What happened

Shares of Splunk (SPLK) were climbing today after the data-monitoring software company crushed estimates in its third-quarter earnings report. The stock was up 11% as of 11:46 a.m. ET.

So what

Splunk, which offers tools for monitoring, searching, and organizing data, said that revenue jumped 40% to $929.8 million, easily beating estimates at $846.9 million. 

Cloud revenue rose 54% to $374 million, and it saw strong growth from its existing customer base, with a net retention rate up 127%. Customers with annual recurring revenue above $1 million increased 19% to 754.

On the bottom line, the company's efforts to cut costs paid off, and it reported an adjusted operating margin of 21.3% and adjusted earnings per share of $0.83, up from a per-share loss of $0.37 in the quarter a year ago and much better than analyst estimates at a per-share profit of $0.25.

CEO Gary Steele said in a press release:

We remain focused on balancing long-term durable growth with profitability. In addition to our strong top-line results, we also made good progress on our expense reduction during the quarter. As a result, we are increasing our full-year outlook for total revenues, profitability, and free cash flow.

Now what

Investors also cheered the higher guidance, as management now expects revenue of $1.055 billion to $1.085 billion in the fourth quarter, or 18.7% growth at the midpoint, which was slightly better than estimates at $1.06 billion. It called for adjusted operating margin of 23% to 26% in Q4, a sign that profitability should continue to improve, though the fourth quarter is typically the seasonally strongest period for software companies.

Nonetheless, the guidance and the strong beat on the top and bottom lines show the company is executing well at a time when many of its peers are struggling with lengthening sales cycles. Based on the momentum from its quarterly performance and guidance, investors should expect profits to continue to grow into 2023.