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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, ladies and gentlemen, and welcome to the Splunk Inc. Second Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions 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. Mr. Tinsley, you may begin.
Great. Thank you, Josh and good afternoon. With me on the call today are Doug Merritt and Jason Child. After market closed today, we issued a press release which is also posted on our website. This conference call is being webcast live via webcast and following the call, an audio replay will be available on the website. We also note that supplemental materials have been posted on our Investor Relations' page.
On today’s call, we will be making forward-looking statements, including financial guidance and expectations, including our forecasts for our third quarter and full year of fiscal 2020, trends and expectations regarding revenue mix, operating cash flow, operating efficiency, and margin improvements; statements and benefits regarding our recently announced acquisition of SignalFx, which we expect to close in the second half of fiscal 2020, subject to customary closing conditions and regulatory approval; and our expectations regarding our products, technologies, strategy, customers, market, and industry.
These statements reflect our best judgment based on facts 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, this information presented during the call may not be current or accurate.
We will also discuss non-GAAP financial measures, which are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of historical GAAP and non-GAAP results is provided in the press release and on our website.
So, with that, let me turn it over to Doug.
Thank you, Ken. Hello everyone and welcome. We are extremely proud of our Q2 results and our continued hyper growth at scale, particularly our 46% software revenue growth, 33% overall revenue growth, and 80% cloud growth. In fact, 25% of our business was cloud this quarter, and we expect it will grow to 50% over the next few years.
I'm also eager to tell you about the acquisition of SignalFx that we announced today. As you know, there are two kinds of M&A transactions; consolidation deals in troubled market categories and acceleration deals in growth categories.
Make no mistake we are proactively positioning Splunk for growth and long-term value creation. Splunk is on a mission to become nothing short of the strategic technology partner to the world's most data savvy enterprises.
Before we get into the details of the acquisition, I'd like to give you a sense where we are now and where we're going. I want to be empathically clear. Our business is firing on all cylinders and executing at the highest levels.
For a little data-driven context, only a handful of enterprise software companies in history have hit $2 billion in revenue, while obtaining greater than 25% revenue growth, the likes of Microsoft, Oracle, Salesforce, ServiceNow, VMware, and Workday. Splunk is on track to join the shortlist by the end of this fiscal year.
Not only is Splunk on the cusp of joining these elite companies, we've done it concurrently, while making massive investments in new cloud technology and executing on a full business model change.
As you know, customers today want to consume software as a service. Our newer business model makes it easier to do business with. And in fact, customers have adopted terminal cloud faster than expected, increasing our mix from renewable by more than 10 percentage points in just one quarter to a stunning 95%.
We've also evolved our pricing approach to make it easier for customers to Splunk much more of their data. Our contracting and pricing changes are making a big difference to enterprise customers. And our new pricing, meaningfully expands, the opportunity for Splunkable data worldwide.
For example, DoorDash is able to provide an enhance experience to all of it’s users from consumers to merchants to dashers through a Splunk Cloud expansion. DoorDash partners with Splunk across team such as DevOps, IT ops and business analytics to connect consumers to their favorite restaurants, empower dashers to earn more money faster and help merchants grow their business.
ABB Group, a global technology leader, who is driving a digital transformation of industries, selected Splunk for security through a new predictable pricing program. ABB will have Splunk and Splunk ES at the heart of their global security operation center. A large multi-billion dollar software company significantly expanded on Splunk Cloud to take action on data across the entire business with IT ops, security, DevSecOps and emerging business use cases.
I'm also very pleased that this customer is able to utilize a new pricing program that gives them predictable pricing with no data limits. Stay tuned for much more of our pricing from Splunk throughout Q3.
Also, our ecosystem continues to flourish. We recently expanded our strategic relationship with Cisco, which is capitalizing on integrations with the Splunk platform to rapidly bring to market new differentiated solutions that will be sold on Cisco's global price list. A newly available security solution generated from this relationship, Cisco endpoint security analytics built on Splunk is now orderable and will be featured to Cisco's internal global sales kickoff next week.
We also just jointly announced an expansion of our strategic relationship with Deloitte Risk and Financial Advisory. Deloitte's Fusion Managed Services Offerings now incorporates Phantom, which provides automated security monitoring and response capabilities to help clients address evolving cyber threats.
According to IDC, by 2025, the average person will interact with a connected device nearly 5,000 times per day. Further, there will be 175 zettabytes of data, five times more than today, and 90% of this data will require some level of security, but less than half will actually be secure.
The future is clear. Data represents the biggest opportunity and the biggest threat to businesses, governments and frankly to humanity. Splunk's strategy is simple and powerful to bring data to everything.
By bringing data to every question, every decision and most importantly every action, we are committed to delivering the technology platform required to instantly connect all forms of data from any source in any format, instantly enabling the new approaches required to produce data outcomes and stop security threats, all at ferocious speed and massive scale.
As part of our ambitious growth agenda, today we announced our intent to acquire SignalFx, a SaaS leader in real-time monitoring and metrics for cloud infrastructure, micro-services and applications. SignalFx is a cloud centric business that gives us best-in-class, massively scalable cloud monitoring and we believe, makes us a leader in observability and application performance monitoring for organizations at every stage of their cloud journey.
The combination of Splunk and SignalFx will give application developers and IT departments a unified data platform that allows them to monitor and absorb data in real-time, no matter the infrastructure or scale, in order to cut costs, boost revenue and improve the customer experience.
This fit is not just from a product lens though, I am incredibly impressed with Karthik Rau, their Founder and CEO and the SignalFx team. We share a passion for customer success and our company cultures are a strong match. We look forward to having them as part of the Splunk team, accelerating our cloud growth strategy.
In conclusion, we are very proud of our Q2. We are executing in the cloud. We are executing on SaaS. We are executing on our product and technology agenda. Most importantly, we are delivering real measurable economic value for our over 18,000 global customers.
Splunk is a company delivering the new approaches to make the right things happen at the right time to produce the right outcomes, all with data. As a result, we're on track to become one of just a handful of enterprise software companies that hit $2 billion in revenue, while growing in excess of 25% by the end of our fiscal year.
I want to personally thank our customers, our partners, our investors and most importantly our people, for working hard to turn the promise of the data future into reality. Thank you all for your time and attention and partnership. We look forward to seeing you at .conf19 in Las Vegas.
And now, I'll turn it over to Jason to take you through the quarter.
Thanks, Doug, and good afternoon, everyone. Appreciate you joining us today. Our Q2 execution was strong, highlighted by a faster transition to renewable than anticipated. Rather than provide a detailed line-by-line readout of the financials, I thought it would be best of point out a few key highlights, especially those that are the best growth indicators for the business, which you can reference on a new slide deck that we published on our IR site.
For today's report, it's important to note that all Q2 results reflect virtually constant duration of about 33 months on a TCV basis compared to Q2 last year. Second quarter revenues were $517 million, up 33% year-over-year. Cloud revenue was $70 million, up 80% over last year. And Q2 software revenues, which is the total of license and cloud were up $350 million, up 46% year-over-year.
As Doug discussed, customers are adopting term and cloud faster than anticipated and our transition to renewable is tracking faster than planned. In Q2, 95% of software bookings were either term or cloud. We expect the elimination of perpetual license sales will accelerate renewable mix to 99% in Q4 and high 90s for the full year. As we previewed last quarter, the accelerated shift to renewable has a timing impact on cash collections.
As expected, Q2 operating cash flow was negative, given the more rapid growth of multi-year term and cloud contracts. This translates to a greater cash flow drag this year, as more of our contracts are paid ratably. We are now expecting negative operating cash flow for the balance of the current year and expect fiscal 2020 with $300 million net negative operating cash flow.
To be clear, there are two new drivers behind this reduction. First, that our renewable transformation is essentially complete with the mix at 95% in Q2 and expected to go to 99% by Q4. And second we are significantly reducing our upfront cash invoicing for term and cloud deals from 58% paid upfront in the first half of 2020 -- FY 2020 to an estimated 33% paid upfront in the second half of FY 2020.
Again this is all about timing. While, we expect long-term cash yield to return to the mid-20% levels the timing to get there is dependent on our term cloud mix over the next few years.
Underlying the constant increase in mix has been the substantial uptick of our cloud service. Since introducing it just five years ago, ARR for cloud has grown from 0 million to over $300 million currently. Customer adoption of cloud is increasing rapidly and we expect momentum will accelerate from here, so much so that cloud will likely represent half of our overall business within the next few years.
We ended the quarter with total RPO of $1.235 billion up 47% over Q2 of last year. The portion of RPO which we expect to recognize is revenue over the next 12 months was $751 million at quarter end, up 32% year-over-year. This is a new disclosure intended to provide greater granularity of RPO and its conversion to revenue over the next four quarters. RPO bookings was $554 million, up 19% from Q2 last year.
Just to note, this growth rate was understated by about 4 percentage points due to 606-related adjustments to RPO bookings last year. In Q2 we recorded 93 orders greater than $1 million and added 500 new customers.
On margins which are non-GAAP, Q2 overall gross margin was 84% up 2 points on a year-over-year basis. With such rapid growth in the cloud, we're realizing anticipated efficiencies and scale in that business. In Q2, cloud delivered over 50% gross margin which is an important milestone on the way to our long-term target of 70% or more. Q2 operating margin was 9% notably better than our plan, driven by our solid topline performance and some investment optimizations.
Turning to guidance, we expect our high growth trajectory to continue. Q3 revenue should reach approximately $600 million with a non-GAAP operating margin of 16%. For the full year, we are now expecting total revenues of $2.3 billion up from $2.25 billion and we maintain our non-GAAP operating margin target of 14%; which to confirm, will include the acquired operating expense run rate of SignalFx.
In closing, it was an excellent first half and we're set up for a strong finish to the year. My first full quarter here has been a complete adrenaline rush, branding myself in the model and understanding the dynamics in the business have been top priority. With this, I'm even more energized about the massive market opportunity we have in front of us and our unique position to penetrate it, enhanced with the addition of SignalFx. I'm enthusiastic about the completion of our renewable transition and the outlook from here is excellent.
With that, let's open it up for questions.
Thank you. [Operator Instructions] Our first question comes from Brad Zelnick with Credit Suisse. You may proceed with your question.
Great. Thank you so much and congrats on a great quarter. Jason, just so I make sure I heard it correctly. Can you just go back over your cash flow guidance for the full year? And perhaps double-click little bit deeper into it and bridge us back from the prior cash flow guidance that the company has given?
Sure. So, we actually previously have guided to positive $250 million cash flow for the full year. The new guidance is minus $300 million. And so -- and the reason for that reduction, we included on the websites slide kind of just a helpful overview of why this is happening.
But what's happening is one, the perpetual business which was previously anticipated to be about 15% of the total business. We said, renewable at 85%. That was our previous guidance. We're now saying renewables is going to go to 1% by end of year.
Perpetual.
I'm sorry perpetual will be 1% by end of the year. So, that is -- in perpetual, as you may know, the cash is paid up front. So, if you take that reduction and apply that to the second half year of TCV, which is just shy of $2 billion, you're going to lose a couple hundred million just on that change.
Second, we are changing the invoicing duration or percentage of TCV that's invoiced upfront for customers, such that, we're now effectively invoicing on a ratable basis, so invoicing annually. So, typically, our deals are three years. Our average duration now is about 33.5 months. So, we're building a-third, a-third, a-third; a-third upfront, a-third after year one and a-third after year two. And so we previously -- in the first half of this year, we had higher collection closer -- on a combined basis it was about 58%.
The second half, we think on a combined, or we project on a combined basis is going to be closer to 33%. So, if you kind of add all that up, it's about a 25% reduction in cash paid upfront on roughly $2 billion of TCV in the second half of the year. That's roughly $500 million reduction.
And again, it's all timing. We will be invoicing that cash now really on an annual basis instead of upfront, or less of an upfront. So we will get that cash back next year. But there will be headwinds for the balance of this year.
Thank you so much for that. And Doug, if I could just follow-up. Congrats on SignalFx. It's a really high-quality company from what we know. But just to ask why now? What other alternatives might you have explored? And what can you do by bringing the company into the full versus the partnership that you already had with SignalFx? Thanks.
Thanks Brad. Good question. And yes, you're right. There are number of customers we have, they are joint customers. We -- as you expect, we've been in this IT and debt segment really since the founding of the business. We spend a lot of time producing all of the different alternatives in the segment. And I can't -- I can't think of a company in this -- in the overall next-gen of an APM segment that we haven't personally met with and/or investigated deeply.
As you just suggested, we view SignalFx as the top-tier asset to the things that matter to our customers, which is incredible scale, high, high accuracy around metrics observability in this very ephemeral next-gen cloud architecture that everybody is leaning into to try and get application velocity across AWS, GCP, and Azure as well as OpenShift.
The complemented that we see between the two and this has proven out in a number of these big companies that use our best-in-class, best scale, log aggregation, and metrics extraction with the more real-time streaming metrics capability that SignalFx have is a world-class flight instrument deck as you're trying to super high-speed plane, which is SignalFx to make sure that you're going in the right direction, combined with a world-class investigative capability. When management deck signals something, the high position SignalFx is able to, you're able to actually very quickly dive in, understand what the root cause is, whether you should be paying attention to it or not and then remediate it accurately.
And so it really helps us if you think about this whole generation of IT systems, which are generating the data that's so critical to companies at the backbone having logs, metrics and tracing as the three core elements that all need to be done with high, high accuracy, incredible scale and enterprise great features across that suite, we feel this is a highly strategic and important addition to the portfolio.
Very exciting and congrats on all the success. Thanks.
Thank you.
Thanks Brad.
Thank you. Our next question comes from Raimo Lenschow with Barclays. You may proceed with your question.
Hi, perfect, thank you. Congrats from me as well on SignalFx. And if I can stay on it, like how do you -- Doug, how do you think about the product integration? How else do you think about this? Like, you having to bring the products together? Or are they stoned to work side-by-side? Like how does this come together? Thanks. And then I have a follow-up, sorry.
Hey Raimo, thanks for the question. So again, handful of these customers that we spend time with. As we say over and over, we're customer success first and very customer centric. So, in addition to all the great investigations we are doing and we've been having, listening to our customers helps a lot. And when you're doing, I'll give you an example there's a Fortune 50 world-class consumer retailer that uses Splunk as a backbone for everything they are doing across their expensive online portfolio and uses SignalFx as well. And they're working very effectively side-by-side right now.
SignalFx, when you think about any big consumer introduction online, you want to get unquenched with both human activity and bot activity. SignalFx does a really nice job of providing an instrumentation, so that they know when they need to pay attention and anything and can optimize the revenue that they're trying to drive with one of these greater reductions. And then Splunk is right there by its side as anything is being signaled to dive in and help them understand, what the reality of that situation is and what they should do if anything to make sure they keep the revenue customer experience go in the right direction.
I do believe that there is -- and obviously we believe -- as far as acquisition that there's going to be some significant benefits to tighter integration between those two. The constant transposition and learning that happens between logs, metrics and traces goes back to the framework, we've been talking about with you guys on the pillars of this next generation data landscape.
We've got a -- have an effective investigative pillar, monitoring, analytics and action set of capabilities and those four working in concert provide the ability to their organizations to have that real-time sensory respond approach. So as we get full approval for the acquisition and the team can actually start working together at the detailed level I'd like to, I fully anticipate and Tim Tully, our CTO and Head of Development anticipates that we'll see some very interesting and rapid integrations being developed and delivered to market between the two products.
Perfect. And then just a clarification, so Jason, thanks for all the extra disclosure. The one thing I wanted to double-click on, so you said the current app 12 months, which is different from the 24 current definition that you had before. I just want to make sure that you moved to 12 months, so -- because that's kind of a very good step in the right direction.
That's right.
Well done. Okay. Thank you. That’s really helpful. Thank you. Well done.
Thanks, Raimo.
Thanks, Raimo.
Hey, Raimo, you are key on that guidance. So thank you for giving us that feedback early in the year as well.
Perfect. Thank you.
Thanks.
Thank you. And our next question comes from John DiFucci with Jefferies. You may proceed with your question.
Thank you. So, Doug -- and thanks, Jason, for going through the cash flow details there, because that's really important. But, Doug, you made a comment in your opening remarks, you said the new pricing expense is Splunk for data. Can you expand on that a little bit?
Is there some new pricing out there that, I don't know, just recently new, because as you know and as we see in the investment community, this is always one of the things that's talked about with Splunk, probably more so than even in the customer community. But if you could expand on that a little bit, that would be great?
Yes. Absolutely, John. So we did release pricing internally to our teams that we're going to be broadcasting much more loudly over the of course of this quarter. So everybody understands what -- how we've shifted. There are two dimensions to pricing.
And when I went through my examples ABB was one and the large multi-billion dollar software company was the other. One is for people that have digested the data volume piece. We've got contracts there, whether they like it or not, they understand it and they're comfortable with it.
We've crafted a predictive pricing framework that very clearly illustrates to organization of any size what their unlimited footprint looks like and moves people to much more coarse-grained terabyte sized bands. And we get them to unlimited much more quickly. What we're trying to show them is that there is a terminal value for the core Splunk enterprise box.
And by terminal value, I mean, there's a logical business after being in business for so many years, with today's offerings and features and functions, what we know that we're only X-percent of a software budget and we want them to understand that we know that, they know that and that data is not mitigated for them. So they can stop worrying about filtering data.
Alternatively, we also been rolling out a infrastructure-based metric, kind of, a virtual CPU, Splunk virtual core type thing that has no data to it at all. And that's just allows the customer to use infrastructure they want to. They can add or delete as much compute and then pay for storage separately as they want, and therefore, they can process unlimited amounts of data.
The only difference is the speed of response. So the overall interface that people have with the system. You add more infrastructure you get faster response. You add less, you get a little bit less response. But we've heard loud and clear through the years that pricing, we need to be more thoughtful on pricing.
We've been iterating and iterating through the three-and-a-half years I've been in the seat. And a piece of that, of those iterations, we're learning what customers -- what will really work for customers, no pricing is perfect. The other piece of that is, continue to expand the portfolio beyond the index. If you really look at our portfolio, and I said this during a lot of the meetings that we've had with you and your peers in the past couple of quarters.
The only product, the only three products that are priced on any version of the index or index-based, Enterprise Security, ITSI and Splunk Enterprise, everything else in the portfolio is now priced on a different metrics. And we just came out with alternative metrics to data volume with the infrastructure-based metric for the corner price stack as well.
So very important move I think for our customers. And as we rolled it out internally in Q2, we saw some very positive responsible response from customers. I'm predicting we'll see the same, even probably more positive response in Q3 as it becomes more well-known and the reps are a little bit more conversant with it and we go external with it as well. So that customers are leaning in the same time their reps are helping them with that.
That's great. That is -- that's really interesting. And thank you. Thank you for that detail, Doug. And I guess, listen and just a quick follow-up. The numbers look really good, right? And I'd like a follow-up another product question. I'm going to the SignalFx as you had a couple of those. But you mentioned Phantom too.
And in the world of security and orchestration, Phantom that as you know customers are just, I think overwhelmed by all the security products they needed to use to protect the enterprise and you have companies like Palo Alto and Check Point that are trying to put everything under one roof.
And Phantom go to this is like neutral thing that brings everything together and still like choose a best-of-breed, that those companies would say, they have best-of-breed within their own roof. But is that -- I've always thought of that as kind of a nirvana that you should be working towards and I guess my question is, how close are you to that sort of nirvana? Like how broadly is Phantom being used in an enterprise in some of your -- like, I guess, even the ones that use it the most across your entire security product portfolio?
Great. Great question, John. So one, you're leaning right into Tim and entering org approach to Phantom, which is the org part is as important maybe more important than the SOAR part of the SNUR which is orchestration automation are critical whether you’re an – whether you’re from an IT department, the security department, to manufacturing department, sales or marketing. That part of what we loved about Phantom is the elegance of the architecture to be able to extend the orchestration automation as part of the overall platform, no matter what the use cases are.
The other product that we really love about it is all the security content that makes the security orchestration automation response framework. And I agree with you completely that we can't see a landscape in security and really I think an IT also, but in the security use case where you're not going to have a lot of volatility. There are so much changing so quickly that new products will come in, old products to go out on a continuous basis.
And whether it's Splunk or Phantom, exclude the Splunk index or Phantom are now increasingly next generation metrics and tracing stores. Our job across that layer is to try and be the abstraction framework that allows all those critical transactional elements that are both preventing and detecting and trying to manage that security landscape to be at the control of the customer.
They can swap in and swap those out whenever they want and we will continue to work to make sure that there is automation orchestration routine that ties in the existing stuff and new stuff and that there is an effective correlation and decision framework of brain to tell that nerve system what to do.
But view -- the core Splunk products is the brain. Phantom is a nerve center. And you still need the muscles which are all those different products from firewall to virus and endpoint protection, et cetera that need to actually do a ton of the work. And I think part of the acceleration of the entire security portfolio is it really helps that security leader feel like they're in control of the landscape and the landscape isn't in control of them.
Okay. Well, it sounds like that the journey is really in process here. Thanks a lot, Doug and Jason.
Thanks John.
Thanks John and good luck on your next gig. It's been great working with you.
Same here Ken.
Thanks John.
Thank you. Our next question comes from Keith Weiss with Morgan Stanley. You may proceed with your question.
Excellent. Thank you, guys. Excellent quarter and really nice acquisition. It makes a lot of sense in the portfolio. It seems to me with this acquisition, you guys are sort of weighing in on the debate on whether monitoring APM, infrastructure monitoring, log monitoring is going to be consolidating into one platform with this acquisition of SignalFx. If that's the case, is there any other pieces of the puzzle that you needed to put into place to get that complete monitoring view in that consolidating environment?
Good question, Keith. Yeah, the -- on the four pillars we talked about, three of them are very data-centric and one of them is fed by the data. Investigate, monitor, analyze, and act. I think that the one platform think is interesting, because if I don't need the covers the way that in an investigative framework is built, the Splunk index as an example, it's purpose-built.
Why we're so effective is purpose-built to be truly world-class in the category of one, for that schema list, high-speed, high cardinality investigative suite that you need to drive. That is a different architecture that what you need for that same scale of monitoring, where you got instead of a flattened set of kind of random logs, you've got very well defined, but many, many, many points of data in a metric flow. And that's different again then a more rich multidimensional all out framework.
So, you wind up with different technologies across the pillars, if you really want to be best-in-class. And that was part of the real excitement of SignalFx. And these guys learned the hard way that inside Facebook in one of the highest scaled organization in the world, what it takes to monitor these ephemeral environments back before that was a common buzzword, observability has been talked about outside of the walls of the Facebook's and Google's and Twitter's. So, they've have a lot of experience. They've built a truly world-class framework.
I think Tracing is a really good important expansion area there as well. That's a little bit different architecture, the much happier with metrics. And then I still -- we're still are really excited about that whole -- all app journey. I mean, look at things like Data Fabric Search. The point of Data Fabric Search is to make sure that whether you choose our core technologies and those pillars or a third-party, we can still be the interface for the end user to take advantage of that data wherever it lives. Because for us to compete in that data next-generation data warehousing area that tough, that's a really specialty set of skills. So, let's make sure that whether we think we've got the best-in-class solution like SignalFx now and Splunk, or whether that best-in-class solution is in some other platforms some other company, we can still help our customers extract value.
Got it. That makes a ton of sense. And then one follow-up on new customer adds. That's one KPI that hasn't been hitting kind of the targets that you had laid out previously. Can you talk to us about the efforts in place to ramp-up sort of new customers coming into door if you will?
Yes, absolutely. We had 500 new customers this quarter. We think that we're on track to exceed 2,000 this year which gets us at 20,000 mark that we had forecasted for you guys year and half ago at the Analyst Day.
We continue to lean in a bunch of different activities to make sure that our products are viral at the low end, so that we can get that rapid immediate footprint. But the strength of Splunk and the decision at most companies have to make on their journey is the virality of ASM, but at some point in time, if you've done it properly, it becomes a critical set of infrastructure. That critical set of infrastructure usually now spends the entire organization, it usually carries a higher price tag. And so there is constant yen and yang of touch list, which we still have happening with cloud trials and downloads across the entire Splunk portfolio and the important element is convert those lightweight touches to pervasive enterprise-wide ideals, which is why that 2,000 plus mark per year is always going to be important for us. The conversion of those 2,000 and making sure we get effective wallet share and that the overall ASPs within our existing accounts continue to go up is probably going to be the more important motion from revenue and overall growth perspective.
Excellent. Nice job on the quarter guys.
Thanks Keith.
Thanks Keith.
Thank you. Our next question comes from Fatima Boolani with UBS. You may proceed with your question.
Good afternoon. Thank you for taking the question. Doug, maybe to start with you. As you kind of think about bigger picture trends around enterprise IT procurement, we started to see a lot of the center of gravity on procurement shift to developers. So, as it relates to the SignalFx acquisition, how do you feel this could open up a buying audience that you weren't maybe necessarily tapping into it optimally? And then I have a follow-up as well.
Yeah. I think that that's one of the many exciting parts about the SignalFx addition to the fold. We did buy VictorOps roughly a year ago. And that certainly has helped and going back to net news and Keith's question, we still are trying to be maintaining consistency on net news around the core Splunk products. And VictorOps is much more that viral, low touch true developer centric footprint. That's an estimate attraction for us.
But I think that combined with SignalFx, now gives us a much more interesting footprint for direct developer approach. But then ultimately, development team has tied back the IT ops team. Someone has got a -- whether it's a true next generation, SRE and CICD or there's a divide in the classic IT ops and DevOps world. Those two activities opt to work together. So ITSI and core Splunk combined with SignalFx and VictorOps, I think give us a really interesting end-to-end coverage, whether we're leading with the individual developer or manager of development team, all the way back up to the Head of Engineering or Head of IT ops across complex infrastructure landscape.
That makes sense. And maybe just dovetailing that into some of your very specific comment around pricing and being more flexible with the customer based on the pricing front, with the 2Q data points that you have, how should we and investors think about maybe the pricing delta versus the traditional data indexing model? Because I think maybe the perception is that, your pricing power maybe coming down as you change some of the metrics and some of the underlying infrastructure things that you anchored to, so if you can just comment on pricing and how in a capacity-based data gesturing word that compares to some of the newer things that you’re trying out from an infrastructure base perspective and that would be super helpful? Thank you.
Sure. That's a good question, Fatima. When I -- most of that 2,000 to 3,000 customer actions now over the past five years, since -- almost six years I've been here. And I have never once heard one customer at any account say, I have no more data that even know exist that could take advantage of. We've got the ops problem, which is I'm trying to be super thoughtful and judicious in what data I put into Splunk, only because you've told me that I should pay attention to that metric, because its data volume based pricing metric.
So what we're trying to do, we've seen what we believe and why this predictive pricing with clear guidelines to unlimited for people that are still -- that wrap their heads around the data volume peace is so important, is we think that we are 3% to 15% penetrated with the data that people would like to put through Splunk within organizations. And if we relax that data volume piece, then we can really serve customers and going back to customer success being our number one focus areas as a company.
So I think that and what we see -- what we saw in Q2, is we really roll this out internally, that we will see people take on the appropriate amount of data, because the data volume pieces is one the scary element. And we'll see volumes go up dramatically through the Splunk backbone.
Just as a quick update. Our largest customer is ingesting over 12 petabytes of data per day, real time streaming data per day, up from less than 4 petabytes at the beginning of the year. So we view an almost infinite possibility of data.
Now you combine that with non-data based, non-data amount pricing from SignalFx, from DSP, from our Data Stream Processor, from Data Fabric Search, from Phantom, from VictorOps, all those either deal with data or take advantage of data flowing through their pipes or landing in different storage elements. The value only goes up with those products.
So the whole move was to just finally come clean with everybody. Hey, put as much data as you want in Splunk. And either govern that through applying infrastructure with it, or we'll give you a framework where we just stop charging you for data and -- again, yourself, an infrastructure cost, but you manage that infrastructure, so you can get to the right amount of data, not worrying about the cost of the data.
Super helpful. Thank you, Doug.
Thanks, Fatima.
Thank you. And our next question comes from Kash Rangan with Merrill Lynch. Your may proceed with your question.
Hi. Thank you very much. I'm just curious, if you have included the -- how much is going to be the revenue impact of SignalFx in your guidance for the second half of the year? And also congrats to Karthik based on the call here on the acquisition.
And secondly, from a financial perspective, it looks like there shift is mostly done, so Jason, you talked about a mid-20s cash flow yield. What kind of timeframe are we talking about with respect to that kind of mid 20s cash flow yield? Could it be worse case calendar 2021 or somewhere between calendar 2021, because we've gone through the shift and we've endured the cash flow drop. So I would expect it as sharp as the cash flow revision has been on the downside, it's up swing should also be equally sharp on the positive side, right?
Yes. Let me start off by saying, it's okay to still lead with the rush quote, if you want cash.
I'm not on a rush.
We're not hard-core as Karthik we still like rushing.
I did state, I got adrenaline rush in the job so.
That's the rush part, right. We got signal.
Okay. So first, on the question about SignalFx revenue embedded in guidance, we effectively didn't include their revenue in guidance. And so, it just -- we did include cost because we know what cost we're going to be incurring. In terms of revenue, we'll update that when the completion or when we complete the acquisition.
In terms of the second question on -- the tougher one on cash kind of the snapback on cash. So here's kind of the issue. The issue is your -- for the term -- so perpetual now gone, which is hard on cash, but much better on I think the long-term durability of the business. The downside on term, we do recognize three years -- if you take the average term deal for every $3 in revenue recognized in revenue, you get $1 in cash, since we're billing it annually, but receiving most of the revenue upfront.
So it has a relatively low cash yield as you're booking it. Of course you get the benefit in the later years as that comes. Now the -- so the problem is because we were booking a higher percentage of the three-year term deals or receiving a higher percentage of that cash almost two-thirds of the cash upfront up until very recently, you're now going to have that headwind through the balance of this year and really through the – definitely will feel the effect next year as well.
The second aspect is, as you move to cloud you will -- there you have a ratable business where for every dollar revenue, you'll have $1 of cash. So that's a high cash yield business.
So the reality is, we have to project that mix and that mix -- it's been moving quicker than we had expected. And so committing to that timeframe is hard. So at this point, I think it's likely that you will not see the mid-20s until after 2021. But that's obviously something that we'll monitor as we see the impact of mix between those two businesses over the next coming quarters. Does that answer your question?
Yeah. It does. I mean, I mean, the perpetual is the worst part. I mean, that's the biggest detractor to your cash flow and that is down to one. So it should be more manageable I would imagine, right, between term and cloud, which is I'm surprised that you don't have some kind of a range for cash flow next year, granted that you're not going to be mid-20s. That's going to be after 2021. But I would implore that we give a little more talk to having some great albeit as broad as it can be, because you have more definitive news today than you had say three months back. That's…
Yeah. I would say as we give full year guidance, which will happen in Q4…
Yeah.
Then -- we'll probably be ready to talk about it then.
Got it. All right. Cool. Thanks guys.
And Kash as you saw with what Jason and Ken included with the visuals, we're trying to get much more aggressive at transparency and visibility so that everyone -- needs to be dial. And so as we get to a little bit closer to next year and we really understand the effects of everything that we're putting in motion right now, I feel pretty confident that no matter what the answer is, you will have clarity on why the answer is the answer with less opaqueness.
Wonderful. We'll see you guys at .conf.
Sounds good. Thank you.
Thanks Kash.
Thank you. Our next question comes from Walter Pritchard with Citi. Your may proceed with your question.
Hi. Thank you. Question for Jason on CRPO, you gave an RPO bookings number I think of 19%. I don't think we have the information to be able to calculate the CRPO bookings number. Is that something you could give us if you’d like that's a little bit more of a standard duration, constant and all that measure of growth?
So -- I'm sorry, you're asking for current RPO, historical metrics?
Yeah. The CRPO bookings, Yeah.
No, no.
You have a Q1 or something to calculate the bookings because I don’t think we can calculate that this quarter given we don't have Q1.
The website slides we provided, the links on the slides actually shows current RPO going back five quarters.
Okay. Got it. Okay. Perfect. Perfect. And then Doug, I'm wondering on the transition, it seems like it happened pretty quickly in the quarter to renewable, was there something I know the pricing seems like it's been sort of unofficially rolled out. So, that probably didn't drive it. Is there something you attribute the -- with driving that significant shift in such a short amount of time with -- in terms of renewable?
Yes, I don't think the price had anything to do with it. I think we -- for year and half now, we've been leaning on term and cloud. We put incentives in place starting year and half ago to make both more attractive and perpetual. So, I think for the first time a year and half ago our reps were leading with determinate cloud. And whether, we like it or not, sales team tends to focus on the commission plan. So, when per paid more they were leading with perp.
And now we made it more attractive for term and cloud and they are leading with how today help. There is a bigger secular trend that we're all doing with you guys report on a million times a day is a continued shift to cloud. And as people are wrapping their heads around both their SaaS applications and now there SaaS infrastructure and platform-as-a-service capability, so much our IT spend is going OpEx anyway that I think that except for a handful of companies and some limited industries that one is actually asking for the opposite, which is can I -- I need my budgeting less to be simple no matter how the heck you are giving me the stuff, can you please just head into the OpEx category, because my entire spend rate has shifted that way.
So, I think that there is a bigger trend that again is just caring as long, because it really was primarily customers saying, you know, you guys even having perpetuals making my job harder, because now I'm now going back to the CFO and try debating one versus the other, and just and if he just took it away just make it easier. And of course, with term and cloud we can offer a lot of these different pricing constructs and other piece that make it a little bit more friendly to do business with us.
Great. And then Jason just on the RPO, I think we just don't have the 1Q of last year is the issue. So, I don't know if that's something you can provide, but that would be great. I think the five quarters stopped at Q2 of last year.
Yes. There's 47% growth this year then you can infer it. And you’ve got the Q2.
Yes, with the growth rate from Q1 2020 you can get to that each element of RPO.
Got it. I’ll cable back into it. Okay. Thank you.
Got it. Thank you, Walter.
Thank you. Our next question comes from Keith Bachman with BMO. You may proceed with your question.
Hi. Thank you very much. I wanted to ask two questions. The first one is back on cash flow for a second next year. At a minimum, if your perpetual is gone from 10 to 1, just to make it zero, is it that as a starting point, a $200 million benefit to your cash flow for next year versus the headwind that you're facing this year?
No, because perpetual is booked -- is collected -- the cash box is 100% upfront. And when you flip that determine cloud you're going to be booking -- yeah, one-third of it, if it all -- yes, so it's -- you have to assume that you're doing that much perpetual it's a one-time perpetual not a repeat occurrence for perpetual.
Yes, I mean, philosophically if you have headwind in this year and you move it next year, right? I mean, it's a $200 million. Anyway, I agree with Kash's previous comment. I think it would be helpful to get some guidance and comments around cash flow for next year, just again on the elimination of perpetual headwind it should be more beneficial.
I'll transition to the RPO bookings. So, I am going to speak from the slide. I just wanted to get a little bit of help on what the narrative is. So, all the metrics look good. Your RPO bookings were down a little bit in terms of your going from 48% growth in Q2, 2019 to Q2, 2020, was 19% growth. So it is -- has slowed a bit. Is there anything that you want to comment as it relates to the RPO bookings in particular and why that might be slowing or is it just lumpy?
So there is certainly some lumpiness to it. But the first thing I'd say is, so the 19% should really be -- if you take out the -- when we implemented 606, there was an adjustment that related to prior year. If you normalize that, it's 400 basis points. The year-on-year growth absent that adjustment is 23%. So, you should think of it is really being on a 23% on a comparable basis. Now I would say…
Which is still not a sterling number.
…which is still not a sterling number. So if you then look at our other growth metrics, so you probably see billings is 29%, RPO bookings adjusted is 23%, revenue was 33%, software revenue, 46% and cloud, 80%, so you have this potpourri of growth metrics. So I've been here roughly 90 days. And I’ve been looking at those trying to figure out like what really is the right growth metric to focus on. And I know in the past, we've talked about software revenue and as I looked at it, I said well other than it's a high number of 46%. Why is that the right number?
Well, when I look at it and kind of unpack it, I see that one, the maintenance and services growth is slowing and the reason it's slowing is for two reasons. One, as we move to cloud, the maintenance services are limited because those are embedded into cloud. So it's all recorded as cloud revenue. Second, we're relying more and more on partners to provide those professional services for us. It's not a high margin business. It's better for them to do.
So if you want to think about what is really the right growth rate to focus on to say what's the core underlying growth? It is really software revenue.
Okay.
So, I think you will see the lumpiness in RPO bookings. There's -- there are impacts. I think you should look at software revenue and you will see move in RPO bookings. But I think it was probably a little bit lower this quarter. Again the adjustment is a key driver. But it will probably be a little bit lumpy because of the fact that we have large TCV numbers and timing of when the deal hits and all that stuff can make that move around a bit.
Okay, great. I think the deal makes perfect sense. Congratulations on that. And thanks very much on the slide deck. Much appreciated.
You bet. Thanks.
Thank you. Our next question comes from Matt Hedberg with RBC Capital Markets. You may proceed with your question.
Thanks. This is actually Matt Swanson on for Matt. Following-up from some comments we did last quarter, talking about the vertical solution field teams. Could you just give us an update on kind of how the implementation of those have gone? I know it's probably pretty early still.
Yes. Great question, Matt. So the -- just for people who remember, what I talked about last quarter as we -- Susan St. Ledger, our President hired ahead of verticals that verticals team now has seven to 12 people in the vertical that are focused on flushing out specific use cases to the vertical and financial services, retail, manufacturing, healthcare, public sector, telecommunications, so handful verticals.
They are really not sales team. They are more technical evangelist teams that can certainly help on the sales side. But it's different than the security sales specialist or an IT Dev sales specialist who is focused on making sure that we actually secure an independent deal within those accounts, working with the account journalists, the RSM. They have been doing some really good work. I told everybody last quarter, we've got an e-book published by the financial services vertical that highlights I think 31 different use cases that those guys have found that are -- they're mostly non-security and IT based, probably 80% non-security and IT based. And you'll see more of those being published as the guide books and recipes and direction setters, when you move beyond security and IT.
Ultimately, what we're hoping for is that somebody, us or a partner, gets enough understanding of those use cases and sees the market potential that they actually craft an application around it. So it's the way we're trying to seed the market for a non-security, non-IT, non-dev based use cases that eventually turn into applications.
And it's been really helpful, I think, for our customers in those verticals and for us to continue to visualize the multitude different use cases with Splunk that we tell every earnings call and people talk about in SplunkLive! that they're kind of anecdotal and not written down. And this is an attempt to make sure there is a whole cookbook recipe guidebook to make them less anecdotal.
That's really helpful. And then, it seems like, if I get one more on SignalFx. It's really well-suited for containerized environment. Could you just talk about how pervasive that technology is through your install base?
I think there are very few customers that I met with, that do not have active development activities in the cloud. And as it was up in the cloud, they're obviously using the native services through micro-services containers, Kubernetes, et cetera. So I think it is incredibly -- it is undeniable wave that's happening.
When you go back and look at the workloads that are being driven, it's still a small percentage of the total workload. A lot of the applications still wind up signaling or integrating with core applications back on mainframe Linux boxes or Windows servers. They're back in the data center.
But we expect that wave to continue, as the Amazon and Google and Microsoft and everybody else that's participating. And I think providing that visibility around those environments, coupled with the rest of our landscape is something that the team has been very clear on -- our customer team has been very clear on, its been important to them.
All right. Thanks.
Thanks, Matt.
Thank you. Our next question comes from Michael Turits with Raymond James. You may proceed with your question.
Hey, guys. Good evening and really great deal, really wonderful to see branching and broadening out this way. So a couple of financial questions. First and also just a clarification. Just to confirm Jason, are we -- are you at 100% annual invoicing or annual billings? Is that now the rule all deals are annual invoiced?
Yes. We're very, very close to 100%, which is -- I mean, we have a 33.5-month average duration. So call it basically, a three-year annual term. And we are basically saying, if you look at, I think, at slide 13 of the website slides. I tried to help folks understand how this works. And it basically shows that a 33% invoicing, which is basically annual billings. So very few exceptions, but on average annual billing is correct.
And if someone wants to give us the money, we will not ship it back. We don't want to pay them to give that money.
I mean, look, I'm a CFO who used to buy all the services from Splunk and every one of the SaaS providers I've bought from all of them. And, yes, no one is going to write a big check upfront unless they got a massive discount. And so, that's why -- or it just slows down negotiation and takes much longer. So this is what the market has been doing and that's why it makes sense.
Okay. Another one, are you able to cut through the noise regarding adjustment on RPO for 606. And backing into the year ago and just tell us what the current RPO bookings was on a year-over-year basis? I think Walter was asking for this.
Yeah. This is Ken. Let me clarify that. So you can get the total RPO growth rate from slide 5 on the -- in the deck. But he's right. The current is not broken down. So here it is. So we've already disclosed $765 million as our total RPO in Q1 of 2019 of that $238 million was current -- 520 -- sorry, $238 million was long-term, $526 million was current. $765 million total, $238 million long-term, $526 million short-term.
Okay. And then for the RPO adjustment, Jason can answer that.
Right. Okay. I mean, not going back and forth too many times. I don’t know if you have it, you can…
Yeah. So.
A lot of numbers, but we’re actually going to get current bookings adjusted for RPO, so.
Right.
So if you've got that illustrated would be great, otherwise maybe we can do it offline?
Yeah. So if you were to adjust RPO bookings, if you were to go same slide 5, you would basically see Q4, 2019 would go down by 400 basis points. So call it, 37 instead of 41. And Q2 would go up to from 19 into 23.
Okay. All right. We’ll do more offline. And I'm just going to if I can sneak one more in. I’m just going to try to take another shot at the cash flow outlook. And I know we could get a range for next year. I think you said after calendar 2021 is when you get back to target. But are we, for fiscal 2021, at least cash flow from ops positive?
I'm sorry, I'd say, yeah, fiscal 2021, you're right, after fiscal 2021. Now it's -- again, it depends on the mix shift. And so I just want to make sure it's very clear, because this is tricky. So I think before, I think it was Keith or someone asked about headwind and how there wouldn't be a headwind on Perpetual. Again, I want to make sure it's very clear. On the perpetual, you're basically collecting three years of cash upfront. So when I switch that to term the following year, I'm collecting one-third of cash upfronts. So it is a headwind of two-thirds when that happens.
So that's the headwind that you see just on lapping perpetual. And then on term, we were collecting about 50% on average for the first half of this year. That's going to go roughly 33% for next year.
And then in the meantime, you have -- if you’re going to look at yield, it gets more confusing because then those are both perpetual and term are recognizing three years of revenue effectively upfront, at least on the license portion. When you get to cloud, it's one-for-one for one, $1 of revenue, $1 of cash. So you have to look at all three dimensions to -- or all three dependent variables not just one.
Understood. My question was just in terms of looking forward, can we at least say that fiscal 2021, you guys will be cash flow from ops positive?
I'm not ready to say that now because, again, it depends -- I mean, we will be cash flow positive in some quarters. But to say what full year is going to be after 2021, I'm just -- it's -- there's two -- I have to forecast both the variables. I'm just not ready to do that yet. I'll do it by the end of this year, but not ready to do it yet.
All right. Thanks very much and congrats on the acquisition.
Thank you, Michael
Thank you.
Thank you. Our next question comes from Brad Reback with Stifel. You may proceed with your question.
Great. Thanks very much. Doug back on the pricing change, are you certainly confident that upon renewal people will be paying you more on a like-for-like basis?
What do you mean on like-for-like basis?
So, -- can an existing customer renew to this pricing model? Or is that only sort of this idea of unlimited so they have to get bigger?
So, right now, we only have a very few unlimited contracts. So, for people to move to unlimited from their current payment stream will be an uplift for all but those are limited customers. And even with those unlimited their current unlimited, there is usually some type of framework that has CPI and other adjustments that there is a modern expansion. But the big expansion for existing Splunk Enterprise unlimited and hopefully, we'll be adding more of those over time is we've got to read a portfolio. We've got to add SignalFx and Phantom, and DSP and DFS and come back in and say, awesome you’ve got unlimited for Splunk Enterprise, let's roll that forward and increase it because of this new products.
When I look at our installed base, there is so much upward pressure from every single account I've ever met with in my entire career at Splunk. I'm not saying like two years in which the more -- the more you buy the more you want to buy. And I just -- that this is part of why I think people are frustrated with our pricing model is everyone knows data is exploding and you're going to hold me ransom.
And we've been working with a multitude different formats including this EAA structure that we I think just got much more aggressive on to say we really, really, really will not hold you ransom. That's not who we are. We're not Oracle. We are a company that is focusing on making sure that we make you guys productive and happy. And we know there's a fair value exchange here between what we are providing and what you want to give us.
So, I'd expect upward pressure within our accounts as they expand and we've got to make sure that our portfolio expansion continues to be attractive to them as well, irrespective of what the expansion looks like within the Splunk Enterprise index.
Great. And then Jason, one quick follow-up. Can you give us what the contracted but unbilled was or the impact I know last quarter was about $80 million?
Contract but unbilled.
200?
200.
Great. Thanks very much.
Thank you. Our next question comes from Gregg Moskowitz with Mizuho. You may proceed with your question.
Okay. Josh, let's keep going please.
Hey, sorry, I was on mute. So, good afternoon guys. Just want to commend Jason along with a couple of others of any additional disclosures. So, first a clarification if I may. So, previously you had guided $250 million in cash flow ops this year and now it's minus $320 million, so $570 million swing. And you talked about the two dynamics that in total appear to represent a $700 million delta.
So, does that mean that, if we were hold invoicing duration and the renewables mix constant with what you had expected 90 days ago that your fiscal 2020 cash flow from ops would have been about $100 million or so higher than your prior guidance or is that not the case?
Okay. First, let me clean up some of the statements. So we guided to minus $300 million not $320 million. So that's a reduction of $550 million from the $250 million guidance that we had previously. I'd also said that the -- if you look at slide 13 and the attached website slide that shows that we went from collecting 58% adjust -- mix adjusted upfront to now collecting 33%, so it’s the 25% reduction. 25% times, the second half TCV, which is roughly about $2 billion that's the $500 million-ish headwind. There's a little more because of the SignalFx acquisition, a couple little things. So that's how you get to the $550 million. Now I'm sorry. Can you ask me again what the second part of your question was?
Would we've been higher if we hadn't seen perpetual move and if we hadn't shorten the duration with…
Yeah. So slide 13 shows what the impact from perpetual is. It went from a mix adjustment 10% to 1%. So you could see 9% times that 200. And then you could do the same thing for the other two buckets of term and cloud.
Okay. Correct. And at least again based on my math, it does appear that apples-to-apples would have gone up if not for again invoicing duration and a higher renewables mix.
Yes. Absolutely. Yes definitely.
Yeah for sure.
Okay. Just wanted to confirm that. And then secondly, so a follow-up on pricing, so the correlation guys, obviously, is not plus one. But historically you've spoken about how increases in data volumes also drive clear increases in revenue each and every year. And I wanted to ask if that will still hold true under the predictive pricing as well.
Yeah. It should have been -- the predictive pricing doesn't grant every existing customers unlimited license. It provides a path where they can see that -- I'm sitting at X and there's N band and those bands are much more coarse-grained now before I get to unlimited. So at least if we're high visibility and much more control of the data we currently have and what the price point will be for data that they'll potentially have in the future.
So we’d still expect much like our cohort showed in the past that a very few people are going to come, jump in right in unlimited. They're going to start with 100 gigs or one terabyte or five terabytes and then prove out their value of the platform and eventually realize, holy cow, I want as much as I can consume when we get to that upper band.
And then you couple that with the many products that have come out over the past year and half including products that we've added in organically like Phantom and VictorOps that complement that whole cohort discussion on the core Splunk Enterprise piece.
So there has been two levers we've been pushing. Make sure that we're clear on what Splunk Enterprise does well and to complement Splunk Enterprise craft new technologies to the side or on top of it that bring even more to life and that make it easier for people to consume Splunk Enterprise.
Okay. That’s great. Thank you.
Thanks Gregg.
Thank you. Our next question comes from Andrew Nowinski with Piper Jaffray. You may proceed with your question.
Okay. Good afternoon. I would like to start with a clarification on the impacts from the end of the perpetual licenses. So, I understand the cash flow impact. But are you factoring in any potential customer churn or any revenue impact from that decision that we should consider?
Yeah. In our overall forecast that we just drove, we raise guidance to 2.3. A chunk of that forecast was the pipeline that we're working with, the chunk that is we’re understanding from the early indicators of the pricing what is going to happen on both the puts and the takes. There will be some people that decide, if you're not going offer me perpetual, I don't want to do business anymore. I've not done that yet. We have not had any of those occurrences yet, but it's not broadly known and we're not retiring new sales perpetual until November 1. So we've sent out an internal memo to our sales force and the partners and made its way through some investor checks in the partner channel world over to you guys.
So there's still -- it's not an immediate thing, but it will be happening starting in Q4. We think we feel confident in the guidance that we're driving and believe that, in general, it's a very positive element, both for us and for the customers. It gives them what they want and enables us to serve them the way that we want to which is more data-driven insights, more data-driven actions, more data-driven outcomes that they've been asking for from Splunk Enterprise. And with that --
All right. Thank you. And then, I was just wondering if you could comment on the competitive landscape specifically against Elastic and perhaps how your new pricing models have impacted your win rates? Thank you.
Yes. I think we've been pretty consistent in reporting what our win rates look like against Elastic and they remain very high. I've said over and over that one of the things that makes me excited, but also give me a pause for concern is when your average win rates against competitors are north of 80%, that means you're just not being exposed to all the opportunities that are out there. I think that one of the things that's holding us back, is people are really afraid about the price of Splunk.
It's not so much the price, they're worried about this data-driven metric. Because, again, I've yet to meet with a customer that says, I am not getting a fair exchange of value for the dollars I'm shipping you or euros or whatever the heck the quantity is.
They're saying, I don't like the fact that I feel out of the control, because we all know, the data volumes are going to go up. So I would anticipate and hope that this will continue to substantiate or accelerate those win rates. The win rates that I see are super consistent.
I've been playing around with bunch of different things and I realize how important this is and data is absolutely critical to my future or my next-gen infrastructure is critical to my future, or the cyber resiliency of my corporation is critical to my future, I need something with enterprise scale, with high resiliency, with the right features and functions that allow me to deal with a very large population internally and externally and based on it, I need Splunk.
The more that we can make that a Splunk journey from the very first try all the way through enterprise license the better, but ultimately, our bread-and-butter is -- it has been for so many years. We really understand these very complex landscapes and we're able to quote. Companies are doing 5, 10, 15 petabytes of data per day, which are those few that really understand the power of data.
Great. Thank you.
Thank you.
Thank you. I would now like to turn the call back over to Doug for any further remarks.
I really appreciate the great questions on the call. We are, as I said, very proud of our Q2. And I just wanted to reach out to the SignalFx team that may not be listening to the call, but certainly picking on a recorded basis. We are incredibly excited to have you join the overall Splunk team. I think the combination the two of us would be extremely powerful for our customers. I appreciate so much the consumer centricity that you guys have, that we live every single day.
And you're joining a really motivated group of folks, people that natively run up in Splunk and other organizations like you that found their way through an acquisition. And to all of our customers out there, thank you for the constant support. And we're excited to see everybody at .conf19 coming out at the end of October. It's going to be a fantastic show. A lot of new use cases and customer stories to share. So, please find a way to get there. And have a great day. Thank you.
Thank you, ladies and gentlemen. Thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.