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Splunk (SPLK) Q4 Earnings and Revenues Surpass Estimates

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Splunk Inc. SPLK reported fourth-quarter fiscal 2019 non-GAAP earnings of 93 cents per share, which beat the Zacks Consensus Estimate by 17 cents and increased 40.9% year over year.

Revenues surged 35.3% year over year to $622.1 million and comfortably beat the Zacks Consensus Estimate of $561 million. The year-over-year increase in revenues was driven by greater utilization of Splunk’s products by existing customers and new customer wins.

Quarter in Details

Software revenues, which comprise license and cloud revenues, climbed 38.1% from the year-ago quarter to $411 million. Fourth-quarter remaining performance obligation (RPO) was $1.3 billion, up 57% year over year.

Cloud revenues soared 85% from the year-ago quarter to $53 million on the back of increased utilization of cloud-based services.
 
Education and professional services represented 6% of total revenues. International operations represented 33% of total revenues.

The company continues its successful transition to a subscription or renewable model, which is evident from the fact that Splunk met its 75% transition rate for fiscal 2020 in fiscal 2019 itself. However, this transition is a headwind for the perpetual business, which is declining rapidly.

Splunk added more than 600 new enterprise customers in the quarter. The company had 179 orders of $1 million in the reported quarter compared with 111 in the previous quarter.

Operating Details

Non-GAAP gross margin increased 100 basis points (bps) from the year-ago quarter to 87.6% driven by large scale efficiencies and Splunk’s cloud business.  

Operating expenses, as a percentage of revenues, increased 270 bps year over year. Research & development (R&D) and sales & marketing (S&M) expenses increased 240 bps and 30 bps, respectively, year over year.

Non-GAAP operating profit was $166.4 million, up 26.7% from the year-ago quarter. Operating margin contracted 180 bps year over year.

Balance Sheet & Cash Flow

Splunk exited the quarter with cash & cash equivalents including investments of $1.88 billion compared with $2.67 billion in the previous quarter

Cash flow from operations was $127.4 million while free cash flow totaled $119.4 million at the end of the reported quarter, compared with cash flow from operations of $59.1 million and free cash flow of $51.8 million at the end of the third quarter.

Guidance

For first-quarter fiscal 2019, Splunk expects revenues of $395 million. Non-GAAP operating margin is likely to be around negative 8%.

For fiscal 2020, Splunk anticipates revenues of almost $2.2 billion, up from the previously guided range of $2.15 billion. The company maintains its non-GAAP operating margin target of 14%.

The company is scheduled to make important capital investments in fiscal 2020, which will require a capital expenditure of $100 million. As the company expands its international footprint, it will build major facilities in London, Boulder, Singapore and the San Francisco Bay area.

Zacks Rank & Stocks to Consider

Currently, Splunk has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same sector include Brightcove Inc. BCOV, Symantec Corporation SYMC and Synopsys, Inc. SNPS. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Brightcove, Symantec and Synopsys is projected to be 15%, 7.9% and 10%, respectively.

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