Splunk Inc at KeyBanc Capital Markets Cloud Leadership Series (Virtual) Transcript

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

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : So Tim, I'd like to take a step back and ask you a little bit about Splunk's evolution. Splunk's been around a while, and their evolution from a long analytics platform to something broader. And I just really -- it may seem basic, but I want to make sure that we -- investors, really do understand what -- exactly what Splunk does and what makes it different from other approaches to enterprise data.

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : Well, I guess I'd like to drill down on that a little bit because, I mean -- and what I want to get to at some point is the ability to help investors differentiate between what you do and what other companies who are saying that they are broad data platforms are doing. Because there are a bunch of them, and some of them have recently come public. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2020 / 4:00PM, SPLK.OQ - Splunk Inc at KeyBanc Capital Markets Cloud Leadership Series (Virtual) So as you said, you started off doing something very specific, looking at logs, so-called machine data. I'm not sure if you just said it just now, but sometimes this is considered to be semi-structured data. So if that's what you were really good at, what has Splunk done to evolve that into being really good at something much broader?

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : So to the extent -- obviously, that's a huge expansion there. So in that sense, what differentiates you from not traditional but from, let's say, more modern data warehouses like Snowflake, who reported last night, also recently came public. Now the traditional data warehouse would have really -- it's essentially a collational database, but for analytic purposes, but relying on structured data, very specifically defined fields. But I don't think that Snowflake or even Oracle, frankly, for that matter, would say that they're limited to that. So how are you differentiated from what Snowflake can do right now?

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : Got it. And I think I want to come back to that in a little bit as well as talk about some of those applications and also a bit to talk about machine learning. But one of the -- before I do, you brought up cloud, I want to approach that in 2 angles. I want to talk about your transition to a new cloud platform. But I also wanted to ask you a question that investors have asked me, which is, as we -- you guys have started in a world where everyone is basically on-prem. We're moving to the cloud because applications are moving there and also because there's so-called data gravity. The application of the cloud, the data is going to be in the cloud. There's still speed of light, and we still have a reason to keep that data physically proximate. So that's where a lot of it is today. If that's the case -- oh, and also again, the applications we're talking about now have a cloud-native architecture, distributed, et cetera. So does what you do -- let's begin with the core in looking at logs, but then looking at stream, processing, et cetera. Does this become more or less relevant in that world of data gravity and cloud-native architectures?

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : And what about of my question about cloud-native architectures? In other words, we're dealing with more distributed application. Do logs have the same function in that environment? Or are you focused on other things in terms of being able to monitor, assess, manage what's taking place in the cloud?

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : Yes. And I'm glad I was able to get, I think, the right number of buzzwords as you repeat it back to me.

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : Yes. You sort of jumped right into the technical aspect of the question that I wanted to put you to. I saw a competitor slide recently, and it had themselves as cloud and it had you guys as not cloud. And it's like, well, they have a product of Splunk Cloud, which we understand. But the view on that was that, that was single -- essentially single-tenant hosted version of Splunk Enterprise. But as I understand it, what you're describing is you moving towards a true multitenant, cloud-native, fully, let's call it, SaaS-based architecture for -- that's a rewrite of Splunk Enterprise, right?

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : What's the advantage for the customer with that?

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : Got it. And then what about -- so -- and then what's the advantage to you? Is it primarily on the cost side? Or what's the advantage to Splunk? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2020 / 4:00PM, SPLK.OQ - Splunk Inc at KeyBanc Capital Markets Cloud Leadership Series (Virtual)

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : Right. Was it -- Jason Child is on. I want to ask him some questions, but there's sort of a -- kind of an overlap question. So Jason, can I ask Tim, like how far along we are in that process of switching over to the cloud?

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : And then I guess the follow-up question to that is how much of the -- well, let's say out of revenue but -- and this, maybe Tim can answer this or you guys together. How much of the workloads are on the new multitenant cloud platform? And is the goal to get them all moved over completely at some point? Or where does that go? Because I would imagine it's good for customers. And as you pointed out, that could also be a driver for margins.

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : Okay. So we are splitting the time here. And so Jason Child, CFO, joined us as well. So Jason, I wonder if I could switch over to you and ask you some follow-ups. So pretty high-level follow-up questions regarding the quarter last night, which was a quarter that you guys had said that was disappointing to you in terms of bookings. Wasn't what you were looking for. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2020 / 4:00PM, SPLK.OQ - Splunk Inc at KeyBanc Capital Markets Cloud Leadership Series (Virtual) After several good quarters this year during COVID and despite that, you kept your guide at the very beginning of the year. You never brought that down and really seem to have been powering through things. And then this was a less satisfying quarter. So what happened?

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : So I want to try to parse that out a little bit. So I think that you mentioned on the call last night that it was macro and just demand-oriented that caused you not to be able to close these larger deals at quarter end. But what you described just now was that earlier -- I think this is what you'd said, is that earlier in the year, when you were concerned about COVID, you pulled back on hiring and on investment such that you didn't get the pipeline build into this quarter. So in that sense -- in substance, let's call it more of a supply issue than a demand issue. So is it both or more on that side of supply, and you just didn't have the capacity in terms of sales execution to execute at this point? Or is it demand? Or was it both? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2020 / 4:00PM, SPLK.OQ - Splunk Inc at KeyBanc Capital Markets Cloud Leadership Series (Virtual)

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : So just to be clear, it sounds like what you're saying is that your pipeline coverage has improved going into 4Q versus where it was in 3Q?

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : Okay. And what drove that? How are you able to achieve that? Is that because the salespeople that you had started to rehire started to become productive? Or what do you think in a tough environment enables you to improve that pipeline coverage?

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : Jason, you've been -- you said last night that this was a demand-side issue. You've added this morning some sense that it's -- let's call it a supply-side issue to the extent that you had, let's say, a crimp in your capacity because of investment earlier this year. Is it absolutely clear that this is neither a competitive nor a pricing issue? We did have a number of other companies report last night, including Elastic, including Snowflake, who put up pretty good quarters. Now they're obviously different companies in many ways. But it's natural for us to ask whether or not you're seeing -- it's not direct like losses to other companies or difference in win rates. Maybe extensions of decision cycles because of an increased level of competition. Just want to make sure that they -- why you feel confident that these are not issues.

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : Okay. And then I think the...

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : The other thing that people are thinking about is you've had some turnover. You've changed out your head of sales. There have been some changes in your product organization. Is there any sense that there was any kind of headwind from those changes that impacted your ability to execute? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2020 / 4:00PM, SPLK.OQ - Splunk Inc at KeyBanc Capital Markets Cloud Leadership Series (Virtual)

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : And Jason, we're about to run over. So if you could limit the answer to this question -- it's a big one, I know, to just 1 minute here, I'd appreciate it. But in the end, if your pipeline coverage has improved, then in the fourth quarter and you feel like this was temporary, and some of the structural changes have already been addressed, why did you yank the long-term guide? Because especially during this transition to cloud, without that long-term guidance, but it's really tough to model this company.

Question: Michael Turits - KeyBanc Capital Markets Inc., Research Division - Analyst : Great. All right. Well, listen, we ran a minute over. But I want to thank both of you guys. It's a real pleasure to have you both, Tim and Jason. Thanks for being part of this KeyBanc event, and look forward to talking to you guys both soon. And thanks, everybody, who joined on to listen. Thank you, guys.