Splunk : Annual Report 2023

MAY 2023

Dear Splunk Stockholders,

A little over a year ago, I had the honor of becoming Splunk's CEO. I can safely say the role has been everything I'd hoped for and more. Nowhere else is there the same opportunity to work alongside a team so dedicated to the success of our customers and so passionate about building a safer and more resilient digital world.

Balancing growth with profitability

Since becoming a Splunker, I've focused on balancing long-term durable growth with profitability and free cash flow. Not only is the market demanding this approach, but I also believe responsible businesses deliver meaningful leverage in their operating model. Looking back at the full year, we've made tremendous progress in a short period of time and our results demonstrate that.

In FY23, we delivered record-setting financial performance even against the backdrop of macroeconomic and geopolitical uncertainty. Our team grew Total Annual Recurring Revenue (ARR) by 18% to $3.674 billion. For the full year, cloud revenue was $1.457 billion, up 54%. And, for the first time, our total quarterly revenues exceeded $1 billion, rising to $1.251 billion in Q4, a 39% year-over-year increase. At the end of the year, we had 790 customers generating Total ARR of $1 million or more - up by 115 over the same time last year. At a time when many organizations are being understandably prudent with their IT budgets, our continued growth demonstrates the mission-critical role we play in our customers' tech stacks - and that no other company can deliver the value we provide at enterprise scale.

At the same time, our team made significant progress in improving our overall operating efficiency and how we deploy our resources. In FY23, we introduced several efficiency initiatives which contributed to virtually flat operating expenses over FY22, even while maintaining strong bookings and topline performance. We also delivered record free cash flow of $427 million, nearly four times the level of last year. Our team is steadfast in their dedication to our customers as we pursue opportunities to drive efficiency across the business. And, with our transition to annual billing now complete, and a strong base of ARR, we have the opportunity to unlock significant cash flow moving forward.

I couldn't be prouder of our team for their deep focus on our customers and execution to deliver these results. In the year ahead, we are committed to continuing to drive meaningful top-line growth with improved profitability and increased free cash flow.

World-class products and people

Later this year, we'll celebrate Splunk's 20th anniversary. As we approach that moment, we do so by continuing to build upon what has made Splunk so successful: products and people.

We believe that unified security and observability is the best and only way to drive true enterprise resilience. I've met with hundreds of customers over the past year, and I hear time and again how critical Splunk is to helping make their digital systems more resilient so they can stay secure, keep up and running and quickly adapt to constantly changing circumstances.

Demand for our security solutions remains strong and our market leadership continues to be recognized. We were named a Leader in the 2022 Gartner Magic Quadrant for Security Information and Event Management for the ninth consecutive time. In our fourth quarter, industry analyst firms Forrester and IDC positioned Splunk as a leader in the Forrester Wave: Security Analytics Platforms and 2022 IDC MarketScape for Worldwide SIEM.

We're continuing to enhance our security offering, including targeted investments and organic innovation like Splunk Enterprise Security 7.1, which became generally available in Q4. And, in March of this year, we also released our enhanced Mission Control to help security teams detect, investigate and respond to threats from a modern and unified work surface.

In addition to our leadership in security, we're continuing to extend customer value through our investments in observability. Last year, Splunk was recognized for leading the market in AIOPS and in Cloud Observability by GigaOm, Research In Action and Constellation Research. We believe observability is a significant growth opportunity for Splunk, and we're making investments to broaden and strengthen our portfolio of enterprise-grade observability solutions that provide monitoring across complex environments.

Making it all happen is our incredible global team. Splunkers around the world have been working diligently to find new and better ways to help customers navigate today's complex cybersecurity landscape, escalating disruptions and the intense demand for better digital experiences.

During the year, we welcomed world-class talent to help guide Splunk in the coming years, and have made meaningful strides to diversify and strengthen our global workforce. For example, across Splunk we're investing in developing employee recruiting programs to improve the representation of women and underrepresented groups. You can learn more about our progress in our forthcoming annual Diversity, Equity and Inclusion report, publishing this spring. Further, we're scaling our recruitment in international markets to bring in diverse sales and engineering talent as we grow our global presence outside of North America. Today, our leadership team is tightly aligned to deliver on our strategy. What's more, the collaboration of our Product and Go-to-Market teams is more in step than ever, primed to help customers gain more value.

Our team is also committed to purpose-led impact work to accelerate business growth and success that benefits our customers, stockholders, communities and employees. In our second Global Impact Report, we highlighted our continued progress and commitment across four areas: data responsibility, environmental sustainability, ethical and inclusive growth and social impact.

You can expect a steady drumbeat of updates from us throughout this year, including at our annual customer and partner event .conf23 in July, where we'll welcome thousands of Splunk community members to showcase all the ways we are innovating to help organizations drive resilience. We also look forward to connecting with many of you during our Analyst and Investor Day later this year.

Our next chapter

The past year was one of important transitions for Splunk, our team and our customers. When I think about our future, I'm confident that we are positioned to deliver on the potential in what we believe is a massive and growing $100 billion addressable market.

We are deeply engaged with our customers around the world, and we're making their experience even better. Our technology delivers incredible value, and it's getting stronger. We are improving how we operate so we can do more, faster and more efficiently. And above all, Splunkers bring their diverse talent and passion to continue building on our nearly two decades of innovation and customer focus. Splunk has an incredible history; I believe our next chapter is even more promising.

As you will see in our proxy statement, we are continuing to shape our programs for the coming year with the thoughtful input we receive from you. Importantly, we are seeking stockholder approval for an increase in the number of shares available under our equity compensation program, which will enable us to remain competitive in our efforts to recruit and retain top talent. This year's request for shares under our equity compensation program represents significant progress to lower equity usage. Looking ahead, we remain committed to maintaining an ownership culture at Splunk, and draw upon our investor outreach program to help us stay informed and responsive to your perspectives on key issues like our use of equity as well as executive compensation.

On behalf of every Splunker, thank you for your confidence in Splunk's purpose, our team, our products and our future.

Gary Steele

President & CEO

Splunk Inc.