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November 8, 2017

Hortonworks Close to Breaking Even on Cash Flow

Hortonworks is on track to break even from a cash-flow perspective this quarter, its CFO said last week following the release of the company’s impressive third-quarter financial results.

Hortonworks (NASDAQ: HDP) last week announced total revenue of $69 million for the quarter ended September 30, which beat estimates by nearly $6 million and was a 45% increase over the same quarter last year. HDP’s earnings per share of $-0.24 also beat consensus expectations by 16 cents.

Its stock is up over 10% since announcing the results, and is trading near 52-week highs. And now the company is close to reaching another milestone before the fiscal year ends at the end of next month.

“The plan from a high level has been to hit cash flow breakeven in Q4,” said Hortonworks CFO Scott Davidson during a conference call with analysts last week.

The company has gotten to this point by cranking the two most important knobs that control financial success: increasing revenue and decreasing costs. While its total operating costs of $91.8 million were down just slightly from 2016, the size of the company and its revenue-generating business has increased substantially.

The net result of those two trends is better gross margins on every deal, which averaged $180,000, up 20% from the previous quarter, according to Davidson. The number of deals of $1 million or more increased by 20%, he said. And Hortonworks had more international deals and more deals that included its Hortonworks DataFlow (HDF) offering.

While the company is close to breaking even from a cash flow perspective, the company will likely continue to run net losses on a GAAP basis for some time. The non-GAAP figures do not factor in expenses such as interest, taxes, depreciation and amortization (EBITDA).

Even though it’s about to break even, there’s a lot of work ahead for Hortonworks. “We’re not looking to just sort of say we got to cash flow breakeven in Q4, celebrate, and then just sort of regress back to a different behavior if you will,” Davidson said. The idea is to “grow as fast as you possibly can, take market share where we can, win competitively where we can, but do it judiciously from an investment perspective where we really look at ROI closely.”

Hortonworks CEO and chairman Rob Bearden called the company’s third-quarter results a “tremendous accomplishment,” and highlighted the growth in subscription revenue for HDF and its Hadoop distribution, called Hortonworks Data Platform (HDP), as major factors.

“When we started Hortonworks six years ago, our vision was to make Hadoop an enterprise-viable data platform,” Bearden said. “And to realize that vision, we first had to make significant investments in both HDP and HDF to ensure they were enterprise ready…And as a result of those investments, we’ve seen a rapid adoption and accelerated expansion of our connected data platforms across multiple industries, geographies and cloud providers.”

Looking forward, Bearden said the company to lean on international expansion and sales of HDF to drive sales. Also ramping up is Hortonworks DataPlane Service (DPS), which it announced in late September at the Strata Data Conference.

DPS leverages Apache Ranger and Apache Atlas to help customers manage the security and governance of their data, wherever it might be, including Hadoop clusters, stream processing systems, and EDWs sitting on premise and in the cloud. It also allows users to dynamically spin up cloud or on-premise clusters to process the data managed via the Ranger and Atlas APIs.

As the third leg in the Hortonworks stool, DPS will be sold as a service offering that’s tied into HDF and HDP. IBM will also provide some lift for DPS thanks to hooks with IBM’s Unified Governance Platform. “Anybody that’s got two clusters or more will get a lot of value off it [DPS] very quickly,” Davidson said.

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