Splunk Inc (SPLK) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Splunk Inc. First Quarter 2018 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host, Mr. Ken Tinsley, Corporate Treasurer and Vice President of Investor Relations. Sir, you may begin.

Great. Thank you, Brian, and good afternoon, everyone. With me on the call today are Splunk's CEO, Doug Merritt; and CFO, Dave Conte. A 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 as well.

On this call, we will be making forward-looking statements, including financial guidance and expectations for our second quarter of fiscal year 2018; customer account goals; transaction, product and services mix as well as the mix between perpetual and ratable transactions; investments in international operations and expected growth in the international business; planned investments, including product services, sales and facilities, market and use case opportunities. These statements 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 uncertainties and other factors that may cause 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, Ken. Hello, everyone, and welcome to the call. Q1 was a good start to the year. We delivered $242 million in total revenue, up 30% over last year. Our growth continues to come from a combination of new and existing customers expanding their deployments both on-prem and in the cloud. I'm pleased to report that in Q1, we added nearly 500 new customers to Splunk family. We are on our way to achieving the goal we shared with all of you at our Analyst Day in January of having 20,000 customers in fiscal 2020.

We saw a continued momentum in our cloud business, which more than doubled year-over-year. We also received more industry recognition, with Splunk Cloud winning the Best Hybrid Cloud Solution by Cloud Awards and the Best Cloud Technology of the Year at TechWorld's techie awards. Congrats to the team.

As you know, we are early in the market when you consider the significant growth in the amount of data being generated. Investing and optimizing field coverage, segmentation and demand generation activities will drive our continued penetration in our markets, accelerate customer acquisition and ultimately, lead to all customers extracting more meaningful insights from their data.

With that, the field transition we shared with you is off to a good start. I'm encouraged by the early results of the changes that Susan has been driving. Interestingly, we had the most change in Americas, where we also had our strongest performance this quarter, while within EMEA, we saw inconsistent performance and have initiated a leadership change there to accelerate growth in that region.

Focus, process and alignment around customer success and acquisition are the key themes we're driving with our teams there and worldwide. Our macro-demand environment continues to be strong. And as we've said many times, we are still early on the adoption journey, even within our largest accounts. We want to vigorously pursue those opportunities.

Stepping back with the move to digital, e-commerce, mobile and social, organizations are now increasingly using machine data to provide critical context to the transactional data they store in their databases and data warehouses. Splunk's platform is the best solution to enable customers to harness this largely unstructured data and use it to make real-time decisions. There is no other solution on the market today that does what we do, and our customers are extracting orders of magnitude more insight from the sea of data than ever before.

Our goal remains the same, which is to become the standard for machine data in every account, a ubiquitous machine data platform, solving our customers' big data challenges in IT operations, application delivery, security compliance and fraud, business analytics and the Internet of Things. These markets are going through a shift to an analytics and machine learning-based approach, where Splunk is uniquely positioned to lead this change and deliver for our customers.

During the quarter, we continued to see strong traction in our core use cases of IT operations, app delivery and security. In addition to the Splunk platform, our premium apps of Enterprise Security, or ES; User Behavior Analytics, or UBA; and IT Service Intelligence, or ITSI, continued to show great momentum in the market.

I was proud to see Splunk positioned as a leader in the Forrester Wave for Security Analytics Platforms, where ES received the highest possible scores for real-time monitoring, scalability and detection technologies.

Notable wins in the quarter include Lloyd's Banking Group, who expanded their use of Splunk to monitor their mission-critical trading platforms as well as to gain insights into the digital services they offered to 30 million customers. Cerner Corporation expanded their use of Splunk from IT to security. Splunk Enterprise and ES will replace a legacy solution and will be used to increase visibility into potential threats to the security of patient health data. The UK Ministry of Defense is a Splunk security customer. They expanded by adding ES, ITSI and UBA.

With Splunk, the Ministry of Defense gains real-time monitoring as part of their enterprise, security and service management program. Jefferson County Public Schools in Colorado already relies on Splunk to maintain a strong security posture and defend their 85,000 students from cyber threats. This quarter, they expanded to IT operations, where they will be using Splunk to monitor and ensure uptime across the district. Special thanks to Palo Alto Networks for their partnership on this expansion.

STARTEK is a customer engagement company that deployed Splunk to improve customer service and internal staff operations. Thanks to our partner Zones, for their help in this win. Merck KG&A -- KGaA, the world's oldest chemical and pharmaceutical company, an existing Splunk customer, selected ES to replace their legacy SIEM. ES will be the data analytics platform underpinning Merck's security operation center.

Tata Consultancy Services selected Splunk Enterprise for IT operations, moving from proactive service monitoring to predictive analytics of business-critical applications. In addition to being a customer, TCS is a partner who uses Splunk to deliver IT ops and security use cases to their global customers. And the list would not be complete without mentioning an interesting business analytics use case. At SplunkLive! Paris, a electric car sharing service known as Autolib' shared how they use Splunk Enterprise to collect telemetry data from their cars as well as their consumer app to gain real-time visibility into business KPIs, including health and status of the cars, geo location of the fleet and service reservation levels across their sales channels.

Other customers in the quarter include Experian Consumer Services, Airport Authority of Hong Kong, University of North Carolina at Chapel Hill, State of Kansas, New Zealand's Trustpower Limited, Australia's Ramsay Health Care and the U.S. Navy.

As we do each quarter, we highlight a handful of customers who went all in and standardized on Splunk as a machine data platform, signing enterprise adoption agreements, or EAAs. This quarter's collection includes one of the world's largest financial service firms, a leading provider of online travel and related services, Lockheed Martin and a large nonprofit U.S. healthcare system.

Our cloud business continues momentum with customers leveraging our platform to analyze their data regardless of its location, on-prem or in the cloud. The sampling of our cloud wins this quarter include Monash University over in Australia, who expanded their Splunk Cloud presence to 2 terabytes by implementing ITSI. They continue to use Splunk to provide visibility and insights into IT operations across campuses. ITSI helps map the overall student experience to understand where and how students are interacting with the university systems and services. Take-Two Interactive, where we broadened our relationship with a leading interactive entertainment software developer and publisher. They rely on Splunk Cloud to drive their fast-paced launching of new video games to meet customer demand.

Practice Fusion, a cloud-based electronic health record provider, expanded its use of cloud -- Splunk Cloud to help ensure service availability. And Black Box Corporation, a leading technology solutions provider and a new Splunk Cloud customer, who will use Splunk to ensure they meet compliance requirements.

Moving on to the ecosystem, where increasingly Splunk is being viewed as a critical component of the IT and security landscape. Because of Splunk's ability to collect all data types and provide correlations across applications, infrastructure, mobile and wire data, we continue to see our ecosystem of partners grow. These partners, who are focused on particular components of the IT or security stacks, end up being yet another source of data for Splunk. This model allows our customers to leverage the Splunk platform to enhance our visibility of the entire environment, both on-prem and in the cloud.

Along the same and on the heels [RSA] last quarter, where we announced multiple new integrations as part of our Adaptive Response Initiative, we've recently announced a new integration in the IT market with New Relic, unifying machine data analytics and outperformance monitoring to help enterprises improve customer experiences and drive revenue. This builds on the integrations we currently have with other APM vendors like Dynatrace and AppDynamics.

I was also happened to be part of the keynote at AWS Summit and announced that by leveraging the AWS contracts API, Splunk Cloud is now even more tightly integrated with the AWS marketplace. Our joint customers can accelerate their time to value by taking advantage of seamless procurement and deployment of Splunk across their AWS and hybrid environments. I also want to recognize winner of Splunk's fiscal year '17 Global Partner+ Program Awards, which honors partners who go beyond expectations to deliver outstanding customer success.

You can see the list of winners globally and by region on our website. Partners are vital to Splunk and continue to push the envelope and innovate every day. I was very happy that Splunk was once again named one of the Best Places to Work in the Bay Area by the San Francisco Business Times. This is our 10th consecutive year getting that honor and is a testament to our great people and culture.

In summary, it was a good quarter and start to our fiscal year '18. I'm proud of the Splunk team. We have a tremendous opportunity that's immediately in front of us. Splunk is uniquely positioned to capitalize on this opportunity, and we're pursuing it aggressively. We are early in our journey and are investing for scale and for growth. We're delivering high value to our customers, who are expanding their adoption of Splunk as their platform for machine data analytics and machine learning, both on-prem and in the cloud.

Again, thanks to all of our customers and partners, and thanks to all those awesome Splunkers around the world.

Now, I'll turn it over to our CFO, Dave Conte.

All right. Thanks, Doug. Good afternoon, everyone. Thanks for joining the call. Q1 was a good start to fiscal '18, with total revenues of $242 million, a 30% increase over Q1 of last year. Total billings were $243 million, also up 30% over last year, while cloud revenues totaled $17.7 million, up more than a 100% year-over-year.

Overall, service revenues grew 48% compared to Q1, reflecting the growth in that cloud business. As Doug described, we remain committed to customer success and adoption of our platform and solutions. Once again, in Q1, more than 80% of our software bookings came from existing customers. We added nearly 500 new customers in the quarter, and we recorded 358 orders greater than $100,000.

Fiscal '18 remains a transition year both in the field and in our model. And in Q1, we saw indicators of that continued transition to more subscription bookings over time. As we said, the ratable mix of software bookings, which we define as cloud plus term licenses, varied substantially period-to-period, and we're focused on a full year view to gauge our progress. We said that we expect mix to be about 50% this year, and so far, we're tracking towards that level, ultimately reaching 75% subscription in 2020. Just to clarify that's fiscal 2020.

In Q1, international operations represented 25% of total revenues consistent with previous levels and comparable on a year-over-year basis. Our education and professional services represented 11% of total revenues in Q1.

Now turning to margin and other results, which are all non-GAAP. Q1 overall gross margin was 81%, seasonally lower as expected and reflecting a slightly higher contribution from services revenues, which, as you all know, carry a lower gross margin comparatively. Operating loss was $2.8 million, representing a negative margin of about 1%.

Q1 net loss was $1.3 million and EPS was a negative $0.01 per share based on weighted average share count of 137.8 million shares. Cash flow from operations were $41 million, and free cash flow was $36 million. And we ended the period with about $1.1 billion in total cash and investments.

Looking forward to the rest of the year, we expect Q2 total revenues of between $267 million and $269 million, with a positive 4% non-GAAP operating margin. With our Q1 performance and Q2 outlook, we now expect total revenues for the year to be $1.195 billion, up from our prior guidance.

Full year billings will be higher as well, at $1.425 billion for the year. And full year cloud revenues will total about $85 million. Remember, we denominate revenue globally in U.S. dollars and therefore have no foreign exchange exposure to our revenue line. As we continue our investments in market groups, product teams, the field and Splunk cloud, we maintain our full year non-GAAP operating margin estimate of 8%.

As I said and as we saw in Q1 results, operating margin targets include the impact of an increase in cost of services from our ramping cloud business. Additionally, along with our partners, we'll continue expanding our services capabilities tailored towards the use cases and solutions that align with our market group focus. We've seen clear evidence that customers who utilize our services have a higher likelihood of deploying more of our software over time. Given these investments, we expect to see annual gross margin in the mid-80s, while we grow op margins steadily, on the way to our target of 12% to 14% positive op margin in fiscal 2020.

For EPS, remember, since we expect to be profitable on a non-GAAP basis for the balance of the year, for year EPS calculations, you should use a fully diluted share count of approximately 143 million shares in Q2 and increasing that about 2 million shares per quarter thereafter. Also for modeling purposes, you should include a 27% effective tax rate. We continue to run the business on a positive operating cash flow basis and reiterate our full year operating cash flow expectation of $250 million, with the quarterly levels following the trend we've seen over the past several years.

In closing, our team continues to execute on our mission to deliver exceptional value to our customers, and we're committed to improving the customer experience through continued investments in our products, solutions and global reach. We're off to a good start and enthusiastic about our outlook for the remainder of fiscal '18. Thanks much for your time and interest. With that, let's open it up for questions.

(Operator Instructions) Our first question comes from the line of Raimo Lenschow from Barclays.

Can you -- Doug, can you talk a little bit about the changes on the sales organization and the impact? You mentioned in the U.S., you had bigger changes and better goals, but in Europe you had some changes. But then looking at your license growth number and that's kind of much, much lower than we've seen in previous quarters and I'm sure people would point out there is more ratable in that mix. Can you just kind of help to square what's going on there? Because that's where I get the most questions from investors.

Sure, Raimo. Let me -- I'll start and Dave can feather in the license feedback as well. As we've talked about at the Analyst Day, Susan is doing the appropriate thing by looking across the field to make sure that we've got the right coverage models. We've talked over and over about this TAM being absolutely enormous, and our biggest issue is how do we cover all the interest and opportunity and generate that opportunity out there. U.S. actually being our biggest region and our most mature region, and are as successful as you guessed, since we're a U.S.-based company, had a bigger impact from those changes and the positive that we saw is through Q1, they actually performed really well. So that's an early indicator that those changes were good changes. EMEA had some inconsistent performance. The TAM there is as large as the U.S. We all know GDP of EMEA, in aggregate, is similar to what we see here in the U.S. So we remain really enthusiastic about that market. It definitely is one of those incredible markets that we expect high growth from. The delta that we see in the U.S. versus EMEA is the focus, the attention to process and operating rhythm, and the tight alignment across a multitude of groups that have to work in the region -- marketing, presales, pro serve, inside sales, outside sales, channel and partners. And we're looking for that same degree of focus, alignment and execution in EMEA with these moves in the coming quarters.

Thanks, Doug. Raimo, it's Dave. I think if you look at the composition of revenue on a seasonal basis, Q1 from a license perspective isn't dissimilar than what we've seen over the last several years. What is changing, if you go back to say the first 3 years we were public before we really had a cloud offering, the seasonal change or the annual change by quarter would probably be in the 200 bps perspective. Q1 in '15 might have been 63% of revenues coming from license and in Q1 of '16, it was 61%. But with the increasing size of our cloud business, which again doubled in Q1, those revenues are now hitting the services line. So we see -- we're seeing an expansion of the seasonal, the annual change in seasonal license revenues. So that has gone from 200 basis points before cloud, it moved to 300 basis points a year once cloud started ramping, and we expect that continue in terms of license composition as a percentage of revenue.

And our next question comes from the line of Kirk Materne from Evercore.

Doug, I was wondering if you could just talk about the use cases in cloud. And how similar and/or different are they versus sort of the on-prem products, meaning when you think about how people are using the cloud product versus on-prem? I assume, you're getting sort of different mix between say IT ops versus operations management. I'm just trying to get a flavor of how cloud -- sort of expanding the use cases versus how much it sort of taking some of the existing use cases and sort of just changing it out in terms of the delivery mechanism?

Thanks, Kirk. I think the biggest thing that we're seeing in cloud, and it probably goes back to the orientation of people having moved to a SaaS mindset, is the attach rate between the applications and the corner line platform is higher. When people go to cloud, they are largely still going for security and IT ops use cases. Although I think that we all would believe that, as IOT and business analytics continue to gain momentum, being able to route all that data back to a -- already baked in and ready to go cloud would probably be a good thing to do. So I expect to see increases there. But when they're coming, unless you have a security use case, they are looking for really even more rapid time to value than I think our on-prem customers are. So the attach rates, I assume like ES with Splunk Enterprise seems to be higher. So they can get that SIEM up and running quickly instead of having to build it themselves.

Okay. If I could ask one really quick follow-up for Dave. Dave, when you think about the ratable mix -- obviously, ratable incorporates both the cloud business as well as term licenses, does this -- I don't know how much you want to get into this, but was the mix within ratable sort of shifting more to cloud? I ask, obviously, because, obviously, the gross margin characteristics of cloud versus term are obviously a little bit different, even though they're both ratable. So I was just kind of curious was the mix among the ratable business about what you would expect, or it sounds like cloud probably came in a little bit ahead of plan on that front?

Yes, Kirk, you bet. So obviously, cloud has been a growing contributor to our ratable mix. And if you go back to the 3-year outlook that we gave in terms of our transition, our goal in fiscal '20 is to have 75% of the business be subscription. Of that 75%, we're expecting 25% to be cloud. That's up from fiscal '17. It was about 16%, 17%. So continued growth in terms of customers utilizing term licenses for their on-prem data, but a growing component of subscription coming from cloud. So that trajectory is working backwards from 2020 is what we've been seeing, and it continued for the quarter.

And our next question comes from the line of Kash Rangan from Merrill Lynch.

I'm curious, when you look at the growth rate of the company, 40% last year to 30% this quarter, I'm curious to get your thoughts on how the reorganization that you have put in place might have impacted the growth rate? Is it, in other words, too early to judge the growth potential of the company just looking at this Q1, where you had this a bit of reorg? And I have a follow-up question on the cloud business.

Kash, thanks for the question. I agree with your ending piece, which is it's little bit too early to tell. The inconsistency in EMEA certainly had an impact, but it was really a positive thing to see the traction with Americas and the effects of the changes that Susan made actually just smoothly feather in with the execution cadence that team had. That's the engine of this company. Those guys have done such a nice job across the Americas of continuing to leverage new accounts and grow footprint within existing accounts.

And sales capacity growth rate, Doug, how are you planning to grow that this fiscal year versus the growth rate last year?

Kash, it's Dave. I think the absolute capacity growth will be similar as it has been in the prior year. And as you know, like we're extremely focused on, when we bring folks on, it's certainly maturity of the patch that we or the task that we may ask them to fulfill. But it's critically important that we enable them in the right way and that -- that's, I'd say, a self-imposed governor in terms of sales force expansion. Our overall critical mass in the field has got to increase -- like the reach that we have relative to the addressable market is a fraction. So we are committed to continuing to grow that overall reach. But it's at a pace that enables that we do it in a successful way. So a long answer, but I'd expect the overall growth in capacity to be similar to prior year.

So could we see an improvement in the growth rate as the field starts to execute more consistently as you get through the rest of the year?

Well, we certainly found that execution in our most mature region was quite strong in the Americas and to Kirk's question and Raimo's question about the shift in resources, that was somewhat -- that puts a strain on the organization when you implement that kind of change. So to see that kind of execution was really encouraging. Of course, we'd like to see that globally and consistently across all our regions, and that's how we're focusing for the balance of the year.

Got it. And finally the cloud business. If I take that $17 million that you reported, let's say, we don't know what the sequential change of the cloud business was, but the value of the cloud subscription is maybe understated relative to the license by about a 3x factor. So if I do some rough math going back to the old scores -- and you can never escape from me -- I get the license equivalent of -- the value of book business growth rate was substantially greater than 30%, 35%. How do you guys think about how you explain the growth rate of the company on the license seg, given this cloud business up 100% year-over-year?

Yes. Kash, you bet. It certainly something that we look at in the context of the composition of revenue. And how does it move between the services line, where cloud is embedded, and the license line. And I've been articulating for a couple of years that as cloud continues to grow, it's going to be a drag on the license line. And that certainly is the case in the quarter, when you look at the fact that cloud doubled to $17.7 million. So I wanted to round that to $18 million, I could say it's $18 million, but it doubled year-over-year. And there's certainly an equivalent drag that is greater than a dollar for dollar drag because the ratable nature of cloud says, well, that's different than how you might recognize perpetual dollar upfront. In terms of quantifying it, I mean, I leave that you guys, but I'll just tell you thematically that, yes, the shift to cloud is a drag on license.

And our next question comes from the line of Keith Bachman from Bank of Montreal.

I wanted to follow on one of the 6 questions that Kash asked. The growth of deferred was a little bit different and you had indicated that cloud doubled year-over-year and yet the mix of long-term deferred revenue was up substantially -- was, call it, 25% of total deferred. And I'm trying to reconcile, if cloud is a lower duration than other portions of your business, why is longer-term deferred growing as a percent of total? And it's actually up pretty meaningfully last year; it was, call it, 21% of deferred in the March quarter. And then I have a follow-up related to that.

Yes. Keith, thanks for the question. Actually, you're spot on in terms of the composition of business and how does that feather in to deferred except we see our cloud transactions having the longest duration. Those have been 2 in a quarter a year in duration on a weighted basis, and we saw that same result in Q1. And when you look at the composition of deferred and the delta between short term and long term, the biggest impact is, in fact, the growth in cloud.

Okay. Well, my follow-up relates to that, Dave, and thanks for your patience on the question, is, should investors be conditioned -- because, in fairness to you, if you look over the last 2 years, the long-term deferred as a percent of total has been growing consistently almost every quarter by a percentage or 2 on year-over-year basis. So as we exit FY '18 January quarter, should we expect long-term deferred to again represent a greater portion of the total than it had, say, in the January quarter of '17?

I think that, that would be an accurate assumption for your model. And again, driven by -- I mean, duration of cloud has the largest impact -- has a large impact on composition between long term and short term. And we expect to do $85 million of revenue this year. On our February call, we set an expectation for cloud billings of $150 million. So when you look at those 2 components and then we've given you an update on Q1 results as it relates to revenue, like how we're tracking against those objectives. So build that in to your model -- and again, we updated our full year billings expectation for fiscal '18, which, of course, is a key input for your deferred from $1.4 billion to $1.425 billion, of which $150 million is going to be cloud. So I think, you put those parameters in, you would see a continued trend that you've articulated where long-term grows as a percentage of total. Now let me just because it's always good fun, when we get towards the end of the year, I'll be coming back to you guys with specifics around our adoption of 606 and what that implies in terms of balance sheet composition; that our ending balance sheet on January '18 will be under current standards. So all of the modeling that you just -- that we just talked about will reflect current accounting, and then we'll have to take into account the implementation impact on deferred when we adopt 606. That's for the second half of the year.

And our next question is from the line of Abhey Lamba from Mizuho Securities.

Just continuing on that theme, Dave, about deferred. Your short-term deferreds usually have been kind of sequentially flat to up in the first quarter, but there was a meaningful downtick. Is that all related to cloud kind of doing better? Or is there any metric also, any other dynamic also impacting that?

Well, thanks, Abhey, for the question. Yes, the short-term deferred sequentially from a Q1 perspective has been anywhere from 0 change sequentially to plus 200 bps. I think it was 100 to 200 bps decline this quarter. So I put that in the same range from a consistency perspective and directly impacted by, one, the momentum in the cloud business and probably a little bit of a drag from some of the inconsistent performance we saw in EMEA.

Got it. And the other question I had is on your new customer signings. Do you think you're on track to hit the meaningful -- to hit your about 3,000 customer target that we need to hit your 2020 target, given the performance we had in the first quarter?

Absolutely. Again, when we look at our trajectory going from -- getting to $1 billion in 10 years, we were adding roughly 2,000 customers a year. And as I pointed out as a metric to watch as we go 3 years to $2 billion, we want to accelerate that customer acquisition to get from 2,000 to 3,000 a year. I think all of the activities that we've been implementing in terms of our go-to-market activities as well as our product portfolio are all geared towards not only satisfying existing customers, but providing a platform for us to accelerate customer acquisition from 2,000 to 3,000. We're one quarter in to that 12-quarter journey to $2 billion, and I think all of the activities that we've implemented are trending in the right direction.

And our next question comes from the line of Phil Winslow from Wells Fargo.

I just wanted to focus on deal sizes. Obviously, Q1 is typically not a big deal quarter for you, but you also sold a pretty healthy number of 100K plus deals. When you look at the pipeline in particular, I know this -- the large deals were a focus of last year and sort of building out some headcount there. How are you thinking about just deal sizes, especially as you sort of just contemplate the guidance for this year? And then just one quick follow-up to that.

Yes. As Dave just answered that last question, we got and as we talked about a bunch of times, Phil, we've got this great duality. We want more net new customers and more transaction velocity with landing in accounts to continue to complement the EAA progress, the department-wide usage that tends to drive the 6 and definitely 7 and 8 figure deals that we're doing. We were really excited about the big deal momentum for this quarter, and I think that continues to be a testament to 2 key things. One, people standardizing more and more data on Splunk and more of their use cases and business processes. And two, I think we're seeing a higher coupling of some of these applications -- ES, ITSI, UBA -- with the underlying platform and that jacks up the total deal value as well. It's a healthy sign. We continue to make investments in capacity and product so that we remain as interesting to those net news is that complement that has to drive with the big deal success that we're continuing to see.

Actually your comment there led to my follow-up, which is on ITSI and UBA. Obviously, Enterprise Security has been a hugely successful add-on or just upsell for you all. I'm wondering if you could give us some sense of ITSI, UBA -- sort of where they are in their life cycle, either of those 2 start to inflect or sort of how you're all thinking about those.

Yes, we're really excited about the performance of both those this quarter. With ITSI having bigger numbers -- it was went production roughly a year ago. So we let the guardrails off after I think really thoughtful new product introduction process to make sure that could scale. And it continues to grow at a really healthy and interesting rate. And we're seeing in some of the customer use cases that I cited during the prepared remarks. We're seeing how people are dropping that on top of the IT systems they currently have to do a much better job of visualizing those end-to-end service chains across hundreds or thousands of disconnected software and hardware components. UBA, we're really trying to take the same approach last year as we did with ITSI the year before, which is we're excited about the acquisition of Caspida. We love how UBA utilizes months typically or quarters or years of data at rest in more of a Hadoop architecture. We love the unsupervised machine learning, that's part of it, that really drives some of those unique aha moments that could indicate insider threat and unusual compromises. And we've started to let it loose. Q1 was probably the first quarter where we broadened the aperture on the qualification criteria for accounts, just because we've seen some good scaling success and feature success for the last few quarters. And it was a nice contributor for the quarter. There were more than $1 million deal that UBA self-drove. So it was a -- it's nice to see that really starting to get traction, and we're increasingly confident that, that's going to be a very critical part of our portfolio.

And our next question comes from the line of Michael Turits from Raymond James.

Guys, it's Michael Turits. So 2 questions. One, first on Europe. Can you drill down a bit on what exactly happened there? Because it does sound as you -- as we talk about the license being -- maybe not as much upside in the short-term billings, you said that, that issue had to do with Europe. So what exactly went wrong in sense that there's a leadership change? And how long does it take to fix that? Does that have an ongoing impact?

Thanks, Michael. So starting kind of in the high-level positive. We're seeing the same dynamics in Europe that we're seeing in Americas, where when I fly over there at least twice a year, usually 3 to 4 times a year, and the conversations I have with the major and mid-tier accounts there are identical with conversations in America. They're dealing with the exact same issues. They're looking at Splunk in the same way. The competitive landscape looks extraordinarily similar. So my expectations for European performance are on par and the same as what I expect from Americas, minus the fact that it's something that we only entered 6-plus years ago and does not have that same critical mass or track record as America yet. And that goes back to the large accounts we have there, we do really well in Americas and financially -- in multiple industries, but we're well known in financial services, Telco, federal government circles, state and local and others, and it looks very similar there with multimillion dollar deals in Europe, just like we have in Americas. That said, it's a definitely more complex environment. One, you're far away from corporate, so that has some impact. But two, the cultural differences, the language differences. The much higher reliance on channel. The difference in cloud adoption, all are different factors than we see in the U.S. So there's learnings that the team there has to have. And they are smaller, which means that critical mass effect that we get by having -- I don't even know how many teams on the East Coast, but a lot of teams on the East Coast, in example, and the reference selling that happens between those accounts. It just takes a little bit longer to build in Europe. All that aside, I expect the same adherence to focus, process, operating cadence, sales discipline, accountability in EMEA as I do over here. And Susan certainly does. And she's the one that's in-charge and she probably should be answering this, but she's not on the call. And I feel that we've got very talented reps in EMEA, and I'm actually really pleased with a lot of hiring that's been happening at the first and second line manager level and I've seen some really significant upgrades as we've done that. We just have to make sure that as we go from $1 billion to $2 billion, 10 years to get to $1 billion; 3 to 2, that's a high bar. It requires a different set of skill sets and capabilities to make sure that we jump over that bar. We added a new leader to Americas for instance, a couple of quarters ago, and I think that was part of the execution we saw in Q1, that we bring in the right talent and no one gets off the hook. If we're going to go pursue this $55 billion TAM as quickly as we need to, everyone's got to be playing at the top-level.

Okay. And then my follow-up, I just wanted to get a clarification, Dave, that you guided to a 27% tax rate. I think -- is that the first time that you gave that guidance? Because at least some of the models out there are -- don't have that kind of attach rate.

Hey, Michael, it is the first time we guided to it. We are incorporating and tax effecting our non-GAAP results, which you'll see in our disclosures and that's a common practice. So I want to make sure everyone has that input for their models.

Our next question comes from the line of Brian White from Drexel Hamilton.

Yes. Doug, I'm wondering if you could provide a little color on the security business in the quarter? And I'm wondering, WannaCry ransomware attack, how does that impact conversations with customers around security, especially, over the past couple of weeks?

Great set of questions. So in that -- kind of the consummate description of Splunk. It's a data-driven world. People -- the business decisions people can make, and the departments that each of us manage are organic living things. They're changing all the time. Data helps you keep track of that, and that's why, I think, we've seen all departments and security, I think, as the lead go to a security analytics and machine-learning driven approach versus a more static rule-driven approach. A lot of those last generation sim replacements that we've grown into are really just a reflection of "I need a constant stream of data. I never know what question I'm going to have to ask of that data, and I need an architecture and a set of solutions that enables me to be that flexible." Ransomware is just one of hundreds of constantly morphing advanced persistent attacks that we all have the joy of dealing with as we move to this online and constantly morphing world. We actually have a number of customers that have been using us for ransomware all along. We announced some assisted videos right after the WannaCry attack, just to make sure that customers could share best practices that we've seen with other customers on how Splunk can be used to look at that end point breach and start to both see patterns of potential Ransomware and then track and trace its path. And there's actually an app that we just put up on the app store on Splunkbase that specifically deals with ransomware. I think it's a sad thing that's happening around the world. I think I talked about on CNBC or Bloomberg or a couple of these interviews that, while a lot of people are thinking that ransomware might be last year's issue, I think it's going to be continue to be an issue going forward. And Splunk is there, where customer success is our #1 corporate priority. It's literally plastered around our corporate walls, and we're there to help in every way possible, so that we can keep our corporations and customers safe, and have everyone continue to grow and deliver the way that need to for their customers.

Okay. Great. And just a follow-up, the public vertical, what trends did you see in the government customers in the quarter?

Here we had some strong wins in pub sec this quarter. I called out the EAA with Lockheed Martin on the prepared remarks, Jefferson County Public Schools, University of North Carolina, State of Kansas, U.S. Navy. We're actually seeing that start to replicate around the world. In the U.K., the Ministry of Defense signed a really interesting contract. So I think we're learning the motions of state and local education and fed in different parts of the world. And when I look at the potential over the next few years -- and Susan has that target as one of our highest growth theaters long-term, the traction that we're getting within public sector is really interesting. It is overweight in security right now, and I think there's a good reason for that. A lot of the government agencies are -- have had a lot of difficult events over the past 2, 3, 4 years. And the team there is really leaning forward to try and transition that security footprint, keep growing it. There's still a lot of opportunity. We're underpenetrated despite that footprint. But transition that to IT operations, application delivery, and then the emerging IoT and business analytics use cases.

And our next question comes from the line of Sarah Hindlian from Macquarie.

I had a couple of bigger picture questions beyond the quarter I wanted to talk about in a little bit better detail. So I guess, really, the first one is, I wanted to drill down with you guys a little bit on how you're bifurcating and running your channel business versus direct sales today. And also hear a little bit about how the -- those dynamics are working along with the AWS marketplaces opportunity that you're starting to see unfold there? And then, a follow-up question, I think, is worth talking about on this call would be, are you really seeing any changes in the competitive dynamics in the marketplace out there that are causing you to really drive some of your go-to-market changes? Or is this really just getting in front of the market opportunity in front of you that you see, in particular, in the international market?

Thanks, Sarah. Let me -- I'll start with the last first, just because that then backs into coverage, which is really where a lot of the channel fits. So I honestly have not seen a meaningful change in the competitive landscape in the last 2 years. I think customers, if anything, are getting a little bit more clear on which technology should be used for which task. And the multitude of different items out there, that would all fall into Big Data, analytics, BI, all really do have special purpose based on the architecture that each of the teams took when they were developing those products. So account after account that I go into, I think, it's getting more, more obvious, the -- where Splunk has strengths -- and we keep talking about that flexible schema-less architecture that allows us to quickly put data in and ask multiple questions with that same data and get very different answers, that's got a whole a different value prop than some of the more hardened data tools out there that also have strong value props, that have sort of different use cases. So I haven't seen a big change there. Our issue is how do we -- given how important machine learning analytics and Big Data is, and how difficult, how complex and confusing that landscape is, and how a lot of customers are still trying to parse what it means for them -- how do we reach them? How do we make sure they understand that Splunk exists? Understand the strengths of Splunk, and the use cases that we're best tuned for -- which is why, you'll hear Dave and I harp nonstop on how do we get more feet-on-the-street, more feet-on-the-street. There is only so much that we can do as far as our capacity to hire, our capacity to train, and then, the operating expense that we can actually bear around that. So starting, really, for years and with a hard emphasis about 3 years ago, we really started to rotate much more aggressively on channel. We've made some, I think, some really strong shifts there. We've continued to add leadership around the world. There is a different set of executives, all the way down to individuals in the field level that drive our channel relationships to make sure they -- we find the right ones, we enable them the right way and they're assisted in that selling process. But we have neutralized the channel impact for our field as much as we possibly can. There should -- there's not a difference to them on a commission or quota basis on whether a channel partner has originated a deal or closed a deal, whatever they do. So we're trying to do the standard best practice in making sure that we get the leverage of channel, while still dedicating resources directly to channel. And that includes AWS marketplace as well.

Our next comes from the line of John DiFucci from Jefferies.

Doug, my question is for you, and it actually comes back to Europe. Everything you said so far on this call leads us to believe that you think there's some issues that Splunk had to rectify in the region. And I'll appreciate that, it makes sense. But I just want to make sure that you're not seeing any signs of macro weakness in the region, especially since in years past, this would have been the quarter we would've seen broad weakness not for you in particular, but just for -- across all of software. We're not hearing that from anybody, but there's a couple of things that make me ask this. I mean, these expeditions you talked about that are the same in Europe as they are in the U.S., and they should be. You mentioned you've been there only a little over 6 years. So that's a long time to have to try to still get it right, I think? And then, also, you talked about the -- there's a difference in cloud adoption, implying there's less of that in Europe, but that cloud adoption -- and that's what we've heard, although it's picking up just generally. But cloud adoption sort or suppresses the reported results relative to upfront license. So if you can just -- I mean, how confident are you that there's not something else going on there?

Thanks, John. I'd -- what I viewed in Europe is not a macro issue. I view it more as a Splunk execution issue. And while we have been there for 6 years, if you look at the typical management shifts that occur as a company goes from 0 to $10 million, $10 million to $100 million, $100 million to $200 million, $300 million, and $300 million and beyond, and Splunk is no exception at the sales leadership level. They usually are 2 or 3 -- or sometimes 4 or 5 depending on the company, senior sales leadership changes because of the different skills needed when you're trying to really figure out the market and event to scale. And that European business is getting to a decent size now and a lot of the process -- they need to adhere to the America -- to the processes that we've seen work in the U.S., and up-level the game the way that we had to up-level the game in the U.S. as we're getting to the C level over and within these organizations, if they want to be successful. So I really look at it as a focus, process, swagger and execution challenge within EMEA. And I think the changes that Susan is in the middle of driving should be positive over the course of the coming quarters.

Okay. Okay. Great. By the way, I like that word swagger. So hopefully, we'll see it in the future.

We've got -- there are some -- all -- many of the impressive brands that you would expect -- we talked about them in the past calls, IKEA, and BMW, and Barclays, and UBS, and great, great companies that are top notch in their utilization of data and their IT practices, obviously, in their competitive execution globally, love Splunk, use Splunk in a multitude of use cases. Many of them as EAAs. So we've got the credentials and the referenceability within that region. We just have to continue to leverage that and up our game. And I think, swagger is a piece of that. The ability to walk in with confidence. And we got that -- we started to develop, over 3, 4 years in Americas, we went from selling to a manager of IT, to a Director, to a VP, to eventually the CIO. And I think we're just going through that same process in EMEA.

Our next question comes from the line of Jesse Hulsing from Goldman Sachs.

It sounds like based on your commentary that the Americas took the sales reorg fairly well and the cloud business is strong. And it sounds like most of the cloud business is still in the U.S. based on your geographic commentary. So I'm wondering, it looks like you maintained your guidance for cloud for the full year at $85 million. I think that's what you guided to on the fourth quarter call. I'm wondering, why not raise that? Or what's the reason for not taking that number higher if you're seeing the trends that you like to see in the cloud business?

Jesse, it's Dave. First, when we set our plan and shared that with you guys, we had built-in the momentum we had experienced exiting last year into our model and expectations for this year. Secondly, it's one quarter. Q1 is in the can, and we're certainly happy with our performance and particularly our performance in the cloud for the quarter. And we've got 3 quarters to go. And as we all know, the yield that you realized from a revenue perspective from cloud diminishes with each subsequent quarter. So our largest quarter has historically been the fourth. We expect that's going to be the case this year as well. But the actual revenue yield in cloud from fourth quarter business is going to be nominal as a percentage of the total. So we built our model assuming a certain growth rate for cloud, a certain seasonal nature of those cloud transactions, and we're on track with that.

Got you. That make sense. And Doug, a question that I've gotten a few times over the last quarter from folks is the relative merit, I guess, of single tenant cloud versus multi-tenant cloud offerings, which some of your competitors have. I'm curious to get your perspective on how customers are looking at it? And whether that matters? And then, I guess, longer-term, does it make any difference on the gross margin side of that business when you start to get to scale?

So my view from a customer basis is if they had their way, and there is no difference in price, I can't imagine why anyone would not want single tenant. It provides isolation on performance, isolation on data, a lot of the things that we're seeing, legislative movements around the world address, I think are easier to manage on single tenant. We -- the real issue, I think, has always come back to the SaaS provider and the economics that the SaaS provider is trying to drive. We've got -- we're continuously investing and updating the core platform so that we can drive the right margins, at the right scale, and still deliver the right performance to our customers. And I think a lot of the wins that we've seen over the past few quarters in cloud are because they really see demonstrable proof of through proof of concept and others. The high, high scale that we can get with our cloud offering, and the high availability in performance characteristics they're looking for. So I think that continue to optimize our software to take advantage of the different services that AWS and other cloud architectures offer, the horizontal scalability, the containerization, the micro services orientation is really -- and is a very important thing for our development team to continue to focus on and is a core driver and a portion of road map for our cloud team. And that's what we're focused on to keep service levels where they are and drive margins where we need them to be.

And our next question comes from the line of Fatima Boolani from UBS.

I have a question for Doug, and a question for Dave. Doug you have been adding customers at a pretty consistent clip of 500 and change every single quarter. I'm wondering if you can comment on, if each successive quarter that the shape and profile of that 500 cohort that you're adding is a little bit more sophisticated, a little bit larger. And what I'm trying to get at is the new customers that you are landing, are they showing an incidence or cadence, just buying bigger, buying more, such that you can kind of hit that 300 $1 million deal mark? So just some commentary around the shape and contour of the customers that you're adding today relative to kind of the same size of customers that you were adding a couple of years ago.

I don't think that they have dramatically changed. I think what is helping to speed time to value and to speed adoption -- which ultimately is I think the core drivers that Dave and his team have been looking on this cohort of revenue expansion is more and more solutions being available for our customers. Obviously, our premium solutions, Enterprise security, UBA, ITSI, helped and I think are making an impact, but Splunkbase over the past 4 years has grown to from less than 500 different available solutions in Splunkbase to over 1,400. And we've made a lot of progress within Splunkbase as well. We certify a growing number of the solutions that are there; there are a growing number of supported and [revs] effectively. We've delivered different technologies to help with more rapid generation of solutions. So I think part of what is helping that big deal success is if you can drop a solution on top of Splunk, it solves the departmental problem more quickly, and eventually leads to more data going into the background.

That make sense. And a question for Dave. Dave, that Professional Services makes that 11% in the quarter quite a bit higher than what we've seen consistently in the past couple of quarters. And even a little bit higher than the historical guide posts you've provided in the 5 to 10 range. I surmise as you know, customers are growing their environment and getting a little bit of cloud, a little bit of on-prem, things are getting a little bit more complex. But I'm wondering if you could just maybe put a finer point on why that mix really ticked up this quarter? And that's it for me.

Sure. What we've actually seen in the back half of last year, was Professional Services growing; it's percentage being at that top end of what had been our historic range of 5% to 10%. We've been, I think, at 9% of revenue for both Q3 and Q4, which candidly was hard to do given those are seasonally largest revenue quarters overall. It's certainly an area of focus for us to deliver services both with our own resources and together with our partners because we know that, particularly when customers go from multi department to larger standardization type deployments, that services are a significant enabler. So we're really interested in delivering the right kinds of services and having our partners enabled to deliver the right kinds of services to our customers. So the 11% wasn't a significant outlier in my mind in light of it being Q1. I think for the balance of the year, we'll probably still be sub-10%, but call it, I'm not updating the outlook. It's been 5% to 10%. We haven't -- services, you can forecast when you're going to close a services contract. It's more challenging to time when the services will be delivered, and that's when the revrec happens. But I do think they'll be pushing towards the upper end of our historic range, that 5% to 10% range for the year.

Our next question comes from the line of Matt Hedberg from RBC Capital Markets.

Just one from me. I guess, thinking about European drivers, one of the things we're hearing from other security vendors is early customer conversations around GDPR, the briefs notification. And I'm curious, maybe not as a driver this year, but are you hearing customers ask about that, when they think of getting a better understanding of the threat landscape and where they could be exposed? And could that be a drive for calendar '18 for you guys?

Matt, it's Dave. We heard the European drivers, the middle -- the key part of your question, we missed. Could you just repeat that, please?

Yes. I was just curious, when you think about European drivers, are customers asking about GDPR in the context of Splunk? And whether or not that could help them get a better understanding of the threat landscape?

Got it. Yes. That was the key thing that you cut out on. We actually -- our legal team issued a white paper on GDPR recently, and Splunk is uniquely positioned to address a huge chunk of the -- both monitoring and enforcement aspects that look like they're going to be hardened by that GDPR resolution. We're just starting to ramp up the communication around that within Europe. And if we do it properly, I think that it could be a good positive impact for our European business.

Our next question comes from the line of Alex Zukin from Piper Jaffray.

I've got one, maybe strategic question, and one more tactical one. So first, it sounded like this was a pretty good EAA quarter for you guys and I wanted to ask when you move a longtime customer to an EAA, can you quantify for us what's the average uptick or impact on the ACV for that customer. And thinking longer-term, how many of your larger customers do you expect to ultimately get to EAA? And then, I've got a follow-up around the sales question on Europe.

So I'm not sure if we -- I don't remember seeing, Dave, you guys do any analysis and quantification of what the uptick -- what the average bump is on EAA?

Not specifically. And it's -- what we have articulated is a couple of things. One, our experience shows that it's typically, call it a 4- to 5-year journey from the customer's initial buy to when they get to the maturity inside of their organization where they would move to an EAA. So we've looked at some of our longer-tenured customers that are under the EAA umbrella, and that's been the most typical trend. Now I've always -- I've often pointed out that when we talk about 7 and 8 figure orders, those are not synonymous with EAAs. So last year, we did 160-some 7-figure transactions, and a subset of those met our criteria for adoption transactions. So if you think about the total body of our customer base today, given Q1's results, call it roughly 14,000 customers. We're on a path to 20,000. And last year, we added 2,200 accounts, we ended the year with about 13,000-plus and we did 165 large orders for the year, which is a subset. So you start doing the math. You say, wow, the absolute number of EAAs that we have closed to date is a small percentage of the customer base. So that's the second part of your question, like how many are you going to do, and I think it'll continue to be a fractional component of the overall customer base based on maturity of those customers. To Doug's point, we haven't gone and said, well here's what the typical uptake is in dollars. What we have done, and we shared at Analyst Day, is we've given that overall cohort in terms of buying percent -- buying behavior for customers. So just quickly, we looked at 100% of our population, what was their buying behavior after 4 years with us, and that was about 2,200 accounts. At that time, they purchased 8x the capacity and 5x the dollars. We updated that same population, it turned up to about 1,500 accounts because the other 700 hadn't hit 5 years yet. And after 5 years, the capacity purchase was like 10.5x the capacity and 7 plus x the dollars back to Splunk. Obviously, a subset of those were EAA customers. But that type of cohort, we think, is consistent in terms of our opportunity with the customer base.

Got it. And then, just another question around kind of the sales transition and disruption. I think you guys talked at length about that and conditioned us, I think, to think about that in both the fourth quarter call and on the Analyst Day. So I'm curious how much of these issues in Europe were you expecting, versus how much have been surprised by them? And as you look at your guidance for the rest of the year, is it tempered more by the unknown of how many customers will adopt cloud solutions versus not? Or is it more tempered by the issues -- the potential continued service disruption issues?

We -- I honestly, I was disappointed and I know Susan was disappointed in the performance in EMEA. So whatever -- we didn't factor in -- we factored in some disruption, but we didn't factor in performance that we wanted to have seen from that group. The hard to quantify piece, and a lot of what you hear from Dave is, how quickly are customers going to move to cloud and/or not? And we've worked really hard over the past few years to try and create as mutual a comp plan as humanly possible so that the customer gets to decide. Customer success is our #1 priority. I can say that over and over. We want to put the customer first in everything we do and whether a customer is on-prem or in the cloud, whether they're perpetual substitution, that's got to be a customer's voice and choice. And so we've been working hard to not have comp be the undue influencer, which means that there's a degree of variability every single quarter on what our -- how our customer is voting. And that's probably a bigger variable than anything else.

Our next question comes from the line of Nate Cunningham from Guggenhiem.

Doug, have you seen AppDynamics' Log Analytics product in the market at all? And can you just talk about how the New Relic partnership fits into your broader application-delivery strategy?

Yes. We know that App-D had that long -- has been working on it and released the Log Analytics offering. We haven't seen any change in the competitive posturing or situation with that. I think it will -- it has a different set of value props and a different capability set than what we have. And the -- that AppD integration is actually one of the -- it's a well-downloaded and well use integration with Splunk because people want to combine the inner to what's happening with Internet -- the specific set of applications with all the surrounding information you can get from databases, and servers and network and end points and the other true service view pieces that you need to understand the health and characteristics of an app. We have had an AppD and have done a trace integration for a while. We've been working on a New Relic one as well. And we see a growing number of our installed base continue to choose New Relic. So the -- there's really a market response as well as that partnership between the 2 companies that drove the New Relic introduction. We've seen some good initial uptake and as we get some success stories, I'm sure that I will share those with you guys in the coming quarters.

And now we have time for one more question from the line of Mark Murphy from JPMorgan.

Albert Chi on for Mark Murphy. Most have been answered, but just a quick one on the larger deal metrics for orders over $100,000. So it looks like there's a little bit more seasonality in that growth than in prior years, but can you talk about anything you're seeing with that? And maybe if -- is there anything we're missing in terms of how deals are counted within cloud structures? Or any sort of dynamics about whether it's different purchasing through AWS for example?

No. I think -- we quantify the deals the same way. AWS deal, that's 6 figures, 6 figures. So I think it's a consistent count.

Yes. No, I don't see -- it's Q1, I don't think there's anything indicative to what we see in the greater than $100,000. We had a really impressive quarter with some larger transactions that are embedded there. Doug mentioned 4 accounts that were EAAs in the quarter, and these are really important adoption standardization transactions, where customers are really relying on our technology and our solutions for some mission-critical initiatives they have. So I think when we look at the -- certainly, the composition of the quarter and the composition of our larger orders, it's pretty consistent with what we've seen over time outside of, like real strength at the top end.

Meaning we saw real strength.

We saw real strength at the top end. Yes.

Got it. Okay. Yes. And you did talk about that. And maybe I'll just end on one more. A lot of the public clouds we've been hearing about have been talking a lot about edge computing and IoT. And I know you've recently started talking about that business. The public clouds have talked about how that's been one of the faster growing parts of their business. Can you talk about how Splunk might be tied to that, in terms of growth?

Yes. I think that Autolib' example that I shared during the call is a good example of a mix between what we could normally call business analytics and IoT. All the sensors that exist in the world around us need to communicate somewhere and there's the edge computing is the -- how do I collect that information in the sensors, and then there's the secondary aspect of how do I combine what's now hundreds or in many cases thousands of different data sources that all have unique structures or are unstructured depending on how the source is formatted. And IoT has got a ton of very loosely or unstructured data, especially from the last generation, the more SCADA or anti-systems. And how can you intermix those different data sources at the edge, on the device itself and back in more of a central location or across a multitude of different locations so you can get that analytical insight and make real-time decisions. And that Autolib' example was grabbing telemetry data from the cars themselves, data from the apps, the consumer apps that they've pushed out, which could be much more of a log flow system to drive visibility on the health of the cars, understanding the location of cars. They can stage some of the appropriate places to serve customers, and then make sure they've got the right couponing, discounting and pricing incentives to drive their business. That's a great combo of local processing, edge processing, core processing, and then the analytical mix that's necessary to bring all those different things together so you can make business decisions.

And that concludes our Q&A session. And now I would like to turn the call back to Mr. Ken Tinsley, for any closing remarks.

Great. Brian, thank you. I appreciate your help today. And I know we went long. We wanted to try to get in as many questions as we could. So thanks for everybody's patience.

If there's any follow-up you need, don't hesitate to reach back into us tonight. We're happy to help. Thanks, again.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program, and you may all disconnect. Everyone, have a great day.