Cloudera’s first quarter since merger has unpleasant surprises, but CEO is upbeat

Cloudera Inc. had some unpleasant surprises for investors in the first quarterly results since its merger with rival Hortonworks Inc., but its chief executive said that the melding of the two cloud-software-application companies was going better and faster than he had expected.

In October, Cloudera CLDR, +1.74% unveiled an all-stock deal valued at about $5.2 billion to merge with Hortonworks, which was completed in January. But in a conference call to discuss its earnings Wednesday, the company said that it had a one-time purchase-price adjustment from the deal that would reduce its fiscal 2020 GAAP revenue by $62 million. The company also forecast larger losses than expected, sending its shares down 14% in after-hours trading.

Executives also told analysts on the call that the merged company would be using Cloudera’s pre-merger billing practices, which would “reduce billings and cash flow by approximately $125 million in fiscal year 2020.” Cloudera Chief Financial Officer Jim Frankola told analysts and investors that the best measure of the company’s growth was to look at its annual recurring revenue (ARR), which shows deals that are being renewed on a subscription basis.

“ARR removes the effects of accounting changes, billings durations and licensing convention, and it’s a better representation of the period’s underlying economic activity,” Frankola said.

In an interview after the call, Cloudera CEO Tom Reilly told MarketWatch that its ARR metric was better to show the “underlying health” of the company, compared with revenue and GAAP earnings.

Reilly said the merger with Hortonworks was going well, and that the companies had completed their product road-map analysis and engineers had made decisions about which company’s products to keep and which ones to jettison, without his intervening. “I had anticipated it would be a bad bloodbath,” he said, adding that he never had to weigh in. “The engineers all reached agreement in a matter of weeks . . . I am very excited at the pace our merger is moving at.”

But investors are not quite as ebullient. The first year of the merged company looks like it’s going to be an adjustment period, all around.

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