Splunk Switch To Subscription Model Almost Complete, Reports 27 Percent Q4 Growth

Splunk touts growth of annual recurring revenue and cloud sales and the popularity of the new pricing/purchase options it began offering in late 2019.

Machine data management software developer Splunk wrapped up its fiscal 2020 by making huge strides in its goal of boosting annual recurring revenue and migrating its customers to a subscription model.

“Our shift to a renewable model is 99 percent complete as customers are now predominantly opting for term and cloud contracts,” CEO Doug Merritt said in a conference call with investors in discussing the fourth-quarter and full-year financial results of Splunk’s fiscal 2020 (ended Jan. 31). “It was a milestone quarter with our cloud bookings more than doubling Q4 to Q4, and it was a strong finish to fiscal year 2020.”

The company ended the year with annual recurring revenue of $1.68 billion, up 54 percent from fiscal 2019, Merritt said. That number included $442 million in cloud sales and $1.24 billion from term licenses and maintenance contracts: The company has discontinued new perpetual license offerings.

[Related: Buy, Build And Invest: Splunk Pursues Multiple Routes To Expand Its Big Data Software Portfolio]

“I’m happy to report that this is ahead of what we forecast last quarter when we introduced our transformation metrics of ARR [annual recurring revenue] and operating cash flow,” the CEO said. “The flexibility and predictability of our new Data-to-Everything pricing options have made it easier to do business with us and for customers to bring data to every question, decision and action.

“And now we’re focusing squarely on cloud as a driver of our next phase of growth. Cloud-first has become our mindset from both the business model and product strategy perspective,” Merritt said. “Thirty-five percent of our software business was cloud this past year, and we expect cloud to ramp at a strong pace over these next few years, reaching over 60 percent of our total software bookings in fiscal year 2023.”

“Data-to-Everything” is the phrase Splunk adopted in 2019 to describe its core software and how it works, collecting and indexing machine-generated data that’s searchable and can be analyzed for a range of applications in IT management, security, business analytics and software development.

For the fiscal fourth quarter Splunk reported revenue of $791.2 million, up more than 27 percent from $622.1 million in the fourth quarter of fiscal 2019. The company reported a $22.7 million loss for the quarter compared with net income of $2.1 million one year earlier. Non-GAAP operating income was $191 million.

For all of fiscal 2020 Splunk reported revenue of $2.36 billion, up nearly 31 percent from $1.80 billion in fiscal 2019. For the fiscal year the company reported a loss of $336.7 million compared with a $275.6 million loss one year earlier. Non-GAAP operating income was $335 million.

Merritt said Splunk recently completed the largest customer order in the company’s history, in which the vendor beat out 16 competitors for the deal. He did not identify the customer or disclose a dollar value.

In addition to the shift toward subscription models and annual recurring revenue, Splunk in September debuted a number of new pricing options for its software, giving customers and channel partners more flexibility in how they purchase and pay for the company’s products.

“As more customers turn to Splunk for an increasing set of use cases, we’ve answered their call from our flexible and predictable pricing options, including those not based on data ingestion,” Merritt said on the call. “This is making it easier for our customers to bring even more data into Splunk and find faster value from that data. This quarter I’ve had so many customers tell me that our new pricing options have unlocked adoption within the business, which has given them the overall confidence, predictability and the right total cost of ownership to standardize on Splunk as their data platform across their organizations.”

Splunk executives said they have yet to see any real impact on the company’s business from the coronavirus epidemic, but said they are monitoring the situation and held the company’s annual sales kickoff meeting in Las Vegas last week.

“Right as of this moment, we are not seeing any immediate impacts from all the reactions to COVID and the other volatility we see in the market,” CEO Merritt said on the call. “Like every other company, we’re monitoring and literally on a multiple-time, per-day basis.”

For the current quarter, the fiscal 2021 first quarter ending April 30, Splunk is forecasting revenue of approximately $450 million. For all of fiscal 2012 (ending Jan. 31, 2021) the company is forecasting revenue to reach approximately $2.6 billion.

Splunk expects annual recurring revenue growth this year in the mid-40s percent range and annual recurring revenue compound annual growth of about 40 percent through fiscal 2023.