Cirata plc (CRTA) Earnings Call Transcript & Summary

Hi, everyone. This is David Richards. I'm the CEO and Co-Founder of WANdisco. With me today, we've also got Erik Miller, our CFO; and Daud Khan, our VP of Corporate Development, who you'll hear from later. This is the first half 2020 results and outlook. So today, we're going to go through the strategic highlights. I'm sure that many of you will have seen the announcement we made with Amazon this morning, for example. Let me go through our cloud data migration strategy in the total addressable market; the launch of LiveData Migrator that went GA today; the progress that we've made with the LiveData platform for -- with Microsoft Azure; some case studies related to cloud migrations; the first half financial highlights you'll hear from Erik; and then outlook you'll hear from Daud. So in terms of highlights, we've made significant progress in deepening our relationships with cloud partners, in particular, AWS, Amazon Web Services, and Azure -- Microsoft Azure. And that was our primary strategic goal. So we fortified the Microsoft relationship with limited public preview of the WANdisco LiveData Platform for Azure, and we're imminently expecting to go into open preview. That should happen early October. The launch of LiveData Migrator on the AWS platform we announced today, including a customer, which you'll hear from later with GoDaddy, and we're very pleased with the progress that we've made there. That was one of the objectives that we laid out several months ago. We've also secured a reseller agreement with a large global systems integrator to support the growth on all of our major cloud platforms. We've also got a strong balance sheet that provides a platform to accelerate the conversion of this cloud opportunity ahead of us. So let's look at LiveData Migrator first. We think this product is very important because this is the year of cloud migration. A number of companies have to move to cloud. We've discussed this before. But the major drivers for this isn't just storage, it's really the ability to run new algorithms like artificial intelligence, machine learning that demand a lot of compute power that can only really happen in the cloud. So that's really a significant driver -- dramatic driver for the adoption of cloud in an enterprise. One of the problems of doing that, and I'll get into this a little later, is the data migration gap. It's how you migrate petabytes of business-critical and actively changing customer data without causing business disruption and minimizing the time, costs, risks associated with legacy migration approaches. And when we look at how WANdisco is positioned in the market, many people say, well, it seems like a pretty easy thing to do, just moving data and premises to cloud. If it's archival data, if it's static data, might be a lot of data, but not a lot of changes, then people do use physical devices that can work, although we have seen instances actually where even those fail as well. But they can work. So for the low transactional data sets, then, yes, that is true. There are alternatives. But when you have a lot of data and a lot of changes to that data, which is a significant TAM, which we'll discuss later, then there really is only 1 solution to this problem. And this is why the major cloud vendors are adopting, embedding, strategically partnering with WANdisco as the only solution to this problem. So LiveData Migrator. One of the questions I used to get asked is, well, if this is such an important concept, why don't WANdisco have hundreds, if not thousands of new customers that you're announcing them all the time? And one of the big blockers and barriers to that was actually the ability to deploy the product in a self-service mode; the ability for customers to simply download, install and begin migration straight away. That is exactly what LiveData Migrator does for us. It's a very simple deployment. You can begin migrations immediately. There is 0 changes to applications. I don't need to have any special knowledge of the way that my data lake Hadoop, for example, works. That means that this is completely self. So in the announcement we made today with GoDaddy, they implemented the product and used it by themselves without any changes to their underlying system. We're able to migrate live data that's under change. And if you imagine a business like GoDaddy, that an entire business really operates on top of storage and ever-changing storage, they can't press pause even for an hour in order to move data. That would have a significant impact on their overall business. And many, many, many businesses have this exact problem. This is the problem that WANdisco solves, as I mentioned earlier, this live data gap, the ability to move data without any business disruption and continuously migrate the data from on-premises to the cloud. It's also highly scalable. The -- in the GoDaddy instance, for example, that's a multi-petabyte Hadoop cluster. It was very difficult to move on-premises to cloud. So when we talk about the total addressable market, we modeled this initially at 4 to 6 exabytes of data. That's $1 billion to $1.5 billion annual total addressable market. Microsoft estimated this to be 200 to 300 exabytes of on-premise analytical data based on the market for hardware. So for every $1 that is spent on WANdisco, at least $5 to $10 spent under the cloud services by a customer. So that is a significant incentive for cloud vendors to use WANdisco to migrate data on-premises, transactional data on-premises to the cloud. And the only way that we could really take advantage of this is by becoming part of the cloud fabric, actually becoming a cloud service to take advantage of this opportunity. And we now have cloud services available with both Microsoft Azure and Amazon Web Services. So as I mentioned earlier, we've now launched with Amazon Web Services in addition to Microsoft Azure, and many of you have asked questions in the past about our ability to support other cloud vendors. That's exactly what just happened this morning. So we achieved something called competency, which is very important, and there's a definition down here. The AWS Competency program is designed to identify, validate and promote the AWS partner network, Advanced and Premier Tier partners with demonstrated AWS technical expertise and proven customer success. APN Partners are vetted, validated and verified against the high bar to achieve AWS Competency designation. That means that AWS recommend this solution to their customers and promote this solution to their customers. So we're the first ISV to achieve this competency status in migration and the first technology partner to actually achieve this for data lake migration. So you can see here the quote from Sabina Johnson (sic) [Sabina Joseph] that highlights just how important this is to Microsoft -- to Amazon's, excuse me, Amazon's overall strategy. And we also launched with a customer, which was GoDaddy. And what was really interesting about this, this wasn't a customer that came to WANdisco. This also wasn't a customer that WANdisco went and sourced. This was an Amazon customer when Amazon brought this customer to WANdisco. So they, as I mentioned earlier, 24/7 operation, an 800-node cluster and a peak load of 100,000 file events per second. That's 100,000 transactions per second and really good luck using any other technology in order to migrate a cluster that's busy on-premises to cloud, and there are many, many of these clusters, by the way. And over sustained periods, they have at least 3,000 file events per second. But picking 100,000 file events per second is enormous. Obviously, that's kind of every single cursor movement almost on the screen from all of that customers at the same time. And again, Wayne Peacock, their Chief Data & Analytics Officer, highlights the importance of this being the only technology that could -- that was able to migrate a cluster of this size of magnitude from on-premises to the cloud. So a quick update on the great progress we're making with Azure. We're now, as I mentioned, a new core Azure service. So if you go into the Azure portal, you look at the drop-down menus for data lake migration, on-premises to cloud, then there is one solution that's part of the portal experience, and that is WANdisco's technology. And this is the birth of Live Data as a Service. This is a core service. This isn't an exogenous marketplace service. This is built very deeply into Microsoft Azure such that it looks, feels and is supported just like any other Microsoft product. We're the first ISV to -- ever to create a native service on Azure. And this is a combination of significant joint investment and engineering efforts and hundreds of people involved in this process over the past 12-plus months. We're now -- and we will be fully integrated into the Azure portal with a similar experience, as I mentioned, to other native services. LiveData Migrator for Azure and LiveData Plane for Azure are the first applications, and we expect many more because this, remember, is embedding a platform into the cloud. Platform can support many different applications. So de facto standard for data movement on-premises against cloud. As I mentioned, this is native integration between WANdisco and Azure. It's a heavily simplified deployment. This is a turnkey experience. Again, a deployment that can happen in seconds, not over several days or even weeks. All of the billing is taken care of by Microsoft through the Microsoft Azure existing billing experience that a customer has with Microsoft. They're really just buying this product as they would any other Microsoft product or service. And again, all the benefits that you get from WANdisco, zero downtime during migration, zero data loss and 100% data consistency, the exact same experience that GoDaddy just experienced on AWS, you get the same experience between AWS and Microsoft Azure now. So a little bit about the customer experience. All the customer does -- needs to do now is go to the portal, download the product, they get a turnkey experience in terms of deploying that product. And this is a freemium model. So the first 25 terabytes are always free. That used to seem like a lot of data, but it really isn't the grand scheme of things associated with our total addressable market. And that [indiscernible] bottom of the market that really isn't that interesting for us. And then the minute that they pass through 25 terabytes, then metered pay as you go, billing is invoked and the customer then continues to pay on a pay-as-you-go basis. Post migration, they can either leave this as a unidirectional, IAI can make changes on-premise, but I can't make changes in the cloud. Or in order to make changes both an active-active implementation where it can make changes, both in the cloud and on-premise, then LiveData Plane, which was formally known as WANdisco Fusion, would be implemented. And again, that is another license and another billing mode that we take the customer through. What's next? What else is on the product road map? Well, we have quite a few things that we're working on with both Microsoft and AWS now. We call this the Last Mile. So focused on moving the data, but what about the applications and making that data, sort of, oven-ready for the movement of the data, so that the applications can be immediately turned on? HD Insights, Azure Databricks products that we already support. We're also looking at Synapse, which is a Microsoft product. Event hub, an ADF Azure Data Factory. And we have others as well that we're now looking at very closely with AWS. So this Last Mile or the application implementation, if you will, certainly things that are on the product road map for WANdisco. So why is this so important for the whole ecosystem? So for example, from an Azure or now AWS seller, this is the fastest time to value. It accelerates Azure Consumed Revenue for committed customers. So we don't have to go and find hundreds and hundreds of customers. They're already there. They're already -- already have commit to consume with Microsoft Azure, and this enables ACR by solving the data gravity problem with a native Azure customer experience, which gives them predictable payment cost metrics associated with any data migration. For Global SIs, this is the fastest time to value. It automates and derisks the large scale data lake migrations, so that they can focus their time and effort on the applications and the value-added services that they can provide. And for other platform services, as I mentioned earlier, like Synapse, for example, or Databricks, it also accelerates the opportunity for the entire ecosystem with a predictable time and cost. Essentially, what we're saying here is none of these things really work unless the data is there. And moving transactional data, as I mentioned earlier, is a really difficult problem, and that is the problem that WANdisco solves. That's why there is so much interest from these vendors in WANdisco. As you can see, Tad Brockway, the Corporate Vice President of Microsoft Azure, quoted here talking about the importance of the WANdisco LiveData Migrator and LiveData Plane are the first offerings that are going to be available on their platform. And as I mentioned, we're looking to launch this in an open preview when billing starts early October -- first week of October. A quote here from the Vice President of Data & Analytics at Infosys, again demonstrating the importance of this technology in their business associated with the cloud adoption and IT modernization projects. So a few case studies. A premier roaster and retail specialist did a very large migration from ADLS Gen1 to ADLS Gen2. That's the Azure data lake storage technology. Another one that I'd like to point to is an airline, a digital transformation even in the middle of COVID where they had to move a Hadoop instance into ADLS Gen2 and Databricks over 400 terabytes of data, that's gone very well, so that they can reimplement their pricing models as we come out of COVID. And a French multinational insurance company, migrating data from Cloudera, and we're going to see this continue a Cloudera environment on-premise to Microsoft Azure. The initial project is 200 terabytes, but that will lift over 1 petabyte of data in the coming weeks. So financial highlights, I'll hand over to Erik for this.

Great. Thank you, David. Just looking at the comparison year-over-year from H1 to H1, $3.6 million versus $6 million. And fundamental reason for that is concentrating on the Microsoft and Azure opportunity, both with sales to build pipeline and also with engineering to not get distracted on minor tweaks for peripheral customers. Cash overheads of $17.9 million. That's reflecting our investment in go-to-market resources and engineering. And we have a strong cash balance of almost $34 million at the end of H1. So that was well-positioned for us to capitalize on our opportunity. As I said, focus on Microsoft and AWS. Cost of sales is off slightly varies with revenue. This is, again, to remind everybody, it's a high gross margin business. It's essentially 95%, 100% gross margin based upon software. You can see that the headcount increased modestly to 174 over the period. Cash overheads of $17.9 million. We're tracking to the year of around about $38 million, $38.5 million for the entire year. And to remember that as the revenues kick in from Microsoft and AWS, the amount of cost in the business will rise modestly, but nowhere near in proportion to that of with the increase in revenue. So we'll see a drop in percentage and increased profitability, as we move through that based upon -- being part of the cloud fabric. Cash overheads were increased a little bit, as we discussed, pre-capitalization. The interesting part of capitalized portion of R&D, as you can see, the increased investment in engineering. It was more engineering works going on, more stuff to capitalize. And that increased the loss from EBITDA with those expenses and a little bit of -- in the reduction in revenue. Moving on to the cash flow. The salient point here to look at is the placing we did in June. That's well-positioned the company for growth, leading us with $34 million in cash at the end of the period. And then turning to the balance sheet. The salient thing here, obviously, is the cash balance and basically very little debt on the balance sheet. To remind everybody, in 2019, the whole world adopted IFRS 16, which puts leases on the balance sheet that were -- previously were classified as operating leases. So the increase in the -- on the debt side from prior years was merely the increase from the capitalization of previously expensed as you go operating leases. And I think with that, I'll turn it back over to David.

Thanks, Erik. So we're going to talk about the new KPIs for 2021. I'm going to hand over to Daud Khan, who's going to cover this. I think you're muted, Daud.

Thanks, David. So as we as a business, WANdisco pivots the business as we go into Q4 with the sort of dual effect of the launch of the native Azure service in the first week of October as well as the availability of the LiveData Migrator on AWS. The metrics by which we measure our own success is changing. And therefore, the way that we want to present our KPIs to help investors understand the progress in the business will also change. So as we enter into sort of 2021, what we want to provide, and this is an example of the type of KPIs, and there may be more to this, as we move forward. But as a core and to help investors understand how the progression of the business will work and how we can model the business going forward, the numbers of customers that we're winning, it's important to understand sort of the cadence of customer wins versus our kind of historic sort of subscription license business when we weren't embedded in Azure, we didn't have LiveData Migrator, and also, secondly, the amount of data that we are kind of moving per customer. Within the Azure network, we expect that to be maybe on the average being slightly higher than it is in AWS, partly because of the way that Azure will promote the service to its largest customers. What's important from a migration stage into a kind of a hybrid cloud stage or multi-cloud stage is the attach rate. I think we'll be reflecting on that in the model. I think our assumption within our guidance is around 80%. And then also, ultimately, how much of our business is metered SaaS revenue versus our historic subscription revenue, which will create that predictability that we can really kind of hang our hats on and that we can build upon year upon year. I'll let David -- hand over to David for the outlook section itself.

So thanks, Daud. In looking at outlook, obviously, the launch of the new Azure service, combined with the launch of LiveData Migrator on AWS, as we announced today, is another strong platform for growth. In Q4 FY 2020, we will see an acceleration of customer wins on both Azure and AWS, as these products are now -- as these products become available and as these products are available. So with metered billing through the Azure platform becoming available soon, as I mentioned, first week of October, a number of customers have chosen to wait for launch, which impacts the amount of revenue recognized in 2020 versus our traditional subscription model. And we now expect FY '20 revenues to be lower than current market estimates, with Q4 being the largest revenue quarter. So we should expect to see an acceleration in the fourth quarter. And then looking into 2021, based on migrating just 100 petabytes of data on Azure, which should represent somewhere between 50, 60, 70 customers and 30 petabytes of data on AWS, which should be 15 to 20 customers in 2021, we believe that revenues in 2021 will be at least $35 million. And of course, if that number of customer wins exceeds our expectation, then revenues could be materially higher. And I'll close there, and I'll hand over to Daud, who will be handling Q&A.

Yes. So that ends the kind of formal presentation. [Audio Gap]