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Splunk reported second-quarter fiscal 2020 non-GAAP earnings of 30 cents per share, which beat the Zacks Consensus Estimate by 18 cents and surged 275% year over year.
Revenues soared 33% year over year to $516.6 million and comfortably beat the Zacks Consensus Estimate of $487 million. The year-over-year upside was driven by greater utilization of Splunk’s products by existing customers and new customer wins.
License revenues (54.1% of revenues) were $279.3 million, up 39.2% year over year. Maintenance & service revenues (45.9% of revenues) rose 26.5% to $237.3 million.
International operations accounted for 32% of total revenues.
Splunk also announced that it is set to acquire SignalFx, a dominant SaaS provider in real-time monitoring and metrics for cloud infrastructure, microservices, and applications. Management believes that the acquisition will make the company a leader in cloud monitoring and application performance monitoring for organizations transitioning to cloud.
Software revenues jumped 46% from the year-ago quarter to $350 million. Splunk stated that 95% of software bookings were either term or cloud.
Second-quarter remaining performance obligation (RPO) was $1.24 billion, up 47% year over year. The company expects to recognize $751 million (up 32% year over year) of this RPO as revenues over the next 12 months.
RPO bookings grew 19% year over year to $554 million.
Cloud revenues soared 80% from the year-ago quarter to $70.5 million on the back of increased utilization of cloud-based services. Notably, cloud accounted for 25% of Splunk’s business in the reported quarter. Management expects cloud’s contribution to grow 50% over the next few years. In the reported quarter, Cloud ARR jumped 81% to $300.6 million.
The company continues its successful transition to a subscription or renewable model, which is evident from the fact that Splunk met its 75% transition rate for fiscal 2020 in fiscal 2019 itself. However, this transition is a headwind for the perpetual business, which is declining rapidly.
Splunk added more than 500 new enterprise customers in the reported quarter. The company had 93 orders worth more than $1 million.
The company also expanded its partnership with Cisco Systems. The collaboration resulted in “Cisco endpoint security analytics built on Splunk” solution, which is now available to customers for ordering.
Splunk also expanded its relationship with Deloitte Risk and Financial Advisory, according to which, Deloitte’s Fusion Managed Services Offerings now integrates Phantom.
Operating Details
Non-GAAP gross margin expanded 210 basis points (bps) from the year-ago quarter to 84.2%, driven by large-scale efficiencies in Splunk’s cloud business. Cloud delivered a gross margin of more than 50%, marking a milestone achievement, per the company. Splunk’s long-term cloud gross margin target is 70% or more.
Operating expenses, as a percentage of revenues, declined 400 bps on a year-over-year basis to 75.2%. Research & development (R&D) and sales & marketing (S&M) expenses decreased 80 bps and 290 bps year over year, respectively.
Non-GAAP operating profit was $46.6 million, up 310% from the year-ago quarter. Operating margin expanded 610 bps on a year-over-year basis to 9%.
Balance Sheet & Cash Flow
As of Jul 31, 2019, cash & cash equivalents, including investments, were $1.67 billion.
Cash outflow from operations was $128 million due to rapid growth of the multi-year term and cloud contracts.
Guidance
For third-quarter fiscal 2020, Splunk expects revenues of roughly $600 million. Non-GAAP operating margin is likely to be 16%.
Management expects that the elimination of perpetual licenses will increase renewable mix to 99% in the fourth quarter and high 90% for fiscal 2020.
For fiscal 2020, Splunk anticipates revenues of almost $2.30 billion, up from the previous guidance of $2.25 billion. The company maintains its non-GAAP operating margin target of 14%.
The company now expects operating cash outflow for the remainder of the fiscal. Splunk projects operating cash outflow of $300 million for fiscal 2020.
A higher mix of renewable term and cloud contracts, and lower upfront cash invoicing — an estimated 33% to be billed upfront in the second half of fiscal 2020 compared with 58% in the first half — is expected to hurt cash flow.
Nevertheless, Splunk expects long-term (after fiscal 2021) cash yield to return to the mid-20% levels.
Long-term earnings growth rate for HubSpot, Chegg and Paylocity is 49.4%, 30% and 20%, respectively.
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Splunk's (SPLK) Q2 Earnings & Revenues Surpass Estimates
Splunk reported second-quarter fiscal 2020 non-GAAP earnings of 30 cents per share, which beat the Zacks Consensus Estimate by 18 cents and surged 275% year over year.
Revenues soared 33% year over year to $516.6 million and comfortably beat the Zacks Consensus Estimate of $487 million. The year-over-year upside was driven by greater utilization of Splunk’s products by existing customers and new customer wins.
License revenues (54.1% of revenues) were $279.3 million, up 39.2% year over year. Maintenance & service revenues (45.9% of revenues) rose 26.5% to $237.3 million.
International operations accounted for 32% of total revenues.
Splunk also announced that it is set to acquire SignalFx, a dominant SaaS provider in real-time monitoring and metrics for cloud infrastructure, microservices, and applications. Management believes that the acquisition will make the company a leader in cloud monitoring and application performance monitoring for organizations transitioning to cloud.
Splunk Inc. Price, Consensus and EPS Surprise
Splunk Inc. price-consensus-eps-surprise-chart | Splunk Inc. Quote
Quarter in Detail
Software revenues jumped 46% from the year-ago quarter to $350 million. Splunk stated that 95% of software bookings were either term or cloud.
Second-quarter remaining performance obligation (RPO) was $1.24 billion, up 47% year over year. The company expects to recognize $751 million (up 32% year over year) of this RPO as revenues over the next 12 months.
RPO bookings grew 19% year over year to $554 million.
Cloud revenues soared 80% from the year-ago quarter to $70.5 million on the back of increased utilization of cloud-based services. Notably, cloud accounted for 25% of Splunk’s business in the reported quarter. Management expects cloud’s contribution to grow 50% over the next few years. In the reported quarter, Cloud ARR jumped 81% to $300.6 million.
The company continues its successful transition to a subscription or renewable model, which is evident from the fact that Splunk met its 75% transition rate for fiscal 2020 in fiscal 2019 itself. However, this transition is a headwind for the perpetual business, which is declining rapidly.
Splunk added more than 500 new enterprise customers in the reported quarter. The company had 93 orders worth more than $1 million.
The company also expanded its partnership with Cisco Systems. The collaboration resulted in “Cisco endpoint security analytics built on Splunk” solution, which is now available to customers for ordering.
Splunk also expanded its relationship with Deloitte Risk and Financial Advisory, according to which, Deloitte’s Fusion Managed Services Offerings now integrates Phantom.
Operating Details
Non-GAAP gross margin expanded 210 basis points (bps) from the year-ago quarter to 84.2%, driven by large-scale efficiencies in Splunk’s cloud business. Cloud delivered a gross margin of more than 50%, marking a milestone achievement, per the company. Splunk’s long-term cloud gross margin target is 70% or more.
Operating expenses, as a percentage of revenues, declined 400 bps on a year-over-year basis to 75.2%. Research & development (R&D) and sales & marketing (S&M) expenses decreased 80 bps and 290 bps year over year, respectively.
Non-GAAP operating profit was $46.6 million, up 310% from the year-ago quarter. Operating margin expanded 610 bps on a year-over-year basis to 9%.
Balance Sheet & Cash Flow
As of Jul 31, 2019, cash & cash equivalents, including investments, were $1.67 billion.
Cash outflow from operations was $128 million due to rapid growth of the multi-year term and cloud contracts.
Guidance
For third-quarter fiscal 2020, Splunk expects revenues of roughly $600 million. Non-GAAP operating margin is likely to be 16%.
Management expects that the elimination of perpetual licenses will increase renewable mix to 99% in the fourth quarter and high 90% for fiscal 2020.
For fiscal 2020, Splunk anticipates revenues of almost $2.30 billion, up from the previous guidance of $2.25 billion. The company maintains its non-GAAP operating margin target of 14%.
The company now expects operating cash outflow for the remainder of the fiscal. Splunk projects operating cash outflow of $300 million for fiscal 2020.
A higher mix of renewable term and cloud contracts, and lower upfront cash invoicing — an estimated 33% to be billed upfront in the second half of fiscal 2020 compared with 58% in the first half — is expected to hurt cash flow.
Nevertheless, Splunk expects long-term (after fiscal 2021) cash yield to return to the mid-20% levels.
Zacks Rank & Stocks to Consider
Currently, Splunk carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Computer & Technology sector are HubSpot (HUBS - Free Report) , Chegg (CHGG - Free Report) and Paylocity Holding (PCTY - Free Report) . While Chegg and Paylocity sport a Zacks Rank #1 (Strong Buy), HubSpot has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for HubSpot, Chegg and Paylocity is 49.4%, 30% and 20%, respectively.
It’s Illegal in 42 States, But Investors Will Make Billions Legally
In addition to the companies you read about above, today you get details on the newly-legalized industry that’s tapping into a “habit” that Americans spend an estimated $150 billion on every year.
That’s twice as much as they spend on marijuana, legally or otherwise. Zacks special report revealing how investors can profit from this new opportunity. As more states
legalize this activity, the industry could expand by as much as 15X. Zacks’ has just released a Special Report revealing 5 top stocks to watch in this space.
See these 5 “sin stocks” now>>