Q4 2020 Earnings Call
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It will be an opportunity to ask questions. If he would like to ask a question. During this time simply press Star then the number one on your telephone keypad, if he would like to withdraw your question. Please.
Please note. This conference is being recorded your host it's Kevin Cohen, Vice President corporate development tend to festival.
Sure Kevin you May begin your conference.
Thank you Sheryl good afternoon, and welcome to Clutters fourth quarter in fiscal 2020 financial results Conference call.
We will be discussing the results announced in our press release issued after market close today.
From cloud era, with me are Rob Bearden, President and Chief Executive.
Sure Jim Frankel look Chief Financial Officer, a room Murphy, Chief product Officer, and Mickelson, Chief Marketing officer. During the course of this call. We will make forward looking statements regarding future events and the future financial performance or the company, including those as merged with Hortonworks. Generally. These statements are identified by the use of words such as.
We 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 materially 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 fully detailed under the caption risk factors in our animal 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 non-GAAP.
GAAP financial measures exclude stock based compensation expense amortization of acquired intangible assets, an extraordinary noncash real estate impairment charges.
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 all references to.
Operating income or to non-GAAP operating income, except where noted all numbers reported for prior periods are present for cloud or 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 in the most directly comparable GAAP measures and the quantitative reconciliations those figures. Please.
Please refer to today's press release regarding our fourth quarter and full year results for fiscal 2020. The press release has also been furnished to the FCC as part of the current form a current report on form 10-K Pardon Me 8-K. In addition, please note that the date. This conference call is March 10, 2020, and any forward looking.
If we make today are based on assumptions that we believed to be reasonable as of this date, we undertake no obligation to update these statements as a result of new information or future events now Rob Bearden CEO.
Thank you Kevin Good afternoon, everyone. Thanks for joining us to score discuss our fourth quarter and fiscal year.
2020 results I'm very excited to be addressed and use clad yris, new chief Executive officer ensure our strong performance in the fiscal fourth quarter.
In addition to dealing with this performance I plan to share with you today my motivation for accepting the CEO role my priorities for our new fiscal year in my view of opportunity that exists for quite.
Hi, there and our plans for capitalizing on it so.
Beginning with Q4 financial performance total revenue in the fourth quarter was $212 million.
Subscription revenue was $182 million and non-GAAP operating income was $11 million.
Each of these results exceeded expectations annualized.
Recurring revenue was $731 billion.
In conclusion of the quarter, representing 11% year over year organic growth.
Again ahead of expectations.
Finally, we had another good quarter in terms of adding customers. We now have 1004 customers, who exceeded $100000 that they are or.
And then increase of 27 for the core.
And notably 21 of these 27 customers or new customers.
Whether that expanded relationships.
I'm also pleased to report that we're seeing positive momentum in our new product offerings and CDP public cloud services. For example, we've already have more than it doesn't.
Hi, guys, who are actively using or purchase these offerings.
We're seeing strong interest in CDP across our customer base with many customers building plans for CDP public cloud adoption.
And at this stage any customer who is renewing is doing so on the basis of the new product Road map.
Q4 non.
Nonfinancial Cape yards are also encouraging with low churn in the quarter and renewal rates well ahead of plan all in all we continue to see improved execution on the for the team increased stability in the business and good traction with our key growth initiatives.
That quick overview of record results, let me spend about a bit on what attracted me the job.
<unk> CEO.
Most of you recall, but I was coke batteries, hortonworks and I've been immersed in the open source software market for many years.
The vision for enabling the modern data architecture and analytics represent about cloud here today.
The vision that by Coop Anderson, though I had for Hortonworks from the beginning.
Excellent.
You bet vision was the motivation for combining Hortonworks cloudera.
As a board member of cloud ever since the merger.
Participated directly in shaping our strategy for defying the enterprise data club category.
Seeing the criticality of hybrid multi cloud solutions.
Grow in the enterprise market and when I asked to consider.
The company was not a difficult decision based on my conviction regarding opportunity in our strategy.
My decision was helped by my experience it open source software.
Knowledge of the data industry my confidence in the team and having inside concerning our customers' needs and goals and be absolutely clear I'm fully committed to our current.
Strategy and believe the company is well very well positioned for market share gain and I do not envision changing a lot.
The new product innovation that has occurred recently is exactly what the market demands in the senior management team is rock solid.
Of course will continue to make refinements to strategy all the way that.
Not expected a portion from or hybrid multi cloud vision.
Today, we enjoy fantastic market.
It's important secular shifts that favor us along with large base of enterprise customers, who rely on us for enterprise grade performance scale building and functionality.
We will have more on.
This later, but I could not be more enthusiastic about the set up for clatter as we enter the next phase of the data markets evolution.
So is fortunate probably if you go there straightforward.
Focusing on our customers our partners for our employees, we expect to take care for shareholders.
The guiding principles for me in the Timor burst accelerate top line growth.
And number two drive operating margin expansion that will generate significant free cash flow.
This means that we're very focused on shortening the time to value for our customers, making our solutions easier to use a delivering a better user experience in all respects.
Also means that were demanding greater efficiencies in the way we operate the.
Okay.
So in order to frame opportunity, let's quickly revisit the merger rationale for most of it.
This designers are the merger we knew the opportunity to enable the enterprise architecture for hybrid and multi cloud data management analytics use cases with significant.
We needed to establish a clear category leader gain more scale in.
Resources to pursue the opportunity if we needed to accelerate development innovation in the cloud native services that make true hybrid multi cloud and private cloud possible.
Our customers were demanding a comprehensive solution set for managing the full lifecycle data from the edge to machine learning in AI and we believe we could.
Linked our customer base and Unifire partner ecosystem by consolidating them and finally, it was obvious that substantial cost and revenue synergies could be achieved by combining the companies.
As we reflect on the one year anniversary the merger.
The industrial logic, it's been validated in a rational proven <unk>.
And I feel fortunate taking the helman January most of the hard work of the merger integration and positioning of the company for today's opportunity it's been done.
Integration is complete we deliver meaningful new innovation in public cloud services as well as introduced our next generation data platform.
We have delivered CD.
Pete which is enables a modern data architecture. It is truly cloud native and three CDP in the balance of our product suite, we now address for large times.
With a blended compound annual growth rate exceeding 20%.
We've also laid the groundwork for a private cloud offerings, we've demonstrated strong operating.
Leveraging captured the expected merger cost synergies and few quarters than anticipated.
And setting aside merger related spending we generated $24 billion operating cash flow for the fiscal year.
In the merger allowed us to accomplish certain things that we simply could not a standalone companies such as the.
Changes in licensing and distribution and the implementation of variable pricing.
So please think of all that is phase one of Clatters transformation in the first year of a rope multiyear journey to become a strategic partner for large enterprise data needs.
Building, a durable high operating margin business model.
So the new.
CEO I can say was subjectivity the phase one represents a remarkable set of accomplishments in a short period of time.
We knew that we were taking on a lot when it out for these plans with the merger and at times, we traded a linear already for disruption, but the gain is that we've been able to quickly put most of the difficult test behind this.
Completely repositioned the company for long term success.
With the arrival of fiscal year 21, we now turn to phase two of our plans in phase two we will transform from a mostly on premise enterprise data management vendor do a true hybrid multi cloud data platform company.
We now enable modern enterprise data arc.
Detection and manage the entire lifecycle of data for Multifunction multi cloud use cases.
They used to be characterized by four fundamental things.
First more new product innovation in the form of additional cloud native services offered as far as CDP public cloud.
The.
Production of CDP private cloud.
And increased emphasis on the edge and real time streaming opportunity with cloud era data flows the centerpiece.
We intend to amplify the comprehensive nature of our solution set and de lever the entire portfolio of assets that we brought together with the merger and if system.
Boy, our CDP public cloud services reflect our competitors it they energen addressing the full lifecycle data.
Being able to manage data from the point of origination.
Process. It in real time report on it direct the next action using machine learning and lead the workload to the optimum environment for use case.
Performance and cost.
Importantly, CDP and with Stx secures a governs the data and allows for all this to be managed from a single pane of glass, regardless of where the data resides or which clouds are used.
GDP is designed to enable customers to find compelling modern data architectures.
And with these new public and private cloud offerings existing customers will be able to easily upgrade to hybrid multi cloud solutions without having to migrate workloads.
Management in orchestration of data anywhere, it's a tenant of an enterprise data cloud enabled by CDP with Stx.
And enterprise.
Cloud comprising hybrid private cloud is a very elegant solution for large enterprise customers, who are seeking the agility and ease of use a public cloud infrastructure.
Required to perform it security and cost control so the data center.
All the customers workloads hybrid multi cloud.
Premise can be executed within CTP.
The second element of phase two is refined digital customer engagement model.
As part of the transformation of cloud era.
We're taking a holistic approach to becoming consumption and cloud native oriented and this was driven by recognition that simplicity ease of use and user.
Experience are valued an expected by our customers. Our engineering team is building automation and intuitive easy to use functionality into the product.
But we understand that the cloud company means more than easy to use technology it extends to user experience.
Pricing billing support, especially.
Actually go to market.
This fiscal year, you'll see us adopted digital customer engagement model.
Together with CDP public cloud will enable a customer to learn about or offerings explore their capabilities trial, the workloads and begin production entirely through digital experience.
Digitization is expected to shorten.
Lifecycles accelerate time to value for our customers into lower our customer acquisition cost more details will follow throughout the year that Nicolas and our Chief marketing Officer is leading this digital transformation initiative for us.
Getting this white means that we'll be able to onboard CDP public cloud customers more quickly.
And customers that we ordinarily would not target based on our traditional direct sales model will be able to self serve their way to becoming subscribers.
And now third an updated operating model. The go for fiscal 21 is to operationalize the gains that we've made through the merger with codified our sales execution improvement.
Minimize churned through changes to distribution protected I, our IP through licensing modifications and targeted next level efficiencies in every aspect of the business, we overachieved, our merger cost synergies space and time in magnitude.
Now, we're challenging ourselves to produce more efficiencies and drive business.
Yes, the in general.
The merger expenses and impacts are.
Almost entirely behind us. So now we're in a position off right up to my operating margin over fiscal 21 and 22. This fiscal year were expected to generate close to $100 million of operating income and cash flow.
And now.
Got it.
It's our upgraded partnerships with the public cloud providers.
Waters customers typically a vast datasets that are focused on scale.
Our current footprint of data under management and software installed servers is approximately five exabytes of data and approximately 400000 servers.
Excluding the public cloud implementations.
Subset of these workloads with benefit from hybrid or public cloud execution.
In the past that subset with most often move to the native offerings of public cloud providers.
The launch of CDP public cloud in the realization of hybrid cloud solutions through CDP.
These workloads can now be retained back ladder Europe.
This is of course, a large revenue opportunity for the company.
But it's also a huge revenue opportunity for the public cloud providers as their infrastructure is necessary to enable hybrid cloud.
Workload deployments and we estimate that the cloud providers generate $45 and.
Storage revenue for every dollar software revenue earned by cloud era.
And this is the price that the clatter that the cloud providers are focused on.
We are therefore, strengthening our partnerships with all the public cloud providers as they seek work more closely with us an effort to position themselves for the potential infrastructure as a service.
Service revenue windfall that will generate.
The double that of modern hybrid multi cloud they state architectures enabled by CDP with Stx and the eventual transition of workloads by our customers across these tiers will take several quarters to play out.
But we're also seeing quite a bit of interest in.
Turning certain foreclosed on premises that had previously been shifted the public cloud.
This is usually because of runaway public cloud cost or the difficulty in securing and governing the use cases.
We believe that CDP solving these problems for customers, especially with CDP private cloud expected to become available in Q2 this year.
CDP private cloud.
We'll complete the enterprise data cloud vision and offer full flexibility and cost optimization for customers, who want to public cloud like experience.
That require enterprise grade performance functionality and security.
And our partnership with five human Red hat is particularly strategic in this respect.
Correct.
We're collaborating deeply with red hat on Openshift to cease the private cloud opportunity.
And apart from this opportunity the partnership continues to go well as we had another record booking quarter with five Yemen, the fourth quarter.
So this summarizes our fiscal 2021 plans in the second here.
Or phase two of our post merger transformation.
Along with our licensing distribution and pricing changes, we expect these initiatives to steadily involved the business toward market rate growth and high cash generation and by the end of fiscal 21, we expect to have introduced and head end market all of our major new products for.
About half the year and this would make fiscal 22.
Most straightforward execution here with normal sales motion and pipeline conversion, leading more rapid growth.
So with that backdrop on strategy multiyear plans.
Sure a few examples the CDP public cloud traction in our first example is a major.
Provider telecommunication services that we mentioned on last quarter's call. This customer initially you CDP cloud native machine learning to model, new customer acquisition and most recently they've expanded their CDP use case.
And the data warehouse service to analyze service quality data as well support new use.
Cases for next best offer.
Loan risk modeling.
And with their marketing finance lines of business and this is an example of how demand for business use cases that require complete data lifecycle drives more CDP public cloud consumption. Our next example.
As a leading technology provider and this customer is.
Told by its electric utility they could receive no more power and their challenge was had a support business growth without increasing datacenter power consumption.
So using cloud was an obvious Jewish but they also needed to comply with corporate mandates to optimize cloud costs by having the option to switch between cloud providers.
They chose CDP datawarehouse data hub on Azure Nay WMS and was CDP. They move workloads from Datacenters to multiple clouds without having to rewrite the ramps and as a result, they expect burst up to a quarter of their datacenter workloads to the cloud with CDP This year.
And with Cdps auto scaling function.
Now I'd there are also now well positioned to save money.
On final example.
It's a major commercial bank outside the U.S. This customer's IP organization was struggling to keep up with business demand for new projects as well as dealing with challenges to increase data center capacity, while keeping data center cost under control.
In two after an extensive evaluation they decided on a hybrid cloud approach expanding their existing cloud environment with CTP Datawarehouse machine learning on ADW, yes.
The bank expects now to lower TCOS compare to acquiring new data center capacity.
And with Cdps Stx.
Security and governance capabilities, they expect to better manage operational risk as they expand into the cloud.
So as you can tell from these two we CDB public cloud is meeting our objectives informing very well so with that let's have Jim take us through numbers and they will get his questions Jim.
Thanks, Rob Hello, everyone.
Q4 was a very strong quarter based on sustained execution throughout the organization.
Our results were substantially head of estimates, reflecting the wind down and merger and integration activities and customer enthusiasm for a new product roadmap.
For the fourth quarter total revenue was 212 million and subscription revenue was 182.
A million dollars because of the merger comparative year over year information on these items is not meaningful.
Annualized recurring revenue for Q4 was $731 million up 11% year over year air our with better than expected driven by existing customers expanding agreements at a higher rate.
The introduction.
Action of CDP public cloud and CDP datacenter together with expected delivery of CDP private cloud was key to these increased customer investments in clutter technology.
No.
Dates to definitions, including information regarding an update to the definition of a our and trends can be found in the supplemental.
Deals on cutters Investor Relations website.
As Rob indicated we concluded Q4 with 1004 customers, who started at or have grown to more than $100000 of a are.
We increased customers representing greater than $1 million of air our 10 160 in total.
In addition, we saw a significant increase.
Yes in our renewal rates in Q4, driven by the confidence in the product roadmap as well as our recent licensing and pay law changes.
Operating cash flow for the fourth quarter was negative 9 million, which includes 16 million a merger related payments cash flow benefited from better than expected renewal activity and strong collections.
For Fisher fiscal year 2020, total revenue was $794 million and subscription revenue was 668 million.
Operating cash flow for the year was negative 37 million, excluding 61 million of merger related payments. Excluding these payments operating cash flow would have been positive 24 million.
As for the fiscal year.
As I 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 non-GAAP measures include stock based compensation amortization of M&A related intangibles.
And any extraordinary noncash real estate impairment charges.
Total gross margin for Q4 was 79% up from 77% in Q3, driven by subscription gross margin of 88% from 86% in Q3.
Operating expenses were $156 million for the fourth quarter or 74%.
<unk> revenue and improvement from 98% of revenue in Q4 fiscal 2019.
Including an operating expenses are $7 million merger related spending excluding these amounts operating expenses were 70% of revenue in Q4.
Overall operating income was $11 million in Q4, representing an operating.
Getting margin of 5%, which includes more than 300 basis points a merger related expenses. Excluding these expenses operating margin would have been 9% for the fourth quarter, a substantial improvement from Q4, Nineteens operating margin of negative 21%.
Diluted earnings per share was four cents in the fourth quarter.
For fiscal year 2020, operating expenses were $464 million or 81% of revenue included in these fiscal 20 operating expenses are $55 million of merger related spending. Excluding these amounts operating expenses were 74% of revenue for the fiscal year.
Operating loss was 39 million in fiscal.
2020, representing an operating margin of negative 5%.
Which includes nearly 700 basis points merger related expenses. Excluding these expenses operating margin would have been positive 2% for the year.
Loss per share was 13 cents in fiscal 2020.
Now turning to the balance sheet, we exited Q4 with.
$487 million in cash cash equivalents marketable securities and restricted cash down from 500 to at the conclusion of Q3.
Capital expenditures were $1 million in the quarter and 7 million for all of fiscal 2008. These numbers highlight the capital efficiency of the company, we expect capital expenditures to read at roughly one.
Set of revenue for the foreseeable future.
Total contract liabilities, which comprise deferred revenue and other contract liabilities were $555 million at the end of the fourth quarter RPL with 877 million up 10% year over year hurt ARPU was up 13% year over year.
I will conclude by providing initial guidance for fiscal Q1 enter fiscal year 2021.
We expect Q1 total revenue to be between 202 and $207 million, representing approximately 9% growth compared to Q1 of last year with subscription revenue in the range of 180 to one.
$183 million, approximately 17% year over year.
As a reminder, we expect to use we expect our services revenue and margin to decline over the next few quarters as we use some of our services personnel to support the rollout of CDP.
We expect non-GAAP operating income for the first quarter to be in the range of negative.
Of 3 million to positive 2 million.
Earnings per share for Q1 is projected to be negative one cents to positive once it.
Note that.
The information regarding Cobot 19 is very dynamic we are setting any potential impact on fiscal 21 business activity relating to the virus our services business is more likely to.
To be affected by the operator outbreak that our subscription business, which has a recurring revenue model.
Specifically, we have not seen any impact to our quarter to date bookings through the most recent weekend.
Linear ready for software bookings is higher than typical for Q1 and the vast majority of transactions are believed.
To be tracking toward closure in the quarter.
Based on customer and regulatory responses, we do expect our ability to deliver services to be modestly impacted in Q1, and we've made minor adjustments to Q1 revenue estimates to reflect available information.
Beyond these adjustments we have made no attempt to quantify any potential impact.
On our business from the virus or changes to macroeconomic conditions, we have factored in our outlook only what is apparent in our business. Today, we will continue to monitor activity as a crisis unfolds and update investors appropriately as developments occur.
For fiscal year 2021, we expect total revenue to be between.
860, and $880 million, representing approximately 10% growth, we subscription revenue in the range of $750 million to $760 million up approximately 13% year over year.
Based on operating leverage leverage cost discipline, and the new operating model that Rob described we.
Significant improvements in R&D sales and marketing and Dziennik DNA expense ratios in fiscal 21.
We expect non-GAAP operating income for fiscal 2021 to be in the range of 82 million to $92 million or roughly 10% of revenue earnings per share for fiscal 2021 is expected to be 25 cents to to.
29 cents.
As Rob highlighted we are committed to generating substantial cash flow in future periods through balance of investment in growth and operational efficiencies.
We're streamlining processes and speed of decision making.
We have recently created globals centers of excellence or shared services.
For back office functions with our global scale, we are increasingly take advantage taking advantage of talent pools outside the bay area for all business functions.
We're also consolidating high cost real estate in the San Francisco Bay area.
These actions will drive improvements in gross margin and in all of our expense ratios in simple terms.
We are guided by the rule 40, and expect sustained non-GAAP operating margin expansion for the next several years.
Since we are beginning a new fiscal year and are solidly cash flow positive note that we are that we have adopted non-GAAP operating income as our primary bottomline metric, we favor operating income.
Because it normalizes for the effects of billing practices and duration and is not impacted by seasonal or short term.
Variability in cash flows.
As a result, our anticipated improvement in margins will be more easily observable over the course of the year.
Operating cash flow should track $10 million to $15 million below operating income for the.
A year due to the change in billing practices at the time in the merger.
Usually LCF is greater the operating income for subscription software company and we expect this normal relationship to resume for fiscal year 2022.
Accordingly as described in our press release issued today the board of directors has authorized the repurchase up to 100 million.
Dollars of cutter stock.
This authorization recognizes that operating margins are expected to ramp steadily throughout the year and the business will generate cash flow that approximately that plan repurchase amount.
Given the health of our business, we intend to maintain a strong cash balance, but do not see a need to add to it with that I'll turn it back to Rob.
Thanks, Jim.
The team to be proud of the Q4 financial results in the significant achievements in products and go to market in the last two quarters, but thanks to our employees for their dedication to our corporate objectives during the period as CEO transition.
And we're now going to focus on Operationalizing, our fiscal 21 plans and driving.
Cash flow as CEO I very much like for the next phase of our transformation and helping our customer realize true hybrid multi cloud data solutions. The initiatives that we've put in place are showing promise and our execution continues to improve certainly the opportunity for cloud there has never been bigger and with private cloud Remic Warner.
Expands even further also want to be Beecher to thank our partners customers in that community for their continued support so let's pause here and take some questions, but as a reminder, reimbursed the chief product officer and May Carlson, our chief marketing officer available for today. So now operator, please begin the Q and a portion of the call.
Certainly to ask a question. Please press star one on your telephone keypad. The first question comes from Raimo Lenschow of Barclays. Please go ahead. Your line is open.
Hi, this is that pre got a far for Rama lenschow.
I wanted to ask you on the expansion.
On.
Our our I could you provide some detail on the new pricing model, if customers opting for pricing on storage washes compute.
And what the implications there are if its deflationary.
Let me start let me start with that one and the new.
Pricing model, there's there's several different things going on with pricing one is with introduce variable pricing effective in fiscal 21 that for customers that have BP nodes.
Lots of storage lots of commute compute they will have to pay additional charges. None of that in Q4, we believe the impact of that will be.
Artist at first and grow overtime.
The second thing is CDP public cloud will be priced on a consumption basis.
That is a.
New offering within very little was sold in in Q4 as that was primarily focused on customer trial and adoption we expect.
CDP public cloud to be more meaningful and our results in the second half of the year and most importantly in terms of your question. We don't expect it to be deflationary respect CDP public cloud to allow us to better monetize our technology, it's a more SaaS like offering and therefore the price that.
We.
We will get fourth is the CDP public cloud offerings, we believe will be an excess on average to what we're seeing for an equivalent on prem.
Correct.
And I think earlier in your commentary you mentioned topline acceleration.
Is that you know just on on revenue.
Celleration.
Normalized for the revenue haircut are or will you also talking about they are.
In big round numbers, what I'll say is is cloud airs roughly a 10% grow it right now we had air are up 11% in Q4, when we look out into the for.
People future our software business will be growing at roughly 10% that has a really good baseline.
Now to that we're going through a major product transformation at as CDP public cloud rolls out as CDP private cloud rolls out and we get traction from from those later in the year, although those are growth vectors.
On top of the things, we've already announced such as the licensing and payroll changes.
Correct.
And not congrats on the great quarter.
Thank you.
Your next question comes from Rishi Jaluria of D.A. Davidson. Please go ahead. Your line is open.
Hi.
Hey, guys. Thank you for taking my question.
Just to see.
The result starts to flow through.
Two questions first I want to itself.
And one for now.
Technological broad.
With that kind of more of the cloud stuff happening on obviously to the public cloud and private coming later this year.
Why did you get your take for what role should we expect a kubernetes.
To continue to play here is there a foreseeable future, which you know yarn itself gets completely replaced with with kubernetes or was there another way to think about this not bought it all up.
Thanks for shoes on.
So as you probably remember from our previous calls won't things that we've done extensively I'm incredibly proud of the team for doing this initial such a short timeframe is I've taken the majority vast majority of her engines, which is in our sequel engines, which is higher than Paula spark.
We just our fleet that get until one all of these are.
No running natively on keeping it is and this is what we used 200 as Walter you is under the scenes, who actually providers like us as a soft like offering into public load. Furthermore, when you go to private told as we mentioned there to secure we will take the theme recall these experiences the sounds like experiences and those experiences.
Our our faith flipboard or on top of Openshift.
Which is the bulk of renewing with our friends at biotech. So that does have taken most of the up actually all of the critical engines. We have at this point all the open source engines and the made them work natively on given it is and that is what we're using to actually.
I'd be sort of SAS leg offerings.
Going back the other part of the question dozens of what we do with yarn, we still have a CDP data center, which is bad we added to existing workloads and existing.
Customers stay as they expand into the public float in backlog should be expect to see yarn could do to play that all but long go more.
In the future, but we expect to see most of that translate into tons, Florida Cuban at this over the couple of due to your timeframe.
That makes all right got it alright. Thanks.
Very much about thank you that's helpful. And then and then Jim I wanted to go back to your commentary made towards you have the proposed remarks, and just thinking about the impact of.
Ron on your best asked them and core hot topic around software now, maybe just diving a little bit deeper on to that.
Well I guess, given but I'm, assuming you're following a lead about whether software company and you have a relatively panel a pause or hate us on non essential travel.
Right and.
The only selling large deals directly to a lot of customers.
The conference cancellations as well right Strada next week.
Being being pushed out.
Or sorry.
Generally not being pushed out to the New York Watch So I'll, maybe how do we think about the impact of all those things.
On on your business and this is not something that could result in may be bookings getting pushed out without having to quantify but just maybe directionally help us understand that thanks.
Yes.
This Rob I'll touch on that and Jim May have some additional comments as well so.
Obviously, it's a it's a new dynamic that.
We're closely monitoring obviously, we're taking it incredibly serious we're making sure that we're putting all right policies in place to ensure the safety and health or.
Employees their families, making sure that we have the business continuity policies in place that we can support our customers irrespective of.
Sort of how this.
Really evolves, but I think the fundamentals of our underpinnings of our business model really keep us in a very solid position going forward, but our business models built on a on a very much of the recurring revenue.
Structure.
Largely centered on the subscription.
Side of the business.
We are all we already operate in a in a highly virtual environment restricted cross 85 countries now a lot of what we do.
His virtual already most of our engagement and territory coverage model is largely focused.
Based on our install base and those relationships those.
Contractual as well as just the day to day engagement of helping them support their environment.
Span the workloads and used cases theyre, adding.
A lot of that can be that it is done virtually so we're able to just randall.
The way in which we're doing that.
During this sort of the interim period that we think we'll go through where were largely going to be.
Handling those things remotely I think the issue that we're focused on.
Certainly less so the subscription side, because we're seeing our forecast tracked.
Really well.
Our our deals is we're monitoring them.
Our solid today.
The inspection process that Scott Aronson has in place just as the industrialized ways run the business hold up very well in this kind of environment the exposure that we.
We're managing too is just the professional services delivery element and Jim touched on that in his remarks that weve.
Factored in that into our guidance today, and we're focused on how we deliver those services in an alternative way to continue to support our customers business operations.
And I'll just add two things financially to that one is as Rob said, where have a recurring revenue model very specifically as we look out for the year.
If we look at all of the revenue that we have under contract.
And our existing customers renewing at historical.
Bill rates, we have visibility to more than 90% of our revenue for the year. So it gives us a lot of confidence in our business and we also have the good fortune of being in the middle of a product transition where our primary business focus is on existing customers. So so we're not having people have to get on a plane and find new customers.
Their existing relationships with a higher degree of confidence, which as we're working through these changes on how to service them.
Both from his professional services as well as a software perspective remotely.
We're finding that the willingness to accommodate us is pretty great.
Alright, great that's.
Thank you got.
Your next question comes from Chad Bennett of Craig Hallum. Please go ahead. Your line is open.
Great. Thanks for taking my questions. So.
Maybe Jim more Rob I think you both mentioned.
A significant I think improvement in renewal rates in the quarter.
I guess implies a pretty decent improvement in churn I guess is one piece of the pie Jim could you speak to churn improvement this quarter compared to kind of the mid teens rate that you guys have been experiencing.
Yes, we're back to our long term historical average.
Which I will get away from disclosing turn on a quarterly basis, but historically, our churn rate has been roughly 10%, maybe a little bit higher than that in some quarters. So we're tracking back to that historical average and quite frankly renewal rates in the quarters, where some of the highest rates that we've seen over the past several years. So we're pleased with with all that all.
The things that we saw this year are coming together division of the product roadmap.
Enthusiasm over all the new products, the licensing and payroll changes.
Oh, and the execution post merger of just being.
Yes, the ability for several quarters or really just jelling right now.
Right and is there maybe this is question for right, but if we look at the guide for the year and the subscription growth specifically of roughly 13% I think you indicated at the midpoint.
You know between all the Tailwinds you have so to speak.
In terms of licensing changed CDP public cloud private cloud, albeit maybe half a year.
And even potentially you just kind of net new which I think is you know.
Very haircutted in your guide.
I mean, it in that 13%.
Is there a way to think about you know the biggest driver of that growth on the subscription side or drivers I should say.
Yes so.
Theres, probably not one biggest driver I think it's a multitude of several different drivers you mentioned several of them into the license.
Ranges that we're doing the variable pricing that we're putting in place.
Clearly.
The net new opportunity as we have introduced CDP with the hybrid public cloud.
That it represents a massive opportunity for us.
Across the board when you when you aggregate all those I think the thing that we we zero and anchor on is that today, we are product portfolios sets over four fundamental tam sectors and that add up collectively to about $26 billion.
And over the next three years.
Those four tandems or going to grow on about a 20, 22% cagar to about $52 billion right and and so when we look at that opportunity and we look at the breadth of our customer base and sort of just the general.
Transition the enterprise is going to in order to get to hybrid in multi cloud platform capabilities.
We're the only company in the world today that was CDP.
And Stx, we can deliver truly that hybrid multi cloud.
Platform opportunity with the services around data engineering streaming.
Data warehousing machine learning AI et cetera. So it's just it's a it's a market opportunity we have to execute on it but were really well positioned to do that.
And the integration is behind us.
We're very focused on getting product out.
Scott EHR incentive phenomenal job of Operationalizing, the field coverage and go to market place and so we just continue to to stay focused on our operating plan and the Playbooks that we have.
An engineering and sales.
Got it maybe one last one for me if I could for Rob and and I think this is pretty important I mean.
As opposed to your predecessor in talking about the cloud providers as pretty staunch competitors.
To you.
You know.
It's Mike coincide with the licensing change and what you did there, but you seem more optimistic in partnerships, there and growing those relationships than maybe your predecessor did can you just explain the sentiment change if I'm catching it there.
In the opportunity there thanks.
Yes, sure absolutely look we very much view the public cloud providers.
Very strategic partners as we deliver CDP.
It enables a hybrid multi cloud architecture and so by definition.
Certain percentage of those workloads with great certainty, we'll go to the cloud. So is an underlying incentive to that what we want to make sure that we we am they both want to make sure that we run optimally on their native cloud services now I'll pause for equipment. It obviously.
We have some.
They go overlap ensign and some.
Certain workload areas, where we have I wouldnt, even caulk competition, but its co-op petition the real issue that were both focused on its really dollar of such software subscription that we received that represents about four or $5 an.
Yes, and that's really the products that they're focused on.
And so we can deliver very meaningful.
Workloads by definition of a hybrid architecture that when that with optimized for the full extent are going to generate substantial is dollars for them and represent great.
You return for our collective customers and so we view this is a great opportunity to create a hybrid architecture.
Deliver value for our combined customers. It represents great opportunity in terms of revenue for us.
Ais revenue for the more importantly, what it.
For us is more it back and a broader market opportunity that we get to enjoy it a hybrid multi cloud platform strategy versus just an on premise environment.
And and those cloud providers.
Recognize that data is the way we're approaching the market they view us as strategic AUD ramps to their environments that represent quite frankly billions of dollars I asked in every year.
And we recognize it as a net market expansion opportunity with a lot of incremental revenue.
For us so it's actually a great win win again, there are points of overlap, but we've we've talked through that we have good rational ways in which we're dealing with that together and we're zeroed in on on how good market together.
Great nice job again on the quarter.
Thank you Fred.
I didn't see.
Your next question comes from San <unk> Singh of Morgan Stanley. Please go ahead, Sir your line is helping.
Hi, Thank you for taking the questions my congrats as well on a really strong and to the year I had a question maybe for a room, just oh on overall sort of product strategy.
If we think about all of the various open source.
Innovations that are cut era, and legacy Hortonworks delivered weather and Paula now Kafka knives high Mapreduce audit on I guess my question is.
Why sort of the and to add sort of packaging.
Sort of strategy, we think about the public cloud markets that we think snowflake as a cloud data warehouse confluent packaging Kafka why not more why not go with a more specialized strategy on a more selective bats around some of these core monitor technologies.
First is sort of Ed and on packaging that.
Has been going with over the past couple of years.
Great question. Thanks funded so that is no we looked at this as.
An opportunity to manage toward the end dorsal lifecycle of data right. So if you think of any.
Any new Skus that have an enterprise for days trying to solve whether its predictive building or maintenance, a real time delaying and so on and so on it requires a combination of technologies and the combination of.
Use cases, right. So im not worried if you wanted to something like real time billing you have to just data and over time, you have to do sort.
Report transfer data transmission reporting on it and predictive analytics, so given toward the end.
So the heightened enterprise focus we have all we feel like we're uniquely positioned to sort of manage all of this on any color, including private flowed.
In a multi function manner, but.
Equally importantly, do this in this in this environment Duffy Dol regulations and compliance we want to loosen a very consistently secured and gone fashion right. So what happens is.
When enterprises use as an example, CDP versus one of these one offs sort of single wind solution that you talked about it actually a lot.
Caused them to sort of debt really value faster because they have because the platform allows you to do this consistently and homogenous securely and had gone fashion and they have the ability to move this firm on turn to the cloud remarkable bodes right. So that's sort of is the end to end focus for us and.
This.
Research and it seems we resonating really well.
And the fact that we can put up a single band of pane of glass across these workloads. So you don't have to go through an expensive integration exercise and they've done this in the past with legacy technologies, even on Prem. The factor you don't have to do this because the common sdx liberties really puts us in a sort of a really strong.
Sean position.
Understood thank him.
And then maybe a question for Rob in the context of your comments in your script about getting to a cadence of market share gains.
What do we think thats the bigger opportunity longer term is it CDP public cloud or CDP private club. Thank you.
Yes so.
We actually think it's important to be able to do both.
I would also add into that be able to go to the edge and be able to then and Abel security governance, the ability to manage the lineage and the medidata through.
That entire lifecycle and so.
I'll pick up on rates comments, it's not about anyone tier, meaning private or public it's about actually manage the entire lifecycle of that data and being the platform that manages.
That entire lifecycle of data for a.
I've read multi cloud environment. So that means that it is imperative that you do on Prem private public all the way the edge and then be able to deliver the experiences through that platform for AI machine learning data engineering streaming and.
Warehousing simultaneously across any tier and most importantly.
In the criticality in this is to be able to have a common security and governance environment across that entire lifecycle for any tier consistently predictably and thats what Esther.
X delivers through one pane of glass and so that is a very different approach then being able to just deliver a point sash service for a lot of business, but thats truly where we we get the maximum amount of data undervalued under management and.
Liver, the maximum amount of value back to our customers.
Thank you Bob.
You're welcome thanks. Thanks.
Your next question comes from Daniel Ives of Wedbush. Please go ahead. Your line is open.
[music].
Yes. Thanks.
So when you're thinking about.
I just say over the next year.
How much you thing in the success is going to be getting products out there just more and more knobs and hybrid or private first is execution in terms of just partners.
Or expand distribution.
And our direct side, how do you think about it from just getting product versus execution termed the success triggers.
Sure.
So.
What I would tell you is and I feel like I'm high, but I'm, a little figure I don't mean to do that but equally important.
Alternately it comes down to execution in that in terms of execution that means that getting the product road map that we've defined were incredibly comfortable that our product vision and product Roadmaps strategy is the right we've got enough correlation.
Between our customers partnering community that were absolutely on track.
With the product.
Road map.
It's imperative that we execute and we deliver on that in an enterprise World class way on the timelines that we've set for ourselves right.
The other side of this is that it's incredibly important that we execute on our go to market function.
And we just wrapped up our sales kick off last week and I will tell you. It was it was an all time world class sales kick off delivered by by our team led by.
Got aronson and.
Our our field sales organization is laser focused on our go to market sales place that that we're focused on and how we create value how we can burke our customers generally over into the CDP platform.
And we had very aggressive targets and the numbers that we're going to convert on the CDP This year.
And the last part of it is truly executing on delivering that digital transformation that I mentioned this is my second imperative.
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And that we make it very very easy for our customers to consume our platform and that we digitally supporting reason that support it is the efficiencies they get on their side as well as how it delivers the operating margins in the efficiency back into the company because we are dead set committed.
And the into the expanded operating margins that we've committed to the topline growth and the cash flow generation.
Oh really insightful great quarter. Thanks.
Yes. Thank you.
Your next question comes from Mark Murphy of Jpmorgan. Please go ahead your line is.
<unk>.
Thank you I will add my congrats I was just curious what kind of steps did you take Q conclude that the vast majority of transactions are tracking toward closure in Q1. For instance did you did you try to go out and survey the customers would deals inflate.
Q.
Make sure that they've kind of feel confident in it or is it is it just is it more an observation that they have been kind of notified you have any type of a delay.
Yes, I'll take the let me hit the qualitative part knowledge and that the quantitative part so it is with.
Granular inspection that our team is we obviously understand theres a very significant macro that's it's operating around CD 19.
So we are Granularly expect inspecting our business across the board and preparing for a series of business continuity.
Gates.
We're very focused on.
Obviously of which is revenue operating margin side and the team is that a very very nice job granularly reviewing bottom up.
The transactions that we have in flight, where where they need to be at this time of the quarter.
And any any gaps that we could be created based on macro and and based on the returns of those expect inspections.
We're very comfortable with the guidance, we've given to Jim.
You could add to that yes, just very specifically, we when we.
We run a weekly forecast process. In addition, as you'd expect for Prime most of the past 10 days, we hoped at those those numbers and at this point with the field is saying is the deals that they have in for Q1 are still Q1 deals in the field they still need to figure out how they're going to close those.
Deals in many cases they'll have to do it remotely things that they haven't done before but at this point.
The deals are still tracking to be closed in Q1, so to the greatest of our ability to test.
Q4, Q1 looks solid at this point, obviously, if the world changes over the next few.
Two weeks more than it does at this point things may change, but so far so good.
Okay, great and.
Also as a follow up how would you approach.
Let's say an on premise deployment are on premise integration work, it's a it's a professional services.
Came to our in fact.
Working remotely is that something that they're able to do reasonably well we know can they can they kind of tunnel in to the.
Customers on premise environment.
Yes. This is Jim again, it's interesting two weeks ago.
I'll be blood.
Asia.
It was first impacted we're getting the greatest amount of of risk in terms of service delivery in Asia.
As of now.
Because customers what their business is to keep on going in many cases, they're figuring how to work remotely and yes tunnel into their VPN somehow get them laptops.
That are certified on their network and it really is progressing region by region industry by industry on the willingness to allow vendors to work remotely. So this is this is something that we're all going through for the first time to the extent that we see risk in our services number in Q1, we reflected.
And it's our best estimate based on what we're seeing happening around the world as of this moment.
Yes, okay.
Great just shows up as a final one Jim the.
You provided this set of revised Jr numbers.
And the Powerpoint is that at this point should.
We'd be looking at at that has a final set of of air our numbers that we can preserve for awhile and just.
On the topic of they are our it was there any thought of providing a our guidance on the fiscal year.
Yes, so yes, the numbers that you have our.
Final.
To the extent that we make any definitional changes in air our it will only be once a year and and I think now that were one year post merger future changes will be zero to minimal.
Regarding a our guidance for the year.
For the Nick.
Foreseeable future, let's call a quarter or too.
Given the economic environment that we're in right now we think a our growth would be roughly 10%.
For the second half the year, it's really hard for us to two point a number out right now given that the extent of the product transition that we're going through as well as the uncertainty given the krona virus in the macroeconomic effects.
Thanks, So 10% for the next few quarters the back half the year too hard to call at this point.
Thank you very much.
Your next question comes from Michael Turits of Raymond James. Please go ahead. Your line is open.
Hi, guys follow up again on remote.
Historically.
But a lot of both sales and.
Sales support into helping customers expand so.
Is that not particularly challenged again working remotely and not just.
PS itself, but sales and sales engineering necessary to drive expand.
Sure so.
In an ideal world of course, you are on Prem, but I think again it goes back to the nature of the.
Uh huh.
The targeted buyer that we're going into and that this this is largely a customer base that we've engaged with deeply for most cases, many years certainly many quarters and so.
There is a great working relationship between our field and the targets on the customer side and if we understand.
With the use cases and expand opportunities are.
And the mini in most cases, especially going.
We ended this year, we've identified what those are with many of our customers we have an operating cadence in place.
In which that expansion can occur.
And those things.
Again, not in a perfected world are done.
Virtually but given the nature of most of the majority of our relationships absolutely in the short term can continue forward with.
Within a virtual environment okay.
Other side of that is that CDP make too much easier to do this.
Then the trigger.
Additional on Prem environments and.
The vast majority of our customers in briefed on CDP, they have a cadence on how theyre going to get their evolutionary.
And those are the kind of things that we can do remotely both in terms of guidance as well as and a lot of cases actually from.
Additional services effort as well.
Let me jump in.
Hi, Michael just once again, I mean can be clear, we're not saying that were immune to the effects of the credit virus, if the world shuts down for the rest of year and no. One is allowed to go on premises.
Well certainly be affected just like every everyone else is one of the.
Things that we're signaling though is we think given our business model, our focus on expanding customers where in a slightly better positioned than many other an enterprise software companies. So as you're thinking about our guidance and how to factored into your model.
Once again, we're not immune but I think were relatively well positioned.
Thanks, and then Jim My follow up for you well if I do some quick modeling and support the 55 million.
And merger related this year it seems to get to your your numbers you need pretty much flat opex, that's even assuming some gross margin expansion on a mix shift is that realistic given given the amount that.
And where you are in terms of both the go to market and the product cycle.
Yes. It is so as you heard we had a lot of merger related synergies accrue to us in fiscal year 20.
In many cases that was just a partial year benefit and we'll get the full year benefit in fiscal year 2000.
He won with that said there is further opportunities for us to become efficient we've talked about building global centers of excellence for our back office processes.
Real estate consolidation, we've looked at some of the investments historically, we've made in the field and are shifting from lower to higher ROI investments all those will.
Crew over the the pace of next year driving significant improvements in margins and expense ratios, even above beyond what you're seeing in Q4 of.
Fiscal 2000.
Okay. Thanks, Jim Thanks, Rob.
Sure. Thank you thanks, Michael.
Your next.
A question comes from Pat Walravens at JMP Securities. Please go ahead, Sir your line is open.
Hi, This moffa Pat Thank you so much for taking my question Rob.
I wanted to ask how would you say that CDP product cycle is similar to what Mongodb with Atlas how.
Would you say it is different.
Okay.
I think there.
We aren't we certainly follow the Atlas cycle and.
I think Atlas made sort of a.
A big bet.
That they had to transition completely to the cloud and almost a student body right. If you will have moving everything and wholesale to cloud.
I think we're in a different position, giving the type of data and an architectural enablement our.
Summers are trying to shift too.
We are theyre going to be trying to drive to the application transaction, we are enabling a hybrid data architecture that encompasses the edge a private cloud an on prem environment and multi public clouds. So.
So.
It's a much bigger dataset.
In a much broader platform offering than than the mongo environment.
What you saw.
From their environment was about a 4% of their customer entered and revenue stream.
Okay.
In the first year or so began to transition over to the cloud and.
Okay.
Our initial modeling that's probably not outside the norm for us.
And how we think about the transformation of our customers to the do CDP architecture.
And so we see a lot of similarities in that evolution of customer base and even revenue streams.
But from our standpoint, our customers will continue to leverage the on Prem to your whether it be data center or private cloud, but also expand that too.
Two.
Multiple public clouds, as well as the edge and what that does it opens up bigger opportunity for us because those are spaces and workloads that we actually.
Didnt have an opportunity to monetize and just our on Prem environment.
Just let me add a little bit color so well.
But I think was at 4% of revenue after about five quarters.
And they were much smaller company back then and then they are now or what we are now so so for us to get 4% of revenue that takes same time period would be phenomenal success.
We do look at that sort of model in terms of the absolute amount of revenue growth that David.
We achieved.
And say, that's a pattern, we'd like to to get too. So so I just what I just want make sure that no one's penciling in 4% for Q4.
Thanks, so much.
Your next question comes from Jack Andrews of Needham. Please go ahead. Your line is open.
Good afternoon, and thanks for taking my question.
A question for perhaps robber Mick I was wondering just given your enterprise data cloud strategy. You mean this is so broaden visionary so in thinking about your conversations with current and prospective customers.
How do customers grapple with untangling.
Thing I guess I'll call to spaghetti.
Vendors that they're currently dealing with I mean, they currently have a myriad of different technology solutions that encompass different parts of what CDP is offering so how do they how do you advise them to kind of deal with the fact that different contracts are running an expiring at different times sort.
To resolve this spaghetti in order to.
Embrace in move towards CDP overtime.
So what the customers are really trying to accomplish again it goes back to in that enterprise data cloud of are you want to have the ability to manage the entire lifecycle of data from the point of origination.
And all the way through an AI experience and be able to do that whether it be in a public cloud of private environment, but ultimately they are trying to get to hybrid multi cloud environment.
The key is that they had the ability then to.
Secure.
Sure and govern that entire life cycle and experiences.
Across a single pane of glass, a consistent and predictable security and governance model.
That ensures that they staying compliance with all the regulatory environments that they're having to deal with.
All their corporate identity governance models and security requirements.
Versus bringing together very disparate point fast environments are on prem or cloud environments that have very very fractured security.
And governments and compliance.
Ladies and CDP and Sdx solve for that and an enterprise way that eliminates the silos of environments, whether they'd be on forever point SAS apartments, and then the real benefit is that we didn't deliver those.
Actual experience is whether it be a streaming capability, whether it be a data warehouse functionality set whether it be AI machine learning or and operational data store and so there's really eliminates that shadow Whitey environment.
That's a lot of business.
As commit or create when they spin up these points SAS.
Solution sets.
Got it appreciate perspective and congratulations on the results.
Thank you thanks Jack.
Your last question comes from Brad Reback of Stifel. Please go ahead your line.
This open.
Great. Thanks, very much two quick ones.
Rob as you move to more of a consumption model with CD should we expect any cash flow impact from that.
Excellent and turn it over to Jim, Yes, I think that was not.
In fiscal year 21, CDP will be just.
Turning up and its impact on our overall billings duration will be modest I think over time, it will have a slight impact to cash flow, but not significantly given the mix of business.
Got it Okay, and then real quickly Jim from a high level can you remind us what your vertical exposure is.
Especially as it relates to things like financial energy and hospitality.
Yes so.
Financial services is our top vertical it runs around 25% to 30% of our business.
Government.
Healthcare Tech they each then run about 10%.
Then telecom, yes. So so we have one big vertical financial services and then as next next for all run roughly 10%.
Great. Thanks very much.
You're welcome Brad.
No further questions at this time I will turn the call over Pteropure done for.
Remarks.
Okay, Great Alright, I'd like to thank everybody for joining us on the call and appreciate very much for questions.
Well. So you bought Alan operated were completed call.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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