Q3 2020 Earnings Call
Hi, My name is online and I will be or conference operator today.
Welcome to the cloud era third quarter fiscal 2020 quarterly results conference call.
All participants line cabin placed in listen only mode to prevent background noise.
After the speaker's remarks, there will be an opportunity to ask questions. If he would like to ask a question. During this time separate press Star then the number one when your telephone keypad.
If you would like to withdraw your question press the pound key.
Please note this conference is being recorded.
Your host.
Kevin Cook, Vice President corporate development and Investor Relations, Kevin You May begin your conference.
Thank you Alain good afternoon, and welcome to clutter as third quarter fiscal 2020 conference call. We will be discussing the results announced in our press release issued after market close today from clutter with me are Marty coal Chairman and interim Chief Executive Officer, Jim friend Cola, Chief Financial Officer, and to ruin Murphy Chief product Officer.
During the course of this call we will make forward looking statements regarding future events in the future financial performance of the company, including those as merger with Hortonworks. Generally. These statements are identified by the use of words, such as expect believe anticipate intend in other words that denote future events. These forward looking statements are subject to material risks and uncertainties that could cause actual results to differ.
Clearly from those in the forward looking statements. We caution you to consider the important risk factors that could cause actual results to differ materially from those in the forward looking statements in the press release and on this conference call. These risk factors are described in our press release and are more food fully detailed under the caption risk factors in our annual report on Form 10-K .
Our quarterly reports on Form 10-Q , and our other filings with the FCC.
During this call we will present, both GAAP and non-GAAP financial measures Nongaap financial measures measures exclude stock based compensation expense and amortization of acquired intangible assets. These non-GAAP measures are not intended to be considered in isolation from a substitute for superior to our GAAP results and we encourage you to consider all measures when analyzing clutters performance.
Except where noted all numbers reported for prior periods are presented for clutter on a standalone basis. Since there is no comparative year over year financial information for the combined company for complete information regarding our non-GAAP financial information the most directly comparable GAAP measures and a quantitative reconciliation of those figures. Please refer to do that to today's press release regarding our third quarter result.
The press release has also been furnished to the FCC as part of the current report on form 8-K. In addition, please note. The date of this conference call. This December 15, 2019, and any forward looking statements that we make today are based on assumptions that we believe to be reasonable as at the state. We undertake no obligation to update these statements as a resulted.
Question for future events, now Marty coal chairman and interim Chief Executive Officer.
Thank you, Kevin and Hello, everyone.
Thank you for joining us to discuss our third quarter fiscal year 2020 results.
Building on the momentum generated in Q2, I'm very pleased to report that we continue to execute well in Q3.
Among the highlights.
We delivered strong operating and financial results across the board.
Launch the Cloudera data platform, which we refer to as CDP.
The launch has been well received by customers partners and industry analysts.
As we previewed at our last earnings call.
Implementing licensing and distribution changes and this is also having a positive impact on our business performance.
Over the last two weeks.
We made CBP data center available well ahead of schedule.
And announced enhancements to our partner program called direct connect.
In the quarter, our field team continued to ramp its performance exceeding expectations across a number of dimensions.
And we're experiencing improved operating leverage.
And moving towards substantial positive operating cash flow in fiscal 2021.
He was accomplished these accomplishments all represent good progress for the business.
During this call will recap the major announcements we made at the start of data conference in September .
Subscriber early progress with CTP public cloud.
And introduce GDP data center.
A room will be available during the kunaev session to help us to answer any CDP specific questions you may have.
With regard to our Q3 financial performance total revenue was $198 million.
Subscription revenue was $167 million.
And operating cash flow was negative $6 million.
Annualized recurring revenue was $697 million at the conclusion of the third quarter, representing 13% year over year organic growth.
Each of these results exceeded expectations.
We also had another good quarter in terms of adding customers.
We now have 977 customers, who exceed $100000 of a our or a net increase of 24 in Q3.
And we had an impressive increasing customers representing greater than $1 million or they are to more than 150 in total.
As I've been on the ground over the past two quarters I've had the opportunity to spend time engaging directly with our customers and partners.
It is gratifying to gauge their high level of satisfaction with our products and our roadmap.
This is particularly noticeable among our largest customers they remain stable.
And continue to perform mission critical use cases with our products.
Their enthusiasm for CDP is significant.
For my time with customers I've been further convinced that car, there's enterprise data cloud strategy is on target.
And the market opportunity is real.
I'm not going to turn to recent product announcements and our early progress with CDP.
We made two major announcements at the start of data conference in September .
First we launched called Teradata platform for public cloud.
Watching three cloud native services Cloudera data warehouse.
There are machine learning and cloud Teradata hub.
These offerings all provide easy self service access to enterprise data and analytics.
CDP public cloud represents a highly competitive set of cloud native services.
With the key differentiation of a single pane of glass for securing and managing all environments.
Although these public cloud services are distinct and fully functional as discrete offerings.
Our customers tell us they want the comprehensive capabilities away Multifunction platform with solutions that are hybrid and multi cloud capable.
CDP is different than other offerings in the data management and analytics market today because.
CDP is made Toronto any cloud on premises and in any hybrid configuration customers prefer.
Cdps Multifunction supporting the broadest array of enterprise use cases from the edge to AI.
CDP of secure and governed across any environment.
The technology delivered through our shared data experience S. The FX is unique.
And CDP is open.
Open source open compute and open storage.
Our customers have told US that these are the factors they value most in determining how to optimize cost and performance of workloads.
CDP public cloud services are available today on both Microsoft is your and Amazon eight of U.S.
The second major announcement, it's data was the introduction of CDP data Center.
CDP data center has our next generation on premises offering representing the strongest elements of the former Cloudera and hortonworks platforms as well as significant new innovation for secure enterprise analytics and data management.
CDP data center delivers differentiated technologies, such as virtual private clusters that separate compute and storage for better scalability and performance.
It also includes a preview of a new object store for on premises code name ozone that can scale to billions of files are objects more than 10 times improvement over each DFS based systems.
Importantly, CDP data center is built on the same code base as CDP public cloud.
This makes the management of analytic clusters in the setup of Stx security and governance easy.
The platform also benefits from extensive testing.
Hardened by both cloud testing and bare metal testing.
And CDP data centers, the first step in delivering CDP private cloud, providing all stateful aspects data Medidata security governance and infrastructure. It is the foundation for CDP private cloud containerized experiences for warehousing machine learning.
And more.
In a nutshell.
GDP data center is built for hybrid cloud.
Optimized for bare metal and ready for private club.
CDP data center became available on November 22nd earlier than promised.
It represents another impressive effort on the part of our engineering team.
We're already seeing significant traction for it in our pipeline.
Now, let's review the early customer response to CDP public cloud.
CDP public cloud seems to hit the Mark.
Many customers had to waiting to see the precise composition functionality and performance of CDP before submitting their cloud Daryl led data strategies.
Just as publicly demonstrated CDP the customers was reassuring in fiscal Q2.
Its launch was a catalyst for our results in Q3.
It has inspired confidence for our customers, who are considering leveraging public cloud infrastructure.
And these customers are renewing with plans to adopt CDP public cloud.
As a result, we have targeted existing customers with workloads that are well suited for hybrid cloud implementations.
We have intentionally employed a very deliberate rollout strategy to help ensure early success for these customers.
We began with 19 large customers who expressed interest in being early adopters of CDP public cloud.
18 of the original 19 of advanced to live testing and limited usage of the offerings.
When we launched there was a waiting list of more than 50 customers, who had indicated interest and intend to trial CDP public cloud.
As of today, we have transitioned 49 of these customers to the evaluation phase and the like number have been added to the Q.
We chose to control the release of the software in order to collect feedback and identify any areas for improvement.
We want to learn everything we can from the utilization of our cloud services by large enterprises, especially concerning the first hybrid and multi cloud use cases.
The feedback we've received in the overall pay some progress has been encouraging.
The following case studies are representative of the early successes, we're seeing with CDP public club.
The first is a multinational financial services company.
They deliver data applications as a service.
To ensure their customers have the performance they expect they typically overprovision cloud capacity.
They have also provision permanent clusters to provide the governance and security that has been and is the differentiation.
As a result, they constantly trade up customer experience and governance against cost.
With CTP, they can eliminate the need to compromise cdps workload management enables them to deliver an optimal customer experience without over provisioning.
And with Cdps Sdx, they don't have to sacrifice governance to deliver a great customer experience.
With CTP they get security.
Spirits and lower costs.
The next cases with a research based biotech company.
There are genomics research is driven by complex data in engineering and AD hoc queries.
As they considered next generation cloud native analytics alternatives.
CDP became a clear choice for two reasons first enterprise security and governance, which Cloudera has always excel and second CDP delivers at a lower cost.
Cdps data warehousing auto scales up and down so the only use and only pay for what they need both kundera service and their cloud infrastructure.
Shifting to a pack. Our next example is a major provider telecommunication services.
They rely on innovative data analytics to make their people more productive and to serve customers better.
They have found that Cdps cloud native machine learning is a promising example of that type of innovative analytic services.
It helps their data scientist experiment faster and collaborate better.
They are I T organization likes it because it keeps them in control and embrace a shadow ITC.
This is crucial to delivering innovation, while ensuring security and governance.
The final case I'll share with use with a global health care organization.
They have already seen massive benefits would cause there by bringing together over 250 data warehouses to serve data and applications nearly 2000 people.
They are evaluating Cdps data warehousing features like role based access control cloud bursting and identity Federation.
These unique capabilities enable him to more easily and quickly replicate these existing applications to people across their private and public clouds.
And with CTP, they expect to build new applications faster by provisioning compute instantly and running workloads against their existing data lake, but with increased security and governance.
In addition to the positive response from customers industry analysts have recognized and praised CDP public cloud.
Industry expert and ZT that contributor contributor Andrew Brusque said and I quote.
CDP as a total remake of the Hadoop spark stack.
CDP as a virtualized platform that can manage data and data workloads spinner scaled the necessary cluster infrastructure and software up and down on demand.
And do that on premises as well as across the three major public clouds and of quote.
Industry analysts and industry expert and analysts Tony bear of Ovum added his perspective, saying quote to its credit card there didn't simply do a cut and paste job with a new offering.
It was a complete rethinking from the ground up so starting with refactoring of storage and compute that separate the iron clad connection between cloud heiress platform and HD fs and of quote.
Finally, it is worth noting that we also introduced new pricing options to reflect our cloud native services and the substantial improvements in features and performance of CDP data Center.
In simple terms, we have established pricing that is designed to be competitive with comparable offerings from eight of U.S. Azure and the cloud only vendors, while providing superior performance on a functionally equivalent basis.
In order for enterprises to run mission critical workloads securely reliably and scale quickly integrated solution or data cloud is required.
Cobbling together similar capabilities with competitors services is considerably more expensive than our offerings are both personnel and direct product costs.
We believe our CDP public cloud services provide more value to customers a comparable pricing.
CDP delivers enterprise grade security governance, workload analytics and cluster management.
Without additional expense CDP also includes 95 and Kafka functionality.
We believe this breadth of analytics unified integrate as a service is unmatched and of course CDP enables cloud bursting as demanded by hybrid cloud use cases.
All in all we're pleased with our strong execution in Q3 and the initiatives we've introduced to drive sustained growth.
We have new products, new pricing, new licensing new distribution methods and a new partner program.
Each initiative is significant.
Together, we believe they will have a material impact on our business.
For example, we know there were customers who had indicated their intention to self support that elected instead to renew their subscriptions in Q3.
Since our compiled software will no longer be freely accessible.
These customers concluded that they prefer to renew their subscription agreements.
This is positive news yet it will take some time to assess the trajectory of this trend.
Also as our previously released binaries age, becoming less secure and reliable we expect some non paying users of the software will convert to paying subscribers.
In addition, consistent with our expectations.
Turn improved in Q3 as compared to first half levels. After adjusting for one very large deal that hortonworks one from cloud there at a deeply discounted price in Q4 fiscal 19 prior to the merger closing.
This deal impacted us in the most recent quarter as it took effect in Q3 of fiscal fiscal year 2020.
Before I turn it over to Jim.
I want to acknowledge the work of our field organization in Q3. In addition to my earlier shout out to the engineering team.
The field organizations execution has continued to improve in terms of timely renewals pipeline conversion and the accuracy of forecasting.
Let's now turn to Jim to review the details and then we'll take your questions Jim over to you.
Thanks, Marty Hello, everyone.
Q3, with a solid quarter, reflecting sustained strong execution throughout the organization.
From a financial point of view our results were again better than expected while early the initiatives and Marty described are beginning to take hold.
Total revenue for the third quarter with $198 million and subscription revenue was 167 million.
Operating cash flow for the quarter with negative $6 million.
Because of the merger comparative year over year information on these items is not meaningful.
As always details concerning definitions and trends can be found in the supplemental materials on cutters Investor Relations website.
Annualized recurring revenue for fiscal Q3, with 697 million up 13% year over year. This was higher than planned driven primarily by existing customers renewing and expanding agreements with the certainty associated with the launch of CDP public cloud.
As was the case in Q2 Q3 revenue and they are benefited from stronger operational execution and improved field level functioning.
In Q3, we had fewer slipped renewals than last quarter and excluding the one large Q4 19 deal that took effect in Q3 dollar based churn was better.
We concluded Q4 with 977 customers, who started at or have grown to more than $100000 of a are.
This was a net increase of 24 over the previous quarter.
Our largest customers remain stable and continue to expand consumption of our offerings.
As Marty highlighted customers, representing greater than $1 billion of our increased in Q3 to more than 150.
As we review the remainder of the income statement note that unless otherwise stated all references to expenses and operating results are on a non-GAAP basis historical non-GAAP results are reconciled to GAAP results in the press release issued earlier today, our adjustments from GAAP to non-GAAP are limited to stock based compensation and amortization of M&A related intangibles.
Total gross margin for Q3 was 77% driven by subscription gross margin of 86%.
You three gross margin was level with Q2.
Operating expenses were $161 million for the quarter were 81% of revenue and improvement from 82% of revenue in Q3 fiscal 2019.
Including in operating expenses are $10 million a merger related spending.
Excluding these amounts operating expenses were 76% of revenue in Q3.
These results reflect a rapid achievement of our planned cost synergies and increased operating leverage since the merger.
Overall operating loss was $8 million in Q3, representing an operating margin of negative 4%.
Which includes 500 basis points of merger related expenses.
Excluding these expenses operating margin would have been positive 1% for the third quarter, a substantial improvement from Q3's operating margin of negative 3%.
Loss per share with three cents in the quarter based on 283 million weighted average shares outstanding compared to loss per share of two cents in the third quarter of fiscal 2019.
Now turning to the balance sheet and cash flow, we exited Q3 with $502 million in cash cash equivalents marketable securities and restricted cash down from 509 million at the conclusion of Q2.
Operating cash flow for the third quarter was negative 6 million, which includes $6 million and merger related payments cash flow with better than expected due to top line outperformance coupled with continued strong execution on merger related cost synergies.
Capital expenditures were $2 million in the quarter. These low levels of expenditures are indicative of cutters capital efficiency.
Total contract liabilities, which comprise deferred revenue and other contract liabilities were 454 million at the end of third quarter at the end of the third quarter ARPU was 686 million.
I will conclude by providing initial guidance for fiscal Q4 and updated guidance for fiscal year 2020.
We expect Q4 total revenue to be between 200, and $203 million and subscription revenue in the range of $173 million to $176 million.
We expect our services revenue and margin will continue to decline over the next few quarters as we used some of our service personnel to support the rollout of CDP.
Net loss per share is projected to be four cents to two cents based on 294 million weighted average shares outstanding.
For fiscal year 2020, we expect total revenue to be between.
782, and $785 million and subscription revenue to be in the range of 659 to 662 million.
Since we are ahead of plan and capturing merger cost synergies. We now expect operating cash flow for fiscal year 2020 to be between negative 55 million and $45 million and net loss per share to be 21 cents to 19 cents based on 281 million weighted average shares outstanding.
Projected operating cash flow for fiscal 2020 includes approximately $60 million a merger related payments adjusting for these merger related expenses. The business is expected to be cash flow positive for the year.
With the merger complete and CDP in market, we intend to build on these results and are placing greater emphasis on cash generation in our fiscal 2021 plant.
As discussed last quarter consistent pipeline building throughout Q2, and Q3 is expected to yield bookings in Q4 in the first half of fiscal 21.
As such we are raising our subscription revenue and our guidance for Q4, specifically, we anticipate Q4 a are to be in the range of 700 million to $720 million.
As a reminder, our fiscal 2020 financial plans do not factor in CDP customer adoption, we expect our plans we achieved through the purchase and expansion of our existing offerings for the balance of the fiscal year revenue impact of CDP will occur primarily in fiscal 2021, I'll now return the Carl call to Marty.
Thanks, Jim.
We're pleased to report another straightforward quarter for Q3.
We executed our plans and again exceeded expectations raising our outlook for the fiscal year.
Stability consistency of execution and delivery have been the focus of our leadership team.
I'm happy for the entire team that their work is translating into tangible results CDP public cloud is off to a strong start with customers and CDP datacenter is a lot.
I again want to thank our engineering team for delivering CDP datacenter, so quickly after CDP public cloud.
This greatly simplifies our customers plans and our product roadmap.
I want to thank our field organization for its commitment to meeting our new business goals for the quarter.
I want to recognize and thank all of our employees across the globe for delivering against our business objectives, and embracing our disciplined and action oriented culture.
And finally I want to thank our customers and partners for continuing to believe in our products and services.
Let's pause here and begin the Q and a portion of the call.
As a reminder, a room Murthy Chief product officer has joined US and is available for questions.
Operator, let's have the first question please.
Your first question comes from the line of Chad Bennett from Craig Hallum.
Great. Thanks for taking my questions great job on the quarter everything looks really clean and good.
So Marty maybe few questions for you it certainly sounds like CDP cloud at least is going over very well with your enterprise customers.
And what I believe at strata now with CDP datacenter or bare metal out.
The customer interest at least then in that was actually exceeding maybe CDP cloud and maybe that's a function of.
Where they're at today.
But just how do you think about.
DP.
How quickly CDP datacenter can impact bookings as soon as this quarter and into next year.
So I'll start chat I'm, probably going to have both a room and Jim add some comments here, Jim with respect to the bookings impact and a room with respect to sort of product features and capabilities. So thank you for your comments in question.
We are very pleased to have both CDP public cloud and CDP datacenter in the market.
And we're now working with customers as we described throughout the call here, who are getting early access to it and have been starting to look at use cases for the product. The beautiful thing is is that under the CDP umbrella. We have the data hub of the data warehouse and machine learning and all of those capabilities will be available.
So whether you're in the public cloud.
Bare metal as you described and what we really think the ultimate opportunity will be is to crossover both of those and look at it in the hybrid environment. So let me turn into Jim here. He can explain where we are with respect to expectations in terms of impacts, which I will tell you is as we've described in the past.
We have very little impact in the current fiscal year by design in terms of our revenue model and we'll see more in 2021, our fiscal 2021, but Jim maybe you can comment a little bit on that.
Specifically on CDP data center that is the on premise version of our software.
The product was announced this strata. It was released on November 20 seconds. So it's just in the market right now it's being evaluated by customers going through their security framework. So I would anticipate that we will sell CDP datacenter this quarter, but most of the deals that we see this quarter will be deals that.
Were formally targeted to be legacy cloud air or Hortonworks on premise software versions. So I see as we've discussed in the past this quarters.
Bookings are planned for this quarter are built on our current offering.
I think the benefit of TDP datacenter and TV public cloud will be primarily next fiscal year in terms of upside to our additional our standalone bookings plays in the root have comment.
Thanks.
Looking at thanks for the question just wanted retread the way we look at those from a product standpoint as its one product we have CDP relaunched in the public load and then as soon as either up or just about releasing in for our on from customers.
CDP. This under represents like Marty said in the prepared portion represents a stateful portion off CDP on Prem is that the data the medidata this declared and so on and as we lose private cloud next year, which will have which is completely based on Cuban at us and banners and we bring to market all our bed whos offerings.
Machine learning offerings, and so on running on given others daily cleanly attached to CDP data centers. So as the result, what do you feel doing is executing on this all enterprise data cloud strategy, starting with public CLO malware picking the first half the step if you will on Prem and then we'll finish this next year, but.
To be private cloud on given this inventors.
Great maybe one quick follow up for me if I could Jim can you just talk about I know you you hinted that that churn improved without that that anomaly deal and I assume you expect further improvement heading into the current quarter, a yearend, but just generally speaking the seasonality.
Of of the bookings and renewals in the fourth quarter and also I think it's typically.
Your partners biggest quarter, the year kind of level visibility or comfort of of seeing the.
Kind of.
Seasonal increase that someone would expect in this quarter around bookings in churn any comment there. Thanks.
Yes, let me as unpack that Theres, a couple of different elements on the churn piece once we move past the first quarter two of the merger our ability to plan and understand our business increased significantly and started to parallel what we were like pre merger.
So our anticipation of improvements in churn that we told you last quarter, we're tracking toward that and we expect to achieve the improvements that we had forecast.
With respect to seasonality, we typically see 35% to 40% of our bookings occur in Q4. Our Q4 is looking like that this year as well. So we are forecasting a strong Q4 relative to the quarters that we've had earlier this year and that built into the guidance that we've given to you.
Jay Let me just comment as you made reference to again and as we talked last quarter. They are very strong partners. We had a very good quarter with them in Q2, we continue to do well within Q3. It is an important quarter for them as well there their calendar Q4.
We enjoy continue to enjoy good relationship with them.
Particularly excited about the work, we're doing together with Red hat and Openshift and a room made reference to the kubernetes work.
We've got additional collaboration occurring there and so a lot of momentum with RBC.
And your next question comes from the line of some good thing from Morgan Stanley .
Great Mark R&D on for Us and just saying thanks for taking my question.
I guess thinking I know, we just talked about CDP public cloud and CDP datacenter, but when you think about I guess longer term, which do you see is the bigger.
Growth driver like particularly for that cohort of larger enterprise over 100, K air our customers.
Yes, I'd say at this point, we believe that we will have an offering to meet the needs of the enterprise, whether its bare metal, which is our datacenter offering our private cloud offering or the public cloud the beauty of it is it gives them the flexibility to move a.
Platforms, whether that's where we characterize the hybrid and the beauty of being able to move workloads into the public cloud as is necessary.
But also where they want the the security the governance the consistency that we're able to deliver through our shared data experience. So we give them the flexibility we give them the opportunity to operate where they so desire and among our large customers among our largest customers north of one big 1 million in a.
Are they want all that flexibility likely and I've been in over the last few quarters I've been out in the field spending time with customers among our largest once it certainly the financial institutions. There are more likely to stay on prem in their own private cloud as they describe it but there will be workloads that they will want to take the public cloud.
And have the flexibility to use a similar framework that we've delivered for them.
On the private cloud into the public cloud.
That's really Thats really what we described as the enterprise data cloud vision.
Great and then maybe if I could sneak in one more quick one.
Regarding the selling motion for CDP is.
Lastly, different from the selling motion for the exit like the older existing clutter products or if it's very different how is like the salesforce adapting to that different sales motion any color there would be helpful. Thank you.
Yes. So it marked at this point the selling motion is very similar.
We're selling a product to enterprise customers were targeting a similar market audience.
And so we're selling the same way, particularly as it relates certainly to private cloud.
And the datacenter version.
Overtime.
We may increase the market opportunity with respect to the public cloud version.
We're looking at are there ways to sell that at a lower cost than what we have traditionally used to with our salesforce to sell product.
Excellent. Thank you so much.
Your next question comes from the line of Raimo lens Chow from Barclays.
Hey, Congratulations from me.
If you think about CDP and evolution there.
I wanted you have like the Optionality to go public cloud.
Hi, there.
What do you see in terms of customer feedback in terms of whether you want to land because remember a couple of quarters. The goal we're talking about.
Start on premise.
Kind of offering and the kind of the fraud.
That's changing the discussion that was the first question.
Could you give us any color in terms of like what are the.
Hi evaluate services.
Cetera, like where do you see the most interest thank you.
Right, well as though and thanks to a question a couple of things as we talked to customers were seeing some interesting early patterns emerge.
First of all customers the definitely look at saying I want to.
Maybe.
Lift and shift some of my on Prem workloads and motors and the public totaled one back and receive the slightly larger button. We see is I have a lot of existing infrastructure and workloads.
But I might not have the capacity to runs all the net new workloads I have and they want to the sort of flow burst scenario, so where they want to take this workload seasonal workload run this one's unchartered, Don So and then the last one as they just want to take advantage off the different.
You know sort of different stations that the public float bookbinder themselves provide you might you might be able to do you know certain workload better on one public or what's the different ones. So we feel that pattern, where they want to take advantage of specific hardware capabilities available in one public float on total then bring the resorts back.
The important thing we're seeing it there's a lot of.
Hello.
Emerging understanding about how cost third such a few driver for them as big as they understand the cost profile. The workload. They won the Optionality all bring you back if you will so that they have the arbitrage that can do and that's why our big focus for us is being sort of optimizing cost and performance and that has a huge base.
Ill.
Turning to as they were sort of benchmark lots within our news right. What we now have is actual real dollars at stake comes to performance and optimization.
Okay.
The other so far with the answer is what it also thing is huge total interest in our data and motion and ammo platforms. I'm also wondering saying is any sort of you know how customers evaluating a product. The also sort of really got a bit towards our bad whos sort of offerings, because that really understand and that really wanted to embrace this notion of.
Containers and given that is I'm, bringing our offerings in a native fashion for all of them.
Particularly through battles offering in the middle offering.
Is has been so sort of a very key driver for us.
Okay. Thank you well them.
Thank you.
And your next question comes from the line of Mark Murphy from JP Morgan.
Yes, Thank you Marty with CDC data warehouse and PDP machine learning.
In the marketplace now are you finding that you're being pulled into the discussions that.
Might have previously gone directly over Q companies like our products like red shift and snowflake and data bricks or.
Is it too early to make that kind of a judgment yet.
The the quick answer and well informed answer is yes, we now have a competing product.
The competitive dynamic has improved certainly with CDP public cloud previously customers were bifurcated workloads and say, okay. We've got to find another product to go into the public cloud, we like where you guys are on Prem, but you don't have the offering that we're looking for in terms of ease of use consistency security governance.
Et cetera, that's no longer the conversation the conversation has changed dramatically and they're like while we really like which you guys have here. We've enjoyed the experience on Prem now we can take that same experience and actually an easier better experience and move it to the public cloud that's been very powerful and as I referenced in my prepared remarks.
The shared data experience sdx enables that to occur.
Okay.
That's the follow up Jim the sequential growth in a our AR has been ranging between I think one and a half and Q and a half percent for three quarters in a row.
Based on the guidance it looks like it'll be.
Sort of similar.
Around that range or a little lower wood, which we did it would kind of seem to suggest I think that it'll settle out add 6% to 10% year over year, if you're just kind of trend that out.
Is that would you expect or you can you see a point, where there would be a bigger sequential coming there.
As a CDT really takes it starts to take hold more broadly.
The answer is yes overtime. So we're not prepared to give guidance out for fiscal year 21, yet we went to feed the rate of CDP adoption, we want to get through what's going to seasonally large Q4.
But over time with CDP, we think that we should be able to grow with the market.
The market in that in the cloud is growing in excess of 20% the market on Prem is growing depending on who you talked to in the high teens, sorry, low single digits. The high teens. So we think with our new product offering will be able to.
Participate at a much higher rate and very specifically as we look over the next.
Several quarters, we have a new product we have new pricing, we had the licensing and distribution changes that we put in place and a number of internal initiatives. So all of those are factors that think that that we believe we'll give it the platform for growth.
In excess of those numbers overtime.
Okay. So just to clarify you would not be able to say you had said this Q4.
Our our growth I think you're guiding at about 8%, we don't know yet if that's the trough in a our our growth.
What's can let us get through our Q4, let us see the rate of CDP adoption, let's see how some of these other initiatives start to gain traction and then we'll give you a our guidance in March.
Yes, Okay fair enough. The is it very last thing I was wondering if you could just re explained the churn.
Situation it sounds like it improved across.
The vast majority of the base, but but if you were adjusting it for one large deal I guess I do not fully understand.
Details or what has happened with that one large scale.
In general churn is improving.
Very specifically Q3 in Q2 churn levels at an absolute level or roughly the same as reported but in Q3, we had a large transaction that was merger related.
If we normalize for that than Q3 churn rates showed substantial improvement over Q2. So so the major message is second half churn is getting better than first half as we disclosed.
As we looked at Q3, we were pleased with our churn rate performance in terms of the things that we can control and the one transaction that basically was put in place in Q4.
That the shoe drop and that meant that the reported Q3 numbers were roughly the since Q2.
Okay, just taking on that point Mark Marcon, just this Marty just a follow up one one other the particular customer we referenced is not a customer we lost but rather it was a customer where the volume declined based on what had happened prior to the merger on some some pricing so as Jim said, though the second.
In half a churn rate is better than the first half of the fiscal year churn rate. So we're very pleased in terms of the trajectory and improvements.
Thank you.
And your next question comes from the line of Michael Turits from Raymond James.
Michael.
Sorry, I was on mute.
Hi, congratulations on a solid quarter.
This discussion last couple of years has been the challenges and competing.
With the cloud vendors.
Analytics.
Occasions running on that you don't have the new products.
You're putting up solid numbers do you feel like that's because people now say, okay. There's a path to a product that we now like.
For your executing better in the cloud.
And our we cleared that you actually are seeing better when rates in the cloud against the cloud providers.
Yes, Michael it's Marty.
So I appreciate your question, because it's sort of a great leading question and the answer is.
Having the availability of CDP, having the roadmap being able to demonstrate the functionality.
Has greatly improved the conversations with our customers.
As we talked about earlier in the year that was a challenge we couldn't show them, we couldn't give them the details of what products will be available. When so now we have that capability and we are delivering products. So we've got CDP public cloud. It's been shipped customers are using it it's available and ADW asked in Azure.
The CDP data center. The on premise is version there now have visibility to that we just start shipping that couple of weeks core made it available a couple of weeks ago.
So that has changed the conversation as empowered our field force our sales organization to go have sit down say, here's where we're going here's your journey.
Let's now talk about the renewal, let's talk about the expansion. This is a very positive conversation because it's around real products with a real roadmap that customers could experience they could see that could touch.
So just to be clear or are you are your win rates against.
Say.
Actually improving.
We're going to take that yes, like like we said we would.
We've had apartment market now for about eight weeks.
The customers, albeit they are talking when they are engaging with a really excited about sort of larger doing from a security garn standpoint, and pretty good from a performance and cost optimization standpoint.
Having said that as many video they don't have like real numbers to show yet and we understand the burden of proves that focus on us So expect us to come back to you in forcing the next floors and give you some more color there.
Jim if I take a follow up with with you at that kind of Mark was asking about that.
Hi.
I know, you're not giving guidance for next year, but as you move into 21 can you talk about the relationship between.
Our growth and revenue growth. It is there any kind of lag and how we see a our translate into revenue as we move into the next year.
Clearly this year.
There are in revenue.
Growth are much different numbers, because because the purchase accounting I would say at a high level I expect next year our growth in revenue growth to largely converge there'll be putting puts and takes but and looking at the numbers right. Now I think the puts and takes will roughly offset Michael does that answer your question.
That's helpful. Thanks, Jim Thanks Marni.
Thank you.
And your next question comes from the line on thin ice.
From Wedbush Securities.
Hi, This is stryker on for Dan I was just one quick one here can you guys talk about sales cycles are changing in the field and then specifically what you're seeing on larger deals. Thanks.
Sales cycles have remained relatively stable this year, there typically a coat.
Six to seven eight months for most of our transactions.
I see the recent announcements have given greater clarity I would expect that as we head into next year.
We would start to see a slight improvement in sales cycles, especially for things relating to the public cloud.
Thanks.
And as a reminder, if you would like to ask a question press star one on your telephone keypad.
Your next question comes from the line at the Cat entries from Needham.
Gentlemen, cognos filling in for Jack This afternoon. Thanks for taking my question within your enterprise customer base what percent of potential customers I've tried to solving unsuccessfully hybrid cloud features how would you describe the maturity level. These customers and the extension is like they've gotten purchase GDP after unsuccessfully trying to build hybrid themselves.
Oh, Great question, it's very early for US it's hard to make a comment on how how many aspects of a person bids basis. When we certainly know up several customers who have tried this in the past the the big.
Blocker for them had been this notion of having a consistent security and governance model.
So if you had one one set of soffit on at 1000 software, Brian the big drawn wasn't that started to either data migration of workload migration, the alignments and navios, but the full data and and so kind of lost control of the data or lost track of it and then the workload themselves behave differently, because you're dealing with different sets of.
Our product.
Which is really what informed our strategy that on CDP was to say look we have to have a consistent one payment loss to help them as all this infrastructure and the data, but Furthermore, we when we went like a couple of steps and said.
Included as part of CDP, our tools for my getting data migrating workloads.
Helping customers understand what cost proposed you would see if you might get into workload from onto them to float and so on so with CTP. We expect this to actually accelerated arm and this is why we can do to work really well also with the the cold probably that themselves because they feel that onramp to drive more workloads to the public load.
Great and I guess in terms of driving demand to cloud based CDP.
Do you envision it mostly.
Given by organic demand from the customers or what do you have to cry or some kind of calling customers and trying to make sure that they can understand your message there.
Yes, so it's actually been fairly organic in the sense. The customers do have they do see clear public load as a key part of that overall and president infrastructure side and for such a strategy.
So given that we have sold the.
So the largest and combined into homes in the sense of the.
The amount of data we have an amount of workload we have on prem.
We've been fairly.
Organic but if you can actually going on habits composition as part of a regular road map acquisitions and not having to do this in as well.
Great. Thank you.
Yeah.
And you have a question from Tyler Radke from Citi.
Hey, Hey, Thanks, and apologies I am in bouncing around earnings calls.
Maybe just talk a little bit.
On on the synergies the M&A related synergies we saw this.
Quarter, maybe talk about your confidence in loans.
Going forward.
Revenue side, but well also on the cost side and how should we be thinking about synergies and are there.
Leverage.
Which.
You target breakeven.
Cash flow.
Yes, So let me start with that in the through and through with add anything on the revenue side at the end, let him so up with respect the merger.
In Big round numbers, we are well ahead of.
Cost synergies the Standalone companies pre merger had a cost structure about $900 million.
We're planning to grow independently to over $1 billion.
Right now, we're tracking to less than $800 million the cost. This year. So so we've taken well over $100 million out of the run rate close to $250 million off the what each company had plan to spend most of almost all the actions associated with the merger cost synergies are complete.
Some of the benefits for the longer lead time items like.
Combining support organizations and financial systems, while we're not now just starting to get to benefit. So there are still some savings ahead of us associated with the merger, but essentially all the actions are complete complete and we're very pleased in terms of the revenue synergies those benefits are what we're starting to see now.
Now in the product roadmap so CDP.
Couldn't have come out if hotter was a standalone company or important works with Standalone company or at least not come out in terms of the schedule that we have aggressively maintain so that the revenue side benefit of the merger will be.
Associated with the CDP offering also some of the changes that we made in terms of licensing and distribution either one of us on our own with the founded very hard to make those changes.
And then finally, we have the cross selling a product data in motion and.
Machine learning, which has.
Helped us this year in those two have been our fastest growing elements of our business.
Great. Thank you.
Thanks, Eric.
That concludes today's Q and a session I'll now turn the call back to the presenter for closing remarks.
Thank you.
Thanks again, everyone for joining us today.
As we moved through the rest of this month.
Our Cloudera family extends our good wishes to all of you for happy and healthy holiday season.
Goodbye for now and thank you operator.
Ladies and gentlemen, this does conclude today's conference call. Thank you for participating you may now disconnect.