Q3 2023 MongoDB Inc Earnings Call
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Good day, and thank you for standing by and welcome to my English D. B third quarter fiscal year 'twenty three earnings call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press Star then one one on your telephone you will.
Didn't hear automated message advising that your hand is raised.
She advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker, Brian <unk> from ICR. Please go ahead.
Thank you Carmen good afternoon, and thank you for joining us today to review Margaret <unk> third quarter fiscal 'twenty, two 'twenty three financial results, which we announced in our press release issued after the close of market today.
During the call today are Dave <unk>, President and CEO of Mongo, DB, and Michael Gordon Mongo, DB CLO 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 COVID-19 pandemic and the App.
Adverse macroeconomic environment and their impacts on our business results of operation and the clients they could cause actual results to differ materially from our expectations.
For a discussion of our tour of restaurants, certainly that could affect our actual results. Please refer to the rest of the scribes and quarterly report on Form 10-Q for the quarter ended July 31, 2022 filed with the SEC on September 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 refer to the tables in our earnings release on the Investor Relations portion of our website for a reconciliation of these measures the most directly comparable GAAP financial measure.
With that 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 third quarter results before giving you a broader company update.
We generated revenue of 334 million, a 47% year over year increase and above the high end of our guidance Atlas revenue grew 61% year over year, representing 63% of revenue and we had another strong quarter customer growth ending the quarter with over 39100 customers.
Overall, we are pleased with our performance and execution in Q3, despite the challenging macro environment. Let me give you a bit more context than what we saw in Q3.
We had another strong quarter of new business, we added over 500 direct sales customers and we keep winning new workloads in existing accounts from startups to fortune 500 companies.
Our new business from enterprise advanced also significantly exceeded our expectations, which is particularly notable in this environment given that requires an upfront commitment.
Yeah.
Turning to Atlas consumption trends, we have seen an improvement in Q3 versus Q2, albeit still below historical levels, Michael will cover this in more detail.
Finally retention rates remain very strong in Q3, demonstrating the mission criticality of our platform.
Indeed, our Q2 results are an indication that our value proposition resonates with customers even in a difficult macro environment. Let me remind you of the key pillars of our develop our data platform first.
First money be enables our customers to unleash developer productivity the more productive developers are the faster their organizations can innovate the document model, which underpins long debate has proven to be the best way for developers to work with data because it aligns well with how developers stink and code.
Second market would be supports the performance and scale requirements of the most demanding modern applications Martin DBS built from the ground up as a distribution platform and allows organizations to easily and cost effectively scale their applications to address the most exacting performance requirements.
Third market B allows enterprises to remove enormous complexity and costs out of their technology stack bar going to be as a general purpose platform capable of serving a broad array of use cases, including transactional time series mobile search and application driven analytics.
Marketing continues to be the most popular modern data platform with developers in the last 12 months alone. Our open source community server has been downloaded more than 115 million times from our website, which is more than in our entire company history through the beginning of 2020.
And in Q3 alone we had over 300000 sign ups for Atlas free tier, which is up 15 X over the last five years.
We also see growing evidence for how our value proposition resonates with decision makers, who are known for their focus on ROI, especially in economic environment, such as the one we're in today.
Customers, who are moving to the cloud at scale such as companies in the financial services industry are increasingly choosing <unk> as their underlying data platform to modernize their application portfolio.
It decision makers valued not being locked into any one environment and by building apps on market would be customers preserve their ability to run these apps on premise on any cloud and to easily switch between cloud providers.
Decision makers are also increasingly interested in consolidating vendors by virtue of mortgages broad support for a wide variety of use cases as a general purpose platform customers can run most workloads on might be rather than a disjointed set a narrow point solutions that increase the cost and complexity of the data architecture.
Finally, we continue to gain mindshare with our partners and we see them leaning into co selling with market to be as they also want to leverage the popularity and value of their of our offerings.
Starting with the cloud providers all three Hyperscale is now showcase multi be outlets under consoles to make it easier for the customers to sign up for Atlas given the increasing popularity of music market it would be in the cloud.
A number of large systems integrators in the process of setting up business units focus among the b given the size of that growing market practice.
A growing number of Ics continue to build their products. Among the B. We currently have close to 200, Ice's co selling relationships, which is up more than two X compared to two years ago.
Our growing popularity as tangible benefits for our business, especially in periods of economic uncertainty in times like these customers typically default to vendors, they know and trust and with whom they can consolidate spend while reducing overall costs.
We see the current environment as an opportunity to establish ourselves as an enterprise standard with more of our customers.
Now I would like to spend a few minutes reviewing the adoption trends of money to be across our customer base.
The following customers are running mission critical apps, among it'd be outlets leveraging the full power of our developer data platform incorporating services, such as search and App analytics and mobile services.
These include financial services, Ulta beauty mediate stream and Vodafone.
Phone is a world leading telecom company with over 625 million global customers in 65 countries. Vodafone is creating hundreds of new cloud native apps underpinning. These apps is money to be Atlas, which provides a scalable resilient and flexible data platform. Atlas also supports Vodafone to Iot ecosystem about 140 million plus devices.
Marketing as a part of a suite of fully vetted tools that Vodafone allows developers to use to build any application.
Several months, maybe customers are embarking on their digital transformation journey by choosing models can be Atlas and migrating from on premise to the cloud, including American tire distributors Schwartz and Volvo group.
Sure. So it is part of the Schwartz group uses monitoring these enterprise advanced on Prem to drive innovation, a few their own cloud service with more than 13000 locations across 32 countries and brands like little and Cofflin shorts group is Europe's largest retail company their internal itr Schwartz.
Worse in both internal teams and external customers to ensure smooth operations of their tech stack.
<unk> also run stack.
Our cloud provider that offers as customers all of the benefits of cloud deployment, while ensuring that data is stored in Germany under EU regulations in 2022 stack idea launched among <unk> service to help their customers modernize the apps and services and improved performance.
Hugging face at a Washington post Cisco and <unk>, Susan <unk> E. Commerce platform are currently developing a number of applications across different parts of our business and significantly expanded their use of <unk> Atlas throughout their tech stack.
Hugging face a fast growing AI company migrated from Mong they'd be community tomorrow to be Atlas to scale. Their open source platform an online community for machine learning the company shifted Atlas allowed them to rely on our developer data platform for software and security compliance take advantage of chain streams to speed decision, making simplify their infrastructure through a single.
Control plane for managing data and reduce time spent on maintenance through atlas's integrated services in summary, I am pleased with our execution of third quarter. We had another strong quarter of new business demonstrating that our value proposition continues to resonate in the marketplace and with developers it decision makers and partners alike.
We are pleased to see a rebound in Atlas consumption in Q3 and continue to closely monitor usage trends.
Remain focus on winning new workloads with new and existing customers and are committed to profitable growth as we pursue our enormous market opportunity with that here's Michael Thanks, Dave as mentioned, we delivered a strong performance in the third quarter, both financially and operationally I'll begin with a detailed review of our third quarter results and then finish with our outlook for the fourth quarter.
And full fiscal year 2023.
First I'll start with our third quarter results total revenue in the quarter was $333 6 million up 47% year over year as Dave mentioned, we continue to see a healthy environment for new business to US. This is confirmation that we remain a top priority for our customers and our value proposition continues to stand out even in this market.
Shifting to our product mix, let's start with Atlas Atlas grew 61% in the quarter compared to the previous year and now represents 63% of total revenue compared to 58% in the third quarter of fiscal 2022, and 64% 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 the application, which can be impacted by macroeconomic factors. Let me provide some context on atlas consumption in the quarter overall consumption trends improved compared to what we saw in Q2, though they are not back to historical levels specifically.
There are a couple of trends worth, noting first we saw a bounce back in areas that were below our expectation in Q2, namely the mid market channel globally, and our enterprise business in Europe .
We saw stronger sequential growth in underlying application usage in Q3 versus Q2 of <unk>.
<unk> observed across most industries and geographies, we observed a similar pattern last year and we believe that this may be an emerging seasonal effect.
Turning to enterprise advanced significantly.
Significantly exceeded our expectations in the quarter and we've continued having success selling incremental workloads into our existing customer base. As a reminder, under ASC 606, the term license component of the entire deal value is recognized as revenue upfront.
This leads to the increased variability and reduced comparability of our EBITDA results and is particularly impacted by multiyear deals. This quarter, we benefited from more multiyear deals than anticipated turning.
Turning to customer growth during the third quarter, we grew our customer base by over 2100 customers sequentially, bringing our total customer count to over 39100, which is up from over 31000 in the year ago period.
Of our total customer count over 5900 are direct sales customers, which compares to over 3900 and a year ago period.
Q3 was another very strong quarter of direct customer net additions as a reminder, our direct customer count growth is driven by customers, who are net new to our platform as well as self serve customers with whom we've now established a direct sales relationships.
The growth in our total customer count is being driven primarily by Atlas, which had over 37600 customers at the end of the quarter compared to over 29500 in the year ago period. It.
It is important to keep in mind that the growth rate in our Atlas customer count reflects new customers to them are going to be an addition to existing <unk> customers, adding incremental Atlas workloads.
We had another quarter with our net <unk> expansion rate above 120%. We ended the quarter with 1545 customers with at least $100000 in <unk> and annualized MRI, which is up from 1201 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 third quarter was $247 8 million.
Representing a gross margin of 74%, which is up from 73% in the year ago period, our year over year margin improvement was primarily driven by improved efficiencies that we're realizing in Atlas.
Our income from operations was $19 $8 million or a 6% operating margin for the third quarter compared to a 3% margin in the year ago period. The primary reason for our strong operating profit results versus guidance.
As our revenue outperformance. In addition, our operating profit benefited from the steps we've taken to moderate the growth rate of expenses as we prudently manage our investments in the current environment.
Net income in the third quarter was $18 7 million or 23 per share based on 84 million diluted weighted average shares outstanding.
This compares to a net income of $2 6 million or <unk> <unk> per share on $78 5 million diluted weighted average shares outstanding in the year ago period.
Turning to the balance sheet and cash flow. We ended the third quarter with $1 $8 billion in cash cash equivalents short term investments and restricted cash.
Operating cash flow in the third quarter was negative $5 7 million after taking into consideration approximately $2 $7 million in capital expenditures and principal repayments of finance lease liabilities free cash flow was negative $8 4 million in the quarter. This compares to free cash flow of negative $9 $2 million in the third quarter of fiscal <unk>.
<unk> thousand 22.
I would now like to turn to our outlook for the fourth quarter and full year fiscal 2023.
For the fourth quarter, we expect revenue to be in the range of $334 million to $337 million. We expect non-GAAP income from operations to be in the range of 6 million to $8 million.
non-GAAP net income per share to be in the range of <unk> to <unk> <unk>.
Just on $83 three estimated diluted weighted average shares outstanding.
For the full year fiscal 2023, we expect revenue to be in the range of one to $5 7 billion to $1 6 billion.
For the full fiscal year 2023, we expect non-GAAP income from operations to be in the range of $30 8 million to $32 8 million and non-GAAP net income per share to be in the range of 29 to 31.
Based on 82 million estimated diluted weighted average shares outstanding.
I'll now provide some more context around our guidance.
First in Q4, we expect slower sequential Atlas consumption growth than we experienced in Q3.
Better than what we saw in Q2, we are encouraged by the improvement in consumption trends. We saw during Q3, but as noted earlier, we believe some of that was driven by seasonality from which we will not benefit in Q4.
Second given the significant outperformance of EMEA in Q3, we do not expect a sequential uptick in EMEA revenue between Q3 and Q4.
Finally on a full year basis, we expect a non-GAAP operating margin of two 5% at the midpoint of our guidance about a one percentage point improvement compared to last year, we have consistently demonstrated operating leverage each year since going public improving margins by over 35 percentage points over that time period, we will look to continue improving our margin profile.
Over time, and we are pleased with our rate of progress this year.
Summarize more going to be delivered strong third quarter results, our new business performance and strong direct net customer additions indicate the robust underlying demand for our developer data platform. We're pleased to see an improvement in Atlas consumption trends in Q3, we will continue monitoring the environment and investing responsibly in pursuit of our long term opportunity with that wed like to open up to question.
Operator.
Thank you and I'm, Sorry reminder, that is star one line on your telephone to get into queue and as a courtesy to other analysts. We ask that you. Please keep your question to one and one follow up one moment for our first question. Please.
Yeah.
Is from the line of Kash Rangan with Goldman Sachs. Please proceed.
Hi, what are spectacular comeback very nice to see this.
So David Michael just wondering what you've seen in the month of November with respect to consumption trends and what do you make of the new Atlas win in the quarter I would assume that given that there was a lot of belt tightening in the quarter from a macro standpoint rates went up these new customers are probably even more discerning customers their plans.
Margaret maybe or probably even more certain and the customers that might have been part of other cohorts and as you look into calendar 'twenty. Two what is your outlook for how you think about consumption patterns as your Atlas customer base becomes bigger and easier to predict not easy but easier to predict. Thank you so much.
<unk>, yes, so wanted to cash first thanks for thanks for your question I'm going to first start with the Atlas wins and I'll have Mike will talk about consumption trends in November .
First.
The key thing that I think people understand is that software is central to every company's value proposition and in recent discussions with customers at our own customer advisory boards in the field and more recently last week at reinvent our customers are very focused on modernizing to drive drive more differentiation operational efficiency and.
<unk> and so the platform message that we are out there with really resonates because one it enables high developer productivity. So people can do more with less the platform enables customers to consolidate on one solution versus connecting assistant together point of disjointed tools.
So it reduces cost and complexity of the data architecture and all of this provides a very compelling ROI, which really drives that those new customer additions.
And just on the consumption.
Questions a few thoughts cash first of all Q4 generally does not see anything that we would describe as a seasonal benefit when we look at the November .
Patterns they were consistent with Q3.
That effectively implies that the latter part of the quarter will be slower growth because in general we haven't historically seen anything that looks like seasonal growth.
In Q4, so that will give you a sense for the balance of this year and as it relates to fiscal 'twenty four we're obviously not providing guidance right now we'll update that in the March call. It's obviously good to see the continued success in new business as well as the recovery in those growth rates, but it's certainly a very fluid macro environment and we're monitoring the situation closely.
Thank you so much.
Thank you one moment for our next question. Please.
Is from the line of Brad Reback with Stifel. Please proceed.
Great. Thanks, very much so last quarter, you guys talked about the digital native customer as being a big problem from a consumption basis have those businesses now sort of stabilized at a consistent level.
Yes, so a couple of things. Thanks for the question, Brian I wouldn't have described as a problem, but we did kind of slice and dice the consumption behavior to see what we're exposed to folks what were seeing including what areas, where we're seeing slower growth of which that that part of the mid market.
Demonstrated that behavior as I mentioned in the prepared remarks, we saw a rebound in consumption across the board, but including the mid market everywhere across.
Geographies and across industries and also in Europe .
So not all the way back to historical levels.
Improved versus Q2.
That's great and then on the Opex side I know you guys aren't guiding for next year, but Dave and Michael you both talked about the leverage you guys have generated since IPO.
The results this quarter were astounding.
Is there any reason to believe that.
Opex won't mean.
Meaningfully grow slower than revenue next year.
Yes, so as I said, we're not going to guide as it relates to fiscal 'twenty. Four you can see that the implied guide for fiscal 'twenty. Three is 100 basis points of improvement in terms of the year on year margin.
On the op income side.
We're very pleased with that and we will obviously as we work through our plans over the next year monitor the environment and everything else I would just add that we have always had a.
Fairly granular view of things in terms of our returns framework and the returns evaluating and assessing the returns that we're getting out of different investments.
We continue to apply that framework, although obviously the market environment has changed which sort of implicitly means that the return threshold has gone up.
And we've applied that scrutiny and we'll likely do that as we get through the fiscal 'twenty four guide.
Fantastic Thanks very much.
Thanks, Brad.
Thank you one moment for our next question and it comes from the line of Brent <unk> with Piper Sandler. Please go ahead.
Good afternoon, Dave the Big surprise for US here is is the momentum youre seeing in that business.
We're seeing some of the peers obviously.
Moderation just as the overall tech market starts to do more belt tightening.
What drove the strength in EMEA this quarter, specifically and if you could provide any color by industry. That's really the question here.
What type of industry is driving the momentum in driving.
<unk>.
Upside here, an NDA specifically thanks.
Yes, Thanks Brent.
What we saw in EMEA is just evidence that customers are really viewing mongo DB to be an important part if not a standard and they are in their tech stack and once you are.
<unk> as a critical element of the stack stack people are more comfortable.
<unk> more aggressively, especially in this environment, where people do need to modernize their their legacy platforms to drive more efficiency.
And lower costs as well as drive more agility. So I think that's I think why we're seeing the upside on EMEA.
And so we feel good about that and obviously.
Just shows you that customers also like.
Optionality by building absent market be they can truly run their apps anywhere.
Not only on premise, but on any hyperscale are and obviously switch between on premise or any hyperscale is so that is also a very compelling benefit to customers in this environment.
Hello color then quick follow up for Michael here short term deferred growth did slow didn't know if there was an impact on payment timing.
Or if you saw a similar slowdown in Rps. So could you just kind of walk through.
Short term deferred and why it slowed and if it if we should expect the similar slowdown in RPM.
Yes, so what I would just point you to Brad is that we've talked about that differed in general and sort of calculated billings more broadly is not a particularly relevant metric for us as we've talked about for a few years now as we continue to make it as easy as possible for customers to adopt usage of our platform.
Which then allows them to subsequently expand we have de emphasized upfront commitments and trying to streamline that sort of upfront part of the negotiation and so that has.
The natural consequence from a balance sheet perspective sort of flowing through there and that's that's where you see it and that's why we tend to talk about that as being less relevant for our business.
Got it helpful color. Thank you.
Thank you one moment for our next question.
And this comes from Raimo <unk> with Barclays. Please proceed.
Okay.
Congrats from me as well two quick questions Michael on steam on that.
One.
Was there anything like in terms of Q4 deals that got pulled into Q3 et cetera that made Q3 performance.
Ed.
There were one off items in there or was it just a general performance being better.
And then one for <unk>.
Sort of environment.
It tends to be a well there is a tendency to go back to the established platforms. What are you seeing in terms of new customer projects, starting and going to Mongo, but also in terms of clean of like legacy Oracle legacy IBM and stuff like that and people consolidating on those thoughts on in terms of dose movements are those initiatives happening.
Thank you.
Hey, Bryan Thanks for the question on the pull forwards no. We did not see any particular pull forward activity. The only thing I'd call out, which I mentioned in the script on the EAA is we saw a little more multi year in EMEA, which under 606 drives a little more revenue.
But no no pull forwards.
Yes.
And in regards to the question about.
I lost my train level platform.
We are we are definitely seeing customers continue to choose us in saturday's us in terms of.
Using Atlas and the breadth of the platform is really attracting customers to use them on the DB.
Wide variety of ways and so so we feel really good about the win rates, we feel really good about.
Our engagement with customers and obviously you saw that in the new customer wins, the new customer wins were quite strong.
Okay. Thank you congrats.
Thank you one moment for our next question and it comes from San you'd seen with Morgan Stanley . Your question. Please.
Alright. Thank you for taking the question and very impressive set of Q3 results, Dave If I go back to the pandemic. Some of the initiatives that you guys put in place that really served you well coming out of the pandemic.
You saw the new customer adds really accelerate in.
In 2020, as you sort of focus on cost is sort of just onboarding customers at lower overall spend levels in terms of the playbooks that could unfold in 2023.
Of your playbook that you're going to be.
It can be focusing the team more on sort of the modernization use case is it going to be about further accelerating the new customer ads. How are you sort of thinking about the sales playbook.
As we go into calendar 2023.
Alright, Thanks, Sanjeev I would just want to make the point that it was actually pre pandemic that we decided to make it much more easy for customers to engage with us by both changing.
Sales compensation incentives as well as make it easier for customers to commercially engage with us and obviously that paid to your point paid huge dividends for us during the pandemic what I would tell you is that it's really more of the same we're really hyper focused on acquiring new customers and adding more workloads from existing customers.
That's across the board across every channel every industry and every customer segment. So that is something that we care a lot about and we're seeing that now.
Expand in terms of getting customers now to adopt some of the new capabilities, we've rolled out to the marketplace. So as I talked about in my prepared remarks, we're seeing a lot of customers embrace the full full suite of the platform. So that drives incremental workloads that we would not have gotten in the past and so we feel really good about that and Thats. Our real focus is all about acquiring new workloads and getting more and more.
People to build apps among ABB.
It makes it wasn't and then just one quick follow up for Michael you referred to the sort of ROI framework and.
And what.
Sort of alluding to like a higher bar given the current environment could you give a sense of like what the team is prioritizing more and what may be following kind of below the line are being prioritized as you think about driving both sustaining growth but also.
Extracting more efficiencies in the business.
Yes.
Do my best to try and kind of walk you through it I mean, I think you've kind of have to run sort of type of investment versus type of investment and obviously ultimately we look across the entirety of the portfolio, whether its go to market or R&D or things like that but.
It's probably easiest to think about them within the different buckets and flavors as it relates today as soon as those teams effectively compete for capital.
And so within the go to market. We obviously are looking at the returns that we're generating we are continuing to invest we are continuing to hire and grow within the teams, but we're backing the areas that are having the most success in delivering us the highest returns go to market is a little bit easier to measure.
Entity to flee and on a shorter term basis on the R&D side things take a little bit longer to play out.
And you've got a little bit of.
A lag between when you make the investment and when you see the payback but.
We certainly have conversations at a fairly detailed and granular level, even within the R&D side about where do we think we're seeing the most success and the most traction in which area do on incrementally lean into.
Versus which areas do you maybe want to de prioritize relative to their is generating the highest returns yes. If I can just add is like for.
For example, like in the marketing side of this digital programs, where we do a lot of experimentation of whats working so we have a certain.
Return thresholds and so if we don't see those programs working will shut them down similarly in the sales organization of the certain teams that are.
Outperforming we will invest more in the other teams that are not then we will potentially slowdown. So we're just really doing more of the same and just being very rigorous about that.
That's helpful detail. Thank you for that I appreciate it.
Yes.
Thank you one moment for our next question comes from the line of Phil Winslow with Credit Suisse. Please proceed.
Hey, Thanks, guys for taking my question congrats on a great quarter.
A question for you Michael one follow up for Dave What do you think about just new workloads, new application go lives and the trends that Youre seeing there wondering if you contrast that with.
With what you've maybe seen in previous quarters, or maybe even less than last year, obviously, you're talking about just overall consumption, but curious about the new app. The go lives in the ramp of those and then in terms of what you can control and go to market. David How do you feel about sales productivity relative to those who are those new apps go lives new customer wins et cetera. Thanks.
Yes, I mean, I think what we're really seeing in terms of these new workloads and sales per activity is that our customer base is very diversified both in terms of the types of customers as well as the types of use cases thats the benefit of having a general purpose platform.
So clearly as we.
Startups, who are building, but potentially new industries are disrupting existing ones and then we have large companies.
Moving quickly to transform different parts of their business. So it really worry very so.
Clearly with the platform play now we're seeing a lot more interest in search and search workloads and consolidated search workloads on top of <unk>, We're seeing a lot of interest in time series being able to again have one unified developer experience time series leads to things like what I talked about is application driven analytics, where people want to be able to get meaningful insights.
Their business automate human decision making into applications.
So those use cases are getting more and more and more popular with customers. But then we have still a lot of the classic bread and butter use cases, our customers are using us for and in terms of.
Sales productivity, but I would say is.
Is it really a function of there.
The quality of our pipeline and how quickly they can add new workloads to our platform and how quickly we can acquire new customers. So we're really focused on the sales leadership team is very very focused on both things acquiring new customers and acquiring new workloads is less about.
It is one workload provide a better ROI to another it's really a function of the customers' requirements and what theyre, most interested and focused on.
And Phil just to the cohort part of your question. It really it's probably easiest to think about it in the context of when you bring a new customer on and when you think about the changes that we've made a few years ago and how that drove incremental velocity. We've continued to see good and consistent behavior with those cohorts I would just remind you and call out that those changes.
<unk>.
And where sort of the bulk of the customer adds come from is more in the mid market right and so those tend to be spending less than the average direct sales customer and so it's just important to keep that in mind as people are building their models and think about the long term impact to that.
Awesome. Thanks for the details and congrats again really awesome.
Thanks, Bill Thank you.
Thank you one moment for our next.
Question and it comes from the line of Jason Ader with William Blair. Please proceed.
Okay. Thank you hey, guys.
So how do you interpret the bounce back.
Mid market European enterprise, when seemingly macro is getting worse.
I have a follow up.
Yes, so the first thing I'd start with Jason as it really relates to the underlying usage of the application right. If you think about sort of what drives consumption within Atlas I think thats the critical thing.
And so when you think about the usage, we're seeing stronger underlying usage, we were always in a growth environment, but we saw in Q2 was slower growth in the mid market and in Europe . Those rebounded again, not all the way back to historic levels, but improved levels relative to Q2.
Part of our thought process, which we shared in the prepared remarks is that we believe it is a bit of an emerging seasonal trend.
Particularly which is particularly.
Relates to sort of people coming back from summer vacations and things like that because you'll recall in our September call. We talked about August being in line with what we had seen in Q2, and so that sort of suggest the improvement that we saw in September and October we saw that same dynamic.
The year ago period, and while we only have a couple of years.
That arent Covid effected, where we've got Atlas at scale, that's kind of our best current working theory, but we can see it in terms of the underlying usage of the applications. The other thing I'd say more broadly from a macro standpoint that I think is impressive is on the new business side. We continue to win there we continue to have.
<unk> value prop resonate we haven't seen sort of this increasing deal cycles and other things like that that others have seen we obviously are monitoring the situation closely but we've been really pleased from that standpoint.
Great and then one quick follow up for you Dave.
Just on cloud marketplaces is that something that you guys are going to be able to talk about in terms of I don't know any any metrics growth rates percentage of business going through cloud marketplaces, because it does seem like broadly speaking more third party software scoring through these marketplaces.
That's.
A really good thing and a lot of levels.
Yes, Im not sure that we're going to be sharing like quarterly stats on how things are going but we definitely provide color I think what what the fact that across all three hyperscale as customers can go to their consoles and be able to sign up for Atlas as a meaningful thing it gives us an access to a whole new customer base.
We may not have direct relationship with and also speaks to the popularity of customers wanting to use marketing being the cloud and so I think those two things have really driven that does not many companies who can say that they are on the consoles are all three hyperscale.
Thank you guys.
Thanks, Jason.
Thank you one moment for our next question that comes from the line of Tyler Radke with Citi. Please proceed.
Thanks for taking the question.
I wanted to ask you first about.
EBITDA performance, obviously, a really strong number on pretty tough comps.
As we think about Q4, it looks like you're guiding Q4 to be flat sequentially from Q3, which in the last two years, you've kind of got it up.
7% last year, and 4% is there something youre seeing in terms of timing on the EA business that would drive a sub seasonal guide for Q4 or maybe youre just layering in more macro conservatism.
Given the environment out there, but if you could just kind of unpack your view on the EA business in an overall outlook into Q4. Thanks.
Sure. Thanks, Tyler, we obviously don't guide by product, but maybe a couple of things I can say about Q4 first of all.
As I mentioned it was obviously, an incredibly strong quarter with EBITDA growing 26% year over year.
And so as we look out at Q4.
That doesn't make a ton of sense too as we look at the business to think that we're going to meaningfully improve sequentially.
From an EBITDA perspective, given how incredibly strong Q3 was and then we talked a little bit on the Atlas side.
Around Q4 doesn't benefit from the seasonal tailwind that Q3 does.
And so I think on a sequential basis those are the key factors to keep in mind.
Great.
It sounded like you talked about some <unk>.
Certainly some improvements in consumption.
On Atlas, but if I look at the sequential dollar growth in Atlas in Q3 versus Q2. It was it was down a bit could you just kind of square.
With improving.
Spansion rates why would the sequential dollar ads b down is it is it kind of a function of new business or just help us understand the moving pieces there.
Yes, I think it's mostly a reflection of the starting IRR, so youre basically starting with.
The compounding slower growth and so when you think about the entry point.
Whether it's Q3 in terms of for the second half of the year in Q4 for the final quarter of the year, you've seen several months of slower growth and so that means at the beginning IRR.
Is lower on an absolute basis, and even if the growth rates were to revert. The the number would be would be lower just by virtue of the fact that the starting are slower.
Okay. Thank you.
Thank you and as a reminder to ask a question simply press Star then one one on your telephone to get in the queue.
One moment for our next question please.
Okay.
And it comes from the line of Fred <unk> with Macquarie. Please proceed.
Hey, Thank you very much.
I was interested also in cloud marketplaces, just kind of a follow up around that.
With the announcement of cloud marketplaces, even even today youre showing more integration with.
For example, today like Microsoft entire data platform.
One is it is is drawing these are what are you doing correctly here, that's drawing views on hyperscale or is that have their own competitive database offerings to not just sell your product to potentially partner with Mongo DB and provided through the platform.
A follow up as well.
Yes, yes.
Fred I think what that really speaks to is just the the power of the <unk> platform and the product market fit that's evidenced by how popular we are I mean, we are truly the most popular modern data platform in the world.
So and.
Majority of those users tend to run monitoring in the cloud so each of the hyperscale or see a lot of money to be usage on each on each of the clouds. Yes. You are right in the early days they've tried more to compete and to partner and frankly, a lot of people. When he first went public we are skeptical about how we could actually build a cloud.
This when trying to compete with the Hyperscale has obviously been proven proven the ability to do that and I think thats also evidenced the fact that customers are also more discerning and they're not just going to take.
Take the Ala Carte in menu choice, they're going to be very judicious in their evaluation process and given our.
The value we provide I think youre seeing the hyperscale is recognize that and by the way. The Hyperscale is also benefit from our growth the benefit both from the underlying consumption of storage and compute of Atlas as well is that those customers that they win who are running Atlas workloads in their clouds than by other ancillary services themselves. So it ends up truly being a <unk>.
When relationship and I think Thats why youre seeing the Hyperscale is essentially engage with us more deeply.
Thank you and then the follow ups.
Multi cloud again related but I wanted to ask about multi cloud clusters is I think that's one of the more unique offerings that you have in Atlas to out of the box just generally could you help us or just describe where you are seeing customer adoption trends with your multi cloud cluster capability and replicate capabilities.
Yes, I mean the trend is.
What we're seeing is there's a lot of customer interest in this capability.
One depending on the customer's needs they could be they may have a preferred hyper scaler, but expanding into geographic region, where that hyperscale or may only have one region or no regions and they want some diversity across hyperscale is in case that region goes down and so they want the benefit of being able to quickly switch over to another hyperscale.
The other thing that we see as lot of these obviously as these hyperscale is compete with each other and offer a differentiated set of services our customers want to be able to be able to leverage some services offered in one hyperscale versus another even though maybe that preferred hyperscale or does not offer such a service and then third there's always the benefit of avoiding Lockheed.
And being able to diversify their workloads across different hyperscale is and again just to be clear the multi cloud cluster essentially enables customers to run one app or one workload across multiple clouds. So that is profoundly different than what most people can offer today.
Okay. Thank you for that and congratulations on a strong quarter.
Thanks, Brett.
Thank you one moment for our next question.
And from my seekers with need him and company. Please go ahead.
Hey, Thanks for taking the question guys.
I had a two quarter new start.
Wanted to come back to the Atlas consumption trends improving quarter over quarter in Q3, it sounds like things really began to improve in September but just wanted to see was it was it stable from there on out or did you see continuing strength even from September when we think about how October and November played out and then on a relative basis.
Are there certain pockets of the market, which have maybe a larger delta versus those historical consumption trends youre talking too and then I do have a follow up.
Yes, so generally I would say it was broad based as we described the rebound was most perceptible in the sense of the mid market globally in Europe , but only because those are the areas, where we had seen.
Slower growth that we called out.
In Q2.
And we had talked about like I said August being.
In line with Q2, and so September and October .
We're stronger and then which is to continue I don't want to get into like a day by day.
Our reading here.
But we did see.
That behavior and so.
And that shows up in the results and that's also consistent what we saw sort of in the year ago period, Hence the commentary about this emerging seasonal trend.
Yes.
Thank you for that.
The follow up I had I, just kind of wanted to paint out scenario for you guys and just bounce soundboard an idea if you will.
I'm looking at where we have the <unk> guide today.
<unk> this year to year growth rate you guys are targeting for about 26% at the midpoint and the reason I'm, bringing this up if I think about how this year has played out you guys are going to have a tough comp in the first half of next year with 50% plus growth that you guys delivered in the first half this year.
As well as strength from EMEA.
And so the reason I'm, bringing this up is if I look at next year. The consensus is currently yet.
Call it mid to high 20% growth rate versus the exit velocity of this year, where we're looking at 26% and at least from a qualitative perspective.
Can you provide us any directional comments as far as whether or not that peer.
To be the right ballpark is it aggressive have how should we be thinking about next year's growth.
Yes, I think the key thing is we'll obviously update that in the March call.
We've tried to give you the best they have a lay of the land as we can for the current fiscal year.
What we see for Q4, it certainly is a fluid and uncertain macro environment, we are monitoring that closely and.
We will obviously update everyone in the March call around our outlook.
Great. Thank you very much guys.
Thank you Mike.
Thank you one moment for our next question comes from Steve Koenig with SMB <unk> co. Please go ahead.
Hi, gentlemen, thanks for taking my question I'll just ask one here.
Congrats on the quarter.
The rebound here.
I'm wondering.
When it comes to new customers and our new workloads.
Given given kind of the macro environment and the pressures on business.
S&P and enterprise what are you guys seeing in terms of customer behavior with respect to.
How they size the deals or the versions they choose.
Kind of the economic activity manifesting itself in terms of those those new deals.
Pricing wise or kind of a scale of a deal thanks very much.
Yes, so Steve Thanks for the question, we haven't seen any discernible change in deal dynamics in Q3 and.
And clearly our EBITDA results.
In our opinion it demonstrates the power of our platform.
And the ability for customers in the interest of customers running workloads anywhere.
What I will say as you know we've been through Ipass had been through.
In a public company context, 2008, and also lived through 2000 as well and.
These kinds of situations, we definitely recognize that there is more scrutiny by customers on deals and probably approval levels go up the food chain and so what we are obviously working closely with our sales teams on is to making sure that they are rigorously qualify their forecasts and to make sure that they really understand the decision process that customers have.
To go through to get deals done.
But that is something that we have lived through in previous cycles and that's something that we also have been very focused on.
Got it great. Thanks, a lot congrats again.
Thanks, Steve Thanks, Steve.
Thank you. Our next question comes from the line of Michael <unk> with Keybanc. Please proceed.
Hey, guys congrats on the quarter I want to come back to seasonality.
There's all different seasonality in different parts of your underlying business.
Can you say your customers would be because I guess my gut.
Coming back from vacation and it makes sense to get projects going again.
I would also think that in B to C. As we got into the holiday season that you will get a boost out of that also so.
Why wouldn't we see some continuing in a very typical fourth quarter positive seasonality at this point given how much of your business is focused on consumption.
Yeah. Thanks, Michael just to clarify I wouldn't say, it's coming back and starting new projects. What we're talking about here again is the underlying usage of the database and so whether it's internal applications or <unk> applications or consumer facing applications or whatever what we see is an increase in the under.
Buying database activity. So this is a different dynamic than.
People specific kicking off new projects right, it's reflecting the underlying.
Activity in the workload or in the application and.
And given that we've seen this now for two years in a row.
<unk>.
We're highlighting it.
Given the behaviors that were saying I want to call that out for folks.
What appears to be an emerging seasonal trend.
Okay, and then Mike can you can you quantify the impact of on Rev. Rec upfront Rev Rec shift to a larger percentage of.
Or a larger set of multi year deals because obviously that.
Pull things forward a bit in terms of Rev. Rec so.
How much is from that shift could we have seen in terms of benefits in the quarter.
Yes, we're not going to quantify an exact number.
Part of this is also based off of we assume some level of multi year deals in our forecasts and our guidance obviously.
We saw a little bit more than that it was material enough to bother to call out just so people don't extrapolate.
Accurately.
And so that's why we wanted to make sure people understood. The dynamic okay. Thanks, Mark Thanks, Dave.
Thanks, Michael Thank you Michael.
Thank you one moment for our next question. Please.
It comes from the line no willpower with RW Baird. Please go ahead.
Oh, great. Thanks for taking the question, maybe just bigger picture I know you touched on this a bit but as customers increasingly focus on on Tcl.
In this environment I am just kind of curious.
How much more aggressive customers are getting it moving.
Legacy databases and workloads over to Mongo versus maybe what <unk> seen.
Six nine months ago.
Any real any real.
Change in pace of that type of activity.
Yes, so well thanks for your question. We have recently had a customer advisory board, where we had some are more some of our larger customers with us for a number of days in Europe and I would tell you. The feedback there was that there's even more interest in moving off legacy platforms to more modern platforms in this environment because the.
The cost structure and the brittleness of those architectures really our inhibitor for those companies to be able to move quickly.
And to seize new opportunities or to respond to new threats and so.
This environment does actually even more interest we're actually seeing that also NSA industry like financial services, where they're starting to move to the cloud at scale and Thats the catalyst for them to be more aggressive in modernizing their tech portfolio and that's that.
It's more of a recent phenomenon and we're obviously pleased about the engagements, we're having with them.
That vertical as well.
That's great. Thank you.
Thanks will.
Thank you and I'm not showing any further questions in the queue I would like to turn the call back to Dev <unk> for his final comments.
Thank you so we're really happy with our new business performance and see it as evidence that our value proposition resonates with developers it decision makers and our partners. We're obviously pleased to see the rebound in Atlas consumption during the quarter and expect a continued macro impacts and so we are closely monitoring consumption trends and we will deliver another year of opera.
<unk> margin expansion, despite the macro headwinds and we are committed to profitable growth with that thank you for your time today.
Everyone. Thank you for participating in today's conference you may now disconnect.
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