Splunk Inc  (NASDAQ: SPLK) Q4 2020 Earnings Call Transcript

Splunk Inc  (NASDAQ: SPLK) Q4 2020 Earnings Conference Call
March 04, 2020

Corporate Participants:

Ken Tinsley — Corporate Treasurer and Vice President of Investor Relations

Doug Merritt — President and Chief Executive Officer

Jason Child — Senior Vice President and Chief Financial Officer

Analysts:

Kash Rangan — Bank of America — Analyst

Brad Zelnick — Credit Suisse — Analyst

Matt Hedberg — RBC Capital Markets — Analyst

Phil Winslow — Wells Fargo — Analyst

Raimo Lenschow — Barclays — Analyst

Brent Thill — Analyst

Michael Turits — Raymond James — Analyst

Fatima Boolani — UBS — Analyst

Keith Bachman — Bank of Montreal — Analyst

Mark Murphy — JP Morgan — Analyst

Steve Koenig — Wedbush Securities — Analyst

Karl Keirstead — Deutsche Bank — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Splunk, Inc. Fourth Quarter 2020 Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ken Tinsley, Corporate Treasurer and Vice President of Investor Relations. Thank you. Please go ahead, sir.

Ken Tinsley — Corporate Treasurer and Vice President of Investor Relations

Great. Thank you, Dilen, and good afternoon, everyone. With me on the call today are Doug Merritt and Jason Child. After market close today, we issued a press release, which is also posted on our website. Also note that we have posted supplemental material on the Investor Relations webpage as well. This conference call is being broadcast live via webcast, and following the call, an audio replay will be available on our website.

On today’s call, we will be making forward-looking statements, including financial guidance and expectations, including our forecast for our first quarter and full year of fiscal ’21, ’22, and ’23, duration, revenue mix and long-term cash flow, and our expectations regarding our products, technology, strategy, customers, market, acquisitions and investments. These statements reflect our best judgment based on factors 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, the information presented during this call may not contain current or accurate information.

We will also discuss non-GAAP financial measures, which are not presented in accordance with generally accepted accounting principles. A reconciliation of GAAP and non-GAAP results is provided in the press release and on our website.

With that, let me turn it over to Doug.

Doug Merritt — President and Chief Executive Officer

Thank you, Ken, and thanks, everyone, for joining us. It was a great quarter and year-end for Splunk. I’m very proud of our results and our team, and I’m grateful for the trust and commitment of our customers and partners. We ended the year with annual recurring revenue of $1.68 billion, up 54% over last year. I’m happy to report that this is ahead of what we forecast last quarter when we introduced our transformation metrics of ARR and operating cash flow.

Our shift to a renewable model is 99% complete as customers are now predominantly opting for term and cloud contracts. The flexibility and predictability of our new Data-to-Everything pricing options have made it easier to do business with us and for customers bring data to every question, decision and action. And now we’re focusing squarely on cloud as a driver of our next phase of growth.

Cloud-first has become our mindset from both the business model and product strategy perspective. 35% of our software business was cloud this past year, and we expect cloud to ramp at a strong pace over these next few years, reaching over 60% of our total software bookings in FY ’23.

I’m extremely excited about the opportunity we see ahead of us, and I’m confident in our ability to navigate another successful business model transformation, as Jason will elaborate shortly. Stepping back, what we know for sure is that digitization or digital transformation is becoming a real tangible and critical global initiative. Digital security has become a Board-level discussion for global enterprises to start-ups planning to go public. And there is an increased focus on digital technologies to help solve some of humanity’s biggest challenges. This makes it clear that over the next five years, every organization must become a digital organization, and data is the fuel powering a digital organization.

At Splunk, we’re empowering customers with capabilities they simply can’t get anywhere else at the time that they need it the most. We see tremendous opportunities across our core markets of IT Operations, Security Operations and application development. And we’re investing in products and technologies that extend Splunk’s value and relevance to all of our customers’ decisions and actions, regardless of whether the data they need sits in the Splunk index or somewhere else.

Capabilities such a stream processing, ensure customers can access massive amounts of data in real time than learn, refine and adjust that data as it moves across the stream. Our federated search capability searches across Splunk deployments and non-Splunk data sources to provide users a holistic overview of their entire data landscape at much higher speed and scale than before. Event management, orchestration, automation help our customers proactively remediate issues and take action on the insights and analysis we’re capturing. And by focusing on new user interface frameworks, like consumer-grade design, collaboration, mobile and natural language processing, we’re working to ensure that everyone in the organization can get value from their data regardless of how skilled or technical they are.

Our vision to bring Data-to-Everything is resonating with our customers. As an example, I’m proud to report that we recently completed our largest order in Company history. Thanks in large part to the value that data stream processing signal effects on our mission brings to our portfolio, plus the combination of streaming, traces, metrics and logs combined with unparalleled scale and enterprise capabilities. That portfolio enabled us to beat 16 competitors, while our new pricing give this customer the confidence and clarity needed to commit to a massive enterprise scale order. This customer win demonstrates the power of our Data-to-Everything portfolio and most importantly, our reputation for delivering huge value to our customers.

A few more highlights of customer wins in the quarter include McLaren Racing, a prominent technology innovator and racing team, who purchased Splunk Enterprise to capture data across their organization, including racing analytics as well as our infrastructure, network and server environments. Splunk’s Data-to-Everything Platform will help McLaren Racing improve customer engagement on and off the racetrack.

Discovery, Inc., provider of television brands, including Discovery Channel, TLC, HDTV, Food Network and more, expanded their use of Splunk Cloud to gain real-time visibility into their consumer streaming experience. Splunk is the central, investigative and monitoring solution for their video delivery platform. And the streaming analytics powered by Splunk, improve the global view and experience and provide faster mean time to resolution when IT or application issues occur with direct-to-consumer offerings.

Macquarie Government, the cloud security platform trusted by over 40% of Australian governmental agencies, purchased Splunk Enterprise, Enterprise Security, Phantom and UBA to gain real-time visibility, monitoring and response into the agency’s future security state. Splunk is a key player in Macquarie Government’s multi-year transformational data journey, and will be used to support the agile nature of the Australian Taxation Office, as well as help protect their IT environment from security threats, harmful code, fraud and spam.

Earlier, I mentioned that in Q4 we saw momentum build for our new pricing programs. As more customers turn to Splunk for an increasing set of use cases, we’ve answered their call from our flexible and predictable pricing options, including those not based on data ingestion. This is making it easier for our customers to bring even more data into Splunk and find faster value from that data. This quarter I’ve had so many customers tell me that our new pricing options have unlocked adoption within the business, which has given them the overall confidence, predictability and the right total cost of ownership to standardize on Splunk as their data platform across their organizations.

Although it’s early days and awareness is still building, let me give you a few examples. Long-time customer Washington Post, expanded their use of Splunk Enterprise for deeper insights and analysis for all post properties and for their fast-growing digital content management system platform Arc Publishing. Leveraging our flexible pricing programs, The Washington Post uses Splunk for real-time monitoring and data insights to help improve their overall customer experience.

Splunk is also used to improve information security and threat detection. Another example, NHS Digital who significantly expanded their use of Splunk this quarter through dynamic pricing, adding Splunk Data Stream Processor and Splunk Enterprise Security to help strengthen and secure their networks. NHS Digital already uses Splunk for security and operational monitoring of England’s National Health Systems. This includes e-referral services, health and social care network and spine, which indexes over 1 billion messages a month across 23,000 healthcare IT systems and over 20,000 organizations across NHS. With Splunk, NHS Digital can enhance security defenses helping them to securely deliver important health services to patients across England.

In summary, it was a milestone quarter with our cloud bookings more than doubling Q4 to Q4, and it was a strong finish to FY ’20. I’m so proud of the entire Splunk team. We’re uniquely positioned in Data-to-Everything and we’re now a 100% focused on capturing the tremendous opportunity ahead. We’re investing for scale, growth and innovation. We adopted a cloud-first mindset. And most of all, we’re committed to helping our customers exploit their massive Data-to-Everything opportunities.

I’ll now hand over to Jason to walk you in more detail through the quarter and fiscal year results. Jason, over to you.

Jason Child — Senior Vice President and Chief Financial Officer

Thanks, Doug, and good afternoon, everyone. Thanks for joining us today. Q4 capped a very strong year for us, highlighted by a faster shift to cloud than we expected. We ended the period with total ARR of $1.68 billion, up 54% over last year. ARR was comprised of $442 million from cloud and $1.238 billion from term license and maintenance contracts.

As we outlined last quarter, because customers have been opting for term and cloud contracts over perpetual faster than we anticipated, we discontinued new perpetual license offerings. As a result, in Q4, 99% of software bookings were either term or cloud and our transition into a renewable model is complete. Our focus now shifts to the move to predominantly a cloud model.

The bookings mix between term and cloud becomes an important balance to understand, so it too can have a meaningful impact to the financial statements. Going into FY ’20, the year we just closed, we expected cloud would contribute about 25% of software bookings. Turns out that cloud demand was significantly higher and ultimately 35% of total software TCV was from cloud, most of which came in the second half of the year. And because revenue recognized from a cloud contract is fully ratable, even a large cloud contract on a TCV basis will yield significantly less revenue than a comparably sized term contract. As we’ve said, because ARR normalizes bookings activity irrespective of cloud or term, ARR is the most appropriate metric to evaluate overall momentum of our business.

We ended Q4 with total RPO of $1.8 billion, up 43% over Q4 of last year. The portion of RPO, which we expect to recognize as revenue over the next 12 months, was $1 billion at period end, up 23% year-over-year. RPO bookings were $1.145 billion, up 23% from Q4 last year, and full-year RPO bookings were $2.9 billion, up 28%.

The accelerating cloud contribution in Q4 led to a slower pace of growth in current RPO bookings compared to total RPO bookings. This is due to the out years of a multi-year cloud contract being classified as non-current, whereas the majority of a term contract is captured in current RPO bookings immediately. Again, ARR normalizes for this mix shift.

In Q4, we recorded 221 orders greater than $1 million in total contract value, up from 179 in Q4 last year. Over the course of the year, we booked 35 orders greater than $10 million compared to 24 in the prior year. Recall that several large federal government contracts with five-year term skewed overall duration in Q3. As expected, weighted average duration reverted to prior period levels of 34 months in Q4.

Now onto the P&L. Fourth quarter revenues were $791 million, up 27% year-over-year, and full-year revenues were $2.359 billion, up 31%. Cloud revenue was $99 million, up 86% over last year. Full-year cloud revenue was $312 million, up 82% from fiscal ’19. Q4 software revenues, which is the total of license and cloud were $617 million, up 33% year-over-year. On a full-year basis, software revenues were $1.686 billion, up 40% over last year.

On margins, which are all non-GAAP, Q4 gross margin was 86.7%, down slightly on a year-over-year basis due to a greater proportion of cloud revenue contribution. Full-year gross margin was relatively flat at 85%. Operating margin was 24% in Q4 and 14.2% for the full year, both in line with our plan. Finally, operating cash flow was negative $288 million for the year, also in line with our expectations following a mid-year shift to annual invoicing.

Looking forward, we are confident in the continued acceleration of customer adoption and high-growth trajectory, and we maintain our guidance for mid-40% ARR growth this year, fiscal ’21. Looking further out, we expect to sustain a 40% ARR CAGR through fiscal ’23 and we reaffirm our $1 billion operating cash flow target for FY ’23. Revenue guidance for this year is a little trickier, given the high variability that comes from cloud mix and related ratable revenue. With current expectations that cloud will contribute to a substantially higher proportion to overall bookings in fiscal ’21, it follows that revenue growth will flatten this year, even as software bookings and ARR continue at high growth rates. As we begin to benefit from the renewal of previously booked contracts in FY ’22 and ’23, revenue growth should rebound sharply.

So, we expect total revenues in Q1 of about $450 million and full-year revenue of $2.6 billion and will follow our normal seasonal pattern of 40% front half and 60% in the back half. With anticipated revenue snapback starting in fiscal ’22, we expect annual revenue growth in the high-20% range in both FY ’22 and ’23. With this revenue trajectory, it follows that operating margin will trough in fiscal ’21 before rebounding at ’22 and ’23. We expect a negative 25% operating margin in Q1 and roughly breakeven for the full year and a long-term target of 20% by fiscal ’23. At our upcoming Analyst and Investor Meeting, we intend to provide a framework on how varying degrees of cloud mix will translate to revenue on profitability metrics over time, and we look forward to walking you through more details of this transition and our next phase of growth.

In closing, it was a strong finish to the year and we’re entering fiscal ’21 with excellent momentum as the cloud business is poised to ramp rapidly. With that, let’s open it up for questions.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Our first question comes from Kash Rangan from Bank of America. Please go ahead.

Kash Rangan — Bank of America — Analyst

Congratulations on the forward-looking guidance. It looks absolutely terrific and significantly higher than what we expected. So, I want to get this right. So what you’re saying is in the fiscal ’23, we’re poised to doing about $4.6 billion. So just take your numbers and your guidance of CAGR 40%, its about $4.6 billion in ARR we’re talking about in calendar ’22 timeframe. And revenue growth, it looks like based on your guidance for high-20s, if I were to CAGR the fiscal ’21 guidance into fiscal ’23, that’s about 35% compounded revenue growth rate. And you’re reiterating your operating cash flow guide for about $1 billion. It looks absolutely stunning.

It looks like the — some similarly to the Autodesk model transition, which I think was well received. My question for you is with respect to the total RPO bookings, is there some seasonality because it was up about 42% in Q3? We got a lot of them to thinking that it could be up massively again. I know Jason you talked through some of the mechanics of the shift towards the cloud. But total RPO bookings that number was up 22%. Could you shed a little bit light there? And also with respect to the revenue guidance for next year, what are your assumptions in the $2.6 billion? Clearly, everything else looks even better than expected. Congratulations again.

These are terrific numbers, forward-looking numbers.

Jason Child — Senior Vice President and Chief Financial Officer

Thanks, Kash. This is Jason. So, I guess, just to first tackle the RPO booking question. So yeah, it was 42% in Q3, but also recall that we added — we had signal effects into the quarter. So, when you normalize for that, we grew 35%. That said, it is a deceleration. The reason for that is because on — RPO bookings, obviously, it’s revenue plus change in RPO, and so there’s a number of things that move.

The reality is, RPO bookings is a bit volatile and you see this, if you look over the last four quarters, you’ve seen a couple — you kind of seen it go up and down, up and down. And the reason why is because it’s really the combination of the timing of when deals close, and as we get larger we have a larger number of larger deals that could actually cause that volatility. And then also, of course, it depends on what we’re comping against in prior period. And because of the lumpy mix kind of RP — of when deals hit, it moves around a bit. I actually think looking at RPO bookings on a TTM basis is probably the best way to look at it, because it’s kind of what do we add into the quarter, now — in terms of new deals.

Now the best metric as you’ve heard me say is ARR. And the reason ARR is better than RPO bookings is because it’s going to cut through timing of when a deal closes, it’s going to get through whether it’s revenue — or whether it’s on-prem or whether it’s cloud. It’s just going to show what is it that we’re actually delivering in the next 12 months. And so that’s the number. And then you see the ARR growth has actually accelerated for I guess now six quarters in a row from when it was 46% from the first quarter reported in Q3 of a year ago and then now it’s kind of been stepping up every quarter.

So, we’re really excited about the ARR growth and that’s the number I’d focus on.

Kash Rangan — Bank of America — Analyst

It looks fantastic. Doug, what made Splunk win that mega deal against 15 companies? And what makes Splunk win in this market that seems like a little crowded? Why should Splunk win in the long term? That’s it from me. Thank you. Congrats.

Doug Merritt — President and Chief Executive Officer

Thanks Kash, and thank you for that softball question. So there is just — was a…

Kash Rangan — Bank of America — Analyst

I can ask hardball too.

Doug Merritt — President and Chief Executive Officer

I know.

Kash Rangan — Bank of America — Analyst

They look good.

Doug Merritt — President and Chief Executive Officer

[Speech Overlap] because it — we are really, really proud of that deal. We’ve obviously been making a ton of investments across the portfolio in all the buying centers, security ops and the app-dev/observability area, we’ve been adding things like data stream processing and federated search. And this was, I think, a testament to what we’ve been driving across the portfolio.

The prime use case of this large customer was app-dev and the next-generation DevOps model, but like all customers, they also want to leverage the offerings for security, overall data center management in the infrastructure side. And what distinguished it is when you paired the incredible throughput and scale the capability of DSP to even further enhance the automatic metrics, extraction and dash boarding of signal effects and then the, I think, the strong synergies of tracing and what we’ve done with distributor tracing with signal effects on our mission with the underlying log management platform from Splunk.

There was nobody that could even get within literally miles of the scale and fidelity and enterprise features that this customer rightfully demanded. They’re a massive, massive organization that powers huge chunks of dollar transactions around the globe. So, it really was the investments we’ve been making in high-scale, high-fidelity, high-capability enterprise class functionality from everything, from logging to metrics to streaming to tracing that came together for this customer.

Kash Rangan — Bank of America — Analyst

Thank you.

Operator

Our next question comes from Brad Zelnick from Credit Suisse. Please go ahead.

Brad Zelnick — Credit Suisse — Analyst

Great. Thanks so much guys. And I echo Kash’s congrats on a strong finish, especially the large deal performance and a lot of the wins that you talked about. I don’t know if I can do that as nice as Kash does it, but I am as enthusiastic. So I guess, maybe my first question, Doug, I know the budget for what you offer is very high priority across just about all verticals, but I have to ask the question. Is there anything you’re seeing real time in terms of the demand environment just given global health concerns out there that factors into your outlook for the business right now?

Doug Merritt — President and Chief Executive Officer

The forecast we gave for Q1 and then for the subsequent three-year outlook, FY ’23 outlook, was based on everything that we have available to us today. Right as of this moment, we are not seeing any immediate impacts from all the reactions to COVID and the other volatility we see in the market. Like every other company, we’re monitoring and literally on a multiple time per day basis. What I can — what I am super excited about and happy that we’re able to pull off as we did have our sales kickoff last week in Las Vegas.

I know a lot of companies are reevaluating whether that is something they’re going to do or not. I think that’s an absolutely pivotal event for every company. It’s so difficult to ensure your entire go-to-market organization is aligned with your product organization, especially in a year where we are leaning in hard on annual contract value versus total contract value and the cloud has got a lot of dynamics to it and we’ve got a brand new observability suite and the pricing that we’re communicating is so important.

So the part of that forecast was built on talking to roughly 2,500 people over the course of five days and a lot of the forecast calls we’ve been driving on a daily basis as well.

Brad Zelnick — Credit Suisse — Analyst

Thanks, Doug. And Jason, maybe just for you, as we look out past fiscal ’21 to get to your ’22 and ’23 guidance. How should we think about what you’re embedding from a maintenance conversion perspective? Are you — and are you expecting any uplift upon renewal of term licenses as customers transition to cloud?

Jason Child — Senior Vice President and Chief Financial Officer

Yeah, it’s a great question. I would say, last quarter, I gave the metric that, I think it was 5% of the perpetual installed base had converted to either term or cloud. That metric hasn’t moved much, but I think, I’m going to — we’re going to provide a more helpful metric for you within the next quarter and that is to look more at net expansion rate because we’re doing very, very well against that metric.

So, in terms of the expectations, there is a — there is definitely — we know exactly kind of what the renewal cycles look like, which is why we are confident in the ARR growth and that’s why I was able to say that we have a 40% ARR CAGR from now through FY ’23. So that will certainly be a big part of growth. We also — certainly, there is going to be continued new logo growth as well. But overall, I think the best way to look at growth today is of course ARR.

I think shortly we’ll give you some expansion rate metrics as well. The combination of those two will help support the guidance that we gave.

Doug Merritt — President and Chief Executive Officer

And you can really see with that 5% number that there was nothing that we were doing special incentivize, either within the customer base or the sales force to try and drive that to a different number. And there is nothing we’re doing this year and there’s nothing I can conceive of doing in any other year to pay for that conversion. We are more than happy to have customers layer term or cloud on top of perp, something they’d paid for and they rightfully own.

We’re happy for those maintenance dollars. But as Jason said, what we’re really focused on is the overall expansion and success rate of this term and cloud contracts and that’s where all the core growth is going to come from.

Brad Zelnick — Credit Suisse — Analyst

Great. Thanks so much guys. Congrats again.

Doug Merritt — President and Chief Executive Officer

Thank you, Brad.

Jason Child — Senior Vice President and Chief Financial Officer

Thanks Brad.

Operator

Thank you. Our next question comes from Matt Hedberg from RBC Capital Markets. Please go ahead.

Matt Hedberg — RBC Capital Markets — Analyst

Hey, guys. Thanks. I’ll echo my congrats on the ARR outlook. I think that’s a lot better than pretty much any of us were thinking. Two questions. One, last quarter you guys talked about 50 customers that have converted to sort of more predictive pricing and you’d really seen a dramatic sort of increase in their footprints. I know it’s still early and there’s another quarter. I wonder if you could give us an update on sort of how that’s progressed sort of the conversions.

Doug Merritt — President and Chief Executive Officer

Yeah. We — actually, we’ve got a very focused pricing group that in pair with the marketing team is driving high visibility on making sure that our customers have the new pricing, whether it’s predicted pricing bans on data volume, or whether it’s infrastructure-based pricing exposed to them at scale. My keynote heavily focused on, hey, this pricing is really important and I expect each of you to bring it to your customers and Susan re-echoed that and then Sendur, Head of Product, re-echod that, and then Kristen, the Head of Global Field, re-echoed it over the course of three days.

So, we are seeing a lot of positive signs. There is not a customer that we have encountered yet that doesn’t feel that this is a big advantage to them. Virtually every customer that has looked at the new pricing and digested it has, one, they’ve made decision that’s right for them. Some people looked at infrastructure and then went back to a predictive pricing data volume based piece, and others went the other way. But they really went back to the use cases they had and what was the highest value return equation for them. But a consistent feedback I’ve gotten is, all right, got it, thank you, now I can focus what I want to focus on, which was value and number of use cases, and making sure that I’m driving the change I want across the company.

So, as I said last call, we are extremely focused on making sure that from an awareness perspective, a tooling perspective, so customers and reps know how to evaluate the pricing and make the best decision, and our customer satisfaction perspective, that we are extending this to every customer out there.

Matt Hedberg — RBC Capital Markets — Analyst

That’s great. And then maybe just as a quick follow-up. I know there’s always been a debate with you guys on the land versus expand. I know we want both and there’s obviously a large expansion opportunity in the base. But with the new — with the new pricing, Doug, I’m wondering, if as we move forward, say, the next couple of years, would we expect new customer adds to perhaps accelerate from kind of the 400 customers to 500 customers you guys have historically been adding per quarter?

Doug Merritt — President and Chief Executive Officer

I am still deeply expectant on that movement. When I look at what have we done over the past three years since we laid a bunch of metrics on what do we — how we’re going to try and convert the overall Company, we really impressively over-achieved on what we thought was a relatively decent lean forward, we predicted $2 billion in revenue, we just closed $2.359 billion. We exceeded to upper end of our op margin target. We gave a 12% to 14% range, we are at 14.2%. We said we’d move renewable from less than 50% to 75%, we just ended at 95% for the year, 99% for the quarter.

We said deals over $1 million would hit 300, we just delivered 494 for this year. The overall cloud percentage of software bookings, we thought we are being super aggressive at 26%, we just finished at 35%. Cloud revenue predicted $250 million, we just ended at $312 million in cloud revenue. So the — what all that tells me is there has been so much momentum within the customers that understand the value, that no matter what we do to try to entice people look at net news, that has with one metric of all the metrics we gave this kind of stuck.

And I think our cloud offerings, they have to help, because it’s much easier to get up and going in cloud. But we just need the reps and the partners to find ways to pay attention to new customers. And as long as current customers are expanding at the rate they are now, I know there’s going to be a constant tension push for us to achieve.

Matt Hedberg — RBC Capital Markets — Analyst

Well done. A lot to be excited about.

Doug Merritt — President and Chief Executive Officer

Thank you.

Jason Child — Senior Vice President and Chief Financial Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from Phil Winslow from Wells Fargo. Please go ahead.

Phil Winslow — Wells Fargo — Analyst

Hey, thanks guys for taking my question and congrats on a great quarter and outlook. Two questions. First one for Jason. On last quarter’s deck, you gave an operating cash flow chart that showed the trajectory from ’20 to ’23. In fiscal ’21, you essentially guided to a negative operating cash flow, effectively in line, maybe a little bit lower than fiscal ’20. Has that changed at all? Or maybe just directionally give us a sense? And then one quick one for Doug after that.

Jason Child — Senior Vice President and Chief Financial Officer

Thanks, Phil. So first on cash, what we said last time and I’ll stick with it, was or I’ll reaffirm it, and that is that Q or that last year FY ’21’s cash should look the same and — as FY ’20. So we were minus $288 million, so that’s a good forecast for this year. That snapback starts to occur in the middle of ’22, so we’ll flip to positive then. And then we will be approaching $1 billion in ’23. So no change to the cash guidance.

Phil Winslow — Wells Fargo — Analyst

Great. So no change in the past. Right. And then, Doug, a question on the data stream processor. Obviously, there’s a lot of interest in [Indecipherable] and as well as just our follow-up conversations with customers. Wonder if you could give us your perspective now that the DSP has been out there for a bit, what you’re hearing from customers?

Doug Merritt — President and Chief Executive Officer

Yeah. I think a lot like our — the observability suite, really positive indicators with a quarter an a month of observed buying patterns. It was included a number of deals in Q4. The big — the biggest transaction in the Company history that we talked about, including in the customer, that I can stay with assurance that would not have happened without DSP.

This customer processes more transactions per second than I think just about any customer in the world. And DSP was key to be able to have a high fidelity transport and metric extraction across the millions of metrics per second that they drive. So, I think we made the right investment. Streaming is, I think, a very important and critical complement to data at rest [Phonetic]. And that’s — it’s absolutely something we will track over the course of the year.

I think the real traction will be what we just saw with this big deal, which is attaching DSP to specific use cases and app-dev is a key one because the volume of data that is happening across that next-generation environment that we see the same thing with AI ops and the IT ops landscape and certainly trying to get real-time bead on events and incidents in the current system’s security is an important component to that as well.

Phil Winslow — Wells Fargo — Analyst

Awesome. Thanks guys.

Doug Merritt — President and Chief Executive Officer

Thanks Phil.

Jason Child — Senior Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Raimo Lenschow from Barclays. Please go ahead.

Raimo Lenschow — Barclays — Analyst

Let me echo Kash’s excitement about the numbers. Quick question on the cloud transition that we see this year, that’s a huge change and a huge momentum. Can you talk a little bit about what’s going on in term, in terms of the salespeople pushing it? But I’m also surprised to see that kind of much of a shift, because you still have data gravity as well on the locking side. And so can you talk a little bit about the drivers there? That’s pretty amazing.

Doug Merritt — President and Chief Executive Officer

Yeah. It was — why we were reluctant to give guidance for FY ’21 was, you really need — we need to see a full-year pattern with FY ’20, even have the beginnings of a model for FY ’21. And the one thing that Jason and I will stand behind is we’re probably wrong with the FY ’21 model, because it’s really hard to predict. But it did — it was the largest spike that we’ve ever seen in Q4. And the interesting — even further interesting thing that surprised me is we had a little bit of a decelerant on cloud this past year in the sales force.

The value of a cloud contract tends to be higher than term, because we are providing a service and consuming infrastructure. And despite the fact that there was a difference in commission credit between cloud and term, we saw a push through at the highest rate we’ve ever seen in Q4. And the Q1 forecast, on a deal-by-deal basis, has it — had an equivalent level to Q4. So that just tells me that, one, the health and quality of that offering has continued to progress and we’ve done a lot of really interesting things that are I think unique in the industry from this program that we call Audubon where you actually get to preview exactly what your production estimates looks like as part of the PoC and when you buy you just instantaneous flip on to some of the interesting pricing and option characteristics that we’re providing on rich features within cloud.

But I think the underlying piece is, customers want to go to cloud. They see a really rapid return to value. Despite that, that means that 65% is on-prem and I’ve said for 5.5 years, 6 years that I can’t foresee us ever being 100% cloud. There are workloads and use cases where a public cloud is probably not going to be the right thing at least the next five years to 10 years. So if we — our target now is we think we’ll get to 60-plus-percent cloud by FY ’23, which is driving some of that immediate impacts on revenue, but some of the benefits, as we begin to lap in FY ’22, FY ’23. But I don’t think there will — that that number will get to 95% to 99%.

Raimo Lenschow — Barclays — Analyst

Okay. Perfect. And then one follow-up for, Jason. If I look at the operating margin situation for FY ’21, it’s like what’s the — obviously, we had a change in revenue and that’s kind of obviously impact. But in terms of your investment focus and cadence like, was there any change or is this just what we see in terms of operating margin guidance just a reflection of the revenue situation?

Jason Child — Senior Vice President and Chief Financial Officer

It’s a reflection of revenue. Revenues coming down because of the cloud shift. The reason why we guided to a target of 20% by FY ’23 is if you’re kind of going to layer in the 200-or-so basis points improvement that we’ve been targeting, you get to 20%. So, it’s purely kind of a GAAP effect of the cloud transition.

Doug Merritt — President and Chief Executive Officer

GAAP income statement effect.

Jason Child — Senior Vice President and Chief Financial Officer

Yeah. Yeah.

Raimo Lenschow — Barclays — Analyst

Okay. Perfect. Congrats.

Doug Merritt — President and Chief Executive Officer

Thanks Raimo.

Operator

Thank you. Our next question comes from Brent Thill from Jefferies. Please go ahead.

Brent Thill — Analyst

Good afternoon. Doug, now that you tease us with the largest deal ever, I think everyone wants to hear if you could help just quantify maybe not the exact size, but help us ballpark it. And for Jason, there is a lot of questions around how the existing installed base will migrate, and also the pricing change and how you factored that into the guidance for this upcoming year? Thank you.

Doug Merritt — President and Chief Executive Officer

Thanks, Brent. So my hidden internal goal has been — we’ve obviously been excited to share a seven-figure deals. We had now have been sharing eight-figure deals with you guys, which have gone from one — it’s the $10 million plus in ’17 to $35 million in FY ’20, which was a nice move. My internal guide post, I want to see a nine-figure deal. And this biggest deal ever was getting us close. It was trying to tune up to be a nine-figure deal. So very proud of that. And it’s not so much the required number, it’s the implication of what that means as far as the importance to the business. And for organizations that are fully digital and their entire business is online, then having a unified architecture that allows you to manage everything from security to your data centers to your app-dev portfolio, and then ideally the line of business requirements as well. I mean that when you’re a billions and billions of dollar online company, a 50[Phonetic] $100 million, $150 million contract feels like that is reasonable ask.

Jason Child — Senior Vice President and Chief Financial Officer

And in terms of the other — the second question on the kind of the assumptions on the perp installed base transition as well as pricing impacts that we baked into the ARR guidance, I would say, as I said in one of the earlier questions, the perp installed base that’s a — it’s a relatively small percentage that have moved thus far. We’ve been — we’ve had that motion for about three years, so it’s something that moves relatively slowly. There is of course folks who are expanding as they’re adding new contracts or expanding on top of a perp contract. And so that’s why I think the better metric to look at going forward is probably going to be an expansion rate. So I’ll be providing that, let’s say, within this quarter.

And then in terms of the pricing impact, we actually sort of tested that back last summer. And so we’ve been able to kind of see how that impacted, I think, the field’s ability to actually kind of digest that and then help the customers understand it, and then see exactly kind of some of the elasticity impacts, all — that’s something that we’ve actually been kind of watching closely for a while. So, we kind of baked in what the experience we’ve seen thus far has been and feel pretty confident about the forecast that we provided.

Brent Thill — Analyst

Thank you.

Doug Merritt — President and Chief Executive Officer

Thanks, Brent.

Operator

Thank you. Our next question comes from Michael Turits from Raymond James. Please go ahead.

Michael Turits — Raymond James — Analyst

Hey, guys. I think that the risk of beating a dead horse, kind of some more clarification with Brad and Brent’s question. Can you just tell us for the 50%-plus growth in ARR this quarter and the 45% next quarter, how much of that is from migration so we really know what is the sustainable rate in ARR?

Jason Child — Senior Vice President and Chief Financial Officer

And by migration, you mean customers are moving from perp to either term or cloud?

Michael Turits — Raymond James — Analyst

Correct. And both the [Indecipherable] inorganic impact of that and then the expansion impact at there. I think that’s increasing ASPs.

Jason Child — Senior Vice President and Chief Financial Officer

So why we provide that 5% number, if we look at all perpetual licenses. 5% transition turned in their perp license and turned in for a term or cloud license. We’re still at 5% as it’s below the 1 percentage point metric between Q3 and Q4. Going back to where — we are not incentivizing, there’s no benefit for sales reps to do it. There is no benefit for a customer to do it. So when a customer — those 5% that moved, looked at the offering and say, I want a single contracting vehicle. I get where you’re trying to go, give me all cloud, I’ll give you my perp license and get back.

And so it’s a very customer-driven decision. For our Q1 and for FY ’21, we’ve factored zero perp customers trading in their licenses for term or cloud. They’re all organic purchases of term or cloud. And some of those have come and will come from existing perp customers, but there is no program to have them — to pay for them to get there.

Michael Turits — Raymond James — Analyst

Okay. So zero perp is in the guide, in other words, just to be clear, there is de minimis or zero impact from migration from perp into your ARR forecasts?

Jason Child — Senior Vice President and Chief Financial Officer

Yes.

Michael Turits — Raymond James — Analyst

Okay. And just one clarification on RPO bookings. We know what signal effects was last quarter. What was the inorganic contribution from it this quarter?

Jason Child — Senior Vice President and Chief Financial Officer

We — so last quarter we disclosed it, because it was the first quarter and we actually absorbed it partially through the quarter. At this point, we’ve integrated the offering, so we’re not breaking it out.

Michael Turits — Raymond James — Analyst

Okay. All right. Thanks Jason. Thanks Doug.

Doug Merritt — President and Chief Executive Officer

Thanks Michael.

Operator

Thank you. Our next question comes from Fatima Boolani from UBS. Please go ahead.

Fatima Boolani — UBS — Analyst

Good afternoon, and thank you for taking the question. I have one for you, Doug, and one for you, Jason. Doug, just coming off the heels of your sales kick off and how you’re sort of putting pedal to the metal on the cloud software transition, I’m wondering if you can talk to us about what sales incentive changes and the magnitude thereof you’re planning to roll out within the sales organization in both two partners as well?

And how the new pricing structures, which I imagine, have now officially rolled into the price books in the partner channels? How the sales force is responding to that? And I’ll follow-up with Jason.

Doug Merritt — President and Chief Executive Officer

Great questions. So the excitement at SKO was palpable. The — with — I guess, you’re going to have half years, especially if you’re the CEO of the company, but I have — most people that ever have had come up to me expressing both clarity of vision and then ultimately excited about the comp plan and how we simplify the business.

I think the core of the excitement comes from, we’ve finally been able to move to an ACV compensation structure. TCV is so tricky because you’re trying to guess are you going to a perp license or a term or cloud. You could do a one year, two year or three year, and it’s a very inexact science and it is frustrating for everybody and from the sales reps all the way up to me.

And ACV is simple and clear. And so it’s a straight line of sight for them for the year. Last year, we had a decelerant on cloud that gets full commission credit for cloud deals because the size of cloud tends to be larger than term where we’re trying to neutralize term and cloud. This year we took that decelerant up, so it’s a 100% credit, whether it’s term or cloud, which I think will have them leaning into cloud, because the size of the deals tend to be larger.

And when I also look at the infrastructure-based pricing, the Splunk virtual core within a cloud environment, I think that is a really advantageous architecture to cloud discussions. It makes more native sense to the buyer than a data volume based metrics since they’re already used AWS Azure or TCP infrastructure usage charges.

So, I think when you’re talking about a cloud deal, the SVC is a very tight fit for them, although we’ve seen cloud customers choose predictive data volume pricing over SVC depending on the use case. And all of that is just [Speech Overlap] to the partners as well.

Fatima Boolani — UBS — Analyst

Fair enough. And then just using that as a jumping-off point, Jason, for you, appreciate that the operating margin compression on a year-over-year basis is just a mechanical output of the revenue moving lower. But as we think about this transition to cloud and cloud software bookings mix shift, how should we think about the trajectory on the gross margin front if you can help us with that? Thank you.

Jason Child — Senior Vice President and Chief Financial Officer

Good question. So what we said last quarter was that the gross margin in cloud, which is where the compression will come, obviously the on-prem business has been in the kind of 90-plus-percent gross margin range and don’t expect that to change. The cloud gross margin obviously has come up substantially from being in the 30s last year.

Last quarter, we gave the milestone update that it had achieved 50%. We are — I think we said we were going to get to 65% to 70% over the next few years. Our expectations, we would expect to see cloud get into the 60% gross margin range by the end of this year and then probably be approaching the 70% range by the end of next year.

So then the question is on the overall gross margin, what’s your mix assumption. So, you can kind of flow through. And if you assume 60%, you can take 60% of that 70% gross margin or somewhere around there. And then the rest at the 90-ish-percent gross margin and get to a number of that. I think you can see where it comes. So it’s still going to be — to be able to hit that 20% gross margin, then, obviously, we have to see some further kind of efficiency gain across go-to-market, R&D and G&A, and we do expect that to happen as well.

Fatima Boolani — UBS — Analyst

That’s super helpful. Thank you so much.

Doug Merritt — President and Chief Executive Officer

Thanks Fatima.

Operator

Thank you. Our next question comes from Keith Bachman from Bank of Montreal. Please go ahead.

Keith Bachman — Bank of Montreal — Analyst

Hi, thank you. I also had two. On the total RPO bookings, Jason, could you talk about how the migration the cloud over the next 12 months is going to impact the growth rate? I heard Doug say the deals tend to be larger than, say, the term deals. And I’m just trying to understand really how does the growth rate of the ARR, which I know you’re pointing us to. But just trying to see if there is any call-outs to how you’d want us to think about the RPO bookings — the total RPO bookings over the next 12 months? And then I’ve a follow-up.

Jason Child — Senior Vice President and Chief Financial Officer

It’s a good question. I mean RPO bookings, honestly, is a little harder to forecast because duration plays such an important piece of that. And as we are — we’ve now got our sales team completely aligned on the kind of more of the ACV versus TCV model, so focused on really making sure we’re driving the right ARR growth that — again, we’re confident in our forecast. And so because of that duration is going to move around. And so — and then of course timing, as I said, is already volatile.

So as a result, I would expect that you will see the numbers probably — they probably will not look unlike last year, where you might see some volatility across quarters and then overall growth rate. I have to decide if we’re going to start duration adjusting things. It makes it more complicated, but if there’s going be a lot of focus on it, you kind of need to look at it that way. So, that’s something that I will probably talk about at Analyst Day.

Keith Bachman — Bank of Montreal — Analyst

And the duration of cloud is shorter than term, right? So it will…

Jason Child — Senior Vice President and Chief Financial Officer

Well, so today, and I think we’ll determine the view — we’ll see if we can create a little more clarity. The one thing I would just make absolutely certain of is, the reason we gave the ARR CAGR kind of guidance for the next three years is because that’s effectively what’s going to translate to whatever the duration is. And so whatever you see in RPO bookings ultimately what we’re going to deliver is what’s an ARR.

And so the reason I wanted to — the reason I wanted to give that ARR guidance is to make sure that regardless of whatever volatility you see in RPO bookings, you’re focused on comparing that to ARR, because ARR is the one that’s more durable, more stable and what actually relates to what we’re delivering.

And regardless of the timing of when multi-year duration deals hit or — all of that complexity, it really — it can create volatility that honestly does not translate to — ultimately to revenue and ARR. And so that’s why you’re going to hear us continue to push on focusing towards ARR. Once we’re all ratable, this won’t be — it will be less complicated, but we’re obviously in a period of transition.

Keith Bachman — Bank of Montreal — Analyst

Well, let me ask my second question before Ken cuts me off rudely. You talked about — you gave a ’21 margin and you talked about a snapback in ’22. I just wondered if you wanted to sign any — business operating margin, I’m referring to. Just give any kind of dimensions on how you’re thinking about that word snapback against your longer-term targets.

Jason Child — Senior Vice President and Chief Financial Officer

It totally relates to — it completely relates to the speed of the cloud transition. So if this year goes incredibly well, we’ll have an even higher cloud mix than our current plan, which would be outstanding and fantastic for the business, it will make the GAAP metrics more confusing and then snapback shorter. So I — the reason I’m focused on ’23 is, I don’t know how — it’s just hard to say how fast it’s going to go, because we’re not going to tell our customers what they should consume, they’re going to tell us.

And so as a result, we’re very confident about where we’re going to be in ’23. But where we’re at on the halfway point at the — in ’22 is a little harder to see. So that’s why we gave the guidance for what we did.

Keith Bachman — Bank of Montreal — Analyst

All right. Fair enough. I will see the floor. Thank you.

Jason Child — Senior Vice President and Chief Financial Officer

Thank you.

Doug Merritt — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Mark Murphy from JP Morgan. Please go ahead.

Mark Murphy — JP Morgan — Analyst

Yes. Thank you, Doug. Following up on — an earlier question. You had said that you recently closed your largest order in company history. So just wanted to clarify. I’m presuming that that was in fiscal Q4, but is there any chance that that are part of that was in Q1? And then I think you were — you sized it up in terms of TCV? Can you help us at all to try to roughly understand the ARR size of that and then I’ll have a follow-up?

Doug Merritt — President and Chief Executive Officer

Yes. So the transaction itself closed in Q4, in January, which again looking at the volatility this environment and it was a nice testament that despite already some craziness and overall global markets that this customer is willing to lean in at the size of the transaction they did. It’s — it being a very, very large TCV deal, you can imagine that may be an eight-figure ARR deal, annual deal, but we are not going to — we won’t disclose the dynamics of that specific deal, other than — then the purpose why I brought up was, it was a portfolio by and it re-emphasizes that the three years focus we’ve had on trying to bring DSP to market and DFS to market and doing the SignalFx mission acquisitions, not in Phantom of the security fold and that that drove the outcomes that we are looking for, which is enterprise grade features from security to IT ops and infrastructure management to app dev and DevOps.

Mark Murphy — JP Morgan — Analyst

Okay, understood. As a follow-up on the topic of the coronavirus what actions are you taking with respect to your own employees to try to safeguard them, just for example, are you pulling out of conferences, are you restricting travel and if you are doing the latter. Is there any reason to think that some of the on-site implementation work could be impacted at some point, if the problem continues to grow?

Doug Merritt — President and Chief Executive Officer

Yes. It’s like again assuming many other companies, our employee and customer health is our number one priority. And so, we have issued guidance internally to our employees or managers that we value health and safety, number one, that please restrict business at any travel to business critical travel. If someone is feeling uncomfortable, there — they get to choose even if it’s business critical, we’ll find — we’ll honor the employee and/or the customer and make sure that we are keeping health and safety top of mind. For non-critical internal meetings, we have begun to move some of those to be virtual. For external conferences so far we have not deemed that we need to retract. And again we’re. I guess we’re probably lucky enough on our SKO timing that it happened before some of the latest walls within the United States, where we’ve got to really good Safety and Security Group and their issuing updates multiple times per day. We’re staying as on top of this as any other medium to larger sized company can be.

In Asia Pacific, we’ve rotated a lot more of our professional services work to virtual work, wherever we possibly can, wherever it makes sense to the customers. There is a possibility there and other locations around the world that if everything move virtual, we all know there are some things rack and stack of hardware that customers usually do but that might gate our ability to deploy Splunk. And again we’ve got daily calls with our head of customer success and it’s something that we’re going to keep as on top of as we possibly can, given how dynamic the environment is.

Mark Murphy — JP Morgan — Analyst

Thank you very much. Appreciate that.

Jason Child — Senior Vice President and Chief Financial Officer

Thanks, Mark.

Operator

Thank you. Our next question comes from Steve Koenig from Wedbush Securities. Please go ahead.

Steve Koenig — Wedbush Securities — Analyst

Hi, gentlemen. Thanks. One financial question and one quick product question. On the financials, the ARR metric is key and that’s really helping us understand the business. We do keep getting surprised with some of the other metrics, and I’m just wondering, so that we can calibrate going forward. Can you share with us or give us some understanding of what you’re planning for the cloud mix this year? Should it be like a linear progression towards that 60% and what’s the impact on revenue. I don’t know per point of mix shift or how do we think about modeling that?

Jason Child — Senior Vice President and Chief Financial Officer

So we’re going to have our Analyst Day I think in 20 days. So we’re going to — we’ll probably shed a little more light on exactly what — how to kind of think about those things. I mean, I’ll just say high level, we went from 26%, 27% in ’19 to 35% this year. I expect it to be certainly into the 40% plus range next year. And so in terms of how linear that’s going to be, I’d say stay tuned, because it is again it’s customers that are choosing and so it’s hard to — it’s a little hard to predict. And that’s why the ARR metric is really the one that’s most important to focus on.

Steve Koenig — Wedbush Securities — Analyst

Got it. Okay. Thanks, Jason. And Doug for you. On the cloud adoption, can you, maybe just give us a little color on what kinds of use cases, how much of the data is being forwarded from prem and it’s being used as the deployment option versus de novo cloud apps and kind of how does the mix due between IT ops, apps security, does it kind of mirror your premise mix. So, just some understanding of what it’s being used for?

Doug Merritt — President and Chief Executive Officer

Yes. A few three years ago, I would say that security was definitely a smaller component and IT and other use cases were larger. The big shift that I’ve seen in the past 24 months is the comfort, even with some relatively conservative, excuse me, regulated industries and companies with moving to cloud. And with that, the growth — we’ve seen a growth in security data going into cloud and then the deployment of enterprise security and Phantom to complement that. What I would say three years ago, probably the higher majority of the data was cloud-based data, but again as people become more comfortable with cloud and they’re moving more workloads and it’s cost of hybrid environment, we’re seeing it depends on the use case but a healthy mix of on-prem data into cloud as well as cloud data being gathered either within the cloud, if you’re very center in AWS or having your sales force in Okta and Workday data go into to come and go with the other data.

Steve Koenig — Wedbush Securities — Analyst

Got it. Great. Thanks very much guys.

Jason Child — Senior Vice President and Chief Financial Officer

Thanks, Steve.

Doug Merritt — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our last question comes from Karl Keirstead from Deutsche Bank. Please go ahead.

Karl Keirstead — Deutsche Bank — Analyst

Thanks for fitting me and maybe two for Doug on this cloud mix. Doug, as you see a larger mix of Splunk deployed on cloud. One would assume that your competitive set might change such that you might start seeing customers evaluate Cloud Native alternatives such as Microsoft, Azure sense and all. I’m just wondering if in fact you’re seeing that and as a result, how does your pitch in the field change? And then I’ll ask my second one of all the Splunk on cloud, Doug, can you comment is the bulk of it occurring on AWS or are you starting to see some Splunk on Azure or Splunk on some other clouds? Thank you.

Doug Merritt — President and Chief Executive Officer

Absolutely. So maybe I’ll take your last one first. Just as context and will go back into what does our cloud growth mean overall. So, our SaaS offering, our cloud offering, which is now 35% of revenue that is — that as wholly on AWS. We have architected that solution. So we could begin to spread to other clouds besides AWS, but I would foresee AWS being our Tier 1 strategic vendor for as long as I can see out, given the relationship we have between the two organizations. But as we all know customers have a growing bias on whether that offering is housed in AWS or in Azure and GCP, and we want to be able to play across all the clouds.

From a — how does that change the dynamics? Even when companies are going hard at cloud, but I’ve certainly seen for the Global 5000 is 90% of them have a multi-cloud strategy. I think so many of us have been on this road before. I’m trying to be an IBM only shop or HP only shop or Microsoft only or Cisco and that doesn’t tend to work out super well for the IT department and for the company overall. So I think this time, especially given the even more complete control and value that the cloud providers are delivering and people are really, really tuned to I better find a way to make sure them spreading the workloads around across the clouds and I’d better be smart about where I’m storing my data, because egress costs can be ridiculous, which I think is a good value for Splunk. If you store within Splunk and we’ve got some interesting stuff that we have on the roadmap, we’re going to help you ensure that the data is yours, that it’s masked from anybody. I mean that that data will be portable for you.

When I look at higher order offers. If I go above the data as a service landscape to something like Sentinel. Last year at RSA, there is a lot of discussion about, hey what’s going on with Microsoft and Google and others as far as security offerings? I think after a year of evaluation, we’ve heard over and over at this year’s RSA was very little discussion about Microsoft or anybody else on the security front, almost no discussion about open source. I think the maturity are, obviously this was last week, so we’ve already got some of the effects of coronavirus and people being concerned about the volatility of the economy and last week told me as people are kind of circling the wagons and making sure that they have vendors they can trust that the value is super clear on what they’re actually working with. And if this goes with any patterns we’ve seen in past economic disturbances, the companies are very, very customer-centric and have a track record of value and delivery point of doing pretty well and that my view is in a heterogeneous cloud world, you better have vendor that’s going to be able to spend all those clouds and non-clouds and ideally provides you an insulates you from the lock in that customers are afraid of. And I think we’ve got a very strong value prop there.

Karl Keirstead — Deutsche Bank — Analyst

Got it. Okay. Thank you.

Jason Child — Senior Vice President and Chief Financial Officer

Thanks, Karl.

Doug Merritt — President and Chief Executive Officer

Thank you, Karl.

Operator

Thank you. This concludes the Q&A session. At this time, I’d like to turn the call over to Ken Tinsley, Corporate Treasurer and Vice President of Investor Relations for closing remarks. Please go ahead, sir.

Ken Tinsley — Corporate Treasurer and Vice President of Investor Relations

Great. Thanks. We appreciate your help today, and thanks everybody for joining us. Hope you have a good night.

Operator

[Operator Closing Remarks]