Notes on the Hortonworks IPO S-1 filing
Given my stock research experience, perhaps I should post about Hortonworks’ initial public offering S-1 filing. 🙂 For starters, let me say:
- Hortonworks’ subscription revenues for the 9 months ended last September 30 appear to be:
- $11.7 million from everybody but Microsoft, …
- … plus $7.5 million from Microsoft, …
- … for a total of $19.2 million.
- Hortonworks states subscription customer counts (as per Page 55 this includes multiple “customers” within the same organization) of:
- 2 on April 30, 2012.
- 9 on December 31, 2012.
- 25 on April 30, 2013.
- 54 on September 30, 2013.
- 95 on December 31, 2013.
- 233 on September 30, 2014.
- Per Page 70, Hortonworks’ total September 30, 2014 customer count was 292, including professional services customers.
- Non-Microsoft subscription revenue in the quarter ended September 30, 2014 seems to have been $5.6 million, or $22.5 million annualized. This suggests Hortonworks’ average subscription revenue per non-Microsoft customer is a little over $100K/year.
- This IPO looks to be a sharply “down round” vs. Hortonworks’ Series D financing earlier this year.
- In March and June, 2014, Hortonworks sold stock that subsequently was converted into 1/2 a Hortonworks share each at $12.1871 per share.
- The tentative top of the offering’s price range is $14/share.
- That’s also slightly down from the Series C price in mid-2013.
And, perhaps of interest only to me — there are approximately 50 references to YARN in the Hortonworks S-1, but only 1 mention of Tez.
Overall, the Hortonworks S-1 is about 180 pages long, and — as is typical — most of it is boilerplate, minutiae or drivel. As is also typical, two of the most informative sections of the Hortonworks S-1 are:
- The section called Management’s Discussion and Analysis.
- The footnotes to the numbers, starting a couple of pages in.
The clearest financial statements in the Hortonworks S-1 are probably the quarterly figures on Page 62, along with the tables on Pages F3, F4, and F7.
Special difficulties in interpreting Hortonworks’ numbers include:
- A large fraction of revenue has come from a few large customers, most notably Microsoft. Details about those revenues are further confused by:
- Difficulty in some cases getting a fix on the subscription/professional services split. (It does seem clear that Microsoft revenues are 100% subscription.)
- Some revenue deductions associated with stock deals, called “contra-revenue”.
- Hortonworks changed the end of its fiscal year from April to December, leading to comparisons of a couple of eight-month periods.
- There was a $6 million lawsuit settlement (some kind of employee poaching/trade secrets case), discussed on Page F-21.
- There is some counter-intuitive treatment of Windows-related development (cost of revenue rather than R&D).
One weirdness is that cost of professional services revenue far exceeds 100% of such revenue in every period Hortonworks reports. Hortonworks suggests that this is because:
- Professional services revenue is commonly bundled with support contracts.
- Such revenue is recognized ratably over the life of the contract, as opposed to a more natural policy of recognizing professional services revenue when the services are actually performed.
I’m struggling to come up with a benign explanation for this.
In the interest of space, I won’t quote Hortonworks’ S-1 verbatim; instead, I’ll just note where some of the more specifically informative parts may be found.
- Page 53 describes Hortonworks’ typical sales cycles (they’re long).
- Page 54 says the average customer has increased subscription payments 25% year over year, but emphasize that the sample size is too small to be reliable.
- Pages 55-63 have a lot of revenue and expense breakdowns.
- Deferred revenue numbers (which are a proxy for billings and thus signed contracts) are on Page 65.
- Pages II 2-3 list all (I think) Hortonworks financings in a concise manner.
And finally, Hortonworks’ dealings with its largest customers and strategic partners are cited in a number of places. In particular:
- Pages 52-3 cover dealings with Yahoo, Teradata, Microsoft, and AT&T.
- Pages 82-3 discusses OEM revenue from Hewlett-Packard, Red Hat, and Teradata, none of which amounts to very much.
- Page 109 covers the Teradata agreement. It seems that there’s less going on than originally envisioned, in that Teradata made a nonrefundable prepayment far greater than turns out to have been necessary for subsequent work actually done. That could produce a sudden revenue spike or else positive revenue restatement as of February, 2015.
- Page F-10 has a table showing revenue from Hortonworks’ biggest customers (Company A is Microsoft and Company B is Yahoo).
- Pages F37-38 further cover Hortonworks’ relationships with Yahoo, Teradata and AT&T.
Correction notice: Some of the page numbers in this post were originally wrong, surely because Hortonworks posted an original and amended version of this filing, and I got the two documents mixed up. A huge Thank You goes to Merv Adrian for calling my attention to this, and I think I’ve now fixed them. I apologize for the errors!
Related links
- Hortonworks business notes, not all of which turn out in retrospect to have been wholly accurate (August, 2013)
- Spark vs. Tez (October, 2014)
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8 Responses to “Notes on the Hortonworks IPO S-1 filing”
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[…] used a figure of ~75 subscription customers. Edit: That figure turns out in retrospect to have been inflated. This does not include OEM sales through, for example, Teradata, Microsoft Azure, or Rackspace. […]
I would be interested in your analysis of ratio of revenue to losses, based on other enterprise software IPOs in this sector.
Chris,
I don’t think such a figure would be particularly meaningful. All else being equal, losses have a lot to do with growth rate and the length of time it takes a salesperson to first become productive, because those two things have a large influence on the extent to which one spends ahead of revenues.
Of course, it also has a great amount to do with perpetual license vs. subscription pricing.
Finally, as noted above, Hortonworks’ revenue is anomalous in at least two ways — the large amount of subscription revenue from business partners, and the shadow over the large professional services component.
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