Splunk Inc. SPLK reported second-quarter fiscal 2019 non-GAAP earnings of 8 cents per share, which beat the Zacks Consensus Estimate by 3 cents.

Revenues surged 38.6% year over year to $388.3 million and comfortably surpassed the Zacks Consensus Estimate of $358 million. The increase in revenues was driven by greater utilization of Splunk’s products by existing customers and new customer wins.

Software revenues, which comprise license, cloud revenues and remaining performance obligation (RPO), climbed 43% from the year-ago quarter to $240 million. Second-quarter RPO was $841 million, up 60.2% year over year.

Cloud revenues soared 90% from the year-ago quarter to $39 million on the back of increased utilization of cloud-based services.
 

Splunk Inc. Price, Consensus and EPS Surprise

Splunk Inc. Price, Consensus and EPS Surprise | Splunk Inc. Quote

Education and professional services represented 9% of total revenues. International operations represented 31% of total revenues.

Splunk added more than 550 new customers in the quarter. The company had 61 orders of $1 million in the current quarter as compared with 43 in the previous quarter.

Product Update

During the quarter, the company released Splunk UBA 4.1, which helps to identify and control unknown threats.

Splunk also released Splunk Machine Learning Toolkit 3.3, which allows quick investigation and anomaly detection, and Splunk Machine Learning Toolkit 3.4, which facilitates visualizations and neural network algorithms.

Moreover, the company announced availability of the beta version of Splunk’s reimagined mobile solutions, designed to enhance mobile functionality.

Operating Details

Non-GAAP gross margin contracted 50 basis points (bps) from the year-ago quarter to 82.2%.

Operating expenses, as percentage of revenues, declined 90 bps to 105.2%. Research & development (R&D) and general & administrative (G&A) expenses increased 190 bps and 90 bps, respectively on a year-over-year basis.  Sales & marketing (S&M) expenses declined 380 bps year over year.

Non-GAAP operating profit was $11.4 million, down 4.1% from the year-ago quarter.

Balance Sheet & Cash Flow

Splunk exited the quarter with cash & cash equivalents including investments of $891.6 compared with $959.9 million in the previous quarter. The reduction in cash can be attributed to the company’s acquisition of VictorOps in the current quarter.

Cash flow from operations was $33.5 million while free cash flow totaled $28 million at the end of the quarter.

Guidance

For third-quarter fiscal 2019, Splunk expects revenues between $430 million and $432 million. Non-GAAP operating margin is likely to be around 13%.

For fiscal 2019, Splunk anticipates revenues of almost $1.685 billion, up from the previous guidance of $1.645 billion. The company maintains its non-GAAP operating margin target of 11.5%.

Management reiterated fiscal 2020 revenue target of $2 billion.

Zacks Rank & Stocks to Consider

Splunk currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include Vishay Intertechnology VSH, Avnet, Inc. AVT and Match Group MTCH. While Vishay Intertechnology sports a Zacks Rank #1 (Strong Buy), Avnet and Match Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Vishay, Avnet and Match Group is pegged at 9.2%, 9.5% and 12.5%, respectively.

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