Hortonworks, Inc. (HDP) SEC Filing 10-Q Quarterly report for the period ending Sunday, September 30, 2018

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Exhibit 99.1

 

LOGO

Hortonworks Reports Third Quarter 2018 Revenue of $87.2 Million

Company Also Delivers $10.5 Million in Third Quarter Operating Cash Flow

SANTA CLARA, Calif.—November 8, 2018—

Hortonworks, Inc.® (NASDAQ: HDP), a leading provider of global data management solutions, today announced financial results for the third quarter of 2018.

“We are pleased with our third quarter performance, which builds on top of the significant progress we have made during the first half of 2018,” said Rob Bearden, chief executive officer of Hortonworks. “Enterprise customers continue to choose Hortonworks’ platform and value-added services because they recognize the importance of end-to-end data lifecycle management across on-premises, multiple public clouds and the edge. Our open source approach to common security, data governance and management accelerates the hybrid cloud journey for customers as they transform their business models and focus on data intensive apps powered by AI.”

“In October, we announced a merger of equals with Cloudera to create the world’s leading next-generation data platform and deliver the industry’s first enterprise data cloud,” continued Mr. Bearden. “This transaction will hasten market development and produce substantial benefit for customers, partners and the open source community. Together, we will be able to expand our customer reach and capitalize on market opportunities, as we accelerate innovation for IoT, streaming, hybrid cloud, data management, data warehousing and AI. As we prepare for the integration of both companies, we remain committed to sustaining the healthy momentum we have been seeing in 2018 and carrying it into 2019.”

Third Quarter 2018 Financial Highlights

 

   

Revenue: Total GAAP revenue was $87.2 million for the third quarter of 2018, an increase of 26 percent compared to the third quarter of 2017.

 

   

Gross Profit: Total GAAP gross profit was $63.4 million for the third quarter of 2018, compared to $47.7 million for the same period last year. Non-GAAP gross profit was $65.9 million for the third quarter of 2018, compared to $49.7 million for the same period last year. GAAP gross margin was 73 percent for the third quarter of 2018, compared to 69 percent for the same period last year. Non-GAAP gross margin was 76 percent for the third quarter of 2018, compared to 72 percent for the same period last year.

 

   

Operating Loss: GAAP operating loss was $31.7 million for the third quarter of 2018, compared to $44.2 million for the same period last year. Non-GAAP operating loss was $5.2 million for the third quarter of 2018, compared to $15.4 million for the same period last year. GAAP operating margin was negative 36 percent for the third quarter of 2018, compared to negative 64 percent for the same period last year. Non-GAAP operating margin was negative 6 percent for the third quarter of 2018, compared to negative 22 percent for the same period last year.

 

   

Net Loss: GAAP net loss was $31.6 million for the third quarter of 2018, or $0.39 per basic and diluted share, compared to a GAAP net loss of $45.4 million, or $0.67 per basic and diluted share, in the third quarter of 2017. Non-GAAP net loss was $5.0 million for the third quarter of 2018, or $0.06 per basic and diluted share, compared to a non-GAAP net loss of $16.6 million, or $0.24 per basic and diluted share, for the same period last year.


The following information was filed by Hortonworks, Inc. on Thursday, November 8, 2018 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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  • 17828550_66
    Revenue - Product
    We believe that our sales and marketing, research and development and general and administrative costs will decrease as a percentage of revenue in the long term as we are able to reach economies of scale and achieve process improvements and other operational efficiencies.
  • 17828550_61
    Revenue - Product
    We believe that our market opportunities (including HDP, HDF and Hortonworks DataPlane Service) are large and underpenetrated, and we will continue to invest significantly in sales and marketing to grow our customer base, expand within existing support subscription customers and grow internationally to drive additional revenue.
  • 17828550_102
    Revenue - Product
    Revenue related to support subscriptions are recognized ratably over the term of support and revenue related to consulting and/or educational services are recognized as services are performed.
  • 17828550_104
    Financial - Expense
    Cost of professional services revenue consists primarily of personnel costs (including cash compensation, benefits and stock-based compensation expense) for employees and fees to subcontractors associated with our professional service contracts, travel costs and allocated shared costs.
  • 17828550_31
    Financial - Earnings
    In our efforts to achieve profitability, we have placed and will continue to place an emphasis on investing within our support subscription sales efforts to try to drive increased revenue in both support subscriptions and professional services.
  • 17828550_114
    Financial - Expense
    Research and development expenses consist primarily of personnel costs (including cash compensation, benefits and stock-based compensation expense) for our research and development employees, costs associated with subcontractors and equipment lease expenses, plus allocated shared costs.
  • 17828550_109
    Revenue - Product
    Sales and marketing expenses consist primarily of personnel costs (including cash compensation, commissions, benefits and stock-based compensation expense) for our sales and marketing employees.
  • 17828550_184
    Financial - Earnings
    As of September 30, 2018, we had no borrowings outstanding under our Amended and Restated Credit Facility and we were in compliance with all financial covenants, which included maintaining a minimum trailing 12-month non-GAAP operating profit and a minimum adjusted quick ratio.
  • 17828550_207
    Revenue - Product
    We determine revenue recognition through the following steps, which are described in more detail below: Identification of the contract or contracts with a customer Identification of the performance obligation(s) in the contract Determination of the transaction price Allocation of the transaction price to the performance obligation(s) in the contract Recognition of revenue when, or as, a performance obligation is satisfied Our agreements with customers often include multiple support subscription and/or professional services elements, and these elements are sometimes included in separate contracts.
  • 17828550_244
    Revenue - Product
    Revenues are recognized when we satisfy the performance obligations under the terms of a contract when control over our product offerings is transferred, which generally occurs as support subscription and professional services are delivered to the customer.
  • 17828550_269
    Financial - Expense
    Contract costs that are incurred in excess of those relating to an underlying transaction are not considered commensurate with recognition of revenue as performance obligations are satisfied, and are amortized on a straight-line basis over the anticipated average customer life of five years.
  • 17828550_64
    Financial - Earnings
    We expect to continue to use the net proceeds from our follow-on public offering to fund these growth strategies and do not expect to be profitable in the near future.
  • 17828550_55
    Revenue - Product
    Our existing support subscription customers continue to represent a large opportunity for us to expand our revenue base.
  • 17828550_148
    Financial - Expense
    32 Research and Development Research and development expenses decreased $2.9 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017.
  • 17828550_136
    Financial - Expense
    The increase was primarily attributable to a $1.9 million increase in personnel-related expenses as a result of an increase in headcount.
  • 17828550_101
    Revenue - Product
    Revenue is recognized for each subscription or service based upon the amount of revenue allocated to each subscription or service.
  • 17828550_103
    Financial - Expense
    Cost of Revenue Cost of support subscription revenue consists primarily of personnel costs (including cash compensation, benefits and stock-based compensation expense) for employees, including support engineers, associated with our support subscription offerings mainly related to technology support and allocated shared costs.
  • 17828550_67
    Financial - Earnings
    With this increased operating leverage, we expect our gross and operating margins to increase in the long term.
  • 17828550_150
    Financial - Expense
    Research and development expenses decreased $6.4 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.
  • 17828550_91
    Revenue - Product
    In order to grow our customer base, we have aggressively invested in and intend to continue to invest in our direct sales team, as well as to pursue additional partnerships within our indirect sales channel.
  • 17828550_129
    Revenue - Product
    The increase was primarily due the sales of additional support subscriptions to our existing customers as well as growth in our support subscription customer base.
  • 17828550_134
    Financial - Expense
    The increase was primarily attributable to a $4.0 million increase in personnel-related expenses as a result of an increase in headcount to support new customer growth.
  • 17828550_3
    Other - Other
    Such statements are based upon current expectations that involve risks and uncertainties, as well as assumptions that, if they never materialize or if they prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.
  • 17828550_233
    Revenue - Product
    Determining whether the criteria for allocating variable consideration to one or more, but not all, performance obligations in the contract requires significant judgment and may affect the timing and amount of revenue recognized.
  • 17828550_70
    Revenue - Product
    On occasion, we sell engineering services as well as a premium subscription offering which allows a higher level of access and development input.
  • 17828550_24
    Revenue - Product
    The growth of our total revenue is dependent upon (i) new customer acquisition, (ii) expansion of sales within our existing customers, (iii) the annual renewal of our support subscription agreements by our existing support subscription customers and (iv) professional services fees from consulting and education.
  • 17828550_177
    Financial - Shares / Equity
    Cash provided by financing activities for the nine months ended September 30, 2017 was $13.4 million, and was primarily related to the proceeds related to the issuance of common stock of $15.0 million which was partially offset by $1.2 million of payments to satisfy the tax liabilities of employees upon vesting of equity awards.
  • 17828550_73
    Financial - Expense
    The costs associated with our support subscription and professional services revenue were expensed as we incur the delivery costs.
  • 17828550_232
    Other - Other
    We allocate variable consideration to one or more, but not all performance obligations when the terms of the variable payment relate specifically to our efforts to satisfy the performance obligation (or transfer the distinct product or service) and when such allocation is consistent with the allocation objective when considering all performance obligations in the contract (e.g., a time and materials based professional services arrangement bundled with support subscription).
  • 17828550_231
    Other - Other
    Otherwise, we allocate the transaction price to each performance obligation identified in the contract on a relative stand-alone selling price basis, except when the criteria are met for allocating variable consideration or a discount to one or more, but not all, performance obligations in the contract.
  • 17828550_264
    Other - Other
    These measures depict our efforts to satisfy professional services contracts and therefore reflect the transfer of control for the services to a customer.
  • 17828550_90
    Revenue - Product
    We believe total support subscription customers is a key indicator of our market penetration, growth and future revenue.
  • 17828550_237
    Revenue - Geography
    If a directly observable stand-alone selling price does not exist, we estimate a stand-alone selling price range by reviewing external and internal market factors including, but not limited to, pricing practices including historical discounting, major service groups and geographic considerations.
  • 17828550_48
    Revenue - Product
    Growth of our revenue from our support subscription offerings is driven by agreements with new support subscription customers, renewals of existing support subscription agreements and increased revenue from existing support subscription customers who are expanding their usage of our Connected Data Platform.
  • 17828550_130
    Revenue - Product
    31 Professional services revenue for the three and nine months ended September 30, 2018 increased $6.0 million and $14.9 million, respectively, compared to the same periods in 2017.
  • 17828550_50
    Revenue - Product
    The contract value of our support subscriptions with individual support subscription customers varies substantially among customers, and our results of operations may fluctuate from period to period depending on the timing and composition of particular large support subscriptions including engineering services or premium subscription agreements that provide a customer with development input and the opportunity to work more closely with our developers.
  • 17828550_27
    MA - Other
    Our early growth strategy was aimed at acquiring customers for our support subscription offerings via a direct sales force and delivering consulting services.
  • 17828550_78
    Other - Other
    Key Business Metrics We review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
  • 17828550_115
    Financial - Expense
    Our research and development expenses include costs for development related to the distribution of our solutions, including security updates, fixes, functionality enhancements, upgrades to the technology and new versions of the software, quality assurance personnel, technical documentation personnel and at times, expenses related to engineering resources for our subscription and professional services offerings.
  • 17828550_4
    Other - Other
    Various factors could cause or contribute to such a difference, including, but not limited to, those identified below and discussed in Item 1A-"Risk Factors" and in other parts of this quarterly report.
  • 17828550_46
    Financial - Cash Flow
    We had operating cash flow of $16.4 million for the nine months ended September 30, 2018 compared to negative operating cash flow of $36.1 million in the nine months ended September 30, 2017.
  • 17828550_117
    Financial - Expense
    As a result, we expect our research and development expenses to continue to increase for the foreseeable future.
  • 17828550_138
    Financial - Expense
    The increase was primarily attributable to an increase in personnel-related expenses of $5.2 million, which included $1.9 million of stock-based compensation expense as a result of an increase in headcount.
  • 17828550_122
    Financial - Expense
    We expect our general and administrative expenses to continue to increase for the foreseeable future as we continue to invest in the growth of our business.
  • 17828550_185
    Other - Other
    Contractual Obligations and Other Commitments The following table summarizes our contractual obligations as of September 30, 2018: (1) Due to the uncertainty as to the timing of payments related to our liabilities for unrecognized tax benefits, we have excluded estimated obligations related to uncertain tax benefits from the table above.
  • 17828550_268
    Financial - Expense
    Contract costs that relate to an underlying transaction are expensed commensurate with recognition of revenue as performance obligations are satisfied.
  • 17828550_76
    Revenue - Product
    We adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) effective January 1, 2018.
  • 17828550_63
    Other - Other
    To enable our growth, we plan to further invest in other operational and administrative functions including, but not limited to, our customer support organization that provides the basis for customer retention and further expansion.
  • 17828550_128
    Revenue - Product
    Comparison of the Three and Nine Months Ended September 30, 2018 and 2017 Revenue Support subscription revenue for the three and nine months ended September 30, 2018 increased $12.2 million and $50.9 million, respectively, compared to the same periods in 2017.
  • 17828550_164
    Revenue - Product
    Our expected future capital requirements depend on many factors, including customer retention and expansion, the timing and extent of spending on platform development efforts, the expansion of sales, marketing and product management activities and ongoing investments to support the growth of our business in the United States and internationally.
  • 17828550_273
    Revenue - Product
    Under the guidance in effect prior to the adoption of the new standard, we previously limited the amount of revenue recognized for delivered elements to the amount that was not contingent on the future delivery of product offerings, or subject to our future performance obligations.
  • 17828550_245
    Revenue - Product
    Previously, under the guidance in effect prior to the adoption of the new standard, revenue was recognized when all of the following criteria were met: (i) persuasive evidence of an arrangement exists, (ii) services have been delivered, (iii) the arrangement fee is fixed or determinable and (iv) collectability is probable.
  • 17828550_153
    Financial - Expense
    General and Administrative General and administrative expenses increased $4.0 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017.
  • 17828550_156
    Financial - Expense
    General and administrative expenses increased $18.5 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.
  • 17828550_49
    Revenue - Product
    The number of agreements with new support subscription customers signed may vary from period to period for several reasons, including the length of our sales cycle, the effectiveness of our sales and marketing efforts and overall adoption of enterprise data management software solutions built on open source technology.
  • 17828550_105
    Financial - Shares / Equity
    We allocate shared costs such as rent, information technology and employee benefits to all departments based on headcount.
  • 17828550_266
    Financial - Expense
    We expect to recover deferred contract costs over the period of benefit from the underlying contracts.
  • 17828550_247
    Revenue - Product
    We did not establish vendor specific objective evidence of fair value ("VSOE") for our support subscriptions and professional services offerings, and we recognized revenue on a ratable basis over the period beginning when both the support subscription and professional services had substantially commenced, and ended at the conclusion of the support subscription or professional services period, whichever is longer.
  • 17828550_56
    Revenue - Product
    Growth of our revenue from existing support subscription customers typically comes when customers increase the scale of their existing deployment of HDP as well as complement their deployment with HDF.
  • 17828550_168
    Other - Other
    If we are unable to raise additional capital when necessary or desirable, our business, results of operations and financial condition could be adversely affected.
  • 17828550_176
    Financial - Shares / Equity
    34 These proceeds were partially offset by $5.0 million of payments to satisfy the tax liabilities of employees upon vesting of equity awards.
  • 17828550_243
    Other - Other
    If the contractually stated price for one or more performance obligations in a contract fall outside of the stand-alone selling price range, we will use the mid-point of the stand-alone selling price range to allocate the transaction price on a relative stand-alone selling price basis.
  • 17828550_149
    Financial - Expense
    The decrease was primarily attributable to a decrease in personnel-related expenses of $3.0 million, which included $3.4 million of stock-based compensation expense, primarily related to a decrease in expense for RSUs granted to existing employees.
  • 17828550_151
    Financial - Expense
    The decrease was primarily attributable to a decrease in personnel-related expenses of $7.3 million, which included $7.1 million of stock-based compensation expense, primarily related to a decrease in expense for RSUs granted to existing employees.
  • 17828550_277
    Other - Other
    38 Contract Liabilities Contract liabilities represent an obligation to transfer product offerings for which we have received consideration, or for which an amount of consideration is due from the customer (e.g., support subscription arrangements where consideration is paid annually in advance).
  • 17828550_40
    Revenue - Product
    Effective January 1, 2018, we adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which may reduce such fluctuations.
  • 17828550_161
    Other - Other
    Our short-term investments are comprised primarily of U.S. Treasury securities, certificates of deposit, commercial paper and corporate notes and bonds and our long-term investments are comprised of U.S Treasury securities and corporate notes and bonds.
  • 17828550_12
    Other - Other
    Consistent with our open source approach, we generally make HDP and HDF available free of charge.
  • 17828550_2
    Revenue - Geography
    This discussion contains statements that are not historical in nature, are predictive, that depend upon or refer to future events or conditions or contain forward-looking statements, including statements relating to our anticipated merger with Cloudera, Inc.
  • 17828550_30
    Revenue - Product
    In addition, we expect that sales through partners will continue to grow as a proportion of our revenue for the foreseeable future Our ability to successfully implement these strategies is subject to challenges, risks and uncertainties.

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  • Form Type: Quarterly
  • Number of times amended: 0
  • Accession Number: 0001193125-18-322738
  • Submitted to the SEC: Thursday, November 8, 2018 5:31:43 PM EST
  • Accepted by the SEC: Thursday, November 8, 2018
  • Period ending: September 2018
  • Industry: Prepackaged Software