Splunk Inc (SPLK) Q1 2019 Earnings Call Transcript

1 BUSINESS

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Splunk Inc (NASDAQ: SPLK)
Q1 2019 Earnings Call
May 23, 2019 , 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Splunk Inc First Quarter 2020 Financial Results Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session; and instructions how to participate will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference, Mr. Ken Tinsley, Corporate Treasurer and Vice President of Investor Relations. Sir, you may begin.

Ken TinsleyCorporate Treasurer and Vice President of Investor Relations

Great. Thank you, Jimmy, and good afternoon, everyone. With me on the call today are Doug Merritt; Jason Child; and Dave Conte. We issued a press release after close of market today and it’s posted on our website. This conference call is being broadcast live via webcast. And following the call, an audio replay will be available on the website.

On today’s call, we will be making forward-looking statements including financial guidance and expectations, including our forecast for our second quarter and full year of fiscal 2020, trends and expectations regarding revenue mix and operating cash flow, and our expectations regarding our products, technology strategy, customers, markets and industry. These statements reflect our best judgment based on factors currently known to us and actual events or results may differ materially.

Please refer to documents we file with the SEC, including the Form 8-K filed with today’s press release. Those documents contain risks and other factors that may cause our actual results to differ from those contained in our forward-looking statements. These forward-looking statements are being made as of today, and we disclaim any obligation to update or revise these statements. If this call is reviewed after today, the information presented during this call may not contain current or accurate information.

We will also discuss non-GAAP financial measures, which are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of GAAP and non-GAAP results is provided in the press release and on the website.

With that let me turn it over to Doug.

Doug MerrittPresident and Chief Executive Officer

Thank you, Ken. Hello, everyone, and welcome to the call. Q1 was a strong start to the year both for product innovation and field execution. We delivered $265 million in software revenue, up 54% over last year. We also announced a series of product developments that expanded capabilities of our portfolio and the possibilities for our customers. Our growth continues to come from a combination of new and existing customers, expanding their deployments both on-prem and in the cloud, letting them consume Splunk in the way that best enable their success.

For the past few years, you heard me continuously site our focus on becoming the trusted data partner for our customers. We’ve been describing these capabilities as comprising four key pillars investigate, monitor, analyze and act. We’ve arrived at this understanding by listening very closely to our customers. The use cases we are delivering with Splunk are crafted by leveraging the integrated functionality across these four pillars. Let me take a step back for a moment and spend a little bit more time on these four pillars. First, investigate our unique investigative approach solves data problems without requiring our customers to ever structure their data.

Turning to the next two pillars, monitor and analyze. This is where our customers are able to reap the rewards of investigations by monitoring for certain conditions or thresholds and creating predictive analytics. And the fourth pillar Act. This is where our acquisitions of VictorOps and Phantom come in with orchestration, automation, alerting and collaboration to help our customers remediate any issues discovered in the investigation, monitoring and analysis phases. It’s through these lens of capabilities that we look at our product innovations and roadmap and it was a busy Q1 for Tim and the product teams, as they drove continued innovation and delivery across these pillars.

We just released a new version of Splunk Enterprise 7.3 that continues to define unprecedented scale, ease of use and lower total cost of ownership. Our Data Stream Processor and Data Fabric Search products complements Splunk Enterprise to deliver the next generation Splunk platform that works against a vastly expanded data landscape. Data Stream Processor accesses, analyze and transforms vast amounts of data in motion, in real time and routes it to multiple destinations. A great example of a DSP use case is analyzing transactional events such as call detail records in real time, monitoring for anomalies on the stream routing service quality issues to one set of Splunk indices initiating an orchestrated and automated response, while directing the full historical data set to separate indices for long-term historical retention.

Data Fabric Search enables customers to perform complex analytics against enormous data sets stored in the Splunk Enterprise and elsewhere. Using the above example, DFS would identify the patterns of service quality incidents in those call detail records searching billions of events, spanning multiple weeks, months or even years and analyzing them at the level of individual user accounts or device IDs to determine both the root cause of the issue and the full scope of its impact.

Moving across all four pillars, our platform services like AI and machine learning, our Splunkbase ecosystem and emerging products like our newly released Connected Experiences and Splunk Business Flow. Connected Experiences delivers insights on the go through augmented reality on devices like the iPhone, iPad, Apple Watch and Apple TV and through mobile application to provide users with the ability to investigate, monitor, analyze and act on their data, anywhere, anytime.

Business Flow automatically interrogates the machine data gathered by Splunk and dynamically connect steps and events from disparate systems to generate an immediate view of operational processes. In other words, it visualizes processes for our users, so that businesses can identify bottlenecks and issues through data to help improve business operations. Auto Group, one of the world’s largest e-commerce companies reported a notable increase in customer conversion rates after using business flow.

And finally, our applications. These are packaged solutions that bring the value and capabilities of Splunk to life in a turnkey fashion. Here you see our continued investments in apps like Enterprise Security or ES, IT Service Intelligence or ITSI and User Behavior Analytics or UVA, which all saw Q1 updates. While we’ve been primarily focused on go to market and security and IT, we recently formed a vertical solutions field team, which is focusing on financial services, telecom and media, healthcare and IoT. This team is leveraging our existing product portfolio to expand into other parts of the business, increasing our access to additional buyers. Each quarter, our customers continue to validate that Splunk’s data platform is unique and the best solution to help them unlock trapped value by bringing data to every question, every decision and every action.

Now turning to Q1, we saw continued customer momentum both with our platform and in line with our core markets. Starting with IT, ops and app delivery wins in the quarter include Chipotle, who is moving to Splunk Cloud with this major expansion. Chipotle uses us to increase sales by gaining insights from their mobile application orders and rewards program. They increased digital sales more than 100% in their latest quarter. The company’s biggest driver of sales and traffic growth.

Madrid-based El Corte Ingles, one the largest department stores in the world has expanded their use of Splunk Enterprise. El Corte Ingles uses us for IT monitoring, including new lines of business by Click & Express its rapid delivery service. LATAM Airlines Group expand their use of Splunk Cloud, which they can better monitor their website and customer applications to quickly resolve customer issues, improve the ticketing process and increase revenue. LATAM spotted us because they needed a data platform that could drive outcomes across the entire business and not just in one silo. Thanks to partner Cordel (ph) for collaborating on this opportunity.

Moving to security, where we continue to help our customers migrate from a structured legacy SIM to an analytics-based approach. Notable wins include Slack, who is a new customer that shows Splunk Cloud to enhance their enterprise security program. Slack chose us over the competition because they want security analytics that meet the needs of their very demanding environment. Brink’s the world’s largest cash management company expanded their use of Splunk Enterprise, ES and UBA for their global SOC. Brink’s selected us due to the platforms ease of use and flexibility, which helps the Brink’s team innovate, as well as our ability to handle a complex data architecture that spans more than 40 countries.

PCL Construction, one of the largest general construction and contracting organizations in North America is a new customer purchasing Splunk Cloud to monitor 700 plus construction projects and their corporate enterprise. PCL Construction will have a comprehensive view into data from their office towers, retail outlets and sports facilities as they are under construction, providing actionable intelligence across the organization. A longtime customer and Global Aerospace Corporation signed a 7-figure deal for Phantom this quarter, so they can better automate, orchestrate and respond across their security data. The customer also uses the strong platform for a wide range of use cases across the business, including application performance analytics, dev ops and security investigation.

Highlighting a few customers, who have standardized on Splunk as their data platform, two large government agencies each made a significant expansion of the Splunk platform in Q1. One agency is a longtime customer, who will expand from security into IT ops and APM use cases making us the data platform across both their SOC and their NOC. The other is expanding the platform to an entirely new division within a large civilian agency, which uses us across IT and security use cases.

And a global entertainment conglomerate purchased an eight figure Splunk Cloud deal to expand their use of the platform across the business. This customer already uses us for both operations and security. With the expansion, they will focus internally on creating more use cases to drive business outcomes and adoption within the organization.

And in IoT last year, I attended a cycling event in Paris and was fascinated by how the cycling world could better use data to improve team and bike performance. And now Track, a leading bicycle manufacturer is a new customer. They use Splunk Cloud for racing analytics such as tracking riders’ nutrition needs to optimize athletic performance. They will also use Splunk to support the company’s security and IT operations.

Moving onto the ecosystem. Over the last three years, our relationship with Accenture has continued to flourish. I was honored to take the stage at Accenture’s Industry Analyst Conference alongside their Chief Analytics Officer. We spoke about the future of data and analytics, how we are increasing our focus on business analytics and IoT and the value Accenture is delivering to their customers, as Splunk today. We are grateful to our partners to a layer of strategic, technical and market expertise, they each bring to our community. This helps us continue to evolve the ways we deliver impactful solutions to our customers.

As you know, customer success is our number one Company priority and that focus has helped us build a great team and culture. I am proud that Splunk was named one of the best places to work in the Bay Area, for the 12th consecutive year. We received similar recognition around the US and in Asia. This is a testament to our people and their dedication to our customers and our partners.

In summary, it was a solid quarter and start to our fiscal ’20. We are early in a large and growing market. The velocity of digital transformation continues to gain momentum, granting market leaders like Splunk the ability to bring data to every question, every decision and every outcome for any organization. Again, thanks to all of our customers and partners, and thanks to all of our talented Splunkers. Before I hand the call over to Dave, I’d like to welcome our new CFO, Jason Child to the Splunk team and invite him to share some thoughts. Dave, we’ve all benefited from your leadership over the years, your passion for your Rush, your allegiance to Las Vegas Raiders, and I can’t thank you enough for your commitment to Splunk and to our shareholders. Jason?

Jason ChildSenior Vice President and Chief Financial Officer

Thanks, Doug. I’m thrilled to be here and looking forward to dive into the role. My first two weeks in the office, I focused on meeting senior leaders on all teams throughout the business (technical difficulty) passion that everyone here shares with customer success as a unified mission. My priorities over the next few months are to first get up to speed on our primary growth initiatives, specifically as it relates to our current product roadmap; second, identify the leverage points on our model to understand the areas, where we can fund future growth; and third, I am excited to meet or get reacquainted with our covering analysts, as well as our investors. I look forward to working with you all.

Now, over to Dave for a readout on the quarter.

David F. ConteSenior Vice President, Finance

All right, thanks. Thanks to everyone. Good afternoon. Thanks for joining the call and still one more year as the Oakland Raiders, and I’m happy to report that they tied for first in the division. So always optimistic. Hey, it’s been a — it’s a pleasure to take the mic today and then hand it over to Jason going forward, and it’s great to be reporting a strong first quarter and of course, an excellent start to the year.

First quarter revenues were $425 million, a 36% increase over Q1 of last year. Cloud revenue was $62 million, up 85% over last year. And Q1 software revenues, which is the total of license and cloud were $265 million, up 54% year-over-year. We ended the quarter with total RPO of $1.2 billion, up 57% over Q1 of last year. In Q1, we recorded 46 7-figure orders and added over 400 new customers, ending with over 18,000 customers overall. International operations contributed 26% of total Q1 revenues and education and professional services represented 10% of revenues consistent with the seasonality, we’ve seen in prior periods.

On margins and other results, which are all non-GAAP. Q1 overall gross margin was 82%, up about 2 points on a year-over-year basis, reflecting improving efficiencies and scale in our cloud business, specifically. Operating loss was $7.8 million, representing a margin of minus 1.8% notably, better than our plan, driven by our solid top-line performance. Net income was $3.2 million or a positive $0.02 per share using a fully diluted weighted average share count of 155.4 million shares. Operating cash flow for Q1 was $35 million and free cash flow was about $20 million. And we ended the period with $2.8 billion in cash and investments.

Now turning to guidance, we expect Q2 revenues of approximately $485 million and non-GAAP operating margin of a positive 3%. For the full year, we are now expecting total revenues of approximately $2.25 billion, up from $2.2 billion, and we maintain our non-GAAP margin target of 14%. As in Q1, we expect to be non-GAAP profitable for the remaining quarters this year. So remember to use your fully diluted weighted average share count in your EPS calcs.

With respect to cash flow. As mentioned before that the shift to renewable bookings impacts the timing of our invoicing and therefore the timing of our cash collections. We reached the renewable mix of 77% last year, which was 12 percentage points higher than planned and it’s expected to be at least 85% this year. This over-achievement is driving acceleration of both unbilled contract value as well — which is well ahead of our plan. In fact, last call I detailed that our total uninvoiced contract value increased by $0.5 billion last fiscal year to almost $600 million in total. This trend continued in Q1 with total net uninvoiced contract value increasing by another $80 million, even though our normal seasonal pattern had total contract value decreasing by several hundred million dollars sequentially.

With this faster shift and its impact on collection timing, we now expect full-year operating cash flow of about $250 million. Seasonality of cash flow will be impacted as well and we are modeling negative operating cash flow of about $125 million in Q2 flipping to about $125 million positive in Q3. Importantly, we expect that the timing of cash collections will normalize once the renewable mix reaches a steady state.

In closing, we’re off to an excellent start to the year. Our product investments continue to drive customer success and our field expansion is enhancing our overall execution capacity. Our strategy is working well and we continue to feel the pace of adoption, as we drive to make Splunk the ubiquitous data analytics platform.

Now on a personal note, I’d like to say how humbling it’s been to have played a role over the last 8 years of Splunk’s journey. I’ve said to many that going public is easy, but being public is hard and the collective Splunk teams have handled this journey with style and integrity. Of course, I want to sent a special shout out to the finance team, whose grace under pressure has carried the day through high growth, complex business all amplified by our favorite topic 606.

When I joined the company in 2011, we were less than 400 employees in 9 countries and posted $121 million in total annual revenue. Today, we are nearly 5,000 employees in 26 countries and tracking to total revenues of more than $2.2 billion this year and growing.

Living on the lighted stage has approach the unreal and the adrenaline surge one gets from the Splunk experience is like nothing else. I pass the baton to Jason with high confidence that our engine is running well and prime for the next phase of the journey. Thanks, Doug, and thanks to all of the Splunkers out there, past and present.

With that, we’ll open up for questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Michael Turits with Raymond James. Your line is now open.

Michael TuritsRaymond James — Analyst

Hey guys, good evening. So, Jason welcome, Dave, congrats, and thanks. And Doug, I’ll start with you, and then — then question for Dave. So Doug first just, maybe you could comment on the security environment obviously it’s good revenue quarter, was a weak quarter for a lot of — weaker than expected for a lot of security companies. How does it look for you in security? And any comment on the competitive landscape around SIM, which seems to be heating up? And then Dave, I got a couple.

Doug MerrittPresident and Chief Executive Officer

Thanks, Michael. So I’d characterize the security business is very consistent and its contribution within Splunk as it has been for the past 5, 6, 7 quarters. We saw continued strength in security overall, including sales of enterprise security or SIM. As you know, and as the world sees the market for the secure — cyber security ultimately comes down to a data inspection and data reaction play. We were very early by not falling into the narrow orientation of SIM and continued — continuing to define the opportunity as a security data opportunity and a security analytics opportunity.

I think because of that we’ve seen that momentum within the security realm. And again, it’s not SIM tends to be the incident event monitoring piece that a security operation center users. There’s a whole host of correlated use cases around that — that do a fraud, compliance, risk, there is growing trend of operational technology and their need for the same security wrapper. And so I think the security data market keeps redefining itself, the SIM market is redefining itself. And I think we’ve been very nimble and pretty foresightful in both many of the developments that we have pushed out organically and some of the inorganic additions we’ve had that enables our portfolio to be comparative.

And of course, we’re seeing more entrants come into the market both from brand new start-ups, as well as some bigger established players. Our focus is that — that hasn’t had an impact in our success rate that we can determine, and our focus is to maintain really, really tight intensity on our customers. Customer success is our number one corporate priority plastered everywhere and make sure that we keep the innovation and ROI and adoption engine running strong, so that our CSOs get that strong benefit they expect out of us, but they also get to evangelize the use of the data, they have collected across a whole host of non-security use cases to bring about quick value and efficiencies across the corporation.

Michael TuritsRaymond James — Analyst

Thanks, Doug. And then — and Dave, two sides to the duration question. One was — was there anything I know, you’ve been guiding to flat duration into this year, last year of 32 months. So is that where we were because we had really good software revenue growth and I just want to see if there’s any extra boost from contract duration there? And then conversely billings were only up 20%-ish. So is there any shortening to contract assuming to invoice duration that would have affected billings?

David F. ConteSenior Vice President, Finance

Yeah. Hey, Michael, duration was consistent in that 32, 33 month range that we expected the way we’ve been modeling it and what we saw through most of last year. From an invoicing perspective because I mentioned in prepared remarks, what — what I didn’t expect was the $80 million increase in uninvoiced contract value and it’s all part of the timing in terms of when we’re sending the invoice relative to the amount of renewable contracts that we’re doing now. So I’m really pleased with the progress that the Company and the field is demonstrating in terms of this accelerated shift to a renewable model. And the timing of the — of the cash collections, as I mentioned on prior calls, is going to be most acute in this year and then stabilize after that.

Michael TuritsRaymond James — Analyst

And so that will primarily hit deferred on an invoice as opposed to revenue?

David F. ConteSenior Vice President, Finance

Yeah. Yeah. So you guys know, I’ve been beating the drum for quite a while about RPO being a more comprehensive metric than billings. And for a model like ours in particular, much of our contract value doesn’t flow through deferred. So the billings calculation, the historic billings calculation is not as comprehensive as RPO, and you can see that in terms of the dynamic. Now, from a — even though I don’t think it’s the right metric going forward. Of course, we look at it. The billings growth rate was consistent Q1 to Q1. But again, it really doesn’t capture the full breadth of in terms of the scale of the business, as does the RPO calculation.

Michael TuritsRaymond James — Analyst

Okay. Thanks.

David F. ConteSenior Vice President, Finance

Yeah.

Doug MerrittPresident and Chief Executive Officer

Thanks, Michael.

Operator

Thank you. And our next question comes from Phil Winslow with Wells Fargo. Your line is now open.

Philip WinslowWells Fargo — Analyst

Hey, thanks, guys for taking my question, and congrats on a great start to the year. Just wanted to focus on the two items here. First is, just the — the new customer adds — adds this quarter at 400, so starting up again with good metric. Just wondering, what you think about balancing this year between sort of new customers and up-sell, how you’re feeling about where you started and sort of how you think about the full year kind of in the context of, obviously, you also had a strong $1 million plus field comp this quarter up again year-over-year. So I guess call it expansion versus land, some more color that would be great.

Doug MerrittPresident and Chief Executive Officer

Good question, Phil. So we continued — continue to task our people with having this tool focus of extending within accounts and making sure that we are seeding future big expansion accounts within net news. I would say that it was an acceptable quarter on net news, but certainly not what our long-term ambitions have, right. We’ve said in so many different calls there’s hundreds of thousands of sizable corporations around the globe, and I don’t know any of them that don’t have a SOC or NOC or don’t need to make better decisions through effective data and interfaces.

So all those customers, at some point in time, should be Splunk customers. And — and there is work that we’re doing in the product side, as well as work we’re doing across the marketing and sales work to make sure that we both fulfill the 20,000 target that we had set three years ago. But I think even, it’s more importantly that you create a bigger aperture average for that. I think this quarter as Q1, we did — we saw really healthy expansion within our account base and there’s 20,000 (ph) a day. And when you got a big huge expansion opportunity as rep, you wind up spending a lot of time on that, which is good news because we’d love to see that cohort and the adoption continue to go up into the right. So we are — we are not resting or satisfied with net new and but we also are not resting or satisfied with the adoption portion within our companies, our customers either.

David F. ConteSenior Vice President, Finance

Yeah. Hey Phil, it’s Dave. Just to give some anecdotes. We talk now about 7-figure orders and something we talk about every quarter. And there was a time where that was a really significant event and something that we really anchored around in terms of evidence of adoption and how strategic we can be. And the — when I got started here, the idea of a 7-figure order was quite exciting, and not that — they’re not very difficult, but it’s — it’s with quite impressive performance by the field and the pride that we feel in that execution that we see this many of our customers gaining this kind of value from what we deliver that they’re making us a strategic partner.

So when you think then about hey, a good start to the year 400 customers, yeah, we like that number. We obviously, we like more, but the success inside of our existing customers, i.e. expands in your vernacular. It’s really impressive. And it’s certainly the village of the entire company that’s leading to that kind of success with product, the customer success team, the field, post customer sales, all that stuff. But just in terms of the scale of what we do with customers now versus what we did say 2 years ago, 4 years ago, 6 years ago is really impressive.

Philip WinslowWells Fargo — Analyst

And thanks, guys. And thanks again, Dave for all the insights over the years and best of luck in the future.

David F. ConteSenior Vice President, Finance

All right, Phil. Thanks.

Operator

Thank you. Our next question comes from Matt Hedberg with RBC Capital Markets. Your line is now open.

Matt HedbergRBC Capital Markets — Analyst

Hey, thanks guys. Well done and I’ll offer my congrats to Dave as well. I’m sure, we’ll cross paths sometime in the future. RPO growth was 57% and it was really strong especially relative to last year and even looking at the growth in Q4. I think on the call, you talked about a lot of the reasons for the success there and then really a good indicator of sort of the true health of the business. I guess, I’m wondering — and the comp certainly improve over the year as well, how should we think about RPO growth. Is there — I know, you don’t guide to, but just, is there a way that we should kind of think about the progression of that and sort of the underlying sort of strength of the business.

Doug MerrittPresident and Chief Executive Officer

Yeah. Hey, Matt. Thank you. It is an — it’s an interesting question and one that we’ve been kicking around here for sure in terms of what trajectory would we expect that to take. When you’re talking about upper 30 percentile for revenue at 2 plus or at 425 (ph) for the quarter, and then you look at RPO at $1.2 billion knowing that our duration has been pretty steady and say, well, how sustainable is that. Now you guys all know, I hate the percentage game because the bigger the numbers, the harder the percentages.

But I think if you got to step back and say how penetrated are we in our existing customers and we believe lightly penetrated as evidenced by these large orders, by these large expands and then how penetrated are we in the TAM. We think it’s very early in that context, and in particular, because the TAM has effectively doubled since we took the Company public. So what’s the opportunity for continued growth in RPO. I expect continued growth in RPO. I expect continued growth on the P&L because there’s just so much opportunity to go add value to the customer. Now, what you’re not going to hear me say is, oh, I expect the percentage to be consistent, yeah, 57% is sustainable like we are not guiding to RPO, but it’s certainly should continue up into the right.

Matt HedbergRBC Capital Markets — Analyst

That’s right. No, I think it really is indicative of sort of how early, you are in the sort of the customer journey here. And I guess maybe as a follow-up to that. I’m curious, we’ve talked about EAAs over the years and I’m sort of curious where are we there in terms of like getting the more structured program to drive sort of wall to wall Splunk adoption. Is that — that becoming more of a focus for you guys to sort of convert more of your customers to sort of all in on Splunk?

Doug MerrittPresident and Chief Executive Officer

Yes, for sure. There’s — OK — there is two buckets of initiatives we’ve been focused on adoption and net new on the go-to-market side. And as they get talked about couple of years ago, we formed up the whole customer success group, much like many other SaaS companies probably 3.5 years, 4 years ago, we’ve built that up from a relatively small initial founding to. I think a very sizable function that’s gained a lot of maturity and won a ton of awards across the industry for some of the innovative products and approaches that they are driving. And I think that — that investment in the team, but then a lot of the work they’re doing on — we released a 2 years ago, 2.5 years ago, the capability for Splunk to phone home for customers allow that to happen with our cloud offering, we’ve instrumented everything.

It has deep telemetry in combination of the growing body of customers that are phoning home, plus the cloud telemetry has enabled the customer success group to build a whole host of different interfaces to help give guidance to customers both delivered onsite to the customers and delivered to the customer success team on how to be — how successful they are being with Splunk, where they could be more successful? How they could save additional costs? But it is definitely something that a big chunk of our organization wakes up and focuses on every day in addition to the number one customer success overall Company priority that everybody shares.

Matt HedbergRBC Capital Markets — Analyst

Great. Thanks, guys. Well done.

Doug MerrittPresident and Chief Executive Officer

Thanks, Matt.

David F. ConteSenior Vice President, Finance

Thanks, Matt.

Operator

Thank you. And our next question comes from Kash Rangan with Bank of America. Your line is now open.

Kash RanganBank of America — Analyst

Yeah. Dave signals transmitted message received reaction making impact invisibly all this makes for a very moving picture the first song that I heard of Rush. Two questions. One for you, Dave. With respect to your comments on the uninvoiced value going up by $80 million, although you said seasonal patterns, the total contract value decreased by several hundred million dollars sequentially. Can you just explain for us what exactly the mechanics are behind that? And as you have this uninvoiced contract value continue to grow, what are the implications for cash flow looking at next year.

And I guess, one for you, Doug at a very high level. Congratulations, Jason by the way, welcome to Splunk. Look forward to working with you. Doug, question for you. The cohort analysis that you shared with us at the Analyst Day, a couple of years back, where you had data volume grow by I think 8x over 4 years or 8x over 5 years and bookings value expanding 4x or 5x over 4 years to 5 years. Can you give us an quick update on how that trend is sustaining or not. Thank you very much. And that’s it from me.

David F. ConteSenior Vice President, Finance

Okay. Kash, it’s Dave. In your honor, I did actually craft in prepared remarks some direct references to Splunk.

Kash RanganBank of America — Analyst

We love that (ph). We love that.

David F. ConteSenior Vice President, Finance

Yeah. So I’ll let you guys go on the — on the word out there. With the dynamic on — you’re right, the absolute increase in uninvoiced contract value was material $80 million incrementally even though seasonally, the pool of contract value was hundreds of millions of dollars lower than — than Q4. So what does that imply going forward? As I’ve mentioned before and tried to refer to in today’s prepared remarks as our shift, which again has accelerated a year early is, I’ll call it, I’m using air quotes here completed when we’re done and a vast majority, north of 90% of our contracts are renewable, then you’re going to see normalization of cash yield, as a result.

So this is all just timing, as we move on an accelerated basis to this renewable model. I think how long is that. I would — obviously, we went from 58% (ph) to 77%. Now, we’re saying, look at least 85%, we had a really strong quarter in terms of renewable composition. So I think this is — this is kind of the end of that transitional cash flow thing timing wise, and we’ll start to see it normalize next year.

Doug MerrittPresident and Chief Executive Officer

And on the cohort. Last cohort we did was 2 years ago (multiple speakers) Analyst Day this year. And what was the figure is now on similar it goes little — little bit higher wasn’t it?

Jason ChildSenior Vice President and Chief Financial Officer

Yeah, it’s…

David F. ConteSenior Vice President, Finance

10x data.

Jason ChildSenior Vice President and Chief Financial Officer

10x the data after 7 years.

Doug MerrittPresident and Chief Executive Officer

With the similar (multiple speakers)

Jason ChildSenior Vice President and Chief Financial Officer

I’m sorry. It was 5 years, it was 10x the data by 7x the economics.

Doug MerrittPresident and Chief Executive Officer

So the way it went from 8x data with 5x (inaudible) 10 and 7. But — so, but we haven’t done a refresh since then cash . But I mean, what I’m seeing and looking at the adoption programs that we’ve driven the customer success metrics that — that I’m seeing based on the comments I made in the prior question is continued — as long as we can spend time with the customer and help them with the use case proliferation we see that cohort continue to drive in the right direction.

Kash RanganBank of America — Analyst

Congratulate, the cohorts are getting stronger. That’s great to see. Thank you so much.

Doug MerrittPresident and Chief Executive Officer

Yeah. Thanks so much.

Operator

Thank you. And our next question comes from John DiFucci with Jefferies. Your line is now open.

John DiFucciJefferies — Analyst

Thanks. My first question is for Doug. Doug, I want to ask a question about the last pillar act in Phantom. Orchestrations always made sense, I mean it’s — it has, but it’s just really been too hard to do.. Just curious, I mean, I think you mentioned there was a 7-figure Phantom deal this quarter like why — why it can’t work now and how much like, is this still — is this an evangelist type sale. Do you have people out there having to convince people that they should be buying it, it’s not really new concept, but it really, it sort of is a new market. I’m just curious how this is — what’s happening today? And how do you think it evolves?

Doug MerrittPresident and Chief Executive Officer

Okay. I think, I mean the idea of orchestration has been around for 30 years, 40 years. The whole BPM category is focused on that back in the ’90s and 2000s. I think the difference with something like Phantom and the difference that I think generally drives an effective platform is one, it’s highly that we had very complementary partnership before we bought them because they are highly dependent upon the intelligence of the Splunk engine to direct the high level orchestration, automation that Phantom then does. Two, they are really thoughtful and being really the orchestration integration layer. It doesn’t do all the work. It ensures that the heterogeneous landscape actually completes the work.

So the way that we’ve crafted the both ability to drive playbooks or the actual orchestration, automation pieces and the way that the integrations happen to ensure that the firewalls close loop the way they’re supposed to or the endpoints react the way they’re supposed to, I think makes it more practical within customers landscape. It weaves into what they were invested in. But then three they started with a very tight focus on security and we know that cyber security industry has got skills shortage that they’re wrestling with. And luckily for Splunk, they are one of the first functions within companies that realize security as a big data play, and they actually have the data and the volumes of data to help drive lot of these insights that through some time especially with Splunk, they’ve gotten more comfortable with the results and saying yes, close the loop automatically for these types of activities.

Well, we’ve been working on with the underlying Phantom platform. There’s two aspects one, continue to increase the participation by the ecosystem and by any of our own people on the depth of security oriented playbooks; but two, incorporate Phantom into the overall platforms that IT and non-security and IT users also can get the advantage of the orchestration automation capabilities of Phantom and increasingly the alerting and collaboration capabilities of VictorOps, which together really make up that act pillar.

And so right now, we’re seeing more of a, I’d say, more of a pull from the market and especially in security. This (inaudible) category is something that I think has a straight — is landing well security buyers need and they feel like the only way they’re going to get the ability to deploy more people to tier 2, 3 level is to automate more of the Tier 1 level and something like Phantom is perfect for that.

John DiFucciJefferies — Analyst

That’s great. Thanks. But it’s — and thanks for that explanation. I was — that was really detailed and helpful. But it sounds like you’re getting more of a pull, it’s not like you have to convince people that hey it’s not hard to convince them, it’s a good idea, but that — that you can actually accomplish it that — that’s OK.

Doug MerrittPresident and Chief Executive Officer

I mean, I think these platforms work well in their specific use cases and security has a pull. I’d say we’re probably still a little bit more evangelical sale with IT, but those guys are pretty tight with each other, so they influence each other. And I’d say that non-security, non-IT is still trying to wrestle — they’re still trying to digitize their landscape. So having a orchestration automation platform that requires big data and digitization is something that’s probably in the future for them.

John DiFucciJefferies — Analyst

Great. And if I might just that — I have a question for Jason and it — to actually Jason. Dave is leaving you with ASC 606 and he’s told everybody to go out and look at things and he’s a great guy and he is — I’d love to talk new about it. But if I didn’t really want to take a look at RPO and I didn’t believe — I believe Dave knows that he is talking about, but I didn’t believe that was a great way to look at it. And as you know, Jason, when you did your due diligence here, there’s a lot of questions around it with Splunk because you have is — a sort of hybrid model and people are like well, now you’re seeing the license benefit. But if I wanted to just take a look at the momentum of the business, which feels like it’s going really well and I want to just look at the subscription revenue, plus the change in short-term deferred revenue. And I know that’s getting toward billings and Dave doesn’t want — Dave is not — you’re not supposed to talk, Jasonist (ph). Is that going to give me a good sense of what the momentum of the business is?

Again — and I say subscription, I mean maintenance plus cloud. So the theoretical part of the revenue, and maybe I try to adjust that a little bit. You’re not going to tell us on a quarterly basis what the renewal mix is. But if I can adjust it a little bit because it’s something is on a theoretical basis, there is more of it that’s ratable, then if was maintenance and the term license versus perpetual, does that make sense to you? Because I’m trying to make sense of it. And RPO for me just doesn’t do it.

Jason ChildSenior Vice President and Chief Financial Officer

Thanks for the question on date 15, actually date 14 — no, 13. So it’s a great question. We are in — you guys have been talking about the transformation now for a year plus. So I understand, trying to find what is the right metric that correlates long term with true growth and true value is what we’re all trying to figure out.

I think, theoretically RPO makes a lot of sense. But if I were to kind of step back and say, what do I think the value is going to be going forward, where do we see the value right now, I think overall software growth at 54% year-on-year. But that’s the number that is probably the one that I think is the one I think will be most indicative of the growth that we’re creating. And when I look at cloud revenue growth, at 85% up year-on-year, and the ARR of — ARR just above growth of 85% year-on-year, that — for a company that is at our size and been around for as long as we have, those are pretty credible numbers. And so — I don’t know — that’s how I think about it. I’m going to get much more refined on my thoughts over the next 12 days or more. But I don’t know that helps, but that’s how I think about it.

John DiFucciJefferies — Analyst

Yeah, no, listen, that does help. It does in long-term. That’s great. We look at it too that way. However, every time you guys report a quarter there’s all this new information we want to gauge what the momentum of the business was in the quarter, it feels like was really strong this quarter, as Matt — but at the same time, like some of the metrics some people look at maybe it doesn’t look as strong. But I think — and Dave, if you can just weigh in on that, that will be awesome maybe, and I’ll just stop talking. Thanks.

David F. ConteSenior Vice President, Finance

Hey John, yeah. Look you know this about us, we are really thoughtful about the words we use when we characterize the quarter. And it was just a (ph) quarter and it was a great start to the year. And you can’t, as Jason pointed out, I think even in our press release, and we’ve been pounding the table for a long time about software growth rate. 50% plus software growth rate in a Q1 at our scale is a tough compare because last Q1 was a good quarter yeah. So we are proud of the quarter, we are not satisfied nor will we ever be. But I think it’s a great start.

John DiFucciJefferies — Analyst

Okay, thanks a lot guys.

Jason ChildSenior Vice President and Chief Financial Officer

Thanks, John.

Operator

Thank you. And our next question comes from Alex Zukin with Piper Jaffray. Your line is now open.

Alex ZukinPiper Jaffray

Hey, guys, thanks for taking my question. So maybe just at the risk of diving more into that RPO metrics, if I look at the change in RPO and I actually be curious if we get the exact number for RPO or if that $1.2 billion is grounded. If I take the change in RPO and add the revenue, I look at a RPO bookings growth rate of about 33%. So I guess, maybe the first question is that a better metric to look at the overall kind of momentum or the growth of the business, then RPO stand-alone or billings. And then just to follow up quickly on the federal space.

David F. ConteSenior Vice President, Finance

Yeah, hey, it’s Dave. The $1.2 billion, it’s not in the disclosure, it’s not going to be 1,200,000 (ph), but it’s so Gosh Darn Diggity close that you would never notice the difference. And the calculation that you’re doing is revenue plus change in RPO is I think it’s the new era, billings calculation of revenue plus change in deferred. So 30% plus growth in that metric, I think is a good proxy.

Alex ZukinPiper Jaffray

Perfect. And I guess just a follow-up on the federal (technical difficulty)

Doug MerrittPresident and Chief Executive Officer

Alex. Sorry, you were breaking up through most of that.

Alex ZukinPiper Jaffray

I was just asking about the federal work before (ph), and if you have any commentary on, if it was impacted by the government shutdown what the pipeline looks like for the rest of the year, just broader macro question about your pipeline generally.

Doug MerrittPresident and Chief Executive Officer

Got it. Yeah, we’re really satisfied with the performance of the public sector team and the Federal team that’s in public sector in Q1. Yeah, it’s been a bumpy ride for the past 18 months for that group. And I really am deeply appreciative of all the Federal employees that found a way to keep their heads down and keep doing the right thing for our citizens and for their organizations and persevere through the ups and downs.

I think we had — getting the final resolution of the budget and having a little bit of a clean slate up till September, I think is probably helping and we said that — helping our buyers and then helping all of us that have been tightly aligned to those buyers. So I’m excited about the run up to the end of the year and hopefully we’ll have a good landscape to work with the Fed group post September as well.

Ken TinsleyCorporate Treasurer and Vice President of Investor Relations

Okay, thanks, Alex. Jim, if we could move on, please.

Operator

Certainly. Next question comes from Keith Weiss with Morgan Stanley. Your line is now open.

Melissa FranchiMorgan Stanley — Analyst

Thanks. This is Melissa Franchi calling in for Keith. Doug, I just wanted to follow up with you on the security business. You said it’s been relatively consistent, but it’s been consistently good for you guys. So you’re benefiting from both expanding within your customer base, but also displacing the legacy SIEM vendors. And so on the later driver, I’m just wondering if we are looking forward, how much more is left to displace the legacy technology. And are you seeing any change in the piece of displacements?

Doug MerrittPresident and Chief Executive Officer

No, it’s been a really consistent drumbeat for probably a year and a half now, as far as the pace. And it — there are still quite a ways to go. There was a — quite a broad landscape of folks that have tried myriad of different SIEM vendors out. There is lot of focus in ArcSight and QRadar, but there were many, many other implementations besides those.

And I think the other piece is that definition of the SIEM market keeps changing as well. It’s gone from just strict incident event management to the augmentation now, behavioral analytics and much more broad-based security analytics play and now with the security orchestration automation category that’s sort of blend in as well. So while we are replacing last generation SIEMs, even for the customers that have already done that, we’re still coming in with additional functionality and new product offerings that continue to extend that SIEM landscape and offering.

Melissa FranchiMorgan Stanley — Analyst

Okay, that’s helpful and then just one follow-up for Dave. In terms of the guidance for cash flow, sorry to follow up on that again, but you’re still looking for 85% renewable mix for the full year. And so I understand how increase in in-invoice contract value could drive a headwind to cash flow, but I guess relative to when you guided a quarter ago, can you maybe just put a finer point on what’s changed and what’s driving that increase in the uninvoiced?

David F. ConteSenior Vice President, Finance

Yeah. Specifically, the composition in the first quarter in terms of renewable mix, and in particular the billing — the invoicing characteristics far exceeded our estimates in our model. And that changed to slow relative to timing.

Melissa FranchiMorgan Stanley — Analyst

Thank you.

Doug MerrittPresident and Chief Executive Officer

Sure.

Ken TinsleyCorporate Treasurer and Vice President of Investor Relations

Sure. Thanks, Melissa.

Operator

Thank you. And our next question comes from Fatima Boolani with UBS. Your line is now open.

Fatima BoolaniUBS — Analyst

Good afternoon. Thank you for taking the questions. I have one for Doug and one for Dave. Doug in your prepared remarks, you were pretty deliberate about some of the initiatives you’re putting in place from a vertical solutions go-to-market perspective. And I’m getting the sense, this is certainly more of a deliberate stance versus your approach in the past. So I wanted to understand what the catalyst behind that was. And then maybe as a extension to the question to David is how should I think about the incremental investment into the business this year given that full-year operating margin guidance is unchanged. And if that might have anything to do with this new initiative around vertical solutions?

David F. ConteSenior Vice President, Finance

Yeah, hey, Fatima, it’s Dave. I’ll just talk about the margin for a second. The vertical initiative was part of our plan that we set out at the beginning of the year. And when we look at Q1 results, which obviously we had a really strong top line and that flowed to the bottom line, we also looked at the weighting of margin contribution Q1 relative to margin contribution for the full year and that was the basis for maintaining our 14% op margin.

So that’s the reason it’s unchanged. There wasn’t a specific new initiative, everything is moving in terms of insight in the context to the plan that we started the year with in terms of the investment portfolio.

Doug MerrittPresident and Chief Executive Officer

And to call out on verticals, I was really trying to be comprehensive, in where we are making our investments overall. And a portion of those investments are against that both the existing Splunk Enterprise footprint, but then the complementary aspects around the monitor, alert, analyze and act, we’ve been contributing a significant portion of the R&D budget for the past 3 years on the net new innovation and new product deliveries to complement what has always been a strength of Splunk.

And vertical — the way that we have gone after new segments in the past, including how we got in security was to start to peel off, hire people and put people into groups that have deep expertise in that area and allow them, working with customers to find the patterns that could be repeated patterns that either we or our partners get to craft a more specific delivery around.

And we’ve been talking about the opportunity outside of security and IT for many years. We launched a whole set of recipes or cookbooks we call Splunk Essentials in the IoT segment last year. And because there we’ve seen some strength in manufacturing uptake, we published a whole ebook in the financial services arena in the past 60 days, that starts to detail out the Splunk essentials and non-security IT areas as well as some additional security and IT, that are specific to financial services, and all those are the future monetization and further expansion opportunities for data fabric like Splunk within those orbs.

Fatima BoolaniUBS — Analyst

Makes a ton of sense. Thank you so much.

Ken TinsleyCorporate Treasurer and Vice President of Investor Relations

Thanks, Fatima.

Operator

Thank you. And our next question comes from Gregg Moskowitz with Mizuho. Your line is now open.

Gregg MoskowitzMizuho Securities — Analyst

Okay, thanks very much. Dave, you maybe exiting this particular limelight but it’s been an incredible journey. So I’ll add my congrats and welcome, Jason. Question for you, Doug. So over the past 6 to 12 months, you’ve announced a lot of enhancements to the platform DSP, DFS, Smart store, insights for infrastructure and natural language and now business flow and connected experiences. It sounds like you might be most excited about DSP and DFS. What I’m wondering is, can these collectively move the needle on growth in fiscal ’20 or do you think it will take longer for that to translate into greater sales velocity?

Doug MerrittPresident and Chief Executive Officer

I think that like any 1.0 product introduction, there will be contributions from them over the course of this year. But when you are $1.8 billion with a forecast for $2.25 billion you need material results in how do I find $100 million revenue generation sources and it will take some time to have those products get to that same level of contribution, but the usage, the feedback that we’re getting, as they have gone into limited general availability across some of our most complex and thorniest customers is incredibly positive.

And the other, there’s a line at the door to for this — for usage on a limited availability basis. So I’m really excited to continue to push those products, make sure that we understand all the use cases and that they are truly ready for life in the wild with no guardrails and I think, we got a lot more to share with the community on how they’re being used? What use cases they power and how they power them differently than what you’ve always seen from Splunk, and how to get quick value from them at our upcoming user conference in fall Dotcom 2019.

Gregg MoskowitzMizuho Securities — Analyst

Okay, that’s great. And then just a quick follow-up on the net new logos because maybe this is a function of rounding. But on the surface anyway, it would appear that this quarter was the lowest level that we have seen in a few Q1s or a few years for that matter. Are you still — you guys still fairly confident that you can eclipse 20,000 total customers by year-end?

Doug MerrittPresident and Chief Executive Officer

Yes. Still remain confident on that number and we did round down the numbers. So but again it’s said — the quarterly reporting on this metric is kind of pain in the butt given that constant tug and pull between what are you doing on the adoption side versus what our customers doing on the net new side. And the real focus that we’ve had, is what are we doing across all aspects of the company, including product releases and our overall cloud footprint to make it — to make that number easier and easier to achieve.

Right now there still is a lot of sales involvement and I’ll be really satisfied when there’s less human dependency on getting early adopters successful and procuring those products from Splunk.

Gregg MoskowitzMizuho Securities — Analyst

Perfect, thanks, Doug.

Ken TinsleyCorporate Treasurer and Vice President of Investor Relations

Thanks, Gregg. Appreciate it.

Operator

Thank you. And our next question comes from Karl Keirstead with Deutsche Bank. Your line is now open.

Karl KeirsteadDeutsche Bank — Analyst

Thanks. Maybe one for Doug, one for Dave. Doug, the 46% license growth, super strong, the highest in a while. Was there one or two areas that contributed to that or did any element of the business in the quarter feel a little bit one time-ish that is worth calling out to us? And then Dave, I’ll ask the second question, now. I think everybody could get a little bit more comfortable with your lower operating cash flow guide if it was apparent that the ratable mix really did accelerate beyond say 77% you did in fiscal ‘ 19.

I know you don’t want to get into the habit of disclosing that metric, each quarter, but just maybe just given that cash flow guide might be creating some angst, can you give any color about where that metric landed in Q1? Thank you,

David F. ConteSenior Vice President, Finance

Karl it’s pretty close to our full-year objective which is not typical, which is not typical for a Q1.

Karl KeirsteadDeutsche Bank — Analyst

Okay, that’s helpful. Thank you. And yeah, Doug love to hear a little color.

Doug MerrittPresident and Chief Executive Officer

And Karl thank you for not asking for quarterly mix, took us 18 months to get off of that, but yeah, we materially exceeded our expectations in terms of renewable and that’s reflected in the $80 million increase in uninvoiced contract value. Again see sequentially Q4 to Q1 much much smaller pool of dollars to draw from. So it was really great performance by the field.

Karl KeirsteadDeutsche Bank — Analyst

Got it.

Doug MerrittPresident and Chief Executive Officer

And then on the performance over the quarter, it was, I think, a relatively balanced performance. We had a handful of accounts in that 7 figure up arena that really, really leaned in, which always helps. And that’s really the marks that we are focused on to take the few number of EIA and ELA customers to much bigger number of EIA, ELAs, I think is a really important motion for us as a company. The Americas is most mature. So they tend to be most mature with that activity, but we saw some healthy endorsements from customers outside of America as well.

That does — as Dave said, it’s a strong quarter, but really pleased with the performance of the teams and we are excited by how it sets us up the rest of the year.

Karl KeirsteadDeutsche Bank — Analyst

Got it. Thank you, both.

Doug MerrittPresident and Chief Executive Officer

Thanks, Karl.

Ken TinsleyCorporate Treasurer and Vice President of Investor Relations

Thanks, Karl.

Operator

Thank you. And our next question comes from Steve Koenig with Wedbush Securities. Your line is now open.

Steve KoenigWedbush Securities — Analyst

Great, thank you. Thanks guys. So one for David, one for Doug. And thanks Dave for all the help over the years, definitely appreciate it.

Doug MerrittPresident and Chief Executive Officer

How are you?

Steve KoenigWedbush Securities — Analyst

For you Dave — thank you. So building on Alex’s question. So yeah bookings metric kind of low to mid ’30s year-on-year, the software metric kind of 54%. I don’t expect every metric to match exactly every quarter, but maybe could you help reconcile those two a little bit and then I’ve got a follow-up on for Doug.

David F. ConteSenior Vice President, Finance

Sure. We’ve been conscious of moving away from perpetual and having a greater component of the business be cloud specifically. I can talk about term in a second, but cloud doesn’t come with maintenance. So it’s in the services line, for sure, but when we report software we’re seeing our cloud number plus our on-prem number i.e. license. That’s 54% software growth, and we have been doing that for over a year now. So when you look at the composition of the calculated RPO bookings number like the software component is actually is quite strong, and you’re asking me how do you reconcile the delta. The biggest delta is in the non-software components.

Steve KoenigWedbush Securities — Analyst

Got it. Okay. I will work on that. And then the one for Doug. So Doug, when I look at some of the — kind of the next generation kind of new age vendors that want to — want to — do innovate in both security and in IT ops. It seems like there have been some interesting value added innovation, some of these companies are doing, and then some of them in those spaces are going back and trying to do log management. And — and I’m just wondering what’s your sense of the competitive dynamic out there with regards to the newer players and how Splunk plans to stay ahead?

Doug MerrittPresident and Chief Executive Officer

Sure. So I’ll — let me start with the log management piece. The core uniqueness that Splunk has that people still can’t emulate and have a tough time wrapping their arms around is that we don’t manage logs. Logs are unmanageable by definition. Every log is a snow flake and any attempt to create structure and mandates with logs is sisyphean task. It’s never ever going to come to fruition. That’s not the nature of logs.

Why Splunk was created is, if you’ve got a data source that by nature is chaotic and never systematizable and yet, you’ve got to make sense of the data, then you need to create a data structure that actually is able to be completely non-schematized, so you can take what people would assume is random garbage and put it into this data — investigative data link and still make sense of it. That — that is — that’s completely unique. There is no other data structure out there that can do that yet. It’s not worthwhile for us to rely on that eventually someone will figure that out, but nobody else can do that, which is why on a forensic investigation basis, whether it’s security forensics, IT forensics or outside those departments, we’re in a pretty — we’re in a category of one.

As these vendors are coming in with very IT or security focused lens, it’s not a bad way to go to actually start a platform. But the dilemma with that is the data that you’re gathering for to serve an IT user or dev ops user or security ops user, the overlap between those different constituencies is very high on the data. And then it winds up being very similar data that you want to use outside those two departments as well. If you structure all the data there is not much reuse, you can get because now it’s tailored for that specific audience.

But the dilemma that we all have, and I think part of why Splunk is in leadership position is, how do you create a very robust framework, how do you — starting with a data repository that never structures data allows you infinite variety on how you cast that data and make use of it across these different apartments. And that’s I guess, I’m trying to say to solve the problems for these users and then to extend beyond that finite set of users to a broad set of organizations across the company, means you’ve got to build a very complex and robust data platform capability set. And I feel like the investments we’ve been making over the past three years or four years and got products like DSP and DFS are just examples of that. There’s over 10 products we’ve announced in the past year and a half, I think gives us the ability to continue to deliver unique value to our customers across multiple use cases including security and IT.

Steve KoenigWedbush Securities — Analyst

Thanks guys. I appreciate it.

Doug MerrittPresident and Chief Executive Officer

Thanks, Steve.

Operator

Thank you. And our next question comes from Kirk Materne with Evercore. Your line is now open.

Kirk MaterneEvercore — Analyst

Thanks very much. Thanks for fitting me in, and Dave best of luck going forward. I guess my question is for Doug. Doug, one of the things, I have been sort of wondering about over time is just the flywheel effect for partners for you all, only 70,000 customers for product like yours just seems so low relative to the potential. And I’m just wondering, what’s — what sort of taking a while for partners to kind of jump on and create really another distribution model for you all because you can sort of slugging this out, I think with more of a direct sales approach and that’s sort of been the way you had to do it at the start, but have a $2 billion run rate. I’m just wondering what’s — is it going to take to get the bigger SIs to get some of the VARs really jumping in a bigger way with you all, so you create a little bit more leverage from a go-to-market perspective over the next couple of years? Thanks.

Doug MerrittPresident and Chief Executive Officer

Sure, Kirk. No, it’s — I have obviously been very consistent on the need for a robust partner ecosystem. And I think that the improvements we’ve made over the past five years have been pretty notable and remarkable. There is still a long way to go. You’re never done. We’re proud, but not satisfied. We just had a global partner summit this quarter and rolled out a bunch of new enhancements to our partner programs, as well as our partner portal and tech infrastructure to help make their lives easier and better.

I think the amount of partner involvement has gone up and up and up over the past five years. It’s well over 50% across our — all of our theaters right now, as a Company. The dilemma is that partner involvement is usually co-sell with us not independent sell. And I think a lot of what we are continuing to work on which goes back to the underlying platform and the platform capabilities is making it easier and easier to build solutions and other contributions on top of this Splunk platform, so that partners actually — the thing that they are talking to a customer about, is their thing on top of Splunk rather than Splunk or Splunk’s thing. And I think we made traction, we keep seeing Splunk base — the volume of items on Splunk base go up and — but there is still more, more work for us to do.

Kirk MaterneEvercore — Analyst

Okay. I guess, just trying to maybe put a timeline on it. Is this something, you can see moving the needle next year. I’m just kind of curious, I know it’s an iterative process, but just kind of curious, it seems like you see a lot of data points heading the right direction. Is there any sort of inflection you see coming or is it just — it’s going to be sort of pushing the boulder up the hill to a certain degree?

Doug MerrittPresident and Chief Executive Officer

I mean, I think the — what we’re seeing is, we have prioritized different partners and accounts. Accenture is one of those examples. We’ve had some interesting announcements with Cisco and Symantec, where they are OEMing Splunk for different use cases. So pick fewer partners that we go deep with and really do co-development to make sure that there is going back to that as a partner thing that they’re leading with that — that they have what they need for a whole series of use cases or different buying centers to be successful on their own with that sales initiative.

And I think within those customers and Accenture is probably the one we’ve been most consistent with for three solid years, we’re seeing their productivity from those accounts. And then in addition to that, what I was referencing around overall partner program and the technology enablement that we’re doing and the partner enablement is, how do you continue to increase the capacity and capability of those that are not getting that really, really discrete focus as well. But I think we’re seeing the tipping point in some of our top tier accounts, which hopefully, we’ll see that, you guys will all see the benefits out in the marketplace.

Kirk MaterneEvercore — Analyst

It sounds good. Thanks for the answer, and congrats on the quarter.

Doug MerrittPresident and Chief Executive Officer

Thanks, Kirk.

Operator

Thank you. And we have time for one final question. Our last question comes from Walter Pritchard with Citi. Your line is now open.

Walter PritchardCiti — Analyst

Hi, thanks. I guess, Dave a question for you. I guess, final question on final call on maintenance. There was a (multiple speakers)

David F. ConteSenior Vice President, Finance

Hey, Walter, I save the best for last.

Walter PritchardCiti — Analyst

Certainly. So on maintenance, I guess looking forward on that number and maybe I guess it’s adjacent, but should we think about that staying positive or it’s the growth rates come down quite a bit. I’m wondering, how should we think about that from a trajectory perspective? And then had a — have a question for Doug?

David F. ConteSenior Vice President, Finance

Meaning that the maintenance growth rates.

Walter PritchardCiti — Analyst

Yeah, the growth rate. Yeah, I think it was 30s (ph) — it was 30s maybe a year ago and it’s kind of into the 10% range right now. Is that — is this a level you think it stays or you think it comes down further in terms of growth?

David F. ConteSenior Vice President, Finance

It probably is going to continue to decline a little, but it’s — it’s really the offset is well, how fast as cloud grow as a percentage of the total. Obviously, term gets a — a chunk of term gets put into maintenance. It’s a different math equation then when it’s perpetual. But the big swing is cloud as a bigger percentage versus perpetual that’s the biggest thing in maintenance. The other piece, professional services more times than not don’t flow through RPO at all. You do get them into deferred on occasion based on timing of delivery and payment and all that. But when I talk about the other components when we think about gross book of business that the field is generating, we put all the software components, all the maintenance components and all the services component in that pool. But the biggest — again, the biggest recomp that earlier question relates to maintenance.

Walter PritchardCiti — Analyst

Okay. Got it. And then, Doug, on the sort of higher velocity model that you’re looking to drive. Could you update on — update us on where that — where things stand there, is that starting to contribute a material number of new customers and are there milestones this year that you’re looking at to feel like that — that this year will be where it needs to be?

Doug MerrittPresident and Chief Executive Officer

So for better or worse, as I’ve talked about in past calls that net new customer count is really a Splunk Enterprise count. And for month to month contracts in our cloud arena for the VictorOps contracts, which are true ARR (inaudible) monthly we don’t, we don’t include those, the numbers. So we’ve — so we maintained consistency over the many years. We have been reporting that on how we’ll define that number. So a lot of that velocity is not trapped in that number.

And as we get more and more traction with the Splunk Cloud platform and lot of the elements that are offered there, we’re going to have to face the decision point of how we want to update you guys on the total customers, not just the Splunk Enterprise customers and what the — and what that trajectory looks like because that’s becoming a more and more sizable portion of our R&D investment as well as everything around the Company, systems to support that lower touch higher volume model, marketing programs, sales teams et cetera, et cetera.

Walter PritchardCiti — Analyst

Okay. And milestones this year, is there any — is there anything we should be focused on or is it — is it a sort of incremental (inaudible)?

Doug MerrittPresident and Chief Executive Officer

It is — it’s something that you — that we have not — we have not — we’re not making visible to guys. So no, there is internal milestones that we have, but there is nothing that we are breaking and reporting externally right now.

Walter PritchardCiti — Analyst

Okay, great. Thanks.

David F. ConteSenior Vice President, Finance

Thanks, Walter.

Doug MerrittPresident and Chief Executive Officer

Thanks, Walter.

Jason ChildSenior Vice President and Chief Financial Officer

Thanks.

Operator

Thank you. And at this time, I’ll be turning the call back to Ken Tinsley for any closing remarks.

Ken TinsleyCorporate Treasurer and Vice President of Investor Relations

Great. Thank you, Jimmy. Appreciate your help today. Jason, welcome, and Dave, thank you. It’s been a pleasure and an honor. Hope everybody has a good night.

Operator

Ladies and gentlemen, thank you for your participation on today’s conference. This does conclude your program, and you may all disconnect. Everyone have a great day.

Duration: 75 minutes

Call participants:

Ken TinsleyCorporate Treasurer and Vice President of Investor Relations

Doug MerrittPresident and Chief Executive Officer

Jason ChildSenior Vice President and Chief Financial Officer

David F. ConteSenior Vice President, Finance

Michael TuritsRaymond James — Analyst

Philip WinslowWells Fargo — Analyst

Matt HedbergRBC Capital Markets — Analyst

Kash RanganBank of America — Analyst

John DiFucciJefferies — Analyst

Alex ZukinPiper Jaffray

Melissa FranchiMorgan Stanley — Analyst

Fatima BoolaniUBS — Analyst

Gregg MoskowitzMizuho Securities — Analyst

Karl KeirsteadDeutsche Bank — Analyst

Steve KoenigWedbush Securities — Analyst

Kirk MaterneEvercore — Analyst

Walter PritchardCiti — Analyst

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