Q2 2021 Confluent Inc Earnings Call

And vision and working with the best customers and has helped us build a product for data and motion that has significant advantages over open source kafka or any other competitive solution.

I'd like to use the call to give an overview of these advantages as well as some of the new features we've launched in Q2, we think of ourselves as building around 3 key pillars of differentiation being cloud native being complete and being everywhere I'll address each of these and turn and discuss some of the recent updates and each of these areas first.

Cloud native and we've taken and open source Kafka and built something that's completely redesigned as the cloud Native service. There is a fundamental difference between software solutions that are designed for the on premise environment and puts and the cloud versus platforms that are built to operate is elastically scalable multi tenant cloud services. This distinction cuts right.

Of the heart of how these systems are built and it's incredibly important to customers and selecting the products that use our cloud product offers the protocol of Kafka on a platform that is fundamentally re architected as this kind of elastic cloud system. What that means is that it's server list. This means customers don't need to think about managing individuals' servers there.

Memory of CPU or other low level of characteristics. It's elastic it can scale up and down as needed with load automatically balancing is the customer's needs and usage patterns change. It also integrates natively with the vast array of cloud networking security and other technologies and the major cloud providers to help customers manage their data.

Lee and securely.

And the second quarter, we added several features that strengthen our cloud native capabilities. We added support for Azure private link. This is as yours private networking layer that allows usage of confluent without additional.

Additional security and control of the connectivity and of deepens, our integration and Microsoft Azure. We also added role based access control and audit logs within confluent cloud strengthening our security story. These security features enhanced the overall volume of our platform by enabling customers to spend more time building impactful customer experiences.

The products versus implementing security controls that are not core to their business.

A good example of the customer putting our cloud native capabilities and practice as Ao Dot com, which expanded its usage and the second quarter.

<unk> Dot com is the digital retailer and the U K and the leverage data and motion to treat each customer visit as a unique moment of combining real time digital signals of historical purchase information to give customers the hyper personalized experience.

On cloud allows EOG to deliver capabilities of a rapid pace and to do so with the security features needed by its privacy and compliance regime.

Pes became even more crucial during the pandemic because of the world moving so rapidly from predominantly in store shopping to online the speed at which <unk> was able to create new use cases that improve the customer journey with confluent cloud is helping a O Smith, it's online market leadership position, even as it continues to adapt to ongoing changes.

The second pillar of our product differentiation Sleekness Kafka is the foundational layer and the emerging stock for data and motion, but to make harnessing data and motion easy customers need of complete offering that makes developing and this new paradigm music. We have hundreds of features that are essential to the modern data and motion stack and I'll highlight.

A few key ones, which represent significant investment by constantly.

First we have over 120 connectors that make it easy to capture or deliver real time data streams from existing databases infrastructure of layers of SaaS API and cloud services. These connectors mean customers can set their data and motion without spending years, writing integration cost.

Second we offer advanced stream processing capabilities and of familiar package with Casey will be the this is the layer that bring sequel, the language of traditional databases to the new world of data and motion. This led to engineering teams use the skills. They have spent years developing to work with data and this new paradigm.

And the second quarter, we made great progress extending the completeness of our platform, we announced the availability of the fully managed connectors for Mongo DB Atlas as well as data dog and we're excited to offer this integration into other best of breed platforms. We also launched significant features and case it will be the that extend the richness of its ability to process data and.

Emotion inquiry of the computed results.

The completeness of our platform was a driver in the second quarter for traction with a new customer the department of Veterans Affairs. The VA purchased confluent in order to modernize the service. It provides the veterans and increase the speed of delivery.

The effort reduces the reliance on legacy applications improves the timelines and quality of benefit claims processing and enables the reuse of developed capabilities, while reducing rework for the VA confluent IP that is critical to the VA includes our Oracle CDC connector multi tenant security Phipps.

140 dash to compliance.

And for example, the VA is modernizing their claims processing application from an offline batch processing jobs that distribute $1.2 million better and claims nicely to a real time processing solution that results and faster and more accurate benefits delivery to the veterans.

The third pillar of our product differentiation as being everywhere, just as the central nervous system needs to span all of the parts of the body confluent needs to spend all of the environments of modern company operates and and connect the most seamlessly into 1 fabric for data and motion.

This means operating across all 3 major clouds as well as legacy on premise and private cloud environments.

By having 1 platform that spans these customers can tap into data locked up and legacy systems on premise and open that up to modern applications and the cloud.

Connecting these all seamlessly and securely through conflict this.

And this capability is a core requirement for our customers hybrid cloud and multi cloud strategies and its uniquely differentiating for conflicts we are the only provider and the data and motion space. The span all of these environments.

A perfect example of this is BMW by adding console and cloud and extending the use of confluent platform. We are helping BMW group to optimize all of its production and logistics processes, which can help us everything from the time of cars ordered to when it's delivered hundreds of applications that cover these processes will run through confluent BMW group will leverage.

The sports, it's Iot environment across its 24 manufacturing plants.

And the second quarter, we strengthened our everywhere story with the launch of confluent for Kubernetes, our CF K CF K lets customers get many of the cloud native benefits of confluent cloud in kubernetes based private cloud environments on premise. It provides a complete API driven experience for deploying and self managing console and platform.

We also expanded to 6 new cloud regions, making console and cloud available and a total of 59 regions across AWS TCP and mature. We also launched health plus which provides real time visibility to customers to ensure the health of their data and motion infrastructure and on premise environments traditional on premise infrastructure support is a slow process of reactively.

And diagnosing issues and working with the vendor support team involving lots of painful back and forth and often protracted downtime of diagnosing issues in order to operate the thousands of clusters and consequent cloud. However, confluent as developed advanced capabilities for continuously monitoring thousands of cockpit clusters and using algorithms to make these operations reliable efficient.

Interest and proactive.

And with helps plus we are now beginning to extend these cloud based capabilities to our on premise customers, allowing them to send a continuous stream of monitoring data from their on premise environments, and Chicago and cloud and plugging into the same data and motion platform that powers, our cloud operations and help them optimize monitor and ensure the availability of confluent and their on premise environments. The.

Portance of confluent to hybrid and multi cloud architectures was further highlighted by the growing relationships that we have with the major cloud providers just last month, we renamed the Google cloud partner of the year for.

For the third year in a row, Google Cloud has recognized our leadership as the technology partner for smart analytics, highlighting our commitment to customer success and delivery of innovative impactful solutions on Google cloud.

These 3 pillars being cloud native being complete and being everywhere, our what we built around for many years now and our would've led us to have the leading product and this emerging space. We think we are and the very early innings of a large opportunity ahead of us and we're really excited to continue executing on this strategy to become the industry standard for setting data and motion.

With that I'll turn the call over to Stephen to walk through our financials.

Thanks, Jane and good.

Afternoon, everyone I am pleased to be here with such a great team.

In Q2, we successfully completed our IPO and delivered strong operating results.

Since this is our first earnings call I will provide an overview of our differentiated business model.

We designed our business model to empower customers to harness data and motion everywhere of their data and applications reside.

We sell our software platform as 2 subscription offerings up on cloud and comp on platform.

Copper on cloud as a fully managed cloud native SaaS offering available on AWS Azure and GCB.

Customers can either purchase credits as part of the committed contract or sign up with the credit card under a pay as you go model revs.

Revenue is recognized based on consumption.

Couple of platform is and enterprise ready self managed software offering that can be deployed and our customers on prem private cloud and public cloud environments.

A portion of revenue is recognized upfront as license and a substantial majority is recognized ratably over the contract term.

Copper and cloud and comp on platform together make up of our subscription revenue, which typically accounts for 85% to 90% of total revenue.

The remaining 10% to 15% kind of from our services offering which is attached to our subscriptions and services revenue is recognized as delivered.

Given the various revenue components and billing terms and our model remaining performance obligations of our RPM and current RPI rather than billings are important metrics to measure of the help of the business.

<unk> provides insight into the organic momentum of our business as it represents contractually committed revenue to be recognized in the future regardless of billing terms and variability and cloud consumption patterns.

Now, let's turn to the results Q2 was a robust quarter with.

And with strong customer momentum and accelerated top line growth and net retention rate demonstrating the power of our platform and our land and expand strategy.

I'll start with the customer momentum, we saw and the order.

Leveraging the self service motion and pay as you go arrangements and are confluent cloud offering we've been able to significantly broaden our number and reach of customers and both the enterprise and commercial segments.

And Q2, we added approximately 290 net new customers, bringing our total customer count to 2000, and 830 upward of 104% year over year.

As customers see the value of our offering for their initial use cases, the often expand into more use cases and other lines of business across the organization.

This expansion. The fact is reflected and the strong growth of our large customer base.

We ended the second quarter was 617 customers with at least 100, K and <unk> of 51% year over year, and 70 cost of customers, but the at least $1 million in IRR upward of 112% year over year.

Another key metric of customer success is dollar based net retention rate or NR and.

And Q2, and our <unk> was above 130% compared to 117% and the prior quarter.

The robust improvement was driven by strong renewals and expansions across both of our subscription offerings.

We've seen quarterly fluctuations and are are in the past and we expect the fluctuation of the continuum due in parts of the timing of large initial deal sizes, expanding and the first year.

Transition of our cloud business, the usage based billing and turn.

We're operationally focused on driving and are consistently above 120% and the near and the near term and our goal longer term is to drive the consistently above 130%.

Going forward on a quarterly basis, we plan to report and are on a relative to our near term target threshold of 120%.

Turning to revenue, we saw growth acceleration across all of our revenue components.

Total revenue was $88.3 million growing 64% year over year, a significant acceleration from Q1.

Subscription revenue was $78.5 million of 67% year over year and accounted for 89% of total revenue.

The 2 components of our subscription revenue continued to exhibit strong growth.

Couple of platform revenue was $58.8 million accelerating to 46% growth year over year and accounted for 67% of total revenue.

Couple of cloud revenue was $19.7 million accelerating to 200% growth year over year and accounted for 22% of total revenue up 4 percentage points sequentially and up 10 percentage points from a year ago.

As more organizations extend their data and motion platform to the cloud. We believe we are positioned to capitalize on the secular trend of cloud migration.

From a geographic mix standpoint, we continue to see strong demand for our offerings around the world.

Revenue from the U S grew 58% year over year to $56.8 million, representing 64% of total revenue.

Revenue from outside the U S grew 77% year over year to $31.5 million representing.

Representing 36% percentage of total revenue of 3 percentage points from a year ago.

We're still on the early innings of our international expansion and we see a significant opportunity in front of US we will continue to invest and local operations and the highest propensity countries, where we see increasing cost of adoption. We expect these targeted investments to drive our international revenue mix higher over time.

Turning to remaining performance obligations.

We ended the second quarter with $327.2 million and RPM of 72% year over year.

Current RPM.

Which we estimate to be 69% of RPM was approximately $224.6 million of 63% year over year.

As a reminder, our current Rps is an estimate and could fluctuate due to the variability of consumption patterns of our cloud customers.

Our growth acceleration and Rps was driven by the.

And the broad based momentum across our product offerings.

With copper and clouds triple digit growth being the largest driver.

<unk> also benefited from a large multiyear expansion deal while.

While the deal had a modest impact on Q2 revenue and increase the growth rate differential between <unk> and current RVO.

Before turning to gross margins and profitability I would like to note that I'll be discussing non-GAAP results unless otherwise noted.

Q2, total gross margin was 71% up from 68, 7% of year ago.

Subscription gross margins, which include copper and cloud cloud and console of platform, where 77% up from 76, 1% of year ago.

The majority of the increase is attributed to realizing efficiencies and infrastructure costs and the increasing mix of multi tenant hosting and product optimizations for <unk> and cloud.

Couple of on cloud has lower gross margins the commvault platform as we're on the early stages of achieving leverage and scale for the infrastructure that supports our cloud offering.

And as confluent cloud continues to scale and account for a larger share of total revenue, we anticipate gross margins.

The fluctuate and the future.

Turning to profitability operating loss was negative $36.8 million, representing operating margin of negative 41, 7% compared to negative 37, 9% of year ago.

Free cash flow margin was negative 51, 4% compared to negative 42, 2% of year ago.

And net loss per share was negative <unk> 31.

Using $118.6 million basic and diluted weighted average shares outstanding.

The year over year decline and profitability was primarily driven by our plan to catch up with hiring and FY 'twenty, 1 as well as continuing to invest for growth.

As a reminder, we hit the pause button on hiring at the front end of the pandemic and FY 'twenty and we didn't resume hiring and earnest until late Q3.

Given the size of our addressable market and the strong unit economics inherent in our model. We believe it is critical to invest and scale across all organizational functions to capture our market opportunity.

Moving on to the balance sheet, we ended the second quarter with $1.4 billion and cash cash equivalents in marketable securities, which includes the $786.6 million and net proceeds from our IPO.

Turning now to guidance starting this quarter, we're providing quarterly and annual guidance on total revenue non-GAAP operating loss of income and non-GAAP net loss of our earnings per share.

For the third quarter of 2021, we expect revenue to be in the range of $89 million to $91 million representing growth of 45% to 48% year over year.

Non-GAAP operating loss and the range of negative <unk> 62 to negative $60 million.

And non-GAAP net loss per share and the range of negative <unk> 24 to negative <unk> 23.

Using approximately 259 million weighted average shares outstanding which includes the full quarter weighted impact of shares post IPO.

For fiscal year 2021, we expect revenue to be and the range of 347% to $351 million representing growth of 47% to 48% year over year.

Non-GAAP operating loss and the range of negative 199 to negative $195 million.

And non-GAAP net loss per share and the range of of dollar negative dollar of 7% negative dollar of 5 using approximately 188 million weighted average shares outstanding.

I'd also like to provide some modeling points, we expect FY 'twenty, 1 non-GAAP taxes to be and the range of.

$2 million to $3 million and FY, 'twenty, 1 and capital expenditures and amounts capitalized internal use software costs to be approximately 2% to 3% of total revenue.

And closing our strong second quarter results underscore our ability to execute against the large market opportunity.

As a category, creating company, we're just getting started and were well positioned to drive durable growth and profitability over the long term.

With that Jay and I will take your questions.

Thank you Stephan golf questions. Please use the raise hand feature on your zone screen, we ask that you limit yourself to 1 question and 1 follow up.

And with that we will take our first question on the <unk> of Morgan Stanley and Youll be followed by Mark Murphy.

Great.

And I think you're still on mute.

Yeah.

Okay, sorry about that.

And congrats of the team on a really.

The strong Aps of public companies and the results were.

Really impressive on particularly on both of the console of platform of the confluent cloud side I wanted to talk a little bit about consulate cloud and why are we sort of see the escape velocity and that part of the business today. If I look at your cloud mix last year. It was only up 3 points year on year. The last 2 quarters. The cloud mix is about.

And up 600 basis points and up 10 points of this most recent quarter. So channel wondering if you could just sort of expand on like why why now on console and cloud is it sort of feature parity.

And is it just the strong customer adds what why are we saying that that business really start to take off.

Yes, it's a great question and it's really a couple of different things that contribute to that.

The first is the product differentiation and I talked about that like really getting each of those pillars to be meaningful to the customers the being cloud native being complete being everywhere I think it matters a lot I think secondly, youre really getting the foundations of the cloud product to be incredibly solid the <unk>.

Security story of how you work with us et cetera, I think that unlocks a lot of customers. The maybe skeptical of managed cloud infrastructure, especially with the smaller company.

And then finally I think as the maturing of our go to market and really learning how to take advantage of.

The capabilities of the cloud product, we've gone through a transition to of usage oriented model that really helps I think we're still on the early days of taking advantage of that so I think we're just getting started but that's that's been a big adjustments.

For us over the glass Europe plus to really.

We really sell like of SaaS company, and so I think all of the since contribute significantly and <unk>.

Helpful and then sort of the my next question was sort of around.

On.

The velocity in terms of adoption I think on the road shows and you guys were talking about cash.

On this way about re imagining how applications and the data infrastructure and interact with each other and the.

The that's exciting on 1 hand, but the other part of the mute without and sometimes new means means friction and and maybe it's sort of a weighted to cultural and cloud but in terms of.

Greasing the wheel so to speak to drive that adoption is console and cloud kind of the key lever to pull here or are there other things that.

And that you guys can do to to get customers to buy into the architectural yes. That's of great question. So there's really 2 dimensions right 1.

We started the company was something that was an idea of it was very powerful and companies who want it but as you said.

It was hard at that point to do it and you know that that is absolutely friction and so the project for <unk> and is make it easy make it easy to get the value of and there is I do think there is 2 dimensions to that 1 is operations and easy to just run of net new massive distributed platform at scale with production quality and.

The cloud is really the solution there.

That really just takes that problem. The way, we obviously have a set of product features that help on premise, but the card. We can just do it for you. So 30 seconds. Later you are world class at this new capability, but the the other side is the development side how.

How easy or hard is it to build applications against this kind of the the core of Kafka as of this almost of low level primitive for re imagining these kind of applications, but what we've really focused on is making it easier and easier. So having over 100 different connectors that allow you to just capture streams with no code that you have to write you just plug in and the data flex.

And then K sequel is a huge part of that is making it really easy to take the very.

High efficiency language of traditional databases, the thing that software engineers, all kind of know and understand and apply it to data and motion that makes it much easier for people to just get going I think there's a lot more we can do in this direction, but I don't think we're done and making it easy to be able to get the value out for different use cases.

Making it more and more efficient to develop and this new way of.

But we're I think we're seeing that acceleration and you know in the open source adoption and it and the underlying business and and the results of our Sean.

Okay, we're going to see the first quarter results and the.

On the on the great start thanks.

Thanks, so much thanks, and it will take a second question from Mark Murphy of Jpmorgan, and Mark will be followed by cash bringing on.

Mark.

Okay, yes. Thank you so much Shane and I wanted to add my hearty congratulations on just the stellar.

The operating performance and the quarter.

Stefan I wanted to ask you, it's a little rare to see net retention move and such a large increments that way and a single quarter can you just describe the.

Whether it's the math underlying it is the is it not a of last 12 months average and your definition or is it and then on me.

What's what's the customer behavior that just changed so materially there and a single quarter.

Well for starters, its trailing 12 month metric for <unk>.

And the underlying drivers of the strength.

We're really we saw great improvement in gross retention for both comparable and cloud cloud and confluent platform is a really healthy expansion.

But 1 of the things that was a real bright spot in the quarter was for customers, who are running both comp line cloud and copper and platform in the same environment. The net the net retention rate is meaningful meaningfully higher than the average net retention rate for for the company and so we're starting to see the network effect really take hold.

And <unk>.

And and I get that dynamic because it is important to understand some of the underlying drivers.

As you remember on our IPO, we talked about we are operationally focused on driving and our ought to be consistently above 120% and in the near term and long term of above 130%. So this quarter was of great proof point that we that you know that we've got about 130%, we're going to see fluctuations along the way, but where we've put it in the operational.

And that as well and so you know all of that I think it's gonna help us to kind of take that story out more broadly and have it proceed you know any discussion and we have with potential customers.

Thank you very much.

Great. Thanks, Mark our next question comes from the cost rank and as of Goldman Sachs and.

Cash, we followed by Brett sales.

Thank you so much congratulations again on your first quarters of public company first and for J J really impressive cloud numbers here and I wonder if he could dissect the strength of of the cloud business and to how much of that was incentivization on the go to market front of versus maybe landing points.

4 cloud customers are higher than where there were a couple of your of struck me. The the first decision to go with confluent starts with the conference cloud product itself, maybe just a bit of a bit of consideration and maybe there is another factor maybe existing confluent platform customers and decided to do more and the club we could just dissect what is driving the strength of of the the cloud of business.

From a product mix and go to market perspective, and that'll be great and the surf and I do have 1 for you to the extent that the cloud accelerates on of sustainable basis, what are the economics of of the business looked like I see the L. T V. The <unk> of the cloud business and materially different are about the same as the core business and to the extent of you have access to.

[noise] rated transition to the cloud of what what should we be thinking about as far as the implications of the confluent business model longer trunk. Thank you very much again congratulations.

And they're looking for companies that can help them do that and that can actually give them the kind of world class products that they need to be great and these areas. So it's all of those things and I wish. It was just 1 simple thing, but it all ends up adding up to be that.

Got it.

And on the second question cash.

This is the multiple year kind of point of view sort of jumped read it for the quarter by quarter, but just the mattikalli with cloud being a bigger component of our business and we see of trending higher over time for sure.

It has lots of positive impacts on a longer term basis. So we believe that the NRI profile of our cloud customers should be a lot higher.

And then just to give the color called the traditional set of customers who were running CP.

From a revenue visibility standpoint, and a consumption based standpoint, we see that as having positive.

The positive read through the business longer term.

Our gross margins will definitely fluctuate given the gross margin profile of cloud and the more nascent stage and the <unk> platform.

And on a multiyear journey and we.

<unk> seen great improvements so far but.

We'll provide a little bit of fluctuation and then when it goes to unit economics, we think the LTV to CAC profile of our of our cost of on cloud business.

Should should be growing over time, and so that will be of positive tailwind for the business and then lastly, I'll say on the R&D side of the house.

And I can't underscore this and.

Anymore, but.

The complexity of of of the engineering organization in terms of being able to service.

And on all 3 major cloud providers plus doing.

And more integrations et cetera the.

The investments, we're making and and the product organization are very much tailor to becoming a cloud first company.

But really plugging into the whole central nervous system aspect of the dynamic because in order to serve our customers we have to be on prem and and cloud.

And so there is there's just more engineering investment related to being the central nervous system. The cloud is is definitely like our first priority.

Wonderful good to hear the thanks for the very detailed answers and the congratulations again.

Thanks, guys and best will.

And we'll take our next question from Brett sales with Bank of America, and frankly, the followed by Michael Jordan.

Oh, great. Thanks, guys, so much and congratulations on a nice quarter.

First quarter as a public company.

Great to hear from you guys.

My question.

And is really on 1 of the metrics that stands out to me, which is the customer count and greater than $1 million.

And there are real real strong result, this quarter more than doubling year over year. My question is what is the point in which the customer crosses.

Crosses a certain threshold when they've become more.

They look at console and as more of a strategic partner and really start to accelerate that expansion across the organization start to use confluent and a more meaningful way such that they get to that size of the customer is there of certain catalysts that you see are common theme when the customer hits that point and what is that on.

And and really kind of take the relationship to the the next level and I I think it's a very healthy development to see that that's our goal for all of our accounts.

It's great to hear of thanks, so much J and 1 more follow up if I may you know what would you think of confluent. We think of the company is really riding the adoption of next generation applications really the infrastructure for applications of require that real time capability and at scale and integration of the data, but when we talk to customers and you also hear that they're looking to confluent yeah.

You know to help modernize legacy applications the that even those needs. Some of this real time capabilities. So I guess my question is you know how.

How much of that replacement cycle do you see has driven the results. So far do you see that coming and increasingly obviously, you're very well positioned for modern nexgen applications and what about the legacy there's a lot of that that could move to cancel and I would imagine yeah <unk>. That's exactly right. It's it's subtle but I think it's 1 of the really powerful things.

And about how this product works you know, there's there's many technology products, which kind of come in and say hey, rebuild everything on us and it'll be great and the problem is that they're often isn't really the R. O Y to rebuild major systems running part of the business and yet there is pressure and the you know the business has to adapt and do new things and work and you with.

And so the challenge is how can you do that your new applications, they're not islands. They don't stand alone they plug into a larger business and system that they have to be a part of and that's really the power of what we're doing when we talk about the central nervous system. It's it's both connecting up to the old systems of the relational databases and mainframes and.

You know all the R. P systems of have core parts of the business and the and allowing that day and a flow out continuously and real time trigger action and activity and the new stuff the that may be out in the cloud that's built on new platforms and vice versa bright and the this is actually really of core requirement to be able to of name.

<unk> he was kind of new application typically the the challenges and you know do you want to be on the mainframe. It's how can you pull apart the new things and allow them to be built if they have to integrate back into the old stuff and and that's the challenge for a lot of enterprise customers. That's why you see the so commonly bridging and so and isn't really you know green.

Field vs. Brownfield is actually kind of both and off the both even at the same time for the same application you know the next generation customer experience front and has to bridge back and and he said by data and some of the older operational systems. These things need to change a bit out of time. This is a key part of what makes that possible and and I think it is key that it is <unk>.

Ultimately the architecture companies want to get too right. It is you know the the new Silicon Valley Tech companies are starting this way as well so it's not just the transition or anything it really is how they want to get there but works with the.

That's great. Thank you so much <expletive>.

And.

And for that on next question comes from the Michael turned with the Wells Fargo and Carl Keil status on that.

A great. Thanks, Thanks, good afternoon, and congrats on another milestone here with the birth during the report J console and was named G. C. P Tech partner of the year for the third year and a row could you maybe expand on on positioning with the major cloud providers, how important is agnostic positioning for consul and customers and is there a competitor.

Out of her co operative dynamic you can shed light on there for investors.

Yeah. The the cooperation is actually really strong and and you know, it's not just with Google and it really is with all 3 of the cloud providers and you know part of it is what I, just said and the previous question that that bridging to enable the new applications is really really critical for them to get that next new workload up and and operational and the cloud and many cases and that's why they're.

Excited about this says why you know you would see reference architectures of have confluent, beating big worried and feeding. These other clouds systems. That's what makes the crowd of providers excited about what we're doing you know that said they they have each cloud provider has a handful of different products and their environment that and.

We would compete with and you know that's that's it certainly of complicated dynamic I think it's well handled now and all 3 of the major clouds. The limitations of a lot of these offerings is you know kind of in the cloud native complete everywhere you basket you know a lot of them don't.

Really have the complete story and most of these are just in that 1 cloud provider of doesn't bridge into the other clouds. It doesn't bridge at the on premise instead of that at larger story isn't necessarily pop you know possible with what they're doing and that's that's why I think they want to work with us.

Yep.

And the step and you're you're providing and outlook for both Q3 and and full year can you comment on the degree of visibility you have and the model whether the mix of cloud affects the out at all or maybe just comment on the overall approach the guidance here as well.

He takes several items into consideration when constructing guidance.

And you look at our our our pipeline and we look at our sales forecast. We also look at the visibility we have for for revenue coming off of the balance sheet and and and so from out of revenue standpoint, because the revenue model is a mix of rateable upfront and consumption.

The are animal piece of gives us a really good play really good visibility and we were we continue to fine tune and our consumption forecasting and modeling and so we feel very good about you know, it's just a high confidence level, I should say and and getting in our guidance and and and that's based off of the atrophy and so I just walk you through.

And it's a great start here of nice jobs with him. Thank you. Thank you.

Thanks, Michael will take on the next question from Comcast and with you B S and Karl with the followed by Derek with.

Thank you J and stuff and and Shane Congrats on this first quarter of good way to start so maybe I'll I'll start with Stephon surf and was there anything unusual about the results and the quarter to call out you you had mentioned and have a quick comment that maybe that large multiyear extension provided at least of modest boost to read.

Smbs, but doubling your customer account and the quarter is impressive and so I wanted to ask to what extent, Jay and stuff and you look at that is the good leading indicator and then secondly was the cloud version of the product sort of a disproportionate catalyst for new customer growth in other words of <unk>.

<unk> was 22% of revenues did it have a much larger effect on bringing in new customers. Thank you.

Yes, it's a great question. So yeah. The cloud offering is definitely the foundation of how we're getting out to customers that scale and so the.

The vast majority of customers are on.

The comparable of cloud numerically right. So yes.

And we're looking at growth and total customers that is what's going on predominant and it is very much of that kind of self service low friction now as you said.

You can come in and buy a dollar of 50 worth of confluent.

And that may not be and indication of a long term journey with us and where it may be at the beginning of something great right and so yes. It is of stack that is going to fluctuate quarter to quarter as we change some of our.

Marketing techniques, where we're putting span.

<unk> friction from the on boarding process youre going to see changes as we do that we obviously look at that whole journey. What are customers doing are they becoming activity. We have continual usage of the product et cetera. So to answer your question strategically I think it's very important quarter to quarter, there will be fluctuations and that is.

As we change our techniques and approach and system per offer and credits and incentives and so on and off.

Thank you.

Carl on Air.

Next question comes from Derek with cash.

And Doug will be followed by Rob Owens.

Great. Thanks for taking my question really really great job out of the gate.

The hiring the the sales talent that we need and.

And 2021, and you know we have more ramping reps, then ramp trips and and 22, given the fact that we have of 12 months uhm.

No on boarding process and ran process, we're gonna have perversely more ramped people and 22, then and 21. So that gives you a little bit of of color commentary on did geography, and then also just hiring progress.

Perfect. Thanks, and then step and a couple of quick tactical of questions. You know like from and internal call perspective have you made any changes to incentives to sell cloud vs platform and you know are the 2 different and Shadows and then when it <unk> when it comes to the cloud of engagements how much is pay as you.

Go vs committed contracts and and does that does that checked in at all of US we progressed of the ear.

Yeah on the net on the compensation side of the house at the start of this year. Yeah. We we did put in college slightly more incentives for folks to sell comfortable and cloud.

And and said that that's in place and that's and that's paying off which is good and as far as the mix between.

P. As you go and commit of contracts the the vast majority of the the revenue is committed contracts pay as you go uhm is growing off of the small based on like the the the percentage growth rates are very high and but if you look at just the proportions.

To me the contracts or vast majority of revenue at this point.

Got it thanks, and and congrats you got and thank you.

Thank you well take on that question.

The ones with Piper Sandler and that will be followed by a female that show.

Great. Thank you for taking my question I guess for starters stepped on as we contemplate a Q2 there was the thought the the code Cup for each could potentially.

The impact that top line and does that play out whatsoever in terms of of customers or any push ups.

Is the way that the company handled the code code breach I I thought it was very well received by the customer base. We were out in front of it where you know they're very clear with what we're doing how we're responding and so it will be the literally had very.

Little to no impact.

As far as the results you know and came through and if you look at the the the cloud revenue growth of 200% of the overall revenue growth and and also the growth and R. P O and all of those played out I think the better than we had expected and and and and so hopefully that gives you some color common.

Terry.

Sure and I guess to that and then as you contemplate the guidance and gave some some commentary earlier, but you have a history of being conservative and I have a history of pushing you on that.

How are you thinking about this third quarters and the relative to some of those different puts and takes and and what could actually happen to influence a flattish type of a sequential number I know, it's a couple of million, but given the strength you've seen and all of the leading indicators you know, we would think that might be even stronger this quarter. Thanks.

Well, we're very pleased with the fact that we can get and you know basically you know raise guidance uhm relative to consensus we're looking at 45% to 40% year of your growth and total revenue and <unk>.

And there is that there is a seasonality component of a little bit tour of business.

Our sales people have semiannual com plans for this year, and so Q2 and Q4 tend to be seasonally stronger and then T..1 and Q3 just by the nature of how the comp plans work and so we also took that into consideration of all while constructing guidance. The felt very good about the only <unk>.

And for the border, but the guy for the year being you know 47, and 48% and so yeah.

Hopefully the again and that gives you some confidence and some clarity.

Alright, Thank you very much thank you.

Thanks, a lot and we'll take on next question from the Rainbow and last child with Barclays.

8 and thanks for squeezing me and on congrats for me as well and.

<unk> I know the Christian and continued to look out of the little bit more into the future of but if you look at all of our God vendors like Mongol that's kind of went towards the cloud. They they started out with the free kind of clouds, but you're kind of working all with but then they started thinking more east towards Asia and and then the the.

The Big Chinese clouds came up what's your thinking there on that going forward in terms of that and in terms of of white. They both what's the market opportunity here and then I have 1 follow up on <unk>.

Corner, we were actually above 130%.

And so those are on those are that's an additional comment that I wanted to make on how and are are there was a slight benefit because some of the churn that happened a year ago is now out of out of the base.

So hopefully that gives you a little bit of extra color commentary perfect, yes, very strong quarter, congratulations and thank you. Thank you. Thanks Raimo. This concludes our Q&A session. Thank you very much for your questions and participation I will now turn it back to Jay for closing remarks.

Well thanks, everyone for your time today, we feel the quarter represents 1 more step forward on our larger journey and so a huge thanks to our team our customers and our investors for making this possible take care.

[music].

And.