Q3 2020 Earnings Call
Good afternoon, and welcome to the Mongodb third quarter fiscal 2020 earnings conference call.
All participants will be in listen only mode.
Should you need assistance. Please ignore conference specialist by pressing must go to the Starkey followed by zero.
After today's presentation, there will be an opportunity to ask questions.
Please note this event is being recorded.
I would now like to turn the conference over to Brian Denyeau, Oh I see our please go ahead.
Thank you Andrea good afternoon. Thank you for joining us today to review Mongodb its third quarter fiscal 2020 financial results, which we announced our press release issued after the close in market today.
On the call today, or David <unk>, Chairman, President and CEO of Mongodb, and Michael Gordon Mongodb, COO and CFO .
During this call we may make statements related to our business that are forward looking under federal Securities laws.
These statements are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Looking statements related to our financial guidance for the fourth quarter and full year fiscal 2020, our market opportunity and our ability to capture a meaningful share of the global data they suffer worker.
The opportunity created by and scalability of our go to market growth strategies.
The potential advantages crime man likelihood of success of our new products <unk>.
<unk> enhancements and planned integration, including as a result of our recent acquisition of well.
Yeah, that's been the impact of Atlas sales expansion on the gross margins and other financial results and participated investments in the business and their impact on future cash flows.
The words anticipate continue estimate expect intend to will and similar expressions are intended to identify forward looking statements or similar indications or future expectations.
These statements reflect our views only as of today and should not be reconstruted, representing our views of any subsequent date.
We did not have plans to update these statements except as required by law.
These statements are subject to a variety of risks and uncertainty is it cause actual results to differ materially from expectations.
For a discussion that mature risks and other important factors that could affect our actual results. Please refer to those our quarterly report on Form 10-Q filed with the FCC September Fiveth 2019, and our other periodic filings with the FCC.
These documents are available on the Investor Relations section of our website at Www Dot Mongodb Dot com.
A replay of this call will also be available there for a limited time.
Additionally, nongaap financial measures will be discussed on this conference call.
Please refer to tables in our earnings release on the Investor worsening portion of our web site for a reconciliation of these measures to their most directly comparable GAAP financial measure.
With that I'd like to talk turn the call over to death.
Thanks, Brian and thanks to everyone for joining us today to review our third quarter results.
Well, let me be continued to deliver it's really terrific financial and operational results. The further and further strengthen our position as the most popular modern data platform in the World [noise].
Our performance is driven by the unique capabilities of our technology and I go to market strategy that enables customers of all sizes to consume mongodb, how they see fit.
We are in the early stages of a once in a generation shift and database technology and we remain confident in our ability to capture a meaningful share of the 64 billion global data they suffer market.
Looking quickly at a third quarter financial results, we generated revenue of 109.4 million, a 52% year over year increase and above the high end of our guidance.
We grew subscription revenue, 56% year over year Atlas revenue grew more than hundred 85% year over year and now represents 40% of revenue.
And we had another strong quarter of customer growth ending the quarter with over 15900 customers.
This was another outstanding quarter for Atlas, which is now 175 million revenue run rate business just over three years from launch, but that's only the tip of the iceberg.
This is driving change across our entire business as we increasingly become a cloud first company I would like to showcase three ways in which Atlas is making us or better company.
As a business shifts towards the cloud we are able to increase our pace of innovation with new products features and capabilities.
Bouts services give us better insight into how customers use our products and cloud services enable us to expand the different ways to go to market, increasing our ability to pursue a larger by your customers around the world All three together create a flywheel effect for our business.
First since we deliver mongodb, yet as the cloud service through Atlas, we can deploy new features continuously rather than on an annual release cadence of an on premise product.
Furthermore, since new products are initially built for the cloud our product seems kind of worked quickly and independently sure did this new products and features increasing the pace of innovation and providing more value to customers more quickly.
A great example of our continuous innovation at the recent introduction of auto scaling on Atlas, which we announced in September . This feature brings automated capacity management to Atlas what enable Atlas will now track T. resource utilization metrics in real time, and autonomously adjust instant sizes up or down as needed by using predictive modeling and proven match.
And practices developed from matching tens of thousands of Mongodb deployments.
This feature Atlas not efficiently and elastic lease scales to customers appointment to match the business needs without the need for manually intensive monitoring analysis and intervention.
Early customer feedback provides a great validation for this feature and the future L. influence, how we introduced as Kimberly for private clouds.
Second.
Atlas, we also get granular visibility feature adoption user behavior. This continues and data driven feedback loop allows us to understand what features customers find most valuable where the product then they get stuck or where they're not taking advantage of all the capabilities available.
This enables us to iterative more often and more intelligently ensuring that our pro teams are focused on the most important opportunities.
The result, we can identify in real time ways, you can help customers optimizer, mongodb deployments with more timely and relevant assistance.
Capital, we realized that are Premier global financial institution was running an internal HR application without mission critical scalability and security features.
Which negatively impacted the application performance and created significant risk by proactively identifying these issues and sharing best practices, we developed a deep and trusted relationship with this large customer.
That's another example, so database usage metrics, such as increased Io throughput or turning on backup we can infer what an application is likely to go into production. These types of insights allow us to scale to engage with their customers a key moments when they are likely to increase the complexity and criticality of their mongodb deployments.
Moreover, when we learned a great deal from how beta customers interact with our new cloud products, including Atlas data Lake and full Tech search and we expect the same benefits will introduce future products such as the public data of the revamped realm product our confidence in the successful just roll out of these new products will only increase after learnings from beta customers.
We regularly incorporate these learnings into our enterprise advance relief improving the value of our on premise this product as well.
Consequently, we're looking to further invest in technology and data science to harness these types of signals to build even stronger relationships and find new properties to win more business. Ultimately this positive feedback cycle gives us greater confidence and the returns on the R&D investments and the durability of our customer relationships.
Finally, Atlas is broadening our reach into the global database market.
I'm going to be Mongodb is not only one of the most popular databases, but Atlas also enables customers anywhere in the world to use the U.S mongodb through our free tier and self service offerings.
There are startups or development teams and large organizations since Atlas is available on the three largest cloud providers outside of mainland China, you Ws Azure and GCP. It is the most widely available managed cloud database service in the world.
By having relationships with all three cloud providers, we benefit from access to their customers and geographic reach.
And we are seeing positive results with all three.
The third quarter was the first full quarter of our expanded partnership with GCP and we're encouraged by the number of deals closed and the level of pipeline activity.
As the latest example of our successful partnership strategy, we announced a new partnership with Alibaba cloud together, we have provided the first authorized mongodb as a service in mainland China partnering with the largest tech company in China extends our reach into one of the largest markets and software and validates the value of our IP and the strength of the S.
PL licensing model.
Thanks to these types of partnerships, we continue to propel mongodb as a leading data platform around the world.
I'd like to spend a few minutes reviewing some customer wins and interesting use cases from the third quarter.
We continue see an increasing wide array of customers choosing mongodb to run mission critical applications.
Axiata one of the leading telecom groups and Asia selected Mongodb Atlas and enterprise advanced power Axiata as digital thing keep Fintech application.
Comedy be was chosen for its flexibility and how cost effective it was compared to the company's legacy Oracle database.
Mongodb provides the high performance availability and scalability that the application needs to bring cashless convenience to the fingertips, both consumers and merchants throughout Malaysia.
The Washington Post has chosen Mongodb to provide mission critical support for its primary digital content management platform arc publishing more.
Mongodb enterprise advance serves as the backbone for its more than 750 million unique visitors a month and helps content teens power their businesses through innovation better customer experiences and store storytelling on an integrated suite of tools Mongodb gives them the flexibility to run both on premises and in the cloud.
Four square a location technology platform <unk> platform dedicated to powering business solutions and consumer products through deep understanding of location chose Mongodb Atlas to power all of its b to B enterprise location services. These services, we conclude tools for developers location analytics advertising targeting measurement and.
More I've been chosen by more than 50% of the Fortune 100 S. Four square completes his digital transformation Mongodb will continue scale with them in the cloud.
Hello, Williams Realty, one of the world's largest realistic franchises selected MSB Atlas as the core database deposits new game changing real estate mobile app.
The App gifts Keller Williams real estate brokers, a competitive advantage by using AI to reveal the most relevant information to potential buyers at the right time [noise].
Next scope is a next generation cloud security platform that helps customers manage evolving security needs driven by digital transformation.
They chose mongodb to provide security and scale they needed to expand internationally Mongodb gives netscout the critical data ingestion and visualization capabilities to provide unreal and rivaled visibility real time data and threat protection when accessing cloud services web sites and private applications.
To summarize mom Davies third quarter performance was strong across the board, we're executing well on our strategic priorities and believe we are well positioned to continue gaining share in the global database market.
Before transition to Michael I want to add that we're thrilled to welcome Frank This is or the co founder and former CEO cognizant to our board.
Frank scale cognizant from inception to a 16 billion global professional services company is experienced an insight in particular, a massively scaling a technology company.
Will be invaluable to us given our long term aspirations with that let me now turn the call over to Michael.
Thanks, Dave has mentioned we delivered another strong performance in the third quarter, both financially and operationally I'll begin with a detailed review of our third quarter results and then finished with our outlook for the fourth quarter and full fiscal year 2020.
First I'll start with our third quarter results total revenue in the quarter with $109.4 million up 52% year over year subscription revenue was $103.8 million up 56% year over year and professional services revenue was $5.6 million up 8% year over year.
Our performance in the quarter benefited from broad based strength from both Atlas and enterprise advance as well as positive demand trends in all major regions. We continue to benefit from an attractive combination of new logo additions and continued strength in upsell activity, which you believe positions us well going forward.
Rapid adoption of outlets continues to be the largest contributor to our growth.
Atlas grew over 185% in the quarter and now represents 40% of total revenue compared to 21% in the third quarter fiscal 2019, and 37% last quarter.
Lets his continued strong growth at an increasing scale reflects a strong product market fit and a clear market shift amongst <unk> customers of all sizes for the fully managed global database offer cloud database offering.
We are confident these positive market trends, coupled with the operational initiatives, Dave mentioned earlier contract continued strong growth in outlets for the foreseeable future.
During the third quarter, we grew our customer base by over 900 customers sequentially, bringing our total customer count over 15900, which is up from over 8300 into year ago period of our total customer count over 1900, our direct sales customers, which compares to over 1700 into Europe .
Oh period.
Growth in our total customer count is being driven in large part by Atlas, which had over 14200 customers at the end of the quarter compared to over 6200 in the year ago period just.
The sequential growth in total customers includes growth in our enterprise advanced customers as well as new Atlas customers <unk>.
An important to keep in mind that the growth in our Atlas customer count reflects new customers to Mongodb. In addition to existing enterprise advanced customers, adding incremental Atlas workloads.
We also continue to see healthy expansion from existing customers, which is a key component of our growth strategy. Our net air expansion rate in third quarter remained above 120% for the twentyth consecutive quarter.
We ended the quarter was 688 customers was at least a $100000 an air our annualized EMR, which is up from 490 in the year ago period.
Moving down the DNL I'll be discussing our results on a non-GAAP basis, unless otherwise noted.
Gross profit in the third quarter was $79.3 million, representing a gross margin of 72% compared to 72% last quarter and 77% in the year ago period.
As a reminder of the year ago period benefited from the larger license mix from multi year enterprise advanced transactions and the current period margin is impacted by the M. lab acquisition.
Overall, we're pleased with our gross margin performance, which reflects greater efficiency and scale in our Atlas business.
However, we continue to expect it we will see some modest reduction overall gross margin as Atlas continues to become a bigger portion of our revenue.
Our operating loss was $14.3 million or negative, 13% operating margin for the third quarter compared to a negative 11% margin in the year ago period.
Given the size, an early stage, where market opportunity and our demonstrated product market fit our primary focus will to be continued to be on investing into business.
Net loss in the third quarter was $14.6 million or 26 cents per share.
Based on 56.4 million weighted average shares outstanding.
This compares to a loss of 13 cents per share on 52.7 million shares outstanding in the year ago period.
Turning to the balance sheet and cash flow, we ended the quarter with $426.4 million in cash cash equivalents short term investments unrestricted cash.
Operating cash flow in the third quarter was negative $11.5 million.
After taking into consideration approximately $1.6 million and capital expenditures and principal repayments of finance lease liabilities free cash flow was negative 13.1 million in the quarter.
This compares the negative free cash flow of $9.7 million in the third quarter fiscal 2019.
As a reminder, that continuing growth an atlas as a percentage of our overall business impact our reported financial results in several ways.
Our first Atlas revenues reported on a consumption basis, whereas enterprise advanced includes a term license component that is recognized upfront.
So for our comparable dollar size contract both enterprise advance an atlas recognize the same amount over the contract term, but the Atlas contract will generate less initial revenue.
And as Atlas grows as a percentage of our revenue overtime. This timing impact is greater.
Second Atlas has a lower overall gross margin enterprise advanced because of it infrastructure component.
That said on an apples to apples functionality basis Atlas is accretive to dollars of gross profit.
Finally, self service outlets customers and a growing portion of our direct sales outlets customers past monthly in arrears versus annually upfront for enterprise advance.
We would expect the percentage of customers paying monthly in arrears to grow overtime as we increase our focus on driving adoption of Atlas, we believe that facilitating the easy consumption will ultimately maximize long term revenues and cash flow.
I'd now like to turn to our outlook for the fourth quarter of fiscal.
2020.
For the fourth quarter, we expect [noise].
Revenue to be in the range of 109 million to $111 million, we expect non-GAAP loss from operations to be 16.5 million to 15.5 million and non-GAAP net loss per share today in a range of 29 cents to 27 cents based on 56.8 million weighted average shares outstanding.
As a reminder, we anniversary the acquisition of M. loud on November Onest.
For the full fiscal year 2020, we now expect revenue to be in the range of 407 million to 409 million compared to our previous guidance of 392 to 395 million.
The full fiscal year 2020, we expect non-GAAP loss from operations to be 58, $57 million and non-GAAP net loss per share to be in the range of one dollar for dollar two per share based on 55.9 million.
Weighted average shares outstanding to summarize my I'm going to be delivered excellent third quarter results are focused on executing on our product roadmap and expand their go to market reach is driving high levels of growth at scale. The steps we've taken to establish mongodb as the modern general data platform of choice positions us for continued success with that we'd like to open it up to questions.
Operator.
We will now begin the question and answer session.
Asking question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing Mickey.
To withdraw your question. Please press Star then too.
This time, we will pause momentarily to assemble our roster.
And our first question comes from Raimo Lenschow of Barclays. Please go ahead.
He college relations on another strong quarter and the first question for you and then one for Mike.
We obviously had big it'd be a conference last week.
I'm just wondering like what was interesting there or is this the logical I'll focus from the competing club Buckley kind of a launch can you just talk a little bit of dogs like how the law. Your has played out for you in terms of like you see some noise and now it looks like it's kind of somewhat going away like what are you seeing in the market into the customers on the spending we do.
The advantages of going with kind of mumble role, but in some column.
Indication of that and then from Mike and Billy you know if I'm looking to you correctly. Then billing is probably is going to have more more noise. In there have you thought about giving all those different metrics or how should we think about 52 of the business people into kind of on the life. Thank you.
Thanks Raimo so.
So with regards to docking DB I think it was January of this year that Amazon officially launched document DB and I know those some trepidation with investors about the potential impact.
On on our business and as you can that's as you've seen now for the.
The last four quarters, the our businesses performed really really well I think there's been a number of reasons for that one.
This market is truly massive it's one of the largest markets and enterprise software and I think there's room for a lot of people to unlike a lot of other open source technologies, we have a strong moat around our business, especially our own IP. So it's very difficult patchy, it's illegal for a cloud provider to take our native code and rapid into there.
Platform and offered as a service so what Amazon did was basically you tried to emulates mongodb through the through a different architecture, which has severe performance and feature tradeoffs.
You know last count and document DB failed about 65% of the corrected the tests compatibly tests against Mongodb. So for those customers are primitive requirements docking DB could work, but for most customers who have mission critical requirements and want the breadth of use cases that mongodb support.
It's a mongodb is by far the best choice. It I think you see that reflected in our numbers and you're right. We didn't see any real news about ER Doc from DB. We just you know heard a lot of other announcements and so we feel quite a good about our position in the marketplace.
And then rival on your kind of buildings related question, Yes, I think from the very beginning and outside of our life as a public company. We've highlighted how that's not a metric that we use internally or one that we focus on this I understand that it's a popular one that investors and other folks look at.
We tend to focus on the revenue.
Specifically.
In the business I think the other piece, that's particularly challenging about billings, which we've talked about as if you're looking at sort of the revenue.
Plus the change in deferred historically.
The change in deferred has really been the place where people have chosen to or where people had a chance to outperform and recurring revenue subscription businesses and I think atlas sort of changes that and so looking at differed in isolation in particular.
Weve heavily discourage people from doing we also are going to be as I mentioned in the prepared remarks, continuing to focus on driving ease of adoption ease of use of adopting Atlas and that will continue to most likely involve a higher percentage of atlas related customers paying monthly for into.
Racing in arrears, rather than signing big large commitments up front and paying for those which would generate incremental deferred revenue. So I think while it's not a metric that we've ever focused on I think you're correct its of its decreasing in a value where insight.
Relative to understanding the business, we have looked at other metrics or try to discern are determined there are other metrics that are useful unfortunate. We haven't found anything that actually provides an incrementally helpful view of the world, but we'll we'll continue to look.
Thank you.
Right.
Thanks Raimo.
Our next question comes from Sanjit Singh of Morgan Stanley . Please go ahead.
Thank you for taking the question than another another great quarter from you guys did I wanted to talk a little bit by Atlas from my perspective. This is one of the stronger outlets quarter isn't that what has been strong for quite some time, but it really felt like this quarter was even stronger than we expected and I was wondering if you could sort of break out the strength between.
Self service and part of the business on Atlas and what you're seeing on D. enterprise expansion side any details there.
Yes.
Thanks, Angie I would just say that I think we saw broad performance and good performance across the board I think we're feeling really good about.
Sales soda sales sold Atlas our sales teams as you know a have really found a lot of success with Atlas with both midsized and large enterprises and that business and that's that channels doing very well with Atlas and we're also seeing increasing success in our self serve business.
We continue to increase the velocity of experimentation.
To test and and and a test in terms of like search and paid search and organic search. We're looking we're expanding our business more and more overseas and we're seeing a lot of similarities in terms of needs.
We're seeing a registration from corporate accounts increased well nicely for us. So that these are sometimes development teams and large organizations for use our testing Atlas.
Maybe as a precursor to doing a big deployment.
And we're also getting better at a using our data and analytics to get more insight into our business. So seltzer business is also very intuitive but.
But we feel really good about that channel and the social channels I wouldn't say those any one channel that outperformed the other.
Understood you mentioned in your script about the trashing, you're seeing a across all three major public cloud providers I was wondering if you could conceptualize the opportunity what the Alibaba partnership in terms of what didn't sort of mongodb traction looked like historically in China, and what do you see the opportunity.
You can sort of frame out the opportunity with Alibaba like Florida is a Chinese market.
Yes, so we've seen just through downloads that trying to be is a very very big in popular market for among the b and I've been to China multiple times, we have a number of large enterprise customers there.
When we run our user conferences that tend to be packed. So we know that there's lot of interest and appetites for using mongodb for wide variety of applications used cases, the challenge Weve had in China is that due to the regulations. There we could not offer atlas directly in China, because as rules about owning data centers directly and obviously.
We did not until recently have any relationships with any local entities and candidly we have been in discussions with Alibaba for some time and.
But there was clearly interest on both sides to do something one alibaba recognize the value of working with us recognize the value of getting a working with the team. That's that's building the code and also getting another level of support and we wanted to frankly work with the largest tech company in China, because they obviously have massive leach in that market and so.
So I would say, we're very excited about the opportunity it's still very early days.
We just had some people in China, two weeks ago doing some events there and the interest level active level is very very high.
Perfect Congrats again.
Thanks.
Our next question comes from Heather Bellini of Goldman Sachs. Please go ahead.
Hi, This is Dan church on for Heather Bellini. Thanks for taking the question earlier this year in Mongodb World you guys announced a number of new products and features like data Lake full text search <unk> can you give us an update on the traction you're saying what the early feedback spin and for something like full text search how are you think about the pension potential uplift in customer spend.
Yes look with thanks for the question. So I'm just to remind everyone. So we announced a Atlas data Lake and full text search at Mongodb world or this past summer.
It's still in beta so we're engaging with hundreds of customers who are right now using the product we expected to go GA next year at our World conference around the May timeframe.
The feedback has been really really positive we're really excited about the feedback because it helps us sharpen the product to understand how customers are using the product understand to potentially.
Details around you know user experience as well as the full feature and functionality and the use cases that people, maybe using and where we're very excited and just to remind everyone. Atlas delay can really enables customers to use all the same semantics with mongodb to basically Korea offline data as they do with online.
In data so it's a very easy product to use adds immediate value. It's a pay as you go models. So the upfront investment of well, there's very low entry level of cost.
And a and B ROI is very compelling and we're really excited about that product full text searches basically a request that customers have asked making four of us for some time, because rather than using disparate systems that rather use one platform and so we're excited about that opportunity as well and the feedback there has also been incredibly positive.
And so it's hard for me to tell you what the uplift will be but we're feeling very bullish about both products.
Hi, Thanks helpful. Thank you and then last quarter I believe you call that a tough comp coming up in Fourq you just based on.
Handful of Atlas customers that were consuming in excess of their run rate I was just wondering if you could put a little context or commentary as to the size and what you're seeing in terms of utilization today in and how the pipeline looks as we get into Fourq, you in and out into fiscal 21.
Yeah, I think there are three things to keep in mind in terms of the difficult compare that we have in Q4 first as it is the first quarter, where we'll have the anniversary of M. lab at the base period.
And to recall that the M. lab cohorts are declining so that sort of the first point to make sure that you keep in mind. Secondly, we did call out last year that we did have a handful of accounts, who are overconsuming relative to their commitment levels.
And we don't have any reason to believe that that seasonal or anything else related to that so I think we should look at that as sort of you know not reproducible or replicatable, a and then third it was just a really great quarter frankly.
Last year, and so while we're eager to have more good quarters.
I want to count on all of them looking like that.
Thank you.
Our next question comes from Brad Reback of Stifel. Please go ahead.
Great. Thanks, very much so some of our customer work has shown that some large customers out there are beginning to take existing enterprise advantaged installed and move them over to Atlas. So maybe you can give us a sense of what type of opportunity that is for you from a financial standpoint. Thanks.
Yeah, So Brad thanks for the question.
I would say that the snare you outlined is still one that's I would say you know more of a exception than the rule that tends to happen less frequently.
And that's really more driven by the fact that customers have decided that rather than managing the l. infrastructure that rather consume mongodb as a service.
We still believe the value of offering on Prem product because there are many customers who either have a lot of sunk cost unwanted preserve those investments or they are in certain regulated industries that prevent them from using cloud services.
Or frankly are just taking a more conservative approach the cloud and the aren't a slower path to move into a cloud and what Mongodb does is just enable them to use mongodb whatever wherever they are that journey from on fell into the cloud and so.
While there are definitely some customers who made the migrating their enterprise advanced implementation on premise to the cloud that's driven typically by their own needs. The desire to maybe moves to cloud themselves our desire to reduce did not investments in their own infrastructure.
And maybe the ability to you know iterative innovate will quickly, but it's not driven by us.
Got it thanks very much.
Our next question comes from Brent Bracelin of Piper Jaffray. Please go ahead.
Hi, Good afternoon, one for Dave and follow up for for Michael If I could.
Dave I wanted to go back to that prepared remarks, I mean, we heard a lot of talk around your now cloud first strategy very similar to the commentary were heard at Mongodb World, where you're now adding features to the cloud version that was version of of long go here first my question is really around the customer response to.
That as you look at your pipeline are you seeing a greater mix of customers and a customer appetite to also go cloud first I'm just trying to understand as you make this pivot as you make a broader narrative around your own cloud for a strategy is that really customer driven.
Or is there a variance in customer appetite around enterprise advanced and Atlas. Thanks.
Yes.
Great question I would say that you know we tend to be a very customer centric or customer obsessed organization. So we tend to listen to our customers very very carefully and it's no secret that many customers do desire to move to the cloud.
The pay as you go model the low entry cost ability to lastly scale.
Oh are all compelling reasons to move to the cloud.
And so.
And what's also interesting is smaller customers and early stage customers tend to prefer to go to the cloud as fast as possible because that allows them to avoid and haven't invested their own infrastructure and really allows them to focus their limited resources on you know the have worked out really differentiates their business and so what Atlas has done is.
It really opened the aperture of the customers. We can go after and frankly monetize and so as you may remember you know with Atlas, we can monetize every interaction with every customer depending if there are an early stage startup in a garage or a large scale enterprise you know and a.
And so.
And what Atlas does is basically enable them to start you know in whatever scale. They want to start and then grow from there and what we find as customers may just have one happened then that outgrows the more typically be fine as soon as they launch one after a very quickly start launching other asked because of find the value that was so compelling and so our growth and expansion of.
Atlas is very very strong.
And then just quick follow up here for Michael as we think about enterprise advanced Yeah, we have that modeled about 15% growth. This quarter I know was a tough compare you have six so six next quarter, we have implied growth closer to 5% should we think about this is being the new norm for kind of.
Enterprise advanced with the customer appetite shifting to Atlas should we think about enterprise advanced as kind of a a lower growth type business and just given the mix shift going on any color there would be helpful. Thanks.
Yeah, I think the key thing to think about enterprise advanced is unfortunately realized in the six or six accounting, it's very much driven by the components of the term license revenue which is.
Driven off of when the subscription start date is and as we've talked about previously.
Can also be influenced by the mix of multiyear contracts or not but certainly you know affects the Q3 base period.
As we previously indicated so I I think it's much more an indicator of sort of the variability that we'll see quarter to quarter and a year over year that make those kinds of comparisons either sequentially or annually very difficult to make just as a result of the six a six accounting.
So more noise anything else.
Yep.
Thank you.
Our next question comes from Tyler Radke of Citi. Please go ahead.
Hey, Thanks, guys appreciate it.
Dave I was hoping you could talk about just how looking back maybe on the last three four years of of the Atlas just how the the customer use cases have evolved you know maybe how that the quality of customer quality of revenue has evolved and then maybe for Michael you talked about potentially a higher mix of customers.
Paying in arrears, just how are you thinking about that from a guidance perspective, because obviously, if you're having less of that Atlas revenue come from deferred I presume. It it makes it a little bit more more difficult to guide. Thank you.
Sure. Thanks, Tyler so just to be clear, we launched Atlas about little over three years ago, and so the summer of 2016 and so.
The first year was really driven predominately by you know self service, where we had the.
You know a lot of demand organic demand from developers around the world, who really want to leverage Mama did you as a service it took us about a good year to really enabled our salesforce to know how to sell a cloud service because historically that all the doing we're selling a enterprise product and then the salesforce kicks in.
In the second year and that's when.
We really starting penetration in large and small to medium accounts I would actually say that our traction was first in a small to medium market where.
Those cohort customers really saw the value of Atlas because they had very little interest and investing in their own operational infrastructure and and the slowly we start to pick away use cases, and workloads with a very large enterprise customers and now we're kind of seeing healthy mix across across all three channels and so.
That's essentially how that business has evolved.
Yeah, and then just on the guidance I would say the key thing is you know where we guide to really is on the income statement. So the revenue and the net loss position.
And whether it go given the Atlas is all consumption based as opposed to enterprise advance, which has that term license component.
Given the Atlas is all consumption based whether it's you know sign for an annual contract with an annual commitment that's paid up front that would generate that deferred revenue or whether or not it's.
Monthly invoicing in arrears. The revenue recognition is consumption based so it doesn't really impact or affect our guidance.
Thank you.
Our next question comes from Jack Andrews of Needham.
Please go ahead.
Okay and thanks for taking the question Dave I was wondering should give us an update on maybe the depth and breadth of 'em strategic sea level conversations you're having these days since you're having them are they still more all about digital transformations or there are there. Some other drivers that are happening there and just how does that translate into your power. These conversations translate.
Into your business she would be thinking about you know potentially larger deal sizes overtime.
Yes, so as I'd mentioned in the past that we'd have.
Tended to go a lot higher on stations that historically, we've ever done as a company, but we also spent a lot of time you know I'm focused on the on the developer community to driving awareness and are making sure that they're fully updated on our products and services I would say over the last you know I would say 18 months or so one of the big themes with us.
C level stakeholders and key accounts is is the increasing awareness of multi cloud customers, obviously very sensitive about being locked into any one platform. They also value the ability to arbitrage between one cloud provider and other cloud provider.
And they also want the opportunity to maybe.
Have certain you know access to different capabilities and strengths of each of the different cloud providers and so that's been a big theme I would say a the other big team is obviously, you know being able to drive developer productivity every organizations under tremendous pressure to innovate quickly either disruptor be disrupted and so you know.
So <unk> using mongodb to drive develop a throughput and developer velocity is also become very very important.
The rise of mobile the rise of new use cases like Aiotv machine learning deep learning et cetera are also top of mind at these customers and then obviously analytics. That's an area that are there always are very interested in because they want to gain deeper insights and their business or something like Atlas data late becomes very very interesting to them.
Because they can leverage the existing investments made in their people and get the value of a deep valleys platform to.
To to basically run analytics on both your online and offline data. So I would say obviously every customer has only unique.
Requirements on and priorities, but those are some of the themes that we hear from a senior stakeholders in these organizations.
Appreciate the color and just as a quick follow up are you seeing any.
Change in appetite for just the whole legacy a application modernization opportunities there any inflection in demand on those types of use cases.
Oh that's.
That's that's going in full force 'em, we see legacy monetization as one of the key drivers to our business the move to the cloud as another that can be tied to some legacy modernization initiative.
But it could be also just a desire to.
Get more more of infrastructure off premise and into the cloud. So so those are huge huge initiatives for us and a lot of times and now we're helping customers think through you know which applications to the to modernize first and and where we can be most helpful. And so those are some of the conversations we're having.
It's actually congratulations on the results.
Thank you.
Again, if you would like to ask your question. Please press Star then one.
And our next question comes from Rishi Jaluria of D.A. Davidson. Please go ahead.
Hey, guys. Thanks, Thanks, I'm not sure for taking my questions.
First just wanted to slip maybe follow up and thinking about sign up for sale. So that's obviously a huge opportunity.
But but maybe can you help us understand from from the licensing perspective, what gives you the confidence and assets fell being able to protect you and not having a situation where you know that code is either replicated or or or.
Related to it to a heavy ecstatic that I've got a follow up.
Yeah, well Thats. Your question I mean, one China is obviously a massive market. It's got a huge number developers, there's a big focus in China to using software to drive a lot of innovation.
You know we aren't open source companies or source code is available to all and and you know as we said when we introduced our new SSP a licensing in certain parts of the world is very hard to adjudicate as issues.
But alibaba felt it was it was a it's important for them to have a direct relationship with us.
To get access to the latest features to get access to engineers and our support infrastructure.
Because they see such a big opportunity for Mongodb in that market and so I want to be clear. It is the Ali Baba ratio does not Atlas, it's an separate OEM relationship.
It's based on some minimums that we expect every year and then.
We feel a true ups on annual basis.
And it will not be counted as Atlas revenue and so but it is the way to ex <unk> access the Chinese market.
And the way that Weve never been able to do before by having the largest tech company in China partner with you and everything that that's a very compelling reason to.
To go into partnership with Alibaba.
All right that's actually I appreciate that and then.
Just like we were to think about you know you're you're clearly seeing strength in both outlets as well as enterprise advanced and then you've put up 20 quarters of 120% plus net expansion rate I think just directionally. If we were to think about how how would expansion rates look like with enterprise advanced customers burst.
With those using Atlas anything direction, I think would be helpful. Thanks.
Yeah. So what we've talked about before is the number that we gave is really done by channel. So that's the direct sales channel. It's not really done by product is the way to think about it. So we see strong expansion in enterprise customers, whether its enterprise advance and then staying with enterprise to advance whether its enterprise advancing.
Adding atlas workloads or whether the relation starts off with Atlas.
And expands either more atlas or as an enterprise advance for certain workloads are sort of regardless of sort of what the.
Trajectory is because theres not one common monolithic pattern or typical consistent pattern that people will fall into what we have publicly said is if you separately look at the self service cohorts in the self service behavior of customers, who are signing up for at less.
The net air expansion of those cohorts is even greater.
Then the net air expansion, we see in the direct sales channel and so I think that sort of speaks to the you know incredibly strong product market fit that we see an atlas both in the direct channel as well self serve but hopefully that gives a little bit of incremental color we've shared.
All right that's helpful. Thank you.
Thank you.
Our next question comes from Pat Walravens of JMP Securities. Please go ahead.
Okay.
Oh, great. Thank you and congratulations.
Dave the the venture community seems to be advising their portfolio companies.
More and more to use up product led to.
Growth strategy for their go to market as opposed to sales or marketing led.
Or is that basically what you're talking about here in terms of how Atlas is changing the business and then I've a follow up.
I would say that yeah. This is a product like growth is clearly a new trend in terms of how people drive topline growth I would say a company that has done that well. It was just last season, and so and clearly a that's something that we're doing here.
Especially on the self serve side of the business where were looking for data signals in terms of how people are using the product and as I shared in my prepared remarks, you know, there's certain signals that tell us if.
Ah if Ah Ah you know you're doing something really really important and we want to be there you want to know that in advance or know that as soon as that happens because we want to be there was a customer so that we can help them through those those important moments of their application, whether it's going to production or the expanded their capacity or expanding geographically.
Et cetera, or and so those are the kind of signals that we used to help drive our business and so those signals tell us if the customers.
Expanding Oh. Another example would be if for some reason, we certainly see a spike implementation, we don't automatically assume that's a good thing that could be that didnt Miss configure their mongodb implementation and be could actually have a very grumpy customer and identifying that customer quickly, making sure that they know what they're doing and in many cases, they're very grateful.
Let me quickly identify those issues are helping them solve any miss configurations, because that builds only a deeper and more trust relation with our customer. So those examples of how we're using products signals to drive growth and as you can imagine.
[noise] data science, because we have lots of customers around the world you can do this manually and ER and obviously, we add a lot of human resources, especially for.
Larger customers and and even some midsize customers.
[noise] that's super helpful. Thank you and then Michael for you.
You know 52% growth to scale, the obviously awesome, but you know one question I get a lot is the businesses decelerated a couple of quarters, Pat where where does that stop and even out.
And I don't know if that's something that you would be willing to address or at least maybe how to think about it.
Yeah, I think when you look at the Q4 guidance I'd say overall, we feel really good about the guidance and clearly when we gave our Q3 guidance and full year guidance on the September call. There was some implied or embedded Q4 guidance.
You know implied in that number and clearly we've raised that when you do the math that I think that shows.
There were feeling quite good I would reiterate what we've talked about in terms of Q4, just remembering the inland impact both in terms of it being the first time that we've hit the anniversary of that as long as those cohorts a decelerating.
But in general I think we feel really good about where we are.
Alright, great. Thank you both.
Thanks Beth.
Our next question comes from the notes arena that so rather than one of Oppenheimer. Please go ahead.
Hi, Thanks for taking my question and congrats on nice quarter had a question on outweighs first you mentioned that expansion rate for strong with those don't serve incorrect customers, but on are you seeing you self serve in direct sales lands come on board or spending much more now within their first year compared to when you right.
Oh no question as the Atlas becomes more popular as we add used features and capabilities as we add more coverage around the world.
Its customers themselves you know get more comfortable does the word of mouth and by reality of the usage the coolest seeing deal sizes go up and Atlas.
And I think you can see that not just in the sale sold side of things, which of sort of the two channels within Atlas is actually the fastest growing channel, but also you can see increasing spend for self service customer, which at this point as you know mostly vast majority of which is that was related and we report.
What level of detail in a in the queues.
And so you can see that there.
Okay. Thanks, and one more it can you just give us an update on some of their sales capacity investments you've been making how is.
Hiring new sales reps progressing.
Hi, it's progressing well I've. Obviously this is something that we focus a lot on because I'm a big vector for our growth is a lot of feet on the street that we have and ER and so we spend a lot of time recruiting the right people.
And then spending a lot of time investing in them and developing those people to ultimately get them to produce results and produce results consistently over time and so.
That's a big part of the attention of imagines bandwidth is just about how we scale infrastructure ASIC man just not just hiring salespeople the sales leadership technical presales to complement our salespeople in the field.
Partner resources in different parts of the world. So that's all part and parcel performed well in terms of how we scaled the business.
Great. Thank you.
This concludes our question and answer session I would like to turn the conference back over to David It each area for any closing remarks.
Thank you thanks to everyone to everyone for joining us today again, just to reiterate we feel really good about a business. We think we had a terrific.
Quarter, and and we look forward to speak to some of you over the next couple of days I know that Michael and a surge will be at a couple investor conferences. So I suspect some of you will be there as well talk you soon take care Bye bye.
I.
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