Q2 2023 Splunk Inc Earnings Call

August 24, 2022

Patient there'll be 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.

Presentation there'll be 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 I would now like to hand, the conference over to your speaker today, Ken Tinsley. Please go ahead.

His presentation there'll be 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 I would now like to hand, the conference over to your speaker today, Ken Tinsley. Please go ahead.

I'd now like to hand, the conference over to your Speaker today, Ken Tinsley. Please go ahead.

Thank you operator, and good afternoon with me on the call today are Gary Steele and Jason child.

After market closed today, we issued a press release, which is also posted on our Investor relations website, along with supplemental material.

After market closed today, we issued a press release, which is also posted on our Investor Relations website, along with supplemental material. This.

After market closed today, we issued a press release, which is also posted on our Investor relations website, along with supplemental material.

This conference call is being broadcast live via webcast and following the call an audio replay will be available on our website.

On today's call, we will be making forward looking statements, including financial guidance and expectations, including our long term growth and profitability our forecast for our third quarter and full year of fiscal 2023, and our future expectations of revenues cloud mix total IRR and cloud <unk> cloud gross margin operating.

Gross margin operating margin operating and free cash flows and rule of 40 scale as well as trends in our markets and our business, our strategies and expectations regarding our business products technology customers demand in markets.

Margin operating and free cash flows and rule of 40 scale as well as trends in our markets and our business, our strategies and expectations regarding our business products technology customers demand in markets.

<unk> operating and free cash flows and rule of 40 scale as well as trends in our markets and our business, our strategies and expectations regarding our business products technology customers demand and markets.

These statements are subject to risks and uncertainties and based on our assumptions as to the macroeconomic environment and reflect our best judgment based on factors currently known to us actual events or results may differ materially.

Please refer to documents, we file 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 refer to documents, we file 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 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 Gary.

Good afternoon, and thanks for joining today's call Q2 was my first full quarter as CEO .

Good afternoon, and thanks for joining today's call.

Q2 was my first full quarter as CEO .

After four months of leading this incredible team as flankers and meeting with more than 100 customers in 100 days. The reason that drove my decision to join Splunk.

Our as true now as they were the day I started.

Splunk is deeply embedded within the tech stacks of the world's largest enterprises looking across the software landscape I am confident that we are uniquely positioned for long term durable growth and profitability. Our customers. Appreciate what we do for them and they are looking to invest more and drive greater value with Splunk, why well simply put no one else can do.

What we do.

The value we bring to customers is evident in our second quarter results with total revenues growing 32% to $799 million exceeding our expectations. Our team achieved this top line outperformance, while also exceeding our op margin expectation for the quarter as our focus on balancing growth with profitability began to deliver.

Sure.

<unk>.

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We continue to see good customer engagement during the quarter with strong competitive win rates consistent with what we've seen in the past couple of years high net retention rate and good business momentum. We ended the quarter with 723 customers with total annual recurring revenue or <unk>.

<unk> of more than $1 million up by 33 customers from last quarter and up 24% year over year <unk>.

<unk> of more than $1 million up by 33 customers from last quarter and up 24% year over year.

Despite our solid top and bottom line, our cloud <unk> and total <unk> came in short of our own expectations. This was largely due to the slowing of a number of larger cloud migrations and expansions as customers became more cautious with their Q2 budgets as many of our customers opted for shorter term.

With Splunk beginning in the second half of the quarter this lower than expected cloud adoption resulted in lower cloud and as a result total IRR.

With Splunk beginning in the second half of the quarter. This lower than expected cloud adoption resulted in lower cloud <unk> and as a result total IRR.

<unk> with Splunk, beginning in the second half of the quarter. This lower than expected cloud adoption resulted in lower cloud and as a result total IRR.

Our customers tell us that they understand the importance of moving to the cloud and that they remain on their path to migrate and expand their highly complex infrastructure over time cloud transformation is a time and cost intensive strategy as we've talked about on these calls and we support the pace our customers take.

Our customers tell us that they understand the importance of moving to the cloud and that they remain on their paths to migrate and expand their highly complex infrastructure over time cloud transformation is a time and cost intensive strategy as we've talked about on these calls and we support the pace our customers take.

Even given near term pressures are high competitive win rates indicate that our customers continue to choose splunk.

To offer further context today I'm going to focus on what I am hearing from my customer conversations and the changes I've been driving inside and outside Splunk during my first full quarter, leading the business.

To offer further context today I'm going to focus on what I'm hearing from my customer conversations and the changes I've been driving inside and outside Splunk during my first full quarter, leading the business.

First as a recurring theme with my conversations Lumpkin, our products are mission critical organizations rely on our unified security and the durability platform to navigate today's unpredictable world and customers are eager to partner with that we are deeply embedded into business processes Tech stacks and security in it strategy.

First as a recurring theme with my conversations London, our products are mission critical organizations rely on our unified security and the durability platform to navigate today's unpredictable world and customers are eager to partner with that we are deeply embedded into business processes Tech stacks and security in it strategy.

We are deeply embedded into business processes tech stacks and security and strategies at the largest and most innovative organizations on the planet.

At the largest and most innovative organizations on the planet.

Our criticality has been most evident in my conversation with leaders I personally know best Chief information security officers.

Our criticality has been most evident in my conversation with leaders I personally know best Chief information Security officers today's boards and chief executives are empowering their thesis to make buying decisions beyond their legacy security specific technology and across the business often in partnership with the CIO.

Today's board and Chief executives are empowering their CSO to make buying decisions beyond their legacy security specific technology and across the business often in partnership with the CIO, our unique combination of security and observer ability products provide <unk> with unparalleled visibility and the depth of detection and response that mark.

Today's boards and chief executives are empowering their thesis to make buying decisions beyond their legacy security specific technology and across the business often in partnership with the CIO, our unique combination of security and observer ability products provide <unk> with unparalleled visibility and the depth of detection and response that mark.

Our unique combination of security and observer ability products provide <unk> with unparalleled visibility and the depth of detection and response that modern organizations demand.

Turn organizations demand.

And organizations demand.

For example, just last month I met with the CIO and CTO of a fortune 50 transportation company and a longtime splunk customer.

Splunk is helping them improve business critical board relevant metrics like meantime, detection and meantime to resolution as these leaders told me we are integral to their security <unk> ability and enable broader resilience across the company. The customer continues to expand on the Splunk platform as their security and the durability needs continue to grow.

<unk> is helping them improve business critical board relevant metrics like meantime, detection and meantime to resolution as these leaders told me we are integral to their security and a durability and enable broader resilience across the company. The customer continues to expand on the Splunk platform as their security and the durability needs continue to grow.

Customer continues to expand on the Splunk platform as their security and the durability needs continue to grow.

Equipped with end to end visibility across security.

Equipped with end to end visibility across security and.

And Dev ops like our customers are able to react more quickly to unexpected events and adapt especially within the context of today's macro environment and cost constraints organizations have less margin for error any disruption could be devastating we help our customers improve the resilience of their critical systems, making our technology all.

And Deb up the like our customers are able to react more quickly to unexpected events and adapt.

Especially within the context of today's macro environment and cost constraints organizations have less margin for error any disruption could be devastating we help our customers improve the resilience of their critical systems, making our technology all the more relevant and mission critical across the organization.

Any disruption could be devastating we help our customers improve the resilience of their critical systems, making our technology all the more relevant and mission critical across the organization.

The more relevant and mission critical across the organization.

Last quarter, we hosted dot comps and our global partner Summit in Las Vegas, I spent a week meeting with our customers and learning more about their challenges and the unique value, we deliver our customers <unk> and <unk> together with the industry analyst community really responded favorably to the value we showcased and the innovations we.

Last quarter, we hosted dot comps at our global partner Summit in Las Vegas, I spent the week meeting with our customers and learning more about their challenges and the unique value, we deliver our customers <unk> and <unk> together with the industry analyst community really responded favorably to the value we showcased and the innovations we.

Last quarter, we hosted dot comp and our global partner Summit in Las Vegas, I spent the week meeting with our customers and learning more about their challenges and the unique value, we deliver our customers <unk> and <unk> together with the industry analyst community really responded favorably to the value we showcased and the innovations we.

<unk> Dot com.

Along with RSA in June and even black hat earlier this month during.

The depth of detection and response that modern organizations demand.

During the quarter Gartner ranked number one in both operation and security markets and the Gartner market share report.

For example, just last month I met with the CIO and CTO of a fortune 50 transportation company and a longtime splunk customer.

Now, let's take a look at a few transactions from the quarter.

<unk> is helping them improve business critical board relevant metrics like meantime, detection and meantime to resolution as these leaders told me we are integral to their security and observe ability and enable broader resilience across the company. The customer continues to expand on the Splunk platform as their security and a durability needs continue to grow.

In Q2, we closed a multimillion dollar three year Splunk security and cloud deal to secure a U S state government there.

Workload pricing Splunk will provide the scalability and flexibility they need to oversee security over 20 separate it departments.

<unk> in the invisibility helped us displace an incumbent and beat out a competitor as part of the deal.

<unk> and the invisibility helped us displace an incumbent and beat out a competitor as part of the deal.

Equipped with end to end visibility across security.

On the observed ability side and international financial services company that you all know very well extended and enhanced their splunk investment with a multimillion dollar splunk observe ability deal.

On the durability side and international financial Services Company that you all know very well extended and enhanced their splunk investment with a multimillion dollar Splunk observer ability deal.

Dev ops are like our customers are able to react more quickly to unexpected events and adapt.

On the observed ability side and international financial services company that you all know very well extended and enhanced their splunk investment with a multimillion dollar Splunk observer ability deal.

Especially within the context of today's macro environment and cost constraints organizations have less margin for error.

Despite a lower cost offer from a competitor we won by demonstrating our effectiveness value and ability to provide customers full visibility.

Despite a lower cost offer from our competitor, we won by demonstrating our effectiveness value and ability to provide customers a full visibility.

Despite a lower cost offer from our competitor, we won by demonstrating our effectiveness value and ability to provide customers full visibility.

Any disruption could be devastating we help our customers improve the resilience of their critical systems, making our technology all the more relevant and mission critical across the organization.

Turning to the Splunk platform last quarter, when a new Zealand's largest banks expanded their use of Splunk cloud after using ITM Si and enterprise security across the business. The bank will now leverage splunk across its new banking platform to support its micro services development, adding to its existing audit and regulation.

Last quarter, we hosted dot comp and our global partner Summit in Las Vegas, I spent a week meeting with our customers and learning more about their challenges and the unique value, we deliver our customers <unk> CIO and CTO together with the industry analyst community really responded favorably to the value we showcased and the innovations we.

<unk> use cases on our platform.

In the second half of the year Youll see us remain agile and disciplined in delivering best in class solutions to customers as they navigate today's unpredictable macro landscape.

<unk> Dot com, along with RSA in June and even black hat earlier this month during.

In the second half of the year Youll see us remain agile and disciplined in delivering best in class solutions to customers as they navigate today's unpredictable macro landscape.

During the quarter Gartner ranked number one in both operation and security markets and the Gartner market share report.

When it comes to how Splunk goes to market immediate change I have set in motion.

When it comes to how Splunk goes to market an immediate change I have set in motion.

Now, let's take a look at a few transactions from the quarter.

Joining has been to double down on our <unk> relationships and realign our resources to help them tackle their most urgent challenges again securities a data problem and <unk> need Splunk.

Joining has been to double down on our CSR relationships and realign our resources to help them tackle their most urgent challenges again securities a data problem and Dsos need Splunk.

Joining has been to double down on our <unk> relationships and realign our resources to help them tackle their most urgent challenges again securities a data problem and <unk> need Splunk.

In Q2, we closed a multimillion dollar three year Splunk security and cloud deal to secure a U S state government there.

Workload pricing Splunk will provide the scalability and flexibility they need to oversee security over 20 separate it departments.

We've also observed that given today's threat landscape <unk> budgets are among the most resistant to changes in the macro environment.

We've also observed that given today's threat landscape sees those budgets are among the most resistant to changes in the macro environment.

It should be no surprise that security is already our primary customer use case today and we believe that it will continue to be in the future. We have begun to see that the world is changing and cyber security is coming together with observer ability to drive better business resilience for our customers.

<unk> in the invisibility helped us displace an incumbent and beat out a competitor as part of the deal.

As we help our customers improve the security and resilience of their critical systems. We're also continuing to drive efficiency efficiencies within our own internal operations. This is consistent with what you've heard from Jason and team over the past quarters. As we are focused on our operating expenses and multi year transition to become a multi cloud and hybrid comes.

As we help our customers improve the security and resilience of their critical systems were also continued to drive efficiency efficiencies within our own internal operations. This is consistent with what you've heard from Jason and team over the past quarters. As we are focused on our operating expenses and multi year transition to become a multi cloud and hybrid <unk>.

Despite a lower cost offer from a competitor we won by demonstrating our effectiveness value and ability to provide customers full visibility.

Denis.

Remember, it's because of our own business transformation that our customers are able to migrate and expand their splunk instances and use splunk to support there are other large cloud migrations as.

Remember, it's because of our own business transformation that our customers are able to migrate and expand their splunk instances and use splunk to support their other large cloud migrations as.

Lyons use cases on our platform.

As such transformation continues.

In the second half of the year Youll see us remain agile and disciplined in delivering best in class solutions to customers as they navigate today's unpredictable macro landscape.

As such transformation continues.

<unk> continues to scale across the global community. It is essential that my leadership team and I continue to serve as our forces stabilization, both the customers and to our own splinters.

<unk> continues to scale across the global community. It is essential that my leadership team and I continue to serve as our forces stabilization, both the customers and to our own bunkers.

When it comes to house, one goes to market immediate change I have set in motion.

Now, let's take a look at the Splunk team.

Joining has been to double down on our <unk> relationships and realign our resources to help them tackle their most urgent challenges again securities a data problem and <unk> need Splunk.

Following the CEO transition and the rebuilding of parts of our leadership I have been focusing on our staffing structure and sales capacity, while we continue hiring across splunk, our quota carrying and customer facing teams are highest staffing priority. This and further operational updates as Jason will address ledger or higher operating margin in the second quarter.

Following the CEO transition and the rebuilding of parts of our leadership I have been focusing on our staffing structure and sales capacity, while we continue hiring across lung our quota carrying and customer facing teams are highest staffing priority. This and further operational updates as Jason will address led to our higher operating margin in the second quarter.

Following the CEO transition and the rebuilding of parts of our leadership I have been focusing on our staffing structure and sales capacity, while we continue hiring across lung our quota carrying and customer facing teams are highest staffing priority. This and further operational updates as Jason will address ledger or higher operating margin in the second quarter.

We've also observed that given today's threat landscape sees those budgets are among the most resistant to changes in the macro environment.

It should be no surprise that security is already our primary customer use case today and we believe that it will continue to be in the future. We have begun to see that the world is changing and cyber security is coming together with the observer ability to drive better business resilience for our customers.

To close despite a few headwinds this quarter, we experienced good customer engagement as evidenced by consistently high net retention and competitive win rates and solid momentum with large orders overall as we continue to make progress on our own business transformation. We're focused on taking a balanced approach to operations and efficiencies with that I'll hand, the call over to Jay.

As we help our customers improve their security and resilience of their critical systems. We're also continuing to drive efficiency efficiencies within our own internal operations. This is consistent with what you've heard from Jason and team over the past quarters. As we are focused on our operating expenses and multiyear transition to become a multi cloud and hybrid <unk>.

Awesome.

Thanks, Gary in the face of some clear headwinds our execution in Q2 was solid and with the continuing normalization of our revenue model plus good progress on our expense optimization efforts, we substantially outperformed on the top and bottom lines for the quarter and we're increasing our outlook for revenue margins and cash flow for the second half.

Thanks, Gary in the face of some clear headwinds our execution in Q2 was solid and with the continuing normalization of our revenue model plus good progress on our expense optimization efforts, we substantially outperformed on the top and bottom lines for the quarter and we are increasing our outlook for revenue margins and cash flow for the second half.

<unk>.

Remember, it's because of our own business transformation that our customers are able to migrate and expand their splunk instances and use splunk to support their other large cloud migrations as.

In Q2 total revenues were $799 million up 32% over last year significantly higher than expected, reflecting higher license revenue from term contracts.

As such transformation.

Continues to scale across the global community. It is essential that my leadership team and I continue to serve as our forces stabilization, both the customers and to our own spelunkers.

Cloud revenue was $346 million up 59%, reflecting continued adoption of our cloud platform.

Note that professional services and education were 7% of total revenues in the quarter.

Note that professional services and education or 7% of total revenues in the quarter.

Now, let's take a look at the Splunk team following our CEO transition and the rebuilding of parts of our leadership I have been focusing on our staffing structure and sales capacity, while we continue hiring across splunk, our quota carrying and customer facing teams are highest staffing priority. This and further operational updates as Jason will address led to our higher opera.

<unk> bookings was $794 million up 17% over last year, which was lower than planned as several customers slowed their expansions or significant deployments due to macro uncertainty.

<unk> bookings were $794 million up 17% over last year, which was lower than planned as several customers slowed their expansions or significant deployments due to macro uncertainty.

This caution was also apparent in our shorter contract duration, which was down about two months versus last year.

Caution was also apparent in our shorter contract duration, which was down about two months versus last year.

Margin in the second quarter.

On a duration adjusted basis, our appeal bookings growth was 29% just to give you a sense of the impact on total bookings.

On a duration adjusted basis, our PL bookings growth was 29% just to give you a sense of the impact on total bookings.

That said, our renewal and expansion rates continue at a very strong pace, given our high customer value proposition, our reported cloud DB and RR remained consistently high at 129% with our overall DB NR a few points lower due to a slower pace of cloud migrations.

That said, our renewal and expansion rates continue at a very strong pace given our high customer value proposition our reported cloud DB NR remained consistently high at 129% with our overall <unk> a few points lower due to a slower pace of cloud migrations.

Jason.

We ended the quarter with total IRR of 333 billion up 27% year over year and Claudia <unk> of just over $1 5 billion up 55% as Gary mentioned, we had 723 customers with <unk> greater than $1 million up 24% year over year and 350.

We ended the quarter with total <unk> of $3 33 billion up 27% year over year and cloud <unk> of just over $1 5 billion up 55% as Gary mentioned, we had 723 customers with <unk> greater than $1 million up 24% year over year and three.

We ended the quarter with total <unk> of $3 $33 billion up 27% year over year, and Claudia <unk> of just over $1 5 billion up 55%.

As Gary mentioned, we had 723 customers with <unk> greater than $1 million.

In Q2 total revenues were $799 million up 32% over last year significantly higher than expected, reflecting higher license revenue from term contracts.

Up 24% year over year, and 352 of these customers had cloud <unk> over $1 million up 50% over last year.

<unk> hundred 52 of these customers had cloud <unk> over $1 million up 50% over last year.

Two of these customers had cloud <unk> over $1 million up 50% over last year.

Cloud revenue was $346 million up 59%, reflecting continued adoption of our cloud platform.

Onto margins, which are all non-GAAP .

Cloud gross margin was 69% in Q2 up nine points from last year tracking well to our target of 70% by year end as we continue to realize leverage from the scale and elasticity of the cloud platform.

<unk> gross margin was 69% in Q2 up nine points from last year tracking well to our target of 70% by year end as we continue to realize leverage from the scale and elasticity of the cloud platform.

Cloud gross margin was 69% in Q2 up nine points from last year tracking well to our target of 70% by year end as we continue to realize leverage from the scale and elasticity of the cloud platform.

Note that professional services and education were 7% of total revenues in the quarter.

<unk> bookings was $794 million up 17% over last year, which was lower than planned as several customers slowed their expansions or significant deployments due to macro uncertainty.

Total gross margin was 79% up three points year over year, and reflecting the sharp improvement in cloud margin.

Operating margin was positive 4% in the quarter significantly better than our expectation due to our topline performance plus good execution on the expense optimization efforts that Gary has helped install as part of our balanced growth and profitability focus.

Operating margin was positive 4% in the quarter significantly better than our expectation due to our top line performance plus good execution on the expense optimization efforts that Gary has helped install as part of our balanced growth and profitability focus.

Yes.

Operating margin was positive 4% in the quarter significantly better than our expectation due to our top line performance plus good execution on the expense optimization efforts that Gary has helped install it as part of our balanced growth and profitability focus.

Discussion was also apparent in our shorter contract duration, which was down about two months versus last year.

On a duration adjusted basis, our PL bookings growth was 29% just to give you a sense of the impact on total bookings.

Turning to guidance.

That said, our renewal and expansion rates continue at a very strong pace, given our high customer value proposition, our reported cloud DB and RR remained consistently high at 129% with our overall <unk> a few points lower due to a slower pace of cloud migrations.

For the remainder of the year with a macro related uncertainty and changes in customer buying patterns. We are adjusting our full year total <unk> target to $3 65 billion.

For the remainder of the year with the macro related uncertainty and changes in customer buying patterns. We are adjusting our full year total <unk> target to $3 65 billion and.

And cloud <unk> to $1 8 billion.

<unk> cloud <unk> to $1 $8 billion the.

<unk> and cloud <unk> to $1 8 billion.

The majority of the <unk> adjustment is primarily attributable to a slower pace of existing customer migrations and expansions of their cloud deployments given the uncertain economic environment.

40 of the <unk> adjustment is primarily attributable to a slower pace of existing customer migrations and expansions of their cloud deployments given the uncertain economic environment.

The majority of the <unk> adjustment is primarily attributable to a slower pace of existing customer migrations and expansions of their cloud deployments given the uncertain economic environment.

We ended the quarter with total <unk> of $3 33 billion up 27% year over year and Claudia <unk> of just over $1 5 billion up 55% as Gary mentioned, we had 723 customers with <unk> greater than $1 million.

Given this we are now expecting an ending cloud mix closer to 60% this year compared to our initial estimate of around 70%.

On the income statement the continued normalization of our model and given the revenue outperformance in the first half we are increasing our full year revenue expectations by $50 million to between $3 35, and $3 4 billion.

On the income statement with the continued normalization of our model and given the revenue outperformance in the first half we are increasing our full year revenue expectations by $50 million.

On the income statement with the continued normalization of our model and given the revenue outperformance in the first half we are increasing our full year revenue expectations by $50 million to between $3 35, and $3 4 billion.

Up 24% year over year, and 352 of these customers had cloud <unk> over $1 million up 50% over last year.

Between 335, and $3 4 billion.

Onto margins, which are all non-GAAP .

Combined with our ongoing expense efforts, we now expect non-GAAP operating margin of approximately 8% this year up from our prior target of 2%.

Cloud gross margin was 69% in Q2 up nine points from last year tracking well to our target of 70% by year end as we continue to realize leverage from the scale and elasticity of the cloud platform.

Combined with our ongoing expense efforts, we now expect a non-GAAP operating margin of approximately 8% this year up from our prior target of 2%.

Just to unpack some of the details around our expense initiatives and what's driving leverage some of the areas. We're focused on include rationalizing usage of outside services for only the most critical projects.

Total gross margin was 79% up three points year over year, and reflecting the sharp improvement in cloud margin.

Limiting T&D to customer facing travel and support.

Limiting TNT to customer facing travel and support.

Limiting T&D to customer facing travel and support.

And then we're also taking a more thoughtful approach to hiring increasing overall sales capacity in the past we've been aggressively adding new head count and now we're more closely scrutinizing requirements.

Turning to guidance.

And our ability to leverage existing capacity.

For the remainder of the year with the macro related uncertainty and changes in customer buying patterns. We are adjusting our full year total <unk> target to $3 $65 billion.

And finally, we're assessing our global real estate portfolio and right sizing space for a post pandemic returned to office needs and opting for serviced offices, where it makes sense.

And cloud <unk> to $1 8 billion.

We don't believe any of these efforts will impact our overall growth rate.

The majority of the <unk> adjustment is primarily attributable to a slower pace of existing customer migrations and expansions of their cloud deployments given the uncertain economic environment.

We don't believe any of these efforts will impact our overall growth rate.

For cash flow, we expect our improving that margin to translate to stronger cash flow. So today. We're also raising our full year operating cash flow target by 20 million to $420 million.

Given this we are now expecting an ending cloud mix closer to 60% this year compared to our initial estimate of around 70%.

And to highlight the historically life capex requirements of the business today, we are introducing free cash flow as the primary cash generation metric going forward.

And to highlight the historically light capex requirements of the business today, we are introducing free cash flow as the primary cash generation metric going forward.

On the income statement with the continued normalization of our model and given the revenue outperformance in the first half we are increasing our full year revenue expectations by $50 million.

This move also highlights our focus on the balanced growth and cash flow capabilities of our model.

Move also highlights our focus on the balanced growth and cash flow capabilities of our model.

We expect to generate free cash flow of at least $400 million this year.

We expect to generate free cash flow of at least $400 million this year and.

To between 335 and $3 4 billion.

And with the updated guidance, we provided we're now tracking to 38% on the rule of 40 scale.

Combined with our ongoing expense efforts, we now expect a non-GAAP operating margin of approximately 8% this year up from our prior target of 2%.

And with the updated guidance, we provided we're now tracking to 38% on the rule of 40 scale.

For Q3, we expect total revenues of between $835 and $855 million with non-GAAP operating margin of between six and 8% reflecting cost efforts and continued profitability improvement.

For Q3, we expect total revenues between $835 and $855 million with non-GAAP operating margin of between six and 8% reflecting cost efforts and continued profitability improvement.

In closing in the face of a few headwinds execution in Q2 was solid and operating leverage in our model is improving and returning to pre transformation levels.

Limiting T&D to customer facing travel and support.

With that let's open it up for questions.

And thank you as a reminder to ask a question in the depressed star one on your telephone.

And thank you as a reminder to ask a question you need to press star one on your telephone.

And thank you as a reminder to ask a question will need to press star one on your telephone.

And our ability to leverage existing capacity.

Please standby, we compile the Q&A roster.

And finally, we're assessing our global real estate portfolio on right sizing the space for a post pandemic returned to office needs and opting for serviced offices, where it makes sense.

Please standby, we compile the Q&A roster.

And one moment for questions.

We don't believe any of these efforts will impact our overall growth rate.

And our first question comes from John <unk> from Guggenheim Securities. Your line is now open.

For cash flow, we expect our improving that margin to translate to stronger cash flow. So today. We're also raising our full year operating cash flow target by 20 million to $420 million.

Thank you.

I think this question.

Kind of goes to both of you both Gary and Jason.

Kind of goes to both of you both.

Kind of goes to both of you both Gary and Jason.

Gary and Jason.

And highlight the historically life capex requirements of the business today, we are introducing free cash flow as the primary cash generation metric going forward.

We understand the macro backdrop.

Slowing a bit.

But and it makes a ton of sense, Jason you were really clear on.

And it makes a ton of sense, Jason you were really clear on why youre raising revenue.

But and it makes a ton of sense, Jason you were really clear on.

This move also highlights our focus on the balanced growth and cash flow capabilities of our model.

Why you're raising revenue.

Reducing the AAR its due to the mix shift and that makes a lot of sense to but it sort of begs the question.

Versus reducing the IRR is due to the mix shift and that makes a lot of sense to but it sort of begs the question.

Reducing the AAR its due to the mix shift and that makes a lot of sense to but it sort of begs the question.

We expect to generate free cash flow of at least $400 million this year.

And with the updated guidance, we provided we're now tracking to 38% on the rule of 40 scale.

Why like why are customers hesitating to mix.

Why like why are customers hesitating to mix shift.

Why like why are customers hesitating to mix.

For Q3, we expect total revenues between $835 and $855 million with non-GAAP operating margin of between six and 8% reflecting cost efforts and continued profitability improvement.

Shifting more to cloud or why are they shifting less than you thought they would or less than they have in there.

Shifts more to cloud or why are they shifting less than you thought they would or less than they have in there.

Shifting more to cloud or why are they shifting less than you thought they would or less than they have in there.

Does it have anything to do with their confidence in Splunk cloud or is there.

Something something greater there.

No. This is Gary I think it's pretty straightforward what we saw was that as we work through these larger customers that had very complex splunk implementations. They want to have a high volume of data. We today have customers ingesting a petabyte over a petabyte of data into Splunk that combined.

In closing in the face of a few headwinds execution in Q2 was solid and operating leverage in our model is improving and returning to pre transformation levels.

With that let's open it up for questions.

And thank you as a reminder to ask a question you need to press star one on your telephone.

Please standby, while we compile the Q&A roster.

With the range of applications that had been developed under Splunk those are pretty complex migrations and so what we saw was people just putting that off and thats not that show no lack of confidence and Splunk are.

With the range of applications that had been developed under Splunk those are pretty complex migrations and so what we saw was people just putting that off and thats not that showed no lack of confidence and splunk are.

And one moment for questions.

And our first question comes from John <unk> from Guggenheim Securities. Your line is now open.

Willingness or wanting to expand it was really just a timing thing.

Jason will take you out to that.

Thank you.

Jason will take you out to that.

Yes, John I would just I would just add that again the renewal rates actually were right in line with where they've been.

I think this question.

Yes, John I would just I would just add that again the renewal rates actually were right in line with where they've been.

Kind of goes to both of you both Gary and Jason.

We understand the macro backdrop.

And actually right on plan.

It's really the cloud migrations and then some of the expansions on workloads they were.

Slowing a bit.

It's really the cloud migrations and then some of the expansions on workloads they were.

But and it makes a ton of sense, Jason you were really clear on why youre raising revenue versus reducing the <unk>.

We want to move into cloud given kind of uncertainty. We just saw a little more of an elongated sales cycle and a little more of a desire to kind of be.

We want to move into cloud given kind of uncertainty. We just saw a little more of an elongated sales cycle and a little more of a desire to kind of be a little more cautious on.

Want to move into cloud given kind of uncertainty, we just saw a little more of an elongated sales cycle and a little more of a desire to kind of be.

It's due to the mix shift and that makes a lot of sense to but it sort of begs the question.

Be a little more cautious on making those investments now versus doing it sometime in the near future.

Why like why are customers hesitating to mix.

Making those investments now versus doing it sometime in the near future.

If I might just a quick related follow up.

Shifting more to cloud or why are they shifting less than you thought they would or less and they have and does it have anything to do with their confidence in splunk cloud or is there.

If I might just a quick related follow up.

Sure.

Yes.

Sure.

Scrutinizing some of your own expenses makes sense too.

But one thing you didn't I don't think you mentioned and I was kind of glad you didnt, but I just wanted to ask around the R&D investment.

But one thing you didn't I don't think you mentioned and Thats kind of glad you didnt, but I just wanted to ask around the R&D investment.

Something something greater there.

But one thing you didn't I don't think you mentioned and I was kind of glad you didnt, but I just wanted to ask.

No no. This is Gary I think it's pretty straightforward what we saw was that as we work through these larger customers that have very complex splunk implementations. They want to have a high volume of data. We today have customers ingesting a petabyte over a petabyte of data into Splunk that combined.

Round R&D investment.

Because obviously spot because as a technology company and you have a lot of a lot of offerings.

Because obviously sponsors.

Because obviously spot because as a technology company and you have a lot of a lot of offerings.

Technology Company and you have a lot of a lot of offerings.

I think need some more integration and changes at the top of the product area I was just wondering if.

How do you think.

How do you think maybe Gerry this is for how do you how do you look at investment in R&D and how do you. How do you think that plays out over the near to medium term.

How you think and maybe Gary This is how do you how do you look at investment in R&D and how do you. How do you think that plays out over the near to medium term.

Gary This is how do you how do you look at investment in R&D and how do you. How do you think that plays out over the near to medium term.

Yes, no I think to your point.

Willingness or wanting to expand it was really just a timing thing.

Sure.

Innovation is a critical piece of our overall strategy at Splunk. We also think that say that aspect. We will continue to fuel long term durable growth. So we will continue to invest in R&D and one of the things that is part of.

Jason will take you out to that.

Yes, John I would just I would just add that again the renewal rates actually were right in line with where they've been.

And actually right on plan.

It's really the cloud migrations and then some of the expansions on workloads they were.

Part of.

My focus has been driving leadership and organizational change to help us drive better execution on the R&D front.

Want to move into cloud given kind of uncertainty, we just saw a little more of an elongated sales cycle and a little more of a desire to kind of be.

And.

<unk>.

And.

But at a very simple level, we will obviously keep investing in product and technology, because that's what our customers rely on.

But at a very simple level, we will obviously keep investing in products and technology, because that's what our customers rely on.

But at a very simple level will obviously keep investing in product and technology, because that's what our customers rely on.

Be a little more cautious on making those investments now versus doing it sometime in the near future.

Great. Thank you very much guys.

Thanks, Shawn good to have you back.

If I might just a quick related follow up.

Thank you and ladies and gentlemen, we ask that you limit yourself to one question and one follow up again Thats one question and one follow up one moment our next question.

Thank you and ladies and gentlemen, we ask that you limit yourself to one question and one follow up again, that's one question and one follow up one moment our next question.

Scrutinizing some of your own expenses makes sense too.

But one thing you didn't I don't think you mentioned and I was kind of glad you didnt, but I just wanted to ask around the R&D investment.

Okay.

And our next question comes from Raimo <unk> from Barclays. Your line is now open.

Because obviously spot because as a technology company and you have a lot of a lot of offerings.

Hey, Thank you and good to see John .

Okay. Thank you and good to see John back as well.

Hey, Thank you and good to see John back as well.

Going back as well.

Yes.

Two quick questions. So can I stay on that cloud migration towards like what does it tell me about the value that customers are seeing.

I think need some more integration and change.

Two quick question, so can I stay on that cloud migration towards like what does it tell me about the value that customers are seeing or like how much work is involved in migration. Because you would think like cloud is kind of where everyone wants to go so.

Two quick questions. So can I stay on that cloud migration towards like what does it tell me about the value that customers are seeing or like how much work is involved in migration. Because you would think like cloud is kind of where everyone wants to go. So so why would I slowed that down maybe could you speak.

Changes at the top of the product area I was just wondering if.

How do you think.

Like how much work is involved in migration because you would think like cloud is kind of where everyone wants to go. So so why would I slowed that down maybe could you speak to that a little bit and then one for Gary as well.

Maybe Gary this is how do you how do you look at investment in R&D and how do you. How do you think that plays out over the near to medium term.

So why would I slowed that down maybe could you speak to that a little bit and then one for Gary as well.

To add a little bit and then one for Gary as well.

Yes, no I think to your point.

You kind of talked about that greater focus on the CSO.

You kind of talked about a greater focus on the CSO.

You kind of talked about that greater focus on the CSO.

<unk>.

Can you talk a little bit about how that plays into that <unk> ability theme and I did ask last quarter already but maybe you can address it more like how CSO and obviously ability kind of all related because I got a lot of questions from investors around debt refocusing that thank you.

Can you talk a little bit about how that plays into that because <unk> ability theme and I did ask last quarter already but maybe you can address it more like how seasonal ops the ability kind of related.

Can you talk a little bit about how that plays into that <unk> ability theme.

At last quarter already but maybe you can address it more like how CSO and obviously ability kind of all related because I got a lot of questions from investors around that refocusing that thank you.

I got a lot of questions from investors around that refocusing that thank you.

My focus has been driving leadership and organizational change to help us drive better execution on the R&D front.

You bet.

So cloud is definitely a priority for our customers and they see a.

So cloud is definitely a priority for our customers and they see.

Cloud is definitely a priority for our customers and they see.

<unk>.

But at a very simple level, we will obviously keep investing in product and technology, because that's what our customers rely on.

Multi cloud hybrid environment as there is where they're headed and so I think it is.

A multi cloud hybrid environments as there is where they're headed and so I think it's actually pretty simple and that these customers have very complex splunk environments because of the range of applications that had been developed in the volume of data they have and Theres just work required to do that and that actually come.

A multi cloud hybrid environment as there is where they're headed and so I think it's actually pretty simple and that these customers have very complex splunk environments because of the range of applications that have been developed in the volume of data they have and Theres just work required to do that and that actually.

Great. Thank you very much guys.

Actually pretty simple and that these customers have very complex splunk environments because of the range of applications that had been developed in the volume of data they have.

Thanks, Shawn good to have you back.

Thank you and ladies and gentlemen, we ask that you limit yourself to one question and one follow up again Thats one question and one follow up one moment our next question.

And Theres just work required to do that and that actually costs something thats not free that work to get that migration done and so it's just the timing of windows migration efforts will begin they are.

Something that's not free that work to get that migration done and so it's just a timing of windows migration efforts will begin they are.

Cost something that's not free that work to get that migration done and so it's just the timing of windows migration efforts will begin.

Okay.

And our next question comes from Raimo <unk> from Barclays. Your line is now open.

<unk>.

Hey, Thank you and good to see.

What the one thing that I saw very consistently is that customers want to go to Splunk cloud and that Theres a high desire to get there. It's just the determination of when and then going are ready to go to your second question regarding <unk>.

What the one thing that I saw very consistently is that customers want to go to Splunk cloud and that Theres a high desire to get there. It's just the determination of when and then going ready to go to your second question regarding T. So.

The one thing that I saw very consistently is that customers want to go to Splunk cloud and that Theres a high desire to get there. It's just the determination of when and then going are ready to go to your second question regarding fee. So.

John back as well.

Yes.

Two quick questions. So can I stay on that cloud migration towards like what does it tell me about the value that customers are seeing.

Or like how much work is involved in migration because you would think like cloud is kind of where everyone wants to go. So so YY slowed that down maybe could you speak to that a little bit and then one for Gary as well.

We're seeing a couple of trends here, but we think a really important one and we referenced this in our prepared remarks, we are beginning to see more <unk> owning the broad dataset at Ford, which.

We're seeing a couple of trends here, but we think a really important one and we referenced this in our prepared remarks, we are beginning to see more <unk> owning the broad data stat Ford, which.

We're seeing a couple of trends here that we think are really important one and we referenced this in our prepared remarks, we are beginning to see more <unk> owning the broad dataset toward which.

Companies are driving broader business resilience initiatives and business resiliency really spans thinking about how do you protect yourself from some form of cyber activity, including breach, but also how do you ensure that your applications are up and running at all times and the issue that we see now more frequently.

Companies are driving broader business resilience initiatives and business resilience really spans thinking about how do you protect yourself from some form of cyber activity, including breach, but also how do you ensure that your applications are up and running at all times and the issue that we see now more frequent.

You kind of talked about that greater focus on the CSO.

And the issue that we see now more frequently is when some event happens.

He is when some event happens.

Organizations need to determine very quickly is that a cyber related event or is it some form of application outage and so the commonality here is single data set across both of those environments.

Organizations need a determined very quickly is that a cyber related events or is it some form of application outage and so the commonality here is single data set across both of those environments.

You bet.

Organizations needed determined very quickly is that a cyber related event or is it some form of application outage and so the commonality here is single data set across both of those environments.

So cloud is definitely a priority for our customers and they see.

A multi cloud hybrid environment as there is where they're headed and so I think it's actually pretty simple and that these customers have very complex splunk environments because of the range of applications that had been developed in the volume of data they have and Theres just work required to do that and that actually come.

And our alignment to <unk> is where we're always anchored and so it's obviously a very good place to enter an organization and then enables us to then drive a broader observed ability conversation across the organization.

And our alignment to <unk> is where we're always anchored and so it's obviously a very good place to enter an organization and then enables us to then drive a broader observe ability conversation across the organization.

Okay. It makes sense congrats thank you.

Okay makes sense congrats thank you.

<unk> something that's not free that work to get that migration done and so it's just the timing of windows migration efforts will begin they are.

Thank you thanks Raimo.

Thank you.

And one moment our next question.

And one moment for our next question.

And one moment our next question.

And our next question comes from Brent Thill from Jefferies. Your line is now open.

Gary on some of these cloud push outs.

Gary in some of these cloud push outs.

You've kind of double click into news and looked at competitors.

You've kind of double click into those and looked at competitive.

We're seeing a couple of trends here that we think are really important one and we referenced this in our prepared remarks, we are beginning to see more <unk> owning the broad dataset Ford, which.

Win loss.

And also if you look at.

On execution is there any factors playing into.

Execution is there any factors playing into that.

Execution is there any factors playing into.

The sales teams deficiency on this or.

Some of these customers, saying, they're going a different direction or do you feel like canine you checked that box and thats not a concern for you.

Some of these customers, saying, they're going a different direction or do you feel like you cannot you checked that box and thats not a concern for you.

Some of these customers, saying, they're going a different direction or do you feel like Cana that you check that box and thats not a concern for you.

Yeah. It is absolutely not a concern for me so as we indicated in our prepared remarks again, we saw competitive win rates stay the same we did not see.

Yes, it's absolutely not a concern for me so as we indicated in our prepared remarks again, we saw competitive win rates stay the same we did not see.

<unk>.

<unk> changing.

<unk>.

He is when some event happens.

Changing the impact on those decisions and I would go back to the point of adjacent had made that our renewal rate stayed incredibly consistent and so when you look across all of the metrics. It really it really bodes for the fact that people are just simply taking a little more time as they think about these cloud migrations. It really has nothing to do with competitive or nothing to do with.

Changing the impact on those decisions and I would go back to the point that Jason had made that our renewal rate stayed incredibly consistent and so when you look across all of the metrics. It really it really bodes for the fact that people are just simply taking a little more time as they think about these cloud migrations that really has nothing to do with competitive or nothing to do with.

Changing the impact on those decisions and I would go back to the point adjacent had made that our renewal rate stayed incredibly consistent and so when you look across all of the metrics. It really it really bodes for the fact that people are just simply taking a little more time as they think about these cloud migrations that really has nothing to do with competitive or nothing to do with.

Organizations need a determined very quickly is that a cyber related events or is it some form of application outage and so the commonality here is single data set across both of those environments.

Willingness to continue to expand and invest in Splunk.

Okay, and just a quick follow up the on Prem piece seems really strong in that.

Okay. It makes sense congrats thank you.

Thank you thanks Raimo.

Can you just balance that dynamic of what Youre seeing there, yes I think.

Can you just balance that dynamic and what youre seeing there, yes I think.

Can you just balance that dynamic of what Youre seeing there, yes I think.

Thank you.

And one moment our next question.

The one thing it's really clear to me. So in my 100 days at 100 customer meetings, which was kind of amazing. The one thing that was really clear is that the customers that we serve today will be hybrid for a very long time.

And our next question comes from Brent Thill from Jefferies. Your line is now open.

Gary in some of these cloud push outs.

And so cloud will play a very important role for them, but as well their on Prem.

You've kind of double click into news and looked at competitors.

And so cloud will play a very important role for them, but as well their on Prem.

Win loss.

The one very cool thing that uniquely differentiate splunk is the ability to use splunk across the multitude of environment to do so in a seamless way.

And also if you look at.

On execution is there any factors playing into the.

The sales teams deficiency on this or.

And it really goes back to even features that we introduced at dot comp where things like Federated search edge actions all of those things really gives us an advantage in this world that is complex and hybrid.

And it really goes back to even features that we introduced the dot comp where things like Federated search edge actions all of those things really gives us an advantage in this world that is complex and hybrid.

Some of these customers, saying, they're going a different direction or do you feel like came at you checked that box and thats not a concern for you.

Yeah. It is absolutely not a concern for me so as we indicated in our prepared remarks again, we saw competitive win rates stay the same we did not see.

Thank you.

Thanks Dean.

Thank you.

Yeah.

And one moment our next question.

<unk>.

And our next question comes from Phil Winslow from Credit Suisse. Your line is now open.

Hey, Thanks, guys for taking my question I, just wanted to focus on a new customer and the customer wins. Obviously your dollar based net retention was strong again this quarter, but you mentioned slowdown of expansion is expected in the second half what are you seeing in terms of new customer wins in the first half and then we'd look at your cloud guidance for.

Hey, Thanks, guys for taking my question I, just wanted to focus on a new customer to the customer wins. Obviously your dollar based net retention was strong again this quarter, but you mentioned slowdown in expansion is expected in the second half what are you seeing in terms of new customer wins in the first half and then we'd look at your cloud guidance for.

Hey, Thanks, guys for taking my question I, just wanted to focus on a new customer and the customer wins. Obviously your dollar based net retention was strong again this quarter, but you mentioned slowdown in expansion is expected in the second half what are you seeing in terms of new customer wins in the first half and then we'd look at your cloud guidance for.

Willingness to continue to expand and invest in Splunk.

For the second half how much of it as a slowdown in the dollar based net expansion that you all talked about results potentially sort of change in call it new logo wins.

For the second half how much of it as a slowdown in the dollar based net expansion that you all talked about results of potentially any sort of change in call. It new logo wins.

Okay, and just a quick follow up the on Prem piece seems really strong in that.

For the second half how much of it as a slowdown in just the dollar based net expansion that you all talked about results of potentially any sort of change in call. It new logo wins.

Can you just balance that dynamic of what Youre seeing there, yes I think.

Yes, so interesting what we saw was very consistent.

Yes, Phil interesting, what we saw was very consistent.

New new logo wins across the first half. So there was nothing different in Q2 than what we saw in Q1, and then I'll, let Jason dive in here if he wants to add color on that.

And so cloud will play a very important role for them, but as well their on Prem.

Yes.

If you look specifically at <unk> and contribution coming from existing versus new customers.

The one very cool thing that uniquely differentiate splunk is the ability to use splunk across the multitude of environment to do so in a seamless way.

Normally that roughly 80% of any given kind of bookings or <unk> in a given quarter rough.

Quickly that roughly 80% of any given kind of bookings or IRR in a given quarter roughly 80% comes from existing customers and expansions and 20% comes from news that's been pretty consistent and it remained consistent in Q2.

Normally that roughly 80% of that.

Any given kind of bookings or IRR in a given quarter roughly 80% comes from existing customers and expansions and 20% comes from new.

Roughly 80% comes from existing customers and expansions and 20% comes from news that's been pretty consistent and it remained consistent in Q2.

Been pretty consistent and it remained consistent in Q2.

Thank you.

Got it thanks, and then going back to just.

Got it thanks, and then going back to <unk>.

Thanks.

Another question, but sort of any sort of slowdown with the on the expansion side or even the new logo win are you seeing sort of a slowdown because youre potentially also seeing elongation in sales cycles, not simply because it slid on cloud because of more more components to your point, Gary sort of selling of durability and security or is this just sort of a high level slowdown not having to do is call it incremental components.

Thank you.

The question, but sort of any sort of slowdown with the on the expansion side or even the new logo win are you seeing sort of a slowdown because youre potentially also seeing elongation of sales cycles, not simply because it slid on cloud because of more more components to your point, Gary sort of selling of durability and security or is this just sort of a high level slowdown not having to do with call it incremental components from.

The question, but sort of any sort of slowdown would be on the expansion side or even the new logo win are you seeing sort of a slowdown because youre potentially also seeing elongation in sales cycles, not just simply because of the slowdown cloud because of more more components to your point, Gary sort of selling of durability and security or is this just sort of a high level slowdown not having to do is call it incremental components from.

And one moment our next question.

And our next question comes from Phil Winslow from Credit Suisse. Your line is now open.

Hey, Thanks, guys for taking my question I, just wanted to focus on a new customer and the customer wins. Obviously your dollar based net retention was strong again this quarter, but you mentioned slowdown in expansion is expected in the second half what are you seeing in terms of new customer wins in the first half and then we look at your cloud guidance for.

From this block.

<unk> block.

This block.

When we look at the.

When we look at.

The slowdown it was really be specifically these cloud migrations, where customers planning a big migration. It just takes time and so it wasn't related to.

The slowdown it was really be specifically these cloud migrations, where customers planning a big migration. It just takes time.

For the second half how much of it as a slowdown in the dollar based net expansion that you all talked about results potentially sort of change in call it new logo wins.

So it wasn't related to.

Additional components that ultimately made the deal more complex or anything like that it was really these migrations are just big lots of data lots of applications. All the need to be moved and it's a project that requires staffing both on the customer side and oftentimes. The addition of.

Additional components that ultimately made the deal more complex or anything like that it was really these cloud migrations or just take lots of data lots of applications all that need to be moved and it's a project that requires staffing both on the customer side and oftentimes. The addition of <unk>.

Additional components that ultimately made the deal more complex or anything like that it was really these cloud migrations or just take lots of data lots of applications all that needs to be moved and it's a project that requires staffing both on the customer side and oftentimes. The addition of.

Yes, so interesting what we saw was very consistent.

New new logo wins across the first half. So there was nothing different in Q2 than what we saw in Q1, and then I'll, let Jason dive in here if he wants to add color on that.

Support professional services resources to assist.

Professional services resources to assist.

Got it alright, thanks, guys.

Yes.

Got it alright, thanks, guys.

If you look specifically at <unk> and contribution coming from existing versus new customers.

You bet. Thanks Bill.

Thank you and one moment for our next question.

Normally that roughly 80% of any given kind of bookings or <unk> in a given quarter roughly 80% comes from existing customers and expansions and 20% comes from new.

And our next question comes from Matt Hedberg from RBC. Your line is now open.

Great. Thanks for taking my question guys Jason.

Great. Thanks for taking my question guys. Jason for you I'm wondering if you could is there any way for you to quantify the impact of some of the slower or delayed cloud implementations in the quarter.

Great. Thanks for taking my question guys. Jason for you I'm wondering if you could is there any way for you to quantify the impact with some of these slowed or delayed cloud implementations in the quarter and have any of them close in Q3 are you expecting some of these to sort of maybe pushed out into into next year next fiscal year.

<unk> been pretty consistent and it remained consistent in Q2.

I'm wondering if you could is there any way for you to quantify the impact in some of these slowed or delayed cloud implementations in the quarter and have any of them close in Q3 are you expecting some of these to sort of maybe pushed out into into next year next fiscal year.

Got it thanks, and then going back to just.

The question, but sort of any sort of slowdown with the on the expansion side or even the new logo win are you seeing sort of a slowdown because youre potentially also seeing elongation in sales cycles, not simply because it slid on cloud because of more more components to your point, Gary sort of selling of durability and security or is this just sort of a high level slowdown not having to do is call it incremental components from.

And have any of them close in Q3 are you expecting some of these to sort of maybe push out to into next year next fiscal year.

Sure. So if you look at Q2 results the expectations.

On <unk> versus where we came in nearly missed by roughly 40 ish million rough.

On <unk> versus where we came in nearly missed by roughly 40 ish million.

On <unk> versus where we came in nearly missed by roughly 40 ish million rough.

Roughly about 80% of that came from cloud.

Welcome.

Roughly about 80% of that came from cloud.

And then within cloud the majority of it did come from cloud migrations. So our guidance really is just kind of flowing that through to the rest of the year. So we're basically making assumptions that any of these kind of.

When we look at.

The slowdown it was really be specifically these cloud migrations, where customers planning a big migration. It just takes time and so it wasn't related to.

Additional components that ultimately made the deal more complex or anything like that it was really these migrations will just take lots of data lots of applications. All the need to be moved and it's a project that requires staffing both on the customer side and oftentimes. The addition of <unk>.

Any of the pauses or kind of scrutinizing budgets and kind of delaying things, we assume that that's not going to be caught up necessarily in the next quarter or two so if something changes, we'll see but but right now are kind of all the all the messaging we seem to get in the back half of Q2 was that there is.

Any of the pauses or kind of scrutinizing budgets and kind of delaying things, we assume that that's not going to be caught up necessarily in the next quarter or two so if something changes, we'll see but right now are kind of all the all the messaging we seem to get in the back half of Q2 was that there's just a lot.

Any of the pauses or kind of scrutinizing budgets and kind of delaying things, we assume that that's not going to be caught up necessarily in the next quarter or two so if something changes, we'll see but right now are kind of all the all of the messaging and we seem to get in the back half of Q2 was that there.

Professional services resources to assist.

Got it alright, thanks, guys.

You bet. Thanks Bill.

Just a lot of folks pausing I guess, a little bit like what we're doing ourselves on some of our our outside spend and so.

Folks pausing.

Just a lot of folks pausing.

Thank you and one moment for our next question.

A little bit like what we're doing ourselves on some of our our outside spend and so.

Hopefully.

To learn more about macro and what what what.

More about macro and what what whats going to unfold in the second half that but we're not making big assumptions on catch ups in the near term.

Learn more about macro and what what what.

And our next question comes from Matt Hedberg from RBC. Your line is now open.

It's going to unfold in the second half, but we're not making big assumptions on catch ups in the near term.

Great. Thanks for taking my question guys. Jason for you I'm wondering if you could is there any way for you to quantify the impact in some of these slowed or delayed cloud implementations in the quarter.

As I think we said in a couple of the earlier questions renewal rates are still very consistent expansion is just a little bit lower.

As I think we said in our company.

As I think we said in a couple of the earlier questions renewal rates are still very consistent expansion is just a little bit lower.

Couple of the earlier questions renewal rates are still very consistent expansion is just a little bit lower.

And have any of them close in Q3 are you expecting some of these to sort of maybe push out it to into next year next fiscal year.

In the near term, but everything that we see indicates this is really about timing and so we think that once folks have maybe a little more confidence in the macro situation that will allow them to be able to make those expansions, which they can do any time. They don't have to do it just on renewal.

Sure. So if you look at Q2 results the expectations.

On <unk> versus where we came in nearly missed by roughly 40 ish million rough.

Got it Super clear and then I think what gets missed in all of this is this is becoming a much more efficient company and you beat on profitability, taking cash flow up a bit.

Got it Super clear and then I think what gets missed in all of this is this is becoming a much more efficient company and you beat on profitability, taking cash flow off a bit.

Roughly about 80% of that came from cloud.

Got it Super clear and then I think what gets missed in all of this is this is becoming a much more efficient company and you beat on profitability, taking cash flow up a bit.

I think you outlined some of the cost cutting things that youre looking at and I think what's important is you don't think that any of it is going to impact topline growth I'm wondering if you could sort of talk about the timeframe for some of these cost cuts because it is it.

I think you outlined some of the cost cutting things that youre looking at and I think what's important is you don't think that any of it is going to impact topline growth I'm wondering if you could sort of like talk about the timeframe for some of these cost cuts because it is it.

I think you outlined some of the cost cutting things that youre looking at and I think what's important is you don't think that any of it can impact topline growth I'm wondering if you could sort of talk about the timeframe for some of these cost cuts because it is it.

Any of the pauses or kind of scrutinizing budgets and kind of delaying things, we assume that that's not going to be caught up necessarily in the next quarter or two so if something changes, we'll see but right now are kind of all the all the messaging we seem to get in the back half of Q2 was that there's just a lot.

Multiply is it multiple years of that this year, just sort of any sort of sense for like where we are in that kind of the cost synergy equation.

Multiply is it multiple years is this year, just sort of any sort of sense for like where we are in that kind of the cost synergy equation.

Multiply is it multiple years of that this year, just sort of any sort of sense for like where we are in that kind of the cost synergy equation.

Yes, Matt Great question, I think one of the.

Things that I tried to focus on in in my first 90 days in first quarter was bring this more balanced perspective to how we can deliver.

Folks pausing.

A little bit like what we're doing ourselves on some of our our outside spend and so.

Long term durable growth with increasing margins and cash flow and there is obviously, we saw in the quarter, there was low hanging fruit and opportunity and as Jason outlined in his script. We are focused on a number of areas and some of these things will see immediate benefit from and some will take more time, so things like real estate that takes more time, because we have leases.

Long term durable growth with increasing margins and cash flow and there is obviously, we saw in the quarter, there was low hanging fruit and opportunity and as Jason outlined in his script, we're focused on a number of areas and some of these things will see immediate benefit from and some will take more time, so things like real estate that takes more time, because we have leases.

Hopefully.

To learn more about macro and what what what.

It's going to unfold in the second half, but we're not making big assumptions on catch ups in the near term.

As I think we said in a couple of the earlier questions renewal rates are still very consistent expansion is just a little bit lower.

To unwind et cetera, but other things like the usage of outside resources contractors et cetera. Those can have more immediate effects just anything you'd add to that yeah. I think what you saw in Q2 that we grow opex at roughly 5% year on year.

So unwind et cetera, but other things like the uses of outside resources contractors et cetera. Those can have more immediate effects just anything you'd add to that yes.

So unwind et cetera, but other things like the usage of outside resources contractors et cetera. Those can have more immediate effects just anything you'd add to that.

What you saw in Q2 is that we grow opex at roughly 5% year on year.

I think what you saw in Q2 is that we grow opex at roughly 5% year on year.

Very consistent with what we did in Q1. So this is.

There is a number of actions that Gary said some of them are short term some of them are our longer term, we do expect to have.

There's a number of actions that Gary said some of them are short term some of them are our longer term, we do expect to have.

Got it Super clear and then I think what gets missed in all of this is this is becoming a much more efficient company and you beat on profitability, taking cash flow up a bit.

There's a number of actions that Gary said some of them are short term some of them are our longer term, we do expect to have.

Pretty significant cost leverage.

I think you outlined some of the cost cutting things that youre looking at and I think what's important is you don't think that any of it is going to impact topline growth I'm wondering if you could sort of like talk about the timeframe for some of these cost cuts because it is it.

Going forward.

For the let's say for the near future.

Definitely through the rest of this year and certainly well into the next year or two.

We will provide more insight on that when we provide guidance later in the year.

Multiply is it multiple years of that this year, just sort of any sort of sense for like where we are in that kind of the cost synergy equation.

But there's certainly I think you guys had pointed out that we've had a relatively high cost base and relatively low margin.

But there's certainly I think you guys have pointed out that we've had a relatively high cost base and relatively low margin.

But there's certainly I think you guys have pointed out that we've had a relatively high cost base and relatively low margin and so.

So.

This is certainly a timeframe as we get more efficient and then certainly as Gary has brought in a really strong focus on a balance of growth and profitability. This is allowing us to really kind of.

Yes, Matt Great question, I think one of the.

This is certainly a timeframe as we get more efficient and then certainly as Gary has brought in a really strong focus on a balance of growth and profitability. This is allowing us to really kind of.

Things that I tried to focus on in in my first 90 days in first quarter was bring this more balanced perspective to how we can deliver.

Stage and implement a lot of these different actions that that we've been contemplating but now actually being able to realize.

Long term durable growth with increasing margins and cash flow and there is obviously, we saw in the quarter, there was low hanging fruit and opportunity and as Jason outlined in his script, we're focused on a number of areas and some of these things will see immediate benefit from and some will take more time, so things like real estate that takes more time, because we have leases.

Great to hear thanks, guys.

Thanks, Matt.

Thank you.

And one moment our next question.

And our next question comes from Michael <unk> from Keybanc. Your line is now open.

Hello, Michael Your line is open are you on mute.

Hey, Darrin this is Eric on for Michael.

Very consistent with what we did in Q1. So this is.

We got you Yes go ahead there.

There is a number of actions that Gary said some of them are short term some of them are our longer term, we do expect to have.

We got you Yes go ahead there.

Great. Thanks, So I just wanted to ask Jason a question so I mean the.

Great. Thanks, So I just wanted to ask Jason a question.

Pretty significant cost leverage.

So I mean the.

I mean, the license from strong upside in the quarter and unsustainable the cloud migration for a little bit less than I expected, but if I look at kind of your net new <unk> growth it seems like cloud.

License has some strong upside in the quarter and unsustainable cloud migration towards a little bit less than I expected, but if I look at kind of your net new IRR growth it seems like cloud.

License has some strong upside in the quarter and is understandable to the cloud migrations, where it's a little bit less than I expected, but if I look at it kind of your net new IRR growth it seems like cloud.

Going forward.

For the let's say for the near future.

Definitely through the rest of this year and certainly well into the next year or two.

We will provide more insight on that when we provide guidance later in the year.

90% or more of the kind of the net new era of growth I'm, just trying to square the two in terms of the strong license revenue quarter versus what looks like a strong mix of cloud.

90% or more of the kind of the net new air our growth. So I'm just trying to square the two in terms of the strong license revenue quarter versus what looks like a strong mix of cloud.

90% or more of the kind of the net new era of growth I'm, just trying to square the two in terms of the strong license revenue quarter versus what looks like a strong mix of cloud.

But there's certainly I think you guys had pointed out that we've had a relatively high cost base and relatively low margin.

As a percentage of new <unk>.

Percentage of new <unk>.

As a percentage of new <unk>.

So.

This is certainly a timeframe as we get more efficient and then certainly as Gary has brought in a really strong focus on a balance of growth and profitability. This is allowing us to really kind of.

Yes, I think the short answer is term duration.

Stage and implement a lot of these different actions that that we've been contemplating but now actually being able to realize.

Well.

What does better than we had expected which is what really benefits the revenue line because the ASC 606.

Well.

Better than we had expected which is what really benefits the revenue line because of the ASC 606.

Better than we had expected which is what really benefits the revenue line because ASC 606.

Great to hear thanks, guys.

Thanks, Matt.

Thank you.

And overall on a on a comparative basis I think I said about 80% of the IRR Miss was cloud there was still a little bit of slowdown in license.

And overall on a on a.

And one moment for our next question.

Comparative basis, I think I said about 80% of the <unk> Miss was cloud there was still a little bit of slowdown in license.

And our next question comes from Michael <unk> from Keybanc. Your line is now open.

And that again is going back to some of the macro uncertainty and some of the kind of cautious approach that we certainly heard from a number of our customers towards the end of the quarter.

Hello, Michael Your line is open are you on mute.

Hey, Darrin this is Eric on for Michael.

Alright, thanks, guys.

Great. Thanks, Gary if I could just ask is there any change in kind of customer behavior in terms of where they are sending data.

If I could just ask is there any change in kind of customer behavior in terms of where they are sending data.

We got you Yes go ahead there.

Great. Thanks, So I just wanted to ask Jason a question.

Not the sponsor they use and ingest actions at all of these and any other tool to kind of control the amount of data into Splunk.

Not the spot or they use and ingest actions that all of these and any other tool to kind of control the amount of data into Splunk.

Banca or they use and ingest actions that all of these and any other tool to kind of control the amount of data center in this book.

I mean the.

License has some strong upside in the quarter and unsustainable cloud migration for a little bit less than I expected, but if I look at kind of your net new IRR growth it seems like cloud.

Yes, no. It's a really interesting question. So one of the things we're very focused on working with our customers to help manage their overall total cost of ownership and so helping them think through where they want data to live over the long haul and how to then leverage these new features and capabilities that we've introduced like Federated search dose of <unk>. One console you can get access.

Yeah, no. It's a really interesting question. So one of the things we're very focused on working with our customers to help manage their overall total cost of ownership and so helping them think through where they want data to live over the long haul and then leverage these new features and capabilities that we've introduced like Federated search dose a promising one console you can get access.

90% or more of the kind of the net new AOR growth I'm, just trying to square the two in terms of the strong license revenue quarter versus what looks like a strong mix of cloud.

Two Amazon data sitting in that story and so we just see customers thinking very hard about where they want that data to live and how do they want to optimize our overall cost of the Splunk implementation and these features that we recently.

Two Amazon data sitting in an S. Three and so we just see customers thinking very hard about where they want that data to live and how do they want to optimize our overall cost of the Splunk implementation and these features that we recently.

Percentage of new <unk>.

Yes, I think the short answer is term duration.

Our released we think our I have just we've seen really positive feedback from customers and so we're really encouraged by that and I think it's the right message for our customers given the volumes of data people want to put into <unk>.

Released we think our I have just we've seen really positive feedback from customers and so we're really encouraged by that and I think it's the right message to our customers given the volumes of data people want to put into Splunk.

Well.

Better than we had expected which is what really benefits the revenue line because the ASC 606.

And overall on a on a comparative basis I think I said about 80% of the IRR Miss was cloud there was still a little bit of slowdown in license.

Thanks, Eric Justin Let's go to the next question. Please.

Thank you.

And that again is going back to some of the macro uncertainty and some of the kind of cautious approach that we certainly heard from a number of our customers towards the end of the quarter.

And one moment for our next question.

And one moment our next question.

And our next question comes from Mike <unk> from Needham. Your line is now open.

And our next question comes from Mike cycles from Needham. Your line is now open.

Great. Thanks, Gary if I could just ask is there any change in kind of customer behavior in terms of where they are sending data.

Hey, guys you have Mike Cecos here. Thanks, Thanks for letting me on and just wanted to take a different tack on those elongated sales cycles with some of these caution we're talking to with those cloud migrations could you help us think through the customer behavior and really is it is it tied more specifically to a geography or specific.

Hey, guys you have Mike Cecos here. Thanks, Thanks for letting me on and just wanted to take a different tack on those elongated sales cycles with some of the caution we're talking to with those cloud migrations could you help us think through the customer behavior and really is it is it tied more specifically to a geography or specific.

Malcolm Banca or they use and ingest actions that all of these and any other tool to kind of control the amount of data into Splunk.

It vertical or is it relatively broad based in nature. When you are looking at those customers that chose to delay.

Yes, no great question, we saw pretty consistent behavior across geos, so the Americas, EMEA and APAC and we didn't see isolation to specific verticals, we I wouldn't characterize it that way and I think it was it was much more about the environment that people were thinking about migrating versus the vertical or that.

They were in.

Yeah.

Very helpful. I appreciate that and then if I could with the follow up for Jason.

I know that we spoke to the the AOR missing in Q2, and the expectations now with the reset for the full year.

I know that we spoke to the the ore mix in Q2, and the expectations now with the reset for the full year.

Curious if you could help me think through the the contract durations. There could you help us with any color as far as heavily durations are expected to move or change as we looked at <unk> versus where we were in <unk> or even a year ago.

Curious if you could help us think through the the contract durations there could you help us with any color as far as how those durations are expected to move or change as we looked at <unk> versus where we were in <unk> or even a year ago.

Thanks, Eric Justin Let's go to the next question. Please.

Thank you.

And one moment for our next question.

Yes, I would expect the durations that we saw in Q2.

Yes, I would expect the durations that we saw in Q2, which were about.

Yes, I would expect the durations that we saw in Q2.

And our next question comes from Mike <unk> from Needham. Your line is now open.

Which were about.

Kind of mid to high 20 fours four.

Kind of mid to high 20 fours four for.

Kind of mid to high 20 fours four.

For cloud and then mid 'twenty two ish for term I would expect to see cloud probably remain similar.

Term I think probably is somewhere we've said for a long time, that's something we don't control, we don't actually incentive sales folks since our Salesforce only gets quarterly for 12 months. So it's usually between 18 and 24, our expectation is probably.

<unk> I think probably is somewhere we've said for a long time, that's something we don't control, we don't actually incentive sales folks since our Salesforce only gets quarterly for 12 months. So it's usually between 18 and 24, our expectation Thats probably.

<unk> I think probably is somewhere we've said for a long time, it's something we don't control, we don't actually incentive sales folks since our Salesforce only gets quarterly for 12 months. So it's usually between 18 and 24, our expectation Thats probably.

It vertical or is it relatively broad based in nature. When you are looking at those customers that chose to delay.

In that 'twenty to 'twenty two ish range.

And that 20 to 22 ish range.

But again.

But again, it's not the it's not an easy number for us to forecast given it really comes down to customer preference.

It's not the it's not an easy number for us to forecast given it really comes down to customer preference.

No I appreciate you pointing out is beyond your control.

And thank you for helping us think through some of the parameters. When you guys went about formulating that guidance much appreciate it. Thank you very much.

For helping us think through some of the parameters. When you guys went about formulating that guidance much appreciate it. Thank you very much.

Thank you for helping us think through some of the parameters. When you guys went about formulating that guidance much appreciate it. Thank you very much.

They were in.

You bet. Thanks, Mike Thank you.

You bet. Thanks, Mike.

Very helpful. I appreciate that and then if I could with the follow up for Jason.

Thank you.

One moment for our next question.

I know that we spoke to the the ore mix in Q2, and the expectations now with the reset for the full year.

And our next question comes from Brad Sills from RBC. Your line. Your line is now open.

Oh, Great Hey, Thanks, guys. This is Brad sills from Bofa.

Curious if you could help us think through the the contract durations. There could you help us with any color as far as heavily durations are expected to move or change as we looked at <unk> versus where we were in <unk> or even a year ago.

Oh, Great Hey, Thanks, guys. This is Brad sills from Bofa. Thanks.

Thanks for taking the question just one on the macro.

The commentary you provided here on on some of the larger expansion deals.

The commentary you provided here on on some of the larger expansion deals on the one hand, it sounds like you've got this larger footprint more complexities. Some of these deals and thats, having an impact and then the other hand theres some macro it sounds like as well could you just help us parse through those two things would you say, it's one more than the other and then there were there any kind of commonality and use cases was was it out.

The commentary you provided here on on some of the larger expansion deals.

On one hand, it sounds like you've got this larger footprint more complexities. Some of these deals and thats, having an impact and then the other hand, there are some macro it sounds like as well could you just help us parse through those two things would you say, it's one more than the other and then there were there any kind of commonality and use cases was outweighed too.

On the one hand, it sounds like you've got this larger footprint more complexity. Some of these deals and thats, having an impact and then the other hand theres some macro it sounds like as well could you just help us parse through those two things would you say, it's one more than the other and then there were there any kind of commonality and use cases was outweighed too.

Yes, I would expect the durations that we saw in Q2.

Which were about.

Kind of mid to high 20 fours four.

For cloud and then mid 'twenty two ish for term I would expect to see cloud probably remain similar.

Way too.

Security was bit more resilient and any more color there. Please.

Security was a bit more resilient and any more color there. Please.

Yes.

What was interesting.

What was interesting and I noted this earlier in the discussion we did see a change from.

Interesting and I noted this earlier in the discussion we did see a change from.

What we saw in prior quarter and so this really all started.

What we saw in prior quarter, and so Thats really all started base.

What we saw in prior quarter and so this really all started base.

Basically in the last month of our quarter. So when we started to see different buying behavior elongated sales cycles deals pushing it was really in the last month.

In that 'twenty to 'twenty two ish range.

Basically in the last month of our quarter. So when we started to see different buying behavior elongated sales cycles deals pushing it was really in the last month.

Basically in the last month of our of our quarter. So when we started to see different buying behavior elongated sales cycles deals pushing it was really in the last month.

But again.

It's not the it's not an easy number for us to forecast given it really comes down to customer preference.

So.

No I appreciate you pointing out is beyond your control.

So.

I think so I would then attribute that very much to macro versus the circumstances surrounding the customer.

You for helping us think through some of the parameters. When you guys went about formulating that guidance much appreciate it. Thank you very much.

Yeah.

Because it was very different than what we had seen prior quarter.

You bet. Thanks, Mike Thank you.

One moment for our next question.

Understood and then we're assessing that and then going back to your going back to your second part of your question, which was was it more <unk> or security.

Understood and there was going through that and then going back to your going back to your second part of your question, which was was it more <unk> or security.

Understood and then and then going back to your going back to your second part of your question, which was was it more <unk> or security.

And our next question comes from Brad Sills from RBC. Your line. Your line is now open.

<unk>.

It's very difficult in our environment too.

It's very difficult in our environment to pull those apart, but I would say generally it was more.

It's very difficult in our environment to pull those apart, but I would say generally it was more oriented.

Oh, Great Hey, Thanks, guys. This is Brad sills from Bofa.

Pull those apart, but I would say generally it was more.

Thanks for taking the question just one on the macro.

Oriented than it was security oriented.

Oriented than it was security oriented, but that's very qualitative on our part because we don't have we don't have perfect metrics on this one.

The commentary you provided here on on some of the larger expansion deals on the one hand, it sounds like you've got this larger footprint more complexities. Some of these deals and thats, having an impact and then the other hand, there are some macro it sounds like as well could you just help us parse through those two things would you say, it's one more than the other and then there were there any kind of commonality and use cases was was it out.

But that's very qualitative on our part because we don't have we don't have perfect metrics on this one.

That's very qualitative on our part because we don't have we don't have perfect metrics on this one.

Makes sense makes sense, thanks for that Gary and then one more if I may please.

One of the categories that you mentioned you are focusing on to kind of drive efficiency here is sales productivity I wonder if you could just elaborate a little bit more on that is that just simply a larger footprint that you now have available with observed ability to sell into some of these renewal expansion deals and you generate more productivity that way or is there something else, we should be keeping in mind. Thanks again.

The categories that you mentioned youre focusing on to kind of drive efficiency here sales productivity I Wonder if you could just elaborate a little bit more on that is that just simply a larger footprint that you now have available with observed ability to sell into some of these renewal expansion deals and you generate more productivity that way or is there something else, we should be keeping in mind. Thanks again.

Way too.

Security was a bit more resilient and any more color there. Please.

Yes.

What was interesting.

Interesting and I noted this earlier in the discussion we did see a change from.

<unk>.

Yes, I think it's really simple on our side is how do we continue to grow capacity to take advantage of what is a great market opportunity and how do we align our resources appropriately to take advantage of that.

What we saw in prior quarter and so that's really all started.

Basically in the last month of our quarter. So when we started to see different buying behavior elongated sales cycles deals pushing it was really in the last month.

We've.

<unk>.

We've.

And I think with that you've heard on these calls we want to make sure that we're well aligned to the security buyer Thats also important so I think it's really just alignment around the opportunity.

And I think with that you've heard on these calls we want to make sure that we're well aligned to the security buyer. That's also important so I think it's really just alignment around the opportunity.

So.

So I would then attribute that very much to macro versus the circumstances surrounding the customer.

Thanks, a lot of sense. Thanks again.

Yeah.

Thanks, Brett.

Because it was very different than what we'd seen in prior quarter.

Thanks, Brett.

In Q.

Thank you.

In Q.

Understood and then after that and then going back to your going back to your second part of your question, which was was it more <unk> or security.

And one moment our next question.

And our next question comes from Steve <unk> from F N B.

And our next question comes from Steve Kohl Nick.

And our next question comes from Steve <unk> from F N B.

It's very difficult in our environment to pull those apart, but I would say generally it was more.

S T.

T C. Nico America. Your line is now open.

E C. Nico America. Your line is now open.

D C. Nico America. Your line is now open.

Great. Thanks, guys pursuing taking my questions I've got one for Gary and then I've got a follow up for Jason on financials.

Great. Thanks, guys for taking my questions I've got one for Gary and then I've got a follow up for Jason on financials.

Great. Thanks, guys. Appreciate it taking my questions I've got one for Gary and then I've got a follow up for Jason on financials.

Oriented than it was security oriented, but that's very qualitative on our part because we don't have we don't have perfect metrics on this one.

So Gary the macro is affecting a lot of companies not just splunk.

So Gary the macro is affecting a lot of companies not to Splunk.

Makes sense makes sense, thanks for that Gary and then one more if I may please.

So Gary the macro is affecting a lot of companies not to Splunk.

And it tends to be in different areas.

The categories that you mentioned youre focusing on to kind of drive efficiency here is sales productivity I wonder if you could just elaborate a little bit more on that is that just simply a larger footprint that you now have available with observed ability to sell into some of these renewal expansion deals and you generate more productivity that way or is there something else, we should be keeping in mind. Thanks again.

And it tends to be in different areas.

And sometimes it's the newer areas of their business, where they arent is established.

And I'm wondering for Splunk.

This you've been on the board for a while and you've seen this this isn't the first time that.

You've been on the board for a while and you've seen this this isn't the first time that.

Splunk is seeing some variability in terms of customers expanding in cloud are migrating to cloud.

<unk> seen some variability in terms of customers expanding in cloud are migrating to cloud.

Splunk is seeing some variability in terms of customers expanding in cloud are migrating to cloud.

It has happened previously and I'm wondering what can Splunk do.

It has happened previously and I'm wondering what can splunk due to get customers off the dime on Splunk cloud and yet get those migrations on the stamps and accelerating and then I have one follow up if you don't mind.

Customers off the dime on Splunk cloud and yet kept those migrations on extensions accelerating and then I have one follow up if you don't mind.

Customers off the dime on Splunk cloud and yet get those migrations on expansions accelerating and then I have one follow up if you don't mind.

We've.

Yes, so I haven't been involved up until the last four months. So I wasn't on the board or anything. So this is all brand new demand.

Yes, so I haven't been involved up until the last four months. So I wasn't on the board or anything. So so this is all brand new to me.

Yes, so I haven't been involved up until the last four months. So I wasn't on the board or anything. So this is all brand new demand.

My perspective, okay.

Okay.

My perspective, okay.

It's all good but from my perspective.

Thanks, a lot of sense. Thanks again.

Thanks, Brett.

<unk>.

For us, we're really trying to make it as easy as possible for customers to do the assessment understand what it takes to migrate and really do everything we can to assist them in that effort and so we think about that in the context of how do we bring services to the table how do we bring the right partners to the table.

Thank you.

And one moment our next question.

And our next question comes from Steve <unk> from F N B.

E C.

<unk> America. Your line is now open.

And while a lot of that activity.

Great. Thanks, guys pursuing taking my questions I've got one for Gary and then I've got a follow up for Jason on financials.

<unk> been going on we're going to double down and make sure that we're doing everything we can to support those efforts to get using your words get customers off the dime.

Then going on we're going to double down and make sure that we're doing everything we can to support those efforts to get using your words getting customers off the dime.

Then going on we're going to double down and make sure that we're doing everything we can to support those efforts to get using your words get customers off the dime.

So Gary the macro is affecting a lot of companies not just splunk.

Mhm got it okay.

Got it okay.

Great Thanks for that.

And then for you Jason just help me square your commentary that cloud expansions were lighter than expected as well as migrations with the metric you gave on cloud.

And it tends to be in different areas.

And then for you Jason just help me square your commentary that cloud expansions were lighter than expected as well as migrations with the metric you gave on cloud dollar based net retention was 102009, which is really only a point lower than last quarter. So maybe help me square those things thanks very much.

And then for you Jason just help me square your commentary that cloud expansions were lighter than expected as well as migrations with the metric you gave on cloud.

And sometimes it's the newer areas of their business, where they arent is established.

I'm wondering for Splunk.

You've been on the board for a while and you've seen this this isn't the first time that.

Retention was 102009, which is really only a point lower than last quarter. So maybe help me square those things thanks very much.

Net retention was 102009, which is really only a point lower than last quarter. So maybe help me square those things thanks very much.

Splunk has seen some variability in terms of customers expanding in cloud are migrating to cloud.

Yes, Steve on the on the <unk> cloud deal DB <unk> that is a trailing 12 month metric.

Yes, Steve on the on the <unk> cloud <unk> DD and <unk> that is a trailing 12 month metric.

Yes, Steve on the on the <unk> cloud deal DB <unk> that is a trailing 12 month metric.

It has happened previously and I'm wondering what can Splunk do.

Customers off the dime on Splunk cloud and yet kept those migrations on expansion accelerating and then I have one follow up if you don't mind.

That said even on total within cloud expansion.

Very very small.

Small changes from Q1 to Q2, it's just it is a very very sensitive metric.

Small changes from Q1 to Q2 is just it is a very very sensitive metric and so in this case, what we had said was previously we expected the year to end at about 70% cloud mix.

Yes, so I haven't been involved up until the last four months. So I wasn't on the board or anything. So this is all brand new demand.

And so in this case, what we had said was previously we expected the year to end at about 70% cloud mix.

Okay.

It's all good for.

Now, we're saying we think it's kind of probably stay around 60% and so so that is that 10% differential is really what's driving the difference and we've talked in the past about how when someone moves to cloud, it's about 1.5 X versus on prem or versus term.

From my perspective.

And so that's where the that's where the majority of the impact is and when someone makes a cloud migration that impact doesn't show up in dollar based net retention most of it is an overall and thats because they are.

And while a lot of that activity.

It's been going on we're going to double down and make sure that we're doing everything we can to support those efforts to get using your words get customers off the dime.

Haven't been in cloud and so therefore, they're not really expanding deserts and glad that that's why the impact is more felt an overall dollar based net retention and less within cloud.

Mhm got it okay great.

Haven't been in cloud and so therefore, they're not really expanded dosing glad that that's why the impact is more felt an overall dollar based net retention of less within cloud.

Haven't been in cloud and so therefore, they're not really expanding deserts and glad that that's why the impact is more felt an overall dollar based net retention unless within cloud.

Great Thanks for that.

And then for you Jason just help me square your commentary that cloud expansions were lighter than expected as well as migrations with the metric you gave on cloud.

Got it great. Okay. Thanks Alan.

Got it great. Okay. Thanks, gentlemen.

Thank you.

Thanks.

Thank you.

Thank you one.

Thank you.

Thank you one.

One moment for our next question.

Net retention was 102009, which is really only a point lower than last quarter. So maybe help me square those things thanks very much.

And our next question comes from Gray Powell from BP.

Your line is now open.

Yes, Steve on the on the <unk> cloud deal DB <unk> that is a trailing 12 month metric.

Okay, great. Thanks for taking the question.

So I've got a couple here.

Gary I know you are not at Splunk back in early 2020, but I'd just be really curious.

That said even on total within cloud expansion.

Gary I know you are not at Splunk back in early 2020, but I'd just be really curious.

Very very small.

How does the environment today.

How does the environment today feel like what you saw.

Small changes from Q1 to Q2, it's just it is a very very sensitive metric and so in this case, what we had said was previously we expected the year to end at about 70% cloud mix.

Like what you saw.

Relative to back then and then and then I guess my follow up would be it.

A proof point you all had a very conservative guidance philosophy. So I guess the question is some of the <unk>.

A proof point you all had a very conservative guidance philosophy. So I guess the question is is some of the <unk>.

A reset here is that just related to your being at the company for over a quarter now and officially putting your mark on the company.

Our recent here is that just related to your being at the company for over a quarter now and officially putting your mark on the company.

Yes, a couple of things so going back to your first part of your question, Greg So in terms of the buying environment today.

I think we just see general concern about.

<unk>.

Recessionary concerns et cetera that have flowed all the way to the CFO in there and they are scrutinizing and thinking through priority of spend that I think that is that's what has led to the slowdown in these cloud migrations of expansions as we've talked about and then relative to guidance velocity.

Recessionary concerns et cetera that have flowed all the way to the CFO in there and they are scrutinizing and thinking through priority of spend that I think that is that's what has led to the slowdown of these cloud migrations of expansions as we talked about and then relative to guidance philosophy.

Recessionary concerns et cetera that have flowed all the way to the CFO in there and they are scrutinizing and thinking through priority of spend and I think that is that's what has led to the slowdown in these cloud migrations of expansions as we've talked about and then relative to guidance philosophy.

Haven't been in cloud and so therefore, they're not really expanding deserts and glad that that's why the impact is more felt an overall dollar based net retention of less within cloud.

Got it great. Okay. Thanks Alan.

I think for me been here 90 days right like it's well I guess, we're working on for months now and so we need to be super thoughtful about our guidance going forward in this turbulent time.

I think for me been here 90 days right like it's well I guess, we are working on for months now and so we need to be super thoughtful about our guidance going forward in this turbulent time.

I think for me been here 90 days right.

Thank you.

Thank you one.

One moment for our next question.

Well I guess, we're working on for months now and so we need to be super thoughtful about our guidance going forward in this turbulent time.

And our next question comes from Gray Powell from BP.

Trying to be thoughtful.

Tried to be thoughtful.

Trying to be thoughtful.

Your line is now open.

Alright fair enough thanks for the.

Okay, great. Thanks for taking the question.

I had to give that one a shot thank you.

So I've got a couple here.

[laughter].

Gary I know you are not at Splunk back in early 2020, but I'd just be really curious.

Thanks, Greg.

Thank you.

And one moment our next question.

How does the environment today.

Like what you saw.

And our next question comes from Fatima <unk> from Citi. Your line is now open.

Relative to back then and then and then I guess my follow up would be it.

Good afternoon, gentlemen, thank you for taking my questions.

Good afternoon, gentlemen, and thank you for taking my questions Gary to start with you just with respect to the slower velocity of migrations and expansions I wanted to focus more R&D expansion piece and as our broad observation.

A proof point you all had a very conservative guidance philosophy. So I guess the question is some of the <unk>.

Good afternoon, gentlemen, thank you for taking my questions Gary to start with you just with respect to the slower velocity of migrations and expansion I wanted to focus more R&D expansion piece and as a broad observation.

Gary to start with you just with respect to the slower velocity of migrations and expansion I wanted to focus more R&D expansion piece.

A reset here is that just related to your being at the company for over a quarter now and officially putting your mark on the company.

As a broad observation.

We've heard from some of your peers around maybe some belt tightening on cloud adoption and cloud utilization so.

We've heard from some of your peers around maybe some belt tightening on cloud adoption and cloud utilization.

Yes, a couple of things so going back to your first part of your question, Greg So in terms of the buying environment today.

Rob consumption models I'm curious if you can comment on how does that dynamic impact your cloud of those loans and our cloud expansion rate and then I have a follow up for Jason on the Friday.

Consumption models I'm curious if you can comment on how does that dynamic impact your cloud those loans and our cloud expansion rate and then I have a follow up for Jason on Friday.

Consumption models I'm curious if you can comment on how does that dynamic impact your cloud those loans and our cloud expansion rate and then I have a follow up for Jason on the Friday.

I think we just see general concern about.

<unk>.

Recessionary concerns et cetera that have flowed all the way to the CFO in there and they are scrutinizing and thinking through priority of spend that I think that is that's what has led to the slowdown of these cloud migrations of expansions as we've talked about and then relative to guidance philosophy.

Yes, I think it's a really good question I think what we're seeing is people are being super thoughtful about.

How much they are willing to commit on that expansion side.

How much they're willing to commit on that expansion side.

How much they are willing to commit on that expansion side.

And it's just.

And it's just it's.

I think for me been here 90 days right.

I think you're using your words the belt tightening.

You're using your words the belt tightening.

Think you're using your words the belt tightening.

Well I guess, we're working on for months now and so we need to be super thoughtful about our guidance going forward in this turbulent time.

Effectively what we feel and it's not obviously, we're not in a consumption model that people are trying to plan what their usage of Splunk will be over some period of time and I think theyre trying to rein in what and you probably understand is there is so much passion within splunk within these organizations that lots of lots of individuals across.

Secondly, what we feel and it's not obviously, we're not in a consumption model that people are trying to plan what their usage of Splunk will be over some period of time and I think theyre trying to rein in what and you probably understand that theres. So much passion within splunk within these organizations that lots of lots of individuals across the.

Trying to be thoughtful.

Alright fair enough thanks for the.

I had to give that one a shot thank you.

[laughter].

Thanks, Greg.

Thank you.

The organization wanted to use block and I think theyre trying to hold that back and be very thoughtful to pull back on how much they really need.

I want to use block and I think theyre trying to hold that back and be very thoughtful to pull back on how much they really need.

<unk> you want to use block and I think theyre trying to hold that back and be very thoughtful to pull back on how much they really need.

And one moment our next question.

And our next question comes from Fatima <unk> from Citi. Your line is now open.

Fair enough.

Fair enough Jason for you I'd be remiss, if I didn't ask you about the renewables ECB pipeline that you've talked about for several quarters now, but just more in the context of free cash flow conversion I believe we're at a billion billion and a half on the renewables HCV. So im wondering why we're not seeing.

Yes, Jason.

And for you.

Jason for you.

So if I didn't ask you about the renewables ECB pipeline that you've talked about for several quarters now, but just more in the context of free cash flow conversion I believe we're at a billion billion and a half on the renewables HCV.

Unless if I didn't ask you about the renewables ECB pipeline that you've talked about for several quarters now, but just more in the context of free cash flow conversion I believe we're at a billion billion and a half on the renewables HCV. So im wondering why we're not seeing.

Wondering why we're not seeing.

For lack of a better term more on your free cash flow and free cash flow conversion as those renewals kind of come through the door. After your durations on invoicing have normalized and that's it for me. Thank you.

For lack of a better term more on your free cash flow and free cash flow conversion as those renewals kind of come through with the door after.

We've heard from some of your peers around maybe some belt tightening on cloud adoption and cloud utilization.

For lack of a better term more on your free cash flow and free cash flow conversion as those renewables kind of come through with the door after.

Iterations on invoicing have normalized and that's it for me. Thank you.

Consumption models I'm curious if you can comment on how does that dynamic impact your cloud business and our cloud expansion rate and then I have a follow up for Jason on the Friday.

Durations on invoicing have normalized and that's it for me. Thank you.

Thanks for taking I guess on the renewal base is what we had said previously it's roughly $1 5 billion and that was set when customers first migrated from largely from purpose of term and cloud roughly two to three years ago. Those folks are now coming due we are.

Yes, I think it's a really good question I think what we're seeing is people are being super thoughtful about.

How much they are willing to commit on that expansion side.

As I mentioned earlier, we're seeing very consistent high renewal rates, so that hasnt changed the only thing that's changed is we're seeing a little less.

As I mentioned earlier, we're seeing very consistent high renewal rates, so that hasnt changed the only thing Thats changed is we're seeing a little less.

As I mentioned earlier, we're seeing very consistent high renewal rates, so that hasn't changed the only thing that's changed is we're seeing a little less.

And it's just it's.

Think you're using your words the belt tightening.

Affectively, what we feel and it's not obviously, we're not in a consumption model that people are trying to play on what their usage of Splunk will be over some period of time and I think theyre trying to rein in what and you probably understand is there is so much passion within splunk within these organizations that lots of lots of individuals across the.

<unk>.

Expansion.

Two mostly tied to their I guess confidence and what their future data volumes will be and so.

Mostly tied to their I guess confidence and what their future data volumes will be and so so.

So that's that's probably the thing that we saw most in Q2, we will see how that flows throughout the rest of the year in terms of the impact on cash flow.

That's probably the thing that we saw most in Q2, we will see how that flows throughout the rest of the year in terms of the impact on cash flow.

So that's that's probably the thing that we saw most in Q2, we will see how that flows throughout the rest of the year in terms of the impact on cash flow.

<unk> you want to use block and I think theyre trying to hold that back and be very thoughtful to pull back on how much they really need.

I mean, we did have that baked into our initial operating cash flow guide when we had $400 million is our target we did take that up by $20 million this quarter.

I mean, we did have that baked into our initial operating cash flow guide. When we had 400 million is our target we did take that up by $20 million this quarter.

I mean, we did have that baked into our initial operating cash flow guide when we had $400 million is our target we did take that up by $20 million this quarter.

It's halfway throughout the year and hopefully we'll be able to as we deliver on these expansions and.

Renewal and expansions.

Then hopefully we'll be able to deliver continued cash flow growth throughout the year.

Yeah.

For lack of a better term more on your free cash flow and free cash flow conversion as those renewals kind of come through with the door. After your durations on invoicing have normalized and that's it for me. Thank you.

Thank you so much.

Thank you Shannon.

Thank you Amy.

One moment for our next question.

And our last question is going to come from Yung Kim from loop capital markets. Your line is now open.

Thanks for taking I guess.

The renewal base is what we had said previously it's roughly $1 5 billion and that was set when customers first migrated from largely from purpose of term and cloud roughly two to three years ago. Those folks are now coming due we are.

Hey, Gary can you remind us your near term strategy regarding your mobility suite.

The slower cloud migration affecting.

The slower cloud migration affecting that.

The slower cloud migration effect in Europe .

That business.

Are you fine tuning our go to market around that given the.

Or are you fine tuning our go to market around that given the.

As I mentioned earlier, we're seeing very consistent high renewal rates, so that hasn't changed the only thing that's changed is we're seeing a little less.

Or are you fine tuning our go to market around that given the.

You kind of push to combine security and mobility push.

<unk>.

Since.

Expansion.

Thank you.

You've been on board. Thanks.

Two mostly tied to their I guess confidence and what their future data volumes will be and so so.

Now, we see tremendous opportunity an observer ability suite and we've seen great adoption across <unk>, leveraging logs and then bringing in.

We see tremendous opportunity an observer ability suite.

And we've seen great adoption across eight leveraging logs and then bringing in.

So that's that's probably the thing that we saw most in Q2, we will see how that flows throughout the rest of the year in terms of the impact on cash flow.

And we've seen great adoption across <unk>, leveraging logs and then bringing in.

Metrics traces et cetera, nothing's changed from our perspective about that opportunity. We are incredibly enthusiastic about the competitiveness and we are seeing.

Metrics traces et cetera, nothing's changed from our perspective about that opportunity. We are incredibly enthusiastic about the competitiveness and we're seeing.

I mean, we did have that baked into our initial operating cash flow guide when we had $400 million is our target we did take that up by $20 million this quarter.

Some great customer wins, and we noted one of those in our prepared remarks today. So we feel very very good about that there is no fundamental change in our strategy there and we want to continue to leverage the strength that we've traditionally had with logs to go capture opportunities more broadly across metrics traces and and the other components of the overall suite.

Some great customer wins, and we noted one of those in our prepared remarks today. So we feel very very good about that there is no fundamental change in our strategy there.

It's halfway throughout the year and hopefully we'll be able to as we deliver on these expansions and.

Renewal and expansions.

And we want to continue to leverage the strength that we've traditionally had with logs to go capture opportunities more broadly across metrics traces and the other components of the overall suite. So we feel really good about it.

Then hopefully we'll be able to deliver continued cash flow growth throughout the year.

Thank you so much.

We feel really good about it.

Thank you Amy.

Feel really good about it.

Okay, and then Jason real quick just to be clear.

And then Jason will quick just to be clear.

When customers are renewing their term deals are they renewing at a typical three year lengths and just remind us feeling frequency around those term deals.

One moment for our next question.

When customers are renewing their term deals are they renewing at a typical three year lengths and just remind us the feeling frequency around those term deals.

When customers are renewing their term deals are they renewing at a typical three year lengths and just remind us feeling frequency around those term deals.

And our last question is going to come from Yung Kim from loop capital markets. Your line is now open.

Yes, I would assume the in the appendix of the website slides set.

Hey, Gary can you remind us your near term strategy regarding your mobility suite.

We released.

<unk> released.

With earnings earlier today, you can see the durations for both cloud and term I would assume that they are consistent and expect that they will be consistent for the remainder of the year and then roughly 27 ish months range for cloud in 'twenty to 'twenty two months or so for term in terms of the invoicing.

With earnings earlier today, you can see the durations for both cloud and term I would assume that they are consistent and expect that they will be consistent for the remainder of the year and that's roughly 27 ish months range for cloud in 'twenty to 'twenty two months or so for term in terms of the invoicing.

The slower cloud migration affecting you.

That business.

Are you fine tuning our go to market around that given the.

You kind of push to combine security and mobility push.

Thank you.

You've been on board. Thanks.

Now, we see tremendous opportunity an observer ability suite.

We build them annual upfront.

For for the next 12 months.

And we've seen great adoption across Itu leveraging logs and then bringing in.

And Thats a change that we made a couple of years ago and the reason of course on cash flow went down as we used to build everything upfront and then we went to annual upfront and we're now done lapping that and which is why youre seeing on cash collection now start to normalize.

Metrics traces et cetera, nothing has changed from our perspective about that opportunity. We are incredibly enthusiastic about the competitiveness and we're seeing.

Okay, great. Thank you so much.

Thank you Anne and thank you and I'm showing no further questions I would now like to turn the call back over to Gary Steele for closing remarks.

Thanks, Ian and thank you and I am showing no further questions I would now like to turn the call back over to Gary Steele for closing remarks.

Thank you Ian and thank you and I'm showing no further questions I would now like to turn the call back over to Gary Steele for closing remarks.

Thank you very much I wanted to take a moment and thank everyone for joining us on the call. Today, we were pleased with the results we delivered even in the face of macro headwinds and we feel like we have the right positioning given our balanced approach to growth and profitability. We look forward to talking with you. All soon thank you so much.

We feel really good about it.

And then Jason will quick just to be clear.

When customers are renewing their term deals are they renewing at a typical three year lengths and just remind us feeling frequency around those term deals.

This concludes today's conference call. Thank you for participating you may now disconnect.

Yes, I would assume the in the appendix of the website slides.

That we released.

We build them annual upfront.

For for the next 12 months.

And Thats a change that we made a couple of years ago and the reason of course on cash flow went down as we used to build everything upfront and then we went to annual upfront and we're now done lapping that and which is why you are seeing on cash collection now starts to normalize.

Okay, great. Thank you so much.

Thank you Anne and thank you and I am showing no further questions I would now like to turn the call back over to Gary Steele for closing remarks.

Thank you very much I wanted to take a moment and thank everyone for joining us on the call. Today, we were pleased with the results we delivered even in the face of macro headwinds and we feel like we have the right positioning and given our balanced approach to growth and profitability. We look forward to talking with you. All soon thank you so much.

This concludes today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

<unk>.

[music].

Okay.

[music].

Yes.

[music].

Yes.

[music].

Yes.

Sure.

[music].

Q2 2023 Splunk Inc Earnings Call

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