Splunk Gains After Third Quarter Sales Beat Highest Estimate

(Bloomberg) -- Splunk gained as much as 7.6% after third-quarter revenue beat the highest analyst estimate.

The data-software company reported adjusted earnings of 58 cents a share on revenue of $626.3 million. That compared with estimates of 54 cents and $603.7 million, according to data compiled by Bloomberg. Free cash flow in the quarter was negative $162 million. Analysts on average had been expecting negative cash flow of $131.6 million.

“The rate of expansion that we’re seeing within our customers is really exciting and impressive,” Chief Executive Officer Doug Merritt said in an interview. “There’s a strong understanding that these folks have got to continue to spend on technology if they want to either grow or weather any storm that might be thrown at them.”

Splunk recently began offering volume-based pricing tiers and is starting to charge customers annually rather than on a multi-year basis. Those billing changes contributed to a reduced free cash flow forecast in August, and Wall Street analysts have been concerned about how long that pressure will linger.

Splunk’s pricing changes have been well received by customers, Merritt said. The San Francisco-based company expects operating cash flow in fiscal 2021 to be similar to fiscal 2022 at around negative $300 million before turning positive the following year and rising to about $1 billion in fiscal 2023.

Splunk had risen 21% this year as of Thursday’s close. That trails a 32% gain for peers in the S&P North American Technology Software Index.

Splunk completed a $1 billion purchase of SignalFX in October, its largest deal to date. The company will “continue to lean in hard” on acquisitions, in addition to organic growth and partnerships, Merritt said.

(Adds chart, CEO comments in last paragraph.)

To contact the reporter on this story: Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Richard Richtmyer

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