Splunk (SPLK) is trading higher today (+3%) after reporting Q4 (Jan) results last night. Many investors have probably heard the Splunk name but they do not really understand what they do. Basically, Splunk provides software that allows its customers to collect, index, search, monitor and analyze data regardless of format or source. Its software helps make sense of large and diverse data sets commonly referred to as big data and it's specifically tailored for machine data.
Machine data is produced by nearly every software application and electronic device at a company. Each thing that happens contains a time-stamped record of various activities, such as transactions, customer activities, and security threats. Beyond a company's traditional IT and security infrastructure, every processor-based system generates machine data.
Examples include HVAC controllers, manufacturing systems, smart electrical meters, GPS devices and radio-frequency identification tags, and many consumer-oriented systems, such as electronic wearables, mobile devices, automobiles and medical devices that contain embedded processor chips. These things are continuously generating machine data. Splunk's software helps make sense of all these data points in real-time so management and IT staff can make the correct operational decisions.
Its flagship product is Splunk Enterprise, a machine data platform, comprised of collection, indexing, search, reporting, analysis, alerting, monitoring and data management capabilities. Splunk Enterprise can collect and index hundreds of terabytes of machine data daily, irrespective of format or source. Its platform uses Splunk's patented data processing architecture that performs dynamic schema creation on the fly, enabling users to run queries on data without having to define or understand the structure of the data prior to collection and indexing. This is in contrast to traditional IT systems that require users to establish the format of their data prior to collection in order to answer a pre-set list of questions.
Splunk is quickly growing its customer base and expects that trend to continue. In the just ended FY18 (Jan), Splunk added over 2,000 new customers, ending the year with 15,400 customers globally. SPLK says it's on pace to hit 20,000 customers by FY20. An example of a Splunk customer would be Dubai Airport using Splunk Enterprise to create a real-time airport dashboard to visualize the complex operational processes at 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. Another good example is Dunkin' Donuts using Splunk Enterprise to analyze the preferences of its five million loyalty program members and gain real time insights into the effectiveness of their marketing campaigns.
Turning to the Q4 (Jan) results, non-GAAP EPS jumped 76% YoY to $0.37, which was better than market expectations. Revenue rose 37.0% year/year to $419.7 mln, which was a good bit better than prior guidance of $388-390 mln. Non-GAAP operating margin came in JanQ at 17.4%, up sharply from the 11.7% achieved in the prior year period. For all of FY18, non-GAAP operating margin improved to 9.2% from 6.2% in FY17. In terms of guidance, Splunk expects Q1 (Apr) revenue to come in around $295-297 mln, which is slightly above market expectations.
In Q4 (Jan), Splunk recorded more than 850 six-figure orders. And for the full year, it booked more than 2,300 six-figure orders, 271 seven-figure orders and 10 eight-figure orders, which compares to six total from company inception through the start of fiscal 2018. The increase in large orders is reflected in ASPs this year. In FY18, license ASP reached $95,000, up from prior levels of $60,000 to $70,000. Overall, Splunk feels its growing product suite, complemented by increased awareness and compelling ROI together are driving this type of broad and large-scale adoption.
International operations contributed 31% of Q4 revenue as its international teams do a good job at closing deals. Full year international contribution was 26% of revenue. Longer term, Splunk expects to see its international teams contribute between 30-35% of total revenue on an annual basis.
In sum, this was a good quarter for Splunk. It continues to see nice revenue growth and it's acquiring larger customers at a quicker pace. Also, it saw a nice expansion in non-GAAP operating margins. Overall, Splunk is benefitting from the explosion in machine data and, more importantly, the increased recognition by customers that they need to harness this data better to operate their business better.