SPLUNK INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" included in Part I, Item 1A or in other parts of this report. The following section generally discusses fiscal 2023 and 2022 items and year-to-year comparisons between fiscal 2023 and 2022. Discussions of fiscal 2021 items and year-to-year comparisons between fiscal 2022 and 2021 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2022 , and are incorporated herein by reference. Amounts reported in millions are rounded based on the amounts in thousands. As a result, the sum of the components reported in millions may not equal the total amount reported in millions due to rounding. In addition, percentages presented are calculated from the underlying numbers in thousands and may not add to their respective totals due to rounding.
Overview
Splunk helps customers build a safer and more resilient digital world. We
deliver innovative solutions that enable organizations to harness the value of
their data to help keep their digital systems secure, available and performant.
As organizations' reliance on resilient systems continues to increase, it is
critical that they keep pace with increasing complexity and potential
vulnerabilities associated with these systems. Our solutions for security and
observability empower Security Operations ("SecOps"), IT Operations ("ITOps"),
and Development Operations ("DevOps") teams to maintain resilient systems by
monitoring and securing them more quickly and efficiently. We also believe our
offerings empower operational transformation, helping customers move from
reactive, non-scalable and ineffective approaches to proactive, automated, and
machine learning ("ML")-assisted processes that drive better outcomes even as
the scale and complexity of their technology continue to grow.
We believe that the increasing reliance on digital systems has made the
resilience of these systems mission-critical for nearly every organization and
the sustained ongoing importance of digital systems amidst the evolving threat
landscape further elevates Splunk's central role in enabling secure and reliable
operations for our customers.
We typically base our cloud services annual subscription fees on either the
volume of data indexed per day including a fixed amount of data storage or
purchased infrastructure, data storage and bandwidth our customers require to
support the underlying workload. We are seeing an increasing share of our
business being based on workload pricing. We recognize the revenues associated
with our cloud services ratably over the associated subscription term. For our
license offerings, we typically base the license fees on either the estimated
daily data indexing capacity or the compute power consumed to support our
customers' workload and we generally recognize the license fee portion of these
arrangements upfront. As a result, the timing of when we enter into large
license contracts may lead to fluctuations in our revenues and operating results
because our expenses are largely fixed in the short-term.
As customers have increasingly adopted our cloud services offerings, the
proportion of revenue from our delivery of cloud services has grown. This shift
in our revenue mix has impacted, and it will continue to impact, our revenue and
operating margins as a higher percentage of our sales is now recognized ratably.
Whether and the degree to which cloud services become our predominant delivery
model is dependent on customer choice. As a result, the pace of the shift may
fluctuate and the mix of cloud services and license revenue may continue to vary
from quarter to quarter and year to year. Therefore, our ability to predict our
revenue and margins in any particular period has been, and may continue to be,
limited.
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We intend to continue investing for long-term growth. We have invested and
intend to continue to invest in product development to deliver additional
features and performance enhancements, deployment models and solutions that can
address new end markets. We expect to continue to expand our sales and marketing
organizations to market and sell our offerings both in the United States and
internationally.
We have utilized and expect to continue to engage in acquisitions to contribute
to our long-term growth objectives. Additionally, we expect to continue to make
investments in private companies with complementary technology and business
models with the objective of establishing longer-term strategic relationships.
Worldwide economic uncertainties and negative trends, including financial and
credit market fluctuations, rising interest rates, political unrest and social
strife, the long-term impact of the ongoing COVID-19 pandemic and other impacts
from the macroeconomic environment have, and could continue to, adversely affect
our business operations or financial results. These macroeconomic conditions
have caused and could continue to cause a decrease in corporate spending on
enterprise software in general and negatively affect the rate of growth of our
business.
Toward the end of the second quarter, and continuing through the end of fiscal
2023, we saw changes in customer buying patterns due to the uncertain
macroeconomic environment, including a slower pace of expansions and migrations
to cloud services. In the fourth quarter of fiscal 2023, we also saw enhanced
deal scrutiny. We will continue to closely monitor the macroeconomic environment
and its effects on our business and on global economic activity, including
customer spending on information technology.
See Part I, Item 1A. "Risk Factors" in this Form 10-K for further discussion of
the impact and possible future impacts of the macroeconomic environment on our
business.
Key Business Metrics
We use certain key financial and operating metrics to evaluate our performance and monitor the growth of our business as we continue to shift to a cloud services delivery model.
Annual Recurring Revenue
We use cloud annual recurring revenue ("Cloud ARR") and total annual recurring
revenue ("Total ARR") to identify the annual recurring value of customer
contracts at the end of a reporting period and to monitor the growth of our
recurring business as we continue to shift to a cloud services delivery model.
Cloud ARR represents the annualized revenue run-rate of active cloud services
contracts at the end of a reporting period. Total ARR represents the annualized
revenue run-rate of active cloud services, term license and maintenance
contracts at the end of a reporting period. Each contract is annualized by
dividing the contract value by the number of days in the contract term and then
multiplying by 365. ARR should be viewed independently of revenue, and does not
represent our revenue under U.S. GAAP on an annualized basis, as it is an
operating metric that can be impacted by contract start and end dates and
renewal rates. ARR is not intended to be a replacement for forecasts of revenue.
The following presents our Cloud ARR and Total ARR (in millions):
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Number of Customers with ARR Greater than $1 Million
We monitor the number of customers with Cloud ARR greater than $1 million and
Total ARR greater than $1 million at the end of a reporting period. An increase
in this metric is an indicator of our ability to attract and scale with large
enterprise customers who may have a broader array of use cases that align with
the Splunk platform. The following presents the number of our customers with
Cloud ARR greater than $1 million and Total ARR greater than $1 million:
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Free Cash Flow
Splunk considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated or used by the business. Free cash flow represents net cash provided by operating activities less purchases of property and equipment and capitalized software development costs. Net cash provided by operating activities was$450 million and$128 million in fiscal 2023 and fiscal 2022, respectively. The following presents our free cash flow (in millions): [[Image Removed: splk-20230131_g7.jpg]] Below is a calculation of free cash flow: Fiscal Year EndedJanuary 31 , (In thousands) 2023
2022
Net cash provided by operating activities$ 449,630 $ 128,048 Less purchases of property and equipment (13,620)
(10,671)
Less capitalized software development costs (8,782) (9,361) Free cash flow$ 427,228 $ 108,016 50
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Dollar-Based Net Retention Rate
We quantify our net expansion across existing cloud customers through our cloud
dollar-based net retention rate ("Cloud DBNRR"). We calculate Cloud DBNRR by
dividing the Cloud ARR at the end of a period ("Cloud Current Period ARR") by
the Cloud ARR of the same group of customers at the beginning of that 12-month
period. Cloud Current Period ARR includes existing customer renewals and
expansion, is net of existing customer contraction and churn, and excludes new
customers. For the trailing 12-month Cloud DBNRR, we take the dollar-weighted
average of the Cloud DBNRR over the trailing 12 months. The following presents
our trailing 12-month Cloud DBNRR:
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Remaining Performance Obligations ("RPO") Bookings
RPO Bookings is an indicator of overall bookings momentum. We calculate total
RPO Bookings as total revenue plus the change in total RPO. Total RPO is
separately disclosed in Note 9 "Revenues, Accounts Receivable, Deferred Revenue
and Remaining Performance Obligations" of our accompanying Notes to Consolidated
Financial Statements included elsewhere in this Annual Report on Form 10-K. The
following presents our total RPO Bookings (in millions):
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Below is a calculation of total RPO Bookings:
Fiscal Year Ended January 31,
(In thousands) 2023 2022
Total revenues $ 3,653,708 $ 2,673,664
Change in RPO 532,192 591,992
Total RPO Bookings $ 4,185,900 $ 3,265,656
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Components of Operating Results
Revenues
Cloud services revenues. Cloud services allow customers to use hosted software over the contract period without taking possession of the software. We recognize the revenues associated with our cloud services ratably, over the associated subscription term. License revenues. License revenues primarily consist of revenues from term licenses, under which we generally recognize the license fee portion of the arrangement upfront, assuming all revenue recognition criteria are satisfied. License revenues reflect the revenues recognized from sales of licenses to new customers and additional licenses to existing customers, including sales from the renewal of term licenses. Seasonal trends that contribute to increased sales activity in the fourth fiscal quarter often result in lower sequential revenues in the first fiscal quarter, and we expect this trend to continue.
Maintenance and services revenues. Maintenance and services revenues consist of revenues from maintenance agreements and professional services and training.
•Maintenance revenues. When a term license is purchased, maintenance is bundled
with the license for the term of the license period. Customers with maintenance
agreements are entitled to receive support and unspecified upgrades and
enhancements when and if they become available during the maintenance period. We
recognize the revenues associated with maintenance agreements ratably, on a
straight-line basis, over the associated maintenance period. Maintenance
revenues as a percentage of total revenues were 12.7% and 17.6% for fiscal 2023
and 2022, respectively.
•Professional services and training revenues. We provide professional services
and training focused on helping our customers deploy our software in highly
complex operational environments and train their personnel. Professional
services and training have stated billing rates per service hour or are provided
on a subscription basis.
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Related revenues are recognized as services are delivered or ratably over the
subscription period. Professional services and training revenue continues to
represent a significant portion of our maintenance and services revenue due to
the deployment of our offerings in large and highly complex IT environments.
Cost of Revenues
Cost of cloud services revenues. Cost of cloud services revenues includes third-party hosting fees, salaries, benefits, stock-based compensation and related expenses such as employer taxes related to our delivery of cloud services, allocated overhead for depreciation of equipment, facilities and IT, and amortization of acquired intangible assets. We recognize these expenses as they are incurred. Cost of license revenues. Cost of license revenues includes all direct costs to deliver our products, including salaries, benefits, stock-based compensation and related expenses such as employer taxes, allocated overhead for facilities and IT and amortization of acquired intangible assets. We recognize these expenses as they are incurred.
Cost of maintenance and services revenues. Cost of maintenance and services revenues includes salaries, benefits, stock-based compensation and related expenses such as employer taxes related to our delivery of maintenance and services, third-party consulting services and allocated overhead for depreciation of equipment, facilities and IT. We recognize these expenses as they are incurred.
Operating Expenses
Our operating expenses are classified into three categories: research and
development, sales and marketing and general and administrative. For each
category, the largest component is personnel costs, which include salaries,
employee benefit costs, bonuses, commissions as applicable, stock-based
compensation and related expenses such as employer taxes. Operating expenses
also include allocated overhead costs for depreciation of equipment, facilities
and IT. Allocated costs for facilities include costs for compensation of our
facilities personnel, leasehold improvements and rent. Our allocated costs for
IT include costs for compensation of our IT personnel, costs associated with our
IT infrastructure and software subscriptions. Operating expenses are generally
recognized as incurred.
We are focused on managing the business with a balanced approach to long-term
growth and profitability. As a result we will take measures to control and in
some cases reduce targeted sources of operating costs, as we prioritize
business-critical investments. Certain strategic actions to reduce our workforce
have been taken, including one as described further in Note 12 "Subsequent
Events" of our accompanying Notes to Consolidated Financial Statements included
elsewhere in this Annual Report on Form 10-K. In the period or periods
immediately following these actions, operating expenses will generally increase
due to the related severance payments and other termination benefits. We
generally expect revenue growth to outpace spending in the following categories.
Accordingly, we expect the decline in expenses as a percentage of revenue to
continue.
Research and development. Research and development expenses primarily consist
of personnel and facility-related costs attributable to our research and
development personnel. We have devoted our product development efforts primarily
to enhancing the functionality and expanding the capabilities of our software
and services. While we will continue to invest in product development, we do not
expect related expenses to significantly increase on an organic basis in fiscal
2024 as we prioritize hiring in lower cost markets.
Sales and marketing. Sales and marketing expenses primarily consist of
personnel and facility-related costs for our sales, commissions earned by our
sales personnel, marketing and business development personnel, and the cost of
marketing and business development programs, including advertising programs to
promote our brand and awareness, demand generating activities and customer
events. We expect that sales and marketing expenses will continue to increase,
in absolute dollars, as we continue to hire additional personnel and invest in
marketing programs.
General and administrative. General and administrative expenses primarily
consist of personnel and facility-related costs for our executive, finance,
legal, human resources and administrative personnel; our legal, accounting and
other professional services fees; and other corporate expenses. As these
activities are critical to supporting our operations, we will continue to make
related investments as we grow.
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Interest and Other Income (Expense), Net
Interest and other income (expense), net consists primarily of interest expense
related to the Notes, gain on extinguishment of convertible senior notes, a
strategic investment impairment loss, foreign exchange gains and losses, and
interest income on our investments and cash and cash equivalents balances.
Income Tax Provision (Benefit)
Our income tax provision (benefit) consists of federal, state and foreign income taxes. Because of our history ofU.S. operating losses, we have established a full valuation allowance on ourU.S. deferred tax assets. We regularly assess the need for the valuation allowance. If we determine that an adjustment is needed, we will record the necessary adjustment in the period that the determination is made.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with generally accepted accounting principles inthe United States . The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
We believe that the assumptions and estimates associated with revenue recognition, deferred sales commissions and business combinations have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. Accordingly, we believe these are the most critical to fully understand and evaluate our financial condition and results of operations.
Revenue Recognition
Our contracts with customers often contain multiple performance obligations. For
these contracts, we account for individual performance obligations separately if
they are distinct. We apply significant judgment in identifying and accounting
for each performance obligation, as a result of evaluating the terms and
conditions in contracts. The transaction price is allocated to the separate
performance obligations on a relative standalone selling price ("SSP") basis. We
determine the SSP based on an observable standalone selling price when it is
available, as well as other factors, including the price charged to customers,
our discounting practices, and our overall pricing objectives, while maximizing
observable inputs. In situations where pricing is highly variable, we estimate
the SSP using the residual approach.
Deferred Sales Commissions
Sales commissions paid to our sales force and the related payroll taxes are
considered incremental and recoverable costs of obtaining a contract with a
customer. Costs related to new cloud services and term license contracts are
amortized in proportion to the transfer of related services and delivery of
licenses, including renewals, over the average period of benefit. We have
determined that the average period of benefit related to these costs is five
years, which is longer than our customers' initial contract periods, but
reflects the average period of benefit, including expected contract renewals. In
arriving at this average period of benefit we considered the nature of our
customer contracts, the duration of our relationships with customers, and the
estimated life cycles of our technology. Costs related to renewals are amortized
over the contract period. In capitalizing and amortizing deferred commissions,
we have elected to apply a portfolio approach.
For further information on our significant accounting policies, refer to Note 1
"Description of the Business and Significant Accounting Policies" of our
accompanying Notes to Consolidated Financial Statements included elsewhere in
this Annual Report on Form 10-K.
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Results of Operations
The following table sets forth our results of operations for the periods presented and as a percentage of our total revenues for those periods. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.
Consolidated Statements of Operations Data
Fiscal Year Ended January 31,
(In thousands and as % of 2023 2022 2021
total revenues)
Revenues
Cloud services $ 1,457,295 39.9 % $ 943,785 35.3 % $ 554,132 24.9 %
License 1,521,116 41.6 1,056,481 39.5 971,378 43.6
Maintenance and services 675,297 18.5 673,398 25.2 703,875 31.6
Total revenues 3,653,708 100.0 2,673,664 100.0 2,229,385 100.0
Cost of revenues
Cloud services (1) 490,299 33.6 398,274 42.2 252,290 45.5
License (1) 5,312 0.3 9,215 0.9 20,864 2.1
Maintenance and services
(1) 320,384 47.4 326,480 48.5 274,191 39.0
Total cost of revenues 815,995 22.3 733,969 27.5 547,345 24.6
Gross profit 2,837,713 77.7 1,939,695 72.5 1,682,040 75.4
Operating expenses
Research and development 997,170 27.3 1,029,574 38.5 791,026 35.5
Sales and marketing 1,621,518 44.4 1,534,600 57.4 1,336,056 59.9
General and administrative 454,531 12.4 522,350 19.5 335,144 15.0
Total operating expenses 3,073,219 84.1 3,086,524 115.4 2,462,226 110.4
Operating loss (235,506) (6.4) (1,146,829) (42.9) (780,186) (35.0)
Interest and other income
(expense), net
Interest income 25,401 0.7 2,583 0.1 13,850 0.6
Interest expense (46,026) (1.3) (174,598) (6.5) (123,076) (5.5)
Other income (expense), net (9,320) (0.3) (1,939) (0.1) (11,636) (0.5)
Total interest and other
income (expense), net (29,945) (0.8) (173,954) (6.5) (120,862) (5.4)
Loss before income taxes (265,451) (7.3) (1,320,783) (49.4) (901,048) (40.4)
Income tax provision 12,411 0.3 18,314 0.7 6,932 0.3
Net loss $ (277,862) (7.6) % $ (1,339,097) (50.1) % $ (907,980) (40.7) %
_________________________
(1)Calculated as a percentage of the associated revenues.
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Comparison of the Fiscal Years Ended January 31, 2023 and 2022
Revenues
(Dollars in millions)
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Fiscal 2023 Compared to Fiscal 2022
Total revenues increased
+ increase of$513.5 million , or 54.4%, in cloud services revenues + increase of$464.6 million , or 44.0%, in license revenues + increase of$1.9 million , or 0.3%, in maintenance and services revenues 56
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The increase in cloud services revenues reflects the continued customer adoption
of our cloud services offerings. Our customers are increasingly purchasing our
cloud services offerings as they deliver the benefits of our license offerings,
while eliminating the need to purchase, deploy and manage infrastructure. The
increase in license revenues is a result of increased license bookings during
fiscal 2023, as compared to fiscal 2022.
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Cost of Revenues and Gross Margin
(Dollars in millions)
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Fiscal 2023 Compared to Fiscal 2022
Total cost of revenues increased$82.0 million , or 11.2%, primarily due to the increase in cost of revenues related to our delivery of cloud services. Cloud services cost of revenues increased$92.0 million , or 23.1%, primarily due to the following: + increase of$58.0 million in third-party hosting fees to support increased customer adoption of our cloud services + increase of$15.6 million in salaries and benefits, including stock-based compensation expense as we increased headcount + increase of$11.1 million in third-party consulting services + increase of$7.6 million in depreciation and amortization expense Cloud services gross margin increased primarily due to the optimization of our cloud infrastructure that supports the delivery of cloud services. Maintenance and services cost of revenues decreased$6.1 million , or (1.9)%, primarily due to a decrease of$5.6 million in salaries and benefits, including stock-based compensation expense as we decreased headcount. 58
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Table of Contents Operating Expenses (Dollars in millions)
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Fiscal 2023 Compared to Fiscal 2022
Research and development expense decreased
- decrease of
Sales and Marketing Expense
Fiscal 2023 Compared to Fiscal 2022
Sales and marketing expense increased
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+ increase of $80.5 million in salaries and benefits, including stock-based
compensation expense as we increased headcount
+ increase of $5.7 million in employment-related expenses
General and Administrative Expense
Fiscal 2023 Compared to Fiscal 2022
General and administrative expense decreased
- decrease of$53.6 million in facility exit costs primarily due to the recognition of a loss on the termination of a lease inSan Jose, CA during fiscal 2022 - decrease of$25.6 million in stock-based compensation primarily due to the departures of certain executives in fiscal 2023 - decrease of$15.2 million in third-party consulting services + increase of$16.0 million in cash salaries and benefits as we increased headcount + increase due to a$10.0 million impairment charge related to one of our office space leases 60 -------------------------------------------------------------------------------- Table of Contents Interest and Other Income (Expense), net Fiscal Year Ended January 31, (In thousands) 2023 2022 Interest and other income (expense), net Interest income$ 25,401 $ 2,583 Interest expense (46,026) (174,598) Other income (expense), net (9,320) (1,939) Total interest and other income (expense), net $
(29,945)
Fiscal 2023 Compared to Fiscal 2022
Interest and other income (expense), net reflects a net decrease in expense of$144.0 million , primarily due to a decrease in non-cash interest expense of$135.7 million as a result of our adoption of ASU 2020-06 onFebruary 1, 2022 ; a net increase in interest income due to higher active investments in interest-bearing securities; and a net increase in other expense due to higher foreign currency transaction losses driven by strengthening of theU.S. dollar. Under ASU 2020-06, we are no longer required to record conversion option-related debt discounts on the Notes, which were previously amortized as non-cash interest expense over the maturity of each of the Notes. Income Tax Provision Fiscal Year Ended January 31, (In thousands) 2023 2022 Income tax provision$ 12,411 $ 18,314
Fiscal 2023 Compared to Fiscal 2022
Our income tax provision decrease primarily results from several one-time tax
benefits. For example, we recorded a partial release of our valuation allowance
as a result of our fiscal year 2023 acquisition.
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Seasonality, Cyclicality and Quarterly Trends
Our quarterly results reflect seasonality in the sale of our offerings.
Historically, a pattern of increased license sales in the second half of our
fiscal year as a result of industry buying patterns has positively impacted
sales activity in those periods, which can result in lower sequential revenue in
the first fiscal quarter. We expect this seasonality to continue as long as
revenue from sales of our license offerings continues to represent a significant
proportion of total revenues. As we continue to expect seasonally higher
bookings and billings in the second half of the our fiscal year, with a large
proportion of our revenue recognized ratably there will also be a seasonal
impact on our remaining performance obligations and deferred revenue. Our gross
margins and operating losses have been affected by these historical trends
because the majority of our expenses are relatively fixed in the short term.
Although these seasonal factors are common in the technology industry,
historical patterns should not be considered a reliable indicator of our future
sales activity or performance. The timing of revenues in relation to our expense
activity, which generally does not correlate directly with revenues, has an
impact on cost of revenues, research and development expense, sales and
marketing expense and general and administrative expense as a percentage of
total revenues in each fiscal quarter during the year. The majority of our
expenses are personnel-related and include salaries, stock-based compensation,
benefits and incentive-based compensation plan expenses. As a result, we have
not experienced significant seasonal fluctuations in the timing of expenses from
period to period. In addition, because of our billing cycle and annual billing
practices, our cash collections are highest in the fourth and first fiscal
quarters with a seasonal decline in the second quarter.
Liquidity and Capital Resources
Fiscal Year Ended January 31,
(In thousands) 2023 2022
Cash and cash equivalents $ 690,587 $ 1,428,691
Investments, current 1,316,347 286,337
Investments, non-current 41,700 46,431
(In millions)
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Our principal sources of liquidity are our cash and cash equivalents,
investments and net accounts receivable. From time to time, we have also issued
convertible debt to supplement our working capital. As of January 31, 2023 , we
had $2.0 billion of cash, cash equivalents and investments of which
$314.8 million was held by foreign subsidiaries. We believe that these funds
will be sufficient to meet our anticipated cash needs for at least the next
12 months.
Our long-term future capital requirements will depend on many factors including
our growth rate, the timing and extent of spending to support development
efforts, the expansion of sales and marketing activities, the introduction of
new and enhanced software and services offerings, the investments in our office
facilities and our systems infrastructure, the continuing market acceptance of
our offerings and our planned investments, particularly in our product
development efforts or acquisitions of complementary businesses, applications or
technologies.
In June 2021 , our board of directors authorized and approved a stock repurchase
program of up to $1.0 billion of our outstanding common stock. During fiscal
2022 we repurchased 6.9 million shares of common stock with a total price of
$1.0 billion , under trading plans complying with Rule 10b5-1 under the Exchange
Act, at an average price of $145.23 per share. The
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repurchased shares are reflected as treasury stock on our consolidated balance
sheets and statements of stockholders' equity (deficit). The repurchase program
was completed as of October 31, 2021 . The principal source of funding for the
repurchase program was the proceeds from the issuance of $1 billion aggregate
principal amount of 0.75% Convertible Senior Notes due 2026 ("2026 Notes"). Both
the repurchase program transactions and the proceeds from the 2026 Notes were
fiscal 2022 financing activities as reflected on our Consolidated Statements of
Cash Flows. Accordingly, the repurchase program did not have a material impact
on our operating cash flows, liquidity, or capital resources for the year ended
January 31, 2022 , on a net basis and we do not expect it to have a material
impact in the future.
In July 2021 , we issued $1.0 billion aggregate principal amount of the 2026
Notes with Silver Lake Alpine, L.P. , Silver Lake Alpine (Offshore Master), L.P.
and Silver Lake Partners VI, L.P. as the purchasers. The 2026 Notes are general
senior, unsecured obligations of Splunk. The total proceeds from the issuance of
the 2026 Notes was $981.7 million , net of issuance costs. In June 2020 , we
issued $1.27 billion aggregate principal amount of the 2027 Notes, including the
exercise in full by the initial purchasers of the 2027 Notes of their option to
purchase an additional $165.0 million principal amount of 2027 Notes. The 2027
Notes are general senior, unsecured obligations of Splunk. The total proceeds
from the issuance of the 2027 Notes was $1.25 billion , net of initial purchaser
discounts and other issuance costs. In connection with the issuance of the 2027
Notes, we entered into privately negotiated capped call transactions with
certain counterparties (the "2027 Capped Calls"). We used approximately $137.4
million of the net proceeds from the offering of the 2027 Notes to pay the cost
of the 2027 Capped Calls and $691.6 million to repurchase, for cash,
approximately $488.3 million aggregate principal amount of our outstanding 2023
Notes. In September 2018 , we issued $1.27 billion aggregate principal amount of
the 2023 Notes and $862.5 million aggregate principal amount of the 2025 Notes.
In connection with the issuance of the 2023 Notes and the 2025 Notes, we entered
into privately negotiated capped call transactions with certain counterparties
(the "2023 and 2025 Capped Calls"). The premiums paid for the purchase of the
2023 and 2025 Capped Calls were $274.3 million . Refer to Note 7 "Convertible
Senior Notes" of our accompanying Notes to Consolidated Financial Statements
included elsewhere in this Annual Report on Form 10-K. It is our current intent
to settle the principal amount of the 2023 Notes with cash upon maturity in
September 2023 .
In the event that additional financing is required from outside sources, we may
not be able to raise it on terms acceptable to us, if at all. If we are unable
to raise additional capital when desired, our business, operating results and
financial condition could be adversely affected.
Operating Activities
Net cash provided by (used in) operating activities consists of our net loss adjusted for certain non-cash items and changes in operating assets and liabilities during the year.
Fiscal 2023 Compared to Fiscal 2022
Net cash provided by operating activities was
Investing Activities
Fiscal 2023 Compared to Fiscal 2022
Net cash used in investing activities of$1.1 billion during the year endedJanuary 31, 2023 primarily consisted of marketable securities purchases of$1.0 billion , net of maturities, cash consideration paid relating to the fiscal 2023 acquisition, net of cash acquired, of$22.0 million , purchases of property and equipment of$13.6 million , cash used for the development of internal-use software of$8.8 million , and purchases of strategic investments of$6.7 million . Net cash used in investing activities of$333.8 million during the year endedJanuary 31, 2022 primarily consisted of marketable securities purchases of$210.6 million , net of maturities, cash consideration paid relating to the TruSTAR acquisition, net of cash acquired, of$80.3 million , purchases of strategic investments of$23.8 million , purchases of property and equipment of$10.7 million , and cash used for the development of internal-use software of$9.4 million . 63 -------------------------------------------------------------------------------- Table of Contents Financing Activities
Fiscal 2023 Compared to Fiscal 2022
Net cash used in financing activities of
Net cash used in financing activities of$136.7 million during the year endedJanuary 31, 2022 primarily consisted of$1.0 billion of repurchases of common stock and taxes paid related to the net share settlement of equity awards of$201.0 million , offset by net proceeds of$982.2 million from the issuance of the 2026 Notes, and proceeds of$79.9 million from our employee stock purchase plan. Contractual Obligations Our principal commitments consist of obligations under leases for office space and hosting services arrangements with cloud service providers. Refer to Note 4 "Leases" of our accompanying Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional details related to our accounting for leases and related costs. In addition, we hold convertible debt securities. For more information on our convertible senior notes, refer to Note 7 "Convertible Senior Notes" of our accompanying Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. As ofJanuary 31, 2023 , our other contractual commitments associated with agreements that are enforceable and legally binding and that specify all significant terms were payments of$0.3 billion due in the next 12 months and$1.1 billion due thereafter. We expect to fund these obligations with cash flows from operations and cash on our balance sheet.
Indemnification Arrangements
During the ordinary course of business, we may indemnify, hold harmless and agree to reimburse for losses suffered or incurred, our customers, vendors and each of their affiliates for certain intellectual property infringement and other claims by third parties with respect to our offerings, in connection with our commercial license arrangements or related to general business dealings with those parties. As permitted underDelaware law, we have entered into indemnification agreements with our officers, directors and certain employees, indemnifying them for certain events or occurrences in connection with their service as our officers or directors or those of our direct and indirect subsidiaries.
Claims and reimbursements under indemnification arrangements have not been
material to our consolidated financial statements; therefore, there is no
accrual of such amounts at
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