Q3 2021 Couchbase Inc Earnings Call

[music].

Thank you for standing by and welcome to Couch basis third quarter fiscal 2022 earnings call. At this time, all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference maybe recorded should you require any further assistance. Please press star zero I would now like to hand, the conference over to your host Edward Parker Investor Relations. Please go ahead.

Good afternoon, and welcome to catch basis third quarter 2022 earnings call.

We will be discussing the results announced in our press release issued after the market close today with me are cap space as 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.

This reflects our views as of today, only and should not be relied upon as representing our views at any subsequent date, 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 actual results. Please refer.

What are the risks discussed in today's press release, our quarterly report on Form 10-Q for the quarter ended July 31, 2021 quarterly report on Form 10-Q for the quarter ended October 31st 2021 to be filed with the SEC.

The SEC.

During the call. We will also discuss certain non-GAAP financial measures, which were 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 in our 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 today during today's call, Greg and I will provide details on our third quarter results as well as our fourth quarter and full year guidance.

Let's kick this off with a few highlights of our Q3 financial results.

Our third quarter revenue was $38 million growing 20% year over year.

Total annual recurring revenue or <unk> was $122 $3 million, which was up 21% year over year.

P O grew 41% to $124 $3 million, our gross margin remains best in class at 88, 3%.

We had a great quarter in our core business, we saw ongoing big deal momentum robust renewal activity, some significant expansions and delivered accelerating year over year revenue and <unk> growth ahead of our guidance.

We also saw several COVID-19 impacted customers returned to growth and we're cautiously optimistic that others will follow which would add a tailwind behind our accelerating AOR growth.

But perhaps most importantly, we're seeing momentum in our cloud business bolstered by positive reception and very strong initial uptake of our recently announced hosted database as a service offerings, Capella, which I'll discuss more in a moment.

Overall, our strong fiscal third quarter performance demonstrates how enterprises are turning to and investing in couch base as a key technology partner supporting their digital transformation initiatives.

I'm proud of the team and I've never been more confident in our strategy, our technology and our opportunity looking ahead, we're set up for what we believe will be a great fiscal fourth quarter and a landmark year for the company in fiscal 2023.

A couch base, our mission is to empower enterprises with the ability to build deploy and maintain their mission critical applications by delivering the world's most scalable highest performing and flexible modern databases.

Enterprises are confronting the reality that relational platforms are fundamentally unable to accommodate the requirements of modern applications.

While many emerging no sequel technologies address these limitations they struggle to do so at the mission critical scale and performance levels required by the modern enterprise.

And these technologies weren't architected to accommodate the wide spectrum of deployment and consumption modalities increasingly common across enterprise environments.

Couch space was born to bridge these critical gas.

Enterprises are choosing to build their most important applications on couch space, because we offer the scalability flexibility and ease of adoption necessary to accommodate the incessant growth in data volume and variety that is at the core of digital transformation.

We empower architects tasked with designing building and supporting applications on which their businesses depend.

We also provide developers the tools they need to build software and a modern agile and elegant way.

And we do this for both new applications and existing ones that need to be re platform.

We enable modern application design, while leveraging the this thing and ubiquitous knowledge of sequel.

We can run anywhere from cloud to on Prem from the data center to the edge and managed or hosted deployment.

We proudly do all these things with Uncompromised performance, but in an approachable and familiar way and.

We do all this in a single carefully Architected enterprise platform.

Simply put I remain confident that we have the opportunity to drive a generational rethink in the 60 billion dollar database market.

Turning to some of the developments in the quarter in October we held our annual user conference Couch based connect online with the theme of modernized now, which underscores the need for organizations to become more flexible and increase developer agility to expedite modern application initiatives.

Connect was an impactful week as we raised awareness among key influencer audiences with a particular focus on developers.

We saw over 5200 registrations and we educated customers and prospects about our modern database across more than 100 sessions over half of which were for developers.

Of course, the Big music connect was our introduction of couch based capella, our new fully hosted database as a service offering that delivers database flexibility and ease of adoption for developers and performance at scale for enterprise applications with the best price performance of any databases.

Service.

Capella is available as a free trial for developers, enabling them to get up and running with couch space with just a few clicks and a matter of minutes.

And it is now available on AWS with additional cloud providers, becoming available in the future.

And it takes some time to talk through why the introduction of Capella is so significant.

As you know one of the core value propositions of Couch base is that we are architected to run anywhere and in whatever consumption model and the organization desires.

Recall that our core platform is cloud native and more than 50% of our customers deploy couch space in any one of the major public clouds today.

On top of that we have had our virtual private cloud offering in market for over 18 months.

And now with Capella, which is fully managed and automated customers can focus exclusively on agile development of their most important applications instead of worrying about operational database management efforts.

Though it is still early days for Capella the feedback from customers has been overwhelmingly positive.

We are excited by the leading indicators of our biopharm business.

An example of this is developer trial activity, including account sign ups and cluster creation.

Overall trial activity in the month since launch has meaningfully outpaced all other product launches in our history.

More specifically, we had more than doubled the number of clusters deployed in the first month of capella than we did in the previous three quarters.

This is the activity we would hope to see further reinforcing our confidence that this new offering will be a major growth driver for couch space and will greatly accelerate developer adoption.

And we intend to keep our foot on the gas we will maintain an aggressive investment cadence to support our ambitious product roadmap and capella will be a cornerstone within our buy from sales motion complementing our world class cell to motion.

I look forward to updating you all on our progress with couch based capella in the quarters to come.

In Q3, we saw continued momentum across our partner ecosystem I am pleased with the volume of partner deal activity of note the partner sourced and influence new business for the first three quarters of FY 'twenty two has already surpassed that of all our previous fiscal year.

On the CSP front, we continue to work with all major cloud providers and in Q3, we specifically saw continued strong engagement and support from AWS.

Beyond launching capella on AWS with support from AWS SaaS factory team, we were invited to two new select go to market programs and qualified for multiple designations and integrations with AWS offerings.

Now I'd like to spend a few minutes discussing some customer wins in the quarter and now enterprises are leveraging the power of couch space to transform their business.

Our new G. Two K logo in Q3 N. Gen technologies, a leading insurance company in France began its modernization journey by selecting couch space over another no sequel solution to replace Oracle and Postgresql to power their data hub.

The system of record for the more than 4 million people they insure.

The data hub must be able to continuously ingest a large volume of data, but also expose this data to consuming applications through rest API S. M.

Amgen chose couch base due to our ability to join a large volume of data full text search scalability and supporting a large number of transactions with low latency.

Another new win from the quarter, which was also our largest capella deal to date was with a leading financial services provider that empowers billions of people and millions of merchants to buy and sell online across many emerging global markets. The company's selected capella on AWS.

Over Mongo DB Atlas to power its payment gateway.

This customer's development team cited database performance and the familiarity of our sequel, plus plus query language as the key factors in their decision to partner with couch space.

Also in the quarter Domino's pizza significantly expanded with cap space Domino's will be using couch base for real time point of purchase customer segmentation and behavior analytics to determine customer lifetime value and to deliver personalized marketing campaigns.

They were also able to take things that they already knew about their customers and then combine that with the new information to take action in hours versus weeks or months as was previously the case.

This is a great land and expand example, once customers adopt our technology they quickly find new use cases.

With our platform Domino's can deliver not only the perfect pizza, but also insights to its internal business partners in real time.

As I take stock of Couch basis first few months into our journey as a public company I am very proud of all that we've accomplished in just a short period of time it.

It has been very encouraging to see the recognition and validation of our modern database for enterprise applications from across the industry, including partners industry analysts and customers.

But I'm, even more excited about the months and years to come.

It is clear to me that enterprises are increasing the urgency by which they modernize their application stacks, which intensifies the need for a modern database like couch space and is the reason why we are so excited to come to work every day.

And while we are not completely back to our normal enterprise buying and selling environment as pandemic protocols are still impacting our business. We are seeing spending from some of our key customers and our distressed industries recover.

And our go to market organization is starting to get back in front of our customers and face to face engagements I'm encouraged by these developments and I remain cautiously optimistic that the recovery will continue with increasing momentum in the coming months.

From a technology perspective, our product portfolio has never been stronger drafting off the momentum of our release a couch based server seven in the second quarter and building off our current virtual private cloud offering the release a couch based capella hosted database as a service offering in the third quarter marks the beginning.

<unk> of a new chapter in the couch based story.

Enterprises are increasingly looking to offload the management and tuning of database systems. So they can fully focus on the applications that run their business and Capello provides this capability while offering all the mission critical attributes customers have come to expect from couch space.

Bigger picture Capella enhances one of our core value propositions of couch space.

The ability to enable enterprises to leverage our modern database in whatever deployment and consumption model, but that business requires while at the same time fundamentally changing how developers can access the platform.

With Capella. This access is just a matter of a few clicks away.

We've invested an enormous amount of time into this offering and as I discussed earlier, we're thrilled with the customer feedback we've received so far.

We have a robust capella roadmap ahead of us and you can expect more announcements next year, including support for additional cloud providers more features and more capabilities Needless to say, we have very high ambitions for our as a service portfolio.

And of course, our product investments go beyond Capella.

Couch spaces built for a world where the applications are delivered as a continuously running service from the cloud and consumed at the edge on occasionally connected devices as mobile applications.

As you know early on we uniquely made investments in our mobile and edge database capabilities to completely round out our ability to run anywhere.

We are currently investing in the next release of Couch based mobile our full featured embedded no sequel database for mobile and edge computing.

The forthcoming innovations will make our capabilities more easily embed Abel and programmable at the edge catering to a vast variety of industrial retail health care and Iot applications.

You'll also see focused on secure management and operations from cloud to edge and simplify administration to make remote databases at scale significantly easier for customers.

We look forward to sharing more about the next phase of our mobile and edge offerings stay tuned.

The next release of our core platform is also coming next year and with it we are making it even easier to migrate from relational databases. We are the only modern database for enterprise applications that makes it easy to seamlessly combine operational capabilities and analytical insight and the next.

<unk> based server reliefs will feature important updates to our analytics features.

You will also see us extending our core platform support two additional processing architectures, which will reduce the cost for both our customers as well as capella in the future.

In summary, we had a strong quarter, we wouldn't have had 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 base, we aim to be good humans always to act with uncompromising integrity and to allow all of our employees to serve their families. This allows us to attack hard problems for our customers and play to win together so that we make tomorrow better than today, we achieved that in Q3 and expect to do so in <unk>.

Q4, the best of Couch base is yet to come I will now turn the call over to Greg to talk about our financial results Greg.

Thanks, Matt and thanks again, everyone for joining us as Matt mentioned calculate the strong third quarter performance was driven by ongoing large deal momentum in our core enterprise business, including some significant expansion as well as acceleration of our cloud business.

Some of our customers and distressed industries remain impacted by the pandemic, we saw improvement in the third quarter and are cautiously optimistic that those customers will continue to recover.

Total revenue in Q3 with $38 million growing at 20% year over year and up 4% from the prior quarter subscription revenue was $29.0 million also up 20% year over year and up 3% from the prior quarter.

Professional services revenue in Q3, with $1 $8 million up 16% year over year, and 9% quarter over quarter.

Total annual recurring revenue or <unk> was $122 $3 million, representing 21% year over year growth and 6% quarter over quarter growth. We're pleased with our performance had year over year growth accelerated in the quarter. We expect this trend to continue into the next fiscal year.

As a reminder, <unk> represents the annualized recurring revenue at the end of the period that is currently contracted and committed over the forward 12 month period we.

We believe are our best represents our business performance by accounting for timing variability among our customers implementation time is.

As most of you may know we continue to serve the most mission critical applications at the largest enterprises. We remain focused on this segment of the market and are pleased to report our <unk> per customer performance in the quarter with $215000 up from $193000 from the same period last year. Our dollar based net retention rate was 150.

18% for Q3.

In discussing the remainder of the income statement. Please note that unless otherwise noted all references to our expenses operating results and share count brought a non-GAAP basis.

Our gross margin profile remains best in class in Q3, our gross margin was 88, 3%.

This compares to a gross margin of 87, 9% a year ago and 88, 3% last quarter, we have a long term gross margin targets remain above 80% with our trajectory somewhat contingent on the rate of uptake and eventual mix of are growing as a service offering.

Turning to expenses, our sales and marketing expenses for Q3 were $21 $5 million for 70% of total revenue compared to $17 $1 million for 67% of revenue a year ago, we continue to make significant investments across our sales and marketing organization, including aggressive additions to quota carrying head count as well as <unk>.

Ongoing investments in customer success, our partner program and bolstering our go to market expertise in cloud.

Research and development expenses for Q3 were $12.0 million for 39% of revenue compared to $9 $8 million and 38% a year ago, we've invested purposely and aggressively and product engineering.

Pacifically, we continue to invest in couch based Capella in addition to ongoing core platform development.

General and administrative expenses for Q3 were $5 $8 million for 19% of revenue compared to $3.6 million and 14% 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 and preparing for and being a public company.

Non-GAAP operating loss for Q3 was $12 $1 million or a negative 39% operating margin compared to a negative $7 $9 million or a negative 31% operating margin in the year ago quarter.

This result was significantly better than our expectations was driven by better than expected revenue as well as lower than expected opex, primarily due to timing we remain committed to investing aggressively and although we are on track to exceed our full year operating loss target. We now expect our second half opex investment to be more weighted towards Q4.

Non-GAAP net loss attributable to common stockholders Q3 was negative $12 $6 million or negative <unk> 29 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 cashless payment, we ended Q3 with $207 $6 million in cash cash equivalents and short term investments.

Our remaining performance obligations or our P O totaled $124 $3 million up 41% from $88 $3 million last year and up 5% from $118 $9 million from the prior quarter our year over year RPM growth is reflective of the strong renewal and upsell activity.

We expect to recognize approximately 62% or $76 $7 million of the total RPE O as revenue over the next 12 months.

Operating cash flow was negative $19 $7 million compared to negative $13 $1 million year ago free cash flow was also negative $23 million for negative, 66% free cash flow margin compared to negative $13 $3 million and a negative 52% free cash flow margin a year ago.

I will now conclude the call by providing guidance for Q4 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.

Furthermore, as I indicated earlier, we are seeing signs of recovery in portions of our customer base impacted by Covid.

That said, we're continuing to see variability with respect to the implementation timing of certain deals which impacts our revenue visibility.

Accordingly, we are prudently considering this variability in our revenue guidance, even as we see continued upside door air our outlook. Our guidance also assumes some continued uncertainty among distressed industries and our go to market motion as we continue to monitor pandemic related developments.

Clearly a deviation from this assumption would cause us to modify our guidance higher or lower.

For the fourth quarter of fiscal 2022, we expect total revenue in the range of $33 9 million to $34 $1 million. Therefore, our year over year growth rate of 16% at the midpoint we.

We anticipate <unk> in the range of $129 million to $130 million, which represents 20% growth at the midpoint.

We expect a non-GAAP operating loss in the range of negative $10 6 million to negative $10 $2 million.

For the full year fiscal 2022, we expect total revenue in the range of $122 4 million to $122 $6 million, therefore, our year over year growth rate of 19% at the midpoint.

As noted above we expect <unk> growth to be 20% at the midpoint and.

And finally, we expect a non-GAAP operating loss in the range of negative 47.0 million to negative $46 $6 million with that Matt and I are happy to take your questions operator.

To ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Sanjay <unk>.

Morgan Stanley Your line is open.

Thank you.

Yes.

Hi, Thank you for taking the questions and congrats on the.

Improved AOR growth above 20% really nice to see I guess I'll start with Capella and D.

You mentioned that some of the.

The number of clusters deployed in the months after lease being significantly up I think broad so could we just go through some of the developer initiatives you Youre working on and what do you think this is Kent.

Capello can cross an important threshold, let's say 10% of revenue.

It gives them from where you were starting today is that a two year timeframe of one year time frame, what's a reasonable.

What's a reasonable timeframe to think about hitting some of these initial revenue thresholds.

Sanjay Thanks for the question and I appreciate the commentary, we're certainly excited about the Reacceleration capella.

Capella marks a major milestone for us as a company as you know couch base has been architected for the most mission critical applications.

We have a cloud to edge cloud native platform, but what the capella offering allows us to do is completely simplify the ability for developers and other personas to adopt that industry leading technology.

What I talked about in the call is the early indication that we're seeing of just how valuable that consumption model is.

And it took us three weeks to see the volume of clusters and trial activity that we saw in the previous three quarters, that's not to do diminish our N V. P C offering, but more so to demonstrate how powerful it is when we provide a form factor that is so easy that within a couple of clicks are up and running with the full power of the <unk>.

<unk> based platform, it's not just about the cluster volume either it's the about the conversion that we're seeing in people that are interested to deploying clusters, where we've seen a four to five X increase in efficiency of of that metrics or leading indicators suggest that.

We've got the product market fit that we have been working so hard for and talking about.

Setting aside kind of the product led growth initiatives you asked about developers, we're putting a lot of time into the developer experience and more specifically when we think about it there's developer advocacy, making sure we're building great products and providing integrations for developers to see the full power of of Couch base you can go.

Out there and get up and running via a web based interface in what we call. The playground really simplifying the path to trying out trying out couch base, we're investing in developer relations. So engaging the developers articulating what other customers are doing with the power of our platform, how they're finding our Ella.

<unk> design and enabling truly next generation applications and then finally organizing communities to make all of that that much more efficient. We're excited that in the quarter Sanjiv, all leading indicators on developer traction everything from web page views to organic traffic time on page download.

<unk> were materially up quarter over quarter and year over year.

These are initiatives that we've been working hard on for a long time, our development cycles. Our go to market efforts are aligned we're going to keep our foot on the gas pedal and we think we're only scratching the surface on what's possible.

This is Greg.

On your question, what he could be deployed.

While we're really excited about capella and what it can do for us in doing for US today, we're still not at the point, where we're going to be disclosing anything specifically around our financials or the timeframe, we're certainly continuing to.

Worked through that and when the time comes we will we will obviously share that board is not ready to do that today given that it's still an immaterial part of the business.

Got it and then just one follow up question for you Greg as we think about the relationship between <unk> and revenue certainly came up in the last call around some of the timing of the appointments, but if you could just sort of.

Big picture it for us.

We've had I think going on three straight quarters actually multiple quarters of sustained 20% or above <unk> growth and so as we think going into fiscal year 'twenty three given that you've had to put up that that sustained 20% goes to there or should have that.

Converge or aligned with a 20%.

Our better type revenue growth profile going into next year and if it does at what like what if you could just sort of walk us through like why would.

That'd be the case.

Yeah. Good question Sanjay So just about next year, obviously, we're not at the point, where we're going to give fiscal 'twenty three guidance, yet, we'll do that a quarter from now so I'm not going to I'm not going to comment on specifically about next year, but look I agree with your assessment that the revenue is lagging and it will eventually catch up with there are so that that.

Ultimately you're going to be our view as well.

It right now because of our definition of IRR, we're obviously.

You know able to count things that are in the future where theyre not generating revenue today.

But they will be they will be in the future and I would also point you to RP O is another good metric to show you.

They're really high quality deals that we're seeing with our apio growing over 40% and and current Rps on.

On an escalating path for the last several quarters so.

It will certainly come.

We obviously like the fact and we hope that continues to remain above the revenue growth.

But that that's where we're going to see and again I would always focus at <unk> is our most important metric that we follow.

We set that set the definition of that for that exact reason because.

The deals we do with these large customers the implementation timing and his start date is always a little uncertain until we have to account for that.

Yeah.

Makes perfect sense. Thank you guys I appreciate it.

Thanks Angie.

Thank you. Our next question comes from Matt Hedberg of RBC capital markets. Your question. Please.

Hi, guys. Thanks for taking my questions and I'll offer my congrats as well on the acceleration this quarter.

And what sounds like a strong start to Capella, Matt I guess I wanted to ask on the partner front. I mean, you noted I think you said that the first three quarters of the year has outpaced all of partner activity.

Fiscal 'twenty, one I guess I'm wondering could you put a finer point on why that's been such you've.

You've seen a lot of strength, there and I guess to the extent that capella.

Offers another interesting sales motion for the partner channels could you articulate that as well.

Yes, Matt Great to hear from you and I appreciate the question.

When we think about our partner business.

This is an area of the company that we've been investing in for many many years and believe it's a key foundation to building a great database and specifically in enterprise database company. When we talk about our partner investments that's everything from GSI.

<unk> to Isps to cloud service providers and.

And we study very carefully not just how we're influencing large enterprise opportunities and leveraging the relationships and the reach that these partners provide but also opportunities that are sourced where partners are bringing net new opportunities to the company.

I'd say the continued strength as expected Matt because we've continued to make disappoint a focus and then investing in it for for many years and if anything we are accelerating our investments there, particularly in the area of cloud service providers.

They become even more important for us with with couch based capella, but I would tell you that capella is not just an opportunity for cloud service providers its an opportunity across the enterprise.

S <unk> deploy.

Hundreds of thousands of developers in touch developers and large enterprises, having a form factor that's conducive to allowing them to accelerate digital transformation projects is critically important.

The ISP channel is one of particular strength for us and the ability to embed a hosted offering into a solution stack opens up opportunities that are additive to our existing portfolio.

So we remain very excited about this is helping us.

<unk> leverage and our overall go to market and will be an area that we continue to focus on not just with go to market investment, but ensuring that we have the appropriate roadmaps and technology integrations to to grow that channel as we go forward.

That's super Super Great exciting and then Greg.

If I think if I have my math right I believe CRP O grew near 34% I guess is that the right ballpark for <unk> growth.

Correct, that's exactly right.

And I guess, maybe following up on Sam's question, I know youre not guiding to next year, but to me that would seem like a pretty good.

Indicator of kind of the trajectory of the business. Our <unk> has grown north of 40% I believe now two quarters in a row.

How should we think about I guess.

And maybe maybe maybe the question is was there anything abnormal like large deals that drove the <unk> strength and is it right to kind of look at <unk> as a good indicator for maybe where next year could eventually get to.

For AOR growth.

Yeah. So great question, Matt and again I'll answer. This again, we will continue to reinforce <unk> as the key metric the week, but we focus on in the business, but look we had a very strong quarter again, where we're working with some of the largest.

Enterprises underpin a very complex deployment and we are doing.

Big healthy.

Renewal and expansion deal and there is a multiyear dynamics that you're seeing that in the total ARPA.

But youre also seeing in the short term our P O as I mentioned with <unk> question. The question was around the implementation timing.

There's variability there and so that's why you see some of the what youre seeing with with kind of our P O and IRR.

Versus revenue is a lagging indicator, but we feel great about where the IRR is heading in terms of re accelerating getting hopefully back into 'twenty and the CRP or just just to add to that so we're we're excited about what that brings in the future and we're going to continue to do these great healthy deals that her long term focus for her couch base.

Got it thanks, a lot guys.

Thanks, Matt.

Thank you. Our next question comes from <unk> Kidron of Oppenheimer. Please go ahead.

Thanks, Matt.

Well I guess, what I wanted to talk about capella as well.

Maybe you can talk about when you think about the first users that you're now seeing on the platform.

How many of them by the way a completely new couch based versus existing customers that are just kind of looking forward to diversify their <unk> deployment.

Deployment mode.

Yeah.

It will <unk> first of all I'm not surprised you want to talk about Capella and I could talk about it all day because of the potential that has for us.

Frankly, we're seeing a very healthy balance of existing customers and new customers.

We had the biggest quarter in our history.

From our overall cloud business, which was our <unk> product.

I was asked what was I pleasantly surprised by from the quarter quite frankly, the commercial activity.

All things cloud it says if we release posted capella.

Quarter ago, because of the number of conversations that we're having which I think is indicative of the demand that we have we had a new logo as a matter of fact in Asia, where we work closely with AWS short sales cycle.

Heavy demand for the technology and the partnership allowed us to show up in local language and local support to get things over the line that was a completely new logo.

At the same time, we're talking to some of our largest customers for net new applications and eventually.

Migrating existing applications. So I'd say that the activity is very healthy when we look at that trial activity. We do fundamentally believe that capello will be the new logo engine for the company as we go forward.

When we studied the clusters deployed in some of the early stage top of funnel activity. We're certainly seeing that really extending the reach of the couch based platform that many many more customers.

That's great. So maybe a follow up on this if you think of this as a major driver for you going forward. How do you think the go to market needs to evolve in order to enable that.

Self serve is going to be a material element here with copay or you're still going to require a significant direct sales force investment.

Yes.

We think about our go to market as a enterprise sell to motion and we are augmenting that with they buy from motion.

So we certainly expect.

New customers to come to us.

Find us and start to get into trials on couch based capella at the same time, we will be articulating the value proposition on that offering to existing customers. We've been investing in both of those motions and ensuring that we have a well orchestrated set of handoffs between them, but.

Over the course of the past many quarters everything from additional sales capacity to marketing investment to cloud specialization too.

Overlay cloud securities.

Experts, we're really being mindful of that balance and most importantly, starting from a how do we satisfy our customers and ensure that they are successful whether they're coming.

On their own.

One of the marketplaces or we are working with one of our existing customers to migrate over so we're pretty excited.

Cited about the investments and the foundation, we have on the go to market side.

Darting to see those really start to pay off.

Very good thanks, good luck guys.

Thank you.

Thank you. Our next question comes from Raimo <unk> of Barclays. Your line is open.

Hey, Thanks, two quick questions from me.

Greg if I look at Q3 that looks pretty healthy if I look at Q4 guidance compare to some of the consensus numbers out there and maybe consensus is a little bit a little bit update but I.

I looked at it.

Differently.

Was there any pull forward from Q4, and Q3 kind of maybe impacted numbers or whats driving it there and then one for Matt If I think about the <unk>.

<unk> pandemic impacted industries, and then coming back to you talked about some progress there.

How much of it like if you think about that.

Many quarters do you think there's.

There's more to come or are we kind of done now.

Recoveries here. Thank you.

Hi.

Thanks, Raimo this is Greg I'll answer.

Your first question and then turn over to Matt.

We don't we don't necessarily pull forward.

From future quarters per se.

Look we do deals when customers wanted to deal. So other times when we do early renewals sure, but it's not a pull forward per se, we're not aggressively going forward and we talked about that on the last call. There was a couple of early renewals where customers wanted to do deal. So.

I'd say theres any pull forward.

I think.

You're probably talking potentially about the revenue guidance look I would tell you on the revenue side, but we're just starting to see some of these large customers. We have just think further.

<unk> had about their implementation timing and part of it I would say a budget related part of it's just more prudent in terms of their buy.

Buying timing and so we're very excited about these deals.

We're trying to provide the most accurate guidance to you and also be prudent so theres a little bit of that in there on the revenue side and the only other thing I would tell you on the guidance is.

Look we had less expenses and I talked about in the prepared remarks, a little less expenses in Q3 than we had originally planned because of move to Q4, it's just a it's a timing.

Timing difference, but there is no impact on the full year and that's why you saw for the full year we've raised.

Our revenue and our profit guidance as well.

Yeah Okay.

So Ryan let me address your question on pandemic and in particular distressed industries as you know our platform serves travel and hospitality and other verticals for that matter.

Very well.

Clearly with the pandemic being what it was those companies were under duress as we've talked previously we took great pride and showing up as a true partners to those companies during those those times, making sure that we weren't just a technology vendor, but a partner that was there for them in good times and.

In future Great times.

We did mention that we saw some some return to some very healthy levels.

One of my most proud moments during the quarter on behalf of the company.

We were dealing with one of the world's largest hospitality companies they communicated to us that their business is it 50% of pre pandemic volume.

Yet we had a significant expansion with them as they invest in couch space as a true digital transformation platform for the future.

Think that happens if we don't have technology, that's future proof that we have great relationships that they are truly seeing couch based says.

As one of their key partners, so we're seeing points of strength.

We are certainly engaged with our customers in this quarter and beyond I'd say, we're cautiously optimistic.

We can't predict the future, obviously theres still variance and.

Pressure on return to normal activity, but I think as we mentioned this as part of our acceleration in one of the many contributing factors to additional tailwind as we go forward.

And yet I would just add there was one of their customer to use.

<unk> situation cruise line.

That last year came to us obviously in the midst of the pandemic wasn't generating more than failing generating any revenue.

We had to sort of.

He was a special deal and take care of them as one of our valued customers and they've come back this year and they're getting back to business and we've got now a multi year deal, where we're going to more than double the.

The state at that at that customer and so that's just a great example of where we are starting to see some of that.

Return from Covid and how we.

Taking care of these customers and done right by them.

We're going to feed them with great customers for many years to come.

Okay perfect. Thank you.

Thanks Randall.

Thank you. Our next question comes from Jason matter of William Blair. Please go ahead.

Thank you good.

Good afternoon guys.

To ask about the comment Greg that you made on.

<unk>.

Opex to accelerate continue to accelerate going forward and I, just wanted to unpack that a bit and understand what's giving you that confidence how much of it is with the kind of the pipeline that you see right now versus.

Versus kind of some of the macro assumptions around COVID-19 recovery.

Versus.

The uptake of Capella and the contribution from Capella.

Yeah, Great question, Jason Yeah look we I think we've talked about this even on the IPO Road show that we knew we were going to be heading into a reacceleration picketed.

We feel like we're entering that now and based on what we see both on the.

The existing customer base and our pipeline for new logos in particular, it's coming we believe from Capella here, we have seen in <unk>.

Improvement from the Covid impacted cohort that we've talked about before that cohort is no longer.

Negative growth, we're starting to turn to positive growth and so it's just a combination of all those things what we see in the pipeline.

The product launches, we have all of those things give us give us excitement and confidence that we will be able to continue this.

Acceleration.

Beyond Q3 into Q4 and into next year.

Okay, Great and then did you provide the customer count correct.

I did not but.

I'm happy to because you will be great.

The customer count for <unk>.

In Q3 was 568 customers.

Okay and then.

Matt for you just wanted to get.

Some comments on the competitive environment, and who you're competing against.

Mainly today and how has that changed let's say over the last 12 to 18 months if at all.

Jason I think one of the things that we take pride in as it were focused on.

Being a modern database for enterprise applications.

We're multimodal.

We are designed as a cloud native database that can run from cloud to edge at the highest performance and scalability and now with any consumption model that the customers want.

So I think we take great pride in our unique <unk>.

Differentiation that we believe we will be able to sustain and helping customers not just with new applications, but in re platforming relational ones. So as we think about enterprise as you know theyre going to be evaluating legacy relational technologies next generation.

Modern databases, but there really is not a platform that can provide the true breadth and depth of capabilities that couch base was designed for.

So anytime we're engaged with an account, we're proving our value and articulating.

All aspects of that value proposition proving things out and proof of concept with Capella, we're able to let you know.

<unk> do that directly.

So look if you were to pick a database our customers are going to have those or will be trailing them.

But there is no other database that can do the things that we have because of the architectural approach in <unk>.

Point of optimization that we've chosen from the very outset of our company, which we remain committed to.

Well, let me ask you a slightly different way.

Sure.

If I, if I think about kind of the three buckets.

You know kind of the cloud guys. The incumbent relational guys and then sort of newer no sequel folks who are you seeing the most.

Within those among those three groups.

Look that is exactly how we break it down and we think about the.

If I put my whenever I think about competitive dynamics I put myself in the shoes of our customers and they're saying what do I need for my application.

If I have an existing database and incumbent whether it be oracle or someone else.

Cannot provide the capabilities that I need we know that that is the answer to that question is no and they are often an evaluation to figure out.

Which technologies they can layer in to augment their applications or in some cases.

Offload off of relational databases, so that's a dynamic that we see.

There are several next generation no sequel solution.

Mongo, obviously and others there.

Their point of optimization is different than ours, and so while there is overlap and we may have points of comparison, when we get into scale and performance and cloud to edge deployments.

Those comparisons go in our favor for the applications that were Architected for.

Obviously enterprises are constantly evaluating the embedded solutions and cloud.

AWS and Microsoft probably the leading too but again our job is to ensure that we're solving database problems that.

Our enterprises.

Can't get from other areas and if you were to go listen to our customer base, because I know you have Jason Youre going to hear that played out.

<unk> performance and scale, that's not available with other solutions the familiarity with sequel cloud to edge deployments multimodal capabilities everything from key value cash document database asset transactions, becoming a true source of truth.

System of record for the most mission critical applications you put all that into a single platform that was architected from the beginning to make those things happen.

When we get into alternatives, yes, they're looking at them, but there is no other solution that.

Has that full.

Set of capabilities integrated into a single platform.

Thank you very much.

Thank you Jason.

Thank you. Our next question comes from Robert I'm, Sorry, Rob Oliver of Baird. Your question. Please.

Great. Thanks, Good evening guys I appreciate it.

First question for you Matt also on Capella.

Just around the large deal that you saw I assume that was a current customer migration, but would love to hear some of the dynamics around that deal in particular around kind of sales cycle I know one of the things that's exciting about capella is just.

The decline in the lower sales cycles associated with it. So just would be curious in some of the early activity, particularly the larger deals if that was reflected.

In terms of what you saw this quarter.

And then I had a quick follow up.

Rob Thanks for the question. So we have multiple cloud deals to talk about it I think the one that you may be referring our largest capella deal today.

That wasn't accelerated sales cycle out of emerging markets.

They were in an evaluation cycle between us and Mongo DB Atlas.

They talk about not just our performance the breadth of our capabilities part of my comments to Jason but also the familiarity and ease of use of sequel, and what we've built into <unk>.

Capella has an offering but quite frankly, we're seeing some very nice size deals.

In new logos.

Large gaming company in Asia turned into an over six figure transaction.

<unk> is a really important deals for us and the fact that we can see those enter into the pipeline and move to closure at a fraction of the normal time period that we would have with a customer managed solution. Those are the things that have us really excited and so this is not a story about just migrating our base as a matter of fact, we.

Think about the impact of <unk>.

Capella in the following order new logos first.

Net new applications and existing customers and then the final piece will be customers migrating their existing applications.

But per my commentary.

Fact that.

We have really healthy activity across all three of those.

Already and we think that that's only going to accelerate with the fully.

A hosted offering.

We're now in market with so.

Really exciting stuff again, this is new opportunities new applications extending reach and.

And it's not just in production Rob as you know developers want to try technology. They want to be deployed in test environments, they want to expand easily.

These are.

Benefits that we now have in market because of this consumption model and you combine that with all of the capabilities and the couch based platform that we've worked so hard to build and take such great Pride and you can see why we're excited about the path forward.

Great. Thanks, Matt appreciate it Greg Greg just one for you as well.

Thanks for for some of the other metrics you provided an IRR per customer up.

Nicely again, I think even sequentially.

I know you.

Tried to help us understand some of the metrics that could change like margin for example, gross margin around.

As we shift to capella and they are one of them in other words.

Clearly, we're not in the <unk>.

Why will yet where the customer count is seeing a big impact from capella, but as we start to do will will that AUR per customer.

<unk> be a bit lower or are there any other metrics that we should be aware of.

Capello starts to ramp in 'twenty two thanks a lot.

Yes, Thanks, Rob Yes look.

There could be an impact on the air per customer.

We as Matt talked about we hope if it becomes a new logo engine and we will see.

A lot of new logos and obviously those come in at a smaller ticket price and then we typically grow them. So if we do start seeing the pick up which we expect yes that certainly could have an impact on the <unk>.

Our per customer as we go as you mentioned on gross margin obviously.

The cost of Capella is greater than the <unk>.

The self managed software so we will see impact there. We've stated that we believe we can continue to be in.

80% plus gross margin business over time, but that will all depend on.

The mix and how fast the uptake is and all that so those are the areas that we look for obviously the offset is.

More customers faster growth rate as what we're what we're.

Looking for out of Capella the engine to grow new logos.

Understood. Okay. Thanks, again, guys I appreciate it.

Thank you Rob.

Thank you. Our next question comes from Dan Church of Goldman Sachs. Your line is open.

Sean for Kash Rangan. Thanks for thanks for taking the question and squeezing me in here.

Just a quick one in terms of.

The feedback that you've seen post release of couch based server, having <unk> and and how does support for asset transactions changed the types. If at all of the types of workloads. You can go after and then and then to that end when you talk to customers today.

What are you seeing with respect to kind of growth in net new workloads versus re platforming off of legacy relational technology is there any change there with respect to replacement of.

Relational databases.

And thanks for the question and I. Appreciate you are articulating the importance of <unk> seven.

No.

Our largest server release in history and made materially advancements on making it that much easier for companies that are re platforming applications off of relational technologies.

One of the concepts, it's really important to us is not just moving those applications, but enabling couch base to move from what we call a source of truth to a full system of record.

We talked about one of the <unk> Amgen not only was that.

Relational migration, but we are now the system of record for their data hub.

Another deal that we saw in the quarter. It's another GTK actually one of the world's largest largest auto manufacturers.

Starting to repurpose offer relational technologies, combining that with net new capabilities powering things like marketing research applications.

In this case the team had no previous familiarity with quote unquote, no sequel technologies, but because of the sequel bridge that we've enabled.

They can get into.

And enjoy all the benefits of couch space.

So the combination of being able to service.

The relational data model, but also open up all the power and flexibility and agility that comes with.

The no sequel engine and to do that in a single form factor allows us with the addition of asset based transactions that we've been in market with for a long time to again become that full system of record in what we say increase the density of the application that we support you layer and couch based capella and now not only are.

Are we managing all aspects of the.

The database technology, but the underlying platform and infrastructure as a service. So you can see how that increases our reach increases our wallet share.

But most importantly able to satisfy customer demand for <unk>.

Net new and re platform applications.

Great.

A quick follow up for me you mentioned a couple some expenses shifting from <unk> into <unk>.

Can you can you kind of update us on hiring effort and how that's tracked relative to plan and as you look into next year. When you think about some of the go to market investments that you're making whether it's in capella or quota capacity on the direct side of the fence can you just kind of give us a sense as to what top priorities are for investment and how youre thinking about the pace of quota additions in the next year.

Yes. Good question, Dan, Yes, I think head count hiring is the head count is where we expect it to be we are on track.

During as you've probably have heard universally.

Remaining challenging we're managing through it.

So we are we are tracking where we wanted to be for head count. We're obviously continue to aggressively invest in both.

R&D side of the house as well as sales and marketing and you'll continue to see that as we go into Q4 and into next year.

From a purely from a.

Capacity quota carrying we tend to do most of our hiring in Q4 and Q1 as we ramp for next year and we're on track to do that again this year, but we feel very comfortable where we are from a from a head.

Head count and sales capacity perspective at this point.

And then one of the things that we talk a lot about his field capacity. So it's not just quota carriers, but ensuring that those quota carriers have all of the support they need across the company to make our customer successful everything from Etsy teams to services teams cloud specialists customer success more investment on the partner side.

What we think about first is how do we get to and support our customers and ensure that we have the appropriate investments to make sure that we're showing up.

As a true business partner, so we take a very balanced approach. We study this maniacally and we understand the ratios of those resources that we need in everything from.

Our largest companies <unk>.

And we're obviously going to have a different model for.

The buy from motion and really being mindful about the work to be done and the resources that we need to put in place. In addition to continued.

Aggressive investment on the innovation side and.

And we put those two things together and good things happen.

Great Congrats on the quarter and then thanks for thanks again.

Thanks, Tim.

Yes.

Thank you and at this time I would like to turn the call back over to Matt Kane for closing remarks, Sir.

Great. Thanks, again, everyone for joining us today I just want to reiterate how excited I am about the future account base.

With the continued innovation on our leading core platform, our ongoing strength in our mobile and edge portfolio. The launch of a fully hosted couch based capella recent large customer wins and continued execution of our land and explode motion, we're well positioned for acceleration. We're looking forward to keeping you posted on our progress in the <unk>.

Order ahead, thank you very much.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Thank you for standing by and welcome to Count basis third quarter fiscal 2022 earnings call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

Please be advised that today's conference maybe recorded should you require any further assistance. Please press star zero I would now like to hand, the conference over to your host Edward Parker Investor Relations. Please go ahead.

Good afternoon, and welcome to cash basis third quarter 2022 earnings call Dolby.

We will be discussing the results announced in our press release issued after the market close today with me are cap space as 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 actual results.

Please refer to the risks discussed in today's press release, our quarterly report on Form 10-Q for the quarter ended July 31, 2021 of course, the quarterly report on Form 10-Q for the quarter ended October 31st 2021 can be filed with the SEC and other.

C C.

During the call. We will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles a.

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 in our 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 today during today's call, Greg and I will provide details on our third quarter results as well as our fourth quarter and full year guidance.

Let's kick this off with a few highlights of our Q3 financial results.

Our third quarter revenue was $30 $8 million growing 20% year over year.

Total annual recurring revenue or <unk> was $122 $3 million, which was up 21% year over year.

<unk> grew 41% to $124 $3 million, our gross margin remains best in class at 88, 3%.

We had a great quarter in our core business, we saw ongoing big deal momentum robust renewal activity, some significant expansions and delivered accelerating year over year revenue and <unk> growth ahead of our guidance.

We also saw several COVID-19 impacted customers returned to growth and we're cautiously optimistic that others will follow which without a tailwind behind our accelerating <unk> growth.

But perhaps most importantly, we're seeing momentum in our cloud business bolstered by positive reception and very strong initial uptake of our recently announced hosted database as a service offering capella, which I'll discuss more in a moment.

Overall, our strong fiscal third quarter performance demonstrates how enterprises are turning to and investing in couch space as a key technology partner supporting their digital transformation initiatives I'm.

I am proud of the team and I've never been more confident in our strategy our technology and our opportunity looking ahead, we're set up for what we believe will be a great fiscal fourth quarter and a landmark year for the company in fiscal 2023.

A couch base, our mission is to empower enterprises with the ability to build deploy and maintain their mission critical applications by delivering the world's most scalable highest performing and flexible modern databases.

Enterprises are confronting the reality that relational platforms are fundamentally unable to accommodate the requirements of modern applications.

While many emerging no sequel technologies address these limitations they struggle to do so at the mission critical scale and performance levels required by the modern enterprise.

And these technologies weren't architected to accommodate the wide spectrum of deployment and consumption modalities increasingly common across enterprise environments.

Couch space was born to bridge these critical gas.

Enterprises are choosing to build their most important applications on couch space, because we offer the scalability flexibility and ease of adoption necessary to accommodate incessant growth in data volume and variety that is at the core of digital transformation.

We empower architects tasked with designing building and supporting applications on which their businesses depend.

We also provide developers the tools they need to build software in a modern agile and elegant way.

And we do this for both new applications and existing ones that need to be re platform.

We enable modern application design, while leveraging the this thing and ubiquitous knowledge of sequel.

We can run anywhere from cloud to on Prem from the data center to the edge and managed or hosted deployment.

We proudly do all these things with Uncompromised performance, but in an approachable and familiar way.

We do all this in a single carefully Architected enterprise platform.

Simply put I remain confident that we have the opportunity to drive a generational rethink in a $60 billion database market.

Turning to some of the developments in the quarter in October we held our annual user conference Couch based connect online with the theme of modernized now, which underscores the need for organizations to become more flexible and increase developer agility to expedite modern application initiatives.

Connect was an impactful week as we raised awareness among key influencer audiences with a particular focus on developers.

We saw over 5200 registrations and we educated customers and prospects about our modern database across more than 100 sessions over half of which were for developers.

Of course, the Big news of connect was our introduction of couch based capella, our new fully hosted database as a service offering that delivers database flexibility and ease of adoption for developers and performance at scale for enterprise applications with the best price performance of any databases.

Service.

Capella is available as a free trial for developers, enabling them to get up and running with couch space with just a few clicks and a matter of minutes.

And it is now available on AWS with additional cloud providers, becoming available in the future.

I want to take some time to talk through why the introduction of Capella is so significant.

As you know one of the core value propositions of Couch base is that we are architected to run anywhere and then whatever consumption model and the organization desires.

Recall that our core platform is cloud native and more than 50% of our customers deploy couch space in any one of the major public clouds today.

On top of that we have had our virtual private cloud offering and market for over 18 months.

And now with Capella, which is fully managed and automated customers can focus exclusively on agile development of their most important applications instead of worrying about operational database management efforts.

So it is still early days for Capella the feedback from customers has been overwhelmingly positive we.

We are excited by the leading indicators of our biopharm business on.

An example of this is developer trial activity, including account sign ups and cluster creation overall.

Overall trial activity in the month since launch has meaningfully outpaced all other product launches in our history.

More specifically, we had more than double the number of clusters deployed in the first month of capella than we did in the previous three quarters.

This is the activity we would hope to see further reinforcing our confidence that this new offering will be a major growth driver for couch base and will greatly accelerate developer adoption.

And we intend to keep our foot on the gas we will maintain an aggressive investment cadence to support our ambitious product roadmap and capella will be a cornerstone within our buy from sales motion complementing our world class cell to motion.

I look forward to updating you all on our progress with couch based capella in the quarters to come.

In Q3, we saw continued momentum across our partner ecosystem I am pleased with the volume of partner deal activity of note the partner sourced and influence new business for the first three quarters of FY 'twenty two has already surpassed that of all our previous fiscal year.

On the CSP front, we continue to work with all major cloud providers and in Q3, we specifically saw continued strong engagement and support from AWS.

Beyond launching compel on AWS with support from AWS SaaS factory team, we were invited to two new select go to market programs and qualified for multiple designations and integrations with AWS offerings.

Now I'd like to spend a few minutes discussing some customer wins in the quarter and now enterprises are leveraging the power of couch space to transform their business.

Our new <unk> logo in Q3, Amgen technologies, a leading insurance company in France began its modernization journey by selecting couch space over another no sequel solution to replace Oracle and Postgresql to power their data hub.

System of record for the more than 4 million people they insure.

The data hub must be able to continuously ingest a large volume of data, but also expose this data to consuming applications through rest Apis.

MGM chose couch base due to our ability to join a large volume of data full text search scalability and supporting a large number of transactions with low latency.

Another new win from the quarter, which was also our largest capella deal to date was with a leading financial services provider that empowers billions of people and millions of merchants to buy and sell online across many emerging global markets. The company's selected capella on AWS.

Over Mongo DB Atlas to power its payment gateway.

This customer's development teams sided database performance and the familiarity of our CCAR plus plus query language as the key factors in their decision to partner with couch space.

Also in the quarter Domino's pizza significantly expanded with couch space Domino's will be using couch base for real time point of purchase customer segmentation and behavior analytics to determine customer lifetime value and to deliver personalized marketing campaigns.

They were also able to take things that they already knew about their customers and then combine that with the new information to take action in hours versus weeks or months as was previously the case.

This is a great land and expand example, once customers adopt our technology. They quickly find new use cases with our platform Domino's can deliver not only the perfect pizza, but also insights to its internal business partners in real time.

As I take stock of Couch basis first few months into our journey as a public company I am very proud of all that we've accomplished in just a short period of time.

It has been very encouraging to see the recognition and validation of our modern database for enterprise applications from across the industry, including partners industry analysts and customers.

But I'm, even more excited about the months and years to come.

It is clear to me that enterprises are increasing the urgency by which they modernize their application stacks, which intensifies the need for a modern database like couch space and is the reason why we are so excited to come to work every day.

And while we are not completely back to our normal enterprise buying and selling environment as pandemic protocols are still impacting our business. We are seeing spending from some of our key customers and our distressed industries recover and our go to market organization is starting to get back in front of our customers and face to face.

Engagements I'm encouraged by these developments and I remain cautiously optimistic that the recovery will continue with increasing momentum in the coming months.

From a technology perspective, our product portfolio has never been stronger.

Drafting off the momentum of our release of Couch based server seven in the second quarter and building off our current virtual private cloud offering the release, a couch space Capella hosted database as a service offering in the third quarter marks the beginning of a new chapter in the couch based story.

Enterprises are increasingly looking to offload the management and tuning of database systems. So they can fully focus on the applications that run their business and Capello provides this capability while offering all the mission critical attributes customers have come to expect from couch space.

Bigger picture Capella enhances one of the core value propositions of couch base the.

The ability to enable enterprises to leverage our modern database in whatever deployment and consumption model, but that business requires while at the same time fundamentally changing how developers can access the platform.

With Capella. This access is just a matter of a few clicks away.

We've invested an enormous amount of time into this offering and as I discussed earlier, we're thrilled with the customer feedback we've received so far.

We have a robust capello roadmap ahead of us and you can expect more announcements next year, including support for additional cloud providers more features and more capabilities.

Let's just say, we have very high ambitions for our as a service portfolio.

And of course, our product investments go beyond Capella.

Couch spaces built for a world where the applications are delivered as a continuously running service from the cloud and consumed at the edge on occasionally connected devices as mobile applications.

As you know early on we uniquely made investments in our mobile and edge database capabilities to completely round out our ability to run anywhere.

We are currently investing in the next release of Couch based mobile our full featured embedded no sequel database for mobile and edge computing.

The forthcoming innovations will make our capabilities more easily embed a bowl and programmable at the edge catering to a vast variety of industrial retail health care and Iot applications.

You'll also see focus on secure management and operations from cloud to edge and simplify administration to make remote databases at scale significantly easier for customers.

We look forward to sharing more about the next phase of our mobile and edge offerings stay tuned.

The next release of our core platform is also coming next year and with it we are making it even easier to migrate from relational databases. We are the only modern database for enterprise applications that makes it easy to seamlessly combine operational capabilities and analytical insight and the next.

Couch based server release will feature important updates to our analytics features.

You will also see us extending our core platform support two additional processing architectures, which will reduce the cost for both our customers as well as capella in the future.

In summary, we had a strong quarter, we wouldn't have had 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 base, we aimed to be good humans always to act with uncompromising integrity and to allow all of our employees to serve their families. This allows us to attack hard problems for our customers and play to win together so that we make tomorrow better than today, we achieved that in Q3 and expect to do so and.

Q4, the best of Couch space is yet to come I will now turn the call over to Greg to talk about our financial results Greg.

Thanks, Matt and thanks again, everyone for joining us as Matt mentioned calculates a strong third quarter performance was driven by ongoing large deal momentum in our core enterprise business, including some significant expansion as well as the acceleration of our cloud business.

Some of our customers and distressed industries remain impacted by the pandemic, we saw improvement in the third quarter and are cautiously optimistic that those customers will continue to recover.

Total revenue in Q3 with $38 million growing at 20% year over year and up 4% from the prior quarter subscription revenue was 29.0 million also up 20% year over year and up 3% from the prior quarter.

Professional services revenue in Q3, with $1 $8 million up 16% year over year, and 9% quarter over quarter.

Total annual recurring revenue for <unk> was $122 $3 million, representing 21% year over year growth and 6% quarter over quarter growth. We're pleased with our performance had year over year growth accelerated in the quarter. We expect this trend to continue into the next fiscal year.

As a reminder, <unk> 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 are our best represents our business performance by accounting for timing variability among our customers implementation time.

As most of you may know we continue to serve the most mission critical applications at the largest enterprises. We remained focused on this segment of the market and are pleased to report our <unk> per customer performance in the quarter with $215000 up from $193000 from the same period last year. Our dollar based net retention rate was 150.

15% for Q3.

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 remains best in class in Q3, our gross margin was 88, 3%.

This compares to a gross margin of 87, 9% a year ago and 88, 3% last quarter, we have a long term gross margin targets remain above 80% with our trajectory somewhat contingent on the rate of uptake and eventual mix of a growing as a service offering.

Turning to expenses, our sales and marketing expenses for Q3 were $21 $5 million for 70% of total revenue compared to $17 $1 million for 67% of revenue a year ago, we continue to make significant investments across our sales and marketing organization, including aggressive additions to quota carrying head count as well as <unk>.

Investments in customer success, our partner program and bolstering our go to market expertise and cloud.

Research and development expenses for Q3 were $12.0 million for 39% of revenue compared to $9 $8 million and 38% a year ago, we've invested purposely and aggressively and product engineering.

Specifically, we continue to invest in couch based Capella in addition to ongoing core platform development.

General and administrative expenses for Q3 were $5 $8 million for 19% of revenue compared to $3 $6 million and 14% 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 and preparing for and being a public company.

Non-GAAP operating loss for Q3 was $12 $1 million for negative, 39% operating margin compared to a negative $7 9 million or a negative 31% operating margin in the year ago quarter.

This result was significantly better than our expectation was driven by better than expected revenue as well as lower than expected opex, primarily due to timing we remain committed to investing aggressively and although we are on track to exceed our full year operating loss target. We now expect our second half opex investments to be more weighted towards Q4.

Non-GAAP net loss attributable to common stockholders for Q3 was negative $12 $6 million or negative <unk> 29 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 Q3 with $207 $6 million in cash cash equivalents and short term investments.

Our remaining performance obligations, our RP O totaled $124 $3 million up 41% from $88 $3 million last year and up 5% from $118 9 million from the prior quarter our year over year RPM growth is reflective of the strong renewal and upsell activity, we expect to recognize approximately 62.

2% or $76 $7 million of the total ARPA is.

As revenue over the next 12 months.

Operating cash flow was negative $19 $7 million compared to negative $13 $1 million a year ago free cash flow was also negative $23 million or negative <unk>, 66% free cash flow margin compared to negative $13 $3 million and a negative 52% free cash flow margin a year ago.

I will now conclude the call by providing guidance for Q4 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.

Furthermore, as I indicated earlier, we are seeing signs of recovery in portions of our customer base impacted by Covid that said, we're continuing to see variability with respect to the implementation timing of certain deals which impacts our revenue visibility. Accordingly, we are prudently considering this variability in our revenue guidance, even as we see continued upside or air.

Our outlook our guidance also assumes some continued uncertainty among distressed industries and our go to market motion as we continue to monitor pandemic related developments clear.

Clearly a deviation from this assumption would cause us to modify our guidance higher or lower.

For the fourth quarter of fiscal 2022, we expect total revenue in the range of $33 9 million to $34 1 million therefore, our year over year growth rate of 16% at the midpoint.

We anticipate <unk> in the range of $129 million to $130 million, which represents 20% growth at the midpoint.

We expect a non-GAAP operating loss in the range of negative $10 6 million to negative $10 $2 million.

For the full year fiscal 2022, we expect total revenue in the range of $122 4 million to $122 6 million therefore, our year over year growth rate of 19% at the midpoint.

As noted above we expect <unk> growth to be 20% at the midpoint.

And finally, we expect a non-GAAP operating loss in the range of negative <unk> 47.0 million to negative $46 $6 million with that Matt and I are happy to take your questions operator.

To ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Sanjay Sen.

Of Morgan Stanley Your line is open.

Yeah.

Hi, Thank you for taking the questions and congrats on the.

<unk> improved <unk> growth.

20% really nice to see I guess I'll start with Capella and.

The you mentioned that some of the.

The number of clusters deployed in the months after lease being significantly up I think broad strokes. If you just go through some of the developer initiatives Youre working on and when do you think I'm just kidding.

Capello, Ken crossed an important threshold, let's say 10% of revenue.

I'm from where you're starting today is that a two year timeframe of one year time frame, what's a reasonable.

What's a reasonable timeframe to think about hitting some of these initial residue thresholds.

So angie thanks for the question and I appreciate the commentary, we're certainly excited about the reacceleration.

Capello marks a major milestone for us as a company as you know cap space has been architected for the most mission critical applications.

Have a cloud to edge cloud native platform, but what the capella offering allows us to do is completely simplify the ability for developers and other persona is to adopt that industry, leading technology what.

What I talked about in the call is the early indication that we're seeing of just how valuable that consumption model is.

And it took us three weeks to see the volume of clusters and trial activity that we saw in the previous three quarters, that's not to do diminish our N V PC offering, but more so to demonstrate how powerful it is when we provide a form factor that is so easy that within a couple of clicks are up and running with the full power of.

The couch based platform, it's not just about the cluster volume either it's the about the conversion that we're seeing in people that are interested to deploying clusters, where we've seen a four to five X increase in efficiency of of that metrics. So leading indicators suggest that we have.

The product market fit that we've been working so hard for and talking about.

Setting aside kind of the product led growth initiatives you asked about developers, we're putting a lot of time into the developer experience and.

More specifically when we think about it there's developer advocacy, making sure we're building great products and providing integrations for developers to see the full power of of Couch base. You can go out there and get up and running via a web based interface in what we call the playground really simplifying the path to trying out.

Calculate.

We're investing in developer relations so engaging the developers articulating what other customers are doing with the power of our platform, how they're finding our elegant design and enabling truly next generation applications and then finally organizing communities to make all of that that much more efficient.

We're excited that in the quarter Sanjiv, all leading indicators on developer traction everything from web page views to organic traffic time on paid downloads were materially up quarter over quarter and year over year.

So these are initiatives that we've been working hard on for a long time, our development cycles. Our go to market efforts are aligned we're going to keep our foot on the gas pedal and we think we're only scratching the surface on what's possible.

Yes, I understood its Greg.

Congrats on your question Hey could be deployed.

While we're really excited about capella and what it's going to do for us in doing for US today, we're still not at the point, where we're going to be.

Disclosing anything specifically around the financials of the timeframe, we're certainly continuing to.

Worked through that and when the time comes we will we will obviously share that but we're just not ready to do that today given that it's still an immaterial part of the business.

Got it and then just one follow up question for you Greg as we think about the relationship between <unk> and revenue certainly came up in the last call around some of the time because of the appointments, but if you could just sort of.

Big picture it for us.

I think going on three straight quarters actually multiple quarters of sustained 20% or above <unk> growth and so as we think going into fiscal year 'twenty three given that you guys put up you know that that sustained 20% goes there are sure of that.

Converge or aligned with a 20%.

Our better type of growth profile going into next year and if it does at what why what's if you could just sort of walk us through like why.

Would that be the case.

Yeah. Good question Sanjay So just talk about next year, obviously, we're not at the point, where we're going to give fiscal 'twenty three guidance, yet, we'll do that a quarter from now so I'm not going to I'm not going to comment on specifically about next year, but look I agree with your assessment that the revenue is lagging and it will eventually catch up but there are so that that is.

Ultimately going to be our view as well.

And right now because of our definition of air are we're obviously.

You know able to count things that are in the future where theyre not generating revenue today.

But they will be they will be in the future and I would also point you to <unk>.

Other good metric to show you.

The really high quality deals that we're seeing with our apio growing over 40% and and current our appeal on an escalating path for the last several quarters. So.

It will certainly come.

We obviously like the fact, and we hope that <unk> continue to remain above the revenue growth.

But that that's what we're going to see and again I would always focus at <unk> is our most important metric that we follow and we set that set the definition of that for that exact reason because the.

The deals we do with these large customers the implementation timing and his start date is always a little uncertain and so we have to account for that.

Yeah.

It makes perfect sense. Thank you guys I appreciate it.

Thanks Angie.

Thank you. Our next question comes from Matt Hedberg of RBC capital markets. Your question. Please.

Hi, guys. Thanks for taking my questions and I'll offer my congrats as well on the acceleration this quarter.

And what sounds like a strong start to Capella, Matt I guess I wanted to ask on the partner front. I mean, you noted I think you said that the first three quarters of the year has outpaced all of partner activity in.

Fiscal 'twenty, one I guess I'm wondering could you put a finer point on why that's been such you've.

<unk> seen a lot of strength, there and I guess to the extent that capella.

Offers another interesting sales motion for the partner channels could you articulate that as well.

Yes, Matt Great to hear from you and I appreciate the question.

When we think about our partner business.

This is an area of the company that we've been investing in for many many years and believe it's a key foundation to building a great database and specifically in enterprise database company. When we talk about our partner investments that's everything from GSI.

<unk> to Isps to cloud service providers and <unk>.

We studied very carefully not just how we're influencing large enterprise opportunities and leveraging the relationships and the reach that these partners provide but also opportunities that are sourced where partners are bringing net new opportunities to the company.

I'd say the continued strength as expected Matt because we've continued to make this a point of focus and then investing in it for for many years and if anything we are accelerating our investments there, particularly in the area of cloud service providers is.

They become even more important.

For us with a couch based capella, but I would tell you that capella is not just an opportunity for cloud service providers its an opportunity across the enterprise.

S <unk> deploy you know.

Hundreds of thousands of developers in touch developers and large enterprises, having a form factor that's conducive to allowing them to accelerate digital transformation projects is critically important.

The ISP channel is one of particular strength for us and the ability to embed a hosted offering into a solution stack opens up opportunities that are additive to our existing portfolio. So we remain very excited about this it is helping us gain.

<unk> leverage and our overall go to market and will be an area that we continue to focus on not just with go to market investment, but ensuring that we have the appropriate roadmaps and technology integrations to to grow that channel as we go forward.

That's super Super Great exciting and then Greg.

If I think if I have my math right I believe <unk> grew near 34% I guess is that in my mind, the right ballpark for <unk> growth.

Correct, Yes, that's exactly right.

And I guess, maybe following up on <unk> question on I know, you're not guiding to next year, but to me that would seem like a pretty good.

[laughter] indicator of kind of the trajectory of the business or our <unk> has grown north of 40% I believe now two quarters in a row.

How should we think about I guess.

And maybe maybe maybe the question is was there anything abnormal like large deals that drove the <unk> strength and is it right to kind of look at <unk> as a good indicator for maybe where next year could eventually get to.

For <unk> growth.

Yeah. So good great question, Matt and again I'll answer. This again, we will continue to reinforce <unk> as the key metric that we focus on in the business, but look we had a very strong quarter again, where we're working with some of the largest.

Enterprises underpinning a very complex deployment and we are doing.

Big healthy.

Renewal and expansion deal and there is a multi year dynamics that youre seeing that in the total ARPA, but youre also seeing in the short term our appeal as I mentioned with <unk> question. The question was around the implementation timings.

There's variability there and so that's why you see some of the what Youre seeing with with current RP O N E. R. R.

And versus revenue its a lagging indicator, but we feel great about where the IRR is heading in terms of re accelerating getting hopefully back into 'twenty and the CRP or just just to add to that so we're we're excited about what that brings in the future and we're going to continue to do these great healthy deals that our long term focus for her couch space.

Got it thanks, a lot guys.

Thanks, Matt.

Thank you. Our next question comes from <unk> Kidron of Oppenheimer. Please go ahead.

Thanks, Matt.

I guess, what I wanted to talk about capella as well.

Maybe you can talk about when you think about the first users that you're now seeing other platform.

How many of them by the way are completely new to cash based versus existing customers that are just kind of looking forward to diversify their deployment.

Deployment mode.

Well <unk> first of all I'm not surprised you want to talk about Capella and I could talk about it all day because of the potential that has for us.

Frankly, we're seeing a very healthy balance of existing customers and new customers.

We had the biggest quarter in our history.

From our overall cloud business, which was our <unk> product.

And I was asked what was I pleasantly surprised by from a quarter quite frankly, the commercial activity on all things cloud. It says if we release posted capella a quarter ago because of the number of conversations that we're having which I think is indicative of the demand that we have we had a new logo as a matter of fact.

And in Asia, where we work closely with AWS short sales cycle.

Heavy demand for the technology and the partnership allowed us to show up in local language and local support to get things over the line that was a completely new logo at the same time, we're talking to some of our largest customers for net new applications and eventually.

Migrating existing applications. So I'd say the activity is very healthy when we look at that trial activity. We do fundamentally believe that capella will be the new logo engine for the company as we go forward.

I think when we study the clusters deployed in some of the early stage top of funnel activity. We're certainly seeing that really extending the reach of the couch based platform that many many more customers.

That's great. So maybe a follow up on this if you think of this as a major driver for you going forward. How do you think the go to market needs to evolve in order to enable that.

Self serve is going to be a material element here with copay or you're still going to require a significant direct sales force investment.

Yeah.

We think about our go to market as a enterprise sell to motion and we are augmenting that with a buy from motion.

And so we certainly expect new customers to come to us.

Find us and start to get into trials on couch based capella at the same time, we will be articulating the value proposition on that offering to existing customers. We've been investing in both of those motions and ensuring that we have a well orchestrated set of handoffs between them.

Over the course of the past many quarters everything from additional sales capacity to marketing investment to cloud specialization too.

Overlay cloud securities.

Experts, we're really being mindful of that balance and most importantly, starting from a how do we satisfy our customers and ensure that they are successful whether they're coming.

On their own via one of the marketplaces or we are working with one of our existing customers to migrate over so we're pretty excited about the investments and the foundation. We have on the go to market side and are starting to see those really start to pay off.

Very good thanks, good luck guys.

Thank you.

Thank you. Our next question comes from Raimo <unk> of Barclays. Your line is open.

Thanks, two quick questions from me Greg.

Greg if I look at Q3 that looks good.

If I look at Q4 guidance compare to some of the consensus numbers out there and maybe consensus is a little bit a little bit up.

I looked at it.

Differently.

Was there any pull forward from Q4, as you're free to kind of maybe impacted numbers or whats driving it there and then one for Matt If I think about the.

Independent pandemic impacted industries, and then coming back to you talked about some progress there.

How much of it like if you think about that in the coming quarters do you think there's more.

More to come or are we kind of done with.

Recoveries there thank you.

Thanks, Ryan This is Greg I'll answer.

Your first question and then turn it over to Matt.

We don't we don't necessarily pull forward.

From future quarters per se.

Look we do deals when customers want to do deal. So other times when we do early renewals sure, but it's not a pull forward per se, we're not aggressively going forward and we talked about that on the last call. There was a couple of early renewals where customers wanted to do deal. So.

Wouldn't say there was any pull forward.

I think yes.

Youre, probably talking potentially about the revenue guidance look I would tell you on the revenue side look we're just starting to see some of these large customers. We have just think further further had about their implementation timing and part of it I would say budget related part of it's just more prudent in terms of that.

Buying timing and so we're very excited about these deals.

We're trying to provide the most accurate guidance to you and also be prudent so theres a little bit of that in there on the revenue side and the only other thing I would tell you on the guidance is.

Look we had less expenses and I talked about in the prepared remarks, a little less expenses in Q3 than we had originally planned doesn't move to Q4, it's just a it's a timing.

Timing difference, but there is no impact on the full year and that's why you saw for the full year, we've raised our <unk>.

Our revenue and op profit guidance as well.

Yeah Okay.

So Ryan let me address your question on pandemic and in particular distressed industries as you know our platform serves travel and hospitality and other verticals for that matter.

Very well.

And clearly with the pandemic being what it was those companies were under duress as we've talked previously we took great pride and showing up as a true partners to those companies during those those times, making sure that we werent just technology vendor, but a partner that was there for them in good times and.

In future Great times.

We did mention that we saw some some return to some very healthy levels.

One of my most proud moments during the quarter on behalf of the company.

We were dealing with one of the world's largest hospitality companies they communicated to us that their business is it 50% of pre pandemic volume.

Yet we had a significant expansion with them as they invest in couch space as a true digital transformation platform for the future.

Think that happens if we don't have technology, that's future proof that we have great relationships that they are truly seeing couch bases.

As one of their key partners, so we're seeing points of strength.

We are certainly engaged with our customers in this quarter and beyond and I'd say, we're cautiously optimistic.

We can't predict the future, obviously theres still variance and.

Pressure on return to normal activity, but I think as we mentioned this as part of our acceleration in one of the many contributing factors to additional tailwind as we go forward.

Yeah, and I would just add there was one other customer too.

<unk> situation cruise line debt.

Last year came to us obviously in the midst of the pandemic wasn't generating wasn't failing generating any revenue.

We had to sort of.

You have a special deal and take care of them as one of our valued customers and they've come back this year and they're getting back to business and we've got now a multi year deal, where we're going to more than double.

The state at that at that customer and so that's just a great example of where we are starting to see some of that.

That return from Covid and how we.

Taking care of these customers and done right by them.

We're going to see them as great customers for many years to come.

Okay perfect. Thank you.

Thanks Randall.

Thank you. Our next question comes from Jason matter of William Blair. Please go ahead.

Yeah. Thank you.

Good afternoon guys.

Wanted to ask about the comment Greg that you made on.

<unk>.

Specs to accelerate continue to accelerate going forward.

Wanted to unpack that a bit and understand what's giving you that confidence how much of it is with the kind of the pipeline that you see right now.

Versus kind of some of the macro assumptions around COVID-19 recovery.

Versus.

The uptick of Capella and the contribution from Capella.

Yeah, Great question, Jason Yeah look we I think we talked about this even on the IPO roadshow that we knew we were going to be heading into a reacceleration perfect.

We feel like we're entering that now and based on what we see both on the.

The existing customer base and our pipeline for new logos in particular is coming we believe from Capella here, we have seen in <unk>.

Improvement from the Covid impacted cohort that we've talked about before that cohort is no longer.

Negative growth, we're starting to turn to positive growth and so it's just a combination of all those things that we see in our pipeline.

The product launches, we have all of those things give us give us excitement and confidence that we will be able to continue this.

Acceleration.

Beyond Q3 into Q4 and into next year.

Okay, Great and then did you provide the customer count Greg.

I did not but.

I'm happy to because you will that'd be great.

Customer count for <unk>.

And in Q3 was 568 customers.

Okay, and then Matt.

Matt for you just wanted to get.

Some comments on the competitive environment, and who you're competing against.

Mainly today and how has that changed let's say over the last 12 to 18 months if at all.

Jason I think one of the things that we take pride in as it were focused on.

Being a modern database for enterprise applications.

We're multimodal.

We are designed as a cloud native database that can run from cloud to edge at the highest performance and scalability and now with any consumption model that the customers want.

So I think we take great pride in our unique <unk>.

Differentiation that we believe we will be able to sustain and helping customers not just with new applications, but in re platforming relational ones. So as we think about enterprise as you know theyre going to be evaluating legacy relational technologies next generation.

Modern databases, but there really is not a platform that can provide the true breadth and depth of capabilities that couch space was designed for.

And so anytime we're engaged with an account, we're proving our value and articulating.

All aspects of that value proposition proving things out and proof of concept with Capella, we're able to let developers do that directly.

So look if you were to pick a database our customers are going to have those or will be trailing them.

But there is no other database that can do the things that we have because of the architectural approach in <unk>.

<unk> of optimization that we've chosen from the very outset of our company, which we remain committed to.

Well, let me, let me ask you a slightly different way.

If I, if I think about kind of the three buckets.

Kind of a cloud guys. The incumbent relational guys and then sort of newer no sequel folks who are you seeing the most.

Within those among those three groups.

Look that is exactly how we break it down and we think about the.

If I put my whenever I think about competitive dynamics I put myself in the shoes of our customers and they're saying what do I need for my application.

I have an existing database and incumbent whether it be oracle or someone else.

Cannot provide the capabilities that I need we know that that is the answer to that question is no and they are often an evaluation to figure out.

Which technologies, they can layer and augment their applications or in some cases offload off of relational databases. So that that's a dynamic that we see.

There are several next generation no sequel solutions.

Mongo, obviously and others.

Their point of optimization is different than ours, and so while there is overlap and we may have points of comparison, when we get into scale and performance and cloud to edge deployments.

Those comparisons go in our favor for the applications that were Architected for.

Obviously enterprises are constantly evaluating the embedded solutions and cloud.

AWS and Microsoft probably the leading too but again our job is to ensure that we're solving database problems that.

Our enterprises.

Can't get from other areas and if you were to go listen to our customer base, because I know you have Jason Youre going to hear that played out performance.

Performance and scale, that's not available with the other solutions that familiarity with sequel.

The edge deployments multimodal capabilities everything from key value cash document database asset transactions.

Becoming a true source of truth.

System of record for the most mission critical applications you put all that into a single platform that was architected from the beginning.

To make those things happen.

When we get into alternatives, yes, theyre looking at them, but there is no other solution that.

Has that full.

Set of capabilities integrated into a single platform.

Thank you very much.

Thank you Jason.

Thank you. Our next question comes from Robert I'm, Sorry, Rob Oliver of Baird. Your question. Please.

Great. Thanks, Good evening guys I appreciate it.

First question for you Matt also on Capella.

Just around the large deal that you saw I assume that was.

Current customer migration, but would love to hear some of the dynamics around that deal in particular around kind of sales cycle I know one of the things that's exciting about capella is just the decline to the lower sales cycles associated with it. So just would be curious in some of the early activity, particularly the larger deals if that was re.

<unk> did.

In terms of what you saw this quarter.

And then I had a quick follow up.

Rob Thanks for the question.

We have multiple cloud deals to talk about it I think the one that you may be referring our largest capella deal today that.

Wasn't accelerated sales cycle out of emerging markets.

They were in an evaluation cycle.

<unk> us and Mongo DB Atlas.

Talk about not just our performance the breadth of our capabilities.

Comment to Jason but also that's in their familiarity and ease of use of sequel, and what we've built into.

Capella has an offering.

But quite frankly, we're seeing some very nice sized deals.

In new logos.

<unk>.

Large gaming company in Asia turned into an over six figure transaction.

Those are really important deals for us and the fact that we can see those enter into the pipeline and moved to closure.

A fraction of the normal time period that we would have with a customer managed solution. Those are the things that have us really excited.

So this is not a story about just migrating our base as a matter of fact, we think about the impact of Capella in the following order new logos first second net new applications and existing customers and then the final piece will be customers migrating their existing applications, but.

Per my commentary.

Got that.

We have really healthy activity across all three of those already and we think that that's only going to accelerate with the fully <unk>.

<unk> offering.

We're now in market with so really exciting stuff again, this is new opportunities new applications extending reach.

And it's not just in production Rob as you know developers want to try technology. They want to be deployed in test environments, they want to expand easily.

These are.

Benefits that we now have in market because of this consumption model and you combine that with all of the capabilities and the couch based platform that we've worked so hard to build and take such great Pride and you can see why we're excited about the path forward.

That's great. Thanks, Matt appreciate it Greg Greg just one for you as well.

Thanks for for some of the other metrics you provided an era of per customer up.

Nicely again, I think even sequentially.

I know you use.

Tried to help us understand some of the metrics that could change like margin for example, gross margin around.

As we shift to Capella and it is is they are one of them in other words clear.

Clearly we're not in the.

Hi will yet where the customer count is seeing a big impact from capella, but as we start to do will will that <unk> per customer.

<unk> be a bit lower or are there any other metrics that we should be aware of.

Capello starts to ramp in 'twenty two thanks a lot.

Yes, thanks, Rob.

Yes look.

Certainly there could be an impact on the <unk> per customer I mean, we as Matt talked about we hope it becomes a new logo engine and we will.

See a lot of new logos that obviously those come in at a smaller ticket price and then we typically grow them. So if we do start seeing the pick up which we expect yes that certainly could have an impact on the <unk>.

Our per customer as we go as you mentioned on gross margin obviously.

The cost of Capella is greater than the <unk>.

Self managed software so we will see impact there. We've stated that we believe we can continue to be in.

80% plus gross margin business over time, but that will all depend on.

The mix and how fast the uptake is and all that so those are the areas that we look for obviously the offset is.

More customers faster growth rate as what we're what we're.

Looking for out of Capella the engine to grow new logos.

Understood. Okay. Thanks, again, guys I appreciate it.

Thank you Rob.

Thank you. Our next question comes from Dan Church of Goldman Sachs. Your line is open.

Sean for Kash Rangan. Thanks for thanks for taking the question and squeezing me in here.

Just a quick one in terms of.

The feedback that you've seen post release of couch based server, having auto in and how does support for asset transactions changed the types. If at all of the types of workloads. You can go after and then and then to that end when you talk to customers today.

What are you seeing with respect to kind of growth in net new workloads versus re platforming off of legacy relational technology is there any change there with respect to replacement of a of relational databases.

Yes. Thanks for the question and I. Appreciate you are articulating the importance of <unk> seven.

Our largest server release in history and made materially advancements on making it that much easier for companies that are re platforming applications off of relational technologies.

One of the concepts, it's really important to us is not just moving those applications, but enabling couch base to move from what we call a source of truth to a full system of record.

We talked about one of the GTK is amgen not only was that.

Relational migration, but we are now the system of record for their data hub.

Another deal that we saw.

In the quarter, it's another GTK actually one of the world's largest largest auto manufacturers.

Starting to repurpose offer relational technologies, combining that with with net new capabilities powering things like marketing research applications.

In this case the team had no previous familiarity with quote unquote, no sequel technologies, but because of the sequel bridge that we've enabled.

They can get into.

And enjoy all the benefits of couch space.

So the combination of being able to service.

The relational data model, but also open up all the power and flexibility and agility that comes with the.

No sequel engine and to do that in a single form factor allows us with the addition of asset based transactions that we've been in market with for a long time to again become that full system of record in what we say increase the density of the application that we support you layer and couch based capella and now not only are we.

Managing all aspects of the <unk>.

Database technology, but the underlying platform and infrastructure as a service. So you can see how that increases our reach increases our wallet share.

But most importantly able to satisfy customer demand for net new and re platform applications.

Yeah.

Great.

A quick follow up for me you mentioned a couple some expenses shifting from <unk> into <unk>.

Can you can you kind of update us on hiring efforts and how that tracked relative to plan and as you look into next year. When you think about some of the go to market investments that you're making whether it's in capella or quota capacity on the direct side of defense can you just kind of give us a sense as to what top priorities are for investment and how youre thinking thinking about the pace of quota additions into next year.

Yes. Good question, Dan, Yes, I think head count hiring is the head count is where we expect it to be where we are on track.

Hiring as you probably have heard universally as remaining challenging we're managing through it.

So we are we are tracking where we wanted to be for head count. We're obviously continue to aggressively invest in both.

R&D side of the house as well as sales and marketing and Youll continue to see that as we go into Q4 and into next year.

From a purely from a.

Capacity quota carrying we tend to do most of our hiring in Q4 and Q1 as we ramp for next year and we're on track to do that again this year, but we feel very comfortable where we are from a from a head count and sales capacity perspective at this point.

And then one of the things that we talk a lot about his field capacity. So it's not just quota carriers, but ensuring that those quota carriers have all of the support they need across the company to make our customer successful everything from Etsy teams to services teams cloud specialists customer success more investment on the partner side.

What we think about first is how do we get to and support our customers and ensure that we have the appropriate investments to make sure that we're showing up.

As a true business partner, so we take a very balanced approach. We study this maniacally and we understand the ratios of those resources that we need in everything from our largest companies <unk>.

And we're obviously going to have a different model for the.

The buy from motion and really being mindful about the work to be done and the resources that we need to put in place. In addition to continued.

<unk> investment on the innovation side and.

And we put those two things together and good things happen.

Great Congrats on the quarter and thanks for thanks again.

Thanks, Tim.

Thank you and at this time I would like to turn the call back over to Matt Kane for closing remarks, Sir.

Great. Thanks, again, everyone for joining us today I just want to reiterate how excited I am about the future of couch base.

With the continued innovation on our leading core platform, our ongoing strength in our mobile and edge portfolio. The launch of a fully hosted couch based capella recent large customer wins and continued execution of our land and explode motion, we're well positioned for acceleration. We're looking forward to keeping you posted on our progress in the <unk>.

Order ahead, thank you very much.

This concludes today's conference call. Thank you for participating you may now disconnect.