Splunk Earnings: Strong Results Send Stock Soaring

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Investors and analysts held high hopes for Internet of Things analytics firm Splunk  (NASDAQ: SPLK  ) heading into its Q2 FY 2015 earnings report after market close today, and they weren't disappointed. Coming off last quarter's disappointing earnings beat, a bit of a non sequitur itself, Splunk shed concerns about potential headwinds from recent price cuts and delivered another standout quarter. The positive news sent Splunk's shares sharply higher in after-hours trading. Let's take a look at what you need to know.

Splunk Steps Up
Splunk surpassed analysts' expectations on both the top and bottom lines this quarter. On the revenue side, Splunk's outstanding growth potential was once again reiterated by its all-around strong performance from its two reporting segments.

Revenue:

Q2 FY '15

Q2 FY '14

% Change

License

$62.10

$43.20

44%

Maintenance and services

$39.50

$23.70

67%

Total Revenue

$101.50

$66.90

52%

Source: Splunk Investor Relations; all figures reported in US$millions. 

The average analyst estimate called for Splunk to generate sales of $93.8 million, so we're looking at a solid beat here.

Looking toward the bottom line, Splunk's GAAP quarterly loss appears jarring at first glance, coming in at -$0.51 per share, and widening substantially from Splunk's -$0.13 of GAAP EPS in the same quarter last year. However, after backing out certain expenses, Splunk's non-GAAP EPS was $0.01, well ahead of the -$0.02 of non-GAAP EPS analysts expected. 

The strong momentum continued in other areas of Splunk's business, as well. Although still minuscule in an absolute sense, Splunk's operating cash flow increased 48%, from $6.4 million in Q2 last year to $9.3 million this quarter. Likewise, free cash flow for Splunk soared 48%, as well, from $4.3 million last year to $6.4 million this year.

On the customer front, Splunk added more than 500 new customers in the second quarter. These additions push Splunk's total customer base north of 7,900. For context, Splunk reported 6,000 customers in the same quarter last year. This strong customer momentum certainly vindicates Splunk's previous move to lower its initial pricing model for first-time customers, and certainly bodes well for Splunk's customer growth going forward.

On the product side of its business, Splunk continued to invest heavily in product development and R&D as part of its broader business transition toward a multi-product business model, which certainly shouldn't surprise anyone. During the quarter, Splunk announced the general rollout of its Splunk App for Stream, as well as a new version of its Splunk App for Enterprise Security. Splunk also introduced its Splunk Mobile App during the quarter, which should enable current customers to leverage the power of Splunk's analytics platform and receive notifications in real time on the go.

Such moves, as well as ongoing product development initiatives, helped Splunk's R&D expense to balloon 111% during the quarter. However, as these kinds of initiatives should help diversify and expand Splunk's overall product and revenue base, Splunk's heavy product development spending seems eminently appropriate, especially considering the relative infancy of Splunk's overall market. 

All in all, this was a very strong quarter for Splunk.

Splunk shows no signs of letting up
Looking out to its current quarter, Splunk guided for revenue to come in somewhere between $105 million and $107 million, which would represent between 34% and 36% top-line growth versus the third quarter of last year.

Splunk management raised its full-year revenue guidance, as well, during the report. Splunk's executive team now sees FY 2015 annual sales coming in somewhere between $423 million and $428 million, up from its previous estimates between $402 million and $410 million. 

Nearly any way you slice it, this report was a win for Splunk, and the market appears to be rewarding the strong performance in kind. It's been a wild ride for Splunk shares during the past 12 months. However, with two consecutive earnings beats under its belt, it appears Splunk is, once again, well on its way toward realizing its truly monumental potential.


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