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Cloudera, Inc. (NYSE:CLDR)
Q1 2021 Earnings Call
Jun 3, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, my name is Oren and I will be your conference operator today and welcome to the Cloudera First Quarter Fiscal 2021 Quarterly Results Conference Call. All participants lines have been placed in a 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 and your host is Mr. Kevin Cook, VP, Corporate Development and Investor Relations. Mr. Kevin, you may begin your conference.

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

Thank you, operator. Good afternoon and welcome to Cloudera's first 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, if any. 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 first 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 that the date of this conference call is June 3rd, 2020 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 time frames 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. Significant changes in the future could cause us to modify our guidance. We undertake no obligation to update these statements as a result of new information or future events. Now, Rob Bearden, CEO.

Rob Bearden -- President and Chief Executive Officer, Board Member

Thank you, Kevin. Good afternoon everyone. Thank you for joining us to discuss our first quarter fiscal 2021 results. Because we're all operating in an extraordinary environment, we will depart from the usual format of this call to focus on a few key areas, leaving extra time for Q&A to be sure that we thoroughly cover the topics of most interest. We will provide a quick update on our quarterly performance, discuss COVID-19 responses and implications, and highlight Cloudera Data Platform progress. As you know, CDP is our new hybrid and multi-cloud solution set.

So beginning with financial results, we executed extremely well in Q1, particularly as the pandemic was in full effect for more than half of our fiscal quarter. Total revenue in the first quarter was $210 million, subscription revenue was $187 million, and non-GAAP operating income was $17 million. Each of these results exceeded expectations. Annualized recurring revenue was also stronger than expected, reaching $723 million at the conclusion of the quarter, representing 11% year-over-year organic growth. And as is typically the case in Q1, the total number of customers who exceeded $100,000 of ARR was about level at 1,003. The number of customers who generate ARR greater than $1 million was higher than expected, growing from 154 to 164. It was an excellent performance in the midst of some obviously very difficult circumstances.

And turning now to the pandemic, obviously, we are not immune to the economic downturn caused by COVID-19, but our business is more resilient than most enterprise software companies. Early indications are that this resilience is being proven out during the crisis as it relates to our business model and the nature of our solutions. First, we benefit from a highly recurring subscription revenue model and this model gives us a high degree of visibility into the year's software revenue based on contractual commitments and average historical net revenue retention, but more importantly, our solutions support mission critical use cases and applications. It's common for our customers to depend on our software for a multitude of applications including the delivery of solutions to their customers. These mission critical applications are diverse, less likely to be affected, and are often heavily integrated, creating substantial stickiness.

Furthermore, since our focus in fiscal '21 is primarily on supporting existing customers as they transition to CDP, we are not reliant on winning substantial new business from new customers to achieve our financial plans and since we have long-standing relationships with many of these existing customers, it's easier to engage with and support them remotely. For the most part, it is not necessary for our field organization or services personnel to be on-site with customers to be effective. To the extent that it is essential for personnel to be on-site with customers, that business has slowed, as forecasted, and we've adjusted our expectations for services revenue until the pandemic subsides. In addition, our revenue stems predominantly from large global enterprises. These customers tend to have strong credit profiles and usually meet their obligations. It's important to note that we do not have customer concentration nor material exposure to the industry verticals most affected by the coronavirus.

So with that backdrop, let's discuss specifically what we're observing in terms of customer behavior. Our customers renewed in Q1 at the second highest rate in the last five quarters. These customers generally engage in long-term planning and have multi-year strategies for modernizing their data architectures, analytics and digital transformations. So anecdotally, we've heard from customers that these plans remain intact and they do not expect changes to current projects and production workloads. We also understand from customers that remote working environments have placed an increased importance on data, data analysis, and data security, which is heightening the value of data architecture design and the criticality of hybrid cloud solutions.

Nonetheless, during times of economic stress, customers typically freeze current projects and limit new investment. We have no reason to believe that this downturn will be different and we assume that new applications and workloads are less likely to be funded while inertia will control existing projects. This business judgment is now built into our plans. And as a result, we have taken aggressive action to contain expenses at levels we believe will ensure we meet our operating margin commitments. Among many steps, we've accelerated the reduction of costs across multiple areas, including personnel and use of outside contractors. These actions position us for a severe and prolonged weak economy. But to be clear, we took these actions out of prudence. We have not seen indications of a significant slowing in customer interactions or pipeline development.

Turning now to our new product offerings, momentum continues to build for CDP, notwithstanding the pandemic. We've tripled the number of CDP Public Cloud customers who have purchased or are actively using these offerings. This is off a small base of more than a dozen customers when we last reported, but the number of customers and ancillary CDP metrics are ahead of our internal plans. For example, the pipeline for CDP Public Cloud has doubled since we last reported, and CDP Public Cloud is accomplishing exactly what we had hoped in that it has enabled a hybrid multi-cloud architecture for our customers and enhanced our proposition with customers who plan to take advantage of public cloud infrastructure for certain types of workloads. Also, CDP Private Cloud is on track to availability at the end of fiscal Q2. We're very excited about CDP Private Cloud as it will complete the two form factors for CDP, public cloud and on-premise private cloud. And this enables for the first time our enterprise data cloud vision to be fully implemented.

Other significant development with respect to CDP is that we have expanded our partnership with Microsoft Azure and Google Cloud Platform. In March, we announced that CDP was available on Azure Marketplace, which means joint customers of Cloudera and Microsoft can now easily discover and provision CDP on Azure using Azure credits and leveraging integrated billing for simple and friction-free procurement. CDP on Azure Marketplace accelerates time to value for our customers who are enabling data engineering, data warehousing and machine learning use cases. Likewise, in May, we expanded our partnership with Google Cloud Platform. We intend to integrate CDP with GCP and offer the joint product on GCP Marketplace, making it easy for our customers to run CDP on GCP. By the end of the year, we expect to make available a tech preview of CDP services on Google Cloud for select customers.

Finally, last month, we introduced new MLOps features and extended SDX to machine learning models as part of our CDP Machine Learning cloud service. These innovations reflect the ongoing investment we're making to build highly competitive, discrete cloud-native offerings. CDP's repeatable, transparent and governed life cycle management capabilities enable our customers to scale model deployments and machine learning use cases with the AI-driven businesses.

And to round out the CDP update, I'll share a few customer wins. Our first example is a global investment management firm and a new customer. This entity's challenge was a lack of visibility into the efficiency of their clients' operations. Their data was siloed across multiple sources and they had a growing set of cloud point solutions, which was making the situation worse. They chose CDP because as a unified data cloud, it enables analytics to be run against multiple disparate data sources, solving their immediate challenge. Furthermore, CDP's integrated data life cycle in streaming, data warehouse and machine learning services will support their long-term objective for all operational systems to be cloud-based.

Our next example is a leading European automobile manufacturer specializing in high-performance vehicles. This manufacturer's connected car initiative has very specific requirements, demanding integration of use cases spanning the data life cycle from collection into ingest, pre-processing and through analytics. After a successful POC, they determined CDP was superior to other cloud service offerings and the only option that could meet their ambitious development timelines. They are now well under way moving certain use cases from on-premise to CDP Public Cloud, taking advantage of CDP's hybrid data architecture.

Our final example is a multinational healthcare technology company. Like many companies, they want to increase agility and be more competitive. And as a regulated industry participant, they must meet strict security and governance requirements. Their objective is to move to a central IT services model based around security via a certification process that maintains HIPPA and PIAA certification across their organization. After an exhaustive evaluation, they selected CDP for their data cloud. They chose CDP for its security capabilities, data life cycle analytics and its ability to operate across AWS, Azure as well as on-prem. And as [Phonetic] central IT data cloud, CDP is also being selected by individual lines of business for data warehousing, which helps combat the organization's shadow IT concerns.

These stories highlight the strengths of CDP and the importance our customers place on hybrid cloud and data life cycle management. They also demonstrate the likelihood for increasing and expanding workloads on CDP as customers begin to move to a hybrid multi-cloud architecture.

Now, let's have Jim take us through the numbers, and then we'll get to some questions. Jim?

Jim Frankola -- Chief Financial Officer

Thanks Rob. Hello, everyone. Q1 was a very strong quarter and exceeded expectations in all respects. Total revenue was $210 million, an increase of 12% year-over-year. Subscription revenue was $187 million, an increase of 21% year-over-year. Annualized recurring revenue for fiscal Q1 was $723 million, up 11% year-over-year.

Note, information regarding definitions and trends can be found in today's press release or the supplemental materials on Cloudera's investor relations website.

As Rob indicated, we concluded Q1 with 1,003 customers who started at or have grown to more than $100,000 of ARR. We increased customers representing greater than $1 million of ARR dramatically, from 154 to 164. This is a record for $1 million ARR customer adds in a quarter. Renewals were again strong in Q1. The strength in renewals and ARR growth was driven primarily by existing customers expanding at a higher rate based on heightened confidence in our new solution set. The introduction of CDP Public Cloud, together with the expected delivery of CDP Private Cloud, was key to these increased customer investments in Cloudera technology.

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 non-GAAP measures exclude stock-based compensation, amortization of M&A-related intangible assets and any extraordinary non-cash real estate impairment charges.

Total gross margin for Q1 was 79% compared to 73% in Q1 of last year, driven by subscription gross margin of 88%, up from 85% in the year-ago period. Total operating expenses were $150 million for the first quarter, continuing a post-merger trend of constant improvement in our expense structure. These operating expenses were 71% of total revenue in Q1 of fiscal year '21 as compared to 74% in Q4 of fiscal year '20 and substantially better than the 92% of total revenue in Q1 of last year. Expense improvements were evident across all lines of the P&L and were driven not only from merger synergies, but through initial fiscal year '21 process improvement and cost reduction initiatives.

Overall operating income was $17 million for the first quarter, representing an operating margin of 8%, a substantial improvement of more than 27 percentage points compared to Q1 of last year. Operating cash flow for the first quarter was $68 million. Cash flow benefited from better-than-expected renewal activity, good collections and strong expense management. Diluted earnings per share was $0.05 in the first quarter compared to a loss per share of $0.13 in the first quarter of fiscal year 2020.

Now, turning to the balance sheet, we exited Q1 with $519 million in cash, cash equivalents, marketable securities and restricted cash, up from $487 million at the conclusion of Q4. Capital expenditures were $1 million in the quarter. Total contract liabilities, which comprise deferred revenue and other contract liabilities, were $515 million at the end of the first quarter. RPO was $828 million, up 12% year-over-year. Current RPO grew 11% year-over-year.

I will conclude by providing initial guidance for fiscal Q2 and updated guidance for the fiscal year, which is subject to the disclaimers provided at the beginning of the call regarding forward-looking information. We expect Q2 total revenue to be between $206 million and $209 million, representing approximately 6% growth compared to Q2 of last year with subscription revenue in the range of $186 million to $189 million, up approximately 14% year-over-year. The difference in growth rates is driven primarily by a projected slowing in professional services revenue due to the pandemic and associated global recession. Specifically, we expect services revenue to decline slightly in fiscal Q2 from Q1 levels and remain at Q2 levels until we see an economic recovery. This means our services revenue will be down 30% to 40% from last year in Q2 and for the year. We have taken actions to adjust our cost structure appropriately.

As a reminder, we have adopted non-GAAP operating income as our primary bottom line metric. We expect operating income for the second quarter to be in the range of $18 million to $23 million or roughly 10% of revenue. Earnings per share for Q2 is projected to be $0.06 to $0.07. For fiscal year '21, we expect total revenue to be between $825 million and $845 million, representing approximately 5% growth, with subscription revenue in the range of $745 million to $755 million, up approximately 12% year-over-year. Our revenue projections are based on the economic impact of the coronavirus peaking in Q2 and Q3 and moderating in Q4. As such, software revenue growth rates would begin to slow in the second half of the year. Specifically, we expect the pandemic-driven recession to impact our subscription revenue growth rates by 3 percentage points to 4 percentage points in Q3 and Q4. We expect operating income for fiscal '21 to be in the range of $85 million to $95 million or roughly 11% of revenue. Earnings per share for fiscal 2021 is projected to be $0.26 to $0.30.

As Rob indicated, we have taken a number of steps to position the company to generate substantial operating income in future periods and we anticipate significant improvements in R&D, sales and marketing, and G&A expense ratios this fiscal year. Building on the operational efficiencies we discussed last quarter, we recently eliminated certain roles and have minimized the use of outside contractors and consultants. As part of these actions, we have accelerated hiring outside the Bay Area in all business functions. We've created global centers of excellence, or shared services, for back-office functions and have streamlined processes. We are also consolidating high cost real estate in the San Francisco Bay Area. We expect the result of these initiatives to be a steady improvement in margins over the course of the year.

Again, we remain guided by the Rule of 40 and expect sustained non-GAAP operating margin expansion and cash flow growth for the next several years. Specifically, we are on track to at least a 15% operating margin by Q4 of this year, which will position us for further margin expansion in fiscal '22. As apparent from our outlook, we believe that our current operational structure balances sustained revenue growth with very strong cash flow generation. Finally, an update on our share repurchase program. As disclosed in our Form 10-K, we repurchased $26 million worth of stock in March, shortly after announcing the $100 million authorization. We are not currently active in share repurchasing. With that, I'll turn it back to Rob.

Rob Bearden -- President and Chief Executive Officer, Board Member

Thanks, Jim. We're pleased with our Q1 performance and solid progress on our growth initiatives in the midst of a very challenging time for everyone. We easily transitioned to a remote working process and have remained highly productive, engaging with and supporting our customers remotely as well as delivering new product innovation. For our customers, we're enabling a modern enterprise data architecture and managing the entire life cycle of data for multi-cloud use cases. My thanks to our employees for their dedication in transforming Cloudera from a mostly on-premise enterprise data management vendor to a true hybrid, multi-cloud data platform company. I also want to thank our partners, customers, and the community for their continued support. Let's pause here and take some questions and as a reminder, Arun Murthy, our Chief Product Officer; and Mick Hollison, our Chief Marketing Officer are also on the line and available for Q&A. Operator, please begin the Q&A portion of the call.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from a Mr. Singh with Morgan Stanley.

Sanjit Singh -- Morgan Stanley -- Analyst

Thank you for taking the questions and congrats on a strong Q1. Rob, I was wondering if you could sort of walk us through the quarter in some of the demand trends that you were seeing as the first half of the quarter transitioned to the second half of the quarter where you might have seen some degradation in terms of bookings activity and then as we get into early parts of June, how have trends been since then. That would be my first question and then I have a quick follow-up.

Rob Bearden -- President and Chief Executive Officer, Board Member

Okay, great. Singh [Phonetic] -- thanks for joining the call. It was obviously an evolutionary quarter and I would -- the first phase of the quarter when the pandemic really started moving into full force, the first couple of weeks were a bit of shock and awe for all of us and trying to make sure we really understood what this meant, what the impacts were going to be. Our customers really trying to understand what the impact to their customers were, how they were all transitioning in a work-from-home environment and we took that opportunity to be very, very deliberate, very aggressive in reaching out and making sure they really understood that we were in great shape, that we were very functional in terms of ability to support them, they wouldn't see a disruption in service, exactly how we could engage together and that phase played through over first couple of weeks.

I'd point out that was at the only point that we had pipeline pause, but then as we went into phase two, the customers wanted to very much engage and make sure that they understood how to better use the platform, how to get more use cases, more data on to the platform. It was a very big trend we began to see. They realized that they needed deep insights about their model, their customers, their products, how they were performing and what was critical for them to model out and model through their businesses was very data dependent, in many cases, resides on our platform. So our team did an excellent job of starting a workshop process where we work with our customers to help them understand how to get more workloads on, more insights, better use, and leverage more value out of the platform and what it also did was it -- through those workshops gave us the ability to give them visibility into the CDP road map and work with them to plan and how to move to CDP either public or private.

So it turned out to be a great planning process, great customer engagement. Scott and Mick did an excellent job in that phase really getting us back to solid pipeline levels and we saw strong adoption and demand for software both from a -- certainly a renewal as well as an expansion in the quarter and now, I'd say we're very much in the early phase of phase three, which are very much solid planning into how they're going to migrate to CDP, in many cases private and what their expansion models look like because they're really learning and seeing the value of data, the importance of insights around the data and data security has become an incredibly important and core issue and the work we're able to do with the customers around data security have created a lot of net new demand and expansion.

So what they've learned in the takeaway from all this is the importance of a hybrid data architecture, the importance of securing the entire life cycle of data and what that's done is it really has shined a great light on CDP, the architecture that let's them enable around an enterprise hybrid data architecture and in this phase also, we're seeing an even higher, surprisingly, strong reception to receiving services on a remote basis and we're just seeing the beginning of that right now. And so those have been productive engagements with our customers. Pipeline has stayed on track to where we need it to be from a coverage to quota standpoint. Scott's done a really nice job executing that and we're seeing our customers really settle into the socket and this is going to be a one plus year kind of operating environment they're going to have to get accustomed to and I think we're working really, really productively with the customer base in general.

Sanjit Singh -- Morgan Stanley -- Analyst

That's great. It's a great framework to think about some of the dynamics in the business. I wanted to ask about CDP. There's a lot of encouraging metrics on pipeline and some early uptake. With CDP Private Cloud about to be released, I was wanting to get your -- sort of get your view on what is going to be the quicker revenue contributor because on one hand, there's a view that going to the cloud or cloud adoption may accelerate which may spur CDP Public Cloud, but then you have a pretty sophisticated customer base that can handle sort of on-premise environments as well. So between CDP Public Cloud and Private Cloud, how do we think about traction between those two going forward?

Rob Bearden -- President and Chief Executive Officer, Board Member

Sure, so, as you point out, we're on track and on schedule for late summer end of fiscal Q2 for CDP Private Cloud to come out and it will be GA at the end of the fiscal quarter. We're super excited about it. It has gotten great reception from our customer base. The beta customers that we have are very, very pleased with what they're seeing and it completes the form factor both Public and Private for the enterprise data cloud to enable us to give our customers the ability to deploy a hybrid data architecture and manage the entire life cycle of data with common security and governance and manage all the lineage from single pane of glass.

And so we're going to be very, very measured in how we move our customers through the migration, but the core design principles for CDP both Public and Private were really driven around ease of use, ability to migrate fast, and to be able to leverage that hybrid environment along with all of the experiences and services for streaming and AI and data warehousing, as well as data engineering and we think this has been as successful as it has because -- and it's improved in our partnerships both in terms of IBM Red Hat in terms of how we've constructed the engineering relationship and adopting OpenShift as the container platform for CDP Private and as we're deploying a hybrid architecture, we've worked really closely with the public cloud providers to make sure that we're leveraging the native services of their platforms and that our customers will be very, very successful there and those partnerships have led to really good cooperation from a go-to-market and how we're supporting our customers.

I think what you'll see and the last part of your question around the adoption is we factored in very little revenue contribution this fiscal year from CDP generally. We think the majority of the workloads and the way that our customers want to deploy and move toward hybrid is to move a much bigger percentage to private first and then extend to public and we're seeing that trend play through and I think that is -- that's what the market is asking us for as well.

Sanjit Singh -- Morgan Stanley -- Analyst

Thank you. Appreciate the thoughts, Rob.

Operator

And our next question comes from Mr. Phil Winslow with Wells Fargo.

Rob Bearden -- President and Chief Executive Officer, Board Member

Hey, Phil.

Phil Winslow -- Wells Fargo -- Analyst

On the product side -- Rob, good to chat with you. Happy you're back. Really just want to focus on one of my favorite products and I noticed yours too, data flow. I wanted to get an update on that and what customers are telling you on data flow and just streaming in general. Thanks.

Rob Bearden -- President and Chief Executive Officer, Board Member

Yes, sure. It's the -- one of the fastest growing product lines that we have. We're seeing significant interest in being able to bring data under management from the point of origination and be able to drive analytics against that data in real-time as events are happening. It's one of the real strengths and differentiators that CDP has in being able to get to high velocity real-time predictive and AI machine learning models. We're seeing, believe it or not, particularly in the oil and gas space, they are able to drive significant efficiencies and really significant ROI on being able to bring go all the way out to the edge, go out to their drilling platforms and be able to stream those data sets in real-time.

We have one of the significant oil service providers that are going to have a within the next probably four months, five months CDF deployed in NiFi [Phonetic] out on the edge of over 100,000 endpoints streaming data real-time back, but I could go across every industry, there is significant use cases that leverage that real-time streaming service and we continue to see the growth from that product line outperforming most of the others. So we're leaning in and really making sure that we're introducing those new use cases to the customer base.

Phil Winslow -- Wells Fargo -- Analyst

Great, thanks guys. I'll get back in the queue.

Operator

Okay and our next question comes from a Mr. Pat Walravens from JMP.

Pat Walravens -- JMP Securities -- Analyst

Oh great, thank you very much and congratulations on working through Q1. Rob, I guess I have two questions for you. First, it caught my attention when you said, it feels like customers want to move to the private solution first and then to the public. I'm wondering is that sort of a new learning on your part and if so, what's driving that. And then the second question, I'll just put it both out upfront is I think it would be really helpful if you could just sort of lay out for us what the competitive environment is like for Cloudera these days and maybe sort of before and after CDP, how it changes the competitive landscape for you?

Rob Bearden -- President and Chief Executive Officer, Board Member

Yes, sure. Well, I'm going to kind of blend those both together. So to frame both up, recognize that our core target market focus is the Fortune 2000, the biggest enterprises. They tend to be very data driven models, industries with highly regulated data driven models. They use our platform to be very much -- to drive mission critical workloads, large data sets and they tend to be also embedded in their solutions to their customers in many cases and they are driving mission critical applications whether it'd be in risk management, fraud detection and so what they want to have the ability to do is to be able to deploy different types of data management services on the most appropriate tier whether that's at the edge, whether that's on-prem, whether that's in the public tier.

Most of our customer base today is on-prem and so the natural motion for them is to move the existing environments, workloads and use cases over to the private tier and then they will take and expand incremental workloads and use cases in a hybrid environment to the public service and then put net new workloads again back to the most appropriate tier architecturally and financially to manage that and we give them the tooling through SDX to be able to do that analysis and what's the most effective place to run that workload public cloud, private tier. And so, from a competitive standpoint, we're really the only platform that truly can deliver and will deliver the ability to manage the entire life cycle of data in a hybrid data architecture and can give them the ability to manage and secure the data through a consistent governance and security framework through that entire life cycle and through any of the services, whether that be streaming, whether that be data engineering, data warehousing, and then give them the ability to apply machine learning and AI through those models from the edge, all the way until the data comes at rest through an operational data store or a traditional data warehousing environment.

And so, we don't think about trying to compete at the single-use case point solution basis. We're a data platform company that manages the entire life cycle of data. And we think about it in terms of not focusing on the point solution competitors, but how we partner with each of the tiers in the case of private, Red Hat on OpenShift; in the case of public, with GCP, Microsoft Azure, obviously, and Amazon Web Services. And we think about them as partners versus competitor.

Pat Walravens -- JMP Securities -- Analyst

Okay. That was actually very helpful. Thank you.

Operator

And our next question comes from a Mr. Chad Bennett.

Chad M. Bennett -- Craig-Hallum -- Analyst

Great. Thanks for taking my questions.

Rob Bearden -- President and Chief Executive Officer, Board Member

Hey, Chad.

Chad M. Bennett -- Craig-Hallum -- Analyst

Hey, Rob, how are you?

Rob Bearden -- President and Chief Executive Officer, Board Member

Doing great. Thanks for joining.

Chad M. Bennett -- Craig-Hallum -- Analyst

Good, yeah. So, kudos again. Great execution in obviously a unique environment here. And hopefully, everybody is safe and healthy on your guys' side. I guess, maybe for either one of you, probably more for Jim, but you just -- I think both of you stated renewals were strong in the quarter. But, Jim, can you just provide maybe another layer in terms of -- I assume that implies churn possibly improved again in the quarter. And then, are we still seeing -- with respect to the licensing change and pricing change months ago now, are we still seeing somewhat of a tailwind from self supporters and/or maybe even a little bit of a boost from the pricing change now that we're in the new year?

Rob Bearden -- President and Chief Executive Officer, Board Member

Yeah, Jim, do you want to take that?

Jim Frankola -- Chief Financial Officer

Yeah, I'll start with that one. So, yeah, as Rob said, we're very pleased with the renewal performance in the quarter, second best over the past year and a half or so. The themes that you see there are a continuation of what we saw in Q4. So from an operational excellence standpoint, we are fully past the merger and are operating in terms of business cadence that drives renewals, and in some cases, early renewals, and minimizes late renewals. The changes that we've made to licensing and paywall continue to pay off. So, the number of customers that have moved to self support decreases each quarter. Churn rates -- and we're not going to discuss churn rates in detail, but what I'll say is, they are back to historical averages. So we're pleased that we've stabilized the churn. And at this point, our focus is getting CDP out there and having a good place to have customers land when they want to move into the public cloud, and that will be the next step in terms of further improving renewal rates and churn rates.

Chad M. Bennett -- Craig-Hallum -- Analyst

Got it. And then, maybe one follow-up from me. Just on the guide, well, I guess first of all, to actually give a guide in this environment is pretty heroic. But I think everybody fully appreciates the headwinds to the service business. But I'm just trying to reconcile what happened in Q1 and how you guys are talking about at least what you're seeing quarter-to-date in Q2. Your billings were better than I expected in the quarter. RPO was good. Renewals have been good. Understandably, net new is challenged, but quite frankly, you weren't betting on that anyways heading into the year. And it seems like pipeline, there has been no change in deal activity. There has been no change. So, I'm just trying to understand better -- Jim, you cited a 3% to 4%, I guess, COVID-related impact to subscription growth in the second half. Is that from actual kind of factual data? Or is that just we're in a very unique environment and you don't know what you don't know, and that's how you're thinking about it? Any color there would be great. Thank you.

Jim Frankola -- Chief Financial Officer

Yeah. There's a lot to unpack there. So, let me start with saying that we are in an uncertain environment and we want to be prudent. With that said, we do have the good fortune of having a customer profile that we think enables us to be more resilient and more confident than perhaps other tech and software companies. And the way you see that in our numbers is in the software piece. So, our software guide for the year is better than consensus. It's essentially right on where we were 90 days ago before the pandemic really hit. So, despite having all the headwinds of the pandemic, we think our software business is essentially very similar to what it was pre-pandemic. And to the extent that there is an impact on the software business, we think it will be primarily in Q2 and Q3, and that's -- that causes our bookings to be lower in those quarters, which then causes revenue in the back half of the year to be less. And right now, we're estimating that impact to be roughly 3% or 4% of revenue growth in the Q3 and Q4. And that's based on what I'll call as the external modeling that we do -- we read all the same reports that you have -- looking at our pipeline, generation and the progress of the pipeline through the first quarter and through part of Q2. And that gives us confidence in the software number for the year.

Where you see the softness in revenue is almost entirely due to our services business, and that is a reflection of obviously new customers are harder to get in this environment. Some customers are postponing or shrinking expansion opportunities. The good news is, many of our largest and most successful customers are at the point of maturity that they are able to add new use cases and expand with little or no help on the services front from us or third-party partners.

So to recap, the software business is looking very resilient despite the headwinds of the pandemic. And the services business is getting a hit, but we have reacted appropriately on the cost structure there. And then, the last point is, the proof of this is in the bottom line. So, the software business is what generates most of our profits. You can see the fact that we were able to actually increase our margin guidance for the year based on the strength of that software business.

Chad M. Bennett -- Craig-Hallum -- Analyst

Great. Thank you for the color.

Operator

And our next question comes from Mr. Jack Andrews with Needham.

Jack Andrews -- Needham & Company -- Analyst

Good afternoon. Thanks for taking my question, and congratulations on the results. I wanted to see if you could provide a little more color on the impressive 10 customers incrementally that have crossed the $1 million spending threshold with you. Is there any color you provide on that group in terms of what drove them over that hurdle in terms of common use cases or vertical concentration, anything along those lines?

Rob Bearden -- President and Chief Executive Officer, Board Member

Jim, do you want to take that?

Jim Frankola -- Chief Financial Officer

Yeah, I'll take that. What I'll say is, in some respects, those 10 customers are somewhat unremarkable. They -- their profile matches what we've talked about in terms of our strength in verticals with that -- the majority of -- not the majority, the biggest chunk are in financial services, followed by tech telecom. We had a relatively good quarter in terms of public sector growth at that $1 million level. I'd say they are slightly more weighted internationally than domestic this quarter, but it's a good validation of the confidence that the -- that set of customers are seeing in the new CDP product line and their continued investments in the legacy platforms because right now, it's not the CDP Public Cloud that's driving that $1 million plus. It's the continued investments in their existing platforms.

Jack Andrews -- Needham & Company -- Analyst

Got it. Okay, thanks. And then, just as a follow-up question, I was wondering if you could -- perhaps, Rob, if you could speak to the importance of your new MLOps offering. In particular, how should we think about how important this is and what sort of penetration and impact on your business that you're expecting over time?

Rob Bearden -- President and Chief Executive Officer, Board Member

Sure. It's a very significant value driver for our customers because what those models do is bring incredible efficiency into the datasets that they have. I will let Arun talk a little more about MLOps and what it does, but what this really does is it helps one of the big drivers, and this goes back to the earlier question on data flow, by driving MLOps into the streaming datasets, it really allows that -- those use cases to get to real-time events, real-time decision process that don't even require the dataset come back to us [Phonetic] to do an analytic on it. We can run those machine learning models over real-time data stream and take real-time action and processing as an event happens or changes, and that's a massive value driver.

But Arun, do you want to touch on MLOps and specifically maybe some of the things it's doing with SDX?

Arun C. Murthy -- Chief Product Officer

Yeah, absolutely. Thanks Rob. Hey, Jack. One of the things it does, like Rob was saying, is that this really [Indecipherable] sort of broadening the charter of the SDX capabilities. As we've talked in the past, the SDX is fundamental to sort of our -- the entire CDP platform. And the goal here was to say, hey look, it's one thing to actually develop a -- get a smart analyst or a statistician develop a machine learning model, but to go from sort of the insight of the math to actual production value is a huge journey for the enterprise. And the MLOps platform or the capabilities we added into CDP, which we made public in April of the year, is to make sure that we can take that very model and make sure we can run this in a governed fashion and a secure fashion, make sure we track the model, make sure there is audit and lineage so that -- and monitoring. So, for example, if you start to see your models drift because there's new data -- and this is a great example of where we are today with the pandemic. We're seeing all sorts of newer insights you have to pop up. And then, your model might not be as efficient as we imagined it to be. So, the MLOps platform allows you to really take your machine learning math and your statistics and make sure you can run this in a production-grade scenario to sort of complete the loop, all the way from the edge where you get all this new data, to make sure it's actually something that is of qualitative and quantitative effect for the enterprise. Does that make sense, Jack?

Jack Andrews -- Needham & Company -- Analyst

It does, yes. Got it. And thank you for the color in detail around that.

Rob Bearden -- President and Chief Executive Officer, Board Member

And what's -- again, part of the key value drivers, being able to do that across a hybrid multi-tiered data set is a massive differentiator for CDP and the machine learning service models.

Jack Andrews -- Needham & Company -- Analyst

Thank you.

Operator

And our next question comes from a Mr. Mark Murphy with J.P. Morgan.

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

Hi, good afternoon. This is Matt Coss on behalf of Mark Murphy. Jim, the expectation of operating margin expansion going forward is great. It's great. We've already seen it happening in the model. What, at this point, could cause operating margin to expand either faster or slower than your baseline expectation? And a second one, I know you mentioned there's not meaningful revenue built into your model for CDP this year. When does that start to get more meaningful? And can you comment on any sort of spending uplift that you see as customers move to CDP? Thanks.

Jim Frankola -- Chief Financial Officer

Okay. In terms of the margin profile, what we've done is, through the actions post merger last year and through May of this year, we have basically created the cost structure that will support profitable revenue growth. And what I mean by that is, our cost structure will shrink slightly over the remainder of the year as we consolidate facilities, get some additional non-headcount savings, but it's relatively stable. So what will cause margins to expand faster than what you see here would be revenue growth and bookings growth in excess of our assumptions. If that occurs, we will have to increase costs, but we'll be able to increase costs at a much lower rate than bookings or revenue because the infrastructure is in place to support that growth.

Regarding CDP revenue, what I'll say is, that's going to be a function of the pandemic because clearly to the extent that CDP is a new product and a new offering, it's -- it will be easier to sell in an environment that the spending budgets are bigger and it's easier to get access to customer, and the general spending levels of IT spending in economy. So I think from a product standpoint, CDP Public Cloud will start being meaningful in Q4 in terms of economic contribution. And really heading into fiscal year '22, CDP Private Cloud will be primarily fiscal year '22 from a revenue perspective.

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

Thanks very much.

Operator

Thank you very much for that question. And your next question comes from the line of Rishi [Phonetic] from Davidson.

Hannah Rudoff -- D.A. Davidson -- Analyst

Hi, guys. This in Hannah Rudoff on for Rishi today. Thanks for taking my questions. Could you provide a little more color on what the expanded partnerships with the public cloud vendors mean for you and maybe how much additional adoption it could bring and what is left to do on the partnership front with the public cloud vendors?

Rob Bearden -- President and Chief Executive Officer, Board Member

Sure. Thanks for joining the call. So we are very focused on those public cloud partnerships. And starting with making sure, from an engineering standpoint, we're optimized at the intrinsic low level of services optimization and making sure that CDP runs in an optimal environment for them, all the security models are linked, that SDX works correctly within some of the lower level security calls on their side, that we're optimized to use their specific file systems. There's a lot of engineering work that has been done and continues in an ongoing fashion.

What this has really done is it changed the tone and being from a competitive environment. So, I would classify it as a coopetition, coopetition being much, much heavier focused on cooperation than competition. We have 400,000 data center servers under management. There are 5 exabytes of data from paying customers, and of course, that grows every quarter. As we move our customers to CDP for the hybrid architecture, both we and they want to make sure that -- that's an obvious huge on-ramp to -- from an IAS [Phonetic] standpoint. And they want to make sure they are the beneficiary. We want to make sure our customers have the ability to run efficiently and cost-effectively and leverage our tooling. And we are now in the process of seeing the benefit of that. I talked about earlier in some of the prepared remarks that CDP Public Cloud in terms of usage has about tripled since our last quarterly report. And through the quarter, pipeline has more than doubled. For every dollar that our customers pay us for CD services and in public cloud, there's probably 4 times to 5 times dollars in IAS spend.

What we're also doing is trying to make every -- make it a very frictionless easy migration process. Those were the designe principles for CDP. But now, we're into sort of the next phase of accelerating our digital transformation to make sure our customers can on board to CDP in a self-service way, mix leading that effort inside the company. It's exactly on track with the goal, and they were ambitious goals that we put in place. And that's going to make it even faster and easier for our customers to move to CDP. And then, we're going -- as I talked about in the prepared remarks also, we're now part of the Azure marketplace. And what that says is now customers can provision and procure directly through the marketplace and leverage their Azure credits that they've committed to and purchased to burn down CDP services. All of these things accumulate into faster, more efficiency, better economics and then clearly have the ability to drive and deliver the hybrid architecture that they are so anxious to get to. So it's a culmination of all of these things and as they continue to progress, we'll see further adoption and an accelerated adoption. As Jim pointed out in the last question, we'll see more meaningful revenue next fiscal year from CDP generally and we're tracking exactly where we wanted to be and I'm really proud of our team for how well they've executed there.

Jack Andrews -- Needham & Company -- Analyst

Great, that's really helpful. Thank you.

Rob Bearden -- President and Chief Executive Officer, Board Member

Absolutely.

Operator

And our next question comes from the line of a Pree Gadey from Barclays.

Preetam Gadey -- Barclays -- Analyst

Hey, there. Thanks for letting me ask a question. I was hoping to get a little bit more color on the CDP Private Cloud. Is the offering more about kind of maintaining the technology or do you expect when you do roll it out that it increases your expansion rate, basically, are people going to be spending more because they upgrade to CDP Private Cloud?

Rob Bearden -- President and Chief Executive Officer, Board Member

Short answer is, I think, what it's going to do from an economic model, I assume you want to talk about the economics versus the technology and what the platform is doing. Happy to talk about either, but in terms of the economics. It is -- CDP again, it goes back to design principles. It's designed to be a much easier, faster platform to manage more data on and be the foundational enablement of the hybrid architecture with the ability to manage the entire life cycle of data.

And so, yes, I think it -- what it clearly does is it helps solidify and you're seeing that now in terms of improvement on churn rate and renewals because this customer -- our customer set now, they're renewing with the intent to move to CDP, in some cases, public, a lot of cases private, and that's the migration path and plan they have but because of the services that CDP Private Cloud will provide, it will naturally bring more data under management, which will drive not only renewals, but expansion dollars, also because of the services with -- and the machine learning data engineering, data warehousing native capabilities, they'll bring more data under management, they'll have more use from more lines of business that begin to use those, again, not only driving renewal, but also more expansion opportunities as well.

And then of course that will then lead to expansion to the public tier and also leveraging those services in certain data workloads that will naturally be appropriate to run in the public cloud and CDP Private will make it very easy for that to happen and then, of course, SDX is essentially the fabric that drives the security governance models and management platform through that entire life cycle. Does that help?

Preetam Gadey -- Barclays -- Analyst

Perfect, thank you. And just I guess a really quick follow-up question, I know it's way too early for fiscal '22 and you're not going to guide on it, but CDP Private Cloud kind of leading to more expansion and CDP Public Cloud relatively small right now, but a much hopefully much bigger footprint the next fiscal year. I mean, all things equal, should subscription revenue kind of go toward mid to high teens and run a little bit more with where the market is right now.

Rob Bearden -- President and Chief Executive Officer, Board Member

Jim, you want to get that?

Jim Frankola -- Chief Financial Officer

Yes, yes. So what I'll say is once we complete our product transition to CDP and it's a significant transformation, we do believe that we should be able to grow with the market and the market was growing pre-pandemic roughly 20% a year. So we think of ourselves in the longer run as a 20% growth company, 20% operating profit company in terms of the balance. We're not ready to give fiscal year '22 guidance for many reasons. We're in the middle of a pandemic. The second thing is even once our business starts to grow, revenue is a lagging indicator. So we'll start seeing growth in bookings and then it will take some time for it to show up in revenue. So, certainly not ready to call revenue growth number for next year. We do think once the pandemic is over, once we're through the product transition, we should be able to grow with the industry.

Preetam Gadey -- Barclays -- Analyst

Great. Thank you.

Operator

And we have no further questions at this time.

Rob Bearden -- President and Chief Executive Officer, Board Member

All right, well, very good. Thank you all for joining the call and we look forward to being back with you next quarter. Stay safe, stay healthy. Take care.

Operator

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

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

Rob Bearden -- President and Chief Executive Officer, Board Member

Jim Frankola -- Chief Financial Officer

Arun C. Murthy -- Chief Product Officer

Sanjit Singh -- Morgan Stanley -- Analyst

Phil Winslow -- Wells Fargo -- Analyst

Pat Walravens -- JMP Securities -- Analyst

Chad M. Bennett -- Craig-Hallum -- Analyst

Jack Andrews -- Needham & Company -- Analyst

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

Hannah Rudoff -- D.A. Davidson -- Analyst

Preetam Gadey -- Barclays -- Analyst

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