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Product Innovation Drives Splunk's 25th Straight Quarterly Beat

By Steve Symington – Updated Dec 3, 2018 at 2:40PM

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The operational-intelligence specialist is arming customers with new AI and machine-learning features. Here's what investors need to know.

Splunk Inc. (SPLK 1.27%) released fiscal first-quarter 2019 results on Thursday after the market closed. Better-than-expected revenue growth was driven by enterprise customers, who embraced innovative new features from the company's industry-leading operational-intelligence platform. This makes 25 straight quarters that Splunk easily beat its own guidance.

With Splunk shares already up more than 70% over the past year leading into this report, that long-standing streak likely is why the company's stock is down modestly in Friday's trading. But let's dig deeper, anyway, to get a better idea of what Splunk accomplished over the past few months and what investors should be watching going forward.

Splunk headquarters TV banner with company logo

IMAGE SOURCE: THE MOTLEY FOOL (WITH SPLUNK'S PERMISSION).

Splunk results: The raw numbers

Metric

Fiscal Q1 2019*

Fiscal Q1 2018

Year-Over-Year Growth

Revenue

$311.6 million

$226.8 million

37.4%

GAAP net income (loss)

($118.5 million)

($115.1 million)

N/A

GAAP earnings (loss) per share

($0.83)

($0.84)

N/A

DATA SOURCE: SPLUNK, *FOR THE QUARTER ENDED APRIL 30, 2018.

What happened with Splunk this quarter?

  • Revenue compared favorably to Splunk's latest guidance, provided in early March, which called for between $295 million and $297 million.
    • Within that, license revenue increased 35.5%, to $139 million, and maintenance and services revenue grew 39%, to $172.7 million.
  • On an adjusted (non-GAAP) basis, which excludes items like acquisition costs and stock-based compensation, Splunk's net loss was $9.4 million, or $0.07 per share -- above consensus estimates for a wider adjusted net loss of $0.09 per share.
  • Adjusted operating margin was negative 4.7%, above guidance for negative 6%.
  • The company generated operating cash flow of $76.5 million and free cash flow of $74.2 million.
  • Splunk signed more than 460 new enterprise customers during the quarter compared to 570 last quarter. Notable new and expanded customers include Lenovo Group, Lockheed Martin, Relativity, and CDK Global.
  • Completed its previously announced $350 million acquisition of security orchestration, automation and response (SOAR) platform leader Phantom Cyber.
  • Released several new products and product updates that incorporate new artificial intelligence and machine-learning functionality, including new versions of Splunk Enterprise and Splunk Cloud 7.1, Splunk IT Service Intelligence, and the Splunk Machine Learning Toolkit.

What management had to say

Splunk CEO Doug Merritt stated:

Our increasing product innovation is fueling customers' success and our continued growth. We are uniquely positioned to help our customers get answers from their data, and I am excited about the innovation across our product portfolio. We have expanded artificial intelligence capabilities in the Splunk platform, introduced new products such as Splunk Insights for Infrastructure and Splunk Industrial Asset Intelligence, and acquired Phantom -- a leading technology in security orchestration, automation and response.

Looking forward

For the fiscal second quarter of 2019, Splunk anticipates revenue will be between $356 million and $358 million -- the midpoint of which would mean 27.5% year-over-year growth -- with adjusted operating margin swinging to positive 2%.

Finally, Splunk increased its full fiscal-year 2019 guidance to call for revenue of approximately $1.645 billion -- up from $1.625 billion previously -- and reiterated its outlook for full-year adjusted operating margin to be around 11.5%.

In the end, there was nothing not to love about this exceptional performance from Splunk to start its new fiscal year. While shares are pulling back today given the company's meteoric rise over the past year, I continue to believe that long-term investors should be more than happy with where Splunk stands.

Editor's note: This article has been corrected to note this was Splunk's 25th straight quarter of beating its guidance.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Splunk. The Motley Fool has a disclosure policy.

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