Splunk Crushes Estimates, Raises Guidance

Splunk Inc. (SPLK) released stellar fiscal third-quarter 2018 results on Thursday after the market closed, exceeding its guidance for the 12th straight quarter as the world begins to realize the value in making sense of its growing mounds of unstructured machine data. If that wasn't enough, Splunk once again increased its outlook for the full year, and offered an encouraging view of what's to come in fiscal 2019.

With shares up more than 13% in after-hours trading as of this writing, let's dig deeper to see what Splunk accomplished over the past few months.

IMAGE SOURCE: SPLUNK.

Splunk results: The raw numbers

Data source: Splunk. *For the quarter ended October 31,2017. 

What happened with Splunk this quarter?

• On a non-GAAP basis, which excludes items like stock-based compensation, Splunk's net income was $25.1 million, or $0.17 per share, up from $0.12 per share in the same year-ago period.
• Splunk's adjusted operating margin was 9.8%.
• These results were far above Splunk's most recent guidance, provided in August, which called for revenue between $307 million and $309 million, and adjusted operating margin of 8%.
• License revenue increased 28.7% to $179.8 million.
• Maintenance and services revenue grew 41.7% to $148.8 million.
• Total billings climbed 38% year over year to $381.6 million.
• Generated cash flow from operations of $52.3 million and free cash flow of $46.9 million.
• Signed more than 450 new enterprise customers during the quarter. Some of the more notable new and expanded relationships include Twenty-First Century Fox, Daimler, Johns Hopkins University, Purdue University, Smithsonian Institution, the U.S. Army, the U.S. Department of Homeland Security Data Center, Vodafone Egypt, and Yahoo! Japan.
• Acquired selected assets of IT analytics solutions company Rocana Inc., extending Splunk's IT operations capabilities.
• Acquired cloud-based data collection and breach detection specialist SignalSense Inc, extending Splunk's machine-learning capabilities.

What management had to say

As Splunk CEO Doug Merritt stated:

I'm proud of our global performance for the quarter and our increased outlook through the rest of the year. Splunk announced a wide range of innovations at .conf2017 including native support for metrics and machine learning updates to Splunk Enterprise and Splunk Cloud; new event analytics capabilities in Splunk IT Service Intelligence; new content updates for Splunk Enterprise Security; and a host of new use case-specific solutions. Splunk customers are seizing upon the growing opportunity machine data presents and only Splunk can help them get answers on-premises, in the cloud or across hybrid environments.

Looking forward

For its fiscal fourth quarter, Splunk expects revenue to be between $388 million and $390 million -- comfortably ahead of the $383.6 million Wall Street was modeling -- with adjusted operating margin expanding to 16%.

Thus, for the full fiscal year, Splunk now expects revenue to be between $1.239 billion and $1.241 billion (up from previous guidance for between $1.210 billion and $1.215 billion), billings of roughly $1.485 billion (up from $1.450 billion previously), and adjusted operating margin of 8.5% (up from 8% before).

Finally, Splunk introduced guidance for fiscal 2019 revenue of roughly $1.55 billion (for year-over-year growth of 25%), with adjusted operating margin increasing to 10.5%. Here again, that top-line outlook was comfortably above analysts' view for fiscal 2019 revenue of $1.52 billion.

In the end, this was another straightforward beat-and-raise scenario from Splunk, capped with an equally optimistic prediction for its continued growth in the coming year. So even with shares up more than 35% so far in 2017, it's hard to blame the market for so aggressively bidding up the stock again in response.