Splunk Inc.

Q2 total revenue was $911 million, up 14% year over year, versus guidance of $880 million-$895 million. Total ARR reached $3.858 billion, up 16% year over year, and cloud ARR was $1.918 billion, up 27% year over year. Cloud revenue increased 29% year over year to $445 million, and non-GAAP cloud gross margin was 73.8%, up nearly 450 basis points year over year. Non-GAAP operating margin was 16.7%, versus guidance of 10%-12%, and free cash flow was positive $4 million, about $19 million ahead of guidance. For Q3, management expects ARR of about $3.98 billion, revenue of $1.02 billion-$1.035 billion, non-GAAP cloud gross margin roughly flat quarter over quarter, non-GAAP operating margin of 24.7%-25.3%, and free cash flow of $75 million. For FY24, ARR guidance was raised to $4.15 billion-$4.175 billion, revenue to $3.925 billion-$3.95 billion, non-GAAP OpEx growth to approximately 2.5%, non-GAAP operating margin to 21%-21.5%, and free cash flow to $855 million-$875 million.

Gary Steele framed the quarter as validation of Splunk’s strategy to drive durable growth with increasing profitability, saying the company met or exceeded every guided metric. He emphasized that security and observability together are creating a stronger value proposition, especially as customers seek resilience, tool consolidation and lower total cost of ownership. He also highlighted a faster pace of innovation, especially AI, the new Microsoft Azure partnership, and Edge products as ways Splunk is expanding its platform relevance.

Brian Roberts stressed that the quarter showed strong execution in a still-uncertain macro backdrop. He cited the 16% ARR growth to $3.858 billion, 73.8% cloud gross margin, 16.7% non-GAAP operating margin and $4 million of free cash flow, then raised full-year free cash flow by $50 million to $855 million-$875 million. He also said FY24 non-GAAP OpEx growth is now expected to be approximately 2.5% versus the original 7% outlook, and noted the company ended Q2 with over $2.4 billion of cash, cash equivalents and short-term investments while electing to redeem the 2023 convertible notes in cash next month.

Analysts focused on whether momentum was improving beyond macro stability, cloud migration trends, the impact of the single-seller sales model, and how the Azure partnership and new AI products could affect demand. Management said the macro is largely unchanged, cloud migrations have been thoughtfully reviewed and remain choppy, but execution has improved and the single-seller model has been a positive for efficiency and customer outcomes. They also said there are no pricing changes from the new product launches, and that the first Azure win was driven by customer feedback and the desire for native availability in Azure rather than a broader pricing reset.