Splunk Earnings Call Nuggets: Sales Force Analysis and Software Sector

Splunk (NASDAQ:SPLK) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Sales Force Analysis

Kash Rangan – Bank of America Merrill Lynch: Good start to the fiscal year and good results considering what has happened in software the last few months. One observation that I had for you Godfrey was I think on the earlier conference call you said that, you intend to finish this year at a 33% growth in sales capacity. When I look at this quarter, you’ve grown quota carrying sales capacity about at 70% clip are you revaluating your earlier decision to slowdown sales siding and is it possible that you might actually move your sales siding targets up in lieu of how you accomplished in this quarter. You had also talked with what you are doing differently this fiscal year from a go-to-market standpoint increasing specialization of the sales force and how you are going to targeting your opportunities that will be great?

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Godfrey R. Sullivan – Chairman and CEO: We probably don’t expect to change our projected outlook in terms of hiring it’s always better to front end load the steel capacity as opposed to backend load the one thing we’ve learned is that it takes full six to 12 months and sometimes longer just to ramp. As Dave said about half of our sales force we consider ramped at this point in time. So a big challenge for us right now is just training and ramping and getting everyone up to speed, so I think that’s probably the biggest issue. We are investing more heavily in the field this year in specialized resources, so it’s a very timely question. We have created a security team in the field that has both – we have a VP in the marketing organization who is our VP of security markets plus our CSO as well as a dedicated set of security leaders in the field, because that portion of the business requires specialized expertise. I can see us mimicking that model in other market segments as times goes on. It’s a requirement to map up to the domain expertise in those markets.

 

Software Sector

John DiFucci – JPMorgan: Dave, you said that it’s a difficult macro environment and certainly it was, we saw a lot of companies put up numbers that were reflected there and Q1 definitely was tough for everybody, but your quarter here looks good. But there’s one thing here, the billings were a bit below what we were looking for? I guess was there any areas both Godfrey and David that were more challenging in the quarter than you thought they might have been? And I guess Dave, was there any foreign exchange impact on deferred revenue, because deferred was a little lower than what we thought it would be?

David F. Conte – CFO: John, in terms of geo-pressure, and you are right and I mentioned in my prepared statements that software sector overall, I think, had a challenging period and not so much of us, but we were pretty consistently strong across the three major geos. Now, if there is one area where you know the predictability and the uncertainty is certainly still present, it’s in the public sector and particular the federal government. But overall, you know we saw strength across the board.

John DiFucci – JPMorgan: Was there any foreign exchange impact on deferred revenue?

Godfrey R. Sullivan – Chairman and CEO: Our foreign exchange amounts I think for the quarter were less than – yeah, it’s less than 100,000 which you can see in the other income/expenses category. That combined with our international tax, you can see it below the operating margin line. So, it was pretty small. Deferred revenue for the quarter grew from Q4 sequentially, even though we obviously came in on top of our prior guidance.

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John DiFucci – JPMorgan: And if I could, just one more Dave you mentioned maintenance renewal rates 93%, that’s great to hear, and you mentioned 11 people on your renewals team. I guess are the other field reps still getting paid on renewals? And commissions on the renewals or have you transferred this entirely to the renewals team?

Godfrey R. Sullivan – Chairman and CEO: I would say it is. The majority now transferred, John. There are pockets in across the globe where we don’t have dedicated resources that we still ask our direct field team to carry the burden for renewals. But a majority of the field is now segregated between do business, license and first year maintenance versus maintenance renewals. John by the way, I knew you’d like that.

John DiFucci – JPMorgan: Great to hear, it’s nice to see some results especially relative to what everybody else has done. So thanks a lot guys?

Godfrey R. Sullivan – Chairman and CEO: Thanks.