16. PEACE, JUSTICE AND STRONG INSTITUTIONS

Edited Transcript of SPLK earnings conference call or presentation 21-May-20 8:30pm GMT – Yahoo Finance

Impact team
Written by Impact team

Edited Transcript of SPLK earnings conference call or presentation 21-May-20 8:30pm GMT  Yahoo Finance

Q1 2021 Splunk Inc Earnings Call

San Francisco May 22, 2020 (Thomson StreetEvents) — Edited Transcript of Splunk Inc earnings conference call or presentation Thursday, May 21, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Douglas Merritt

Splunk Inc. – CEO, President & Director

* Jason E. Child

Splunk Inc. – Senior VP & CFO

* Ken Tinsley

Splunk Inc. – Head of IR

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Conference Call Participants

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* Brad Alan Zelnick

Crédit Suisse AG, Research Division – MD

* Brent John Thill

Jefferies LLC, Research Division – Equity Analyst

* Fatima Aslam Boolani

UBS Investment Bank, Research Division – Associate Director and Equity Research Associate Technology-Software

* Kasthuri Gopalan Rangan

BofA Merrill Lynch, Research Division – MD and Head of Software

* Keith Frances Bachman

BMO Capital Markets Equity Research – MD & Senior Research Analyst

* Mark Ronald Murphy

JP Morgan Chase & Co, Research Division – MD

* Matthew John Swanson

RBC Capital Markets, Research Division – Associate VP

* Philip Alan Winslow

Wells Fargo Securities, LLC, Research Division – Senior Analyst

* Raimo Lenschow

Barclays Bank PLC, Research Division – MD & Analyst

* Sanjit Kumar Singh

Morgan Stanley, Research Division – VP

* Steven Richard Koenig

Wedbush Securities Inc., Research Division – MD

* Stewart Kirk Materne

Evercore ISI Institutional Equities, Research Division – Senior MD & Fundamental Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Splunk First Quarter 2021 Conference Call. (Operator Instructions) Please be advised today’s conference call is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker for today, Mr. Ken Tinsley. Sir, you may begin.

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Ken Tinsley, Splunk Inc. – Head of IR [2]

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Great. Thank you, Valerie, and good afternoon, everyone. With me on the call today are Doug Merritt and Jason Child. After market close today, we issued a press release, which is also posted on our website. Also note that we have posted supplemental material on the Investor Relations web page as well. This conference call is being broadcast live via webcast and following the call, an audio replay will be available on our website.

On today’s call, we will be making forward-looking statements, including financial guidance and expectations such as our forecast for our second quarter as well as duration, revenue mix, full year and long-term ARR and cash flow; and trends in our markets as well as expectations regarding our products, technology, strategy, customers, markets, acquisitions and investments. These statements reflect our best judgment based on factors currently known to us, and actual events or results may differ materially. Please refer to documents we filed with the SEC, including the 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 Doug.

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Douglas Merritt, Splunk Inc. – CEO, President & Director [3]

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Thank you, Ken, and thanks, everyone, for joining us. In the face of unprecedented volatility and uncertainty, we are focused on remaining a trusted partner to our customers and help them navigate the fundamental changes in how they operate while keeping their data accessible and secure.

In Q1, customers continued to prioritize investments in Splunk and drove ARR growth of 52% over last year, while our transition to cloud accelerated ahead of our expectations. This is also the first quarter with our sales force fully shifted from a total contract value, or TCV, sales motion to a more cloud- and subscription-oriented annual contract value, or ACV, focus, which we believe better aligns with our customer buying preferences and is consistent with our shift toward cloud-based delivery.

With that as a backdrop, I’d like to discuss a few patterns that have emerged this quarter and the impacts to our business. First, at this time of remote work, we’ve seen increased demand for Splunk Cloud, driving our cloud mix north of 40%, the highest ever in our history and well above our expectations going into the quarter. In addition to the faster time-to-value from cloud, our customers also gain business continuity and risk avoidance, higher quality experience with decreased complexity and an accelerated rate of innovation through faster releases and improvements gleaned from real-time cross-customer insights.

Second, not surprisingly, customers across all sectors are trying to understand the economic impact of the current COVID-19 business environment. As a result, signed contracts this quarter tended to be shorter in duration, going from 34 months in Q4 to 27 months in Q1. We see this being especially prominent in sectors hardest hit by the crisis like retail, hospitality and travel. The shorter contract duration impacted overall TCV, which is reflected in slower RPO bookings growth and lower total revenue recognized in the quarter. However, when looking at contract value on an ACV basis, which cuts to the noise of changes in multiyear duration, year-over-year growth was actually higher in Q1 than we’ve seen in the last 4 quarters.

Looking further out. Visibility of the next few quarters is limited, primarily due to the macro environment. Our focus will be to ensure that we’re tightly connected to our customers and partners as they work through their dynamic environments as well as taking care of our employees’ well-being, enabling their productivity and to continue to optimize our investments.

One thing is clear to us: data matters more than ever in this digital world, and every organization is on a journey to bring data to everything. We pride ourselves on being a world-class product company. And we are leaning in on innovation, so we can help our customers bring data to every question, every decision and to every action with a cloud-first mindset.

As we continue our aggressive shift to the cloud, we are doubling down on investments in this area, exemplifying our focus on bringing more data to more customers. I hope you saw our recently announced partnership with Google and the news that Splunk Cloud will now be available on Google Cloud. This builds on our cloud-first mindset and offers our customers increased flexibility and choice for real-time visibility across hybrid and multi-cloud environments.

In addition, Splunk continues to strengthen its strategic relationship with AWS, working across product, go-to-market and the field. Recently, Splunk and AWS launched the Workload Migration Program to help migrate on-premises legacy Splunk Enterprise workloads to Splunk Cloud running on AWS. We also announced a newly-launched AWS service-ready program, Lambda Ready, which recognizes Splunk’s proven solutions for customers to build, manage and run serverless applications.

In the application development and DevOps space, we recently released our cloud-native SignalFx microservices APM offering, a complete integrated observability solution that provides the world’s most robust and scalable way to monitor and manage complex and distributed application portfolios. We are the only company in this space capable of scaling up to meet needs of large enterprises, and our work was recently validated by our placement in the Visionary category in Gartner’s Magic Quadrant for APM.

Since the start of this pandemic, one of our key priorities has been helping our customers transition to their new virtual working environment. Splunk’s core tenets are about providing near real-time visibility, the ability to act quickly on data and applying Splunk to virtually unlimited use cases across an organization. These tenets have been fundamental to our COVID rapid response efforts.

We’ve rolled out several free trials and offerings to our customers, including our Remote Work Insights, or RWI, which provides customers with dashboards and key metrics to gauge the connectedness and productivity of their IT and cloud infrastructure as they rapidly shift their populations to remote work. The response from our customers have been overwhelmingly positive, and we’re continuing to look at ways to enhance RWI, most recently with Zoom usage data.

In collaboration with customers and partners, we also developed a public health platform available free of charge to public health agencies. It delivers an end-to-end COVID-19 testing experience, managing online citizen intake, symptom evaluation and appointment scheduling. The platform is now live in Tarrant County, Texas, the 15th largest county in the U.S. We’re excited about the potential of this solution to help state and local governments across the country.

We stayed in close touch with our customers to ensure they’re getting the support that they need, and we’re hearing from them that they continue to value Splunk as a trusted and strategic vendor. We’re encouraged by the many customer stories we’ve heard in the first quarter, where organizations are turning to Splunk more than ever to help them navigate this volatile environment with the power of data.

Let me share some of our wins from the quarter. Zoom, the leader in video communications, became a new Splunk Enterprise Security customer. During COVID-19, Zoom has helped keep the world connected. With Splunk Enterprise Security, Zoom will gain an analytics-driven SIM, giving them visibility into potential security threats at machine speed. We’re a longtime Zoom customer, and I’m very grateful for their support in helping keep Splunk connected.

Longtime customer Allied Irish banks, or AIB, expanded their use of Splunk Enterprise and ITSI to help provide insights and take action on increased digital transaction data brought on by COVID-19. To help mitigate the spread of COVID-19, AIB has raised their payment threshold for contactless payments, encouraging customers to use their cards and mobile devices versus cash. With increased activity on their systems, AIB leveraged Splunk to ensure a stable and reliable payment experience for customers.

The state of Illinois became a new Splunk Cloud and ITSI customer to help them better track and monitor the emergency response to COVID-19 across the state. With Splunk, the Prairie State can ensure that their remote workforce of 30,000 public servants can stay online while also helping them quickly monitor overburden systems that provide critical benefits to citizens. This effort ensures the continuity of critical services to people of Illinois.

Longtime customer Shopify significantly expand their use of Splunk, purchasing the newly launched SignalFx microservices APM platform. Shopify is a leading omnichannel commerce platform, and they selected Splunk to help maintain their high-observability standards as they grow in scale and complexity. With Splunk, Shopify can quickly identify and source application challenges in their complex and distributed environment.

And Take-Two interactive software, a leading developer, publisher and marketer of interactive entertainment for consumers around the globe, including renowned games, Grand Theft Auto V, Red Dead Redemption and NBA 2K, expand their use of Splunk Cloud to increase their visibility into the security of their environment. Splunk helps ensure that Take-Two’s consumers have well run, safe and fun online environments when playing their games.

All these great wins with our customers are thanks to the support provided by our committed Splunkers. At the onset of this crisis, we tirelessly analyzed all available data, which was showing us that without action, global health care systems could quickly become overrun, and supply chains will be depleted. As a result, we voluntarily closed our offices and froze all business travel well before the government mandates went into effect.

I want to thank our 6,000 Splunkers for their passion, tenacity and empathy as we’ve adjusted to a new normal. They have created a truly unique culture, which I am so proud to be part of.

In closing, data-driven decision making matters more than ever and has fueled a very strong quarter for us. We’re aggressively pursuing our transition to the cloud and are well ahead of original expectations. I want to thank our customers and partners who have been tremendously supportive during these times. I also want to thank all the frontline workers: those in health care who are risking their lives keep us healthy, those in grocery and retail, who are helping us with the essentials that we need; and those in the field of data, who are ensuring their organizations can make decisions based on the most reliable and accurate information available.

I’ll now hand over to Jason for more color on Q1. Jason?

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Jason E. Child, Splunk Inc. – Senior VP & CFO [4]

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Thanks, Doug, and good afternoon, everyone. Thanks for joining us. As expected, the environment in Q1 created many challenges, but there were a number of positive signs that indicate our business fundamentals remain strong. As Doug mentioned, we had high customer engagement, and we saw sustained demand for security and IT scale and use cases driven largely by increased work-from-home demands. However, many customers were hesitant to commit to long-term contracts, especially for large orders. This resulted in lower overall average contract duration and total contract value. An unexpected positive has been a faster shift to cloud as customers increasingly turn to our SaaS service given its rapid time-to-value and infrastructure cost avoidance attributes.

On our last call, I reported that cloud contributed about 35% of total software bookings last year with a target of over 60% in fiscal ’23. We expected that trajectory to be fairly linear. But in Q1, cloud represented 44% of total software bookings, far higher than we had planned. Again, it’s likely that this was driven by our customers’ response to COVID, but we think we can transition the cloud even faster.

As we’ve said, in a rapidly transitioning term to cloud model, revenue growth is muted as upfront term license revenue is replaced with ratable services revenue over time. A faster transition will create a greater headwind on total revenue growth, as you’d expect. As a result, we are focused on other primary growth metrics to assess the overall bookings momentum in the business. We’ve highlighted ARR as the optimal indicator of growth because it normalizes the impacts from term/cloud mix as well as contract duration.

In addition to ARR, we also track RPO growth as a good indicator of new business momentum versus RPO bookings, which is distorted by a lower revenue growth from cloud/mix shift as well as changes in duration. Until mix stabilizes, ARR is the best measure for durable growth.

As volatile and uncertain as the current environment is, we’re pleased with our execution in the quarter overall. We ended the period with total ARR of $1.77 billion, up 52% over last year. ARR was comprised of $480 million from cloud and $1.29 billion from term license and maintenance contracts. We ended Q1 with total RPO of $1.72 billion, up 44% over Q1 of last year. The portion of RPO which we expect to recognize in revenue over the next 12 months was about $1 billion at period end, which is up 30% year-over-year. Additionally, we recorded 81 orders greater than $1 million in total contract value during the quarter, up from 46 in Q1 last year, indicating both greater adoption and high strategic value we deliver to our customers.

Turning to the P&L. First quarter revenues were $434 million, essentially flat year-over-year. Cloud revenue was $112 million, up 81% over last year. On gross margin, the high growth in our cloud business is driving improving scale in our overall cost structure. Non-GAAP cloud gross margin was nearly 60% in Q1, which is a significant milestone towards our target of at least 70% next year. To highlight the progress of cloud, we are now breaking out cloud revenue and related COGS on the face of the income statement. Total non-GAAP gross margin in Q1 was 76%, down on a year-over-year basis due to the greater proportion of revenue contribution coming from cloud. Non-GAAP operating margin was negative 26% in Q1, which was in line with plan.

Just a few comments on the balance sheet. Our liquidity is strong, and we ended the quarter with $1.8 billion in cash and investments. Our accounts receivable turnover was mostly unchanged in the quarter, although some customers have asked for modest payment concessions, which we’re evaluating and accommodating on a case-by-case basis. The overall quality of our accounts receivable remains exceptionally high. And at this point, we don’t anticipate any material impact to our full year cash collection target.

Turning to guidance. There are 3 items that I want to ensure are crystal clear. First, our fundamentals remain strong. We are confident in our ARR growth target of mid-40% this year, and we continue to expect that our operating cash flow will be consistent with last year.

Second, due primarily to cloud acceleration and variability in duration, our revenue and operating margin targets are lower for Q2 than our original plan. Specifically, we expect total revenues of approximately $520 million in Q2, roughly flat year-over-year. Slower revenue growth is directly related to higher cloud mix, which is now expected to be in the high 40% range, the highest ever. This will also put pressure on op margin, so we expect non-GAAP operating margin of negative 10% to negative 15% in Q2.

Third, for the remainder of the year, given the unpredictability of our accelerating cloud transformation and variability in duration, we’re withdrawing our guidance for revenue and operating margin.

In closing, it was a great quarter with strong ARR growth and increasing momentum in cloud. We look forward to updating you on our progress and outlook for the remainder of the year as we gain more visibility.

With that, let’s open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Phil Winslow, Wells Fargo.

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Philip Alan Winslow, Wells Fargo Securities, LLC, Research Division – Senior Analyst [2]

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Congrats on a great quarter, and also I just wanted to say glad to hear that you all are well, and hope all is well with your team and your families. Two things really jumped out to us this quarter. First was just, as you mentioned, just a strength in cloud. I mean, obviously, much higher mix than we were looking for, and obviously, you guys, too. Will you provide some just — some more color on sort of what you’re hearing from customers about why you’re seeing that accelerated shift to the cloud?

And the other metric was just the number of deals north of $1 million. I mean huge increase year-over-year. I know it was a little easier comp, but just a big number, especially considering you have a shorter duration. So if you can provide some more color as just sort of what’s driving that strength in those big deals.

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Douglas Merritt, Splunk Inc. – CEO, President & Director [3]

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Phil, thank you very much, and glad to hear that you are healthy and all as well. Yes, we were really — as we said in the very beginning, it’s impossible to predict what customers want. We have always focused on offering customers’ choice in everything that we do, and we’ve been hard at work for almost 5 years now in the cloud offering. So it’s been great to see the past couple of quarters, the continued momentum in cloud. I’m really pleased with some of the acquisitions that we’ve done that are all cloud-based. I think we’ve got one of the top teams in the cloud spectrum now from an SRE basis all the way through the development team. So it’s good to see customers rotating there.

It’s hard to pinpoint with total accuracy what’s driving it. I think the offering is a portion of it. But the other piece that, I’m sure you’ve seen with other companies that you cover, is in this time, when everyone had to go virtual and the reaction to unpredictable events was like we’ve never seen before. The ease of use, the reliability, the flexibility that you get from turning to cloud is awesome. And as we watch customers move tens of thousands, hundreds of thousands of people to remote work virtually overnight, I think the power of cloud becomes a little bit more apparent. So it was good to see.

And I agree with you. As we ended the quarter, there are 2 things that I was unsure of, and one was we were going to have with big deals. I mean you guys have been a lot — many people have written as they should. With an enterprise sales force, they could be able to do big deals, and to see 81 million-plus deals was really refreshing that our customers continue to need Splunk and view Splunk as critical for their digital transformation needs and their response to daily business.

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Operator [4]

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Our next question comes from Kash Rangan of BoA.

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Kasthuri Gopalan Rangan, BofA Merrill Lynch, Research Division – MD and Head of Software [5]

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I mean this is a terrific accomplishment, guys. I mean you’re growing your ARR, 52%. Your cloud transition is accelerating, and you’re doing a record number of million-dollar deals. This is simply outstanding. I’m curious, Doug, when you look at the leading indicators in your pipeline, it looks like, by most accounts, the month of April saw a big — bit of a rebound in software activity. Just curious if you can just talk about how the forward-looking pipeline is looking like for you guys post-COVID.

And I also am curious if you have any specific thoughts on the combination of SignalFx, Streamlio, Omnition and how material they were to securing cloud wins. Or how is progress, generally speaking, tracking for those 3 acquisitions?

And one, if I could — if you have the time speak on this, okay. Difference between ACV. I think you said ACV growth rate accelerated in this quarter versus the fourth quarter. If you can expand on that nuance, that will be great. And congrats again. Many congratulations.

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Douglas Merritt, Splunk Inc. – CEO, President & Director [6]

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Thank you, Kash. It’s an amazing effort across our field teams and the rest of the company to support them. And really, again, just honored to be serving customers at this time of need. What I said was ACV growth had its strongest performance that we’ve seen over the past 4 quarters. So that, again, was — on the positive front, there are so many things that could happen given that we were over 3 quarters this quarter during the full COVID pandemic, and you just don’t know how people are going to react. And what we saw was as people rapidly transitioned to remote work, and sadly, we’ve seen a pretty big increase in cyber activity — negative cyber activity, the importance of Splunk to ensure the resiliency of their existing IT backbone, to ensure the cyber efficiency and efficacy of that was absolutely critical.

And then as you said, really positive second quarter now results with the new application developer-oriented observability suite and offering. It’s still a low numbers game with that offering, but the growth is really impressive. And even more impressive, I think the speed of integration that we’ve seen across Omnition, SignalFx and some of the pieces from Splunk come into that suite. And the awareness of customers that once you get to a certain complexity and volume, the only answer really is Splunk’s observability suite right now. And we’ve talked about that huge customer in Q4 that went all in the Splunk.

We’re seeing other activity around the world right now where people — obviously, if they’re going to respond quickly to COVID, they’re going to need to spin up brand-new offerings quickly. And I think doing that in an ephemeral cloud-based world is a way that they’re doing that, and we’re there to help them work side-by-side with them to make sure they’re effective.

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Operator [7]

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Our next question comes from Brad Zelnick of Crédit Suisse.

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Brad Alan Zelnick, Crédit Suisse AG, Research Division – MD [8]

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Great. Can you guys hear me?

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Ken Tinsley, Splunk Inc. – Head of IR [9]

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Yes. We got you.

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Brad Alan Zelnick, Crédit Suisse AG, Research Division – MD [10]

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Awesome. Congratulations on keeping up the momentum. It’s great to see the results. I am just as pleased as Kash. It’s — but maybe I don’t express it like he does. He’s fantastic. I truly mean that. Let me ask you this. I don’t expect, Doug, that you would typically get us into the granular details of the business week by week and host a forecast call with all of us. But just given the time distortion that we’ve all gone through in the last couple of months, I mean, weeks feel like months, months feel like quarters, can you just maybe give us a sense of what you’re seeing at the field level talking to CIOs and CEOs and the investments that they’re making? And maybe just some appreciation for the cadence of the business from March to April and even what you’re seeing now into early May, that would be helpful. And I’ve got a follow-up for Jason.

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Douglas Merritt, Splunk Inc. – CEO, President & Director [11]

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Sure, Brad. And then I agree with you. I mean there’s — I know, Kash, you’d said post-COVID. I don’t foresee a post-COVID world yet. I think there’s a lot of volatility still in front of us.

What — so a couple of things that surprised me. We moved to virtual — or sorry, on-the-road executive briefings 2 years ago to complement bringing people to headquarters, which I think had been very, very successful. I take 8, 10, 12 people with me, our top development folks, product managers, customer success folks. Susan used to join me, et cetera. And let’s go right to the customer. Our first EBC on the road was supposed to be the last week of March, and we picked it perfectly to be in New York City and Washington, D.C. that week. And I was predicting, especially — I mean that was right after most shelter-in-place orders went in — went down that everybody had canceled. And we gave every customer the option to cancel. And not only did we have a full week, but we were oversubscribed for that week.

So the resiliency that I’ve seen with people everywhere, it’s just there’s so much chaos and craziness and sadness that’s happening right now with the pandemic, and there’s so much beauty as well with people rising to the occasion and keeping focus to what’s important to serve their customers, their citizens, their constituencies. And I’ve seen CIOs, CISOs, CFOs, CEOs lean in like never before. And our sales cadence, which I think we got one of the best enterprise sales teams in the business, they have stayed on top of the day in, day out drumbeat, and they haven’t been deterred at all with the fact that they’re going to be on Zooms, they’re going to be on phones, they’re going to be over e-mail, they could be on Slack channels to make sure that they can drive everything from requirements to proof-of-concept activities to contract negotiations. As the quarter is winding down, we would have 8-, 12-, 14-person Zooms with different legal departments, different accounting departments and our sales teams, just making sure we got deals done.

And so far, what I’ve seen from our team and talking to us from my colleagues is we know how important it is for people to have a digital footprint and for us, in particular, to be able to get visibility in the chaos with as much data as humanly possible. And people, I think, appreciate that, and that shows through in the strong ACV results and the strong ARR results, and we just have to stay on it. And the first few weeks of May have felt very similar to what we saw in April and the end of March.

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Brad Alan Zelnick, Crédit Suisse AG, Research Division – MD [12]

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That makes a lot of sense. And Jason, I totally appreciate pulling this year’s guidance on the income statement just given the lack of visibility on mix of cloud. But as you think about the $1 billion cash flow target out on the horizon, how should we think about the various shapes of the curves that can get us there just given what’s going on in the world?

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Jason E. Child, Splunk Inc. – Senior VP & CFO [13]

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Yes. I would — well, thanks for the question. I would say the driver of cash flow going forward, I think, is much more tied to ARR than revenue. And so we gave the — we reiterated the mid-40% ARR growth that we’re expecting to see this year and then the 40% CAGR going out to ’23. If you use those numbers, that gets you to an ARR number in somewhere between the $4 billion to $5 billion range. And then if you take kind of the historic cash yield that you’ve seen us had in the past, I think, for 5 or 6 years, we were over 20% cash yield on a revenue basis, you should see a similar yield on ARR as we get out into ’23, where we’re not going to have the cloud mix shift impacts that we have right now.

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Operator [14]

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Our next question comes from Keith Weiss of Morgan Stanley.

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Sanjit Kumar Singh, Morgan Stanley, Research Division – VP [15]

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This is Sanjit Singh for Keith Weiss. I want to talk a little bit about where you are sort of seeing the momentum coming out of April and May. We’re sort of 3 weeks into the quarter. How sort of pipeline and sort of bookings, any sort of changes in end of April, May versus end of March and April? And then I had a follow-up question for you.

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Douglas Merritt, Splunk Inc. – CEO, President & Director [16]

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We haven’t seen any material difference in customer interest and activity. There is a lot of concerted effort that the sales teams are driving, along with help with the marketing teams to make sure that we build an adequate pipeline. It’s definitely — as you’d imagine, everyone’s got to take different angles to build that pipe. Like many enterprise software companies, the field is responsible for a lot of that pipe gen, and that obviously comes from their activity day in and day out with customers that they’re visiting, and now they’re visiting virtually.

So as you — I’m sure you’ve seen with other software and cloud companies, we’ve got a ton of virtual events. We have — our campaign cadence remains high. We’ve shifted the rest of the events that we’re participating in through the end of the year to the virtual format. We’re seeing really high turnouts so far with people attending different information sessions and ultimately, marketing events. So we’re staying on top of serving customers and tight messaging around what’s critical for cyber teams, infrastructure teams and app dev teams to do their job effectively. And you’ll see on our website, we’re layering in quite a bit of information on line of business use cases from helping people manage workforces, especially for essential workers effectively, helping people to think through with data, how to get a return-to-work profile that works well.

We obviously are not an ERP backbone workflow oriented-software product. We are helping on the data side to couple with the efforts that our partners and colleagues that would actually manage the workflow activities of getting people back to work would be engaged with.

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Sanjit Kumar Singh, Morgan Stanley, Research Division – VP [17]

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That’s very helpful. And as my follow-up question, I wanted to sort of think through the positioning of the product portfolio. Last year was a big year in terms of boosting a lot of the capabilities with the SignalFx acquisition, Omnition, VictorOps. And I guess my question is in terms of unifying this product portfolio and creating sort of a converged real-time digital operations management portfolio that could potentially take share in a more conservative IT environment. Jason sort of mentioned that we can’t sort of see past COVID just yet, and then it’s something that we certainly agree with. And so in terms of the ability to take more wallet share in your core markets, in your customer base and potentially with new customers, how far is the product portfolio from being able to execute that vision?

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Douglas Merritt, Splunk Inc. – CEO, President & Director [18]

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I think it’s there now. There’s always more work to do on all factors of an offering. But I think the cloud — the progression we made in cloud on all of our core data elements, classic Splunk Enterprise in the cloud as well as the complementary aspects, continues at a really nice pace. We are tripling down on the efforts to make sure that every single element from the data platform to the security suite, to the IT op suite, to the app devs suite are cloud-first, are leading with cloud. And the orientation with Splunk will continue to be and has been making sure that we can integrate with the technologies around us.

We’ve talked a lot about our new Omnition control framework that will officially be shipping at our dot-com. That’s a next-generation interface for cyber teams. From the ground up, that was built to provide a really effective UI to help those folks and to integrate the different Splunk offerings, but it also is open to third-party offerings, even those that are similar to the offerings that we have in our own portfolio.

I think we recognize that it’s a super-heterogeneous landscape out there, and that we’ve got to be a cooperative player with the other pieces that our customers currently use so that we can help them bring data to every question, every answer and every action.

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Sanjit Kumar Singh, Morgan Stanley, Research Division – VP [19]

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Appreciate the hots, Doug, and congrats on a strong Q1.

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Douglas Merritt, Splunk Inc. – CEO, President & Director [20]

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Thank you.

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Ken Tinsley, Splunk Inc. – Head of IR [21]

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Thanks very much.

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Operator [22]

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Next question comes from Mark Murphy at JPMorgan.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division – MD [23]

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I’ll add my congrats. Doug, I was curious if you think about aggregate data in just across the customer base, was it more common to see customers trying to reduce their ingest in March and April maybe to preserve their own cash flow? Or was it more common to actually see them increasing ingest to maybe try to protect VPN traffic or otherwise just adapt to this kind of environment?

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Douglas Merritt, Splunk Inc. – CEO, President & Director [24]

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Good question. So first of all, we’re moving more and more of our customers to an infrastructure-based pricing metric, which gets away from the data ingest piece and seeing some really, really interesting results there. One of our big footprint customers that it’s all gated by data for a long time, at the — towards the end of last year, we got them to a virtual core framework. And they — I’ve watched their data volumes go up by 30%, 35%, and they still have additional cores left to throw at the problem. So really positive for them to be able to rapidly ramp as our online demand has gone through the roof, and they can have more and more use cases to be powered by Splunk.

What we saw with most of our customers was an increase in the data that they were looking for. We’ve never seen this degree of VPN saturation as we’re all getting to experience now. And now that I’ve got critical functions, support functions, finance functions, HR functions, manufacturing functions that are working from home, if the connection from endpoint all the way back to the data source and back out is not working, it becomes not just a bad thing but literally a quarter-risking or customer interruption-risking piece. So we’ve seen new data forms begin to flow into Splunk in higher volumes within most customers so that they can get the visibility that they need.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division – MD [25]

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Yes. And Doug, since you mentioned it, I wanted to ask you, how have the sales teams adapted to more of an ACV framework and then digesting the new pricing model? I was trying to understand how much energy they might have put into that during Q1 and why wouldn’t that have kind of dragged down your ARR growth or ACV results if they were kind of distracted with that.

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Douglas Merritt, Splunk Inc. – CEO, President & Director [26]

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I’m sure that they were — that many of them were still coming up the curve. Really proud of our sales enablement team under Linda, who did an incredible job of putting together materials for our SKO that, thankfully, we actually got to have in Vegas at the end of February. So we had a whole year of planning that we took advantage of to make sure that we helped the reps as much as possible get comfortable with ACV versus TCV. But honestly, I’m sure that there’ll be more and more efficiencies over the course of this year as they really internalize that and really understand what it means for their customers and for how they optimize their own comp plans.

The pricing, same thing. I think it’s getting better and better. We’re getting better at marketing it. The reps are comfortable with there. We have a bunch of training sessions on that, at SKO as well. But I think there’s still a ways to go to have every customer. And even more importantly, prospects understand the shifts that we’ve made. Although I can honestly say there are less and less accounts that I now Zoom into, where people give me the blank stare when I say, “Hey, have you heard about infrastructure-based pricing?” which I was getting a ton of up until a quarter or so ago. Now their typical response is, “Yes. Trying to understand it, trying to digest it. It seems like a good thing. Working with my rep on that,” which is good. I’m really happy to see that.

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Operator [27]

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Our next question comes from Keith Bachman of BMO.

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Keith Frances Bachman, BMO Capital Markets Equity Research – MD & Senior Research Analyst [28]

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I have 2 questions that I’ll ask, and perhaps I’ll ask them concurrently. Jason, to start with you. I was curious on your views on the operating cash flow targets, which doesn’t appear have changed. If duration is moving lower — and understand that revenue is less of a proxy. But if duration is moving lower, why wouldn’t that make the transition quicker? Or are you thinking that duration will flex back out, so to speak, and it won’t stay compressed or get shorter as we think about those operating cash flow targets?

And then, Doug, to ask you a question on the competitive landscape and pricing. Given that a lot of organizations are facing top line headwinds, how are the discussions changing at all regarding pricing? And I know you have a lot going on with infrastructure versus consumption, but how are net-net pricing discussions changing? And is that leading to any tilting, so to speak, of the competitive landscape? And that’s it for me.

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Jason E. Child, Splunk Inc. – Senior VP & CFO [29]

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It’s Jason. I’ll go ahead and start since — I’ll give Doug a breather for a minute. Okay. So in terms of duration, so the duration that we report is the overall contract duration on a TCV basis. And so the cash billing, we actually moved to ratable last year so we’re billing every year, regardless of whether or not it’s a 1-, 2- or 3-year contract. So the duration doesn’t really have any impact on cash.

What could possibly have an impact is then you have more deals. The shorter your duration, the more deals you’re going to have to do in future years. The reality is we are really starting to see…

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Keith Frances Bachman, BMO Capital Markets Equity Research – MD & Senior Research Analyst [30]

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Yes. That was what I was thinking.

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Jason E. Child, Splunk Inc. – Senior VP & CFO [31]

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Yes, yes, yes. So we have really strong retention. We have really strong net expansion. And so as long as those continue to do well, you’re going to see ARR continue to grow as we forecast.

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Douglas Merritt, Splunk Inc. – CEO, President & Director [32]

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And then on your question as far as competitive and pricing, we didn’t see any strong or unusual pricing pressure this past quarter. We definitely had set up a whole structure between our sales team and finance to be able to work rapidly and cooperatively with customers that needed some different payment structure given the various budget and cash needs that everyone’s trying to face right now. So pricing seems to have held up, not an unusual discounting quarter or — and again, I think the ability to lean in with infrastructure-based pricing probably helps because in most cases, it’s a much more friendly metric.

On the competitive front, same thing. No big change. I know there’s a lot of swirling thought out there of, “Hey, do more people jump into do-it-yourself projects because they’re worried about spend?” So far, what we’ve seen for 5 years is do-it-yourself turns out to be a pretty bad equation on a total cost ownership basis as well as the time to value and time to delivery basis. So for those orgs that are probably under a little bit more of a headcount pressure and a huge time crunch pressure, especially with our new pricing mechanisms and cloud and ACV focus, I would feel badly for them to go down to do-it-yourself piece because they’ll probably get their butts kicked by their competitors that don’t.

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Operator [33]

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Our next question comes from Raimo Lenschow of Barclays.

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Raimo Lenschow, Barclays Bank PLC, Research Division – MD & Analyst [34]

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Congrats from me as well. Two questions on the cloud offering, one for Doug and one for Jason. Doug, can you talk a little bit about — like you mentioned already, customers were working from home, were focusing a little more on cloud. But like what’s driving — like is that also your sales force pushing? And what makes it possible to move that quickly to like more cloud and driving like your increased optimism there?

And then for Jason, the cloud margins are coming up nicely. Can you just talk a little bit about what’s driving it a little bit? I mean, obviously, there’s a new — I think there’s a new architecture that’s helping there. But like what’s driving it? And are the next step to get it from like where we are today to like the level that you expect in a couple of years?

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Douglas Merritt, Splunk Inc. – CEO, President & Director [35]

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Thanks, Raimo. So we’ve worked with a high degree of focus to have 2 elements that, I think, help people with cloud. One is on-prem to cloud transition services; and two is what we call Autobahn, which is our very rapid way of getting people that want to try out Splunk to actually do it with native data sources and native data so that they get very effective feedback on is this going to work for me or not. But more importantly, their transition from POC to it’s now production is literally just a financial difference, so they get immediate time-to-value.

On the migration piece, we’ve got our own programs, our own consultants, third-party consultants who we trained on helping people move from on-prem to cloud. And then we’ve got cool things like with Amazon, where we work together to launch and pioneer our Workload Migration Program, where they’re #1 vendor and got awards in that area that helps move Splunk Enterprise footprints to Splunk Cloud-type footprints. So both of those make it a little bit easier for new customers, new use cases or existing customers to get rapid value out of cloud.

And then Jason, you’re on the margin piece?

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Jason E. Child, Splunk Inc. – Senior VP & CFO [36]

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Yes. On the margin piece, I’d say there’s really 3 things. First, I’d point to moving to stateless architecture was something that really started benefiting us over the last year or so. Most recently, we’ve moved to — truly have moved to multi-tenant architecture where you now see a couple of the large public cloud providers. And with the growth in cloud, we’re getting bigger. So it’s helping us drive better — just better overall terms, mostly through volume.

And then the third and last, I’d say is we’re getting much better at elasticity. So we’re doing, I think, a much better job in terms of managing workloads across the different kind of use cases, and that allows us to manage cost a bit better. So we still have a long ways to go, but we’ve made a lot of progress. I think we said last quarter, our plan — our target is to get to 70% over the next year or so. And we feel like we’re on our way.

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Raimo Lenschow, Barclays Bank PLC, Research Division – MD & Analyst [37]

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Perfect. Congrats.

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Ken Tinsley, Splunk Inc. – Head of IR [38]

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Thank you, Raimo.

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Douglas Merritt, Splunk Inc. – CEO, President & Director [39]

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Thank you, Raimo. Thanks, Raimo.

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Operator [40]

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Our next question comes from Brent Thill of Jefferies.

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Brent John Thill, Jefferies LLC, Research Division – Equity Analyst [41]

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Doug, many of your partners are reporting major new catalysts, new starts, probably beyond what you would expect in this environment. But I guess when this kind of settles down, don’t you think this is just a major catalyst coming out of this that actually could effectively accelerate the business as things stabilize?

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Douglas Merritt, Splunk Inc. – CEO, President & Director [42]

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That’s definitely what we are hoping for, anticipating and looking for, that I told you guys that we were setting a target of 60-plus percent bookings in the cloud by the end of FY ’23. We started to think through out to revise those targets internally. I think this is our opportunity to get to 80%, 90% of cloud in that same time period, and we’re focusing all of our efforts to get there.

And then even with something as wacky as duration, that we’ll see over the next couple of quarters where the trend looks like. And is 27% the new normal? Or was it 1-quarter blip and it drifts back up in the 30s? It’s even hard to have a definitive perspective and whether that’s good or bad. The cohort that we’ve been showing with you guys forever shows that same-store sales turned out to be pretty good for us, and expansion is kind of the norm. So a shorter duration could give us a chance to actually get even better value from customers over a longer — over a more immediate time period.

Obviously, the pressure is on us with term and cloud now being really what we do to make sure that we’ve got a world-class renewal and upsell upgrade program. And again, the — Susan, John Sabino and the field teams have been working their butts off to get us there. And they’ve made some really, really nice progress, and that’s definitely going to be front and center for our customers and for us month-over-month into the future.

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Operator [43]

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Our first — our next question comes from Steve Koenig of Wedbush Securities.

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Steven Richard Koenig, Wedbush Securities Inc., Research Division – MD [44]

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I’m just going to do a 2 for here. I’ll combine them as one. Can you give us a little more color on the dynamic with the impacted customers? What are the various things they’re asking for? And what are you doing for them and with them?

And then I’ll just toss out the other one. So with the end of perpetual sales, I think it was started in November, how has that changed the sales motion? What are the perpetual customers doing with you? Just more color there would be helpful, too.

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Douglas Merritt, Splunk Inc. – CEO, President & Director [45]

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Two great questions, Steve. Thank you. So I’ll kind of do a high-level flyby. And Jason, you go a bit deeper on the affected industries. But we definitely — we went through in March and bucketed customers into those who we think would benefit, those are neutral and those that might be affected and started to come up with different visibility and scenarios for how to make sure that we both prepare for those who might be affected and what programs we might be able to help them with.

We do see a difference in that portfolio if we look at those buckets, who expanded versus as a class who didn’t expand as much. And it definitely ties to, as you expect, to the affected industries, and they’ve all got a lot that they’re working with right now. Through that, what’s interesting is, as you imagine, we have virtually every major hotel chain, airline, cruise company, all as customers. And we saw a number of expansions within that category and then a bunch of renewals and consistency as well. I don’t think that we’ve seen anyone cancel contracts or fall off yet. I’d just go back and scrub every single one, but we all were a little bit concerned as what happened there.

What we are seeing, which is, I’m sure similar to what you’re hearing from other vendors, is a lot of request for, can we — can you help us in some way with payment terms or discounts or — and as I said earlier, Jason and the sales team have got a really effective process to be able to field those. And we view this as a long-term opportunity for us. These are great companies. They are going through a lot of hardship. We believe that they’ve got a bright future long term. And the metal of a partnership is tested when things get tough, and we are there to make sure that they are successful through this with a long-term view.

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Jason E. Child, Splunk Inc. – Senior VP & CFO [46]

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Yes. In terms of just some of the ask by customers, mostly, it’s been — there’s been a little bit on some of the payment terms. As you see in Q1, we delivered $46 million of cash flow. So very, I call, de minimis amount of movement in Q1. I expect there to be relatively small changes throughout the rest of the year as well, which is why I reiterated the target. But we have — we are — happen to be flexible. And sometimes, if folks want to pay a little later, then we can adjust maybe the discount to reflect that. But overall, it hasn’t been — it hasn’t really been significant. It’s been relatively small and well managed.

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Steven Richard Koenig, Wedbush Securities Inc., Research Division – MD [47]

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Got it. And do you guys — can you comment real briefly just on the — with the end of perpetual sales? How are you — what’s your go-to-market with those customers? How are you engaging with them as they need new capacity?

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Douglas Merritt, Splunk Inc. – CEO, President & Director [48]

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So we — as I think I said a couple of times, there is no, we’ll pay you to trade in your perpetual. There’s no program to incentivize that motion. For — what we wind up seeing is obviously 1 of 2 motions: either they are frozen and continue to pay their bill and use Splunk; or they layer term or cloud on top of perpetual; or the third motion, they trade in perpetual to go to term or cloud. And there’s — we’ve got customers all across the map. But we understand that people bought those licenses, and they own them, and we’re happy to collect their maintenance dollars, but the growth obviously is going to come from cloud.

And we’ve moved to a cloud-first development approach. We now are updating our cloud on a consistent basis. So over time, our on-prem customers will have software that is increasingly gapped versus what you can get in cloud. So we’ll continuing to choose the — you make the best decision on timing and how you want to deal with the financial aspect of it. Obviously, more time that goes on, you depreciate it and it becomes less of a deal whether you retire that asset or not.

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Operator [49]

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Our next question comes from Matt Hedberg of RBC Capital Markets.

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Matthew John Swanson, RBC Capital Markets, Research Division – Associate VP [50]

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This is Matt Swanson on for Matt. I’ll echo the congratulations on the call here. Doug, could you dive a little deeper into the newest version of SignalFx, but also just kind of more broadly thinking about maybe how monitoring is changing or increasing an importance in a post-COVID world? Or I guess we don’t like post-COVID yet in the current environment and then moving into this new normal? Yes.

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Douglas Merritt, Splunk Inc. – CEO, President & Director [51]

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Yes. So one of the big announcements that we had this quarter was we released the microservices-oriented APM and really nice native Kubernetes instrumentation, et cetera. The trajectory that we talked about when we bought SignalFx and Omnition was we saw the rapid convergence of logs, metrics and traces coming together, tracing obviously being mission-critical in these very ephemeral and touch environments in the cloud arena to try and do anything similar to what was once APM-based and the metrics piece being the key drivers for real-time dashboarding and cockpit to make sure that you should — to give you indication whether you should dive into an APM activity or not.

We continue to drive the convergence of those 3. I’ve been really proud of the team and their ability to do the integration work between Omnition, SignalFx and Splunk. And we had a very quick release with what was once Omnition and SignalFx to have that combined trace metrics piece. You’ll see some really interesting stuff from us on the log-in front as well. There’s really interesting road map and movements on the UI componentry and the, I think, really, next-gen ease of use that we’re focused on. There is an Achilles heel, I think of SignalFx. The UI probably would be that is a different experience, up and running with SignalFx than some of the easy to use but not as scalable alternatives as we have.

So our focus is to bring the best, most robust, world-class scaled capability, but to do it with an easy onboarding and low-bar difficulty so that we get the both — the best of both of those worlds. And I think that whole area is just going to continue to increase in importance as all of us are working really hard to delight our customers with new mobile and online experiences. And without something like our suite, I think it’s very difficult for any organization to do an effective job with that transition.

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Matthew John Swanson, RBC Capital Markets, Research Division – Associate VP [52]

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Yes. No, that makes sense. If I could get one more quick one. This is obviously not the easiest environment for adding new logos. But do you think with the success of Splunk Cloud that maybe you kind of buck that trend and drive higher new customer additions?

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Douglas Merritt, Splunk Inc. – CEO, President & Director [53]

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Yes. I think the — we hypothesized and then just eventually centered on over the past couple of quarters, is without super-easy onboarding and transaction capability, all cloud-based, we’re not going to move the needle beyond roughly 2,000 new customers that we get per year.

The — going back to the importance of UI and experience, I guess, UX, we’re just talking about with the observability portfolio. So long term, over the next 2, 2.5 years, I do think that, that is the difference maker and starting to see a much higher rate of net new. Our #1 focus in front of that, though, is to make sure that we’ve got sticky, high-renewal, high-expansion capability for those customers that we do serve. And that winds up helping us with the ease of onboarding over time. But as we talked about, I think, with Phil’s question or one of the early ones was renewals and expansion is obviously mission-critical for us as we go forward from where we are now given the term and cloud transition we’ve been going through.

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Operator [54]

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Our next question comes from Fatima Boolani of UBS.

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Fatima Aslam Boolani, UBS Investment Bank, Research Division – Associate Director and Equity Research Associate Technology-Software [55]

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I hope you’re doing well and staying safe. Just to start with you, Doug. The comprehensive suite that you have for the observability arena, and particularly for the AI use case — AIOps use case, excuse me, I wanted to begin to as to how you’re managing going to market with what are effectively very discrete monetizable areas within observability, but at the same time, balancing that with selling a value and a platform versus effectively nickeling and dime-ing the customer with the modular solution selling. And then I have a follow-up for Jason.

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Douglas Merritt, Splunk Inc. – CEO, President & Director [56]

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Thanks, Fatima. So as I think I talked about a couple of calls ago, we did retain the independent sales force as an independent sales force from SignalFx and have added to it pretty dramatically and taking some of our top leaders across Splunk and put them in positions on the sales and presales sides and all the accompanying areas. And this really is our experimentation with, given the difference in buying center and budget and decision-making between the application development teams, the infrastructure teams, the cyber teams and teams outside that, can a one-size-fits-all sales model work, could we — do we need to get even more focused on specialization. And so far, it’s worked out really well. It’s a great team. And obviously, the vernacular, the relationships, the day in, day out life of that app dev team is different than what we see from an infrastructure IT ops team. And I’m excited to see that team continue to grow and continue to do the great job they’ve been doing in the market.

Within the app-dev arena, I agree with you. And there — the lesson that we’ve certainly seen over the years is having more SKUs and more choice is not necessarily good. It sounds good on the surface and made the business books talk about multi-product being absolutely critical to long-term success. Yes, I agree, but you got to simplify that multiproduct. The paradox of choice is not a good one. So we’re trying to take much more of a singular suite with a series of capabilities that you can decide to license or not license without getting into the whole skewer, so that we don’t wind up with 3, 4 or 5 independent sales cycles, the micro groups within a general app-dev team.

And again, this so far seems to be working pretty well. We’re going to work best when you’ve got a pretty broad and high-powered set of scrum teams across the landscape. If it’s a smaller dev team, then you may not need all the bells and whistles that we’ve brought together under our observability suite.

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Fatima Aslam Boolani, UBS Investment Bank, Research Division – Associate Director and Equity Research Associate Technology-Software [57]

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I appreciate that color, Doug. Jason, just for you, appreciate that the business is going to be virtually cloud by fiscal ’23 based on the 80% to 90% mix guidance that you shared. But in the interim period, how should we think about the cadence of term business first and then the cadence of renewals of term business that you’ve transacted in the fiscal ’18, fiscal ’19 period that are effectively going to come up for renewal over the next 3 years? And I really appreciate stepping through those dynamics with you. That’s it for me.

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Jason E. Child, Splunk Inc. – Senior VP & CFO [58]

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Thanks for the question. I would just say that Doug said, hopefully, 80% to 90% or…

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Douglas Merritt, Splunk Inc. – CEO, President & Director [59]

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No. Yes, yes.

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Jason E. Child, Splunk Inc. – Senior VP & CFO [60]

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That was not a target.

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Douglas Merritt, Splunk Inc. – CEO, President & Director [61]

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Sorry, Definitely not a target.

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Jason E. Child, Splunk Inc. – Senior VP & CFO [62]

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That was the brainstorm. Okay. So we’ll update you when we’re ready to make that a target. I think, unfortunately, your question — it’s a great question. It’s the right question. But until we, I think, solidify exactly what the mix shift time line looks like, it’s really hard to say how fast term contracts convert to cloud. I think in this environment, it certainly is — we’re certainly finding customers that are in the middle of a term contract, and they’re starting to look at cloud. And so that’s one of the things, I think, we have to help — we are going to do whatever customers need. If that’s something that customers need to do, then we have to figure out how to make that work.

And so I think — how I think — how you should think about how those term contracts renew or upgrade or shift to cloud, it’s just — it’s hard to say. I do expect the vast majority over time will move to cloud. It’s just hard to say exactly what the timing will be. That renewal base that you talked about kind of from the ’18 and ’19 period when term license growth really started growing, that is a significant base that’s growing very large. And that is one of the primary reasons why we have confidence in our ARR growth targets, is because as that renewal base comes online, it just gives us a great base to draw from and convert into even higher ASP cloud contracts.

Let’s see, you had one more question, I think or did we lose her?

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Douglas Merritt, Splunk Inc. – CEO, President & Director [63]

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I don’t know.

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Operator [64]

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Our next question comes from Kirk Materne of Evercore. This will be our final question.

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Stewart Kirk Materne, Evercore ISI Institutional Equities, Research Division – Senior MD & Fundamental Research Analyst [65]

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Congrats on a good quarter in a really tough environment. Doug, can you just talk about sort of your discussions with clients about cloud, maybe domestically versus internationally, if there’s any sort of difference there in terms of how our clients in the U.S. might be thinking about cloud versus what you’re seeing internationally?

And then just for Jason, where is hiring, I guess, based on your thought process coming into this year? I’d imagine you guys might have had to rethink that in March. And maybe what’s the thought process on that now?

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Douglas Merritt, Splunk Inc. – CEO, President & Director [66]

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A really good point. And you’ll see in the numbers that we released now every quarter, something that we’ll actually point to the answer. I forget the exact go-to page. But I think overall revenue internationally was 35%, and cloud revenue was 18%. And the 18% is pretty consistent quarter-over-quarter, which — and the answer for that is, yes, international is still so more term then they are cloud, and we get recognized from upfront. We are seeing the strongest cloud traction in the U.S. And if you just follow where AWS, GCP, their footprint, we map exactly. In Australia and the U.K., in Canada, very strong cloud. It gets stronger — less strong but still strong in Germany and France as long as you keep the data resident there, and it falls from there.

So going back to my brainstorm that I’d love to see us find a way get to 80% to 90% cloud and say 60%, I didn’t say 100% because I do think that there are still use cases that demand, that product and data sit closer to the customer. And until we can figure out a way to have the accounting not differ because we’ve done that, then those will probably be accounted as on-prem solutions. And there are countries that may be slower to move to cloud, countries where we already have customers and are already selling.

So it’s definitely a very, very strong U.S. Although my belief is that as this has been a global phenomena, you’re going to see a very different perspective on cloud in countries that may have not been as tilted that way because it probably is the only way that they’re going to be able to respond the way they need to, assuming that this goes on for another 18, 24, 36, 48 months while we work on therapies and vaccines.

and headcount?

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Jason E. Child, Splunk Inc. – Senior VP & CFO [67]

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Yes. Regarding headcount. So yes, when everything started slowing down in early mid-March, we definitely did kind of put a freeze on hiring and look at what — to try to get a better sense of what the environment was going to — how it’s going to unfold. It’s been pretty clear that underlying growth within our business is very healthy. So we have been opening up hiring related to DQCs, of course, to serve the growth needs that are going to continue. And then also, of course, there’s some engineering headcount related to a bunch of the migration work that we’re continuing to do with really — in particular with cloud as well as within cloud, within SignalFx and some integration work there.

So those areas we’re definitely still hiring. Most of the other areas, I think like most companies around, are trying to make sure we’re really focused on watching our cost structure closely and make sure that — especially with us going through a ratable transformation, we need to make sure that our cost structure doesn’t outpace the growth revenue or it will take a while for us to catch up. So that’s something we’re watching very carefully. But again, we are mostly focused on making sure that we’re making the necessary hires to manage to our growth targets.

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Operator [68]

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We have no further questions at this time. I’d like to turn the call back over to Doug for any closing remarks.

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Douglas Merritt, Splunk Inc. – CEO, President & Director [69]

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Thank you very much. Thank you all for joining us. Just in closing, I’d say it’s a really positive quarter. We’ve been, I think, very clear that we are focused on both a term and cloud transition but ultimately getting to a renewable SaaS model so we can serve our customers much more effectively.

To see that acceleration so consistently over the past 3 years with acceleration over the past couple of quarters as our offering continues to mature and the market continues to gain more and more appreciation for the criticality of data, they were moved from data being a luxury to data being a necessity in today’s world, is very heartening. We know that there’s a lot of unknowns in the coming quarters. We’re going to continue to focus on the things that we can focus on, which is build awesome product, make sure our team is — sales teams are empowered. They’ve got all the tools that they possibly can get a hold of to have those high-value conversations with customers and keep driving relentlessly on ACV, ARR and cloud. And so hopefully, in the coming quarters, we’ll have more good stories to tell to highlight the rapid transformation that we’re driving. Thank you, all.

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Operator [70]

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Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you for participating. You may all disconnect. Have a great day.

Source: finance.yahoo.com

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