Splunk Inc (SPLK) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Splunk Incorporated fourth-quarter 2016 financial results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Ken Tinsley, Corporate Treasurer and Vice President of Investor Relations. Sir, you may begin.

Great, thank you, Crystal, and good afternoon, everyone. With me on the call today are Doug Merritt and Dave Conte. We issued a press release after close of market today and it is posted on our website. Additionally, this conference call is being broadcast live via webcast and following the call, an audio replay will be available on our website.

On this call, we will be making forward-looking statements including financial guidance and expectations, including our forecast for our fiscal first-quarter and full-year 2017, transaction products and services mix, planned investments and trends in our operating model resulting from our investments, trends and momentum in our business including international revenue. These statements reflect our best judgment based on the factors currently known to us and events and results may differ materially. Please refer to documents we file with the SEC, including the Form 8-K filed with today's press release. Those documents contain risks and uncertainties and other factors that may cause our actual results to differ from those contained in our forward-looking statements.

These forward-looking statements are being made as of today and we disclaim any obligation to update or revise these statements. If this call is reviewed after today, the information presented during this call may not contain current or accurate information. We will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of GAAP and non-GAAP results is provided in the press release and on our website.

With that, let me turn it over to Doug.

Thank you very much, Ken. Hello, everybody, and welcome to the call. Having just flown in from our annual sales kickoff, I'm really excited to be talking to you all today about the opportunity in front of us. As a Company we truly delivered in FY16 and our field team's enthusiasm heading into FY17 couldn't be higher. It is just awesome.

Of course, their energy originates from a great Q4, where we exceeded our plan and delivered $220 million in total revenue, up 49% over last year. For the full year, revenue totaled $668 million, up 48% year over year. This comes on the strength of our existing customers expending their deployments and by adding a record number of new customers. I am so proud to be welcoming more than 600 of them to Splunk from our most recent quarter alone.

I would also like to say thank you to our partners from around the world. For the first time at kickoff, we had the pleasure of hosting hundreds of them and it was inspiring to witness our collective teams driving the alignment that is so critical to capitalizing on our mutual opportunity. I can speak for every employee, and for our partners, in saying that we're fired up and that our customers are our number-one source of inspiration. I can spend all of our time talking about our kickoff, but there are other key areas I would like to cover as well, starting with some observations 90 day in as CEO, then I will update you on our progress with the customer adoption and expansion across our platform and key market groups.

A quarter into my new role at Splunk, I sure you can tell how proud I am to be apart of such an amazing team. I couldn't be more bullish about our opportunity and I am confident in our long-term strategy. What makes me so excited is simple. The amount of data out there is exploding and is predicted to continue to do just that. And Splunk is the best solution to allow customers to easily and cost effectively collect, analyze and get maximum value from that data.

Analysts estimate that between 2013 and 2020, the amount of data generated globally will increase tenfold, doubling every two years. That is why we firmly believe that by any measure of penetration, we are just getting started. Changing seats from Head of Field to CEO makes me even more convinced in our strategy to become the ubiquitous machine-data platform, that can grab and analyze data from anywhere. In addition to our platform, our strategy is to provide customers with best-in-class solutions, targeting specific use cases delivered by our ecosystem and by our market groups in: IT Ops in app delivery; security compliance and fraud; business analytics; and the Internet of Things.

Our approach also remains the same, gain entry through solving one pain point for our customers and then expand over time into new-use cases and buying centers. The unique flexibility of Splunk's Schema at Read allows us horizontal velocity within our customers. That is one of the key aspects of the Splunk Enterprise platform which underpins all of our use cases.

Let me use a customer example to illustrate this expansion. One of our long-time customers initially started in 2011 with a multi-gigabyte per-day license. They increased that to 10 TB in 2012. Between 2012 and 2014, they increased their capacity to more than 400 TB a day as they grew from single to multi departmental. In 2015, they increased their license again to over 1.2 PB and this past quarter, they expanded their enterprise adoption agreement with an eight-figure extension. This puts them on the path index PB of data and adds Splunk ITSI, ES, Hunk, and UBA [ser] deployment. They are well on their way to our joint goal of indexing an exabyte per day.

Customers are recognizing that the more data they put into Splunk, the more value they can realize. That is why I believe that we are very early in capturing our full potential even in our larger accounts. Over the last [90] days, I have spent time with many of our strategic partners and what is clear to me is that Splunk's relevance in the technology landscape is increasing rapidly. Our partnerships are deepening with companies such as Amazon Web Services, Cisco, Palo Alto Networks, Booz Allen, Verizon Enterprise Solutions, and EMC, to name just a few.

For example, we joined forces with Verizon to bring threat detection analytics to enterprises and government agencies. They will integrate Splunk Enterprise and ES into their managed securities services platform to provide more actionable, predictive threat intelligence to customers. Verizon is also using Splunk to power their advanced security operations center offering. Other examples include a recent agreement with EMC, were Splunk is now on EMC's price list and is being sold by EMC sales force. Building our ecosystem remains a critical focus area for Splunk and I'm really excited by the progress we are making.

Turning to adoption, in Q4 we saw many customers standardize on Splunk as their machine-data platform. For example, our customer Cardinal Health made a major expansion signing an EAA to standardize on Splunk Enterprise. Splunk will be deployed across their infrastructure to gain insights into the health and KPIs of their IT services and critical customer-facing applications. And a large European tax organization signed an EAA for Splunk Enterprise and ES. This existing customer already used Splunk for IT ops, security and fraud and just expanded to use Splunk for end-to-end monitoring and real-time performance analytics to improve customer experience.

Other customers with EAAs in Q4 include SoftBank and EchoStar. In addition, we saw many customers who are on their journey to standardization, expand their use of Splunk from single- to multiple-use cases, including NASDAQ, a long-time Splunk customer who extended its use of Splunk Enterprise with a multi-terabyte expansion and added our newest solution, Splunk's IT Service Intelligence, or ITSI, to monitor critical business services. They also added our user behavior analytics, or UBA, solution to better detect and investigate advanced threats.

William Hill also expanded its use of Splunk to deliver a value across multiple-use cases, including monitoring the online gaming platform, social media analytics for customer service, and security and compliance.

Long-time customer Neustar significantly expanded its use of Splunk Enterprise and selected ITSI to achieve a central view of their machine data.

All new store users, from executives to application developers and their IT operations teams now have a company-wide shared service level view of customer-facing offerings, enabling them to fix issues before they impact their customers.

We're also continuing to invest in the platform to further enable adoption. For example, in 2013 we recommended that our customers use 20 indexers for a typical two terabyte-per-day deployment. Using our latest release of Splunk Enterprise, our recommendation for the same size deployment is just eight indexers, enabling more use cases and more data in Splunk and more value for our customers. Our product teams achieved that while simultaneously doubling query performance and indexing speed.

In addition to our strength in multiple-use case deployments, we continue to see great momentum in our market-group solutions. In IT ops and app delivery, we had great customer wins including Bloomberg, Geico, FOX News, Experian, the Federal Reserve and King.com. Q4 was our first full quarter of offering ITSI and the attraction and interest we're seeing in the market is great. Customers are pleased with how easy the solution is to install and configure and how quickly they are able to improve service levels and customer satisfaction.

TELUS, a mobile service provider in Canada, deployed ITSI to help improve signal quality on cell towers and video quality for it's Optik TV customers. ITSI monitors how cell signal services are performing and proactively identifies potential issues before they lead to dropped calls. The Optik TV team uses ITSI to closely monitor KPIs to get ahead of potential video quality issues before the customer ever sees them.

We also saw the market recognize our approach to solving IT ops and app delivery customer problems. IBC named Splunk the worldwide market share leader in its first study of the emerging IT operation analytics software market.

Our performance and customer wins in security continues to impress as well. It includes medical device maker Boston Scientific, who expanded its use of Splunk Enterprise and purchased ES to use as it's nerve center for security.

Fanatics, the online sports apparel retailer, also a new customer, selected Splunk Enterprise and Splunk ES as their SIEM's solution.

Shell expanded its uses of Splunk Enterprise and ES to enhance security across its global IT infrastructure.

Skandiabanken, a Swedish online bank, is a new customer that needed a solution to help ensure compliance with local financial regulations. The bank chose ES over traditional SIEM vendors because of the flexibility Splunk provides to meet security and compliance requirements, Splunk's ability to leverage the data across other parts of their business, as well as our fast time to value.

Other customer wins in security include the US Army, Los Angeles Power and Water, Voya Financial, the State of Delaware and IAC. We're also excited to showcase our analytics-driven security approach at the upcoming RSA 2016 conference held next week in San Francisco. We are honored that several partners, including Palo Alto Networks, will be demonstrating tight integration of their technology with Splunk ES. We will also be making some exciting announcements at the conference, so hope to see you all there.

Moving onto Splunk Cloud, where we saw continued acceleration with orders growing in triple digits year over year in Q4. Our customers appreciate the speed, ease and security of our cloud service, which recently earned ISO 27001 and HIPAA certifications in addition to our previously announced SOC 2 [sur]. Customers are thrilled with the flexibility of our hybrid deployment model, which is something only Splunk provides.

Cloud customer wins in Q4 include GoDaddy, who will use Splunk Cloud to monitor the health of its work space productivity platform, including email and calendar tools used by one-third of its 30 million-plus customers. Splunk Cloud also empowers GoDaddy's customer care representatives to more quickly see, identify, report and solve issues, constantly improving the customer experience.

Sporting Index, the UK-based sports betting company, will use Splunk Cloud to monitor its AWS environments and gain real-time visibility into its hybrid-IT infrastructure.

PagerDuty, a SaaS-based incident management solution, selected Splunk Cloud to replace a cloud-based log analytics tool that was unable to perform the analytics they required and was coming in at a higher cost. Splunk is being used across PagerDuty's engineering teams and throughout their operations infrastructure.

Other customer wins in Cloud include Queensland Department of Education and Fairfax County, Virginia.

In summary, it was a fantastic quarter and finish to our FY16. I'm incredibly proud of the whole Splunk team. Our superb field organization just keeps getting better and stronger at delivering customer success, and we are building an enviable ecosystem for our market-group solutions. And as we showed at our last .conf, our development teams' delivered an impressive set of innovation and functionality to our platform and to our solution. Again, thanks to all of our customers and partners and thanks to everyone who works at Splunk. I'm incredibly excited about FY17 and beyond.

And with that let, me turn the call over to our CFO, Dave Conti.

Thanks, Doug. Good afternoon, everyone. Thanks for joining us. I am pleased to report strong Q4 results to cap a remarkable year for Splunk. The investments we made in product development, field expansion, our market groups, and the cloud drove performance substantially above our FY16 plan and expectations.

Fourth-quarter revenue was $220 million, a 49% increase over Q4 of last year. License revenue grew 44% over last year, totaling $141.4 million. For the full year, revenue grew 48% to $668 million in total, of which about $405 million was license revenue, a 43% increase over last year. When combined with our adoption pricing programs, our product and cloud investments are all about making the adoption and expansion of Splunk easier for our customers and allowing them to gain valuable insights from their machine data, irrespective of their environment, data sources, or where the data lives.

On the field side, we continue to grow our capacity globally. We ended the year with 433 quota carriers, a net addition of 127. More broadly, we grew our total Company headcount by about 700 in FY16 and ended the year with more than 2,100 total employees. As pleased as I am with our progress, we're still in the early stages in our markets and as Doug described, we have a unique opportunity to establish Splunk as the standard for our customers and their data analytics and we'll continue our focused investments in our product portfolio, the field, our market groups and the cloud to ensure customer reach and success.

In that context, once again, more than 70% of our Q4 license bookings came from existing customers, while we also added a record 621 new customers in the quarter. For the full year, we added over 2,100 new customers overall and ended with more than 11,000 customers globally. Our continuing commitments to product innovations around our platform and solutions, as well as our pricing programs, are accelerating Splunk adoption. In Q4, we recorded 523 six-figure orders. For the full year, we booked almost 1,500 six-figure orders in total, 102 seven-figure orders and 3 eight-figure transactions. Overall, our growing product suite, complemented by increased awareness and adoption of Splunk software, are driving this type of large-scale adoption.

Just as in Q3, more customers expanded their adoption of Splunk and we saw an uptick in ASP's. Specifically, Q4 license ASP was about $80,000, higher than our prior levels of $40,000 to $50,000. Of course we're pleased to have customers continuing to expand their use of their products; however, as I mentioned on the last call, it will be important to measure ASPs in the first half of this year to provide a full 12-month view before declaring a higher sustained ASP level.

Everyone's favorite topic, the ratable bookings mix, continued to vary quarter to quarter. In Q4, which is our seasonally highest mix quarter, the ratable component of license bookings was 53%. For the full year, our ratable mix was 46%, slightly above our previously guided full-year range of 40% to 45% and impacted by our particularly strong Q4 results. International operations contributed approximately 28% of total revenues for the quarter, slightly better performance than prior quarters as our international teams continued to develop their books of business.

Longer term, we expect to see our international teams contribute between 30% and 40% of total revenues, though this will take some time, given the great success our US teams continue to deliver. Great job out there.

Our education and professional services represented 7% of revenue in Q4, consistent with prior levels.

Now, turning to margin and other results, which are all non-GAAP. Q4 overall gross margin was 89%, down about 100 Bps year over year reflecting the expansion of our cloud business as well as services around our market solutions. Q4 operating income was $15 million, representing a positive margin of about 6.7%. Q4 net income was $14.4 million, or $0.11 per share, using the fully diluted average weighted share count of 133.8 million shares. For the full year, operating margin was 3.8%, slightly above our expectation due to the strength of our overall top-line performance. Full-year net income was about $24 million, or $0.18 per share, based on a fully diluted weighted average share count of 131.8 million shares.

Cash flow from operations in Q4 was $77 million, while free cash flow was $50 million. Full-year cash flow from operations was about $156 million in total, or about 23% of revenues. Free cash flow was $104 million for the year, reflecting the total CapEx of $51 million, much of it related to our new San Francisco office I'd mentioned previously. Absent the San Francisco build-out amounts, our CapEx was approximately $18 million for the year, consistent with prior periods and directly correlated to our headcount growth. Finally, we ended the year with just over $1 billion in total cash and investments.

Looking over the past few years, our investments are paying off. At the bookings and revenue scale we expect of FY17 and beyond, we are beginning to see the leverage benefit from these investments in our operating model. For the full-year 2017, we're targeting non-GAAP operating margin of about 5%, consistent with our plan of 100 to 200 basis points of annual margin expansion as we continue to penetrate our addressable markets. We'll continue to focus our investments on delivering the best customer experience. We will be disciplined about how we expand our product lines and ensure our coverage model delivers top-line growth of these absolute levels. As we discussed at our last analyst meeting, long term, we believe that we can generate at least 25% non-GAAP operating margins as we reach that scale.

Regarding our FY17 operating margin specifically, we expect to achieve these operating results on full-year revenue of about $880 million, an increase from our previous guidance of $850 million. We expect Q1 revenue to range between $172 million and $174 million. Subsequent quarterly revenues will closely follow the seasonal patterns we've see historically, with roughly 42% to 58% contribution first half to second half. With the continued investments I've described and overlaid with our revenue plan, we expect non-GAAP operating margin of between a negative 1% to 2% in Q1, turning slightly positive in Q2 and then ramping in Q3 and Q4, consistent with the seasonal nature of our model. Remember, since we expect to be an operating loss position in Q1, you should you use a share count of about 132 million shares when calculating EPS.

It's important to highlight this. Our business continues to generate substantial cash flows. In FY17 we expect operating cash flow will again be approximately 23% of total revenues, or about $200 million in total, similar to prior years in percentage terms. As I've mentioned, this year will be another higher CapEx year for us, as we expect the majority of our Silicon Valley campus build out to be completed this year. We combined with Global Facility Expansions to accommodate our growing employee base. We are planning for between $50 million to $60 million in total CapEx in FY17, weighted about $20 million in the first half and up to $40 million in the back half. Again, without the San Francisco and Silicon Valley projects, our annual recurring CapEx would be in the $16 million to $18 million range.

In closing, our Q4 results and our full-year performance were really solid. Our product investments are driving customer success, and our field expansion is enhancing our execution capabilities. Our strategy is working well and we plan to continue to fuel the pace of adoption as we drive to make Splunk the ubiquitous machine-data platform.

Thanks much for your time and interest. With that, we will open up for questions.

(Operator Instructions)

Phil Winslow, Credit Suisse.

Hi. Thanks, guys, and congrats on just a great quarter and a great fiscal year. Just two questions here. First, on the pricing side, obviously, you have a volume-based pricing model but when you look at the -- at your deals right now, wondering if you could give us some sort of color what you see in terms of just the pricing environment, especially as you sign more of these enterprise adoption agreements.

And then second question, just on use cases, I wonder if could you just drill into that a little bit more. What are sort of the some of the newer use cases that are really ticking up that have sort of surprised you guys that you are confident and continue to contribute the rest of this year and next year?

Thanks, Phil. Pricing has remained consistent for four quarters. With the EAA, the larger transactions like EAA transactions there, we go to a lot of depth with our customers to craft a value understanding on both sides, and as you know, those are much broader based with lots of flexibility and latitude on how much data comes in. But we see consistency with pricing right now within our accounts.

On the use cases, the two kind of predominant trends that we're seeing is more and more hybrid environments, as people are continuing to move workloads into the cloud but they obviously still have a lot of their core IT infrastructure and workloads being done on their existing private data centers.

Then a lot more multiple product type pacing, people straddling from security to IT ops or from IT ops over to security, that's continued. And the constant experimentation with more the operational analytics, as marketing probably in specific, gets a little bit more understanding of the treasures that can be hidden in the big data that the IT systems have accumulated.

Phil, it's Dave. I think another element around how customers view our pricing model, with now having crested 100 seven-figure orders in FY16, I think the awareness around what the top of our pricing curve looks like with the EAA programs we introduced in the earlier part of the year are starting to resonate. Enabling customers to adopt freely with predictive economics is really the key, and as they move in that direction, and terms of single departmental to multi department to standardization, the pricing curve a really helps them in those programs in particular.

Actually, Dave, I'm going to ask you one quick follow up, be bold here, ask a third question. Obviously, the ratable mix has stepped up pretty meaningfully again this quarter. Any sort of change in your thought process on ratable and just sort of what are you implying, sort of generally speaking, in the full-year guidance in Q1? And then I will wrap up. Thanks.

You've got it, Phil. Well, as you know, we've been together a long time. That mix estimate I think has changed at least a half-dozen times now from originally when we went public, the 10% to 20% and as we see customers adopting and we enable them to do so, it's up to 46% for the last fiscal year.

Looking forward though, I still believe that 40% to 45% of our FY17 license bookings will be of the ratable variety and it's important to note, if you look at the first nine months of FY16, our average mix percentage was about 42%, so pretty much down the middle of 40% to 45%.

But we had such a strong fourth quarter in terms of large orders and as you guys know, the number of the large orders tend to have the characteristics that make them ratable. That's why 53% of license in the fourth quarter was ratable and that skewed the annual rate to just above 45%.

As always, as we move through the year, see the types of transactions that we are executing with customers, we think that rate is going to change. We will tell you right away. But I think 40% to 45% is the way we're building it into our model.

Great. Thanks, guys.

Thanks.

Walter Pritchard, Citi.

Dave, I'm wondering just on the deferred revenue, I think in Q4 of last year we saw what looked like a really strong quarter but deferred revenue wasn't quite a strong last year in Q4 as it was this year. You saw some strength there as well as strength in the long-term deferred and I'm wondering if you could just help us understand what drove that this year?

Sure. As I mentioned, we had a number of large orders, over 100 for the year. As you would expect, many of those closed in the back half and in the fourth quarter, specifically.

Three eight-figure orders, I think inception to date, we had recorded two eight-figure orders prior to this fiscal year, so more than double. Okay, more than double two is not that hard, but still, those transactions have a more disparity between short-term and long-term, so you can see the uptick in terms of long-term deferreds as a result of the large transactions.

Got it. And then just for Doug, on the IoT initiative, you have a GM in charge of that. I think we see clear traction around some of the ITOM and security initiatives. I am curious if there is any update on Internet of Things? Any of that's got to be the large deals.

It's both Internet of Things and the more operational analytics piece are so much fun. There always surprising use cases. And the good part, I think for all of us, customers and Splunk, is they tend to be much more on the mainstream of the business, revenue oriented, competitive differentiated oriented so it's definitely where I think long term, we will see more and more people land.

The issue that we've been having for years is, how do you -- what are the applications that you can build once and use thousands of times, like we're getting with ES and ITSI, versus a really cool single use case that is just one off and so 1,000 one-offs versus one that can be replicated.

I think there's some -- a few patterns beginning to form up in marketing, with customer experience a customer intimacy. But the variation we're seeing within accounts on how they want to structure those apps is pretty broad, and so as we find the patterns, and I think this will really, really be a place where the ecosystem is beyond instrumental, there's so much vertical and country and geo-specific expertise needed, that I believe that the real patterns will be found as tap our ecosystem. (Technical difficulty)

Thank you.

Thanks, Walter.

Michael Turits, Raymond James.

I just want to jump in on the security side. One, how are you doing with the new UBA offering that you have purchased and what you built there?

And also, obviously you've been doing great in security as a SIEM addition, as a SIEM replace for a bunch of years. Is there any change there from a demand perspective or are we heading any kind of positive inflection point further terms of demand for SIEM replacement?

Great questions, Michael. The user behavior analytics application, we're really pleased with its continued progress. The approach that we took with the ITSI application, which was a very patient one-year new product introduction process. It was kind of data released a comp before last comp but rather than rush it to market, we work with, I think it turned out to be 17 eventual, new product introduction partners in our customer base to keep iterating and make sure that when we finally released it little bit over a quarter ago, four-plus months ago, it was ready for prime time.

I think we have really seen that pay off with the fourth-month traction since we've officially unveiled as fully production with ITSI. And what we're trying to do the same thing with UBA. It's a really interesting area for us. Obviously, we cared a lot about that area since we did a sizable transaction there.

And we see a lot of enthusiasm within the customer base and we've got a similar new product introduction type of framework for it just to ensure that given how nascent the market is and how new the product is, that we nail in it's characteristics and we don't get ahead of our skis. So we will keep you informed as we get more ready to go broad-based and take the new product introduction veil away from that product.

On the SIEM piece, I think we've just seen a continued progression quarter over quarter. Is kind of like a relentless drum beat, where we're getting -- we didn't even want to be in the SIEM market at first. Godfrey told me all the stories about how Gartner kept coming and asking to be in the quadrant and we kept saying, hey, we are machine data platform. We're not just a SIEM vendor.

And then they eventually convinced us to participate and I think that high end and the entire security and market segment team, it is a really strong team, just keeps doing a better and better job of making sure the world knows that we are a complementary SIEM to existing SIEMs or potentially a replacement SIEM for the accounts that want to go that direction. And despite the strength there, I still see it as early days.

That percentage attach rate keeps going up with security use cases, but it still is below 30%, which means that we still have quarters and quarters and quarters, I think, before it's so mainstream that just is part of parcel of every security deal.

Great, thanks very much.

Thanks, Michael.

Keith Weiss, Morgan Stanley.

This is Tom Allen calling in for Keith. A few quarters ago, we started hearing from Management about growing beyond just security and IT operations and better addressing the business analytics market. Can you talk about how that is shaping up? Is there different market dynamics that would limit Splunk's traction relative to what we saw with other use cases like security?

Thanks, Tom. You know, the only dynamic that's different is just finding what is, as I said earlier, what is that single application or pattern that can be applied to thousands of accounts. I think it's more based on the fact that in business analytics, we talk about that as being something that a sales or marketing or manufacturing or supply chain group is interested in using analytics around.

That's very traditionally been a structured analytics problem. That's been something that the classic BI folks have been going after. I think there is just a continued headset shift to the understand the value that real-time kind of more time series and state -- continuous flow of state-based data, what it can do for those business operations, and we are all learning that together.

I think IoT is similar but different in the sense that is just a brand-new category, Cisco started talking about it pretty aggressively back in 2011 and 2012. That's only a few years ago and I think that people are still wrestling with exactly what does it mean to be more of a software or services vender on top of being a products vendor and I think we are seeing that actually maybe form up before for business analytics. It has a little bit more the characteristics of some of the things that we've seen within the IT space and as we get a better bead on what those patterns are within different industries, we will definitely let you know what we see emerging.

Tom, it is Dave. I think it's really important as we think about our strategy going forward and we talk a lot about how we invest and enable our platform. So while we're certainly focused on our market group specific solutions in ITOA and security, enabling our customers to leverage our platform and their data and then develop those use case solutions and those pain point solutions around analytics and IoT is absolutely critical.

You hear us talk a lot about platform and solutions and you hear me be deliberate about our commitment to invest in that kind of customer enablement, but I think is particularly important in those emerging markets for us because ultimately customers are going to help us define what are those most critical things that we can do and help them solve in those particular market groups and it all starts with the strength of the platform.

Great, thank you.

John DiFucci, Jefferies.

Thank you. Doug, you mentioned your move from Head of Field to CEO. I guess Splunk's evolved quite in its field operations. But are there any changes you think are appropriate in the field at this point? Perhaps relative to partners, that's something we hear a lot about and it's something that seems like as you continue to evolve and what I'm thinking about is, partners that perhaps can build a practice around Splunk.

And then I guess as the CEO, too, now your realm is much broader and I think as you think of product, when I look here you released a lot of new Splunk products that address specific technologies or platforms, whether it is AWS or ServiceNow or (inaudible). They seem to be products that can be broadly used for different use cases on these platforms.

Should we expect more of this going forward? What other things can you do with the product pushing in the broader application of Splunk? Sorry for my barking. I have a little cold. (Laughter)

Don't worry, John. If I have to count every time I was on the conference and one of my kids or dog barked the background, it will be a long list.

I didn't know your kids barked.

They do. You've been to my house, Dave. You've seen them.

Two great question, John, thank you. Coming in, I had two strong focus areas on the field side. One was partners, how do we start to get more enacting of that partner channel. We would have lots of channel partners kind of helping us fulfill but how do we get them actually helping across the entire sales cycle, and inventing around us. The second was how do we get more solid motions on the adoption and expansion piece.

Last year at this time, I announced that customer success team and that was kind of the initiative of let's get people in place that work with the sales teams, post close to ensure that the ROI that the sales team crafted, co-created with that account, actually gets actualized as quickly as possible.

We've gotten good progress on both of those. At this SKO that I just flew back up from late last night, we -- it's the first time in Splunk's history that we actually invited partners and they were side by side with our sales teams through the presentations and then we made a whole bunch of separate break-out tracts for them to make sure they, in addition to what they joined us for, that they could continue their education through the uniqueness within the partner tools and processes and other pieces. I think there's a lot of room to go there still.

A piece of it is, it just takes, like with our own reps, it takes time for everybody to get ramped up and understand all the capabilities of Splunk and we've been focusing more and more resources on ensuring that, that partner channel has that enablement characteristics, but that the playing field is level for them as well and that we've got the right cultural change within Splunk. We deftly will not let up there for a moment.

And then on the apps like AWS and [Ocimite] and ServiceNow apps and then all the other the apps that are in the ecosystem, one, the Splunk base participation rate was relatively static around 600 apps for a bit of time, and we began to increase focus on the development community. Just a few hours ago I got an update that we are now over 1,000 apps in Splunk base, so I think those efforts are starting to pay off.

And while we certainly craft some of those, the vast, vast majority of the 1,000 are done by our partners or by vendors themselves that really understand their product sets and how Splunk can to be brought to bear and that's the third -- then within that partner fold getting velocity and true economic benefit around those applications is something that's going to be super important for us going forward.

Okay thank you. Thanks, Doug. If I might, and I am sorry, there's no more -- my cough feels better now. The EAA's, I thought early last year, maybe was early this year, you guys came out and it sounded to me -- because pricing, so a last question on pricing because it's the question we deal with, right? I am not sure if it is more of a question from the investment community, because no one else can price the goods, their products based on the amount of data that they process or index, in your case. So there could be some people -- it can get expensive as this proliferation of digital data continues.

But it seemed to me that you are going to sort of push down the EAA so they can address not just your largest customers, but smaller customers, too. I thought that made a lot of sense so you can -- you were pushing for adoption of Splunk. Because you are still what seems like at a early stage of addressing the opportunities. But I don't really hear a lot about that. Even when you talk about them, you don't really talk about that being addressed or being pushed down.

Am I reading that wrong? Should I not expect that and if you are a smaller customer you're just going to have to pay based on the amount of data you process and you're not going to sort of get it different kinds of terms that might lock you in for a long, long time? I don't know. (Multiple speakers) every day.

Sure. John, it is Dave. I will try to be concise. The activities we have around pricing span from the top of the pricing curve all the way down to entry level pricing. Not just for our solutions on prem, our solutions and our cloud offering.

A lot of the things that we do around the product are intended to help folks with their TCO. A lot of things we do around our product that we are incorporating is around predictability. That's predictability in terms of pricing programs, but predictability around some functionality. Customers can actually -- we help them understand what their capacity needs are.

Your question is, are EAAs only for those at the top, and is something going to push down? I think we think about pricing in that mid tier in terms of, lack of a better term, a traditional pricing curve. There is entry-level pricing at almost no volume, and as you move up the volume curve, you get the benefit of volume discounting that ultimately culminates in an EAA type transactions.

We are continuously looking at how do we create the elasticity that we need around pricing programs to enable the field to get the customer what they need. We introduce those into the field all the time.

I think the answer your question is, you don't -- you are not thinking about it wrong, it's just at what pace are we enabling customers to get to those broader transaction and what's the right scale for a customer to be when you give them that kind of volume price. So traditional pricing curve, at the top sits the EAAs and we're working out how you do that enablement up and down the stack in terms of customer size.

Okay, Dave, that's helpful but I used to always think EAA was a seven-figure deal and more. That's where you start to get into that. Has that come down at all?

No. Again, we did over -- we did 102 seven-figure transactions and as a reminder for everybody, a $1 million transaction does not equal an EAA. A subset of those transactions are EAAs. Okay?

Okay.

John, appreciate it. Thank you.

Sorry for the long question. (Multiple speakers) Thanks.

Raimo Lenschow, Barclays.

Thanks. Let's try maybe a short question. Dave, you beat revenue quite a bit this quarter, but on the operating side, you kind of didn't quite beat it by that much. Can you talk a little bit about the drivers? I suspect it is going to be bonus payments, accelerated, et cetera, but still I wanted to kind of understand how the leverage is coming through? Thank you.

Hey, Raimo. Thanks for the question. You've got it. We had a really strong finish to the year and I try not to get too excited, but a really impressive fourth quarter. I am more than happy to -- we just were at the sales kickoff and the excitement and enthusiasm in the audience around how we finished the year and how the field is looking forward to 2017, FY17 is infectious for sure.

It was probably my favorite part of the whole event was the awards night when we got to recognize our top performers. And then the list, the scrolling list of all those folks that are going to be joining Doug at the Presidents Club was amazing, the number of people that really delivered for us as a company and for our customers.

All of that great success, as you correctly point out, does translate into higher variable compensation around bonus and commission. Candidly, that paying commissions is one of your favorite expenses when you are the CFO.

(Multiple speakers) the CEO.

Thank you. Well done.

Thanks much.

Brent Thill, UBS.

Hey, Doug, just on the selling environment, anything that you are noticing that's different in the overall environment or would you consider it the environment to be more standard from what you have been seeing the last several quarters?

It's certainly been a fun month in the stock market, hasn't it, Brent? Maybe fun is not the right word. What we're seeing in the customer base is not a reflection of that at all. We saw sustained and increasing demand through Q4, which I think helped us with that close. I'm obviously on forecast calls and call downs with the folks all the time, especially to get a bead on this quarter of the year and spend a lot of time -- we had over 400 partners at SKO and had probably 21 one-on-ones with different partners.

As far as Splunk is concerned, we are seeing continued strong universal demand and as I think you and I have talked about before on as Dave says over and over, my biggest concern still is coverage. How do we get more feet on the street, both within our existing customers, so we can see increased horizontal velocity, but just as importantly, the accounts are not currently Splunk logo accounts. I haven't seen anything yet in my two years that indicates any other trend other than accelerating interest and demand in Splunk solutions.

Okay, and Dave, just on Raimo's point, I think a lot of the focus right now in the market is on the bottom line and approaching close to $1 billion and exiting that run rate at a mid single-digit operating margin, a lot of the other peer companies that had $1 billion were running at double if not triple that operating margin level when you look at the historic context of some of these companies. You can look at Salesforce when they crossed the $1 billion it was a lot higher.

I think you're sending the signal that growth is the first-class citizen right now but there's nothing in the play book long term that makes you believe inherently that this is a less profitable model than what we've seen historically in the software industry.

No, I have no concerns at all about the leveragability of our model. I can tell you the -- I am brutally deliberate in my prepared remarks to emphasize the discipline in which we want to invest in product and in field coverage in particular and of course the market groups and the cloud. If I think about Salesforce and what did they look like when they were at $1 billion and then their path to, say, $4 billion and the margin characteristics, they had reached a certain level of scale delivering their product SaaS only, which is terrific.

We, on the other hand, are in the middle of expanding our hybrid delivery model from not just a traditional on-prem and the margin characteristics of that business, but adding in a cloud component, which we think is absolutely critical and Doug mentioned it.

Hybrid enablement for our customers is really differentiating and we really are focused on making sure that we deliver that for customers. Of course, that comes with some element of investment that's incremental to what Salesforce was doing at the time they crossed $1billion or what a traditional on-prem software company would be doing at that same $1 billion milestone.

I think what's really important though, overall, is the TAM is significant and it continues to grow. While we think about $1 billion in revenue, approaching $1 billion in revenue, I still consider that fractional in terms of the share that we are going to gain in the medium term.

So we're going to be thoughtful. We think growth is the first-class citizen. In terms of leverage I will declare, we could be more thoughtful today and deliver more margin expansion, but I think it would be a bit shortsighted in terms of customer capture.

We deliver the cash flow leverage that I think is indicative of that opportunity and we're going to continue to focus on the balance between, well, what's the revenue growth and what's the customer acquisition trend, how we gain the right coverage in the field, how much cash flow are we generating and ultimately, what's that op margin leverage. As a reference back to my prepared remarks, I did want to just share something we'd shared at our Analyst Day most recently. We think at least 25% op margins at a certain level of scale is the right target for us today.

Thank you.

Thanks, Brent.

Jesse Hulsing, Goldman Sachs.

Thanks, guys. I guess this question would probably be for Doug. I know it's early with ITSI and UBA, but you've had the security solution out for a while. I'm curious if you are seeing more success with these types of premium solutions selling into new customers? I guess another way of putting it is, is it driving your initial ASP higher or your sales -- or shortening your sales cycle? Are using more success selling these solutions into your install base? Thanks.

Thanks, Jesse. Yes, I think we have done a number of -- one, I think at the 50,000-foot level, the solutions really help customers understand the power of Splunk much more quickly and I think just as importantly, shorten time to value. You can install the platform, accumulate the data and then create your own app on top or you can install the platform and accumulate data and get immediate benefit, because the app that we built or our partners have built for that account. Ultimately, customers are looking for value from these solutions. Anything we do to shrink that time to value is good for them for sure.

I think allowing our teams to go in it with a point of view, not, hey, we're just here to solve any big data problem but let's start with a few areas where we've got applications or our partners have applications, we've got proven success is one of the strong sales motions that we like a lot and we are proud of.

We are increasing the attach and bundle rate of these solutions with the underlying platform, which could be a component of that ASP increase in Q3, Q4. But I think along with that is these larger deals were going horizontally across the organization and we're seeing volumes of data spike up as well.

Thanks, that's helpful.

Thanks Jesse.

Steve Ashley, Robert W. Baird.

Thank you. This is Jason Velkavrh on for Steve. Thank you for taking my questions.

You mentioned in the prepared remarks that you had replaced -- or a customer had displaced a cloud-based tool because it couldn't performing analytics they required. Just curious if you can give more detail on that, maybe that the use case and what feature Splunk had that allowed that customer to meet their needs?

That's a very good question that I actually don't have the depth of answer around. Rather than make it up for you, Jason, I can -- why don't I look into what the actual details of the replacement were and then off-line we can -- I can give you that come-back color.

Okay, that's great. I do have actually just one follow-up. It's actually related to John's questions on EAAs and pricing.

I guess if you look back at customers who in the past signed EAA deals, how did their gross and the amount of data they indexed change after they signed that deal? I'm just curious if there might've been a surge in the amount of data that they were indexing, possibly indicating some sort of friction that pricing was creating that has now been removed.

It's Dave. I think that if you look at our history, we have had a number of what we call EAA customers come back for an extension off their original transaction. I will declare that if you look at the timeline of how long we've had these programs in place, the population of those is relatively small.

We need more time, I like to say more time in the rear-view mirror, to be able to make definitive statement about what behavior do we see when customers come back and what is their data consumption. Of those customers, however, who have come back, and who have been with us on that multi-year journey, the amounts of data are typically orders of magnitude higher in terms of, hey, we've had great success, you guys of been helpful in terms of giving us a platform to adopt and really get leverage from all of our data. Guess what, the amount of data we have it has grown significantly and the demand for your product is expanding virally.

So the combination of what we all know is a massively increasing amount of data creation and success inside of the customer has led to significant increases in how much they will consume when they come back for more.

Jason, there still are the natural barriers, though, of no matter what the price of the software is, there's infrastructure necessary to support it. So when we talk about these EAA's and why there's set up time for them, is given that they are going to incur costs, whether they are renting it in the cloud and allowing us to provide the efficiencies that we drive there, there still is an infrastructure cost that goes with it and they are going to incur people operational costs.

There is a value justification necessary for what problem are you trying to solve, what data does it need and is that investment in whatever software, infrastructure and people, is it going to achieve the ROI? Is it worth that investment. So even when we have taken the gauge completely off with these more unlimited structures, there still is a pacing across the organization where different departments get an understanding of what they need to solve and what the benefit of solving it is.

Great, that's really helpful. And then one quick very follow-up. I saw the announcement of the Atlassian deal this quarter. They signed an EAA. I just wanted to confirm, they were a current Splunk customer before standardizing or were they on EAA right out of the shoots?

They were a customer with smaller spot usage and they had seen the benefits of, hey, let's really get a single data architecture across the company and came to us. That's one of those examples, I think it was John earlier, that was talking about going down market? There was a six-figure EAA for what is a relatively small super successful high-growth awesome partner or customer but relatively small compared to some of these big fortune 2,000 brands.

Great, thanks, guys.

Thanks a lot.

Brian White, Drexel.

Great. I'm wondering if you could talk a little bit, Doug, about the competitive landscape and also what you're seeing in IT. There's definitely been a lot of companies complaining about IT at the end of January spending. That's one question. Finally, internationally revenues were, I think you said 28%, but I think the quarter before they were only 23%, so what's happening internationally (technical difficulty) break out here? Thank you.

This is Dave. Let me take the international mix, the revenue mix comment. I noticed the same thing, as you would imagine, and said boy, that's a nice uptick internationally. Let me understand that a little bit. It's really a good data point indication of customer maturity from our regions. We were certainly happy with the performance, but the nature of the transactions in EMEA and APAC tend to be the non-ratable variety, so more revenue yield from those transactions.

Why is that? That's because the transactions in the Americas, where we have longer tenured customers, those are the more mature accounts that tend to do the adoption type transactions that I referenced, have ratable components to it. The one-quarter mix between -- so yes, mix is a lot of fun over here and it's actually regional mix, just to make it even that much more exciting, was really the reason. The revenue yield with higher on perpetual transactions versus the adoption transactions that we saw domestically.

And then Doug, the question (technical difficulty) competitive.

At SKO, that was highlighting some of the achievements for the year and one of the achievements was our competitive win rate, which was above 85% across the course of all the FY16, which is an awesome figure. In all my years of enterprise software, I don't think I ever seen a consistent 85% win rate, which we saw throughout the course of FY16.

Whenever we are engaged, it feels like we do extremely well and we are able to clearly differentiate the Splunk solution versus data platform solutions or specific security or IT ops or more vertical best-of-breed solutions. My concern on that win rate, it is a double-edged sword for me. Super proud of it. Our teams absolutely nail it when they are in front of the customer. Does that indicate that we've got a coverage issue and there are other deals happening where we are just not present?

Anywhere that we are present we win, or when we win 85% or more of the time. I want to make sure that we continue our investment in coverage through partner leverage and direct leverage so that we keep that 85% win rate but our present in more opportunities.

And just on the IT spending, obviously it was a great quarter here, you do not -- you did not see any change in kind of sentiment among your customers in terms of spending? Is that fair?

Within our Splunk sales cycles, we are not seeing that. In many cases, we get displacement other pieces or that they're seeming to prioritize spend for Splunk right now.

Got it. Thank you.

Thanks, Brian.

Mark Murphy, JPMorgan.

Okay, the call is still going. Dave, I wanted to ask you on the topic of EAAs. You had mentioned, or I think Doug had mentioned, a handful of them in terms of logos in Q4. I guess I am just curious, in round numbers, what was the total number of EAAs? Was it 20 or 30, just as a guess? I don't think I have much feel for that.

Would you also tie that in with what was driving the ratable mix higher on the -- that 53% number for the quarter? Is that tied in with the EAAs?

Mark, yes the ratable mix is absolutely tied in to the EAAs but let me just expand a little bit more, because I said it earlier and just as a reminder, a large order is not synonymous with an EAA. We did a record number of $1 million transactions, of course, three eight-figure transactions and when you see those types of orders at scale, they have a disproportionate influence on the mix.

It's a similar pattern that we've seen in the last couple fourth quarters as we are focusing on helping customers with adoption. What's driving that higher percentage is adoption, for sure.

Now, how many EAAs did we do? About 30 was the number. You wanted a round number; it was about 30. But even that, other elements that are affecting mix, again, we have a fairly strict definition of what we would consider an EAA. That's why there's 30 even though we did 100 seven-figure orders. But many of the seven-figure orders also have ratability features.

So we don't call them adoption because we don't think that we've reached that level of maturity with the customer or enterprise adoption, where we want to take credit for that. We want to be disciplined with that classification.

But on those large orders that are not inside of the definition of EAA, they still have adoption characteristics that lead to ratability. I think the last piece is, Doug mentioned it in terms of order velocity in the cloud, and we're really happy with the progress that we are making on that front, and of course it contributes. When we measure the mix, we include -- again it's license bookings, we include cloud in that calculation.

Thank you. That's very helpful. Just one last quick one. Could you remind us what the trend in CapEx is going to look like after we move through the period of higher investment? Does it -- I guess it sounds like -- are you trying to say that, that would drop closer to the $20 million level?

I am also just trying, from a modeling perspective because it impacts free cash flow, I'm just trying to understand at which quarter do we think that elevated a period of investment concludes?

Sure. Prior to FY16, we had executed our transaction to expand in San Francisco, so at the start of the year we guided that we would do about $50 million in CapEx. What we had been running at before was in the anywhere from $14 million to $15 million annually in CapEx, which is directly tied to our headcount growth.

Then midyear, we also decided on our expansion, our expansion in the South Bay and updated everybody on the call that, listen, FY17 is going to include $50 million to $60 million as we wrap up San Francisco and we wrap up the South Bay. Once that's done, we think now with a heightened level of employees, instead of being in the $14 million, $15 million range annually, we're going to be in the $16 million, $18 million range annually.

Thank you.

Okay, thanks.

Thanks, Mark.

Katherine Egbert, Piper Jaffray.

Thank you. Back to the competition, there's been some fear in this space broadly of very big vendors coming in and maybe causing some turbulence at the low end. Can you talk about Microsoft, Amazon and even some of the private vendors, what you're seeing from them if anything?

Thanks, Katherine. Right now, Amazon is one of our best partners out there. We are co-selling Splunk solutions into the Amazon cloud.

Their reps get commission and quota credit on Splunk. We've got a number of people around the globe, we do and they do, that just work on making sure that their enterprise sales reps and our enterprise sales reps are doing the right account, joint account planning and mutually finding opportunities together.

My hope and expectation is that we continue to work in that cooperative manner. We've got quarterly business reviews with Andy Jassy and Mike Clayville and Terry Wise and the executive team up there and it's a very productive relationship for both Amazon and for us.

Their customer base use Splunk as the -- they told us that their customer base it use Splunk as the most requested item within the cloud, given the visibility, transparency and security assurance we can give those customers, many of whom are hybrid in nature.

In all the years that we've been out with Splunk, there has certainly been initiatives we heard, companies like an IBM, or not so much in Microsoft yet, in Oracle to do something around the Splunk arena. So far, we haven't seen anything in the marketplace, and we're focused on just making sure that we continue to improve our Splunk offerings to continue to drive that horizontal viral adoption within our accounts.

It's Dave. I just want to point -- pile on to a point that we have made before. Our win rate that we spent a lot of time measuring how we do when we are in a compete is enviable. It is 85% across all of our core markets.

The concern, if there is one, and why I am just so committed to investing in our coverage, is making sure that we get to all the other accounts that we don't see. 85% win rate is phenomenal when we are engaged, but we've got to expand our coverage universe so that we continue to get in front of the customers that need our solutions.

Okay, that's helpful. And then one follow up. Given how strong Q4 was, how is the pipe looking coming into Q1?

Doug mentioned earlier that we spend a lot of time, as you would expect, doing our diligent leading up to the call. Q1 is always your scariest quarter. All of the input from the field has been reflected in the guidance that we've provided for the quarter and for the year.

Now, I wouldn't call it an unusual step, but one that I don't exercise typically, is given some of the reports that have come out of late and some of the questions that you hear around what's the demand look like more broadly? Is there some something coming that we should be concerned with. This infrequent step I went out and Doug and I went out and spoke a greater lengths with a lot of folks out in the field to talk about pipeline specifically. What are they seeing in their accounts, and this is the case, too, with our partners, we had a great event of the kick off with our partners and asking the questions about, what do you see around demand.

I am happy to report that demand remains strong, so much so that I am as confident in ever in our investment philosophy around expanding coverage. We do not have enough resources today deployed to handle all of the demand that is coming our way.

So partner enablement is absolutely critical for us in terms of getting that reach and ultimately there will come leverage from that contribution, but it's equally important to continue to add resources that are Splunk specific to get in front of customers.

We're feeling -- I will let Doug pile on. I will represent the collectively we. Again, the demand curve that we see is reflected in our guidance, and we feel very confident in terms of just how big the market is and that our opportunity's significant.

Okay, great. Didn't mean to scare you. Thanks.

It wasn't you, Katherine, it was a lot of the other stuff you see on CNBC.

Kash Rangan, Bank of America.

The good news about going last is I can ask very long questions. I don't have to worry (technical difficulty).

One, Dave, can you quantify that recognized license revenue, what percentage was actually from ratable? That's one thing. Second is, if you look at the number of customers that are coming up for EAA, that is, they are eligible for an EAA type volume, let's say hypothetically that all converted into EAA, would you still be able to grow the 32%, 33% that you're forecasting?

I promise my final third and last question is, if all your license revenues were really license and not -- didn't have any subscription or ratable element, what would the rough margin profile of the Company look like? Instead of the 3% or 4%, what it would look like. Thank you.

Kash, you know when you ask more than two questions at a time I always forget one of them.

I will repeat is you don't --

Thanks. I got it. Obviously, with a growing component in the quarter of ratable versus perpetual, the revenue yield was lower than it had been in prior quarters. If that revenue yield was higher, i.e. less ratable, we would've had a notable amount of incremental revenue in the quarter and a corresponding amount of margin at the bottom line, for sure.

Any quantification at all? Any rough magnitude?

No, and I know you're going to hate this, but we're -- I'm not going to -- we don't disclose today what component of the revenue was ratable, either. Obviously, you can see the characteristics between income statement and balance sheet and derive some relationship between how much license contribution is coming off the balance sheet versus coming from in-quarter business.

That said, of course the next question would be, well, then Dave, how much of deferred is license? Which is something else that we don't break out separately but I will tell you that it continues to be less than half the balance. So the majority of the balance of deferred is still represented by maintenance and some contribution from cloud.

And remember, cloud does not flow through the license line. Cloud is required to flow through the service line. So while we might still be delivering software to our customers, we don't get to call it license revenue.

There was the mix question on how much of the revenue in the quarter was ratable? There was the margin, which you bet, it would've been higher if we'd had less ratable. Did I cover all your questions, Kash?

I think the last one was, if every Splunk customer became an EAA customer, can you still grow your revenue 32% as you guided?

Every customer became an EAA customer, could we grow our revenue?

Hypothetically, you opened up the pricing model to everybody, okay? Let's say hypothetically. It's not going to happen, but can you still grow 32% as you guided?

I haven't actually done the math. I'm going to declare the answer is absolutely yes.

It would be a good modeling (multiple speakers).

It's a good question.

What we see with the EAA customers is they certainly open up the flood gates, and again going back to the other comments that they are still infrastructure costs and others involved. They come back and expand their license.

That big transaction that I talked earlier about in my prepared remarks is a great example, where they actually came back more than a year in advance and consumed -- made sure that they were able to consume significantly more and then that was a transaction that when it was signed, people kind of thought, oh my gosh. That looks like this is going to cover them forever.

The prior transaction.

The prior transaction. So what we've seen with, as Dave said, that small body of renewal EAAs is that as long as we and they, Splunk and the customer, continue to work together to understand the use cases, to build the right business value within those use cases, that there is a positive upward cycle within those accounts.

Doug, Dave, and Ken, thank you so much and congrats on the quarter.

Thanks, Kash, appreciate it.

Thanks a bunch.

You bet.

Thank you. I would now like to turn the conference back over to Ken Tinsley for closing remarks.

Thank you, Crystal. Appreciate your help today and thanks everyone for your participation. As always, if you have any questions, please contact us directly and we'll be happy to help. Have a good evening.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.