Splunk Inc at Goldman Sachs Communacopia + Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : But maybe we could start off with -- I'm not going to ask you what attracted you to Splunk. That's an old question. That's a very old question. What is your current assessment of Splunk? As you speak with customers, and I think you met with 100 customers at your annual user conference, I heard it was -- I was there. It was a love fest. I mean people just love (inaudible) despite all of what's perceived. Maybe there's some truth to some of the perceptions, but what is your overall assessment after talking to customers, feeling the post of your users at the user conference. What was your overall assessment?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : And that's at a large scale. I mean, it's not a company (inaudible) business as 121% net retention rates, 129% in your case. So Gary, you're really well regarded, you have an immense track record in the security industry. When you look at Splunk, where we would like the company to be, let's say, you're coming back to the -- we hope that you come back to the Goldman Sachs 2027 conference, what Splunk likely going to be like what's the best estimation of what Splunk looks like 5 years from now? And what's your action plan to achieve the goals that audacious goals you might have I'm assuming that you do, I hope that you do.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Yes. We'll talk a little bit later about how you plan to convert the growth at scale into cash flows as well because that's been the one thing that has been missing through the cloud transition. But I do want to pick your brain on the cloud transition, et cetera. As you look at Splunk, what are the core strengths of the company do you think are being underleveraged?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : 1.5 petabytes we can all have our guess is you don't need to tell us who that customer is.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : It's not the fruit company?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : What's happening? So let's talk about this 1.5 petabyte random company. That's surprising. That's massive scale.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : What is happening in their environment that's causing this massive growth to data lot.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : And so what do they use you guys for? What are the application modules to be viewed through the lens of SIEM and IT operations? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 13, 2022 / 2:30PM, SPLK.OQ - Splunk Inc at Goldman Sachs Communacopia + Technology Conference

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. That's APM?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Got it. So what are customers telling you, you spend some time with the user conference you spoke -- the voice of the customer, what is that telling you? Feedback et cetera, to the incoming CEO?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : DFS, I remember watching a demo of it, I think October 2019, that was the last -- prior to this conference splunk.com, I was blown away. I think it was released around that time frame. Is there anything there, I mean, that fundamentally changes the economics of search and the whole value equation, how much storage, how much compute need for -- could that be...

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Got it. I want to get the macro question out of the way and then jump into product strategy, cloud transition financials (inaudible). So what's your take? I know you spoke with a lot of customers, rates, everybody is worried about rates. We just had inflation report, which was not that great. So what are your customers telling you with respect to how they view the relative importance of Splunk vis-a-vis other things that they may have going on, what could be a budget constrained environment.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. And that was before you got on board. So really -- I mean, you've spent the last 3 to 4 months crowing everything as a CEO getting into the pipeline, et cetera. How do you feel about the new forecast? I mean to what level of conservatism would you attribute the new forecast especially having seen what happened in the last 3 to 4 months? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 13, 2022 / 2:30PM, SPLK.OQ - Splunk Inc at Goldman Sachs Communacopia + Technology Conference

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : So that's great. I don't know, Ken, if it's okay to talk about the new investment and to the extent you're comfortable talking about.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. Maybe give us a little color because that was the question to your Friday afternoon after the market.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Very similar to the agreement that you had with Silver Lake.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : With more information or less than similarly.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : So what does Hellman & Friedman bring in? I know that it's prominently a private equity investor focusing on restructuring, turnaround cash flow et cetra. What are you looking for from What are you looking for from Hellman & Friedman to help you with?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Got it. So again, I want to get your thoughts on the cloud transition. You've talked about how there was some hesitation. What is your -- if you take a step back, Splunk has always had the potential to achieve this transition and come out of it very successful. There appear to be roadblocks along the way, even before the macro situation. How are you going to do it differently? What is your playbook going to be that is more reflective of how practical it is to get a transformation going because as you said, it's not easy, you need funding, et cetera. How do you make the barrier so low that it becomes a no-brainer for your customers to -- let's just go like Autodesk or an Adobe. I know it's different. Those are applications in your infrastructure. But...

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Got it. And what is the likely mix of your business? I know you -- end of next year, it was 50-50 mix, ARR, cloud versus on-prem. Do you think it stays there, given the hybrid nature and the propensity of your customers. What do you think it goes higher in...

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Of net new era?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Okay.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Sizable business. And as you come out of this macro uncertainty, just looking at it more if we have the luxury of looking at a more normalized economic environment, what do you think is the top line potential growth of the company is that -- is it a 10% top line, 30% free cash flow or 20% top line, 20% -- the rule of 40, rule of 50, what's your boat telling you as to what you should gone for? What are you telling them what you want to achieve?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : And one of the things that was not unnoticed, but not but maybe underrecognized in the quarter was in this slower-than-expected shift to the cloud, you beat your revenue, you beat your operating income, right? I mean...

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. And you grew 32% on the topline.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Which was remarkable, I mean, 32% (inaudible) scale. I mean you are like 2x larger than some other companies, 3x larger, 3.5x larger, but you're growing almost the same...

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : So I want to drill in on the cloud business. How different is the cloud platform, Splunk Cloud platform versus the core enterprise platform? And what I'm trying to get at is, is the product road map going to favor the cloud platform in such a way that becomes a no-brainer why would I upgrade to Enterprise 7.0, Splunk 8.0. Let me just go to the cloud. Are we at all at that point, remotely close to that point where it becomes a no-brainer to start off with the cloud?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Tell us what's happening there? Because that -- you got 2 companies that have been talking up Datadog and Dynatrace. And Splunk has been off late a little quiet, especially since the acquisition of SignalFx in 2019. It's been awfully quite to tell us more what you plan to do there?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Got it. Can you tell us a little bit about your largest cloud customer. And what kind of critical capacity are they using Splunk? So we understand there's a perception that Splunk, the best customers go to the on-premise platform, whereas there is a perception that the shift is happening in -- that favors the likes of Dynatrace and Datadog, et cetera. But maybe if you could shed light on some of your largest cloud customers and how you're critical if you are to their environments?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : That's -- none on the cloud.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : What is AWS is doing to help you guys scale your cloud business?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Pretty salivated, half a petabyte a day multiplied by...

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Let me do a quick pulse check. Anybody in the audience has a question. Please go ahead.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Any other questions? Gary, I wanted to ask you about go-to-market. You're a relatively big company. And direct versus indirect. What are the things you've been doing on the indirect side, SI partnerships, et cetera, to help leverage your distribution, and also on the drug side, I know that you've spent the past 4 to 5 months to have really a deep dive of your distribution capabilities given the departure of Teresa Carlson. Where are you -- as you grow, you probably will not be able to run and take response to distribution. Do you see at some point they need to bring in somebody from the outside to help scale the company to the heights that you want to take it to? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 13, 2022 / 2:30PM, SPLK.OQ - Splunk Inc at Goldman Sachs Communacopia + Technology Conference

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : So with respect to GTM and going back to pricing, it's been a long time since the pricing model was actually announced. And I think when you had President Obama on [Geary] Street somewhere, right? So the swim lanes, I thought it was a pretty cool idea. But then years later, you're -- as the incoming CEO, so I think the customers do not still understand that you have this major pricing model, right? So maybe on GTM to fix it. What are you telling your distribution folks in honor that customers can universally hear that you do have this new pricing line? You don't need to license it based on the ingestion.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Even President Obama announced it. So I mean what you need.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : But then you can solve that.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Great. The other thing I wanted to ask you is people are in love with logging and we had data trace that talked about how they love the logging business and how they have aspirations to grow that into a $100 million, $200 million business. Datadog's been in love with logging. You have been in logging for the longest of times. Why is everybody fond of logging?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : So the fact that competition is getting in within your growth rates, you don't disclose your logging revenues, but they don't look like they have gone down. I mean they...

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Is the...

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. So that's exactly (inaudible). So the fact that security is now a data problem combined with other demand such as every application leaves logs, that these need to be -- maybe the time is larger than we thought, and that's why you're not feeling the effect of competitors.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : 500 million, close to 600 million.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : No, it's from a CEO who will be presenting tomorrow.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. So in the couple of minutes that we have left behind, I wonder if anybody else ask any last-minute question. Please. Unidentified Analyst (inaudible)

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : That's good. That's good. No, you'll pass me your question. Yes. Any final question? Please, you get that last question.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Should we call it a day?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Thank you so much. Thank you for your participation and collaboration, cooperation.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : And thank you for making that to the conference, and have a (inaudible).