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June 6, 2019

Cloudera CEO Reilly to Retire After Poor 1Q Results

Following the disclosure of poor financial results, Cloudera yesterday announced that CEO Tom Reilly is leaving the company to retire effective July 31 and will be replaced by chairman Martin Cole, on an interim basis. Co-founder Mike Olson is also leaving the company. The company’s stock is down 40% this morning following the news.

It’s been a tumultuous few months for Cloudera, which announced the blockbuster merger with its close rival Hortonworks in October. That deal was closed in January, and on Wednesday the company announced the results of the first full quarter since the merger was finalized.

For the first quarter of fiscal year 2020 ended April 30, Cloudera announced total revenue of $187.47 million and a net loss of $103 million, or $.13 per share (non-GAAP). While Cloudera’s earnings were better than the $.23 per share loss that analysts had expected, the revenue was lower than the $188.4 million expected.

Reilly acknowledged the challenge that the company faces, and talked about the fact that Cloudera customers appear to be postponing renewals or expansions of subscriptions as a result of the company’s ‘Unity’ converged product roadmap.

“In our first quarter as a merged company, we experienced headwinds in bookings from existing customers,” Reilly said during a call with analysts yesterday. “These customers generally represent more than 90% of our growth with a focus of the quarter’s activity. We’ve analyzed the challenges in the current quarter and believe that two factors primarily contributed to the bookings impact.

“First, the announcement of our merger in October 2018 created uncertainty, particularly regarding the combined company roadmap, which we rolled out in March of this year,” Reilly said. “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,” Reilly continued. “CDP is compelling as it addresses many of our customers’ most pressing needs. However, our rapid execution on the cloud data platform has caused some customers to wait until its release to renew and expand their agreements.”

Cloudera announced in January that its new CDP platform will run and be supported on-premises, on private clouds, and on the five biggest public clouds run by Amazon, Microsoft, Google, IBM, and Oracle. However, the company did not disclose the timeline for delivery of CDP.

Uncertainty during major product transitions is nothing new, and Cloudera investors had to expect there would be some uncertainty as Cloudera navigated this transition. But perhaps the most damaging factor to Cloudera (its stock is trading around $5 per share this morning, down from a closing just shy of $9 yesterday) was the lowered forecasts going forward.

For the full 2020 fiscal year, Cloudera is now forecasting revenue between $745 million and $765 million, with subscription revenue accounting for $635 million to $645 million of that. Previously, in March, the company had given guidance of full year revenues in the $835 million to $855 million range, on subscription revenue of $695 million to $705 million.

In other words, Cloudera is now anticipating annualized recurring revenue growth of 0% to 10%. That is not good for any software company, let alone one that is selling what was not too long ago some of the most cutting edge data management and analytics software on the planet.

A similar sentiment was expressed by the CEO of MapR Technologies, which is currently seeking a strategic deal that will prevent it from closing its doors next week.

“Our Q1 results were not only disappointing, but also unexpected,” MapR CEO John Schroeder wrote recently. “While the reasons for the results are not entirely understood, they were at least in part due to the sudden, last minute, and unexpected postponement of several customers’ timelines to make a purchasing decision.”

Clearly, the cloud vendors are eating into the market share of the Hadoop distributors. Despite that headwind, Cloudera is adamant that its plan to deliver hybrid and multi-cloud solutions “remains strong,” as Reilly said.

“Customer feedback on CDP [having] differentiating features validates our beliefs in Cloudera’s competitive position, as well as our ability to innovate in our targeted markets,” the former CEO said. “CDP is a superior product in many fashions, whether it’s going to be deployed in the public or private cloud.”

Despite that positivity, Reilly apparently decided that the time was right for him to leave the company. Taking his place will be Cole, a former Accenture executive who has served as a director on the board since 2014 and as chairman of the board since 2018.

The company has formed a committee to work with an executive recruiting firm to find a permanent replacement for Cole.

Joining Reilly in retirement this summer will be Mike Olson, one of the company’s founders and its original CEO.

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