Hi AJ, I have some ambivalence as well with HDP, but here are some of the things I look at:
For the Year:
Total revenue was $184.5 million, up 51%. There aren’t many companies growing revenue at 51%.
Operating billings (the aggregate value of all invoices sent to their customers), were $270 million, up 63% from $166 million.
Adj gross profit was $118 million, up from $69.5 million. That’s up 70%.
Adj gross margin was 64% up from 57% a year ago.
Adj EBITDA reached break even last quarter.
Deferred revenue was $185.4 million up 18% sequentially, and up 74% from a year ago. I assume that’s money already taken in on annual contracts, that they can only book to revenue monthly.
Cash totaled $89.2 million
Dollar-based Net Expansion Rate – 131% average four years.
In the conference call they said the following:
We continue to target operating cash flow breakeven sometime between Q3 and Q4 of this year.
Since going public our operating model has evolved. At that time we offered a single Hadoop based solution which was deployed on-premise and primarily linked to an annual support contract. For customers that required a fully managed service it was HDI and Microsoft Azure.
Now let’s fast forward to today where we offer a comprehensive connected data platform. Customer use cases are varied and deployment options range from on-premise to hybrid environments and may also span many public clouds.
Customer consumption behavior has evolved as well requiring flexibility cross our respective business relationships with them. This evolution has in fact shaped many of the larger deals that we executed in 2016 including several of the nine deals that we did over a million in Q4 2016. We’re now operating at a scale with a $200 million a year revenue run rate where these broader deployment and consumption trends impact traditional metrics.
In particular, billings becomes less relevant when upsells come with renewals, durations change, and usage models in the cloud become more prominent. In some cases an isolated billings number may not adequately illustrate the economics of a particular transaction.
So we provide the following guidance. For the first quarter we expect total revenue of $52 million, adj gross profit margin between minus 65% and 60%. On a full-year basis revenue between $235 million and $240 million, GAAP operating profit margin between negative 85% and negative 80%, and the adj operating margin between negative 50% and 45%.
Some of that I don’t understand, I’ll admit, but they sound confident.
In December I had the following conversation with Bert:
I asked: What am I missing??? I see that in each of the past three quarters their loss was greater than the year before. And, we’re not talking about a Shopify-like symbolic loss of 1% or 2% of revenue. For Horton the loss is of the same order of magnitude as revenue. That’s massive! And Horton isn’t growing nearly as fast as Shopify. How do you imagine Horton will reach break even within a year? Even with deferred revenue? And not need a cash raise? That sounds a bit overly optimistic to me. I really don’t understand how it will be possible.
Bert responded: So far this year, their bookings have grown by 122%, 49% and then 66%. That is a pretty strong pattern of growth. Not many company’s are growing quite that fast. It’s hoping to reach EBITDA profitability this current quarter and has laid out that path pretty specifically. It forecasts reaching positive cash flow generation in the middle of next year. It sells large deals to large companies and it books far more than it reports as revenues and so it builds up a large balance of deferred revenues.
Even though Q2 was disappointing, and led to some restructuring, 49% growth is not all that terrible. I focus on bookings growth, EBITDA, and cash, as opposed to reported earnings and revenues, which poorly represent their progress. The shares are priced for a miss on the EBITDA projection. Reaching EBITDA break-even is predicated on another quarter of significant bookings growth. I think the math requires another $15 million. That is what I hope will happen. Hadoop is amongst the fastest growing spaces in software and this is one of 3 companies that sell the tools necessary to install Hadoop at scale.
There were also a couple of very useful posts by a Hadoop user in January:
I can make a few comments on Hadoop. I’m a Hadoop user. I routinely access data on Hadoop cluster for statistical modelling. To put simply, Hadoop is a data dumping ground in a distributed computing system. It’s cheap, it’s great for storing data, and it allows you to run applications on clusters of commodity hardware.
What is Hadoop good for? It’s good for "big data " and “machine learning.” Because Hadoop is a cheap data dumping ground and puts no constraints on the data format, you can store all kinds of data you wanted. In a world where businesses are collecting endless amount of data about customers and goods, Hadoop serves as an easy solution. Better still is that many open source softwares can be used when working on Hadoop clusters (and most are open source).
One comment earlier worries that HDP may be seen as just another IT cost with dubious benefit. Yes and no. It has a cost, and the benefit depends on what you can do with your data. Businesses that live and die by real-time data, like Netflix and Amazon, can realize lots of benefits by going with Hadoop.
I am just an average employee who uses Hadoop. What I have just said above is just a simple and overly generalized picture of Hadoop based on my understanding. I am basically just telling you what IT folks have told me when our company decided to go with Hadoop.
Finally, it is true that you don’t need HDP when you go with Hadoop. But people have told me that HDP provides better support, and is easier to work with, than others such as, say, IBM. We actually just dumped IBM for Hortonworks, so there is that.
Hadoop is an open source organization. A worldwide pool of enthusiasts contribute code to this. However, select organizations and people are allowed to write to the open source code and they are called committers. The below is a link to who those folks are….What is important is how many folks from Hortonworks are there. Out of the 112, Hortonworks has 34. That’s pretty dominating position. This gives Hortonworks a great influence in terms of setting the agenda, to deciding what goes in the final version, to all sorts of mundane things. Also, this implicitly means that HDP will always have a great knowledge and resource pool on Hadoop.
Jan 2017 – My Conclusions (Saul) – After reviewing the whole thing, my conclusions are the same: Stay with Hortonworks. They will reach EBITDA break-even this quarter (Dec). Moving towards cash-flow break-even in 2017. Remember they have a lot of deferred revenue that doesn’t figure into revenue and earnings!
I hope that helps. It’s certainly not a sure thing, but it seems to be coming off a bottom and is 62% below its top a year or so ago.
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