Splunk
posted better-than-expected results for its fiscal first quarter, including a surprise non-GAAP profit, as the cyber security and data analytics software company saw a payoff from a new focus on controlling costs.
Splunk shares were rising 9.7% in premarket trading Thursday to $106.05.
For the quarter, Splunk (ticker: SPLK) posted revenue of $752 million, up 11% from a year ago, and well ahead of both the company’s guidance range of $710 million to $725 million, and Street consensus at $722 million. Annual recurring revenue was $3.725 billion, up 16% from a year ago, and ahead of the company’s target of $3.7 billion.
Free cash flow was $486 million, edging Splunk’s forecast of $475 million. While Splunk investors tend to focus on both annual recurring revenue and free cash flow, it is also worth noting that Splunk had an adjusted profit of 18 cents a share, well ahead of Street consensus at a loss of 13 cents. Under generally accepted accounting principles, the company lost $1.19 a share.
Splunk noted that non-GAAP operating expenses were down 1% from a year earlier, as it continues to reduce costs. Earlier this year, Splunk announced a 4% staff reduction. CEO Gary Steele said in an interview the company also has reduced the use of contract labor and downsized its real-estate footprint.
Splunk said cloud revenue was $419 million, up 30%. That is comparable to other recent quarters. Steele said there is still hesitancy from some customers to shift their instances of Splunk’s software to the cloud—he made a similar comment in reporting January quarter results—but he added that Splunk continues to win deals, and should continue to show mid-teens revenue growth.
Spunk provided an upbeat outlook. For the July quarter, the company sees annual recurring revenue of $3.825 billion, with total revenue of between $880 million and $895 million, ahead of Street consensus at $868 million. The company sees non-GAAP operating margin of between 10% and 12%. Free cash flow is expected to be a loss of $15 million. Steele noted the weak July quarter free cash flow number is seasonal, reflecting the fact that orders tend to be weakest in the April quarter.
For the full year, Splunk continues to see annual recurring revenue of between $4.125 billion and $4.175 billion, with revenue of $3.9 billion, at the high end of its previous guidance range of $3.85 billion to $3.9 billion. Free cash flow is now expected to range from $805 million to $825 million, above the company’s previous forecast of $775 million to $795 million.
Asked about how the company is approaching artificial intelligence, he notes that it last year introduced a digital assistant for using SPL, Splunk Processing Language, a key tool for using Splunk’s software. He says the tool offers “great potential to reduce the skills needed to benefit from Splunk.”
Splunk shares have risen 12% this year as of Wednesday’s close.
Write to Eric J. Savitz at eric.savitz@barrons.com
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