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Edited Transcript of HDP earnings conference call or presentation 8-Nov-18 9:30pm GMT

Q3 2018 Hortonworks Inc Earnings Call

Palo Alto Nov 21, 2018 (Thomson StreetEvents) -- Edited Transcript of Hortonworks Inc earnings conference call or presentation Thursday, November 8, 2018 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Reuben Gallegos

Hortonworks, Inc. - VP of Corporate Development

* Robert G. Bearden

Hortonworks, Inc. - President, CEO & Chairman

* Scott J. Davidson

Hortonworks, Inc. - CFO & COO

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Q3 2018 Hortonworks, Inc. Earnings Conference Call. (Operator Instructions) As a reminder, this conference call may be recorded.

It is now my pleasure to turn the conference over to Mr. Reuben Gallegos, Vice President, Investor Relations and Corporate Development. Sir, you may begin.

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Reuben Gallegos, Hortonworks, Inc. - VP of Corporate Development [2]

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Thank you. Good afternoon, and welcome to the Hortonworks' Third Quarter 2018 Earnings Call. Today, we will provide a summary of the results announced in our press release issued after market close. With me are Rob Bearden, Chairman, President and CEO; and Scott Davidson, COO and CFO. During the call, we will make forward-looking statements regarding future events and views about the future financial performance of the company, including our expectations regarding the anticipated merger with Cloudera, market opportunity and growth, future partnerships and future trends impacting our business. The statements that we make today are based on assumptions that we believe to be reasonable as of this date and are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These risks are described in our press release and more fully detailed under the caption Risk Factors in our Form 10-K and other periodic filings with the SEC. We undertake no obligation to update these statements as a result of new information or future events. We will also present both GAAP and non-GAAP financial measures. Non-GAAP measures should not be considered in isolation from, as a substitute for, or superior to our GAAP results. We encourage you to consider all measures when analyzing Hortonworks' performance. A reconciliation of GAAP to non-GAAP measures is included in today's press release. Please note that this quarter, in consideration of the anticipated merger of Cloudera, we will not be hosting a question-and-answer session at the conclusion of our remarks.

So with that said, I will turn the call over to Rob.

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Robert G. Bearden, Hortonworks, Inc. - President, CEO & Chairman [3]

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Thanks, Reuben. Good afternoon, and thanks for joining our earnings call. For today's call, I will recap the business highlights from the third quarter, and Scott will take us through the financial results for the third quarter of 2018. It has been a very exciting time at Hortonworks in the market, from delivering industry-leading technology to collaborating with key partners to accelerate the ecosystem. This quarter, we took important steps to deliver innovations that better enable our customers to realize their goals of becoming data-driven businesses and adopting a hybrid architecture, and we continue to see very strong seasonal demand finishing out the year.

In August, we announced innovations that enable customers to get operational and streaming insights into data generated at the edge by enterprises more quickly. For example, Streams Messaging Manager, or SMM, is the new open-source operations monitoring and management tool that provides end-to-end visibility in enterprise Kafka environments. It allows operations, developers and security governance teams to gain clear insights about their Kafka clusters and understand the end-to-end flow of message streams.

SMM is available to customers through the Hortonworks DataPlane Service, allowing for a single instance of SMM to manage multiple Kafka clusters and through a hybrid cloud deployment model. In addition, the new release of HDF version 3.2 simplifies operations, delivers stronger integration and interoperability between HDF and HDP 3.0 and significantly increases performance for data in motion in hybrid environments. Core improvements enhance HDF performance, while delivering a single open-source platform that integrates governance, security and management across the entire data lifecycle, from the edge, to analytics, to real-time decisions. And in September, we announced a new Open Hybrid Architecture Initiative alongside IBM and Red Hat. The recent announcement of a proposed merger between IBM and Red Hat really spotlights the value of hybrid architectures and this collaborative effort to build a common enterprise deployment model that is designed to enable big data workloads to run in a hybrid manner across on-premises, multi-cloud and edge architectures.

In the initial phase of the initiative, HDP, HDF and the Hortonworks DataPlane Service will be optimized for use on Red Hat OpenShift, an industry-leading enterprise container and Kubernetes application platform. This enables users to develop and deploy containerized big data workloads, ultimately making it easier for customers to manage data applications across hybrid cloud deployments. In addition, we plan to enhance HDP to adopt a cloud-native architecture for on-premise deployments by separating compute and storage and containerizing all HDP and HDF workloads. This will allow customers to easily adopt a hybrid architecture for big data applications and analytics, all with the common and trusted security features, data governance and operations that enterprises require.

We also announced the general availability of the Hortonworks Data Analytics Studio, or DAS, which improves the productivity of business analysts by delivering faster insights from data at scale. DAS makes business analysts self-sufficient and enhances their efficiency by providing them with diagnostic information, operational tools and intelligent recommendations. It is delivered as part of the Hortonworks DataPlane Service, and the addition of DAS is an important step forward, enabling Hortonworks' customers to manage their data effectively across customers and environments, whether they're on premise or in the cloud.

And then in October, Hortonworks was cited as a strong performer in The Forrester Wave, which was evaluating cloud data warehouses. Both HDP and the DataPlane Services were evaluated for the report and received scores of 5 out of 5 in multi-cloud support, ability to execute, data ingestion and streaming, concurrency, elastic scale and use case categories. According to Forrester, Hortonworks provides a cost-effective, nimble and scalable architecture to implement data whether -- data warehouses, whether on premise, multi-cloud or hybrid cloud. Customers like its flexibility, open-source platform, multi-cloud support, data ingestion capabilities, performance and scale and its broad ecosystem of partners and tooling.

And finally last night, we announced the merger of equals with Cloudera, which will deliver the industry's first enterprise data cloud. This combination will create the world's leading next-generation data platform provider, and we're excited about the growth potential that the combined company will have in the coming years. We are also encouraged by the positive feedback we've received from our customers, partners and shareholders regarding the merger, which we expect to close in the first quarter of 2019.

And as we prepare for the integration of our organizations, the entire Hortonworks team remains focused on delivering the highest-quality support to our customers. And we look forward to expanding our customers' reach and capitalizing on market opportunities as we accelerate innovation for Internet of Things, streaming, hybrid cloud, data management, data warehousing and AI.

So now let me turn it over to Scott, who will provide a summary of the key financial highlights for the third quarter. Scott?

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Scott J. Davidson, Hortonworks, Inc. - CFO & COO [4]

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Thanks, Rob. Our third quarter 2018 total GAAP revenue was $87.2 million, up 26% compared to the same period in 2017. Support subscription revenue was $65.4 million or 75% of total GAAP revenue for the third quarter, up 23% compared to the same period in 2017. Also in the quarter, we closed 13 deals over $1 million in total contract value, with 8 of those deals including HDF. We now have more than 60 customers with annual recurring revenue in excess of $1 million.

International revenue grew approximately 43% year-over-year in the third quarter and accounted for approximately 33% of our total GAAP revenue for that period. GAAP operating margin was negative 36% for the third quarter compared to negative 64% for the same period last year. Non-GAAP operating margin was negative 6% for the third quarter of 2018 compared to negative 22% for the same period last year. Operating cash flow was $10.5 million for the third quarter compared to operating cash flow used of $15.4 million in the same period last year. And cash and investments totaled $104.8 million as of September 30 compared to $72.5 million as of December 31, 2017, and $63.2 million as of September 30, 2017.

Lastly, in consideration of the anticipated merger with Cloudera, we will not be providing guidance for the fourth quarter or full year 2018. For further detail on the anticipated transaction, we encourage you to review our recent SEC filings, which can be found on our Investor website. That concludes my remarks, and I'll turn it back over to Rob for some closing comments.

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Robert G. Bearden, Hortonworks, Inc. - President, CEO & Chairman [5]

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Thanks, Scott. I want to close by thanking our founders, who had the vision of making Hadoop an enterprise-viable data platform that can process half of the world's data. Also, I want to thank our customers, the open-source community, our partners, shareholders and employees for their hard work and continued support during our journey. As I look back, we've accomplished a lot. We've transformed Hortonworks from a leading Hadoop provider to a premier global data management platform company. We were the first open-source software company to IPO in 10 years. We were the fastest enterprise software company to reach $100 million in revenue, and we've defined the next-generation open hybrid data architecture to address a very large, complex and fast-growing market. We've made strategic acquisitions, such as Onyara in 2015, to expand our unique capabilities at the edge and the results of our transformation are evident. Each year since our IPO in 2014, we have continually improved upon our own performance. And in the fourth quarter of 2017, we reached a critical financial milestone by becoming operational cash flow positive.

Most recently, we transformed Hadoop with the release of HDP 3.0, which delivers significant new capabilities for the enterprise, including enabling agile application deployment via the hybrid cloud and containerization, support for the new machine learning and deep learning applications and optimization for running in the cloud. With these achievements in mind, we're confident that the combination of Cloudera and Hortonworks will position us for success as we continue to enable the modern data architecture, from the edge to AI, in a hybrid cloud environment. I also believe that the combined company can become one of the most important data management companies in the next 20 years. I look forward to supporting the team moving forward. Thank you for joining us this evening. Operator, this concludes our call. Goodbye.

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Operator [6]

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Thank you, sir. Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and we may all disconnect. Everybody, have a wonderful day.