Occasionally we like to listen in and use voice to text software to translate a question and answer period. Today our staff listened in on the Splunk call and wanted to provide you with the highlights of the question and answer period. Please note that this is prone to human error, so we do not make any guarantees about is accuracy, and is intended for informational purposes only.

Here are the highlights:

 

Operator

Thank you. And our first question comes from the line of Brian White from Drexel. Your line is now open.

Brian J. White – Drexel Hamilton LLC

Okay. Great. Great quarter, guys. When we think about the quarter and the outlook, it’s probably one of the strongest outlooks we’ve seen in a long, long time from Splunk, and now you’re going out to even fiscal 2019 in giving guidance. Maybe just give us an update on the competitive landscape. It seems like you’re really starting to show more momentum than we’ve seen in recent memory.

Douglas Merritt – Splunk, Inc.

Thanks. Yeah, it was a really nice quarter. The competitive landscape remains really similar to what we’ve seen. Our win rates against the track competitors are generally in the 80% to upwards to 95% rate. And it just feels like there’s a growing understanding of the value of Splunk, especially when you get to high intensity, production-oriented use cases, and you deal with more and more of the issues of really broad and complex set of data. And I think our solutions-oriented strategy continues to help us as well with solutions like Enterprise Security, ITSI, UBA and others, helping our customers understand what we do, how to use Splunk, and how to get quick time to value.

Brian J. White – Drexel Hamilton LLC

And just a follow-up, on 606, Dave, is this a revenue headwind in fiscal 2019? You gave numbers, but is that a headwind, a tailwind? And just remind us how we should think about the impact on deferred revenue. I remember we talked about $300 million or something in that range.

David F. Conte – Splunk, Inc.

Yes. Yeah. Hey. Thanks, Brian. The headwind, tailwind, is ultimately going to be dependent on the ending balance sheet. And, as you mentioned, when you adopt 606, there’s an impact where you remove a certain amount of deferred revenue. The absolute number – again, at Analyst Day I used $300 million as an example. We’ve got to get to the end of the year to actually quantify what that impact will be. So headwind, tailwind, you get the detriment of a removal of deferred revenue. You get the benefit of upfront revenue on our ever-increasing subscription business, but we really have to get to the end of the year to quantify that.

Brian J. White – Drexel Hamilton LLC

Okay. Great. Congratulations.

David F. Conte – Splunk, Inc.

Thanks, Brian.

Douglas Merritt – Splunk, Inc.

Thanks, Brian.

Operator

Thank you. And our next question comes from the line of Brad Zelnick from Credit Suisse. Your line is open.

Brad Alan Zelnick – Credit Suisse Securities (USA) LLC

Thanks very much and congrats, guys. It’s phenomenal, phenomenal results.

David F. Conte – Splunk, Inc.

Thanks, Brad.

Douglas Merritt – Splunk, Inc.

Thanks, Brad.

Brad Alan Zelnick – Credit Suisse Securities (USA) LLC

Sure. So first for Doug. Doug, in the quarter you put out a press release elevating Susan St. Ledger’s role. I guess this quarter’s result is early evidence of that. What, if anything, changes operationally in elevating her? And then related, on go-to-market, what’s the latest update on leadership in EMEA?

Douglas Merritt – Splunk, Inc.

Good questions, Brad. So with Susan being promoted President, she’s now President of Worldwide Field Operations and we added in a few areas like marketing to her responsibility. The core driver of that is, as we’re looking to the next phase of our growth, beyond $2 billion, it’s really important for us to gain leverage and scale across every single customer touch point that we have. She had a broad scope. I think we’ve broadened that a little bit more, where I think it becomes even more important is when you add in the significance of our transition to a subscription focus, then elements like self-service, touchless transactions from initial awareness on broad-based, above the funnel market orientation all the way through to support, renewals become just a critical portion of the machinery that needs to execute flawlessly on that horizontal basis across these different functions.

I think moving – ensuring that all those customer touch points are under one leader, and that she’s got the job title and responsibility within the company clearly distinguished to make whatever moves were necessary is a good thing and she’s doing a fantastic job as we all saw this quarter. On Europe, as you saw, we had a really nice quarter in Europe, again. I think a lot of that is the luxury of the strong bench that I had highlighted in Q1. I thought that we had some strong sub-theater leaders, but many of them are early in their tenure, and we spent a lot of time building out that management structure across EMEA and also across APAC. So we can get that scale in the international region that we’re seeing and enjoying in the public sector in America’s theaters. She’s had a really nice in-bound set of demands and interests for that position. She’s down to the finalists and I’m hopeful that you’ll see announcement coming out relatively soon.

Brad Alan Zelnick – Credit Suisse Securities (USA) LLC

Awesome. If I could just ask one follow-up for Dave. Dave, cash flow came in a little bit lighter than we had expected. If I look at DSOs, they look like they’re a bit higher than trend. Other than linearity, is there anything we should be thinking about here and anything you might be doing to improve collections or better manage linearity of the business over time? Thanks.

David F. Conte – Splunk, Inc.

Yeah. No, we’re pretty satisfied with the performance for the quarter, and candidly, for the year. We obviously had almost 600 greater than $100,000 orders. Those can impact linearity, as you would imagine. We think about cash flow on an annual basis. We don’t guide it quarterly. And I guess I’m on a live call, Ken. I can go ahead and say we feel that we’re on track for $250 million of operating cash flow for the year. So I just want to echo Doug’s commentary. The performance in the field was obviously quite strong and we’re very proud of the transactions that we closed. And I don’t think there’s anything to read into DSOs or quarterly cash flow.

Brad Alan Zelnick – Credit Suisse Securities (USA) LLC

Great to hear. Thanks, again, guys.

David F. Conte – Splunk, Inc.

All right. Thanks, Brad.

Ken Tinsley – Splunk, Inc.

Thanks, Brad.

Douglas Merritt – Splunk, Inc.

Thanks, Brad.

Operator

Thank you. And our next question comes from the line of Michael Turits from Raymond James. Your line is now open.

Michael Turits – Raymond James & Associates, Inc.

Hey, guys, strong quarter. One for Doug and one for Dave. So, Doug, can you drill down on security demand? You mentioned that there was some impact, it sounded, from both the upgrade cycle on SIEM as well as recent events. How much of an impact do you feel like you had from both ransomware and Equifax from this summer and what changes have you seen in terms of the shift in spending to SIEM?

Douglas Merritt – Splunk, Inc.

Good question, Michael. Yeah. We’ve been, I think, uniquely touting. I think we probably started this trend four or five years ago on moving from a independent product-driven messaging to the need for broad-based security analytics, for people to really get a feel and understanding of anything that could be happening across the constantly changing cyber landscape that these guys have got to have to defend and be familiar with.

And I think that fundamental power of Splunk as a machine data platform, the schema-on-read architecture we always talk about, allows multi-use case opportunities within the security departments, obviously, and outside security as well, is really resonating a little bit more clearly with these guys, as the attacks were coming fast and furious from multiple different areas, from ransomware, to kind of classic breaches, to insider threat, and other behavior analytics you can be driving as well. And as we all know, security is a boardroom topic. It is a critical agenda item for the exec team in most companies. I think we’re definitely seeing that with our execution in the security space over the past couple quarters.

Michael Turits – Raymond James & Associates, Inc.

Okay. And then, Dave, obviously it’s fun on billings too. It didn’t look offhand like a mix shift but license was particularly strong. So was there any mix shift or less mix shift towards subscription at all this quarter and consequent positive impacts on rev rec?

David F. Conte – Splunk, Inc.

Again, we think about mix annually, as you know. I mentioned in prepared remarks, we recorded our two largest cloud transactions in our history. I raised our outlook for cloud revenue and cloud billings for the year, so I think we’re feeling confident with our execution around our move towards subscription overall.

Obviously, that we laid it out as a three-year journey back in January, and I think we’re tracking well. Obviously, with the seasonally strongest and largest Q4 just ahead of us, as you guys know, individual transactions can move what will ultimately be our full year metric, but the execution in the field around satisfying customer demand for how they consume our products, whether it’s on-prem with the subscription license, or in the cloud with our SaaS service has been really strong.

Michael Turits – Raymond James & Associates, Inc.

Okay, Dave, thanks a lot, and congrats again on the quarter. Great job.

Ken Tinsley – Splunk, Inc.

Thanks, Michael.

Douglas Merritt – Splunk, Inc.

Thanks, Michael.

David F. Conte – Splunk, Inc.

Thanks, Michael.

Operator

Thank you. And our next question comes from the line of Phil Winslow from Wells Fargo. Your line is now open.

Philip Winslow – Wells Fargo Securities LLC

Great. Thanks guys for taking my question, and congrats on a great quarter. One question for the team and just one follow-up specifically for Dave. Obviously, you touched on the curated experience down at the analyst session at .conf, and obviously, you talked tonight about security, ITSI, UBA, but wondering if you could give us just some more color in terms of how you think those curated experiences, those curated apps are impacting business now. Any of those newer ones starting to inflect?

And then as you start to scroll forward 2019 and 2020 year guidance, I mean, how do you think about those curated experiences driving growth? Will it be free experiences just driving the base platform or add-ons? And then just one quick follow-up for Dave.

Douglas Merritt – Splunk, Inc.

Thanks, Phil. We’re seeing increasing uptake around a few of these, but they’re still early on. And those curated experiences aren’t solutions; and again, we have lots of terminology around the thickness of the solution at Splunk. But different clustering of data visualizations, dashboards, alerts, remediations, some Light workflow that specifically answer the needs of a set of users within the account, so that they’re not starting from scratch with the underlying Splunk Enterprise platform. They obviously can still do that, but they get what they need much more cleanly out of the box.

This Project Waitomo that I talked about again on the call and that we previewed at .conf is a good example of one of these, where we’re combining the metrics to our capability with the classic streaming log orientation of Splunk to really help systems administrators and site reliability engineers get up and running literally in minutes. It’s a really cool experience as far as immediate power of Splunk, and we actually, for Waitomo, strip out things like our – the flexibility of the search and investigate piece. It is a purpose-built view on top of Splunk Enterprise.

I think that will increasingly be the way that we see our land opportunities happen in the coming two years. And the whole point is let’s get that – first, let’s make it easier to get that first set of data in, increase the time to value or decrease the time to value, increase the time to power for our different customers so that we accelerate that use case journey across multiple different departments to eventually drive that more EAA platform-ish type sale that we’re seeing with some of our bigger accounts.

That said, I think the answer is it will depend on the account and the segment with the larger strategic accounts by getting a little bit less velocity on some of these curated insight experiences, and the newer accounts and more mid-size accounts probably getting a lot more of those – demanding those more strongly.

Philip Winslow – Wells Fargo Securities LLC

Got it. Thanks, Doug. And then, Dave, at one point last year you talked about Splunk Cloud being about a five-point headwind to margins. I’m wondering if you can give us an update into just about how that business is scaling from a margin perspective.

David F. Conte – Splunk, Inc.

Yeah. Hey, Phil. We’re feeling good about the trajectory for Splunk Cloud from a margin perspective. Recall last quarter I reported that we hit a milestone in Splunk Cloud in Q2 of 30% positive gross margins, and that we expected to be about that level for the remainder of the year. And that held true for the third quarter. So good progress, good scale, and heading in the right direction.

Philip Winslow – Wells Fargo Securities LLC

Got it. Thanks, guys.

Ken Tinsley – Splunk, Inc.

Thanks, Phil.

David F. Conte – Splunk, Inc.

Thanks, Phil.

Operator

Thank you. And our next question comes from the line of John DiFucci from Jefferies. Your line is now open.

John DiFucci – Jefferies LLC

Thank you. I have a question for Doug and maybe a follow-up for Dave. And, Doug, my question – is actually a follow-up to Mike’s question – to Michael Turits’ question. So these are really strong results as a couple of people had said so far today, and we’re seeing decent results from a lot of software names, but not so much in the security space. I mean, that’s been a little bit mixed. Can you talk a little bit about the strong aggregate momentum we’re seeing here in your numbers relative to what we’re seeing in security? It sounds like security is doing pretty well, but are you seeing better results in the other areas or is security keeping up which would kind of you make you somewhat of an anomaly given some of the recent reports?

Douglas Merritt – Splunk, Inc.

Hey, John. So this quarter’s security actually did really well for us. We talked about it being in the 40% to 50% range. It was over 50% for us in this quarter. And the IT sector is still healthy, growing and vital to our future, and we see these trade-offs back and forth every quarter. A lot of the security wins I talked about, they started with IT operations and then moved over to security, so we see it moving both ways.

But just going back to what do we – there was a mixed bag in the security arena right now, and what we’re – where I see people leaning in for Splunk is we provide an abstraction layer with Splunk Enterprise and then solutions like ES that is agnostic to the typically hundreds of different security solutions that most decent-sized organizations have across their security landscape.

And what I hear from a lot of CSOs is, yeah, I mean, it’d be nice to get the benefits of a next generation X, Y, or Z in the security landscape, but what I really need is I need to be able to tie all of those together into a platform, I mean to what I called the nerve center of the brain, so I can take advantage of all the capability and data and strength of the multitude of different solutions I’ve already paid for and deployed. And I think that’s why we’re seeing some good traction. And I think the SIEM replacement cycle works to our advantage as well.

John DiFucci – Jefferies LLC

Got it. Okay, that makes sense. Thanks, Doug. And, Dave, if I could – actually, another follow-up for Brad’s question. I think I understood where you’re kind of saying I know you don’t guide to cash flow, but he pointed out, AR was greater than – was a greater use of cash than we anticipated anyway, and I assume he did, too, but just want to make sure I understand. You’ve signed the – Doug mentioned a lot of large deals, a lot of enterprise agreements. Those are typically signed, not all of them, they’re typically signed at the end of the quarter, and I just want to make sure, I mean, I would expect to see those receivables be collected next quarter benefiting cash flow in that period. And the reason for the question is, I mean, every number looks really strong. It shouldn’t be bad. It’s just a little low. The only one that’s a little lower more where people were estimating.

David F. Conte – Splunk, Inc.

Yeah, again – hey, John. I feel very good about our cash collections, the process, the age of our receivables. We had the benefit in the quarter from a DSO perspective that federal year-end is September as we all know, and the government tends to pay on time, not always, but I don’t think there’s any – there’s no news – there’s no there, there as it relates to DSOs or cash flow. It was a really strong quarter. You can see that across all of our financial – relevant financial metrics. And the benefit is in receivables, and you bet we’re going to collect it next quarter.

So for the year we’re on track for our $250 million of operating cash flow and in any particular quarter, one large order comes in on one timeline versus another, can affect the quarterly DSO. But overall, the review that we do internally, the quality of the balance sheet is really high. And again, you see it on the P&L.

John DiFucci – Jefferies LLC

Great. That’s all clear. Nice job, guys. Thanks you very much.

David F. Conte – Splunk, Inc.

Thanks, John.

Ken Tinsley – Splunk, Inc.

Thanks, John. Appreciate it.

Douglas Merritt – Splunk, Inc.

Thanks, John.

Operator

Thank you. And your next question comes from the line of Raimo Lenschow from Barclays. Your line is now open.

Raimo Lenschow – Barclays Capital, Inc.

Hey. Thanks for taking my question. Two quick ones. Doug, one for you. Can you talk a little bit towards the AWS relationship? You mentioned a couple of interesting wins this quarter, which is great. I’m just wondering, your relationship with them seems to be different than a lot of the other vendors. For example, they – kind of they offer Elastic and kind of Elastic is kind of probably hurting because of that. They do the Hadoop and their works are hurting. Well, you actually seem to have a very good kind of working relationship where they are actually pushing you. So can you talk to kind of the motivations there, and how you see that evolving?

And then just one quick one for Dave. I assume your 2019 guidance in terms of revenue and margins is all ASC 606 based, just to clarify that, so that there’s no kind of confusion there. Thank you.

David F. Conte – Splunk, Inc.

Yeah. Hey, Raimo. Yes. Our outlook for fiscal 2019 and fiscal 2020 are based on ASC 606.

Douglas Merritt – Splunk, Inc.

And then on the…

Raimo Lenschow – Barclays Capital, Inc.

That helped.

Douglas Merritt – Splunk, Inc.

And then on the AWS front, yeah, I mean, we’re really happy with our relationship. As I’ve said for a couple of years, they still continue to commission and quota credit their reps, and any of these partnerships are a true multi-year journey. The number of reps at AWS that actually understands Splunk now grows quarter after quarter, as our AWS-dedicated team spends more time educating those folks, we get more lunch and learns and drink nights and just have the reps at the field level get to know each other, and we’re seeing an increasing cadence of deals come in through that AWS reference approach. And with our marketplace footprint, I think we’ll see even more.

And ideally, more of those being touchless as people go through the marketplace itself. I think what’s a little bit different about us versus the core open source components is that the heart of Splunk is a symmetrical layer above different aspects like file systems, storage, vehicles, transport mechanisms. And a lot of what I’ve been talking about with the data fabric orientation long term for the company is it doesn’t really matter long term whether we transport data through a Splunk Forwarder or through a cost interface. It doesn’t matter whether we store data in the Splunk index or store it in another format.

And because of that within the AWS landscape, I think we add unique value on top of the different services that they offer. And the message that we are continuously trying to harp on and you might see a little bit more of that from our marketing department is Splunk and – now, Splunk and the Hadoop open source ecosystem, Splunk and data warehouses, Splunk and Palo Alto. And as long as we keep that ability to add value around the core components other people offer, then hopefully customers will continue to feel like we’re worth being a strategic vendor for them.

Raimo Lenschow – Barclays Capital, Inc.

Perfect, thank you. Congratulations. Again, great quarter.

Douglas Merritt – Splunk, Inc.

Thank you, Raimo.

Ken Tinsley – Splunk, Inc.

Thanks.

David F. Conte – Splunk, Inc.

Thanks, Raimo.

Operator

Thank you. And our next question comes from the line of Nate Cunningham from Guggenheim. Your line is now open.

Nate Cunningham – Guggenheim Securities LLC

Hi, guys. Thanks for taking my question. Can you give us a rough sense of what the attached rates are looking like on new business for both ES and ITSI?

Douglas Merritt – Splunk, Inc.

No, I don’t think that we disclose those.

David F. Conte – Splunk, Inc.

Yeah. Hey, Nate. It’s Dave. We obviously monitor that pretty carefully, but we don’t disclose that as a metric externally. We might do so on an annual basis, but not for the quarter. What we can say, though, is the attach rate is increasing. And you hear it in a lot of the examples that Doug talks about in terms of security, the move away from the legacy SIEM folks just in terms of breadth of capability. So both in security with ES and in IT with ITSI, we’re pleased with the attach rate. We’ve got plenty of room to go.

Nate Cunningham – Guggenheim Securities LLC

Okay, fair enough. And as we think about the fiscal 2019 guidance, are you assuming any change in the velocity of new customer addition?

David F. Conte – Splunk, Inc.

Well, our goal is by 2020 that we reach the 20,000 customer milestone. So, as we think about new customer acquisition, obviously, to get to that number, we do expect to see an uptick in terms of the annual addition, which, of course, means the quarterly addition, yeah.

Nate Cunningham – Guggenheim Securities LLC

Okay. Thank you.

Ken Tinsley – Splunk, Inc.

Thanks, Nate.

Operator

Thank you. And our next question comes from the line of Keith Bachman from Bank of Montreal. Your line is now open.

Keith Frances Bachman – BMO Capital Markets (United States)

Hi. Thank you very much. Dave, the first question is for you. Really strong billings results this quarter and acceleration, very strong acceleration to call it 38%. And yet if I look at the guidance for the year, it would suggest that you’re anticipating that year-over-year billings would perhaps be back below a 30% growth rate. Was there something, for instance, in the Q3 results, government or otherwise, that would suggest such a deceleration, or is there something missing, perhaps, in terms of why billings would break perhaps below 30% for Q4?

David F. Conte – Splunk, Inc.

Yeah. I mean, I think, first and foremost, as you would expect, Q4 is a tougher comp than any of our other quarters, typically. We obviously had extremely strong quarter in the public sector space as you would imagine. But also a significantly strong performance with our Cloud business and that performance in the quarter certainly led to a billings contribution. Two of our largest – our largest cloud transactions in our history were recorded in the quarter and was a basis for me to actually raise our full year revenue and billings guidance for cloud. So we’ll see how the composition comes in the fourth quarter. That’s always been a part of the fun here in terms of that mix estimate, how much is cloud, how much is term, how much is perpetual. That obviously can have some impact on billings.

Keith Frances Bachman – BMO Capital Markets (United States)

Okay. Okay. All right, fair enough then. I also want to revisit on the customer acquisitions. I think in this press release you indicated 450 new customers. I don’t know what the net customer count. I think it was just under 15,000. And so, you’ve been flat for the last, call it, three quarters, round numbers. What do you think causes you to get to that 20,000 number in 2020, because I think you need a little bit of acceleration, which so far this year really hasn’t experienced? What do you think changes that?

Douglas Merritt – Splunk, Inc.

I mean, let me step back. And to make sure I start with my happiness around the adoption in growth rates within our current customers. It’s a great feedback signal that they understand the power of our offerings and the strategic nature of Splunk as a data platform that can really power a whole host of use cases across a multitude of different departments.

However, I agree with you. I definitely would like the number of new customers to be higher. We’ve targeted a higher number of new customers over the course of that three-year guidance period that we talked to you guys about. And we are making continued investments in the global reach of our field to increase capabilities and appeal to new customers.

We’ve got to continue, also, to invest in the customer success. That’s our number one corporate priority. But, really, Dave has said, for as long as I’ve been listening to these calls before I even became a Splunker, that coverage is his number one concern area. And it’s a choice every year on where we rotate coverage to make sure we can continue to drive that cohort that we’re so proud of, of increasing adoption with end customers, as well as dedicating enough overall resourcing, both direct and indirect, for that net new customer piece.

We have been making a lot of investments this year. Like so many of these, I think it takes a few quarters to get people onboard, get them trained, put the programs in place, experiment and figure out what’s really working and what’s not. But it is a top priority for us through FY 2019 and into FY 2020 to ensure that we get to that 3,000 or more customers per year that we told you guys about at Analyst Day.

Keith Frances Bachman – BMO Capital Markets (United States)

Okay. Well, many thanks to you guys. Sounds like it was a really good quarter, particularly in the security area. Best of luck. Cheers.

David F. Conte – Splunk, Inc.

Thank you.

Douglas Merritt – Splunk, Inc.

Thank you.

Operator

Thank you. And our next question comes from the line of Matt Hedberg from RBC Capital Markets. Your line is now open.

Matthew George Hedberg – RBC Capital Markets LLC

Yeah. Thanks, guys. Just one question for me. Doug, with several different purchasing and deployment options, do you find that deal cycles could start to accelerate going forward? Is the pricing model are where Splunk deployed? Is it an inhibiting factor or friction for additional adoption?

Douglas Merritt – Splunk, Inc.

I mean that is another one. When we think about how do we continue to drive the velocity for that $2 billion target and the increased number of transactions and customers that is part of what we’re focused on. These insights, packages, what’s so-called the curated – or what we probably describe as the curated experiences at Analyst Day are one of many vehicles that we’re looking at, which is how do you create a pricing mechanism for underlying Splunk Enterprise that adheres to the solution that’s on top and create a quick bundle that can do even a simpler job of landing into new accounts. And I think moving to subscription, so that customers increasingly just have the choice of one-, two-, or three-year terms. And the only big decision is, do I want to run it in my own private cloud, or I do want to run it in their public cloud? I think that’s another big lever for us to cut down on the cycles that many of our reps have to go through to walk our customers and prospects through all of the options that they have with Splunk.

Matthew George Hedberg – RBC Capital Markets LLC

Great, thanks. Congrats again.

Ken Tinsley – Splunk, Inc.

Thanks, Matt.

Douglas Merritt – Splunk, Inc.

Thank you

David F. Conte – Splunk, Inc.

Thanks, Matt.

Operator

Thank you. And our next question comes from the line of Kash Rangan from Bank of America Merrill Lynch. Your line is now open.

Ken Tinsley – Splunk, Inc.

Let’s go to the next question, please.

Operator

Thank you. And our next question comes from the line of Anne Meisner from Susquehanna. Your line is now open.

Anne M. Meisner – Susquehanna Financial Group LLLP

Thank you and congrats on the great quarter.

Ken Tinsley – Splunk, Inc.

Thanks, Anne.

Anne M. Meisner – Susquehanna Financial Group LLLP

So you guys called out two very large cloud transactions, and you increased your guidance there, so it sounds like cloud is really performing nicely, ahead of your own internal expectations. Are there one or two specific items that you can point to that are really driving the business? So, for example, is it the pre-packaged app functionality for cloud, such as the AWS functionality that’s really starting to drive that acceleration?

Douglas Merritt – Splunk, Inc.

I honestly think that it is the acceleration of cloud across the enterprise sector that’s dragging us, and then I think that some of the work we’ve been doing to have the specific AWS apps, we now have a number of them in AWS, is a great landing point for people going to AWS, as well as I do think it’s easier for us and our customers to understand what an ES and Splunk bundle looks like, ES and Splunk Enterprise or an ITSI and Splunk.

And I think the more that we can get to a focused solution delivery for our customers that, of course, drags in Splunk Enterprise behind it, but it is something specific to the needs of that buying center or user, the better velocity we have and the quicker that our customers understand the power of Splunk and get an ROI on their investment. And it’s a little bit easier in cloud just because we can kind of pre-assemble all the bits for our customers; and instead of having the classic arrival of hardware, PS or a ProServ or some other consulting assistance that goes with an on-prem piece.

Anne M. Meisner – Susquehanna Financial Group LLLP

Okay. Thank you. Very helpful.

Ken Tinsley – Splunk, Inc.

Thanks, Anne.

David F. Conte – Splunk, Inc.

Thanks, Anne.

Operator

Thank you. And our next question comes from the line of Jesse Hulsing from Goldman Sachs. Your line is now open.

Jesse Hulsing – Goldman Sachs & Co. LLC

Yeah. I have one for Doug and a quick follow-up for Dave. Doug, to follow up on Anne’s questions, the two large cloud transactions in the quarter, I was hoping you could provide a little bit more detail about those. First, what was the use case? Was it security, or do you have any visibility into that? And were these existing on-premise customers that moved to the cloud, or are they in a hybrid environment, or new customers or something else? Just curious there.

Douglas Merritt – Splunk, Inc.

So on the use case basis, I think, one was security focused and one I think is multi-use case, and one was a net new cloud customer and one was an existing customer.

David F. Conte – Splunk, Inc.

And I think from an existing perspective, there was some on-prem.

Douglas Merritt – Splunk, Inc.

Yeah, I think the existing one is hybrid.

David F. Conte – Splunk, Inc.

Yeah, but it’s a de minimis amount. I mean, they were really looking for Splunk to help them with their data that they were hosting in the cloud. So that’s where we became more applicable. And to Anne’s earlier question, why we had great momentum is customers were looking to associate our solutions with proximity to where their data resides, which is why it’s so important that we can provide both cloud and on-prem in a hybrid environment for many of these customers.

Douglas Merritt – Splunk, Inc.

Now I think that gets even – that becomes even more important in an IoT world. It’s like you’ve got – I think we’ll all see multiple layers of delivery of technology, with public cloud still be an incredibly important and obviously growing like crazy like we see it growing, but there are needs for many different deployment types based on the use case and the technology architecture.

Jesse Hulsing – Goldman Sachs & Co. LLC

Got you. That’s very helpful, guys. And to follow-up on the earlier question about ratable mix, are you still on target for the full year to be 50% ratable, Dave? Thank you.

David F. Conte – Splunk, Inc.

Yeah, hey, Jesse. Obviously, again, great success in the quarter increasing our outlook for cloud is all going to contribute towards ratable mix for the full year. With our largest seasonal quarter today is the 16th, we still got the balance of Q4 ahead of us, we’ve got to get those transactions closed to finally quantify what is the mix for the year. But we’re, again, I think the execution by the field and collectively the company around enabling customers to consume our products both subscription and perpetual was really strong in the quarter. So looking forward to the balance of the quarter and updating you guys in February.

Jesse Hulsing – Goldman Sachs & Co. LLC

Thank you.

Ken Tinsley – Splunk, Inc.

Thanks, Jesse.

Operator

Thank you. And our final question comes from the line of Mark Moerdler from Bernstein Research. Your line is now open.

Mark L. Moerdler – Sanford C. Bernstein & Co. LLC

Thank you. Appreciate you’re squeezing me in. And I know you’ve heard this a lot of times, but it can’t hurt to hear it again. Congrats on the quarter. Two quick questions. The first one is could you talk about what you’ve seen in terms of demand for term licenses so far this year, especially the past couple of quarters? And maybe what you’re thinking about for next year, and then a follow-up?

Douglas Merritt – Splunk, Inc.

Yeah. As part of that journey, too, we want to get to a minimum of 65% subscription by the end of 2019 and 75% by the end of 2020. That’s very dependent upon continued growth in cloud and obviously a high growth rate on true term. Yeah, so true subscription, I guess, I’d say, on-prem subscription. We’ve been emphasizing that this year. We’re seeing good traction with customers and our sales force being excited about and leaning forward with subscription on-prem contracts, and we definitely expect that to continue to grow next year and the year after, especially as we continue to come out with additional packaged solutions that take advantage of some of the term architectures.

Mark L. Moerdler – Sanford C. Bernstein & Co. LLC

Excellent. And then given the partnerships in new products, can you give us some color on how you think about – or what you’re expecting from the partnerships in terms of driving new customer adoption? How we should think about all that?

Douglas Merritt – Splunk, Inc.

Yeah, I mean, we’ve been focusing on building out effective ecosystem, including the solutions on Splunkbase for a while now. I think most of those have been free interesting accompaniments, and we hear from a lot of customers that one of the things they love about Splunk is when they need a solution for X, Y or Z, they can go to Splunkbase and find it. But that turn that we started to make with Booz Allen, with Accenture, with some of the apps that we’re developing or co-developing with AWS is I think that next leg, that next generation.

And what we’re seeing with those three in particular – the AWS, Booz Allen and Accenture – is a higher preponderance of net new customers. They bring their own Rolodex to the table and the use cases often if it’s not a new customer, it’s a new department within an existing customer, which is still a really nice thing for us because they, in general, are driving delivery of solutions for use cases, complementary to or in addition to what we were doing with ES, ITSI, or other apps. So it should be a help with net new customer ads, but we all need to get the motion – go-to-market motion solidified to make sure that we realize those net new adds.

 

Mark L. Moerdler – Sanford C. Bernstein & Co. LLC

That makes sense. Appreciate. Thanks.

Ken Tinsley – Splunk, Inc.

Thanks, Mark.

David F. Conte – Splunk, Inc.

Bye, Mark.

Operator

Thank you. And that concludes our question-and-answer session for today. I would like to turn the call back over to Ken Tinsley for closing remarks.

Ken Tinsley – Splunk, Inc.

Terrific. Thanks, Glenda. I really appreciate your help today. And thanks everybody for joining. As always, we’re available here if you have any follow-up questions. Hope everybody has a nice evening, and a happy Thanksgiving.

 

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