Cloudera, Inc.
Q4 2021 Earnings Call Transcript

Published: 11 Mar 2021

[Operator:]

Good afternoon. My name is Gabriel and I will be your conference operator today. Welcome to the Cloudera Fourth Quarter Fiscal 2021 Financial Results Conference Call. All participants have been placed in a listen-only mode to prevent background noise. After the speakers' remarks, there will be an opportunity to ask questions. . Please note this conference is being recorded. Your host is Kevin Cook, VP Finance, Corporate Development and Investor Relations. Kevin, you may begin your conference.

[Kevin Cook:]

Thank you, operator. Good afternoon and welcome to Cloudera's fourth quarter fiscal 2021 financial results conference call. We will 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 Cloudera's 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 Cloudera with me are Rob Bearden, President and Chief Executive Officer; Jim Frankola, Chief Financial Officer; Arun Murthy, Chief Product Officer; and Mick Hollison, Chief Marketing Officer. During the course of this call, we will make forward-looking statements regarding future events and the future financial performance of the company. Generally, these statements are identified by the use of words such as expect, believe, anticipate, intend and 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 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 and extraordinary non-cash real estate impairment charges. These non-GAAP measures are not intended to be considered in isolation from, a substitute for or superior to our GAAP results and we encourage you to consider all measures when analyzing Cloudera's performance. All references to operating income are to non-GAAP operating income. For complete information regarding our non-GAAP financial information, the most directly comparable GAAP measures and a quantitative reconciliation of those figures, please refer to today's press release regarding our fourth quarter results for fiscal 2021. The press release has also been furnished to the SEC as part of a Current Report on Form 8-K. In addition, please note the date of this conference call is March 10, 2021, and any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date, including those related to the impacts of COVID-19 on our business and global economic conditions. The forward-looking guidance we will provide today is 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 timeframes for and severity of social distancing and other mitigation requirements related to COVID-19, and the impact of COVID-19 on our customers and partners and its impact on the economy as a whole. Significant changes in the future, whether related to COVID-19 or other factors, could cause us to modify our guidance. We undertake no obligation to update these statements as a result of new information or future events.

[Rob Bearden:]

Thank you, Kevin. Good afternoon, everyone. Thank you for joining us to discuss our fourth quarter and full year fiscal 2021 results. Today, we'll quickly reflect on FY '21 accomplishments, discuss how we're positioned for the current fiscal year, and review our financial results in Q4 in detail. In all, we executed extremely well in Q4, throughout fiscal year '21 and the opportunity for Cloudera has never been larger. Let's begin with our performance in the fourth quarter. Total revenue was $227 million. Subscription revenue was $207 million, and non-GAAP operating income was $50 million. Annualized recurring revenue reached $778 million at the conclusion of the quarter representing 10% year-over-year organic growth. It is noteworthy that Cloudera Data Platform or CDP demonstrated significant momentum in the quarter. Customers migrating to CDP increased from about 10% of our customer base at the time we reported Q3 to more than 15% of our customer base today, which is well ahead of plan. Most impressively, ARR from CDP now exceeds $60 million of total ARR. Please note that there is no year-over-year growth comparison for CDP as we've only had hybrid cloud offerings in the market for a few months now. And these early migrations really validate customer demand for our hybrid data cloud platform and the new use cases that we addressed with CDP. These use cases enable the full data lifecycle, from data collection to reporting, predictive analytics, and AI. This adoption momentum and enthusiastic customer feedback demonstrates that we have the right strategy and it's working. The adoption to CDP for hybrid data cloud and data lifecycle use cases is what will drive future growth and we're happy with our progress to date. And we'll spend more time on each of these items later in the call. So in fiscal '21, we delivered on a number of key objectives that set us up for continued success this year. And I'll mention just a few of these accomplishments. First, from a product perspective, we delivered the industry's first cloud-native hybrid and multi-cloud data and analytics platform that meets the needs of large enterprise customers from mission critical, data driven applications. In addition, we developed an integrated suite of analytics capabilities that service use cases throughout the lifecycle of data from the Edge to AI. We also completely rebuilt our data platform with a modern, containerized architecture that separates compute and storage, marking the definitive end of the Hadoop era and empowering our customers to migrate to the hybrid data cloud architecture they want. And we executed on a number of critical digital and business transformation initiatives, making everything from CDP trials to customer support faster and easier for our customers and more efficient for our business.

[Jim Frankola:]

Thanks Rob. Hello, everyone. Fiscal Q4 was another very strong quarter in the face of a pretty tough operating environment. Total revenue was $227 million, an increase of 7% year-over-year. Subscription revenue was $207 million, an increase of 14% year-over-year. Annualized recurring revenue for fiscal Q4 was $778 million up 10% over the same period last year. For fiscal year 2021, total revenue was $869 million, an increase of 9% over fiscal 2020 and subscription revenue was $783 million up 17% year-over-year. Note, information regarding definitions and trends can be found in today's press release or supplemental materials on Cloudera's Investor Relations website. As we enter a new fiscal year, I'd like to begin with an update on reported financial and non-financial metrics that we use to manage the business. Some of the metrics that we have tracked and reported in the past have lost their utility. Predictive character as our business model has evolved. We will see easing some metrics and begin to introduce others for fiscal year 2022. For example when we were predominantly an on-premise business, we used to term customers, only after they reach $100,000 of ARR. To complete the fiscal 2021 disclosure, we concluded Q4 with 1,005 we started at have or have grown to more than $100,000 of ARR. Now this number is much less useful than in the past because we expect many of our new customers to come to us as CDP public cloud customers acquired with reduced involvement from our sales force and convincing an economic relationship based on consumption revenue of a few dollars per hour. This is exactly what we want to have happened from a cloud first standpoint. However, it is likely to take several quarters before such a customer eclipses $100,000 of ARR. To be clear, the expected ramp in new customers will be modest in the first few quarters of fiscal year 2022 as we focus on supporting our existing base as an upgrade to CDP. In this regard, $1 million plus ARR customers are still important and we will continue to track these. In the fourth quarter, we increased this number again by a record amount. From 179 in Q3 to 190 in Q4 an increase of 23% year-over-year. And as fiscal 2022 progresses, we expect the contribution to ARR growth from new customers to increase. Accordingly, we will disclose the proportion of ARR growth of new customers versus existing customers. In Q4 of fiscal 2021, 3 percentage points of the 10 percentage points of ARR growth came from new customers. With respect to CDP, we will involve the metrics to match the state of the business. The primary measure of progress in the short-term is a continued adoption of CDP products by the customer base and total ARR for CDP. Therefore, we will track and share the percentage of existing customers that have initiated and upgraded to CDP as well as ARR dollar value and growth rate for CDP. For additional context while the fourth quarter was marked by record profitability our operating margin came in roughly 4 percentage points higher than normalized Q4 levels due to lower travel and facilities cost because of the pandemic. Among pandemic related items, we reviewed our real estate portfolio and have taken a $36 million impairment charge to reflect that anticipate sub-lease income will be less than these payments. This expense is reflected in our GAAP results and is excluded from non-GAAP expenses and profitability metrics. Please see the supplemental materials on our Investor Relations website for further information. As I review the remainder of the income statement 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 excludes stock-based compensation, amortization, M&A related intangible assets and extraordinary non-cash real estate impairment charges. Total gross margin for Q4 was 85% compared to 79% in Q4 last year, driven by subscription gross margin of 91% up from 80% in the year ago period. Overall operating income was $50 million for the fourth quarter representing an operating margin of 22%, a substantial improvement of 17 percentage points compared to Q4 of last year. Operating cash flow for the fourth quarter was $37 million top line growth and ongoing operational efficiencies are driving our strong cash flow. Diluted earnings per share was $0.15 in the fourth quarter compared to $0.04 in the fourth quarter of fiscal 2020. For the full year of fiscal 2021, total gross margin was 83% compared to 76% for fiscal 2020. While subscription gross margin for the full year was 90% compared to 87% for the last year. Operating expenses in fiscal 2021 were $572 million or 66% of revenue compared to $646 million or 81% of revenue in fiscal 2020. Operating income was $147 million for fiscal 2021 representing an operating margin of 17%, a 22 percentage point improvement from fiscal year 2020. Operating cash flow for the year was $156 million an improvement of $193 million from the year ago period. Diluted earnings per share was $0.45 in fiscal 2021 compared to a loss per share of $0.13 in fiscal year 2020. Now turning to the balance sheet. We excited Q4 with $773 million in cash, cash equivalents, our full securities and restricted cash up from $568 million at the conclusion of Q3. Note, in December we executed a term loan of $500 million on favorable terms equating to 3.25% floating rate for seven years. At that time, the board also approved a corresponding $500 million share repurchase authorization. In the fourth quarter, $314 million of the loan proceeds were used to repurchase 26 million shares of common stock. Total contract liabilities were $608 million at the end of the fourth quarter. RPO was $954 million up 9% year-over-year. Current RPO grew 13% over last year. Capital expenditures were $3 million in the quarter and $10 million for the full year. I will conclude by providing initial guidance for fiscal Q1 and for fiscal year 2022, which is subject to the disclaimers provided at the beginning of the call regarding forward-looking information. We expect Q1 total revenue to be between $216 million and $218 million, representing approximately 3% growth compared to Q1 of last year with subscription revenue in the range of $195 million to $197 million, up approximately 5% year-over-year. Non-GAAP operating income is our primary bottom-line metric. We expect operating income for the first quarter to be in the range of $28 million to $33 million or roughly 14% of revenue. Diluted earnings per share for Q1 is projected to be $0.07 to $0.09. For fiscal year 2022, we expect total revenue to be between $907 million and $927 million representing approximately 6% growth, with subscription revenue in the range of $822 million to $832 million, up approximately 6% year-over-year. We expect to steadily supplant revenue from traditional products both revenue from CDP throughout fiscal 2022. By the second half, grown CDP public cloud consumption revenue and CDP expansion activity will begin to push ARR higher. Driven by CDP momentum, we expect ARR to grow by at least 10% year-over-year for the first two quarters of fiscal year 2022 and 1 or 2 percentage points faster for the second half of the year. Once again, ARR measure is the best measure of referring economic activity and normalizing for the effects of accounting, M&A and the shift toward 100% of in-store software. In fiscal 2022, ARR is expected to grow faster than subscription revenue due to an intentional decline in non-recurring revenue particularly non-recurring engineering. Non-recurring revenue is reflected in subscription revenue on the income statement. Non-recurring revenue is on effect of our on-premise business is not strategic. We're managing down these commitments to focus resources on hybrid cloud development. Specifically, we expect our non-recurring revenue to decline from $48 million in fiscal 2021 to approximately $20 million in fiscal year 2022. To be clear, the recurring component of subscription revenue is expected to grow in line with ARR at 10% or higher. With respect to spending using fiscal year 2021 as a baseline. We expect the following trends in fiscal year 2022. Gross margins will be relatively flat as increased operational efficiencies are offset by slightly higher initial cost associating with the support of customers on new offers. Sales and marketing will increase as a percent revenue as we make investments in the hybrid data cloud market opportunity and plan CDP adoption. Expense will grow due to increased resources associated with traditional go-to-market motions as well as investments in digital transformation in particular creating new go-to-market motions to build awareness and drive consumption of CDP. In addition, we anticipate travel expenses to increase in the second half of the year. R&D will be flat as a percent of revenue as we shift the focus of our engineering teams away from the heavy work required to develop CDP to building increased functionality and extending CDPs reach. G&A expenses excluding expanding facilities expenses will continue to decline slightly. These trends will result in a fiscal year 2022 operating margins at approximately 16% down slightly from fiscal year 2021 due to the accelerated investments in sales and marketing support CDP growth. We expect operating income for fiscal 2022 to be in the range of $137 million to $147 million. For the year we expect operating cash flow to be slightly above operating income to slight absorbing approximately $16 million of interest expense. Diluted earnings per share for fiscal 2022 is projected to be $0.35 to $0.39. Now I'll turn the call back to Rob.

[Rob Bearden:]

Thanks Jim. Q4 is a clean quarter and the outlook for Cloudera is better than same for some time. We did share consistently strong execution for several quarters. We've introduced new products to launch cloud data services, we've stabilized our existing customer base and one-year commitment in our new offerings. And I'm excited to be moving through these transformational phase for the view towards more rapid growth. We've got $900 million plus revenue stream and takes time for CDP adoption to impact that number. Particularly CDP public cloud is an entirely consumption-based revenue model. That said, it's our hybrid data cloud that's driving customer engagement. So the hybrid cloud trend combined with the exceptional market opportunity for analytics and AI, positions Cloudera nicely. These markets are at the very early stage of development and CDP enables us to innovate in a faster pace and aggressive way to find new customers. It's a multi-year transition to establish ourselves as the hybrid data cloud category leader. But we're focused on the long-term. This year we plan to methodically advance toward our market growth objectives, operating with a sense of urgency and achieving our FY 2022 objectives. So I'll leave at there and say thanks to all those who helped us bring us to this point. In addition to Jim and myself, Arun, our Chief Product Officer and Mick Hollison our Chief Marketing Officer are also available with Jim and I for Q&A. So operator, please begin the Q&A portion of the call.

[Operator:]

your first question will come from the line of Chad Bennett with Craig-Hallum. Please go ahead.

[Chad Bennett:]

You gave awful lot of metrics there which are great, it's great to break out the CDP ARR and your expectations there. But just you're trying to unpack Rob and Jim probably the 120% plus net expansion in the CDP customers or your base that's migrated to CDP for the Q3 and Q4 cohort. I guess, just in plain English, what does that mean? Whether they were on Hortonworks distribution or Cloudera distribution before you're annualizing the contract and you're seeing 120%? Can you just give further color there?

[Rob Bearden:]

Chad, thanks for joining. Appreciate the question. Like I pointed is foundational, so we've only two quarters of cohort Q3, Q4 of legacy customers moving to CDP. Recognizing also that really Q3 was not a full quarter of having full CDP hybrid in market holistically. Right? So in a full quarter. So what we're seeing from that is though, the customers whether they be legacy flatter or Hortonworks better moving more close to CDP and acquiring CDP entitlement. We're seeing the net expansion rate for those portions workloads to go at a faster net expansion rate than the traditional legacy environments and they're tracking at about 120% of that net expansion rate, which is a great signal. It plays very much into the value creation of CDP, hybrid platform and the ability to expand use cases and high value way and to many degrees also a low friction way.

[Jim Frankola:]

And let me just jump in on the, how we measure it. So we looked at these customers that graduated to the CDP customers in Q3 and Q4, they make up a cohort. We then compared their Q4 ARR from last year to Q4 ARR this year and that results in a net expansion rate calculation. So it's that group of customers is growing faster than our average customers and is quite frankly growing at a very nice rate.

[Rob Bearden:]

And the drivers very principally to that ARR CDP just represents more capabilities generally. It's faster and easier to get workloads in and to gain insights into the data and to leverage the use case experiences and it's quicker, ROI and a better TCO than the legacy platforms that they were and have been traditionally operating on. Recognized as the last piece of that Chad is that, our customer base as you know are running these very mission critical use cases and are very large data sets. So the migration to CDP in the hybrid environment has to be very well thought through migratory approach and we're heavily engaged in assisting the customer base and how to get there in methodical way, in a mindful way. And sometimes multi-month and can be multi-quarter process as they leg in the CDP.

[Chad Bennett:]

Okay and then maybe one follow-up from me. So if I try to connect the dots between the guide especially for subscription for the year and what appeared to be pretty decent CRPO numbers and you know I know you don't like talking about billings, but billings look actually fairly good. Is it - is the simplest answer is you know the non-recurring engineering revenue headwind of I think roughly $28 million or can you just kind of give me an update on how churn played out in the quarter maybe how the IBM partnership played out in the quarter? Is there anything that changed relative to your outlook in the last few months?

[Jim Frankola:]

Yes, so let me start with some of the numbers and then I'll turn it over to Rob for some of the color in the business. So you know the big new so to speak in the guidance and that is the deceleration of the non-recurring engineering revenue, that's a conscious instituted decision that we've made to refocus our engineering team on the hybrid cloud versus I'll say the partner certifications and other type of things you do in a legacy on-prem business, so that's one element. The billings piece, we probably quote ahead of $40 million more billings out of Q1 and hence fiscal year 2022 above expectations and that's a reflection of the conversations we're having customers on CDP right now. So we're sorting migration plans, we're selling professional services and that has caused our services bookings to be good in the quarter and it caused a number of contracts that we've firmly been signed in Q1 to be signed in Q4. So that's certainly good news, but it's a left pocket, right pocket. It shifts some billings out of next year. Beyond that, I'll say we're a 10% ARR grower. We've said that for a while and as CDP gains traction we're accelerated to a revenue in 12 as we believe it will recur in the second half this year. Rob, is there anything you want to add?

[Rob Bearden:]

Just traditional point. The NRR that we have moved away from was very, very conscious and it is an absolute reflection of our shift into CDP, that migration and adoption and traction that we're seeing with that and we want to make sure that we're allocating our R&D resources onto the platform that's going to give us the highest return in that CDP to our hybrid environment versus during NRR in the legacy platform it's just a dollar in and dollar out and old legacy world and those resources are exponentially better applied onto CDP and driving the acceleration ultimately and the adoption for CDP and we're seeing the acceleration of that adoption happen before our very eyes this quarter as you can see in the numbers.

[Chad Bennett:]

Okay, thanks for the color.

[Operator:]

Your next question will come from Sanjit Singh of Morgan Stanley. Please go ahead.

[Sanjit Singh:]

I had a similar question around the ARR trajectory. I think, first when you look at the $60 million to $250 million and hop into next year. If you look at some of the component to that. How should I think about net new versus expansion versus migrations? And when customers do expand or migrate rather is that going to be sort of dollar-per-dollar, is it going to be more of a compression reflect or is that going to be sort of net new toward to their pre-existing ARR commitment?

[Rob Bearden:]

Sanjit, thanks for the question and thanks for joining also. Just let me take first part of that and then Jim going to probably going to add some color too. So look I think we are very focused on is when we look at that the traction and the acceleration as we looked at quarter-to-quarter going from 10% of the customer base adopting CDP from last quarter to 15% in Q4 significant acceleration that's driven by the more completeness and stability of an increased functionality and candidly ease of use and ease of migration into CDP. On a backlog to get to CDP and that is driving the consistency and expansion of the net expansion rate that we've seen in the Q3 and Q4 cohort, right now tracking it about 120%. And so it's actually now to your question, for the portion of workloads that need and are able to migrate within the customer base is migration plan. As they acquire CDP entitlements the base is dollar-for-dollar that net expansion is tracking well above the legacy expansion. In addition to that, what it does is it allows “net new” to also come online whether for the hybrid environment whether it be public or private. And so it's just unlocking a lot of the backlog of workloads and datasets that wanted to be applied on the existing use cases that customers have been running. And so that momentum is building really nicely. We're pleased with the progress and we're continuing to make sure that we're really leaning in both from an assistant standpoint in the migration as well as making sure from a tech completion and tooling to move those migrations long in an accelerated way.

[Jim Frankola:]

Yes, I'll just add some quantitative pieces. So regarding the new versus migration versus expansion. Three points of our ARR growth as of Q4 came from new. We expect that to be roughly the same for the next quarter or two and then CDP matures as our go-to-market efforts against that new opportunity increase, we expect the portion of growth from new to increase in the back half of the year. So that's a piece of it but a modest piece. Migration is going to be a big piece and underneath migration there is an element that will be a short-term drag on ARR growth and that is as customers move from a term license to a prepaid consumption on the public cloud, we recognized revenue on the consumption side of our business when it's consumed. So you go from potentially seeing a slight revenue drag at first when customers start moving to the cloud and so their usage kicks in months or quarters later. So that is factored into our guidance as well. So the biggest piece of the 50 to 60 is the migration coupled with the expansion.

[Sanjit Singh:]

That's super helpful. Thank you both. And then just one quick follow-up again on a similar topic but this one on form factor as you put it, Rob. Public cloud versus private. Where do we stand in terms of public cloud of that $60 million? And it sounds like the driver for that new business coming in the door in the second half of next year is going to be driven by other cloud. So firstly, I think that the very explicit about public cloud driving near term ARR in the next couple of quarters in quite sometime. So I just wanted to go get your latest thoughts on the mix of on the form factors go-to for next year.

[Rob Bearden:]

Certainly, we think about CDP in terms of hybrid and obviously it has public and private form factor. And what our customers want is to be able to have that to enable the hybrid multi-cloud data platform and those workloads will move fluidly between private and across public clouds and so we're not waking out deliberately the amount of moving allocation or consumption by tier if you meaning public or private. As you've seen we've had acceleration to CDP in terms of current quarter at $60 million. We're seeing with momentum behind CDP and its adoption in our projections that CDP generate $250 million ARR in FY 2022. And that will be distributed as we talk about between private and public.

[Sanjit Singh:]

Appreciate your thoughts, thanks all.

[Operator:]

And your next question will come from Rishi Jaluria, D.A Davidson. Please go ahead.

[Rishi Jaluria:]

I wanted to start by drilling a little bit into the guidance and specifically through next quarter. If I look at the subscription guidance even adjusting for the mix shift away from non-recurring. It is still calling for a sequential decline if my estimates are correct. Maybe help us understand what's going on in that guidance and what assumptions are being meet into there. And then maybe alongside that, Jim I know you don't like billings as we think about the billings guidance for Q1. Maybe can you walk us through a couple of the puts and takes of billings you're talking about it being down, double digits year-over-year how much of that is from pull forward into Q4 as you mentioned versus CDP shifts going from prepaid to consumption based and then the headwinds from obviously the non-recurring shift and I got a follow-up to that multi-part question.

[Jim Frankola:]

The sequential change in subscription revenue in particular in Q4 to Q1 is driven by three things. First and foremost the number of days in the quarter that's little bit more than 3% customer in revenue . The second piece is that, although we're mostly vast majority of open source software we still have some proprietary software. On the proprietary software piece, there's upfront revenue that is associated with FIP, functional IP. Given the fact that closed to 40% of our bookings occur in Q4, we have a seasonally high FIP that shows up in revenue one thing and this is why ARR is the best measure, but you'll see a big decline in that FIP number from Q4 to Q1. And the last piece of it is, if you go into the supplemental materials you can see the NRR piece. So NRR, non-recurring revenue is also stepping down Q4 to Q1. So those three things are what's driving the sequential decline. If you strip out the non-recurring revenue piece and you look at year-over-year growth rate for our recurring revenue it's up roughly 10% year-over-year. On the billings piece, once again if you move $40 million of Q4 billings back to Q1 and to do the year-over-year math of Q1 and for the full year. I think you'll see show straight revenue burn .

[Rishi Jaluria:]

Got it. Thanks guys that's helpful. And then just on CDP the percent of the business. I appreciate the disclosure and great to see that 8% around there of total ARR. How should we be thinking about that number trending overtime. I mean should just be slow ramp up should gradually or massively accelerate. Maybe you can just help us understand how we should be thinking the mix shift on CDP as a percent of total ARR. Thanks.

[Jim Frankola:]

I'll start, so big picture. We think that more than half our customers who have started a journey to CDP by the end of this year. If you look at our guidance - soft guidance for ARR growth that means that we should have a well over $400 million worth of ARR associated with customers who have started that journey. Now exactly how far each of them would progress and which of their skews will be entitled around CDP, we're just at the very start of this journey. So that's where the 250 comes from. We're very confident of the 250 number. How quickly it progresses to that 250, how much upside there is above that 250, we'll be able to tell you a lot more in 90 days.

[Rob Bearden:]

But we're very, very encouraged by the acceleration that's happening over the adoption models that we have been anticipating. I think it's a great testament to the take ability to CDP the value it brings and the TCO that its driving.

[Rishi Jaluria:]

Wonderful. Thank you so much guys.

[Operator:]

Your next question comes from Jack Andrews of Needham. Please go ahead.

[Jack Andrews:]

Rob, you mentioned that obviously one of the key metrics here is just overall adoption of CDP products. So I was just wondering if there's a way to parse out in more detail maybe which parts of CDP are really gaining traction. You mentioned some of them around AI, machine learning, streaming. But is there a way to maybe provide some context or metrics around the penetration of individual components and if there's a way to go deeper into how these individual parts maybe driving broader adoption of the CDP platform.

[Rob Bearden:]

Yes, I think that's really the real power behind the model and that you think about CDP as we talked about in two form factors public and private and the highly differentiation is the interoperatability for between public and private to enable a true hybrid data architecture and then be able to enable the entire lifecycle of data and those analytics applications across that hybrid data with a common security and governance platform in framework. So with that, what we see then is neutral motion is the legacy customer base between Cloudera and Hortonworks moving to CDP as a hybrid platform distributing their workloads between private and public. The biggest portion initially go to private then we see expansion to either depending on the workload tie public or private that embodies the Phase 1 and generally comes with as the numbers as we talked about the initial cohorts or driving about 120% net expansion. Phase 2 then becomes around that adding net new workloads to either public or private. But irrespective on the CDP and then within that sort of in parallel and beyond is then enabling the analytical applications for the hybrid platform and so those and the two fastest growing use cases that we have right now, that we've indicated I think in previous calls remains consistent now and into our model through the year is streaming . Those are growing well above our corporate growth rates as markets are accelerating. We're getting great acknowledgment of our leadership in these spaces and we're not breaking out the numbers. But essentially, we're seeing it at roughly 25% of our ARR is driven from those two use cases in particular. And what we're now seeing is incremental momentum if you will, as we talked about in some of our prepared remarks, the things that we're doing with AMPs. And those are prebuilt apps for machine learning and as you're aware for everybody on the call most and many of our customers and the big regulated industry that are heavily data driven and digital transformations are underway in those industries and across our customers and those are in healthcare, manufacturing, telco, financial services. What they have done is built those mission critical applications and use cases for things like anomaly detection, fraud, demand forecasting, turn money laundering, network load management, etc. We've been able to leverage our relationships from a standpoint and be able to take those industry templates put them across the machine learning platform and be able to get high value, single click through to deploy these workloads onto CDP in a very accelerated timeframe. So that's driving incremental expansion across our customer base and also allowing us to move acquiring new customers in new market sectors and expanding our presence in existing industries we've got strong holds in. So it's beginning to have a compounding effect and it's great testament to CDP now coming online and the improvement, the ease of use of the platform and now we're able to take the lifecycle experiences lay on to CDP hybrid, create more value, more traction and as we talked about again this is another great example of why we don't want to spend resources on doing legacy NRR work that don't have returning impact in the future. We prefer to move those resources onto things like building more amps and more of the lifecycle service functionality because it's going to accelerate adoption of CDP and drive net expansion faster.

[Jack Andrews:]

I really appreciate that answer, that's super helpful. This is a quick follow-up. Rob, you mentioned that one of your new priorities which you touched on here and your answer is just bringing on board new customers to Cloudera and I was wondering, you referenced sort of targeting line of business users as well as some potential mid-market enterprises. I was wondering if you could just shed some light on how you plan to target those because to my relocation, I feel like those are different personas than Cloudera has historically targeted.

[Rob Bearden:]

It has been, good question. I appreciate you putting that out there. It is absolute a very fundamental and clear priority for us as a company and certainly for me. But as a core operating priority. And so just quickly reflecting to refresh everybody. As we've been making the CDP transformation from the existing legacy platform to CDP that has been a very big effort because we have to make sure that CDP's hybrid platform is mission critical application ready to run those enterprise viable workloads at scale for our customers and so to do that, we've been largely focused on finishing the platform, delivering the tech and making sure that we're servicing our customer base extraordinarily well in a high value, high touch way and we were extraordinarily focused on our legacy customer base helping them be successful in their current operating environments as importantly in parallel in helping them plan the blue print to their migration to CDP to enable their hybrid data strategies. And as you see from the numbers, we've delivered certainly only in the last few months having CDP hybrid available in market. But the work we've done with our legacy customer base and the planning process we've gone through to get them moving is clearly showing up very quickly moving from 10% to 15% of the customer base to CDP driving $60 million in ARR and another incremental 35% of the customer base by the end of the year moving is to around $250 million plus CDP ARR. But what that really now does is give us the ability with the completion and of CDP to now leverage the work that Mick and his team has been driving around digital transformation and the go-to-market motion that Scott and his team had built to now we can take through our product packaging, through our digital motion and get to a new customer base in the mid-market that we've not been able to cost effectively either touch or cover as well as now be able to take either digitally and/ or the lifecycle experiences on a very targeted basis through the line of business users all of which will drive net new adoption in terms of those CDP platform as well as the lifecycle applications. So we're super excited as you can tell. But the work that the teams have been doing certainly over the last 12 to 15 months has put us in this position that now we can roll in and execute on, with the completion of the product and the enablement of the go-to-market motion and the digital transformation progress that we've made over the last 12 months.

[Jack Andrews:]

Got it. That's really helpful. Thank you for taking my questions.

[Operator:]

And your next question comes from Zane Chrane of Bernstein. Please go ahead.

[Zane Chrane:]

I was wondering if you could give me a little bit of elaboration on how the pipeline in Q4 both for new customers as well as existing customers expansion maybe compared to that in during Q2 and Q3. And then regarding the CRPO growing 16% over 50% faster than ARR this quarter. To me that seems incredibly bullish and I think I understand the dynamics there. But I would love to hear some of in your words, the third-grade level explanation of how to reconcile the much faster CRPO growth with ARR? Thanks.

[Jim Frankola:]

Okay, I'll start with the RPO. The pipeline real briefly rough in that color. So my notes on RPO show that total RPO growth on a year-over-year basis is 9%. Current RPO on a year-over-year basis is 13%. So the 13% is just a couple points higher than our 10% ARR growth. RPO does not include contracts with terminations for convenience and there are some other factors that will cause it's move slightly differently than ARR. I'll say, if you look at our current RPO over the past several quarters you'll see the growth rate averaging to be roughly ARR. Now I'll always back to ARR is the best measure for both the economic activity that exist as of the end of the quarter and are predictor of where revenue is going to be in the future. Regarding the pipeline growth in Q4, is good. Conversion rates are also very good in the quarter. So we're pleased with how the market is developing. On the new versus existing right now our focus is still primarily on our existing customers. The efforts that Rob talked about on new are forming now. They're starting to gain traction. But we aren't really counting on a big difference in the amount of new bookings until the back half of the year.

[Rob Bearden:]

Just to quickly touch on that. There's been a lot of work that's been done and a very disciplined operating cadence within our overall motion to go from building pipeline through the various segments from field, digital and direct. As well as make a really learning and being very effective and becoming much more efficient in converting that pipeline ultimately into monetization. And being able to do that in a way where we've been able to move into - begin the move toward the mid-market and line of business and make those conversions in a way that will be contributory in this year going forward and will have the ability to build and expand on the net new in those new sectors. The other thing that we're seeing really pretty strong benefit from it, is obviously the things that we're able to do in that digital motion that's been effective, is I think also contributing to the net expansion rate as the customers are moving to CDP with other line of businesses adopting those lifecycle analytics applications? So again we're seeing a compounding effect that's and to a great work that's happened in the digital transformation and the go-to-market motion disciplines that Scott making their teams have been able and hard work they put in over the last year.

[Zane Chrane:]

Got it, super helpful. I must have misheard, I thought I heard 16% CRPO growth. But 13% makes a little bit more sense vis-à-vis the ARR growth. Just very quick follow-up question. The net dollar expansion rate or net retention rate, whatever you prefer to call it. How does that prepare for those that migrated to CDP public versus those that have migrated to CDP private? And I ask that as an apparitional question recognizing you may not enough data yet on the CDP public front?

[Jim Frankola:]

I'll echo what Rob said earlier, that's now how we look at the business. These customers are moving to the CDP hybrid cloud public and private. We don't have it now.

[Zane Chrane:]

Got it. Okay, great. Well thanks very much. Congrats guys.

[Operator:]

Your next question comes from Nehal Chokshi of Northland. Please go ahead.

[Nehal Chokshi:]

The ARR for the quarter was 10% year-over-year growth versus 12% into prior quarter and arguably was in easier year-over-year growth compare. So what's in there on why there was a declaration here?

[Jim Frankola:]

Okay, I'll start and Rob, will add color. For this year what we've been characterizing roughly a 10% grower as we're going through this transition to CDP and in any given quarter. You'll see ARR move around so we're 10%, 11%, 12%, 10%. So part of this is just the normal ins and outs of bookings that we've had in the quarter. Our Q4 last year was actually a pretty good quarter. So if you look at the sequential growth in Q4 last year you know the comp was pretty good. And piece of this I touched upon earlier and that is, we're starting to see customers migrate to CDP and CDP public cloud. Sometimes that migration takes a form of a prepaid credit where they're swapping out within $1 million of term license or $1 million of prepaid credit and as they're starting on CDP public cloud. Their usage and therefore our revenue maybe less in the public cloud than it was on-prem.

[Rob Bearden:]

Think of this very simply as really a timing issue and so it the new from workloads that were being paid from subscription basis to workloads that are on a consumption basis, it takes a bit of time for those consumptions dollars to catch up with the subscription dollars. But I'll point out that it's much better than healthier for us as a company and a financial model as we're making this transition for that target environment.

[Nehal Chokshi:]

Okay, great and then that 120% net expansion rate that's a phenomenal number, that's great, fantastic. Congratulations. I think this has been asked a couple of times in different ways. Let me try and explicitly. That 120% net expansion rate, can you break that down increased notes and increased functionalities/basically getting increased price for the CDP?

[Rob Bearden:]

Okay, so we're not breaking it out at that level of granularity at this point. And what we're seeing is that expansion is use case driven, it's not price driven. And so what that does is it increases the amount of consumption and or spend because obviously they're using more of the platform in the levers that we have there, right. And so it's - if you want to think about it as dollar-for-dollar from legacy estate to as is on CDP. But what happens is, it unlocks incremental use cases, incremental data sets that they want to add to that insight and it just accelerates and we're seeing as you see continued acceleration and we think that will continue to exist on a go forward basis. And just for clarity because the question has been asked couple times. CDP is about hybrid and so there's workflows and use cases are going to be fluid between public, private cloud. And so right now we're not breaking out the percentage of spend allocation between the various form factors. Right. Because it's more predictive and healthy and true - is the ARR expansion of leveraging CDP as a hybrid platform and that's where we're seeing really nice traction again is driven by use case, expansion, incremental data set expansion and those are what's obviously giving us better and increased net expansion rate.

[Nehal Chokshi:]

Excellent, thank you very much.

[Operator:]

And your next question comes from Pat Walravens of JMP. Please go ahead.

[Pat Walravens:]

Congratulations on all the progress and moving to CDP, it's a remarkable shift. Rob, if I can just ask you because obviously the stock is down whatever 10% the aftermarket and there's clearly some confusion here. So did the performance of the sales organization meet your objective in Q4?

[Rob Bearden:]

Pat, thanks for joining. Appreciate the question. Yes. yes. Absolutely.

[Pat Walravens:]

Okay, all right, great.

[Rob Bearden:]

Could not be happier holistically. You guys have known, we always want more. But I'm very, very pleased with the execution not just in Q4 but through the year, not just in terms of either the delivery but the quality of delivery especially given - we're in complete from home remote environment and it's impressive results under any scenario. But it's not just the delivery but it's also the set up through the go forward that I'm most pleased with that and how we built, we're going to have the ability to build off those momentum certainly in terms of execution but even below that water line. The overall digital motion from creating awareness going through a digital education process, generating a great pipeline and getting very, very efficient in the conversion of that pipeline to the position monetization that's what I'm incredibly happy about because that gives us the set up in the platform for obviously continued scale and to being very comfortable in executing the model, we've outlined for you guys. But as importantly, give us the ability to start touching those new market sectors i.e. we talked about mid-market. We go into lot of business and it's giving us the platform and reach to be able now go implement and execute on that and that's a very long yes. But it's much more than about just yes, happy about the execution.

[Pat Walravens:]

That's great and my follow-up Jim is going to be for you which I'm sure you realized as you're preparing for this call. The stock was going to do in aftermarket was doing and so what do you think is by comparison one or two really important thing, that you think we need to take away from this and then maybe we don't understand as well as we should, what are they?

[Jim Frankola:]

It's the NRR, ARR dynamics. Once we put a slide in our supplemental deck to try to give greater transparency and the messaging is once again ARR growth of 10% for the first part of next year accelerating in the second half. The recurring element of subscription revenue will be growing at that same of ARR. So you can see that the entire story in terms of soft revenue growth guidance for next year is all due to NRR and as we discuss that's a conscious very strategic decision, we made over the course of last year to reprioritize our engineering resources toward the hybrid cloud.

[Pat Walravens:]

Okay, great. Thank you both.

[Operator:]

And we have no further questions at this time. I will now turn the call back over to the presenters for closing remarks.

[Rob Bearden:]

Great, we appreciate everybody's participation. We couldn't be more excited about the execution of the team and the opportunity that's in front of us. We still got a lot of work to do as you know we're very focused on executions. Incredibly pleased with CDP, it's progress, the adoption rate we're seeing in it. We're obviously focused on continuing to make it, easier to use, faster to migrate. But we're clearly delivering the hybrid data platform that's leading it, the industry and we know for a fact that the enterprise requires a hybrid data architecture for many years to come and we're incredibly well positioned with it and looking forward to a great FY 2022 with the team and with all of you. So stay tuned and look forward to seeing you guys about in another 90 days and have great rest of the week. Stay healthy and safe. See you all.

[Operator:]

This concludes today's conference call. Thank you for joining you may now disconnect.