Splunk Inc. blew past second-quarter revenue forecasts with a 32 percent jump in sales today, delighting investors who bid the operational intelligence company’s shares up 10 percent in immediate after-hours trading.

Quarterly revenues of $280 million outdistanced consensus estimates by nearly 5 percent. Earnings of $11.5 million, or 8 cents per share, were 2 cents better than estimates. The company also increased its guidance for the third quarter, raising its forecast to between $307 million and $309 million, a bit higher than consensus estimates of $306.8 million. The company also raised its annual revenue estimate to between $1.21 billion and $1.25 billion, up from an earlier estimate of $1.19 billion.

“It was a solid quarter,” said Chief Executive Doug Merritt (pictured). “Customers are expanding their use of Splunk both for machine analytics and machine learning.”

Security spending is increasingly fueling Splunk’s business as customers migrate away from legacy security information and event management systems based on static data to more analytics-based approaches. Merritt highlighted the company’s new Splunk Insights for Ransomware as an example of how analytics can help organizations in a tight labor market deal with a mounting crisis by sorting through a huge volume of security event data to isolate likely problems. “Security departments have to keep deploying lots of devices to cover the landscape, but how do you get insight from those devices to leverage the expertise you have?” he said.

Progress in the cloud and Europe

Splunk executives said the company is making solid progress in two areas that have vexed investors in the past: the move to cloud subscriptions and European business. Cloud revenues of $21.3 million were up 20 percent over the previous quarter and gross margins of 30 percent also showed improvement. Chief Financial Officer David Conte said Splunk expects cloud margins to hit 70 percent in 2020, up from break-even last year.

The company said European sales also rebounded as a result of management changes following weaker-than-expected sales in that region in the previous quarter. However, it didn’t provide specifics. At 23 percent international sales make up a relatively small part of the company’s business compared with other enterprise software firms.

“I’m in violent agreement that long-term we expect international business to grow,” Merritt said. He explained that the lowest-hanging fruit for the company is still in the U.S., where “over the course of four or five years, customers typically increase their data volumes by 10X and their spending by 4X or 5X,” he said. “When you have a solid installed base in the U.S. as we do, it’s easier to get a big deal from that cohort than from a single new international customer.”

Splunk added 500 new customers in the quarter, about the same as in the past three quarters. Although the acquisition rate has remained static, the 541 orders of more than $100,000 was a new high, and up more than 50 percent from the previous quarter. Average selling prices have climbed from the $50,000 range to more than $80,000, Conte said. “We expect to see ASPs continue to uptick over the next two-and-a-half to three years,” Merritt added.

Image: Splunk/Facebook