The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q. 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 II, Item 1A or in other parts of this report and our
other filings with the Securities and Exchange Commission. Statements that are
not purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements are
often identified by the use of words such as, but not limited to, "anticipate,"
"believe," "can," "continue," "could," "estimate," "expect," "predict,"
"intend," "may," "might," "plan," "project," "potential," "seek," "should,"
"target," "will," "would" and similar expressions or variations intended to
identify forward-looking statements. These forward-looking statements include,
but are not limited to, statements concerning the following:

•our future financial and operating results; including trends in and
expectations regarding revenues, annual recurring revenue, deferred revenue,
remaining performance obligations, operating margins, gross margins, operating
income and the proportion of transactions that will be recognized ratably;
•the effects of the macroeconomic environment and the novel coronavirus
("COVID-19") pandemic on our business and operations and those of our customers,
including impacts on information technology and cybersecurity spending;
•market opportunity;
•expected benefits to customers and potential customers of our offerings and our
user-driven network;
•investment strategy, business strategy and growth strategy, including our
business model transition and the use of acquisitions to expand our business;
•our sales and marketing strategy, including our international sales and channel
partner strategy;
•customer product adoption and purchasing patterns, including renewal, expansion
and conversion from on-premises to cloud services;
•management's plans, beliefs and objectives for future operations;
•leadership changes and workforce attrition;
•our ability to provide compelling, uninterrupted and secure cloud services to
our customers;
•expectations about competition;
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•economic and industry trends or trend analysis;
•the impact of geopolitical events, including the war in Ukraine;
•our acquisitions, including the expected impacts of such acquisitions;
•expectations about seasonality;
•revenue mix;
•expected impact of changes in accounting pronouncements and other financial and
non financial reporting standards;
•operating expenses, including changes in research and development, sales and
marketing, facilities and general and administrative expenses;
•sufficiency of cash to meet cash needs for at least the next 12 months;
•exposure to interest rate changes;
•inflation;
•anticipated income tax rates, tax estimates and tax standards;
•capital expenditures, cash flows and liquidity; and
•the impact of climate change, natural disasters and actual or threatened public
health emergencies.

These statements represent the beliefs and assumptions of our management based
on information currently available to us. Such forward-looking statements are
subject to risks, uncertainties and other important factors that could cause
actual results and the timing of certain events to differ materially from future
results expressed or implied by such forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those identified below, and those discussed in the section titled "Risk Factors"
included under Part II, Item 1A. Furthermore, such forward-looking statements
speak only as of the date of this report. Except as required by law, we
undertake no obligation to update any forward-looking statements to reflect
events or circumstances that occur after the date of this report.

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 provides innovative solutions that use data from digital systems to help
organizations identify opportunities for optimization and innovation and keep
those systems secure and performing effectively. This class of data is growing
significantly as a direct result of the prevalence and importance of digital
systems used by today's organizations. Decades of investment in digital
transformation have integrated the hardware and software that comprise digital
systems into every aspect of how modern organizations operate. The data
generated by these systems contains a comprehensive, real-time record of
operations, interactions, and transactions that our offerings convert into
insights and actions that improve technology and business outcomes. Our
solutions for Security and Observability empower users in technology roles,
including Development Operations ("DevOps"), IT Operations ("ITOps"), and cyber
security, to monitor and secure digital systems more quickly and efficiently.
Business users leverage our offerings to gain visibility into their digital
processes to deliver better experiences, improve decisions and drive better
results.

Our offerings provide visibility to our customers' diverse technology
infrastructure including systems deployed on the edge, on premises, and in
private and public cloud environments, running software ranging from monolithic
apps to cloud native ones. We also believe our offerings empower operational
transformation, helping customers move from reactive, non-scalable and
ineffective approaches to proactive, automated, and AI-assisted processes that
drive better outcomes even as the scale and complexity of their technology
continue to grow.

The COVID-19 pandemic significantly increased the importance of being a digital,
data-driven organization and we believe the importance of data-driven innovation
will only continue to increase over time. The pandemic accelerated the adoption
of new ways to work and exerted an enormous amount of pressure on organizations
of all kinds to deliver better experiences and outcomes, and to enable entirely
new offerings and business models. We believe this global shift in the business
environment and the related challenges are here to stay and that Splunk enables
organizations to rise to these challenges by leveraging technology to achieve
greater efficiency, agility, security, and drive a sustained competitive
advantage. When organizations use Splunk to improve their security postures and
build resilience, they are able to innovate more effectively.

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


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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.

Our revenue mix has shifted from sales of licenses to the delivery of cloud
services and we expect it will continue to shift in favor of cloud services. Our
transition to a predominantly cloud services delivery model has impacted, and it
will continue to impact, our operating margins and revenue as an increasing
percentage of our sales becomes recognized ratably. Our shift to a cloud
services 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. Therefore, our ability to predict our
revenue and margins in any particular period has been, and may continue to be,
limited. We have also shifted from generally invoicing our multi-year contracts
upfront to invoicing on an annual basis. Accordingly, we have seen the timing of
our cash collections extend over a longer period of time with the transition to
an annual billings model than it has historically.

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.

Impact of Current Economic Conditions and the COVID-19 Pandemic on our Business



Prolonged world-wide economic uncertainties or downturns could adversely affect
our business operations or financial results, including financial and credit
market fluctuations, changes in economic policy, increased inflation and
responsive actions, rising interest rates, labor shortages, supply chain
disruptions, trade uncertainty, changes in tariffs, sanctions, international
treaties, other trade restrictions, natural disasters, outbreaks of pandemic
diseases such as COVID-19, political unrest and social strife, acts of
terrorism, armed conflicts, such as the war in Ukraine, and other global
conflicts or other impacts from the macroeconomic environment. 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 third quarter
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, and longer sales cycles. Additionally, certain customers have
entered into shorter duration contracts than expected. 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.

The COVID-19 pandemic continues to affect how we and our customers and partners
are operating our businesses, including due to supply chain disruptions and
financial market fluctuations, and the duration and extent to which this will
have long-term impacts on our business, results of operations and cash flows is
uncertain. We continue to focus on helping our employees, customers, and
communities while preparing for the future and the long-term success of our
business. We currently allow many of our employees to continue to work remotely
if they prefer and we will continue to evaluate our workforce strategies and
operations, taking into consideration factors such as treatments, vaccine
progress, and public health recommendations. We also continue to evaluate our
real estate needs and have in the past made the decision to exit certain office
space leases. As we continue to assess our needs, we may decide to exit
additional office space leases which could result in further changes to our real
estate lease assets.

See Part II, Item 1A. "Risk Factors" in this Form 10-Q for further discussion of
the impact and possible future impacts of the macroeconomic environment and the
ongoing COVID-19 pandemic on our business.

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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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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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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 operating cash flow less
purchases of property and equipment and capitalized software development costs.
The following presents our free cash flow (in millions):

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Below is a calculation of free cash flow:



                                                                           Nine Months Ended October 31,
(In thousands)                                                                2022                  2021
Net cash provided by (used in) operating activities                    $       173,642          $   (4,641)
Less purchases of property and equipment                                        (9,229)             (9,830)
Less capitalized software development costs                                     (5,806)             (5,843)
Free cash flow                                                         $       158,607          $  (20,314)

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
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Remaining Performance Obligations" of our accompanying Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. The following presents our total RPO Bookings (in millions):

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Below is a calculation of total RPO Bookings:



                              Nine Months Ended October 31,
(In thousands)                    2022                   2021
Total revenues          $      2,402,603             $ 1,772,545
Change in RPO                    (17,771)                 79,866

Total RPO Bookings      $      2,384,832             $ 1,852,411


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Financial Summary
(Dollars in millions)

Three Months Ended October 31, 2022 and 2021



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Our customer base spans numerous industry verticals, including cloud and online
services, education, financial services, government, healthcare/pharmaceuticals,
industrials/manufacturing, media/entertainment, retail/ecommerce, technology and
telecommunications, among others. As of October 31, 2022, our offerings have
been deployed by over 90 of the Fortune 100 companies.

Our quarterly results reflect seasonality in the sale of our offerings.
Historically, a pattern of increased license sales in the fourth fiscal quarter
as a result of industry buying patterns has positively impacted sales activity
in that period, which can result in lower sequential revenue in the first fiscal
quarter. We expect some of this seasonality to continue in fiscal 2023 and
beyond as license sales activity continues, however we expect the impact of this
seasonality to decrease over time as a higher percentage of our revenues come
from cloud services. As we continue to expect seasonally higher bookings in the
fiscal fourth quarter, with more of our revenue being 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 the aforementioned 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 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.

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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 13% and 18% for the three months
ended October 31, 2022 and 2021, respectively. Maintenance revenues as a
percentage of total revenues were 14% and 20% for the nine months ended October
31, 2022 and 2021, respectively.

•Professional services and training revenues. We have a professional services
organization focused on helping our customers deploy our software in highly
complex operational environments and train their personnel. Training and
professional services have stated billing rates per service hour or are provided
on a subscription basis, accordingly, revenues are recognized as services are
delivered or ratably over the subscription period. We have experienced continued
growth in our professional services revenues primarily due to the deployment of
our software with some customers that have large, highly complex IT
environments.

Cost of Revenues

Cost of cloud services revenues. Cost of cloud services revenues includes salaries, benefits, stock-based compensation and related expenses such as employer taxes for our cloud services organization, allocated overhead for depreciation of equipment, facilities and IT, amortization of acquired intangible assets and third-party hosting fees. We recognize expenses related to our cloud services organizations 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 for our maintenance and services organizations,
third-party consulting services and allocated overhead for depreciation of
equipment, facilities and IT. We recognize expenses related to our maintenance
and services organizations 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
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costs for compensation of our IT personnel, costs associated with our IT
infrastructure and software subscriptions. Operating expenses are generally
recognized as incurred. 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. We expect that our research and development expenses will continue
to increase, in absolute dollars, as we increase our research and development
headcount to further strengthen and enhance our software and services and invest
in the development of our solutions and apps.

Sales and marketing. Sales and marketing expenses primarily consist of personnel
and facility-related costs for our sales, marketing and business development
personnel, commissions earned by our sales 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. We anticipate
continuing to incur additional expenses due to growing our operations, including
higher legal, corporate insurance and accounting-related expenses.

Interest and Other Income (Expense), Net



Interest and other income (expense), net consists primarily of interest expense
related to the Notes, foreign exchange gains and losses, interest income on our
investments and cash and cash equivalents balances and changes in the fair value
of forward exchange contracts.

Income Tax Provision (Benefit)



Our income tax provision (benefit) consists of federal, state and foreign income
taxes. Because of our history of U.S. operating losses, we have established a
full valuation allowance on our U.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.
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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.

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