Q2 2022 Couchbase Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Couch basis second quarter 2022 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Please be advised that today's conference is being recorded I would now like to turn the comfort.
Hence over to your first speaker today, Edward Parker head of Investor Relations. Thank you. Please go ahead.
Good afternoon, and welcome to couch basis second quarter of 2022 earnings call.
We will be discussing the results announced in our press release issued after the market closed today with me are couch basis, President and CEO, Matt <unk> and CFO, Greg Henry.
Today's call will contain forward looking statements, which include statements concerning financial and business trends and strategies are expected future business and financial performance and financial condition and our guidance for future periods.
These statements reflect our views as of today, only and should not be relied upon as representing our views at any subsequent date and we do not undertake any duty to update these statements.
Forward looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations for a discussion of material risks and other important factors that could affect our actual results. Please refer to the risks discussed in today's press release, our final prospectus under rule <unk> four be filed with the Securities and Exchange Commission on July 22020.
One our core.
Quarterly report on Form 10-Q for the quarter ended April 32021 to be filed with the SEC and our other periodic filings with the SEC.
During the call. We will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures as well as how we define these metrics and other metrics is included in our earnings press release and final IPO prospectus, which are available on our Investor relations website with that.
Let me turn the call over to Matt.
Thank you Edward and good afternoon, everyone. Thank you all for joining us on our first earnings call as a public company during today's call, Greg and I will provide details on our second quarter results as well as third quarter and full year guidance.
Let's kick off with a few highlights on our Q2 financial results.
Our mission is to empower enterprises with the ability to build deploy and maintain their most mission critical applications by delivering the world's most scalable performance and flexible modern database.
I'm pleased to report that we had a very strong quarter with Q2 revenue coming in at $36.0 million, which was up 18% year over year.
Total annual recurring revenue or <unk> was $117.0 million, which was up 20% year over year.
We saw broad based strength across our enterprise customer base, including increasing big deal momentum as well as strengthening pipeline.
Our remaining performance obligations or RP O grew a very strong 47% year over year, our gross margin remains best in class at 88, 3%.
I'm proud of these results and everything that the couch space team has achieved especially in light of the challenging conditions as a result of the COVID-19 pandemic over the past year and a half.
I would like to take a second to acknowledge our employees and partners for their resiliency and dedication to serve and support our customers. During these unprecedented times.
Our people are our greatest strength and as a team we've invested thousands of people years into our platform our services and everything we do to make our customers. When it's been a lot of hard work I'm proud of what we've accomplished and excited about what we will achieve in the months and years to come.
For many investors and analysts dialed in we've had the pleasure of getting to know you over the years, but some of you may be new to the couch based story to that end in case, you're not familiar I wanted to take some extra time to walk through who we are and what we do.
Four and a half years ago I got a call from one of the lead investors that excel and he said, Matt I want to talk to you about maybe the most important company that you might not have heard of.
I've never forgotten that introduction and in some ways. It has never been more true now than ever before.
While you have all clearly heard a couch base you still may not be aware of how prevalent we are in your day to day life. Let me give you some perspective on what this means imagine a typical day you wake up you check some carrier notifications on your mobile phone before dialing into a video conference meeting you have mid morning, you didn't check your personal credit score, reflecting a credit card.
Application before heading out to meet a colleague for lunch you decided to pick up the tab using an online payment app knowing youll expense at later through your corporate expense system back at the office you plan a firm wide online virtual town Hall before.
Before you call. The day, you get online and search for a used car for your graduating senior before shopping for wedding anniversary gift for your spouse.
On your way home you check your professional social media network looking for candidates and prospects. After dinner you turn on the TV and extreme your favorite show.
While using a multitude of applications like these on any given day may seem ordinary if not mundane fully immersive highly interactive and always available applications have become essential if not critical in our personal and professional lives ever.
Every one of these companies providing these services has digital transformation at the core of its strategy.
And these applications would not be possible without the power of the couch based platform.
Simply put couch basis, providing the modern database for enterprise applications.
The opportunity is one of the largest in enterprise software based on data from IDC, we estimate that the database market will be worth $62 billion by 2024.
And we were quite intentional in saying that our addressable market comprises both relational and no sequel technology.
This is not to downplay the tremendous success that no sequel is seen to date and net new applications, but to emphasize that we are in the very early innings of what will be a generational transition as application and database platforms migrate from legacy relational systems to our new modern type of database.
We believe emphatically the couch space was built for this moment.
Let me describe in a bit more detail, how couch basis uniquely underpinning the modern application.
As many of you know traditional relational databases were designed to facilitate a business transaction.
Our purchase order on account transfer an inventory update, but knowing how rich and immersive modern applications have now become let's consider what it means for the database.
For example, planning and booking a trip online ultimately culminates in a transaction buying plane tickets and reserving a hotel room, but only after a multitude of events from price shopping to exploring reviews to searching for dates and availability.
We call. These events interactions and these interactions are exploding in volume driven by the increasingly personalized and dynamic applications. They support.
It's the culmination of these interactions, which ultimately defines the transaction the.
The moment, when you click reserve or purchase.
But the reality is that moment is much more than a transaction, it's an experience and the quality of the experience depends on how successful a particular application is at obtaining the specific good or service yearend pursuit of.
In the legacy relational world the user experience was isolated to a single event based on highly structured data.
In the modern world each transaction is powered by a large number of interactions made up of both structured and unstructured data.
These interactions become increasingly data driven and dynamic the ratio of transactions to interactions and the interdependencies across a growing number of applications and data sources.
Continues to climb often by orders of magnitude.
Some of our more complex deployments.
Have our existing customers executing thousands of interactions or even hundreds of thousands of interactions per single transaction.
As relational technology failed to keep up with this new dynamic no sequel technology was created to accommodate the dead luge of unstructured data.
However, while enterprises have the desire to build modern applications unencumbered by the legacy of relational technology enterprise requirements demand that applications operate at agree a performance scale and reliability across a wide spectrum of deployment and consumption.
<unk> that other notes equal solutions can provide.
We built couch based specifically to meet this enterprise challenge of.
Database purpose built to enable accelerated digital transformation of.
Database that uniquely combines the flexibility of no sequel with business critical attributes as first principles.
A database that empowers modern application design, but leverages, the existing and ubiquitous knowledge of sequel.
Simply put couch space has the scalability and flexibility necessary to accommodate the constant growth in data volume and variety, while architected to run anywhere from cloud to on Prem from datacenter to edge and to do all of these things with uncompromising performance.
But in an approachable and familiar way.
This is where couch based server seven our newest product innovation released in Q2 further sets us apart from the competition.
Couch based server seven bridges, the best aspects of relational databases like distributed sequel transactions with the flexibility of a modern database.
Like I mentioned, there is an urgent need for database platform that can support both developing and deploying new applications and also modernizing and upgrading existing ones.
Couch based server seven eliminates the key friction points that have kept enterprises from modernizing their relational based applications.
This unlocks an entirely new portion of the very large relational database market for us because we can now own the transactions. In addition to all the interactions where we have always been strong.
In fact, the majority of our customers are now using couch space as a source of truth.
Which means that we are a fully flexible persistent data store.
A library of information that aggregates data from a variety of sources on which applications rely to enable a wide range of capabilities and services.
Looking forward as our customers continue to leverage more and more transaction services with couch space, we are becoming the system of record for a growing number of enterprise applications.
By having one unified platform that can take on modernizing the legacy relational applications and the new modern applications enterprises can confidently accelerate strategic initiatives such as more quickly moving business critical applications into the cloud improving application flexibility.
And increasing developer agility.
I don't want to expand on these capabilities by quickly summarizing the five ways that couch space is uniquely architected to enable us to offer customer benefits that no one else in the market can.
First couch space is an all in one platform built on an in memory shared nothing architecture, which can serve as a cash source of truth and a system of record.
We're extensible and multi modal, which obviates the need for point solutions and Siloed deployments.
Second we are engineered for massive data volumes and scale operating at sub millisecond performance and petabyte scale often in order of magnitude ahead of our competitors, we're cloud native which means a compute network and storage resources can be scaled independently of one another on a workload by workload.
<unk>.
So application teams can determine which underlying resources they needed optimized for their application development.
Third, we empower developer agility and flexibility by bringing the power of no sequels modern approach to data management with the usability of time honored and ubiquitous skill sets through unique sequel based interface as well as full text search.
Developers don't need to learn a new language to use couch base and enterprises can leverage existing skill sets.
Fourth we offer enterprise grade operational effectiveness and security.
So that data is protected through cross datacenter replication, while ensuring transactional consistency and best in class scalability.
And fifth we can be deployed flexibly in any environment from multi cloud hybrid cloud edge.
On Prem and our fully managed as a service offering.
Let me share a few specific examples of how our customers are using couch space to power their most important applications, including some new customer wins and renewals from the quarter.
I'm a data is needed to deliver travel search results at lightning speed 24 by seven that contained real time route and seat availability information matched to the personalized profile of the traveler.
They rely on couch base for performance scalability and availability to handle 20 million personalized search operations per second at sub millisecond latencies.
We've also helped give them greater developer agility, so they can spend more time, helping customers.
And innovating more freely for things like merchandising, new distribution capability and loyalty.
Couch spaces used in multiple lines of Amadeus as businesses deployed in several public and private clouds.
Pfizer has been on our modernization journey, they selected couch base to power their platform for health applications called Newton, because our modern database delivered on flexibility.
Their application developers can easily update modify and utilize patient data.
For them couch based with simple to deploy on the AWS cloud easily supporting dozens of applications and providing the flexible and robust indexing Pfizer needs for newtons reporting application.
In Q2, the slow back company post some a member of Deutsche Telekom Group adopted couch based cloud on Azure to gain better performance for their city parking system Parque Das.
Park dots modernizes, the customer experience of finding paying for and extending a parking spot via their mobile device.
For municipalities. They can monitor the occupancy of parking spaces managed residential parking control the eligibility of parking and integrate for example, with the payment or information systems of a given city.
Also in Q2 on International Defense Ministry selected Couch space over incumbent Mongo DB to serve as the system of truth powering. Its next generation National Intelligence strategy of course. This is a very sensitive project.
This seven figure TCP competitive win exemplifies our commitment to customer success.
Purion performance flexibility and ease of development, especially in transitioning the system from Mongo DB to couch space there.
We're developers needed a flexible database that easily mapped and move Jason on data objects. This application contains all of the attributes and which couch based shines.
Developer controlled dynamic profiles real time updates across distributed systems and consumption over multiple web and mobile interfaces. This is what modern applications will continue to look like.
A large financial services company that has been undergoing modernization efforts expanded with us in Q2 to migrate empower a very strategic set of applications that are used for marketing purposes.
The applications deliver marketing campaigns and promotions to and on behalf of the Companys global merchants, including more than 10 million merchants in the U S alone.
Given the global nature of these applications require 24 hour seven day, a week 365 day year uptime and with couch space. They can efficiently scale and support the exponential increase in offers.
<unk> benefited from both reduce infrastructure costs and increased application agility delivered by our modern database.
Of note. This was the biggest <unk> deal in company history, and we are proud to be such a strategic and trusted partner to this customer.
Another win in the quarter was northwestern university's catalysts lab, which selected couch base as part of a broader tech effort to reduce chronic disease risk factors by optimizing innovative technologies supported interventions.
By utilizing health promotion lists wearable devices and mobile applications. They design develop and test their interventions to promote weight loss multiple healthy diet and physical activity changes and smoking cessation via personalized mobile experiences for the wear.
Now, let me touch on multiple growth initiatives, we are pursuing to capture more opportunities.
First we are focused on acquiring new customers, we are proud to count more than 30% of the fortune 100 as customers, but clearly have an opportunity to grow this number meaningfully.
In a two pronged approach, we leverage our enterprise class direct salesforce to pursue new logos, while we continue to invest in developer focused initiatives. This.
This allows us to drive top down demand through enterprise architects line of business owners and <unk> as well as drive bottom up demand directly with software developers that build the applications.
These two personas the enterprise architects and the application developers are both first class citizens when it comes to building enterprise applications, but it can't be overstated, how different each of them are.
Consider enterprise requirements on the one hand, which include high performance scalability and reliability.
And developer requirements on the other hand, which include agility flexibility and ease of use.
Couch base is uniquely serve the needs of both of these personas on a single platform without sacrificing the requirements of one versus the other.
And that is tremendously important as we think about capitalizing on the enterprise opportunity as such our go to market motion features a top down sell to motion in concert with a bottoms up by from motion powering a flywheel, we are using to drive sustainable and durable growth.
Second we are continuing to build out our ecosystem of cloud service providers systems integrators, and ISP partners, which serve as a powerful go to market force multiplier for couch base.
For example, we saw several exciting new partner sign ups in the quarter, including <unk> Corporation, which is focused on providing digital business strategy digital engineering and information technology services and solutions to its <unk> customer base across a wide variety of industries.
Additionally, we were pleased to announce during the quarter that couch base is the high performance persistent data store underlying emphasis is E <unk> for digital supply chain solution.
Overall, we are seeing a growing percentage of deals that are partner sourced and partner assisted and we expect this to continue to grow.
Third we are tied to application growth.
When our customer's footprint for modern application grows we grow we.
We see this both with expansion of existing applications as well as the growth in net new applications. We see this as a long and enduring trend as enterprises are undergoing massive application modernization in the months and years to come.
Fourth as a robust end to end platform with a full suite of enterprise features ranging from security and data protection data analytics multimodal support and eventing.
All of which are key underpinnings of modern applications that deliver extremely personalized and delightful experiences to customers.
This gives us substantial opportunities to cross sell new capabilities and features to customers, who are modernizing legacy applications and building net new modern applications.
And fifth building upon our current virtual private cloud offering we expect forthcoming enhancements to our cloud offering in the second half to be a major growth driver as enterprises increasingly look to offload the management and tuning of database systems. So they can fully focus on the applications that run there.
Business.
It will also allow customers to develop their applications with greater speed and agility.
Furthermore, these new innovations will enhance one of the core value propositions of couch space the ability to enable enterprises to leverage our modern database in whatever deployment and consumption model that the business requires.
We've invested an enormous amount of time in this offering and we're extremely pleased with the customer feedback we've received thus far needless to say, we have very high ambitions for our as a service portfolio.
Taken together, we believe we have the potential to not only continue our land and expand motion, but drive a land and explode motion as we continue to serve some of the largest corporations in the world.
In conclusion, we are thrilled to have recently joined the public markets and could not be more excited about the opportunity in front of us we.
We believe data is at the heart of the enterprise.
Enterprises use data to power modern applications that delight us as customers and improve the world as we know it.
This is how software is enhancing the way we live work and play and the rate of change continues to accelerate.
We believe that our modern database will be the bedrock underneath these new applications unleashing and empowering the experiences that ultimately change our lives and disrupt industries for years to come.
We know we have a long way to go and much work to do but we're ambitious and excited and are building a business based on the assumption that opportunities like this don't come around very often.
The current market is based on technology that has for decades old and for good reason the relational model has served companies well, but.
But we are looking to the next four decades and believe our technology and strategy offers a compelling solution for our businesses and partners around the world.
We wouldn't have this opportunity without the extraordinary team we have in place as well as the core values that guide us in what we do every single day.
A couch space, we will always act with uncompromising integrity.
We attack hard problems driven by what's best for our customers.
We play to win together and we work to make tomorrow better than today.
And perhaps our most single important value is to be a good human always.
I will now turn the call over to Greg to talk about our financial results Greg.
Thanks, Matt and thanks again to everyone for joining US today, we are very excited to be embarking on this next phase of growth as a public company I will go over our second fiscal quarter financial results in detail I will also provide some background on our financial model. As this is our first quarter as a public company.
Then I will move on to guidance for the third fiscal quarter and the full year fiscal 2022.
Total revenue in Q2 was $36.0 million up 18% year over year and up 6% from the prior quarter subscription revenue was $28 million up 19% year over year and 6% from the prior quarter subscription revenue consists primarily of time based licenses to our database platform sold.
In conjunction with post contract support the noncancelable term of our subscription arrangements typically range from one to three years and are typically paid upfront on an annual basis. We are pleased with our subscription revenue performance in the quarter, which reflected broad based demand for our database platform for both existing and new customers as well as strong.
Big deal momentum modestly offset by lower expansions from some of our large customers and Covid impacted industries. However, our overall expansion rates remained healthy.
<unk> services revenue in Q2 was $8.0 million up 10% year over year.
Because our software is often implemented in large scale and often complex enterprise application environment, our revenue experienced a degree of volatility due to the timing of the initiation of certain projects in.
In fact, we saw this dynamic play out this quarter as several very large deals renewed with significant upsell earlier than expected contributing upside to our RPM, but did so with project implementation timing later than we had expected in the third dates for revenue and billings later than we had originally forecasted later start dates can impact near term revenue.
And billings performance as it did this quarter, but are still very healthy for a long term business.
In order to provide investors with better transparency into our bookings as well as provide a framework that aligns how we plan forecast and manage our business internally, we are providing annual recurring revenue or <unk>, which represents the annualized recurring revenue at the end of the period that is currently contracted and committed over the forward 12 month period.
We believe <unk> best represents our business performance by accounting for timing variability among our customers implementation time in.
Q2, <unk> was $117.0 million up 20% from the same period a year ago. This represents strong growth due to the aforementioned healthy demand for our database offerings.
As Matt noted we are pleased with our big deal momentum, which we believe is indicative of the increasing size scope and importance of coach base as a critical infrastructure layer underpinning modern enterprise application in fact, one of our early renewals in the quarter has resulted in the largest deal in the company's history and is contracted to eventually be our second.
$5 million plus <unk> customer by the end of their contract.
Big deal activity was captured in our <unk> performance in the quarter, which grew 47% year over year to $127.0 million.
Overall customer count was 558 in Q2 up from 549 in Q523 in the year ago quarter, we continue to be focused on adding new enterprise customers, while expanding existing customers, which is reflected in Atlanta and explode go to market strategy.
As we are focused on serving the world's largest organizations. Let me provide some color on our <unk> per customer performance in the quarter, which was $206000 up from $184000 from the last year ago period based on strong expansion within our customer base as well as larger initial lands are dollar based net retention rate continues to be good.
Later than 115%.
In discussing the remainder of the income statement. Please note that unless otherwise noted all references to our expenses operating results and share count on a non-GAAP basis.
Our gross margin profile is strong and that has allowed us to be very intentional and purposeful on where we invest our capital in Q2. Our gross margin was 88, 3%. This compares to gross margin of 89, 5% a year ago and 88.0% last quarter.
Modest year over year decrease in our gross margin was impacted in part by initial and ongoing investments in our as a service offering.
We have a long term gross margin target to remain above 80% with our trajectory somewhat contingent on the rate of uptake of a growing as a service offering.
Turning to expenses, our sales and marketing expenses for Q2 were $27.0 million or 73% of total revenue compared to $17.0 million or 64% as a percent of revenue a year ago, we've made significant investments in sales and marketing throughout fiscal 2021, and the first half.
2022, and expect to invest aggressively to grow our quota carrying head count focused on expanding our market reach.
Research and development expenses for Q2 were $13.0 million or 41% of revenue compared to $16.0 million and 35% a year ago, we've invested purposely and aggressively in product engineering, specifically, we continue to invest in our as a service offerings and core platform development, but over the long term, we expect the percent of revenue.
<unk> to decrease as we scale.
General and administrative expenses for Q2 were $10.0 million or 16% of revenue compared to $10.0 million and 11% a year ago on a dollar basis. The growth in G&A was mainly a result of expenses incurred in connection with our initial public offering.
We expect general and administrative expenses to increase in fiscal year 2022, but to decrease as a percentage of revenue as we continue to scale our operations over time.
Non-GAAP operating loss for Q2 was negative $12 million or a negative 40% operating margin compared to a negative $7.0 million or a negative 21% operating margin in the year ago quarter. The result was better than our expectation and was driven by better than expected revenue and our ability to manage spend effectively.
Non-GAAP net loss attributable to common stockholders for Q2 was negative $22.0 million.
Our negative $55.0 per share as we continue to scale. The business. We believe we have a significant opportunity to gain leverage.
Turning to the balance sheet and cash flow statement, we ended Q2 with $259.0 million in cash cash equivalents and short term investments our net proceeds from the IPO of $223.0 million.
Net of our underwriters discounts and commissions.
Our remaining performance obligations or <unk> totaled approximately $127.0 million up 47% from $88.0 million last year and up 18% from $107 million from the prior quarter.
We expect to recognize approximately 62% or $75.0 million of the total <unk> as revenue over the next 12 months.
Operating cash flow was negative $16 million compared to negative $16.0 million a year ago.
Free cash flow was also negative $16 million or negative <unk>, 54% free cash flow margin compared to negative $15.0 million and a negative 56% free cash flow margin a year ago.
We will now conclude the call by providing guidance for Q3 and full year fiscal 2022, we continue to see strong business momentum and elevated database infrastructure migration activity across our industry and our pipeline momentum is strong that said our guidance assumes some continued uncertainty in industries impacted by COVID-19 as.
Well as a modest headwind to revenue as a result of changes in project implementation timing with respect to several large deals that renewed early in the quarter clearly significant variation from this assumption would cause us to modify our guidance higher or lower.
For the third quarter of fiscal 2022, we expect total revenue in the range of $32.0 million $34.0 million, therefore, our year over year growth rate of 15% at the midpoint.
We anticipate <unk> in the range of $117 nine to $119.0 million, which represents 16% growth at the midpoint.
We expect a non-GAAP operating loss in the range of negative $17.0 million to negative $15.0 million.
For the full year fiscal 2022, we expect total revenue in the range of $128.0 million to $123.0 million. Therefore, our year over year growth rate, 17% at the midpoint, we expect <unk> in the range of $127 four to $133.0 million or 18% at the midpoint.
And finally, we expect a non-GAAP operating loss in the range of negative $50.0 million to negative $55.0 million.
With that Matt and I are happy to take any of your questions operator.
Certainly once again, ladies and gentlemen, if you have a question at this time. Please press Star then one if your question has been answered and you'd like to remove yourself from the queue. Please press the pound key.
Our first question comes from the line of Kash Rangan from Goldman Sachs. Your question. Please.
Thank you very much congratulations on your first quarter as a public company.
I'm curious to get your thoughts on the front end of the pipeline and your plans to grow your sales capacity direct sales or partnerships to be able to capitalize on.
Pipeline growth ahead that will be for me. Thank you so much and congratulations.
Hey, Kash. Thanks for the question we appreciate it.
Look I'll come in directly and then I'll allow Greg to pile on I think as we've talked about before we maintain a very.
Scientific go to market model inclusive of pipeline and capacity to execute against that pipeline.
Obviously, we're focused on demand that we're going to generate directly in that which we are now augmenting through our broader partner ecosystem.
Knowing that it can take some time to work through pipeline, we take a multi quarter view and understanding opportunities for expansion new logos, even down too.
Product level, specifically with cloud generally speaking, we feel very good about the leading indicators from a pipeline perspective, we've been maniacally focused on generating that even with some of the.
Aforementioned challenges.
Economy, but feel good about the pipeline in front of us everything from Big deals two two net new opportunities and how those are progressing through the sales stages that are really important to us as.
As we think about sales capacity and Greg talked about the investments that we're making there. It's also important to point out that we take a very balanced view when we think about yield capacity. So it's not just quota carrying reps, but all of the resources to ensure that they are successful everything from Ses to professional services teams to customer.
SaaS and many others that are there to execute on our business model and continuing to generate results as we go forward.
So again, we feel very positive about it we'll continue to stay focused on it it's something that.
It is core to how we think about running the business.
Yes, Kash I would just add you've obviously seen the investments in sales and marketing.
Same same cut we're focused on adding rep capacity building our partner in BD channel, which we have been.
Expanding geographically, so we're making some investments in Asia Pacific, specifically, which as you know.
A nascent market for us, but one of the biggest opportunities we have and then growing our customer account or customer success team.
As we have these larger and more expansive deals we're going to need more resources. There. So that's where our focus has got it and Matt if I could just a quick follow up could you talk about the replacement opportunity with traditional Rd BMS is out there and at what stage of readiness as that market maybe to adopt solutions such as coach base. Thank you. So much that's it for me.
Yes cash it's a great question.
You've heard us declare that we are the modern database for enterprise applications.
We believe fundamentally that enterprises that are executing a digital transformation move to build applications that are re platform the off legacy technologies, while also combining.
Net new capabilities that require a fundamentally different database.
We were extremely excited to bring our 700 release to market, which I think really demonstrates how from an architectural perspective, we're continuing to expand our database capability to even further simplify the roll off of applications from relational systems and put the power back in the hands of developers.
Or is that that need to.
Leverage those capabilities, but the stitching together with the modern aspects of our flexible data schema and distributed application support capabilities combining things like distributed.
Based transactions and so really thinking through from what is it that a modern application is requiring in the enterprise and how do we enable that with our platform.
All of our customers are thinking through their long term database strategy and as we position ourselves as both the source of truth and eventual system of record I think when you hear us talk about the largest deals we've ever done those are customers that are investing.
As a true modern platform for future application needs, which by definition is a combination of re platforming and net new capabilities.
Wonderful. Thank you so much.
Thanks Kash.
Thank you. Our next question comes from the line of Raimo <unk> from Barclays. Your question. Please.
Thank you.
Congrats on the first profit quarter I, just had more than like a longer term leading question like if I look at Europe growth at the moment, it sounds really healthy, but I would assume given the opportunity set there is more to it can you talk a little bit about the drivers that kind of might just kind of help us on the reacceleration here. Thank you.
Yes Raimo. This is this is Matt look we.
We don't believe that our current growth is indicative of our long term opportunities.
<unk> talked about before that we take great pride in solving the hardest problems first.
Fundamentally we believe we have the right database for enterprise applications, and we continue to build out our capability look if we looked at our growth rates.
Demonstrated before the pandemic in our enterprise model, we were growing over 30% we faced some headwinds.
But we're working through primarily through some distressed industries.
We are very.
Proud of how we're showing up as business partners and working with them. Those industries are going to come back and we believe they're going to come back better and bigger than ever before and even more dependent on data and next generation applications to change user experiences, which is right in our wheelhouse and as we think about that customer base.
I'm very proud of what the team has done to may.
Maintain those and set up for very long mutually beneficial relationships on top of that if you think about our enterprise motion. We have direct sales teams spread out around the world who are sitting alongside enterprise development teams.
Application developers enterprise architecture really understanding big projects for their mission critical business critical application, that's been a little bit disrupted as you can imagine with the dynamic in the last year and a half we believe that's going to come back and Greg can talk about some of the sales efficiency that we're seeing which is headed in the right direction now.
It's all before Raimo, we layer on the additional market opportunities with things like <unk> and the material.
Re platforming of legacy applications, we believe that that dialogue continues to accelerate and large opportunities. We have only scratched the surface with our managed offering in the portfolio that we have in market today and.
And are excited about being able to talk about.
The pretty dramatic expansion that we're going to have with that part of our product set.
In the upcoming months. So look we think there's a lot of opportunities for growth are the ones I mentioned, along with things like continued geographic expansion and the work that we're doing with partners Isps systems integrators and the like.
Like to say, we have a lot of lines in the water and are very excited about the future, but fundamentally it's because the foundation that we have in place underpinned by core architectural differentiation of the product that.
Simply put we've been built to do things that other.
Databases are.
Yeah, Okay perfect. Thank you that makes a lot of sense and then the one question. Greg you will get on guidance just like if I look at the bid or beat it didn't follow through on guidance can you just talk a little bit about the moving pieces here. Thank you.
Sure Raimo, Yes look first of all we feel great about the quarter and.
And how we are already over deliver on IRR, great great deals, we talked about a couple of large.
Early renewals, we have with significant expansion, including the largest deal in company history, Great New logo out of Asia Pacific when a larger larger ones. We've done look we feel we feel very comfortable with our guidance on how we lay this out.
In terms of what we expect to be able to deliver in Q3, we obviously.
Obviously, we're working hard to not only deliver that but.
Overachieve that but again, we feel very good about the guidance and how we've laid this out and how do we think the business is going to perform.
For Q3, and the rest of the year.
Got it okay. Congrats from me as well.
Thanks again.
Yeah.
Thank you. Our next question comes from the line of Matt Hedberg from RBC capital markets. Your question. Please.
Alright, great. Thanks, Thanks for the question guys congrats on the quarter here.
I'm going to start with you you've obviously spent a lot of time on the call today talking about the product investments like culturally server seven in Europe, as a service push including bundled infrastructure.
And you've always been good with your sell through motion, but you're obviously talking about now more about your buys promotion you've talked about partner success, which is great to hear I guess to that point can you talk a bit more about why you're so confident that some of these sales investments are effectively targeted to really get the most leverage out of all of these new products that seem to be.
These are the right product at the right time.
Yes, it's a good it's a great question Matt.
Let me take a stab at it and then I'll check in to make sure Im headed in the right direction and if I need to clarify it can.
When we think about the opportunity in the enterprise, we have talked about the important combination of both the sell to and buy from.
Go to market motion and.
And we've also talked about the two critical personas that we serve enterprise architecture and application developers.
One of the things that we spend a lot of time on is studying our customer base and truly understanding.
How are they are learning about considering testing and finally deploying our technology in the different care abouts between those personas and on an opportunity by opportunity basis, we can actually.
Look into and work with our.
Sales and marketing teams to understand the various touch points with those personas.
Furthermore, we ensure that when we're talking about our technology that we are positioning in a way that aligns to the care abouts between those personas, which quite frankly can be different. Despite the fact that enterprise success is ultimately about those two working together and so we're constantly testing the effectiveness of everything from marketing to.
<unk> field.
Resource allocation to ensure that we are aligned to those personas.
I think part of what Youre talking about is the expansion of the portfolio and how do we get more of the business aligned from that from that buy from motion, which quite frankly is one of the reason. We're so excited about our managed offering which we believe is going to be the form factor that best sets up for that buying motion and we think that's going to be additive to our model.
<unk>.
Now we've talked about that we will eventually be giving specifics around that right now, we'll give you general momentum, but the leading indicators on.
Cloud trials and.
Developers in our database and engagement of developers and measured in multiple ways. Those all help us understand that what we're doing is working and in the event that we need to make an adjustment we can make an adjustment. So we have a lot of those leading indicators, that's a big part of our.
Confidence.
The upward trajectory.
And why we think the accelerated growth is such a real thing for us as a company.
No that's exactly what I was looking for thanks, Thanks, Matt.
Greg obviously.
<unk> growth was really quite strong I think 47% really stood out to me.
You noted some of those where I think we're from some early renewals the benefit of our appeal, but not necessarily revenue in <unk> can you talk about sort of how those flow the dynamics of how that flows into <unk> in revenue and what were some of the assumptions embedded in that for your kind of your <unk> and 'twenty two outlook.
Yes sure you got it thanks again for the question today, Yeah again feel good about how we deliver the core <unk>.
These are great deals that we're talking about again, there was to sort of large early renewals are exactly what we want in terms of renewing with large upsell plus we had a large new logo that had a future start date.
Both enterprises buy when they want and need it we don't always have the exact timing. There is always these types of deals that are sort of.
Floating around and potential we landed a couple of large ones today.
And if you think about buying this kind of software when I when I buy software.
From a budgeting I look to the largest most enterprise critical and by those first and so we're happy to see customers are doing the same same with us so the way it would flow, though as we book the deal in the quarter. They have future start dates. So we we put it in <unk> today and obviously it goes in <unk>.
But because the dates are starting in the future. We don't bill for those nor do we start recognizing revenue until we have those new subscription start dates. So that's the way. It plays in terms of what the near term metrics versus some of the longer term metrics are and again, that's why we've really focused on <unk> as the best metric.
To view couch base, because we've aligned that to take some of that noise out of the.
Out of the system when we get some of these.
Deals that have future start dates so that's really how it flows Matt.
Thanks, guys.
You bet you.
Okay.
Thank you. Our next question comes from the line of Sanchez Singh from Morgan Stanley. Your question. Please.
Thank you for taking the questions and congrats to the team on the first quarter as a public company and the solid start.
<unk> My question.
That is all.
And then a couple of questions already been asked just wanted to sort of get a little bit more color first I actually get into the second half.
That's really what we look at the second half of last year, that's really only starting to see impact from.
From the pandemic in terms of AOR growth, so going into the second half. This year how are you feeling about.
The renewal and expansion motion, particularly in Q4, I know, it's a little bit early without sort of.
Several months away, but what's your sort of initial view on how that Q4 renewal base is shaping up.
Yes, Sanjay I appreciate the clarification, because the dynamic was mostly a Q4, one not the entirety of the second half.
Look as we think about our business and.
How we guided.
Rest assured we're looking at the entirety of our installed base that which is up for renewal understanding where enterprises are with there.
Projects new applications.
And so.
Short of giving you specifics on an account by account basis, I think all of that.
Telegent is factored into how we're how we're thinking about the second half.
I think we've been working on those accounts.
Throughout this time period again, particularly with the distressed industries, making sure that we show up as a trusted advisor.
Ensuring that they are deriving the full value of the couch based platform as they get creative on additional applications as their businesses.
<unk>. So we've stayed very close to them.
We're in constant contact across all aspects of our field teams sales systems Engineering services.
Et cetera, and so look I think we're giving you how we feel about it I think as Greg would say, we're being responsible with our guidance and we will continue to give specific updates.
As we go.
That's great that's great to hear and my follow up question is sort of around on the couch based cloud and you sort of pending release on the SaaS hosted version.
If I think about the opportunities across four different buckets I was wondering if you could sort of stack rank for me, which of these are sort of more near term opportunities and which ones would be sort of more longer term in those four buckets would be sort of monetizing the couch based open source space that community.
What sort of number one second.
Targeting the the application developer market more broadly.
Third in terms of the existing customer base.
It's done sort of expanding their capabilities with cloud based cloud and then the fourth bucket would be again on the existing customer side.
Migrations either from the couch based server to cloud based cloud or that relational displacement opportunity I was wondering if you can if you can just sort of your mind, how you think about those four buckets.
Well Sanjay here's the great thing I think all four are growth vectors for cloud space.
And I think all four represent significant opportunities.
If I were to kind of group. This I think our ability to get after a different set of applications.
With a easier to consume offering which is our as a service portfolio I think thats going to lend itself.
To application developers net new projects.
New logo opportunities I think that's going to be a big uplift for us as we go forward and we executed.
I Love. The fact that you are calling out monetizing open source I may.
Augment that a little bit and say having developer focused offerings.
That allow us to capitalize on the development and test and pre production aspect of application development I think that's going to be quite significant both in driving top of funnel. In addition to the uplift from from an overall business perspective. So we're certainly super excited about that aspect of our business, which.
It's probably the thing that's the most new to us as a company from a from a business model perspective.
As you can probably appreciate I think we are really really good at leveraging our accounts. That's because we have a great database, we do everything we can to ensure our customers are satisfied.
<unk> that'd be hard pressed to come up with a single customer that we're not talking to cloud about so I think thats a matter of time.
That's going to be a function of migrating existing applications.
Rolling out new ones. The fact that we have multiple ways of.
Attacking our cloud offering with differentiated in BPC solution and what we're going to be doing over time as I've said, we're all about ensuring we have the most capable database. The fact that we're going to have so many new and leading ways to consume.
<unk> industry, leading modern database.
But really underpins our excitement about the opportunity in front of us.
Great looking forward to seeing how this all evolves I'm pretty exciting thank you Matt.
Thanks, Amit.
Thank you. Our next question combined with Jason that are from William Blair. Your question. Please.
Yeah, Thanks, Hi, guys.
To ask a competition question.
I'm, assuming that you run into Mongo DB, along as you mentioned.
A win that you had on the call and.
I wanted to just understand better.
When you do win why do you win and when you lose why do you lose against Mongo DB.
Sure Jason So first of all.
Credit credit, where credit's due I think mongo has done a very nice job of.
Building, a great company and continue to execute.
I think quite frankly, it shows what's possible in this massive generational market transition that is databases and.
And despite their success.
What has us with big smiles on our faces that we focus on a different set of problems.
We are focused on enterprise applications tiers.
<unk> zero tier one applications that have a different level of requirements on scale and performance and multi cloud and cloud to edge and that has been the optimization point that has really driven the build out of the couch based platform. If you think about some of the specifics than that provide differentiator for the apt.
Occasions, where people preferred couch space over alternative solutions, a lot of it is scale and performance.
And our in memory shared nothing scale out architecture that has been designed from the outset with a single platform to go from cloud to edge that is unique to us as a company. The fact that we continue to consolidate platform capabilities into a single solution both cashing in <unk> database.
Adding operational analytics and additional services.
Couch based server and cloud based light and always thinking through how to integrate those things in a way that serves the enterprise that's core to our DNA.
If you think about the de facto language of the database industry its sequel and from the early onset of our.
Database build out we chose sequel, because we thought it was the best for the industry certainly not because it was the easiest to implement quite the contrary, but if you think about the familiarity of relational databases and you combine that with all the power that we.
Put into our innovation of the core platform. This is the database that has been built for enterprise applications and when we get into opportunities I think we prove that out and then once.
Developers and application.
Architects start to see the power of that that's what really drives.
The land and explode model that.
We'd becomes so known for our ability to open that up with some of the things we've talked about only further accelerates our opportunity in becoming not just source of truth, but system of record for many more enterprises as we go forward.
Alright, Thanks, and then Greg a quick one for you.
You mentioned in your prepared remarks about the travel will actually for about Covid impacted industries, maybe seeing some some softening there and I'm, assuming travel and hospitality in particular can you just give us some more detail on what's happening and maybe when does some of the activity start to soften there.
Yes sure Jason Good question and look we we spend some time on this obviously through the road show and the IPO profit is talking about the Covid impacts we had.
We did have a cohort of about 15% of our IRR consumer facing travel in store retail and in person entertainment that was.
Particularly hard hit and we saw that.
Part of the business instead of growing 30% essentially go to flat, where we're renewing those accounts really really well, but theyre just not an opportunity to expand.
And we continue to see that and I think we'll still see that through Q3, and we're cautiously optimistic that by Q4, we'll start seeing a turn.
And the reason why is because thats when we started seeing it in particular last year. So again, we are growing 30% through Q3 of last year and then we started seeing this COVID-19 impact.
We're really start taking over on this cohort.
Which is a little different than some of the other companies. So we saw a little bit later, it's going to it's going to sort of work itself through a little bit later, but.
We're again cautiously optimistic by Q4, we're going to start seeing that.
Part of the business start.
Growing again.
Thank you.
Thank you. Our next question comes from the line of Brad Reback from Stifel. Your question. Please.
Great. Thanks, very much Matt I think during the prepared remarks, you talked about an increase in partner sourced deals either that's happening or if that's an opportunity can you give us a sense of sort of what percentage of deals right. Now are touched by partners and where you think that can get to.
Hey, Brad Thanks for the question. So first off I appreciate you recognizing the importance of partners.
We have many different types of partners that we are working with everything from <unk> to systems integrators too.
Regional partners that maybe focus on a specific vertical and I think.
Some of the.
Wins that we talked about indicate the power of the couch based platform and underpinning there.
Kind of dependence on cloud space as they go forward I can tell you the number of partner sourced and partner influence does fluctuate a little bit corner by corner. That's been a number that has consistently grown.
Over the past several years as we've been investing in this and we indicate that Greg.
A 40% of our deals proximately, our partner source or influence on a quarter to quarter basis. It can be a little higher a little lower depending on the quarter, but that's a pretty good proxy for where we're at now.
And Brad that those are deals that are happening I think from a qualitative perspective, what I love seeing as the investment in next generation digital services.
Because I think thats, an indicator of big.
Big demand, that's going to be additive to the company and will.
Also allow us to.
You have better go to market efficiency.
Things execute.
Perfect and then Greg just a real quick one share count we should be using for the quarter and maybe for the year.
Yes, let me.
Have a look with Azure, Brad I'm going to probably have to follow back follow up on you, but we'll certainly share that with you.
Perfect. Thanks, a lot guys.
Thank you. Our next question comes from the line of Rob Oliver from Baird. Your question. Please.
Great. Good afternoon, guys. Thanks for taking my question, Matt One for you and then I had a follow up for Greg.
Just specifically on couch based seven no we'd love to hear.
Yes.
Some of how that contributed to the pipeline uptick which you cited in your prepared remarks I know.
Some really exciting features in there.
Like a sequel offload transactions.
Due to containment so would love to hear about the momentum there how much that contributed to that pipeline uptick and whether that played a role in any of the pretty significant expansions you guys saw this quarter.
Rob I appreciate the question.
First thing I would tell you is we pride ourselves on being very market focused and our innovation.
We listened to customers we understand.
There are unmet underserved needs and when we go tackle next generation innovation. That's in service of the market opportunity that we see I think youre right to call out some of the powerful capabilities that really combine relational technology with the power and strength of no sequel in a very.
Seamless and easy to deploy away.
It's hard to say, Rob that there was a specific opportunity here or there that because of those features we generate because people are really thinking about us as a go forward platform.
I look at it another way, there's probably not a customer out there that isn't fully aware these capabilities as theyre, making long term investment. So to me it's less of a we go do this and it generates pipeline I think its a continual.
We continue to innovate we share roadmap map with our strategic customers. They get excited about it I would say the response of <unk> has met or exceeded expectations that we have and I think it's really starting to open the eyes of customers that we don't have on how powerful of a platform we can be an enabling.
<unk>, new applications and quite frankly doing so with better <unk> than anything in the industry. So that's probably a factor that will drive demand that may not have been in our existing pipeline that relational offload and the opportunity that sets up.
Great that's great color I appreciate it and then Greg for you if I could squeeze a quick one in as well.
You usually appreciate the opportunity to see you guys at connect obviously, it's going to be virtual this year, but.
The product announcements.
You guys alluded to in your prepared remarks around <unk>.
Based cloud are those things that we could expect to get perhaps some more color around at connect.
In the fall and then the second one Greg is just around.
Some of the larger deals obviously.
Question on a really nice expansion in our Apio I think you said, 60% that's going to be booked in the next 12 months. So.
Any kind of color around.
The length of duration of those larger renewal deals.
Significant would be helpful. Thanks again guys.
Well I'll take the first one we would welcome all of you to couch based connect.
Coming in the second half on October 20th the theme is modernized now and Youre going to hear a lot of.
Of exciting announcements and activity on what we're doing for developers, what we're doing with our portfolio cloud and other parts of it.
Got a lot of sponsors partner contributions customer track so.
Again stay tuned for a lot of exciting things and I would love to see you all there.
Yes, Rob on your on your question about the deal so the two the two deals.
Those early renewals, we talked about one with a two year deal one of the three year deal very in line, what we would expect and quite honestly. It just the overall duration really was it within the range as a total company. This quarter. So this wasn't a we were expanding the duration materially.
Great. Thanks again, guys appreciate it thank.
Thank you Rob.
Thank you our final question for today comes from the line of Italian gets wrong from Oppenheimer. Your question. Please.
Thanks last but hopefully not least a couple of questions for you one math.
On the customer adds.
Looks like this quarter were actually down on a year over year basis from a customer add standpoint, and I know there is some randomness to it as well.
But what's your level of confidence about your ability to start delivering kind of bigger increases senior customer accounts on a quarter to quarter basis.
Certainly it's certainly not the least I. Appreciate the question look the first thing I would say is when I think about the health of the company I focus on the quality of our installed base.
Do we have large enterprises as our footprint in that large enterprise significant where we're deployed as a source of truth moving to a system of record are we set up for.
Our multiple vectors of growth.
And from a qualitative perspective, I would tell you that we had some really nice lands in the quarter.
And quite frankly, where we had churns it wasn't significant customers, where we were dependent on big applications.
The other thing that I look at a lot knowing that start dates on enterprise applications aren't perfectly predictable is the overall momentum of how new logos are tracking through our pipeline.
And despite the fact that we might not have seen as many get over the goal line as we would have wanted we.
We did see a lot of progress and we expect that all of the investments that we're making on go to market. Our enterprise teams getting back at it people understanding the value proposition of things like <unk> that we will see an acceleration of new customer acquisition.
Other thing that I would tell you is all things cloud on our focus on developer that is a big lever that we're going to pull thats going to directly.
Contribute to this number so.
We feel good about the quarter from that perspective, our field teams are doing a great job of evangelizing the couch based platform.
The market is starting to recognize couch based more broadly than it ever has and those are all good things for us as we go forward.
That's great.
That's great.
Just to follow up with you on the Rps side, clearly a great number this quarter, but just for the sake of managing expectations, given the kind of the early renewal.
Would it be safe to assume that IPO mid to perhaps not show us good O'brien.
Outcome next quarter, just because of the pull forward effect.
Yeah look we're we're obviously not guiding type RP O. Specifically, so we haven't commented on that but again this was a particularly good quarter from an RPM perspective that said I would say when we get to Q4 Q4 is our largest quarter. So there can be.
Some opportunity there, but it's very dependent on.
Deal closure than then.
Length of duration of deals as well so.
We'll provide some more color on that as we go through the quarters here.
And then just to think he tied to sorry, just to answer <unk> question from before so everyone can hear the weighted average shares assumed for Q3 is $43 million 350000 shares.
Very good.
Thanks, guys and again congrats on your first quarter.
Thanks Scott.
Thank you. This does conclude the question and answer session of today's program I'd now like to hand, the program back to Matt Cain CEO for any further remarks.
Great well, thanks to everybody for joining our first quarterly earnings call and again, thanks to our employees partners and customers for your support and placing their trust in couch Vince as I Hope you can tell we are thrilled with our performance in Q2, and even more excited about the massive market opportunity in front of us for our modern database for enterprise applications and.
We'll see you all here next quarter. Thank you very much.
Yeah.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Goodbye.
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