Cloudera, Inc. (NYSE: CLDR) Q3 2021 earnings call dated Dec. 03, 2020
Corporate Participants:
Kevin D. Cook — Vice President Finance, Corporate Development and Investor Relations
Robert G. Bearden — President, Chief Executive Officer and Director
James W. Frankola — Chief Financial Officer
Arun C. Murthy — Chief Product Officer
Mick Hollison — Chief Marketing Officer
Analysts:
Chad Bennett — Craig-Hallum — Analyst
Mark Murphy — JP Morgan — Analyst
Tyler Radke — Citigroup — Analyst
Amit — Needham — Analyst
Zane Chrane — Bernstein Research — Analyst
Pree Gadey — Barclays — Analyst
Mark Rende — Morgan Stanley — Analyst
Nehal Chokshi — Northland Capital Markets — Analyst
Brad Reback — Stifel — Analyst
Presentation:
Operator
Good afternoon. My name is Chris and I will be your conference operator today. Welcome to the Cloudera Third Quarter Fiscal 2021 Financial Results Conference Call. [Operator Instructions] After the speakers’ remarks, there will be an opportunity to ask questions. [Operator Instructions].
Your host is Kevin Cook, VP, Finance, Corporate Development and Investor Relations. Kevin, you may begin your conference.
Kevin D. Cook — Vice President Finance, Corporate Development and Investor Relations
Thank you, operator. Good afternoon, and welcome to Cloudera’s third 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 third 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 December 3, 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 and its impact on the economy as a whole.
Significant changes in the future, whether related to COVID-19 or other factors, 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.
Robert G. Bearden — President, Chief Executive Officer and Director
Thank you, Kevin. Good afternoon, everyone. Thank you for joining us to discuss our third quarter fiscal 2021 results. Today, we’ll focus on CDP momentum with customers, strategy and the rationale for our planned share repurchases and debt issuances announced a short time ago in our quarterly results press release.
We continued to execute extremely well in Q3. Total revenue in the third quarter was $218 million, subscription revenue was $197 million, and non-GAAP operating income was $49 million. Annualized recurring revenue reached $756 million at the conclusion of the quarter, representing 12% year-over-year organic growth. The total number of customers who exceeded $100,000 of ARR was about level at 1,008. The number of customers who generate ARR are greater than $1 million grew from 172 last quarter to 179 in Q3. It was an excellent performance in the midst of what remains a difficult operating environment based on the pandemic.
It is especially encouraging that, even while we await for the CDP product cycle to be reflected in the financials, growth in subscription revenues and ARR has been consistent for several quarters. Also, we delivered another extraordinary result on the bottom line, evidencing significant operating leverage in the business. And Jim will spend more time on operating profitability in a few minutes.
And now let’s turn to an update on the Cloudera Data Platform. It may be useful to outline our priorities and expectations for CDP. CDP represents the next generation of data management and advanced analytics as a hybrid multi-cloud platform. As the industry’s first Enterprise Data Cloud driven by the rapid innovation of the open source community, our Enterprise Data Cloud supports both public and private cloud implementations across the complete data lifecycle in a secure environment. That means CDP can solve real business problems for a wide variety of use cases ranging from data collection to reporting and artificial intelligence.
CDP has two form factors, public cloud and private cloud. By taking advantage of both CDP Public and Private, along with our Shared Data Experience capabilities, our customers are able to optimize the performance, cost and security of every business application. In other words, they get the best of both worlds, the speed and agility of the public cloud and the security and performance of the private cloud, all managed from a common console. It is the interoperability of CDP Public and Private that delivers the true hybrid cloud functionality our enterprise customers are demanding.
As you know, we began our hybrid cloud journey with CDP Public Cloud just over a year ago. Since that time, we’ve been hard at work delivering a series of discrete public cloud services, including cloud-native data warehousing and machine learning capabilities. And more recently, we’ve delivered CDP Private Cloud in August of this year.
As a cornerstone of our hybrid product strategy, CDP Private Cloud enables our customers to run their analytic functions on-premises or in a data center with the same user experience as CDP Public Cloud and a shared security and governance framework with SDX. This empowers CDP Private customers to achieve public cloud like ease of use, scalability and agility. CDP’s separation of compute and storage and use of Kubernetes container technology means that the user experience is nearly identical in Public and Private Cloud.
Most importantly, the combination of CDP Private Cloud and CDP Public Cloud provides our customers with the flexibility to run their workloads in the safest and most cost effective environment for their unique needs. This interoperability between CDP Public and Private makes the total cost of ownership for most use cases significantly lower for customers when compared to public cloud only offerings. And this is one of many reasons our customers are so excited about our Enterprise Data Cloud solutions.
With CDP Private Cloud now available [Technical Issues] basis begun their move to CDP. It is also noteworthy that more than 50% of our $1 million plus customers had initiated their migration to CDP, demonstrating their commitment to Cloudera. Migrating existing customers to CDP is now the primary objective of our sales teams and we’ve set aggressive migration targets for Q4 and beyond.
In terms of CDP Public Cloud, we’ve maintained a rapid rate of innovation on the platform. In September, we announced three exciting new and upcoming public cloud services, which are CDP Data Engineering, CDP Operational Database and CDP Data Visualization. These new services are designed specifically for data specialists, helping data engineers, data analysts, and data scientists work smarter and faster. The data lifecycle integration is what enables a specialists to work on the same data securely and efficiently, no matter where that data may reside or where the analytics will run.
CDP Data Engineering is a powerful Apache Spark service on Kubernetes and includes key productivity enhancing capabilities. CDP Operational Database is a high-performance NoSQL database service that provides unparalleled scale and performance for business critical operational applications.
And, lastly, CDP Data Visualization simplifies the curation of rich visual dashboards, reports and charts, democratizing access to data and analytics across organizations at scale. These new services complement the existing public cloud offerings, which are CDP Data Hub, CDP Data Warehouse and CDP Machine Learning. We now have a compelling set of cloud-native services that support multiple analytic functions. This breadth means an expanding opportunity for CDP as it becomes increasingly useful to data scientists, data engineers, data analysts, application developers and data managers. And we will continue to introduce new public cloud services with the full data lifecycle in mind.
As mentioned previously, CDP Public Cloud adoption is going well. In fact, the number of paying public cloud customers increased by more than 40% since we last reported. Consumption revenue also grew nicely quarter-over-quarter, but remains relatively small. In general, customers who are renewing today are doing so on the basis of the CDP roadmap with plans to take advantage of our hybrid platform, leveraging both CDP Public and Private Cloud. Typically, customers are migrating existing workloads to CDP Private Cloud and adopting CDP Public Cloud to build new applications and service new use cases. But regardless of how customers are getting started when thing seems to be consistently true, hybrid and multi-cloud is the strategy our customers are deploying.
For more context, the majority of customers using CDP Public Cloud have gotten started with the CDP Data Hub service. This is the fastest path for our customers to get their existing workloads to CDP Public Cloud and then expand their usage from there. Customers utilizing CDP Data Hub include a number of global organizations such as Experian, PT IFORTE from Indonesia, and Zelenza from Spain.
As our customers gain experience with CDP Data Hub, they tend to use more specialized services like machine learning. CDP Machine Learning offers purpose-built tools and functions, specifically designed for data scientists and ML engineers. This service provides simple, powerful ML workspaces with secure, self-service access to enterprise data. Examples of customers using CDP Machine Learning include Globe Telecom, APG, which is a pension provider in the Netherlands, and Serasa S.A., which is a credit services provider in Brazil.
One of the other primary use cases for CDP Public Cloud is the Data Warehousing service. Like the Machine Learning service, it is best for new use cases and new workloads. Using containerization technology to extract SQL queries from the data analyst, CDP Data Warehouse provides easy access to virtual warehouses that support complex reports and enterprise dashboards, as well as data marts for interactive, ad-hoc analysis. The service also offers auto-scaling, auto-suspend and auto-resume functions to optimize performance and cost. Examples of customers using CDP Data Warehouse include IQVIA, which is a large life sciences provider, and Teranet, which is an eRegistry provider headquartered in Canada.
To be clear, these customers and most CDP Public Cloud customers use more than one CDP service. They can start with any CDP service and easily add new ones. This is the strategy, reflecting the typical data lifecycle. Customers are using multiple CDP services to deliver complex business use cases like fraud prevention, customer churn reduction, and customer 360. What’s more, the recent release of CDP Private Cloud is enabling innovative customers like Globe and IQVIA to implement these types of use cases across the hybrid cloud. This is consistent with our Enterprise Data Cloud strategy and reflects the differentiation and customer value in CDP.
Now, let’s shift to some other strategic updates. We made an important acquisition in Q3. We acquired Eventador, a streaming analytics company based in Austin, Texas. Eventador is the leader in SQL streaming, enabling SQL queries to be performed on data streams. This highly differentiated technology empowers developers, data scientists and analysts to self-serve streaming data and easily build real-time data pipelines, models, dashboards and applications.
Eventador brings category leadership, mindshare and essential intellectual property to our Cloudera Data Flow and streaming services. It will also allow us to offer containerized services for Kafka, Nifi, and Flink, which would result in the most complete solution-set in this fast growing market. We believe the ability to offer all three streaming technologies is a significant competitive advantage.
As exemplified by the Eventador acquisition, we are increasingly focused on delivering solutions in the high-growth segments of the data management and analytics market, both as standalone offerings and as part of our platform. Data streaming and real-time analytics on streaming data is one of those segments. In fact, the IDC Worldwide Big Data and Analytics Software report forecasts that the continuous analytics software market, which includes data streaming, will grow from $2.1 billion in 2021 to $4.4 billion in 2024, implying a 20% compound annual growth rate. Given this growth outlook, you can expect us to put more resources into the data streaming and real-time analytics sector.
Similarly, I want to highlight our performance in Machine Learning and AI. Along with streaming, our machine learning and AI business is one of our fastest growing segments. This is partly a result of having invested early in understanding the data scientist persona and supporting their workflows as distinct from that of the data engineers and developers.
In Q3, our CDP Machine Learning service was recognized as a leader by Forrester in its wave for Notebook-Based Predictive Analytics and Machine Learning. This is a very satisfying result after many years of development in this space. Like streaming, you can expect us to continue to put significant resources behind the machine learning and AI opportunity.
Well, as I hope you have heard, we made a great deal of demonstrable progress in Q3. So now, let’s have Jim take us through the financial results. Jim?
James W. Frankola — Chief Financial Officer
Thanks, Rob. Hello, everyone. Q3 was another very good quarter for Cloudera, reflecting stability in the business and consistently strong execution on all measures.
Total revenue was $218 million, an increase of 10% year-over-year. Subscription revenue was $197 million, an increase of 18% year-over-year. Annualized recurring revenue for fiscal year Q3 was $756 million, up 12% over last 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 Q3 with 1,008 customers who started at or have grown to more than $100,000 of ARR. We expanded customers representing greater than $1 million of ARR to 179 from 172 last quarter, which represents a 23% increase year-over-year. Also, gains in Q3 were similar to Q2 with respect to non-paying users of the software becoming subscription customers.
The third quarter was marked by record profitability for the company. Greater operating profit is a reflection of a core merger thesis, as well as outstanding execution and sustained revenue growth. In addition, like many other companies, we have seen short-term financial benefits and costs associated with the pandemic. In Q3, our operating margin came in roughly 6 percentage points higher than normalized levels due to lower travel, field marketing and facilities costs.
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 Q3 was 85%, compared to 77% in Q3 of last year, driven by subscription gross margin of 91%, up from 86% in the year-ago period. Total operating expenses were $135 million for the third quarter, continuing a post-merger trend toward a lower expense structure. These operating expenses were 62% of total revenue in Q3 of fiscal 2021, as compared to 81% of total revenue in Q3 of last year.
Overall, operating income was $49 million for the third quarter, representing an operating margin of 23%, a substantial improvement of 27 percentage points compared to Q3 of last year. Operating cash flow for the third quarter was $18 million, bringing year-to-date operating cash flow to $119 million. Top line growth, good collections and ongoing operational efficiencies are driving our strong cash flow. Diluted earnings per share was $0.15 in the third quarter, compared to a loss per share of $0.03 in the third quarter of fiscal 2020.
Now, turning to the balance sheet, we exited Q3 with $568 million in cash, cash equivalents, marketable securities, and restricted cash, flat from $569 million at the conclusion of Q2. Capital expenditures were $3 million in the quarter. Total contract liabilities, which comprise deferred revenue and other contract liabilities, were $468 million at the end of the third quarter. RPO was $827 million, up 21% year-over-year. Current RPO grew 14% over last year.
I will conclude by providing initial guidance for fiscal Q4 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 Q4 total revenue to be between $219 million and $222 million, representing approximately 4% growth compared to Q4 of last year, with subscription revenue in the range of $199 million to $202 million, up approximately 10% year-over-year. Non-GAAP operating income is our primary bottom line metric. We expect operating income for the fourth quarter to be in the range of $35 million to $40 million, or roughly 17% of revenue. Earnings per share for Q4 is projected to be $0.10 to $0.12.
For fiscal year 2021, we expect total revenue to be between $862 million and $865 million, representing approximately 9% growth, with subscription revenue in the range of $775 million to $778 million, up approximately 16% year-over-year. We expect operating income for fiscal 2021 to be in the range of $131 million to $136 million.
As discussed, we do not anticipate that the dramatic increase in operating profit in Q3 to be repeated. We expect our operating expenses to increase modestly in Q4 relative to Q3, resulting in operating income margin of approximately 15% for fiscal ’21. Operating margin is projected to remain at approximately these levels for the foreseeable future.
We will continue to see the benefits of scale and increasing operational efficiencies offset by resumption of certain expenses to pre-pandemic levels, coupled with a modest increase in product, sales and marketing expenses as CDP continues to gain traction. Earnings per share for fiscal 2021 is projected to be $0.40 to $0.42.
And I will now turn it back to Rob for some concluding remarks.
Robert G. Bearden — President, Chief Executive Officer and Director
Thanks, Jim. As you can tell from the financials and our outlook, the business is doing well. We’ve exceeded all internal and external expectations for several quarters now. We’ve executed on the merger rationale with Hortonworks, achieving substantial operating income margins and increasing cash flow through strong management, operational efficiency gains and cost discipline. We’ve innovated at a remarkable rate, having launched cloud-native services, as well as private cloud offerings this fiscal year.
We believe that we are the only vendor that can provide true hybrid multi-cloud solutions and deliver on the Enterprise Data Cloud vision. Our customer base is large and loyal, and continues to expand its usage of our offerings. We’ve built strategic relationships, including expanding our hyperscale cloud provider partnerships. Our new CDP products are being widely embraced by customers, existing and new.
As a result, the Board and I have never felt more confident about our competitive positioning and strategy. And we believe that our shares represent an attractive investment opportunity. Based on this conviction, we are announcing today a share repurchase authorization of $500 million in addition to the existing $74 million authorization that’s outstanding. We intend to fund this return of capital primarily through borrowings under an institutional term loan, which we believe can be closed during the current quarter based on the strength of our business and leveraged loan and debt market conditions.
Even after completion of the $500 million of share repurchases, we would have substantial balance sheet flexibility with more than $500 million in cash. And, as evidenced by our recent operating income performance, we expect to continue to generate significant cash flow. We plan to use the cash balance and future cash generation for targeted investment in products, growth initiatives and technology acquisitions.
My thanks to our employees for the accomplishments that I just outlined and many more. I also want to thank our partners, customers and the community for their continued support. As a reminder, Arun Murthy, Chief Product Officer; and Mick Hollison, Chief Marketing Officer, are available for Q&A with Jim and I.
Operator, please begin the Q&A portion of the call.
Questions and Answers:
Operator
[Operator instructions] Our first question comes from Chad Bennett with Craig-Hallum. Your line is open.
Chad Bennett — Craig-Hallum — Analyst
Great. Thanks for taking my questions. Nice job on the quarter and the guide looks great. So just a couple of things. Now that we’re seeing pretty material migrations to the private cloud, Rob, what — kind of, what are the expectations as we look out and I know it’s still early but we look out six, 12 months with the existing customers that are migrating, what’s the potential for expansion just on the private cloud side from a use case standpoint? Can you elaborate on that?
Robert G. Bearden — President, Chief Executive Officer and Director
Hi. Chad. Thanks for joining us. We’re going through and quite frankly trying to get pattern recognition on what that looks like. The good news is, we now have the public and private out in the market and that’s very helpful, because that now lets our customers define and establish what their data architecture looks like, what the migration and which workloads are going to be, what the order sequencing are going to be, what’s going to be on private, what’s going to be on public.
The typical pattern that we’re seeing right now is biggest majority of the existing workloads go to private and then they will, in many cases, expand and add incremental workloads, some of those would be private, some of those would be public and then net new will tend to be start on public and then leverage the on-prem datasets for better views, more holistic use of data.
Chad Bennett — Craig-Hallum — Analyst
Perfect. And then maybe one quick follow-up for, Jim. Just in terms of — obviously, interesting times right now, still in the pandemic, but just in terms of how you’re thinking about seasonality of bookings in the current quarter relative to prior years? And maybe a follow-up if I can on that for either one of you. Just kind of your level of — or IBMs level of interest in activity that you expect in this quarter, especially around the private cloud product? Thanks.
James W. Frankola — Chief Financial Officer
I’ll start with the seasonality piece and then I’ll turn it over to Rob to talk about IBM’s interest. So we — typically we do around 35% to 40% of our bookings in Q4. So we are a seasonal business like most enterprise software. This Q4, it’s a tough question to model. So, we initially anticipated back in — when the pandemic started that the life would potentially start resuming normalcy in Q4, that’s clearly not the case and we’re looking at, obviously, a second wave of virus impact. So we’ve modeled that Q4 looks a lot like Q3 and Q2 in terms of customer demand. Seasonality, that might mean that that is on the lower end of that 35% to 40% range, but it’s tough to call right now.
Robert G. Bearden — President, Chief Executive Officer and Director
And I’ll pickup the question then on IBM. Very similar story, actually, with our core customer base. As you know, we’ve got a number of customers — joint customers with IBM. It’s been a great relationship, great partnership, go-to-market continues to strengthen and those customers tend to be the high-end enterprises that had very, very strong interest in moving the biggest portion of workloads, right now, to CDP Private. It’s a really big value proposition, not only in terms of just being able to separate storage, compute and date, it brings but just the ease of use, ease of admin in the value creation that OpenShift brings to the CDP Private platform.
And on a holistic basis, we are — we had over 150 customers that are in motion right now to CDP and many, many more than that that are in the detailed planning phase, how that splits between our independent customers and joint customers with IBM and other partners, I honestly can’t tell you. But the big migrations to CDP Private are really happening and that starts to also now open up and move adoption to CDP Public as well. So hopefully that captured your question.
Chad Bennett — Craig-Hallum — Analyst
It does. Thanks so much. Nice job.
James W. Frankola — Chief Financial Officer
Thanks, Chad.
Operator
Our next question is from Mark Murphy with JP Morgan. Your line is open.
Mark Murphy — JP Morgan — Analyst
Yes. Thank you very much, and I will add my congrats. Jim, I’m curious which metric you think we should index to as a best indication of Cloudera’s growth in Q3. I’m looking across ARR growth 12%, the CRPO growth, I think, you said was 14%, subscription revenue growth was 18%, which one do you think is best representing it? And then do you have any thought on how to model the ARR growth specifically in Q4? Which probably kind of ties in with what you were talking about a moment ago?
James W. Frankola — Chief Financial Officer
Yeah. So, for sure, ARR is the single best metric to look at our top line growth. Look, it’s a representation of the economic value of customers at the last days of the quarter, it normalizes for the effects of the merger, accounting changes, the shift to 100% open source software. CRPO is pretty close that there are some art-effects in RPO. For example, you have customes that may have cancellation provisions in their contract, that get excluded from RPOs that are still valued in AAR and we get the economic value. So I’d only point you to ARR. And by the way, if you look at ARR over the past four quarters as compared to CRPO over the past four quarters, the average is essentially the exact same number. So ARR is by far the best metric.
Going back to how to model ARR, from our perspective, since ARR is a surrogate for bookings, that’s one of the reason why it’s a great number. It captures almost all the economic activity that occurs in the quarter and, therefore, it’s hard to offer the same level of prediction as you would for some of the other numbers. What I say is, ARR should trend very similar to software revenue trends over time. And I’ll leave it at that.
Mark Murphy — JP Morgan — Analyst
Okay. And then I had a quick follow-up. In terms of the consumption revenue, we were layering into the model for CDP Public. Rob, I know you said it’s a small amount, but just curious how materially do you think that could become a forward-looking at that a few years down the road?
Robert G. Bearden — President, Chief Executive Officer and Director
Yeah. Let me turn that to Jim.
James W. Frankola — Chief Financial Officer
Yeah. So in a very long run, we look at some of the same model that you probably look at as well. It says a portion of our customers’ workloads will be running on-prem, portion would running in the private cloud and a portion will be public in the public cloud. The public cloud portion would probably be a-third to maybe 50% over time. The consumption piece is difficult to estimate at this time in terms of exactly how fast we’re going to get there. But we do believe that the public cloud will be a significant portion of our business and the primary way that we’re going to be pricing there is on consumption.
Mark Murphy — JP Morgan — Analyst
Great. Thank you very much.
Operator
Our next question is from Tyler Radke with Citi. Your line is open.
Tyler Radke — Citigroup — Analyst
Hey, thanks, and good afternoon. I wanted to follow up on your comments on some of the customer momentum you’re seeing with CDP Private. I think you talked about 10% of the overall customer base starting to move in 50% of the million dollar plus. Maybe just give us a sense for how far through the migration those customers are? When you think they will be completely migrated? And what kind of financial impact uplift, upsells have you seen thus far?
Robert G. Bearden — President, Chief Executive Officer and Director
Okay. Sure Yeah. Thanks for joining the call today. Appreciate. So if you can imagine, there are various states of where they are in their migration. Just from a grounding standpoint, our customers, especially, the big enterprises, million dollar plus customers, they are truly running major portions of their business, they are mission critical workloads, high value creation applications, big datasets typically that they grow and expand fairly aggressively.
So, there has to be very methodical process we’re moving them to the new environment, whether it’s public or private. And so, we’ve been engage with all the customers in varying degrees of capacity to make sure there is a very clean migration plan that we go through. And the goal is to make it really look and feel like an upgrade. But, again, that depends on which release of Cloudera Hortonworks legacy they’re running and various things. But the goal is to be able to make that move as an upgrade.
But even as an upgrade, they will still have to go through a dev test process, make sure that all the security processes are clear, all the queries run correctly, all the data moves over and they tend to do it in phases. So with that as the backdrop, I think we’ll see of the 150, probably 20%, 25% of those have more than 50% of their existing legacy environment in production in first quarter of next year and then an acceleration of the balance of the customer base in the second and third quarter.
And also beyond that first 10% that we have moving right now, that will accelerate, because there is a number of others that are in the planning phase, they just not started their actual migration and we’ll be able to bring more tooling for over the next 90 to 120 days that will also ease those migrations and help new base migrations forward a little faster. Hope that answered your question.
Tyler Radke — Citigroup — Analyst
Yeah. Thanks, Rob. Appreciate the detail. I just to clarify one thing and then I have a follow-up. When you say you want to treat these migrations as an upgrade, does that mean an upgrade in terms of financial impact, in terms of higher revenue or is it just — you’re trying to obviously pitch that you have a much stronger product and theoretically the customers move along to expand if there’s more features. I just wanted to clarify if that was meant as a financial comment.
Robert G. Bearden — President, Chief Executive Officer and Director
Okay. No, no, no, I’m sorry, it was really a — more of a technical reference, if you will, of upgrading from one release to the next. That was the — really the context I meant from an upgrade standpoint. Of course, it represents opportunity, because there is pretty strong value creation of moving from the legacy to CDP private or public. They also tend to want to expand and consume more experiences, whether that’s the entire full lifecycle of data management or that’s just one experience whether that the be streaming or machine learning AI or our data engineering or data warehousing solutions.
So it represent some opportunity not only to — as we move them to CDP, they can expand the amount of data under management, but also then there is a tremendous amount of value creation of bringing and concerning and leveraging more the lifecycle experiences on top of that. And it’s great value exchange and obviously represents more monetization for us.
Tyler Radke — Citigroup — Analyst
Got it. And if I could just sneak in one more. It’s kind of a higher level question, but I don’t know if Jim or Rob or Arun wants to take it. But, obviously, you’ve seen your expenses come down a lot, part of that is driven by lower T&E because of COVID. I think headcount has been kind of trending down as well. It sounds like you’re really going after a lot of different markets where there is a lot of competition, whether it’s data warehousing now getting into streaming SQL where you have, obviously, a large kind of player in that space. You’re going up against folks in data science.
And I guess how are you thinking about just balancing investing in those very lucrative but highly competitive markets with the need to kind of continue to show leverage in the financial model? And I mean, I guess, how should we think about your headcount as is and if you think you have enough folks to kind of make the investments and build the products in those markets today? Thanks.
Robert G. Bearden — President, Chief Executive Officer and Director
[Indecipherable] in that question. So let me do my best to make sure I heard it correctly and inclusively. So what we did — what we’ve done is made a very concerted effort to be efficient in our headcount and we’ve moved a lot of headcount offshore, both from a dev and support standpoint, but also from a back office standpoint into lower cost geo regions and we’ve been very successful in that model. And so that allows us to bring very, very highly skilled resources and better cost efficiencies. And we were able to concentrate those skill sets in particular areas that suit our category very nicely. So from a personnel financial model leverage that you’re seeing the benefit of that leverage being picked up in the opex line.
On the markets that we serve recognize that what we’re very focused on is enabling the enterprise data cloud capability. And so that means being able to provide a hybrid multi-cloud data platform that manages the entire life cycle of data. So bringing that data under management from point of origination through to stream, being able to take it through an engineering process till then it stored in the either an operational store or a traditional data warehouse and do that across a hybrid multi-cloud platform leveraging a single pane of glass to main edge, one framework for security, governance, managing meta data and all the lineage that comes with that.
And so, while that does cause many of the point solution departmental level areas, we believe we’re the most competitive and really only true enterprise data cloud provider that enables that full lifecycle of data across a hybrid [Technical Issues] one framework for security and governance, and that’s really what our enterprises that we serve in the Global 2000 demand. It’s not — they’re more interested in having a [Technical Issues] and can manage that end-to-end data lifecycle. And that’s what we’re bringing forward [Technical Issues] with CDP and the reception we’re getting from our customer base is great and as we’re introducing that to new customers and prospects we’re getting really, really strong reception.
James W. Frankola — Chief Financial Officer
And let me just jump in on some of the financial elements. So one of the things that we’re certainly trying to signal with this quarter is the — almost unprecedented improvement in operating margins that you’ve seen in Cloudera over the past few years or even the past year will continue for the foreseeable future. So we’ve reached our interim target of profitability.
And from a business standpoint, CDP is at a level where we can start investing for growth. And as you’re well aware, things move slowly in terms of the investment cycle to the booking cycle in the subscription software industry. You have to invest early in sales and product, then you have to sell it and then it eventually shows up in revenue.
So going back to one of your questions on the financial model, our profitability is pretty much where we think it should be right now and we’re looking to invest in the success of CDP. Therefore, as we continue to get operational efficiencies in the business, we will reinvest them in growth on a go-forward basis.
Arun C. Murthy — Chief Product Officer
Yeah. And this is Arun. I’ll — just to add on to the original question, right. The fundamental advantage we have or the competitive edge we have is the integration between the process, right? We feel like that integration, especially with the security and governance there and the fact that we can do streaming with engineering or streaming with machine learning in these four or five markets, we don’t think of ourselves of having to go like head-to-head with every single feature or function of that on a standalone basis. Our, sort of, advantage or the competitive, overall, will represent a better value proposition by purely the virtue of integration. In some ways you can think of it as sort of why Microsoft Teams is doing well compared to a standalone product? The integration itself is the value proposition, especially for the customer base that go after, which is on the high-end of the enterprise.
Tyler Radke — Citigroup — Analyst
Thanks, again, for all the color, guys.
Operator
Our next question is from Jack Andrews with Needham. Your line is open.
Amit — Needham — Analyst
Hi. Good afternoon. Amit [Phonetic] for Jack. Thank you for taking my question. Rob, you talked about how customers can easily switch between and consume your discrete cloud services. How the innovation for long-term profile cloud discrete services should look like within your $100,000 customers and how should we be thinking about the upsell impact as customers consume cloud services?
Robert G. Bearden — President, Chief Executive Officer and Director
Yeah. Jack, hi, how are you doing? Thanks for joining. So, yeah, it really goes back to comment Arun just made. Those customers who are going to consume those services, meaning those want to be able to consume multiple services. In fact, most of our customers are not just consuming more, they’re consuming multiple of the services. They want to provide streaming with ML and streaming with ML all the way down through our data engineering solutions.
And so what the real goal is, is to make it easy for them to get started, bring the data and then let them be able to turn each of those services on continuously. And the reason that’s so cost effective or, excuse me, cost structure efficiency then is the integration that Arun is talking about. They don’t have to bring and stitch together multiple point solutions, they can just continue to turn those individual services on as a contiguous flow and then be assured that it has a common security and governance framework that goes through that entire lifecycle data, right?
And so that just opens up a number of different used cases that they can apply and make sure that they do it consistently and repeatedly across the enterprise.
Amit — Needham — Analyst
Great. Thank you. That makes lot of sense. And in the past you’ve talked about how your sales teams focus in FY ’21, migrate customers to CDP. Can you talk about the calories that takes to migrate customers from your sales team? And how should we be thinking about productivity bouncing back in FY ’22 as more of your sales team gets unlocked given that migrations are going up?
Robert G. Bearden — President, Chief Executive Officer and Director
Yes. Okay, great. So the goal — this is, one of the things — that’s another earlier question. One of the things that we’re really focused on is making those migrations as straightforward as possible and that’s going to come in downstream tools that we’re going to be delivering. We’re very focused on for them tooling, that’s going to help those migrations move forward. The goal is to make it feel like an upgrade from a release to release. Now that has a lot of variable factors depending on what the release they are running and some of their environmental conditions. But we’re aggressively focused on how we did that customer base to move over.
We’re also very focused on ease of use of the platform, so that a lot of the functions that may have required professional services can actually be done on a self-service basis. We’re very, very focused on that with the digital transformation, but the mix we’ve been leading, we’re getting a lot of good success there and seeing good progress and uptake with the customers and things that we’re able to do in their migrations now to CDP, both private and public. So, hopefully, that answers your question.
Amit — Needham — Analyst
Thank you. That’s very helpful.
Operator
Our next question is from Zane Chrane with Bernstein Research. Your line is open.
Zane Chrane — Bernstein Research — Analyst
Hi, gentlemen. Congrats on a great quarter. Question for Arun. If I look at the TCO, you’ve commented on how your TCO advantage or lower TCO with CDP Public and Private then an alternatives. How do you — can you help me understand how you have a lower total cost of ownership versus some of the mega scale cloud vendors that have such a large scale advantage and can bottom line the infrastructure?
And then, secondly, if you could help me kind of quantify what does the actual TCO difference look like in dollar or percentage terms, both in the private cloud and public cloud versus alternatives? Thank you.
Arun C. Murthy — Chief Product Officer
Great questions. Thanks for joining in. So a few ways to look at this, Zane. Products coming to this in the past, we see this everyday, then we have this conversations with customers. If you look at the kind of the cloud providers, right, particularly what we see, a much like — whether you go to a single cloud provider and buy a bunch of services, right, you have to buy a monitoring service, a warehouse service and an engineering service and so on — and security services and so on. With CDP all of this kind of comes bundled on, right? So what happens is, if you look at the overall package, it’s a fully integrated data platform and even better part is that it’s available on every cloud you might want to care and now typically with an enterprise you get about one, maybe two, but also a lot of our existing customers have massive footprint.
So the fact that you can think of it in terms of not just the product cost, but also the people and the skills that we need to manage this infrastructure and security environment and their functionality, the fact that you can do this in one goal versus buying either three different vendors and integrating them yourself and paying integration tax or having to buy it from one cloud providers, but then buy different services at different price points. And the fact that they’re all bundled into CDP provides a massive sort of lift in the TCO.
Then what they also see is typically they can go head-to-head against one of the, let’s say, the edge service out there. Remember that we have a couple of years of investment now, which are highly differentiated whether it’s our security pieces or performance pieces. So it’s not very commonly now when you go head-to-head against one of the services, one of the open source or group services there, heading their services. Purely from just a performance standpoint, we’ll come out anywhere from two to eight times faster based on individual workloads.
Now that when you combine — when you think of that and that compounds with the infrastructure costs, the overall TCO from people, scale and just pure software will look a really attractive proposition, especially for the customers we serve today and that’s what keeps us also excited.
Zane Chrane — Bernstein Research — Analyst
Very helpful context. I appreciate that. Just a quick follow-up. Now that you’ve been shifting to usage based pricing. It seems like the volume of data growth in existing enterprise customer workloads, just that sheer data volume increased kind of exponentially alone should be pretty notable tailwind to your revenue growth, just wondering if you have a sense of kind of — across your entire installed base of customers, what the average growth rate of data across those workloads?
Robert G. Bearden — President, Chief Executive Officer and Director
Yes. So your specific question is, average rate of data. In the world, it’s growing at 50% to 100% a year, within our customer base, I don’t know the exact rate, it’s probably at that or maybe slightly less. In terms of the ability to monetize it, we are shifting the usage based pricing, we’re shifting to consumption based pricing for processing, which in some respects is as important, it’s not more important in the long run. And by consumption base, I mean pricing per core versus per node, that allows us to share the benefit of Moore’s Law with the customers.
With all that said, we’re still at the very early stages. So I would expect this in the long run to have a — be a modest tailwind in terms of opportunity, few percentage points every year for many years in a row, but we’re just start — getting started.
Zane Chrane — Bernstein Research — Analyst
That’s great. Super helpful. Congrats, guys for the next quarter.
Arun C. Murthy — Chief Product Officer
Thanks.
Robert G. Bearden — President, Chief Executive Officer and Director
Thank you.
Operator
Our next question is from Pree Gadey with Barclays. Your line is open.
Pree Gadey — Barclays — Analyst
Hi there. I wanted to ask you, Arun, the subscription revenue guide. For 3Q, you guys guided to a sequential decline and I know that was a comparative guide, but this quarter the midpoint of the guide implies about a 2% sequential increase. And so, I’m wondering if you guys are seeing something in the pipeline that you’re little bit more excited about? How is the demand environment this quarter versus the last quarter?
Arun C. Murthy — Chief Product Officer
I’ll start and Rob can chime in if he wants to. So, once again, the overall demand environment is very similar in Q4 as it was in the Q3. So we’re still in the middle of the pandemic. It’s still a headwind. Although, we believe we’re more resilient than most against that headwind.
Regarding the sequentials ups and downs, that goes to the seasonal nature of our business. So Q4 is our biggest quarter of the year. Therefore, we tend to see a sequential increase in revenue and ARR heading into Q4, Q3 to Q4 and then into Q1 as well, Q4 to Q1. So it’s a seasonality that’s driving the sequential changes more than anything else.
Pree Gadey — Barclays — Analyst
Got it. On CDP Private Cloud, from some of your early customers, I was hoping if you could share kind of expansion rates that you’re seeing from those initial customers? And just as a follow-up to that as well. Can you give us an idea of what time of — what type of time commitment and cost commitment that takes for our customers to roll over to the new CDP Private Cloud?
Robert G. Bearden — President, Chief Executive Officer and Director
Yeah. So I appreciate you joining the call as well today. So, again, it goes back to — we are — we want this to as much as possible feel like an upgrade from a release to release for our customers when they go from either the legacy Cloudera Hortonworks platform to CDP. That has lot of different factors and in some cases, it’s more complex, in some cases it’s even more straightforward.
And so time and cost will vary depending on where they are in their existing legacy platform, which release, and — but what we’ve done is, we focused on making sure that we have dedicated teams that will help them through both planning process and the implementation process. So that we make sure we have very, very clean blueprints for them. And as time goes by we’re going to give them more and more tooling that will actually help them through that process and very thorough migration guides with — that will help them implement those blueprints and engage through it. So time and cost vary, but our goal is to help them get there very cleanly and as quickly as possibly. So does that hit the question you were looking for.
Pree Gadey — Barclays — Analyst
Yeah. Thank you. And I guess the expansion rate that you’re seeing from some of your earlier CDP Private Cloud customers that are a little bit more mature.
Robert G. Bearden — President, Chief Executive Officer and Director
Yeah. Yeah. So on the expansion rate, it’s both expansion on private that’s got a couple of dimensions to it. And what it really does is, it opens up to the public. And so, on the private, obviously after they move from the legacy environments to CDP Private, they can expand not only external data under management, but they can begin to apply more and more use cases to that environment, because recognize it’s a much easier environment operate, it’s much easier to scale, because what we’ve done with the separation of the storage and compute and all the other thing is in value that that brings from a scale up and down standpoint. The efficiencies of hardware usage that clearly brings. So it makes it much easier to bring more use cases on, more data under management in a much more cost effective way than running in the traditional on-prem legacy environments.
What it also does is, it gives them the ability to very cleanly embrace that management of the entire lifecycle of data, leveraging, streaming and machine learning through the data engineering and ultimately into the warehousing capabilities, all leverage. And then that does then open up the public cloud to your — for expansion use cases and being able to bring a simular kinds of workloads up and down quickly and to be able to achieve quick scale out. And CDP is very, very well suited for that. And it begins then to move the public tier expansion much faster than just organically. So we’re — that’s the pattern that we’re now seeing.
James W. Frankola — Chief Financial Officer
And let me just add, I mean, if you’re looking for a quantification of that expansion rate, I’ll repeat what Rob said earlier, we’re too soon in the cycle to get that pattern recognition. CDP Private Cloud communities came out in August. Our customer set, as we’ve told you, the majority of them are in heavily regulated industries, which has made them very resilient. It also makes then very careful as they adopt new technologies.
So many of our customers are evaluating the software, putting it through security, having it running on a single set of servers right now. So it will take us a little bit of time before we have enough data to really be able to quantify the answer to that question.
Pree Gadey — Barclays — Analyst
Great. Thank you, and congrats on the awesome quarter.
Robert G. Bearden — President, Chief Executive Officer and Director
Yeah. Thank you very much.
James W. Frankola — Chief Financial Officer
Thank you.,
Operator
Our next question is from Sanjit Singh with Morgan Stanley. Your line is open.
Mark Rende — Morgan Stanley — Analyst
Hey. This is Mark Rende on for Sanjit Singh. Thanks for taking our question. Look, in terms of marketing CDP, marketing CDP going to market with it, are you targeting certain use cases or kind of specific solution sales, whether it’d be IoT or data warehousing or selling CDP, are they kind of general data management platform? Yeah. A color on that would be really helpful. Thanks.
Robert G. Bearden — President, Chief Executive Officer and Director
Hey. This is Mark Rende on for Sanjit Singh. Thanks for taking our question. Look, in terms of marketing CDP, marketing CDP going to market with it, are you targeting certain use cases or kind of specific solution sales, whether it’d be IoT or data warehousing or selling CDP, are they kind of general data management platform? Yeah. A color on that would be really helpful. Thanks.
Speaker C-Rob Bearden
Yeah, sure. Hey, Mark. Thanks for joining. Yeah, it’s — we have a very broad set of use cases that they can apply on to the platform. Clearly, CDP is designed and architected to enable the hybrid multi-cloud data management platform capability, but then the use cases that get leveraged across it probably 50% of the time are data engineering and machine learning. The balance then is heavily weighted towards streaming and data warehousing. We’ve seen great adoption in the life side — excuse me, life science and healthcare verticals, predictive analytics, leveraging from an IoT standpoint tend to be areas that we’re seeing great traction in.
As we’ve talked about in the prepared remarks, we’re getting great traction — from real-time streaming analytics that’s playing across multiple verticals, oil and gas actually is one of those that’s really kind of strong, healthcare is another vertical where those use cases are becoming more widely spread and we’re learning now as we’ve introduced CDP and the value proposition and as customers really understand how quickly they can get up to at the speed, the ease of use and flexibility that brings the new kinds of use cases they could begin to apply. So we’re continuing to learn as well.
Mick Hollison — Chief Marketing Officer
Yeah. Rob, it’s Mick. I’ll jump in a little bit there as well. So you hit it on the head, the primary motion is around the Enterprise Data Cloud hitting a whole life cycle with hybrid multi-cloud offerings, Mark. And the one other area I would add is that our marketing is really targeted at specific accounts in specific vertical. So we do a great deal of account-based marketing, where we get very close to the customer to understand their specific use cases and then deliver those up not just in what we offer the customer with products and services, but even the way that we market to them in a very specific way. So, hopefully, that will give you an added color. Yeah. Great. That’s super helpful. Thanks so much, guys.
Operator
Our next question is from Nehal Chokshi with Northland Capital Markets. Your line is open.
Nehal Chokshi — Northland Capital Markets — Analyst
Yeah. Great. Thank you, and congratulations on the sustained ARR growth of 12%, nicely above the base rate of 10% that you talked about. What would it take for ARR to accelerate even more, above this 12% ARR level to say 20% beyond the potential pressure on opex to fund that growth. Meaning, like, if you can maybe deliver between ASP uplift from CDP migrations, customers adopting more CDP skews or customer adds driven by public CDP? And if all, [Indecipherable] then for me as well.
Robert G. Bearden — President, Chief Executive Officer and Director
Sure. Great. Thanks for joining the call. So there’s a few things there. So there is — recognize where we’ve been in a bit of the migration that we’ve gone through in this fiscal year. We’ve been very focused on making sure we’re bringing the customer base, we were planning process to be able to be in a position to adapt CDP, public or — and/or private as we’ve been able to make that available. As you know, we’ve continued to evolve progress with CDP Public, CDP Private came out in August. We continued to make good progress with CDP Private and we’ve been able to bring truly those interoperability between public and private to achieve our Enterprise Data Cloud vision for hybrid multi-cloud.
And so, now that we have those in the market, now that we have production environment that customers can truly move and begin to move their workloads onto in real-time, that’s begin to, as you’ve seen in the numbers, pick up some momentum behind it. There are some other things that you’re aware of that we’ve been doing like favorable pricing, like moving the bids behind the paywall, that are also working and contributing to growth.
As we move into next year, the way we will continue to expand this, we’ll see more and more benefit from variable pricing, we’ll see more and more benefit from leaving this behind the paywall, we’re going to be able to now maintain the operating margin that Jim talked about earlier in the call. We think we’ll be able to maintain that at the traditional levels that he mentioned. And we will still have the ability to invest in things that will help drive growth. We’re going to add more capacity into the deal for next year, so that we can move beyond just our customer base and now that we have CDP hybrid in the market, both public or private, we’re going to be able to now take that to customer — excuse me, to prospects beyond the customer base. We’re seeing benefit from the digital transformation that Mick said to where we can now engage digitally with customers that we’ve not traditionally been able to touch, because we’ve had limited capacity.
We’ve done a great job of being able to get our product, to be able to be consumable on a full digital basis versus even days, maybe even weeks before the environment could be run, now we’re literally minutes. And that puts us now being able to go down market in very targeted sectors and be able to get the benefit of digital engagement from awareness all the way through consumption and monetization. So it’s a number of these things that we’re going to be doing that are going to begin to move this into a higher — consistently higher growth mode where we’re eventually back to growing at the market rate that I think we’re very well positioned to be growing that.
Nehal Chokshi — Northland Capital Markets — Analyst
Great. And then is it too early to start talking about percent of ARR that’s coming from public was hybrid?
Robert G. Bearden — President, Chief Executive Officer and Director
It is. It is. We clearly learn what the patterns are and what the distribution will be between public and private. What our customers want is CDP hybrid. They really want to be able to have a true hybrid environment, mentioned earlier slightly differently. We think most of the existing workloads move over to private, we will expand some on private, some to public, net new workloads will begin on public and then that will be able to leverage the private capabilities. And then they will also — be able to also expand to the life cycle of data experience beyond just the management of data as a single platform.
Nehal Chokshi — Northland Capital Markets — Analyst
All right. Thank you.
Robert G. Bearden — President, Chief Executive Officer and Director
Yeah.
Operator
Our last question comes from the line of Brad Reback with Stifel. Your line is open.
Brad Reback — Stifel — Analyst
Great. Thanks very much. Jim, the $315 million of bookings you got achieved for 4Q implies a fairly significant sequential decel, anything going on there?
James W. Frankola — Chief Financial Officer
Yeah. Coming back to footnote in the — it’s just looking — it’s billings and billings are fairly immaterial for us, our focus is on ARR. What I’ll say is, billings hasn’t been a very good measure, partly because of how we change the billing practice for Hortonworks from a multi-year prepaid to annual upfront and that is still being washed out. So you have a business that is with not only build in Q4 that was build two Q4s ago, so that’s part of what’s going on. In addition, in any given quarter, you have deals that are pulled forward or postponed that dramatically affects billings and, again, I’m not overly focused on the billings number for Q4, because it’s about — all about ARR. And ARR will much more closely approximate revenue growth than it will with billings.
Brad Reback — Stifel — Analyst
Got it, got it. And maybe one just quick follow-up for Rob. Given a multitude of growth vectors that you’ve talked about on the call, why is buying back $500 million of stock the right opportunity versus funding those more aggressively. Because typically we don’t see growth software companies buying back that magnitude of stock relative to market cap? Thanks.
Robert G. Bearden — President, Chief Executive Officer and Director
Yeah. So we’re very comfortable we can fund those growth initiatives within the parameters of the operating margins that we’ve guided to, as Jim mentioned. But, look, if the — with the status of the debt market and the multiple our stock is trading right now, we think it just represents a great opportunity to buy back here. We’re very confident with CDP, we’re very confident with our customer adoption in what we’re seeing on a go-forward basis. We are very confident in our competitive positioning and the share price where it is coupled with our confidence we think it’s a great buying opportunity and we fully intend to execute on it.
Brad Reback — Stifel — Analyst
Great. Thanks very much.
Robert G. Bearden — President, Chief Executive Officer and Director
Absolutely. Thanks for joining the call. Appreciate it.
Operator
This concludes the Q&A session. I’ll now turn it back to Rob Bearden for any closing remarks.
Robert G. Bearden — President, Chief Executive Officer and Director
Yeah. We very much appreciate your participation and have enjoyed having the call with you. We look forward to seeing you in the next quarter and having another great quarter. Well, take care.
Operator
[Operator Closing Remarks]