Ken Tinsley - Corporate Treasurer and VP, IR Doug Merritt - CEO Dave Conte - CFO

Raimo Lenschow - Barclays Brent Thill - UBS Michael Turits - Raymond James Jesse Hulsing - Goldman Sachs Steve Koenig - Wedbush Securities Kirk Materne - Evercore ISI Kash Rangan - Bank of America Walter Pritchard - Citi Brian White - Drexel Sarah Hindlian - Macquarie Melissa Gorham - Morgan Stanley Brent Bracelin - Pacific Crest Securities Matt Hedberg - RBC Capital Markets Matthew Coss - JP Morgan Keith Bachman - BMO Capital Markets Karl Keirstead - Deutsche Bank

Good day, ladies and gentlemen and welcome to Splunk Second Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Ken Tinsley, Splunk Corporate Treasurer, Vice President, Investor Relations. Sir, you may begin.

Great. Thank you, Tekia and good afternoon, everyone. With me on the call today are Splunk’s CEO Doug Merritt; and CFO, Dave Conte. Our 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. On this call today, we will be making forward-looking statements, including financial guidance and expectations for our third quarter and fiscal year 2017, market opportunity and competitive position, product and services mix, investments in international operations and expected growth in international business, planned investments including product, services, market group, sales, and facilities. 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 other factors that may cause our 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 to non-GAAP results is provided in the press release and on our website. So, with that, let me turn it over to Doug.

Thanks, Ken. Hello, everyone and welcome to the call. We had a solid Q2. And once again, I want to thank our customers and partners for their enthusiastic support and our employees for their many contributions. Total revenues were $212.8 million, up 43% over last year. Our success continues to come from a combination of our existing customers expanding their deployments and from adding more than 500 new customers. We believe that digital transformation is impacting every industry and every company. As processes and interactions become digital, the amount of data being generated is exploding and will continue to do so. Splunk is the best solution to enable customers to easily and cost-effectively collect, analyze, and get maximum value from that data. Our strategy remains the same, to be the ubiquitous machine data fabric for our customers. We’re achieving that by continuing to invest in our platform and providing customers with best in class solutions, leveraging that platform. Simultaneously, we’re building a strong ecosystem that delivers solutions that complement ours in IT operations, application delivery, security compliance and fraud, business analytics and the Internet of Things. Turning to the quarter, I want to start with the outstanding performance of our cloud business where once again we nearly doubled the amount of orders from a year ago. Our customers are happy with the speed, scalability and flexibility of Splunk Cloud. This allows them to rapidly focus their time and attention on analyzing their Splunk data to better understand their operations and ultimately their business results. In addition, Splunk’s unique ability to deliver a hybrid solution allows us to effectively serve our customers wherever their workloads and data reside and in turn enable them to more broadly adopt our platform. And Splunk Cloud’s security and wide availability through 10 AWS global regions including GovCloud allows us to help customers move through the time of content. Some notable cloud wins this quarter include Uber who tripled their Splunk Cloud usage to more than 1 terabyte in less than a year. Uber selected Splunk, because it met their security needs, was able to scale to support their tremendous growth. Australia’s Queensland Department of Education and Training has expanded their Splunk Cloud presence through MSP agreement with Telstra. They’re going to use Splunk in conjunction with Blue Coat, Palo Alto Networks and CyberHound for cyber security protection. They also have an analytics use case where they’re keeping students and staff safe by proactively alerting schools of incidence of cyberbullying and threatening online behavior. And hulu.com expanded its use of Splunk and Enterprise Security and cloud to keep their streaming services running smoothly and securely. I am very pleased to see the continued momentum of our cloud business. Moving on to partners and starting with Amazon Web Services where we announced the availability of our latest Splunk app for AWS. The app now integrates with and pulls data from more than a dozen popular AWS services such CloudTrail, Config and VPC Flow Logs. Using prebuilt dashboards, customers can quickly visualize critical information on the health, usage and security of their AWS environments. Additionally, we announced that Amazon EC2 Container Service or ECS added a Splunk native logging driver to the newest version of the ECS agent, making it easier to implement a comprehensive monitoring solution for running Docker containers at scale. We are rapidly innovating to integrate with more AWS services to enable our customers to manage and move their mission-critical workload to AWS with agility, security and confidence. As I’ve said on past calls, we continue to work closely with AWS to drive customer success. And I encourage you to go to our website and watch the video I recently recorded with AWS CEO, Andy Jassy, which goes into more details. An example in Q2 is our joint win at the city of Louisville where Mayor, Greg Fischer was just named as America’s top innovative mayors and of course his decisions are driven by data. The city is using Splunk Cloud to ensure their data and IT networks are secure and they keep senior staff informed 24/7. AWS and Splunk sales teams worked closely together in this opportunity. Finally, I would also like to thank AWS for being a top or beta [ph] sponsor of dotcom and I look forward to hosting Mike Clayville, Head of Worldwide Commercial Sales for AWS who will be speaking at the conference. Moving to Accenture, where we are continuing to drive momentum and our strategic alliance. Accenture is expanding their bench of trained Splunk practitioners and we’re collaborating to bring new solutions to market. They are leveraging Splunk as a platform to enhance their offerings in multiple areas including application service delivery and cyber defense. During the Black Hat conference earlier this month, Accenture introduced a new breach prevention offering that integrates Splunk enterprise and ES with Palo Alto Networks and Tanium through the Accenture Cyber Defense Platform. The solution enables organizations to quickly close security gaps and stop the spread of attacks across global networks and on every end-point. A critical part of the integration is a new Splunk application that provides a single pane of glass across all four technologies. The app will aggregate and correlate data to help identify indicators that compromise, enable customers to trigger remediation on each of the technologies from within the app itself. We also continue to make progress with our strategic alliance partner EMC, securing multiple joint customer wins including a large medical center and major pharmaceutical company and a defense organization within the government of Canada. Of course, we do all this for our customers who are recognizing that the more data they put in the Splunk, the more value they can realize. That is why I continue to believe that we’re very early in capturing our full potential even in our largest accounts. Specifically during the quarter, we continued to see customers expanding their uses of platform and so, we’re seeing multiple use cases on their journey to standardization on Splunk as our machine data fabric. A great example of that is Yelp where hundreds of employees use Splunk including engineers, their IT organization and business users for use cases that include app management and delivery, IT operations and business analytics. Yelp has democratized Splunk, so all users across its organization can create their own dashboards and reports for real time analytics. Qualys, a long time Splunk partner and customer expanded their use of Splunk to help them ensure that global availability and security of their cloud-based security and compliance platform. SAP, also a long time multi-terabyte customer continues to expand its use of Splunk. This quarter SAP SuccessFactors expanded their use cases to include customer experience, in addition to their existing ones DevOps application performance. Brazil’s Itaú Unibanco, the largest financial conglomerate in Latin America purchased a multi-terabyte Splunk Enterprise expansion for business analytics. In addition to monitoring the IT infrastructure, Splunk will now also be used to gain business insights on customer usage so that bank can better tailor its online financial products and marketing offers. The UK’s National Health Service expanded its Splunk Enterprise license to support its digital transformation initiatives NHS Digital. Splunk monitor performance, investigate issues and provide reporting for a number of healthcare services including an innovative service that connects clinicians, patients and local provider throughout England, as well as the service that acts as a comprehensive repository for healthcare data in the country. Our public sector business provides a great example of the progress we’re making on customer adoption. We’re announcing more public sector customers going all in with Splunk. Examples in Q2 include Department of Health and Human Services, the Department of Homeland Security and the Department of Veterans Affairs through signed EAAs. On the state and local level, the City of Los Angeles expanded with the purchase of Splunk Cloud ES and ITSI. LA is correlating cyber threat information from external and internal sources and analyzing network traffic in real time. Splunk enables them to compare their patterns with national and regional ones to identify anomalies that might indicate malicious attack. We also saw new customers who standardized on Splunk as a machine data platform. A great example is Dubai Airport who selected Splunk Enterprise to realize their vision of creating a real time airport dashboard to visualize the complex operational processes for 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. Dubai joins other airports such as San Francisco International, Denver International, Sydney International and London’s Gatwick Airport among others for using Splunk to run their operations. More than 260 million travelers flew to those airports last year, and we’re happy to contribute to a better experience, especially for those of us who spend a lot of time on planes. In Q2, we also saw momentum across our Market Group Solutions starting with IT ops and app delivery. We had great customer wins including Subway to expanded Splunk to thousands of stores to ensure the point of sale systems are operating effectively during peak times. Subway considers Splunk the eyes of their corporate and franchisee stores across the globe to keep lines moving as fast as possible. Splunk also helps Subway continually release new versions of is POS software to maximize efficiency. We’re excited about the strong interest in our newest solution, IT Service Intelligence or ITSI. Customers like how easy this solution is to install and configure and how quickly they’re able to improve service levels and customer satisfaction. A few of the customers selecting ITSI in Q2 include the State of New York, who purchased Splunk ITSI to gain new levels of visibility into the health and key performance indicators of the state’s IT services from security to operations. And Cox Automotive, who purchased a multi-terabyte license for Splunk Cloud and ITSI to help ensure a problem-free buying experience for their online auctions. And given, it’s a season for politics, I want to pass along that University of Nevada Las Vegas, UNLV is scheduled to host a final presidential election debate in October, and Splunk of course will be there to help ensure their IT team succeeds in dealing with their predictive spike in demand on their infrastructure. As another validation of our ITOA market approach, IDC has once again declared Splunk as the market share leader for the worldwide IT Operations Analytics Software Market. Our performance and customer wins in security continue to be strong as well. A few examples are Clearbridge Investments, a new customer who is a leading global equity manager with over $100 billion in assets, they selected Splunk Cloud and ES over legacy SIEM vendor as they embrace in analytics driven approach to security. Thanks to our partners of Blackwood Associates who our major driver for this opportunity. Other customers and security include Penn State Hershey Medical Center, Texas Roadhouse and Priceline.com. And we’re proud to once again be named as a leader in Gartner’s 2016 Magic Quadrant for SIEM. This is a fourth straight year. And Splunk was positioned as having the Furthest Completeness of Vision in the leader’s quadrant. This is a reflection of the market fully embracing in analytics driven approach to security and is a testament to the strength of our platform and the success our customers have achieved. Congratulations to the entire security team. I’d also want to congratulate our customers at city of Los Angeles who won the City on a Cloud award at eth AWS Public Sector Summit in Washington DC for its use of Splunk Cloud as a SIEM for one of its cyber security initiatives. That was really awesome. And Splunk was recently named to LinkedIn’s Top Attractors List as one of the top 40 top U.S. companies that are best in the United States at attracting and keeping top talent. I want to thank our employees who are so committed to our customers and partners’ success and who deeply care about the great Company and culture we’re building together. For a reminder to everyone, our users’ conference is coming up in September and our product teams will be making an impressive set of announcements including an exciting new release for the Splunk platform and multiple releases of our solutions. We hope to see you there and absolutely will be ready to celebrate with you. Thanks again to all of our customers and partners, and thanks to everyone who works at Splunk. See you at our conference in September. Now, I am going to turn the call over to our CFO, Dave Conte.

Hi. Thanks, Doug. Good afternoon, everyone. Thanks for joining the call. Our performance in Q2 was solid with revenues of $212.8 million, 43% increase over Q2 of last year. License revenues totaled $115.7 million, up 32% over last year. As Doug mentioned, Q2 was a particularly strong quarter for our cloud business specifically. Now, I’ll talk about our cloud momentum in a minute. Consistent with the last several quarters, customer success and adoption of our platform and solutions are driving license bookings growth for more than 70% once again came from existing customers. We added over 500 new customers in the quarter and we recorded 446 orders greater than $100,000. Q2 was our largest cloud bookings quarter to-date as more customers are recognizing the need to have real-time access to their data regardless of its location, either behind the firewall or in the cloud. To give you some data points around this, Q2 cloud bookings were more than double our own plan. 4 out of 10 of our largest orders in the quarter were cloud orders, each of which with seven figures. Our focus on adoption is consistent with customers adding Splunk Cloud in their environments where majority of our cloud transactions came from existing customers and our cloud business is now on a $100 million plus bookings run rate. As I said, it’s important to remember, a 100% of cloud revenue flows to the services line on the income statement and is not on the license line. When combining strong cloud results with other adoption programs, Q2 ratable mix was 47% of all software bookings and above our internal plan. Hey, great kudos to the cloud teams, sales, product and operations for helping achieve so much success for our customers. Looking forward on mix, our favorite topic, with our first half actual and second of outlook, we now expect that full year ratable mix of software bookings will be about 45%, at the high end of our previously guided range. In Q2, international operations represented about 22% of total revenues, consistent with previous levels and comparable on a year-over-year basis. We will continue to make investments in our international business and look forward to continued growth in global expansion. Our education and professional services represented 9% of revenue in Q2, at the higher end of our range of between 5% and 10%. Now, turning to margins and other results, which are all non-GAAP. Q2 overall gross margin was about 84%, consistent with our expectations and reflective of our cloud business momentum. Operating income was $8.2 million, representing a positive margin of about 4%. Q2 net income was $7.3 million and EPS was $0.05 per share, based on a fully diluted weighted average share count of 136.4 million shares. Cash flow from operations was $18 million, free cash flow was $8 million and we ended the quarter with just over $1 billion in total cash and investments. Now, looking forward to the rest of the year, we expect Q3 total revenues of between $228 million and $230 million, with a 5% to 6% non-GAAP operating margin. As a reminder, we denominate revenue globally in U.S. dollars and therefore have no foreign exchange exposure to our revenue line. With our first half performance and Q3 outlook, we now expect total revenues for the full year to range between $910 million and $914 million, up from our prior guidance of $892 million to $896 million. Now, to execute on the large and growing TAM, we continue to make our investments in the field, our product teams, market groups, and of course Splunk Cloud. As we do, we expect to maintain our non-GAAP operating margin estimate of around 5% for the full year. We will continue to expand our services capabilities tailored toward the use cases and solutions that align with our market groups. Customers who utilize our services have a higher likelihood to deploy more of our software over time. So, these are important investments. With that, non-GAAP gross margin should remain in the mid-80s for the balance of the year. And we expect this fiscal year will be our trough gross margin year, as topline contribution from our investments should become evident beginning next year. For EPS, remember, since we expect to be profitable on a non-GAAP basis for Q3 and Q4, for your EPS calculations, you should use a fully diluted share count of approximately 138 million shares in Q3 and 140 million shares in Q4. As I have mentioned before, fiscal 2017 will be an unusually high CapEx year for us, as we expect the bulk of our South Bay Campus build out cost will be incurred this year. When combined with global facility expansions to accommodate our growing employee base, we are planning for approximately $50 million to $60 million in total CapEx this year. First half CapEx were $40 million and back half should total between $35 million and $45 million. Now, back to what would be a normalized level of CapEx without the Bay area projects, we would expect to land between $16 million and $18 million for the entire year. In closing, our team continues to execute on our mission to deliver high value to our customers and we’re committed to driving the best possible customer experience through continued investments in our platform, the cloud and our overall global reach. We had a good first half and I am pleased with our outlook for the remainder of the year. Thanks so much for your time and interest. With that we’ll open for questions.

Thank you. [Operator Instructions] And our first question will come from Raimo Lenschow at Barclays. Your line is now open.

Thanks for taking my question and congratulation. That was a great quarter. I wanted to start with the highlight in the quarter which seemed to be the cloud situation. Doug, can you talk a little bit about the strength in cloud; is that just driven because customers are adopting cloud more like full stop and on everything or is that just kind of just you doing a better job in it; so, is it just kind of a very structural thesis that we can use for everyone or is this just something for you? And then, the second one I have is can you talk a little bit about the areas of strength? Customer usage came up twice in your customer callouts. Can you talk a little bit about the different areas in terms of IT of security, customer usage et cetera in terms of the strength in the different areas? Thank you.

Sure. Thank you for the questions Raimo. Cloud, I think the -- we’ve in this cloud business for two and a half years now, two years now, and the hybrid nature of what we’re deploying I think is an incredibly attractive aspect to our customers. What we’re seeing within most of our customers, it goes back to some of Dave’s comments in his area of discussion, is big crossover between companies that are using us on a perpetual basis, because they have got a large body of traps and residence applications and workloads and data on-prem, and they want to continue to take advantage of the scale and speed and next generation architecture that someone like an AWS offers. So, a lot of hybrid momentum between our accounts. That said, I think that over the course of two years, our reps have gotten better understanding cloud itself, what the offering looks like, how to position it and at the same time customers are definitely getting more comfortable with having a blended cloud and on-prem. So, I think that those combinations are leading to a continued progression within our cloud business.

And Raimo, before Doug answers your second question, I just want to -- I don’t think I can overemphasize enough how important it is for us to be making the investments that we’re in terms of our product delivery mechanism. Customers’ demand is a duality in terms of their data. Where their data lives is not exclusive anymore to being behind the firewall in a private data center or in a public data center themselves. So, customers really need somebody like Splunk to come along and say, listen, we’re going to make it easy for you to aggregate your data regardless of where it lives. So, that’s how it backs to our investment thesis on product. So, when you ask geez, is this -- are you guys getting better at it or are customers demanding it, it’s really both. Of course we’re going to get better at it because customers demand it. They really need it and we’re certainly happy with the progress.

All right. On the second question, yes, we definitely -- as we’ve talked about for years now, and I think Dave did a whole cohort analysis at one last comp. The ultimate goal and vision of Splunk is that we become this machine data fabric for organizations, one of the strengths of Splunk is just you have a single narrow use case. There is probably other technologies you can drive, but the uniqueness is scheme that reads the huge flexibility of the technology and ability to move very quickly from IT operations or engineering App Dev or security or marketing or business analytics use cases across the organization. And we’re seeing that continue to accelerate. If you continue to go in line with what we’ve seen in the past across more mature customers, and I think that products like ITSI that complement ES and UBA just help on organizations understand that flexibility and get quicker time to value across these different buying centers and market segments.

Perfect. Very clear. Well done.

Thank you, Raimo.

Thank you. And our next question will come from the line of Brent Thill of UBS. Your line is now open.

Thank you. Just a follow-up on the cloud. I’m just curious if you could just talk a little bit about how that makes factor into billing -- the billing number was one of lowest numbers we’ve seen in the last two years. And I’m curious if the way that you’re invoicing is having some type of impact where you may have a longer term contract, but maybe not getting off as much upfront. Can you just talk through that dynamic on how that would show up in the billing number this quarter?

Sure. Brent, thanks; it’s Dave. As you know a typical SaaS consumer would look for as an annual billing arrangement, and we’re not unique in that regard. Customers would rather see at least from either -- seeing your contract obviously is billed annually, but in the multi-year contracts, I think there is a preference for annual billing. And that’s reflected in the financial statements that you’re referring to. I think there is another element, which gets into ultimate contract value or ASP, a perpetual license plus maintenance as a single event would tend to be larger than a cloud transaction that’s billed in the financial statement. So, I think there is a couple of factors, just the absolute amount that you bill on an annual basis between a perpetual and a SaaS offering and then how customers prefer to pay.

Okay. And just in terms of are we missing anything in terms of that -- Q1, it was 48%; Q2 was close to 40%. Is there anything else that we should consider in that? I know billings doesn’t tell the entire picture. I want to be clear that we’re not missing anything in terms of the differential?

No, I mean, I was very delivered about mentioning we more than doubled our own plan in terms of the cloud business. And I think that feathers through our financials for sure.

Okay.

I don’t think you’re missing anything.

Okay. And just to clarify, economically though over time, you believe that that cloud model will carry at or greater than the perpetual model over time in terms of the economics to the Company?

Yes.

Great. Thank you.

The lifetime customer value on multiyear contracts and cloud has been shown in history to be a good lifetime customer value.

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

Two questions, one follow-on on the billings question here, was that also the impact on gross margins which still came in below the 85%, you seem to be guiding little wider range thing, mid to -- mid-80s instead of 85. So, is that also the cloud impact? And I have a follow-up.

Well, I mean, there are two things on the margins. Yes, Michael, absolutely cloud has a different margin characteristic for sure, but, as do our services. Services, was at the high end of our range, 9% and you see -- add up all of those components in the first half of the year, you see that impact on the margin. Mid-80s to me is call it 85 is the midpoint of the 80s and we think that’s proximate to our trough level of gross margin, as we continue to scale the cloud business specifically.

And then, just a fundamental question, obviously there is still very strong growth that you’re showing. Some of the security companies have been a little bit weaker in terms of growth in the last quarter or two, are you foreseeing that there is a shift towards analytics in terms of the spend or are you seeing any slowing from your perspective in security demand?

Security portion of business, Michael, has always come in around -- has been consistent in that 40s percentage range, and we saw that again this quarter. And what we’re seeing within our customer base is definitely a swing to understanding broad-based security analytics posture is important. I think that’s -- is one of the key contributors to the high win rate that we have against legacy SIEM vendors, but also enables us to expand into fraud and risk and compliance use cases where we don’t have a definitive product. And Godfrey loves to -- laughs about the fact that two years in a row we’ve won best fraud product award without actually having a shipping of fraud product. So, I do think there is swing to analytics. And given how unbelievably heterogeneous and complex the security landscape is for most of our customers, the average number of independent company products they have is 168 independent products having a framework that works in an abstraction way across all those and can provide seamless insight into what’s happening across that rapidly shifting landscape, I think it is good thing for us. And with the adaptive response network that high end the security teams have put in place, I think that we’re helping to tie together that round trip loop from seeing to doing and then validating that has been done.

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

I am curious, are you seeing customers starting to -- with regards to cloud bookings, are you starting to customers select one cloud over your on-premise license products; and did you see an uptick in that type of activity this quarter? And then, a quick follow-up for Dave, if you were to see a continuation in momentum from your cloud business in the second half, maybe above expectation, how do you think that would impact margin expansion progression over the next 12 months or so? Thank you.

Thanks Jesse. So starting with the Splunk Cloud over on-prem. It’s really hard to tell definitively. We definitely saw -- have seen and continue to see roughly half the orders coming in for Splunk Cloud being from our existing customers that by nature would be on-prem type customers, although a handful of those are also expanding their usage of Splunk Cloud. I think what they’re looking for is, as they’re moving some of their newer development initiatives or some of their burst [ph] capacity into AWS and/or other clouds, we can read data in from Google Cloud platform, as we announced last quarter from Azure and others that they get that single pane of glass and seamless visibility across that multi-datacenter landscape. So, it’s hard for us to tell if one better [ph] than the other; my intuition is it’s not. I think they’re complementary to each other, but the body of data points still growing and on the smaller end.

Yes. I can tell you -- it’s Dave, that we spend some time trying to understand that bookings composition. As you guys know, why this ratable mix has been such a highly variable metric for us. And over the last few years introducing, our cloud offering has just made it that much more complex. But again, to Doug’s point, when we look at customers, we see them using cloud as a horizontal expansion mechanism, as they add more use cases around their path to adoption. And again, it mirrors how their data is deployed. Now, two years ago, what they have consumed perpetual for that, well as the only game in town, I’d say yes. They’re probably doing more perpetual transactions if not for now enabling them to leverage cloud, but it’s impossible to quantify. Now, as it relates to margin, like our commitment at the beginning of the year was to expand up margin 100 to 200 bps; we’re maintaining that expectation, as reflected in the guidance that for the full year we expect to be at about 5%. And that’s after considering all of the great momentum and overachievement that we achieved -- that we -- in the second quarter. So, that’s incorporated into our margin guidance. The fact that we doubled the size of our own target to cloud in Q2. It has obviously a very different margin characteristic. But I think longer term or even medium term I’d say, the faster we grow, the cloud business, the sooner we’ll be able to achieve a different -- a more attractive margin structure from a cost perspective. Because we’re still on that phase where we’re investing and incurring what I’ll call the fixed costs, the amount might that we need to spend to create that company inside of the company. So again, as you get the greater economies of scale, you start to generate a lot of the benefits from a margin perspective. So, I’m really excited that we’ve had that kind of momentum this quarter, because I think it just gets us closer to a long-term margin model that’s going to be -- gross margin model that’s between 85% and 90%.

Got it. Thank you. That’s very helpful.

Thanks Jesse.

Thank you. And our next question will come from the line of Steve Koenig of Wedbush Securities. Your line is now open.

Thanks gentlemen for taking my questions. So, the transition you’re making to cloud, obviously very important for you guys, very strategic; it does -- obviously, it clouds the financial results, makes it harder to see the true growth you have, which is obviously higher than growth [ph] would portray. And I realize you’re not disclosing software bookings. Is there any way you can characterize the nature of the growth of contract value that you are seeing or what license growth would be if you reported cloud revenue in that line and just anything that we can hang our hat on to understand how your fundamentals really look?

Yes, Steve, hey, thanks for the question. I think the simplest way to determine what would normalized growth look like, so, I was happy to report based on our Q2 results that we are now at a $100 million run rate. So simply, I wouldn’t quantify $100 million run rate based on some kind of first half, second half seasonality. That means we had at least $25 million worth of cloud business recorded in the quarter. So, if you take that and say gee that doubles Dave’s model; that means there is $12.5 million of cloud transactions that would have otherwise been on-prem. So, if you take that number $12.5 million and gee on-prem, I’ll peel off the maintenance for that, there is probably another, I don’t know, $8 million, $9 million, $10 million of software revenue that went to the cloud instead. So, I think that’s the simplest way to think about it for the quarter. $100 million run rate, $25 million bookings double your plan at $12.5 million of extra, that would have been software.

And Dave just to clarify that that $100 million run rate, sorry that was cloud booking, not revenue?

Cloud bookings, yes.

That’s cloud bookings. Okay.

Yes. So, it’s for the benefit of folks, the requirement -- the technical requirement would be a separate disclosure for cloud revenue, if it exceeds 10% of total revenue. So, we would have to be over $21 million of revenue to disclose it on the income statement. So, the $100 million is cloud bookings.

Got it. And if I may ask one follow-up. The cloud order sizes, you talked about them being smaller than on-prem. Are they growing as the cloud deployments become more complex or you see more hybrid deployments or do you expect them to grow over time?

Yes, the challenge with cloud orders, so in Q2 four of our ten largest transactions were cloud and they were all seven-figure. So, that’s a great data point, but not dissimilar to the second half of last year when we saw significant uptick in ASPs. A lot of folks asked me Dave that’s a new normal; I said no, let’s get more data points to draw line to say we have a sustained trend. And lo and behold, in the first half of this year, our ASPs, our overall ASPs are back near our historic levels of about 50k. So, I think for cloud, we need to continue to see data points put together to say, we see a lot of seven-figure orders or the population of cloud is so large that the weighted average of those seven-figure orders doesn’t overly inflate what would be a cloud ASP. So, we need more time and more transactions, I think to really develop what is an appropriate trend line in terms of cloud order size. What I will tell you is from a list price and therefore how that translates to what customers buy, cloud is fractional compared to on-prem pricing.

Okay. It’s fractional and the takeaway there is there is a lot of cloud orders, more sales per dollar coming in than the on-prem?

Well, if you compare cloud to on-prem on an annual basis, on-prem is going to be notably larger than an equivalent cloud transaction.

Right, got it. Very well. Thank you very much. That’s very helpful guys.

Thanks Steve.

Thank you. And our next question will come from the line of Kirk Materne of Evercore ISI. Your line is now open.

Thanks very much. Doug, I was wondering if you could talk a little bit more about the Accenture partnership and just system integrators in general for you guys. What kind of contribution are you seeing in terms of them bringing you new business at this point in time and where you might hope to get that over the next say 6 to 12 months? And then, I just have one other follow-up. Thanks.

Absolutely. So with Accenture, what -- as I said in the past, I love about this relationship. They’re building a practice around us, which is kind of traditional motion, but they’re also -- they understood really that we are a platform that they can build solutions on top of to both drive into their installed based as they just did with that Palo Alto, Tanium Splunk bundle, where they built an app that ties all those together and hold pre-built solutions that they can sell to and deliver to their customers, as well as allowing the platform to enhance their efficiency or margins or operations within captive customers, which has been more their application outsourcing motion of bringing Splunk in having it seat within these application outsourcing environments and tie together all these different technologies, gives us a better way to deliver application outsourcing services, ideally using less people and higher quality, driving higher margins, as well as potentially with these new apps, driving revenue within these captured accounts. It’s still early days with this relationship, we just signed the contract in February of this year. So, we’ve had less than six months under our belt working together. The initial six-month business case that we outlined had very little contribution in these first six months although a handful of deals have come in with the assessment of Accenture, and the real traction is really in our FY18 time period. They develop more of these applications bake it into more their services and are able to bring it to market into their customer base with more feudality. Anything happens before then, we’re all super excited about; but as far as planning, we’re looking more at FY18.

Okay. And just one quick follow-up on, in terms of the cloud business, I know you guys have a cloud team. But remind us again, can the commercial direct sales reps sell cloud, do they get quota [ph] credit, similar to be more on an ACV basis for selling cloud versus selling just a normal software product? I was just kind of curious about, do they have discretion, I guess to sell cloud, their clients pushing towards cloud, I assume that they could help them along in that regard? Thanks.

Yes. Right now, the commission plans for our reps are super simple, which is -- which we try to make them as neutral as possible. There is -- it’s always hard to make it perfectly neutral, but they get paid on cloud transactions and on on-prem transactions, they get paid for solutions, they get paid for Proserve; we’re still trying to keep it as straight line directional as humanly possible. And they’re fully empowered and paid for cloud sales as well as on-prem sales.

Thank you. And our next question will come from of Kash Rangan of Bank of America. Your line is now open.

On the cloud side, so, Dave, just trying to put a finer point. You said $12 million in overage of bookings, are these annualized value bookings for the cloud that you overachieved in the quarter?

Hey, Kash. It’s a combo like; our $100 million run rate is total contract value.

Okay, so contract value, is it a three-month contract value, one year or two years, what’s the rough weighted duration of the contract value or contract length?

So, the duration is pretty similar when you look at the smaller accounts to our historic or our traditional term business. The duration for those on the on-prem side is just over a year and on the cloud side, it’s about a year and half. When you look at the overall weighted though, we see the cloud duration more just over 2 years, 2.5 years and the traditional term more like a year and a half. Again though, the population a lot smaller on the cloud side and with very large orders coming in this quarter that can skew the weighting.

Got it. So, how did this run rate compared to Q2 of last year, was it up by 100% or 50% growth rate roughly?

It was -- the growth rate in cloud bookings was more like over 200% year-over-year.

Okay. So, then, we should be able to look at the year-over-year change in the cloud bookings and assigned a contract duration to it and convert into license equivalent which is a math that we’ve been trying to do for the past two to three years. And the way I guess you price cloud contracts or even your ratable contracts about 3.5-year type breakeven. So, we should be able do a calculation once again to the point that your overall business value growth rate probably was pretty significantly greater than your reported license growth rate, no?

Absolutely, I mean, I’ve been saying for quite awhile that as a reminder cloud is a drag on the license because it’s not in the license line. And when we have the kind over delivery in Q2, it’s clearly reflected in terms of the geography on license, plus of course it’s all ratable versus any component that would have otherwise been a license sale that would have been upfront. So, Kash, I just want to make this point and I do want you’re able to understand. We continue to see this kind of momentum, it will continue to have that kind of impact on geography between license and non-license revenue.

And also if you could state the cloud business standalone or take the rest of the enterprise business standalone, what would be the profit margin of the core undoubtedly by the cloud? And one final question for Doug, what is the growth and sales capacity that you had at the end of the quarter and what you plan to finish the year? That’s it for me. Thank you so much.

Hey, Kash. I mean you’re right on it, the margin consumption of creating cloud business inside of Splunk is significant. I am not going to specifically quantify what would margin have been, but I will tell you that it’s -- long term margin target for cloud business should at least be 70% and we’re just starting year three, we’re nowhere near that level of margin. So, the margin drag is notable on both the cogs line and the OpEx line for sure. I think you were asking the sale capacity question, if we grew sale capacity year-over-year about 35% we added about 490 quota carriers and I think that’s consistent with our trend line over the last several quarters and I expect that to continue going forward.

Thank you. And our next question will come from the line of Walter Pritchard at Citi. Your line is now open.

Great, thanks. Just two quick questions one on the cloud side, is it possible to kind of parse out what you feel is incremental in terms of business that you wouldn’t have seen before if you didn’t have the cloud offering versus the business that may have slipped over from being licensed in to cloud?

I was trying to give a simple path to that by referencing a $100 million run rate, and if you divide that by four you get $25 million; we doubled our number. We doubled not our number, we doubled our own plan. So, there is $12.5 million that I think could have otherwise been divided between license and maintenance…

If we step back on the other part, the part that was in your plan, the assumption of that is business that was incremental and not necessarily would have been substituted for licensed?

I mean, it’s hard, right, it goes back to the earlier question is every dollar of cloud instead of a dollar perpetual, and there is really no way for us to know that.

Got it. And then, just may be Dave some color on -- within [ph] there is a little bit -- with a term that you have the term in the EAA deals and they carry different financial profiles, and we saw your long term preferred tick up little bit more than we were expecting, is that a sort of impacted directionally by EAAs driving the ratable business more than term?

Well, I think it’s a combination of the EAAs and these large cloud transactions we did in the quarter. Though a certain component of those are not reflected on the balance sheet.

Thank you. And our next question will come from the line of Brian White of Drexel. Your line is now open.

I am wondering if we could talk a little bit about the competitive environment. We’re not hearing as much about competitors making noises in this industry, we went to Splunk live recently. So, may be if you could just pass out what you’re seeing right now in the competitive landscape?

Sure, Brian. Yes. there has always been competition around Splunk, combination of other players trying to do what we do on the platform side, whether it’s Sumo, Hadoop or Elasticsearch as well all those best of breed vendors and SIEM and systems management and other areas. And they are still out there. What I’ve said and what we’ve seen with something like Elasticsearch, which has come up as the one of primary competitors is they are based on a different technical architecture, they grew out at a document search side of the industry. And it’s a really interesting and important technology for whole host of use cases within customers. And I’ve been trying to frame this as it’s not a Hadoop or Splunk or an Elastic or Splunk, it’s Splunk and those open source components what we see over and over within our customers. When it comes to our use cases, our time series, oriented use cases and more or of this machine data fabric that we’re approaching, what I’ve seen and virtually every account I’ve been into is Splunk remains the preferred source. There is no one else that has the integration, the performance, the scalability, the ease of use, the flexibility with the scheme at read that we provide. I just hosted three customers in past four days that are all large, large brand name customers and that was echoed again just like I’ve heard for my two plus years here. So, I think our continued focus is maintain vigilance on adding our capacity in the field, turning on partners that we get coverage across the industry and continue to innovate on our core platform and in the solutions area so that customers get very rapid time to value and can experience the flexibility of the underlying platform as they turn on any solutions.

And is there any comment, Dave, on operating cash flow for the year? I know in the quarter, it was up 35% year-over-year. How we should we think about it for fiscal 2017 operating cash flow? Thanks.

Yes. Hey, thanks Brian. We think about cash flow on an annual basis, obviously, it ultimately depends on the linearity the back half of the year in terms of not just timing of bookings, but the composition of bookings. To the earlier point, the amount that we might bill and collect the cloud would be different than the amount we would bill and collect for a traditional on-prem perpetual license. But right now, we’re comfortable with our outlook.

Thank you. And our next question will come from the line of Sarah Hindlian of Macquarie. Your line is now open.

Thank you. Good evening. Congrats and thanks for taking my question. First, I was hoping you could give us a bit more color on EAA adoption trends, and what kind of uptick you’re seeing there versus cloud within the ratable mix? And then secondly, if I could, can you get a bit more granular in terms of how we should expect operating margins to expand, given the fairly rapid uptick of cloud growth we’re seeing here given you obviously recognize all that revenues upfront? And then if I could just sneak in the third, actually, I am always little curious to know what is the uptick of premium solutions looking like today versus customers building their own use cases? Thanks guys.

So, why don’t I take EAA and premium solutions, and Dave you can go to the OpEx piece. So, the EAA progress continues. Honestly, it’s not quite as large as I’d like to see, and there is a number of initiatives that we’ll be continuing to drive across the field. And what we normally see is Q3, Q4 is when the bulk of these come in. So, the jury is out on what that total EAA number would be until we hit the second half of the year when the reps have been working through course of the year to land these expanded and solidified transactions. And then, on the premium solutions, there definitely have been some really nice and impressive growth along all three, really enterprise security and ITSI leading the path. It’s really not an either or premium solutions and the customers building on their own. Enterprise security really helps them with a SIEM like use case, use cases. But most customers will drop in and then complement that SIEM approach with their own unique needs and different fraud use cases, risk compliance use cases et cetera, and the same thing with ITSI. But really, really happy that with the work that high-end and the security world and Rick Fitz and the IT operations App Dev world and I mean how guys say how [indiscernible] that’s driving some early experiments that are starting to crystallize some of the opportunities around business analytics and IoT. So, very happy that we’re putting those in place and with the progress we’re seeing.

Yes. This is Dave. So, on mix, it was really interesting with all that cloud momentum. The amount of ratable contribution from cloud between Q1 and Q2 grew 50%. So, cloud really became a much larger component of mix and that pushed us to 47%, which was notably higher than how our own model was constructed for the quarter. So, we were closer to the bottom end of our what was previously our annual range of 40% to 45% for Q2. So, based on those results and what we hope would be continue momentum, we’re now expecting 45% in terms of mix category. On the op margin side, what we’ve articulated in the past holds true today, which has always contemplated a significant component of our business over the next five years being cloud specific, and that is a minimum of 25% operating margins. And the question was at the beginning of the year, when I said look, we’re going to expand margins 100 to 200 bps a year is going to take you forever to get to 25%, so how long it’s going to be? I characterize that as a five-year horizon with a hockey stick in margin as we get to greater levels of scale. I’ll go back to my earlier comment, it’s -- I would love to see the trend continue with this type of cloud momentum, because it’s actually going to help us get to a margin profile faster as we get to that greater level of economies of scale. So, it’s going to bounce around in this trough level for the balance of year, and we’ll see how it terms of composition by year-end and then update our outlook. But, 25% minimum operating margins on a five-year horizon with the hockey stick over that period of time.

Thank you. And our next question will come from the line of Keith Weiss of Morgan Stanley. Your line is now open.

Great. This is Melissa Gorham calling in for Keith. Thanks for taking my question. I just wanted to follow-up on cloud again. And just a question on how to think about how that’s going to ramp moving forward. So, Dave you talked about the present of ratable for stabilizing at 45% this year. I’m just wondering why wouldn’t it continue to move higher, particularly because it seems as though this one cloud momentum is picking up?

Yes. The challenge with it moving higher is individual transactions that are large can see the percentage. And we do the majority of our large transactions in the back half of the year. So, I think we really need to get through and see the composition of those transactions to see where it shakes out for the full year. The way, we are using that mix in our model approximates the 45% that I’ve given you guys. So, I don’t want to give a different metric to you that I am using for our own outlook.

And that makes sense. And then just one quick follow-up, so that $100 million bookings run rate, when you say bookings, do you mean both on balance and off balance sheet or is that all on balance sheet?

No matter how I look at it, it’s at least a $100 million. So, the on balance sheet is $100 million and obviously the off balance sheet is higher than that.

Okay. So, it’s all on balance sheet, so it should be in billing that $100 million run rate?

The run rate should be billings, yes.

Thank you. And our next question will come from the line of Brent Bracelin of Pacific Crest Securities. Your line is now open.

Just a couple of quick questions here, follow-ups for Dave. International, it looks like a downtick sequentially grew little slower than U.S. markets, anything happening there or surprises worth discussing? And then wanted to follow-up.

Nothing at all. I mean, when you look sequentially from our seasonally smallest Q1, again, individual transactions can skew percentages. We’re really happy with the work that our teams doing over there and we expect rate things, so there is nothing to see there.

Second question for me just on pro services. I get the cloud mix driving acceleration in maintenance and services, little surprised that you’ve mentioned pro services mix was actually up. Obviously that has impact on gross margins as well. So, maybe talk a little bit about what’s driving an uptick in pro services and will you continue to invest in that segment?

Yes. We are always really excited about deploying our services because we know it accelerates the cohort. For an enterprise software company, I think 9% of revenues is fairly light in terms of the amount of services that we’re deploying. The point I am making is from a seasonal perspective on revenue, both for Q1 and Q2, services were 9%, which is as high as percentage of revenue as we’ve had over the last several quarters. And with that, there is some contribution in terms of margin characteristic that results. So, I just want to point that out for folks when they’re looking at the composition of revenue and cost.

And the driver there, is that driven by cloud in larger deals in higher services mix or is it just driven by some of the large deals doing -- what’s driving that skew higher and is that kind of leading lagging indicator?

Well, I think it’s -- at one point, it’s conscious on our part to want to deliver more professional services. And by the way, we bundle professional services and educational services into that number. Again, we like it when we’re deploying those resources because we know the customers gets the value sooner. So consciously, we would like to deliver more. From a simple math perspective, when you have those initiatives moving and you’re in your seasonally smallest revenue quarters, then they’re going to result in a higher percentage. Then you combine that with doubling in your cloud business in a single quarter, the algebra on that says, hey, that’s a higher percentage of revenue and therefore, it’s impacting margin as well. So, that’s why I want to just make folks clear on that.

And then, my last question, Doug, obviously, we’ve talked a lot about cloud, just was wondering on IoT. I know it’s early, but are you seeing any sort of kind of use cases around IoT standout and that as an area or is it just kind of too early to tell yet.

We’re still working with customers to see repetitive uses cases. We definitely have been focusing a little bit more in utilities, oil and gas, and heavy manufacturing. I think it’s a combination of them coming to us and us going to them. As I said before, I think the real go to market approach that’s going to be the one approach within IoT given that we’re adjusting analytics layer in this game is picking the right partners that we can deliver a more full end to end solution for different industries with and together, especially given the huge variety of potentially use cases by industry, by geography and by size of Company.

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

Sure. Thanks guys. Just a quick one from me. Dave, curious on the linearity of Q2; and I guess even more importantly, almost one month into Q3, how has this quarter started versus Q3 of last year?

It’s been very consistent over the last number of years actually where the linearity is call it 50% in month three, and it moves up and down a couple of hundred basis points each quarter, but nothing unusual. I do think we get a little bit of improvement in linearity in Q2 with state and local year-end in June and then we often get a little bit of help in linearity in Q3 with federal year-end. But no notable or material shifts.

And then, actually may be just one more quick one following up on Brent’s question earlier. Nothing from Brexit it sounds like from the quarter or necessarily even your outlook that you are painting as a potential question mark?

Certainly not at this time. I think we’re all fully aware of how markets reacted to the vote. And as we’ve gone in and worked with our outside experts to understand the practical implications, I think there is one a lot of time that will pass before any real action can be taken, and two what real action actually gets taken is a giant question mark. So, it gives a lot of discomfort and our focus when that announcement came out was really around our employees and our commitment to the region because we -- our largest EMEA contingent is in the UK. So, we’re really employee first, customer second and then we’ll measure the impact in terms of what happens in the market.

Thank you. And our next question will come from the line of Steve Ashley of Robert W. Baird. Your line is now open.

This is Jason on for Steve. Thanks for taking my question. Another question on cloud, and this is from the perspective of your customers. Is there anything about the either data sources or use cases used for cloud that would make the amount of data index more predictable or easier to forecast to your customers than on-prem?

We think [ph] about that Jason. I don’t think so, core applications in the cloud, app let’s say the Akamai app, the Salesforce app, there could be a little bit more clarity on what the volumes might month in, month out. And those are some of the use cases that people are driving within the cloud. But that hybrid approach that we have means that people are generally collecting data from multiple different points within the cloud infrastructure, both across the landscape that we’re actually utilizing in the cloud but then also pulling in data from different data centers and from other cloud services. So, there is still a bit of variety as they think about which data source they want to turn on next and what the composition and volume in that data source looks like.

Okay. That’s helpful. And then just one follow-up, you mentioned in the public space a nice enterprise adoption wins. Just curious, entering the last fiscal federal quarter, how does your pipeline compared to this time last year for federal quarter? And then, I would imagine cloud adoption there is a bit lower, is that accurate?

So, the pipeline this Q3 versus last Q3 given that’s federal end in September, I think it’s similar. And as far as pipe and expected conversion and yes, I mean, we’re getting some really nice traction within these agencies as they are understanding the multi use case characteristics that can really drive much more this machine data platform for them. And while we have GovCloud as part of our solution set within public sector and we certainly have a number of our customers that are deploying Splunk in the GovCloud, they tend to be a little bit more on-prem based than the commercial sector.

Thank you. And our next question will come from the line of Mark Murphy of JP Morgan. Your line is now open.

This is Mathew Coss on for Mark Murphy. Just following up on the comments on the federal government deals. Do you view them as sort of a tip of the iceberg and could there be an inflection point or domino effect because of these deals? And then, also can you briefly comment on any differences you observed in general demand between enterprise and mid-market customers? Thanks.

So, I think that our goals over have been with public sector and are continue to be at public sector of the year is to get to that tipping point, and it’s baked into the quota and expectations for that public sector group. That’s why we -- so it’s really only vertical right now we have got people that are just distinctly dedicated to not just federal, but also state and local government and higher education. And that’s a unique right sized investment just because of our belief in that category. And we’re starting to mimic portions of that and are more in mature developed countries, Australia and UK being examples. And in the enterprise space, what kinds of things would you be looking for from SMB versus non SMB?

Just if there were any differences in demand either strength, particular strength from one or weakness from one?

I don’t think so. I think that the growth rates and transactional volume across mid-sized and large organizations is consistent with what we see in the past.

Thank you. And our next question will come from the line of Keith Bachman of BMO Capital Markets. Your line is now open.

Hi. Thank you very much. Just one clarification, if I could. In the last two quarters as an example, billings growth year-over-year growth has been meaningfully higher and yet the impact of ratable bookings has actually been greater on a year-over-year basis and what occurred in the July quarter that you just reported. So just to be clear, what you’re suggesting I think is the cloud impact despite looking at bookings in an absolute basis was larger in the July quarter. So, if the impact was call it $12 million to pick some of the characterization and maybe eight to nine the license, that would have been larger than what occurred in say the April, January quarter, is that a fair way -- is that a fair characterization?

Absolutely.

Okay. Is there any -- is it half or is there any color that you give or any dimensions around what the year-over-year impact would have been in the previous quarters with essentially higher reported billings at least?

Well, the contribution from cloud to our ratable mix is up year-over-year almost more than 3X, about 3X, so it’s pretty significant.

Right. So, what would the cloud have been in the last couple of quarters up year-over-year?

Well, I’m not quantifying that today.

Thank you. Ladies and gentlemen, we have time for one final question. Our last question will come from the line of Karl Keirstead of Deutsche Bank. Your line is now open.

Saved the best of last guys.

Hi Karl.

Two questions for you, Dave. One is, are you giving any thought to breaking out cloud before you hit that 10% threshold? And then, secondly, you probably don’t want to talk about the license services mix in the coming quarters, chunky deals, it can swing things around. But, if we think the high-end of your rev guide for 3Q and assume a mid-50s growth rate on maintenance and services, you can pretty easily get to a teens license growth for the October quarter. And I just want to make sure I’m not missing anything, that’s probably the math that a lot of folks would be making? Thank you, Dave.

Yes, you bet. I think that might be too much of a reallocation between license and non-license. The way I think it’s been modeled -- and if I look at the composition of revenue, license as a percentage of total over the last several years, you can see a very distinct pattern where that percentage has modulated its way down as the maintenance base gross and as the ratable mix goes higher and higher. Now, a lot of that ratable mix is being consumed by cloud. You can see the license percentage. I think in this quarter, it was roughly 54% of total revenue. If you look back over time like the changes year-over-year in that contribution, there is a pretty consistent pattern. I think that’s the way to think about it going forward. Now, if we continue to see this type of cloud momentum, then I’m going to come back and say, hey listen, let’s reallocate your revenue between these line items, so that we get that mix just right. I think again, look back over time as a percentage of license revenue of the total on a quarterly basis year-over-year and I think that’s a good proxy for the outlook. And I would be surprised, if you get a teens growth rate by doing so. In terms of breaking out cloud revenue, your question was, is there any thoughts to do it, and the answer is yes. Definitely, we think about it like what’s the right time to add that in terms of is it, boy, if it was 9.8% of revenue, I am not going to say that’s not 10, so I am not disclosing it, absolutely not, but at some point I would expect it will be breaking that out before the 10% threshold.

Thank you. I would now like to turn the call back over to Ken Tinsley, Splunk’s Corporate Treasurer and Vice President of Investor Relations for closing remarks.

Great. Thank you, Tekia, really appreciate your help today. And thanks everybody for joining us. We are available tonight if you have any need for clarification. Thanks so much.

Ladies and gentlemen, thank you for your participating in today’s conference. This concludes the program and you may now disconnect. Everyone, have a great day.