud era at more than $1 million.
Our cloud dollar based net retention rate remains best in class and 129%.
These results speaks to the high strategic value, we delivered to the world's largest and most dynamic organizations.
Our Q2 outperformance.
And a lot of broad based with each of our major geographic regions exceeding plan and data in our customers globally are rely on splunk and our market leading data platform our cloud based capabilities.
Splunk offers the most comprehensive data platform in the market today.
Customer security IP and Dev ops teams.
100.
But it also had focused on enabling them to make sense of and act on their log metric and trace data to achieve the outcomes that matter most to them.
We're also up in the organization rapidly migrate to the cloud.
It can more effectively and securely serve their own customers.
We brought together.
Cloud experts in the market to do this.
Hunter per solving our platform and customer facing teams to serve our customers multi cloud and hybrid world.
When we talk about Splunk supporting multi cloud deployments where they.
<unk> deep and data visibility across any public cloud data.
Yes, Google cloud, Microsoft Azure and others as.
As well as any combination of those class.
Our priority is for our customers at the highest level of visibility across the organization as data. So they can serve their own customers effectively and securely.
And when we talk about supporting any hybrid deployment, referring to helping customers that absolutely any stage of their transition to the cloud.
But there is still predominantly on Prem are all in on the.
Cloud or somewhere between.
As transformation, the cloud accelerates and data ingestion need skyrocket.
Our customers have asked for more flexible pricing.
That's why we introduced workload based pricing nearly two years ago.
And our customers to take action on even more of their data without any gauge on the ingestion of that data.
This quarter's results showed that our customers are increasingly favoring this pricing option.
During Q2 more than 80% of net new cloud <unk>.
That's what I'm workload based pricing I appointed three <unk> from a year ago.
And now more than 25% of our total cloud.
It's from our customers.
I think we're cloud based pricing.
And our customers are reaping the benefits.
For example, after using Splunk on Prem for five years, a major North American based service providers, the finance industry decided to begin to shift to Splunk cloud workload based pricing in Q2.
This shift with joined from expected infrastructure.
So utilized rent savings of 75% increase splunk feature and capability velocity and the ability to forego a costly hardware refresh as had been planned for next year.
Also in Q2.
Top five banks decide to go all in on Splunk cloud and workload based pricing.
They are leaning on the versatility.
And they are our pricing model, making it central to their overall security and cloud transformation strategy.
We're leveraging Splunk cloud services to drive efficiency and visibility across their entire technological infrastructure.
During the World class banking experience for their customers.
By improving the efficiency of their operations this customer.
<unk> affects me better able to meet strict compliance requirements and reduce risk.
<unk> taken advantage of Splunk cloud scalability tough accelerate their digital transformation.
And what about pricing was a big factor in one of several competitor displacements during Q2.
For example, a major North American financial services firm.
<unk> have grown tired of the billing surprises a competitor dropped on them every single month.
This customer I appreciate our flat predictable and transparent pricing and turn to Splunk to monitor their workloads across multiple clouds.
Both existing and new customers are embracing Splunk cloud for example.
Firm organization Nudist Splunk this past quarter was a Norwegian labor and welfare administration also known as <unk>.
One of Norway's largest public entities purchased Splunk cloud platform to help optimize and secure the distribution of Norway's citizens of unemployment benefits pensions and more.
That's.
One third of the national budget.
Now there's been a rapid digital transformation journey and relies on Splunk as their trusted tech partner to accelerate their systems from on premise to the cloud in a way that's flexible scalable and compliant with Norway Central government regulations.
Now, let's turn to our product portfolio. Thank.
Thank you to relaunch our Splunk.
One other thing.
And security class applying our evolve cloud platform in pricing to our customers specific needs.
During our last earnings call I shared news of our launch with Splunk, Absorbability cloud, which brings together the world's best in class solutions for infrastructure monitoring application performance monitoring real.
Zero monitoring synthetic monitoring log investigation incident response, giving it and Dev ops teams core stack visibility in context across any hybrid multi cloud environment.
This integrated multifaceted delivery enable some powerful capabilities and outcomes for our customers.
For example, with Splunk observing.
Real user cloud or customer Lenovo produce their mean time to resolution from 30 minutes to about five allowing them to maintain a 100% uptime through black Friday traffic, which was 300% higher than the previous year.
When it comes to IC operations, we're delivering from the most broad and robust services.
Everybody can through our IC cloud, which combines the power of end to end virtual service visibility and monitoring but next generation stream based infrastructure monitoring and dashboard generation incident and event management and oncology distribution response capabilities.
And Splunk was recently recognized the value we're delivering to our customers.
There's no more ear and gardeners number one spot in the icon performance analysis market for 2020.
We're also named the leader in AI ops by Onvia and research and accident, given us independent validation that customers looking to modernize IC operations through advanced analytics and automation are increasingly turning to splunk as a preferred solution provider.
Turning to security.
The cyber threat landscape continues to grow in attack frequency and complexity and we are rapidly innovating. So our customers remain agile to adapt to ever evolving threats.
Q2, helping customers better protect themselves from new threats like <unk>.
Say, a rebel ransomware attack and more.
We also launched Splunk.
Splunk security cloud a modern security operations platform that gives customers advanced security analytics automated security operations and integrated threat intelligence on one comprehensive platform.
Companies like the environmental Systems Research Institute real chemistry, and sorry, Ana are already benefiting from.
Our security cloud pricing model, using a common and predictable metric.
In Q2, a leading healthcare services company and existing Icf's customer invested in our new security Clap as they built out their next gen set.
Their existing Sim couldnt meet the technical requirements that are customers looking for.
And at our security cloud it could deliver.
While they're at the ops team on a splunk perpetual license. So does our ability to offer workload based pricing for our security cloud that helped this customer expand from <unk> into security risks block.
We also want a significant eight figure deal and one of the five largest banks in Latin America.
Here the customers looking for a single solution for all of their machine data security and advanced machine learning and a rapidly evolving cyber spaceball threats.
Basic logging and security offerings from two of our competitors fell short of matching splunk breadth and depth of offerings delivered on one cohesive platform.
Whilst this large enterprise are now collecting data and using it for investigation.
Use cases and to protect their mission critical assets, including financial and confidential data.
And last month for the eighth year in a row Splunk continues to be a leader in the 2021, Gartner <unk> Magic quadrant.
Gartner also that it's block as number.
But in the same performance analysis market for 2020.
Additionally, we retain the number one spot in Idc's cyber analytics intelligent responses orchestration and tier two sock analytics market shares.
On the partner front, we're seeing terrific progress as well.
For example, a splunk is continue.
<unk> AWS to release, new offerings and provide a more curated experience for customers.
AWS centric cloud adoption model.
Announced in Q2, the newest blocks security analytics for AWS is a simplified security analytics solution designed for lean security teams.
This operating Leverages deep.
To work with centralized visibility of AWS environments accelerating threat detection investigation and response capabilities for security teams, who have fewer staff.
Also one of our long term preferred managed service provider partners, who void.
We recently announced the launch of their Blue <unk> modern sock for Splunk cloud platform.
The platform is designed to empower customers to maximize their investment in Splunk cloud through.
Through features such as White glove technical workshops rapid onboarding of Splunk cloud and 24 by seven managed detection and response powered by <unk> 24 by seven managed chalk.
And finally, we're excited to host over 15000 Splunk.
Our partners at our annual user conference in October.
We will rollout new capabilities, our updated product and services roadmap and further celebrate the data ecosystem in incredible ways. Our customers are trained data continuing.
When it comes to innovate on behalf of our customers over nearly two decades, we never rest.
Customer, sometimes so proud of the entire splunk team for delivering another fantastic quarter I want to thank our customers and partners for inspiring us to better serve them everyday.
Thank you and I'll turn it over to Jason for more on the quarter.
Thanks, Doug and good afternoon, everyone. Thanks for joining us our execution in Q2.
Very strong with overall bookings well above plan, we ended with total <unk> of $2 six 3 billion up 37% year over year.
<unk> was $976 million up 72% over last year, and we ended the quarter with 582 customers with total air are greater than $1 million.
<unk> was 47% 234 of these customers had cloud <unk> over $1 million double the year ago period.
Our continued focus on customer cloud adoption thrilled nearly $100 million of net new cloud there are in total net new <unk> of $164 million.
Recall.
That in prior periods, our appeal bookings was skewed by shorter overall contract duration related to the pandemic as well as change in our field compensation plans with these factors, mostly normalized now or Buell bookings is becoming a better indicator of bookings momentum and in Q2 total <unk> bookings with $676 million.
Up 29% over last year.
As I said last quarter with a substantial base of previous perp, the term conversions coming up for renewal in the second half of this year. We expect total RPM growth rates will continue to accelerate in Q3 and Q4.
On the P&L.
Q2 cloud revenue was $217 million.
Up to 73% over last year, reflecting acceleration of customer adoption of our cloud platform.
Total revenues were $606 million in Q2 up 23% and are benefiting from a more normalized average year over year term contract durations.
Professional services and education accounted for 8% of total revenues in.
Okay.
On margins, which are all non-GAAP cloud gross margin was 61% in Q2 up slightly from last year with continued progress towards our expected exit rate approaching 70% this year and improving to 70% to 75% next year.
Realized leverage from scale and the elasticity of the platform.
In the quarter total gross margin was 75% down slightly on a year over year basis due to the greater proportion of revenue contribution coming from the cloud.
Operating margin was negative 20% in Q2 significantly better than planned due to our bookings of top line outperformance.
On the balance sheet, we ended Q2 with two.
$1 billion in cash and investments, reflecting net proceeds of $983 million from the silverlake convertible note issuance as.
As we previously announced proceeds from that placement will be utilized for common stock repurchases and during the quarter, we repurchased 165 million shares at an average price of 100 per data.
Find yourself and the plan has continued into Q3.
Turning to guidance, we continue to see a robust demand environment and customer engagement is excellent, especially for existing customers planning their hybrid deployment, we expect to surpass $1 billion of cloud era in Q3, as we continue or accelerate.
Admission, reaching one $1 billion to $111 billion in total IRR between two eight and $2.85 billion.
Looking towards the end of the year, we expect demand in bookings strength to continue and to end the year with cloud era or between $1.305, and $1.33 billion in.
Total <unk> of $3 <unk> and three <unk> three 5 billion.
On the income statement the cloud transition will continue to drive variability in our revenue and operating margin results.
Q3, we expect total revenues of between $1275 million, depending on cloud and the success.
Accelerate programs to promote cloud adoption.
Non-GAAP operating margins should be negative 15% to 20%.
Full year total revenues to range between $2, five 3 billion and $2.6 billion with a non-GAAP operating margin of negative 14% to 17%.
On cash flow, we will be lapping interchange.
A new annual billings in the second half, which we expect will drive a return to full year positive cash flow nearing $100 million.
We expect to enter next fiscal year with our customer base fully normalized with annual billings and cash collections driving a significant increase in <unk> next year.
In closing.
Changed outperformed nicely year to date and are set up for a strong back half of the year.
The overall demand environment remains robust and with our product and service innovations geared to push cloud adoption faster, we expect continued high growth.
With that let's open it up for questions.
Well, thank you and as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from Brent Thill with Jefferies. You May proceed with your question.
Thanks, Doug maybe if you can just talk a little.
The consumption by by type and it looks like you had good upside on the license license and term in many are asking when we expect to see that even though a harder inflection on cloud I'll start there and I had a quick follow up.
Awesome. Thanks, Brent, Yes, we were really.
We're excited about the continued progress of workload based pricing.
Percent net new cloud workloads, 25% now of all crowded errors workloads. There. So I think that program. When you talk to customers that have moved to cloud and have abandoned infrastructure based <unk>, sorry interesting pricing improved infrastructure.
A bit about it.
If you are in line with everything I am hearing you hear a lot of enthusiasm from customers.
Does a stronger term quarter than we thought.
And that really comes back to the craziness of the transformation of <unk> is such an important metric.
We are thrilled that we got some big T.
<unk> term deals in this quarter.
Honored to help a customer whether they manage it themselves where we manage it for them.
But that definitely skewed up.
<unk> a bit.
In term duration, because they were multiyear contracts, but overall the trajectory remains the same super strong cloud growth more and more.
The overall base going ratable more and more of the overall base growing workload slash infrastructure based on the pricing piece.
And we continue stay super focused on that through Q3, and Q4 and beyond.
And Jason are real quickly just on the buyback good to see.
That obviously is is picking up should we expect kind.
<unk> seen even.
Pick up in the buyback.
Throughout the throughout the quarters or.
Any way you can help us understand.
How that's going to progress.
I would just say we took advantage of the share price and we were aggressive buyers in the last quarter as indicated I think.
What.
You need 250 billion or so that we bought back in the quarter.
There there were more purchases of the ongoing in Q3.
Don't really have an update on when we're going to finalize so I'd just say stay tuned.
Great. Thanks.
Thanks, Brent Thanks, Brent.
Thank you. Our next question comes from Ryan Lynch with Barclays. You May proceed with your question.
Thank you.
One I start with one for Jason and one for Doug Jason.
It's been a wireless since you started talking about annual guidance.
Seeing that coming back so obviously like a very two at.
Being a very strong signal that visibility is increasing as you're coming up.
And on the transformation.
That kind of the right way to think about it just kind of maybe talk to that a little bit what gave you that extra confidence now.
Yeah. So thanks very much I would say first the.
We always.
We had planned with this transformation there is kind of a lag of as we move to cloud it takes.
We knew was going to take roughly a year from last year's cloud bookings to kind of show up in this years GAAP numbers in terms of <unk> and <unk> and all the various kind of derivative metrics.
And I think maybe.
At least two Q2 was maybe maybe a quarter early in terms of seeing some of the rebound I mean, you saw our appeal bookings at plus 29% this quarter after being I think it was only 5% positive last quarter. It was negative I think every quarter last year. So so I think as we start to see more momentum in a lot of those.
Metrics.
Which I do expect as I as I said on the scripted portion of the call.
That certainly along with.
Really a pretty strong purchasing environment.
We've.
<unk>.
Have a great pipeline we've got.
All the indicators look good I didn't.
Other cloud programs that we've put in place this quarter.
So I think.
The combination of those factors is what gives us more confidence going into the second half.
Perfect and then one for you Doug if I think about that consumption pricing that you put in that.
Like how do you think that will feed through.
Talk about the installed base will do I kind of need to think about it like every time someone comes up for renewal they will do that you're going to try to push it into a renewal.
How do I think about that evolution within the client base. Thank you.
Yes.
Good question ran up so core net news default.
Any net new cloud customers people for the sales force to focus on worker base pricing.
Customer success is the number one company priority, we really stay focused on that so we don't want to strong customer into our cloud based pricing but.
Every ounce of data that we've collected and we now have got a big body of data continues to point to.
Better for the customer.
It gives them a significantly wider aperture could play with data without worrying about the volume of data brings more people to the overall platform makes these solutions more palatable for them.
So stay tuned theres a lot of interesting things that the combination of Shawn and <unk>.
And some of the additional people we've been.
Our focus on bringing onboard and listening to have in play for the course of this year to make sure that we keep.
Making the right choice for customers and increasing the volume of customers that are switching away from the data ingest model.
Perfect. Congratulations thank you.
Thank you thanks very much.
Yeah.
Thank you. Our next question comes from Matt Hedberg with RBC capital markets. You May proceed with your question.
Hi, guys. Thanks for taking my questions. Congrats congrats on the results first of all.
Doug I wanted to start with you.
It's.
It's been a few months since the silver Lake investment.
I'm curious if you could talk a little bit about what what that means to sort of the strategy.
And really where you are at in this cloud transition and just how that benefits the kind of the investment thesis.
Sure Matt.
So, yes, we actually had our FERC and term coordinating where it can participate in.
Great two out of the board.
I think the overall perspective that we get from silver Lake they've watched through these transformations in the past they've got a broad base largely tech oriented companies.
And so a lot of good compares.
We are definitely helping us in some areas on on how are we approaching a transformation how are we craft our metrics and measurements.
The core for me.
Of that and for the rest of the team.
Was the.
The bar the high bar that I think some of that.
And that's that they're pretty effective and savvy getting effective returns for themselves and their limited.
And the deep due diligence that we had to go through to get that investment.
I think while it's very purposeful on our part right.
Makes sense.
There is a lot of opinions out there about splunk.
Someone as an insider, who is part of that Investor community and as top tier from an investor perspective, we felt was another.
Support that there is light at the end of this transformation tunnel that it's a very positive light.
And as we just talked through.
On guidance, we are now focused on $3 billion by the end of this year.
North of $1.3 billion in <unk> for our cloud business.
Continued really enviable growth rate so.
Cited about the support and help the silver Lake and Ken and leave it linger.
Encounter providing and looking forward.
<unk> continued momentum on the transformation.
That's great and then just a quick one for Jason the $3 billion ERO target is great.
From your perspective, when we're coming out of this transition and we're leaning more cloud how do you. How do you think you get more leverage in the sales force can you it feels.
Like there's a great opportunity.
To see even more leverage there as we progress through the year. So just kind of thoughts on how that might.
Transpire.
Yes.
That's absolutely right.
The leverage in the model right now is at least as.
Measured by.
Operator.
<unk> profit is is certainly negative because of the 606 impacts of moving from term to cloud.
We will see those recover in the near term you're going to see the leverage and cash flow and so you know as we said we'll have approximately $100 million of cash flow. This year and then next year, we'll have a full year of collections since we.
We're lapping that.
Front invoicing to now annual invoicing, which we did two years ago.
And so next year, you'll see a full year return of strong cash flow. So I do expect to see the cash leverage really start to come back next year I think the operating operating margin basis, it'll take a little longer and that's really just dependent.
Revenue recognition treatment.
Specifically the sales if you go and look at the dollar kind of per <unk> from the sales team.
We're actually seeing really strong double digit growth I do expect that to increase certainly in cloud, where we do have <unk> of 129%.
<unk> is one of the best indicators.
I think we're going to have really really strong leverage and certainly we're hiring reps at a rate that's less than the DB and our rates. So that obviously will turn into the leverage going forward.
Thanks, a lot guys.
Thanks, Matt.
Yeah.
Thank you. Our next question comes from Keith Weiss with Morgan Stanley You May proceed with your question.
Hi, It's Matt Wilson on for Keith Weiss. Thank you for taking my question, if I could dig a little bit more into the cloud transition the annual call a percentage of total software bookings was 51% this quarter, which was roughly flat from FY 'twenty one.
Couple of years of solid gains can you kind of help us understand what's going on here has there been any change in customers' willingness to move to the cloud or any color there would be helpful.
I think for this quarter. It was more the performance of term than anything cloud related we saw <unk> grow.
After a 72% revenue overall in cloud, 73% so.
I view, especially given the error.
Our size and the Meg business out so it has really really unique and enviable growth rates.
That said as Jason mentioned in his remarks.
<unk>.
<unk> has begun to use her experience with 10 plus years of getting people to understand the benefits of cloud through AWS.
In place a couple of programs.
Internally facing some customer facing that could continue.
Customers and our teams.
Partners.
I understand the benefits of cloud.
So we are we're still very confident that we will end the year at a 60.
Percent or 60% plus cloud mix.
But anything we do to accelerate that we're focused on making sure that happens.
And put great that was helpful and one more if I may are you seeing really great progress in large deals and customers over $1 million can you kind of just talk generally about the progress up market that youre seeing it.
And the success there.
Yes.
There are 250 cloud customers at 1 million plus a year at almost 600 overall.
We're really proud of those numbers.
I think a chunk of that is.
We are the only unified platform and comprehensive set of solutions.
What are you seeing there from customers and in terms of willingness to expand into those other other use cases from you know core logging that splunk six itself.
So the my excitement about them durability is.
I think it's in danger of being the next AI, if our clients her or where it almost becomes me unless because it's such a broad topic area.
Within our durability suite, we've got infrastructure mind monitoring.
Monitoring and real user.
Monitoring and synthetic monetary and market investigation incident response.
The really comprehensive offering.
What we have seen is bringing.
Bringing the depth and capability across that really broad sweep is important to customers, but what they want is going to vary based on where they are.
Their movement from a last generation status of apps to a next generation highly fluid a femoral cloud based set of apps.
So the.
Our belief in why we've been so that's it so strongly in the comprehensive nature of the suite is a ultimately need all of those capabilities across <unk>.
Got it.
Security and App Dev right now the bulk of it is to have up and App Dev and Thats, a little bit more eight P. M.
Synthetic and real user oriented and IP work, a little bit more infrastructure monitoring oriented.
Our strength is we play in both camps.
Yes.
Both the lost generation monitoring and visibility as well as what's going on within the cloud deployments with these guys.
Great. Thanks, so much Doug and one more if I may please with the success, you're seeing in workload workload based pricing and the data velocity that that's that's enabling less friction and bringing more data in.
Sure.
What's your confidence in the ability to sustain that climate that cloud dollar based net retention level of 129 very strong levels that it would seem that with that trend in place that are it could be a very long runway.
Workload based pricing is doing what it's supposed to do which is bringing more data volumes that you're seeing already.
Thank you so much.
I'm really really good observation I mean, the interesting part and why the shift of workload has been I think so important for on behalf of our customers as data volume is a factor, but it's not the factor.
A couple of calls that the cost of finding moving in that same.
Data so it's available.
Is it as a cost, but that's not that's not the big driver. The Big driver is what are you going to do with that data.
Where the curation of the data the queries and interrogation that data come into play and whether it's hitting our index, whether it's allowing our heterogeneous search to go after.
After data directly within a three or other storage vehicles, whether it's something on the stream.
That our solutions are continuously are increasingly relying on.
Claude Neutralizes that factor.
Third complaint forever of Hey, I've got I'd love to play with NAPCO data, but it's huge it's hundreds of terabytes.
Terabytes per day, and I want to pay for that but I want to add we satisfy can play with that.
Workload based pricing you get that opportunity very cheap to put push that either into our index for and something like a three.
And then when you need it it's there so that you can rewind time due to a needle in a haystack work do you need to.
Because ultimately.
Every one of these systems will go down.
Will all likely face some type of breach and you would need to be able to investigate and understand what happened.
They can really aligns much more clearly with what customers have been asking for.
That's great to hear thanks, so much Doug.
Thanks, Brad.
Thank you our next.
Question comes from Karl Keirstead with UBS you May proceed with your question.
Thanks, very much maybe two for Jason.
Hey, Jason if I take your <unk>, a number of the high end $3.135 billion and I assume a relatively slow DSL is splunk scales.
I can arrive at a view that you actually only going to Miss your original $4.5 billion target by let's say two quarters. So I just wanted to ask is that way.
Way off the Mark and when do you think you'd be in a position to offer.
<unk> ability on the AOR a number beyond fiscal 'twenty two.
First thank.
I think your math is.
Reasonable.
And.
I think that it's reasonable and I think the when we are in position to.
I'm talking about long term target.
Later.
Well sometime.
Sometime in the near future.
I would say.
I haven't finalized yet it's either going to be it would be at earliest late late this year or.
Or maybe sometime early next year, the things that we're trying to figure out or we've got a bunch of new.
Cloud programs as we talked about that we just put in place. This quarter. We've got two great leaders from AWS that have been here a couple of months.
And.
And then obviously, we've got a bunch of new clubs in a bunch of new products and services that have been released and so to really be able to kind of still all of those things.
And come up with a kind of a high fidelity view on what the next few years looked like will take us a little bit of time, but hopefully.
What youre seeing is really strong fundamental growth.
And so as you pointed out.
Not that far off from where we were our old long term targets.
Sure.
But we'll give you we'll definitely give you a better view at some point. The first step was to give full year guidance and that's what we've done now.
And I'll be certainly working on trying to come up with some firm long term target sometime in the near future.
That makes sense, Jason I think we all appreciate that so thank.
And then my follow up is just on your comment that <unk> bookings should accelerate in <unk>.
To clarify from a base of 29% that you just did does that acceleration assume any duration increase and then if you could also clarify I think you said on the last call that <unk> should.
Should be in the low <unk> in the next several quarters do you feel still feel good about that thank you.
Yes.
<unk> I think that's certainly a reasonable range and nothing has changed and something in the twenties certainly is reasonable.
The one just remember on <unk>.
It does get distorted if cloud mix bounces around for example, if you have a higher term.
Term percentage you will book three years of revenue and that shows up all in current or appeal, because it's part of revenue.
And the change in RP O is going to while it may be.
Our current appeal, maybe high current <unk> bookings I may not be so so that metric still can bounce around based on cloud mix total RTL bookings really it was only affected by duration. In fact, if you look at the 29% that we put up this quarter you can see that our duration was actually down two and a half months year on year.
And so if your duration adjusted you'd be something closer to 34%. So so we are not assuming.
Duration extension to help with RP O bookings and in the future instead, we are lapping a.
Q3 was a tough quarter last year.
And so that certainly makes for an easier comp.
As well as you know as the guidance implies we do see a strong.
Strong fundamentals for the second half of the year.
Excellent. Thanks, a lot and it's nice to see Splunk coming back with a good quarter no drama appreciate it very much.
Thank you. Thank you I appreciate that a lot.
Yeah.
Thank you. Our next question comes from Kirk <unk> with Evercore ISI you May proceed with your question.
Yeah, Thanks, very much and congrats on a nice quarter.
Jason around.
Arun if Doug you want to take this but you both sound very upbeat about the pipeline heading into the back half of the year can you just talk a little bit about sort of what's.
What's your confidence as sort of based upon I think one of the challenges maybe earlier this year was not knowing how some of the renewal deals we're going to look in terms of the construction of the deal itself, whether it's cloud or what kind of capacity people are going to be buying in front, you know sort of in front of what level of capacity, they're going to buy in the next.
Re up are you just seeing more normalization in sort of buying patterns. I was just wondering if you're going to pack that a little bit more.
Both sound pretty upbeat as we go into the back half of the year. Thanks.
Yes.
Certainly took away a lot of lessons.
Mid year last year.
I think as we've talked about has pretty dramatically impacted.
Level of visibility and some of the process steps and other pieces that help us get higher confidence and qualification and.
Yep.
Wherever possible, we can at least highlight unexpected surprises.
Yeah.
It's a little bit more scrutiny on when something is ever included in the forecast or not.
I think the theme around that so that all is good housekeeping internally.
From a very unique moment in time.
The height of the pandemic in a very unique.
This impact defense block externally, what we've seen is consistently.
I think from the deer in the headlights have Q2, and Q3, where people where companies and leaders were really trying to digest understand what's going on with this pandemic.
It's going to happen with the economy was catheter with my balance sheet was capped with my income statement.
Okay.
I think it was taken over and I've heard it with virtually every company that's reported the past few quarters, including us.
Is if youre not online if you're not a leader online you're going to be in trouble like Theres no.
From a likelihood that life is going to go back to normal anytime soon.
So you've got to have an effective digital presence.
Like that with with continued confidence and access to capital and had a stock market point of view certainly helps all of us in some ways.
<unk> has had a very consistent set of purchasing behavior I think over the past few quarters.
We're not expecting that to radically change over Q3 Q4, but the forecast we.
And I think but it was really based more or less on our guesstimates about the macro macro environment to the microenvironment and more the interrogation of inspection of our customer base.
The health and quality of the forecast our assumptions on cloud and non cloud movement, so a little bit more of a bottoms up set of activity.
<unk>, that's driving our Q3 Q4 outlook.
The only the only thing I would add is that obviously the <unk> continues to hold steady at 129, which.
At our size is certainly something that we feel really good about that continues to hold and then second I would I would say the renewal pipeline.
Put forward in the second half Peter as always.
It's always been expected that it's going to continue to grow into Q3, and then peak in Q4 and because of those high retention rates that does definitely and provide confidence.
That's super helpful. Thanks, guys.
Thank you.
Your next question comes from Keith Bachman with BMO you May proceed with your question.
Hi, Thank you very much two questions maybe the first one for Doug or Jason, but I wanted to see if you could talk about customer churn and the way I'd frame. The question is customer churn over the last 12 months versus the previous 12 months.
And the reason I'm asking the question they are still as an investor perception out there.
<unk>, losing some share and so wanted to ask it in.
In the context of customer churn and then I have a follow up please.
And we have not.
Despite what you guys read and hear that type of we're experiencing.
And probably continue with very consistent.
Street renewal rates.
Both cloud and term and obviously very consistent <unk> that again that is a cloud based TTM number if we factored in the overall corporate stance is higher than that because that does take into consideration.
Some of the impacts of the uplift from terminal clouds, and we wanted to get that out so that we'd have an apples to apples comparison.
We have been talking about for a while our health within the top tier accounts. Unfortunately harder accounts. That's consistent 92 of the 100 or still are splunk customers I'm really intent on making sure those last.
Eight become customers as well.
Whether or not.
But theres reason to each one of them.
The number.
Number of customers with greater than $1 million or close to $2.50 cloud customers close to 600 overall customers within our company.
Hi.
It's all good.
But.
But what we see and what we hear from customers definitely is different than some of the backfill I get from from you and some of your peers.
Different analysts firms that others are driving that.
Okay, Okay, Jason I wanted to follow up with you on cloud gross margins relatively flat the last three quarters call.
All right.
Lower than total gross margins, so, let's see movement, you're thinking cloud gross margins.
As we look out over the next couple of quarters and how does how should that makes us think about the ability to expand your total gross margins if we.
Or excuse me total operating margins as we think.
About the impact of cloud gross margins as we look into FY 'twenty two thank you.
Sure.
You look at well if you.
I heard my comments in the prepared remarks, we're expecting.
Continued improvement in cloud gross margin through the back half of this year with an exit rate approaching 70%.
And then actually went on to say that we expect next year to be 70% to 75%. So the reason why it's been kind of stuck for the past few quarters.
Is theres kind of two different aspects there is the splunk.
Cloud gross margin on the core Splunk cloud.
Cloud offering which has been steadily increasing.
But it's been offset by some lower gross margin than the Absorbability suite, where we've worked over the past couple of quarters to integrate some of the acquisitions and really kind of pull things together.
That work was really largely complete in may.
And now you'll start to see us focus on overall elasticity, which basically means paying for.
What you need when you need it and that allows us that will allow us to make sure that we're improving our gross margins over the back half of this year and an adventure.
Okay perfect. Thanks, Jason.
You bet.
Yes.
Thank you. Our next question comes from Rob Owens with Piper Sandler You May proceed.
With your question.
Great and thank you for taking my question just one for me was I was curious on the security front relative to competition in the Sim market, particularly from the xdr players that.
To hold that Theyre, starting to take share from Sim. So curious what you're seeing there relative.
To your offering and the demand picture.
I think I think like we've seen with the rest of the security market.
We did see an uptake uptick and overall security activity as far as purchasing activity expansion from Q1 and Q2.
A really healthy quarter for security as it all.
I expect given the intensity of what's happening there.
Hi, again.
Kind of a lot of work to send it <unk>, replacing some right now.
I don't even know how thats.
Logical.
Given the limited data set that they capture in the relative infancy.
If their offerings right now relative to ascent.
From a edr perspective I get it.
But as Tim is very different than that.
So it's.
We stay focused on is progression of our security suite really big four or five months.
We've got a full.
Cloud based suite now.
Sure analytics security analytics Tim.
We're thrilled to add the threat intelligence platform fee offering a lot of feature velocity.
That was delivered and a lot more than we're focused on for our user conference in October.
Needs stock.
<unk> teams have are pretty.
Important right now and we stay very focused on that.
Wonderful thanks for the color.
You bet Thanks, Rob.
Thank you and our last question comes from Eric <unk> with.
With JMP Securities You May proceed with your question.
Yes, thanks for taking my question.
On the competitive front I am curious if theres been any any update on the observer ability front.
Any change there and then secondly can you just comment on the timing for the silver Lake investment.
What was the nature of of pulling the trigger when you did.
Sure sure.
Variability in comparative overall very consistent win loss rates this quarter versus last quarter and it is their ability to actually a slight uptick in our in our performance versus competitors.
<unk>.
We recognize that we are a newer entrant in a territory that there is a lot of work we have to do to develop the strength there that we have in security at ICR. So that is a super Super strong focus area for us.
And remains really exciting.
As far as the opportunity and.
Our understanding of our unique differentiation and how to how to compete effectively.
Silver Lake.
Okay, you never really can fully time. These things have got that both parties are open and interested.
I think the stars and Moon lined.
<unk> were.
Yes.
It was appropriate for several late to consider this.
And.
We were thrilled that they were interested.
Super tight process I guess, the only conversation that we focused on.
And the value that we've already seen that candidly.
Firm.
Adding has been.
Tangible.
We're excited about how the partnership that's developing and how they can continue to help us stay focused this transformation.
And make sure that we have the same upside that we've seen the adobe is in the Autodesk and a handful.
Others have successfully navigate these waters as they cannot get around it.
Very good thank you.
Thanks, Eric.
Thank you I would now like to turn the call back over to Doug Merritt for any further remarks.
Yeah.
Alright. Thanks.
Thanks, Josh I, just want to thank everyone for joining us today I know, there's a lot of new announcements coming out of our earnings call today.
I wanted to step back and reiterate how proud I am of the entire Splunk team.
The impressive execution that we drove across every region.
And it was really really nice to see.
The company come together under the leadership of our theater leaders are capable senior leaders to deliver that end result.
Passion grit and resilience.
To delivery.
It's been absolutely key through a really challenging 18 months that are all doing with lots of variables.
Just.
Reaffirm one more time.
They were the most comprehensive data platform in the market our customers are benefiting from the rich range of capabilities that underlying platform as well as the solutions on top we continue to see strong momentum and how our customers are migrating to our cloud services.
Adopting and updating the pricing options that were putting in front of them.
Data is the oil it is the oxygen these companies need and we're excited to be there to help them with that.
I also want to highlight that honored we are to continue to be able to attract and hire the best cloud and tech talent on the planet.
They are bringing the right expertise to help us capture this massive and growing market opportunity that we're staring.
And working hard to make sure we capture effectively.
And I am more confident than ever in our position and growth outlook. So thank you again have a great evening.
And I look forward to talking to you all in another quarter.
Okay.
Thank you. This concludes today's conference call.
Well. Thank you for participating you may now disconnect.
[music].
Yes.
Okay.
[music].