Q1 2021 Cloudera Inc Earnings Call
Good afternoon.
Ms Oren and I'll be your conference operator today.
And welcome to the cloud tariff first quarter fiscal 2021 quarterly results conference call.
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After the speaker's remarks, there will be an opportunity to ask questions.
If he would like Tessa question. During this time simply press Star then mean number one on your telephone keypad. If you would like to withdraw your question. Please press the pound key. Please note. This conference is being recorded.
And your.
Suncoke VP corporate development and Investor Relations Mr., Kevin you May begin your conference.
Thank you operator, good afternoon, and welcome to clutter as first quarter fiscal 2021 financial results Conference call.
We'll be discussing the results announced in our press release issued after market close today. We have also posted today's prepared remarks and supplemental materials on clutter as Investor Relations website, which in combination with our press release provide additional information as well as greater accessibility to today's quarterly conference call from Clutter with me are Rob Bearden.
President and Chief Executive Officer, Jim friend Cola, Chief Financial Officer, Urban Murphy, Chief product Officer, and Mickelson, Chief Marketing officer. During the course of this call. We will make forward looking statements regarding future events in the future financial performance of the company generally these statements are identified by the use of words such as expect.
Believe anticipate intend in other words that didn't know 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.
Described in our press release and are more 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 SEC.
During this call we will present, both GAAP and non-GAAP financial measures non-GAAP financial measures exclude stock based compensation expense amortization of acquired intangible assets, an extraordinary noncash real estate impairment charges if any.
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 clatters performance all references to operating income or to non-GAAP operating income for complete information regarding our non-GAAP financial information the most directly comparable GAAP NOI.
Measures and a quantitative reconciliation of those figures. Please refer to todays press release regarding our first quarter results for fiscal 2021. The press release has also been furnished to the FCC as part of a current report on form 8-K. In addition, please note that the date of this conference call is June Threerd 2020.
And any forward looking statements that we make today are based on assumptions that we believed to be reasonable as of the state, including those related to the impacts of cobot 19 on our business in global economic conditions. The forward looking guidance, we will provide today's based on our assumptions as to the macroeconomic environment in which we will be operating those assumptions are based on the facts as we know.
Them today, many of these assumptions relate to matters that are beyond our control and changing rapidly, including but not limited to the time frames for answer Verity of social distancing another mitigation requirements related to covert 19, and the impact of cobot 19 on our customers and partners.
Significant changes in the future could cause us to modify our guidance. 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.
Thank you for joining us discuss our first quarter fiscal 2021 results.
Because we're all operating in an extraordinary environment. We will report from the usual format at this call to focus on a few key areas, leading extra time for kubernetes feature that we currently covered the topics and most interest.
We will provide a quick update on a quarterly performance discuss could the 19 responses and applications.
Highlight clatter data platform progress as you know CDP is our new hybrid and multi cloud solution set.
So beginning with financial results, we executed extremely well in Q1, particularly as the pandemic was important for more than half of our fiscal you quarter total revenue in the first quarter was 210 million.
Subscription revenue was 187 billion and non-GAAP operating income was 17.
Each of these results exceeded expectations annualized recurring revenue was also stronger than expected, reaching $723 million its conclusion to the quarter, representing 11% year over year organic correct.
As is typically the case in Q1.
Total number of customers, who exceeded $100000. They are or was about level a thousand three.
The number of customers, who generate a our or greater than a million was higher than expected growing from 154 to 164.
Excellent performance in bits to some obviously very difficult circumstances.
Turning down the pandemic.
Obviously, we're not immune economic downturn caused by could be 19 that our businesses more resilient and most enterprise software companies.
Early indications are that this resilience is being proven out during the crisis as it relates to our business model and the nature of our solutions.
First we benefit from a highly recurring subscription revenue model and this model gives us a high degree of visibility into your software revenue based on contractual commitments and average historical net revenue retention.
But more importantly, our solution support mission critical use cases and applications.
It's common for our customers to depend on our software for a multitude of applications, including the delivery of solutions to their customers.
These mission critical applications are deeper less likely to be affected enrollment in heavily integrated creating substantial stickiness.
Furthermore, since our focus in fiscal 2001 is primarily on supporting existing customers as they transition to CDP.
We're not relying on winning substantial new business from new customers to achieve our financial plans.
Since we have long standing relationships with many of these existing customers, it's easier to engage with and support and remotely.
For the most part it's not necessary for a field organization or services personnel the on site with customers to be effective.
To the extent that is essential for personnel to be on site with customers that business as wide as forecasted and we've adjusted our expectations for services revenue until the Pandemics upsides.
In addition, I read it extends predominantly from large global enterprises. These customers tend to have strong credit profiles as easily meet their obligations. It's important to note that we do not have customer concentration nor material exposure to the industry verticals most affected by the current virus.
With that backdrop, let's discuss the cynically, what we're observing in terms of customer behavior.
Our customers renewed in Q1 at the second highest rate in the last five quarters.
These customers generally engage in long term planning and have multiyear strategies for modernizing their data architecture analytics and digital transformations, so and it definitely we've heard from customers that these plans remain intact and they do not expect changes to current projects and production workloads.
We also understand from customers that remote working environments placed an increased importance on data data analysis and data security, which is heightening the value of data architecture design and the criticality of hybrid cloud solutions.
Nonetheless during times of economic stress customers typically breeze current projects 11, new investment.
We have no reason to bleed this downturn will be different and we assume that new applications in workloads are less likely to be funded well inertial control existing projects.
This business judgment is now built into our plans.
As a result, we've taken aggressive action to contain expenses levels. We believe will ensure we meet our operating margin commitments and then many steps we've accelerated the reduction in cost.
Across multiple areas, including personnel and east of outside contractors.
These actions position us for us if you're in prolonged weak economy, but the clear we took these actions at a prudence, we've not seen indications of a significant slowing and customer interactions pipeline development.
Turning now to our new product offerings denim continues to build for CDP notwithstanding the pandemic.
We've tripled the number of CDP public cloud customers, who have purchased we're actively using these offerings. This is off a small base more than it doesn't customers. When we last reported but the number of customers and ancillary CDP metrics are ahead of our internal plans.
For example, the pipeline for CDP public cloud has doubled since we last reported and CDP public cloud as accomplishing exactly what we had hoped for and that it has enabled a hybrid multi cloud architecture.
Our customers enhanced our position with customers you plan to take advantage of public cloud emphasize structure for certain types of workloads.
Also CDP private cloud is on track through availability at the end of fiscal Q2.
We're very excited about CDP private cloud is we'll complete the to form factors for CDP public cloud and on premise private cloud.
And this enables for the first time, our enterprise data cloud vision to be fully implemented.
Other significant developments with respect to CDP is that we've expanded our partnership with Microsoft Azure and Google Cloud platform in March we announced that CDP was available on Azure marketplace, which means joint customers of cloud in Microsoft can now easily discover in provision CDP on Azure using azure credits.
And leveraging integrated doing for simple in friction.
Free procurement.
GDP on Azure marketplace accelerates time value for our customers, who are enabling date engineering data warehousing and machine learning use cases.
Likewise in May.
We expanded our partnership with Google Cloud platform, we intend to integrate CDP with GCP and offer the joint product on GCP marketplace, making it easy for customers to run CDP on GCP.
By the ended the year, we expect to make available would take preview CDP services on Google cloud for select customers.
Finally last month, we introduce new M.L. ops features and extended Stx to machine learning models as part of our CDP machine learning Cloud service. These innovations reflect the ongoing investment, we're making to build highly competitive discrete cloud native offerings CDP is repeatable transparent govern lifecycle management capabilities.
Hey, more customers to scale model deployments and machine learning use cases through the AI driven businesses.
And to round out the CDP update I'll share a few customer wins. Our first example was a global investment management firm and new customer.
This entities challenge with lack of visibility in the efficiency of their clients operations.
Their data was highlighted across multiple sources and they had a growing set of cloud point solutions, which was making the situation worse. They chose CDP because as a unified data cloud enables analytics to be run against multiple disparate data sources solving their immediate challenge.
Furthermore, cdps integrated data lifecycle and streaming data warehousing and machine learning services.
Their long term objective for all operational systems to be cloud based.
Our next example is a leading European automobile manufacturer specializing in high performance vehicles.
This manufacturers connected Cornish it has very specific requirements demanded integration abuse cases spanning the data lifecycle from collection and do ingest preprocessing and through analytics. After a successful PSC they determine CDP the superior to other cloud service offerings in the only option.
And they can meet their ambitious development Taiwan's they are now well underway meeting certain use cases from on premise to CDP public cloud taking advantage of Cdps hybrid data architecture.
Our final examples multinational healthcare technology company.
Like many companies they want to increase ingenuity and be more competitive.
Just a regulated industry participant they must meet strict security and governance requirements that are objective is to move this centralized services model based around security be a certification process that maintains hit the and PIH certification across the organization.
After an exhaustive evaluation they selected CDP further data cloud.
CDP Britt security capabilities data lifecycle analytics and its ability to operate across a WCS azure as well as on front.
And the central Whitey data cloud.
CDP is also being selected by the individual lines of business for data warehousing, which helps combat the organization Shadow IP concerns.
So these stories highlights the strength of CDP and the importance our customers place on hybrid cloud and data lifecycle management.
They also demonstrate the likelihood for increasing and expanding workloads on CDP its customers begin to move to hybrid multi cloud architecture.
Now, let's have Jim take assume numbers and they will get some questions Jim.
Thanks, Rob Hello, everyone.
Q1 was a very strong quarter and exceeded expectations in all respects.
Total revenue was $210 million, an increase of 12% year over year.
Subscription revenue was 187 million, an increase of 21% year over year.
Annualized recurring revenue for fiscal Q1 was 723 million up 11% year over year.
No information regarding definitions and trends can be found in today's press release or the supplemental materials on cutters Investor Relations website.
As Rob indicated we concluded Q1 with 1003 customers, who started at will have grown to more than $100000. If they are.
We increased customers representing greater than $1 million of air are dramatically from 154 to 160 for.
This is a record for 1 million air our customer adds in the quarter.
Renewals were again strong in Q1.
The strength and renewals and our growth was driven primarily by existing customers expanding at a higher rate based on heightened confidence in our new solution set.
The introduction of CDP public cloud together with expected delivery of CDP private cloud was key to these increased customer investments in cutter technology.
As I review 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 exclude stock based compensation.
Amortization of M&A related intangible assets and any extraordinary noncash real estate impairment charges.
Total gross margin for Q1 was 79% compared to 73% in Q1 of last year.
Driven by subscription gross margin, 88% up from 85% in a year ago period.
Total operating expenses were $150 million for the first quarter, continuing a post merger trend of cost improvement in our expense structure.
These operating expenses were 71% of total revenue in Q1 fiscal year 21, as compared to 74% in Q4 fiscal year 20, and substantially better than the 92% of total revenue in Q1 of last year.
Expense improvements were evident across all lines of the Pinedale and were driven not only for merger synergies, but through initial fiscal year 21 process improvement and cost reduction initiatives.
Overall operating income was $17 million for the first quarter, representing an operating margin of 8%.
A substantial improvement of more than 27 percentage points compared to Q1 of last year.
Operating cash flow for the first quarter with $68 million cash flow benefited from better than expected renewal activity good collections and strong expense management.
Diluted earnings per share with five cents in the first quarter compared to a loss per share of 13 cents in the first quarter fiscal year 2020.
Now turning to the balance sheet, we exited Q1 with $519 million in cash cash equivalents marketable securities and restricted cash up from 487 million ethic and couldn't conclusion of Q4.
Capital expenditures were $1 million in the quarter.
Total contract liabilities, which comprise deferred revenue and other contract liabilities were $515 million at the end of the first quarter.
Our BPO with 828 million up 12% year over year.
Hurt our PEO grew 11% year over year.
I will conclude by providing initial guidance for fiscal Q2 and updated guidance for the fiscal year, which is subject to the disclaimers provided at the beginning of the call regarding forward looking information.
We expect Q2 total revenue to be between 206 and $209 million, representing approximately 6% growth compared to Q2 as last year.
With subscription revenue in the range of 186 to 189 million approximately 14% year over year.
The difference in growth rates is driving me driven primarily by a projected slowing in professional services revenue due to the pandemic and associated global recession.
Specifically, we expect services revenue declined slightly in fiscal Q2 from Q1 levels and remain in Q2 levels until we see an economic recovery.
This means our services revenues will be down 30% to 40% from last year in Q2 and for the year.
We have taken actions to adjust our cost structure appropriately.
As a reminder, we have adopted at non-GAAP operating income as our primary bottomline metric.
We expect operating income for the second quarter two baby in the range of 18 million to 23 million or roughly 10% of revenue.
Earnings per share for Q2 is projected to be six cents to seven says.
For fiscal year 21.
We expect total revenue to be between 825 and $845 million, representing approximately 5% rose.
With subscription revenue in this range of $745 million to $755 million approximately 12% year over year.
Our revenue projections are based on the economic impact of the rid of ours, peaking in Q2 in Q3 and moderating in Q4.
As such software revenue growth rates would begin to slow in the second half the year, specifically, we expect that pandemic driven recession to impact our subscription revenue growth rates by three to four percentage points in Q3 in Q4.
We expect operating income for fiscal 21 to be in the range of $885 million to $95 million or roughly 11% of revenue.
Earnings per share for fiscal 2021 is projected to be 26 cents to 30 cents.
As Rob indicated we have taken a number of steps to position the company to generate substantial operating income in future periods.
And we anticipate significant improvements in R&D sales and marketing and DNA expense ratios this fiscal year.
Building on the operational efficiencies, we discussed last quarter, we recently eliminated certain roles and have minimize the use of outside contractors and consultants.
As part of these actions we have accelerated hiring outside the bay area in all business functions. We've created global centers of excellence or shared services for back office functions and have streamline processes.
We are also consolidating high cost real estate in the San Francisco Bay area.
We expect the result of these initiatives to be a steady improvement in margins over the course of the year.
Again, we remain guided by the rule 40, and expect sustained non-GAAP operating margin expansion and cash flow growth for the next several years specifically we are on track to at least a 15% operating margin by Q4, this year, which will position us for further margin expansion in fiscal 2002 as apparent from our outlook, we believe that.
Our current operational structure balances sustained revenue growth with very strong cash flow generation.
Finally, an update on our share repurchase program as disclosed in our form 10-K, we repurchased $26 million with the stock and much shortly after announcing the 100 million dollar authorization. We are not currently active in share repurchasing with that I'll turn it back to Rob Thanks, Jim.
We're pleased with our Q1 performance and solid progress on or growth initiatives in the this is a very challenging time for everyone.
We easily transition to remote working process and it remain highly productive engaging with and supporting our customers remotely as well as delivering new product innovation.
For our customers were enabling a modern enterprise data architecture and managing the entire lifecycle data for multi cloud use cases.
Hi, Thanks to our employees for their dedication and transforming cloudera from a mostly on premise enterprise data management vendor to a true hybrid multi cloud data platform company.
I also want to thank our partners customers in that community for their continued support.
Let's pause here and take two questions and as a reminder, arena Murphy, our chief product officer, and that Collison, Our Chief marketing Officer are also on the line and available for today.
Operator, please begin the Q and a portion of the call.
Yes, Sir and as a reminder, task. The question you want me to press Star then the number one on your telephone keypad.
And our first question comes frame Mr. seeing with Morgan Stanley.
Thank you for taking the questions that congrats on a strong Q1 I'm robust wondered if you could sort of.
Walk us through the quarter in some of the demand trends that we're seeing as.
The first half a quarter transition to the second half for the quarter, where are you might have seen some degradation in terms of bookings activity and then as we get into early parts of June how trends been since then but that would be my first question then a quick follow up.
Okay great.
I think.
Thanks for joining the call.
Yeah. It was a it was a.
Obviously a.
Evolutionary quarter.
And I would say I would say hey.
First phase for the quarter.
When the pandemic really started a moving into full force. The first couple of weeks were a bit of shock and all for all of us and trying to make sure we really understood.
With this met with the impacts were going to be.
Our customers really trying to understand what the impact to their customers were.
How they were all transitioning into work from home environment, and we took that opportunity to be very very deliberate very aggressive and reaching out and making sure. They really are good.
We were in great shape.
That we were very functional in terms of the ability to support them. They wouldn't see a disruption in service exactly how we get engaged together.
And and that phase.
Played through over first couple of weeks I'd point out that was only point that we had pipeline pause or.
But then as we went into phase two.
We.
The customers wanted to very much engage.
And make sure that they understood.
How to better use the platform.
How did get more use cases more data onto the platform, which was a very big trend we began to see.
They realize that they need a deep insights about their about their model their customers.
Their product how they were performing and what was critical for them to model out and model through their businesses was very data dependent many cases resides on our platform.
So our team did an excellent job of starting a workshop process where.
We've worked with our customers to help us understand how to how to get more workloads on.
More insights better use and leverage more value out of the platform.
And what it also did was it through those workshops.
Gave us the ability to give them.
Visibility into the CDP Road map and worked with them to plan and how to move to CDP, either public or private.
So it turned out to be a great planning process, great customer engagement.
Scott Mic done an excellent job in that phase really getting us back to solid pipeline levels.
And we saw strong adoption and demand for software both from a certainly a renewal as well as an expansion.
In the quarter.
And now I'd say, we're very much in the early phase of phase three.
Which are very much solid playing into how they're going to migrate to CDP.
And in many cases private.
And what their expansion models.
Look like because they're really learning and seeing the value what data the importance of insights.
Around the data and.
Data security is become an incredibly important and.
Core issue.
And the work we're able to do.
With the customers around data security of the have created a lot of net new demand an expansion.
So.
They've learned in the take away from all this is the importance of a hybrid data architecture, the importance of securing the entire life cycle of data and what that's done as it really to shine to a great white on.
CDP.
The architectural lets them enable around an enterprise hybrid beta architecture.
And then this stays also we're seeing a an even higher surprisingly.
Strong reception.
To receiving services on a remote basis, we're just seeing the beginning of that.
Right now and so those have been productive engagements with our customers.
Pipeline is a has stayed on track to where we need it to be from a coverage.
To quotas standpoint.
Scott started really nice job executing that.
And we're seeing our customers really settle into the socket and this is going to be you know.
Okay, one plus year kind of.
Operating environment, they're gonna have to get accustomed to.
And I think we're working really really productively with with the customer base in general.
That's great. That's a great framework to think about some of the dynamics in the business.
I wanted to.
Ask about CDP to some a lot of encouraging metrics on pipeline and so and some early uptake with CTP private cloud I'm about to be released I was wondering to get your sort of get your view on what it's going to be the quicker revenue contributor because on one hand, there's a view that go into the key.
While we're hot adoption may accelerate which may or May spur CDP club public cloud, but then you had a pretty sophisticated customer base on that can handle sort of on premise environments as well so between CDP public cloud and private cloud how do we think about traction between between those two going forward.
Sure so.
As you point out where we're on track and on scheduled for late summer into fiscal Q2 for CDP private cloud to come out.
And it will be G.A. it to ended the fiscal quarter.
We're super excited about it it is gotten great a great reception from our customer base. The beta customers that we have or are very very pleased with what they're seeing and it completes the the form factor both public.
And private for the enterprise data cloud to enable us to give our customers the ability to deploy a hybrid data architecture and manage the entire lifecycle of data with common security and governance and manage all the limited from single pane of glass.
And so.
We're going to be very very measures and how we move our customers through the migration.
But the core design principles for CDP, both public and private.
We're really driven around.
Ease of use.
The ability to migrate.
Past.
And then to be able to leverage that hybrid environment, along with all of the the experiences in services for streaming and AI and data warehousing.
As well as state engineering.
And we think this is has been.
It's successful as it has because.
In its improved in our partnerships both in terms of IBCM Red hat in terms of how we're how weve constructed the engineering relationship and adopting Openshift is the container platform for.
CDP private.
And as we're deploying a hybrid architecture, we were really closely with the public cloud providers to make sure that we're leveraging the native services their platforms.
And that our customers will be very very successful there and that those partnerships have led to really good cooperation from a go to market.
And how we're supporting our customers.
What you'll see.
In the last for your question around the adoption.
Yes.
As weve factored in very little revenue contribution this fiscal year from CDP generally.
We think the majority of the workloads and the way that our customers want to deploy and view toward hybrid it is to move.
A much bigger percentage.
Two.
But first and then extend to public.
And we're seeing that trend play through.
And I think bad is that's that's what the market is asking us for as well.
Thank you appreciate the thoughts about.
Yes.
And our next question comes from Mr., Phil Winslow with Wells Fargo.
So on the products at a good and Rob did it get a travel you happy after your back the.
The it really just want to focus on one of my very violent and I noted ears to data flow whenever you get it should get an update on that and what what customers are telling me on.
On on Dataflow interest just remain general thanks.
Yeah sure.
It's it's the what are the fastest growing products product lines that we have up we're seeing.
Significant interest and being able to bring data under managed but from the point of origination.
And be able to drive analytics, a gets that data in real time as events are happening.
It's one of the real strengths in Differentiators.
CDP has and being able to get to high velocity real time.
Predictive and AI machine learning models.
We're seeing believe it or not.
Particularly in the oil and gas up space.
They are able to drive significant.
Efficiencies really significant ROI on a on being able to bring go all the way out the edge. It go out to their drilling platforms.
And be able to stream those datasets in real time.
We have one of the significant oil service providers that are going to have a you know within the next probably four months five minutes.
C. diff deployed in Ifi add on the edge of over 100000 endpoint streaming data real time back.
But I could go across every industry. There are significant use cases that leverage that real time streaming service.
And we continued to see that the growth from that product line.
Outperforming most of the others so.
We're leaning in and and really making sure that we're introducing those.
New use cases to the customer base.
Great. Thanks, guys I'll get back into queue.
Okay and our next question comes from a Mr. Pats Walrus Walravens from JMP.
Oh, great. Thank you very much in.
Congratulations on working through Q1.
Rob I get that two questions for you first it caught my attention when he said.
It feels like customers want to move to the the private solution first and then to.
Public and I'm wondering.
Is that sort of a new learning on your part and.
So what's driving that and then the second question I'll just put in both out upfront is I think it'd be really helpful. If you could just sort of layout for us what the competitive environment is like for cloud Air These days and maybe maybe sort of before and after CDP how it changes the competitive landscape for you.
Yeah sure I mean, it kind of blend those both together so.
To frame both recognized that our our core.
Toward market focus is the fortune 2000, the biggest enterprises.
They tend to be a very data driven models.
Industries with highly regulated data driven models.
They use our platform.
To be very much to drive mission critical workloads.
Large datasets.
And they tend to be also embedded in their solutions to their customers in many cases [noise].
And they're in their driving mission critical applications.
Whether it be in risk management, you know.
Fraud detection.
And.
And so what they want to have the ability to do is to be able to deployed different types of of.
Data management services on the most appropriate to your whether that's at the edge, whether that's on Prem whether that's in the public public tier.
Most of our customer base today is on Prem and so the natural nation for them is is to move the existing environments.
Workloads and use cases over to the private tier and then they will take and expand incremental workloads and use cases.
In a hybrid environment to a public in two to two the public service.
And then put net new workloads again back to the most appropriate tier architecturally and financially to manage that and we give them the tooling.
Through through Stx to be able to do that analysis and what's the most effective place to run that workload public cloud private tier.
And so from a competitive standpoint.
From a competitive standpoint.
Really the only platform that truly can deliver it will deliver the ability to manage the entire life cycle of data in a hybrid data architecture.
And can have give didn't the ability to manage and secure the data through a consistent governance and security framework through that entire lifecycle.
In through any of these services, whether that be streaming whether that be date engineering data warehousing and they give them the ability to apply machine learning in AI through those models.
On the edge all the way.
Until the data comes at rest through an operational data store or a traditional data warehousing environment and so.
We don't think about.
Trying to compete.
At the single use case point solution basis, we're a data platform company that managed is the entire lifecycle of data.
And we think about it in terms of.
Not not focusing on the point solution competitors, but how we partner with each of the tiers.
In the case of private.
Red hat on Openshift indicates a public with the GCP Microsoft Azure.
Obviously and Amazon Web services, we think about them as partners versus versus competitor.
[noise], Okay that was actually very helpful. Thank you.
Yeah and are not going to questionable.
And our next question comes from Mr. Chad Bennett.
Great. Thanks set of questions Hey, Rob how are you.
Doing great doing.
Good yeah, so kudos again, a great execution, and obviously a unique environment here and hopefully everybody safe and healthy on your guys. The side I guess maybe.
For either one of you probably more more for Jim but you just.
I think both of you stated you know renewals were.
Strong in the quarter, but Jim can you just provide maybe another layer in terms of I I assume that implies churn.
Possibly a improved again in the quarter and then you know are we still seeing with respect to the the licensing change in pricing change months ago. Now are we still seeing somewhat of a tailwind from self supporters and or.
Maybe even a little bit of a boost.
From the pricing change now that we're in the new year.
Yeah, So Jim you want to <unk>.
Yeah, I'll start with that went so.
Yeah, It's Rob said, we're very pleased with the renewal performance in the quarter second best over the past a year and a half or so.
The themes that you see there are a continuation of what we saw in Q4. So from an operational excellence standpoint, we are fully past the merger and our operating in terms of business cadence that drives.
Renewals in some cases early renewals and minimize is late renewals the changes that we've made to licensing and pay will continue to pay off so the number of customers that have moved to self support.
Decreases each quarter.
Churn rates and we're not we're not going to discuss churn rates in detail, but what I'll say is there back to historical averages. So we're pleased that we've stabilized the churn and at this point our focus is getting CDP out there and having a good place to have customers land when they want to move into the public cloud and that will be the.
Step in terms of further approving renewal rates and churn rates.
Got it and then maybe maybe one follow up for me just on on the guide well I guess first of all to actually given it a guide in this environment.
This is pretty quick, but you know I I think everybody fully appreciates.
The headwinds to the service business.
But you know I'm just trying to reconcile what happened in the in Q1 and in how you guys are talking about at least what you're seeing quarter to date in Q2.
I mean, your your your billings were better than I expected in the quarter. Our appeal was good.
Renewals have been good you know understandably net new is challenge, but quite frankly you.
Werent button on that anyways heading into the year.
And you know it seems like pipeline.
There's been no change in deal activity, there's been no change so I just I understood trying to understand better Jim you know you cited a 3% to 4%.
Yes, coal vid related impact to subscription growth in the second half is that.
You know from actual.
Kind of factual data or is that just you know we're in a a very unique environment and you don't know what you don't know and and that's how you're thinking about it any color there would be great. Thank you.
Yeah, there's lots on factor so let me start with saying that.
We are in an uncertain environment and we want to be prudent with that said, we do have the good fortune of having a customer profile that we think enables us to be more resilient and more confident than perhaps other tech in software companies.
And and the way you see that in our numbers is in the software piece. So.
Our software guide for the year is better than consensus it's essentially right on where we were.
90 days ago before the pandemic really a hit so despite having all the headwinds of the pandemic. We think our software business is essentially very similar to what it was pre pandemic and to the extent that there is an impact on the software business. We think it will be primarily in Q2 in Q.
Three.
And that's that causes our bookings to be lower in those quarters, which then causes revenue in the back half the year to to be less and right now, we're estimating that impact to be roughly three or 4% of revenue.
Growth in the Q3 in Q4 and Thats based off of.
What I'll call is the external modeling that we do we read all the same reports that you have looking at our pipeline generation and the progress of the pipeline through the first.
Quarter and added through part of Q2 and that gives us confidence in software number for the year.
Where do you see the softness in revenue is almost entirely due to our services business and that is a reflection of obviously new new customers.
Are harder to get in this environment.
Some cuts customers are postponing or shrinking expansion.
Activities. The good news is in many of our largest and most successful customers or at the point of maturity that they're able to add new use cases, and expand with little or no help on the services from us or third party partners. So to recap. The software business is is looking very resilient. Despite the headwinds are the pandemic.
And the services business is getting ahead, but we have reacted.
Separately on the cost structure, there and then the last point is is the proof of this isn't the bottom line. So the software business is what generates most of our profits you can see the fact that we were able to actually increase our margin guidance for the year based on the strength of that software business.
And our next question comes from premise Turks back and parents with me.
Good afternoon. Thanks for taking my question and congratulations on the results.
I wanted to see if you could provide a little more color on the the impressive 10 customers incrementally that have crossed the 1 million dollar spending threshold with you is are there any color you can provide on that group in terms of what drove them over that hurdle in terms of common use cases, or you know if it or vertical cost.
Duration anything along those lines.
Jim you want to take that.
Yeah.
I'll take that.
What I will say is in some respects.
Those 10 customers are somewhat unremarkable they put their profile matches, what we've talked about in terms of our strengthened verticals that the majority of them nothing majority the biggest biggest chunk of in financial services, followed by Telecom, we had a relatively good quarter in terms of public.
Sector growth at that million dollar level, I'd say, they're slightly more weighted internationally than than domestic this quarter, but it's it's a good validation of the confidence that the that set of customers are seeing in the new CDP product line and their continued investor.
Events in the legacy platforms, because right now it's not the CDC public cloud, that's driving that million dollars plus it's the continued investments in their existing platforms.
Got it okay. Thanks, and then just as a follow up question I was wondering if you could.
Perhaps Rob if you could.
You speak to the importance of your new ml ops offering in particular, how should we think about how important decision and what sort of penetration and impact on your business that you're expecting overtime.
Sure.
It's a it's a very significant value driver for our customers because what those models do is bring incredible efficiency.
In into the datasets that they have.
I'll, let rune talk a little more about female ops and what it does but what this really does is it helps one of the big drivers and this goes back to the earlier question on the on on data flow.
Pod driving ml ops into the streaming datasets. It really allows that the use cases to get to.
Real time of the.
Real time decision process.
That don't even require the dataset come back to rest to do and analytic on it. We can we can run those machine learning models.
Over real time data stream and take real time action and processing as an event happens or changes.
And that's a massive value driver a.
Irene you want to touch on M.L. ops, and specifically, maybe some of the things it's doing with Stx.
Absolutely thanks, I'll pitch I.
One of the think this you know like Rob is saying is this really disruption so sort of broadening the chart of the Stx capabilities right as you as as we talk about in the past Sdx is fundamentally pools all of our all the entire CDP platform.
The.
The goal here was to say Hey look you know, it's one thing to actually develop a good a smart analysts also decision billable machine learning model, but.
So the goal from so the inside of the Matt actual production value is a huge a journey for the enterprise fit right and the envelopes platform or the capabilities the added into CDP.
You made a public I'm in April.
Your.
Just to make sure that we can dig dug very model a Mexican lung this in a gallon fashion a secure passion make sure we track the model make sure that as audit and lineage, so that and monitor things for example, if you're starting to see a modern stress because as new data and you know. This this is a good example of that yesterday. The pandemic. We're seeing all sorts of you know you were inside.
Do you have to pop up and then when you're modeling might not be as efficient as you'd imagine that to me.
So the ml ups platform allows her to really take a machine learning Maponya statistics and make sure you can run this in the production good us an audio as to sort of complete building all of it from the edge when you get this all this new data.
To make sure it's actually something that is.
Qualitative and quantitative FX for the inputs.
That makes sense.
It it does yes got it and thank you for the the color in detail around that.
Yeah, right and what's with the again part of the key value drivers being able to do that across a hybrid multi tiered dataset.
As a massive differentiator for CDP and ER and the machine learning service models.
Thank you.
And our next question comes from me Mr., Mark Murphy with JP Morgan.
Hi, Good afternoon. This is Matt costs on behalf of Mark Murphy.
Jim the expectation of operating margin expansion going forward, it's great. It's great we've already seen it happening in the model.
What at this point could cause operating margin to expand either either faster or slower.
Then your baseline expectation and a second one I know you mentioned there is not meaningful revenue built into your model for CDP. This year when does that start to get more meaningful and can you comment on any sort of spending uplift that you see as customers.
Move to CDP. Thanks.
Okay.
In terms than margin profile.
What we've done is is through the actions.
Post merger last year and through May of this year with basically created the.
Cost structure that will support a.
Profitable revenue growth and what I mean by that is our cost structure will shrink slightly over the remainder of the year as we consolidate facilities get some additional non headcount savings.
But it's relatively stable so what will cause margins to expand faster than what you see here would be revenue growth in bookings growth in excess of our or assumptions.
If that occurs we will have to increased cost, but we'll be able to increase cost at a much lower rate than bookings to revenue because the this infrastructure is in place to support that cool.
Regarding CDP revenue, what I'll say is that's going to be a function of the the pandemic because clearly to the extent that CDP is a new product and a new offering it's it will be easier to sell in an environment that spending budgets are bigger and it's easier to it.
So as to your customer and the general spending levels of of.
He's spending in the economy, so I think from a product standpoint.
CP public cloud will start being meaningful in Q4 in terms of of economic contribution and really heading into fiscal year 20 to see CDP private cloud will be primarily fiscal year 22 from a revenue perspective.
Thanks very much.
Thank you very much for that question.
And your next question comes from the line of a reshot from <unk> Davidson.
Hi, guys. This container it off on current Sheetal, Hey, Thanks for taking my question.
Could you provide a little more color on what the expanded partnerships with the public cloud vendors mean for you and maybe how much additional adoption it could bring and what is left to do on that partnership with the public cloud vendors.
Sure.
Thanks for joining the call.
So.
We are we are very focused on those public cloud partnerships and it starting with making sure from an engineering standpoint, we're optimized to it the.
Intrinsic low level services.
Optimization.
And making sure that TDP runs in an awful environment for them all the security models are like.
That sdx works correctly within some of the lower level security calls on their side there were optimized user their specific file systems.
Just a lot of engineering work that has been done in continues on an ongoing fashion.
What this is really does this change the tone and being from the competitive environment to.
I would I would classify it as a co op petition.
Competition being much much heavier focused on cooperation and competition.
We have 400000 datacenter servers under management.
Bob Exabytes of data for pay from paying customers and of course that grows every quarter.
As we do our customers to CDP for the hybrid architecture.
Both we and they want to make sure that Betsy that's an obvious huge onramp to from an I asked standpoint, and they want to they want to make sure there the beneficiary, we want to make sure our customers have the ability.
To run efficiently and cost effectively and leverage our tooling.
And we are now in the process of.
Seen the benefit of that.
I talked about earlier.
And some of the prepared remarks that CDP public cloud.
In terms of usage has about tripled since our last a quarterly report.
And through the quarter pipelines more than doubled.
You know for every dollar that our customers pay us for CDP services in a public cloud, there's probably four to five X dollars.
And I asked spend.
What we're also doing is trying to to make every make it a very frictionless easy migration process. Those were the design principles for CDP, but now we're into sort of the the next phase.
Accelerating our digital transformation to make sure I want to customers can onboard to CDP and a self service way.
Yeah mix, leading that effort inside the company. It's it's exactly on track with the goal and then they were ambitious goals that we put in place.
And that's going to make it.
Even faster and easier for our customers to move to CDP and then we're going is I've talked about in the prepared remarks also.
We're now part of the market Azure marketplace and what that says is now customers can provision.
And procure directly through the marketplace and leverage their azure credits that they've committed to and purchased to burn down CTP five so all of these things and accumulate into.
Faster and more efficiency better economics, and then clearly had the ability.
To drive and deliver the hybrid architecture that they're there so anxious to get to so it's a culmination of all these things and as they continue to progress we'll see further adoption and you know and accelerated adoption as Jim pointed out in a in the last question we'll see.
More meaningful revenue next fiscal year.
From from CDP, generally and I think we're tracking exactly where we wanted to be and I'm really proud of our team for how well they've executed there.
Great that's really helpful. Thank you.
Absolutely.
And our next question comes from the line of a pre Kt from Barclays.
Hi, there thanks for letting me ask a question.
I was hoping to get a little bit more colour on the CDP private cloud.
It's just offering more about kind of maintaining the technology or do you expect when you do a roll it out that increases youre your expansion rate disappear or are people going to be spending more because they upgrade to.
CDP pirate cloud.
[noise] surely answers I think it would it's going to do.
From a from an economic model I assume you're going to talk about that you cannot versus the technology am I to what the platforms doing.
Have you talked about either but but in terms of the economics.
It is CDP again, it goes back to design principles, it's designed to be a much easier.
Faster platform to manage more data on and be the foundational enablement of a hybrid architecture with the ability to manage the entire lifecycle of data.
And so yes, I think it would it clearly does is it helps solidify where you're seeing that now in terms of improvement on churn rate and and renewals because this customer our customer set now they're renewing with the intent to view to CDP took case public but a lot of cases private.
And that's the migration.
Path and plan they have.
Because of the surpluses that that CDP private cloud will provide.
It will naturally bring more data under management, which will drive not only renewal, but expansion dollars also because of the services with and the machine learning data engineering data warehousing native capabilities.
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They'll bring more data under management they'll have more used for more lines of business that begin to use those.
Again, not only driving renewal, but also more expansion.
Opportunities as well.
And then of course that will that will then lead to expansion to the public tier.
And also leveraging those services in certain they let David workloads that will will naturally be appropriate to run in the public cloud and and CDP private will make it very easy.
For that to happen in and of course Stx is.
Essentially the fabric that drives the security governance models and management platform three that entire lifecycle.
Does that help.
Perfect. Thank you and just I guess I really quick follow on a follow up question I know, it's way too early for fiscal 2002, and you're not going to guide on it.
But the GDP, probably have kind of leading to more expansion and CDP public cloud relatively small right now, but a much hopefully much bigger footprint out to next fiscal year, I mean, all things equal.
The ship subscription revenue kind of go towards mid to high teens, and you know run a little bit more but where the market has right now.
The other Jim you want to other than that.
Yes, yes, so what I will say is.
Once.
We complete our product transition to CDP and it's a significant transformation. We do believe that we should be able to grow with the market and the market was great pre pandemic roughly 20% a year. So we think of ourselves in the longer run as a 20% growth company, 20% operating profit company.
In terms of balance we're not ready to give fiscal year 22 guidance for many reasons were in the middle of a pandemic. The second thing is even once our business starts to grow revenues a lagging indicator. So we'll start seeing growth in bookings and then it will take some time for it to show up in revenue. So certainly not ready to call revenue growth number for next year.
We do think once the pandemics over once were through the product transition, we should be able to grow with the industry.
Great. Thank you.
And we have no further questions at this time.
Alright, well very good. Thank you all for joining the call and we look forward to.
Being back with you next quarter.
Stay safe stay healthy pickier.
And ladies and gentlemen, this does conclude todays conference call. Thank you for participating you may now disconnect.
Good bye.
[noise] disconnect doesn't mean Ticketmaster [noise].
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