Q3 2021 MongoDB Inc Earnings Call
Good afternoon, and welcome to the Mongodb third quarter fiscal 2021 earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask a question.
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I would now like to turn the conference over to Brian Denyeau. Please go ahead.
Thank you Charlie.
Good afternoon. Thank you for joining us today to review Mongodb, a third quarter fiscal year 2021, a financial results, which we announced in our press release issued after the close a market today.
Joining me on a call today are Dave at a Cherry <unk>, President and CEO of Mongodb, and Michael Gordon Mongodb COO and CFO.
During the call we will make forward looking statements, including steamers line into our market opportunity a future growth.
It's about a product platform, our competitive landscape, our financial guidance and the anticipated impact of a COVID-19 pandemic our business a results of operations as well as all our clients in a macroeconomic environment.
These statements are subject to a variety of risks not certainty as a cause actual results to differ materially from our expectations.
A discussion a mature a rough a lot certainly it's going to affect our actual results. Please refer to the rest of the scrapping or I just see filings.
Including our most recently a report on form 10-K, a quarterly report on form 10-Q.
Any forward looking statements made a lets call reflect our views only as of today and we undertake no obligation to update them.
Additionally, non-GAAP financial measures will be discussed last conference call.
Please refer to the tables in our earnings release on the Investor Relations portion of our website for a reconciliation of these measures to the most directly comparable GAAP financial measure.
That a like a turn the call every day.
Thank you, Brian and thank you to everyone for joining us today I will start by reviewing our third quarter results before giving you a company update.
Looking quickly at a third quarter financial results, we generated revenue of $150.8 million, a 38% year over year increase and above the high end of our guidance, we grew subscription revenue 39% year over year.
This revenue grew 61% year over year, a now represents 47% a revenue and we had another strong quarter a customer growth ended the quarter with over 22600 customers.
We're very pleased by a third quarter performance against a difficult and uncertain macroeconomic backdrop, we saw another record quarter of customer additions both in our direct sales from self serve channels that you discussed in the past given the strong product market fit of Atlas, we decided to make a number of changes that make it easier for new customers to get onto our platform.
Continued to reap the benefits of these adjustments in Q3 with record customer growth and strong net a our expansion.
On a self serve side our continued efforts to broaden our digital marketing funnel have resulted in over 2000 net Atlas customer additions in Q3 as a reminder, ourselves from a business is increasing not just an important revenue generator roberti generator in its own right, but also a source of leads for our sales force strong self serve net additions in Q3 indicates that this.
Flywheel effect will continue in the future.
I'd like to share. Some teams we have heard from senior level customers across a large swath of industries and geographies.
From a feeling more pressure than ever to innovate quickly to seize new opportunities and to respond to a new threats and 2020, it's only exacerbate a need for speed meaningfully increasing the urgency to move to the cloud.
When evaluating technologies customers want solutions that provide a seamless migration path from on premise to the cloud they need mission critical platforms like a massively scale and customers now recognize they have to simplify their tech stack to ensure agility and speed.
Furthermore, the resiliency of the computing platforms and the ability to serve customers easy no matter, whether a base has never been more important a.
As a result customers a fundamentally rethinking their technology strategy and a debate is not if or when but how to accelerate the modernization of the legacy applications as well as to build new apps to addressed a new business requirements.
Consequently, it is clear the goal of a pandemic is only accelerating the existing trends that are a significant catalyst for a business.
These customers don't view us as just another a database, but as a core platform to enable them to drive more innovation and growth for their business.
Our Q3 results demonstrate that by helping a customer solve their most pressing challenges our business continues to thrive during a challenging macro backdrop. So what is driving a success and how have we establish ourselves as a leading modern general purpose database, our differentiation comes down to three pillars.
The first is technological we believe that India and the best database wins databases are at the heart of applications and that the database is hard to use a performance of scaling issues. The application itself will suffer and so with a business that invested in it the foundation of a databases, a document model, which maps to the weighted developers.
Income code and it's proven to be the most productive way for developers to work with data more.
Moreover, our database was built from the ground up with a distributed architecture, a long application a scale more easily and cost effectively while delivering outstanding performance.
Our CTO a mark Porter has been in a database interest industry for over 30 years and he has tried many times in many different organizations to reengineer relational databases into a fault tolerant distributed databases.
Due to the underlying limitations on the architecture, a relational databases. This becomes a huge challenge to overcome instead, we built a database that's incredibly easy to use that as a applicable for almost every conceivable use case and it's engineered from mission critical workloads.
A large banking customer a recently remarked to us that employs steeped in decades, a relational orthodoxy or a first curious about mongodb, but wasn't month become enthusiastic converts to the way mark to the modern way a building and running applications.
Our tech advantage clearly extends the cloud the most common go to market tactic cloud vendors use this lift and shift moving on Prem relational workloads to an open source relational database service such as post growth after.
After using this approach for a number of workloads customer soon realized that the expected cost benefits from a cloud deployment are more than offset by the limitation of the underlying architectural constraints relational databases.
In other words lift and shift it's not the same as modernization and customers are increasingly coming to the to appreciate the distinction between the two.
When it comes to a customer satisfaction, we just closed a month of November with an NPS score of 74 for Atlas a remarkably high number, particularly for a category and a clear indicator of how compelling a global cloud platform has become for our customers we.
We believe we have a fundamentally superior technology and customers are increasingly become a coming to the same conclusion.
Our second pillar <unk> differentiation is developer mind share.
Over the course, a time alternative technologies, a try to replace relational databases, but they all sales because of a lack of developer adoption. The founders among the bees, where developers himself and image intimately understood. The challenges a developers face working with relational databases, especially since a tablet approach bore a little resemblance to how data is.
A presented an application code, consequently, making relational databases hard to use.
Due to its ease of use a flexibility the dock been modeled guarded incredible developer enthusiasm by every objective measure mongodb is the most popular modern database in the world today, our community server the free to use product has been downloaded over 130 million times and has been downloaded over 55 million times this year, which is more.
More than a total number of downloads in the first 10 years of the company's history.
The Mongodb community of developers with large and global and continues to grow every day. We have spent the last decade, plus building that community and that is an asset that is difficult to replicate.
Finally, the third pillar of competitive differentiation is increasingly structural and that is a platform independence.
Having a multi cloud strategy is a strategic imperative for nearly every enterprise with 85% of enterprises today already using services from multiple cloud providers and the expectation is that this number will grow to 98% over the next three years.
Not only do we provide an easy on ramp to the cloud and run on all major cloud platforms in the third quarter, we announced a general availability a multi cloud clusters, an atlas, which enables customers to run an application a cross multiple public clouds simultaneously.
Atlas moving data traditionally the hardest piece of an application stacked a move becomes far easier running an application across multiple clouds has a number of benefits you application is more resilient. That's it is not subject to a single cloud outages developers can easily leveraged a unique capabilities of each cloud provider and the applications can.
Migrates between clouds with no downtime avoiding vendor lock in Atlas is a first global cloud database that delivers a true multi cloud solution.
The combination of our unique value proposition and multi faceted go to market a model puts us in a great competitive position, we see our strong third quarter in your day. It results in an unprecedented environment, that's an indication that our differentiation resonates in the marketplace.
The strength in the quarter was broad based across geographies and customer segments. Our self serve teams continue to rapidly experiment and launched programs to make it easier for customers to find and use mongodb and our sales teams have remained disciplined about their rigorous pipeline generation and qualification process. We believe were a playing from an increasing position a strong.
Thanks, and are well positioned to a disproportionate benefit from the move to the cloud.
Now I'd like to spend a few minutes moving some customer wins and interesting use cases from the third quarter.
Celebrating its 100 year anniversary this year Pitney Bowes has undergone a multiyear digital transformation, resulting in a highly distributed cloud services for the mailing shipping and financing needs of a 750000, plus global clients, including 90 per cent of a fortune 500.
The global Technology Commerce giant recently standardize its business critical applications on Mongodb Atlas to support a 1 billion plus a global ecommerce business.
One of the largest telecom providers, the middle East decided to migrate from Oracle to Mongodb to Modernizes legacy mission critical customer loyalty application and deliver a more seamless experience a customers around the world Mongodb helped the company to upgrade its architecture to accommodate the huge volume a new data coming from a digital channels and increase the speed of its application.
They shouldn't release cycles by a factor of three.
And I was a bush in Dev home to several of the world's most recognizable beer brands chose mongodb outlets as the primary database for a proprietary b to B application. These.
A platform Digitizes and has a bush's relationships with its customers are from convenience seamless communication and most importantly enhance business performance. The bes. The App has been its core revenue drivers is called a 19 started and its use a base increased by 40% last quarter.
One of the world's largest car manufacturers expanded its usage among DB Atlas to support continued monetization efforts force North American business.
The company was able to standard <unk> application development and accelerate time to market across all divisions, while scaling to accommodate growing demand across the United States and Canada.
Current a leading U.S. challenger bank, serving the needs a people who have been overlooked by the traditional banking industry has increased their investment Mongodb Atlas on Google cloud after a year of exponential growth.
They chose Mongodb for a consistent data model enterprise security with field level encryption and multi document after transaction capabilities.
In summary, we are very pleased with a performance in Q3, we are executing at a high level acquiring new customers at a record pace and deepening relationships with existing customers by building on a core a competitive strengths of a technical superiority developer mindshare and platform independence with that I'll turn it over to Michael.
Thanks, Dave as mentioned, we delivered another strong performance from the third quarter, both financially and operationally I'll begin with a detailed review of our third quarter results and then finish with our outlook for the fourth quarter and full fiscal year 2021.
First I'll start with a third quarter results total revenue in the quarter was a $150.8 million up 38% year over year subscription revenue was $144.1 million, a 39% year over year and professional services was $6.7 million up 19% year over year.
To put our performance in the quarter into perspective, we thought it'd be helpful to provide an update on how could a 19 has impacted the growth of our business first let's talk about a new business, our ability to execute a new business opportunities with both new and existing customers continued to surpass our expectations a Q3, despite a difficult and uncertain macro environment as.
As Dave mentioned customers are approaching digital transformation and cloud adoption with a heightened sense of urgency, which our go to market teams have capitalized on I want to be clear, even though we performed better than our expectations in terms of new business 'cause a 19 did have a negative impact on a quarterly performance.
Second the trend in existing Atlas customer spend has been steadily improving since a modest but broad based slowdown we experienced in Q1 due to the impact of COVID-19.
In Q3, the growth from existing Alis customers has returned to talk a precursor trends.
Overall it was a strong performance continues to be the largest contributor to our growth.
This growth was 61% in the quarter compared to the previous year and now represents 47% of total revenue compared to 40% in a third quarter of fiscal 2020, and 44% last quarter.
During the third quarter, we grew our customer base by over 2400 customers sequentially, bringing our total customer accounts over 22600, which is up from over 15900 and a year ago period.
Our total customer account over 2800, our direct sales customers, which compares to over 1900 and a year ago period.
The growth in our total customer account is being driven in large part by Atlas, which had over 21100 customers at the end of the quarter compared to over 14200 in the year ago period.
It's important to keep in mind that the growth in our outlets customer accounts reflects new customers a mongodb in addition to existing customers, adding incremental Atlas workloads.
We had another quarter with our net air expense rate above 120%. We ended the quarter with 890, a customers with at least a $100000 of air our annualized MSR, which is up from 688 in the year ago period.
A continued strong growth in customers with $100000 or more in air our indication of our success or a land and expand go to market strategy and a factor we're increasingly becoming a strategic partner at a database standard for our customers.
Moving down the BNL I'll be discussing a results on a non-GAAP basis, unless otherwise noted.
Gross profit in a third quarter was $108.6 million, representing a gross margin of 72%, which a consistent with both last quarter and a year ago period.
Overall, we're pleased with our gross margin performance, which reflects greater efficiency and scale and our Atlas business. However.
However, we continue to expect that we'll see some modest reduction in overall company gross margin. That's Atlas continues to be a bigger portion of our revenue.
Our operating loss was $16 million or a negative 11% operating margin for the third quarter compared to negative 13% margin in the year ago period.
Our outperformance versus our operating loss guidance was driven in part by a revenue outperformance.
In addition, we had assumed a partial normalization of travel and facilities expenses due to the gradual reopening economy, but that normalization didn't occur in Q3 and doesn't seem likely in the near term well.
Well those pandemic related savings are benefiting or a bottom line a fiscal 21, we don't expect this to be a sustained benefit.
Net loss in the third quarter was $18.2 million or 31 cents per share based from 59.4 million weighted average shares outstanding.
This compares to a loss of 26 cents per share and 56.4 million shares outstanding in a year ago period.
Turning to the balance sheet and cash flow, we ended the quarter with $966.8 billion in cash cash equivalents, a short term investments and restricted cash.
Operating cash flow in the third quarter was negative $8.1 million.
After taking into consideration approximately $6.8 million in capital expenditures and principal repayments, a finance lease liabilities free cash flow was negative $14.9 million in a quarter. This compares to a negative free cash flow a $13.1 million in a third quarter of fiscal 2020.
I'd now like to turn to our outlook for the fourth quarter and a full fiscal year a 2021.
For the fourth quarter, we expect revenue to be in the range of $155 million to $157 million.
Non-GAAP loss from operations to be $23 million to $21 million, a non-GAAP net loss per share to be in the range. A 42 cents to 39 cents based on 60.2 million weighted average shares outstanding.
For the full fiscal year 2021, we are increasing our revenue guidance to $574.4 million to $576.4 million, we are improving our profitability expectations now expect non-GAAP loss from operations to be $56.6 million to $54.6 million, a non-GAAP net loss per share to be in a range of a dollar seven.
To a dollar for based on 58.9 million weighted average shares outstanding.
Our guidance incorporates an expectation that the ongoing COVID-19, M., a pandemic will impact Q4 and likely continue into fiscal 22.
Moreover, we believe that the recent measures implemented in Europe in the U.S. device, a resurgence of the virus, what uncertainty and volatility to the business environment. Let me explain how this impact is captured in our business outlook, starting with new business well, so far we've outperformed our expectations due to true strong customer engagement, we do expect to see similar headwinds to our new business activity in Q4.
We also faced a particularly tough year over year comparison in terms of new business. Because last Q4 was quite strong for enterprise advanced product enterprise advanced has a more immediate impact in revenue due to the fact that under assay six a six we recognized a term license component upfront.
Furthermore, our forecast reflects a compounding impact from the slower than historical growth from our existing outlets customers that we experienced earlier in the year, even though growth rates have returned a pickup at levels. We experienced several months a slightly lower growth it impacts a base of recurring revenue entering Q4.
Lastly, customer <unk> cohort behavior, a net air expansion rates continued to be strong despite their macro challenges as customers increase their investments in our platform.
To summarize I'm going to be delivered excellent third quarter results were executing well despite operating in an unprecedent environment, we're investing in a business for a long haul and believe that we're well positioned for continued success with that we'd like to open up to questions operator.
And we'll now begin a question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then Q.
Our first a question today comes from Rhino line Shah with Barclays.
He a congratulations from me a great quarter, one quick question.
I see a a really nice increase in a new customers and congratulations amazing what you're doing there.
But I'm also been seeing a deceleration on growth on a on a self service can you just help me understand like how does kind of links together I assume it's a lower east Peter just finding the right, but just try to help me understand that a little bit and then one from Mike a as a follow up like if you think about next year and I think about kind of improvement around profitability.
You know were like how do you think about a because you had a lot of like kind of call. It like one off benefits this year with less travel et cetera, like how should we think about modeling next year. Thank you.
Thanks, Raimo its nice a nice to talk to you with regards to a question on self serve actually we feel really good about a self serve business. What's happening there is that a self serve as a great source of new customers a mixed it's very easy for customers to engage with us in a very frictionless way and then a quite a number of those customers end up being leads to our both our.
Corporate or inside sales team as well as our field teams. So that's what's happening there it's not because we're seeing any slowdown in ourselves or a business.
Okay. Thank you.
Yes.
Yeah, I think on the second piece of the question I'm, Obviously, we'll get to our guide in fiscal 22 in a in the March call, but I think what we've tried to be clear about is we are definitely looking at the business from a long term perspective and the guidance in Q4 includes a pulling forward some of the hires and other investments.
It would've made in fiscal 22, given that we are seeing some recovered related savings and we've talked in earlier call about our intention and desire to reinvest as you know now and that continues to be a plant.
Okay. Thank you congrats.
Thanks.
Our next question comes from Sanjit Singh from Morgan Stanley.
Thank you for taking the questions and my congrats as well.
What our.
I guess my question sort of relates to the topic, a machine learning and sort of the data management. Indeed, a workflows supporting machine learning Theres definitely a a growing ecosystem around that but in terms of the like in terms of the application development component, where maybe there's a new generation of Apple.
Patients that are going to be more machine learning infused.
Molly do you haven't necessarily been a huge player in that core analytics art market, but if you think about supporting this next generation applications must positioning for a document model a mountain eat a specifically for a for this kind of next generation of applications that are emerging.
Its a one cents it I would tell you that we already have a number of customers who have built and machine learning a capability on top of Mongodb. So that this has been happening for a number of years, so to the power and flexibly at a document models, even more profound as people want to do more and more sophisticated things with applications a.
And keep in mind that Mongodb, it's a very scalable platform and so a you.
Being able to have a platform that allows people to leverage massive amounts of data to train. The algorithms is incredibly helpful. And just today you know Amazon made an announcement around their sage make a product where we were a part of that announcement and our CTO Mark Porter was quoted a where we are you know, allowing a cut.
<unk> as a stage maker to basically a leverage data sitting in mongodb. So from an application development point of view, we're very well positioned this is a natural path a people building more sophisticate applications and a document model is set up very nicely to help people built more and more more and more sophisticated and complex applications from just given the power.
Oh that a the model.
Understood.
And well understood on that on a distinction there a go back to the acceleration you customer is a customer as it's been going on for a couple of quarters now I think it would also impresses me is the acceleration happening on the direct sales side as well. So it gets you to talk a little what whether it's the same sort of play book that you're using to accelerate the self service.
Okay, and any sort of indications from these new cores that you're bringing on in terms of the profile is there any reason not to believe that these customers will expand in a sort of a similar sort of trajectory as your prior cohorts before you really you know a accelerate your initiatives to take we should consider.
Lastly.
Yeah sure on the direct side, we actually made a decision prior to covert becoming a front center for all of US that a we just saw last year a lot of friction where our sales people were incentivizing or trying to incentivize customers to make some sort of commitment typically in a at least an annual commitment.
Because that's the way that were paid and what we realize what a lot of these customers. Sometimes these workloads were new and just didn't know what how much you know the kind of resources. They have a need on Atlas. They just you know didn't the friction of getting the a approvals to sign a long term commitment was that much longer and a and.
They like the flexibility of a of a of a being able to a basically I'm just start using Atlas a directly and so we encouraged a week we saw the strong product market fit a outlets than once people start using atlas. The the the growth was quite profound and so we said you know what why we take a without friction.
So we changed a comp plans for this fiscal year to encourage our salespeople to sign up a customer is more quickly and that has paid a huge dividends. It's allowed us to engage customers more quickly and a and a and allowed us to acquire a lot more new customers.
Understood appreciate it congrats.
Our next question comes from Brent Bracelin with Piper.
A good afternoon, a one quick on a few Dave and one from Michael I mean, Dave what type of customer cohort does multi cloud functionality appealed the most to is it is it the startups you think or there's a large enterprises that that have a appeal there and then from Michael Yeah, a looked like it was a little stronger than we had expected.
Was there a federal tailwind this quarter or were there other factors that that kind of drove upside anyway. Thanks.
Yep, so Brent on on the multi cloud clusters. It actually can range. It just really depends on the sophistication of their own innovation and how a broader user base and customer base, they're going after for example, we already have cloud customers. Yeah. For example, in Canada, who are trying to serve the Canadian market and a running their application across in a different cloud providers.
All in Canada, because they want to leverage the reach the broad reach a being able to leverage all through cloud providers and they also want to have the benefits a resiliency in case, you know one cloud provider goes down and there were some high profile outages.
Right before Thanksgiving a day, they don't have to worry about the application going down and that is I wouldn't say, it's one of the it was not a very large customer a then on the other hand, you could also have large enterprises, who are increasingly a want to leverage the different capabilities of that from cloud providers, each cloud providers differentiating themselves across different dimension.
Sounds a lot of capabilities and so being able to do that reach a again some cloud providers have more presence in certain markets and others do a and and also just just keeping a the vendors honest, it's something that plays well, especially with senior level No decision makers, who lived a movie before about being held hostage by a particular event.
So it really ranges depending on the organization optimization, but we think its a very applicable for a very sophisticated early stage companies as well as large enterprises.
Very interesting.
And then Michael any a yes, I just couldn't theoni yeah, yeah, no. So just quickly there, yes, so not not not a fed a push or a fed impact.
Yeah, Yeah. It continues to be you know an important leg of the growth stool I certainly understand that that Atlas, obviously feels a lot a limelight a occasionally but you know EA continues to be a quite a quite important and relevant it's very much a customer choice.
Situation and we're just trying to make it easier for them to consume so among to be wherever they are a visa view their cloud posture.
Obviously, it would be variability as we've talked about on EA given six six I would say, there's also a variability kind of quarter to quarter.
As we've talked about in terms of relational migrations, but as you heard from Dave in the prepared remarks, and some of the case studies. It was a good quarter from that perspective as well. So generally just a good broad based participation.
Good to hear a it's only had thanks.
Thanks Brent.
Our next question comes from Brad Reback with Stifel.
A great. Thanks, very much Dave as you look at the Atlas self service business.
Are there any constraints about around how many customers you could add in a quarter.
[laughter]. That's clearly you know, there's obviously some limits to how many we can actually add but a there's no natural constraints. It's not like we're constrained by you know a having enough sales people in place a the sign up process is a.
Automated a we can handle tons a volume so technically the you know we we can add a lot a lot of customers. What were you know obviously continue to hone his <unk> developed a marketing program and the experiments and use content marketing to go acquire new customers and a and we're getting more and more sophisticated that so our self service pipeline is continues.
Growth nicely.
Great and then just one quick follow up in a press release, you talk a dot a D. A deep dense SEC ops opportunity as you look at that longer term do you think that gets fulfilled mainly be a EA or outlets. Thanks.
Yeah, I think like many customers I think every organization is in some way on some perhaps to the cloud a we've talked about this in the path a not only do we see this and a federal sector or even a state and local government sector, but a clearly we see this even in the commercial sector, where the certain customers who are a much more cautious maybe because they're in a regulated industry are just culturally them.
A cautious, but they're all moving in some way shape or form towards the cloud the benefit of using mongodb that we give them a very seamless migration path to the cloud and what I mean by that is they don't have to rewrite one line of code to move from a nonprime deployment to a cloud deployment. So that takes away a lot a risk in some ways, we future proof their applications.
I think with this particular fed a situation I think much like in the enterprise is another decisions I think there's some workloads that are more naturally predisposed to stay on Prem and then obviously you know a there's a big initiative, obviously with fed ramp where you have to certify yourselves a against a a bunch of criteria to be able to run and a and <unk>.
The fed and a cloud that the feds authorized and so a so that is work that we're already doing because we do see a huge amount of demand there and I should mention that yeah. The federal government has been long time users and customers. Among the you know even before I joined the company. So that that is a that is a segment. That's that's a.
In a early in its adoption of Mongodb.
Great. Thanks very much.
Our next question comes from Jason Ader with William Blair.
<unk>.
Yeah. Thank you hey, guys I'm on a post grass migration comments that you made Dave.
Can you talk about some of the underlying limitations a their customers are facing a as they do that and how you when would you guys bring to the table to help them in that modernization effort.
So there's a there's a number of limitations one you know with using a relational database you are you're basically have to stuff data into a toddler format into Rosen columns and that's not the way developers think ignores the way. They code. So a mongodb allows you to do is one be able to think about your data.
Much like that in a much more natural way. So for example, a customer a record does not have to be disaggregated into a bunch of different tables, you can treat a customer holistically and keep average everything about a one customer in a document second making changes is that much easier because you can make changes on the fly without having to change the the all the documents for all the other.
Her a assets you're tracking nor have to update a a centralized catalog et cetera, so making changes and mongodb is that much easier versus a relational database third a scalability you know a relation databases were designed to be single node systems Mongodb. What's a distributed it was designed from the ground up to be day.
Distribute a database so not only do we allow you to.
A move quickly, but we like to scale very very fast, which is why lots of customers pick among mongodb because they have such a high performance and scale requirements. The fourth issue. His residency you know by definition because its a distributed architecture, we have multiple copies of the data. So if one node goes down whether it's for a sister.
From our network failure or some other failure. Your application is still up and running you have to do a lot of work on the relational database side to build and that a level of a fault tolerant than it can be quite expensive, a and still not really deliver a.
On your requirements. So for all those reasons people are recognizing that the document model is a very powerful way tamales data is the most natural and the most productive way for developers to work and a which is why it you know we've become so popular.
And just a quick follow up on that so.
I understanding all of the the advantage is a.
Is the issue a.
Just from an adoption standpoint that that moving to kind of a a similar a model you know relational database in the cloud is just easier and modernization is is more of an effort on a part of the customer is a is that the main issue I mean, well get the from the perception net on many customers part moving from a legacy relational database to an open so.
Lets database and a cloud will require a less a less work. So when someone is on a you know say under pressure to move off a particular legacy contract because a contract is up for renewal. They made in their mind believed that moving to an open source relational database in the cloud is a better option well we're real a you know what we are spending time on what we are the now channel.
Use with with our salespeople is that we're selling a very powerful language and and for some people because it's a it's a new language I've been using old language for 50 years. It can be a bit intimidating. So we have to educate them on the benefits are a language and when they get educated they suddenly see the power of the document modeled a power.
I have a distributed architecture, the the scalability of our platform a they <unk>. They basically never just recognize the benefits are a platform and that's why the start you know a moving to mongodb and so depending on where they are under a journey a.
I encourage our a cut our salespeople to really educate our customers about the benefits a mongodb and they don't have to celebrate Howard will soon as explained the benefits customers get it and that's I said in my prepared remarks, we have this banking customer her a mark to us that a a number there are people who are a longtime relational I.
I could almost a big it's just when they started learning about a mongodb became a huge enthusiastic converts to mongodb and we see that happening all over the place and a and we're seeing that happen now and all these accounts have been working in where more and more of the workloads are now coming towards Mongodb.
Thanks very much.
Yeah.
Our next question comes from David Hynes with Canaccord.
Hey, Thanks, guys congrats on the results a.
Dave So so sales and marketing spend tick back up as a percent a rather you told us that would likely happen in you're clearly seeing some nice yields from that spend what's the plan from here is it more the same or do you think did a feel like more spend could even yields faster customer growth.
No I'm trying to grow I think we have collected as a at least a team we're trying to grow the a our sales realization as fast as possible, but there's a limit to how fast you can grow because you don't want a cut corners and quality you don't want a cut corners on investing in a you know ramping these sales people, giving them the right management support and the right technical support for them to set up a success.
But a I think we've talked about this in a number of earlier earnings calls, we still feel I feel like we're a vastly underpenetrated that few swatch swaths of the market that we just don't have enough sales people and and so we are trying to grow our reach and expand our reach as fast as we can a and that's not just in North America, but in Europe as well as in Asia.
And we're seeing you know, we're seeing great demand in all regions, even Latin America, a as well and so a it's a for US. It's really you know a finding the right leadership team to invest in a.
Building a team around them in a skin that over and over again is really the constraint in terms of growing our sales force.
Okay, Yeah that makes sense and then Michael a follow up for you. So a a more significant jump in 100000 plus cohort. This quarter is that just timing you know that that more happened a cross that threshold in Q3 or is there something more insightful happening there.
Yeah, I think it's really hard to get a super precise and sort of a sequential changes are a heard that in that bucket. You know, sometimes we've had quarters, where it's been very large other times, we've had in a quarter. So there's been a little bit lower and all the growth was from people who are already above the threshold. So it's a somewhat arbitrary thresholds design just to help people understand that people are making meaningful levels of investments.
But you know I think it is.
I get that many number of customers you know in the absolute who are a spending above that level I do think it's an indication that were you know a meaningful part of their technology infrastructure yeah.
Yeah makes sense, okay. Congrats guys.
I say that.
Our next question comes from Rishi Jaluria with D.A. Davidson.
Hi, guys. This is Hannah Rudolph Entre Rishi. Thank you for taking my questions. I'm first could you just talk about how traction with brown is going and given its a newer product. How do you think about your competitive positioning with that product specifically relative to a mobile database offerings from other modern database providers.
Yeah. So one I'd just remind you that we g. a the around product earlier. This summer. So we still believe we're in a very early days of this a product and a I would say the early traction has been has been really good and we're seeing really nice month over month increases in a in usage, but again, it's early and a.
And the revenue for Ram won't show up as a different skew a little show up as Atlas revenue, a because that will drive more consumption of Atlas and in terms of adoption of a realm as a as the a mobile database you know we do recognize that when we acquired a round. They had not really invested in kind of you know a invigorating the developer community and so we're making invest.
Mints in doing that as well [laughter] excuse me and that will also take some time, but we're very pleased in terms of our positioning a one of the killer features that a we'll.
We'll be announcing a a we've announced but we'll be available will be early next year, which is called realms thing, which will provide very sophisticated did a synchronization capabilities between the a the client and the backend that is one of the hardest problems for developers to solve and automating that will make the platform that much more attractive for developers to build a mobile apps on.
And we're really bullish on the mobile space, because with the advent of Fiveg, a and a and a other related technologies, we see that mobile apps will become even more mission critical have much more rich features a streaming types of a data and so forth that will require a.
A very sophisticated platform to support.
Great. That's helpful. And then how do you think about your ability to share the world's most complex use cases, and what do you feel like technologically differentiate your platform relative to the other notes equal a more modern database providers.
Yes, so a I would say one when I joined the company about six years ago, I would say that we would consider to be just you know in a basket of no sequel vendors. It wasn't clear who the breakout a company was going to be I would say if you know over a six years later I think we've proven that one we had a significant technology advantage because the.
Even the size of a community at that time as far bigger than any of the other no sequel providers, we were able to marry that technology advantage with really strong execution and we've grown our business faster we've delivered better financial performance, we've got more customers than any of the other no sequel vendors a.
And along the way. We've also done you know so you know a lot of product innovation no more recently with multi cloud clusters earlier with multi document asset transactions and a bunch of other capabilities. That's really push the envelope Somali be today is not you know what I call a no sequel database I would call. It a modern general purpose database and we have.
Some of the largest most sophisticated and savvy customers across almost every industry and geography, using mongodb to transform their business and we're very proud of that and we feel we're very well positioned to go after the most mission critical workloads no matter the use case.
Great to hear thank you.
Our next question comes from Tyler Radke with Citi.
Hey, Thanks, very much a I wanted to ask you about the sequential improvement you saw on Atlas you know you added about $10 million a of incremental revenue, which was up from the seven that you added a year ago and up from 60, you added last quarter.
I know you you obviously saw a record net adds and you are seeing some you know incremental improvement in a atlas expansion rate I guess, what do you kind of a tribute the improvement and then the incremental revenue.
Two the most Stan Yeah was it was there any kind of one time items that you would caution us I'm just you know kind of from a extrapolating that so the sequential growth in an atlas to a future quarters.
Sure Yeah. Thanks, Tyler I'm no I think the overall it was a very strong quarter for a really across the board, but including with an Atlas a we saw a you know obviously a lot of new customer additions, but those tend to be when a customer comes on tends to be smaller and they grow from there. So it's really it's most about growth from the expanding a.
Of the existing customer base a and.
And as I mentioned, you know we saw both Q1 and then for Q2, we talked to a than the various calls that's slightly slower growth that really revert more to normalized levels pre covered a which is great to see and I think you're showing a she that's showing up in a number. So I think it's really kind of all the parts of a chain that you would expect you know.
A strong additions a good underlying behavior I'm sticking a Scott if you know expansion within a customer base and generally there's sort of a very strong cohort dynamics that we have really just buying out so I wouldn't put out it wasn't really any one thing in particular or any particular, a meaningful outliers you net worth calling out.
Okay helpful. And then just wanted to clarify you know you thinking about the factors impacting the Q4 guidance, obviously, you called out a tough comp on the a bit on the a business you know a part of that is related to the six a six accounting you know are you, adding any kind of incremental caution just on the on the map.
CRO environment in Q4 relative to where you were a quarter ago obviously.
You know that a world that's kind of a yeah, it's really evolved to a or you know the world business environment, you know that a different place than people thought a beginning of a year, but just kind of curious how your force a expectations are for Q4 versus yeah, I'd I'd say a few things you know when looking at the Q4 guidance first of all obviously, we see.
Yes, we raised our outlook for Q4, so that clearly indicates our confidence despite the macroeconomic environment that said you know at our Q3 strong results notwithstanding a we do expect to see a continued impact on new business I think it's hard not to we've seen great customer engagement.
But there's plenty of macro uncertainty a and I think you can see deals receiving more scrutiny a given the current environment and so I think that sort of captured and reflected a the second thing a that I would add for a big picture perspective is we've.
You know talked about Atlas, it's great to see that you know the cash.
<unk> dynamics in the behavior or back to pre could levels, but we're entering Q4 with just a smaller you know recurring revenue base than we would have had we not had those kind of it headwinds you know in a earlier half a year.
And then a third thing I'd point out it's just a tough compare what you referenced which we called out last year, a was about three and half a million dollars a incremental of EA, a and again the sort of impacts not just a the denominator, but also you know the numerator given a six a six works.
Thank you.
Our next question comes from Patrick Walravens with JMP Securities.
Oh, great. Thank you and let me add my congratulations so.
So Dave I'm wondering what your what your R&D priorities are right now and and maybe an easy way for us to think about it is what do you want your software to be able to do in a relatively near future that a can't do today.
Well I think what I want a monkey was a new home for and I think we're on a path to get there is to be the the best place to build a modern applications and a I believe that.
You know the ability to innovate using softened day that will determine a company's competitor advantage and long term and that's going to be really really important I think the power of the document model I think the are are a a really powerful that easy to use query language our ability to handle any work load any size of data you know.
I'll play to our strength and I think a you know we talked a little bit about a you know the fact that you know we have a huge developer community that is only growing by the day and that a you know we provide.
Provide platform independent so I think we have all the ingredients to be you know I'm, a very viable if not compelling place for people to build you know all the modern applications and that's what we're striving to close you're going to see us and we've talked about this in the past we are seeing us expand from being a you know a database to a data platform, we announced a whole bunch of new.
New products those products will continue to grow and mature over time, we'll probably announce in a new capabilities over time, so just going to make it easier for developers to build a really sophisticated applications applications that span system, a record systems engagement and systems of insight and we think that you know applications a future will embed all that functionality.
The and we're really well positioned to be the premier place for people to build those applications.
Great as a one thing that you can you can say you can't do now with a you're excited that's coming in.
The next year or two.
Doesn't I you know obviously you know we're a 13 year old company. So we have a lot of capability and I wouldn't say, there's anything that prevents us I mean, frankly, the one thing I'm you know think that really prevents us is awareness or or perception of us from you know a company that we were a six seven years ago. So the more people learn about us the more people are updated about our.
All these a more people spend time learning about the technology the quicker that become enthusiastic Congress and that's a big part also for a go to market strategy.
All right great. Thank you.
Our next question comes from Ittai Kidron with Oppenheimer.
Thanks, Hey, guys great quarter, a good stuff from did want to start with you first on outlets clearly a very good progress over there.
Can you talk about a conceptually how a and you asked last user today, you see a friend from perhaps an athletic user a year or two ago and.
In a sense a full years and what he or she are doing and how quickly. They are a a growing their usage of the platform.
Yeah, I don't know maybe a couple of years, maybe two three years and remember Atlas was launched in 2016. So I would say all right first cohort a customers, where a probably people who were kicking the tires trying to really understand how to use use the platform not really put mission critical workloads a.
On Atlas on so there you know there are probably you know early adopters.
What we've seen now and it's clear that enterprises are going very aggressively into the cloud. So we have very mature.
Very conservative organizations, we're now using Atlas. We also seeing you know there's actually a small development teams in a sign up through self serve who are parts a big organizations, but they just want to get going on Atlas play with it launch some a applications on it got a feel for it as a precursor to maybe a big deployment of Atlas So and then the.
The thing that we've done is we just become much more sophisticated in terms of expanding the coverage of a of a access to customers through our self serve channel. So we're seeing a lot of people sign up for Atlas front and in a other markets markets in Asia markets in Latin America a.
So and so forth that you know we don't know if you have a lot sales people and that gives us a good way to go after those markets you know as we can do to build out our sales force. So that's where I would see how the market has a or the customer base has changed over time.
Great very helpful. A and then Michael on a one a kind of dig in a little bit into Youre, a return to pre covert a level.
Levels could you be a little bit more specific a what you mean by that is that mean that expansion rate has bounced back up here.
A see value for our first deal ACB help me a man there what does that mean, if you could break that down for us short.
Sure you know very specifically in Q1, we had talked about how we saw a slowdown in the expansion rate of existing customers a within Atlas a and then that you know got a little bit better in Q2. So that's really what we're talking about so thinking about the Atlas cash.
From or is your house revenues all consumption base. This is not about deal activity or commitments or things like that we walked everyone through back then it.
Was.
Clearly you can see the ads continue to be strong when we saw a slightly slower expansion. One of the first questions was you know it was there any churn or increase in churn we haven't seen any changes in that what sort of underscore the the mission critical position a that we occupy within a customer's environment.
And what we saw was you know if it's not gross ads you know if it's not a churn really its about sort of the expansion dynamics within a customer what we saw was a slight but broad based to slow down a.
A really starting in kind of the second half of March in Q1, a and.
And continuing into Q2, a the first hypothesis was that it was sort of industry driven right maybe industries that were particularly affected by covert hospitality travel things like that but instead it was really a much more broad based and modest impact as opposed to a narrow a number of customers are having a major impact.
We talked about that in a September call.
But have we seen some improvement a but not all the way back to historic levels and so what we're saying here is that based on the data we have observed a in.
In Q3, those dynamics are now back to pre Cove at levels. So you know a continued expansion without a sort of slight decline that we've seen a obviously continued strong adds a and universe sticky.
Which you can see in the overall numbers, but we wanted to try and disaggregate that a little bit from folks and sort of give a give an update based on the fact that that had been a factor and the way. It plays out in terms of the Q4 numbers. A is really you know you want a entering Q4, even though the expansion a dynamics are sort of you know quite a bit back to normal your book.
Again in Q4 with a small a recurring revenue base than you would normally have if you hadn't had slightly slower growth in Q1, and Q2 et cetera. So hopefully that helps people understand got a very good. Thanks. Good luck guys.
Thanks, Thank you.
Our next question comes from Jack Andrews, with Needham and company.
Hi, good afternoon, congratulations on the results I wanted to see if we could dig in a little bit more into the legacy migration opportunity sounds like from your prepared remarks that there's a good appetite for these types of projects I know you've been out some recent partnerships in this area. So who's really helping you go after this market opportunity today and who do you think can help you tackle this move.
Going forward.
Yes, sure. So just to make sure people understand why we see this is a big opportunity the premium on innovation has never been higher because obviously, what cobot has done has could create a both opportunities and risks for companies and people need to move very very quickly to you know you to seize opportunities a respond to in a new threats to the business and so that means you need to innovate.
Very fast what that means that you need to be able to an up C. Innovation today means being able to use software and data to build new applications to add new features do you have a new capabilities et cetera, and that means you need a database platform that enables you to do that one of the challenges a relational databases is that as you add more and more capability the data model becomes increasingly more and.
Orbital so becomes harder and harder to add those capabilities. So when your environment, we need to move fast you start saying <unk> do you want to stay on this on this brutal platform or do want to move to a much more modern architecture, where I can move very very fast as well as changed directions quickly and that's what's driving this demand to modernize or a legacy applications.
Portfolio and so it's a we feel that we're really well positioned for this for this opportunity where a proven technology, we have reference customers and almost every industry and a and so we think the legacy a monetization a migration opportunity is a really big and what we're seeing now.
As in terms of partnerships, we've historically had a lots of that size, who worked with us because their business models, a very complementary to ours in some ways. They can they take on the development known as a for the customer and so we we just announced obviously people who are joining our a.
Our a a program to help customers migrate off relational databases and these are some of the largest aside from the world. We also work with some really interesting boutique a size we have some real deep mongodb expertise a the other players actually the cloud providers themselves. They work with us a they provide marketing spis, we work with their sales people to help customers migrate off legacy platforms.
The cloud I, you know I don't see running Atlas on their particular cloud a and then we also work with ice viz. A lot of these ice viz. A some of them are legacy Ais fees, who are now realizing that rather than deploying or offering an on premise legacy solution. They have a much more modern and offer a SaaS based solution. So the replatforming their own product with me.
I'd be EPS the on line data stores. So those are a three examples a partnerships that a you know we work with you know a partners that we work with to help people migrate off legacy applications.
Got it thanks, a lot for your perspective.
My pleasure.
This concludes our question and answer session I would like to turn the call back over to David each area for any closing remarks.
Well I'd like to thank everyone for joining us today I'm really proud of the strong execution this quarter in a difficult macro environment. As we discussed you know that we're making continued investments in product innovation that further establishes mongodb as the preeminent independent modern day to platform and our differentiated value prop is really best on best in class technology.
She developed from Mindshare and platform independence and a this is resonate with both our existing as well as new customers and we're looking forward to a finishing the year. So thank you for joining us and we'll talk to you soon.
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