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Cloudera, Inc. (NYSE:CLDR)
Q1 2020 Earnings Call
Jun 5, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Chantelle and I'll be your conference operator today. Welcome to the Cloudera First Quarter Fiscal 2020 Quarterly Results Conference Call. All participants lines have been placed in listen-only mode to prevent background noise. After the speakers' remarks, there will be an opportunity to ask questions. (Operator Instructions) Please note, this conference is being recorded.

Your host is Kevin Cook; VP, Corporate Development and Investor Relations. Kevin, you may begin your conference.

Kevin Cook -- Vice President, Corporate Development and Investor Relations

Thank you, Chantelle. Good afternoon and welcome to Cloudera's first quarter fiscal 2020 conference call. We will be discussing the results announced in our press release issued after market closed today. From Cloudera with me are Martin Cole, Chairman; Tom Reilly Chief Executive Officer; Arun Murthy, Chief Product Officer; and Jim Frankola; Chief Financial Officer.

During the course of this call we will make forward-looking statements regarding future events and the future financial performance of the Company, including those as merged with Hortonworks. 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 report 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 and amortization of acquired intangible assets. In addition, we provide a non-GAAP weighted average share count for fiscal 2020. 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 numbers reported for prior periods are presented for Cloudera on a stand-alone basis since the merger with Hortonworks closed on January 3, 2019 and as such there is no comparative year-over-year financial information for the combined company. 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 first quarter results. The press release has also been furnished to the SEC as part of a Form 8-K.

In addition, please note that the date of this conference call is June 5, 2019 and any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events.

Now, Marty Cole, Chairman of the Board of Directors.

Martin Cole -- Chairman of the Board

Thank you, Kevin. It's good to be here with all of you today. Although today's call is focused on our fiscal first quarter results, I want to address briefly the other news we announced today. In a separate release we announced that Tom Reilly will be retiring effective July 31, 2019 and that the Board has appointed me Interim CEO. I will work closely with Tom over the coming weeks to help ensure a smooth transition and to lead the Company's executive team while the Board conducts a search for a permanent CEO. The Board has formed a search committee and engaged a leading executive recruiting firm to identify Cloudera's next Chief Executive.

I want to take this opportunity to express my thanks to Tom for all of his contributions to Cloudera over the past six years. Tom has been an important part of Cloudera's growth and he has led us through many major milestones. We certainly wish him well in his future endeavors. I look forward to working more directly with our talented employees, supporting our customers and expanding our key partnerships. I continue to be very excited about Cloudera's future.

Tom, over to you to discuss this quarter's results.

Tom Reilly -- Chief Executive Officer

Thank you, Marty, for the kind words. Likewise, I'm very excited about Cloudera's future and the innovation we are bringing to market. However, for several reasons I have decided that this summer is the right time for me to retire. I've reached agreement with the Board that I will resign from my role as CEO of Cloudera at the end of our fiscal quarter. Cloudera is well positioned with the merger integration largely complete, an exciting roadmap in place, and an aligned and seasoned executive team.

The Company will benefit from a new leader who will bring a different perspective and experience with large scale operations. All right, let's turn to discussion of our first quarter fiscal year 2020 results. With respect to Q1, we'll cover three topics in addition to providing detailed financial information. First, we'll offer a quick update on the merger with Hortonworks. Second, we'll discuss the factors that are affecting customer buying behavior and its impact on our full year outlook. And lastly, we'll update our progress in delivering the Cloudera Data Platform, CDP, our next-generation cloud offering.

Total revenue in the first quarter was $187 million, subscription revenue was $155 million and operating cash flow was positive $11 million. The year-over-year comparisons on these numbers are not meaningful as Q1 results benefit from the merger with Hortonworks. Annualized recurring revenue was $672 million at the conclusion of the quarter, representing 21% year-over-year growth.

Now let's get to the details with a quick merger update. Integration execution on the merger continues to go well. We're now operating as one company with one strategy and one vision. People relate integration work is done and we're pleased with the way that the merged executive team is functioning. The cost synergies that we estimate at the time of the merger announcement have been validated and are being realized ahead of plan. The only remaining work is integrating several back office systems and this will be an ongoing process.

Now let me share what did not go well in Q1 and what our plans are for addressing it. In our first quarter as a merged company, we experienced headwinds in bookings from existing customers. These customers generally represent more than 90% of our growth, who're the focus of the quarter's activity. We've analyzed the challenges we encountered the quarter and believe that two factors primarily contributed to the bookings impact. First, the announcement of a merger in October 2018 created uncertainty, particularly regarding the combined company roadmap which we rolled out in March of this year. During this period of uncertainty, we saw increased competition from the public cloud vendors.

Second, the announcement in March of Cloudera Data Platform, our new hybrid and multi cloud offering created significant excitement within our customer base. CDP is compelling as it addresses many of our customers' most pressing needs. However, our rapid execution on a Cloud Data Platform has caused some customers to wait until it's released to renew and expand their agreements. Our conviction about the Company's market opportunity and customer demand for hybrid and multi cloud solutions remain strong. Customer feedback on CDP and its differentiating features validates our belief in Cloudera's competitive position as well as our ability to innovate in our target market.

Indeed, now that we have trained our sales reps and clearly articulate our detailed product roadmap, we are seeing significant pipeline growth. Fundamentally, we believe that our vision for an enterprise data cloud, the extension of the Edge to AI is spot on. Large global enterprises have complex business use cases requiring multiple analytic functions. These enterprises require a hybrid cloud services, they have data and workloads in both their data centers and in the public cloud. But they're asking for the ability to seamlessly move their data workloads to the optimal location to minimize cost and maximize efficiency. They also want one consistent model for security, governance, compliance and management. Finally, they plan to use multiple public clouds and open source software to avoid vendor lock-in. We believe that CDP uniquely addresses all of these customer requirements in an elegant and differentiated way. CDP development is on plan and timing for its release this summer has not changed.

Arun Murthy, our Chief Product Officer, will now provide an update on CDP and some with many innovative features.

Arun Murthy -- Chief Product Officer

Thanks, Tom. Hello everyone. As discussed last quarter, the merging of the engineering teams came together quickly and frankly better than expected. All major product and competent rationalizations and road map decisions were made swiftly. And I'm proud of how fast the team has begun to execute. For example, in the first order today following the merger, we made Cloudera Data Science Workbench available to legacy Hortonwork customers. Similarly, we delivered the Cloudera data flow for legacy Cloudera customer base within the first 90 days.

In the same time frame we also delivered a brand new product Cloudera Edge Manager which opens up new IoT use cases for all our customers. Our product portfolio continues to broaden and deepen, which leads me to the most significant of these initiatives, the Cloudera Data Platform. Development of CDP is going remarkably well. The engineering team is laser-focused on vision for the enterprise data cloud. CDP remains on track for availability to customers this summer in the public cloud as a hybrid SaaS offering and later this year as a private cloud offering. As previously mentioned, we have already seen encouraging signs from customers who're excited about the new cloud native platform.

Like Tom, I've met many customers recently and the collective feedback is that CDP is differentiated and superior to what is in the market today, particularly since it leverages newer industry standards such as Kubernetes and containers for key workflows. It also addresses key needs and pain points for them as they make public cloud a key component of their enterprise architecture. Cloudera Data Platform is more than just a new release for the cloud. In fact, CDP leapfrogs the competition in a number of key areas, particularly around security, automation and cloud migration.

In order to help you all understand what our customers are excited about, I'll spend a minute to highlight three unique differentiators about CDP among the many. First, CDP offers intelligent migration which uses powerful policy-based controls to automate data movement between on on-premise file systems and cloud object stores. This enables not only one time migration, but also ongoing incremental movement of both data and uniquely metadata, such a schema, security policies, lineage and provenance. Furthermore, CDP provides seamless role-based and attribute-based access control for data movement across security, domains in hybrid and multi-cloud environments. Second, cloud bursting; CDP addresses unpredictable business or user demands by bursting analytical workloads in public clouds along with the relevant data to complement data center capacity.

Third, and importantly to cost conscious customers, CDP performs adaptive scaling. This allows us to adjust cloud resources automatically used by analytical workloads by scaling them up and demand increases, and even more crucially scaling them down for dynamically optimizing cost, all in a completely automated manner without any performance impact. (inaudible) these innovations this quickly would not have been possible without the combined talent, technology and experience of the new cloud era. As one company we're poised to develop the industry's first enterprise data cloud with powerful analytics across hybrid and multi-cloud environments controlled with sophisticated and granular security and governance policies, make it easier and safer to roll out new use cases from the Edge to AI.

With that, back to you Tom.

Tom Reilly -- Chief Executive Officer

Thank you, Arun. We're excited about CDP and so are our customers. Our customer interactions regarding CDP clearly validate our vision, strategy and current competitive position. In the end, it all comes down to customers in helping them gain insight and extract value from data. This past quarter we won 59 new customers, all of which were competitive battles and we were advantaged by our merger and our enterprise data cloud vision.

After training our field organization on the new products roadmap, our rate of pipeline generation has accelerated, more than doubling from the beginning of the quarter to the end. We have presented our roadmap in one-on-ones, executive briefings or group sessions to well over 1,000 enterprises, representing more than half of our customer base. These interactions are invaluable from removing uncertainty, gaining substantive feedback and developing engagement on new use cases and expansion opportunities.

And finally, our largest customers are all eager to participate in our CDP data program. Additionally, we hope our customers (inaudible) some amazing new use cases with significant business impact. Let me share some of these customer stories and how our current cloud capabilities helped them. First, ATB Financial. They're the largest financial institution in Alberta, Canada with over CAD54 billion in assets. They are running on Google Cloud for secure data management. Our platform is being used in ingest (ph) framework to move data between on-premises and cloud storage for transparent data ownership and trusted data operations. Adopting a hybrid cloud-based data platform has resulted in 90% faster data analytics, improving team collaboration through faster and better decision-making and also increasing operational efficiency. With CDP intelligent migration, use cases like ATB can further benefit from a secure and automated data movement across on-premises and public clouds.

Next, Clearsense, a Florida-based healthcare analytics provider has developed a cloud based HIPAA-compliant healthcare data ecosystem running on Cloudera. Clearsense selected us for our secure, open source hybrid cloud architecture. This has enabled us to deliver multi tenant subscription-based predictive analytics services to smaller rural and underserved healthcare providers. Using Cloudera, they're able to provide near instant access to patient information that previously took weeks to assemble and deliver. CDP is sophisticated and greater security and governance policies are intended to benefit use cases like Clearsenses, providing increased enterprise control without compromising user experience.

Lastly, one of our more exciting case studies involves Lufthansa Technik, a leading provider of technical aircraft services. We introduced this use case on a call last year, shortly after having been selected and during the initial planning. They chose Cloudera running on Microsoft Azure for their cloud-based analytics platform because we provide the scalability and availability their customers need. I'm proud to share that their deployment is now in production and is delivering a 40% reduction in predicted components removal. I encourage you to check out the Lufthansa Technik video on our website to get the full story on how they're disrupting the aviation industry with data.

Going forward, CDP's adaptive scaling is intended to benefit use cases like Lufthansa Technik with automated performance optimization. Finally, our partner community has responded very favorably to both our merger and more importantly our roadmap. They view the new Cloudera as the market standard, allowing them to focus their efforts on a single partner rather than two or three. I am pleased to announce that we've expanded our relationship with a very important global partner, IBM. This partnership was significant for Hortonworks and one of the factors driving Cloudera's desire to merge the companies.

Our partnership with IBM is now more significant in several respects. We amended the terms of the agreement with IBM to soon include our complete portfolio of product offerings and services. For example, IBM sales force for the first time is able to resell our enterprise data. Likewise, the Cloudera's sales force can now resell many of IBM's products including Big SQL. I'm very encouraged by the momentum that our companies have continued to generate together since the merger. We had a number of significant joint wins this past quarter and with our new agreement in place we expect that only to continue.

Now I'd like to turn it on to Jim to review our financials. Jim?

Jim Frankola -- Chief Financial Officer

Thanks, Tom. Hello everyone. As previously shared, revenue for the first quarter was $187 million and subscription revenue was $155 million. Operating cash flow for the quarter was positive $11 million. Because of the merger, comparative year-over-year information on these items is not meaningful. As Tom highlighted, it was a difficult quarter for us from a bookings perspective and I will discuss this in connection with annualized recurring revenue in a moment.

We concluded Q1 with 929 customers who started at or have grown to more than $100,000 of ARR. The number of customers spending more than $1 million is in excess of 140. Both of these numbers are roughly flat with Q4 and are reflective of the customer wait-and-see attitude that Tom described. It is important to note that our largest customers continue to bring workloads to the platform. Annualized Q1 dollar based churn for this cohort is substantially better than average, at approximately 6% and these customers continue to expand.

In Q1, we completed the work to determine end of quarter annualized recurring revenue rather than the adjusted ARR number that we shared in connection with Q4 results. As expected, ARR and adjusted ARR growth rates were similar. ARR for fiscal Q1 was $672 million, up approximately 21% year-over-year whereas adjusted ARR was $668 million, up approximately 20%. Details with respect to ARR definition and trends can be found in the supplemental materials on our Investor Relations website.

As I review the remainder of the income statement, note that unless otherwise stated, all references to expenses and operating results are on a non-GAAP basis. Historical non-GAAP results are reconciled to GAAP results in the press release issued earlier today. Our adjustments from GAAP to non-GAAP are limited to stock-based compensation and amortization of M&A related intangibles.

Total gross margin for Q1 was 73%, driven by subscription gross margin of 85%, both level with Q1 of last year. Operating expenses were $172 million for the first quarter or 92% of revenue. Including in operating expenses are $25 million of merger-related expenses. Excluding these amounts, operating expenses were 79% of revenue in Q1. This is a significant improvement from 98% of revenue in Q1 of last year. It reflects the rapid achievement of our planned cost synergies and increased operating leverage since the merger. In particular, sales and marketing expense dropped from 54% of revenue in the year-ago period to 47% of revenue this quarter and R&D fell from 33% of revenue to 25%. The $25 million of merger-related expenses include severance and retention costs, and third-party fees associated with integrating the systems and processes of the combined company.

Overall, operating loss was $35 million in Q1, representing an operating margin of negative 19%, burdened by 13 percentage points of merger-related expenses. Excluding these expenses, operating margin would have been negative 5% for the first quarter, a substantial improvement over Q1 '19 operating margin of negative 25%. Loss per share was $0.13 in the first quarter based on 271 million shares -- weighted average shares outstanding compared to a loss per share of $0.18 in the first quarter of fiscal year 2019.

Now turning to the balance sheet and cash flow, we exited Q1 with $547 million in cash, cash equivalents, marketable securities and restricted cash, up from $541 million at the end of Q4 '19. Operating cash flow for the first quarter was $11 million, which includes $25 million of merger-related spending. Cash flow performance was better than expected due to strong execution on merger synergies in both headcount and non-headcount related spending, and higher-than-planned collections. Every functional area is on track or ahead of plan with respect to the operational elements of the merger.

Capital expenditures were $3 million in the quarter. Total contract liabilities, which comprise deferred revenue and other contract liabilities, were $486 million at the end of the first quarter, RPO was $720 million. I will conclude by providing initial guidance for fiscal Q2 and updated guidance for fiscal year 2020. We expect Q2 total revenue to be between $180 million and $183 million and subscription revenue in the range of $155 million to $157 million. Net loss per share is projected to be $0.11 to $0.08 based on 274 million weighted average shares outstanding. For fiscal year 2020 we expect total revenue to be between $725 million and $765 million and subscription revenue in the range of $635 million to $645 million.

As you will recall from our discussion last quarter, our intention is to show Cloudera's organic quarterly performance and top line momentum in the most transparent way possible. Annualized recurring revenue based on the book of business at the end of the quarter removes the effects of the merger, including accounting changes, billings duration and licensing convention. and is the best representation of underlying economic activity. Based on our sales pipeline in a typical length of an enterprise software sales cycle we believe that Q2 will be the trough for bookings growth. Coupled with soft Q1 bookings, first half bookings performance will weigh on growth rates through the balance of the year. We expect ARR growth in Q2 to be between 10% and 12% declining to zero to 10% in Q4. We continue to believe that modest improvement in subscription gross margin can be achieved by Q4 as we integrate customer support.

Services margins will trend down over the next couple of quarters as we apply more technical resources to support customer success. Total operating expenses will continue to decline over the course of the year as merger-related expenses moderate. Non-merger-related operating expenses will be roughly flat. Our investments are in place allowing us to deliver on the CDP roadmap and position us for sustained growth.

For fiscal year 2020, net loss per share is projected to be $0.32 to $0.28 based on 280 million weighted average shares outstanding. We expect operating cash flow for fiscal year 2020 to be negative $95 million to negative $75 million. While merger cost synergies are coming in greater than planned, operating cash flow will be impacted by the booking softness that we are now forecasting for the first half.

I would like to note the two factors that impact cash flow this year. Projected OCS includes approximately $59 million of merger-related payments. Additionally, as discussed on last quarter's call, billings and cash flow will continue to be impacted by the adoption of Cloudera's annual billings convention for the former Hortonworks business. Bookings growth is expected to accelerate in the second half this year, this will be evident in the sequential ARR growth in Q3 and Q4. Although CDP will be available in the second half, we do not have adequate data or pipeline to model its rate of adoption. And given the nature of the subscription business, we believe that the revenue impact from CDP bookings and deferred customers expansions will take several quarters to appear in GAAP revenue. Until the trajectory of that growth and the investment levels necessary to support become clear, we will not attempt to project an intermediate term operating model for the combined company.

I will now return the call to Tom.

Thank you, Jim. Before we take your questions I'd like to offer some concluding comments. I'm very encouraged by the rapid progress we are making with our merger. The new Cloudera has the resources, scale, customer base and partnerships to compete extremely well in the modern era of data analytics. We have a roadmap that is not only exciting to our customers but it's significantly accelerated as compared to what either company could have achieved independently. We believe that we are well positioned for the second half with the merger integration behind us and a competitive cloud offering in market very soon.

I want to thank our employees for their commitment and perseverance in joining ranks, aligning behind a single strategy and staying customer focused. I also thank our partners for rallying behind our strategy in delivering great value in the market together. I think the open source developer community for their innovative and collaborative spirit. My thanks to our many customers and the amazing solutions they are developing with our platform. And finally, on behalf of all Clouderans, I would like to extend a thank you to my friend and colleague Cloudera's co-founder Mike Olson who is also retiring this summer.

As a reminder, Arun Murthy, our Chief Product Officer, will join Jim and myself for the Q&A portion of the call. Operator, let's begin the Q&A portion of the call please.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from Phil Winslow with Wells Fargo. Your line is open.

Phil Winslow -- Wells Fargo -- Analyst

Yes, thanks for taking my question. Actually just two questions. First, you mentioned a slower expansion than you'd been anticipating. Wondering if can comment on just renewal rates though, what did you see during the quarter and what are you kind of thinking about them going forward. And then the second question, just in terms of reaccelerating net expansion, what are the key milestones that you're looking for or that you're hearing from customers that you think will -- that they believe will reaccelerate that?

Jim Frankola -- Chief Financial Officer

This is Jim. I'll take the first part of that question, I'll let Tom handle the reacceleration. So dollar churn in the quarter spiked for us, it is about 16%. Typically it's average about 10% or slightly above that. If we decompose that, we see relative strength with our large customers, $1 million plus customers have a churn rate that is close to historical average and substantially less than the 16%. Most of the churn occurred in our customers at the earlier stages of their journey. We expect to see that sort of rough dynamic into Q2. Once we get beyond Q2, we expect renewal rates and churn rates to return to approximately where they have been historically.

Tom Reilly -- Chief Executive Officer

Yes, this is Tom. Here's what I'm really encouraged about the second half. So large enterprises want and benefit from moving workloads to the public cloud. There is a class of use cases where it's very beneficial. CDP this summer is designed for us to capture those workloads in that journey and that strengthens our renewals and creates expansion opportunities. Second, in later after the CDP public cloud version, our private cloud version comes out. And the number one thing our large enterprises are expecting from is that private cloud version and a lot of the excitement that we're getting in our roadmap is not only for the hybrid capabilities but delivering a cloud experience to data centers. And those two things -- where we are very encouraged about our second half.

Phil Winslow -- Wells Fargo -- Analyst

Got it. Thanks guys. And then Tom, best of luck in your future endeavors.

Tom Reilly -- Chief Executive Officer

Thank you, Phil.

Operator

Your next question comes from Chad Bennett with Craig-Hallum. Your line is open.

Chad Bennett -- Craig Hallum -- Analyst

Great. Thanks for taking my questions. So I'm just trying to understand I guess the logic behind customers effectively waiting and maybe it ties into Tom your comment about the public cloud vendors being more competitive, if you could define that, that'd be great after you guys made the merger announcement. I can't imagine their data growth is slowing, their workload expansion is slowing, their analytics investment is slowing. How can they afford to wait or are they actually and maybe it's evident in the churn dollar rate you just gave, are they just shifting those workloads off your platform, is that what's really going on?

Tom Reilly -- Chief Executive Officer

Yes, Chad, you've covered quite a bit there. Let me just break it down a bit. From the time we announced the merger to where we got our roadmap, that was about a five-month period. In that period our sales force was a bit handicap without giving clarity of what the roadmap would be and without that clarity we were at a competitive disadvantage and we saw a number of opportunities get taken by the public cloud guys. We're already turning that around because we've trained on our roadmap. But now -- let's say now a customer sees our roadmap, what causes them to pause yet again.

They're trying to understand how they will take advantage of CDP both public and private, they're trying to see how we're going to move those workloads. It's just a different motion than traditionally just buy more of what they had on prem. We are trying to encourage all of our customers to move to cloud architecture both in the data center and public cloud and so that's just an education process.

Chad Bennett -- Craig Hallum -- Analyst

And just maybe a quick follow-up, if I may. So I know you don't want to touch on the longer-term model, but if our growth expectations have changed in terms of long-term growth in Chad's words maybe maybe not yours, shouldn't the operating model or level of investment change especially considering -- I know you're seeing some synergies from the merger like your sales and marketing as a percent of revenue is still fairly high for a company that effectively is not growing this year, but even if you were to grow let's just say 10 to 20, I would say that line item is still egregiously high, just can you comment on that?

Jim Frankola -- Chief Financial Officer

Yes, so -- this is Jim. From our perspective we believe that the long-term growth model of seeing sustained software growth in excess of 20% is still there. All the secular trends supported our product strategy of multi-cloud hybrid, we believe is the right answer for our target customer set. The growth that is happening this year is not what we initially anticipated. We have curtailed the rate of future expense growth in the short run through the balance of the year and the guidance that we put in front of you reflects a lower level of spending than 90 days ago.

So we do understand the top line dynamics and how it will impact expenses. With that said though we believe that it is critical to get CDP out and we've retained the level of investment that would allow us to develop CDP, public cloud, private cloud and be able to sell it and build pipeline over the course of this year. We think the benefits of that will start accruing in bookings later this year and you'll start seeing it in accelerated revenue growth next year.

Chad Bennett -- Craig Hallum -- Analyst

Great. Thanks for taking my questions.

Operator

Your next question comes from Jack Andrews with Needham. Your line is open.

Jack Andrews -- Needham & Company -- Analyst

Good afternoon and thanks for taking my question. I was wondering if you could shed more light on the pricing model around CDP in particular, I mean is this viewed as an upgrade for customers given that I would imagine this is a superior product than something that they've been historically using?

Tom Reilly -- Chief Executive Officer

Jack, this is Tom. Yes, CDP is a superior product in many fashions whether it's going to be deployed in a public or private cloud and we planned to change our pricing to reflect that. We are not announcing those pricing changes at this time, but you will expect a cloud consumption based pricing model that gives the customers the flexibility to take advantage of bursting and the auto-scaling capabilities and have that consumption based model and we'll be announcing that at the time we release CDP.

Jack Andrews -- Needham & Company -- Analyst

Okay. As a follow-up, maybe a question for Arun. I was wondering if there's any lessons learned just from the HDP 3.0 released last summer which I believe was a major release from Hortonworks side, any sort of lessons learned in terms of customer behavior in advance and post that release that you can apply to what's happening here with the CDP launch?

Arun Murthy -- Chief Product Officer

Great question. Thanks. So like I said, we released the HDP 3.0 in summer of last year and we've seen customers uptake it with a lot of enthusiasm. We have learned a lot of lessons which are now absorbed into CDP, a lot of this has to be around things like you know there's a real demand for separation of compute and storage, that is what is the focus of CDP private cloud. We've also done a lot of work, we (inaudible) a lot of new products, you know, we've got the customer using features like TensorFlow, you know, using containers. So all the benefits you're seeing in CDP whether it's technologies like Kubernetes and containers, or disaggregate storage and compute which we're going to use both on prem and the public cloud have all been informed by the collective feedback we've got both on HDP 3 and CDF 6.

Jack Andrews -- Needham & Company -- Analyst

Got it. Thank you for taking my questions.

Operator

Your next question comes from Tyler Radke with Citi. Your line is open.

Tyler Radke -- Citi Research -- Analyst

Hi, thank you. Can you talk about maybe a little more specifically what gives you the confidence about here in the second half of the year, is it simply just uptake of the public cloud version or are there other elements here for creating?

Tom Reilly -- Chief Executive Officer

Hi, Tyler, you're very faint but I think your question was what gives us confidence on the uptake in the second half of the year. There's a number of things. We have been aggressive getting out, talking about our public hybrid capabilities and our private cloud capabilities. And as Jack mentioned earlier, this is a substantial value-added increase from our current platforms. And the response we're getting from customers is very powerful. We trade -- and our sales force just got trained in March to start talking about our second half and our roadmap and we're seeing our pipeline reflect the excitement.

As Jim mentioned, our sales cycles are longer than six months but we're seeing the pipeline grow not only for the CDP and growing workloads, but also our cross-sell capabilities that were enabled by the merger what we call from the HAI (ph) . So we see it in our pipeline, we see it in the response we're getting from the market. And CDP is not designed to be like a me too kind of cloud offering. CDP is truly unique capabilities and it puts us in a very very competitive advantage and we're the only Company delivering these hybrid multicast capabilities that the data management analytics (inaudible).

Tyler Radke -- Citi Research -- Analyst

Okay. Thank you. And then maybe you could just reflect on the quarter, obviously the outlook for the rest of the year is coming down pretty substantially. But maybe just order of magnitude, what surprised you more, was it the weakness in bookings, was it the higher churn rate, was it was it the competitive environment. Maybe just talk about those three dynamics independently?

Tom Reilly -- Chief Executive Officer

I'll talk about it and Jim may have some some specifics. We saw increased competition from the public cloud vendors and so just increased desire for customers to understand how they can move workloads into the public cloud environment. And during that period of uncertainty we weren't very competitive during that period. Secondly, and we -- with respect to the merger we got on things like pursuing our renewals later in the quarter than we attrition would, but that was just the complexities of bringing together two salesforce systems, pursuing hundreds of renewals and so some of those slipped out of the quarter.

And then our customers that would normally expand would ask us many questions around CDP and if they expand now, what does it mean to migrate later. And so some of those caused some of the challenges in the quarter. All of those things we think we have addressed and we resolved and we're seeing the improvements. So that I think the best assessment I have for you, Tyler.

Tyler Radke -- Citi Research -- Analyst

Thank you.

Operator

Your next question comes from Raimo Lenschow with Barclays. Your line is open.

Unidentified Participant

Hi, this is (inaudible) for Raimo Lenschow. I want to ask you about the competition with the cloud companies. We've seen AWS and Azure move more onto on prem and provide hybrid capabilities and we saw today that Azure and Oracle providing interoperability. Do you think the competitive environment with cloud companies is changing going forward?

Arun Murthy -- Chief Product Officer

Hi, this is Arun, I'm happy to take a question up. Great question and we've seen Google and Amazon sort of get into this model the hybrid message which frankly is very encouraging for us because that's sort of main plan for our strategy. When you look at some of the offerings -- the hybrid offerings we get from Google and Amazon and Microsoft, a lot of that is focused around the infrastructure layer whether it's Azure Stack, whether it's Anthos from Google, AWS Outposts and so on.

Where we differentiate is that the data layer, right, so having a hybrid multi-cloud approach at the data layer puts us in a unique position and that's really why as you kind of heard from me in the prepared remarks, things like bursting workloads to the cloud, our adaptive scaling and so on are the key features you need to be able to leverage that word in a hybrid fashion. So in a nutshell, it's very complementary to the approach we're taking and we really, really welcome the fact that now we're going to have consistent sort of infrastructure layers which makes our job easier in the data layer.

Tom Reilly -- Chief Executive Officer

And I'll pile on too. Here's the other thing what we're noticing.The cloud vendors are all trying to close off their kind of challenge in not having hybrid offering. We see them entering the market, but frankly when they put something on prem, it's really more of an on-ramp (ph) to the public cloud versus trying to give customers the flexibility to move workloads between clouds where they get the lowest cost and best performance. And so our strategy is an enduring differentiator. We really don't care where workloads run, right? We want them to run at a cloud architecture and allow the customers have flexibility.

Unidentified Participant

Okay. Great. Thank you. And I want to ask you about, you know, a private company, some rumblings around private companies kind of close to shutting its stores. Want to ask you if you saw any additional opportunities come to you from customer of this company?

Tom Reilly -- Chief Executive Officer

Yes. So basically here's the backdrop. We saw the need to get more resources, more scale so that we can deliver a competitive cloud offering and replatform into cloud architecture and that's why we did the merger. And so Cloudera now has the resources, the skills, the employees, the engineers to very quickly replatform our business. Our competitor, in this case is MapR, could not match the resources or the scale to make a similar transition and I think they have some challenges. We view their customer base as an opportunity for us and it is part of our growing pipeline.

Unidentified Participant

Thank you.

Operator

Your next question comes from Rishi Jaluria with DA Davidson. Your line is open.

Rishi Jaluria -- DA Davidson -- Analyst

Hi, guys, thanks for taking my question. Let me start again Jim with you, two quick ones and I have a follow-up for Arun. But just thinking about 90 days or so ago when you provided guidance, for simplicity let's look at ARR, I mean at least it seemed to a lot of us that you had made some very conservative assumptions especially when it came to revenue synergies and kind of delays in bookings. Just help me understand what was it that you did not anticipate and then putting aside the competition from cloud vendors, but the size of it what was it that you didn't anticipate because it seemed like you understood and acknowledged that there was going to be a potential wait and see dynamic from customers. Was it just more intense than you expected or what? And then maybe kind of a housekeeping one on the 100k customers metric, it actually looks like it declined sequentially which I don't think I've seen in the model before going from from 943 last quarter to 929 this quarter. It looks like the definitions of that maybe have changed. So maybe just walk through both of those and I've got a product question for Arun.

Jim Frankola -- Chief Financial Officer

Yes, there is a lot there, so hopefully I can unpack it. So relative to expectations 90 days ago, first of all, that was shortly after the two companies had merged. We were still operating somewhat blind in terms of pulling in pipeline from both sides, scrubbing the numbers, putting together a predictive model. So you had a general level of uncertainty. And then the new news in the quarter, certainly what Tom described in terms of cloud, certainly the fact that our customers are taking a wait and see attitude, we did not anticipate that to the level extent that it was, the fact that our churn rate increased. That was certainly unanticipated and those three things are all interrelated.

Now very specifically, the way a subscription model works is that resulted in bookings that were very light for Q1 relative to expectations. We now have much greater confidence in our pipeline and visibility and that pipeline for Q2 is pointing to another soft quarter. So, essentially we're factoring in two quarters in a row of soft bookings. Now we are seeing pipeline growth that has resumed, several weeks worth, couple of months worth. We hope that remains a good trend, but the pipeline that we're building today isn't going to be delivered in Q2. It's going to be delivered in Q3, Q4 and a little bit in Q1. So the nature of the subscription model means that we're going to have a trough in bookings in the first half of the year, that will show up as a trough in ARR growth rates in Q4 and then acceleration beyond.

You'll see the resumption of underlying bookings growth most clearly in sequential dollar ARR growth. And that's one reason why we're disclosing ARR. So as we execute in Q3 and especially Q4 we hope to put a lot on ARR dollars on the books and that will be reflective of the success of the strategy. You second question, customer count less than $100,000 or over $100,000, that is all part and parcel of the same thing. So where we saw relative weakness was in our customers have caught $100,000 of revenue up to $500,000 or so. So post merger as you would expect, we put our resources first and foremost on our large accounts. That was a little bit softer than we would like, but we still saw really good expansion rate, pretty good churn rate in our largest accounts. We saw the relative weakness in our smaller accounts and unfortunately more of them churned out this quarter than we brought on. So that's the other effect of the cloud competition, high churn and merger execution.

Rishi Jaluria -- DA Davidson -- Analyst

Got it. Thanks, that's helpful. Arun, just maybe a little bit a clarifying question in terms of product and strategy around CDP. When you talk about CDP being cloud native, does that mean fully managed cloud capabilities where you are handling that side of the business because that's one of the feedback I think I've heard from customers because they don't like having to manage the cloud stack on their own. And maybe alongside that, CDP, it seems like most of the work is kind of done, maybe just in terms of strategy, why not publicly share what exactly that roadmap is especially now that Edge to AI that you've had is fully wrapped up and actually put out a proper release date on that versus end of summer and private cloud by end of the year and anything you can offer on that I think would be really helpful. Thanks.

Arun Murthy -- Chief Product Officer

Thanks for the questions. The first one, yeah, so like I said CDP is going to be a cloud native PaaS offering, Platform as a Service offering. There are nuances around when we say it's a managed offering , PaaS offering, the nuance around what infrastructure it runs on and so on. And the customers who choose to run this in infrastructure they own versus a software that is managed by Cloudera, right? That's the model we see and going in that world we continue to leverage in our cloud storage cloud compute and so on. So effectively CDP is a Platform as a Service offering and customers manage very, very little of it.

The second question around sort of timing, we've shared specific timings with the customer base at this point in terms of you know we've got beta programs ongoing, we've got an onboarding program as they go right now. So there's a fair amount of clarity in terms of when we know we can see expect customers to onboard and go from -- and sort of leverage in our production settings.

Rishi Jaluria -- DA Davidson -- Analyst

Got it. Thank you.

Operator

Your next question comes from Zane Chrane with Bernstein Research. Your line is open.

Zane Chrane -- Bernstein Research -- Analyst

Hi. Thanks for taking my question. Can you give us an update on the fiscal year '21 guidance and specifically the operating cash flow margin. I would imagine there's a lot of negative operating leverage in the operating cash flow given you just lowered your ARR guidance for this year by almost $100 million, that's the first part. The second part is, a lot of customers we spoke with, even those that are expanding aggressively in terms of their spending with Cloudera have indicated that even new workloads are -- that they put on cloud vendors is more due to total cost of ownership benefits. They already stated Clutter is better than the cloud vendors on a constant compute basis. So, just want to what have you done or can you do or plan to do to maybe be more competitive on the total cost of ownership front. Thank you.

Jim Frankola -- Chief Financial Officer

I'll take the first one, I'll turn it over to Arun for the second one. So on fiscal year '21, it's premature. You saw that we hadn't significantly changed our guidance for this year, we're still in the middle of this transition. I'd like to get at least another quarter under our belt of seeing the pipeline that we're building today and its ultimate conversion rate before we issuing fiscal year '21 guidance.

Arun Murthy -- Chief Product Officer

Yes. So the second question in terms of overall, we believe that sort of our incentives are aligned much with the customers incentives. Some of the work we've done in terms of adaptive scaling makes so that the overall total cost of ownership is cheaper compared to the cloud vendors service. And frankly, that's just like better capabilities in terms of -- if you want to take -- if you want to identify a work cloud and then burst it into the cloud, remember we have thousands of petabytes of data on our platform. That is something that we leverage -- to be able to actually help these workloads move back and forth.

Zane Chrane -- Bernstein Research -- Analyst

Just to make sure I understand, you're saying that the Cloudera platform is lower total cost of ownership than the cloud vendors?

Arun Murthy -- Chief Product Officer

Exactly, because of the fact that we have a PaaS offering which automatically scales the costs up and down based on loads.

Zane Chrane -- Bernstein Research -- Analyst

And is that true now or are you saying that will be true for the CDP offering coming out in the summer?

Arun Murthy -- Chief Product Officer

This is part of CDP.

Zane Chrane -- Bernstein Research -- Analyst

Okay. And just a quick follow-up for Jim. The framework for how we should think about the operating potential -- operating cash flow or operating margin potential, is there a framework maybe around customers over $1 million in ARR or customers over $100,000, if you were to allocate the cost and revenue, respectively, can you give us a sense for what each one of those customer segments might look like on an operating margin or OCF basis?

Jim Frankola -- Chief Financial Officer

At this point, no. We've done that once before in our Analyst Day which we're targeting in September of this year. The model is dynamic right now. So I'd like to settle it down before releasing numbers like that. So I think September was a good target for that. And I'll go back after your first question on fiscal year '21. What I will say is we laid out a model that said we expect our top line to be able grow more than 20% a year and for us to throw off a 15% operating cash flow margin on a sustained basis at those growth rates. So that would equate to a rule 40, score of 35 or higher. That hasn't changed at all. The only question is timing and whenever I am not giving you precise numbers on fiscal year '21, it's not any change in where the model's going to be, it's just a timing change and that's where we need another quarter or two to get a better assessment of the timing to get to that open model.

Zane Chrane -- Bernstein Research -- Analyst

Got it. Okay. Thank you.

Operator

Your next question comes from Michael Turits with Raymond James. Your line is open.

Michael Turits -- Raymond James -- Analyst

Hi, guys good evening. I just want to make sure that I understand the churn well enough. The customers who did not renew, did they take their on-premise workloads and move those workloads to cloud or did they move to a community non-paid version or did they simply move off of what's this broadly called the Hadoop Ecosystem?

Tom Reilly -- Chief Executive Officer

Michael, this is Tom and I'll answer some of that, pretty familiar with all those scenarios; a combination of the first two. So we do see classic customers that want to move workloads to take advantage of public cloud. And so that's where we saw some of the churn because we weren't really competitive against what the public cloud guys were offering and we had this period of uncertainty. So that's one scenario and that renewal -- the whole renewal will not go away, but a portion of that renewal will go away. And then we saw some workloads go to self support predominate in the tech industry and that's the combination. And then we had a number of renewals that just didn't close in the quarter because of the merger execution and our kind of delays in getting to that.

And then finally, the CDP caused some people just to pause in weather especially if we have a renewal that we're working on an expansion and there is asking questions about do they make that investment and how does it migrate CDP, that caused some delays.

Michael Turits -- Raymond James -- Analyst

So you think it's not the last thing that I asked. Honestly, I asked it also because of the troubles that MapR had versus similar types of solutions broadly called a Hadoop. So, is there any sense that customers are simply migrating to a different form of data architecture?

Tom Reilly -- Chief Executive Officer

No, the only different architecture is the cloud architecture which we are addressing the CDP as a PaaS native cloud architecture offerings, but there is no other analytic platform out there that we find challenging us.

Michael Turits -- Raymond James -- Analyst

And is the bulk of it that move into the cloud or is it -- how would you split it between -- you're basically saying it's moved into cloud or just most -- or non renewals around going to self support or just delays which essentially (multiple speakers).

Tom Reilly -- Chief Executive Officer

The buld of it is delays. The bulk of it the delays followed by workloads moving to public cloud vendors and native house offerings. And that's why we also -- we ensured earlier, but the reasonably prioritized CDP public cloud first is we want to close off that competitive disadvantage with our public cloud hybrid offering. CDP private cloud is what our largest customers are most demanding. But we wanted to close off those workloads that are moving to public cloud. We want to control that with our customer.

Michael Turits -- Raymond James -- Analyst

Sorry to stress -- just squeeze this last clarification, but if they're delaying, but they are past renewal, is that to saying they're simply willing to go unsupported, whatever the reason is, whether it's be it CDP or whatever or mis-execution on your part.

Tom Reilly -- Chief Executive Officer

Yes. So we have a number of renewals that we just didn't close in the quarter because we didn't execute against them and that was just we got a late start due to the merger. Secondly, when a renewal has an expansion, we are better off closing them together and we'll let a customer slip while we're asking their questions or addressing the concerns versus trying to do two transactions.

Michael Turits -- Raymond James -- Analyst

Okay, good enough. Thanks very much.

Operator

Your next question comes from Mark Murphy with J.P. Morgan. Your line is open.

Matt Coss -- J.P. Morgan -- Analyst

Hi. Good afternoon. This is Matt Coss on behalf of Mark Murphy. Thanks for taking my question. You mentioned that you're seeing significant pipeline growth for CDP more than doubling from the beginning of the quarter to the end. What are customers telling you and how well is this pipeline scrubbed and I guess what you see in it that gives you the confidence that you're talking about here.

Tom Reilly -- Chief Executive Officer

Yes so, Matt this is Tom again. So first off, in the first half of the quarter we were not generating much pipeline because we hadn't trained the sales force, we didn't have our strategy in line, we're doing a lot of our integration work. In the second half when we got everyone trained up and the customer started seeing our roadmap and the cross-sell -- up-sell opportunities, we started seeing better expansion opportunities, better cross-sell opportunities, even our new opportunity pipeline, all kind of start growing in the second half. And you know we lost four to six weeks of pipeline generation in the first part of the quarter just because we closed our Q4 bringing teams together and systems. We weren't generating pipeline at the rate we were in the second half.

Our pipeline metrics, we have internal metrics of what they need to be, our pipeline metrics are exceeding our internal goals and that means our second half was strong generation to make up for the first half shortfall and we see it continuing here in our new quarter.

Matt Coss -- J.P. Morgan -- Analyst

Just to --

Jim Frankola -- Chief Financial Officer

Just to make one point, you started a question CDP pipeline, we're actually not generating CDP pipeline yet. So that will really start in the second half, maybe in late Q2. The pipeline generation that we've seen is for all the legacy products that we have in both companies.

Matt Coss -- J.P. Morgan -- Analyst

Got it. Okay. And then I guess what's your confidence level in Q2, is it is a bookings trough quarter and then is there anything else that derail the current outlook or alternatively what has the highest chance of going better than expected from here?

Tom Reilly -- Chief Executive Officer

So the level confidence in Q2 the trough is pretty high. So we have the pipeline in front of us and we see that the growth is clearly aimed at Q3 and Q4 and not at Q2, so our confidence is high that Q2 is the bottom. And what was the second part of your question?

Matt Coss -- J.P. Morgan -- Analyst

Just if there's anything that could go one way or the other positively or negatively and what has the highest chance of happening of where you have the highest chance?

Tom Reilly -- Chief Executive Officer

Yes. So clearly if we execute on our internal plans which as you would expect are a lot more aggressive than the numbers we've shared with you, we will see upside. We'll see upside with our partnership, with IBM, with the uptake of CDP, of cross-sell opportunities that are in the pipeline but really haven't materialized yet. So all the elements we've talked about are the drivers for performance above and beyond what we guided.

Matt Coss -- J.P. Morgan -- Analyst

Thank you.

Tom Reilly -- Chief Executive Officer

All right, operator. I think we're over our time. So we're going to wrap up this. Thank you for the great question. Thank you for joining our earnings call. The team will be reporting back to you in a quarter. Thank you for joining us.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 62 minutes

Call participants:

Kevin Cook -- Vice President, Corporate Development and Investor Relations

Martin Cole -- Chairman of the Board

Tom Reilly -- Chief Executive Officer

Arun Murthy -- Chief Product Officer

Jim Frankola -- Chief Financial Officer

Phil Winslow -- Wells Fargo -- Analyst

Chad Bennett -- Craig Hallum -- Analyst

Jack Andrews -- Needham & Company -- Analyst

Tyler Radke -- Citi Research -- Analyst

Unidentified Participant

Rishi Jaluria -- DA Davidson -- Analyst

Zane Chrane -- Bernstein Research -- Analyst

Michael Turits -- Raymond James -- Analyst

Matt Coss -- J.P. Morgan -- Analyst

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