Splunk Inc (SPLK) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Splunk's second-quarter 2017 financial results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the call over to Ken Tinsley, Splunk's Corporate Treasurer, Vice President Investor Relations. Sir, you may begin.

Great. Thank you, Tekia. Good afternoon, everyone. With me on the call today are Splunk's CEO Doug Merritt and CFO Dave Conte. Our press release was issued after close of market today and is posted on our website. 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 today we will be making forward-looking statements, including financial guidance and expectations for our third quarter and FY17. Market opportunity and competitive position, product and services mix, investments in international operations and expected growth in international business. Planned investments, including product services, market groups, sales and facilities. These statements that reflect our best judgment based on factors currently known to us, and actual events or 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 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.

So with that, let me turn it over to Doug.

Thanks, Ken. Hello, everyone, and welcome to the call. We had a solid Q2, and once again, I want to thank our customers and partners for their enthusiastic support, and our employees for their many contributions.

Total revenues were $212.8 million, up 43% over last year. Our success continues to come from a combination of our existing customers expanding their deployments, and from adding more than 500 new customers. We believe that digital transformation is impacting every industry and every company. As processes and interactions become digital, the amount of data being generated is exploding, and will continue to do so. Splunk is the best solution to enable customers to easily and cost-effectively collect, analyze and get maximum value from that data.

Our strategy remains the same -- to be the ubiquitous machine data fabric for our customers. We are achieving that by continuing to invest in our platform, and providing customers with best-in-class solutions leveraging that platform. Simultaneously, we are building a strong ecosystem that delivers solutions that complement ours in IT operations, application delivery, security compliance and fraud, business analytics, and the Internet of Things.

Turning to the quarter, I want to start with the outstanding performance of our cloud business, where once again we nearly doubled the amount of orders from a year ago. Our customers are happy with the speed, scalability and flexibility of Splunk Cloud. This allows them to rapidly focus their time and attention on analyzing their Splunk data to better understand their operations and, ultimately, their business results.

In addition, Splunk's unique ability to deliver a hybrid solution allows us to effectively serve our customers wherever their workloads and data reside, and in turn, enable them to more broadly adopt to our platform. And Splunk Cloud's security and wide availability through 10 AWS global regions, including GovCloud, allows us to help customers move to the cloud with confidence.

Some notable cloud wins this quarter include Uber, who tripled their Splunk Cloud usage to more than one terabyte in less than a year. Uber selected Splunk because it met their security needs and was able to scale to support their tremendous growth.

Australia's Queenland Department of Education and Training has expanded their Splunk Cloud presence through our MSP agreement with Telstra. They are going to use Splunk in conjunction with Blue Coat, Palo Alto Networks and CyberHound for cybersecurity protection. They also have an analytics use case where they are keeping students and staff safe by proactively alerting schools of incidence of cyber bullying and threatening online behavior. And Hulu.com expanded its use of Splunk and Enterprise Security in the cloud to keep their streaming services running smoothly and securely. I am very pleased to see the continued momentum of our cloud business.

Moving on to partners, and starting with Amazon Web Services, where we announced the availability of our latest Splunk App for AWS. The app now integrates with and pulls data from more than a dozen popular AWS services, such as cloud trail, config and VPC flow logs. Using pre-built dashboards, customers can quickly visualize critical information on the health, usage, and security of their AWS environments.

Additionally, we announced that Amazon EC2 Container Service, or ECS, added a Splunk native log-in driver to their newest version of the ECS agent, making it easier to implement a comprehensive monitoring solution for running [docker] containers of scale. We're rapidly innovating to integrate with more AWS services to enable our customers to manage and move their mission-critical workloads to AWS with agility, security, and confidence. As I've said on past calls, we continue to work closely with AWS to drive customer success. And I encourage you to go to our website and watch the video I recently recorded with AWS CEO, Andy Jassy, which goes into more details.

An example in Q2 is our joint win at the City of Louisville, where Mayor Greg Fischer was just named one of America's top innovative mayors, and of course his decisions are driven by data. The city is using Splunk Cloud to ensure their data and IT networks are secure, and it keeps senior staff informed 24 by 7. AWS and Splunk sales teams worked closely together on this opportunity. Finally, I'd also like to thank AWS for being a top [Orpeda] sponsor of dot-com, and I look forward to hosting Mike Clayville, Head of Worldwide Commercial Sales for AWS, who will be speaking at the conference.

Moving to Accenture, where we are continuing to drive momentum in our strategic alliance, Accenture is expanding their bench of trained Splunk practitioners, and we're collaborating to bring new solutions to market. They are leveraging Splunk as a platform to enhance their offerings in multiple areas, including application service delivery and cyber defense.

During the Black Hat conference earlier this month, Accenture introduced a new breach-prevention offering that integrates Splunk Enterprise and ES with Palo Alto Networks and Tanium to the Accenture Cyber Defense Platform. This solution enables organizations to quickly close security gaps and stop the spread of attacks across global networks and on every endpoint. The critical part of the integration is a new Splunk application that provides a single pane of glass across all four technologies. The app will aggregate and correlate data to help identify indicators of compromise, and enable customers to trigger remediation on each of the technologies from within the app itself.

We also continue to make progress with our strategic alliance partner, EMC, securing multiple joint customer wins, including a large medical center and a major pharmaceutical company, and a defense organization within the government of Canada. And of course, we do all this for our customers, who are recognizing that the more data they put into Splunk, the more value they can realize. That is why I continue to believe that we are very early in capturing our full potential, even in our largest accounts. Specifically during the quarter, we continued to see customers expanding their use of the platform, and traversing multiple use cases on their journey to standardization on Splunk as their machine data fabric.

A great example of that is Yelp, where hundreds of employees use Splunk, including engineers, their IT organization, and business users, for use cases that include app management and delivery, IT operations and business analytics. Yelp has democratized Splunk, so all users across its organization can create their own dashboards and reports for real-time analytics.

Qualys, a longtime Splunk partner and customer, expanded their use of Splunk to help them ensure the global availability and security of their cloud-based security and compliance platform. SAP, also a longtime multi-terabyte customer, continued to expand its use of Splunk. This quarter, SAP SuccessFactors expand their use cases to include customer experience, in addition to their existing ones of DevOps and application performance.

Brazil's Itau Unibanco, the largest financial conglomerate in Latin America, purchased a multi-terabyte Splunk Enterprise expansion for business analytics. In addition to monitoring the IT infrastructure, Splunk will now also be used to gain business insights on customer usage, so the bank can better-tailor its online financial products and marketing offers.

The UK's National Health Service expanded its Splunk Enterprise license to support its digital transformation initiative, NHS Digital. Splunk will monitor performance, investigate issues and provide reporting for a number of healthcare services, including an innovative service that connects clinicians, patients, patients, and local providers throughout England, as well as a service that acts as a comprehensive repository for healthcare data in the country.

Our public sector business provides a great example of the progress were making on customer adoption, right now seeing more public sector customers going all-in with Splunk. Examples in Q2 include: Department of Health and Human Services, the Department of Homeland Security, and the Department of Veterans Affairs; who all signed EAAs. On the state and local level, the City of Los Angeles expanded with the purchase of Splunk Cloud ES and ITSI. LA is correlating cyber threat information from external and internal sources, and analyzing network traffic in real time. Splunk enables them to compare their patterns with national and regional ones to identify anomalies that might indicate malicious attacks.

We also saw new customers who standardized on Splunk as their machine data platform. A great example is Dubai Airport, who selected Splunk Enterprise to realize their vision of creating a real-time airport dashboard to visualize the complex operational processes from one of the world's busiest airports. They're using Splunk to gain insights into every passenger touch point, to drive an excellent experience and to effectively deploy resources.

Dubai joins other airports, such as a San Francisco International, Denver International, Sydney International, and London's Gatwick Airport, among others, who are using Splunk to run their operations. More than 260 million travelers flowed through those airports last year, and we're happy to contribute to a better experience, especially for those of us who spend a lot of time on planes.

In Q2, we also saw momentum across our market group solutions, starting with IT ops and app delivery. We had great customer wins, including Subway, who expanded Splunk to thousands of stores to ensure that point-of-sale systems are operating effectively during peak times. Subway considers Splunk the eyes of their corporate and franchisee stores across the globe to keep lines moving as fast as possible. Splunk also helps Subway continually release new versions of its POS software to maximize efficiency.

We are excited by the strong interest in our newest solution, IT Service Intelligence, or ITSI. Customers like how easy this solution is to install and configure, and how quickly they are able to improve service levels and customer satisfaction. A few of the customers selecting ITSI in Q2 include the State of New York, who purchased Splunk ITSI to gain new levels of visibility into the health and key performance indicators of the state's IT services from security to operations. And Cox Automotive, who purchased a multi-terabyte license for Splunk Cloud and ITSI to help ensure a problem-free buying experience for their online auctions.

And given it's the season for politics, I wanted to pass along that the University of Nevada, Las Vegas, UNLV, is scheduled to host the final presidential election to date, in October. And Splunk, of course, will be there to help ensure their IT team succeeds in dealing with the predicted spike in demand on their infrastructure. As another validation of our ITOA market approach, IDC has once again declared Splunk as the market share leader for the worldwide IT operations analytics software market.

Our performance and customer wins in security continue to be strong as well. A few examples are ClearBridge Investments, a new customer who is a leading global equity manager with over $100 billion in assets. They have selected Splunk Cloud and ES over a legacy SIEM vendor as they embrace an analytics-driven approach to security. Thanks to our partners at Blackwood Associates, who are major driver for this opportunity. Other customers in security include Penn State Hershey Medical Center, Texas Roadhouse and Priceline.com.

And we were proud to once again be named as a leader in Gartner's 2016 Magic Quadrant for SIEM. This is the fourth straight year, and Splunk was positioned as having the furthest completeness of vision in the leaders' quadrant. This is a reflection of the market fully embracing an analytics-driven approach to security, and is a testament to the strength of our platform and the success our customers have achieved. Congratulations to the entire security team.

I also want to congratulate our customer, the City of Los Angeles, who won the City on a Cloud award at the AWS Public Sector Summit in Washington DC, for its use of Splunk Cloud as a SIEM for one of its cybersecurity initiatives. That was really awesome to see. And Splunk was recently named to LinkedIn's Top Attractors List as one of the 40 top US companies that are best in the United States at attracting and keeping top talent. I want to thank our employees, who are so committed to our customers' and partners' success, and who deeply care about the great Company and culture we're building together.

For a reminder to everyone, our Users' Conference is coming up in September, and our product teams will be making an impressive set of announcements, including an exciting new release for the Splunk platform, and multiple releases of our solutions. We hope to see you there, and absolutely will be ready to celebrate with you. Thanks again to all of our customers and partners, and thanks to everyone who works at Splunk. See you at [dot conf] in September.

Now let me turn the call over to our CFO, Dave Conte.

All right. Thanks, Doug. Good afternoon, everyone. Thanks for joining the call.

Our performance in Q2 was solid, with revenues of $212.8 million, a 43% increase over Q2 of last year. License revenues totaled $115.7 million, up 32% over last year. As Doug mentioned, Q2 was a particularly strong quarter for our cloud business specifically. I'll talk about our cloud momentum in a minute.

Consistent with the last several quarters, customer success and adoption of our platform and solutions are driving license bookings growth, where more than 70% once again came from existing customers. We added over 500 new customers in the quarter, and we recorded 446 orders greater than $100,000. Q2 was our largest cloud bookings quarter to date, as more customers are recognizing the need to have real-time access to their data, regardless of its location, either behind a firewall or in the cloud.

To give you some data points around this, Q2 cloud bookings were more than double our own plan. 4 out of 10 of our largest orders in the quarter were cloud orders, each of which was 7 figures. Our focus on adoption is consistent with customers adding Splunk Cloud to their environments, where a majority of our cloud transactions came from existing customers. And our cloud business is now on a $100 billion-plus bookings run rate.

As I've said, it's important to remember, 100% of cloud revenue flows through the services line on the income statement, and is not on the license line. When combined strong cloud results with other adoption programs, Q2 ratable mix was 47% of all software bookings, and above our internal plan. Pay great kudos to the cloud teams: sales, product, and operations for helping achieve so much success for our customers.

Looking forward on mix, our favorite topic, with our first-half actuals and second-half outlook, we now expect that full-year ratable mix of software bookings will be about 45% at the high end of our previously guided range. In Q2, international operations represented about 22% of total revenues, consistent with previous levels, and comparable on a year-over-year basis. We will continue to make investments in our international business, and look forward to continued growth and global expansion. Our education and professional services represented 9% of revenue in Q2 at the high-end of our range of between 5% and 10%.

Now turning to margins and other results, which are all non-GAAP. Q2 overall gross margin was about 84%, consistent with our expectations, and reflective of our cloud business momentum. Operating income was $8.2 million, representing a positive margin of about 4%.

Q2 net income was $7.3 million, and EPS was $0.05 per share, based on a fully diluted weighted average share count of 136.4 million shares. Cash flow from operations was $18 million. Free cash flow was $8 million. And we ended the quarter with just over $1 billion in total cash and investments.

Now looking forward to the rest of the year, we expect Q3 total revenues of between $228 million and $230 million, with a 5% to 6% non-GAAP operating margin. As a reminder, we denominate revenue globally in US dollars, and therefore, have no foreign exchange exposure to our revenue line. With our first-half performance and Q3 outlook, we now expect total revenues for the full year to range between $910 million and $914 million, up from our prior guidance of $892 million to 896 million.

Now, to execute on the large and growing TAM, we continue to make our investments in the field, our product teams, market groups, and of course, Splunk Cloud. As we do, we expect to maintain our non-GAAP operating margin estimate of around 5% for the full year. We will continue to expand our services capabilities, tailored towards the use cases and solutions that align with our market groups. Customers who utilize our services have a higher likelihood to deploy more of our software over time, so these are important investments.

With that, non-GAAP gross margin should remain in the mid-80s for the balance of the year. And we expect this fiscal year will be our trough gross margin year, as top-line contribution from our investments should become evident beginning next year. For EPS, remember, since we expect to be profitable on a non-GAAP basis for the Q3 and Q4, for your EPS calculations, you should use a fully diluted share count of approximately 138 million shares in Q3, and 140 million shares in Q4.

As I've mentioned before, FY17 will be an unusually high CapEx year for us, as we expect the bulk of our South Bay campus build-out costs will be incurred this year. When combined with global facility expansions to accommodate our growing employee base, we're planning for approximately $50 million to $60 million in total CapEx this year. First-half CapEx were $14 million, and back-half should total between $35 million and $45 million. Now back to what would be a normalized level of CapEx, without the Bay Area projects, we would expect to land between $16 million and $18 million for the entire year.

In closing, our team continues to execute on our mission to deliver high value to our customers, and we're committed to driving the best possible customer experience through continued investments in our platform, the cloud and our overall global reach. We had a good first half, and I'm pleased with our outlook for the remainder of the year. Thanks much for your time and interest.

With that, we'll open up for questions.

Thank you.

(Operator instructions)

Raimo Lenschow, Barclays.

Thanks for taking my question. Congratulations, that was a great quarter. I wanted to start with a highlight in the quarter, which seems to be the cloud situation. Can you talk a little bit about the strength in cloud. Is that driven because customers are adopting cloud more at like full-stop and on everything? Or is that just you doing a better job on it? So is it a very structural thesis that we can use for everyone? Is this just something for you?

And then the second one I have is, can you talk a little bit about the areas of strength. Customer usage came up twice in your customer call out. Can you talk a little bit about the different areas in terms of IT, ops security, customer usage, et cetera, in terms of strength in the different areas? Thank you.

Sure. Thank you for the questions, Raimo. Cloud, I think we have been in this cloud business for 2.5 years now, 2 years now, and the hybrid nature of what we're deploying, I think, is an incredibly attractive aspect to our customers. What we are seeing within most of our customers, and it goes back to some of Dave's comments in his area of discussion, is the big crossover between companies that are using us on a perpetual basis, given that they have a large body of trapped and resident applications and workloads and data on-prem. And they want to continue to take advantage of the scale and speed and next-generation architecture that something like an AWS offers. So a lot of hybrid momentum between our accounts.

That said, I think that over the course of two years, our reps have gotten better at understanding cloud itself, what the offering looks like, how to position it. And at the same time, the customers are definitely getting more comfortable with having a blended cloud and on-prem strategy. So I think that those combinations are leading to a continued progression within our cloud business.

And Raimo, before Doug answers your second question, I just want to -- I don't think I over-emphasize enough how important it is for us to be making the investments that we are in terms of our product delivery mechanisms. What customers demand is a duality in terms of their data. Where their data lives is not exclusive anymore to being behind a firewall, in a private data center or in a public data center [themselves]. So customers really need someone like Splunk to come along and say, listen, we're going to make it easy for you to aggregate your data regardless of where it lives.

So that ties back to our investment thesis on product. So when you ask, gee, is this -- are you guys getting better at it or are customers demanding it? It's really both. Of course, we're going to get better at it because customers demand it. They really need it, and we're certainly happy with the progress.

All right, on the second question, as we've talked about for years now, and I think Dave did a whole cohort analysis at one of the last confs, the ultimate goal and vision of Splunk is that we become this machine data fabric for organizations. That's one of the strengths of Splunk. If you just have a single, narrow-use case, there's probably other technologies that you can drive. But the uniqueness is the scheme at read, the huge flexibility of the technology, and the ability to move very quickly from IT operations or engineering and app dev, or security or marketing or business analytics use cases across the organization.

And we're seeing that continue to go in line with what we see in the past, across ever more mature customers. And I think products like ITSI that complement ES and UBA just help organizations understand that flexibility and get quicker time to value across these different buying centers and market segments.

Perfect, very clear, well done.

Thanks, Raimo.

Thank you. Brent Thill, UBS.

Thank you. Just a follow-up on the cloud, I'm just curious if you could talk a little bit about how that may factor into the billing number? The billing number was one of the lowest numbers we've seen in the last two years. And I'm just curious if the way that your invoicing is having some type of impact, where you may have a longer term contract, but maybe not getting off as much upfront. Can you just talk through that dynamic on how that would show up in the billing number this quarter?

Sure, Brent, thanks. It's Dave. Well, as you know, what a typical SaaS consumer would look for is an annual billing arrangement. And we're not unique in that regard. Customers would rather see, at least from either a single-year contract obviously is billed annually. But in the multi-year contracts, I think there's a preference for annual billing, and that's reflected in the financial statements that you're referring to.

I think there's another element which gets into ultimate contract value or ASP, a perpetual-license-plus maintenance, as a single event would tend to be larger than a cloud transaction that's billed in the financial statements. So I think there's a couple factors. Just the absolute amount that you bill on an annual basis between a perpetual and a SaaS offering, and then how customers prefer to pay.

Okay. And just in terms of are we missing anything in terms of that, in Q1 it was, I think, 48%. Q2 was close to 40%. Is there anything else that we should consider in that? And I know billings doesn't tell the entire picture. Just I want to be clear that we're not missing anything in terms of the differential.

No. I was very deliberate about mentioning, we more than doubled our own plan in terms of the cloud business. And I think that feathers through our financials, for sure.

Okay. And just --

I don't think you're missing anything.

Okay. And just to clarify, economically though, over time, you believe that cloud model will carry at or greater than the perpetual model, over time, in terms of the economics to the Company?

Yes.

Great, thank you.

The lifetime customer value on multi-year contracts and [dead to thin in] the cloud has been shown in the industry to be a good, lifetime customer value.

Okay. Thank you for the color.

All right, Brent, thanks.

Thank you. Michael Turits, Raymond James.

Hi, guys. Two questions. One, follow-on to the billings question here. Was that also the impact on gross margins, which still came in below the 85%? You seem to be guiding to a wider range, saying mid-80%s instead of 85%, so is that also the cloud impact? And I have a follow-up.

Well, I mean, there's two things on the margin. Yes, Michael, absolutely, cloud has a different margin characteristic, for sure. But as do our services. Services was at the high end of our range, 9%. And if you add up all of those components in the first half of the year, you see that impact on the margin. Mid-80%s to me is, call it 85%, is midpoint of the 80%s. We think that's approximate to our trough level of gross margin, as we continue to scale the cloud business specifically.

And then just a fundamental question. Obviously there's still very strong growth that you're showing. Some of the security companies have been a little bit weaker in terms of growth in the last quarter or two. Are you perceiving that there's a shift towards analytics in terms of the spend? Are you seeing any slowing from your perspective, in security demands?

The security portion of the business, Michael, has always come in around -- has been consistent in that 40%s range, and we saw that again this quarter. And what we're seeing within our customer base is definitely a swing to understanding a broad-based security analytics posture is important. I think that's one of the key contributors to the high win rates that we have against legacy SIEM vendors. But also enables us to extend into fraud and risk and compliance use cases, where we don't have a definitive product. And Godfrey loves to laugh about the fact that two years in a row, we've won Best Fraud Product Award without actually having a shipping fraud product.

So I do they'll swing to analytics. And given how unbelievably heterogeneous and complex the security landscape is for most of our customers, the average number of independent company products they have is 168 independent products. Having a framework that works in an abstraction way across all of those and can provide seamless insight into what's happening across that rapidly shifting landscape, I think, is a good thing for us. And with the adaptive response network that high-end security team put in place, I think that we are helping to tie together that round-trip loop from seeing to doing, and then validating that it's been done.

Okay. Thanks Doug and Dave.

Thanks, Michael.

Thank you. Jesse Hulsing, Goldman Sachs.

Thanks for taking my questions, guys. I'm curious, are you seeing customers starting to, with regards to the cloud booking [win], are you starting to see customers select Splunk Cloud over your on-premise licensed products? And did you see an uptick maybe in that type of activity this quarter?

And then a quick follow-up for Dave. If you were to see a continuation in momentum from your cloud business in the second half maybe above expectations, how do you think that would impact margin expansion progression over the next 12 months or so? Thank you.

Thanks, Jessie. Starting with the Splunk Cloud over on-prem, it's really hard to tell definitively. We definitely have seen and continue to see roughly half the orders coming in for Splunk Cloud being from our existing customers, that by nature would be on-prem type customers, although a handful of those are also expanding their usage of Splunk Cloud.

I think what they are looking for is, as they are moving some of their new development initiatives or some of their burst capacity into AWS and/or other clouds, we can read data in from Google Cloud Platform, as we announced from last quarter, from Azure and others. That they get that single pane of glass and seamless visibility across that multi-data-centered landscape.

So it's hard for us to tell if one is substituting the other. My intuition is, it's not. I think they are complementary to each other. But the body of data points is still growing, and on the smaller end.

Yes, I can tell you, Jesse, it's Dave, that we spent some time trying to understand that bookings composition. As you guys know, that's why our ratable mix has been such a highly variable metric for us. And over the last few years, introducing our cloud offering has just made it that much more complex.

But again, to Doug's point, when we look at customers, we see them using cloud as a horizontal expansion mechanism, as they add more use cases around their path to adoption. And again, it mirrors how their data is deployed. Now, two years ago, would they have consumed perpetual for that? Well, as the only game in town I'd say, yes. There would probably have been more perpetual transactions if not for now enabling them to leverage cloud. But it's impossible to quantify.

Now, as it relates to margin, our commitment at the beginning of the year was to expand the op margin to 100 to 200 Bps. We are maintaining that expectation, as reflected in the guidance that for the full year, we expect to be about 5%. And that's after considering all of the great momentum and over-achievement that we achieved in the second quarter.

So that's incorporated into our margin guidance, the fact that we doubled the size of our own target for cloud in Q2. It has obviously a very different margin characteristic. But I think longer term, or even medium term I'd say, I think the faster we grow the cloud business, the sooner we will be able to achieve a more attractive margin structure from a COGS perspective. Because we're still in that phase where we are investing and incurring what I will call the fixed costs, the amount of money we need to spend to create that Company inside of the Company.

So again, as you get to greater economies of scale, you start to generate a lot of the benefits from a margin perspective. So I'm really excited that we've had that kind of momentum this quarter, because I think it gets us closer to a long-term margin model that's going to be a gross margin that's between 85% and 90%.

Got it, thank you. That's very helpful.

Thanks, Jesse.

Thank you. Steve Koenig, Wedbush Securities.

Thanks, gentlemen, for taking my questions. The transition you're making to cloud, obviously very important for you guys, very strategic. It does, obviously it clouds the financial results a little bit, makes it harder to see the true growth you have, which is obviously higher than a license growth would portray. And I realize you're not disclosing software bookings.

Is there any way you can characterize the nature of the growth of contract value that you are seeing, or what license growth would be if you reported cloud revenue in that line? And just anything that we can hang our hat on to understand how your fundamentals really look?

Yes, Steve, hey, thanks for the question. I think the simplest way to determine like, well, what would normalize growth look like? I was happy to report, based on our Q2 results, that we are now at a $100-million run rate. So simply, I wouldn't quantify $100-million run rate based on some kind of first-half/second-half seasonality. That means we had at least $25 million worth of cloud business recorded in the quarter.

So if you take that and you say, gee, that doubles Dave's model, that means there is $12.5 million of cloud transactions that would have otherwise been on-prem. So if you take that number, $12.5 million, and you say, gee, on-prem, I will peel off some maintenance for that, there's probably another $8 million, $9 million, $10 million of software revenue that went to the cloud instead. So I think that's the simplest way to think about it for the quarter. $100-million run rate, $25-million bookings, double your plan, that is $12.5 million of extra that would have been software.

And Dave, just to clarify that, that $100-million run rate, sorry, that was cloud bookings, not cloud revenue?

Cloud bookings, yes.

That's cloud bookings, okay.

Yes. So for the benefit of folks, the requirement, the technical requirement would be a separate disclosure for cloud revenue if it exceeds 10% of total revenue. So we would have to be over $21 million of revenue to disclose it on the income statement. So the $100 million is cloud bookings.

Got it. And if I may ask one follow-up. The cloud order sizes, you've talked about them being smaller than on-prem. Are they growing as the cloud deployments become more complex? Do you see more hybrid deployments or do you expect them to grow over time?

The challenge with cloud orders -- in Q2, four of our 10 largest transactions were cloud, and they were all seven-figure. So that's a great data point, but not dissimilar to the second half of last year, when we saw a significant uptick in ASPs. And a lot of folks asked me, Dave, is that the new normal? And I said no, let's get more data points to draw a line to say we have a sustained trend. And low and behold, in the first half of this year, our overall ASPs are back near our historic levels of about 50,000.

So I think for cloud, we need to continue to see data points put together to say, you know, we see a lot of seven-figure orders, or the population of cloud is so large that the weighted average of those seven-figure orders doesn't overly inflate what would be a cloud ASP. So we need more time and more transactions, I think, to really develop what is an appropriate trend line in terms of cloud order size. What I will tell you is, from a list price, and therefore how that translates to what customers buy, cloud is fractional compared to on-prem pricing.

Okay, all right. It's fractional, and the takeaway there is, there's a lot of cloud orders, more so per dollar coming in than the on-prem?

Well, and if you compare cloud to on-prem on an annual basis, on-prem is going to be notably larger than an equivalent cloud transaction.

Right, got it, great. Well, thank you very much. That's very helpful, guys.

Thanks, Steve.

Thank you. Kirk Materne, Evercore ISI.

Thanks very much. Doug, I was wondering if you talk a little bit more about the Accenture partnership, and just system integrators in general for you guys? What kind of contribution are you seeing in terms of them bringing you new business at this point in time, and where you might hope to get that over the next, say, six to 12 months? And then I just have one other follow-up. Thanks.

Absolutely. With Accenture, as I've said in the past, what I love about this relationship is, they are building a practice around us which is traditional motion. But also, they understood early that we are a platform that they can build solutions on top of, to both drive into their installed base, as they just did with of that Palo Alto Tanium-Splunk bundle, where they built an app that ties all those together. And that whole pre-built solution set that they can sell to and deliver to their customers, as well as allowing the platform to enhance their efficiency or margins or operations within captive customers. Which has been more their application outsourcing motion of bringing Splunk in and having it sit within these application outsourcing environments, and tie together all these different technologies, gives us a better way to deliver application outsourcing services.

Ideally, you are using less people, at higher quality, driving higher margins, as well as potentially with these new apps, driving revenue within these captured accounts. It's still early days with this relationship. We just signed the contract in February of this year, so we've had less than six months under our belt working together. The initial six-month business case that we outlined had very little contribution in this first six months, although a handful of deals have come in with the assistance of Accenture.

And the real traction is really in our FY18 time period, as they develop more of these applications, they condense more of their services and are able to bring it to market into their customer base with more fidelity. Anything that happens before then, we are all super excited about, but as far as planning, we're looking more at FY18.

Okay. And just one quick follow-up in terms of the cloud business. I know you guys have a cloud team, but remind us again, can the commercial direct sales reps sell cloud? Do they get quota credit? I assume it would be more on an ATB basis for selling cloud versus, say, selling just the normal software product. I was curious about, do they have discretion to sell cloud? Are clients pushing toward cloud? I assume that they could help them along in that regard. Thanks.

Yes. Right now, the commission plans for our reps are super simple, which is, we try to make them as neutral as possible. It's always hard to make it perfectly neutral, but they get paid on cloud transactions, on on-prem transactions. They get paid for solutions, they get paid for ProServ. We're still trying to keep it as straight-line directional as humanly possible. And they are fully empowered and paid for cloud sales, as well as on-prem sales.

Great, thanks, guys.

Thanks, Kirk.

Thank you. Kash Rangan, Bank of America.

Hey, guys, thanks for taking my question. On the cloud side, Dave, just trying to put a finer point. You said $12 million in overage of bookings. Are these annualized value bookings for the cloud that you over-achieved in the quarter?

Hey, Kash. It's a combo. Our $100-million run rate is total contract value.

Okay. So contract value, is it three-month contract value, one year or two years? I mean, what is the rough weighted duration of the contract value or contract length?

The duration is pretty similar, when you look at the smaller accounts, to our historic or our traditional term business. The duration for those on the on-prem side was just over a year, and on the cloud side, it's about a year-and-a-half. When you look at the overall weighted though, we see the cloud duration more of just over two years, 2.5 years, and the traditional term more like a year-and-a-half. Again, the population a lot smaller on the cloud side, and with very large orders coming in this quarter, that can skew the weighting.

Got it. So how did this run rate compare to Q2 of last year? Was it up 100% or 50% growth rate, roughly?

It was -- the growth rate in cloud bookings?

Yes.

Was more like over 200% year over year.

Okay. So then we should be able to look at the year-over-year change in the cloud bookings and assign a contract duration to it, and convert that into license equivalent, which is the math that we've been trying to do for the past two to three years. And I guess the way you price your cloud contracts or your ratable contracts are about a 3.5-year type breakeven. So we should be able to do a calculation once we get to the point that your overall business value growth rate probably was pretty significantly greater than your reported license growth rate, no?

Absolutely. I've been saying for quite a while that as a reminder, cloud is a drag on the license. Because it's not in the license line. And when you have the kind of over-delivery in Q2, it's clearly reflected in terms of the geography on license. Plus of course, it's all ratable versus any component that would have otherwise been a licensed sale that would have been up front.

Got it.

And Kash, I just want to make this point. I want everyone to understand. We continue to see this kind of momentum. It will continue to have that kind of impact on geography between license and non-license revenue.

Got it. Thanks so much, Dave. And also if you could take the cloud business standalone or take the rest of the enterprise business standalone, what would be the profit margin of the core, undiluted by the cloud? And one final question for Doug. What is the growth in sales capacity that you had at the end of the quarter, and what do you plan to finish the year? That's it for me. Thank you so much.

Hey, Kash. Yes, I mean, you're right on it. The margin consumption of creating a cloud business inside of Splunk is significant. I'm not going to specifically quantify what would margin have been, but I'll tell you that it's -- a long-term margin target for a cloud business should be at least 70%, and we're just starting year three. We are nowhere near that level of margin. So the margin drag is notable on both the COGS line and the OpEx line, for sure.

I think you were asking a sales capacity question? If we grew sales capacity year over year about 35%, we ended with about 490 quota carriers, and I think that's consistent with our trend line over the last several quarters. And I would expect that to continue going forward.

Thanks, Doug and Dave.

Thanks, Kash.

Thank you. Walter Pritchard, Citi.

Great, thanks. Two quick questions, one on the cloud side. Is it possible to parse out what you feel is incremental in terms of business that you wouldn't have seen before if you did not have the cloud offering, versus business that may have slipped over from being licensed into cloud?

Hey, Walter. I was trying to give a simple path to that by referencing $100-million run rate, and if you divide that by four, you get $25 million. We doubled our number. We doubled not our number, we doubled our own plan. So there is $12.5 million that I think could have otherwise been divided between license and maintenance.

And if we step back, Dave, if we step back on the other part, the part that was in your plan, is the assumption that, that is business that was incremental, and not necessarily would have been substituted for license?

It's hard, right? It goes back to the earlier question, is every dollar of cloud instead of a dollar of perpetual? And there's really no way for us to know that.

Got it. And then just maybe, Dave, some color on within [cash] there's a little bit with it, with the term and the EAA deals, and they carry different financial profiles. And we saw your long-term deferred tick up of little bit more than we were expecting. Is that impacted directionally by EAAs driving the ratable business more than term?

Well, I think it's the combination of the EAAs and these large cloud transactions we did in the quarter, though a certain component of those were not reflected on the balance sheet.

Got it, okay, great. Thanks for the color.

Thanks, Walter.

Thank you. Brian White, Drexel.

I'm wondering if we could talk a little bit about the competitive environment? Were not hearing as much about competitors making noise in this industry. We went to a Splunk Live recently. So maybe if you could just hash out what you're seeing right now in the competitive landscape?

Sure, Brian. There has always been competition in and around Splunk. The combination of other players trying to do what we're doing on the platform side, whether it's SUMo, Hadoop or Elasticsearch, as well as all those best-of-breed vendors in SIEM and systems management and other areas. And they're still out there.

What I've said and what we've seen with something like Elasticsearch, which has come up as being one of the primary competitors, is, they are based on a different technical architecture. They grew out of the document search side of the industry. And it's a really interesting and important technology for a whole host of use cases within customers. And I've been trying to frame this that it's not a Hadoop or Splunk, or an Elastic or Splunk. It's Splunk and those open-source components, what we see over and over within our customers.

When it comes to our use cases, our time series, oriented use cases, and more of this machine data fabric that we're approaching, what I've seen in virtually every account I've been into is that Splunk remains the preferred source. There's no one else that has the integration, the performance, the scalability, the ease of use, the flexibility, with the scheme-at-read that we provide. I just hosted three customers the past four days that are all large brand-name customers, and that was echoed again, just like I've heard for my two-plus years here.

So I think our continued focus is, maintain vigilant on adding our capacity in the field, turning on partners so that we get coverage across the industry. And continue to innovate on our core platform and in the solutions area, so that customers get very rapid time to value and can experience the flexibility of the underlying platform as they turn on these solutions.

And is there any comment, Dave, on operating cash flow for the year? I know in the quarter, it was up 35% year over year. How should we think about it for FY17, operating cash flow? Thanks.

Yes, hey, thanks, Brian. We think about cash flow on an annual basis. Obviously it ultimately depends on the linearity in the back half of the year in terms of not just timing of bookings, but the composition of bookings. To the earlier point, the amount that we might bill and collect for cloud would be different than the amount we would bill and collect for a traditional on-prem perpetual license. But right now, we're comfortable with our outlook.

Okay. Thanks, Doug, Dave and Ken.

Thanks, Brian.

Thank you. Sarah Hindlian, Macquarie.

Thank you. Good evening, congrats and thanks for taking my questions. First, I was hoping you could give is a bit more color on the EAA adoption trends, and what kind of uptake you're seeing there versus cloud within the ratable mix?

And then secondly, if I could, can you get a bit more granular in terms of how we should expect operating margins to expand, given the fairly rapid uptake in cloud growth we're seeing here, given, you know, obviously recognize all that revenue upfront? And then if I could sneak in a third, actually I'm always really curious to know what is the uptake of premium solutions looking like today versus customers building their own use cases? Thanks, guys.

Why don't I take the EAA and premium solutions, and Dave, you can go through the OpEx piece? The EAA progress continues. Honestly, it's not quite as large as I'd like to see, and there's a number of initiatives that we will be continuing to drive across the field. And what we normally see is Q3, Q4, is when the bulk of these come in. So the jury is out on what that total EAA number will be, until we hit the second half of the year when the reps have been working through the course of the year to land these expanded and solidified transactions.

And on the premium solutions, there definitely have been some really nice and impressive growth along all three, really, Enterprise Security and ITSI leading the pack. It's really not an either/or of premium solutions and the customers building on their own. Enterprise Security really helps them with a SIEM-like set of use cases. But most customers will drop in and then complement that SIEM approach with their own unique needs and different fraud-use cases, risk compliance-use cases, et cetera. And the same thing with ITSI.

But really happy with the work that [High End] and the Security World and Rick Fitz and the IT operations in app dev world, and [May halve a guy Saint Hall and Tony] that's driving some early experiments that are starting to crystallize some of the opportunities around business analytics and IoT. So very happy that we're putting those in place, and with the progress we've seen.

Yes, hey, this is Dave. On mix, it was really interesting with all that cloud momentum, the amount of ratable contribution from cloud between Q1 and Q2 grew 50%. So cloud really became a much larger component of mix, and that pushed us to 47%, which was notably higher than how our own model was constructed for the quarter. We were closer to the bottom end of our what was previous layer annual range of 40% to 45% for Q2. So based on those results and what we hope would be continued momentum, we are now expecting 45% in terms of mix category.

On the op-margin side, what we've articulated in the past holds true today, which has always contemplated a significant component of our business over the next five years being cloud-specific. And that is a minimum of 25% operating margins. And the question at the beginning of the year, when I said, look, we're going to expand margins 100 to 200 Bps a year is, well, it's going to take you forever to get to 25%, so how long is it going to be? I characterize that as a five-year horizon, with a hockey stick in margins, as we get to greater levels of scale.

I will go back to my earlier comment. I would love to see the trend continue with this type of cloud momentum, because it's actually going to help us get to a margin profile faster, as we get to that greater level of economies of scale. So it's going to bounce around in this trough level for the balance of the year, and we'll see how it turns out in terms of composition by year end, and then update our outlook. But 25% minimum operating margins on a five-year horizon, with a hockey stick over that period of time.

Thank you, that's very helpful.

Thank you.

Thank you. Keith Weiss, Morgan Stanley.

Great, this is Melissa Gorham calling in for Keith. Thanks for taking my question. I wanted to follow up on Splunk Cloud again, and just a question on how to think about how that's going to ramp moving forward. So Dave, you talked about the percent of ratable sort of stabilizing at 45% this year. I'm just wondering why it wouldn't continue to move higher, particularly because it seems as though the Splunk Cloud momentum is picking up?

Yes, Melissa, the challenge with it moving higher is, individual transactions that are large can skew the percentage, and we do the majority of our large transactions in the back half of the year. So I think we really need to get through and see the composition of those transactions to see where it shakes out for the full year. The way we are using that mix in our model approximates the 45% that I'm giving you guys. So I don't want to give a different metric to you that I'm using for our own outlook.

Okay, that makes sense. And then just one quick follow-up. So that $100-million bookings run rate, when you say bookings, do you mean both on-balance sheet and off-balance sheet, or is that all on balance sheet?

Well, no matter how I look at it, it's at least $100 million. So the on-balance sheet is $100 million, and obviously the off-balance sheet is higher than that.

Okay, so it's all on-balance sheet. So it should be in billings, that $100-million run rate?

The run rate should be in billings, yes.

Okay, that's it for me. Thank you.

Thanks, Melissa.

Thank you. Brent Bracelin, Pacific Crest Securities.

Thank you. Just a couple of quick questions here, follow-ups for Dave. International looks like it downticked sequentially, grew a little slower than US markets. Anything happening there, or surprises worth discussing? And then one other follow-up.

No, Brent, hey, nothing at all. When you look sequentially from our seasonally smallest Q1, again, individual transactions can skew percentages. But we're really happy with the work that our Team is doing over there, and we expect great things. So there's nothing to see there.

Got it, fair enough. Second question from me just on pro services. I get the cloud mix driving acceleration in maintenance and services. A little surprised that you mentioned pro-services mix was actually up. Obviously that has an impact on gross margins as well. So maybe talk a little bit about what's driving an uptick in pro services? And will you continue to invest in that segment?

Yes, we're always really excited about deploying our services, because we know it accelerates the cohort. For an enterprise software Company, I think 9% of revenues is fairly light in terms of the amount of services that we are deploying. The point I'm making is, from a seasonal perspective on revenue, both for Q1 and for Q2, services were 9%, which is as high a percentage of revenue as we've had over the last several quarters. And with that, there's some contribution in terms of margin characteristic that results. So I just want to point that out for folks when they are looking at the composition of revenue and costs.

And the driver there, is that driven by cloud and larger deals and a higher services mix? Or is it just driven by some of the large deals you're doing? What's driving that skew higher? And is that the kind of leading/lagging indicator?

Well, I think it's -- at one point, it's conscious on our part to want to deliver more professional services. And by the way, we bundle professional services and educational services into that number. Again, we like it when we are deploying those resources, because we know the customer gets the value sooner. So consciously, we would like to deliver more.

From a simple math perspective, when you have those initiatives moving and you're in your seasonally smallest revenue quarters, then they're going to result in a higher percentage. Then you combine that with a doubling of your cloud business in a single quarter, the algebra on that says, hey, that's a higher percentage of revenue. And therefore, it's impacting margin as well. So that's why I want to make folks clear on that.

Got it, very clear. And then my last question. Doug, obviously we've talked a lot about cloud. Just was wondering on IoT, I know it's early, but are you seeing any sort of use cases around IoT stand out and that as an area, or is it just too early to tell yet?

We're still working with customers that seem to have repetitive use cases. We definitely have been focusing a little bit more in utilities, oil and gas, and heavy manufacturing. I think it's a combination of them coming to us and us coming to them. As I've said before, I think the real go-to-market approach that is going to be the winning approach with an IoT, given that we're just an analytics layer in this game, is picking the right partners that we can deliver a more full end-to-end solution for different industries with and together. Especially given the huge variety of potential use cases by industry, by geography and by size of company.

Got it, helpful. Thank you.

Thanks, Brent.

Thank you. Matt Hedberg, RBC Capital Markets.

Sure. Thanks, guys, just a quick one for me. Dave, curious on the linearity of Q2. And I guess even more importantly, almost one went into Q3. How has this quarter started versus say Q3 of last year?

It's been very consistent over the last number of years, actually, where the linearity is, call it, 50% in month three. And it moves up and down a couple hundred basis points each quarter, but nothing unusual. I do think we get a little bit of improvement in linearity in Q2 with state and local year end in June. And then we often get a little bit of help in linearity in Q3 with federal year end. But no notable or material shifts.

And actually maybe just one more quick one following up on Brent's question earlier. Nothing from Brexit, it sounds like, from the quarter, or necessarily even in your outlook, that you're painting as a potential question mark?

Certainly not at this time. I think we're all fully aware of how markets reacted to the vote. And as we've gone in and worked with our outside experts to understand the practical implications, I think there's, one, a lot of time that will pass before any real action can be taken. And two, what real action actually gets taken is a giant question mark.

So I think there's a lot of discomfort, and our focus when that announcement came out was really around our employees and our commitment to the region, because our largest EMEA contingent is in the UK. So we were really employee first, customer second, and then we'll measure the impact in terms of what happens in the market.

Got it, thanks.

Okay.

Thank you. Steve Ashley, Robert W. Baird.

Hi, this is Jason [Nocamyer] on for Steve. Thanks for taking my question. I had another question on cloud, and this is from the perspective of your customers. Is there anything about the either data sources or use cases used for cloud that would make the amount of data indexed more predictable or easier to forecast for your customers than an on-prem?

I need to think about that, Jason. I don't think so. For applications in the cloud, the A to B app, let's say, the [alcamy] app, the Salesforce app. There could be a little bit more clarity on what the volumes might be month in, month out. And those are some of the use cases that people are driving within the cloud.

But that hybrid approach that we have means that people are generally collecting data from multiple different points within the cloud infrastructure, both across the database landscape that we're actually utilizing in the cloud, but then also pulling in data from differing data centers and from other cloud services. So there's still a bit of variety, as they think about which data source they want to turn on next, and what the composition and volume of the data source looks like.

That's helpful. And just one follow-up. You mentioned in the public space the nice enterprise adoption wins. Just curious, entering the last of fiscal federal quarter, how does your pipeline compare to this time last year for the federal quarter? And then I'd imagine cloud adoption there is a bit lower. Is that accurate?

So the pipeline this Q3 versus last Q3, given that's the federal end of September, I think it's similar, and as far as pipe and expected conversion. And yes, we are getting some really nice traction within these agencies, as they are understanding the multi-use case characteristics that can really drive much more of this machine data platform for them. And while we have GovCloud as part of our solution set within public sector and we certainly have a number of our customers that are deploying Splunk in the GovCloud, they tend to be a little bit more on-prem based than the commercial sector.

Great, thanks, guys.

Thanks, Jason.

Thank you. Mark Murphy, JPMorgan.

Hi, this is Matthew Cost on for Mark Murphy. Just following up on the comments on the federal government deals, do you view them as the tip of the iceberg? And could there be an inflection point or a domino effect because of these deals? And then also can you briefly comment on any differences you observed in general demand between enterprise and mid-market customers? Thanks.

I think that our goals over -- have been with public sector and are continuing to be with public sector over the years, to get to that tipping point. It's baked into the quota and expectations for that public-sector group. That's why we -- that's really our only vertical right now.

We've got people that are just distinctly dedicated to not just federal, but also state and local government and higher education. And that's a unique or outsized investment just because of our belief in that category. And we're starting to mimic portions of that in our more mature or developed countries, Australia and the UK being good examples. And in the enterprise space, what kinds of things would you be looking for from SMB versus non-SMB?

Just if there were any differences in demand, either particular strength from one, or weakness from one?

I don't think so. I think that the growth rates and the transactional volume across mid-size and large organizations is consistent with what we've seen in the past.

Great. Thank you very much.

Thank you.

Thank you. Keith Bachman, BMO Capital Markets.

Hi. Thank you very much. Just one clarification, if I could. In the last two quarters, as an example, billings year-over-year growth has been meaningfully higher. And yet the impact of ratable bookings has actually been greater on a year-over-year basis than what occurred in the July quarter that you just reported.

So just to be clear, what you're suggesting, I think, is that the cloud impact, despite looking at bookings at an absolute basis, was larger in the July quarter. So if the impact was, call it, $12 million to pick some of the characterization, and maybe $8 million to $9 million to license, that would've been larger than what occurred in, say, the April/January quarter. Is that a fair characterization?

Absolutely.

Okay. Is there any -- is that half, or is there any color that you would give, or any dimensions around what the year-over-year impact would have been in the previous quarters, with substantially higher reported billings, at least?

Well, the contribution from cloud to our ratable mix is up year over year almost, well, more than 3 times. About 3 times. So it's pretty significant.

Right. And so would the cloud have been in the last couple quarters up, year over year?

Well, I'm not quantifying that today.

Okay, all right, fair enough. That's it for me. Thank you.

Okay, thank you.

Thank you. Karl Keirstead, Deutsche Bank.

Save the best for last, guys.

(Laughter) Hey, Karl.

Hi. Two questions for you, Dave. One is, are you giving any thought to breaking out cloud before you hit that 10% threshold? And then secondly, you probably don't want to talk about the license services mix in the coming quarters, chunky deals, it can swing things around. But if we take the high end of your rev guide for 3Q and assume a mid-50%s growth rate on maintenance and services, you can pretty easily get to a teens license growth for the October quarter. And I just want to make sure I'm not missing anything. That's probably the math that a lot of folks would be making. Thank you, Dave.

Yes, you bet. I think that might be too much of a reallocation between license and non-license. The way I think it's been modeled, and if I look at the composition of revenue license as a percentage of total over the last several years, you can see a very distinct pattern, where that percentage has modulated its way down as the maintenance base grows and as the ratable mix gets higher and higher.

Now, a lot of that ratable mix is being consumed by cloud. You can see the license percentage, and I think in this quarter, it was roughly 54% of total revenue. If you look back over time, the changes year over year in that contribution, there's a pretty consistent pattern. I think that's the way to think about it going forward.

Now, if we continue to see this type of cloud momentum, then I'm going to come back and say, hey, listen, let's reallocate your revenue between these line items so that we get that mix just right. I think, again, look back over time at the percentage of license revenue, the total on a quarterly basis year over year, and I think that's a good proxy for the outlook. And I would be surprised if you get a teens growth rate by doing so.

In terms of breaking out cloud revenue, your question was, is there any thought to do it? And the answer is, yes. Definitely we think about it, like, what's the right time to add that? In terms of, is it, boy, if it was 9.8% of revenue, am I going to say, well, that's not 10%, so I'm not disclosing it? Absolutely not. But at some point, I would expect that we will breaking that out before the 10% threshold.

Got it. Okay, thanks for fitting me in.

All right, you bet. Thanks, Karl.

Thank you. I would now like turn the call back over to Ken Tinsley, Splunk's Corporate Treasurer and Vice President of Investor Relations, for closing remarks.

Great, thank you, Tekia, I really appreciate your help today. And thanks, everybody, for joining us. We are available tonight if you have any need for clarification. Thanks so much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.