Cloudera, Inc. (CLDR) CEO Rob Bearden on Q4 2020 Results - Earnings Call Transcript

Cloudera, Inc. (NYSE:CLDR) Q4 2020 Earnings Conference Call March 10, 2020 5:00 PM ET

Company Participants

Kevin Cook - VP, Corporate Development, IR

Rob Bearden - President and CEO

Jim Frankola - CFO

Arun Murthy - Chief Product Officer

Conference Call Participants

Pree Gadey - Barclays

Rishi Jaluria - D.A. Davidson

Chad Bennett - Craig-Hallum

Sanjit Singh - Morgan Stanley

Daniel Ives - Wedbush

Mark Murphy - JPMorgan

Michael Turits - Raymond James

Jack Andrews - Needham

Brad Reback - Stifel

Operator

Good afternoon. My name is Cheryl and I will be your conference operator today. Welcome to the Cloudera Fourth Quarter Fiscal 2020 Results Conference Call. All participants' lines have been placed in listen-only mode to prevent background noise. After the speakers' remarks, there will be an opportunity to ask questions. [Operator Instructions] Please note this conference is being recorded.

Your host is Kevin Cook, Vice President, Corporate Development and Investor Relations. Kevin, you may begin your conference.

Kevin Cook

Thank you, Cheryl. Good afternoon and welcome to Cloudera's fourth quarter and fiscal 2020 financial results conference call. We will be discussing the results announced in our press release issued after market close today. 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, including those as merged with Hortonworks. 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. 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.

Except where noted, all numbers reported for prior periods are presented for Cloudera on a stand-alone basis. There is no comparative year-over-year financial information for the combined company. 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 fourth quarter and full year results for fiscal 2020.

The press release has also been furnished to the SEC as part of a current form -- current report on Form 10-K -- pardon me, 8-K. In addition, please note that the date of this conference call is March 10, 2020, and any forward-looking statements that we make today 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.

Now, Rob Bearden, CEO.

Rob Bearden

Thank you, Kevin. Good afternoon, everyone. Thank you for joining us to discuss our fourth quarter and fiscal year 2020 results. I'm very excited to be addressing you as Cloudera's new Chief Executive Officer and to share our strong performance in the fiscal fourth quarter. In addition to dealing with this performance, I plan to share with you today my motivation for accepting the CEO role, my priorities for our new fiscal year and my view of the opportunity that exists for Cloudera and our plans for capitalizing on it.

So, beginning with Q4 financial performance. Total revenue in the fourth quarter was $212 million, subscription revenue was $182 million, and non-GAAP operating income was $11 million. Each of these results exceeded expectations. Annualized recurring revenue was $731 million at the conclusion of the quarter, representing 11% year-over-year organic growth, again, ahead of expectations.

Finally, we had another good quarter in terms of adding customers. We now have 1,004 customers who exceeded $100,000 of ARR, a net increase of 27 for the quarter. And notably, 21 of the 27 customers are new customers rather than expanded relationships.

I'm also pleased to report that we are seeing positive momentum in our new product offerings. In CDP Public Cloud services, for example, we've already had more than a dozen customers who are actively using or repurchased these offerings. And we're seeing strong interest in CDP across our customer base with many customers building plans for CDP Public Cloud adoption. And at this stage, any customer who is renewing is doing so on the basis of the new product roadmap.

Q4 non-finance KPIs are also encouraging with low churn in the quarter and renewal rates well ahead of plan. All-in-all, we continue to see improved execution on the part of the team, increased stability in the business, and good traction with our key growth initiatives.

With that quick overview of our quarterly results, let me spend a moment on what attracted me to the job and my priorities as CEO. Most of you will recall that I was Co-Founder Hortonworks and that I've been immersed in the open source software market for many years. The vision for enabling the modern data architecture and analytics represented by Cloudera today is the vision that my Co-Founders and I had for Hortonworks from the beginning, and accelerating that vision was the motivation for combining Hortonworks and Cloudera.

As a Board member of Cloudera since the merger, I've participated directly in shaping our strategy for defining the enterprise data cloud category and have seen the criticality of hybrid and multi-cloud solutions grow in the enterprise market. And when asked to consider leaving the company, it was not a difficult decision based on my conviction regarding the opportunity and our strategy.

My decision was helped by my experience in open source software, my knowledge of the data industry, my confidence in the team and having insight concerning our customers' needs and goals. And to be absolutely clear, I'm fully committed to our current strategy and believe that the company is very well positioned for market share gain. And I do not envision changing a lot.

The new product innovation that has occurred recently is exactly what the market demands, and the senior management team is rock solid. Of course, we'll continue to make refinements to strategy along the way, but you should not expect a departure from our hybrid multi-cloud vision.

Today, we enjoy a fantastic market with important secular shifts that favor us, along with large base of enterprise customers who rely on us for enterprise-grade performance, scalability, and functionality. We will have more on this later, but I cannot be more enthusiastic about the setup for Cloudera as we enter the next phase of the data market's evolution.

So, as far as my priorities go, they're straightforward. By focusing on our customers, our partners and our employees, we expect to take care of our shareholders. The guiding principles for me and the team are: first, accelerate topline growth; and number two, drive operating margin expansion that will generate significant free cash flow. This means that we're very focused on shortening the time to value for our customers, making our solutions easier to use and delivering a better user experience in all respects. It also means that we're demanding greater efficiencies in the way we operate the company.

So, in order to frame the opportunity, let's quickly revisit the merger rationale for a moment. As designers of the merger, we knew the opportunity to enable the enterprise architecture for hybrid and multi-cloud data management analytics use cases was significant. We needed to establish a clear category leader, gain more scale and resources to pursue the opportunity, and we needed to accelerate development and innovation in the cloud native services that make true hybrid multi-cloud and private cloud possible.

Our customers were demanding a comprehensive solution set for managing the full life cycle data from the Edge to machine learning and AI, and we believe we could strengthen our customer base and unify our partner ecosystem by consolidating them.

And finally, it was obvious that substantial cost and revenue synergies could be achieved by combining the companies. And as we reflect on the one-year anniversary of the merger, the industrial logic has been validated and our rationale proven that.

Now, I feel fortunate to have taken the helm in January. Most of the hard work of the merger integration and positioning of the company for today's opportunity has been done. Integration is complete. We've delivered meaningful new innovation in public cloud services as well as introduced our next-generation data platform.

We've delivered CDP, which enables a modern data architecture and is truly cloud native. And through CDP and the balance of our product suite, we now address four large TAMs with a blended compound annual growth rate exceeding 20%. And we have also laid the groundwork for our private cloud offerings. We've demonstrated strong operating leverage and captured the expected merger cost synergies in fewer quarters than anticipated. And setting aside merger-related spending, we generated $24 million of operating cash flow for the fiscal year.

And the merger allowed us to accomplish certain things that we simply could not as standalone companies, such as the changes in-licensing and distribution and the implementation of variable pricing.

So, please think of all that as Phase 1 of Cloudera's transformation and the first year of a multiyear journey to become a strategic partner for large enterprise data needs, while building a durable, high operating margin business model.

So as the new CEO, I can say with some objectivity that Phase 1 represents a remarkable set of accomplishments in a short period of time. We knew that we were taking on a lot when announcing these plans with the merger. And at times, we traded a linearity for disruption. But the game is that we've been able to quickly put most of the difficult test behind us and completely repositioned the company for long-term success.

With the arrival of fiscal year 2021, we now turn to Phase 2 of our plans. In Phase 2, we will transform from a mostly on-premise enterprise data management vendor to a true hybrid multi-cloud data platform company. We now enable modern enterprise data architecture and manage the entire life cycle of data for multifunction, multi-cloud use cases.

And Phase 2 will be characterized by four fundamental things: first, more new product innovation in the form of additional cloud native services offered as part of CDP Public Cloud; the introduction of CDP Private Cloud; an increased emphasis on the Edge and real-time streaming opportunity with Cloudera Dataflow as the service. We intend to amplify the comprehensive nature of our solution set and deliver the entire portfolio of assets that we brought together with the merger and have since deployed.

Our CDP Public Cloud services will reflect our competitive advantage in addressing the full life cycle of data, being able to manage data from the point of origination, process it in real-time, report on it, direct the next action using machine learning, and leave the workload to the optimum environment for use case performance and cost.

Importantly, CDP with SDX secures and governs the data and allows for all this to be managed from a single pane of glass regardless of where the data resides or which clouds are used. CDP is designed to enable customers to define compelling modern data architectures.

And with these new public and private cloud offerings, existing customers will be able to easily upgrade to hybrid and multi-cloud solutions without having to migrate workloads. Management and orchestration of data anywhere as a tenant of an enterprise data cloud and enabled by CDP with SDX.

An enterprise data cloud, comprising hybrid, private cloud is a very elegant solution for large enterprise customers who are seeking the agility and ease of use of public cloud infrastructure that require the performance, security and cost controls of the data center. All the customers' workloads, hybrid, multi-cloud and on-premise can be executed within CDP.

The second element of Phase 2 is a refined digital customer engagement model. As part of the transformation at Cloudera, we are taking a holistic approach to becoming consumption and cloud-native oriented. And this is driven by a recognition that simplicity, ease of use and user experience are valued and expected by our customers.

Our engineering team is building automation and intuitive, easy-to-use functionality into the product. But we understand that being a cloud company means more than easy-to-use technology. It extends to user experience, pricing, billing support, especially go-to-market. This fiscal year, you'll see us adopt a digital customer engagement model that, together with CDP Public Cloud, will enable a customer to learn about our offerings, explore their capabilities, trial to workloads, and begin production entirely through digital experience.

Digitization is expected to shorten sales life cycles, accelerate time to value for our customers and to lower our customer acquisition costs. More details will follow throughout the year, but Mick Hollison, our Chief Marketing Officer, is leading this digital transformation initiative for us.

Getting this right means that we'll be able to onboard CDP Public Cloud customers more quickly, and customers that we ordinarily would not target based on our traditional direct sales model will be able to self-serve their way to becoming subscribers.

And now third, an updated operating model. The goal for fiscal 2021 is to operationalize the gains that we've made through the merger. We've quantified our sales execution improvements, minimized churn through changes to distribution, protected our IP through licensing modifications and targeted next level of efficiencies in every aspect of the business. We have achieved our merger cost synergies, both in time and magnitude.

Now, we're challenging ourselves to produce more efficiencies and drive business velocity in general. The merger expenses and impacts are almost entirely behind us. So now we're in a position to optimize operating margin over fiscal 2021 and 2022. In this fiscal year, we're expected to generate close to $100 million of operating income and cash flow.

And now fourth is our upgraded partnerships with the public cloud providers. Cloudera's customers typically have vast data sets and are focused on scale. Our current footprint of data under management and software installed servers is approximately five exabytes of data and approximately 400,000 servers, excluding the public cloud implementations. A subset of these workloads would benefit from hybrid or public cloud execution.

In the past, that subset would most often move to the native offerings of public cloud providers. But with the launch of CDP Public Cloud and the realization of hybrid cloud solutions through CDP, these workloads can now be retained by Cloudera. This is, of course, a large revenue opportunity for the company.

But it's also a huge revenue opportunity for the public cloud providers as their infrastructure is necessary to enable hybrid cloud workload deployments. And we estimate that the cloud providers generate $4 to $5 in compute storage revenue for every dollar of software revenue earned by Cloudera and this is the price that the cloud providers are focused on.

We're, therefore, strengthening our partnerships with all the public cloud providers as they seek work more closely with us in an effort to position themselves for the potential Infrastructure-as-a-Service revenue windfall that we'll generate. The development of modern hybrid and multi cloud-based data architectures, enabled by CDP with SDX in the eventual transition of workloads by our customers across these tiers, will take several quarters to play out. But we're also seeing quite a bit of interest in returning certain workloads to on-premises that had previously been shifted to public cloud.

And this is usually because of runaway public cloud cost or the difficulty in securing and governing the use cases. We believe that CDP solves these problems for customers, especially with CDP Private Cloud expected to become available in Q2 of this year.

CDP Private Cloud will complete the enterprise data cloud vision and offer full flexibility and cost optimization for customers who want a public cloud-like experience that provide enterprise-grade performance, functionality, and security. And our partnership with IBM and Red Hat is particularly strategic in this respect.

We are collaborating deeply with Red Hat on OpenShift to seize the private cloud opportunity. And apart from this opportunity, the partnership continues to go well as we had another record booking quarter with IBM in the fourth quarter.

So, this summarizes our fiscal 2021 plans in the second year -- or Phase 2 of our post-merger transformation. Along with our licensing, distribution and pricing changes, we expect these initiatives to steadily involve the business toward market rate growth and high cash generation.

And by the end of fiscal 2021, we expect to have introduced and had in market, all of our major new products for about half the year, and this would make fiscal 2022 the most straightforward execution year with normal sales motion and pipeline conversion leading to more rapid growth.

So, with that backdrop on strategy, multiyear plans, let's share a few examples of CDP Public Cloud traction. And our first example is a major provider of telecommunication services that we mentioned on last quarter's call. This customer initially used CDP cloud native machine learning to model new customer acquisition and most recently, they've expanded their CDP use case to add the data warehouse service to analyze service quality data as well as support new use cases for next best offer and loan risk modeling. And with their marketing finance lines of business -- and this is an example of how demand for business use cases that require complete data life cycle drives more CDP Public Cloud consumption.

Our next example is a leading technology provider. And this customer was told by its electric utility, they can receive no more power, and their challenge was how to support business growth without increasing data center power consumption. And so using cloud was an obvious choice, but they also needed to comply with corporate mandates to optimize cloud cost by having the option to switch between cloud providers.

And they chose CDP Data Warehouse and Data Hub on Azure and AWS. And with CDP, they moved workloads from data centers to multiple clouds without having to rewrite their ramps. And as a result, they expect to burst up to a quarter of their data center workloads to the cloud with CDP this year. And with CDP's auto scaling functionality, they're also now well positioned to save money.

One final example is a major commercial bank outside the U.S. This customer's IT organization was struggling to keep up with the business demand for new projects as well as dealing with challenges to increase data center capacity while keeping data center costs under control. And so after an extensive evaluation, they decided on a hybrid cloud approach, expanding their existing cloud environment with CDP, data warehouse and machine learning on AWS.

The bank expects now to lower TCO compared to acquiring new data center capacity. And with CDP's SDX security and governance capabilities, they expect to better manage operational risks as they expand into the cloud. So, as you can tell from this story, CDP Public Cloud is meeting our objectives and performing very well.

So, with that, let's have Jim take us through the numbers, and then we'll get into questions. Jim?

Jim Frankola

Thanks Rob. Hello everyone. Q4 was a very strong quarter based on sustained execution throughout the organization. Our results were substantially ahead of estimates, reflecting the wind down of merger and integration activities and customer enthusiasm for our new product roadmap.

For the fourth quarter, total revenue was $212 million, and subscription revenue was $182 million. Because of the merger, comparative year-over-year information on these items is not meaningful. Annualized recurring revenue for Q4 was $731 million, up 11% year-over-year. ARR was better than expected, driven by existing customers expanding agreements at a higher rate.

The introduction of CDP Public Cloud and CDP Data Center, together with the expected delivery of CDP Private Cloud, was key to these increased customer investments in Cloudera technology. Note, updates to definitions, including information regarding an update to the definition of ARR and trends, can be found in the supplemental materials on Cloudera's Investor Relations website.

As Rob indicated, we concluded Q4 with 1,004 customers who started at or have grown to more than $100,000 of ARR. We increased customers representing greater than $1 million of ARR to 160 in total. In addition, we saw a significant increase in our renewal rates in Q4, driven by the confidence in the product roadmap as well as our recent licensing and paywall changes.

Operating cash flow for the fourth quarter was negative $9 million, which includes $16 million of merger-related payments. Cash flow benefited from better-than-expected renewal activity and strong collections. For fiscal year 2020, total revenue was $794 million, and subscription revenue was $668 million.

Operating cash flow for the year was negative $37 million excluding $61 million of merger-related payments. Excluding these payments, operating cash flow would have been positive $24 million for the fiscal year.

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 include stock-based compensation, amortization of M&A-related intangibles and any extraordinary non-cash real estate impairment charges.

Total gross margin for Q4 was 79%, up from 77% in Q3, driven by subscription gross margin of 88%, up from 86% in Q3. Operating expenses were $156 million for the fourth quarter or 74% of revenue, an improvement from 98% of revenue in Q4 of fiscal 2019. Including in operating expenses are $7 million of merger-related spending. Excluding these amounts, operating expenses were 70% of revenue in Q4.

Overall operating income was $11 million in Q4, representing an operating margin of 5%, which includes more than 300 basis points of merger-related expenses. Excluding these expenses, operating margin would have been 9% for the fourth quarter, a substantial improvement from Q4 2019's operating margin of negative 21%.

Diluted earnings per share was $0.04 in the fourth quarter. For fiscal year 2020, operating expenses were $464 million or 81% of revenue. Included in these fiscal 2020 operating expenses are $55 million of merger-related spending. Excluding these amounts, operating expenses were 74% of revenue for the fiscal year.

Operating loss was $39 million in fiscal 2020, representing an operating margin of negative 5%, which includes nearly 700 basis points of merger-related expenses. Excluding these expenses, operating margin would have been positive 2% for the year. Loss per share was $0.13 in fiscal 2020.

Now, turning to the balance sheet, we exited Q4 with $487 million in cash, cash equivalents, marketable securities, and restricted cash, down from $502 million at the conclusion of Q3. Capital expenditures were $1 million in the quarter and $7 million for all of fiscal 2020. These numbers highlight the capital efficiency of the company. We expect capital expenditures to run at roughly 1% of revenue for the foreseeable future.

Total contract liabilities, which comprise deferred revenue and other contract liabilities were $555 million at the end of the fourth quarter. RPO was $877 million, up 10% year-over-year. Current RPO was up 13% year-over-year.

I will conclude by providing initial guidance for fiscal Q1 and for fiscal year 2021. We expect Q1 total revenue to be between $202 million and $207 million, representing approximately 9% growth compared to Q1 of last year. With subscription revenue in the range of $180 million to $183 million, up approximately 17% year-over-year.

As a reminder, we expect to use -- we expect our services revenue and margin to decline over the next few quarters as we use some of our services personnel to support the rollout of CDP. We expect non-GAAP operating income for the first quarter to be in the range of negative $3 million to positive $2 million. Earnings per share for Q1 is projected to be negative $0.01 to positive $0.01.

Note that information regarding COVID-19 is very dynamic. We are assessing any potential impact on fiscal 2021 business activity relating to the virus. Our services business is more likely to be affected by the outbreak than our subscription business, which has a recurring revenue model.

Specifically, we have not seen any impact to our quarter-to-date bookings through the most recent weekend. Our linearity for software bookings is higher than typical for Q1, and the vast majority of transactions are believed to be tracking towards closure in the quarter. Based on customer and regulatory responses, we do expect our ability to deliver services to be modestly impacted in Q1, and we've made minor adjustments to Q1 revenue estimates to reflect available information.

Beyond these adjustments, we have made no attempt to quantify any potential impact on our business from the virus or changes to macroeconomic conditions. We have factored in our outlook only what is apparent in our business today. We will continue to monitor activity as the crisis unfolds and update investors appropriately as developments occur.

For fiscal year 2021, we expect total revenue to be between $860 million and $880 million, representing approximately 10% growth with subscription revenue in the range of $750 million to $760 million, up approximately 13% year-over-year.

Based on operating leverage, cost discipline and the new operating model that Rob described, we anticipate significant improvements in R&D, sales and marketing, and G&A expense ratios in fiscal 2021. We expect non-GAAP operating income for fiscal 2021 to be in the range of $82 million to $92 million or roughly 10% of revenue. Earnings per share for fiscal 2021 is expected to be $0.25 to $0.29.

As Rob highlighted, we are committed to generating substantial cash flow in future periods through a balance of investment in growth and operational efficiencies. We are streamlining processes and speed of decision-making. We've recently created global centers of excellence or shared services for back-office functions.

With our global scale, we are increasingly taking advantage of talent pools outside the Bay Area for all business functions. We are also consolidating high cost real estate in the San Francisco Bay Area. These actions will drive improvements in gross margin and in all of our expense ratios. In simple terms, we are guided by the Rule of 40 and expect sustained non-GAAP operating margin expansion for the next several years.

Since we are beginning a new fiscal year and are solidly cash flow positive, note that we are -- that we have adopted non-GAAP operating income as our primary bottom line metric. We favor operating income because it normalizes for the effects of billing practices and duration and is not impacted by seasonal or short-term variability in cash flows. As a result, our anticipated improvement in margins will be more easily observable over the course of the year.

Operating cash flow should track $10 million to $15 million below operating income for the year due to the change in billing practice at the time of the merger. Usually, OCF is greater than operating income for a subscription software company, and we expect this normal relationship to resume for fiscal year 2022.

Accordingly, as described in our press release issued today, the Board of Directors has authorized a repurchase of up to $100 million of Cloudera stock. This authorization recognizes that operating margins are expected to ramp steadily throughout the year and the business will generate cash flow that approximately -- the planned repurchase amount. Given the health of our business, we intend to maintain a strong cash balance, but do not see a need to add to it.

With that, I'll turn it back to Rob.

Rob Bearden

Thanks Jim. The team should be proud of the Q4 financial results and the significant achievements in product and go-to-market in the last TWO quarters. My thanks to our employees for their dedication to our corporate objectives during the period of CEO transition and we are now going to focus on operationalizing our fiscal 2021 plans and driving cash flow.

As CEO, I very much look forward to the next phase of our transformation and helping our customers realize true hybrid and multi-cloud data solutions. The initiatives that we put in place are showing promise, and our execution continues to improve.

Certainly, the opportunity for Cloudera has never been bigger. And with private cloud around the corner, that expands even further. I also want to be sure to thank our partners, customers and the community for their continued support.

Let's pause here and take some questions. But as a reminder, Arun Murthy, Chief Product Officer; and Mick Hollison, our Chief Marketing Officer, are available for Q&A. So now, operator, please begin the Q&A portion of the call.

Question-and-Answer Session

Operator

Certainly. [Operator Instructions]

The first question comes from Raimo Lenschow of Barclays. Please go ahead, your line is open.

Pree Gadey

Hey, this is Pree Gadey for Raimo. I wanted to ask you on the expansion on ARR. Could you provide some detail on the new pricing model if customers are still opting for pricing on storage versus compute, and what the implications there are if it's deflationary? Thank you.

Jim Frankola

Let me start with that one. And the new pricing model -- there are several different things going on with pricing. One is with introduced variable pricing effective in fiscal 2021, that for customers that have NiFi notes, lots of storage or lots of compute, they will have to pay additional charges, none of that in Q4. We believe the impact of that will be modest at first and grow over time.

The second thing is CDP Public Cloud will be priced on a consumption basis. That is a new offering, what can -- very little was sold in Q4 as that was primarily focused on customer trial and adoption. We expect CDP Public Cloud to be more meaningful in our results in the second half of the year.

And most importantly, in terms of your question, we don't expect it to be deflationary. We expect CDP Public Cloud to allow us to better monetize our technology. It's a more SaaS-like offering and therefore, the price that we will get for the CDP Public Cloud offerings, we believe, will be in excess on average to what we're seeing for an equivalent on-prem.

Pree Gadey

Great. And I think earlier in your comments, you mentioned topline acceleration. Is that just on revenue acceleration normalized for the revenue haircut or were you also talking about ARR?

Jim Frankola

In big round numbers, what I'll say is Cloudera's roughly a 10% grower right now. We had ARR of 11% in Q4. When we look out into the foreseeable future, our software business will be growing at roughly 10%. That is a really good baseline.

Now to that, we're going through a major product transformation. And as CDP Public Cloud rolls out, as CDP Private Cloud rolls out and we get traction from those later in the year, all of those are growth vectors on top of the things we've already announced, such as the licensing and paywall changes.

Pree Gadey

Great. Thanks and congrats on the great quarter.

Jim Frankola

Thank you.

Operator

Your next question comes from Rishi Jaluria of D.A. Davidson. Please go ahead, your line is open.

Rishi Jaluria

Hey guys. Thank you for taking my questions and nice to see kind of the results start to flow through. Two questions. First, I wanted to -- maybe one for Arun, on the technological front with kind of more of the cloud stuff happening on CDP Public Cloud and Private Cloud coming later this year. Wanted to get your take for what role should we expect Kubernetes to continue to play here? Is there a foreseeable future, which YARN itself gets completely replaced with Kubernetes? Or is there another way to think about this? And I've got a follow-up.

Arun Murthy

Thanks Rishi. It's Arun. So, as you probably remember from our previous calls, one of the things that we've done extensively -- I'm incredibly proud of the team for doing this in such a short time frame, is that we've taken the majority -- vast majority of our engines, which is our SQL engines, which is Hive and Impala, Spark, we just had a [Indiscernible] and so on. All of these are now running natively on Kubernetes, and this is what we use, Kubernetes is what we use under the scenes who actually provide it like as a SaaS-like offering in the public cloud.

Furthermore, when we go to private cloud, as we mentioned, later this year, we will take the same -- we call these experiences the SaaS-like experiences, and those experiences are faithfully ported over on top of OpenShift, which is the work we've been doing with our friends at Red Hat. So net is, we've taken most of the -- actually, all of the critical engines we have at this point, all the open source engines, and we made them work natively on Kubernetes, and that is what we're using to actually provide these sort of SaaS-like offerings.

Coming back to the other part of the question in terms of what we do with YARN, we still have a CDP Data Center, which is where the existing workloads and existing customers stay as they expand into the public cloud. In that world, we expect to see YARN could do to play the role, but long-term or the future, we expect to see most of that translate into -- transfer over to Kubernetes over a couple -- two, three-year timeframe. That makes sense?

Rishi Jaluria

Right, got it. All right. Thanks very much. Thank you. It's helpful. And then, Jim, I wanted to go back to your commentary you made towards the end of the prepared remarks and just thinking about the impact of corona on your business and clearly a hot topic around software now.

Maybe just diving a little bit deeper into that. I guess, given that -- I'm assuming you're following the lead of every other software company and you have a relatively kind of a pause or hiatus on nonessential travel, right, and you're clearly selling large deals directly through a lot of customers. There's a conference cancellations as well.

Like Strata next week being pushed out -- or sorry, Strata generally being pushed out to the New York one. So, how do we think about the impact of all of those things on your business? I mean, this is not something that could result in maybe bookings getting pushed out. Without having to quantify, but just maybe directionally, help us understand that. Thanks.

Rob Bearden

Yes, this is Rob. I'll touch on that, and then Jim may have some additional comments as well. So, obviously, it's a new dynamic that we're closely monitoring. Obviously, we're taking it incredibly serious. We're making sure that we're putting all the right policies in place to ensure the safety and health of our employees, their families, making sure that we have the business continuity policies in place that we can support our customers irrespective of sort of how this potentially evolves.

But I think the fundamentals of our -- the underpinnings of our business model really keep us in a very solid position going forward. Our business model is built on a very recurring revenue structure largely centered on the subscription side of the business. We are -- we already operate in a highly virtual environment. We're distributed across 85 countries. Now a lot of what we do, it is virtual already. Most of our engagement and territory coverage model is largely focused on our installed base.

And those relationships, the contractual as well as just the day-to-day engagement of helping them support their environment, expand the workloads and use cases they're adding. Look, a lot of that can be done and is done virtually. So, we're able to just granularize the way in which we're doing that during this sort of interim period that we think we will go through, where we're largely going to be handling those things remotely.

I think the issue that we're focused on is certainly less so the subscription side because we're seeing our forecast track really well. Our deals, as we're monitoring them, are solid today. The inspection process that Scott Aronson has in place, just as the industrialized ways to run the business, hold up very well in this kind of environment. The exposure that we're managing to is just the professional services delivery element.

And Jim touched on that in his remarks that we've -- we factored in that into our guidance today, and we're focused on how we deliver those services in an alternative way to continue to support our customers' business operations.

Jim Frankola

And I'll just add two things financially to that. One is, as Rob said, we have a recurring revenue model. Very specifically, as we look out for the year, if we look at all of the revenue that we have under contract and our existing customers renewing at historical renewal rates, we have visibility to more than 90% of our revenue for the year. So, it gives us a lot of confidence in our business.

And we also have the good fortune of being in the middle of a product transition, where our primary business focus is on existing customers. So, we're not having people have to get on a plane and find new customers. Their existing relationships with a higher degree of confidence, which, as we're working through these changes on how to service them both from a professional services as well as a software perspective, remotely, we're finding that the willingness to accommodate us is pretty great.

Rishi Jaluria

All right. Great. That's helpful. Thank you guys.

Operator

Your next question comes from Chad Bennett of Craig-Hallum. Please go ahead, your line is open.

Chad Bennett

Great. Thanks for taking my questions. So maybe, Jim or Rob, I think you both mentioned a significant, I think, improvement in renewal rates in the quarter, which, I guess, implies a pretty decent improvement in churn, I guess, is one piece of the pie. Jim, could you speak to churn improvement this quarter compared to kind of the mid-teens rate that you guys have been experiencing?

Jim Frankola

Yes, we're back to our long-term historical average, which I won't -- I'll get away from disclosing churn on a quarterly basis. But historically, our churn rate has been roughly 10%, maybe a little bit higher than that in some quarters. So, we're tracking back to that historical average. And quite frankly, renewal rates in the quarter were some of the highest rates that we've seen over the past several years.

So, we're pleased with -- all the things that we saw this year are coming together, the vision of the product roadmap enthusiasm overall of the new products, the licensing and paywall changes, all -- and the execution post-merger of just being -- stability for several quarters are really just gelling right now.

Chad Bennett

Right. And is there -- maybe this is a question for Rob. But if we look at the guide for the year and the subscription growth, specifically of roughly 13%, I think, you indicated at the midpoint, between all the tailwinds you have, so to speak, in terms of licensing change, CDP Public Cloud, Private Cloud, albeit maybe half a year and even potentially just kind of net new, which I think is very hair-cutted in your guide. I mean in that 13%, is there a way to think about the biggest driver of that growth on the subscription side or drivers, I should say?

Rob Bearden

Yes. So, I mean, there's probably not one biggest driver. I think it's a multitude of several different drivers. You mentioned several of them, the license changes that we're doing, the variable pricing that we're putting in place.

Clearly, the net new opportunity as we have introduced CDP with a hybrid public cloud, that it represents a massive opportunity for us across the board when you aggregate all those. I think the thing that we zero in and anchor on is that today, we -- our product portfolio sits over 4 fundamental TAM sectors, and that add up collectively to about $26 billion. And over the next three years, those four TAMs are going to grow on about a 20%, 22% CAGR to about $52 billion, right?

And so when we look at that opportunity and we look at the breadth of our customer base and sort of just the general transition that the enterprise is going to in order to get to hybrid and multi-cloud platform capabilities, we're the only company in the world today that with CDP and SDX, we can deliver truly that hybrid multi-cloud platform opportunity with the services around data engineering, streaming, data warehousing, machine learning, AI, et cetera.

So, it's just -- it's a plethora of market opportunity. We have to execute on it, but we're really well positioned to do that. And the integration is behind us. We're very focused on getting product out. Scott Aronson has done a phenomenal job of operationalizing the field coverage and go to marketplace, and so we just continue to stay focused on our operating plan and the playbooks that we have in engineering and sales.

Chad Bennett

Got it. And maybe one last one for me, if I could, for Rob. And I think this is pretty important. I mean, as opposed to your predecessor, in talking about the cloud providers as pretty staunch competitors to you and it might coincide with the licensing change and what you did there, but you seem more optimistic in partnerships there and in growing those relationships than maybe your predecessor did. Can you just explain the sentiment change, if I'm catching it there and the opportunity there? Thanks.

Rob Bearden

Yes, sure. Absolutely. Look, we very much view the public cloud providers as very strategic partners. As we deliver CDP, it enables a hybrid multi-cloud architecture. And so by definition, a certain percentage of those workloads with great certainty will go to the cloud. So, as an underlying tenet to that, what we want to make sure that -- we and they both want to make sure that we run optimally on their native cloud services.

Now, I'll pause for equipment. Obviously, we have some big overlap in some -- in some certain workload areas where we have -- I wouldn't even call it competition but it's coopetition. The real issue that we're both focused on is for every dollar of software subscription that we receive, that represents about $4 or $5 an IS. And that's really the price that they're focused on.

And so we can deliver very meaningful workloads by definition of a hybrid architecture, that when optimized to the full extent, we're going to generate substantial IS dollars for them. And represent great value return for our collective customers. And so we view this as a great opportunity to create the hybrid architecture, deliver value for our combined customers. It represents great opportunity in terms of revenue for us, IS revenue for them.

More importantly, what it represents for us is more at bat and a broader market opportunity that we get to enjoy in a hybrid, multi-cloud platform strategy versus just an on-premise environment. And those cloud providers recognize that, that is the way we're approaching the market. They view us as strategic on-ramps to their environments that represent, quite frankly, billions of dollars IS spent every year. And we recognize it as a net market expansion opportunity with a lot of incremental revenue for us.

So, it's actually a great win-win. Again, there are points of overlap, but we talked through that. We have good, rational ways in which we're dealing with that together. And we're zeroed in on how we go-to-market together.

Chad Bennett

Great. Nice job again on the quarter.

Rob Bearden

Thank you. I'm proud of the team.

Operator

Your next question comes from Sanjit Singh of Morgan Stanley. Please go ahead, your line is open.

Sanjit Singh

Hi. Thank you for taking the questions and my congrats as well on a really strong end to the year. I had a question may be for Arun just on overall sort of product strategy. If we think about all of the various open source innovations that Cloudera and legacy Hortonworks have delivered, whether it's Impala now Kafka, NiFi, MapReduce, on and on.

I guess the question is, why sort of the end-to-end sort of packaging sort of strategy? If we think about the public cloud markets and we think Snowflake as a cloud data warehouse confluent packaging, Kafka, why not go with a more specialized strategy on a more select set of bets around some of these core modern technologies versus sort of this end-to-end packaging that Cloudera has been going with over the past couple of years?

Arun Murthy

Great question. Thanks Sanjit. So, net is, we look at this as an opportunity to manage the entire sort of life cycle data, right? So, if you think of any use case that an enterprise today is trying to solve, whether it's predictive billing or maintenance of real-time billing and so on and so on, it requires a combination of technologies and a combination of use cases, right? So, in that world, if you want to do something like real-time billing, you have to ingest data in real time, you have to do sort of data transformation, reporting on it and predictive analytics.

So, given sort of the end -- so the high end enterprise focus we have, we feel like we are uniquely positioned to sort of manage all of this on any cloud, including private cloud in a multi-function manner. But equally importantly, do this in this environment of regulations and compliance; we want to do this in a very consistently secure and governed fashion, right?

So, what then happens is when enterprises use, as an example, CDP versus one of these one-offs, sort of single-point solutions that you talked about, it actually allows them to sort of get realized value faster because they have -- because the platform allows you to do this consistently and homogeneously securely in a governed fashion, and they have the ability to move this from on-prem to the cloud to multiple clouds, right? So that sort of is the end-to-end focus for us. And this message and it seems to be resonating really, really well.

And the fact that we can put off a single pane glass across these workloads so you don't have to go through an expensive integration exercise. And they've done this in the past with legacy technologies even on-prem. The fact that you don't have to do this because the common SDX capabilities really puts us in a sort of a really strong position.

Sanjit Singh

Understood. Thank you, Arun. And then maybe a question for Rob. In the context of your comments in your script about getting to a cadence of market share gains, what should we think as the bigger opportunity longer term? Is it CDP Public Cloud or CDP Private Cloud? Thank you.

Rob Bearden

Yes. So, we actually think it's important to be able to do both, and I would also add into that to be able to go to the Edge and be able to then enable security, governance, the ability to manage the linage and the metadata through that entire life cycle.

And so I'll pick up on Arun's comments. It's not about any one tier meaning private or public, it's about actually managing the entire life cycle of that data and being the platform that manages that entire life cycle of data for a hybrid multi-cloud environment.

So that means that it is imperative that you do on-prem, private, public, all the way to the Edge and then be able to deliver the experiences through that platform for AI, machine learning, data engineering, streaming, and data warehousing simultaneously across any tier and most importantly, and the criticality in this is to be able to have a common security and governance environment across that entire life cycle for any tier consistently, predictably. And that's what SDX delivers through one pane of glass. And so that is a very different approach than being able to just deliver a point SaaS service for a line of business, right? But that's truly where we get the maximum amount of data under value -- under management and deliver the maximum amount of value back to our customers.

Sanjit Singh

Thank you, Bob.

Rob Bearden

You're welcome. Thanks.

Operator

Your next question comes from Daniel Ives of Wedbush. Please go ahead, your line is open.

Daniel Ives

Yes. Thanks. So, when you're thinking about -- when you say over the next year, how much do you think in the success is going to be getting product out there, just more and more adoption of hybrid or private versus execution in terms of just partners, expand distribution and, obviously, on the direct side? How would you think about it from just getting product versus execution in terms of the success triggers?

Rob Bearden

Sure. So, what I would tell you is -- and I feel like I'm hiding a little figure. I don't mean to do that, but they're equally important. Ultimately, it comes down to execution. And that -- in terms of execution, that means that getting the product roadmap that we've defined, we're incredibly comfortable that our product vision and product roadmap strategy is the right one.

We've got enough correlation between our customers, partner and community that we're absolutely on track with the product roadmap. It's imperative that we execute and we deliver on that in an enterprise world-class way on the time lines that we've set for ourselves, right?

The other side of this is that it's incredibly important that we execute on our go-to-market function. And we just wrapped up our sales kickoff last week. And I will tell you, it was an all-time world-class sales kickoff delivered by our team led Scott Aronson. And our field sales organization is laser-focused on our go-to-market sales plays that we're focused on and how we create value, how we convert our customers generally over into the CDP platform. And we have very aggressive targets and the numbers that we're going to convert on the CDP this year.

And then the last part of it is truly executing on delivering that digital transformation that I mentioned is my second imperative, and that we make it very, very easy for our customers to consume our platform and that we digitally support them.

And the reason that's important is the efficiencies they get on their side as well as how it delivers the operating margins and the efficiency back into the company because we are dead set committed into the expanded operating margins that we've committed to, the topline growth and the cash flow generation.

Daniel Ives

Really insightful. Great quarter. Thanks.

Rob Bearden

Yes, thank you.

Operator

Your next question comes from Mark Murphy of JPMorgan. Please go ahead, your line is open.

Mark Murphy

Thank you. I will add my congrats. I was just curious what kind of steps did you take to conclude that the vast majority of transactions are tracking toward closure in Q1? For instance, did you try to go out and survey the customers with deals in-flight to make sure that they've kind of feel confident in it? Or is it just -- is it more an observation that they haven't kind of notified you of any type of a delay?

Rob Bearden

Yes, I'll take -- let me take the qualitative part, and I'll let Jim hit the quantitative part. So it is with granular inspection that our team is -- we obviously understand there's a very significant macro that's operating around CD-19.

So, we are granularly inspecting our business across the board and preparing for a series of business continuity date that we're very focused on, obviously, of which is the revenue and operating margin side. And the team has done a very, very nice job of granularly reviewing, bottom up, the transactions that we have in flight, where they need to be at this time of the quarter and any gaps that we think could be created based on macro. And based on the returns of those inspections, we're very comfortable with the guidance we've given. So, Jim, if you could add to that.

Jim Frankola

Yes. Yes. Just very specifically, we -- we run a weekly forecast process. In addition, as you'd expect for probably most of the past 10 days, we poked at those numbers. And at this point, what the field is saying is the deals that they have in for Q1 are still Q1 deals. In the field, they still need to figure out how they're going to close those deals. In many cases, they'll have to do it remotely, things that they haven't done before.

But at this point, the deals are still tracking to be closed in Q1. So, to the greatest of our ability to test, Q1 looks solid at this point. Obviously, if the world changes over the next few weeks, more than it does at this point, things may change. But so far, so good.

Mark Murphy

Okay, great. And also as a follow-up, how would you approach, let's say, an on-premise deployment or on-premise integration work if the professional services teams are, in fact, working remotely? Is that something that they're able to do reasonably well? Can they kind of tunnel into the customers' on-premise environment?

Jim Frankola

Yes, this is Jim again. It's interesting. Two weeks ago, I'll be blunt, Asia was first impacted, we were getting the greatest amount of risk in terms of service delivery in Asia. As of now, because customers want their businesses to keep on going, in many cases, they're figuring out how to work remotely. And yes, tunnel into their VPN; somehow get them laptops that are certified on their network.

And it really is progressing region by region, industry by industry on the willingness to allow vendors to work remotely. So, this is something that we're all going through for the first time. To the extent that we see risk in our services number in Q1, we reflected it. And it's our best estimate based on what we're seeing happening around the world as of this moment.

Mark Murphy

Okay, great. Just as a final one, Jim. The -- you provided a set of revised ARR numbers in the PowerPoint. Is that -- at this point, should we be looking at that as a final set of ARR numbers that we can preserve for a while? And just on the topic of ARR, was there any thought of providing ARR guidance on the fiscal year?

Jim Frankola

Yes. So, yes, the numbers that you have are final. To the extent that we make any definitional changes in ARR, it will only be once a year. And I think now that we're 1 year post merger, future changes will be zero to minimal.

Regarding ARR guidance for the year, for the next foreseeable future, let's call it, quarter or 2, given the economic environment that we are in right now, we think ARR growth will be roughly 10%. For the second half of the year, it's really hard for us to point a number out right now, given that the extent of the product transition that we're going through as well as the uncertainty, given the coronavirus and the macroeconomic effects. So, 10% for the next few quarters. The back half of the year, too hard to call at this point.

Mark Murphy

Thank you very much.

Operator

Your next question comes from Michael Turits of Raymond James. Please go ahead, your line is open.

Michael Turits

Hey guys. Follow-up again on remote. Historically, you've put a lot of both sales and sales support into helping customers expand. So, is that not a particular challenge, again, working remotely as not just PS itself, but sales and sales engineering necessary to drive expand?

Rob Bearden

Sure. So, in an ideal world, of course, you're on-prem. But I think, again, it goes back to the nature of the target environment that we're going into. And this is largely a customer base that we've engaged with deeply for, in most cases, many years, certainly, many quarters. And so there's a great working relationship between our field and the targets on the customer side and if we understand what the use cases and expand opportunities are.

And in many of those cases, especially going into this year, we've identified what those are with many of our customers. We have an operating cadence in place in which that expansion can occur. And those things again, not in a perfected world, are done virtually. But given the nature of most of the majority of our relationships, absolutely in the short-term, can continue forward within a virtual environment, okay?

The other side of that is that CDP makes it much easier to do this than the traditional on-prem environments. And the vast majority of our customers have been briefed on CDP. They have a cadence on how they're going to get their evolutionary, and those are the kind of things that we can do remotely, both in terms of guidance as well in a lot of cases, actually from professional services effort as well.

Jim Frankola

Yes. Let me chime in. Michael, one second. I mean to be clear; we're not saying that we're immune to the effects of the coronavirus. If the world shuts down for the rest of the year, and no one has allowed to go on premises, we'll certainly be affected just like everyone else.

One of the things that we're signaling though is, we think, given our business model, our focus on expanding customers; we're in a slightly better position than many other enterprise software companies. So, as you're thinking about our guidance and how to factor it into your model, once again, we're not immune, but I think we're relatively well positioned.

Michael Turits

And then, Jim, my follow-up for you was, if I do some quick modeling, if we pull up the $55 million and merger-related this year, it seems to get to your numbers, you need pretty much flat OpEx, that's even assuming some gross margin expansion on mix shift. Is that realistic, given the amount that you're -- where you are in terms of both the go-to-market and the product cycles?

Jim Frankola

Yes, it is. So, as you heard, we had a lot of merger-related synergies accrued to us in FY 2020. In many cases, that was just a partial year benefit, and we'll get the full year benefit in fiscal year 2021. With that said, there's further opportunities for us to become efficient. We've talked about building global centers of excellence for our back-office processes, real estate consolidation.

We've looked at some of the investments historically we've made in the field and are shifting from lower to higher ROI investments. All those will accrue over the pace of next year, driving significant improvements in margins and expense ratios, even above beyond what you're seeing in Q4 of fiscal 2020.

Michael Turits

Okay. Thanks Jim, thanks Rob.

Rob Bearden

Sure. Thank you.

Jim Frankola

Thanks Michael.

Operator

Your next question comes from Pat Walravens of JMP Securities. Please go ahead, your line is open. Please go ahead, your line is open.

Unidentified Analyst

This is Matt for Pat. Thank you so much for taking my question. Rob, I want to ask, how would you say the CDP product cycle is similar to what MongoDB have with Atlas? How would you say it is different?

Rob Bearden

Okay. I think there's -- we are in -- we've certainly followed the Atlas cycle. And I think Atlas made sort of a big bet that they had to transition completely to the cloud and almost a student body ride, if you will, of moving everything in wholesale to cloud.

I think we're in a different position, given the type of data and architectural enablement that our customers are trying to ship to. Where they're going to be trying to drive to the application transaction, we are enabling a hybrid data architecture that encompasses the Edge, a private cloud, an on-prem environment and multi public clouds. So, that's a much bigger data set and a much broader platform offering than the Mongo environment.

What you saw from their environment was about 4% of their customer and revenue stream in the first year or so began to transition over to the cloud. And from our initial modeling, that's probably not outside the norm for us and how we think about the transformation of our customers to the new CDP architecture. And so we see a lot of similarities in that evolution of customer base and even revenue streams.

But from our standpoint, our customers will continue to leverage the on-prem tier, whether it be data center or private cloud but also expand that to -- but multiple public clouds as well as the Edge. And what that does is it opens up a bigger opportunity for us because those are spaces and workloads that we actually didn't have an opportunity to monetize in just our on-prem environment.

Jim Frankola

And just let me add a little bit of color. So when Mongo, I think, was at 4% of revenue after about five quarters, and they were a much smaller company back then than they are now or what we are now. So, for us to get to 4% of revenue in that same time period would be phenomenal success. We do look at that sort of model in terms of the absolute amount of revenue growth that they've achieved and say that's a pattern we'd like to get to. So, I just want to make sure that no one is penciling in 4% for Q4.

Unidentified Analyst

Thanks so much.

Operator

Your next question comes from Jack Andrews of Needham. Please go ahead, your line is open.

Jack Andrews

Good afternoon. Thanks for taking my questions. I had a question for perhaps Rob or Nick. I was wondering, just given your enterprise data cloud strategy, I mean, this is so broad in visionary. So, in thinking about your conversations with current and prospective customers, how do customers grapple with untangling, I guess I'll call it the spaghetti of vendors that they're currently dealing with? I mean they currently have a myriad of different technology solutions that encompass different parts of what CDP is offering.

So, how do they -- how do you advise them to kind of deal with the fact that different contracts are running and expiring at different times to sort of resolve this spaghetti in order to embrace and move towards CDP over time?

Rob Bearden

So, what the customers are really trying to accomplish -- again, it goes back to -- in that enterprise data cloud environment, you want to have the ability to manage the entire life cycle of data from the point of origination all the way through an AI experience and be able to do that, whether it be in a public cloud, a private environment. But ultimately, they're trying to get to a hybrid multi-cloud environment.

But the key is that they have the ability then to secure and govern that entire life cycle and experiences across a single pane of glass, a consistent and predictable security and governance model that ensures that they stay in compliance with all the regulatory environments that they're having to deal with, all their corporate IT governance models and security requirements versus bringing together very disparate point SaaS environments or on-prem or cloud environments that have very, very fractured security and governments and compliance boundaries.

And CDP and SDX solve for that in an enterprise way that eliminates these silos of environments, whether they be on-prem or point SaaS environments. And then the real benefit is that we then deliver those functional experiences, whether it be a streaming capability, whether it be a data warehouse functionality set, whether it be AI, machine learning or an operational data store. And so this really eliminates that shadow IT environment that the line of business is commit or create when they spin at these point SaaS solution sets.

Jack Andrews

Got it. I appreciate your perspective, and congratulations on the results.

Rob Bearden

Thank you.

Jim Frankola

Thanks Jack.

Operator

Your last question comes from Brad Reback of Stifel. Please go ahead, your line is open.

Brad Reback

Great. Thanks very much. Two quick ones. Rob, as you move to more of a consumption model with CDP, should we expect any cash flow impact from that?

Rob Bearden

So, I'm going to turn that over to Jim.

Jim Frankola

Yes, I'll take that one. Not in fiscal year 2021. CDP will be just starting up, and its impact on our overall billings duration will be modest. I think, over time, it will have a slight impact to cash flow but not significantly, given the mix of business.

Brad Reback

Got it, okay. And then real quickly, Jim, from a high level, can you remind us what your vertical exposure is, especially as it relates to things like financial, energy and hospitality?

Jim Frankola

Yes. So, financial services is our top vertical. It runs around 25% to 30% of our business. Government, health care, tech, they each then run about 10%, then telecom, yes. So, we have the one big vertical, financial services. And then there's this next four all run roughly 10%--

Brad Reback

Great. Thanks very much.

Jim Frankola

You're welcome Brad.

Operator

There are no further questions at the time. I will turn the call over to Rob Bearden for closing remarks.

Rob Bearden

Okay, great. All right. I'd like to thank everybody for joining us on the call. And I appreciate very much your questions. We'll say goodbye now. And operator, we'll conclude the call.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.