Q4 2022 Couchbase Inc Earnings Call
[music].
Ladies and gentlemen, and thank you for standing by and welcome to Couch basis fourth quarter 2022 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session. Please be advised that today's conference is being recorded I would now like to turn the conference over to.
To your first speaker today, Edward Parker head of Investor Relations. Thank you. Please go ahead.
Okay.
Good afternoon, and welcome to couch basis fourth quarter and full year fiscal 2022 earnings call. We will be discussing the results announced in our press release issued after the market close today.
With me are calculated as president and CEO , Matt Kane CFO .
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.
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, 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.
A discussion of the material risks and other important factors that could affect our actual results. Please refer to the risks discussed in today's press release and our most recent annual report on Form 10-K or quarterly report on Form 10-Q filed with 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.
Filiation 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, including our earnings press release, which is 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 you details on our fourth quarter results as well as our first quarter and full year fiscal 2023 guidance.
I'm delighted to report that we finished the year on an excellent note with revenue annual recurring revenue and non-GAAP operating profit all beating guidance.
Revenue in Q4 was $35 1 million, an increase of 19% year over year, while <unk> ended the year at $132 9 million, representing 23% growth and an acceleration from prior year's growth.
Net new <unk> was a record $10 6 million up 65% year over year.
P O grew 58% to $161 6 million, we added 22 net new logos in the quarter signifying that more businesses are choosing our modern database for their business critical applications.
Our gross margins remained best in class at 88, 7%.
Greg will go into more details on Q4 in a moment, but first I'd like to highlight some of our accomplishments over the past year.
Including some exciting Q4 wins, all then lay out what our focus will be for fiscal 2020 three.
In fiscal 2022 we invested heavily to scale the business for long term growth further building out our differentiated product portfolio enhancing our go to market organization, expanding our world class team all while successfully completing our IPO in July .
We delivered on our innovation agenda, enhancing our core server offering while launching our highly anticipated managed service.
Specifically, we launched Cafe server seven in July which combines the best aspects of relational technology with the flexibility of a modern database further increasing couch spaces capability as a relational offload.
And we introduced couch based capella are fully hosted database as a service offering at our couch based connect conference in October .
As most of you remember our highly anticipated database as a service offering provides flexibility and ease of adoption for developers and performance at scale for enterprise applications with the best price performance of any database as a service.
I'm thrilled that leading indicators for this new offering continued to be very strong, including the engagement from developers within trials. We are seeing strong pipeline generation across multiple segments of existing couch based customers and new logo opportunities and I'm confident we will see meaningful revenue contribution this fiscal.
Full year.
We enhanced our go to market organization by investing in both our buy from and our complementary world class cell to sales motion.
Coordinated investments across top of funnel marketing developer tools sales capacity and customer success to name a few extend our reach and effectiveness across a variety of enterprise personas from systems architects to developers.
We're seeing great results on both sides of these investments.
On the buy from side, we're seeing continued interest in our free trial strong engagement from existing customers and great responses to our capella workshops.
On the sell two side, we're seeing strength in new deals, including 22, new logos in Q4 at.
At the same time, we're expanding our wallet share within existing customers and driving big deal momentum.
We're enjoying robust and increasing demand from the largest enterprises driven by very healthy renewal and expansion activity.
Additionally, I'm pleased to see that our investments in our partner ecosystem are contributing to our growth both in terms of awareness and directly in terms of revenue Q.
Q4 was the largest quarter ever for partner sourced and influence new business.
All of this contributed to <unk> growth of 23% in Q4, and an acceleration from prior year's growth.
This is how we expected the business to progress and we believe we are poised to continue this trend into fiscal 2020 three.
And we've achieved all of this despite persistent pandemic related headwinds that have impacted many of our customers as well as how we go to market.
Looking back at fiscal 2022 I am so proud of the entire couch based organization for the tremendous accomplishments across every level of our company.
We have a world class team.
And as I have always said our people are our greatest strength.
Speaking of the team I'm excited to welcome Gopi duty, who we recently announced has joined as our senior Vice President of Engineering.
He will oversee all product development and delivery for couch base. He brings nearly 25 years of database and cloud experience from industry leading companies.
<unk> has been with AWS for the past decade.
He was most recently a general manager and it's been a leader in AWS is database analytics and observe ability product teams, helping scale solutions, such as AWS Glu AWS cloud watch Dynamo DB and Amazon relational database service.
<unk> unique combination of cloud and database experience at scale makes him an outstanding fit for team Couch base welcome goby.
Now I'd like to spend a few moments discussing some customer wins during the quarter, which were strong across new lands as well as expand and include some very exciting couch based capella deal.
And what is now the largest deal in company history, a fortune 500 shipping and logistics company significantly expanded its more than five year partnership with couch base.
This customer relies on couch space for numerous mission critical applications, many of which require global availability sub millisecond response times and zero downtime.
Dow chemical was the GTK new logo win for couch space in Q4, DAU, along with the Accenture manufacturing team selected couch space to power its connect field professional modern mobile application.
Which streamlines and improves the workflow and experience of Dow colleagues working in a manufacturing environment couch.
Couch base was selected due to the maturity of our differentiated mobile products that are offline capability and our overall vision for mobile computing.
Another new customer in the quarter was five nine a leading provider of cloud contact center software as part of.
Their continued global expansion and growth five nine needed a more modern database that can handle the massive performance scalability required to continue to deliver the high quality of experience its customers are used to.
Five nine shows couch based capello because of our superior performance delivered in the convenience of our service.
Additionally, in Q4, our global Communications API company renewed and expanded their couch face a state.
While transitioning their consumption to capella, making them, our first seven figure capella customer.
Capella on AWS supports real time communication session management and reporting SMS messages for this company's clients.
This customer credits the scalability availability and performance of couch space as D reason for increasing their couch based investment.
Now, let me talk about fiscal 2023.
We are dedicated to building on our momentum to make 'twenty 'twenty three a landmark year for couch base.
We believe emphatically that this will be a remarkable year for couch base, given the strength of our platform expanding go to market capabilities and numerous tailwind at our back.
Our product portfolio is as strong as it ever has been and we're going to continue to consolidate our games.
Couch based capella is off to a great start and we believe it will become an important contributor to our business this year.
It's well known that the cloud database market is accelerating industry analysts forecast that this year cloud database management service revenue will account for 50% of the total database market revenue and we are now in a great place to participate in this growth.
This mirrors, what we see in our customer base is there is hardly a customer conversation that does not include cloud.
Cause of this trend we believe we are well positioned with capella and continue to have very high expectations for the offering.
This year, you'll see us invest more in capella, including extending it to more cloud service providers.
I do want to reiterate that our cloud offering as part of a larger set of capabilities enterprises are demanding as they press forward with their digital transformation initiatives.
Customers choose coach base in part due to the ability to enable applications across a wide spectrum of deployment and consumption models from cloud to on Prem from the data center to the edge and everything in between.
We released couch based mobile three just last month, which delivers a single universal platform for mobile developers.
Empowering developers to move data and compute closer to where it's being used making mobile applications faster more resilient by eliminating dependencies on distant cloud data centers.
These unique capabilities make couch based more easily embed Abel and programmable at the edge catering to a vast variety of industrial retail health care and Iot applications.
The next release of our core platform is also coming this year and with it we will enhance our single unified platform to further eliminate the need for point solutions. So customers don't have the managed separate technologies and independent data models. We are the only modern database for enterprise applications.
Location that makes it easy to seamlessly combine relational and operational capabilities with analytical insights.
The next couch based server release will have many important updates such as 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.
Our differentiated technology will always be at the heart of who we are and we continue to aggressively invest in our innovation agenda.
Second we believe our expanding go to market capabilities and investment in our Biopharm sales motion will continue to broaden our reach to a wider audience of professionals tasked with modern 90, modernizing their organizations, including developers.
Are there more we have allocated dedicated capella resources and cross functional initiatives that will be deployed across our entire go to market organization to further drive our as a service adoption. These targeted investments had been carefully added to enhance our well instrumented enterprise sales.
Organization to support our growth and acceleration agenda.
Third we remain cautiously optimistic that pandemic related headwinds will continue to diminish in the coming months.
We continue to see customers in Covid impacted industries show signs of recovery as spending has improved across this cohort after a challenging 18 months.
And on balance our sales productivity continues to recover.
That said, we are not completely back to our normal enterprise buying and selling environment. The world is still very much working itself back to what life was like pre pandemic.
I know how eager our world class enterprise sellers and support teams are to get back to what they do best getting in front of customers, having face to face engagements and sitting side by side with them to help modernize their architectures.
And finally, and perhaps most critically we're seeing digital transformation initiatives and the litany of activities required to support them, receiving increasing attention and prioritization at the highest levels of the organization.
I am hearing this from business leaders far and wide and our conversations with customers increasingly revolve around how couch space can play an essential role in driving multi year strategic transformation journeys.
It's this accelerating digital transformation backdrop that has me so excited about couch base and our opportunity to drive a generational rethink in the 62 billion dollar database market.
C E O CTO and CIO are all telling me that relational systems are too expensive and it will suited for the task.
And the other emerging no sequel solutions lack of performance and scale requirements they need.
They are asking for a platform that can accommodate the incessant growth in data volume and variety.
That is at the core of digital transformation.
But with Uncompromised reliability and performance.
Couch base does precisely that in a fast flexible and familiar way.
I can share with you all that day by day, our customers and prospective customers are increasingly gaining an appreciation for what couch based does and how we do it differently.
In summary, we had a great quarter and a strong year.
And then looking to FY 2023.
There are some very big trends in our favor.
I hope that you all detect the high expectations, we have for ourselves for the coming year. The best of Couch space is yet to come.
We wouldn't have this opportunity without the extraordinary team we have in place as well as the core values that guide us in what we do every single day.
A couch base, we aim to be good humans always to act with uncompromising integrity and to allow all of our employees to serve their families.
We're especially mindful of our values as we watched the tragic events unfolding in Ukraine.
Our thoughts and prayers go out to all those who have been impacted by the crisis.
So many others were hoping that we returned to a peaceful and safe environment as soon as possible.
With that I will now turn the call over to Greg to talk about our financials Greg.
Thanks, Matt before I get into our results I want to thank our employees customers and partners for their efforts over the past year amidst a myriad of unprecedented challenges. The couch based team once again proved to be exceptionally resilient and I am proud of our achievements.
Ranked in the quarter was driven by strong renewal and upsell activity as well as improving new deal activity, we have referenced our upselling opportunity to the Atlanta and expand motion and we are pleased to see it play out quarter after quarter as Matt mentioned, we are thrilled to once again have closed the largest deal in company history. The second time, we've been able to claim that this fiscal.
A year.
What is most significant about this deal is that we believe we are only just scratching the surface of that customer spend potential.
Time and time again, we have conversations with this customer is most senior ITT leaders and they continue to look at coach base as a strategic partner for the long term.
Now I'll walk you through our results for the fourth quarter and full year fiscal 2022.
Revenue for the fourth quarter was $35 $1 million, an increase of 19% year over year and $123 $5 million for the full year, an increase of 20% year over year subscription revenue for the fourth quarter was $32.8 million, an increase of 17% year over year and 116.3.
For the full year, an increase of 20% year over year.
Professional services revenue for the fourth quarter was $2 $3 million, an increase of 64% year over year and $7.3 million for the full year, an increase of 14% year over year.
Total annual recurring revenue or <unk> was $132 $9 million at the end of the fiscal year, representing 23% growth year over 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 continue to believe AOR best represent our business performance by accounting for timing variability among our customers implementation times.
We exited the year with 590 customers an increase of 22 customers from the third quarter, our <unk> per customer performance in the fourth quarter with $225000 up from $199000 from the fourth quarter of fiscal 2021 also in the fourth quarter. We are pleased to report our dollar based net retention rate exceeded 115 per.
In discussing the remainder of the income statement. Please note that unless otherwise noted all references to our expenses results of operation and share count are on a non-GAAP basis.
In Q4, our gross margin was 88, 7% this.
This compares to a gross margin of 89.5% a year ago, and 88, 3% last quarter our.
Our gross margin for the full fiscal year was 88.4% slightly lower than our fiscal year 2021 of 88, 9% due to foundational investments in our as a service offering.
Our gross margin is currently among the best in class, we have a long term target for our gross margin to remain above 80%.
The trajectory for our gross margin target is 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 Q4 were $22 $2 million or 63% of revenue compared to $18.6 million or 63% of revenue a year ago for the full year of sales and marketing expenses were $85 $4 million or 69% of revenue compared to $68 $7 million for 67.
Percent of revenue in the prior fiscal year, we continue to aggressively lean in to build out our go to market muscle because we see consistent demand in our large very global addressable market.
Research and development expenses for Q4 were $12 $3 million or 35% of revenue compared to $10.3 million or 35% of revenue a year ago for the full fiscal year, our research and development expenses were $48 $3 million or 39% of revenue compared to $37 $7 million or 36% of revenue in the <unk>.
Prior fiscal year during the past year, we thoughtfully invested in the build out of our as a service offering as well as additional features to bolster our platform offering.
General and administrative expenses for Q4 were $5 $7 million or 16% of total revenue compared to $4.2 million or 14% of revenue a year ago.
For the full fiscal year, our general and administrative expenses were $21 million or 17% of revenue compared to $13 $6 million or 13% of revenue in the prior fiscal year significant G&A investments were made in fiscal year 2022 as we built out the necessary public company infrastructure for scaling the business had.
As we exit the year and enter fiscal year 'twenty 'twenty three we expect general administrative expenses to increase on a dollar basis, but to remain roughly consistent as a percent of revenue.
Operating loss for Q4 was $9 1 million or a negative 26% operating margin compared to an operating loss of $6 $7 million or a negative 23% operating margin a year ago.
Operating loss for the full fiscal year with $45 $5 million or a negative 37% operating margin compared to an operating loss of $28 $2 million or a negative 27% operating margin in the prior fiscal year.
non-GAAP net loss attributable to common stockholders for Q4 was $9 $6 million or negative <unk> 22 cents per share for the full fiscal year net loss was $54 million negative dollar 96 cents per share.
Turning to the balance sheet and cash flow statement, we ended Q4 with $206 million in cash cash equivalents and short term investments our remaining performance obligations or our Po totaled $161.6 million at the end of Q4, an increase of 58% year over year. Our continued exceptional strength in our P. O growth is fueled by <unk>.
Significant upsell and renewal deals.
We expect to recognize approximately 61% or $98 million of total RPE O as revenue over the fiscal year 2023.
Operating cash flow for Q4 was negative $2 $7 million and for the full year was negative $41.6 million.
Free cash flow for Q4 was negative $2 $7 million or negative, 8% free cash flow margin.
Free cash flow for the full year was negative $42 $4 million or a negative 34% free cash flow margin.
As we continue to scale the business through foundational investments, we're well capitalized we enter fiscal 2023.
Now to conclude the call I will provide guidance for Q1 and the full year fiscal 2023, we continue to see strong business momentum and elevated database infrastructure migration activity across our industry and our pipeline momentum is strong. Furthermore, as Matt indicated we are seeing signs of recovery in our customer base impacted by Covid and we are cautiously optimistic.
That business conditions will continue to normalize that said, we've seen recovery take longer than expected and are assuming some continued uncertainty in our distressed industries and our go to market motion as we continue to monitor pandemic related developments.
Additionally, we've seen variability with respect to the implementation timing of certain deals continue to persist, which impacts our revenue visibility. Accordingly, we are prudently considering these factors into our revenue guidance, even as we see continued upside to our outlook clearly a deviation from this assumption would cause us to modify our guidance higher or lower.
For the first quarter of fiscal 'twenty 'twenty three we expect total revenue in the range of $32 5 million to $32 $7 million. Therefore, our year over year growth, 17% at the midpoint. We anticipate are are in the range of 136 million to $138 million, which represents 25% growth at the midpoint.
We expect a non-GAAP operating loss in the range of negative $16 8 million to negative $16 $6 million.
For the full year fiscal 'twenty 'twenty three we expect total revenue in the range of $146 5 million to $147.5 million. Therefore, a year over year growth of 19% at the midpoint, we expect air or in the range of $160 million to $164 million or 22% growth at the midpoint and final.
We expect a non-GAAP operating loss in the range of negative $57 2 million to negative $56 $2 million.
With that Matt and I are happy to take your questions operator.
Thank you as a reminder to ask a question you will need to press star one on your telephone to it.
Draw your question, Chris with LNG.
<unk> question comes from Raimo <unk> with Barclays. You May proceed with your question.
Thank you congrats for a solid Q4.
Two questions from me Matt.
Matt first of all for Capello, what are you seeing in terms of pipeline build activity in terms of where the deals are coming from it sounds like.
Existing on premise customers are trying to move over is it new customers. So that you can attract or so that's the first question and then for.
So Greg on the guidance how much of an impact would you get if you have more capello deals because you don't have to revenue.
From revenue recognition in there.
So from that perspective that could be an headwind is that a factor in the guidance as well. Thank you.
Raimo. Thanks for the question, let me start off and addressing the Capella pipeline.
The first thing that I would tell you is we are excited about the continued momentum that we've seen across the board on Capella everything from top of funnel dynamics, you know an increase in web based traffic 30 plus percent year.
Year over year more engagement from developers.
Continued strength in trials.
And you know an increased number of deals along with pipeline as it pertains to pipeline Raimo as we've talked about and what we expected to see is that we would see a mix of net new customers and new applications.
New applications inside of existing customers those existing customers being capella customers will see an expansion and also server based customers that.
Are deploying cabela for the first time and then finally.
Migrations of our installed base. So we are we are actually seeing that across the board.
Which is which is what we expected and Raimo I think that's a function of the core value proposition of Capella starts with the foundation of the couch based value proposition and then the ease of use and overall tcl dynamics that layer into capella as an overall solution. So we're excited about.
The pipeline the fact that it's broad based across both new and existing customers and we think that's indicative.
Of what we're going to see as we go forward.
And Raimo on the revenue guide question to just again reminder, that obviously, we focused and run the business on air are and we had a great net new air are.
Result is highest in the company history in Q4, we obviously also think our P. O is a good forward looking measure and we've seen that.
Increasing over the last five quarters. So revenue is a good measure, but that's not how we run the business and then we obviously have talked about previously we do work with some of the largest enterprises in the world underpinning very large complex deployments, there's timing variability with these projects. So we're pleased with how the business perform really good deal activity.
But we do realize.
Realize that some of this variability is also playing we've seen this in the year and so we wanted to ensure that our guidance reflected that in addition to your question. We are seeing an increased mix versus what we had given you a preview for sort of pre IPO to our fiscal 'twenty three around Capella, we are seeing more capella and to your point, yes, the revenue recognition around.
That is on more on a pro rata basis than under the <unk>.
The subscription part of our business, which is under ASC 606, where we do taken upfront and that is also have any impact on the revenue guide as well.
Thank you.
Thank you. Our next question comes from Jason Ader with William Blair. You May proceed with your question.
Yes. Thanks, I just wanted to follow up on the on the guidance. So also at the time of the IPO you talked about.
Our our acceleration and it looks from the guidance it looks like it's a slight deceleration, but then in your prepared remarks, you talked about maybe some upside to error. So can you help us understand what you mean by that I mean are you just trying to be a little more conservative on the E. R. R.
Because of that.
The macro conditions.
Yeah, Jason Thanks for the question. So again, yeah. We again, we do run the business up here are that is our key measure we're really proud of how we did and you saw the growth acceleration.
Happening in fiscal 'twenty two.
So when we are guiding to critical.
Twenty-three you know look we want to take extra care in formulating our guidance we.
We do the best to provide the most accurate guidance that everything we know we feel comfortable about our guidance, but we obviously are.
Trying to be prudent again, as we have been and deliver.
Our guidance that we can at a minimum meet we will strive to work really hard to beat that so we feel good about our guidance. We do do also feel good that there is opportunity to to to do more here, but for the time. This is what we see and we want to deliver to you guys.
And Jason if I could add on in terms of acceleration beyond just the specifics on the numbers we talk about.
The best of Couch base being in front of us and we're seeing data points that are playing out on that on that thesis.
Obviously the results in Q4, the accelerating our growth rate record new E. R. We've seen strength in the renewal base.
<unk> significant expansions.
Increased new logo activity, but I'll tell you, Jason what's sitting behind all of that as well as the dialogue that we're having with customers both new and existing.
And the nature of couch based being seen as a true digital transformation technology partner on.
I'm personally having conversations at the sea level with companies.
Companies across the auto parts retailers global logistics company is streaming providers and they're all talking about the need for.
A modern database for their enterprise applications, which combines relational technology and the flexibility of the couch based platform from cloud to edge and of course Capella now as a consumption model that brings all of the capability that we've worked so hard to engineer into couch base.
And magically combined that with the ease of use of the consumption model of Capella and so those conversations are additional data points.
Give us great optimism on the acceleration of couch base overall, and we expect those to continue as we go forward.
Great and just one quick follow up for you Matt.
What would you say the main constraint for the company is right now on growing faster.
Look Jason.
I think we're really focused on cloud as we go forward.
Now the foundation of Couch base at the core is critically important and as you saw in the fiscal year we.
You know came out with major product innovations on seven O released our mobile product Threet auto, but I think in terms of unlocking the next phase of growth.
We continue to be very aggressive as Greg mentioned in his remarks on investing in capella, both from a product perspective, where youre going to see us add additional.
Loud providers youre going to see a spring mobile into the fold youre going to see us continue to make that an even better T. C O offering for our customers and at the same time, we are augmenting.
Our go to market model with dedicated Capella resources everything from.
Presale trial engagement technical resources to sellers to customer success resources, we'd been very surgical about how we architected this growth strategy.
But consistent with what we've talked about we think that's going to be a major catalyst.
Of additional growth for us as we go forward and that's of course above and beyond of getting beyond some of the headwinds that we disproportionately faced as a company and that we serve the travel industry.
Very well.
We're an enterprise driven sales organization that does very well when we show up with large enterprise customers and worked through complicated and long term projects.
So I think we're starting to see great data points on both of those things coming off and then we layer on the capella.
I think so.
That's why we continue to invest in and why we feel great about where we are as a company and where we're headed.
Thank you good luck.
Thanks, Jason.
Thank you. Our next question comes from <unk> Singh with Morgan Stanley You May proceed with your question.
Thank you.
Oh great.
Yes.
Yes.
No.
Yes.
I wanted to.
Hello.
Yeah.
Hi.
Okay.
So sanjiv. Unfortunately, we're trying to listen as hard as we can but we can't make out the question.
I don't want to.
Mrs.
Hold on one second sorry.
So yes, hopefully that's better on the question that I was going after is in terms of unlocking that faster growth of the cloud I think I kind of one of the necessary conditions is targeting those developers are more specifically that that user group and I know you rolled out some initiatives or the last several months, what's been sort of the.
Early.
Early signs of traction on that front.
To that person.
Yes, Angie you're right.
We.
Obviously believed that the developers an absolutely essential persona for us.
And particularly once we prove our value to developers being able to also appease the enterprise architect is critically important but.
Back to the developer point I think if you were to look at every aspect of our business from marketing to our sales efforts and certainly.
Our product initiatives. They all have a developer orientation, we are starting to see those.
Investments pay off as as I mentioned the Raimo.
Our web based traffic for developers.
Was up 34% year over year.
In addition to just traffic we're seeing increased engagement. So the amount of time that developers are spending.
In the portal engaging in our documents.
Downloading our our trials.
In Q4 as a matter of fact, we had more than double the amount of capella trials than we had in the four previous quarters combined.
I think that's a direct result of us articulating the value proposition of couch base to developers and then having a product experience that provides the ease of use that they're looking for that then helps them see the value of the couch based platform where.
We're starting to land new business, where it's more developer focused.
An example of this is a company called <unk>.
Entourage on Indonesia, and logistics company.
They were looking to replace Postgresql we.
We support everything from order packing the shipping confirmation and so on and we went head to head with Mongo on that.
Improve that Capello was the right solution for them. That's developer led that allows them to build applications faster.
And it.
It doesn't create any limitations on scale because they're now in couch based switch managers applications at a level that other solutions now.
So a lot of efforts on Gee, we're going to continue to invest in developer relations and our community efforts and in making sure that we have the right solution and the right experience in our cloud based offerings specifically for that persona.
So it sounds that sounds very promising Matt and thank you for that color.
Greg.
Good question and I hear you loud and clear that the timing of implementation is driving the delta between the AOR growth in the revenue growth, particularly with respect to the guidance.
For those investors that look to or are as a leading indicator of future revenue growth would be a reasonable baseline assumption for those two numbers to start to converge right. Because I think you've done a couple of quarters, now where aircrafts have sustained very nicely above 20% and the revenues just slightly under and so there's.
I'm trying to get a sense of.
What a reasonable timeframe might look like for those two numbers should begin to converge.
Yes, Angie thanks for that and you're right. Obviously, it's something we do we do watch ourselves.
Look I don't think there's any we're not going to guide to any specific timeframe, but we do expect that revenue in a R will converge over time I don't think it's going to be years per se, but but I do think it's you know it will it will begin to happen.
You know in the relatively near future.
We are watching that and look we're trying to be.
Against smart about how we're giving guidance here, but we feel really good about how the errors going and we think the revenue will certainly come behind it and again I would also point to our R. P. O in terms of how that's been trending and progressing over the last several quarters and it is an indicator of where we think things are going to go in general.
But for now our revenue will be will be lagging behind us just a little bit.
Understood appreciate the color Greg Thank you.
Yeah. Thanks Angie.
Thank you. Our next question comes from Rob Oliver with Baird. You May proceed with your question.
Great. Thank you guys and I apologize in advance for spotty connection I'll ask both my questions upfront first with this format.
Congrats on the seven figure customer in Capella, if you could just help us understand when a customer transitions to capella, but what is the timeframe on that how long does that typically take.
Through house.
And where it goes.
Then Greg My question follow up question for you as Matt talked about the allocated dedicated Capella resources. When you look at the incremental spend in FY <unk>.
Well that around capella in the Capella resources, there or are there other.
And that spend as well thank you guys.
Rob I. Appreciate the question there were there were a few moments where he dropped out but I think we have the essence of it if for some reason our commentary misses the question in any way, let us know and we'll address it as it pertains to the seven figure customer obviously very excited about that.
This was an existing couch based customer as I mentioned, they've been expanding dramatically.
With their usage of couch base more applications more users.
And really leaning into our differentiated.
Kale and performance that serves todays needs and on a go forward basis.
And when we are engaging with this customer on their go forward plan.
They were not only thinking about how to expand with couch base, but what's the best consumption model was for them.
And I think it speaks volumes about the.
Solution that we've built with capella that not only are they continuing to increase what they are putting into couch base, but.
The value proposition of us managing the database in the TCR that we can provide to them was the consumption model that they're going forward with now in terms of the timeframe of moving from.
The server deployment to take capella that could actually be a pretty simple migration, Rob because it's still couch based server, it's not as if we have a different underlying.
You know solution and that's one of the major points of.
Value proposition for Capella as a whole.
If you get into the intricacies, Rob what it can some times come down to is what version of couch based server as a customer running.
Versus the up to date version that is running on Capella and we need to do a check to see is there anything that the application may be depending on in a way that we've upgraded.
Outside of that if its version of version, it's a pretty seamless migration and we've built a solution for it now as was the case with this customer and will be the case with other customers Theres. A reason why we continue to invest in our services organization and we're going to have.
Specific service engagements, where these may be really big migrations or they'd be maybe more complex, where we can walk customers through that help them with their project plans as we go forward, but by and large Rob we've architected the solution for that not to be an issue.
And to allow customers to do it at the pace that they feel.
No ready and willing to do it.
Yeah Robin your question to me some of that got cut off so if I don't quite answer it. The way you an intended we can obviously follow up but but so so we started making the sort of augmentation towards the Capella model. If you will even in fiscal 'twenty, two and the sales and marketing spend so I think we previously talked about.
Really taking our inside team in making that the capella sales team. So we've already started building that framework out what we're going to augment that with is what Matt talked about us having these capella sellers of this capella overlay not only to assist that but to also assist with our outside reps and our enterprise sales reps and really helping think about selling into.
Not only the existing customer base that we have which we do think we'll have you know.
Some of that transition over to capella, but also about going and acquiring the new logo activity in capella that we we know is out there and we know we're going to try to go. After so all of that has sort of been building. We're augmenting. It further it is all built into the model for next year and we had always sort of knowing this was sort of the transition we're going to have so we feel good about.
Being able to sort of support with our sales and marketing investment both the core business that we've been running for years as well as this transition as we.
Build more sales and marketing efforts around capella in a consumption model, we're going to have.
Great.
You guys got I'm, sorry for the connection I appreciate it. Thank you guys very much.
Thanks, Rob.
Thank you. Our next question comes from Matt Hedberg with RBC capital markets. You May proceed with your question.
Oh, Hey, guys great. Thanks for taking my question.
It sounds like you're having some increased success on the partner side I think you called out.
The deal with Accenture.
Could you provide a little bit more detail there I think if I recall right. You know maybe partners used to be involved in <unk>, 40% of deals and then it moved up to 50% recently if I. If memory serves me correct could you talk about where that mix could go.
Longer term, especially as capello ramps.
Matt.
I appreciate the question good to hear from you, let me kind of talk at a high level about the partner business and then I'll, let Greg comment about the specific percentages.
We think the partner business is absolutely essential for us as we go forward.
And we've built a very balanced program that includes everything from G. S eyes.
Two a very healthy and growing <unk> business.
Up to and including partnerships with our cloud providers.
And the strength of the partner business, we're actually seeing growth across all of those.
In the GSI as we continued to see vertical specific solutions that.
Systems integrators are building and bringing into enterprises.
<unk> is a great and effective channel for us for <unk>.
New business activity, we've seen some growth in particular strength in areas like telco and five G.
And then we're really starting to see kind of disproportionate growth in what we're doing with the cloud providers.
And have expanding partnerships on the go to market side everything from.
No.
Joining cal planning to direct marketing investments.
From from cloud solutions in fact, we have a pretty.
Significant and increased joint go to market model with AWS for fiscal 'twenty three.
As we really think about them as a strategic partner on the Capella side.
And so.
This is something that we're going to continue to invest and it extends our reach.
Partners are in our enterprise accounts and new logos that we want to source and we think this is an.
An important leverage model for US we are excited about the increased momentum and maybe Greg you can talk about how we landed for the full year.
Very healthy Yeah, Hey, Matt So yeah for the full year, we had over 50% of our new business was source or in hand or influenced.
Through the channel partner.
Program and we we believe that it could certainly stay around that level I mean, I think that's a good level for us I think if it went up a little bit that that'd be fine as well, but we think that that's a pretty good spot for us to be in and I think it'll it'll oscillate from quarter to quarter, but overall I think that's a good a good place for us for us to be and we'll have to see.
How that changes over time with capella.
Just because it's still new to the business of.
How much of that comes or does not come through the through the channel per se, but right now we're at just over 50%.
Got it that's really good to hear and I guess, you know the analog or the flipside of that is.
As enterprise demand picks up and normalizes.
Capella starts or continues to ramp how do we think about some of the sales and marketing.
Expenditures now.
Sort of getting back to sort of look more normal efficiency, there and kind of.
Sort of like showing a bit more of margin improvement.
Some higher levels of spending to support obviously a lot of good stuff going on the product side.
Yeah, So Matt.
Let me.
I'll take a crack at your question.
If I'm often.
I am answering it let me know.
Look.
I think we spend time talking about the balance investment we have to have a great product, we're going to continue to market the value proposition, but we also need to ensure that we have.
Sales organization, our go to market organization, that's in place to truly engage with customers and expand once we've landed.
Our specific investments that we've articulated on Capella are in addition to.
Our existing go to market resources and so.
It's critically important that this is an and and we've unlocked the entire couch based go to market to work on cloud and then we've layered on specific resources, where we think there are.
In addition to activities that will help augment what those organizations are doing so as an example, this trial activity that's very healthy for US. We now have the product instrumented in such a way that we can see the behavior of developers engaging with the solution when are they getting to that all ha moment when does it at an appropriate time to <unk>.
Transition to our enterprise sellers, we've put resources in place who are dedicated on the trial experience at the same time, we have cloud sellers that we're bringing in from.
Places like Azure that can engage with customers and have cloud specific discussions on long term Tc O and how we can be competitive against.
Hyperscale solutions, we're still gonna have account teams in ftes that are fully ramped up and.
Focused on those accounts and territories. So we do believe that we're going to drive better efficiency over time at the same time, we want to make sure that we are investing to support the build out of the cloud model and we've got some critical capabilities like the ones I've mentioned that we were.
To make sure are in place. So we're investing for growth certainly we will be looking for.
Efficiency, but right now we're really focused on make sure capitalizing on this opportunity realizing.
The long term generational market opportunity that we are aggressively going after.
No that makes a ton of sense certainly seems justified from my perspective. Thank you. Thanks guys.
Thanks, Matt.
Thank you. Our next question comes from Rob Galvin with Stifel. You May proceed with your question.
This is Ralph Galvin answer Bradbury back thanks for taking the question.
I'm just wondering if theres any sort of a typical revenue revenue uplift when a customer migrates to capella.
Hey, Rob Yeah. This is Greg yes, yes, there is absolutely obviously because now we are not only.
Managing the database for them coming from a self managed but we're also hosting from an infrastructure perspective. So they're there absolutely is an uplift and I think.
Historically, we've talked and we'll have to see how this plays out but you know.
We think there could be an uplift.
On an annual credit basis in the range of 30% to 40% and even more when they go to a.
On demand basis.
Great. Thank you.
Thank you.
Thank you and as a reminder to ask a question you will need to press star one on your telephone. Our next question comes from Tom <unk> with Oppenheimer. You May proceed with your question.
Hi, Thank you yeah. This is part of them sitting with Oppenheimer.
Sure John So thank you for taking my question.
Firstly, maybe you guys can help me quantify near term headwind, you're seeing from the capella mix due to revenue recognition.
Baked into your guidance and then how should we think about it.
Any sort of headwind over the next few years until you know the mix gets more normalized than you're expecting.
About 50% of new workloads coming on as a service. So how should we think about that and then I have a follow up.
Yeah. Thanks, Thanks for that question, yes, so as I mentioned before with the revenue guidance as we're seeing.
Slightly more capella in the mix.
Than we had originally anticipated, which we're very excited about there is there is it does provide a slight revenue headwind.
And over time that will also continue until we get to a sort of a normalized run rate or a more material part of capella being part of the mix of the story.
So yes, you will see that over time again were trying as best we can based on what we know today to provide the most accurate accurately guidance on everything we know and we feel good about our guidance but.
But you will see some of this over time and we'll as we get more specific on pellets are sharing more details, we'll probably share more on what kind of.
Revenue headwind expectations, you can see right now again today Capella is not a material part of our business, even though it is starting to have some impacts on things like the Rev rack.
Most margins et cetera.
Understood. Thank you for that and that was my follow up I wanted to understand how much of your sales and marketing increase that you expect in fiscal 'twenty. Three is based on new higher end. It seems you just mentioned versus a higher cost base.
Our new hires or even the existing base because you know labor.
Labor is still tight.
Yeah.
So it's definitely both obviously as we go into a new year and we go through.
A typical merit cycle, there is an increase to the cost of the existing resources, but then we're adding we're also adding capacity I would say the larger part of it is through the adding of capacity around sales and marketing resources as we build out to that can you.
Continue to grow the business.
So while there is while there's a little bit more pressure in the market today and so you know the annual cost of existing employees.
You know is going up I would say, though the majority is really the new additional resources that were adding to go from.
The outside wraps the capello overlay.
And even some of the inside teams to kind of continue to grow the business, but that's where the majority the majority of the increase lives.
Got it thank you for that and maybe if I could just sneak in another one.
You know just looking at E. R. R.
Why would you know.
You are exiting the year would grow at a slower rate than <unk>, what am I missing here.
Well again some of it depends on timing so as we talked about last year.
Q1, we had a in particular a single large customer that.
Exited the Ara base, so that's giving us specific particularly in Q1, a pop and then Additionally look this is our guidance we feel comfortable on our guidance as I stated before we build it.
To be prudent in a position where we can at a minimum meet this and try to over deliver towards further as we get into the year. So we'll provide updated guidance as we go through the year of course.
Thank you so much for the color I appreciate it.
Thank you. This concludes the Q&A portion of today's call I'd like to turn the call back over to Matt Kane for any closing remarks.
Thanks again, everyone for joining us this afternoon, we've come to the end of our first fiscal year as a public company on an excellent note clearly we're excited about what's to come and we are very well positioned for fiscal 2023.
And again I want to sincerely, thank our customers our partners and teen couch base for making this past year possible feedback.
See you back here next quarter.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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