Hortonworks' (HDP) CEO Rob Bearden on Q4 2015 Results - Earnings Call Transcript

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Hortonworks (NASDAQ:HDP)

Q4 2015 Earnings Conference Call

February 10, 2016 16:30 P.M. ET

Executives

Brian Marshall – VP, Corporate Development and IR

Robert Bearden - CEO

Scott Davidson - CFO

Shaun Connolly - VP, Corporate Strategy

Analysts

Jesse Hulsing - Goldman Sachs

Matt Hedberg - RBC Capital Markets

Philip Winslow - Credit Suisse

Greg McDowell - JMP Securities

Brian White - Drexel Hamilton

Raimo Lenschow - Barclays

Richard Kugele - Needham & Company

Operator

Good afternoon. And welcome to Hortonworks Incorporated Fourth Quarter 2015 Earnings Conference Call. Please note that today's call is being recorded and a webcast is also being broadcast live over the internet on the Investor Relations section of Hortonworks corporate website. A replay of today's call will be available on our website approximately two hours after the conclusion of this call. This broadcast is the property of Hortonworks Incorporated. Any redistribution, retransmission, or rebroadcast of this call in any form without the expressed written consent of the company is strictly prohibited.

I would now like to turn the call over to Brian Marshall, Vice President, Corporate Development and Investor Relations for Hortonworks Inc. Go ahead, Mr. Marshall.

Brian Marshall

Thanks, Chelsea. Good afternoon. And welcome to Hortonworks' Q4 2015 earnings call. Today, we’ll be discussing our results announced in our press release issued after the market closed. With me is Rob Bearden, Chairman and CEO; Scott Davidson, CFO; and Shaun Connolly, VP of Corporate Strategy. During the call, we will make forward-looking statements regarding future events and views about the future financial performance of the Company. These statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These risk factors are described in our press release, and are more fully detailed under the caption of risk factors in our Form 10-K and other periodic filings with the SEC.

We will also present both GAAP and non-GAAP financial measures. Non-GAAP measures should not be considered in isolation from and substitute for or superior to our GAAP results. We encourage you to consider all measures when analyzing Hortonworks' performance. A reconciliation of GAAP to non-GAAP measures is included in today's press release.

In addition, please note that any forward-looking statements that we make toady are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. So with that said I'd now like to turn the call over to Rob.

Robert Bearden

Thanks, Brian. As always I want to start off by thanking our customers, the open source community, and our partners, employees and shareholders for their support. Hadoop penetration in the market simply wouldn't be where it is today without you. So, in terms of the call structure I would begin with the business update reviewing some of the key strategic developments. I'll then turn the call back over to Scott to review our financial results in more detail, and I'll circle back with some final comments.

So let me kick off with the business highligthts. We’re pleased to have completed our first year as a publically traded company and I would like to quickly outline a few of the highlights that occurred through 2015. The first area I’d like to start off with is pointing out that we really executed our growth plan and continued to build scale. And according to a leading research firm we were the fastest enterprise software company ever to reach $100 million in annual revenue. In fact we ended the year with $122 million in revenue up a 134% year-over-year which is an acceleration from the 113% growth we experienced in 2014 and $166 million of billings which is at 90% year-over-year.

The next area we are very proud of is our customer acquisition accelerated. And we more than doubled our customer base over the last 12 months and have over 800 support subscription customers and we now count more than half of the Fortune 100 as our customers.

Next area that we’re incredibly proud of is if we truly hired the best and brightest people. We exited the year with almost 850 employees including well over 200 Apache commuter seats [ph] and this has allowed us to accelerate innovations through our teams in the community. The next thing I’d like to point out is how the market is really consolidating around HDP. And since our IPO and with introduction of ODPI, both Pivotal and IBM have rallied behind HDP.

In addition to the broad markets thought we’ve enjoyed from Microsoft, HP and EMC we have seen a much expanded ecosystem throughout 2015 with over 1600 global partners going to market with our solutions each and every day. And lastly we entered into another massively high growth market. With acquisition of Onyara last year we increased our TAM or the total available market over an order of magnitude offering the industries only 100% open solutions for managing database inside and outside the datacenter.

And specifically to Q4 it represented a triple digit year-over-year growth for the total revenue which was up 124% year-over-year and our support subscription revenues specifically at 140% year-over-year. And our total billings of 52.1 million were up 63% year-over-year and support subscription billings were up 93% year-over-year and represented 80% of the mix in the quarter.

As you can see the combination of our execution, our model, and strategy had positioned us very well as we head into 2016. We see tremendous opportunities to deliver even more value to our rapidly growing customer base and we will continue to deliver bulk market growth rates and at the same time we had a healthy focus on expense leverage as our billings and revenues scale against the investments we’ve already made. But make no mistake we’re manically focused on achieving adjusted EBITDA breakeven and anticipate doing so by the end of 2016. Scott will provide some more color on this in his prepared remarks in just a few moments.

So our focus during 2016 is very clear. We will provide platforms and solutions that will allow the enterprise companies to manage their entire day lifecycle from the point of origin. While that data is still in motion until it ultimately becomes at rest. It starts with our 100% open source model and ends with a complete solution to store, process, note and manage the new paradigm of data.

In between we developed, test, and deliver a solution with enterprise class scalability, security, and manageability ensuring our customers’ experience a world class environment each and every time. The Hortonworks Data Platform or HDP addresses the complete needs of data at rest and HDP enables the creation of an enterprise data like with enterprise services like governance and security by supporting today’s analytical applications.

HDP powers the analytic and real time applications used by our customers across many industries including healthcare, financial services, oil & gas and retail just to name a few. And most recently we introduced the Hortonworks Data Flow or HDF. HDF is complementary to HDP in any other data store for that matter. It provides real-time data streaming capabilities and it’s the cornerstone technology for the Internet-of-Anything, as well as data providence and use case.

This platform captures data that’s generated mostly outside the traditional data centre that may ultimately come to rest within HDP. Of the 85% of data growth, about 20-20 will be generated from the Internet-of-Anything sources, the bulk of which originate outside the traditional data source, from sources such as machines, click streams, server logs, devices centers and many other non-traditional data sources. So by combining HDP and HDF we're now positioned to capture data -– to capture all facets of the enterprise data lifecycle and we refer to this as our connected data platforms and this significantly increases our addressable market.

It’s clear that our customers such as VeriSign, M.D. Anderson, Plantronics, HCSE and a large Baltimore-based asset manager choosing Hortonworks solutions like HDP and HDF because they realize open, flexible, secure and manageable are all table stakes for an enterprise query platform. The same attribute are also required to build and develop an ecosystem of partners that help the platforms flourish and it’s critical for our next-generation data management platform to work seamlessly with our customers’ existing IT environments.

One final thought as I'm sure it will come up in the Q&A section, is the thought process and timing surrounding our recent follow-on offering. In the latter part of 2015, as we began the early phases of our 2016 planning, it became clear that we were growing faster than our initial forecast and were having success bringing on new customers at a rapid pace. That coupled with the acquisitions at XA Secure, SequenceIQ and Onyara, it was evident that we have a market opportunity that continues to grow rapidly and it was also clear that the investment community preferred more cash on our balance sheet.

We evaluated several financing options during the fourth quarter, which included a standalone strategic ground as well as other traditional and non-traditional alternatives. But given the market conditions and the importance of having a fully funded model going into 2016, we ultimately decided it was best to move forward with the traditional follow-on offering in consort with the strategic technology partner. And now with our recently fortified balance sheet, the company’s in terrific shape to execute on our business model and opportunity in front of us.

We believe our proposition is unique, adds tremendous value to our growing customer base, and will result in a large growing and very profitable enterprise software company. Hopefully this provides an inside clarity on this topic and we certainly appreciate our shareholders’ views and patience throughout the process as we drive to adjusted EBITDA breakeven in Q4. With that let me turn it over to Scott.

Scott Davidson

Thanks, Rob. I’ll start by providing the details of the fourth quarter and fiscal 2015 performance and then conclude with the outlook for Q1 and the full year 2016. The fourth quarter total billings were $52.1 million, which reflects a growth of 63% as compared to Q4, 2014. Support subscription billings were up 93% year-over-year and represented 80% of total billings in line with our optimal long-term composition of 80% subscription and 20% services.

Full year 2015 billings were 165.9 million up 90% over 2014, and comprised 75% support subscription up 112% year-over-year and 25% professional services up 45% year-over-year. Recall when we initially gave 2015 guidance back in Q1 we expected billings to grow approximately 76% year-over-year as a midpoint. We are pleased to deliver approximately 20% faster growth than originally planned.

Q4 total revenue was 37.4 million up 124% year-over-year and 122 million in 2015. That’s up 134% compared to the prior year. The fiscal 2015 calculation includes an immaterial adjustment of approximately 2 million spread over the first three quarters of the year due to our retrospective adjustment deferring some support subscription revenues that will be recognized in future quarters. The immaterial adjustment will be reflected in our 10-K and has no impact to billings adjusted EBITDA or cash flow.

Recall when we initially gave 2015 guidance back in Q1 we expected revenue to grow approximately 63% year-over-year as a midpoint. We’re pleased to more than double that expected growth rate and have delivered a 134% year-over-year growth in 2015. Q4 support subscription revenue was 25.6 million up 146% representing 68% of total revenue and 77.7 million in 2015, up 147% compared to the prior year representing 64% of total revenue.

For more operating granularity on Q4, we had five deals that were over $1 million. The average new subscription deal size was approximately 70,000 and that was a 30% sequential increase. Our dollar base net expansion rate increased to 159% over the trailing four quarter average. Our total subscription customer base exited 2015 at over 800 more than double on a year-over-year basis as we continue to gain share and realize the benefits from the investments made in sales and marketing for the year. Geographically we have made progress against our international expansion plan and currently have a presence in 16 countries. HDP global adoption is clearly accelerating and this is evidenced by the fact that international revenue in Q4 accounted for over 10% of total revenue for the third consecutive quarter.

In Q4 the larger proportion of total revenue 68% was comprised of subscription revenue, somewhat higher than the plan. These drove margin improvement as non-GAAP gross margin was 61% during the fourth quarter compared to 36.2% for the prior year. The increase is driven by the dollar mix shift to subscription revenues I just noted as well as the absorption of support and professional services investments across a larger customer base. Non-GAAP gross margin for fiscal 2015 was 57% compared to 38% in 2014.

In terms of non-GAAP operating expenses we continue to invest to support the scale and future growth. We exited December with approximately 850 employees and at 33.1 million in Q4, sales and marketing expense continues to be our largest area of investment today, up 31% over the prior year. This compares favorably to subscription revenue that grew almost 5 times faster at 146% year-over-year.

We continue to make targeted investments in sales and marketing including sales reps and SEs and our recently launched Partnerworks program and Hortonworks community connection. Q4 research and development expenses increased 26% year-over-year to 13.1 million primarily driven by headcount from the acquisition and the build out of teams to support our recently created offerings like HDF from Onyara and Apache Metron for security analytics as well as the incremental features of HDP 2.4 and the continued development with partners like Microsoft and EMC Pivotal.

Q4 G&A expense was 9.5 million compared to 7.4 million last year due to most parts of resource in the organization to operate as a public company with the required infrastructure and support teams for a growing company. After 4 years in investment we begun to see leverage in the model. In 2015 operating expenses grew 62% year-over-year, but total revenue grew substantially faster at 134% and support subscription revenue at 147%. This gives us the confidence in the investments that we have made are the right ones and we look forward to the continued leverage in the model as we increase HDP penetration in the industry.

Q4 adjusted EBITDA, defined as billings minus non-GAAP expenses plus depreciation, was negative $16.8 million compared to negative $21.3 million during the fourth quarter of 2014. In every quarter of 2015 we improved the adjusted EBITDA loss profile on a sequential basis and in the back half of the year we started to show progress on a year-over-year basis as well. More on this in our guidance, but we expect consistent adjusted EBITDA improvement sequentially throughout 2016 as well.

Q4 non-GAAP net loss was $32.7 million or $0.72 per share, that’s based on 45.4 million weighted average shares outstanding. This compares to non-GAAP net loss of $36.9 million or $2.19 a share based on 16.8 million weighted average shares outstanding in the year-ago period. 2015 non-GAAP net loss was $133.3 million or $3.08 per share, based on 43.3 million weighted average shares outstanding and this compares to non-GAAP loss of $105.5 million in 2014. For Q1 we expect accounting basic shares outstanding to be approximately 54 million inclusive of the recently completed follow-on offering. There are 21.1 million gross dilutive instruments outstanding.

Turning to balance sheet we ended the year with $96.9 million in total cash and investments and inclusive of net cash we raised in the recently completed follow-on transaction, our pro forma cast out balance would be approximately $185 million and affords us the ability to execute fully on the model. Total deferred revenue increased $44 million year-over-year to $107 million as of December 31st. Approximately 90% of the total deferred revenue was comprised of support subscription, of that 83% was short-term.

Now turning to the outlook, for Q1 we expect billings to be $49.5 million as our mix moderates seasonally back to the low 70% range for subscription. We're targeting Q1 total revenue of $39.5 million and an adjusted EBITDA of negative $23.5 million for the quarter. At these growth rates, our Q1 adjusted EBITDA guidance is expected to represent the trough level of the individual quarter perspective in 2016 or said another way, we expect adjusted EBITDA improvement on a quarterly basis throughout 2016. As Rob alluded to we are pulling forward the timeframe to achieve adjusted EBITDA breakeven and now expect this to occur in Q4 of this year.

For the full year 2016, we estimate our billings to be $261 million. With respect to mix we expect the full year to be comprised of 75% support subscription and 25% professional services. With this billings range we would expect revenue of a $188 million and adjusted EBITDA of negative $55 million for the year. So let’s have Rob make some concluding remarks and then we’ll go to questions.

Robert Bearden

Thanks, Scott. So here's what I’d like to leave you with. The world’s largest enterprise organizations are using our connected data platforms of HDP and HDF to transform their data architectures. Many customers are actively contributing to the Hadoop ecosystem and speeding the pace of the open source innovation. Our enterprise customers want easily consumable, open-enterprise Hadoop and HDP is the only distribution built on highly open source technology. Simply put Hortonworks is powering the future of data.

Lastly one final thought. Now that we are a multi-platform and multiproduct company, we are focused on all data; data in motion and data at rest. The Hortonworks data platform and the Hortonworks data-flow platform are the connected data platforms that deliver both actionable and tells it for customers to fuel their transformational use cases and unlock value across their organizations.

As I mentioned earlier, in 2016, we will continue to deliver above market growth rates with a healthy focus on expense leverage as we track the adjusted EBITDA breakeven in Q4 2016. Mostly importantly we're not doing this alone. Again we want to thank our customers, open source community, our partners, employees and shareholders. So thank you for attending and with that operator if we can go ahead and open the lines up for Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. And our first question comes from the line of Jesse Hulsing with Goldman Sachs. Your line is now open.

Jesse Hulsing

Thanks guys, appreciate the time. Adjusted EBITDA breakeven by Q4, you put that forward. Scott, can you walk through where you see the incremental levers particularly on the sales and marketing side, do you expect a higher mix of expansions in the summer, thanks?

Scott Davidson

Hey Jesse. Good couple of questions. I think just overall we’re seeing some operating leverage in the model. Sales and marketing is clearly the largest line item. We typically sort of last year and even this part of this year we sort of front end the sales and marketing expense profile as we hire up entering the year. I think if you look at 2014 you can see that revenue growth compared to expense increases from sales and marketing are starting to show some of that leverage. Secondarily, I would say that when you look at the net expansion rate its actually increased and now at 159% and so with a doubling of or more than doubling of the customer base with significant renewals for us to attack this year. And the expansion ratio at 159% we think we’ve got some good leverage on the sales and marketing lines that will help us achieve that number.

Jesse Hulsing

And when you look at that expansion rate, do you expect it to trend down through 2016, do you expect it to stay the same, and I guess if you look at your cohort of customers that you added earlier this year, are they progressing at the same rate from an expansion perspective as customers that you find in 2014?

Scott Davidson

So in terms of where I would expect the trend to be, it's slowly sort of crept up from sort of the low 150s in the last year. So, I think predicting it, it is not that dramatically different because remember it’s the average of the trailing four quarters and so for that number to move substantively it would take a number of quarters to kind of move that above let's say 159. So when we went public in this quarter it was around 152 or 153 and now to get it to 159 you can imagine that the last couple of quarters have been significantly higher to drive that up about three or four points.

In terms of the customer deals, I think the flavor that I will give on that is most of the customer deals that we do that are the larger scale deals, let's say the million plus deals those tend to be with existing customers. It is rare to find a company that would step in right off the bad and jump in to the deep-end so to speak with $1 million deal. And so as we have that bigger customer base that we are going back into and selling on more notes and then also coming on top of that would be HDF offerings and the Metron offerings, we have more solutions, more support to sell around a broader array into deeper customer base and so both of those things are sort of driving that positively.

Jesse Hulsing

Great, thanks Scott.

Operator

Thank you. And our next question comes from the line of Matt Hedberg with RBC Capital Markets. Your line is now open.

Matt Hedberg

Thanks guys for taking my questions. I wanted to ask about Microsoft, I am curious you guys extended the contract terms this past summer, are you seeing any incremental upside or economic benefit to some of the new terms?

Robert Bearden

Hey Matt, so we I think as we said before there is sort of two components to the Microsoft relationship that’s different than what we had previously. So there is a fixed amount that we receive from them and then there is upside based upon workloads that we move to Microsoft which are actually workloads that execute in HDI and Asher. So embedded in our subscription revenue we do get upside from Microsoft workloads in a quarter arrears. So the answer is yes, we do but it is not a material amount right now where we would break it out. But positive affirmation of the work that we are doing together with them and its upside on top of traditionally what we've gotten from them.

Matt Hedberg

That’s helpful. And then, it sounds like I think Scott you mentioned $5 million deals I believe in the quarter. I'm curious, was HDF, did that contribute to some of those and just kind of curious if you could help us with your catch that you're seeing of HDF to HDP?

Robert Bearden

Hi, this is Rob, Matt. We are seeing great traction and interest across our entire customer base as well as actually many net new opportunities across not only existing customers but wide space. We just brought that in SGA in the late October early November timeframe, so we're just beginning the sales cycle and we actually did close several transactions on HDF. And we have a terrific pipeline for the balance of 2016 and in particularly for the current quarter. So we are seeing great interest, great traction, and what we believe will be very good catch rate with the customer base.

Matt Hedberg

That’s great. And maybe one final one, I think the biggest take away I'm taking so far, obviously you guys I think did well in moving the adjusted EBITDA breakeven up effectively a couple of quarters from the first half of 2017 to Q4 2016 really great to see and Jesse, was asking about that earlier. I was curious, mix seems like it’s helping here as well. Could you talk about the benefits partners were having on the model right now which has historically been a resource constraint ecosystem?

Robert Bearden

Yes, we're actually starting to see some, one of the comments in my prepared remarks was we're starting to see real benefit in not only the model and the leverage that comes with that. When you have a go-to-market and it’s done correctly, you build detailed reference architectures with your partners so that there's a fair amount of engineering effort that goes into that; one, to get it right; two, to make sure that it goes into each other’s co-release cycles and that you then take that referenced architecture and get it into a core sales motion within each other’s sales entities. That can take anywhere from 6 to 12 months and we're -– as we have invested in that last year and in the second half of 2014 in many of those partnerships, we're starting to see those -– not only those sales motions begin to really build real pipeline that actually close and contribute into the billings revenue streams. And we're starting to really see nice evidence of that pool market kick in.

Matt Hedberg

Great. Thanks a lot. Well done guys.

Robert Bearden

Yes, thank you.

Operator

Thank you. And our next question comes from the line of Philip Winslow with Credit Suisse. Your line is now open.

Philip Winslow

Thanks guys for taking my questions and congrats again. I just want to ask on the adjusted EBITDA guidance and also just the leverage points you were talking about on the sales and marketing line, which is really kind of the focus point that I want to ask here on sales and marketing. When you guys look at just the number of reps that you’ve added over the course of the past year and if you think about sort of where you were 12 months ago, the percentage of ramp versus ramping. Just kind of wonder if you can give us a sense of sort of where that was, where is that sort of percentage mix right now? And then as a second kind of follow on question there, when you look at deal size, how are the deal sizes of new customers trended and then follow-ons? Thanks.

Scott Davidson

Yes, so -– hey, Phil. So I’d say comparatively with where we were a year ago in terms of looking at ramped versus unramped, the magnitude there's probably about 25% higher number of reps that are fully ramped than where we were at this point last year or entering that. We spent a lot of time focusing on ramp reps and because they’re out there in the fields sort of dragging on the revenue. But the other piece of this that’s equally as tricky is to make sure that we have SEs out there that work with them and support them. And so that ratio of sort of ramped reps to SE is important as well and so we've built out a real strong cadre of SEs to support that selling proposition upfront and those are some of the investments that we've made early on as well that we need to note.

In terms of deal sizes, a little bit of a different complexion. If we look at sort of the new deal sizes, up about 30% sequentially than Q3. I’d say the average deal size on the new stuff was about $70,000. In the quarter I noted that we did five deals over $1 million. We had done 8 in Q3, but interestingly enough we did twice the number of deals between let's say the 100 and 500k cuts than we did in Q3. So three last deals over a million but two x the number of deals sequentially on a 100k to 500k.

So it is an interesting Q4 because the centre of the bar bell if you will is where lot of the deals sort of rounded out this quarter. And the larger deals as I said earlier, usually the million plus deals are usually the existing customers. And so why that’s important is with the trend that we’re seeing in the net expansion of 159%, some of what's driving that are the deals that are in the 100k to 500k range with existing customers not necessarily just from whopper a $1 million deals a lot of which we had in Q3.

Philip Winslow

Got it, thanks guys.

Operator

Thank you. And our next question comes from the line of Greg McDowell with JMP Securities. Your line is now open.

Greg McDowell

Great, thank you so much. One multi part question, I was wondering if you could give us your thoughts on managing the business through what is potentially going to be a softer IT spending environment in 2016. So I guess three questions here, I guess number one have you seen any change in customer behavior in the first five weeks of the year so far? And maybe number two if you could just remind us roughly how many of your deals are driven by sort of cost savings initiatives for example like an ETL offload? And then number three if you could just maybe talk through whether your guidance is incorporating sort of the potential for softer IT spending environment or if it sort of stays state as it was at the end of the year? Thanks.

Robert Bearden

Sure, this is Rob, how are you? So, included in the macro backdrop of managing the business in a softening IT environment. I think that’s one of the great benefits of I think where we are positioned and that to the extent that spend begins to tighten in IT which we’ve not seen that so far this year. We’ve not seen that dynamic, we’re not felt that dynamic, we have not seen any disruption whatsoever in our pipeline or deal velocity or where we should be in our selling cycles within our commit and forecasted deals. So we’ve seen no disruptions there at this point whatsoever or slowing down.

But to the extent in the macro there is pressure on IT budgets generally that tends to be an accelerant for open source platforms and that what you will see and that I’ve experienced this macro year very predictably is that IT budgets have constraints placed on them are beginning to tighten that there will be an acceleration of moving away from proprietary or very high spend kind of environments to an open source alternative. And of course that puts acceleration from certain workloads to our platform square in the middle of the paper and that with our enterprise capability to manage that data at scale, at a very substantially reduced economic point it actually serves as an excellent catalyst to move workloads now.

So short way or long way of saying IT budgets are getting tightened actually helped sort as a catalyst to move workloads to us and increase the spend for us. But again we are not seeing that reduction happen, there are the traditional workloads that continue to come at us that are focused on ETL right sizing but we’re also seeing many, many new used cases coming at us for spend optimization, fraud detection, 360-degree view of the customer, even some of the industries that have real challenge in their financial models, like oil & gas, they’re viewing both our HDF and our HDP platforms as a way to really optimize some of their business functions in a much, much better economic point. So we're actually seeing the used cases for Hadoop and for data flow expand beyond just cost reduction or cost stabilization and actually move to enable use cases that are actually transforming the business models.

Greg McDowell

That’s great. And I appreciate the thorough response.

Operator

Thank you. And our next question comes from the line of Brian White with Drexel Hamilton. Your line is now open.

Brian White

Yes, I'm wondering if you can talk a little bit about what you’ve seen so far with interest around HDF first of all? And secondly, just around Spark, I know you made an announcement, I guess it was in December. And I think there's still a lot of questions in the investment community about what Spark exactly means for Hadoop and what works, so maybe if you could expand on that, thank you?

Scott Davidson

Yes, happy to. So first part of the question was HDF and what's the interest. The interest has been tremendous, and not only within our customer base but also in just many like-space opportunities that we would never have an opportunity to play in or clearly have a solution for that Hadoop was not the right platform or service. So it’s taken us into many new opportunities and customers that we had not been engaged with or new sectors within our existing customers. And what -- but continuously that we get great reinforcement on is that they want us to be able enable their entire lifecycle of data, from the point of origination all the way through the movement, until it ultimately comes at rest for storage and processing on Hadoop. And that they will be able to have one common work flow with highly integrated platforms.

So it really helps power the next-generation architectures that they’re trying to get to, to get into very interactive models with their customers and their supply teams. So we believe that business has not only a high attach rate but also opens up a number and continues to open up pipeline and opportunity for us in many new like spaces.

As far as Spark goes, I want to make sure I state this with tremendous clarity. We are a huge fan of Spark and we invest great deal of resources and are highly committed to ensuring that Spark can be leveraged in an enterprise-viable manner in Hadoop. And we have made sure that we take the most stable versions of Spark out of the community, ensure that they become enterprise ready, with a lot of effort that we put into that and then make sure that its part of our core platform leveraging YARN as well as our other enterprise services of security, data covenants, manageability, all as part of a common data architecture. And we want to make sure that we keep a very, very tight cadence between the most stable releases in the community and our most recent release and you saw that in our December announcement of our that we had made the Spark part of that distribution on a GA basis. In the near future you’ll see some more announcements there that we're very excited about and we're very pleased to be part of the Spark community.

Brian White

Great. Thank you.

Operator

Thank you. And our next question comes from the line of Raimo Lenschow with Barclays. Your line is now open.

Raimo Lenschow

Thanks for taking my question, two actually. First of all, now with where the shares are can you talk a little bit about your expectations for employee attrition, especially sales force attrition? I mean a lot of those guys will be way on the -– on their options. Have you changed your planning assumptions for 2016 on the back of that one and then I have one follow up?

Robert Bearden

We’re clearly mindful of the share price or taking great measures to be very mindful with our discussions with our Board around how we make sure that we balanced the equity participation with our employee base. And it’s something that we’re very, very focused on right now. We don’t have a particular program in place. Candidly we have -- we are very optimistic about the future of our revenue streams and how we’ll be rewarded for those ultimately via the stock price. But we are also mindful of where we are today and want to make sure that we are bridging that gap. We don’t have a particular program in place right now but we are in discussions with our board on what the various options are.

Raimo Lenschow

Okay, thank you that’s very clear. And then the second question is like, can we talk a little bit about the mix between subscription and services billings. You mentioned the preannouncement like its more going towards the partners and so I am slightly surprised on that 75:25 mix for 2016 that you indicated, can you talk a little bit about the puts and takes there? Thank you.

Robert Bearden

Sure this is Rob again. The services is choppy and our core model is focused on making sure that we have world class resources to do some of the core work that our customers want or need us to do it tends to be more focused around architectural kinds of work that we do. And that the strategy behind the services model is for the bulk of the delivery but that goes through and through the ecosystem. And the general balance model is a 75:25 model and that’s what we think is sort of the where things ultimately come to rest if you will no pun intended going forward. In particular in Q4 as you see the subscription line was right at actually slightly above the number that we had setting expectation around and if we were slightly behind on the services line itself. And particularly as we were making investments in Q3 and Q4 around some very strategic ecosystem partners, some of that worked we partnered with them on we made sure that went through them versus taking it directly.

Scott Davidson

And Raimo its Scott. We went public, we said the long-term model was going to be 80:20. Frankly we just sort of got there a lot quicker than we thought that we would. I think from a customer stat perspective and especially when we take into the context the larger scale deals, the dollar based expansion which talks about sort of customers going deeper and sort of moving more data on HDP, having a services offering is a real core component to making sure that customer success happens. So whether its 75:25 in the short-term and 80:20 in the long-term, it may oscillate over a year. But long-term it should probably be somewhere in that range. And so we are just there a little quicker right now but we think it kind of moderates back to the longer-term target overtime.

Raimo Lenschow

Okay, perfect. Thank you.

Operator

Thank you. [Operator Instructions]. And our next question comes from the line of Rich Kugele with Needham & Company. Your line is now open.

Richard Kugele

Thank you, good afternoon. Two quick questions, first just to dive back into the competitive landscape, your two major competitors have had a number of announcements of their own over the past few months on converged data platforms, I am just interested if you have seen any change in how often you see them or if you are continuing to more often bump against just legacy IT approaches and then I have a follow up?

Scott Davidson

Certainly it’s a highly competitive market without question or doubt. And it’s without question or doubt most deals that we're all in, we're all-in in many cases together.

Richard Kugele

Okay. And then if you look at the adjusted EBITDA commentary, strategically beyond hitting breakeven is the intention to take all the future leverage and reaccelerate even the top line growth at that point or do you -– are you going to let it flow through as we kind of work our models through?

Scott Davidson

Yes, I think that when we start to get through the mid-year, we’ll sort of have that conversation. But ideally the longer term model for an enterprise infrastructure software company should be an operating margin in the mid-20s. Overtime we should go into that over a long number of years. But I can tell you that given the opportunity that we see today with HDP and HDF, if we can keep driving the top line economically and managing or taking out the burn that we've seen, then we’ll continue to drive the top line and slowly let something fall below the line, but we’ll worry about that when we get there.

Richard Kugele

Okay, that’s helpful. Thank you.

Robert Bearden

Okay, we’ll probably – if we could just wrap up after one more?

Operator

I'm not showing any further questions at this time. I would now like to turn the call back to Mr. Rob Bearden for closing remarks.

Robert Bearden

Okay, great. Thanks a lot. I just want to take a moment and thank everyone for joining us on the call and we look forward to our next earnings calls with you and speaking to you soon. Thank you very much.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone have a wonderful day.

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