Q1 2022 Confluent Inc Earnings Call
Hi, everyone welcome to the Comscore in Q1 2022 earnings Conference call I'm, Shane Z from Investor Relations and I'm joined by Jay Crafts, co founder and CEO and Steffan Tomlinson CFO .
During today's call management will make forward looking statements regarding our business operations financial performance value creation potential and future prospects, including statements regarding our financial outlook for the fiscal second quarter of 2022 and fiscal year 2022, the potential growth runway for conflict Clough and future outlook for non-GAAP <unk>.
Operating margins.
These forward looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated by these statements.
Information on risk factors that could cause actual results to differ is included in our most recent Form 10-K filed with the SEC, we assume no obligation to update any statements after today's call except as required by law.
As a reminder, certain financial measures used on today's call are expressed on a non-GAAP basis. We use these non-GAAP financial measures internally to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes. These non-GAAP financial measures have limitations and should not be considered in isolation from OSA subs.
For financial information prepared in accordance with GAAP a reconciliation.
Asian between these GAAP and non-GAAP financial measures is included in our earnings press release, and supplemental financials, which can be found on our investor relations website at investors stock comp one tie out with that I'll hand, the call over to Jay.
Thanks, Jane welcome everyone to our first quarter earnings call. We had a successful start to the year exceeding our guidance on all metrics total revenue grew 64% year over year to $126 million a notable milestone as we surpassed the $5 billion revenue run rate Mark Confluent cloud grew 180% year over year represent.
In 31 percentage of total revenues confluent cloud is not only the fastest growing part of our business. It also serves the vast majority of our customers and in the first quarter, we closed the largest deal with confluent cloud in our company's history.
This eight figure multiyear expansion deal with a massively high scale Tech company is significant on a number of fronts, which I'll touch on further in a few minutes.
Today, I would like to use the time to dive a little deeper into the use cases driving conclude success and the rise of data is the underlying trend behind this shift is that we are experiencing a phase change of how companies use software software is moving from Siloed applications on the edge of the business to fully connected applications that drive core parts of the customer interaction in the production.
Goods and services. This transition is imperative for companies to compete in the modern economy at the heart of all the software its data and we're seeing an equally large shift in the underlying data architecture to enable this software driven business historically.
Historically data infrastructure has been built around data storage and there is a rich set of file systems databases and data stores that allow applications to store and retrieve bits of data. However, increasingly the storage centric paradigm is not sufficient as companies drive more of their core business with software that software has to have an upstate view of the business and be able.
To react and respond intelligently as the business carries out its core activities.
This has driven a shift from a storage centric world of data at rest and has enabled the rise of data in motion.
Broadly speaking data in motion is about connecting disparate systems by extracting data is continuous streams and allowing these streams to flow to the rest of the applications and infrastructure that need that data as well as allowing companies to react and respond that stream of data in real time.
Data in motion is now adopted incredibly broadly the presence and hundreds of thousands of companies and virtually every industry, giving a complete overview of all use cases is impossible undertaking however in todays call I'd like to give an overview of some of the patterns. We see illustrated with some examples to engage with customers in the most meaningful in Paris.
<unk> way to foster brand loyalty companies need to have a data rich 360 degree view of all aspects of their customers across all interactions confluent not only captures changes to the data as it happens, but stitches together data from disconnected databases files and custom applications to deliver a real time view of all customer interactions.
Enable real time engagement across all channels and reshape experiences. Once this continuous view of the customer's presence stream processing enables the real time reactions customer events to drive personalization. So that the right suggestion experience our recommendation can be delivered to each customer at the right time.
And Thats, what Deutsche Bond does for their passengers. They have a single source of truth for all the vital travel and train information and make it available on the mobile app websites, even station displays and public announcement systems real time data is what improves the customer experience and gets happy passengers, where they want to be on time.
Another common pattern, our customers embraced confluence for his data mobilization across hybrid and multi cloud architectures. Most enterprises on our cloud journey are finding it harder than expected to realize its benefits as the transition to the cloud is often an incremental multi year effort, it's arduous and expensive so whether it's modernizing their legacy on Prem.
This data warehouse to fully managed cloud native systems like Snowflake inquiry redshift synapse and data bricks are modernizing their monolithic applications to the cloud one micro service at this time many of our customers use confluence as the unifying persistent bridge, enabling data split really between the old legacy stack and new cloud applications wherever it.
Resides on premise and in more than one cloud. This pattern of running confluence has spanned environments is increasingly common in confluence is becoming a critical data fabric for enabling integration across multi cloud and hybrid cloud environments that was certainly the case for security scorecard that the.
Global leader in cyber security ratings in the first in their industry to offer digital forensics and incident response services operating in 64 countries that continuously right more than 12 million companies their business requires a hybrid cloud architecture. So they turned to confluence and now data streaming helps them communicate instant ratings and constantly scans for threats.
To improve their customer security posture, we're proud to work with them on their mission to make the world a safer place.
In financial services data and motion has become a mainstay of modern architectures from small fintech the largest banks in the world and capital markets for instance, we're driving better business outcomes by enabling enterprises to gain a firm wide view of their trades and risk retail bankers use confluence for secure real time payments. So their customers can transact with their banks speeds comp.
<unk> and trust fraud has become a growing problem in payments and it's harder to detect and before and many customers in the payments industry are using us for real time fraud detection adoption of data and motion in financial services is incredibly broad the top 10 largest banks in the U S are all comfortable with customers and were seeing ongoing demand across the world.
For instance at Bank Rock Yacht, Indonesia, Cri, the largest bank in Indonesia, and the largest micro finance institution in the world Confluent powered their digital transformation within event driven architecture for real time credit, scoring fraud detection and merchants assessment services now theyre able to detect ATM skimming in real time.
Lacan disable the cards of their customers and proactively protect their customers from fraudulent transactions. They have also been able to reduce loan disbursement times from two weeks to two minutes with automated digital verification by processing massive amounts of information in real time, all flowing through comfort.
In retail confluence serves as a massive advantage for retailers looking to meet the demands of heightened expectations for customers for real time, Omnichannel personalized experiences many retail organizations use confluence fundamentally transform inventory and supply chain and for hyper personalization to enable real time customer interactions that builds brand loyalty.
In the U S. Nine of the 10 largest retailers are constantly customers console helped sainsburys re imagine their supply chain and inventory management by enabling a continuous view of product inventory by using confluence they can drive lower inventory levels, while avoiding selling out and enable agile response to changes in supply and demand.
Conclude also acts as interconnectivity between different cloud providers like AWS and Azure, adding a secure fault tolerant real time data pipeline spans. These environments. This means they are protected if any cloud service experience as downtime, which greatly improves the strength and flexibility of their supply chain, one very compelling areas of opportunity confluence as <unk>.
Rowing into is the tech sector Tech companies, where the earliest adopters of open source Apache Kafka, but were not typical customers for earlier open source companies. The emergence of cloud as a delivery model has changed that our cloud services reached scale cost efficiency elasticity and reliability.
No internal self managed data system can hope to achieve.
As we've done this we've seen some of the earliest kafka adopters start to shift to our service, including companies like square that had been mentioned on our previous earnings call. This customer segment is significant because it has built around data in motion and very foundational way and as masks huge scale.
As I mentioned at the beginning of this call. This quarter, we added a very significant new customer in this segment that runs one of the largest kafka installations in the world New relic is the leading observed ability platform that helps engineers plan build deploy and run great software new relic is fundamentally a service, we're providing powerful insights into streams of observed ability.
Indeed, kafka as the backbone of all observed ability and log data ingest it into their platform new relic is the kind of company that is always thinking about their customers and always innovated our expertise having re architected kafka for the cloud and the proven scalability and reliability of our fully managed multi cloud platform are foundational to this.
New partnership.
Customers can benefit from the joint product innovations, we have planned with new relic, allowing for more insights from their confluence cloud telemetry data, we're very excited for the future and how we will innovate and create even more value going forward.
The success with all of these customers is driven by the deep differentiation of our product constantly builds is differentiation around three key pillars being cloud native being a complete offering and being everywhere. We've discussed these pillars quite a bit on past calls, but we continuously add them to deepen our competitive moat and better demonstrate value to interim.
It teams, who might otherwise be building around open source Kafka.
First being cloud native we announced various new capabilities that make our platform more scalable more elastic and more reliable.
These include greater scalability, and unlimited data retention and resort now across all three clouds customers can scale up to enormous data throughput and store data and confluent cloud forever without any limits on size of the retention.
Finally, we improved our observer ability and security capabilities, allowing richer insights is the use of confluence and more detailed audit tracking of actions taken with our products. These capabilities come together with our operational practices to allow us to deliver industry, leading reliability around data streaming and recognition of this we had strengthened our contractual SLA to 90.
$9, 99% as confluent cloud offers unmatched liability for real time streaming.
Our second pillar of being a complete offering continues to be an area of ongoing innovation for us we expanded role based access control to help enable secure usage across large companies and teams while still ensuring tight control on data access we added six new fully managed connectors to confluent cloud and our Oracle change data capture premium connector.
This allows us to set in motion the vast amount of data at rest locked up in Oracle databases, a mainstay technology in our enterprise customer base, our third pillar of product differentiation being able to run everywhere manifest in our ability to run across all our customers' environments, whether on premise hybrid and multi cloud.
In this area, we simplified the user experience for cluster linking our proprietary technology that allows transparent linking of clusters across cloud providers and on premise clusters. We also had a major release of confluent platform, which supports on premise and private cloud environments. This new release brings hundreds of new features and improvements that were first launched in our cloud.
Our customers' on premise environments, enabling richer hybrid cloud deployments are key part of our strategy to be everywhere is our relationship and integration with the three major cloud service providers. These relationships are critical for us, but also mutually beneficial for the cloud providers because confluence enables data flow from on premise environments in the cloud unlocking.
Use cases that would otherwise be tied to legacy environments by data gravity in our last earnings call, we announced a significant deepening of the partnership with AWS.
This quarter, we followed that up with the announcement of a new multiyear strategic partnership with Microsoft which extends our existing relationship with joint technical marketing and sales investments across our organizations. This deeper partnership helps us tightened integration with Azure as well as better serve joint customers.
We also had two notable announcements around our partnership with Google Cloud. The first was the founding of the data Cloud Alliance a new initiative that aims to make data more portable and accessible across disparate business systems platforms and environments with a goal of ensuring that access to data is never a barrier to digital transformation. Additionally.
Additionally, we have been recognized in the Google Cloud ready Big Quarry validation program, which ensures the best possible integration with big quarter, using our fully managed connector as part of this program confidential collaborate closely with Google partner Engineering, and <unk> teams to develop joint Roadmaps and continue improving our products by driving deeper alignment we are making it.
For our customers to connect and migrate hybrid and multi cloud data to big quarry to power real time analytics to wrap up on the point of product differentiation the value of confluence versus open source Kafka can be summarized from the findings of Forrester total economic impact study, which they recently conducted for console the studies.
<unk> quantified the cost savings and benefits businesses can achieve when they offload the burden of self managed kafka to concrete.
Overall, Forrester identified Tcs savings of more than $2 5 million businesses use confluence which translates to an ROI of 257% with a payback period of less than six months. The two key areas of savings included development and operations cost savings of over $1 4 million, plus scalability and infrastructure cost savings.
<unk> of over $1 1 million and perhaps most importantly confluence enables organizations to free their teams to focus on strategic efforts that drive competitive differentiation versus managing the underlying data infrastructure.
We think this is a key point of understanding what's emerging <unk> is not just better and faster and self managed open source. We can also be cheaper as well because of the high expensive cloud infrastructure and developers we have vast economies of scale by offering these services to thousands of customers. We think these cost savings are critical aspects of our value proposition and have <unk>.
A successful and both companies focused on innovation as well as focused on cost savings and efficiency. A great example of this ROI is swanky, India's leading on demand food ordering and delivery platform that serves millions of customers every day to connect those customers with hundreds of thousands of restaurant partners and all of their drivers requires real time data.
Originally they manage their own kafka clusters, but the time and energy spent on that deviated from delivering key business goals shrinking needed a fully managed solution to refocus their engineers time reduce costs and handle significant spikes in demand speed of delivery is a competitive advantage for <unk> and confluence is at the heart of their data in motion architecture.
Another key competitive advantage for confluence is our customer growth go to market model. We discussed this in detail on our last call, but I wanted to provide a brief recap on our strategy and some updates that we've made since last quarter. Our go to market effort is product led consumption oriented and purpose built for data and motion aimed at driving customer lands and grow.
Usage of our product from early experiments to large scale central nervous systems.
We continue to innovate at each stage in this journey and the first quarter, we made it even easier for developers to get started with confluent by allowing sign ups with existing Google and Github account credentials as well as removing our credit card paywall, allowing developers to test drive our product without the hassle of adding payments information.
We also expanded our developer learning center developer Dot Confluent <unk>, we launched expanded training materials for kafka confluence including material written and presented by one of my co founders and Copco is original co creators June route.
In addition, we've started a library of code samples and step by step tutorials to help customers apply confluence in common use cases, such as the ones described in the call. Today. This effort helps us to train the next generation of Parker users on console in cloud it helps us more quickly progress our customers through additional use cases and applications the.
The success of this strategy was reflected in a significant increase in sign ups and another record quarter of customer additions growing our total customer count 62% year over year to approximately 4120. This is continued to be a driver of the strong growth in our customer base with 100, K or more an IRR, which grew 41% year over year to 700.
91 customers finally, the spread of the use cases, the powerful network effect and the customers' desire to build out their central nervous system with confluence is reflected in the growth of our largest customer base.
Growth of customers with $1 million or more in our accelerated to 62% year over year ending the quarter with 97 customers. We are still in the very early innings of this opportunity and look forward to what's ahead.
We also recently hosted our first in person Kafka Summit 2019 more than 1200 members of the community gathered in London, and many more tuned into the livestream and I've got to tell you. It was great to be back together again the.
The prevalence of Kafka is also evident in the huge growth of the community. We've seen hundreds of thousands of organizations stopped kafka tens of thousands attended meet ups throughout the pandemic and a rich community working to documents improve and contribute to Kafka, We also announced our new data streaming industry of that current 2022. The next generation of profit for summit, where we will.
The preeminent thought leaders and experts in data streaming together in Austin. This October we invite you to join current 2022 to learn more about data streaming and our leadership in this space. It's hard to measure open source adoption, but I'd like to share one illustrative statistic today that shows the strength of the growing movement around Kafka and data in motion many stats such as <unk>.
Downloads arent available for Apache projects and stats like Github stars arent very representative of actual production usage. One data source. We do look at is the active unique IP using the Kafka Java Library, which is available from the company Sonnetize that distributes those libraries. This is a comparatively rigorous measure.
Because of the deduplication by IP address full companies may appear only once duplicate and automatic downloads are suppressed and users who do not remain active fallout of the measured on a trailing 12 month basis Kafka downloads grew over 50% year over year people often ask about the competitive landscape and the reality is that we don't see.
Kafka has a close competitor in terms of scope of usage breath of ecosystem our developer mindshare.
As an illustration of this it's worth considering the adoption rates of one of the most commonly mentioned competitive systems Apache pulsar.
<unk> sustained a significantly higher growth rate on a percentage basis than pulsar. Despite the fact that <unk> growth rate is off of a user base that is over 10 X larger this sustained superior growth at scale is what has made cockpit. The factor standard for data in motion and is attribute to the strength of the cockpit community the massive ecosystem of integration.
The network effects inherent in data streaming as well as the simplicity and superior performance that Kafka offers.
Before turning to Stefan I want to highlight key leadership higher in the first quarter.
<unk>, our new Chief people Officer, <unk> joined Us from ring Central and has a 20 year industry veteran whose teams efforts have been widely recognized with an a plus culture rating and a host of awards for diversity happiness and leadership.
I look forward to working with <unk> as we continue to scale our team and culture, we intend to continue to attract top industry talent in every function and create an organization that gets even better as it gets bigger with that I will turn the call over to Stephen to walk through the financials.
Thanks, Jay Q1 was another excellent quarter of operational execution and delivering on our commitments with results exceeding the high end of our guidance on all metrics key.
Key highlights include strength in our cloud business accelerating growth of our remaining performance obligations robust revenue growth and strong unit economics Q.
Q1, <unk> accelerated to 96% growth year over year, reaching $551 1 million of which we anticipate approximately 60% to be recognized as revenue in the next 12 months, representing 66% growth year over year comp on cloud is powering the growth of RPM, we closed the largest deal in the company's <unk>.
Three with compound cloud.
This eight figure three year deal had an immaterial contribution to current RPI and the vast majority of the contract value is reflected in our non current RVO.
Additionally, we recognized zero revenue from this deal in Q1.
The deal marks another key milestone for our company and enhances the durability and visibility of cloud revenue growth in the out years total revenue in the first quarter grew 64% year over year to $126 1 million subs.
Subscription revenue grew 68% year over year to $113 9 million and accounted for 90% of total revenue.
Within subscription compound platform revenue was $75 million up 39% year over year and accounted for 59% of total revenue comprehend cloud revenue exceeded our expectations up $5 $1 million sequentially and up 180% year over year to $38 9 million.
Counting for 31% of total revenue of 13 point increase from a year ago. We're also encouraged by the underlying momentum we continue to see in our cloud business.
For the second quarter in a row cloud accounted for more than 50% of new ACB bookings, marking a mix shift in the business, we had anticipated but that is happening faster than we had expected.
<unk> also represents the vast majority of our total customer count and has a world class net retention rate of greater than 150% our outperformance in cloud reflects not only the substantial progress we've made in all the verticals, we have been serving but it also demonstrates our ability to expand to the highly strategic digital native segment.
This momentum is being powered by our customers strong desire to have our fully managed multi cloud offering which has superior product capabilities and lower total cost of ownership compared to open source compound cloud abstracts away the complexities of managing and scaling open source kafka on their own.
And relieves the burden of hiring coffee engineers in the current labor environment.
We see a long runway for <unk> cloud to grow substantially over the long term.
Turning to the geographic mix of revenue revenue from the U S grew 60% year over year to $79 million.
Revenue from outside the U S grew 70% year over year to $47 1 million because we price in USD globally, we don't expect foreign exchange to be a direct headwind to our top line.
The net retention rate in the quarter remained above 130% for the fourth consecutive quarter. As we continued to see very strong gross retention and expansion across both of our product offerings. As mentioned previously NR for cloud was greater than 150% and NR for hybrid customers running both platform and <unk>.
<unk> continue to be the highest moving on to gross margins and profitability I would like to note that I'll be referring to non-GAAP results unless stated otherwise total gross margin was 69, 7% and subscription gross margin was 75, 5%.
We are pleased with our ability to maintain healthy gross margins, even as cloud accounted for a larger share of revenue, we've driven substantial improvements in cloud gross margin and we remain focused on increasing our cloud gross margin over time in the near term, we anticipate total gross margin to fluctuate near our midterm target of approximately 70% turning to.
Profitability and cash operating margin was negative, 41%, which represents a beat relative to our guidance.
This was partly driven by increased sales productivity lower than expected spend from in person events travel and real estate and other operating efficiencies that we're continuing to drive throughout the business free cash flow margin was negative 46, 3%, which was better than our plan.
As mentioned on our Q4 earnings call, we expected free cash flow margin to be the lowest in Q1.
Driven by the timing of cash flows related to our new corporate bonus program and employee stock purchase plan net loss per share was negative 19, using $272 9 million basic and diluted weighted average shares outstanding. We ended the first quarter with $1 $99 billion in cash cash equivalents in marketable securities are exceptionally strong.
Balance sheet gives us the flexibility to fund our growth plans as we steadily move towards profitability. Looking ahead I want to continue to share our plans for managing growth and profitability, which is guided by our framework.
The level of investment is informed by our track record of delivering on our commitments are significant market opportunity and by assessing unit economics, such as our consistent and strong and our our increasing sales productivity and improving cloud gross margin, we remain committed to delivering high revenue growth and annual improvement in <unk>.
Margins in 2022 and plan on accelerating the rate of margin improvement in 2023 based on our current topline growth projections and investment priorities. We plan to exit Q4, 'twenty four with a positive non-GAAP operating margin.
Turning now to guidance, we are raising numbers for the quarter and the year.
For the second quarter of 2022, we expect revenue to be in the range of $130 million to $132 million representing growth of 47% to 49% year over year non-GAAP operating margin to be approximately negative, 41% and non-GAAP net loss per share in the range of negative 21% to negative 19.
Using approximately 279 million weighted average shares outstanding for the full year 2022, we now expect revenue to be in the range of $554 million to $560 million.
Presenting a growth of 43% to 44% year over year non-GAAP operating margin to be approximately negative, 38% and non-GAAP net loss per share in the range of negative <unk> 79 to negative 73.
Using approximately 282 million weighted average shares outstanding.
I'd also like to provide some modeling points, we expect sequential revenue dollar growth for cloud will be the lowest in Q1 and will increase each quarter for the remainder of the year our margin guidance for the second quarter and full year takes into consideration an increase in expenses related to travel in person events real estate and facilities throughout 2020.
And as a reminder, free cash flow margin is expected to be the lowest in Q1, followed by Q3, and we expect free cash flow margin to trend roughly in line with non-GAAP operating margin in closing our strong first quarter results underpin our momentum and leadership position in data streaming since becoming a public company.
We have proven our ability to execute and deliver on our commitments consistently capitalizing on the secular trend of digital transformation and cloud migration, we are well positioned to drive continued high growth and deliver annual margin improvements with that Jane I will take your questions.
Please raise your hand, if you'd like to ask a question I'll pause for a few moments for our team to assemble the Q&A roster.
And our first question today comes from <unk> <unk> of Morgan Stanley followed by William Blair.
Yes.
These are new.
Essentially Indra Hey, Jay good to see you're going to see is that they really appreciate the pulsar.
Data something that we've been looking for and just sort of highlights.
The adoption of the market of Costco then the scale that you are seeing so thank you for that I'll ask the top product and congrats on that.
For the year.
As plentiful and cloud takes on more and more percentage as a bigger part of the business how is <unk>.
How is the customer experience going from say one use case, but typically the fraud detection and then wanted to do like a database. These cases observer ability and use case being able to go from this case number one to tier three and four how is that progressing how much effort do they need how much penalty they need from come forward or professional services hub to get there when youre dealing with.
Yes. This is one of the things that makes clouds, so exciting with kind of self manage infrastructure. There is a pretty high burden, you're often like buying servers and adding capacity in setting up new components in the offering and that all goes away right. So you can expand elastically. The components are all there if you want them to use as part of <unk>.
Our platform and then maybe most importantly, we can start to put together. These patterns. So I mentioned briefly these recipes that we now have available for use cases, which specify something end to end in case equal. This makes it much easier to take something thats like what you want to do and maybe modify it for your use case and just get going and.
We believe that that will allow us to drive much faster adoption now obviously, we're seeing good adoption even in our on premise customers, but for each use case, even though that spread overall maybe.
It's used case it takes some time to build up as our tools get higher level and as cloud enables faster progress. We think that that can improve over time, which is part of the reason we're convening into it so heavily and that was illustrated we broke out the.
For cloud as being greater than 150% I think is illustrated by that.
And it makes total sense, one follow up again sort of on product and more on product adoption a theme of your presentation was around.
Newer industries coming online and adopting them can you give us sort of the history like <unk>, who are sort of the early adopters and then it was against the pandemic over sort of the motivation for some of those new industries come online and what's driving the some of the I guess, what would you call out as sort of Underpenetrated in terms of Kafka <unk> adoption.
Today, that's starting to ramp up yes.
Interesting to watch so that the early adopters, where all the tech companies. So in Silicon Valley and you would see this as a massive platform in the Big Tech Giants and we're interestingly just coming to them as conflict customers now right. They were open source adopters and so you would see that with.
In Chicago square or this time around new relic.
<unk> has been using open source software for quite some time at scale now switched over to our manage offering.
From there probably around the time that constantly got started as a company.
We started to spread to other industries and the spread in each industry has been it's almost like top down and bottom up. These very small tech companies will be early adopters and then comes the apex companies in each industry. The ones that have the most significant investments in technology and are the most sophisticated about deploying things there first and then it kind of <unk>.
<unk> to the middle and so you would see that in financial services, which was an early adopter of retail which was an early adopter. We're now theres pretty good penetration in those top companies were kind of well out into the middle.
Some of the areas, where I feel like there is more opportunity relative to what we've done so far.
Public sector, I think theres enormous opportunity there.
Telecom health care I think these are areas, where we obviously have.
Wonderful marquee customers, but we're still just getting full coverage of the logos, let alone starting to larger growth and so yes.
I think theres a lot of opportunity even in these industries, where we have kind of at least some use case and each customer of course, our goal is to grow that significantly, but yes, I think I think some of the industries that have been a little slower probably the ones that actually have less competitive pressure to kind of innovate around technology and that's what we spend.
Our internal explanation for why some industries, which have.
Future use cases around real time potentially have been a little slower to pick up the new wave of technology.
Okay.
Yes.
We'll take our next question from Jason Ader of William Blair, followed by accounting.
Tim FX can you guys hear me, Okay yep fully create great.
Again I guess.
It was really good growth.
But it's the smallest <unk> had as a public company and I understand the dynamics around the kind of shift to cloud maybe happening faster than we expected, but my question is really on a go to market side.
Yes towards <unk>.
All of the areas you feel like you could be getting even better leverage to kind of execute on what clearly is pretty tremendous market demand and I'm thinking specifically made a partner ecosystem GSI isc's et cetera, you talked a little bit about Azure I know you also deepen the relationship with AWS recently, but can you just talk through.
The.
The puts and takes there or where you really see the kind of the most bang for your Buck.
Yes, I think theres two things that are building that will contribute more over time, one is the partner effort that you mentioned.
I think that helps accelerate what we're doing take it into other areas I think the.
The other one I would describe as the awareness of the category and brand, but I think for any new thing as that builds it does kind of transitioned from something thats.
New and Nobody's heard of to something Thats very mainstream to something you have to do to stay up to date and I think thats been building for US just the awareness among senior personas in organizations.
That's changed dramatically over the last few years and I think that's a huge.
So you'd help for us and just enabling us despite baxter in an organization and then I touched already on.
Both was cloud enables as a product, but it's not just about having the product features this customer growth go to market really taking advantage of this to be able to land as quickly as possible, we'll be able to drive that spread across the organization.
That's something that we've really kind of started to build around as a philosophy and I think as that kind of comes to full fruition I think that's going to be one of the really powerful things that can allow us to move even faster.
Great and then a quick follow up for Steffan Steffan are you contemplating any kind of a macro impact in your guidance for either Q2 or the year.
Either.
To Ukraine, FX or anything else in that guidance.
Well first off the demand environment remains very strong for our technology and.
And the setup for our company and when we look at guidance.
We absolutely taken signals from different geographies, we look at the sales pipeline, we look at close ratios et cetera, and we reflect that in both our Q2 in our fiscal year Guide I can say that very pleased that were able to beat and raise this quarter and for the year.
And so all of that macro is factored into our guidance if things change, we'll reassess, but we feel very good about our position heading into not only Q2, but for the balance of the year.
Thank you.
We'll take our next question from Derrick Wood of Allen, followed by Wells Fargo.
Hey, guys.
What are the metrics that really stuck out as this customer number the total customer number and if my math is right you had about 650 net new customers in the quarter, which was a big step up from historic levels.
If you could put your finger on it what was the change factor I mean, we've been seeing this rise in new customer generation, but it does seem like it took another step up forward anything you'd call out in terms of what's driving that and are the majority go into cloud or is there some sort of mix also still choosing platform, yes, the vast majority.
Total customer count is cloud.
And that's because of course, you can start very easily and kind of a frictionless way and buildup in so I touched on a few of the kind of product innovations, that's actually coupled with go to market changes to help out.
Removing the paywall and the product, allowing people logging with existing accounts from Google or get hub a lot of these low friction things really help our goal is to make this the default way of getting started with kafka or any kind of streaming project and just make it. The first thing developers do rather than having to kind of start with the open source in and convert.
Over at a later time I think we're still building around that so that's that's the stat, which I do expect will kind of fluctuate over time, we see it as a very important thing to build this broad base at the bottom and we've been pleased with how it's built but obviously as we kind of experimented with this it does go up and gotten more we were pleased with the results this quarter.
Great and Jay both you and Stephan.
Kind of referenced the tighter labor market and maybe wage inflation and how your cloud platform can really help address the.
The costs that would normally come from open source.
Are those things actually coming into conversations with customers and perhaps driving a.
A bigger flywheel.
Open source to commercial conversion yeah, absolutely. So I would say both in the tech world and in mainstream Enterprise you saw these very large kind of platform teams that ran internal infrastructure efforts and of course cockpit itself cannot apologize that Iran. At Lincoln.
The there's pros and cons to that right. There's lots of innovation that can happen on this internally.
Infrastructure, but it is extraordinarily expensive if you have the best 50% of your engineers working on internal infrastructure. That's a lot that's not going into the innovation in that company. So I think that there is a mindset shift overall I do think in uncertain times that shifts tends to happen a little faster because people are actually looking at.
Efficiency, but even in the absence of that just the competitiveness in the market does make people think about hey, where if we can't get the people. If we can retain the people, what where where are those people going whether they are working on and they are working on the things that are special sauce or are they working on these underlying data layers, where we have another solution and that makes them kind of look out.
Side their walls and Thats, a very important change I think youre seeing that in tech, which is opening that up youre seeing it in a large a lot of the large enterprises that would have similar kind of internal teams that would operate infrastructure at scale and I think that powers the whole move to cloud, but it's a huge deal for the open source companies like us where.
Back in the day on premise you might have a relatively low conversion rates from open source to paying customers, but now in the cloud I think you can have something which is a better product, but also a better deal like cheaper to operate when you take into account all of the infrastructure cost and especially the people costs.
Great. Thanks, Congrats on another strong quarter, yes. Thank you.
We'll take our next question from Michael <unk> of Wells Fargo, followed by Credit Suisse.
Hey, Thanks, Good afternoon I. Appreciate you taking the question Jay we are fielding lots of questions across software on the just the overall macro demand environment in certain markets could perform in a stress test event streaming market still in its infancy. The net new customer add metrics remain healthy and strong we've seen growth from the hyperscale.
Proved more resilient here, thus far as well, but what would you say to investors, who are just asking around the durability or where the spend and demand come from with.
Within that context.
Yes, there's a couple of things I'd point to.
We've been really happy with the growth in overall trajectory of the demand environment I think that because we tend to serve applications. They are software, there's less risk of it kind of disappearing overnight right. It's not the kind of thing you can just turn on and beyond that because we have access to this.
The size of the upside we saw Q1, so anything you would call attention to from either a Q1 seasonal perspective, or just something in the RPI or what drives the the full year confidence in the race there.
A lot of it comes from the strength of the business that we already have booked and we look at the current her P. O in total R. P O the signals the airplane to.
Again, increasing revenue for cloud sequentially throughout the year the number of new logos. We brought on into the business has is also a factor and then a real bright spot for the company is our and our our metrics, which has consistently been improving we we gave.
Additional disclosure this quarter around our cloud and are are being above 150% and hybrid and are are being the highest and if you think about where the puck is going most companies are going with cloud and a lot of our existing companies that had it worse C T <unk>.
<unk> platform customers only they're just getting started on their journey with consequent cloud and so that hybrid cohort in the cloud cohort should be.
Contributing a lot more to the business going forward. So we feel good about the setup for you know for the year.
Thanks very much.
<unk>, we'll take our next question from Phil Windsor of Credit Suisse, followed by Piper seller.
<unk>.
Thanks for taking my question I just wanted to focus on on the large geometric <unk>, that's why I figured jumped out and a quarter here have you got it.
More than twice I'm really a million dollar accounts was quarters you could Q.
Q did you one last year I was wondering if you're if you're gonna have what's your <unk>. These customers what's driving this expansion amateurs with sort of a scale use curious is called vertically origins for a broader dolphin.
Just horizontally more and more multiple use cases that central nervous system. For example, then stomach just.
Built on the last question in terms of obviously, you highlighted strong CRP, Oregon this quarter, particularly the unbilled backlog component of that in your comment about sequentially improvement cloud whenever you just remind us sort of been the convicts commitments your model confidence cloud, how we should think about converting tour that those bookings in a revenue and how that kind of relates back to your guidance.
For improving square for the first year. So to question a matter of fact, yeah.
Yes that so I'll I'll address the first one I mean, you know the million dollar plus customers. We do use that is kind of a loose proxy for people who are kind of going big in this kind of central nervous system really thinking about this across the business of course, you could probably get to that spend with one very large use case, but it's much more common that it has broad adoption that's organized.
<unk>. So yeah, just strong signal quarter to quarter that will vary a bit right just because it's a smaller number so there's a little more variance, but yes, absolutely strong <unk> a week you know over the last week meeting with senior folks in Europe , and I would say that probably the biggest change from my point of view.
Two things that I observed one much much broader senior awareness of what's happening with data in motion, Yeah, I feel like.
This is a problem that people event had it's like a painting people who've had where they've been reaching for solutions and now there's kind of something there and there's enough adoption that they're willing to bet on it big and I think that helps us significantly I think that's coupled with you know a much more concerted pushed your cloud.
You know that may be more Europe specific where I think it was happening maybe a little bit more seriously in the U S. Alrighty, but you are certainly among senior leaders I met with there do the.
Seriousness with which they were you know pushing that transition I thought that was different so I think both of those are <unk>.
And on the cloud peace there are multiple elements to your question <unk>, Let let me cover off I think that the main ones. So first when we look at that when we look into the cloud rhythms of the business. We have very impressive cloud revenue growth, but more importantly, new cloud E C V.
It was greater than 50 per cent again for this quarter and that's coming off as well as a strong Q for as well so.
So we have really good underlying momentum there mechanically when you think about the transition from.
Cloud C. R. P. O. Two revenue there are multiple factors that play and one of the biggest factors is in a consumption based business or.
Our our revenue is still modest.
But growing incredibly fast the timing of software projects throughout the year will have a more pronounced impact on sequential growth at this stage of our business what we've talked about in the past is.
It takes a few quarters for customers to reach their committed consumption curve.
Operationally, we're focused very much on decreasing the time to consumption for our customers and we do that at each stage of the of the customer journey that we've outlined.
And because we've been doing a lot of those things operationally and you combine that with the height and are are for cloud that we have and the new customer account for cloud that we have.
We can see this progression in our model that shows.
How'd revenue increasing sequentially.
Quarter over quarter for the for the remainder of the year.
So that that's the dynamic at play and and we think cloud is going through this.
This this railroad robust growth in our business is accounted for a large proportion of our bookings we just landed in apex customer in the digital need a segment I and we feel like we're just getting started on cloud.
Alright, Thanks, guys came up with a good work thanks.
<unk>.
<unk>. Our next question comes from <unk>, a fiver Sandler followed by Bank of America.
Hi, guys. Thanks for taking my question I Wonder if you could touch a little bit more on the international versus domestic growth and success you saw within this corner both of them go to market standpoint, how you're building and also are you seeing any difference in terms of big deals person's kind of those transactions.
No velocity be all since we work internationally versus domestically. Thanks.
Yeah. Yeah. So you know international has continued to outpace U S gross kind of and just observing and talking with customers I would say, they're probably a little bit behind the curve on overall cloud adoption and a little bit behind on streaming the catching up quickly I think that.
In in all regions I've met with customers, who are kind of going big I'm very senior level. So I I think that's an exciting thing to say.
So you know for us the regional differences at this layer of the fact that they're not you.
Huge there's there's many other products that have much bigger differences by and large I feel like this type of technology is kind of very international but it is true that I would say that European companies were a little store on cloud. So just the total dollar spending cloud is not at the same level. Yeah. It has the counterparts you know say it similar sized company in the same industry would be.
In the U S and then maybe a little bit maybe a year behind the curve you know across across the board on the world of streaming but by and large doing exactly the same projects in exactly the same way. So we see that as a super healthy thing is is that businesses kind of catching up to what we see in the U S.
You May you may have been just add to that step in but those are my observations.
Alright, thank you.
Alright, well pick on next question <unk> Bank of America.
Hey, Thank you does that I'm on for Brad. So just as you guys see deals get bigger can you just remind us how he should be thinking about seasonality again for example, like should we expect to see a more pronounced you know <unk>.
Q for this year, then maybe last year the year prior.
Yeah, and you want to speak to a seven.
Sure.
When <unk> when we think about seasonality, it's really from a bookings basis.
Primarily this will restart and given the the way that business is done any enterprise typically near the end of the calendar year.
Larger deals have more momentum and we we in feels in queue for and it's also a line with sales compensation plans, but we're looking at at at at doing.
Very substantial deals throughout the whole year, but it just so happens the way that the enterprise business worth it tends to be Q4 tends to be higher from a booking standpoint. When you look at revenue, there's gonna be a little bit of variability in our revenue on a quarter a quarter basis in terms of growth rates and that's because we have a hybrid revenue.
Model.
Part of our model has couple of platform, which you would have a part of it upfront and then the balance recognized Ratably. We are seeing an increase impact positive impact around our consumption business and we talked about that there are some either seasonality or <unk> cyclicality.
Type of dynamics to a consumption based model and and so you know you could have Q4 to key one having less sequential consumption growth, but that's normal in there are lots of different companies that are out there with a hybrid revenue model that that sees that sees that on a consumption basis, but.
We're talking about this in the context of us continuing to raise numbers were leaning into a $50 billion plus market. We're also leaning into improve visibility around how we're managing growth and profitability and and so I devoted a little bit of my comments to this.
In the script, but we we remain committed to delivering high revenue growth in annual operating margins Auberry operating margin improvement in F. Y 22, we plan on accelerating that in F. Y 23 from an operating margin standpoint, and we plan on.
Exit in queue for 24 with positive non-GAAP operating margin and we're doing this all in a high growth format and the last one I just want to make on that is if you think about the importance of managing growth and profitability and the timing of when we are achieving positive non-GAAP operating margin, we're 2014 Vince.
<unk> company and we have we have laid out basically like a 10 year a dynamic from 2014 to queue for 24 of when we achieve non-GAAP operating margin.
Positivity, so we feel good about that a lot of our peer group companies in the next Gen Tech stack or.
Our call at 10 to 15 or 16 years post inception, so we're kind of right in line with with our peers roof on that front.
Awesome. Thank you and just have a quick follow up maybe for J you guys called out you know very strong.
Conflict cloud performance, you know with with the mixed the new customers Dimensionally cloud.
Can you just talk about you know within the existing consequent platform customers are.
Are these customers kind of migrating faster than you expected or you know running a hybrid deployment fast and expected. Thanks, yeah. So we're seeing a ton of growth in this hybrid cohort that has both confident platform and cloud either the two misconceptions that come up around our constant platform business.
First of all it's it's not really exactly a transition where people are swapping out an instance of comfort platform and just walking in conflict cloud since tends to be about the environment you're running it. So if you have applications on prime Minister you're using counseling platform. If you have applications in the public cloud, you'll probably using counseling cloud you can link those together so the data flows between I talked about.
Some of those use cases earlier and so you know as more use cases are being built in the public had received faster growth there, but that doesn't necessarily mean that the you know the growth of comfortable platform goes to zero that that is actually continued to grow throughout this and that that use case of bridging your cross is actually a really important and <unk>.
Strategic use case for customers. So we see that as a really strong ask that this is different from most technologies is this about the flow of data. So we have to be in all the environment. So that our customers are in that that everywhere value proposition. So we are seeing a ton of growth in that segment and Stefan alluded to receive the highest and are are in that hybrid <unk>.
And you know even higher than the the cloud only interact.
Alright, Thanks, Adam and breath and last question comes from our Keith at <unk>.
Great. Thanks for put them in here.
Just curious to hear more color on that figure expansion Bill I mean, just the number one was that a cloud customer when and number two is what was the <unk> any channel partners involved in that.
Yeah. So yeah. It is it is a cloud deal for us.
We feel like the only product that makes sense for a tech customers is cloud there they're virtually all in the cloud and so yeah. It is.
We're just starting to enter the very large open source Parker Uhm users and Tech you know certainly knew relic as in the kind of call. It top 25 biggest kafka users.
Have an exact ranking but something like that.
And we think that's a really important group of customers to go after it pushes us to you know really be high performance high reliability cost effective like all the things have to be right to serve these most aggressive customers who are have the most internal capabilities as well and get them to make the changes and that if you do you know, there's a big prizer right.
Cause there's there's massive teams built around US you know some of these organizations have you know a team of 50 people that you're running a kafka infrastructure and it's attached to every application. They run. So yeah. So I think we're just getting started and and check even though we have some great large customers. There we intend to expand that set of large.
Tech customers, we've been doing well for some time now and they're kind of commercial size tech customers that you know lower revenue smaller tech companies and so I I think that's a great area for us I I do think it's part of an overall mindset shift in these companies to try and get out of the you know self manage in <unk>, you know inhouse infrastructure business.
And kind of put the engineers on something that matters.
So if I could just make one more yeah, just on a competitive landscape with the public cloud and there's some.
Some type of partnership Sir So I'm just curious if it's turning more from competition to cooperate.
Cooperation on that front yeah.
Yeah, well you know, it's it's a little bit about the you know the cooperation comes from the fact that we actually play a really important role I think in the cloud and the kind of getting data into it actually the flow of data into their systems and so much more than other you know infrastructure areas I think we're viewed as a really positive and strategic.
Element of their ecosystem, and that's and to all the cooperation with big worry in Google and the other data warehouse technologies and any other clouds, you know because we're a big big deliver data to these services through our connectors. So.
So that parts incredibly cooperative. They obviously have you know different products, we compete with.
Some of those products you would never hear about some do come up but we feel that we compete very well you know we have an excellent with red when they come up and I I think that comes out of the depth in this space.
Don't think in any of the cloud vendors, you know real depth around screaming with a kind of integrated strategy around all the parts has really emerged and that's that's put us in a unique position in going after this ah coupled with our ability to actually spam the different environments, which is something that you kind of can't really do or can't really do well.
Alright, thanks to.
Alright. Thanks Guard. This concludes today's earnings call. Thank you all for joining us take care.
Thank you.
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