Ken Tinsley - Splunk, Inc. Douglas Merritt - Splunk, Inc. David F. Conte - Splunk, Inc.

Brian J. White - Drexel Hamilton LLC Brad Alan Zelnick - Credit Suisse Securities (USA) LLC Michael Turits - Raymond James & Associates, Inc. Philip Winslow - Wells Fargo Securities LLC John DiFucci - Jefferies LLC Raimo Lenschow - Barclays Capital, Inc. Nate Cunningham - Guggenheim Securities LLC Keith Frances Bachman - BMO Capital Markets (United States) Matthew George Hedberg - RBC Capital Markets LLC Anne M. Meisner - Susquehanna Financial Group LLLP Jesse Hulsing - Goldman Sachs & Co. LLC Mark L. Moerdler - Sanford C. Bernstein & Co. LLC

Good day, ladies and gentlemen, and welcome to the Splunk Inc. Third Quarter 2018 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. As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Ken Tinsley, Corporate Treasurer and Vice President of Investor Relations. You may begin. Ken Tinsley - Splunk, Inc.: Great. Thank you, Glenda. Appreciate that. Good afternoon. With me on the call today are Splunk CEO, Doug Merritt; and CFO, Dave Conte. Our press release was issued after the close of market today and is posted on our website. This conference call is being broadcast live via webcast following the call. An audio replay will be available on our website. On today's call, we will be making forward-looking statements, including financial guidance and expectations for our fourth quarter and our fiscal years 2018 and 2019, our long-term targets for fiscal 2020, the expected effects of new revenue recognition standards, our market opportunity, our strategies and our competitive position, and our planned investments including product, services, market groups and sales. 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 uncertainties, and other factors which 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 and non-GAAP results is provided in the press release and on our website. With that, here's Doug. Douglas Merritt - Splunk, Inc.: Thank you, Ken. Hello, everyone, and welcome to the call. I'm happy to report a strong Q3, delivering revenue of $329 million, up 34% over last year. Our growth continues to come from a combination of new customers and our existing customers expanding their deployments on-prem and in the cloud. We saw strength across all of our regions, as strong demand for Splunk solutions continue to grow. With the U.S. federal year-end in September, I'm happy to call out the public sector team, and report that they had a great finish to their year with multiple large orders. I also want to congratulate the leadership covering the EMEA theaters for delivering another fantastic quarter. As I've said many times, our market opportunity is massive, and we're still early on the Splunk adoption journey even within our largest accounts. Q3 also allows me to thank the 7,000 customers, partners, and Splunk fans who joined us at .conf, our 8th annual user conference. Hundreds of innovative use cases were presented. Two of my favorites were Dubai Airports, where Michael Ibbitson joined me on stage to share how they are using Splunk as their data and analytics platform at one of the busiest international airports. The team uses Splunk to analyze sensor data in every corner of the airport to drive efficiencies and improve their passenger experience. For example, they're monitoring security stations to ensure passengers get through in less than five minutes, analyzing data from the baggage system to deliver bags on time; splunking the Wi-Fi network to remove rogue hotspots and guarantee high-speed access, and even keeping bathrooms clean with alerts on bathroom sensors. Next up, Dubai Airports is working to save $25 million per year by monitoring its energy consumption. What an amazing showcase in the creativity of our customers and the power of the Splunk Platform. Another great use case came from the Global Emancipation Network, one of our Spunk Pledge recipients, who's using Splunk to identify and work towards eliminating human trafficking activity around the world. In partnership with our Splunk4Good team, the Global Emancipation Network analyzes seemingly disparate data sets from across the Internet, public and private organizations, and other sources to identify trafficking activity, and then teams up with law enforcement to take action. This organization is a fantastic example of applying the power of big data analytics and machine learning to solve one of the world's most complex problems. At .conf, we also showcased our latest product releases, including new versions of Splunk Enterprise 7.0, Splunk Cloud, IT Service Intelligence 3.0, Enterprise Security Content Updates, and User Behavior Analytics 4.0. We are widening our lead in the market with the 7.0 release of the Splunk Platform. With our new native support for metrics, which are numerical data points captured over time, Splunk Enterprise is doing to metrics what we did to event data. Our customers can now seamlessly unify, correlate and visualize logs and metrics in the same platform, enhancing their ability to analyze, monitor and investigate their environments. With 7.0, our customers can leverage their metrics data with better TCO and add massive increase in speed, at least 20 times faster. This capability is particularly relevant to the monitoring portions of IT ops and apps delivery, and also for IoT use cases, where telemetry generated by the increasing number of connected devices is metrics based. Finally, this capability creates a launching point for net new products and solutions, such as Project Waitomo, which we previewed at .conf. This solution will combine metrics and logs to make infrastructure monitoring easy, specifically built to help systems administrators and site reliability engineers, who may have never tried Splunk and need to get up and running in minutes. Following .conf, we announced two acquisitions this quarter, SignalSense, which offer cloud-based advanced data collection and breach detection solutions powered by machine learning, and selected assets of Rocana, which provided analytics solutions for the IT market. These additions will further advance our data platform and our machine learning capabilities across Splunk's portfolio. Technologies like these and the teams behind them fit into our broader strategy of leveraging the ecosystem around us as an extension of our internal R&D efforts. We also introduced new advancements of our premium solutions, Splunk IT Service Intelligence 3.0, which is revolutionizing event monitoring by combining service context with machine learning. ITSI's new event analytics capabilities broaden the use cases that we can address within IT operations. Our Enterprise Security Content Update is a new subscription service that regularly delivers dynamic, pre-packaged security content for Splunk ES customers. User Behavior Analytics, or UBA 4.0, enables customers to create and use their own machine learning models to identify custom anomalies and threats via a new software developers (sic) [development] kit. And we debuted Splunk Essentials for Fraud Detection, a free app that guides customers in how to use Splunk to identify and investigate different types of fraud. This is another example of our ability to leverage the flexibility of our platform to quickly introduce a new solution that helps our customers deal with the critical pain point. I'm proud of our product teams who delivered an awesome set of releases. We also showcased new solutions developed with our partner ecosystem. Let me begin with AWS, where we continue to deliver on our commitment to provide a comprehensive range of AWS integrations that meet our customers' needs. As just one example, we delivered a new release of the Splunk App for AWS with major enhancements around ingestion speed and usability. We also announced the general availability of Booz Allen Hamilton's Cyber4Sight for Splunk, a solution empowering security analysts and threat hunters with actionable threat intelligence. We released new integrations between Splunk and Puppet, including the Splunk App for Puppet Enterprise and Splunk ITSI Module for Puppet Enterprise to help customers address issues in real-time through machine learning. And we showcased multiple Accenture offers powered by Splunk, including Accenture's Cyber Defense Platform and Accenture's POS Zoom, which is a Splunk-based analytics solution for retail customers. Using POS Zoom, retailers can leverage analytics to unlock growth and future customer value. In addition to the rich customer and partner content, we unveiled our next set of activities related to our Splunk4Good initiative, including free training programs to help military veterans and youth train for careers in technology. I'm thrilled that more than 2,200 people have already signed up for this training. Stepping back, with the move to digital, e-commerce, mobile and social, organizations are now increasingly using machine data to provide critical context to transactions they typically store in their databases and data warehouses. Splunk's platform is the best solution to enable customers to harness this largely unstructured data and use it to make real-time decisions. Our goal remains the same, to become the standard for machine data in every account, a ubiquitous machine data platform solving our customer's big data challenges and IT operations and application delivery and security compliance and fraud, as well as in business analytics and the Internet of Things. These markets are going through a shift to an analytics and machine learning-based approach, where Splunk is uniquely positioned to lead this change and deliver for our customers. During the quarter, we saw continued momentum in both our Splunk Platform and in our premium apps. Starting with IT ops and app delivery, wins in this quarter include SunTrust Bank, who expanded its use of Splunk Enterprise and ITSI to gain real-time visibility into potentially fraudulent digital activity, monitor mission-critical KPIs like customer response times, and ensure compliance. Thanks to our partner, Trace3, for their help with this win. Long-time customer, Vodafone Egypt, expanded its use of Splunk Enterprise to gain 360-degree visibility across all customer touch points; from their websites, mobile app, and customer call centers. Deakin University, a leading university in Australia with over 53,000 students, expanded with Splunk Enterprise to manage its IT operations and networking environment. Other notable customer wins include Defense Health Agencies (sic) [Agency], BCD Travel, Hong Kong's Li & Fung Limited, and Johns Hopkins University. Moving to security, where the market opportunity is being driven by an ongoing SIEM replacement cycle, as well as a multitude of security events in the past several months. Security departments are increasingly realizing the need to shift to an analytics-based security strategy, an approach that Splunk has been defining and driving for years. We are leading in helping our customers with this migration from structured, legacy SIEM to an analytics-based approach. Notable wins in the quarter include the Smithsonian Institution, who upgraded its use of Splunk to improve threat detection and mitigation across its world famous museums and research centers; a large federal agency who expanded their use of Splunk Enterprise and ES to meet their strict compliance requirements. Thanks to our partners at Spear and Qmulos for their work on this opportunity. Daimler, the German automotive group, signed a multi-terabyte deal to replace its legacy SIEM with Enterprise and ES. The group will use Splunk as its nerve center for security, providing insights across the entire organization. University of Leeds, one of the largest higher education institutions in the UK, expanded its use of Enterprise and ES as their SIEM. The university is already using Splunk in IT ops to monitor their networks. Thanks to our partners at Softcat for their contribution to this expansion. Splunk is a strategic technology at the Department of Homeland Security, which made a major expansion to replace its legacy SIEM with ES and DHS Data Center. Other notable customer wins include the CallidusCloud, Domo, U.S. Army, Arizona State University, the UK's Derbyshire Fire & Rescue Service, and Banner Health. And we continue to see our champions expanding their use of Splunk to monitor critical business services through harnessing the increasing amount of data coming from sensors and connected devices. The Dubai Airports' use case I mentioned earlier is a great example of that. Another example in Q3 was our customer Norsk Helsenett, a service provider for Norway's healthcare sector. They made a large expansion of enterprise to move beyond IT and security to monitor the usage of their healthcare services to drive care improvements to their customers. I was lucky enough to be in the Nordics to sign the contract with Norsk in person this quarter, and we look forward to seeing them again at our upcoming SplunkLive! in Stockholm. And as we do each quarter, we highlight a handful of customers who standardize on Splunk as their data platform. A few of this quarter's customers include 21st Century Fox, a Splunk customer for nearly five years, who signed an EAA to standardize on Splunk and will now use a platform on AWS across all IT and business operation centers to gain visibility across the company, in IT security, and in the business. Our long-time customer, Atlassian, expanded its EAA in Q3 as well. Atlassian uses Enterprise and ES for security globally. This expansion moves Splunk further into IT to help ensure that Atlassian products, such as JIRA, Confluence, Bitbucket, and their recent acquisition, Stride, are always available for their customers and their staff. Nutanix is another great example of Technology Alliance Partner, who is also leveraging Splunk to improve IT and security within their own organization. Nutanix quadrupled its use of Enterprise for visibility across IT and security. As you'd guess, the team is running Splunk on Nutanix software and driving great scale and TCO. Thanks to our partners at Avant Garde (15:02) who are instrumental in the deal. And leading software development platform, GitHub, expanded their use of our solutions to ensure their platform stays online and is secure. In engineering, GitHub will increase their use of Splunk throughout their development and operations life cycle. And in security, the Incident & Response Team will use Splunk to identify and respond to attacks. Our Cloud business continues to grow with Q3 being our largest quarter ever. Our customers are leveraging the Splunk Platform to analyze their data regardless of its location – on-prem or in the cloud. A few of our cloud wins this quarter include PIMCO, the investment management firm, who's adding Splunk Cloud to provide visibility and insights into its business critical applications; and ATB Financial, a new cloud customer who signed a multi-year agreement to use Splunk to improve customer experience by ensuring availability of its online banking systems. A few other cloud wins include Blackbaud and the Texas Department of Transportation. In addition to the joint partner solutions we unveiled at .conf and the customer wins with our partners I mentioned above, I want to call out a few go-to-market wins in Q3. Starting with AWS, where a large European pharmaceutical company purchased Splunk Enterprise and ES through the AWS marketplace to replace the legacy SIEM. AWS was also instrumental in closing a large rental car company as a new Splunk Cloud customer, again through the AWS marketplace. On the security side, we had several joint wins with our managed security partner, the Herjavec Group, including two new Splunk Cloud, Security customers. We've seen an increase in demand for skilled managed security service providers that support hybrid offerings, and we're continuing to invest in our managed security service providers like the Herjavec Group. We were humbled with new recognitions and awards in Q3. One in particular to call out is Fortune Magazine naming Splunk to its inaugural Future 50 list, which highlights the most forward-looking innovative companies in the world. In summary, it was a strong quarter and as always, I'm very proud of our Splunk team. We have a tremendous opportunity in front of us. We are delivering high value to our customers, who are expanding their adoption of Splunk as their platform for machine data analytics and for machine learning, both on-prep and in the cloud. Splunk is uniquely positioned to capitalize on this opportunity, and we are pursuing it aggressively. Thanks again to all of our customers and partners, and thanks to everybody who works at Splunk. And now, let me turn the call over to our CFO, Dave Conte. David F. Conte - Splunk, Inc.: All right. Thanks, Doug. Good afternoon, everyone. Thanks for joining us today. In Q3, we exceeded our overall plan; and as Doug said, we did so on the strength and outperformance across all regions. Q3 revenues totaled $329 million, a 34% increase over Q3 of last year. Total billings were $382 million, up 38% over last year. Cloud revenues totaled $24.4 million, and overall software revenues, which include license and cloud revenue, grew 34% year-over-year. Customer success remains our top priority, and adoption of our platform and solutions are driving software bookings growth, where more than 80% came from existing customers. We also added more than 450 new customers in the quarter, and we recorded 581 orders over $100,000. At our Analyst Meeting in January, I outlined a number of metrics to follow on our path to revenues of $2 billion in fiscal 2020, one of which was ASPs. Consistent with our cohort, as customers continue to realize value from our products, their adoption of Splunk from one to many use cases increases, ultimately leading to our goal around standardization on our platform like the EAA examples Doug just walked you through. Consistent with adoption overall, in Q3, the ASP for the 581 orders greater than $100,000, which includes two of the largest cloud transactions we've ever recorded, was the highest in our history, reflecting continued value delivery from our platform. We'll update you on the full year ASPs once the year is complete, but I expect we'll be on track to our fiscal 2020 annual ASP target. In Q3, international operations represented 24% of total revenues, consistent with previous levels, and comparable on a year-over-year basis. Education and professional services represented 10% of revenue in Q3, which is typical for the quarter in which we hold .conf. Now, turning to margins and other results, which are all non-GAAP. Q3 overall gross margin was 84%, consistent with our expectations and reflecting improving cloud gross margins. Operating income was $32.3 million, representing the positive margin of 9.8%, better than planned due to our outperformance on the top line. Q3 net income was $25.1 million, and EPS was $0.17 per share based on a fully diluted weighted average share count of 144.4 million shares. Now turning to cash generation and liquidity. Cash flow from operations was $52.3 million. Free cash flow was $46.9 million, and we ended the quarter with about $1.1 billion in total cash and investments, which reflects approximately $42 million paid during the quarter for the two acquisitions. Now, turning to our outlook for the remainder of the year, we expect Q4 total revenues of between $388 million and $390 million with a 16% non-GAAP operating margin. This translates to full year revenues of between $1.239 billion and $1.241 billion, up from our prior high end guidance of $1.215 billion. And we're increasing our full year cloud revenue estimate to $90 million, up from our prior guidance of $85 million. We're also raising our full year billings estimate to $1.485 billion, up from $1.450 billion, and we're raising our cloud billings estimate to $170 million, up from the $150 million we previously guided. With our increased full year outlook and reflecting our performance through the first nine months of the year, we now expect operating margin to be closer to 8.5%, up from our original 8% estimate. Now for EPS, remember, because we expect to remain profitable on a non-GAAP basis for Q4 and the full year, full year EPS calculations, you should use a fully diluted share count of approximately 146 million shares in Q4, 144 million shares for the full year. Looking beyond this fiscal year, we're excited about the success our customers are realizing from our offerings, and we expect that success to be reflected in our financial performance. With that, I wanted to provide top-line estimates for the next two years. We expect next year revenues to total approximately $1.55 billion, and we reiterate our fiscal 2020 total revenue target of $2 billion. As we continue to scale our product and field capabilities to capitalize on our market opportunity, we will accelerate these and other investments while maintaining our spending discipline and delivering about a 200 basis point margin expansion in fiscal 2019. This should result in non-GAAP operating margin of around 10.5% next year, on pace to achieve our fiscal 2020 target of 12% to 14%. Now turning to the new revenue recognition accounting standard, ASC 606, which we'll adopt next year, our fiscal 2019, the seasonality revenues will be different than what we've experienced historically. Specifically, total revenues have typically been split between 42% to 58% first half to second. Under ASC 606, we expect this will steepen some and be closer to 40%/60% with almost all of the impact in our seasonally smallest Q1. As we conclude the current year and finalize our ASC 606 adoption, we'll update you with more specifics to help ensure our models reflect the momentum we see in the business. More to come on this topic, obviously, in the near term. 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 products, solutions, the cloud, our global reach and, of course, our people. Overall execution and results in Q3 were excellent, and I'm looking forward to a strong finish to the year. Thanks much for your time and interest. With that, let's open it up for questions.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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