Q2 2023 MongoDB Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Thank you for standing by and welcome to Mongo DB second quarter fiscal year 2023 earnings Conference call.
At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session will you limit yourself to one question and one follow up to ask a question raise your hand during the session you will need to press star one one on your telephone.
I would now like to hand, the call over to Brian did you of ICR. Please go ahead.
Thank you Latif and good afternoon, and thank you for joining us today to review Margaret <unk> second quarter fiscal 2023 financial results, which we announced in our press release issued after the close of market today.
On the call today are David which area, President and CEO of Mongo, DB, and Michael Gordon Mongo, DB CMO and CFO .
During this call we will make forward looking statements, including statements related to our market and future growth opportunities and the benefits of our product platform, our competitive landscape customer behaviors, our financial guidance and our planned investments.
These statements are subject to a variety of risks and uncertainties, including those related to the ongoing COVID-19 pandemic and its impact on our business results of operations clients and the macroeconomic environment.
<unk> actual results to differ materially from our expectations.
For a discussion of material risks and uncertainty is going to affect our actual results. Please refer to the risk described in our quarterly report on Form 10-Q for the quarter ended April 32022 filed with the SEC on June 3rd 2022.
Any forward looking statements made on this call reflect our views only as of today and we undertake no obligation to update them, except as required by law.
Additionally, we will discuss non-GAAP financial measures on this conference call. Please.
Please refer to the tables in our earnings release on the Investor Relations portion of our website for a reconciliation of these measures.
It's directly comparable GAAP financial measures.
I'd like to turn the call over to Dave.
Thanks, Brian and thank you to everyone for joining us today I'll start by reviewing our second quarter results before giving you a broader company update let's start with our second quarter financial results. We generated revenue of 304 million, a 53% year over year increase and above the high end of our guidance Atlas revenue grew 73% year over year, representing 64%.
Of revenue and we had another strong quarter of customer growth ending the quarter with over 37000 customers.
Overall, we're pleased with our performance and execution in Q2, despite the challenging macro environment. Let me give you a bit of a bit more context on what we saw in Q2.
The new business environment remains robust as evidenced by a record increase in direct sales customer count we have seen no change in deal activity in sales cycles, we believe our strong new sales performance.
Demonstration of the critical business value, our developer data platform delivers and our superior go to market execution as.
As we have said in the past nearly every organization uses software to drive their value proposition. Consequently, these organizations seek modern solutions that make their developers more productive.
Furthermore, actually rates remain strong further evidence that that market to be the non discretionary spend for our customers as expected. We did see the macro environment way on the growth of Atlas consumption as we discussed last quarter. It is important to understand that the slower than historical consumption growth as a result of slower usage growth of our.
<unk> underlying applications due to macro conditions, our customers spend on our platform is well aligned with the performance of their business in the current environment some businesses and consequently their applications are growing more slowly Michael will address the second quarter consumption trends in more detail.
Let me tell you how we are navigating the current environment first we are doubling down on velocity as we discussed with you in the past we are in the business of bringing new workloads onto our platform and then focus on making those workloads successful in the current environment. We are even more focus on removing friction and acquiring workloads from new and existing customers the strength of our new.
New business performance in the first half of the year demonstrates our success in this area.
Second we will continue to invest for the long term and we'll make investments in our growth initiatives and platform capabilities, where we are generating strong returns we have never taken a growth at all cost approach and we will remain vigilant and prioritize our highest return areas. We are confident that the recent consumption trends will improve as the macro environment normalizes over time.
<unk>.
The value proposition of the Margaritaville developer data platform has never been stronger our conviction comes not only from our results, but also from the success of our customers are having with our platform.
Customers are very focused on removing complexity from the technology stack. They understand the complexity is attacks that increases expenses creates risks and slows down innovation. They are increasingly turning to our developer data platform to address this challenge.
Multinational trillion dollar financial services company chose <unk> to power. The next generation trading platform to cover all of their various trading businesses with one solution since launching the new service the customer has been able to decommission eight legacy trading systems and realized cost savings of almost $50 million in annualized expenses.
A leading Canadian security provider migrated its Iot and AI security platform away from an open source relational database to Atlas with the ability to use margaritaville native starting to distribute their database over lower cost instances. The company has been able to significantly reduce their database spend by 60%, which is particularly compelling.
The open source nature of their prior solution.
Another one of our customer priorities is to invest in our core competencies and outsourced or eliminate everything else. They understand that claim to the old ways of delivering innovation is not only time consuming but also incredibly expensive.
Global travel technology leader is in the process of getting out of the business imagine their own data centers. They turned to <unk> to be in order to modernize our key legacy application and move it to the cloud. The monolithic application was originally built on Oracle and elastic search, but the customer decided to migrate the application of Atlas because they couldnt meet their timeline and performance requirements with there.
Existing solution.
A web <unk> pioneer startup by building and managing their own computing infrastructure. However, the development team quickly reached the point, where they were overwhelmed by day to day tasks. The magic of infrastructure by migrating to <unk> outlets. The company saved three years in development time and reduce the need to hire 40 developers.
Finally in this environment as any other customers understand that high performance and scalability are critical to their success of Fortune 500, consumer technology leader turned to <unk> to replace its existing compliance platform as it needed to double the performance, while lowering cost and enabling real time visibility of operations monitor.
<unk> was able to address the performance requirements, while lowering cost by 70%.
One of the world's largest health care companies historically, an oracle shop was unable to meet their desired performance expectations that had to spend tens of thousands of hours just to maintain their existing environment.
Over the last few years, they have implemented market would be for the most demanding new projects such as the Covid vaccine application as well as their digital health App.
Perhaps the best way to illustrate how the perception among the biggest change is to review our relationship with one of the world's Premier commercial investment banks for four years ago, a senior executive of the Bank told me that he didn't think marketing was ready to be declared a standard for their mission critical applications at the time, they had a myriad of relational and non relational technology.
He has deployed across the organization.
Since then not only that the bank become more focused on and confident in moving workloads to the cloud, but the bank's leadership team also observed how overwhelmingly popular among <unk> become with our development teams across the organization as a result, they decided to make money to be one of their enterprise standard offerings as part of their journey to the cloud in the second quarter.
They signed a multimillion dollar agreement as a sign of the desire to use <unk> as a preferred platform for mission critical workloads.
Our customers are not only excited about our current product offering but also by our roadmap.
We received enthusiastic feedback at this year's model you'd be world about our developer data platform vision as well as our product announcements to highlight a few.
We announced <unk> encryption and industry first feature that allows customers to query data while it remains encrypted given the heightened focus on security and privacy. This announcement received a lot of attention from both customers and the academic community and currently over 60 companies. The majority of whom are Fortune 500 customers are in development with this feature.
We also announced relational migrate or a product that simplifies the process of migrating workloads off relational databases and onto <unk> to be our early access program is oversubscribed and we're getting great customer feedback given most companies increased focus on cost management. We believe this technology will accelerate customer confidence and re platforming.
Implications off relational databases.
We also received positive feedback related to our analytics announcements, most notably Atlas data Federation and Atlas data Lake storage are seeing healthy early adoption and use cases related to the ingestion data transformation and clearing of large volumes of data to provide greater insights from data generated by applications on Atlas.
Now I'd like to spend a few minutes reviewing some additional customer wins and interesting use cases from the second quarter.
Leading German retailer Conrad electric built an online <unk> marketplace on Miami Beach.
Turning to monitor before its simplicity as the marketplace grew it moved from Margaret Community addition to outlets for further scalability and to reduce management complexity Conrad electronics database now host over 8 million active Skus, which is estimated to reach one min 100 million skus by 2024.
Lucas Robotics, a leading warehouse robotics company leverages outlets to store data uploaded from their physical warehouses, including metadata logs configurations and reports there Lucas cloud warehouse orchestration platform utilizes atlas's store and access data for operation reports, ensuring seamless and reliable functionality for the customers.
<unk> robotics for selected <unk> Atlas because they needed a fully managed data platform that allowed them to build faster and handle vast amounts of data.
And their efforts to improve their automation processes e-commerce platform rent the runway selected and implemented marketing be Atlas as the database platform to streamline how garments are sorted and cleaned and their fulfillment centers with Atlas rent. The runway is able to seamlessly extract data and real time analytics from the robotics sorting arm and X Ray machines, resulting in a <unk>.
<unk>, 7% decrease in processing time.
In summary, I am pleased with our execution in the second quarter. Despite macroeconomic uncertainty we are focusing on what we can directly control, namely, bringing new customers and new workloads onto our platform. The breadth of adoption across many use cases gives us continued confidence to judiciously invest across our business to best position ourselves to fully capitalize.
On a long term market opportunity with that here's Michael Thanks, Dave as mentioned, we delivered another strong performance in the second quarter, both financially and operationally.
I'll begin with a detailed review of our second quarter results and then finish with our outlook for the third quarter and full fiscal year 2023.
First I'll start with our second quarter results.
Total revenue in the quarter was $303 7 million up 53% year over year.
As Dave mentioned, we saw continued strong new business environment and experienced no noticeable change in sales cycles.
To us this is an indication that we remain a top priority for our customers.
Shifting to our product mix enterprise advanced exceeded our expectations driven by upsells to existing customers.
Moving onto Atlas Atlas grew 73% in the quarter compared to the previous year and now represents 64% of total revenue compared to 56% in the second quarter of fiscal 2022, and 60% last quarter.
As a reminder, we recognize Atlas revenue based on customer consumption of our platform and that consumption is closely related to end user activity of the application, which can be impacted by the macroeconomic environment.
Overall, our performance this quarter was strong and we're pleased with our results.
We do think it's helpful to provide investors some incremental context around the puts and takes that we're seeing in consumption trends.
As you probably recall on our Q1 call. We shared with you that we were starting to see the impact of macroeconomic uncertainty fund Atlas consumption in certain pockets of our business and discuss with you. The framework on how we expect the macro impact to play out for the rest of the year.
Let me update you on our performance compared to this framework in Q2.
Starting with our self service channel, you'll recall that we experienced slower than historical consumption growth in Europe in Q1 and in the U S. In may.
They may consumption patterns generally continue for the remainder of Q2 and self serve did modestly better than our expectations.
Moving on to the mid market channel for.
For context, the customers in this channel tend to be traditional medium sized businesses. This channel included tend not to be traditional medium sized businesses. This channel includes a disproportionate share of digital native SaaS growth companies that have built their businesses I'm hungry DB.
Our expectation that the mid market slowdown we saw in Europe in Q1 would become global in Q2. This is what we experienced but the slowdown was more significant than we had expected specifically the digital as a subset of the mid market experienced slower growth in their applications as a result of macroeconomic conditions and therefore their underlying consumption growth among going to be.
Slowed as well.
Finally, turning to enterprise our largest channel as of Q1, we have not seen an impact on consumption, but we expected a modest impact to manifest itself in Q2.
Her consumption growth was above our expectations in North America, while in Europe , we experienced greater than expected macroeconomic headwinds the slowdown in Europe was evidenced across all sub regions and industries.
Turning to customer growth during the second quarter, we grew our customer base by over 1800 customers sequentially, bringing our total customer count to over 37000, which is up from over 29000 in the year ago period of.
Of our total customer count are.
Over 5400 are direct sales customers, which compared to over 3600 in the year ago period Q.
Q1 was a record quarter of direct customer net additions, which speaks to the popularity of our platform and the relevance of our value proposition.
As a reminder, our direct customer count growth is driven by customers or net new to our platform as well as self service customers with whom we've now established a direct sales relationship.
The growth of our total customer count is being driven in large part by Atlas, which had over 35500 customers at the end of the quarter compared to over 27500 in the year ago period.
It's important to keep in mind that the growth in our Atlas customer count reflects new customers from all going to be an addition to existing <unk> customers, adding incremental Atlas workloads we.
We had another quarter of our net expansion rate above 120%. We ended the quarter with 1462 customers with at least $100000 in IRR an.
MLR, which is up from 1126 in the year ago period.
Moving down the income statement I'll be discussing our results on a non-GAAP basis, unless otherwise noted.
Gross profit in the second quarter was $223 2 million, representing a gross margin of 73%, which is up from 72% in the year ago period, our year over year margin improvement is primarily driven by improved efficiencies that we are realizing in Atlas.
Our loss from operations was $12 4 million or a negative 4% operating margin for the second quarter compared to a negative 2% operating margin in the year ago period.
As a reminder, in Q2, we saw the return of large in person events, most notably our flagship event market DP World, which attracted approximately 3000 attendees to the Javits Center in New York.
Net loss in the second quarter was $15 6 million or 23 per share based on 68 3 million weighted average shares outstanding. This compares to a loss of $7 7 million or 12 per share of $63 4 million weighted average shares outstanding in the year ago period.
Turning to the balance sheet and cash flow. We ended the second quarter with $1 $8 billion in cash cash equivalents short term investments and restricted cash operating.
Operating cash flow in the second quarter was negative $44 $7 million after taking into consideration approximately $3 9 million in capital expenditures and principal repayments of finance lease liabilities free cash flow was negative $48 6 million in the quarter.
This compares to free cash flow of negative $22 7 million in the second quarter of fiscal 'twenty two.
I would now like to turn to our outlook for the third quarter and full fiscal year 2023.
For the third quarter, we expect revenue to be in the range of $300 million to $303 million.
We expect non-GAAP loss of operations to be in the range of $10 million to $8 million.
And non-GAAP net loss per share to be the range of 19 to 16.
Based on $68 9 million estimated weighted average shares outstanding.
For the full fiscal year 2023, we expect revenue to be in the range of $1 196 billion to $1 $206 billion for the full fiscal year 2023, we expect non-GAAP loss from operations to be in the range of 13 million to $8 million and non-GAAP net loss per share to be in the range of 35 to 28.
Based on $68 6 million estimated weighted average shares outstanding.
I'll now provide some more context around our guidance.
First we expect the Atlas consumption trends, we experienced in Q2 to continue for the remainder of the year.
Second in the second half of last year as we called out at the time, we had exceptionally strong atlas consumption growth leading to difficult Atlas year over year compares to the back half of the year.
And third.
The sequential decline in enterprise advanced in Q3, as the rental basis sequentially lower.
Looking into Q4, we expect a seasonal uptick in revenue from EMEA, but recall, we face a very difficult year over year comparison, given strong new business activity, we saw last year.
To summarize Margaret we delivered strong second quarter results, our new business performance and record direct customer net additions indicate the strong underlying demand for our developer data platform. We will continue investing responsibly in pursuit of our long term opportunity and with that we'd like to open up to questions operator.
Yes, Sir as a reminder to ask a question you will need to press star one one on your telephone please limit yourself to one question and one follow up then return to the queue. Please standby, while we compile the Q&A roster.
Our first question comes from Sanjay Sen.
Morgan Stanley <unk> Your line is open.
Thank you for taking the questions can you hear me.
Yes, yes, okay.
Alright, great. Thank you for your question about the question and congrats on the strong deal activity and momentum in Q2, I had a couple of clarifying questions. Michael on kind of the profile in terms of the different trends, we see across the business how much of the mid market.
How much of the mid market represents as a percentage.
I think self service, it's pretty straightforward to figure that out but between the split between Denmark and enterprise, what's the relative size of those and did you see going into August being sort of sustaining coming out of July .
<unk> got worse or did things modestly Chris.
Yes, so in general the mid market is a small portion of the overall direct business and therefore their business overall and in terms of August .
August was consistent with what we experienced in Q2.
Understood and then just a question on the operating income guidance that did come down versus your prior guidance I was wondering if you could provide more context, there on what seems to be high.
A higher level of Opex spend in the back half, what's driving that where those investments going thank you.
Yes, a couple of different things.
From a macro standpoint, if you take a step back we're investing relative to our long term opportunity.
We have very fractional penetration and continue to see robust new business.
As you think about the business more holistically new customers.
And new workloads are what really determines the long term outcome in the long term success and so we continue to invest in.
In sales and marketing and in R&D of the platform too.
To position ourselves to capitalize on that long term opportunity as it relates to expansion of existing workloads, which is sort of the other piece of the equation that's more relevant in the short term not as relevant in the long term and so that's where we've seen the slower growth that we've described and so we're continuing.
To take a long term orientation, we're obviously not doing that in a vacuum or with blinders on.
<unk> maintained a high level of financial discipline, and scrutiny and we continue to prioritize the highest level investments and constantly monitor things to make sure that we're being appropriate in terms of positioning ourself for the long run.
Understood I appreciate the context, Michael Thank you.
Thank you. Thank you. Our next question comes from the line of Braemar Lynch L. A Barclays Raimo Your line is open.
Okay.
Quick question from me as well.
Dave can you talk.
Little bit about the.
Your prepared remarks, you had quite a few interesting customer stories in terms of people standardizing on use them very big deployment on.
Atlas Enterprise what are you seeing in terms of where you are on that journey in terms of.
People kind of putting much bigger workloads onto the platform and then a few years ago when people were trying and testing it out versus now.
Stuff on there like what are you seeing them.
On that journey and then one for Michael.
E.
You kind of talked about sequential decline in Q3 as well can you talk a little bit about the drivers there because as that kind of cloud transition more and more guys go into the cloud that's impacting that negatively is that consumption can you just give us an idea. So let me get a better idea about the run rate Tim. Thank you.
Hi, Raimo to your first question.
And we've been essentially being used for mission critical.
Applications for some time now and and.
And that's evidenced by almost every bank on Wall Street is using us for some important use case, we have large.
Fortunately all of our companies and industries like Telecom media attack.
Health care et cetera, who are using us for a very mission critical use cases, I would say that we're still early in the journey in terms of.
Having greater share in those larger accounts and you've heard us talk about our focus on focus accounts were bringing more resources to bear to really drive the expansion of those existing accounts and to get more workloads on our platform and Thats as Michael mentioned going well, but in terms of market readiness for mission critical.
Platforms, we feel like we're really well positioned we've added some new capabilities, which we announced at among the B World and our roadmap is very rich with features so our customers truly view us as a strategic platform and that's why you're seeing more and more customers standardize on <unk>.
Yes, <unk> on your question on EMEA as you know, we manage the business on a channel basis, not a product basis, but certainly want to try and call out some of the trends so that people can kind of put the.
The guide in context, and some of the things that we're thinking about.
The new business environment continues to be robust.
But AA continues to be a smaller and smaller percentage of that overall, new business environment and so as you look at the back half of the year that continuing sort of evolution and share is sort of important to take into account in.
In addition.
EAA is subject to 606 accounting.
And the term license component, there, which adds into the increased variability and reduced comparability that we see period to period and then lastly, as I mentioned in the prepared remarks, we did have very strong performance of EMEA in the second half of last year and so not only does that set up a tough comp.
In the classic sense, but.
Depending on the nature of the structure of a deal Thats a multi year deal. The term license revenue can be recognized upfront and so not only does it.
Boost the current period that now becomes the year ago period, but the current period, which is now the present period in the back half of this year doesn't have that license revenue and so you sort of got a.
Two factor impact there and just trying to call that out for folks so they understand.
Thank you. Our next question comes from Kash Rangan of Goldman Sachs Kash Rangan. Your line is open.
Alright, Thank you very much one for Dave and one for Michael Dave You talked about these big customer wins at what point are we set up for an inflection point of the database market where.
Less expensive, but technologically.
Very compelling solutions like Mongo DB, you hit that tipping point and during a downturn is the one we're going through initially you see that pull back in spending but as customers realize the value are we set up for a P times Q.
In the customers' mind that there is an inflection point and that you could actually reap the benefits typically during these transitions the compelling price performance technologies gained share relative to the more expensive incumbent so wondering what your thoughts are in that regard and Michael one for you as you walk through the tougher comparisons in the second half of the year.
Is that because of Atlas momentum and if so how does the artist calendar 'twenty three shape up if you predict obese Atlas trends and what are the things that we should be expecting as far as normalization of growth rates.
Sir Thank you so much.
Hi, Kash. Thanks for your question on on your first question I, just want to remind everyone. We're not seeing any change in deal sizes of the sales cycle times I think your point about as.
Our customers face this macro headwind is there an opportunity for them to essentially drive more efficiency in their business and we're definitely seeing customers starting to do that.
We're definitely seeing customers look at their legacy platforms and recognize how expensive and brittle those platforms are and are more motivated to.
Move onto more modern platforms like Mongo, DB, frankly that into hub customers that journey that was the motivation for us to release or at least the relational migrated product because this is not a new trend to help customers just.
<unk> the cost of moving off relational to market would be and I think youre going to see more and more customers take a hard look at their legacy infrastructure and think about modernizing potentially.
Sooner than later.
Yes, I would just to your second question about sort of second half and compare as I walk through the EDA compare on the Atlas compare yes last year, we had.
Very strong cohort expansion in Q3 and in Q4 that leads to difficult compares but also and I think this is part of your point cash as you think about where we're entering the second half of the year right as we start off the third quarter given some of the slower growth that we've seen in the <unk>.
Answering existing cohorts that starting.
<unk> is at a lower point as we look at the second half of the year and so that will also affect fiscal 'twenty three results obviously.
Obviously, we're not providing fiscal 'twenty for guidance on this call and we'll look to do that on the March call, but certainly how the next six months play out will impact kind of our starting position for fiscal 'twenty four.
Thank you. Our next question comes from DJ Hynes of Canaccord Genuity DJ Hynes Your line is open.
Hey, guys. Thanks for taking the question.
So Dave Snowflake is increasingly talked about its evolution to a cloud app development platform in some ways. It sounds similar to the vision you've laid out for mangoes developer data cloud I know you and I have talked about this but I still get the question from investors can you just talk about where you see the intersection of those efforts and.
Where are the key differences lie today.
Yeah. Thanks P. J. So first of all I want to make it clear to everyone that we don't see snowflake in any deals right. So in terms of customer buying behavior. There is no confusion.
Obviously, there is acknowledgment that there is potentially some.
Trend of some overlap between analytics and operational or LTV stores and what we believe is that the future analytics will really be powering more intelligent applications, which is essentially automating human human decision, making that is done today using existing bi tools and data warehouses. So when you think about.
How apps become more sophisticated it's really all about software and automation, which is really a developer challenge and one thing I think we've proven as to know how to build tools for developers to be more productive and more effective and so that's what we plan to do and I should also point out that this trend of developers doing more we've already seen say.
And the Dev ops space, where developers have taken on more of the operational responsibility that operators in data centers used to do or in the security space, where developers are taking on more responsible for security and Theres a whole advent of new security focused developer tools and we think the same thing will happen in analytics, where developers will base.
Sickly embed more analytics into building smarter applications.
Yes, yes, that's great color and a helpful explanation Michael a follow up for you just what is the strategy with.
With the mid market digital natives that seem to be getting hit the hardest in terms of their consumption trends. I mean is it is it just about waiting it out or how do your conversations with those customers change given that dynamic.
Yes, I think it's a couple of different things there are two flavors here. It again I would just sort of go back to this.
Way to look at the market and how it flows through in terms of the numbers there are new customer wins right. So that.
New companies are obviously being created regularly and that digital native part of the mid market that subset.
And we continue to have a very strong value proposition. There. We continue to resonate we continue to be a platform of choice as it relates to as it relates to that in terms of the consumption side and that's ultimately what's most important for the long term and so our ability to land those customers.
To continue to have success with those customers is a long term asset and it creates the sort of long term value proposition.
In the short term.
Depending on how long the current macroeconomic environment goes on as we see slower growth.
From those customers that will impact numbers.
In the short term, but that's a relatively small part of the equation, if I think about the long term opportunity and what relative.
Sure, we have and everything else, it's fairly early on and so obviously, we've got a sort of navigate through that period, and we talked about sort of our desire to keep up.
And ability to keep sort of a close.
Pulse on things, but thats really how we think about it.
Thank you. Our next question comes from Karl Keirstead of UBS.
Your question please <unk>.
Maybe I could just ask you about what assumptions you are betting embedding in your guidance I think what.
One thing that investors took comfort from at least I did on the last call is your assumption that things get worse. So I just wanted to make sure I understand what you're assuming.
Or are you indeed, assuming that things get worse.
In the second half from what you saw in July one would assume so given that you didn't carry the full <unk> beat into your full year raise but I just would love to clarify thank you.
Yeah sure. So I think when you think about our second half assumptions, we generally think that they are broadly in line with what we experienced in Q2.
Okay.
Got it.
And then if I could ask a follow up.
Just building on the last question around these digital native customers.
You probably don't want to.
Specifically size it but I think it might be helpful. Like what does Mongo DB has exposure to that customer segment.
And.
Was there any.
Anything specific to your vertical exposure.
Is worth calling out in <unk>.
As I look at the vertical exposure and the regional exposure across the mid market. It was pretty broad based.
And so I don't think theres anything specific worth calling out there.
In terms of the mid market overall is a small portion of the direct business.
And those digital natives are just a subset of the overall mid market.
And so we're sort of talking about fractions of fractions here as we kind of wind down.
But what we saw in terms of the slower growth was across regions and across industries.
I also want to add that we viewed this segment to be an important part of our business.
We expect to add more customers in this segment over time.
And this segment is frankly, a great signal for our future prospects. When the next generation of companies are building on top of among the B that makes frankly us sleep better at night and so this is a segment that will continue to put a lot of focus on but clearly as.
As Michael discussed.
Some short term headwinds.
Thank you. Our next question comes from Phil Winslow of Credit Suisse.
Your question please for Winslow.
So my question.
Obviously, you highlighted some of the announcements from earlier this summer Mongo DB World.
Dave you touched on other relational migrated but wondering if you could give us some of the early feedback that you're hearing from customers whether it be the geographic indexing secondary improvements around time series search et cetera, anything that youre getting positive feedback on that you think is resonating with customers.
So we're getting a lot of.
Positive feedback on time series much like in search where essentially.
Customers like the one unified and seamless platform, a very elegant developer experience and ability to essentially drive costs out of the business. We're seeing the same phenomenon in time series is a lot of demand again, we're taking things slowly it's a new product obviously.
We're already seeing customers starting to use it but it's in the early days and we get expect to get a lot of feedback and as as you know in this space. This is a multiyear journey, but we're really excited about the opportunity to drive more timeshares workloads on marketing and I should also say we used to do we always had many customers use us for time series workloads, especially in the Iot.
Area, but we just expect that to happen even more now that we have more capability to address these sophisticated workloads.
And then just a follow up on that obviously, you highlighted vendor consolidation from a relational.
Equals perspective, but when you think about these multiple needs tools.
But you just mentioned potential market to be to consolidate those how do you think about about that opportunity. Once again, not just relational no sequel, but consolidation of multiple notes equal functions and other.
Other other functions as well.
Yes so.
Now to your point, we do view the developer data platform as of that's in some ways not just the benefit for customers in terms of having one unified and elegant developer experience one data silo versus multiple silos, but it also enables customers to consolidate vendors and drive more efficiency in their business I do believe some of these niche.
Companies are going to struggle in this environment, because we've always talked about this and I think it only becomes even more imperative is customers don't want to use the net new technology for every use case. It just doesn't scale as much more complexity to the environment makes a developer's life much more difficult and I think that's going to be resonate even more now in this environment.
Thank you. Our next question comes from Jason Ader of William Blair, Jason Ader. Your line is open.
Yes.
Okay.
Guys Im thinking about the lower op income guide are you basically saying that the mix of new customers versus existing customers is different than what you expected a quarter or two ago and basically new customers are more expensive to transact with is that the right way to think about the lower op income for the year guidance.
No that's not how I think about it I think about it as being we are continuing to see good customer wins and strong reset.
<unk> in the market that underscores our translates into strong customer unit economics, and so we are continuing to invest in building out sales and as you think about what the implication is in terms of rolling through some of the slower cohort expansion of existing Atlas customer.
Or is that we're seeing.
And when you run the math through that winds up having a slight impact.
Two our full year op income guide, so I wouldn't take it as any kind of.
Judgment or try to do any math on lessons sort of incremental value of workloads, you're slicing and dicing. It that way just simply us say us looking at the market.
Having a long term orientation, continuing to see strong new wins no increases in customer churn.
Continuing to have the value proposition resonate in being sort of at the top of the cusp.
Customer priority list and so wanting to continue to invest.
In that as well as also continuing to invest in our product capabilities and executing against our platform vision.
All of which of course.
Monitoring.
How the whole package comes together.
And to Dave's point, we've never taken a growth at all cost approach, it's always been a very financially disciplined oriented one, but that's just sort of how the numbers run through to wind up with sort of a slight.
Decrease in the op income guidance.
Who is that we've got a tough decision to make right now Michael just given the optics.
The revenue guide and then the op income as well.
No I think when Youre looking at the long term and when you see the underlying returns that we're seeing and the success, we're having in the market no.
Thank you.
Thank you again to ask a question. Please press star one one on your telephone again Thats Star one one on your telephone to ask a question. Our next question comes from the line of Mike C codes.
Needham and company. Please go ahead, Mike Chico's.
Hey, guys. Thanks for getting me on here and I do apologize. If this was recapped already I've just been juggling a couple of different earnings calls Tonight.
But I did want to ask I know that.
These investments in the second half of the year when Youre looking at the sales and marketing and the R&D. So specifically on sales and marketing in that go to market.
Is there a way to help us think through the anticipated whether its head count growth.
The assumptions around productivity and maybe.
Much more basic question what is the anticipated time for those new hires to ramp.
And then the follow up I had.
He is on the strategic collaborations you guys have I know last quarter, we were talking about the AWS announcement in this current press release, we're talking about Google.
<unk> strategic relationships continue to evolve for Mongo DB.
Yeah sure so I think on the <unk>.
First question.
While we always regardless of environment continue to sort of tweak and optimize which channels and which roles we want to prioritize and allocate we won't tackle that any differently than we have previously and the overall unit economics continue to be strong sort of as I mentioned, so I wouldn't think of it.
There being any kind of radical.
Phasing of the sales and marketing.
And when we think about the new customer wins that we're having you saw it was a record quarter.
Quarter for new customer net new additions in customer count.
And when we can.
Cross, 1% market share and are closing in 2% market share at our biggest challenge as we've talked about sort of each call probably.
Is that our footprint coverage is very thin when we're in conversations and dialogues our win rates are exceptionally high and when you marry that with some of the anecdotes and vignettes that Dave shared about customers really responding to our developer data platform.
We want to continue pursuing that for the benefit of the long term outcome.
Yes, and Mike to your second question about our strategic relationships with the Hyperscale vendors Theyre very strong.
One it's a function of how popular among <unk> on their respective platforms. We've been constantly told that we are one of the most popular technologies that developers are running on their platforms to what they've also seen is that they are the net beneficiary of our growth on the Atlas growth on their platforms because customers not only obviously outlets drives.
More underlying consumption of storage and compute but customers themselves end up using other ancillary services. So for the Hyperscale vendor it truly becomes a win win relationship and so.
You talked about the AWS relationship that relationship is going really really well.
So much engagement happening.
And literally almost every theater of the world.
The GCB relationship has historically been strong and remains so and the Azure relationship is actually picking up and we're seeing a lot more activity.
Microsoft Azure team and so in general I would I would frame the relationships with the hyperscale vendors to be very very good.
Thank you. Our next question comes from Rishi jewelry of RBC capital markets. Your line is open re shoes jewelry.
Wonderful thanks, guys.
I wanted to ask.
Maybe just thinking through the consumption.
Patterns and the visibility there can you remind us within Atlas.
Spending is may be in control of the company or the developers versus those where the usage or consumption is dependent on the usage of the end application itself and by the consumers anything directional would be helpful. And then I have a follow up.
Yeah. The underlying usage is extremely tied to the database activity and the underlying usage and application of the application and so the value that we're driving is highly aligned to.
The value that the customers are seeing out of it.
Okay, Great and then.
On the call you did mentioned, an example of a customer migrating our legacy monolithic app to the cloud and you called out were displacing both oracle and elastic and that.
Can you maybe talk since you announced Atlas search.
Conference.
How does the replacement opportunity look how do you think about that in the long run and what sort of early momentum have you seen with that product. Thank you.
Yes so.
The opportunity is quite big the momentum I just wanted to remind you.
Elastic search offers other capabilities outside of application search, which is our particular focus there in logs and some security use cases, which are not pursuing we're really focused on again the persona of the developer but in that area. We see a big opportunity and Thats example, kind of makes the point rather than using an <unk> platform in a bolt on.
Search database with mom <unk> now you can have one seamless and unified platform, a very elegant developer experience and you don't have to invest in tooling to move data between Euro LTP platform in your search database and vice versa. So that enables the customer to have a much more.
Effective and performance system than using multiple solutions and customers are really resonating with that answer to your question about how things are going.
Don't see any market constraints frankly were.
Trying to enable our sales force as quickly as possible around the world to really get comfortable in converse in and kind of addressing this use case with our customers and we're quite excited about the opportunity.
Thank you. Our next question comes from Steve <unk> of SMB <unk> Nikko Securities. Your line is open Steve conic.
Hi, gentlemen, thanks for taking my question Steve came in here.
Let's see I wanted to thank you first of all the high degree of transparency around the trends in your business very helpful.
One question for Dave and one for Michael.
Yes.
You're talking with existing customers that you are well.
And they're looking at deploying Atlas for new workloads, new applications, what what's the tone of those conversations and how is that aspect of your business.
Kind of trended in Q2 without that and kind of what bigger picture kind of what what are your customers, saying about their willingness to invest kind of given macro uncertainties here.
I would say the tone is very positive and and we feel really really good about.
Winning new workloads.
The morale of our sales force is very high they're very excited about the opportunity in front of them and so we feel really really good about the opportunity to add both new customers as well as new workloads onto our platform and that's a huge priority for us.
In the back half of the year as well.
Terrific terrific. Thanks for that and Michael for you. So you helped us understand what was behind the lower operating income guide with some granularity.
Maybe if I could just back up and just make it super.
Simple for me so.
You are raising your revenue guidance, but you're you're lowering your operating income guidance and so.
The Delta is spending and so I guess would I be correct in conclusion, and concluding that you are accelerating the pace of spending in the second half versus what you previously anticipated.
And if so kind of in what areas. So that's all I had and thanks again.
Yes, thanks, Steve it's not quite how I think about it I think when you look at the investments that we're planning on making their primarily in both sales and marketing and R&D for all the reasons that we've previously discussed both in terms of increasing our footprint coverage as well as executing.
Against our product roadmap I think really what you see is you see the as we look at the revenue for the second half of the year by the fact that we took our guide up by less than the beat.
Beat in Q2.
You can see.
That there is implied.
Less revenue in the second half, but we are executing.
Against the long term opportunity and particularly against those two areas and so I think it's just to sort of mathematical consequence of that more than anything else.
We are quite aware of the current environment and we keep a close pulse on everything but we're not.
Radically pivoting given that we're seeing incredibly strong customer reception, we're seeing record new customer wins the value proposition is resonating.
Not just despite the current environment, but in some cases because of the current environment.
As we've talked about.
So as we position ourselves for the long term.
Kind of how that plays out over the next couple of quarters.
Thank you. Our next question comes from Brent Bracelet Piper Sandler Your line is open Brent pricing.
Thank you for taking the question can you hear me.
Yes, Hey, Brian Okay great.
I heard a little quick there so good.
Good afternoon, I wanted to Mike I'll start with you here, if I look at the implied second half guidance and actually drill down into the implied Q4 revenue guide it is well below the normal Q4 seasonal uptick that we typically see in this business how much of that gap.
<unk> is tied to the.
The ratable components of VA and the fact that there's less visibility you have into some of those larger EAA ratable deals just trying to it does look like the the.
The guide implies Q4 will be.
Well well below normal seasonal pattern. So just trying to double click into what you factored in there on <unk>.
Yes, so a few different things thanks, Brian a few different things one yes, we have continued to assume the EAA continues to be a lower portion of the business in there and we talked about.
Our expectations for Q3 in terms of EAA being down sequentially.
And so that's certainly a factor secondly, I would probably approach it started with this but as you know we do run the business on a channel basis.
And to sort of product have to come out, but we do have to have some point of view on products in order to come up with a revenue forecast.
And so thats whats happening as it relates to EMEA in terms of Atlas you are seeing two things one just like EAA. They also have very tough Atlas compares year over year again remember that in Q3 and Q4, that's when we saw the significant.
Acceleration in cohort expansion from existing applications in the year ago period, and then the third thing that I'd say is we're entering the back half of the year meeting we start Q3 with.
The less in the way of <unk> than we would have had we've seen historical trends.
And then when you start to flow that through even if you instantly reverted to normalized levels, you would wind up with less revenue in the back half of the year. We are also assuming that the trends that we saw in Q2 continue in the second half of the year and so the guidance that we provided for the second half of the year.
Really as the output of all of that.
Got it that's helpful color and then just Dave as a quick quick follow up for you here as we think about financial services vertical in particular, that's an area, where we've seen some job postings really start to pop up that some some higher profile.
<unk> financials customers I think snowflake, specifically called out financial services as an area of strength for them.
As they kind of lean into some of these emerging technologies, what what are you seeing in financial services, and maybe just double click a little bit more on on that specific vertical and what you're seeing thanks.
Yes, So financial services has historically been a strong vertical a vertical for us and it remains as such in fact, we feel really bullish about the opportunities as you know in financial services. There was a lot of regulatory constraints about how quickly customers could move certain workloads to the cloud.
A lot of those customers are much more inclined to move workloads to the cloud now than say, what they were 234 years ago. So that trend is.
As a as a tailwind for us in.
In general.
Financial services.
Customers are also.
Very apt to try and drive more innovation.
As they see obviously competitive pressures from the next generation of companies. So they're they're also very quick to recognize when they need to drive their innovation agenda more aggressively.
Obviously marketing becomes to play and then in terms of three.
Services historically as a company to try a lot of technologies to see ultimately who is going to be the winner in any particular sector as we clearly become the leading player in this next generation data platform space, it's clear that.
Our financial services companies are now more comfortable on standardizing on <unk>. So we're starting to see that phenomenon as well and so I think in general we expect financial services to be a big part.
Of our our plans for the long term.
Thank you. Our next question comes from Tyler Radke of Citi <unk>. Your line is open.
Thanks for taking the question Michael I, just wanted to go back to make sure I understood.
Kind of what your underlying assumptions and commentary on the macro environment. So.
That's first.
How should we think about the relative sizing of these digital native customers that you are calling out.
Is this kind of mid single digit percent of revenue and then last quarter. I think you talked about a 30% to $35 million macro headwind for the full year I. Just wanted to clarify are you, saying, it's a little bit worse than that or that's kind of the same expectations as <unk>.
Last quarter. Thank you.
Sure, Yes, thanks, Tyler so remember the mid market is the smallest piece of the overall direct customer sales.
Channel and the digital natives are a small subset of the mid market. So again as I mentioned earlier were sort of talking about fractions of fractions.
And then in terms of you are.
Question around how did Q2 and how did Q.
Basically how does the back half of the year compare as we as I called out in the prepared remarks, we had some areas that were better than expected to self serve enterprise in North America.
Overall, new business activity in general were all to the positive.
In terms of the existing consumption or the growth of existing applications.
Was weaker in Europe across the board, meaning both enterprise and mid market and then mid market sort without regard to industry or geography.
And so a little bit of pluses and minuses as you think relative to sort of the stake that we put in the ground back in June .
And then in terms of the second half of the year, obviously as I mentioned earlier, we have our effective outlook is worse than it was in June but we're assuming that the trends that we saw in Q2 continue for the balance of the year.
Okay. Thanks for that.
As I think about your.
Largest customers your enterprise customers not necessarily enterprise advanced revenue.
How are you thinking about that consumption.
Maintaining and in the back half of this year and I guess Billy.
Billings was really strong again north of 50%. So do you have better visibility.
As more of that revenue coming from pre committed contracts or from the balance sheet.
Yes. So if you think about the enterprise channel on a product mix basis, obviously it will be.
Disproportionate or more.
Representatives of EAA relative to Alice although we are increasingly seeing Atlas and Atlas value proposition resonate at the high end of the market as well.
And so I don't think its just as simple.
As you know trying to slice that channel byproduct.
We continue to see strong new business in enterprise globally.
And then on the consumption patterns.
North American Enterprise has been very strong and has been better than our expectations and as I mentioned Europe being a little weaker.
Thank you. Our next question comes from Fred Meyer of Macquarie.
Your line is open Fred have Omar.
Hi, Thank you.
When you look at your Atlas consumption model do you think that Atlas is alignment with your end customers demand trends that you are more or less seeing the macro downturn in essentially real time, something that maybe is a little more unique here versus other software vendors do you think that this alignment also means that you can see the benefits of economic recovery sooner than other annual.
<unk> software models.
So I think the short answer Fred is yes, we do think it is a more real time reflection given that we're really.
Sort of a second order effect of the underlying activity in their applications and obviously, we're not macroeconomic economists and so I'm not forecasting recovery, we got theoretically.
If there are increases in activity and increases in underlying usage that would drive incremental consumption of our platform.
Thank you and I'll fire, one more out there quickly.
We got quite excited about quarry encryption and <unk>.
I wanted to ask less about craveable encryption more about just generally your innovation because using structured <unk> very interesting you're always kind of the bleeding edge and already technical market in terms of products and functionality. So I wanted to ask how do you think about investing into R&D spend generally for technical innovation versus kind of incremental.
Platform updates and do you think that in this labor market with Tech layoffs rising do you see tactical hiring opportunities.
Yes, so I will answer the second part of your question first.
We feel really good about the team we had and we tend to hire some of the best and brightest engineers in the marketplace clearly in this macro environment.
We will be opportunistic as an opportunity to do some acro hiring.
We'll certainly pursue that path if it makes sense in terms of your question around.
Our R&D philosophy, I would say that it's really driven first and foremost by one customer feedback with 37000 customers. We have a lot of customers who give us feedback. It's also driven by essentially our instincts about where the market's going and what developers may need going forward and as I talked about earlier answering one of the other questions.
We think the scope of the rollover developers only expanding over time, and we think that the developer can do more especially in the area of analytics with regards to <unk> and encryption. This is one of the classic challenges that we've had in software.
Encrypting data is nice because it secures the data, but then it becomes very hard to use that data and so if you can kind of almost have your cake and eat it too by making that data credible while keeping it secure.
Especially in environment, where people care, a lot about security and privacy that becomes a win win so.
Obviously, we have a team a very strong team in the security space and and we were able to leverage some very cutting edge work going on in academia to leverage a couple of people to join us and help US build this feature so we're really excited about the opportunity that we have in front of us.
Thank you.
Thank you at this time I would like to turn the call back over to David It's area for closing remarks, Sir.
Well I want to thank everyone for joining us today, we obviously had a really strong Q2, the new business environment really remains quite robust and customers to continue to gravitate to the develop of our data platform to reduce complexity outsource undifferentiated work and drive more efficiencies.
We did see some consumption headwinds in the quarter.
And that's really tied to the growth of the underlying applications and those applications are growing more slowly than historical trends, but we remain incredibly optimistic about the opportunities in front of us and we will be.
Investing for the long term and to capitalize on the opportunity. So thank you very much for your time and we'll talk to you soon.
This concludes today's conference call. Thank you for participating you may now disconnect.
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