Splunk stock slipped late Wednesday after the company posted slightly better-than-expected results for its fiscal first quarter.

The provider of network analytics software reported revenue of $502 million for its quarter ended April 30. That marks an increase of 16% from a year earlier, and was modestly above both the company’s guidance range of $480 million to $500 million and the Wall Street analyst consensus at $491 million. The company lost 91 cents a share on an adjusted basis, wider than the Street’s forecast of a loss of 70 cents a share. 

Splunk (ticker: SPLK) said its cloud-based annual recurring revenue was $877 million, up 83%. Total annual recurring revenue was $2.47 billion, up 39%. Cloud revenue in the quarter was $194 million, up 73%.

The company had 203 customers with annualized cloud revenue of more than $1 million, up 99% from a year ago. Overall, Splunk had 537 customers with annualized revenue above $1 million, up 46%

Splunk has been going through a business model transition, pushing customers to cloud-based versions of its software, while also changing its revenue model to focus on subscriptions rather than perpetual licenses. The latest quarter’s data suggest the company is making progress—but it still has work to do.

For the fiscal second quarter, Splunk sees revenue of $550 million to $570 million, at the midpoint of the range just a hair above the previous Street consensus forecast at $561.4 million. The company sees cloud ARR for the quarter of $950 million to $960 million, with total ARR ranging from $2.59 billion to $2.61 billion.

“Our first quarter success was defined by customers accelerating their move to the cloud,” Splunk CEO Doug Merritt said in a statement. “Data became an essential service in the past year as the pandemic solidified the urgent importance of digital transformation.”

In an interview with Barron’s, Merritt said the company has largely completed its transition from a technology point of view, shifting its entire software portfolio to the cloud. He says Splunk is about two-thirds of the way through the shift from a go-to-market point of view, but is still working through the financial transition. He notes that over half of bookings in the quarter were for cloud versions of Splunk’s software.

While the company is still reporting operating losses, Merritt notes the company expects to be cash-flow positive this year—and far more positive next year. He says the larger-than-expected operating loss in the quarter reflects the decision to invest in the growth of the company, as well as some accounting issues related to the changing business model.

Asked about the company’s likely long-term growth rate, Merritt said the best measure of the company’s growth for now is annual recurring revenue, which he thinks smooths out some of the lumpiness of reported revenue. A vast majority of the company’s customers are still running software on premise, he noted, adding that the rate they transition to the cloud has an impact on expected growth. While cloud represents about 30% of ARR now, the figure should reach 80% in a few years, he said.

Splunk in late trading is down about 2% to $121.40.

Write to Eric J. Savitz at eric.savitz@barrons.com

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